<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
/ / 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 000-23463
Philips International Realty Corp.
(Exact name of registrant as specified in its charter)
Maryland 13-3963667
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No)
417 Fifth Avenue, New York, NY 10016
(Address of principal executive offices - Zip Code)
(212) 545-1100
(Registrant's telephone number, including area code)
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 / /
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
7,340,474 shares outstanding as of July 31, 2000.
<PAGE>
PART I
FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of June 30, 2000
and December 31, 1999
Condensed Consolidated Statements of Income for the Three
and Six Months Ended June 30, 2000 and 1999
Condensed Consolidated Statements of Shareholders' Equity
for the Six Months Ended June 30, 2000 and 1999
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended June 30, 2000 and 1999
Notes to Condensed Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Item 3. Quantitative and Qualitative Disclosure of Market Risk
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
-------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
------------------ -----------------
(Unaudited) (Note 1)
(Note 6)
ASSETS
<S> <C> <C>
Rental properties - net $ 274,777,709 $ 261,630,620
Investments in and advances to real estate joint ventures 3,746,942 25,134,060
Cash and cash equivalents 214,166 3,183,142
Accounts receivable 8,655,329 7,445,972
Deferred charges and prepaid expenses 7,034,053 4,934,190
Other assets 1,587,311 4,222,373
------------------ -----------------
Total Assets $ 296,015,510 $ 306,550,357
================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgages and notes payable $ 173,162,494 $ 181,955,221
Accounts payable and accrued expenses 4,814,274 2,980,303
Dividends payable 2,771,031 2,771,031
Other liabilities 1,447,288 1,897,998
------------------ -----------------
Total Liabilities 182,195,087 189,604,553
------------------ -----------------
Minority interests in Operating Partnership 29,278,296 30,091,696
------------------ -----------------
Shareholders' Equity
Preferred Stock, $.01 par value; 30,000,000 shares authorized;
no shares issued and outstanding - -
Common Stock, $.01 par value; 150,000,000 shares authorized;
7,340,474 shares issued and outstanding 73,405 73,405
Additional paid in capital 92,668,007 92,668,007
Cumulative distributions in excess of net income (7,597,201) (5,183,136)
------------------ -----------------
85,144,211 87,558,276
Stock purchase loans receivable (602,084) (704,168)
------------------ -----------------
Total Shareholders' Equity 84,542,127 86,854,108
------------------ -----------------
Total Liabilities and Shareholders' Equity $ 296,015,510 $ 306,550,357
================== =================
</TABLE>
See accompanying notes.
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------- -------------------------------
2000 1999 2000 1999
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues from rental property $ 12,762,094 $ 9,347,334 $ 25,402,830 $ 18,559,061
--------------- --------------- -------------- --------------
Expenses:
Operating expenses 1,499,233 1,067,258 3,061,178 2,224,260
Real estate taxes 1,789,106 1,428,852 3,584,335 2,847,283
Management fees to affiliates 364,463 267,361 742,128 543,335
Interest expense 3,341,343 1,939,461 6,493,809 3,746,479
Depreciation and amortization 1,707,758 1,720,275 3,736,717 3,331,620
General and administrative expenses 796,019 718,210 1,571,892 1,331,809
--------------- --------------- -------------- --------------
9,497,922 7,141,417 19,190,059 14,024,786
--------------- --------------- -------------- --------------
Operating income 3,264,172 2,205,917 6,212,771 4,534,275
Equity in net income (loss) of real estate joint ventures (32,954) 1,154,565 24,919 1,768,196
Minority interests in income before extraordinary items of
Operating Partnership (801,282) (646,276) (1,606,721) (1,259,582)
Other income (expense), net (50,265) (794,879) 140,718 (1,302,146)
--------------- --------------- -------------- --------------
Income before extraordinary items 2,379,671 $ 1,919,327 4,771,687 3,740,743
Extraordinary items (Net of minority share of
$553,463) (1,643,690) 0 (1,643,690) 0
--------------- --------------- -------------- --------------
Net income $ 735,981 $ 1,919,327 $ 3,127,997 $ 3,740,743
=============== =============== ============== ==============
Basic and diluted income (loss) per common share:
Income before extraordinary items $ 0.32 $ 0.26 $ 0.65 $ 0.51
Extraordinary items (0.22) - (0.22) -
--------------- --------------- -------------- --------------
Net income $ 0.10 $ 0.26 $ 0.43 $ 0.51
=============== =============== ============== ==============
</TABLE>
See accompanying notes.
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 2000 and 1999
-----------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Common Distributions
Stock Additional in Excess Stock Total
---------------------------- Paid-In of Net Purchase Shareholders'
Shares Amount Capital Income Loans Equity
------ ------ ------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1999 7,340,474 $ 73,405 $ 92,668,007 $ (5,183,136) $ (704,168) $ 86,854,108
Net income 3,127,997 3,127,997
Dividends declared on Common Stock (5,542,062) (5,542,062)
Amortization of stock purchase loans 102,084 102,084
------------- ------------- ------------- ------------- ------------- -------------
Balance, June 30, 2000 7,340,474 $ 73,405 $ 92,668,007 $ (7,597,201) $ (602,084) $ 84,542,127
============= ============= ============= ============= ============= =============
</TABLE>
<TABLE>
<CAPTION>
Cumulative
Common Distributions
Stock Additional in Excess Stock Total
---------------------------- Paid-In of Net Purchase Shareholders'
Shares Amount Capital Income Loans Equity
------ ------ ------- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1998 7,340,474 $ 73,405 $ 92,668,007 $ (2,435,222) $ (908,334) $ 89,397,856
Net income 3,740,743 3,740,743
Dividends declared on Common Stock (5,542,061) (5,542,061)
Amortization of stock purchase loans 102,084 102,084
------------- ------------- ------------- ------------- ------------- -------------
Balance, June 30, 1999 7,340,474 $ 73,405 $ 92,668,007 $ (4,236,540) $ (806,250) $ 87,698,622
============= ============= ============= ============= ============= =============
</TABLE>
See accompanying notes.
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30,
---------------------------------
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Cash flow provided by operating activities: $ 8,195,211 $ 8,078,556
------------------- -----------------
Cash flow from investing activities:
Acquisitions of land, buildings and improvements (2,921,234) (10,459,280)
Investments in and advances to real estate joint ventures (204,989) (23,227,917)
Return of investment in real estate joint venture 7,862,240 -
Collection (purchase) of secured mortgage note receivable 2,350,000 (1,750,000)
------------------- -----------------
Net cash provided by (used in) investing activities 7,086,017 (35,437,197)
------------------- -----------------
Cash flow from financing activities:
Repayment of mortgage notes payable and related costs (47,175,493) (3,800,000)
Principal amortization of mortgage notes payable (502,984) (499,418)
Proceeds from debt financing 36,836,993 32,324,718
Dividends paid on Common Stock (5,542,062) (5,248,443)
Distributions to minority interests (1,866,658) (1,767,763)
------------------- -----------------
Net cash provided by (used in) financing activities (18,250,204) 21,009,094
------------------- -----------------
Net (decrease) in cash and cash equivalents (2,968,976) (6,349,547)
Cash and cash equivalents, beginning of period 3,183,142 9,116,070
------------------- -----------------
Cash and cash equivalents, end of period $ 214,166 $ 2,766,523
=================== =================
Noncash investing & financing activities:
Acquisition of real estate accounted for at the time of purchase
on the equity method. $ 13,754,786 $ -
=================== =================
Dividends declared and paid in succeeding period $ 2,771,031 $ 2,771,031
=================== =================
</TABLE>
See accompanying notes.
<PAGE>
PHILIPS INTERNATIONAL REALTY CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Interim Financial Statements
The accompanying Condensed Consolidated Financial Statements include
the accounts of the Company and its subsidiaries, all of which are wholly-owned,
and the Operating Partnership. All significant intercompany accounts and
balances have been eliminated in consolidation. The information furnished is
unaudited and reflects all adjustments which are, in the opinion of management,
necessary to reflect a fair presentation of the results for the interim periods
presented, and all such adjustments are of a normal recurring nature. These
Condensed Consolidated Financial Statements should be read in conjunction with
the financial statements included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1999.
The Condensed Consolidated Balance Sheet at December 31, 1999, has been
derived from the audited financial statements at that date but does not include
all of the information and footnote disclosure required by generally accepted
accounting principles for complete financial statements.
2. Income (Loss) per Common Share
Basic net income per share excludes the dilutive effects of any
outstanding options. Diluted net income per share includes the dilutive (but not
any anti-dilutive) effect of outstanding options calculated under the treasury
stock method.
Basic and diluted net income per common share in the accompanying
Condensed Consolidated Statements of Income are based upon weighted average
numbers of 7,340,474 shares of Common Stock outstanding for the three and six
months ended June 30, 2000 and 1999.
3. Dividends on Common Stock
The Company declared dividends on its Common Stock for the six months
ended June 30, 2000 and 1999 as follows:
<TABLE>
<CAPTION>
Record Date of Amount
Date of Declaration Date Payment Per Share
------------------- ---- ------- ---------
2000
----
<S> <C> <C> <C>
3/15/00....................................... 3/31/00 4/17/00 $.3775
6/15/00....................................... 6/30/00 7/17/00 $.3775
1999
----
3/15/99....................................... 3/31/99 4/15/99 $.3775
6/15/99....................................... 6/30/99 7/15/99 $.3775
</TABLE>
4. Segment Information
Management considers the Company's various operating, investing and
financing activities to comprise a single business segment and evaluates real
estate performance and allocates resources based on net income.
5. Investment Activity
During July 1999, the Company acquired nine shopping center properties
(the "Properties") anchored by Kmart and comprising approximately 1.1 million
square feet of leasable space located in the states of Florida, California,
Washington, Minnesota, Illinois and Kentucky. Prior to these acquisitions, the
Company had purchased, through a series of unrelated transactions since July
1998, limited partnership interests in the Properties. The total amount invested
by the Company to acquire the Properties of approximately $49.5 million was
funded with borrowings under the Company's revolving line of credit. The
reporting of financial position and results of operations for the Company
pertaining to these Properties reflects a change from the equity to
consolidation method of accounting effective in July 1999.
At December 31, 1999, the Company had a $7.1 million joint-venture
investment in a proposed retail-residential redevelopment project. In February
2000, the joint venture sold this project and the Company's investment was
returned in full together with $.8 million representing a return on investment.
A shareholder and Unit holder of the Company was also an investor in this joint
venture.
<PAGE>
During the first quarter 2000, the Company acquired the minority
interests in, and began reporting on a consolidated basis the results of
operations for, two shopping center properties previously accounted for under
the equity method.
6. Plan of Liquidation
On April 28, 2000, the Company announced that it had executed various
contracts pertaining to certain asset sales and a plan of liquidation authorized
by a special committee of the independent members (the "Independent Committee")
of its Board of Directors on April 17, 2000. Specifically, the contracts
executed pertain to (i) the disposition of fifteen shopping centers comprising
the Company's New York area portfolio and certain other properties to Kimco
Income Operating Partnership, L.P., a private limited partnership in which Kimco
Realty Corporation is a partner, for a total consideration of approximately $204
million (the "Kimco Transactions"), and (ii) the distribution of interests in
four shopping center properties in Hialeah, Florida, and the sale of the
Company's interests in two retail/residential redevelopment sites (having a
total value of approximately $131 million), to certain limited partners (the
"Unit Holders") in Philips International Realty, L.P. (the "Operating
Partnership") including Mr. Philip Pilevsky, the Company's Chairman and Chief
Executive Officer, in redemption of their entire interests in the Operating
Partnership (the "Unit Holders' Transaction").
The Kimco Transactions contemplate the disposition of a total of
fifteen shopping centers in two transactions valued at approximately $67 million
and $137 million. The $67 million transaction (the "Prior Transaction"), which
comprised the sale of seven properties, closed on July 14, 2000. The $137
million transaction (the "Kimco Transaction") contemplates the purchase of the
Company's interests in eight properties as part of the Company's plan of
liquidation.
The Unit Holders' Transaction contemplates, in part, the distribution
of the Company's interests in the Hialeah shopping centers to the Unit Holders
in redemption of all their limited partnership interests in the Operating
Partnership. These limited partnership interests will be valued for the purposes
of this redemption at an amount approximately equal to the $18.25 per share
expected to be distributed to the Company's shareholders upon liquidation. Such
valuation, when considered together with the assumption of debt encumbering the
properties, will comprise fair value to the Company for the distributed assets.
The Kimco Transaction and the Unit Holders Transaction will be
submitted to the Company's stockholders for approval.
7. Extraordinary Items
The Condensed Consolidated Statements of Income for the three and six
month periods ending June 30, 2000, include an extraordinary loss representing
prepayment penalties and related costs, and the write off of deferred financing
costs related to the repayment of certain mortgage loans, partially offset by an
extraordinary gain related to the repayment of a note payable at a discount.
8.Subsequent Event
On July 14, 2000, certain subsidiaries of Philips International Realty
Corp., a Maryland corporation (the "Company"), sold seven (7) properties located
in New York and Florida (the "Properties"), aggregating approximately 600,000
square feet, to Kimco Income Operating Partnership, L.P., a Delaware limited
partnership ("Kimco"), for a total consideration of $67.3 million (the "Purchase
Price"), pursuant to a Purchase and Sale Agreement dated as of April 28, 2000,
by and among Munsey Park Associates, LLC, a New York limited liability company,
North Shore Triangle, LLC, a New York limited liability company, Philips
Yonkers, LLC, a New York limited liability company, Philips Henry, LLC, a New
York limited liability company, Philips Shopping Center Fund, L.P., a Delaware
limited partnership, and Philips Lake Mary Associates, L.P., a Delaware limited
partnership, and Kimco (the "Purchase and Sale Agreement"). The Purchase Price
was comprised of $51.0 million in cash and mortgage debt assumption of $16.3
million. The Properties included four (4) New York shopping centers (Walgreens
at Freeport, Munsey Park, Yonkers and Glen Cove) and three (3) in Florida (Key
Largo, Orlando and Lake Mary).
<PAGE>
PART I
FINANCIAL INFORMATION
(Continued)
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
accompanying Condensed Consolidated Financial Statements and Notes thereto, and
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1999. These unaudited financial statements include all adjustments which are, in
the opinion of management, necessary to reflect a fair presentation of the
results for the interim periods presented, and all such adjustments are of a
normal recurring nature.
On April 28, 2000, the Company announced it had executed various
contracts pertaining to certain asset sales and a plan of liquidation authorized
by a special committee of the independent members of its Board of Directors on
April 17, 2000. See Note 6 to the accompanying Condensed Consolidated Financial
Statements. Discussion regarding the Company's investment and operating
strategy, liquidity and capital resources and dividends and other future plans
throughout this report should be read giving appropriate consideration to these
pending transactions.
When used in this Quarterly Report on Form 10-Q, the words "may",
"will", "expect", "anticipate", "continue", "estimate", "project", "intend" and
similar expressions are intended to identify forward-looking statements
regarding events, conditions and financial trends that may affect the Company's
future plans of operations, business strategy, results of operations and
financial position. Such forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties. Actual results may
differ materially from those included within the forward-looking statements as a
result of various factors.
Results of Operations
The following discussion compares the results of property operations of
the Company for the three and six months ended June 30, 2000, and June 30, 1999.
During July 1999, the Company acquired nine shopping center properties
anchored by Kmart and comprising approximately 1.1 million square feet of
leasable space located in six states. Prior to these acquisitions, the Company
had purchased, through a series of unrelated transactions since July 1998,
limited partnership interests in these properties and reported its investment on
the equity method of accounting. During the first quarter 2000, the Company
acquired the minority interests in two additional shopping center properties
previously accounted for under the equity method of accounting. The accompanying
Condensed Consolidated Statement of Income for the three and six months ended
June 30, 2000 reports the operations of these eleven properties on a
consolidated basis. Consequently, the acquisition of these properties gives rise
to significant changes when comparing the Company's results of operations for
the three and six months ended June 30, 2000, to the three and six months ended
June 30, 1999.
Comparison of Three Months Ended June 30, 2000 and 1999
Revenues from rental property increased $3,415,000 or 36.5% to
$12,762,000 for the quarter ended June 30, 2000, as compared with $9,347,000 for
the quarter ended June 30, 1999. This net increase includes growth in base
rental revenues associated with higher rent levels achieved on new and renewal
leases and the acquisition of eleven shopping center properties as discussed
above.
Property operating expenses increased $432,000 from $1,067,000 for the
quarter ended June 30, 1999, to $1,499,000 for the quarter ended June 30, 2000.
This net increase reflects increased expenses associated with the acquisition of
eleven shopping center properties offset by management's efforts to reduce
operating expenses at existing properties. Property real estate taxes increased
by approximately $360,000 to $1,789,000 for the quarter ended June 30, 2000, as
compared with $1,429,000 for the corresponding period in 1999, reflecting the
acquisition of the eleven shopping center properties, and the effect of
increased assessments associated with property expansions and renovations.
Management fees remained constant at approximately 3% of gross revenues
for the quarters ended June 30, 2000, and 1999, as provided for in the
Management Agreement.
Interest charges increased $1,402,000 to $3,341,000 for the quarter
ended June 30, 2000, as compared with $1,939,000 for the quarter ended June 30,
1999, due to interest costs on borrowings to fund the acquisition of eleven
shopping center properties, combined with the effect of higher rates on variable
rate debt.
Depreciation and amortization expenses decreased $12,000 to $1,708,000
for the quarter ended June 30, 2000, as compared with $1,720,000 for the quarter
ended June 30, 1999. The net decrease reflects the suspension of depreciation
and amortization related to the seven properties sold to Kimco on July 14, 2000
(see Note 6), since these assets were considered to be held for sale. This
<PAGE>
decrease was substantially offset by the depreciation and amortization of
capital expenditures associated with the renovation and retenanting of
properties in the portfolio and the acquisition of eleven shopping center
properties.
Equity in net income (loss) of real estate joint ventures declined
between periods as the Company now reports the operating results of eleven
shopping center properties discussed above on a consolidated basis.
Other income (expense), net for the three months ended June 30, 1999,
was comprised primarily of interest expense related to borrowings to acquire
certain joint venture investments which are now wholly owned properties.
Comparison of Six Months Ended June 30, 2000, and 1999
Revenues from rental property increased $6,844,000 or 36.9% to
$25,403,000 for the six months ended June 30, 2000, as compared with $18,559,000
for the six months ended June 30, 1999. The net increase is largely due to
growth in base rental revenues associated with the leasing of available premises
in the portfolio, higher rent levels achieved on new and renewal leases, and the
acquisition of eleven shopping center properties.
Property operating expenses increased $837,000 from $2,224,000 for the
six months ended June 30, 1999 to $3,061,000 for the six months ended June 30,
2000. This net increase reflects increased expenses associated with the
acquisition of eleven shopping center properties partially offset by moderate
decreases in certain seasonal operating expenses. Property real estate taxes
increased by approximately $737,000 between the corresponding periods,
reflecting the acquisition of eleven shopping center properties and the effect
of increased assessments associated with property expansions and renovations.
Management fees remained constant at approximately 3% of gross revenues
for the six months ended June 30, 2000, and 1999, as provided for in the
Management Agreement.
Interest charges increased $2,748,000 to $6,494,000 for the six months
ended June 30, 2000, as compared with $3,746,000 for the six months ended June
30, 1999, due to interest costs on borrowings to fund the acquisition of eleven
shopping center properties, combined with the effect of higher interest rates on
variable rate debt.
Depreciation and amortization expenses increased $405,000 to $3,737,000
for the six months ended June 30, 2000, as compared with $3,332,000 for the six
months ended June 30, 1999. This increase reflects the depreciation and
amortization of capital expenditures associated with the renovation and
retenanting of properties in the portfolio and the acquisition of eleven
shopping center properties, partially offset by the suspension of depreciation
and amortization charges relating to the seven properties sold on July 14, 2000,
as discussed above.
Other income (expense), net for the six months ended June 30, 1999, was
comprised primarily of interest expense related to borrowings to acquire certain
joint venture investments which are now wholly owned properties. Other income
(expense), net for the six months ended June 30, 2000, included approximately
$600,000 representing the amount collected on a mortgage note receivable in
excess of the cost thereof, and approximately ($300,000) of certain costs
incurred in connection with the evaluation of strategic alternatives which
occurred in the first quarter.
Liquidity and Capital Resources
The Company's predecessor partnerships historically relied on fixed and
floating rate mortgage financing to fund acquisitions and refinance maturing
debt. Working capital and funds required for distributions, debt service and
capital expenditures were generally provided through net cash flows from
operations and, in certain instances, capital contributions of partners and/or
additional borrowing. The ability to refinance debt prior to maturity and to
fund acquisitions was generally dependent upon interest rates, the general
availability of both mortgage debt and private equity in the marketplace and the
cash flow and value of the asset to be financed or refinanced. Distributions
were generally made based upon 100% of excess cash over identified, near-term
requirements.
The Company believes that its public stock offering improved its
financial position, principally through enabling the Company to substantially
reduce the outstanding indebtedness on its shopping center portfolio. In
connection with this offering, the Company utilized approximately $109.3 million
of the net proceeds to repay all of its then outstanding floating-rate debt and
certain secured, fixed-rate obligations. The significant reduction in the
Company's overall debt served to reduce annual mortgage interest expense as a
percentage of total revenue and the cash from operations required to fund debt
service requirements.
Since completion of its initial public stock offering, the Company has
financed the acquisition of interests in fifteen real estate properties with
borrowings under its revolving line of credit, assumed property indebtedness and
the placement of new mortgage financing. Indebtedness outstanding at June 30,
2000, totaled $173.1 million, and was comprised of $53.3 million fixed rate
mortgage debt with a weighted average interest rate and remaining term to
maturity of 7.5% and 5.5 years, respectively, and $119.8 million in borrowings
under the Company's line of credit.
<PAGE>
The combined aggregate principal maturities of mortgages and notes
payable outstanding as of June 30, 2000, are as follows:
<TABLE>
<CAPTION>
Fixed Rate Obligations Variable Rate Obligations
---------------------- -------------------------
Amount Amount
Rate (000's) Rate (000's)
---- -------- ---- ---------
<S> <C> <C> <C> <C>
7/2000-12/2000..................... 7.47% $ 310 8.41% $119,837
2001............................... 7.49% 678 -- --
2002............................... 7.48% 12,251 -- --
2003............................... 7.38% 24,651 -- --
2004............................... 7.63% 283 -- --
Thereafter........................ 7.88% 15,152 -- --
</TABLE>
The Company expects to invest temporarily available cash in short-term,
investment-grade interest bearing securities, such as securities of the United
States government or its agencies, high-grade commercial paper and bank
deposits.
The Company expects to meet its short-term liquidity requirements
generally through net cash provided by operations. The Company believes that its
net cash provided by operations will be sufficient to allow the Company to make
distributions necessary to enable the Company to continue to qualify as a REIT.
The Company expects to meet its long-term liquidity requirements, such
as property acquisition and development,scheduled debt maturities, renovations,
expansions and other non-recurring capital improvements through long-term
secured and unsecured indebtedness and the issuance of additional equity or debt
securities.
Upon consummation of its public stock offering, the Company entered
into a revolving credit facility with a financial services institution to
finance acquisition, redevelopment and development activities and for general
corporate purposes. In April, 2000 the credit facility was increased to
approximately $120 million. Borrowings under the credit facility bear interest
at rates ranging from 1.25% to 1.75% over the 30-day London Interbank Offered
Rate ("LIBOR") based on the Company's total indebtedness outstanding relative to
total assets, as defined. The availability of funds under the credit facility
will be subject to the Company's compliance with a number of customary financial
and other covenants. Borrowings under the credit facility, totaling $119.8
million at June 30, 2000, are secured by certain shopping center properties with
recourse to the Company.
Recent Accounting Pronouncements
In December 1999, the SEC staff issued Staff Accounting Bulletin 101
("SAB 101"), Revenue Recognition. SAB 101 discusses the SEC staff views on
certain revenue recognition transactions. The Company will be required to adopt
SAB 101 no later than the fourth quarter of 2000 and any change in accounting
would be recognized as a cumulative effect of a change in accounting principle
as of January 1, 2000. The adoption of SAB is not expected to have a material
effect on the Company's results of operations or financial position.
Funds from Operations
The White Paper on Funds from Operations approved by the Board of
Governors of NAREIT in October 1999 defines Funds from Operations as net income
(computed in accordance with GAAP), excluding gains (or losses) from sales of
property, plus real estate related depreciation and amortization and after
adjustments for unconsolidated partnerships and joint ventures. Adjustments for
unconsolidated partnerships and joint ventures will be calculated to reflect
funds from operations on the same basis. The Company believes that Funds from
Operations is helpful to investors as a measure of the performance of an equity
REIT because, 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. The Company computes Funds
from Operations in accordance with standards established by NAREIT which may not
be comparable to Funds from Operations reported by other REITs that do not
define the term in accordance with the current NAREIT definition or that
interpret the current NAREIT definition differently than the Company. Funds from
Operations does not represent cash generated from operating activities in
accordance with GAAP and should not be considered as an alternative to net
income (determined in accordance with GAAP) as an indication of the Company's
financial performance or to cash flow from operating activities (determined in
accordance with GAAP) as a measure of the Company's liquidity, nor is it
indicative of funds available to fund the Company's cash requirements, including
its ability to make cash distributions.
Funds from Operations (FFO), a widely accepted measure of REIT
performance, increased 6.4% to $4.9 million, for the three months ended June 30,
2000, as compared to $4.6 million, for the three months ended June 30, 1999. FFO
for the six months ended June 30, 2000, totaling $10.2 million, increased 14.3%
over the corresponding period in 1999.
<PAGE>
<TABLE>
<CAPTION>
Calculation of Funds From Operations
(In thousands)
Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000
------------------ ----------------
<S> <C> <C>
Net income $ 736 $ 3,128
Extraordinary items (Net of minority share of $553,463)(1) l,644 1,644
Minority interests in income before extraordinary items of
Operating Partnership 801 1,606
Depreciation and amortization 1,708 3,737
Adjustment for unconsolidated joint ventures 30 60
-------- --------
Funds from Operations $ 4,919 $ 10,175
======== ========
Distributions $ 3,704 $ 7,408
======== ========
Payout ratio 75.3% 72.8%
===== =====
</TABLE>
(1) Represent net costs incurred in connection with repayment of mortgages
and notes payable.
Inflation
Substantially all of the Company's leases contain provisions designed
to mitigate the adverse impact of inflation. Such provisions include clauses
enabling the Company to receive percentage rentals based on tenants' gross
sales, which generally increase as prices rise, and/or escalation clauses, which
generally increase rental rates during the terms of the leases. Such escalation
clauses are often related to increases in the consumer price index or similar
inflation indices. In addition, many of the Company's leases are for terms of
less than 10 years, which permits the Company to seek to increase rents on
re-rental at market rates. Most of the Company's leases require the tenant to
pay its share of operating expenses, including common area maintenance, real
estate taxes and insurance, thereby reducing the Company's exposure to increases
in costs and operating expenses resulting from inflation.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
See Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not presently involved in any litigation, nor to its
knowledge is any litigation threatened against the Company or its subsidiaries,
that in management's opinion, would result in any material adverse effect on the
Company's ownership, management or operation of its properties, or which is not
covered by the Company's liability insurance.
Item 2. Changes in Securities and Use of Proceeds
None.
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
On April 28, 2000, the Company announced that it had executed various
contracts pertaining to certain asset sales and a plan of liquidation authorized
by a special committee of the independent members (the "Independent Committee")
of its Board of Directors on April 17, 2000. See Note 6 to the accompanying
Condensed Consolidated Financial Statements.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Description
<S> <C>
2.1 Plan of Liquidation and Dissolution of the Company (filed as exhibit 2.1 to the Company's Current
Report on Form 8-K dated April 28, 2000, and incorporated herein by reference)
3.1 Amended and Restated Articles of Incorporation of the Company (filed as Exhibit 3.1 to the Company's Current
Report on Form 8-K dated December 31, 1997, and incorporated herein by reference)
3.2 Articles Supplementary dated July 27, 1999, (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K
dated July 15, 1999, and incorporated herein by reference)
3.3 Third Amended and Restated By-Laws of the Company dated July 27, 1999, (filed as Exhibit 3.2 to the Company's
Current Report on Form 8-K dated July 15, 1999, and incorporated herein by reference)
4.1 Shareholder Rights Agreement, dated as of June 30, 1999, between the Company and BankBoston, N.A. (filed
as Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998,
and incorporated herein by reference)
4.2 Amendment No. 1, dated July 27, 1999, to Shareholder Rights Agreement dated as of March 31, 1999,
between the Company and Bank Boston N.A., as Rights Agent (filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K dated July 15, 1999, and incorporated herein by reference)
4.3 Articles Supplementary for Series A Junior Participating Preferred Stock (filed as Exhibit 4.2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference)
10.1 Amended and Restated Agreement of Limited Partnership of the Operating Partnership (filed as Exhibit
10.1 to the Company's Registration Statement on Form S-11, Registration No. 333- 47975, and incorporated
herein by reference)
10.2 First Amendment to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership
(filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, and
incorporated herein by reference)
10.3 Contribution and Exchange Agreement, dated August 11, 1997, among National Properties Investment Trust, the
Board of Trustees, the Company, the Operating Partnership and certain contributing partnerships or limited
liability companies associated with a private real estate firm controlled by Philip Pilevsky and certain
partners and members thereof (filed as Exhibit 10.6 to the Company's Registration Statement on Form S-4,
Registration No. 333-41431, and incorporated herein by reference)
10.4 Amended and Restated Management Agreement, dated as of March 30, 1998, among the Company, the Operating
Partnership and Philips International Management Corp. (Filed as Exhibit 10-8 to the Company's Form 10-K for the
year ended December 31, 1997, and incorporated herein by reference)
10.5 Amended and Restated Non-Competition Agreement, dated as of March 30, 1998, among the Company, the Operating
Partnership, Philip Pilevsky and Sheila Levine (filed as Exhibit 10.9 to the Company's Form 10-K for the
year ended December 31, 1997, and incorporated herein by reference)
10.6 Amendment No. 1 to Contribution and Exchange Agreement, dated as of December 29, 1997 (filed as Exhibit
10.13 to the Company's Form 8-K dated December 31, 1997, and incorporated herein by reference)
10.7 Credit Agreement among the Operating Partnership and Prudential Securities Credit Corporation (filed as Exhibit
10.18 to the Company's Report on Form 10-Q for the period ended March 31, 1998 and incorporated herein by
reference)
10.8 Purchase and Sale Agreement dated as of April 28, 2000, by and among Munsey Park Associates, LLC, a New York
limited liability company, North Shore Triangle, LLC, a New York limited liability company, Philips Yonkers, LLC,
a New York limited liability company, Philips Henry, LLC, a New York limited liability company, Philips Shopping
Center Fund, L.P., a Delaware limited partnership, and Philips Lake Mary Associates, L.P., a Delaware limited
partnership, and Kimco Income Operating Partnership, L.P., a Delaware limited partnership (filed as exhibit 10.1
to the Company's Current Report on Form 8-K dated April 28, 2000, and incorporated herein by reference).
10.9 Redemption Agreement dated as of April 27, 2000, by and among the Operating Partnership and Philip Pilevsky
(filed as exhibit 10.2 to the Company's Current Report on Form 8-K dated April 28, 2000, and incorported herein
by reference).
10.10 Asset Contribution, Purchase and Sale Agreement dated as of April 28, 2000, by and among the Company, the
Operating Partnership, Certain Affiliated Parties Signatory Thereto, KIR Acquisition, LLC, a Delaware limited
liability company and Kimco Income Operating Partnership, L.P., a Delaware limited partnership (filed as exhibit
10.3 to the Company's Current Report on Form 8-K dated April 28, 2000, and incorporated herein by reference).
10.11 Amended and Restated Redemption Agreement dated as of April 27, 2000, by and among Philips International Realty,
L.P., a Delaware limited partnership, and Philip Pilevsky (filed as exhibit 10.1 to the Company's Current
Report on Form 8-K dated April 28, 2000, and incorporated herein by reference).
10.12 Redemption Agreement dated as of April 28, 2000, by and among Philips International Realty, L.P., a Delaware
limited partnership, and Allen Pilevsky (filed as exhibit 10.2 to the Company's Current Report on Form 8-K
dated April 28, 2000, and incorporated herein by reference).
10.13 Redemption Agreement dated as of April 28, 2000, by and among Philips International Realty, L.P., a Delaware
limited partnership, and Fred Pilevsky (filed as exhibit 10.3 to the Company's Current Report on Form 8-K dated
April 28, 2000, and incorporated herein by reference).
10.14 Redemption Agreement dated as of April 28, 2000, by and among Philips International Realty, L.P., a Delaware
limited partnership, and SL Florida LLC, a Delaware limited liability company (filed as exhibit 10.4 to the
Company's Current Report on Form 8-K dated April 28, 2000, and incorporated herein by reference).
10.15 First Amendment to Asset Contribution, Purchase and Sale Agreement dated as of May 31, 2000, by and among Philips
International Realty, L.P., a Delaware limited partnership, the Company, certain Affiliated Parties signatory
thereto, KIR Acquisition, LLC, a Delaware limited liability company, and Kimco Income Operating Partnership,
L.P., a Delaware limited partnership (filed as exhibit 10.5 to the Company's Current Report on Form 8-K dated
April 28, 2000, and incorporated herein by reference).
10.16 Second Amendment to Asset Contribution, Purchase and Sale Agreement dated as of June 15, 2000, by and among
Philips International Realty, L.P., a Delaware limited partnership, the Company, certain Affiliated Parties
signatory thereto, KIR Acquisition, LLC, a Delaware limited liability company, and Kimco Income Operating
Partnership, L.P., a Delaware limited partnership (filed as exhibit 10.6 to the Company's Current Report on
Form 8-K dated April 28, 2000, and incorporated herein by reference).
10.17 Third Amendment to Asset Contribution, Purchase and Sale Agreement dated as of June 20, 2000, by and among
Philips International Realty, L.P., a Delaware limited partnership, the Company, certain Affiliated Parties
signatory thereto, KIR Acquisition, LLC, a Delaware limited liability company, and Kimco Income Operating
Partnership, L.P., a Delaware limited partnership (filed as exhibit 10.7 to the Company's Current Report on
Form 8-K dated April 28, 2000, and incorporated herein by reference).
10.18 Amended and Restated Purchase and Sale Agreement dated as of June 20, 2000, by 1517-25 Third, L.P., a
New York limited partnership, Philip Pilevsky, SL Florida LLC, a Delaware limited liability company,
Allen Pilevsky and Fred Pilevsky (filed as exhibit 10.8 to the Company's Current Report on Form 8-K dated
April 28, 2000, and incorporated herein by reference).
10.19 Amended and Restated Purchase and Sale Agreement dated as of June 20, 2000, by Philips International Realty,
L.P., a Delaware limited partnership, Philips Lake Worth Corp., a New York corporation, and Philip Pilevsky
(filed as exhibit 10.9 to the Company's Current Report on Form 8-K dated April 28, 2000, and incorporated
herein by reference).
27.1* Financial Data Schedule
</TABLE>
* filed herewith
(b) Reports on Form 8-K
During the second quarter 2000, the Company filed a
report on Form 8-K dated April 28, 2000, reporting
under Item 5 that the Company and certain of its
subsidiaries entered into certain agreements relating
to the disposition of certain assets and the other
transactions disclosed in the press releases of the
Company dated April 17, 2000 and April 28, 2000.
<PAGE>
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.
PHILIPS INTERNATIONAL REALTY CORP.
/s/ Philip Pilevsky
August 14, 2000 Philip Pilevsky
Chairman of the Board and Chief Executive Officer
/s/ Carl Kraus
August 14, 2000 Carl Kraus
Chief Financial Officer
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Description
<S> <C>
2.1 Plan of Liquidation and Dissolution of the Company (filed as exhibit 2.1 to the Company's Current
Report on Form 8-K dated April 28, 2000, and incorporated herein by reference)
3.1 Amended and Restated Articles of Incorporation of the Company (filed as Exhibit 3.1 to the Company's Current
Report on Form 8-K dated December 31, 1997, and incorporated herein by reference)
3.2 Articles Supplementary dated July 27, 1999, (filed as Exhibit 3.1 to the Company's Current Report on Form 8-K
dated July 15, 1999, and incorporated herein by reference)
3.3 Third Amended and Restated By-Laws of the Company dated July 27, 1999, (filed as Exhibit 3.2 to the Company's
Current Report on Form 8-K dated July 15, 1999, and incorporated herein by reference)
4.1 Shareholder Rights Agreement, dated as of June 30, 1999, between the Company and BankBoston, N.A. (filed
as Exhibit 4.1 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998,
and incorporated herein by reference)
4.2 Amendment No. 1, dated July 27, 1999, to Shareholder Rights Agreement dated as of March 31, 1999,
between the Company and Bank Boston N.A., as Rights Agent (filed as Exhibit 4.1 to the Company's Current
Report on Form 8-K dated July 15, 1999, and incorporated herein by reference)
4.3 Articles Supplementary for Series A Junior Participating Preferred Stock (filed as Exhibit 4.2 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, and incorporated herein by reference)
10.1 Amended and Restated Agreement of Limited Partnership of the Operating Partnership (filed as Exhibit
10.1 to the Company's Registration Statement on Form S-11, Registration No. 333- 47975, and incorporated
herein by reference)
10.2 First Amendment to the Amended and Restated Agreement of Limited Partnership of the Operating Partnership
(filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 1998, and
incorporated herein by reference)
10.3 Contribution and Exchange Agreement, dated August 11, 1997, among National Properties Investment Trust, the
Board of Trustees, the Company, the Operating Partnership and certain contributing partnerships or limited
liability companies associated with a private real estate firm controlled by Philip Pilevsky and certain
partners and members thereof (filed as Exhibit 10.6 to the Company's Registration Statement on Form S-4,
Registration No. 333-41431, and incorporated herein by reference)
10.4 Amended and Restated Management Agreement, dated as of March 30, 1998, among the Company, the Operating
Partnership and Philips International Management Corp. (Filed as Exhibit 10-8 to the Company's Form 10-K for the
year ended December 31, 1997, and incorporated herein by reference)
10.5 Amended and Restated Non-Competition Agreement, dated as of March 30, 1998, among the Company, the Operating
Partnership, Philip Pilevsky and Sheila Levine (filed as Exhibit 10.9 to the Company's Form 10-K for the
year ended December 31, 1997, and incorporated herein by reference)
10.6 Amendment No. 1 to Contribution and Exchange Agreement, dated as of December 29, 1997 (filed as Exhibit
10.13 to the Company's Form 8-K dated December 31, 1997, and incorporated herein by reference)
10.7 Credit Agreement among the Operating Partnership and Prudential Securities Credit Corporation (filed as Exhibit
10.18 to the Company's Report on Form 10-Q for the period ended March 31, 1998 and incorporated herein by
reference)
10.8 Purchase and Sale Agreement dated as of April 28, 2000, by and among Munsey Park Associates, LLC, a New York
limited liability company, North Shore Triangle, LLC, a New York limited liability company, Philips Yonkers, LLC,
a New York limited liability company, Philips Henry, LLC, a New York limited liability company, Philips Shopping
Center Fund, L.P., a Delaware limited partnership, and Philips Lake Mary Associates, L.P., a Delaware limited
partnership, and Kimco Income Operating Partnership, L.P., a Delaware limited partnership (filed as exhibit 10.1
to the Company's Current Report on Form 8-K dated April 28, 2000, and incorporated herein by reference).
10.9 Redemption Agreement dated as of April 27, 2000, by and among the Operating Partnership and Philip Pilevsky
(filed as exhibit 10.2 to the Company's Current Report on Form 8-K dated April 28, 2000, and incorported herein
by reference).
10.10 Asset Contribution, Purchase and Sale Agreement dated as of April 28, 2000, by and among the Company, the
Operating Partnership, Certain Affiliated Parties Signatory Thereto, KIR Acquisition, LLC, a Delaware limited
liability company and Kimco Income Operating Partnership, L.P., a Delaware limited partnership (filed as exhibit
10.3 to the Company's Current Report on Form 8-K dated April 28, 2000, and incorporated herein by reference).
10.11 Amended and Restated Redemption Agreement dated as of April 27, 2000, by and among Philips International Realty,
L.P., a Delaware limited partnership, and Philip Pilevsky (filed as exhibit 10.1 to the Company's Current
Report on Form 8-K dated April 28, 2000, and incorporated herein by reference).
10.12 Redemption Agreement dated as of April 28, 2000, by and among Philips International Realty, L.P., a Delaware
limited partnership, and Allen Pilevsky (filed as exhibit 10.2 to the Company's Current Report on Form 8-K
dated April 28, 2000, and incorporated herein by reference).
10.13 Redemption Agreement dated as of April 28, 2000, by and among Philips International Realty, L.P., a Delaware
limited partnership, and Fred Pilevsky (filed as exhibit 10.3 to the Company's Current Report on Form 8-K dated
April 28, 2000, and incorporated herein by reference).
10.14 Redemption Agreement dated as of April 28, 2000, by and among Philips International Realty, L.P., a Delaware
limited partnership, and SL Florida LLC, a Delaware limited liability company (filed as exhibit 10.4 to the
Company's Current Report on Form 8-K dated April 28, 2000, and incorporated herein by reference).
10.15 First Amendment to Asset Contribution, Purchase and Sale Agreement dated as of May 31, 2000, by and among Philips
International Realty, L.P., a Delaware limited partnership, the Company, certain Affiliated Parties signatory
thereto, KIR Acquisition, LLC, a Delaware limited liability company, and Kimco Income Operating Partnership,
L.P., a Delaware limited partnership (filed as exhibit 10.5 to the Company's Current Report on Form 8-K dated
April 28, 2000, and incorporated herein by reference).
10.16 Second Amendment to Asset Contribution, Purchase and Sale Agreement dated as of June 15, 2000, by and among
Philips International Realty, L.P., a Delaware limited partnership, the Company, certain Affiliated Parties
signatory thereto, KIR Acquisition, LLC, a Delaware limited liability company, and Kimco Income Operating
Partnership, L.P., a Delaware limited partnership (filed as exhibit 10.6 to the Company's Current Report on
Form 8-K dated April 28, 2000, and incorporated herein by reference).
10.17 Third Amendment to Asset Contribution, Purchase and Sale Agreement dated as of June 20, 2000, by and among
Philips International Realty, L.P., a Delaware limited partnership, the Company, certain Affiliated Parties
signatory thereto, KIR Acquisition, LLC, a Delaware limited liability company, and Kimco Income Operating
Partnership, L.P., a Delaware limited partnership (filed as exhibit 10.7 to the Company's Current Report on
Form 8-K dated April 28, 2000, and incorporated herein by reference).
10.18 Amended and Restated Purchase and Sale Agreement dated as of June 20, 2000, by 1517-25 Third, L.P., a
New York limited partnership, Philip Pilevsky, SL Florida LLC, a Delaware limited liability company,
Allen Pilevsky and Fred Pilevsky (filed as exhibit 10.8 to the Company's Current Report on Form 8-K dated
April 28, 2000, and incorporated herein by reference).
10.19 Amended and Restated Purchase and Sale Agreement dated as of June 20, 2000, by Philips International Realty,
L.P., a Delaware limited partnership, Philips Lake Worth Corp., a New York corporation, and Philip Pilevsky
(filed as exhibit 10.9 to the Company's Current Report on Form 8-K dated April 28, 2000, and incorporated
herein by reference).
27.1* Financial Data Schedule
</TABLE>
* filed herewith
