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 September 30, 1998
--------------------
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
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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 November 6, 1998 was 478,940 shares of Class A
common and 3,121,198 shares of Class B common.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
Index to Form 10-Q
For the Nine Months Ended
September 30, 1998
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 September 30, December 31,
1998 1997
---------------- ----------------
<S> <C> <C>
Mortgage portfolio (Note 2):
Sold properties, accrual $43,545,864 $43,871,400
Related parties, accrual 1,713,997 2,350,899
Sold properties, impaired 17,662,927 17,878,458
---------------- ----------------
Total mortgage portfolio 62,922,788 64,100,757
---------------- ----------------
Less discounts:
Sold properties, accrual 4,301,075 5,055,574
Related parties, accrual 152,419 160,735
Sold properties, impaired 7,617,236 7,675,111
---------------- ----------------
Total discounts 12,070,730 12,891,420
---------------- ----------------
Less deferred gains:
Sold properties, accrual 12,546,661 12,550,333
Related parties, accrual 935,156 1,543,342
Sold properties, impaired 6,380,679 6,432,055
---------------- ----------------
Total deferred gains 19,862,496 20,525,730
---------------- ----------------
Net mortgage portfolio (of which $899,790 in 1998
and $756,751 in 1997 are due within one year) 30,989,562 30,683,607
---------------- ----------------
Real estate (Note 3) 34,536,464 27,690,535
Less: accumulated depreciation 6,991,263 6,404,797
---------------- ----------------
Net real estate 27,545,201 21,285,738
---------------- ----------------
Minority partners' interest (Note 4) 7,328,615 3,779,408
Prepaid expenses and deposits in escrow 2,311,857 1,190,158
Other receivables (net of valuation allowance of
$93,840 in 1998 and $129,484 in 1997) 645,147 715,407
Other receivables (related party) 7,972 8,287
Securities available for sale (Note 5) 1,059,763 226,550
Cash and cash equivalents 2,311,125 979,712
Other assets 1,999,722 1,140,571
---------------- ----------------
Total Assets $74,198,964 $60,009,438
================ ================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
<CAPTION>
Liabilities and Stockholders' Equity
September 30, December 31,
1998 1997
---------------- ----------------
<S> <C> <C>
Liabilities:
Mortgage debt (Note 6):
Properties owned $39,826,031 $26,271,093
Wrap mortgage debt on sold properties 4,790,271 5,149,217
---------------- ----------------
Total (of which $891,878 in 1998 and $1,133,721
in 1997 are due within one year) 44,616,302 31,420,310
Note payable to bank (of which $156,552 in 1998
and $147,190 in 1997 are due within one year) (Note 7) 10,433,301 10,542,552
Executive pension plan liability 1,515,235 1,601,411
Accrued liabilities 2,820,840 2,276,898
Accrued postretirement costs 566,106 574,637
Deferred income 189,317 274,097
Accounts payable 315,216 481,248
Distribution payable on common stock 575,915
Other liabilities 785,526 665,202
---------------- ----------------
Total Liabilities 61,817,758 47,836,355
---------------- ----------------
Stockholders' Equity:
Common stock; par value $.10 per share
Class A, authorized 700,000 shares, issued and
outstanding 478,940 shares 47,894 47,894
Class B September 30, 1998 December 31, 1997 313,175 311,377
----------- ------------------ ---------------------
Authorized: 10,000,000 10,000,000
Issued: 3,131,751 3,113,773
Treasury: 11,224 14,224
Additional paid-in capital 2,143,714 2,043,653
Retained earnings 10,026,934 9,943,241
Net unrealized gain on securities available for sale (Notes 5 and 9) 1,456 19,505
Class B, treasury stock (at cost) (Note 10) (151,967) (192,587)
---------------- ----------------
Total Stockholders' Equity 12,381,206 12,173,083
---------------- ----------------
Total Liabilities and Stockholders' Equity $74,198,964 $60,009,438
================ ================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
1998 1997
--------------- ----------------
Income:
<S> <C> <C>
Rental $7,144,012 $6,159,768
Interest on mortgages - sold properties 2,847,079 3,112,030
Interest on wrap mortgages 960,181 976,361
Interest on mortgages - related parties 372,717 174,021
Investment income 117,733 105,447
Other 34,764 45,969
--------------- ----------------
Total 11,476,486 10,573,596
--------------- ----------------
Costs and Expenses:
General and administrative 2,031,474 1,712,657
Interest on note payable and other 849,400 775,050
Interest on wrap mortgage debt 155,988 172,167
Amortization of loan acquisition costs 24,344 22,051
Depreciation on non-rental property 18,130 18,406
Rental property:
Operating expenses 3,108,535 3,095,087
Interest on mortgages 1,889,461 1,606,012
Real estate taxes 655,258 583,510
Depreciation on real estate 587,410 543,976
Amortization of mortgage costs 174,920 247,248
Minority interest share of partnership income 359,901 285,398
--------------- ----------------
Total 9,854,821 9,061,562
--------------- ----------------
Income before net gain from sales of properties and securities 1,621,665 1,512,034
Net gain from sales of properties and securities 725,107 562,658
--------------- ----------------
Net Income $2,346,772 $2,074,692
=============== ================
Earnings per Common Share (Note 1-C):
Income before net gain from sales of properties and securities $0.45 $0.42
Net gain from sales of properties and securities 0.20 0.16
--------------- ----------------
Net Income per Common Share $0.65 $0.58
=============== ================
Cash Distributions Declared per Common Share $0.63 $0.60
=============== ================
Weighted Average Number of Shares Outstanding 3,589,889 3,560,549
=============== ================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
1998 1997
--------------- ----------------
Income:
<S> <C> <C>
Rental $2,434,424 $2,119,482
Interest on mortgages - sold properties 950,661 929,904
Interest on wrap mortgages 318,685 324,128
Interest on mortgages - related parties 109,153 58,664
Investment income 51,140 18,227
Other 5,834 11,487
--------------- ----------------
Total 3,869,897 3,461,892
--------------- ----------------
Costs and Expenses:
General and administrative 630,373 583,562
Interest on note payable and other 280,744 297,970
Interest on wrap mortgage debt 50,621 56,063
Amortization of loan acquisition costs 8,115 8,011
Depreciation on non-rental property 6,353 5,323
Rental property:
Operating expenses 1,064,665 1,077,780
Interest on mortgages 708,341 522,445
Real estate taxes 215,980 234,172
Depreciation on real estate 207,755 190,549
Amortization of mortgage costs 13,561 179,772
Minority interest share of partnership income 145,722 69,742
--------------- ----------------
Total 3,332,230 3,225,389
--------------- ----------------
Income before net gain from sales of properties and securities 537,667 236,503
Net gain from sales of properties and securities 43,889 54,785
--------------- ----------------
Net Income $581,556 $291,288
=============== ================
Earnings per Common Share (Note 1-C):
Income before net gain from sales of properties and securities $0.15 $0.06
Net gain from sales of properties and securities 0.01 0.02
--------------- ----------------
Net Income per Common Share $0.16 $0.08
=============== ================
Cash Distributions Declared per Common Share $0.32 $0.30
=============== ================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
----------------------------------------
1998 1997
-------------- --------------
Cash Flows from Operating Activities:
<S> <C> <C>
Cash received from rental properties $6,961,116 $6,286,420
Interest received 3,434,791 3,153,392
Miscellaneous income 30,892 58,412
Interest paid on rental property mortgages (1,853,848) (1,601,631)
Interest paid on wrap mortgage debt (155,988) (172,167)
Interest paid on note payable (694,486) (621,470)
Cash disbursed for rental property operations (4,436,811) (3,525,980)
Cash disbursed for general and administrative costs (1,363,154) (1,250,233)
-------------- --------------
Net cash provided by operating activities 1,922,512 2,326,743
-------------- --------------
Cash Flows from Investing Activities:
Payments received on notes receivable 1,226,401 2,243,184
Payments disbursed for investments in notes receivable (60,000) (3,009,946)
Payments disbursed for additions and improvements (355,398) (1,373,328)
Proceeds from sale of property 74,550
Purchase of property (6,549,637)
Proceeds from sales of securities 23,986 645,943
Purchases of securities (853,812) (79,202)
Purchase of 1% interest in partnership (60,000)
-------------- --------------
Net cash used in investing activities (6,493,910) (1,633,349)
-------------- --------------
Cash Flows from Financing Activities:
Principal payments on mortgage debt:
Properties owned (331,237) (435,575)
Wrap mortgage debt on sold properties (358,946) (346,305)
Mortgage debt payment from proceeds of mortgage refinancing (10,788,825) (7,771,546)
Mortgage proceeds 24,675,000 8,120,000
Mortgage refinancing repairs and replacement escrows (558,730)
Mortgage costs (574,612) (192,875)
Note payable proceeds 2,500,000
Principal payments on note payable (109,251) (479,376)
Cash distributions on common stock (2,263,079) (2,138,126)
Proceeds from dividend reinvestment and share purchase plan 121,599 133,531
Distributions to minority partners (3,909,108) (304,411)
-------------- --------------
Net cash provided by (used in) financing activities 5,902,811 (914,683)
-------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents 1,331,413 (221,289)
Cash and Cash Equivalents, Beginning of Period 979,712 1,392,135
-------------- --------------
Cash and Cash Equivalents, End of Period $2,311,125 $1,170,846
============== ==============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net Income $2,346,772 $2,074,692
--------------- ---------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 804,804 831,681
Gain from sales of properties and securities (725,107) (562,658)
Issuance of treasury stock 15,660
Amortization of discounts on notes and fees (820,690) (1,122,928)
Decrease in accounts receivable 70,575 55,190
Increase in accounts payable and accrued liabilities 283,203 415,405
Decrease in deferred income (84,780) (61,617)
Increase in prepaid expenses, deposits in escrow
and deferred charges (644,656) (205,451)
Increase in security deposit restricted funds (378,363)
Increase in security deposit liabilities 124,196 68,723
Minority share of partnership income 359,901 285,398
Distribution payable on common stock 575,915 535,864
Other (4,918) 12,444
--------------- ---------------
Total adjustments (424,260) 252,051
--------------- ---------------
Net cash provided by operating activities $1,922,512 $2,326,743
=============== ===============
Supplemental noncash disclosures:
Property received in satisfaction of debt $11,569 $45,765
=============== ===============
Net carrying value of foreclosed properties
reclassified to real estate $588,683
===============
See notes to consolidated financial statements.
</TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
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 ("Home Mortgage Partnership" formerly known as
Metmor Plaza Associates), partnerships in which Presidential or PDL, Inc., a
wholly owned subsidiary of Presidential, is the General Partner.
All significant intercompany balances and transactions have been eliminated.
C. Net Income Per Share - Basic net income per share data is computed by
dividing the net income by the weighted average number of shares of Class A and
Class B common stock outstanding and common stock equivalents during each
period. Basic net income per share and diluted income per share are the
same for the nine months ended September 30, 1998 and 1997. The dilutive effect
of stock options is calculated using the treasury stock method.
D. Basis of Presentation - The accompanying unaudited consolidated financial
statements have been prepared in accordance with 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, 1997.
E. Management Estimates - In preparing the consolidated financial statements in
conformity with generally accepted accounting principles, management is required
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the consolidated balance sheets and the reported amounts of income and
expense for the reporting period. Actual results could differ from those
estimates.
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.
Notes receivable - sold properties consist of:
(1) Long-term purchase money notes from sales of properties previously owned by
the Company or notes purchased 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. These notes
generally 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 Properties, Ltd. or its
affiliates (collectively "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.
The Woodland notes receivable were modified in March, 1998, as a result of the
sale of the property and the assumption of the notes by the purchasers. The
interest rate on the notes was increased from 9% to 10% through 2001 and will
increase to 10.25% thereafter.
At September 30, 1998, all of the notes in the Company's mortgage portfolio are
current with the exception of two sold properties notes, the Fairfield Towers
Second Mortgage and the Grant House wraparound mortgage note, which are
classified as impaired loans. These two loans are in the aggregate amount of
$17,662,927 and have a net carrying value of $3,665,012 after deducting
discounts of $7,617,236 and deferred gains of $6,380,679. The Grant House
wraparound mortgage note wraps around and is subordinate to a first mortgage
with an outstanding principal balance of $2,260,248 at September 30, 1998, which
is equal to the net carrying value of the Grant House wraparound note. At
September 30, 1998, all payments due on the first mortgage have been paid. The
Company has determined that no allowances for credit losses are required for
these impaired loans because the net carrying value of these loans is less than
the estimated fair value of the underlying collateral.
The Company recognizes income on the impaired loans only to the extent that such
income is actually received. The average recorded investment in
impaired loans during the nine months ended September 30, 1998 and September 30,
1997 was $17,760,442 and $16,162,040, respectively.
There have been no significant changes in the status of the impaired loans since
December 31, 1997. There were no condominium sales at the Fairfield Towers
property during the nine months ended September 30, 1998.
The following table reflects the activity in impaired loans:
<TABLE>
IMPAIRED LOANS
- --------------
<CAPTION>
Impaired Impaired
Loan Additions Loan
Balance (Payments) Balance
Loan Description 12/31/97 1998 9/30/98
- ------------------------------------------------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
Notes receivable-sold properties:
Properties previously owned-
Fairfield Towers Second Mortgage $14,488,337 ($109,251) $14,379,086
Grant House (1) 3,390,121 (106,280) 3,283,841
----------------- ----------------- -----------------
Total $17,878,458 ($215,531) $17,662,927
================= ================= =================
Discount Net
on Deferred Carrying
Loans Gain Value
Loan Description 9/30/98 9/30/98 9/30/98
- ------------------------------------------------ ----------------- ----------------- -----------------
Notes receivable-sold properties:
Properties previously owned-
Fairfield Towers Second Mortgage ($7,617,236) ($5,357,086) $1,404,764
Grant House (1) (1,023,593) 2,260,248
----------------- ----------------- -----------------
Total ($7,617,236) ($6,380,679) $3,665,012
================= ================= =================
Nine months ended September 30,
----------------------------------------
1998 1997
----------------- -----------------
Reported Interest Income and
Amortization of Discount (Cash Basis)
- ----------------------------------------------------------
Fairfield Towers Second Mortgage - interest income $12,401 $62,579
Fairfield Towers Second Mortgage - amortization of discount 57,875 64,397
Grant House - interest income (1) 51,923
Overlook - interest income (2) 70,869
Overlook - additional interest income (2) 17,527
----------------- -----------------
Total $122,199 $215,372
================= =================
Recognized Gain from Sale of Property
- ----------------------------------------------------------
Fairfield Towers Second Mortgage $51,376 $57,166
Overlook (2) 17,840
----------------- -----------------
Total $51,376 $75,006
================= =================
Nonreported Interest Income and Amortization of Discount
- --------------------------------------------------------------------------------
The following additional amounts would have been reported if these loans had
been fully performing:
Fairfield Towers Second Mortgage - interest income $731,394 $683,043
Fairfield Towers Second Mortgage - additional interest income 69,634
Fairfield Towers Second Mortgage - amortization of discount 950,757 792,046
Grant House - interest income (1) 56,250
----------------- -----------------
Total $1,738,401 $1,544,723
================= =================
<FN>
(1) Grant House was classified as an impaired loan at December 31, 1997 and, as
a result, no amounts are listed for the 1997 period. The interest income of
$51,923 reported for the 1998 period represents interest received on the
wraparound first mortgage debt. The net carrying value of this wraparound
mortgage note is equal to the first mortgage debt of $2,260,248 which it
wraps around.
(2) The Overlook loan was reclassified to accrual status at December 31, 1997.
</FN>
</TABLE>
3. REAL ESTATE
Real estate is comprised of the following:
September 30, December 31,
1998 1997
------------ -----------
Land $ 5,454,549 $ 3,774,779
Buildings and leaseholds 28,853,829 23,729,409
Furniture and equipment 228,086 186,347
----------- -----------
Total real estate $34,536,464 $27,690,535
=========== ===========
In August, 1998, the Company purchased Sunwood Apartments, a 105 unit apartment
building complex in Miami, Florida, for a purchase price of $6,100,000.
Presidential obtained a $4,875,000 first mortgage loan on the property.
4. MINORITY PARTNERS' INTEREST
Presidential is the General Partner of UTB Associates and Pdl, Inc., a wholly
owned subsidiary of Presidential, is the General Partner of Home Mortgage
Partnership. Presidential has a 66-2/3% interest in UTB Associates. Presidential
and PDL, Inc. have an aggregate 26% interest in Home Mortgage Partnership. As
the General Partner of these partnerships, Presidential and PDL, Inc.,
respectively, exercise effective control over the business of these
partnerships, and, accordingly, Presidential has included 100% of the account
balances of these partnerships in the accompanying financial statements. The
minority partners' interest reflects the minority partners' equity in the
partnerships.
The minority partners' interest in the Home Mortgage Partnership is a negative
interest and therefore, minority partners' interest is a net receivable on the
Company's financial statements. The negative basis for each partner's interest
in the Home Mortgage Partnership is due to the refinancing of the mortgage on
the property and the distribution of the proceeds to the partners. The mortgage
debt, which is included in the Company's financial statements, is substantially
in excess of the historical cost of the property and the estimated fair value of
the property is significantly greater than the mortgage debt. The minority
partners' interest should be recovered if the partnership sold the property and
the partnership is liquidated.
Minority partners' interest is comprised of the following:
September 30, December 31,
1998 1997
------------ -----------
Home Mortgage Partnership $7,506,989 $3,963,378
UTB Associates (178,374) (183,970)
---------- ----------
Total minority partners' interest $7,328,615 $3,779,408
========== ==========
5. SECURITIES AVAILABLE FOR SALE
The cost and fair value of securities available for sale are as follows:
September 30, December 31,
1998 1997
------------ -----------
Cost $1,058,307 $207,045
Gross unrealized gains 12,798 19,612
Gross unrealized losses (11,342) (107)
---------- --------
Fair value $1,059,763 $226,550
========== ========
Sales activity results for securities available for sale are as follows:
Nine Months Ended September 30,
-------------------------------
1998 1997
---- ----
Gross sales proceeds $23,986 $649,110
======= ========
Gross realized gains $21,436 $ 52,420
Gross realized losses (37,264)
------- --------
Net realized gain $21,436 $ 15,156
======= ========
6. MORTGAGE DEBT
In March, 1998, the Company obtained a $2,300,000 mortgage on its Fairlawn
Gardens property (formerly Kent Terrace). The mortgage bears interest at the
rate of 7.06% per annum, requires monthly payments of principal and interest of
$15,395 and matures on April 1, 2008 with a $2,012,668 balloon payment due at
maturity.
In April, 1998, the Company refinanced the mortgage on the Home Mortgage
property (formerly known as Metmor Plaza). The prior mortgage balance of
$10,788,825 was paid from the proceeds of the new $17,500,000 mortgage. The new
mortgage bears interest at the rate of 7.38% per annum for the first ten years
and requires monthly payments of principal and interest of $120,928 until the
anticipated repayment date of May 11, 2008, at which time the then outstanding
principal balance of $15,445,099 is expected to be repaid. However, the maturity
date of the mortgage is May 11, 2028 and if the mortgage is not repaid in 2008,
the interest rate will be increased by 2% and additional repayments will be
required from the surplus cash flows from the operations of the property (after
payment of operating expenses) which will be applied to the outstanding
principal amount.
In connection with its acquisition of Sunwood Apartments in August, 1998,
Presidential obtained a $4,875,000 first mortgage. The mortgage bears interest
at the rate of 6.55%, requires monthly payments of principal and interest of
$30,974 and matures on September 1, 2008 with a $4,146,347 balloon payment due
at maturity.
7. NOTE PAYABLE TO BANK
In connection with the Company's purchase of the Fairfield Towers First Mortgage
in 1996, the Company obtained a bank loan from Fleet Bank, N.A. ("Fleet"). The
note, which matures on October 30, 2001, is secured by a collateral assignment
of the Fairfield Towers First Mortgage and is nonrecourse to Presidential except
for a limited guarantee, the amount of which reduces as the principal balance is
repaid. This limited guarantee was $1,403,583 at
September 30, 1998. The interest rate is variable and is based at the Company's
election on either the bank's prime rate plus 1%, a cost of funds rate plus 3%,
or various LIBOR rates plus 3%. The note amortizes monthly based on a 9.25%
interest rate for a 25 year term. In addition, upon the sale of condominium
units, the Company is required to make principal payments to Fleet in an amount
equal to the amount of principal payments received by the Company on the
Fairfield Towers First Mortgage. At September 30, 1998 payments on the Fleet
note payable were current. The outstanding note balance at September 30, 1998
and December 31, 1997 was $10,433,301 and $10,542,552, respectively.
The Company obtained an unsecured $250,000 line of credit from a lending
institution in 1997. The interest rate is 1% above the prime rate and the line
of credit expires in February, 1999. Presidential pays a 1% annual fee for the
line of credit. At September 30, 1998, no advances are outstanding on this line
of credit.
8. INCOME TAXES
Presidential has elected to qualify as a Real Estate Investment Trust under the
Internal Revenue Code. A REIT which distributes at least 95% of its real estate
investment trust taxable income to its shareholders each year by the end of the
following year and which meets certain other conditions will not be taxed on
that portion of its taxable income which is distributed to its shareholders.
Upon filing the Company's income tax return for the year ended December 31,
1997, Presidential applied its available 1997 stockholders' distributions and
elected to apply (under Section 858 of the Internal Revenue Code) all but
approximately $199,000 of its 1998 stockholders' distributions to reduce its
taxable income for 1997 to zero.
Furthermore, the Company had taxable income (before distributions to
stockholders) for the nine months ended September 30, 1998 of approximately
$1,483,000 ($.41 per share), which included approximately $687,000 ($.19 per
share) of capital gains. This amount will be reduced by the $199,000 ($.06 per
share) of its 1998 distributions that were not utilized in reducing the
Company's 1997 taxable income and by any eligible 1999 distributions that the
Company may elect to utilize as a reduction of its 1998 taxable income.
Presidential intends to continue to maintain its REIT status and although no
assurances can be given at this time, the Company expects that it will not have
to pay Federal income taxes for 1998 because its present intention is to
distribute all of its 1998 taxable income during 1998 and 1999. Therefore, no
provision for income taxes has been made at September 30, 1998.
Presidential has, for tax purposes, reported the gain from the sale of certain
of its properties using the installment method.
9. COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" in the first quarter of 1998. The Company's
only element of other comprehensive income is the change in the unrealized gain
on the Company's securities available for sale. Thus, comprehensive income,
which consists of net income plus or minus other comprehensive income, for the
nine months ended September 30, 1998 and 1997 was $2,328,723 and $2,066,166,
respectively.
10. TREASURY STOCK
In March, 1998, three directors of the Company were each given 1,000 shares of
the Company's Class B common stock as partial payment for directors fees for the
1998 year. Such shares had been held in treasury at an average cost of
approximately $13.54 per share. The average market value for the previous month
of the Class B common stock, on which the fees were based, was $6.96 per share.
As a result of this transaction, the Company recorded $20,880 for prepaid
directors fees (to be amortized during 1998) based on the average market value
of the stock. Treasury stock was reduced by a cost of $40,620 and additional
paid-in capital was charged $19,740 for the excess of the cost over the market
value.
11. COMMITMENTS AND CONTINGENCIES
The Company has incurred costs for environmental site investigations and the
related response action outcome for potentially hazardous drums found at one
site on its Mapletree Industrial Center property in Palmer, Massachusetts. As of
December 31, 1997, the site investigation work was completed and remedial action
was in progress and the Company had a balance of $35,600 in accrued
environmental costs. At September 30, 1998, there have been no changes to the
1997 estimated costs. Actual costs incurred may vary from these estimates due to
the inherent uncertainties involved.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
Results of Operations
Financial Information for the nine months ended September 30, 1998 and 1997:
- -------------------------------------------------------------------------------
Revenue increased by $902,890 from $10,573,596 in 1997 to $11,476,486 in 1998
primarily as a result of increases in rental income and interest on mortgages-
related parties. These increases were offset by a decrease in interest on
mortgages-sold properties.
Rental income increased by $984,244 from $6,159,768 in 1997 to $7,144,012 in
1998 primarily as a result of increases of $429,967 at the Home Mortgage
property (formerly Metmor Plaza) and increases of $263,810 at the Fairlawn
Gardens property (formerly Kent Terrace). On August 31, 1998, the Company
purchased Sunwood Apartments, a 105 unit apartment property in Miami, Florida.
Rental income from the Sunwood property was $81,455. In addition, rental income
increased at all other properties by $209,012.
Interest on mortgages-related parties increased by $198,696 from $174,021 in
1997 to $372,717 in 1998 primarily as a result of increases in interest on the
Consolidated Loans of $153,451 and increases in interest on the Overlook loan of
$52,951.
Interest on mortgages-sold properties decreased by $264,951 from $3,112,030 in
1997 to $2,847,079 in 1998 primarily due to the $382,796 amortization of
discount on the Cedarbrooke note which was recorded in 1997 as a result of the
prepayment of the Cedarbrooke note in 1997. In addition, there was a decrease of
$50,178 of interest received on the Fairfield Towers Second Mortgage. These
decreases were offset by increases of $83,538 in interest income from the
Fairfield Towers First Mortgage and $94,154 from the amortization of discounts
on the mortgage portfolio.
Costs and expenses increased by $793,259 from $9,061,562 in 1997 to $9,854,821
in 1998 primarily due to increases in general and administrative expenses,
interest on note payable and other, interest on mortgages, real estate tax
expense, depreciation expense and an increase in minority interest share of
partnership income. These increases were partially offset by a decrease in
amortization of mortgage costs.
General and administrative expenses increased by $318,817 from $1,712,657 in
1997 to $2,031,474 in 1998 primarily due to increases in franchise tax expense
of $221,935, resulting from the partnership distribution received from the
proceeds of the mortgage refinancing on the Home Mortgage property and the taxes
thereon. In addition, there were increases in salary expense of $76,900 (of
which $77,122 pertains to increases in executive bonuses), stationery and
printing expenses increased by $7,233 and there was an increase in directors
fees of $7,530. In the 1998 period, three directors of the Company were each
given 1,000 shares of the Company's Class B common stock as partial payment for
directors fees. Such shares had been held in treasury at an average cost of
$13.54 per share. The average market value of the Class B common stock, on which
the fees were based, was $6.96 per share. As a result, the Company recorded
$20,880 in prepaid directors fees based on the average market value of the
stock, treasury stock was reduced by a cost of $40,620 and additional paid-in
capital was charged $19,740 for the excess of the cost over the market value. At
September 30, 1998, $15,660 of the prepaid directors fees were expensed.
Interest on note payable and other increased by $74,350 from $775,050 in 1997 to
$849,400 in 1998 primarily due to a $44,269 increase in interest expense on the
note payable as a result of the additional $2,500,000 loan advanced in 1997. In
addition, the amortization of discounts on deferred payables increased by
$29,173.
Mortgage interest expense increased by $283,449 from $1,606,012 in 1997 to
$1,889,461 in 1998 as a result of the refinancing of the mortgage on the Home
Mortgage property in April of 1998, the new mortgage obtained on the Fairlawn
Gardens property in March of 1998 and the mortgage obtained on Sunwood
Apartments, which was purchased in August of 1998. Mortgage interest on the Home
Mortgage property increased by $185,297. Mortgage interest was $87,806 on the
Fairlawn Gardens property and $27,496 on the Sunwood Apartments property.
Real estate tax expense increased by $71,748 from $583,510 in 1997 to $655,258
in 1998 primarily as a result of increases in real estate tax expense at the
Crown Court and Home Mortgage properties. The 1997 real estate tax expense
included refunds of $46,143 for prior years' taxes at the Crown Court property.
Depreciation on real estate increased by $43,434 from $543,976 in 1997 to
$587,410 in 1998 as a result of improvements and additions made to the
properties in 1997 and 1998. The addition of the Sunwood Apartments property in
1998 also increased depreciation expense by $13,557.
Amortization of mortgage costs decreased by $72,328 from $247,248 in 1997 to
$174,920 in 1998 primarily as a result of the $146,097 write-off in 1997 of
unamortized mortgage costs associated with the prior mortgage on the Continental
Gardens property, which was refinanced in July, 1997. This decrease was offset
by the $107,412 write-off in 1998 of unamortized mortgage costs associated with
the prior mortgage on the Home Mortgage property, which was refinanced in April,
1998. In addition, mortgage costs for the refinanced mortgage on the Home
Mortgage property were less than the mortgage costs on the prior mortgage which
resulted in a $44,593 decrease in amortization of mortgage costs.
Minority share of partnership income increased by $74,503 from $285,398 in 1997
to $359,901 in 1998 primarily as a result of an increase in partnership income
on the Home Mortgage property.
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 1998, the net gain from sales of properties and securities was
$725,107 compared with $562,658 in 1997. In the 1998 period, the Company
recognized a gain of $40,435 from the sale of a cooperative apartment unit at
Sherwood House. In addition, the Company recognized
deferred gains of $608,186 and $51,376, respectively, from principal payments
received on the Overlook loan and the Fairfield Towers Second Mortgage. In the
1997 period, the Company recognized $472,497 of deferred gain from the sale of
the Cedarbrooke property as a result of a $1,074,200 principal prepayment
received on that note. In addition, the Company recognized deferred gains of
$17,840 and $57,166, respectively, from principal payments received on the
Overlook loan and the Fairfield Towers Second Mortgage.
Financial Information for the three months ended September 30, 1998 and 1997:
- -------------------------------------------------------------------------------
Revenue increased by $408,005 from $3,461,892 in 1997 to $3,869,897 in 1998
primarily as a result of increases in rental income, interest on
mortgages-related parties and investment income.
Rental income increased by $314,942 from $2,119,482 in 1997 to $2,434,424 in
1998 primarily as a result of increases of $179,731 at the Home Mortgage
property, rental income of $81,455 at the Sunwood Apartments property and
increases at all other properties of $53,756.
Interest on mortgages-related parties increased by $50,489 from $58,664 in 1997
to $109,153 in 1998 primarily as a result of increases in interest on the
Consolidated Loans of $55,975.
Investment income increased by $32,913 from $18,227 in 1997 to $51,140 in 1998
primarily as a result of increases in cash and cash equivalents and the interest
earned thereon.
Costs and expenses increased by $106,841 from $3,225,389 in 1997 to $3,332,230
in 1998 primarily due to increases in general and administrative expenses,
interest on mortgages and minority interest share of partnership income. These
increases were offset by decreases in interest expense on note payable and
other, real estate taxes and amortization of mortgage costs.
General and administrative expenses increased by $46,811 from $583,562 in
1997 to $630,373 in 1998 primarily due to an increase of $62,063 in franchise
tax expense resulting from the partnership distribution received from the
proceeds of the mortgage refinancing on the Home Mortgage property and the taxes
thereon. This increase was offset by a $17,719 decrease in professional fees.
Interest on note payable and other decreased by $17,226 from $297,970 in 1997 to
$280,744 in 1998 primarily due to a $27,487 decrease in interest expense on
the note payable. This decrease was offset by a $9,725 increase in the
amortization of discounts on deferred payables.
Mortgage interest expense increased by $185,896 from $522,445 in 1997 to
$708,341 in 1998 as a result of the refinancing of the mortgage on the Home
Mortgage property in April, 1998 and the new mortgage obtained on the Fairlawn
Gardens property in March, 1998. Mortgage interest on the Home Mortgage property
increased by $108,579 and mortgage interest on the Fairlawn Gardens property was
$41,831. In addition, the purchase of the Sunwood Apartments property in August,
1998, resulted in mortgage interest of $27,496.
Real estate tax expense decreased by $18,192 from $234,172 in 1997 to $215,980
in 1998 primarily as a result of a $34,870 decrease in real estate tax expense
at the Cambridge Green property. This decrease was partially offset by an
increase in real estate tax expense of $10,413 at the Continential Gardens
property and $7,434 of real estate tax expense for the Sunwood Apartments
property.
Amortization of mortgage costs decreased by $166,211 from $179,772 in 1997 to
$13,561 in 1998 as a result of the $146,097 write-off in 1997 of unamortized
mortgage costs associated with the prior mortgage on the Continental Gardens
property and a $24,302 decrease in amortized mortgage costs on the Home Mortgage
property.
Minority interest share of partnership income increased by $75,980 from $69,742
in 1997 to $145,722 in 1998 primarily as a result of an increase in partnership
income on the Home Mortgage property.
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 1998, the net gain from sales of properties and
securities was $43,889 compared with $54,785 in 1997. In the 1998 period, the
Company recognized deferred gains of $4,973 and $17,478, respectively, from
principal payments received on the Overlook loan and the Fairfield Towers Second
Mortgage. In the 1997 period, the Company recognized deferred gains of $6,081
and $22,915, respectively, from principal payments received on the Overlook loan
and the Fairfield Towers Second Mortgage.
Balance Sheet
Real estate increased by $6,845,929 from $27,690,535 at December 31, 1997 to
$34,536,464 at September 30, 1998 due to the purchase of Sunwood Apartments, a
105 unit apartment property in Miami, Florida, in August, 1998. The capitalized
cost of this property was $1,680,000 for land and $4,860,251 for buildings and
improvements. Additions and improvements to other properties were $305,678.
The receivable for minority partners' interest increased by $3,549,207 from
$3,779,408 at December 31, 1997 to $7,328,615 at September 30, 1998, as a result
of the $3,670,400 distribution made to the minority partners of the Home
Mortgage Partnership from the proceeds from the refinancing of the mortgage on
the Home Mortgage property.
Prepaid expenses and deposits in escrow increased by $1,121,699 from $1,190,158
at December 31, 1997 to $2,311,857 at September 30, 1998 as a result of
increases of $70,874 in prepaid franchise taxes, increases of $37,193 in prepaid
expenses as a result of the addition of the Sunwood Apartments property,
increases of $455,983 in mortgagee real estate tax and insurance escrows and an
increase of $561,570 in replacement reserve mortgagee escrow funds. These
increases were a result of the mortgages obtained in 1998 on the Home Mortgage,
Fairlawn Gardens and the Sunwood Apartments properties.
Securities available for sale increased by $833,213 from $226,550 at December
31, 1997 to $1,059,763 at September 30, 1998. This increase was the result of
purchases of marketable debt securities of $853,812, offset by the sale of
securities at a cost of $2,550 and the reduction in the fair value of securities
available for sale of $18,049.
Cash and cash equivalents increased by $1,331,413 from $979,712 at December
31, 1997 to $2,311,125 at September 30, 1998, primarily as a result of the
$2,300,000 mortgage obtained from the financing of the Fairlawn Gardens
property. The Company also received a $1,006,276 partnership distribution (net
of taxes paid) from the Home Mortgage Partnership as a result of the refinancing
of the mortgage on the Home Mortgage property and principal payments of $608,186
were received on the Overlook loan. The additions to cash and cash equivalents
were partially offset by the $1,834,214 of funds disbursed for the purchase of
Sunwood Apartments and the $853,812 paid for the purchase of marketable debt
securities, primarily interest-bearing corporate bonds.
Other assets increased by $859,151 from $1,140,571 at December 31, 1997 to
$1,999,722 at September 30, 1998 primarily as a result of a $574,612 increase in
mortgage costs for the mortgages obtained in 1998, which were partially offset
by the $199,264 amortization of mortgage and loan acquisition costs. In
addition, $274,814 of tenant security deposits at the Home Mortgage property
were transferred from cash and cash equivalents to restricted funds, in
accordance with the terms of the refinanced mortgage and $98,599 of tenant
security deposits were deposited for the security deposits held at the Sunwood
Apartments property. Office furniture and equipment increased by $36,662 and
deferred charges increased by $86,908.
Mortgage debt on properties owned increased by $13,554,938 from $26,271,093 at
December 31, 1997 to $39,826,031 at September 30, 1998. This increase was the
result of the refinancing of the Home Mortgage property, which increased the
mortgage debt on that property by $6,711,175, the new $2,300,000 mortgage on the
Fairlawn Gardens property and the $4,875,000 mortgage on the Sunwood Apart-
ments property. These increases were offset by principal payments of $331,237.
Year 2000 Compliance
The year 2000 issue occurred as a result of computer software programs
recognizing a two-digit date code instead of a four-digit code. Therefore, in
date sensitive software, the year 2000 would be recognized as the year 1900.
Many computer systems and software programs will have to be updated to comply
with the Year 2000 requirements.
Readiness
The Company's business and information technology systems ("IT") have been
assessed for Year 2000 compliance and the Company anticipates that the required
changes will be completed by June, 1999. During the fourth quarter of 1998, the
Company will continue to assess the non-information technology systems ("NIT")
that may have Year 2000 problems and address such problems. In addition, the
Company will contact all third parties that have an effect on the Company's
business transactions for verification of their compliance with the Year 2000.
Phase I
The Company has completed its assessment of its headquarters IT system, which
includes accounts payable, accounts receivable, general ledger, spreadsheets and
financial information systems. All updates to systems are near completion with
the exception of the Company's accounts receivable system, which is estimated to
be completed by June, 1999. Management believes that the telephone systems,
communication systems and data collection systems at the Company's headquarters
are Year 2000 compliant.
Phase II
During the fourth quarter of 1998, the Company will continue to assess its
non-information technology systems . These systems are located at the Company's
properties and would include elevators, heating and air conditioning systems,
lighting and security systems. It is anticipated that the assessment and
remedial action (if required) would be completed by the end of 1998. The
majority of the Company's properties are apartment properties with limited
technology systems.
Phase III
In addition, during the fourth quarter of 1998, the Company will be sending
requests to tenants, mortgagors, and all third party vendors for written
verification that their systems are Year 2000 compliant in relation to their
activities with the Company. This phase is also estimated to be completed by the
end of 1998.
Costs
At September 30, 1998, the costs related to the Year 2000 compliance have been
minimal. The Company has capitalized approximately $30,600 for replacement of
equipment and has expensed approximately $2,000 for the upgrading of its
systems. The estimated costs to complete Phase I is approximately $10,000 and
the estimated costs to assess Phases II and III are minimal. Until the
assessment of Phase II is completed, the Company cannot estimate the costs for
remedial action if such action is required. The Company does not anticipate
these costs to have a material effect on the Company's consolidated financial
statements.
Risk Factors and Contingency Plan
The Company does not anticipate any problems in finalizing the updating of its
IT or NIT systems by the projected target date and intends to test these systems
prior to the year 2000. However, the Company's business operations could be
affected if financial institutions, utility companies and major suppliers of
services, which are utilized by the Company, fail to become Year 2000 compliant.
The effect of non-compliance by these third party vendors is not determinable at
this time. The Company does not anticipate that the Year 2000 issue will have an
adverse effect on the ability of its mortgagors or tenants to make payments due
to the Company in a timely fashion.
At this time, no formal contingency plan has been developed by the Company. Upon
completion of Phase II and Phase III, the Company will analyze the need for a
contingency plan.
Forward-Looking Statements
Certain statements made in this report may constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended and Section 21E of the Securities Exchange Act of 1934, as amended. Such
forward-looking statements include statements regarding the intent, belief or
current expectations of the Company and its management and involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of the Company to be materially different
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such factors include, among other things, the
following: general economic and business conditions, which will, among other
things, affect the demand for retail space or retail goods, availability and
creditworthiness of prospective tenants, lease rents and the terms and
availability of financing; adverse changes in the real estate markets including,
among other things, competition with other companies; risks of real estate
development and acquisition; governmental actions and initiatives; and
environment/safety requirements.
Liquidity and Capital Resources
Management believes that the Company has sufficient liquidity and capital
resources to carry on its existing business and, barring any unforeseen
circumstances, to pay the dividends required to maintain REIT status in the
foreseeable future. The Company is 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 adversely affected by limitations on
its ability to obtain funds for investment on satisfactory terms from external
sources. Except as discussed herein, management is not aware of any other
trends, events, commitments or uncertainties that will have a significant effect
on liquidity.
Presidential obtains funds for working capital and investment from its available
cash and cash equivalents, from operating activities, from refinancing of
mortgage loans on its real estate equities, and from repayments of its mortgage
portfolio. The Company also has at its disposal a $250,000 unsecured line of
credit from a lending institution.
At September 30, 1998, Presidential had $2,311,125 in available cash and cash
equivalents, an increase of $1,331,413 from the $979,712 at December 31, 1997.
This increase in cash and cash equivalents was due to cash provided by
operating activities of $1,922,512 and financing activities of $5,902,811,
offset by cash used in investing activities of $6,493,910.
Operating Activities
Presidential's principal source of cash from operating activities is from
interest on its mortgage portfolio, which was $2,584,317 in 1998, net of
interest payments on wrap mortgage debt and note payable. In 1998, net cash
received from rental property operations was $431,749, which is net of
distributions from partnership operations to minority partners but before
additions and improvements and mortgage amortization. The net cash received from
rental property operations includes an expenditure of $274,814 for the funding
of security deposits for the Home Mortgage property in accordance with the terms
of the refinanced mortgage on that property.
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 1998, the Company
received principal payments of $867,455 on its mortgage portfolio (net of any
principal payments attributable to the Underlying Debt), of which $744,686
represented prepayments, which are sporadic and cannot be relied upon as a
regular source of liquidity.
On August 31, 1998, the Company purchased Sunwood Apartments, a 105 unit
apartment property in Miami, Florida. The purchase price of the property was
$6,100,000 and the Company obtained a new $4,875,000 first mortgage loan secured
by the property. While the Company has only operated the property since August
31, the property has a solid and stable operating history and the Company
believes that it will contribute to the Company's cash flow in 1998 and
subsequent years.
During 1998, the Company invested $355,398 in additions and improvements to its
properties. The Company sold one cooperative apartment at Sherwood House in Long
Beach, New York and received net proceeds of $74,550.
The Company also holds a portfolio of marketable equity and debt securities
which increased by $833,213 from $226,550 at December 31, 1997 to $1,059,763 at
September 30, 1998 as a result of the purchase of debt securities (primarily
interest-bearing corporate bonds) of $853,812 offset by a decrease in the fair
value of securities of $18,049 and the sale of securities at a cost of $2,550.
Financing Activities
The Company's indebtedness at September 30, 1998, includes $44,616,302 of
mortgage debt (including $4,790,271 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 with the exception of the $275,212 Mapletree Industrial Center mortgage,
which is secured by the property and a guarantee of repayment by Presidential.
In addition, some of the Company's mortgages provide for personal liability for
damages resulting from specified acts or circumstances, such as for
environmental liabilities and fraud. Generally, mortgage debt repayment is
serviced with cash flow from the operations of the individual properties. During
1998, the Company made $331,237 of principal payments on mortgage debt on
properties which it owns.
The Company obtained a $2,300,000 mortgage on its Fairlawn Gardens property in
March of 1998. The mortgage matures in April, 2008 with a balloon payment of
$2,012,668 due at maturity. The mortgage requires monthly payments of principal
and interest of $15,395 and has an interest rate of 7.06% per annum. In April of
1998, the Company completed the refinancing of the mortgage on the Home Mortgage
property and the prior mortgage balance of $10,788,825 was paid from the
proceeds of the new $17,500,000 mortgage. The new mortgage bears interest at the
rate of 7.38% per annum for the first ten years, requires monthly payments of
principal and interest of $120,928 until the anticipated repayment date of May
11, 2008 at which time the then outstanding principal balance of $15,445,099 is
expected to be repaid. However, the maturity date of the mortgage is May 11,
2028 and if the mortgage is not repaid in 2008, the interest rate will be
increased by 2% and additional repayments will be required from the surplus cash
flows from the operations of the property (after payment of operating expenses)
which will be applied to the outstanding principal amount. In August, 1998,
Presidential obtained a $4,875,000 mortgage in connection with its acquisition
of Sunwood Apartments. The mortgage bears interest at the rate of 6.55% per
annum, requires monthly payments of principal and interest of $30,974 and
matures on September 1, 2008 with a $4,146,347 balloon payment due at maturity.
The mortgages on the Company's properties are self-liquidating at fixed rates of
interest with the exception of the mortgages on Home Mortgage, Building
Industries Center, Fairlawn Gardens, Continental Gardens and Sunwood Apartments,
which have balloon payments due at maturity.
The Company's indebtedness at September 30, 1998 includes a $10,433,301 bank
loan payable to Fleet. The note, which matures on October 30, 2001, is
nonrecourse to Presidential except for a limited guarantee, the amount of which
reduces as the principal balance is repaid and was limited to
$1,403,583 at September 30, 1998. The interest rate is variable and is based at
the Company's election on either the bank's prime rate plus 1%, a cost of funds
rate plus 3%, or various LIBOR rates plus 3%. The note amortizes monthly based
on a 9.25% interest rate for a 25 year term with additional principal payments
due upon the sale of condominium units. During 1998, the Company made principal
payments of $109,251.
During 1998, Presidential declared cash distributions of $2,263,079 (including
$575,915 payable in the fourth quarter) to its shareholders and received
proceeds from its dividend reinvestment and share purchase plan of $121,599.
Fairfield Towers
The Company's financial performance and liquidity in 1998 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 and the
rental operations of the unsold condominium units. At September 30, 1998, the
outstanding principal balances on the Fairfield Towers First Mortgage and the
Fairfield Towers Second Mortgage were $17,176,884 and $14,379,086, respectively.
The Fairfield Towers First Mortgage provides for monthly interest payments of 1%
above the prime rate and principal repayments prior to maturity upon the sale of
individual condominium units. Until the Fairfield Towers First Mortgage is
repaid, Presidential will receive basic interest on the Fairfield Towers Second
Mortgage only out of net cash flow from operations of the property and release
payments upon the sale of each condominium unit in the amount of $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 Fairfield Towers First Mortgage.
Since the conversion of the property to condominium status in 1994, a total of
155 units had been sold and 997 units are owned by the sponsor, the majority of
which are occupied as rental units.
Environmental Matters
At September 30, 1998, the Company is continuing with its environmental project
for the investigation and removal of potentially hazardous drums found at one
site on its Mapletree Industrial Center property in Palmer, Massachusetts.
Accrued liabilities for environmental matters have been recorded in operating
expenses when it is probable that a liability has been incurred and the amount
of the liability can be reasonably estimated. These estimates are exclusive of
claims against third parties and have not been discounted. Actual costs incurred
may vary from these estimates due to the inherent uncertainties involved. The
Company believes that any additional liability in excess of amounts provided
which may result from the resolution of this matter will not have a material
adverse effect on the financial condition, liquidity or the cash flow of the
Company. The site investigation at the Mapletree Industrial Center site was
completed and remedial action is in progress. At December 31, 1997, the accrued
expense for the remedial action was $35,600. For the nine months ended September
30, 1998, there were no environmental costs charged to operations.
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 September
30, 1998.
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: November 12, 1998 By: /s/ Jeffrey F. Joseph
---------------------
Jeffrey F. Joseph
President
DATE: November 12, 1998 By: /s/ Elizabeth Delgado
---------------------
Elizabeth Delgado
Treasurer
<TABLE> <S> <C>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,311,125
<SECURITIES> 1,059,763
<RECEIVABLES> 31,736,521
<ALLOWANCES> 93,840
<INVENTORY> 0
<CURRENT-ASSETS> 7,235,654
<PP&E> 34,536,464
<DEPRECIATION> 6,991,263
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