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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 333-8387701
DORAL PROPERTIES, INC.
(EXACT NAME OF THE REGISTRANT AS SPECIFIED IN ITS CHARTER)
Puerto Rico 66-0572283
----------- ----------
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
1159 F.D. Roosevelt Avenue,
San Juan, Puerto Rico 00920
- --------------------- -----
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code (787) 749-7100
Former name, former address ---------------
and
Former fiscal year, if changed Not Applicable
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 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 [ ]
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT MAY 12, 2000 - 2,000
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DORAL PROPERTIES, INC.
INDEX PAGE
<TABLE>
<CAPTION>
PAGE
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PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Statements of Financial Condition as of March 31, 2000 (Unaudited) and December 31, 1999......... 4
Statement of Cash Flows (Unaudited) - Three months ended March 31, 2000.......................... 5
Notes to Consolidated Financial Statements....................................................... 6
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations............ 8
Item 3 - Quantitative and Qualitative Disclosures About Market Risk....................................... 9
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings................................................................................ 9
Item 2 - Changes in Securities............................................................................ 9
Item 3 - Defaults Upon Senior Securities.................................................................. 9
Item 4 - Submission of Matters to a Vote of Security Holders.............................................. 9
Item 5 - Other Information................................................................................ 9
Item 6 - Exhibits and Reports on Form 8-K................................................................. 9
SIGNATURES..................................................................................................... 10
</TABLE>
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FORWARD LOOKING STATEMENTS
When used in this form 10-Q or future filings by the Company with the
Securities and Exchange Commission, in the Company's press releases or other
public or shareholder communications, or in oral statements made with the
approval of an authorized executive officer, the words or phrases "would be",
"will allow", "intends to", "will likely result", "are expected to", "will
continue", "is anticipated", "estimate", "project" or similar expressions are
intended to identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995.
The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements, which speak only as of the date made, and
to advise readers that various factors could affect the Company's financial
performance and could cause the Company's actual results for future periods to
differ materially from those anticipated or projected.
The Company does not undertake, and specifically disclaims any
obligation, to update any forward-looking statements to reflect occurrences or
unanticipated events or circumstances after the date of such statements.
3
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DORAL PROPERTIES, INC.
STATEMENT OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
(unaudited (audited)
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<S> <C> <C>
ASSETS
Cash $ 368,035 $ 26,711
Accrued interest receivable -- 136,632
Unamortized debt issue costs 2,045,956 2,043,337
Investment contract 27,848,142 30,498,813
Property 16,714,816 13,811,060
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Total assets $46,976,949 $46,516,553
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Accrued expenses and other liabilities $ 1,711,949 $ 1,251,553
Bonds payable 44,765,000 44,765,000
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Total liabilities 46,476,949 46,016,553
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Stockholder's equity:
Common stock, $0.01 par value; 10,000 shares authorized;
2,000 shares issued and outstanding 20 20
Additional paid-in capital 499,980 499,980
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Total stockholder's equity 500,000 500,000
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Total liabilities and stockholder's equity $46,976,949 $46,516,553
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</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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DORAL PROPERTIES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three-month
period ended
March 31, 2000
(unaudited)
--------------
<S> <C>
Cash flows from operating activities:
Net income ............................................................................... $ --
-----------
Adjustments to reconcile net income to net cash provided by operating activities:
Decrease in accrued interest receivable ............................................. 136,632
Increase in accrued expenses and other liabilities .................................. 460,396
Increase in unamortized debt issue costs ............................................ (2,619)
-----------
Net cash provided by operating activities ........................................... 594,409
-----------
Cash flows from investing activities:
Additions to property ............................................................... (2,903,756)
Proceeds from investment contract ................................................... 2,650,671
-----------
Net cash used in investing activities ............................................... (253,085)
-----------
Cash flows from financing activities: .................................................... --
-----------
Net increase in cash ................................................................... 341,324
Cash and cash equivalents at beginning of period ....................................... 26,711
-----------
Cash and cash equivalents at the end of period ......................................... $ 368,035
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</TABLE>
The accompanying notes are an integral part of these financial statements
5
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DORAL PROPERTIES, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
a. REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Doral Properties, Inc. ( "Doral Properties" or the "Company") is a
wholly-owned subsidiary of Doral Financial Corporation ("Doral
Financial"). The Company was incorporated on July 21, 1999, under the
laws of the Commonwealth of Puerto Rico for the purpose of owning,
developing and operating the Doral Financial Center (the "Center"),
which will become the new headquarters of Doral Financial and its
subsidiaries. The Center is under construction and should be completed
during the third quarter of 2001.
On November 3, 1999, the Company, through the Puerto Rico Industrial,
Medical, Higher Education and Environmental Pollution Control
Facilities Financing Authority ("AFICA"), issued $44,765,000 (gross of
bond issue costs) in Industrial Revenue Bonds, Class A (the "exempt
bonds"), for financing the construction of the Center.
The Financial Statements (unaudited) of Doral Properties as of March
31, 2000 have been prepared in conformity with the accounting policies
stated in the Company's Annual Audited Financial Statements for the
year ended December 31, 1999 and should be read in conjunction with the
notes appearing in those statements. All adjustments (consisting only
of normal recurring accruals) which are, in the opinion of management,
necessary for a fair presentation of results for the interim period
have been reflected.
The accounting and reporting policies of the Company conform with
generally accepted accounting principles. The following is a
description of the more significant accounting policies followed by the
Company:
Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities at the date of the financial statements. Actual results
could differ from those estimates.
Income Recognition Policy/Capitalization of Interest
Doral Properties' current operations consist solely of the construction
and development of the Center. As such, all disbursements are being
capitalized as construction in progress. Amounts capitalized will be
recorded as a fixed asset subject to periodic depreciation upon final
completion of the construction activities. Debt issue costs related to
the bonds, monthly interest payments to the bondholders and other
interest paid in connection with the construction of the Center are
also being capitalized as part of construction in progress. Thus, there
are no activities recorded that need to be reported in a separate
statement of income.
In accordance with Statement of Financial Accounting Standard No. 62:
"Capitalization of Interest Cost in Situations Involving Certain
Tax-Exempt Borrowings and Certain Gifts and Grants", the Company is
capitalizing interest cost of tax-exempt borrowings, less any interest
earned on temporary investment of the proceeds of those borrowings,
from the date of borrowing until the specified qualifying assets
acquired with those borrowings are ready for their intended use.
Bond Issue Costs
Bond issue costs include all costs related to the issuance of the bonds
described in Note d. Amortization of bond issue costs capitalized will
start upon commencement of Doral Properties' operations as
administrator of the Center and will be amortized over the remaining
life of the bonds.
b. PROPERTY
At March 31, 2000, property consisted of land and an existing building
acquired for the construction of the Center. A new building is being
constructed on the land acquired while the existing building will be
subsequently renovated. The cost of the land and building acquired, and
the amount capitalized as construction in progress as of March 31, 2000
were as follows:
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<TABLE>
<S> <C>
Land $ 4,073,288
Building 1,046,989
Construction in progress 11,594,538
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$ 16,714,815
=============
</TABLE>
As part of the purchase transaction, Doral Properties acquired an
existing building. As lessor, Doral Properties assumed an existing
lease agreement with a third party for space occupancy at the building,
which will expire on June 30, 2000. Management has no intention to
renew the agreement, to allow for the commencement of the renovation
activities. During the three-month period ended March 31, 2000, Doral
Properties received rental payments of approximately $80,000. The
Company's policy is to record such collections as a reduction of costs
capitalized under construction in progress.
Construction in progress includes approximately $1,270,000 of
capitalized interest costs; net of approximately $695,000 of interest
generated by the investment contract described on Note c.
c. INVESTMENT CONTRACT
Pursuant to a Construction Fund Investment Agreement (the "Agreement")
dated November 3, 1999, Doral Properties agreed to deposit the proceeds
of the AFICA bonds in an investment fund at Doral Financial, the parent
company. As part of the agreement, Doral Financial guaranteed the
Company a 5.60% annual return on the fund, which may be invested at the
discretion of Doral Financial. The principal invested by Doral
Properties is due on demand. Interest earned on the investment is
accrued on a monthly basis as an increase in the fund's balance.
Payments related to the construction in progress are drawn from the
fund and recorded as a reduction of costs capitalized under
construction in progress.
d. BONDS PAYABLE
On November 3, 1999, the Company issued $44,765,000 in AFICA bonds at
interest rates ranging from 6.10% to 6.90% and maturities ranging from
June 2003 to December 2029. The bonds are secured by a mortgage on the
building under construction. Repayment of principal plus monthly
interest to bondholders is fully guaranteed by the parent company,
Doral Financial.
The bonds issued were structured into serial and term maturities, as
listed below:
<TABLE>
<CAPTION>
INTEREST MATURITY PRINCIPAL
RATE DATE AMOUNT
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<S> <C> <C> <C>
SERIAL BONDS: 6.10% June 1, 2003 $ 310,000
6.10% December 1, 2003 320,000
6.15% June 1, 2004 330,000
6.15% December 1, 2004 340,000
6.20% June 1, 2005 350,000
6.20% December 1, 2005 360,000
6.25% June 1, 2006 375,000
6.25% December 1, 2006 385,000
6.30% June 1, 2007 395,000
6.30% December 1, 2007 410,000
6.35% June 1, 2008 420,000
6.35% December 1, 2008 435,000
6.40% June 1, 2009 450,000
6.40% December 1, 2009 465,000
TERM BONDS: 6.75% December 1, 2014 5,585,000
</TABLE>
7
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<TABLE>
Interest Maturity Principal
Rate Date Amount
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<S> <C> <C>
6.90% June 1, 2026 22,835,000
6.90% December 1, 2029 11,000,000
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$44,765,000
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</TABLE>
The weighted average interest rate on the aggregate amount of the bonds
was 6.81%.
e. TRUSTEE AGREEMENT
Pursuant to a Trustee Agreement dated November 3, 1999, Doral
Properties designated Citibank, N.A. as the trustee for the collection
of principal and interest from Doral Properties, the subsequent
remittances of principal and interest to the bondholders and the
collection of interest from Doral Financial on the investment contract.
As part of the agreement, Citibank will also oversee the transactions
under the Agreement described in Note c.
f. RELATED PARTY TRANSACTIONS
Doral Properties maintains its cash accounts at Doral Bank, a related
party commercial bank and a wholly-owned subsidiary of Doral Financial.
g. CHANGES IN STOCKHOLDER'S EQUITY
There were no changes in stockholder's equity for the three-month
period ended March 31, 2000. Thus, no statement of changes in
stockholder's equity is included.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Doral Properties, a wholly-owned subsidiary of Doral Financial, is
engaged in the development of the Doral Financial Center, a new commercial
office building and adjacent structures that will primarily serve as the
corporate headquarters of Doral Financial. Doral Properties was incorporated on
July 21, 1999.
On October 22, 1999, Doral Properties purchased from independent third
parties two parcels of land containing two buildings in San Juan, Puerto Rico
for $2.2 million. Those buildings will be refurbished and used for
administrative and support services, including data storage and processing
services, for Doral Financial and its subsidiaries. In connection with the
purchase of those buildings, Doral Properties assumed existing leases with a
third party that expire on June 30, 2000. In order to allow for the commencement
of the renovation, management does not intend to renew the lease agreements.
For the three-month period ended March 31, 2000, Doral Properties received
rental payments of approximately $80,000.
On November 3, 1999, Doral Properties entered into a loan agreement
with AFICA in the amount of $44,765,000 providing for the issuance of the AFICA
Bonds. The AFICA Bonds were issued under a trust agreement between AFICA and
Citibank, N.A., as trustee, and are serial and term bonds with maturities
ranging from June 1, 2003 through December 1, 2029. From the proceeds of the
AFICA Bonds, approximately $2.1 million was used to repay the balance of a loan
to Doral Financial used to purchase the real property on which the office
building is being constructed, approximately $4.1 million is being used to pay
interest on the AFICA Bonds during construction of the Center and approximately
$37.0 million was deposited in a construction fund with Citibank, N.A., as
trustee, to pay the costs of development, construction and equipping of the
Center.
Citibank, N.A., as trustee for the AFICA Bonds, upon the direction of
Doral Properties, entered into an investment agreement with Doral Financial to
invest approximately $30.6 million of the moneys in the construction fund until
October 1, 2001. As part of the agreement, Doral Financial guaranteed a 5.60%
annual return on the invested
8
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amount. Interest earned on the invested amount is compounded on a monthly basis.
The principal amount of the investment is due on demand from the trustee, which
requests repayments in accordance with requests for disbursements from the
construction fund made by Doral Properties or to pay interest on the AFICA
Bonds. As of March 31, 2000, the principal balance of this investment was
approximately $27.8 million.
As of March 31, 2000, Doral Properties had total assets of $47.0
million, total liabilities of $46.5 million and stockholder's equity of
$500,000. Doral Properties deferred the costs related to the issuance of the
AFICA Bonds and is capitalizing under a construction-in-progress account all
construction disbursements related to the Center and monthly interest payments
to the holders of the AFICA Bonds. Doral Properties records as a reduction of
the construction-in-progress account the rental payments received from the
assumed existing leases. As of March 31, 2000, Doral Properties had recorded
$13.6 million in construction-in-progress in its balance sheet. Since Doral
Properties did not have any revenues or expenses, no statement of income was
presented.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
None.
ITEM 2 - CHANGES IN SECURITIES
Not Applicable.
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5 - OTHER INFORMATION
Not Applicable.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
None.
9
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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.
DORAL PROPERTIES, INC.
(Registrant)
Date: May 12, 2000 /s/ Salomon Levis
------------------------------------------
Salomon Levis
Chairman of the Board
Chief Executive Officer and Director
Date: May 12, 2000 /s/ Zoila Levis
------------------------------------------
Zoila Levis
President and Director
Date: May 12, 2000 /s/ Ricardo Melendez
------------------------------------------
Ricardo Melendez
Vice President and Comptroller
(Principal Financial and
Accounting Officer)
10
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
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<S> <C> <C>
27 - Financial Data Schedule (for SEC use only).
</TABLE>
11
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF DORAL PROPERTIES, INC. FOR THE QUARTER ENDED MARCH 31,
2000 AND IT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 28,216,177
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 28,216,177
<PP&E> 16,714,816
<DEPRECIATION> 0
<TOTAL-ASSETS> 46,976,949
<CURRENT-LIABILITIES> 1,711,949
<BONDS> 44,765,000
0
0
<COMMON> 20
<OTHER-SE> 499,980
<TOTAL-LIABILITY-AND-EQUITY> 46,976,949
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
