UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB
Annual Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1997
Commission File Number 0-179
PALMETTO REAL ESTATE TRUST
(Name of small business issuer in its charter)
South Carolina 57-0405064
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(State or other jurisdiction (I.R.S. Employer
of incorporation of organization) Identification No.)
45 Liberty Lane, Greenville, South Carolina 29607
- ------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (864) 233-6007
Securities registered pursuant to Section 12(b) of the Exchange Act: None.
Securities registered pursuant to Section 12(g) of the Exchange Act:
Shares of Beneficial Interest - $1 Par Value
--------------------------------------------
(Title of class)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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 [ ]
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Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
the Form 10-KSB [X]
The issuer's revenues for its most recent fiscal year: $1,580,699
The aggregate market value of the voting stock held by non-affiliates of the
issuer computed by reference to the price at which the stock was sold, or the
average bid and asked prices of such stock, as of a specified date within the
past 60 days: Not available
The number of shares outstanding of each of the registrant's classes of common
equity, as of March 15, 1998: Shares of Beneficial Interest 1,770,006
DOCUMENTS INCORPORATED BY REFERENCE
Portions of registrant's definitive proxy statement (to be filed pursuant to
Regulation 14A) or definitive information statement (to be filed pursuant to
Regulation 14C) for registrant's 1997 annual meeting are incorporated by
reference in Part III.
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PART I
ITEM 1. BUSINESS
Palmetto Real Estate Trust (the "Trust"), was organized as a qualified real
estate investment trust under the Internal Revenue Code, Section 856, as
amended, and the applicable state laws of the State of South Carolina.
The principal office of the Trust is located in Greenville, South Carolina,
and the managing agent of the Trust is B. A. Franks. Prior to its formation
in 1972, the Trust was known as Palmetto Industrial Corporation. The
ownership of the equitable interest in the Trust is evidenced by shares of
beneficial interest. At December 31, 1997, there are 1,770,006 shares of
beneficial interest issued and outstanding.
The primary business of the Trust is the ownership, development and rental of
restaurants, dry cleaning establishments, department stores, convenience food
stores, grocery stores, post offices, and various other retail establishments.
It is the intention of the Trust to continue to invest in profitable commercial
properties for suitable tenants.
The Trust derives more than 98 percent of its gross income from rents received
on leases with terms ranging up to twenty years with many including renewal
options ranging from one to five years.
The leases do not require the Trust to furnish any services to tenants. The
Trust has no full-time employees. The Trust is engaged in no lines of business
other than real estate investments. The Trust does not at present, nor in the
future, intend to purchase property primarily for resale. The Trust is not
involved in any type of research or development activities. The Trust is not
affiliated with any foreign corporation.
ITEM 2. PROPERTIES
All of the leased buildings are suitable and adequate for the purposes for
which they were designed and are in a good state of repair. The managing agent
makes every effort to ensure that the rent is timely paid by all the tenants,
that the taxes and insurance are current on all properties, and that all
buildings are being properly maintained and repaired. In management's opinion,
all properties are adequately covered by insurance. The following briefly
describes each of the properties:
A. 1307 Richland Avenue, Aiken, South Carolina; masonry, brick and block
building; 2,344 square feet; adequate parking; construction date--1966; no
mortgages or liens; vacant; property taxes for 1997--$2,017.
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B. Ace TV Rentals, 405 South Pleasantburg Drive, Greenville, South Carolina;
block and masonry building; 3,600 square feet--acquired in 1992; adequate
parking; no mortgage or liens; annual base rent of $32,270; three-year
lease expires April 16, 1998; property taxes for 1997--$3,855.
C. Cateran Family Restaurant, Wade Hampton Boulevard, Greenville, South
Carolina; brick and concrete building; 3,280 square feet; adequate parking;
construction date--1966; no mortgages or liens; annual base rent $16,200
(in effect during renegotiation period); five-year option expired September
30, 1987, and is presently a month-to-month rental; property taxes for
1997--$4,272.
D. Dove Cleaners, Reidville Road, Spartanburg, South Carolina; masonry and
block building; 1,632 square feet; adequate parking; construction
date--1970; no mortgages or liens; and is vacant; property taxes for
1997--$1,895.
E. Enigma Spinx (retail convenience store and service station),
Haywood--Pelham Road, Greenville, South Carolina; two masonry and block
buildings; 8,500 square feet; acquired 1993; mortgage balance at December
31, 1997--$666,439; fifteen-year lease expires May 31, 2008; annual lease
payments $112,000 for the first five years, $123,200 for the second five
years, and $134,400 for the third five years; property taxes are paid by
tenant.
F. Venture Park, Rutherford Road, Greenville, South Carolina; three concrete
block warehouses; acquired November 14, 1979; 9,200 square feet; no
mortgages or liens; property taxes for 1997--$2,304.
PRINCIPAL TENANTS LEASE ARRANGEMENTS
----------------- ------------------
Andy Oxy Company, Inc. Month-to-month rental. Annual base
rent $15,300.
Jaguar South One-year lease expires April 30, 1998.
Annual base rent $9,900.
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G. Pleasantburg Shopping Center, Laurens Road, Greenville, South Carolina;
brick masonry and concrete building; 162,000 square feet; acquired in 1976;
mortgage balance at December 31, 1997--$1,758,600; collateral for line of
credit balance of $-0-; property taxes for 1997--$84,160.
PRINCIPAL TENANTS LEASE ARRANGEMENTS
----------------- ------------------
Belk-Simpson Company Carpet and furniture sales.
Five-year lease expires January 31,
1999; 48,000 square feet. Annual base
rent $77,700 plus 1% of sales over
$2,800,000.
Book Rack Three-year lease expires December
31, 1999. Annual base rent $9,180.
The Open Book Five-year lease expires
September 30, 2002; 16,000 square
feet. Annual base rent $72,000.
American General Five-year lease expires June
30, 1999. Annual base rent $7,854.
Dollar Depot Three-year lease expires April
30, 1998. Annual base rent $13,800.
Joey's Inc. Three-year lease expires April 30,
1998. Annual base rent $14,400.
Mother's Love Lease under negotiation. Annual
base rent $3,960.
Olan Mills Studio Five-year lease expires April 30,
2001. Annual base rent $6,900.
Pleasantburg Shoe Service Three-year lease expires December
31, 1998. Annual base rent $4,800.
Rogers Jewelers Month-to-month rental. Annual base
rent $3,600.
SharMari Hair Extraordinaire Lease expires January 31, 1998.
Annual base rent $4,740.
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G. Pleasantburg Shopping Center (continued)
PRINCIPAL TENANTS LEASE ARRANGEMENTS
----------------- ------------------
First State Mortgage Bankers Month-to-month rental. Annual base
rent $4,200.
Gregory's Boutique Two-year lease expires March 31,
1999. Annual base rent $10,800.
Reid Printing Co. Lease under negotiation. Annual
base rent $12,000.
Fred A. Fuller Appliances Three-year lease expires February
28, 2000. Annual base rent $12,778.
Wilson's 5(cent) to $1.00 Five-year lease expires January 31,
2000. Annual base rent $24,600 plus
4% of gross sales over $450,000.
Branch Banking & Trust Co. Five-year lease expires December
31, 2003. Annual base rent $7,830.
Nichole's Two-year lease expires May 31, 1998.
Annual base rent $4,500.
Novelty Shop Three-year lease expires March
31, 2000. Annual base rent $30,120.
A & E Enterprises Three-year lease expires August 31,
2000. Annual base rent $54,000.
The Great Escape Five-year lease expires
January 31, 2000; 16,000 square feet.
Annual base rent $40,000.
Kutting Room Three-year lease expires September
30, 2000. Annual base rent $5,452.
Jilbril's Boutique Month-to-month rental. Annual base
rent $3,300.
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G. Pleasantburg Shopping Center (continued)
PRINCIPAL TENANTS LEASE ARRANGEMENTS
----------------- ------------------
Act II One-year lease expires January 31,
1998. Annual base rent $5,100.
Clyde Davis Co. Lease under negotiation. Annual
base rent $12,000.
King David Salon Two-year lease expires June 30,
1998. Annual base rent $4,488.
C.C. Hair & Co. Three-year lease expires July 31,
1999. Annual base rent $7,332.
Manifest Discs & Tapes Five-year lease expires January 31,
2002. Annual base rent $52,500.
Alpha Greenville Beauty School Month-to-month rental. Annual base
rent $12,780.
India Palace Restaurant Five-year lease expires June 30,
1998. Annual base rent $12,000.
H. Wade Hampton Property, Wade Hampton Boulevard, Greenville, South Carolina;
brick and masonry building divided into seven office spaces; 7,730 square
feet; no mortgages or liens; property taxes for 1997--$6,349.
PRINCIPAL TENANTS LEASE ARRANGEMENTS
----------------- ------------------
Mr. Curtis Hair Design Three-year option expires August
31, 1998. Annual base rent $6,600.
Filter Queen Three-year lease expires May 31,
1999; 1,000 square feet. Annual base
rent $5,610.
Check World Three-year lease expires May 31,
2000. Annual base rent $7,392.
J. Michael's Three-year lease expires August 31,
1999. Annual base rent $6,744.
Jay Mac Photography Three-year lease expires August 31,
1998. Annual base rent $5,940.
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H. Wade Hampton Property (continued)
ABC Title Loans, Inc. One-year lease expires October 31,
1998. Annual base rent $5,700.
Beltone Hearing Aid Center Three-year lease expires June 30,
1998; 900 square feet. Annual
base rent is $9,600.
I. Willard Oil property, I-85, Spartanburg, South Carolina; block and masonry
building; 4,000 square feet; adequate parking; originally constructed and
acquired in 1986; no mortgages or liens; annual base rent $22,440; five-
year lease expires May 15, 2001. Property taxes on this property are paid
by the tenant.
J. BP Oil Station, I-385 and Roper Mountain Road, Greenville, South Carolina;
block and masonry building; 2,000 square feet; adequate parking;
constructed in 1985 and acquired in 1986; no mortgages or liens; annual
base rent $56,100; fifteen-year lease expires June 30, 2001; property taxes
paid by tenant.
K. Laurens Road Property, Laurens Road, Greenville, South Carolina; block and
masonry building; 3,000 square feet; adequate parking; constructed in 1973
and acquired in 1987; no mortgages or liens; property taxes for
1997--$1,952.
PRINCIPAL TENANTS LEASE ARRANGEMENTS
----------------- ------------------
Borderlands Three-year lease expires December 31,
1999. Annual base rent $9,900.
Family Alteration Shop Three-year lease expires April 30,
1998. Annual base rent $5,808.
Before-N-After Salon Three-year lease expires May
31, 2000. Annual base rent - $6,600.
L. Transit Drive Property, 216 Transit Drive, Greenville, South Carolina;
brick building containing approximately 6,700 square feet on 200 x 250 feet
tract of land; acquired in 1991; no mortgages or liens; annual base rent
$29,700; three-year lease expires July 14, 1997; property taxes paid by
tenant.
M. Lesco, Inc., Northway Court, Greer, South Carolina; block and masonry
building; approximately 6,000 square feet; constructed and acquired in
1994; no mortgages or liens; seven-year lease expires April 30, 2001;
annual base rent $27,000 for the first four years and $30,000 for the last
three years.
N. CV Dynamics/CV Master, 544 North Church Street, Spartanburg, South
Carolina; block and masonry building; approximately 3,500 square feet;
acquired in 1994; no mortgages or liens, annual base rent $19,800, ten-year
lease expires May 31, 2007; property taxes paid by tenant.
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O. Tireama, Inc., 236 East Blackstock Road, Spartanburg, South Carolina; block
and masonry building; approximately 3,000 square feet; acquired in 1994; no
mortgages or liens; annual base rent $34,800; six-year lease expires April
14, 2000; property taxes paid by tenant.
P. Atlas Services, Inc., 90 Sunbelt Boulevard, Columbia, South Carolina; metal
building containing approximately 20,000 square feet located on 2 acres;
acquired in 1995; mortgage balance at December 31, 1997 - $448,200; annual
base rent $81,600; ten-year lease expires January 12, 2005; property taxes
paid by tenant.
Q. Atlas Services, Inc., Old Mill Road, Mauldin, South Carolina; brick and
metal building containing approximately 17,500 square feet; acquired in
1996; mortgage balance as of December 1997 - $400,200; annual base rent
$73,800; ten-year lease expires July 31, 2006; property taxes paid by
tenant.
R. Taylors Point Shopping Center - Wade Hampton Boulevard, Greenville, South
Carolina; brick and masonry building containing 45,922 square feet located
on 5.4 acres; acquired in 1995; mortgage balance at December 31, 1997 -
$2,178,024; annual base rent $50,000; three-year lease expires March 31,
2000; property taxes for 1997--$33,403.
PRINCIPAL TENANTS LEASE ARRANGEMENTS
----------------- ------------------
All Tune & Lube Five-year lease expires
January 17, 1999; 7,500 square feet.
Annual base rent $41,448.
American General Finance Three-year lease expires May 31,
1998. Annual base rent $22,200.
Blockbuster Video Video rental. Seven-year lease
expires June 30, 1998; 6,400 square
feet. Annual base rent $75,200.
Brenda's Boutique Three-year lease expires October 31,
1999. Annual base rent $10,200.
Foremost Insurance Three-year lease expires August 31,
1998. Annual base rent is $6,800.
Hardee's Restaurant Fifteen-year lease expires December
30, 2004. Annual base rent $22,200.
Harvey's Family Restaurant Month-to-month rental; 4,788 square
feet. Annual base rent $14,400.
Little Caesars Pizza Five-year lease expires May 14,
2000. Annul base rent $17,100.
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R. Taylors Point Shopping Center (continued)
Impressions Three-year lease expires April 30,
1999. Annual base rent $8,100.
On Deck Circle Three-year lease expires May 14,
1998. Annual base rent $8,100.
Grand Computers Three-year lease expires March 31,
1999. Annual base rent $8,100.
Great Wall Five-year lease expiring October 31,
2001. Annual base rent $19,200.
TCBY Yogurt Five-year lease expires
January 31, 2000. Annual base rent
$21,600.
Willis ChiroMed Three-year lease expires October 31,
1998. Annual base rent $9,000.
ITEM 3. LEGAL PROCEEDINGS
There were no material pending legal proceedings by the Trust or against the
Trust or its properties at December 31, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth quarter
of 1997.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS
The Trust's shares of beneficial interest are not traded on an exchange. The
approximate number of holders of shares of beneficial interest at December 31,
1997, was 1,193.
Dividend data and price range for the years 1997 and 1996 follows:
DIVIDENDS - The dividends declared quarterly in 1997 and 1996 are as follows:
PER
1997 TOTAL SHARE
----- -----
First Quarter $ 71,178 .04
Second Quarter 70,800 .04
Third Quarter 70,800 .04
Fourth Quarter 222,225 .125
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$435,003 .245
PER
1996 TOTAL SHARE
----- -----
First Quarter $ 70,801 .04
Second Quarter 70,801 .04
Third Quarter 70,800 .04
Fourth Quarter 154,500 .087
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$366,902 .207
MARKET - There is no active market for the trading of the Trust's shares of
beneficial interest besides the trading between shareholders and repurchase of
shares by the Trust.
The Trust expects to continue its policy of paying regular quarterly cash
dividends, although there is no assurance as to future dividend amounts since
they are dependent on future earnings and the financial condition of the Trust.
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ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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The discussion and analysis that follows addresses the financial condition,
changes in financial condition, and results of operations.
FINANCIAL CONDITION
- -------------------
During 1997, the financial condition of the Trust remained relatively stable.
During the third quarter of 1996, the Trust purchased property in Mauldin,
South Carolina for $671,000. This purchase was partially financed by obtaining
a mortgage in the amount of $437,000, payable in monthly installments based on
a variable interest rate through October 2001. During the fourth quarter of
1996, the Trust refinanced four loans totaling $4,015,000 to obtain a more
favorable interest rate. Repayments will be payable in monthly installments
based on a variable rate through October 2001, with a final balloon payment due
on that date.
RESULTS OF OPERATIONS
- ---------------------
Rental income has increased by approximately 7.6% in 1997 as a result of a
number of the lease renewal options being exercised at an increased base annual
rent compared to a 30% increase in 1996 which resulted from the Trust acquiring
new rental properties in the third and fourth quarters of 1996. The Trust
intends to continue to invest in profitable income-producing properties which
will command long-term leases.
Depreciation, interest expense and property taxes during 1997 reflected no
significant change in comparison to 1996. General and administrative expenses,
which include commissions, increased 9.6% during 1997. Repairs and maintenance
increased $42,000 due primarily to roof repairs on various properties during
1997.
The gain of $7,000 recognized during 1997 relates to the deferred gain on sale
of property in prior years.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The primary liquid asset of the Trust is cash. Cash provided by operating
activities was $700,456 in 1997 and $599,271 in 1996. The cash provided was
used for capital expenditures, repayment of debt and payment of dividends. The
Trust showed cash consumed during 1997 of $124,280, as compared to cash
provided in 1996 of $108,738.
Because it holds noncancelable leases with most of its tenants, the Trust is
reasonably assured of receiving the minimum funds necessary to operate
effectively. Leases that are expiring within the next year are being negotiated
and management does not expect a significant negative impact on liquidity. At
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the date of filing, there are no significant vacant properties. Known future
commitments of the Trust include the repayment of its debt and certain
noncancelable operating leases, both of which are described in the financial
statements filed as part of this report. Past capital acquisitions and
improvements have been financed through funds provided from operations and the
incurrence of long-term debt with the exception of the acquisition of the
Transit Drive property acquired in 1991 and the acquisition of the East
Blackstock Road and North Church Street properties acquired in 1994, which were
financed through borrowings under a short-term line of credit. Future capital
expenditures are contingent upon the availability of funds as determined by the
board of trustees. Dividend payments to shareholders are discretionary and
require the board of trustees' approval. Future dividend payments are
contingent upon the available funds and may be increased or decreased as is
necessary.
The Trust has established a plan to address Year 2000 issues. Successful
implementation of this plan will eliminate any extraordinary expenses related
to Year 2000 issue. The Trust has purchased software updates from its sole date
processing company regarding their Year 2000 plans and compliance. The Trust
has a reasonable basis to conclude that the Year 2000 issues 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.
As with all businesses, inflation has an effect on the operations of the Trust,
particularly with maintenance costs and property taxes. The Trust is attempting
to offset the effects of inflation by requiring tenants to pay for any
increases in costs over their base year rentals.
ITEM 7. FINANCIAL STATEMENTS
--------------------
The report of the Independent Auditors and financial statements are listed
under Item 13(A)(1) herein.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE - None.
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PART III
ITEM 9. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
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ITEM 10. EXECUTIVE COMPENSATION
----------------------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The information called for by Items 9, 10, 11 and 12 has been omitted because
the registrant will file with the SEC not later than 120 days after the close
of its fiscal year a definitive proxy statement pursuant to Regulation 14A.
Such information is hereby incorporated by reference from registrant's
definitive proxy statement.
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ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
----------------------------------------------------------------
A. (1) FINANCIAL STATEMENTS
--------------------
Balance Sheet--December 31, 1997
Statements of Income--Years Ended December 31, 1997 and 1996
Statements of Shareholders' Equity--Years Ended December 31, 1997 and
1996
Statements of Cash Flows--Years Ended December 31, 1997 and 1996
Notes to Financial Statements
(2) Schedules to the financial statements have been omitted as the
required information is inapplicable.
B. REPORTS ON FORM 8-K - None.
---------------------------
C. EXHIBITS - None.
----------------
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
Date: February 27, 1998 by: /s/ James A. Boling
------------------------- --------------------
James A. Boling
Chairman of the Board of Trustees
Pursuant to the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ William J. Ables President February 27, 1998
- -------------------- -----------------
William J. Ables
/s/ Melvin K. Younts Secretary/Treasurer February 27, 1998
- -------------------- -----------------
Melvin K. Younts
/s/ Welch M. Bostick, Jr. Trustee February 27, 1998
- ------------------------- -----------------
Welch M. Bostick, Jr.
/s/ C. Laney Younts Trustee February 27, 1998
- ------------------- -----------------
C. Laney Younts
/s/ Gary S. Thompson, Jr. Trustee February 27, 1998
- ------------------------- -----------------
Gary S. Thompson, Jr.
/s/ Hunter Howard, Jr. Trustee February 27, 1998
- ---------------------- -----------------
Hunter Howard, Jr.
/s/ R. Riggie Ridgeway Trustee February 27, 1998
- ---------------------- -----------------
Riggie Ridgeway
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INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
Palmetto Real Estate Trust
We have audited the accompanying balance sheet of Palmetto Real Estate Trust as
of December 31, 1997, and the related statements of income, shareholders'
equity and cash flows for the two years ended December 31, 1997. These
financial statements are the responsibility of the Trust's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Palmetto Real Estate Trust at
December 31, 1997, and the results of its operations and its cash flows for the
two years ended December 31, 1997 in conformity with generally accepted
accounting principles.
Greenville, South Carolina /s/ CRISP HUGHES EVANS LLP
January 9, 1998
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PALMETTO REAL ESTATE TRUST
Balance Sheet
December 31, 1997
ASSETS
------
Real estate investments, at cost:
Rental property, net of accumulated depreciation $ 8,283,911
Timberlands 24,864
---------
Total real estate investments 8,308,775
Other assets:
Cash 68,524
Rent receivable 43,011
Notes receivable 258,384
Deferred loan expense, net of accumulated amortization 21,166
-------
Total other assets 391,085
----------
Total assets $ 8,699,860
==========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Liabilities:
Mortgage notes payable $ 5,451,470
Accounts payable and accrued expenses 123,396
Dividends payable 222,225
Deferred revenue 155,877
---------
Total liabilities 5,952,968
Shareholders' equity:
Shares of beneficial interest, $1 par value;
5,000,000 shares authorized; 1,770,006 shares
issued and outstanding 1,770,006
Capital surplus 498,734
Undistributed earnings 478,152
---------
Total shareholders' equity 2,746,892
----------
Total liabilities and shareholders' equity $ 8,699,860
==========
See accompanying notes to financial statements.
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PALMETTO REAL ESTATE TRUST
Statements of Income
Years Ended December 31, 1997 and 1996
1997 1996
---- ----
Income:
Rental income $1,546,026 $ 1,435,868
Other income 34,673 30,412
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Total income 1,580,699 1,466,280
--------- ---------
Expenses:
Depreciation and amortization 263,499 281,689
Interest 469,437 457,123
Repairs and maintenance 75,936 33,825
Property taxes 142,504 146,211
General and administrative 195,699 178,520
-------- ---------
Total expenses 1,147,075 1,097,368
--------- ---------
Income from operations before income taxes 433,624 368,912
Income tax expense 4,700 4,100
-------- ---------
Income from operations 428,924 364,812
Gain on sale of real estate 7,835 7,163
-------- ---------
Net income $ 436,759 $ 371,975
========= ==========
Basic earnings per share of beneficial interest $ 0.246 $ 0.210
========= ==========
See accompanying notes to financial statements.
PAGE
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<TABLE>
PALMETTO REAL ESTATE TRUST
Statements of Shareholders' Equity
Years Ended December 31, 1997 and 1996
SHARES OF
BENEFICIAL INTEREST
$1 PAR VALUE CAPITAL UNDISTRIBUTED
SHARES AMOUNT SURPLUS EARNINGS TOTAL
-------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995 1,770,006 $1,770,006 $498,734 $ 471,323 $2,740,063
Net income - - - 371,975 371,975
Distribution to shareholders - - - (366,902) (366,902)
--------- -------- -------- -------- ---------
Balance at December 31, 1996 1,770,006 1,770,006 498,734 476,396 2,745,136
Net income - - - 436,759 436,759
Distribution to shareholders - - - (435,003) (435,003)
--------- -------- -------- -------- ---------
Balance at December 31, 1997 1,770,006 $1,770,006 $498,734 $ 478,152 $2,746,892
========= ========= ======= ======== =========
See accompanying notes to financial statements.
</TABLE>
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PALMETTO REAL ESTATE TRUST
Statements of Cash Flows
Years Ended December 31, 1997 and 1996
1997 1996
---- ----
Cash from operating activities:
Net income $ 436,759 $ 371,975
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense 257,993 255,330
Amortization of deferred expenses 5,506 26,359
Gain on sale of real estate (7,835) (7,163)
(Increase) decrease in:
Rent receivable (5,655) 10,344
Prepaid expense 4,034 (3,166)
Deferred loan expense - (24,689)
Increase (decrease) in:
Accounts payable and accrued expenses 9,654 (29,719)
-------- ---------
Net cash provided by operating activities 700,456 599,271
-------- ---------
Cash from investing activities:
Property additions and improvements (34,125) (709,451)
Collections of mortgage notes receivable 17,056 14,739
-------- ---------
Net cash used in investing activities (17,069) (694,712)
-------- ---------
Cash from financing activities:
Payments on demand note payable (160,372) (119,628)
Principal payments on long-term debt (280,017) (3,072,940)
Proceeds from long-term debt - 3,794,999
Payment of dividends (367,278) (398,252)
-------- ---------
Net cash provided by (used in) financing activities (807,667) 204,179
-------- ---------
Net increase (decrease) in cash (124,280) 108,738
Cash at beginning of year 192,804 84,066
-------- ---------
Cash at end of year $ 68,524 $ 192,804
========= ==========
Supplemental disclosures of cash flow information:
Cash paid during the year:
Interest $ 469,437 $ 457,123
========= ==========
Income taxes $ 6,209 $ 8,134
========= ==========
Non cash transactions
Debt refinancing $ - $ 4,015,000
========= ==========
<PAGE>
<PAGE>
PALMETTO REAL ESTATE TRUST
Notes to Financial Statements
December 31, 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - Palmetto Real Estate Trust ("the Trust") has been organized
as a qualified real estate investment trust under the Internal Revenue Code
and the applicable state laws. The primary business of the Trust is the
ownership, development and rental of various properties in South Carolina.
A substantial percentage of revenue is derived from tenants in one shopping
center. The Trust generally does not require collateral for its
receivables.
Investments in Rental Property - Investments in rental property are
recorded at cost. Depreciation is computed using straight-line methods for
financial reporting and straight-line and accelerated methods for income
tax purposes. Estimated useful lives of assets range from five to forty
years.
In March 1995, the FASB issued Statement No. 121, "Accounting for
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of",
which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount. Statement No. 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. The
Trust adopted the Statement in the first quarter of 1996 and the adoption
did not have any material effect.
Deferred Loan Expense - Costs associated with obtaining financing are
amortized over the lives of the respective loans. Deferred loan costs at
December 31, 1997 amounted to:
Deferred loan costs $ 29,039
Accumulated amortization 7,873
-------
$ 21,166
Basic Earnings Per Share - Basic earnings per share were computed by
dividing earnings available to shareholders by the weighted average number
of shares outstanding during each year, or 1,770,006 shares for 1997 and
1996.
<PAGE>
<PAGE>
PALMETTO REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS (continued)
Income Taxes -The Trust files its tax returns under Sections 856-858 of the
Internal Revenue Code and the applicable state laws as a real estate
investment trust, and makes distributions to its shareholders of its real
estate trust taxable income. As a qualified real estate investment trust,
distribution of the Trust's taxable income and capital gains are taxed at
the shareholder level. The Trust is required to distribute at least 95% of
its taxable income other than capital gains to maintain its tax status. To
avoid additional excise tax, an amount equal to the sum of 85% of ordinary
income and 95% of capital gains must be distributed in the year it is
earned. Differences in income for financial reporting and tax reporting
result from utilization of different methods of calculating depreciation
and differences in reporting gains on the sale of real estate.
Estimates - The presentation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
Cash and Cash Equivalents - The Trust includes cash equivalents, defined as
all highly liquid instruments purchased with a maturity of three months or
less, when reporting cash and cash flows for the years. Deposit balances in
excess of $100,000 at one financial institution are not guaranteed by the
Federal Deposit Insurance Corporation.
Revenue Recognition - Minimum rental income is recognized on a straight-
line basis over the term of each lease. Unpaid rents are included in
accounts receivable. Certain lease agreements contain provisions which
provide reimbursement of real estate taxes and insurance. All rent and
other receivables from tenants are due from commercial building tenants
located in the properties.
<PAGE>
<PAGE>
PALMETTO REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS (continued)
2. INVESTMENT IN RENTAL PROPERTY AND GAIN ON SALE OF REAL ESTATE
COSTS CAPITALIZED
INITIAL COST TO COMPANY SUBSEQUENT TO ACQUISITION
----------------------- -------------------------
BUILDING AND CARRYING
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COST
- ------------- ------------ -------- ------------ ------------ --------
Aiken, SC $ - $ 24,500 $ 33,123 $ 1,350 $ 1,350
Cateran Family Restaurant-
Greenville, SC - 20,000 90,004 - -
Reidville Road Brake and Car
Wash--Spartanburg, SC - 10,000 39,820 - -
Enigma Spinx--
Greenville, SC 666,439 350,000 670,000 - -
Venture Park--Greenville, SC - 11,000 81,017 3,125 3,125
Pleasantburg Shopping Center--
Greenville, SC 1,758,600 977,759 1,739,570 1,245,043 1,245,043
Wade Hampton Property--
Greenville, SC - 40,000 200,000 18,282 18,282
Willard Oil Property--
Spartanburg, SC - 55,984 79,140 - -
BP Oil--Greenville, SC - 100,000 328,736 - -
Laurens Road Property--
Greenville, SC - 16,235 82,261 3,656 3,656
Transit Drive--Greenville, SC - 50,000 175,000 19,213 19,213
Ace TV Rentals--Greenville, SC - 50,000 160,000 - -
Lesco--Greer, SC - 30,000 200,000 - -
Tireama--Spartanburg, SC - 26,000 234,000 - -
CV Master--Spartanburg, SC - 18,000 162,000 20,485 20,485
Atlas Services--
Columbia, SC 448,197 75,000 670,000 - -
Taylors Point Shopping Center--
Greenville, SC 2,178,024 500,000 2,300,000 - -
Atlas Services--
Mauldin, SC 400,210 50,000 621,000 - -
Other - - - 104,443 104,443
--------- ------- --------- ------- -------
$5,451,470 $2,404,478 $7,865,671 $1,415.597 $1,415,597
========= ======== ========= ========= =========
(1) Construction date unavailable
PAGE
<PAGE>
<TABLE>
PALMETTO REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS (continued)
LIFE ON WHICH
GROSS AMOUNT AT WHICH DEPRECIATION IN
CARRIED AT CLOSE OF PERIOD LATEST INCOME
BUILDING AND ACCUMULATED DATE OF DATE STATEMENT IS
LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTION ACQUIRED COMPUTED
------ --------- -------- -------- ------- ------- -----
<C> <C> <C> <C> <C> <C> <C>
$ 24,500 $ 34,473 $ 58,973 $ 33,109 1966 1965 33
20,000 90,004 110,004 84,604 1966 1974 25
10,000 39,820 49,820 39,820 1970 1970 25
350,000 670,000 1,020,000 188,717 (1) 1993 31/15
11,000 84,142 95,142 44,954 1977 1979 25
977,759 2,984,613 3,962,372 2,197,528 1965 1976 31
40,000 218,282 258,282 118,343 1982 1983 25
55,984 79,140 135,124 24,182 1993 1993 15
100,000 328,736 428,736 275,069 1985 1986 25
16,235 85,917 102,152 26,582 1973 1988 31
50,000 194,213 244,213 41,353 (1) 1991 31
50,000 160,000 210,000 28,783 (1) 1992 31
30,000 200,000 230,000 17,917 1994 1994 39
26,000 234,000 260,000 19,013 (1) 1994 39
18,000 182,485 200,485 13,760 (1) 1994 39/20
75,000 670,000 745,000 37,688 1995 1995 40
500,000 2,300,000 2,800,000 119,792 1990 1995 40
50,000 621,000 671,000 20,700 1996 1996 40
- 104,443 104,443 69,921 - Various 7
------- --------- --------- --------- ---- ------- -----
$2,404,478 $9,281,268 $11,685,746 $3,401,835
========= ========= ========== =========
</TABLE>
<PAGE>
<PAGE>
The aggregate cost and accumulated depreciation for federal income tax
purposes is $11,197,225 and $3,437,419 at December 31, 1997, respectively.
Activity in the Trust's investment in real estate for the two years in the
period ended December 31, 1997, is summarized as follows:
YEAR ENDED DECEMBER 31
1997 1996
---- ----
Investment in Real Estate
-------------------------
Balance at beginning of year $11,655,593 $10,946,142
Acquisitions 34,125 709,451
Cost of property sold (3,972) -
--------- ----------
Balance at end of year $11,685,746 $11,655,593
========== ==========
Accumulated Depreciation
------------------------
Balance at beginning of year $ 3,147,814 $ 2,892,484
Depreciation expense 257,993 255,330
Accumulated depreciation on property disposed (3,972) -
--------- ---------
Balance at end of year $ 3,401,835 $ 3,147,814
========== ==========
In September 1994, the Trust sold property located at 201 North Cedar
Street in Summerville, South Carolina (Piggly Wiggly) with a net book value
of $83,972 for $262,944. The entire sale was financed by the Trust (See
Note 3). The buyer's initial investment did not meet the criteria specified
in FASB 66 for recognition of the gain by the full accrual method,
accordingly, the Trust recorded a deferred gain under the installment
method of $178,972 for financial reporting purposes. Gain in the amount of
$7,835 and $7,163 was recognized for 1997 and 1996, respectively, based on
payments received on the note receivable. For income tax purposes, the sale
of the property was included as a part of a tax-free exchange and is not
subject to either federal or state income taxes. The Trust acquired
property on East Blackstock Road and North Church Street (Tireama, Inc.) in
Spartanburg, South Carolina, as part of this exchange.
3. MORTGAGE NOTE RECEIVABLES
The Trust received a $50,000 mortgage note receivable in connection with
the sale of its Charlotte property (J.R. Auto Sales) in 1992, which bears
interest at 10% and is payable in monthly installments of $661, including
interest through October 2002. The carrying amount of the mortgage note
receivable was $30,292 at December 31, 1997.
In addition, the Trust received a $262,944 mortgage note receivable in
connection with the sale of its Summerville property (Piggly Wiggly) in
1994, which bears interest at 9% and is payable in monthly installments of
$2,725, including interest through January 2009. The carrying amount of the
mortgage note receivable was $228,092 at December 31, 1997.
<PAGE>
<PAGE>
4. MORTGAGE NOTES PAYABLE
Long-term debt at December 31, 1997, consists of the following:
Term note payable in monthly payments based on
a variable interest rate through November 2001,
at 2.50% above the London Interbank Offered Rate
(8.46% at December 31, 1997); final balloon payment
due December 2001; collateralized by four rental
properties located in South Carolina. $ 1,758,600
Term note payable in monthly payments based on a
variable interest rate through November 2001, at
2.50% above the London Interbank Offered Rate
(8.46% at December 31, 1997); final balloon payment
due December 2001; collateralized by four rental
properties located in South Carolina. 666,439
Term note payable in monthly payments based on a
variable interest rate through November 2001, at
2.50% above the London Interbank Offered Rate
(8.46% at December 31, 1997); final balloon payment
due December 2001; collateralized by four rental
properties located in South Carolina. 400,210
Term note payable in monthly payments of $20,660
including interest through September 2000, at a
fixed rate of 8.2%, final balloon payment due October
2000, collateralized by the rental property located on
Wade Hampton Boulevard, Greenville, South Carolina. 2,178,024
Term note payable in monthly payments based on a
variable interest rate through November 2001, at
2.50% above the London Interbank Offered Rate
(8.46% at December 31, 1997); final balloon payment
due December 2001; collater-alized by four rental
properties located in South Carolina. $ 448,197
---------
$ 5,451,470
=========
<PAGE>
<PAGE>
Future maturities of debt are as follows:
YEAR
----
1998 $ 316,451
1999 342,759
2000 2,310,975
2001 2,481,285
---------
$ 5,451,470
=========
The debt has certain restrictive covenants pertaining to cash flows margin
before dividends, cash flow margin after dividends, and debt to worth
ratio. As of December 31, 1997, the Trust was not in compliance with all
restrictive covenants, but received a waiver for events of noncompliance.
5. DEMAND NOTE PAYABLE
The Trust has an agreement with a bank that permits the Trust to borrow a
maximum of $500,000 under a revolving line of credit. Amounts outstanding
under the line of credit are due on demand, bear interest at 2.50% above
the London Interbank Offered Rate (8.46% at December 31, 1997) and are
collateralized by rental property known as South Pleasantburg Shopping
Center, which is also pledged as collateral for the mortgage notes payable
described in Note 4. At December 31, 1997, there was no outstanding balance
under the line of credit. During 1997, the maximum borrowing outstanding on
the line of credit was approximately $160,372.
<PAGE>
<PAGE>
6. FINANCIAL INSTRUMENTS
Generally accepted accounting principles require disclosure of fair value
information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate fair value.
Instruments such as rent receivable, accounts payable, accrued expenses,
notes receivable or payable that are currently due, and cash equivalents
are of a short-term nature and carrying value approximates fair value. The
estimated fair value of long-term notes receivable and payable is based on
discounting amounts at contractual rates using current market rates for
similar instruments. The Trust estimates the fair value of these items to
be the same as their carrying value.
Carrying Estimated
Value Fair Value
---------- ----------
Notes receivable $ 258,384 $ 258,384
========== ==========
Notes payable $ 5,451,470 $ 5,451,470
========== ==========
7. LONG-TERM RENTAL LEASES
The Trust holds noncancelable long-term leases on certain of its rental
properties. The minimum long-term rentals are summarized below:
Year Annual Base
---- -----------
1998 $ 1,300,557
1999 1,037,668
2000 722,508
2001 543,946
2002 408,381
Thereafter 1,301,015
---------
$ 5,314,075
=========
Certain of the leases contain rentals contingent upon annual sales of the
tenants and have renewal options for periods from one to five years.
Contingent rentals recorded were approximately $17,000 for 1997 and 1996,
respectively. Leases with renewal options generally contain escalation
clauses.
8. DISTRIBUTIONS TO SHAREHOLDERS
Cash dividends of $367,278 and $398,252 were paid during the years ended
December 31, 1997 and 1996, respectively. All distributions are
distributions of earnings and not a return of capital.
<PAGE>
<PAGE>
9. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1997 and 1996, the Trust participated
in transactions with several related parties including primarily
expenditures for legal services, management services, maintenance on the
Trust's rental properties and rental of real estate.
The following summarizes transactions with affiliates for the years ending
December 31:
1997 1996
---- ----
Rental income $ 81,900 $ 81,900
Repairs and maintenance 5,400 5,400
General and administrative expenses 33,775 30,525
The Trust leases one property to a company affiliated with one of its
largest shareholders for a base rental of $6,475 per month, under the terms
of two separate lease agreements which expire in January 1999.
10. LEASES
At December 31, 1997, the Trust was obligated under noncancelable operating
leases for the following future minimum lease payments:
1998 $11,022
Lease expense for each of the years ended December 31, 1997 and 1996 was
$11,022.
11. INCOME TAXES
The difference between income from operations before income taxes and
taxable income is as follows:
1997 1996
---- ----
Income before income taxes $ 441,459 $ 376,075
Differences:
Gain on sale of real estate (7,835) (7,163)
Depreciation 20,809 15,003
Dividends paid deduction (436,630) (366,902)
Other 5,178 2,152
-------- ---------
Taxable income $ 22,981 $ 19,165
========= ==========
The following is a reconciliation between the Trust's undistributed earnings
for financial reporting purposes and income tax purposes:
1997 1996
---- ----
Undistributed earnings, as reported $ 478,152 $ 476,396
Difference in carrying amount of real
estate investments (435,804) (449,762)
-------- ---------
Undistributed earnings for income tax purposes $ 42,348 $ 26,634
========= ==========
The differences between actual income tax expense and the amount computed by
applying the federal statutory income tax rate of 34% to income before
income taxes and cumulative effect adjustment are reconciled as follows:
1997 1996
---- ----
Income taxes at the statutory rate $ 7,900 $ 6,500
State taxes net of federal benefits 1,200 1,100
Surtax exemption (4,400) (3,800)
-------- ---------
$ 4,700 $ 4,100
========= ==========
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 68524
<SECURITIES> 0
<RECEIVABLES> 301395
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 111535
<PP&E> 8308775
<DEPRECIATION> 0
<TOTAL-ASSETS> 8699860
<CURRENT-LIABILITIES> 345621
<BONDS> 5451470
0
0
<COMMON> 1770006
<OTHER-SE> 976886
<TOTAL-LIABILITY-AND-EQUITY> 8699860
<SALES> 0
<TOTAL-REVENUES> 1580699
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 677638
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 469437
<INCOME-PRETAX> 433624
<INCOME-TAX> 4700
<INCOME-CONTINUING> 428924
<DISCONTINUED> 7835
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 436759
<EPS-PRIMARY> 0.246
<EPS-DILUTED> 0.246
</TABLE>
