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 June 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 August 7, 2000 was 478,940 shares of Class A
common and 3,221,222 shares of Class B common.
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
Index to Form 10-Q
For the Six Months Ended
June 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 June 30, December 31,
2000 1999
------------------- --------------------
<S> <C> <C>
Real estate (Note 2) $63,206,764 $35,647,633
Less: accumulated depreciation 8,934,748 8,231,480
------------------- --------------------
Net real estate 54,272,016 27,416,153
------------------- --------------------
Mortgage portfolio (Note 3):
Sold properties 28,410,306 28,481,797
Related parties 1,541,660 1,574,028
------------------- --------------------
Total mortgage portfolio 29,951,966 30,055,825
------------------- --------------------
Less discounts:
Sold properties 1,729,574 1,837,722
Related parties 127,048 132,073
------------------- --------------------
Total discounts 1,856,622 1,969,795
------------------- --------------------
Less deferred gains:
Sold properties 11,320,373 11,320,373
Related parties 896,648 908,343
------------------- --------------------
Total deferred gains 12,217,021 12,228,716
------------------- --------------------
Net mortgage portfolio (of which $817,522 in 2000
and $127,803 in 1999 are due within one year) 15,878,323 15,857,314
------------------- --------------------
Minority partners' interest (Note 4) 7,858,503 7,904,533
Prepaid expenses and deposits in escrow 2,055,245 1,434,079
Other receivables (net of valuation allowance of
$123,969 in 2000 and $139,822 in 1999) 752,347 494,220
Securities available for sale (Note 5) 5,137 2,299,494
Cash and cash equivalents 2,032,185 7,014,542
Other assets 2,028,669 1,641,095
------------------- --------------------
Total Assets $84,882,425 $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
June 30, December 31,
2000 1999
------------------ ------------------
<S> <C> <C>
Liabilities:
Mortgage debt (of which $599,558 in 2000 and
$1,338,491 in 1999 are due within one year) (Note 6) $60,132,441 $39,379,458
Executive pension plan liability 1,506,367 1,479,185
Accrued liabilities 2,055,938 1,637,069
Accrued taxes payable 220,500
Accrued postretirement costs 522,809 538,398
Deferred income 156,538 46,533
Accounts payable 376,294 414,195
Other liabilities 878,228 799,490
------------------ ------------------
Total Liabilities 65,628,615 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 June 30, 2000 December 31, 1999 322,244 321,240
----------- ----------------- -----------------
Authorized: 10,000,000 10,000,000
Issued: 3,222,436 3,212,402
Treasury: 1,258 1,258
Additional paid-in capital 2,633,192 2,573,281
Retained earnings 16,633,266 17,209,589
Net unrealized gain (loss) on securities available for sale (Notes 5 and 8) 1,542 (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 19,253,810 19,546,602
------------------ ------------------
Total Liabilities and Stockholders' Equity $84,882,425 $64,061,430
================== ==================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<CAPTION>
SIX MONTHS ENDED JUNE 30,
---------------------------------------
2000 1999
----------------- -----------------
Income:
<S> <C> <C>
Rental $6,743,471 $5,216,605
Interest on mortgages - sold properties 1,489,646 1,423,048
Interest on wrap mortgages 528,173
Interest on mortgages - related parties 89,921 144,987
Investment income 164,067 338,052
Other 24,701 53,468
----------------- -----------------
Total 8,511,806 7,704,333
----------------- -----------------
Costs and Expenses:
General and administrative 1,379,867 1,365,350
Interest on note payable and other 215,090
Interest on wrap mortgage debt 54,586
Amortization of loan acquisition costs 3,128
Depreciation on non-rental property 11,460 12,723
Rental property:
Operating expenses 2,832,419 2,291,040
Interest on mortgages 1,932,087 1,483,639
Real estate taxes 568,306 430,726
Depreciation on real estate 704,129 491,622
Amortization of mortgage costs 43,326 239,970
Minority interest share of partnership income 320,767 257,449
----------------- -----------------
Total 7,792,361 6,845,323
----------------- -----------------
Income before net gain (loss) from sales of properties, notes and securities 719,445 859,010
Net gain (loss) from sales of properties, notes and securities (includes a
provision for Federal and State taxes of $1,566,474 in 1999) (113,320) 7,798,999
----------------- -----------------
Net Income $606,125 $8,658,009
================= =================
Earnings per Common Share (basic and diluted) (Note 1-C):
Income before net gain (loss) from sales of properties, notes and securities $0.19 $0.24
Net gain (loss) from sales of properties, notes and securities (0.03) 2.16
----------------- -----------------
Net Income per Common Share $0.16 $2.40
================= =================
Cash Distributions per Common Share $0.32 $0.32
================= =================
Weighted Average Number of Shares Outstanding 3,694,556 3,612,942
================= =================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
<CAPTION>
THREE MONTHS ENDED JUNE 30,
---------------------------------------
2000 1999
----------------- -----------------
Income:
<S> <C> <C>
Rental $3,862,939 $2,612,844
Interest on mortgages - sold properties 745,481 581,995
Interest on wrap mortgages 228,786
Interest on mortgages - related parties 44,712 89,535
Investment income 37,314 226,645
Other 4,387 42,770
----------------- -----------------
Total 4,694,833 3,782,575
----------------- -----------------
Costs and Expenses:
General and administrative 658,698 698,483
Interest on note payable and other 29,241
Interest on wrap mortgage debt 23,264
Depreciation on non-rental property 5,785 6,468
Rental property:
Operating expenses 1,674,149 1,122,281
Interest on mortgages 1,166,038 737,334
Real estate taxes 320,914 209,151
Depreciation on real estate 433,545 248,181
Amortization of mortgage costs 22,585 18,199
Minority interest share of partnership income 152,572 128,796
----------------- -----------------
Total 4,434,286 3,221,398
----------------- -----------------
Income before net gain (loss) from sales of properties, notes and securities 260,547 561,177
Net gain (loss) from sales of properties, notes and securities (126,023) 1,080,031
----------------- -----------------
Net Income $134,524 $1,641,208
================= =================
Earnings per Common Share (basic and diluted) (Note 1-C):
Income before net gain (loss) from sales of properties, notes and securities $0.06 $0.16
Net gain (loss) from sales of properties, notes and securities (0.03) 0.30
----------------- -----------------
Net Income per Common Share $0.03 $0.46
================= =================
Cash Distributions per Common Share $0.16 $0.16
================= =================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------------------------
2000 1999
---------------- ----------------
Cash Flows from Operating Activities:
<S> <C> <C>
Cash received from rental properties $6,722,320 $5,268,840
Interest received 1,643,806 2,118,885
Miscellaneous income 23,453 55,448
Interest paid on rental property mortgages (1,849,707) (1,493,243)
Interest paid on wrap mortgage debt (54,586)
Interest paid on note payable and other (200,609)
Cash disbursed for rental property operations (3,744,260) (2,522,018)
Cash disbursed for general and administrative costs (1,474,500) (1,506,057)
---------------- ----------------
Net cash provided by operating activities 1,321,112 1,666,660
---------------- ----------------
Cash Flows from Investing Activities:
Payments received on notes receivable 103,859 1,897,826
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 (300,434) (533,114)
Purchase of property (27,275,886)
Proceeds from sale of property 69,979 91,452
Purchases of securities (7,995,738)
Proceeds from sales of securities 2,331,119
---------------- ----------------
Net cash (used in) provided by investing activities (25,291,863) 12,792,025
---------------- ----------------
Cash Flows from Financing Activities:
Principal payments on mortgage debt:
Properties owned (1,147,017) (206,090)
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 (350,094) (82,824)
Principal payments on note payable (10,395,361)
Cash distributions on common stock (1,182,448) (1,155,486)
Proceeds from dividend reinvestment and share purchase plan 42,690 45,795
Distributions to minority partners (274,737) (405,674)
---------------- ----------------
Net cash provided by (used in) financing activities 18,988,394 (14,580,552)
---------------- ----------------
Net Decrease in Cash and Cash Equivalents (4,982,357) (121,867)
Cash and Cash Equivalents, Beginning of Period 7,014,542 1,764,465
---------------- ----------------
Cash and Cash Equivalents, End of Period $2,032,185 $1,642,598
================ ================
See notes to consolidated financial statements.
</TABLE>
<TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net Income $606,125 $8,658,009
----------------- -----------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 758,915 747,443
Losses (gains) from sales of properties, notes and securities 113,320 (7,798,999)
Issuance of treasury stock for fees and expenses 10,755
Amortization of discounts on notes and fees (184,954) (455,484)
Minority share of partnership income 320,767 257,449
Changes in assets and liabilities:
Increase in accounts receivable (186,346) (101,640)
Increase in accounts payable and accrued liabilities 392,561 344,926
Increase (decrease) in deferred income 110,005 (13,725)
Decrease (increase) in prepaid expenses, deposits in escrow
and deferred charges (605,913) 17,682
Decrease in security deposit liabilities (11,233) (1,478)
Other 7,865 1,722
----------------- -----------------
Total adjustments 714,987 (6,991,349)
----------------- -----------------
Net cash provided by operating activities $1,321,112 $1,666,660
================= =================
See notes to consolidated financial statements.
</TABLE>
PRESIDENTIAL REALTY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 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 six months ended June 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:
June 30, December 31,
2000 1999
----------- ------------
Land $ 9,599,970 $ 5,461,173
Buildings and leaseholds 53,277,559 29,909,205
Furniture and equipment 329,235 277,255
----------- -----------
Total real estate $63,206,764 $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 June 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:
June 30, December 31,
2000 1999
---------- -----------
Home Mortgage Partnership $8,075,852 $8,112,127
UTB Associates (217,349) (207,594)
---------- ----------
Total minority partners' interest $7,858,503 $7,904,533
========== ==========
5. SECURITIES AVAILABLE FOR SALE
The cost and fair value of securities available for sale are as follows:
June 30, December 31,
2000 1999
------- -----------
Cost $3,595 $2,520,568
Gross unrealized gains 1,580 1,824
Gross unrealized losses (38) (222,898)
------ ----------
Fair value $5,137 $2,299,494
====== ==========
During the six months ended June 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 six months ended June 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.
For the year ended December 31, 1999, the Company had taxable income (before
distributions to stockholders) of approximately $3,711,000 ($1.01 per share),
which included approximately $2,836,000 ($.77 per share) of capital gains. The
$3,711,000 was reduced by the $630,000 ($.17 per share) of undistributed
capital gains designated as paid under Section 857(b)(3)(D). At December 31,
1999, the Company accrued $220,500 for income taxes on the $630,000
undistributed capital gain, which tax was paid in January, 2000. The $3,081,000
balance of taxable income will be reduced by the $801,000 ($.22 per share) of
its 1999 distributions that were not utilized in reducing the Company's 1998
taxable income. In addition, the Company may elect to apply any eligible year
2000 distributions to reduce its 1999 taxable income.
In order to retain REIT status, Presidential is required to distribute 95% of
its REIT taxable income (exclusive of capital gains). As of June 30, 2000,
Presidential has distributed all of the required 95% ($.23 per share) of its
1999 REIT taxable income. In addition, although no assurances can be given, it
is the Company's present intention to distribute all of its 1999 taxable income
(after the $630,000 retained capital gain) and, therefore, no provision for
income taxes was made for the $3,081,000 of taxable income at December 31, 1999.
Furthermore, the Company had taxable income (before distributions to
stockholders) for the six months ended June 30, 2000 of approximately
$398,000 ($.11 per share), which is net of capital losses of approximately
$113,000 ($.03 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. 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 six months ended June 30, 2000 and 1999 was
$828,741 and $8,232,611, 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 approximately $12,000 of
income from the Professional Space Lease for the period ended June 30, 2000 and
$37,000 for the period ended June 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 SIX AND THREE MONTHS ENDED JUNE 30, 2000 AND 1999
Results of Operations
Financial Information for the six months ended June 30, 2000 and 1999:
----------------------------------------------------------------------------
Revenue increased by $807,473 primarily as a result of increases in rental
income, offset by decreases in interest on wrap mortgages, interest on
mortgages-related parties and investment income.
Rental income increased by $1,526,866 primarily as a result of the purchase of
Farrington Apartments and Preston Lake Apartments in March, 2000, which
increased rental income by $1,193,918. In addition, rental income increased by
$147,112 at the Home Mortgage Plaza property and by $185,836 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 $55,066 primarily as a result
of the $49,582 decrease in interest received on the Consolidated Loans.
Investment income decreased by $173,985 primarily as a result of the sale of
securities in the fourth quarter of 1999 and during 2000.
Costs and expenses increased by $947,038 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 $215,090 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 $541,379. Rental property
operating expenses for Farrington Apartments and Preston Lake Apartments were
$497,067. In addition, operating expenses increased by $47,601 at University
Towers Professional Space resulting from increased legal and professional fees
incurred in connection with the litigation with University Towers Owners Corp.
Interest on mortgages increased by $448,448. Mortgage interest expense for
Farrington Apartments and Preston Lake Apartments was $488,214.
Real estate tax expense increased by $137,580. Real estate tax expense for
Farrington Apartments and Preston Lake Apartments was $87,594. Real estate tax
expense increased by $27,568 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. In addition, real
estate taxes at the Sunwood Apartments and Mapletree Industrial Center
properties increased by $20,193.
Depreciation on real estate increased by $212,507. Depreciation expense for
Farrington Apartments and Preston Lake Apartments was $177,120. Depreciation
expense increased by $35,387 at all other properties as a result of additions
and improvements made to the properties.
Amortization of mortgage costs decreased by $196,644 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.
Minority interest share of partnership income increased by $63,318 as a result
of an increase in partnership income on the Home Mortgage Plaza 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 loss from sales of properties, notes and
securities was $113,320 compared with a net gain of $7,798,999 in 1999:
Gain (loss) from sales recognized at June 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
Overlook $ 11,695 10,587
Fairfield Towers Second Mortgage 19,466
Sales of property:
Sherwood House 74,672
Broad Park Lodge 60,839
Sales of securities (185,854)
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Net gain (loss) $(113,320) $7,798,999
========== ==========
Financial Information for the three months ended June 30, 2000 and 1999:
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Revenue increased by $912,258 primarily as a result of increases in rental
income and interest on mortgages-sold properties. These increases were offset by
decreases in interest on wrap mortgages, interest on mortgages-related parties,
investment income, and other income.
Rental income increased by $1,250,095 primarily as a result of the acquisition
of Farrington Apartments and Preston Lake Apartments, which increased rental
income by $1,100,714. In addition, rental income increased by $75,305 at the
Home Mortgage Plaza property and by $33,021 at the Cambridge Green property.
Rental income at all other properties increased by $41,055.
Interest on mortgages-sold properties increased by $163,486 primarily as a
result of mortgage modifications and rate increases, which increased interest
for the period by $268,178. These increases were partially offset by a $104,692
decrease in amortization of discounts on notes. The majority of the discounts on
the notes held by Presidential were fully amortized as the notes matured, or
when a particular note was paid off or sold.
Interest on wrap mortgages decreased by $228,786 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.
Interest on mortgages-related parties decreased by $44,823 primarily as a result
of the $42,568 decrease in interest received on the Consolidated Loans.
Investment income decreased by $189,331 as a result of the sale of securities in
the fourth quarter of 1999 and during 2000.
Other income decreased by $38,383 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 $1,212,888 primarily due to increases in all
categories of rental property operating expenses. These increases were offset by
decreases in general and administrative expenses, decreases in interest expense
on note payable and other and decreases in interest expense on wrap mortgage
debt.
General and administrative expenses decreased by $39,785 primarily as a result
of a $46,140 decrease in professional fee expenses.
Interest on note payable and other decreased by $29,241 as a result of the
discounts on commissions payable which were fully amortized in 1999.
Interest on wrap mortgage debt decreased by $23,264 as a result of the
repayments and sale of the wrap mortgage debts in 1999.
Rental property operating expenses increased by $551,868 primarily as a result
of the addition of Farrington Apartments and Preston Lake Apartments which
increased operating expenses by $457,925. In addition, rental property operating
expenses increased by $39,680 at the University Towers Professional Space
property as a result of increased legal and professional fees. Electric expenses
increased at the Home Mortgage Plaza property by $22,518 and expenses at the
Building Industries Center property increased by $20,020 as a result of
increases in repairs and maintenance and bad debts.
Interest on mortgages increased by $428,704 primarily as a result of the
addition of Farrington Apartments and Preston Lake Apartments which increased
mortgage interest expense by $452,908.
Real estate tax expense increased by $111,763 primarily as a result of the
addition of Farrington Apartments and Preston Lake Apartments, which increased
real estate tax expense by $81,188. Real estate tax expense at the Continental
Gardens property increased by $23,236 as a result of refunds of prior years'
taxes received in 1999 thereby reducing the 1999 expenses below that which was
expected to recur.
Depreciation on real estate increased by $185,364 primarily as a result of the
addition of Farrington Apartments and Preston Lake Apartments which increased
depreciation expense by $167,599. Depreciation expense increased by $17,765 at
all other properties.
Minority interest share of partnership income increased by $23,776 as a result
of an increase in partnership income on the Home Mortgage Plaza 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 loss from sales of properties, notes and
securities was $126,023 compared with a net gain of $1,080,031 in 1999:
Gain (loss) from sales recognized at June 30, 2000 1999
---- ----
Deferred gains recognized upon receipt of
principal payments on notes:
New Haven - $1,000,000 principal payment $1,000,000
Overlook 5,920 5,359
Sale of property:
Sherwood House 74,672
Sales of securities (131,943)
---------- ----------
Net gain (loss) $(126,023) $1,080,031
========== ==========
Balance Sheet
Real estate increased by $27,559,131 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 $283,245.
Prepaid expenses and deposits in escrow increased by $621,166 as a result of the
purchase of Farrington Apartments and Preston Lake Apartments.
Other receivables increased by $258,127 as a result of increases of $26,733 in
tenants accounts receivables, increases of $172,503 in miscellaneous receivables
and an increase of $58,891 in accrued interest receivable.
Securities available for sale decreased by $2,294,357 as a result of the sale of
$2,516,973 in marketable equity securities, primarily interest-bearing corporate
preferred stocks, offset by a $222,616 increase in the fair value of securities
available for sale.
Cash and cash equivalents decreased by $4,982,357 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.
Mortgage debt increased by $20,752,983 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.
Deferred income increased by $110,005 primarily as a result of an increase of
$72,237 in deferred interest income and an increase of $40,318 in prepaid rents.
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
$222,616 primarily as a result of the sales of securities in the six month
period 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 June 30, 2000, Presidential had $2,032,185 in available cash and cash
equivalents, a decrease of $4,982,357 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 $25,291,863, offset by cash provided by operating activities of
$1,321,112 and financing activities of $18,988,394.
Operating Activities
Presidential's principal source of cash from operating activities is from
interest on its mortgage portfolio, which was $1,643,806 in 2000. In 2000, net
cash received from rental property operations was $853,616, 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 $103,859 on
its mortgage portfolio of which $30,395 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 $300,434 in additions and improvements to its
properties.
Financing Activities
The Company's indebtedness at June 30, 2000, consisted of $60,132,441 of
mortgage debt. The mortgage debt, which is collateralized by individual
properties, is nonrecourse to the Company with the exception of the $251,942
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
$1,147,017 of principal payments on mortgage debt. Included in the $1,147,017
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 and paid cash distributions of $1,182,448 to
its shareholders and received proceeds from its dividend reinvestment and share
purchase plan of $42,690.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibit 27. Financial Data Schedule.
(b) During the calendar quarter ended June 30, 2000, the Company filed a
Form 8-K/A on May 25, 2000 which disclosed under Item 2 - Acquisition
or Disposition of Assets and Item 7 - Financial Statements and Exhibits
the purchase of Farrington Apartments and the purchase of Preston Lake
Apartments.
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: August 9, 2000 By: /s/ Jeffrey F. Joseph
---------------------
Jeffrey F. Joseph
President
DATE: August 9, 2000 By: /s/ Elizabeth Delgado
---------------------
Elizabeth Delgado
Treasurer
