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, 2000
------------------
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, 2000 was 478,940 shares of Class A
common and 3,225,070 shares of Class B common.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
Index to Form 10-Q
For the Nine Months Ended
September 30, 2000
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,
2000 1999
------------------ -----------------
<S> <C> <C>
Real estate (Note 2) $63,404,954 $35,647,633
Less: accumulated depreciation 9,374,323 8,231,480
------------------ -----------------
Net real estate 54,030,631 27,416,153
------------------ -----------------
Mortgage portfolio (Note 3):
Sold properties 28,353,320 28,481,797
Related parties 1,464,258 1,574,028
------------------ -----------------
Total mortgage portfolio 29,817,578 30,055,825
------------------ -----------------
Less discounts:
Sold properties 1,675,664 1,837,722
Related parties 116,930 132,073
------------------ -----------------
Total discounts 1,792,594 1,969,795
------------------ -----------------
Less deferred gains:
Sold properties 11,304,373 11,320,373
Related parties 890,578 908,343
------------------ -----------------
Total deferred gains 12,194,951 12,228,716
------------------ -----------------
Net mortgage portfolio (of which $1,388,873 in 2000
and $127,803 in 1999 are due within one year) 15,830,033 15,857,314
------------------ -----------------
Minority partners' interest (Note 4) 7,864,729 7,904,533
Prepaid expenses and deposits in escrow 2,106,259 1,434,079
Other receivables (net of valuation allowance of
$157,495 in 2000 and $139,822 in 1999) 737,251 494,220
Securities available for sale (Note 5) 5,112 2,299,494
Cash and cash equivalents 1,912,671 7,014,542
Other assets 2,018,666 1,641,095
------------------ -----------------
Total Assets $84,505,352 $64,061,430
================== =================
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,
2000 1999
-------------- ---------------
<S> <C> <C>
Liabilities:
Mortgage debt (of which $609,131 in 2000 and
$1,338,491 in 1999 are due within one year) (Note 6) $59,992,469 $39,379,458
Executive pension plan liability 1,518,529 1,479,185
Accrued liabilities 2,063,876 1,637,069
Accrued taxes payable 220,500
Accrued postretirement costs 515,597 538,398
Deferred income 145,972 46,533
Accounts payable 431,198 414,195
Distribution payable on common stock 592,588
Other liabilities 912,855 799,490
-------------- ---------------
Total Liabilities 66,173,084 44,514,828
-------------- ---------------
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, 2000 December 31, 1999 322,599 321,240
----------- ------------------- -----------------
Authorized: 10,000,000 10,000,000
Issued: 3,225,994 3,212,402
Treasury: 1,258 1,258
Additional paid-in capital 2,654,442 2,573,281
Retained earnings 15,690,144 17,209,589
Net unrealized gain(loss)on securities available for sale (Notes 5 and 8) 1,517 (221,074)
Class B, treasury stock (at cost) (16,828) (16,828)
Notes receivable for exercise of stock options (367,500) (367,500)
-------------- ---------------
Total Stockholders' Equity 18,332,268 19,546,602
-------------- ---------------
Total Liabilities and Stockholders' Equity $84,505,352 $64,061,430
============== ===============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
2000 1999
--------------- --------------
Income:
<S> <C> <C>
Rental $10,619,587 $7,900,449
Interest on mortgages - sold properties 2,255,466 2,209,995
Interest on wrap mortgages 528,173
Interest on mortgages - related parties 155,460 202,661
Investment income 202,697 542,844
Other 33,707 66,648
--------------- --------------
Total 13,266,917 11,450,770
--------------- --------------
Costs and Expenses:
General and administrative 2,037,887 2,033,085
Interest on note payable and other 227,952
Interest on wrap mortgage debt 54,586
Amortization of loan acquisition costs 3,128
Depreciation on non-rental property 17,615 19,085
Rental property:
Operating expenses 4,631,845 3,491,948
Interest on mortgages 3,098,629 2,222,652
Real estate taxes 885,539 689,237
Depreciation on real estate 1,143,703 750,240
Amortization of mortgage costs 65,037 255,967
Minority interest share of partnership income 447,737 420,975
--------------- --------------
Total 12,327,992 10,168,855
--------------- --------------
Income before net gain (loss) from sales of properties, notes and securities 938,925 1,281,915
Net gain (loss) from sales of properties, notes and securities (includes
a provision for Federal and State taxes of $1,566,474 in 1999) (91,250) 7,804,493
--------------- --------------
Net Income $847,675 $9,086,408
=============== ==============
Earnings per Common Share (basic and diluted) (Note 1-C):
Income before net gain (loss) from sales of properties, notes and securities $0.25 $0.35
Net gain (loss) from sales of properties, notes and securities (0.02) 2.16
--------------- --------------
Net Income per Common Share $0.23 $2.51
=============== ==============
Cash Distributions Declared per Common Share $0.64 $0.64
=============== ==============
Weighted Average Number of Shares Outstanding 3,696,605 3,616,119
=============== ==============
See notes to consolidated financial statements.
</TABLE>
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------------------
2000 1999
--------------- --------------
Income:
<S> <C> <C>
Rental $3,876,116 $2,683,844
Interest on mortgages - sold properties 765,820 786,947
Interest on mortgages - related parties 65,539 57,674
Investment income 38,630 204,792
Other 9,006 13,180
--------------- --------------
Total 4,755,111 3,746,437
--------------- --------------
Costs and Expenses:
General and administrative 658,020 667,735
Interest on note payable and other 12,862
Depreciation on non-rental property 6,155 6,362
Rental property:
Operating expenses 1,799,426 1,200,908
Interest on mortgages 1,166,542 739,013
Real estate taxes 317,233 258,511
Depreciation on real estate 439,574 258,618
Amortization of mortgage costs 21,711 15,997
Minority interest share of partnership income 126,970 163,526
--------------- --------------
Total 4,535,631 3,323,532
--------------- --------------
Income before net gain from sales of properties, notes and securities 219,480 422,905
Net gain from sales of properties, notes and securities 22,070 5,494
--------------- --------------
Net Income $241,550 $428,399
=============== ==============
Earnings per Common Share (basic and diluted) (Note 1-C):
Income before net gain from sales of properties, notes and securities $0.06 $0.11
Net gain from sales of properties, notes and securities 0.01 0.00
--------------- --------------
Net Income per Common Share $0.07 $0.11
=============== ==============
Cash Distributions Declared per Common Share $0.32 $0.32
=============== ==============
Weighted Average Number of Shares Outstanding 3,700,994 3,622,733
=============== ==============
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,
-------------------------------------
2000 1999
--------------- ----------------
Cash Flows from Operating Activities:
<S> <C> <C>
Cash received from rental properties $10,664,890 $7,962,377
Interest received 2,342,276 2,900,941
Miscellaneous income 31,836 58,740
Interest paid on rental property mortgages (3,016,951) (2,232,799)
Interest paid on wrap mortgage debt (54,586)
Interest paid on note payable and other (201,234)
Cash disbursed for rental property operations (5,811,081) (3,508,487)
Cash disbursed for general and administrative costs (1,518,723) (1,477,682)
--------------- ----------------
Net cash provided by operating activities 2,692,247 3,447,270
--------------- ----------------
Cash Flows from Investing Activities:
Payments received on notes receivable 253,301 2,141,403
Proceeds from sale of notes receivable 20,331,599
Payments disbursed for deferred sales commission (1,000,000)
Payments of taxes payable on gain from sale of notes (220,500)
Payments disbursed for additions and improvements (504,290) (756,906)
Purchase of property (27,275,886)
Proceeds from sale of property 69,979 91,452
Purchases of securities (8,120,738)
Proceeds from sales of securities 2,331,119
--------------- ----------------
Net cash (used in) provided by investing activities (25,346,277) 12,686,810
--------------- ----------------
Cash Flows from Financing Activities:
Principal payments on mortgage debt:
Properties owned (1,286,989) (308,674)
Wrap mortgage debt on sold properties (156,222)
Mortgage debt payment from proceeds of mortgage refinancing (3,120,190)
Mortgage proceeds 21,900,000 3,195,500
Repayment of wrap mortgage debt (2,300,000)
Mortgage costs paid (350,094) (82,824)
Principal payments on note payable (10,395,361)
Cash distributions on common stock (2,367,120) (2,315,307)
Proceeds from dividend reinvestment and share purchase plan 64,295 80,832
Distributions to minority partners (407,933) (812,676)
--------------- ----------------
Net cash provided by (used in) financing activities 17,552,159 (16,214,922)
--------------- ----------------
Net Decrease in Cash and Cash Equivalents (5,101,871) (80,842)
Cash and Cash Equivalents, Beginning of Period 7,014,542 1,764,465
--------------- ----------------
Cash and Cash Equivalents, End of Period $1,912,671 $1,683,623
=============== ================
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,
--------------------------------------
2000 1999
--------------- -------------
<S> <C> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net Income $847,675 $9,086,408
--------------- -------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,226,355 1,028,420
Losses (gains) from sales of properties, notes and securities 91,250 (7,804,493)
Issuance of treasury stock for fees and expenses 16,133
Amortization of discounts on notes and fees (299,927) (590,011)
Minority share of partnership income 447,737 420,975
Changes in assets and liabilities:
Increase in accounts receivable (135,360) (74,174)
Increase in accounts payable and accrued liabilities 460,353 388,981
Increase (decrease) in deferred income 99,439 (61,283)
Decrease (increase) in prepaid expenses, deposits in escrow
and deferred charges (661,268) 454,663
Increase in security deposit liabilities 11,608 9,665
Distribution payable on common stock 592,588 580,154
Other 11,797 (8,168)
--------------- -------------
Total adjustments 1,844,572 (5,639,138)
--------------- -------------
Net cash provided by operating activities $2,692,247 $3,447,270
=============== =============
Supplemental noncash disclosures:
Property received in satisfaction of debt $39,858
=============
See notes to consolidated financial statements.
</TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
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. Presidential operates in a single business segment,
investments in real estate related assets.
B. Principles of Consolidation - The consolidated financial statements include
the accounts of Presidential Realty Corporation and its wholly owned
subsidiaries. Additionally, the consolidated financial statements include 100%
of the account balances of UTB Associates and PDL, Inc. and Associates Limited
Co-Partnership ("Home Mortgage Partnership"), 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 during each period. Basic net income per share
and diluted income per share are the same for the nine months ended September
30, 2000 and 1999. 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 accounting principles generally
accepted in the United States of America 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 consolidated financial statements
and accompanying notes should be read in conjunction with the Company's Form
10-K for the year ended December 31, 1999.
E. Management Estimates - In preparing the consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America, 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. REAL ESTATE
Real estate is comprised of the following:
September 30, December 31,
2000 1999
------------- ------------
Land $ 9,599,970 $ 5,461,173
Buildings and leaseholds 53,471,613 29,909,205
Furniture and equipment 333,371 277,255
----------- -----------
Total real estate $63,404,954 $35,647,633
=========== ===========
In March, 2000, the Company purchased two apartment properties, Farrington
Apartments, a 224 unit garden apartment property in Clearwater, Florida and
Preston Lake Apartments, a 320 unit garden apartment property in Tucker,
Georgia. The purchase price for the Farrington Apartments property was
$9,630,950 and the purchase price for the Preston Lake Apartments property was
$17,450,000. Additional acquisition costs for these properties were $165,471 and
$29,465, respectively. In connection with the purchase of these two apartment
properties, the Company obtained first mortgage loans of $7,900,000 and
$14,000,000, respectively.
3. MORTGAGE PORTFOLIO
The Company's mortgage portfolio includes notes receivable - sold properties and
notes receivable - related parties.
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.
At September 30, 2000, all of the notes in the Company's mortgage portfolio are
current.
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, and
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 consolidates 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 asset 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 net carrying amount of the property, but the estimated fair
value of the property is significantly greater than the mortgage debt. Thus, the
asset recorded as minority partners' interest should be realized upon sale of
the property.
Minority partners' interest is comprised of the following:
September 30, December 31,
2000 1999
------------- ------------
Home Mortgage Partnership $8,061,789 $8,112,127
UTB Associates (197,060) (207,594)
---------- ----------
Total minority partners' interest $7,864,729 $7,904,533
========== ==========
5. SECURITIES AVAILABLE FOR SALE
The cost and fair value of securities available for sale are as follows:
September 30, December 31,
2000 1999
------------- ------------
Cost $3,595 $2,520,568
Gross unrealized gains 1,550 1,824
Gross unrealized losses (33) (222,898)
------ ----------
Fair value $5,112 $2,299,494
====== ==========
During the nine months ended September 30, 2000, the Company sold securities
available for sale for gross proceeds of $2,331,119 and a net loss of $185,854.
This net loss was composed of a gross loss of $188,160 and a gross gain of
$2,306. During the nine months ended September 30, 1999, there were no sales of
securities available for sale.
6. MORTGAGE DEBT
In connection with the purchase of Farrington Apartments and Preston Lake
Apartments in March, 2000, the Company obtained first mortgage loans
collateralized by the properties as follows:
Mortgage Interest Monthly Maturity Balloon
Property Loan Rate Payment Date Payment
-------- -------- ------- ------- -------- -------
Farrington Apartments $ 7,900,000 8.25% $ 59,350 5/1/2010 $ 7,106,299
Preston Lake Apartments 14,000,000 8.15% 104,195 5/1/2010 12,564,077
In May, 2000, the mortgage on the Company's Building Industries Center property
became due and the Company made a $901,689 balloon payment to repay the
mortgage.
7. 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,
1999, Presidential applied its available 1999 stockholders' distributions and
elected to apply (under Section 858 of the Internal Revenue Code) all but
approximately $87,000 of its year 2000 stockholders' distributions to reduce its
taxable income for 1999 to zero. For the year ended December 31, 1999, the
Company retained undistributed capital gains designated as paid (under Section
857(b)(3)(D))in the amount of $630,000 ($.17 per share) and paid income taxes of
$220,500 in January, 2000 on that retained gain.
Furthermore, the Company had taxable income (before distributions to
stockholders) for the nine months ended September 30, 2000 of approximately
$542,000 ($.15 per share), which is net of capital losses of approximately
$78,000 ($.02 per share). This amount will be reduced by 2000 distributions that
were not utilized in reducing the Company's 1999 taxable income and by any
eligible 2001 distributions that the Company may elect to utilize as a reduction
of its 2000 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 2000 because its present intention is to
distribute all of its 2000 taxable income during 2000 and 2001. Therefore, no
provision for income taxes has been made at September 30, 2000.
Presidential has, for tax purposes, reported the gain from the sale of certain
of its properties using the installment method.
8. COMPREHENSIVE INCOME
The Company's only element of other comprehensive income is the change in the
unrealized gain (loss) 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, 2000 and 1999 was
$1,070,266 and $7,995,829, respectively.
9. COMMITMENTS AND CONTINGENCIES
Presidential is not a party to any material legal proceedings except as noted
below.
UTB Associates, a partnership in which the Company holds a 66-2/3% interest, is
a tenant under a lease (the "Professional Space Lease") of 24,400 square feet of
professional office space at University Towers, a cooperative apartment building
in New Haven, Connecticut. UTB Associates sublets the professional space to
unrelated parties. In June, 1999, University Towers Owners Corp., the
cooperative corporation, filed a petition for reorganization under Chapter 11 of
the U.S. Bankruptcy Code in the United States Bankruptcy Court for the District
of Connecticut, New Haven division. As part of the bankruptcy proceedings, in
July, 1999 the cooperative corporation filed an Adversary Proceeding against UTB
Associates for termination of the Professional Space Lease and damages primarily
based on claims arising under Connecticut law. The Company has been advised by
its litigation counsel that there are meritorious defenses to the claim raised
by the cooperative corporation and that if these defenses are successful, it is
unlikely that the Professional Space Lease will be terminated or that any
damages will be assessed against UTB Associates. However, in light of the
uncertainties of litigation, no assurances can be given as to the outcome of the
litigation. The Company's financial statements reflect a loss of approximately
$44,000 from the Professional Space Lease for the period ended September 30,
2000 and income of approximately $49,000 for the period ended September 30,
1999.
In addition, the Company may be a party to routine litigation incidental to the
ordinary course of its business.
In the opinion of management, all of the Company's properties are adequately
covered by insurance in accordance with normal insurance practices. The Company
is not aware of any environmental issues at any of its properties. The presence,
with or without the Company's knowledge, of hazardous substances at any of its
properties could have an adverse effect on the Company's operating results and
financial condition.
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, 2000 AND 1999
Results of Operations
Financial Information for the nine months ended September 30, 2000 and 1999:
----------------------------------------------------------------------------
Revenue increased by $1,816,147 primarily as a result of increases in rental
income, offset by decreases in interest on wrap mortgages, interest on
mortgages-related parties, investment income and other income.
Rental income increased by $2,719,138 primarily as a result of the purchase of
Farrington Apartments and Preston Lake Apartments in March, 2000, which
increased rental income by $2,301,051. In addition, rental income increased by
$173,602 at the Home Mortgage Plaza property and by $244,485 at all other
properties.
Interest on wrap mortgages decreased by $528,173 as a result of the modification
of the New Haven wraparound mortgage notes in 1999 and the sale of the Grant
House wraparound mortgage note in 1999. As a result of these transactions, the
Company no longer holds any wraparound mortgage notes.
Interest on mortgages-related parties decreased by $47,201 primarily as a result
of the $61,413 decrease in interest received on the Consolidated Loans. This
decrease was partially offset by increases of $20,989 from the amortization of
discounts on the UTB End Loans as a result of prepayments received on those
loans in the 2000 period.
Investment income decreased by $340,147 primarily as a result of the sale of
securities in the fourth quarter of 1999 and during 2000.
Other income decreased by $32,941 primarily as a result of a $30,750 fee
received in the 1999 period from the modification of the New Haven notes.
Costs and expenses increased by $2,159,137 primarily due to increases in all
categories of rental property operations. The increases were due to the
acquisitions of Farrington Apartments and Preston Lake Apartments in March,
2000. These increases were partially offset by a decrease in amortization of
mortgage costs, a decrease in interest expense on note payable and other and a
decrease in interest expense on wrap mortgage debt.
Interest on note payable and other decreased by $227,952 primarily as a result
of the repayment of the note payable in February, 1999.
Interest on wrap mortgage debt decreased by $54,586 as a result of the repayment
and sale of the wrap mortgage debts in 1999.
Rental property operating expenses increased by $1,139,897. Rental property
operating expenses for Farrington Apartments and Preston Lake Apartments were
$1,056,266. Operating expenses increased by $148,566 at the University Towers
Professional Space property as a result of increased legal and professional fees
incurred in connection with the litigation with University Towers Owners Corp.
In addition, operating expenses at the Home Mortgage Plaza property increased by
$69,675 primarily as a result of a $54,212 increase in bad debts. These
increases were offset by decreases of $128,291 at the Cambridge Green property.
Interest on mortgages increased by $875,977. Mortgage interest expense for
Farrington Apartments and Preston Lake Apartments was $945,376. These increases
were partially offset by a $39,825 decrease at the Building Industries Center
property as a result of the repayment of that mortgage in May of 2000.
Real estate tax expense increased by $196,302. Real estate tax expense for
Farrington Apartments and Preston Lake Apartments was $167,066. Real estate tax
expense increased by $26,423 at the Continental Gardens property as a result of
refunds for prior years' real estate taxes which were received in 1999 thereby
reducing 1999 expenses below that which was expected to recur.
Depreciation on real estate increased by $393,463. Depreciation expense for
Farrington Apartments and Preston Lake Apartments was $348,912. Depreciation
expense increased by $44,551 at all other properties as a result of additions
and improvements made to the properties.
Amortization of mortgage costs decreased by $190,930 primarily as a result of
the write-off in 1999 of unamortized mortgage costs of $166,756 and the $31,200
prepayment penalty fee associated with the prior mortgage on the Cambridge Green
property which was refinanced in 1999.
Net gain from sales of properties, notes and securities are sporadic (as they
depend on the timing of sales or the receipt of installments or prepayments on
purchase money notes). In 2000, the net loss from sales of properties, notes and
securities was $91,250 compared with a net gain of $7,804,493 in 1999:
Gain (loss) from sales recognized at September 30, 2000 1999
---- ----
Sales of mortgage notes:
Fairfield Towers First and Second Mortgages
(net of taxes of $1,566,474) $6,050,740
Grant House wraparound mortgage note 425,000
Deferred gains recognized upon receipt of
principal payments on notes:
New Haven - $1,000,000 principal payment 1,000,000
Pinewood - $317,662 principal prepayment 218,534
Mark Terrace $ 16,000
Overlook 17,765 16,081
Fairfield Towers Second Mortgage 19,466
Sales of property:
Sherwood House 74,672
Broad Park Lodge 60,839
Sales of securities (185,854)
--------- -----------
Net gain (loss) $(91,250) $7,804,493
========= ===========
Financial Information for the three months ended September 30, 2000 and 1999:
----------------------------------------------------------------------------
Revenue increased by $1,008,674 primarily as a result of increases in rental
income, offset by a decrease in investment income.
Rental income increased by $1,192,272 primarily as a result of the acquisition
of Farrington Apartments and Preston Lake Apartments, which increased rental
income by $1,107,132. In addition, rental income increased by $26,490 at the
Home Mortgage Plaza property and rental income at all other properties increased
by $58,650.
Investment income decreased by $166,162 as a result of the sale of securities in
the fourth quarter of 1999 and during 2000.
Costs and expenses increased by $1,212,099 primarily due to increases in all
categories of rental property operating expenses. These increases were partially
offset by a decrease in minority interest share of partnership income.
Rental property operating expenses increased by $598,518 primarily as a result
of the addition of Farrington Apartments and Preston Lake Apartments which
increased operating expenses by $559,200. In addition, rental property
operating expenses increased by $100,965 at the University Towers Professional
Space property as a result of increased legal and professional fees. These
increases were offset by a $66,186 decrease in operating expenses at the
Cambridge Green property.
Interest on mortgages increased by $427,529 primarily as a result of the
addition of Farrington Apartments and Preston Lake Apartments which increased
mortgage interest expense by $457,162. This increase was partially offset by a
$22,941 decrease in mortgage interest at the Building Industries Center
property.
Real estate tax expense increased by $58,722 primarily as a result of the
addition of Farrington Apartments and Preston Lake Apartments, which increased
real estate tax expense by $79,472. These increases were offset by decreases of
$20,196 at the Sunwood Apartments and Cambridge Green properties.
Depreciation on real estate increased by $180,956 primarily as a result of the
addition of Farrington Apartments and Preston Lake Apartments which increased
depreciation expense by $171,791. Depreciation expense increased by $9,165 at
all other properties.
Minority interest share of partnership income decreased by $36,556 primarily as
a result of a decrease in partnership income on the UTB Professional Space
property.
Net gain from sales of properties, notes and securities are sporadic (as they
depend on the timing of sales or the receipt of installments or prepayments on
purchase money notes). In 2000, the net gain from sales of properties, notes and
securities was $22,070 compared with a net gain of $5,494 in 1999:
Gain from sales recognized at September 30, 2000 1999
---- ----
Deferred gains recognized upon receipt of
principal payments on notes:
Mark Terrace $16,000
Overlook 6,070 $5,494
-------- -------
Net gain $22,070 $5,494
======== =======
Funds From Operations
Funds from operations ("FFO") represents net income (computed in accordance with
generally accepted accounting principles) ("GAAP"), excluding gains (losses)
from sales of properties, notes and securities, plus depreciation and
amortization on real estate. FFO is calculated in accordance with the National
Association of Real Estate Investment Trusts ("NAREIT") definition. FFO does not
represent cash generated from operating activities in accordance with GAAP which
is disclosed in the Consolidated Statements of Cash Flows included in the
financial statements and is not necessarily indicative of cash available to fund
cash requirements. There are no material legal or functional restrictions on the
use of FFO. FFO should not be considered as an alternative to net income as an
indicator of the Company's operating performance or as an alternative to cash
flows as a measure of liquidity. Management considers FFO a supplemental measure
of operating performance and along with cash flow from operating activities,
financing activities and investing activities, it provides investors with an
indication of the ability of the Company to incur and service debt, to make
capital expenditures and to fund other cash requirements.
FFO, as calculated in accordance with the NAREIT definition, for the nine months
and three months ended September 30, 2000 and 1999 is summarized in the
following table:
Nine months ended Three months ended
September 30, September 30,
2000 1999 2000 1999
---------- ---------- -------- ---------
Income before net gain
(loss) from sales of
properties, notes and
securities $ 938,925 $1,281,915 $219,480 $422,905
Depreciation and
amortization on real
estate 1,143,703 750,240 439,574 258,618
---------- ---------- -------- --------
Funds From Operations $2,082,628 $2,032,155 $659,054 $681,523
========== ========== ======== ========
Distributions paid to
shareholders at
September 30 $1,774,532 $1,735,153
========== ==========
FFO payout ratio
(Distributions paid) 85.2% 85.4%
========== ==========
Cash flows from:
Operating activities $ 2,692,247 $ 3,447,270
============ ============
Investing activities $(25,346,277) $ 12,686,810
============ ============
Financing activities $ 17,552,159 $(16,214,922)
============ ============
In addition, distributions of $592,588 and $580,154 were declared in the third
quarter of 2000 and 1999, respectively. These distributions are payable in the
fourth quarter of each year and are not included in the above FFO payout ratio.
Balance Sheet
Real estate increased by $27,757,321 as a result of the purchase of Farrington
Apartments and Preston Lake Apartments in March, 2000. The capitalized costs for
Farrington Apartments, a 224 unit garden apartment property in Clearwater,
Florida was $1,900,000 for land and $7,896,421 for buildings and improvements.
The capitalized costs for Preston Lake Apartments, a 320 unit garden apartment
property in Tucker, Georgia, was $2,240,000 for land and $15,239,465 for
buildings and improvements. In addition, net additions and improvements to
properties were $481,435.
Prepaid expenses and deposits in escrow increased by $672,180 primarily as a
result of the purchase of Farrington Apartments and Preston Lake Apartments.
Other receivables increased by $243,031 as a result of increases of $7,617 in
tenants accounts receivables, increases of $123,630 in miscellaneous receivables
and an increase of $111,784 in accrued interest receivable.
Securities available for sale decreased by $2,294,382 as a result of the sale of
$2,516,973 in marketable equity securities, primarily interest-bearing corporate
preferred stocks, offset by a $222,591 increase in the fair value of securities
available for sale.
Cash and cash equivalents decreased by $5,101,871 primarily as a result of the
cash utilized for the purchase of Farrington Apartments and Preston Lake
Apartments. In addition, in the second quarter of 2000, the Company repaid the
$901,689 outstanding mortgage debt on its Building Industries Center property.
Other assets increased by $377,571 primarily due to increases in mortgage costs
and tenant security deposits as a result of the purchase of Farrington
Apartments and Preston Lake Apartments.
Mortgage debt increased by $20,613,011 primarily due to the $7,900,000 mortgage
on Farrington Apartments and the $14,000,000 mortgage on Preston Lake
Apartments. This increase was partially offset by the $901,689 repayment of the
mortgage on the Building Industries Center property.
Accrued liabilities increased by $426,807 primarily due to increases in accruals
for real estate tax expense and mortgage interest expense.
Deferred income increased by $99,439 primarily as a result of an increase of
$32,694 in deferred interest income and an increase of $69,295 in prepaid rents.
Other liabilities increased by $113,365 primarily as a result of increases of
$115,237 in tenant security deposits.
In March, 2000, 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
2000 year. The average market value for the previous month of the Class B common
stock, on which the fees were based, was $6.075 per share. As a result of this
transaction, the Company recorded $18,225 in prepaid directors fees (to be
amortized during 2000) based on the average market value of the stock. The
Company recorded additions to the Company's Class B common stock of $300 at par
value of $.10 per share and $17,925 to additional paid-in capital.
Net unrealized gain (loss) on securities available for sale decreased by
$222,591 primarily as a result of the sales of securities in the first half of
2000 and an increase in the fair value of securities available for sale.
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 apartments or commercial space, 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. In March, 2000, the Company purchased two new properties and
utilized a substantial portion of its available funds, as well as obtaining
mortgage financing for the purchase of these properties. 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 securities available for sale, from
operating activities, from refinancing of mortgage loans on its real estate
equities, and from the sales of or repayments on its mortgage portfolio. The
Company also has at its disposal a $250,000 unsecured line of credit from a
lending institution.
At September 30, 2000, Presidential had $1,912,671 in available cash and cash
equivalents, a decrease of $5,101,871 from the $7,014,542 at December 31, 1999.
This decrease in cash and cash equivalents was due to cash used in investing
activities of $25,346,277, offset by cash provided by operating activities of
$2,692,247 and financing activities of $17,552,159.
Operating Activities
Presidential's principal source of cash from operating activities is from
interest on its mortgage portfolio, which was $2,342,276 in 2000. In 2000, net
cash received from rental property operations was $1,428,925, which is net of
distributions from partnership operations to minority partners but before
additions and improvements and mortgage amortization.
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. During 2000, the Company received principal payments of $253,301 on
its mortgage portfolio of which $143,636 represented prepayments, which are
sporadic and cannot be relied upon as a regular source of liquidity.
In March, 2000, the Company purchased Farrington Apartments and Preston Lake
Apartments for a purchase price of $9,630,950 and $17,450,000, respectively. The
Company obtained first mortgage loans of $7,900,000 and $14,000,000,
respectively, which are collateralized by the properties.
During 2000, the Company invested $504,290 in additions and improvements to its
properties.
Financing Activities
The Company's indebtedness at September 30, 2000, consisted of $59,992,469 of
mortgage debt. The mortgage debt, which is collateralized by individual
properties, is nonrecourse to the Company with the exception of the $248,650
Mapletree Industrial Center mortgage, which is collateralized 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 2000, the Company made
$1,286,989 of principal payments on mortgage debt. Included in the $1,286,989
principal payments on mortgage debt was a balloon payment of $901,689 that the
Company paid in May, 2000 on the outstanding mortgage on its Building Industries
Center property.
In connection with the purchase of Farrington Apartments and Preston Lake
Apartments in March, 2000, the Company obtained first mortgage loans
collateralized by the properties as follows:
Mortgage Interest Monthly Maturity Balloon
Property Loan Rate Payment Date Payment
-------- -------- -------- ------- -------- -------
Farrington Apartments $ 7,900,000 8.25% $ 59,350 5/1/2010 $ 7,106,299
Preston Lake Apartments 14,000,000 8.15% 104,195 5/1/2010 12,564,077
In addition, the Company paid mortgage costs of $350,094 for the mortgages
obtained for the new properties. These mortgage costs were capitalized to other
assets and will be amortized over the life of the mortgages applying the
interest method.
The mortgages on the Company's properties are at fixed rates of interest. The
majority of the mortgages have balloon payments due at maturity with the
exception of four mortgages which are self-liquidating.
During 2000, Presidential declared cash distributions of $2,367,120 (including
$592,588 payable in the fourth quarter) to its shareholders and received
proceeds from its dividend reinvestment and share purchase plan of $64,295.
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 were filed during the quarter ended September 30,
2000.
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 10, 2000 By: /s/ Jeffrey F. Joseph
---------------------
Jeffrey F. Joseph
President
DATE: November 10, 2000 By: /s/ Elizabeth Delgado
---------------------
Elizabeth Delgado
Treasurer
