SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
-----------------
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 May 9, 1995 was 478,940 shares of Class
A common and 3,035,311 shares of Class B common.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
Index to 10-Q
For the Three Months Ended
March 31, 1995
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
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
<CAPTION>
Assets March 31, December 31,
1995 1994
------------ ------------
<S> <C> <C>
Mortgage portfolio (Note 2):
Sold properties, accrual $35,042,918 $36,344,060
Related parties, accrual 1,195,307 1,204,499
Sold properties, impaired 16,155,040 14,879,200
Related parties, impaired 2,306,843 2,306,843
------------ ------------
Total mortgage portfolio 54,700,108 54,734,602
------------ ------------
Less discounts:
Sold properties, accrual 4,003,647 4,155,722
Related parties, accrual 190,079 193,851
Sold properties, impaired 7,869,369 7,882,168
------------ ------------
Total discounts 12,063,095 12,231,741
------------ ------------
Less deferred gains:
Sold properties, accrual 14,851,535 15,822,323
Sold properties, impaired 6,551,695 5,592,268
Related parties, impaired 2,306,843 2,306,843
------------ ------------
Total deferred gains 23,710,073 23,721,434
------------ ------------
Net mortgage portfolio (of which $1,828,462 in 1995
and $1,820,911 in 1994 are due within one year) 18,926,940 18,781,427
------------ ------------
Real estate (Note 3) 23,591,272 23,479,627
Less: accumulated depreciation 4,623,366 4,475,288
------------ ------------
Net real estate 18,967,906 19,004,339
------------ ------------
Foreclosed properties (Note 4) 657,672 726,927
Minority partners' interest (Note 5) 4,259,997 4,281,262
Prepaid expenses and deposits in escrow 1,555,412 1,629,218
Other receivables (net of valuation allowance of
$119,358 in 1995 and $117,096 in 1994) 799,759 872,169
Other receivables (related party) 12,810 12,224
Securities available for sale (Note 6) 1,951,287 1,766,851
Cash and cash equivalents 2,149,016 2,402,211
Other assets 1,287,933 1,522,248
------------ ------------
Total Assets $50,568,732 $50,998,876
============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
<CAPTION>
Liabilities and Stockholders' Equity
March 31, December 31,
1995 1994
------------ -------------
<S> <C> <C>
Liabilities:
Mortgage debt:
Properties owned $27,365,646 $27,489,824
Wrap mortgage debt on sold properties 6,385,793 6,492,285
------------- -------------
Total (of which $958,085 in 1995 and $943,800
in 1994 are due within one year) 33,751,439 33,982,109
Executive pension plan liability (Note 8) 1,933,285 1,964,379
Accrued liabilities 1,810,000 2,088,404
Accrued postretirement cost (Note 9) 642,978 646,122
Deferred income 765,402 735,552
Accounts payable 509,037 428,335
Other liabilities 562,488 579,522
------------- -------------
Total Liabilities 39,974,629 40,424,423
------------- -------------
Stockholders' Equity:
Common stock; par value $.10 a share (Note 1-C)
Class A, authorized 700,000 shares, issued and
outstanding 478,940 shares 47,894 47,894
Class B March 31, 1995 December 31, 1994 304,946 304,504
------- ------------------ -----------------
Authorized: 10,000,000 10,000,000
Issued: 3,049,460 3,045,037
Treasury: 14,221 14,221
Additional paid-in capital 1,656,931 1,628,492
Retained earnings 8,942,375 9,071,188
Net unrealized loss on securities available for sale (Note 6) (165,475) (285,057)
Class B, treasury stock (at cost) (192,568) (192,568)
------------- -------------
Total Stockholders' Equity 10,594,103 10,574,453
------------- -------------
Total Liabilities and Stockholders' Equity $50,568,732 $50,998,876
============= =============
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1995 1994
Income: ------------ -------------
<S> <C> <C>
Rental $1,952,210 $1,534,814
Interest on mortgages - sold properties 494,362 501,918
Interest on wrap mortgages 355,642 360,429
Interest on mortgages - related parties 60,174 72,103
Investment income 86,076 45,348
Other 14,496 13,744
------------ -------------
Total 2,962,960 2,528,356
------------ -------------
Costs and Expenses:
General and administrative 516,576 471,762
Interest on notes payable and other 28,938 35,613
Interest on wrap mortgage debt 68,828 73,614
Depreciation on non-rental property 5,677 5,800
Rental property:
Operating expenses 880,569 653,953
Interest on mortgages 569,096 311,684
Real estate taxes 188,814 146,594
Depreciation on real estate 148,078 112,226
Amortization of mortgage and organization costs 35,281 16,399
Minority interest share of partnership income 157,353 201,430
Loss from operations of foreclosed properties (Note 4) 12,508 23,229
Net gain from sales of foreclosed properties (Note 4) (19,766) (33,530)
------------ -------------
Total 2,591,952 2,018,774
------------ -------------
Income before net gain from sales of properties and securities
and cumulative effect of change in accounting principle 371,008 509,582
Net gain from sales of properties and securities 26,654 25,469
------------ -------------
Income before cumulative effect of change in accounting principle 397,662 535,051
Cumulative effect of change in accounting for securities 37,617
------------ -------------
Net Income $397,662 $572,668
============ =============
Earnings per Common Share (Note 1-C):
Income before net gain from sales of properties and securities
and cumulative effect of change in accounting principle $0.11 $0.15
Net gain from sales of properties and securities 0.00 0.00
------------ -------------
Income before cumulative effect of change in accounting principle 0.11 0.15
Cumulative effect of change in accounting for securities 0.01
------------ -------------
Net Income per Common Share $0.11 $0.16
============ =============
Cash Distributions per Common Share $0.15 $0.15
============ =============
Weighted Average Number of Shares Outstanding 3,510,678 3,492,881
============ =============
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-----------------------------
1995 1994
Cash Flows from Operating Activities: ------------ ------------
<S> <C> <C>
Cash received from rental properties $2,027,685 $1,326,544
Interest received 864,725 793,014
Miscellaneous income (disbursements) (3,343) 63,119
Interest paid on rental property mortgages (559,383) (302,873)
Interest paid on wrap mortgage debt (68,828) (73,614)
Interest paid on loans (11,975)
Cash disbursed for rental and foreclosed property operations (1,017,977) (870,788)
Cash disbursed for general and administrative costs (781,620) (602,340)
------------ ------------
Net cash provided by operating activities 461,259 321,087
------------ ------------
Cash Flows from Investing Activities:
Payments received on notes receivable 285,813 198,385
Payments disbursed for investments in notes receivable (5,840)
Net payments received on sales of foreclosed properties 59,983 10,471
Payments disbursed for additions and improvements (131,958) (144,012)
Proceeds from sales of securities 99,994
Purchases of securities (64,855) (100,000)
Net cash receipts from operations of foreclosed properties 6,755 3,978
------------ ------------
Net cash provided by investing activities 149,898 68,816
------------ ------------
Cash Flows from Financing Activities:
Principal payments on mortgage debt:
Properties owned (124,178) (55,880)
Wrap mortgage debt on sold properties (106,492) (102,747)
Mortgage proceeds 326,536
Mortgage costs (609,091)
Principal payments on note payable (62,750)
Cash distributions on common stock (526,475) (523,797)
Proceeds from dividend reinvestment and share purchase plan 28,881 32,172
Distributions to minority partners (136,088) (175,422)
------------ ------------
Net cash used in financing activities (864,352) (1,170,979)
------------ ------------
Net Decrease in Cash and Cash Equivalents (253,195) (781,076)
Cash and Cash Equivalents, Beginning of Period 2,402,211 1,349,755
------------ ------------
Cash and Cash Equivalents, End of Period $2,149,016 $568,679
============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
THREE MONTHS ENDED MARCH 31,
-------------------------------
1995 1994
------------ ------------
<S> <C> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net Income $397,662 $572,668
------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of accounting change for
securities (37,617)
Depreciation and amortization 189,036 134,425
Gain from sales of properties and securities (26,654) (25,469)
Net gain from sales of foreclosed properties (19,766) (33,530)
Amortization of discounts on notes and fees (168,646) (166,958)
Decrease (increase) in accounts receivable 71,824 (486,006)
Increase (decrease) in accounts payable
and accrued liabilities (231,941) 2,972
Increase in deferred income 29,850 139,497
Decrease in prepaid expenses and deposits in escrow 69,462 908
Increase (decrease) in security deposit liabilities (6,297) 6,412
Miscellaneous (624) 12,355
Minority share of partnership income 157,353 201,430
------------ ------------
Total adjustments 63,597 (251,581)
------------ ------------
Net cash provided by operating activities $461,259 $321,087
============ ============
Supplemental noncash disclosures:
Notes received from sales of foreclosed properties $38,800 $35,000
============ ============
Deferred loan modification fee added to
sold property note receivable $60,000
============ ============
<FN>
See notes to consolidated financial statements.
</TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. General - Presidential Realty Corporation ("Presidential" or the "Company"),
a Real Estate Investment Trust ("REIT"), is engaged principally in the holding
of notes and mortgages secured by real estate and in the ownership of income
producing real estate.
B. Principles of Consolidation - The consolidated financial statements include
the accounts of Presidential Realty Corporation and its wholly owned
subsidiaries. Additionally, the accompanying consolidated financial statements
include 100% of the account balances of UTB Associates and PDL, Inc. and
Associates Limited Co-Partnership ("Metmor Plaza Associates"), partnerships in
which Presidential is the General Partner and owns a 66-2/3% interest and a 25%
interest, respectively (see Note 5).
All significant intercompany balances and transactions have been eliminated.
C. Earnings Per Common Share - Per share data is based on the weighted average
number of shares of Class A and Class B common stock outstanding and
equivalents during each period. No dilution in per share earnings for the
three months ended March 31, 1995 and 1994 would result from the exercise of
stock options issued under the Company's stock option plans.
D. Cash and Cash Equivalents - Cash and cash equivalents includes cash on hand,
cash in banks and money market funds.
E. Basis of Presentation - The accompanying unaudited consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information. In the opinion of management,
all adjustments (consisting of only normal recurring accruals) considered
necessary for a fair presentation of the results for the respective periods
have been reflected. These financial statements and accompanying notes should
be read in conjunction with the Company's Form 10-K for the year ended December
31, 1994.
2. MORTGAGE PORTFOLIO
The Company's mortgage portfolio includes notes receivable - sold properties
and notes receivable - related parties and includes both accrual and impaired
loans.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan" and, accordingly, have classified loans that are within the scope of
this statement as impaired loans.
Notes receivable - sold properties consist of:
(1) Long-term purchase money notes from sales of properties previously owned by
the Company. These purchase money notes have varying interest rates with
balloon payments due at maturity.
(2) Notes receivable from sales of cooperative apartment units. Substantially
all of these notes were either received from Ivy Properties, Ltd. or its
affiliates (collectively "Ivy") in connection with a settlement agreement
between the Company and Ivy executed in November, 1991 (the "Settlement
Agreement") or from sales of foreclosed cooperative apartments received from
Ivy pursuant to the Settlement Agreement (see Note 4). These notes have market
interest rates and the majority of these notes amortize monthly with balloon
payments due at maturity.
Notes receivable - related parties are all due from Ivy and consist of:
(1) Purchase money notes resulting from sales of property or partnership
interests to Ivy.
(2) Notes receivable relating to loans made by the Company to Ivy in connection
with Ivy's cooperative conversion business.
At March 31, 1995, all of the notes in the Company's mortgage portfolio are
current with the exception of those notes which are classified as impaired
loans in accordance with SFAS No. 114.
Two sold property loans, the Kent Terrace and the Fairfield Towers loans, and
one related party loan, the Ivy Overlook loan, have been classified as
impaired loans and at March 31, 1995, are in the aggregate amount of
$18,461,883. At March 31, 1995, the loans have a net carrying value of
$1,733,976 after deducting discounts of $7,869,369 and deferred gains of
$8,858,538. In accordance with SFAS No. 114, the Company has determined that
at this time no allowances for credit losses are required for these loans
because the net carrying value of these loans is less than the fair value of
the underlying collateral.
The Company recognizes income on these loans only to the extent that such
income is actually received. The average recorded investment in these loans
during the period ending March 31, 1995 was $18,475,171.
The $1,300,000 Kent Terrace note, which was due on October 31, 1994, was not
paid when due because the owner has been unable to obtain a new mortgage loan
on the property. As a result, Presidential commenced proceedings to foreclose
on its mortgage on the property and the owner of the property filed for
protection under Chapter 11 of the Bankruptcy Code. Pending the outcome of the
foreclosure and Bankruptcy proceedings, the loan was not classified as a
nonaccrual loan at December 31, 1994. Through December 31, 1994, substantially
all interest had been paid when due. As a result of the adoption of SFAS No.
114 by the Company on January 1, 1995, this loan has been classified as an
impaired loan. At March 31, 1995, the outstanding principal balance of this
loan was $1,300,000 and there was $338,190 of interest deferred in accordance
with the terms of the note. The net carrying value of the note was $329,212
after a deferred gain of $970,788.
The Fairfield Towers and Overlook loans which were classified as nonaccrual
loans at December 31, 1994 have been classified as impaired loans in
accordance with SFAS No. 114. There have been no significant changes in the
status of these loans since December 31, 1994. However, the condominium sales
at the Fairfield Towers property have continued and an additional ten units
were sold during the three months ended March 31, 1995.
The following table reflects the activity in impaired loans.
<TABLE>
IMPAIRED LOANS
----------------
<CAPTION>
Impaired Impaired
Loan Additions Loan
Balance (Payments) Balance
Loan Description 12/31/94 1995 3/31/95
----------------------------------- ------------- ------------ ------------
<S> <C> <C> <C>
Notes receivable-sold properties:
Properties previously owned-
Fairfield Towers $14,879,200 ($24,160) $14,855,040
Kent Terrace 1,300,000 1,300,000
Notes receivable-related parties:
Sold properties-
Overlook 2,306,843 2,306,843
------------- ------------ ------------
Total $17,186,043 $1,275,840 $18,461,883
============= ============ ============
Discount Deferred Net
on Gain on Carrying
Loans Loans Value
Loan Description 3/31/95 3/31/95 3/31/95
----------------------------------- ------------- ------------ ------------
Notes receivable-sold properties:
Properties previously owned-
Fairfield Towers ($7,869,369) ($5,580,907) $1,404,764
Kent Terrace (970,788) 329,212
Notes receivable-related parties:
Sold properties-
Overlook (2,306,843)
------------- ------------ ------------
Total ($7,869,369) ($8,858,538) $1,733,976
============= ============ ============
Three months ended March 31,
--------------------------------
1995 1994
------------ ------------
Reported Interest Income and
Amortization of Discount (Cash Basis)
-----------------------------------
Fairfield Towers - interest income $1,278 $
Fairfield Towers - amortization of discount 12,799
Kent Terrace - interest income (1) 19,473
Overlook - interest income 26,392 34,638
------------ ------------
Total $59,942 $34,638
============ ============
Recognized Gain from Sale of Property
-------------------------------------
Fairfield Towers $11,361 $
Kent Terrace (1)
Overlook 2,666
------------ ------------
Total $11,361 $2,666
============ ============
Nonreported Interest Income and Amortization of Discount
---------------------------------------------------------
The following additional amounts would have been reported
if these loans had been fully performing:
Fairfield Towers - interest income $244,747 $253,125
Fairfield Towers - additional interest income 36,811
Fairfield Towers - amortization of discount 193,031 174,773
Kent Terrace - interest income (1) 48,208
Overlook - interest income 50,022 71,756
------------ ------------
Total $572,819 $499,654
============ ============
<FN>
(1) Kent Terrace was not impaired in 1994 and, as a result, no amounts
are listed for the three months ended March 31, 1994.
</TABLE>
3. REAL ESTATE
Real estate is comprised of the following:
March 31, December 31,
1995 1994
----------- ------------
Land $ 3,615,176 $ 3,615,176
Buildings and leaseholds 19,886,805 19,779,473
Furniture and equipment 89,291 84,978
----------- -----------
Total real estate $23,591,272 $23,479,627
=========== ===========
4. FORECLOSED PROPERTIES
At March 31, 1995, Presidential owns a number of cooperative apartment units
which it had received in satisfaction of certain loans due Presidential.
These cooperative apartment units are located at five properties.
Cooperative apartment units at four properties were received from Ivy in 1991
and 1992 in connection with the Settlement Agreement. In the fourth quarter of
1994, Presidential received five cooperative apartment units at Long Beach, New
York from Ivy in payment of the $57,592 outstanding loan on that property and
$44,204 of other amounts due to Presidential pursuant to the Settlement
Agreement. These cooperative apartment units are reported as foreclosed
properties on Presidential's consolidated balance sheets and are carried at the
lower of cost or estimated fair value (net of estimated costs to sell).
Net loss from operations of foreclosed properties is reported as a separate
line item on the statement of operations, while net cash receipts from
operations of foreclosed properties reduces the Company's carrying value of the
foreclosed property.
The following table presents the Company's foreclosed properties, loss from
operations of foreclosed properties, gain (loss) from sales of foreclosed
properties and number of units sold:
<TABLE>
Foreclosed properties:
---------------------------
<CAPTION>
Property Name and Location
------------------------------------------------------------------------
Hastings 6300 Riverdale
330 W. 72nd St. Gardens Ave. Towne House
New York, Hastings, Bronx, New Rochelle,
New York New York New York New York
------------ --------- ----------- -------------
<S> <C> <C> <C> <C>
Balance January 1, 1995 $55,840 $119,106 $76,196 $373,264
Capitalized costs 8,738
Net carrying value of property sold (27,963)
Net cash receipts from operations (886) (5,869)
------------ --------- ----------- -------------
Balance March 31, 1995 $54,954 $119,106 $76,196 $348,170
============ ========= =========== =============
Loss from operations of foreclosed properties:
-------------------------------------------------------
Three months ended March 31, 1995 $4,923 $3,570
============ ========= =========== =============
Three months ended March 31, 1994 $4,573 $2,718
============ ========= =========== =============
Gain (loss) from sales of foreclosed properties:
-------------------------------------------------------
Three months ended March 31, 1995 $20,920
============ ========= =========== =============
Three months ended March 31, 1994 $33,530
============ ========= =========== =============
Number of units sold:
---------------------------
Three months ended March 31, 1995 2
============ ========= =========== =============
Three months ended March 31, 1994 1
============ ========= =========== =============
Property Name and Location
--------------------------------------------------
Long Beach Hoboken Total
Long Beach, Hoboken, Foreclosed
New York New Jersey (1) Properties
------------ --------- -----------
Balance January 1, 1995 $102,521 $ $726,927
Capitalized costs 7,778 16,516
Net carrying value of property sold (51,053) (79,016)
Net cash receipts from operations (6,755)
------------ --------- -----------
Balance March 31, 1995 $59,246 $ $657,672
============ ========= ===========
Loss from operations of foreclosed properties:
------------------------------------------------------- Total Loss
-----------
Three months ended March 31, 1995 $4,015 N/A $12,508
============ ========= ===========
Three months ended March 31, 1994 N/A $15,938 $23,229
============ ========= ===========
Gain (loss) from sales of foreclosed properties:
------------------------------------------------------- Total
Gain (Loss)
-----------
Three months ended March 31, 1995 ($1,154) N/A $19,766
============ ========= ===========
Three months ended March 31, 1994 N/A $33,530
============ ========= ===========
Number of units sold:
--------------------------- Total
Units Sold
-----------
Three months ended March 31, 1995 2 N/A 4
============ ========= ===========
Three months ended March 31, 1994 N/A 1
============ ========= ===========
<FN>
(1) The remaining Hoboken apartment buildings were sold in June, 1994.
</TABLE>
5. MINORITY PARTNERS' INTEREST
Presidential is the General Partner of UTB Associates and Metmor Plaza
Associates, partnerships in which Presidential has a 66-2/3% interest and a 25%
interest, respectively. As the General Partner of these partnerships,
Presidential exercises effective control over the business of these
partnerships, and, accordingly, has included 100% of the account balances of
these partnerships in the accompanying financial statements (see Note 1-B).
The minority partners' interest reflects the minority partners' equity in the
partnerships.
Included in the Company's mortgage debt is a mortgage note payable by the
Metmor Plaza Associates partnership which is substantially in excess of the
historical cost of the property. This was due to a refinancing of the original
mortgage note on the building and subsequent distribution of these proceeds to
the partners. This event resulted in a negative partnership interest for each
partner and a negative minority partners' interest on the Company's books. The
estimated fair value of the building is significantly greater than the mortgage
debt and the minority partners' interest is expected to be recovered when the
building is sold and the partnership is liquidated.
Minority partners' interest is comprised of the following:
March 31, December 31,
1995 1994
---------- ------------
Metmor Plaza Associates $4,518,745 $4,537,001
UTB Associates (258,748) (255,739)
----------- -----------
Total minority partners' interest $4,259,997 $4,281,262
=========== ===========
6. SECURITIES AVAILABLE FOR SALE
The Company's investments are marketable equity securities consisting of stocks
of listed corporations. Effective January 1, 1994, the Company adopted SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities".
The Company does not acquire securities for purposes of engaging in trading
activities and, as a result, the Company's investments are classified as
securities available for sale, in accordance with this pronouncement.
Disposition of such securities may be appropriate for either liquidity
management or in response to changing economic conditions.
The cost and fair value of securities available for sale are as follows:
March 31, December 31,
1995 1994
---------- ------------
Cost $2,116,762 $2,051,908
Gross unrealized gains 21,758 14,804
Gross unrealized losses (187,233) (299,861)
----------- -----------
Fair value $1,951,287 $1,766,851
========== ===========
Net unrealized loss on securities available for sale, which is a separate
component of stockholders' equity on the Company's consolidated balance sheets,
decreased by $119,582 from $285,057 at December 31, 1994 to $165,475 at March
31, 1995.
During the three months ended March 31, 1995, there were no sales of securities
available for sale. During the three months ended March 31, 1994, the Company
sold securities available for sale for gross proceeds of $100,000 and a gross
(and net) loss of $6. Gains and losses on sales of securities are determined
using the specific identification method.
7. INCOME TAXES
Presidential elected to qualify as a Real Estate Investment Trust effective
January 1, 1982 under Sections 856-860 of the Internal Revenue Code. Under
those sections, 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, 1994, the Company had taxable income (before
distributions to stockholders) of approximately $2,258,000 ($.64 per share),
which included approximately $1,068,000 ($.30 per share) of capital gains.
This amount will be reduced by approximately $83,000 ($.02 per share) of the
1994 distributions that were not utilized in reducing the Company's 1993
taxable income and by any eligible 1995 distributions that the Company may
elect (under Section 858 of the Internal Revenue Code) to utilize as a
reduction of its 1994 taxable income.
As previously stated, in order to retain REIT status, Presidential is required
to distribute 95% of its REIT taxable income (exclusive of capital gains).
Presidential will apply the available 1994 distributions (approximately $.02
per share) and will be required to pay additional distributions of not less
than $0.30 per share in 1995 to maintain REIT status, of which $.15 per share
was paid in the first quarter of 1995. In addition, although no assurances can
be given, it is the Company's present intention to distribute all of its 1994
taxable income and, therefore, no provision for income taxes was made at
December 31, 1994.
Furthermore, the Company had taxable income (before distributions to
stockholders) for the three months ended March 31, 1995 of approximately
$268,000 ($.08 per share), which included approximately $89,000 ($.03 per
share) of capital gains. This amount will be reduced by 1995 distributions
that were not utilized in reducing the Company's 1994 taxable income and by any
eligible 1996 distributions that the Company may elect to utilize as a
reduction of its 1995 taxable income.
Presidential has, for tax purposes, reported the gain from the sale of certain
of its properties using the installment method.
8. PENSION PLANS
Defined Benefit Plan
Effective January 1, 1994, the Company adopted a noncontributory defined
benefit pension plan, which covers substantially all of its employees. The
plan provides monthly retirement benefits commencing at age 65. The monthly
benefit is equal to the sum of (1) 6.5% of average monthly compensation
multiplied by total number of plan years of service (up to a maximum of 10
years), plus (2) .62% of such average monthly compensation in excess of one-
twelfth of covered compensation multiplied by total number of plan years of
service (up to a maximum of 10 years). The Company makes annual contributions
that meet the minimum funding requirements and the maximum contribution
limitations under the Internal Revenue Code.
Periodic pension costs are reflected in general and administrative expenses in
the Company's consolidated statement of operations.
Net periodic pension cost for the three months ended March 31, 1995 was
$64,000.
The assumptions for the discount rate, expected long-term rate of return of
assets, and average increase in compensation used in determining net periodic
pension cost were 7%, 7% and 5%, respectively.
Executive Pension Plan
Presidential has employment contracts with several active and retired key
officers and employees. Such contracts are being accounted for as constituting
pension agreements. The contracts generally provide for annual benefits in
specified amounts commencing upon retirement for each participant for life,
with an annual adjustment for an increase in the consumer price index.
Presidential complies with the provisions of SFAS No. 87, "Employers'
Accounting for Pensions". The principal assumption used in the accounting was
a discount rate of 7-1/2%. Periodic pension costs are reflected in general and
administrative expenses in the Company's consolidated statement of operations.
Net periodic pension cost for the three months ended March 31, 1995, included
the following components:
Service cost-benefits earned during the period $ 2,728
Interest cost on projected benefit obligation 46,707
Net amortization 7,643
-------
Net periodic pension cost $57,078
=======
Presidential has elected not to fund expenses accrued under these contracts.
9. POSTRETIREMENT BENEFITS
Presidential has employment contracts with several active and retired key
officers and employees which provide for postretirement benefits other than
pensions (such as health care benefits). The Company complies with the
provisions of SFAS No. 106,"Employers' Accounting for Postretirement Benefits
Other Than Pensions". SFAS No. 106 requires the Company to accrue the
estimated cost of retiree benefit payments during the years the employee
provides services. The components of postretirement benefit cost for the
three months ended March 31, 1995, were as follows:
Service cost - benefits earned $1,369
Interest cost on accumulated postretirement
benefit obligation 9,340
Net amortization (2,376)
------
Postretirement benefit cost $8,333
======
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
Results of Operations
Financial Information for the three months ended March 31, 1995 and 1994:
Income for 1995 increased by $434,604 from $2,528,356 in 1994 to $2,962,960 in
1995 primarily as a result of increases in rental income and investment income.
Rental income increased by $417,396 from $1,534,814 in 1994 to $1,952,210 in
1995 primarily as a result of the purchase of the Continental Gardens apartment
property in December, 1994.
Investment income increased by $40,728 from $45,348 in 1994 to $86,076 in 1995
primarily as a result of increased interest income on cash and cash equivalent
accounts and interest income received on mortgage deposits in escrow.
Costs and expenses increased by $573,178 from $2,018,774 in 1994 to $2,591,952
in 1995 primarily due to increases in all areas of rental property operations
as a result of the purchase of the Continental Gardens apartment property
in December, 1994, as well as increases in rental property operating expenses
and mortgage interest.
Rental property operating expenses increased by $226,616 from $653,953 in 1994
to $880,569 in 1995. The purchase of Continental Gardens referred to above,
resulted in increases of $114,938. In addition, there were increases in
repairs and maintenance of $67,056 and insurance costs of $40,319.
Rental property mortgage interest increased by $257,412 from $311,684 in 1994
to $569,096 in 1995. This increase is primarily due to $176,694 of mortgage
interest for Continental Gardens and an increase of $76,680 for the Metmor
Plaza property. The Metmor Plaza mortgage has a variable rate of interest
based on the Libor rate and the "Section 936" rate (which is established by the
lender), but cannot exceed 8%.
Real estate tax expense increased by $42,220 from $146,594 in 1994 to $188,814
in 1995 as a result of the purchase of Continental Gardens.
Rental property depreciation expense increased by $35,852 from $112,226 in 1994
to $148,078 in 1995 primarily as a result of the purchase of Continental
Gardens. Depreciation for Continental Gardens was $46,782, partially offset by
a decrease of $12,583 pertaining to the Palmer Mapletree property.
Amortization of mortgage and organization costs increased by $18,882 from
$16,399 in 1994 to $35,281 in 1995 as a result of the purchase of Continental
Gardens and increased mortgage amortization on Metmor Plaza as a result of the
modification of the mortgage on that property in the 1994 period.
Minority interest share of partnership income decreased by $44,077 from
$201,430 in 1994 to $157,353 in 1995, as a result of a decrease in partnership
income on the Metmor Plaza property.
Loss from operations of foreclosed properties decreased by $10,721 from $23,229
in 1994 to $12,508 in 1995 due to the sale of the Hoboken, New Jersey property
in June of 1994.
Net gain from sales of properties and securities are sporadic (as they depend
on the timing of sales or the receipt of installments or prepayments on
purchase money notes). In 1995, the net gain from sales of properties and
securities was $26,654 compared with a net gain of $25,469 in 1994.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". As a result of the adoption of SFAS No. 115, the
cumulative effect of change in accounting for securities of $37,617 of income
was recognized in the first quarter of 1994.
Balance Sheet
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan" and, accordingly, have classified loans
that are within the scope of this statement as impaired loans. The Fairfield
Towers and Ivy Overlook loans, which were previously classified as nonaccrual
loans, and the Kent Terrace loan, which was classified as an accrual loan, have
been classified as impaired loans and at March 31, 1995, are in the aggregate
amount of $18,461,883. At March 31, 1995, the loans have a net carrying value
of $1,733,976 after deducting discounts of $7,869,369 and deferred gains of
$8,858,538.
Foreclosed properties decreased by $69,255 from $726,927 at December 31, 1994
to $657,672 at March 31, 1995. This decrease was the result of the sale of
four cooperative apartments during the first quarter of 1995.
Securities available for sale increased by $184,436 from $1,766,851 at
December 31, 1994 to $1,951,287 at March 31, 1995. This increase was the
result of a $119,582 increase in the fair value of securities held at March 31,
1995 and $64,854 of additional securities purchased during the period.
Other assets decreased by $234,315 from $1,522,248 at December 31, 1994 to
$1,287,933 at March 31, 1995. This decrease was primarily the result of the
sale of the remaining five cooperative apartments at Rye Colony, Rye, New York
which had a basis of $191,386 and which were received from Ivy in 1994 as
partial payment on the Overlook loan. In addition, $35,281 of mortgage and
organization costs were amortized in the period.
Net unrealized loss on securities available for sale decreased by $119,582 from
$285,057 at December 31, 1994 to $165,475 at March 31, 1995. This decrease in
unrealized loss is a result of the increase in the fair value of the securities
available for sale for the period.
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. The Company is actively seeking to expand its portfolio of
real estate equities and plans to utilize for this purpose a portion of its
available funds and additional funds that the Company may receive from balloon
payments due on the Company's notes receivable as they mature, as well as funds
that may be available from external sources. However, the Company's plans to
expand its portfolio of real estate equities may be affected by limitations
on funds available to it on satisfactory terms from external sources.
Presidential does not maintain any line of credit or short term financing
arrangement. At the present time, Presidential obtains funds for working
capital and investment from its available cash and cash equivalents, from
operating activities and from repayments of its mortgage portfolio.
At March 31, 1995, Presidential had $2,149,016 in available cash and cash
equivalents and $1,951,287 in securities available for sale. The March 31,
1995 total of $4,100,303 represents a decrease of $68,759 from the $4,169,062
total at December 31, 1994. This decrease is primarily due to the payments of
$264,833 in accrued bonus and employee pension costs, partially offset by an
increase of $119,582 in the fair value of securities available for sale.
Operating Activities
Presidential's principal source of cash from operating activities is from
interest on its mortgage portfolio, which was $795,897 in 1995, net of interest
payments on wrap mortgage debt. Net cash received from rental property
operations in 1995 was $314,237, net of distributions to minority partners.
Investing Activities
Presidential holds a portfolio of mortgage notes receivable which consist
primarily of notes arising from sales of real properties previously owned by
the Company. Some of these notes wrap around underlying mortgage debt (the
"Underlying Debt") which is paid by Presidential only out of funds received on
its mortgage portfolio relating to the Underlying Debt. During 1995, the
Company received principal payments of $179,321 on its mortgage portfolio (net
of any principal payments attributable to the Underlying Debt), of which
$132,503 represented prepayments, which are sporadic and cannot be relied upon
as a regular source of liquidity. In 1995, the Company also received $59,983
from sales of foreclosed properties, which are also sporadic.
During 1995, the Company invested $131,958 in additions and improvements to its
properties.
Financing Activities
The Company's indebtedness at March 31, 1995, consisted of $33,751,439 of
mortgages (including $6,385,793 of underlying indebtedness on properties not
owned by the Company but on which the Company holds wraparound mortgages).
The mortgage debt, which is secured by individual properties, is nonrecourse to
the Company and generally is serviced with cash flow from the operations of the
individual properties. During 1995, the Company made $124,178 of principal
payments on mortgage debt on properties which it owns. The mortgages on the
Company's properties are self-liquidating at fixed rates of interest with the
exception of the mortgages on Metmor Plaza and Continental Gardens.
In the first quarter of 1995, Presidential paid cash distributions of $526,475
to its shareholders and received proceeds from dividend reinvestments of
$28,881.
Fairfield Towers
The Company's financial performance and liquidity in 1995 and subsequent years
will be affected by the results of the condominium conversion of Fairfield
Towers Apartments in Brooklyn, New York by the owner of that property. The
Company holds a second mortgage having an outstanding principal balance of
$14,855,040 on this 1,152 unit apartment property, which mortgage was modified
in December, 1992 and is subordinate to a first mortgage having an outstanding
principal balance of $16,633,576. Until the first mortgage is repaid (when
approximately 50% of the units have been sold) Presidential will receive basic
interest on its note payable only out of net cash flow from operations of the
property and release payments upon the sale of each condominium unit averaging
$3,000 per unit. All unpaid basic interest and additional interest (which is
based on percentages of gross sales proceeds) will be deferred until after
repayment of the first mortgage. While the Company's return on the loan during
the initial years of the conversion will be limited, if the conversion is
successful and the first mortgage is repaid, the Company expects to ultimately
recover the outstanding principal balance of the note and substantial amounts
of basic and additional interest. In June of 1994, the owners of the Fairfield
Towers property closed the first sales of the condominium units pursuant to the
conversion of the property to condominium status. At March 31, 1995, a total
of 60 units were sold.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27. Financial Data Schedule.
(b) No reports on form 8-K have been filed during the quarter ended
March 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PRESIDENTIAL REALTY CORPORATION
(Registrant)
DATE: May 11, 1995 By: /s/ Jeffrey F. Joseph
---------------------
Jeffrey F. Joseph
President
DATE: May 11, 1995 By: /s/ Elizabeth Delgado
---------------------
Elizabeth Delgado
Treasurer
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