SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR TRANSITION PERIOD FROM _______________ TO _______________ .
Commission file number 0-179
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PALMETTO REAL ESTATE TRUST
--------------------------
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0405064
-------------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
45 Liberty Lane
Greenville, SC 29607
- -------------- -----
(Address of principal (Zip Code)
executive offices)
Issuer's telephone number, including area code: (803) 233-6007
- --------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) or 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 the Issuer's Shares of $1 Beneficial
Interest as of September 30, 1998 was 1,770,006.
Transitional Small Business Disclosure Format:
Yes [ ] No [ X ]
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PALMETTO REAL ESTATE TRUST
Quarterly Report on Form 10-QSB
For the Quarterly Period Ended September 30, 1998
Form 10-QSB Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Unaudited Balance Sheet at September 30, 1998. . . . .1
Unaudited Statements of Income and Undistributed
Earnings for the Three Months and Nine Months
Ended September 30, 1998 and 1997 . . . . . . . . . .2
Unaudited Statements of Cash Flows for the Nine
Months Ended September 30, 1998 and 1997. . . . . . .3
Notes to Unaudited Financial Statements. . . . . . . .4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. . . .5-6
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . 7
Item 2. Changes in Securities. . . . . . . . . . . . . . . . 7
Item 3. Defaults Upon Senior Securities. . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote of Security Holders. 7
Item 5. Other Information. . . . . . . . . . . . . . . . . . 7
Item 6. Exhibits and Reports on Form 8-K. . . . . . . . . . 7
Signatures . . . . . . . . . . . . . . . . . . . . 8
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PALMETTO REAL ESTATE TRUST
Balance Sheet
(unaudited)
September 30, 1998
ASSETS
- ------
Investment in real estate
Rental property, net of accumulated depreciation $8,093,106
Timberlands 24,864
---------
8,117,970
Cash 276,467
Rent receivable 17,481
Note receivable 218,746
Deferred loan expense, net of accumulated amortization 15,574
---------
Total assets $8,646,238
=========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 5,412,500
Income taxes payable 3,000
Deferred revenue 149,450
Accounts payable and accrued expenses 144,720
---------
5,709,670
Shareholders' equity:
Shares of beneficial interest, $1 stated value;
5,000,000 shares authorized; 1,770,006 shares issued
and outstanding 1,770,006
Capital surplus 498,734
Undistributed earnings 667,828
---------
2,936,568
---------
Total liabilities and shareholders' equity $ 8,646,238
=========
The accompanying notes are an integral part of these financial statements.
1
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PALMETTO REAL ESTATE TRUST
Statements of Income and Undistributed Earnings
For the Three Months and Nine Months Ended September 30, 1998 and 1997
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------ ------ ------ ------
Income:
Rental income $393,984 $379,374 $1,173,706 $1,149,179
Other income 5,010 6,099 16,690 28,681
------ ------ ------ ------
398,994 385,473 1,190,396 1,177,860
Expenses:
Depreciation and amortization 64,991 78,018 213,967 231,562
Interest 107,838 118,248 343,085 346,214
Repairs and maintenance 11,110 27,007 44,015 54,073
Property taxes 39,353 37,487 118,060 112,461
General and administrative 36,145 36,718 126,496 131,988
------ ------ ------ ------
259,437 297,478 845,623 876,298
Income from operations 139,557 87,995 344,773 301,562
Provision for income (1,000) (1,000) (3,000) (3,000)
taxes
Gain on sale of real estate 2,143 1,958 6,428 5,876
------ ------ ------ ------
Net income 140,700 88,953 348,201 304,438
Undistributed earnings, beginning 615,628 620,703 478,152 476,018
Dividends paid 88,500 70,800 158,525 141,600
------ ------ ------ ------
Undistributed earnings, ending $667,828 $638,856 $667,828 $638,856
======= ======= ======= =======
Basic earnings per share of
beneficial interest $.08 $.05 $.20 $.17
The accompanying notes are an integral part of these financial statements.
2
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PALMETTO REAL ESTATE TRUST
Statements of Cash Flows
For the Nine Months Ended September 30, 1998 and 1997
NINE MONTHS ENDED
SEPTEMBER 30,
1998 1997
(UNAUDITED)
Cash flows from operating activities: ------ ------
Net income $348,201 $304,438
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 192,420 227,433
Amortization of deferred expenses 21,547 4,129
Gain on sale of real estate (6,428) (5,876)
(Increase) decrease in:
Rent receivable 25,530 17,941
Deferred loan expense (15,955) -
Increase (decrease) in:
Accounts payable and accrued expenses 21,325 17,444
Income taxes payable 3,000 3,000
------- -------
Net cash provided by operating activities 589,640 568,509
------- -------
Cash flows from investing activities:
Property additions and improvements (1,615) (34,126)
Collections of mortgage note receivable 39,638 12,873
Net cash provided by (used in) investing activities 38,023 (21,253)
Cash flows from financing activities:
Payments on mortgage notes and demand note payable (5,538,970) (368,628)
Borrowings on mortgage note payable 5,500,000 -
Payment of dividends (380,750) (296,477)
------- -------
Net cash used in financing activities (419,720) (665,105)
------- -------
Increase (decrease) in cash 207,943 (117,849)
Cash at beginning of period 68,524 192,804
------- -------
Cash at end of period $ 276,467 $ 74,955
======= =======
The accompanying notes are an integral part of these financial statements.
3
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PALMETTO REAL ESTATE TRUST
Notes to Interim Financial Statements
September 30, 1998
(1) BASIS OF PRESENTATION
The accompanying unaudited financial statements, which are for interim
periods, do not include all disclosures provided in the annual financial
statements. These unaudited interim financial statements should be read in
conjunction with the financial statements and the footnotes thereto contained
in the Annual Report on Form 10-KSB for the year ended December 31, 1997 of
Palmetto Real Estate Trust (the "Trust"), as filed with the Securities and
Exchange Commission.
(2) INTERIM PERIODS
In the opinion of the Trust, the accompanying unaudited interim financial
statements contain all adjustments (which are of a normal recurring nature)
necessary for a fair presentation of the financial statements. The results of
operations for the three and nine months ended September 30, 1998 are not
necessarily indicative of the results to be expected for the full year.
4
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Financial Condition
At September 30, 1998, the Trust is in the process of purchasing
property in Greenville, South Carolina for $1,130,000. The purchase
will be financed primarily through long-term debt. Subsequent to
September 30, 1998, the purchase has been finalized. The Trust borrowed
$1,000,000 for five years with a monthly principal payment of $2,000
plus interest at 7.75%. The Trust refinanced its long term debt of
$5,500,000 during June 1998. Scheduled repayments will be due in
monthly installments of $17,500, plus interest at a rate of 7.75%
through April 2003 with a final balloon payment of $4,467,500 due on
that date. There have been no other material changes in the Trust's
liquidity or financial condition since December 31, 1997. At September
30, 1998, management had no knowledge of any trends, events, or
uncertainties that will have or are reasonably likely to have material
effects on liquidity, capital resources or operations of the Trust.
Results of Operations - Nine months ended September 30, 1998 compared
to nine months ended September 30, 1997.
Income from operations for the nine months ended September 30, 1998
increased approximately 12% or $44,000 as compared to the same period
in 1997. Rental income increased during 1998 due primarily to higher
occupancy rates at one shopping center.
Depreciation expense decreased as a result of certain property becoming
fully depreciated during 1998. Repairs and maintenance decreased
primarily due to roof repairs, glass replacement and painting that
occurred during the nine months in 1997 that has not been required in
1998.
Year 2000 Compliance Issues
The Company has developed its Year 2000 plan to prepare for the new
millennium. The plan will enable the Company to identify risks, develop
an action plan, and work toward determining that it is Year 2000 ready.
The plan is currently on target and prioritization of the most critical
applications has been addressed. The Company's most critical issue has
been addressed by upgrading the general ledger software and his cost
was not material. The Company's hardware has already been assessed
to be Year 2000 compliant. Due to the Company's size and simplicity of
its operations, if its systems do not perform as planned by the Year
2000, its short-term contingency plan would be to process internal data
manually. This contingency plan is feasible.
5
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Externally, the greatest risk for the Company relates to Year 2000
noncompliance or readiness by significant tenants who occupy rental
property owned by the Company. The Company is in the process of
formulating a system to contact all significant tenants, material
customers and non-information technology suppliers (i.e. utility
systems, telephone systems and security systems) regarding their Year
2000 state of readiness.
The Company will continue to work on its awareness, assessment,
validation and implementation of its Year 2000 plan for readiness.
However, no assurance can be given that the Year 2000 readiness
will be completed by the Year 2000. The Company has a reasonable basis
to conclude that the Year 2000 issue will not materially affect future
financial results, or cause reported financial information not to be
necessarily indicative of future operating results or future financial
condition.
Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future
events, which are inherently uncertain, including the progress and
results of the testing plans and all vendors, suppliers, and customer
readiness.
6
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
There are no material pending legal proceedings, other than ordinary
routine litigation incidental to its business, to which the Trust is a
party or to which any of its property is the subject.
Item 2. Changes in Securities
---------------------
None.
Item 3. Defaults Upon Senior Securities
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None.
Item 5. Other Information
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
A. Exhibit Description 27 Financial Data Schedule
B. Reports on Form 8-K: None.
7
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SIGNATURES
In accordance with 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.
PALMETTO REAL ESTATE TRUST
November 10, 1998 By: /s/ Bill Franks
- ----------------- ---------------
Date Bill Franks
Property Manager
(Principal Financial and Accounting Officer)
November 10, 1998 By: /s/ James A. Boling
- ----------------- -------------------
Date James A. Boling
Chairman
(Principal Executive Officer)
8
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
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0
0
<COMMON> 1770006
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