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, 1998
Commission File Number 0-179
PALMETTO REAL ESTATE TRUST
(Name of small business issuer in its charter)
South Carolina 57-0405064
- -------------- ----------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation of organization)
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 [ ]
(continued)
<PAGE>
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: $1,627,503
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, 1999: Shares of Beneficial Interest 1,770,006
DOCUMENTS INCORPORATED BY REFERENCE
1. Portions of Annual Report to Stockholders for the year ended December
31, 1998 ("Annual Report") in Part II.
2. Portions of Registrant's Definitive Proxy Statement for the 1998 Annual
Meeting of Stockholders in Part III.
<PAGE>
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, 1998, 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. Speedy Cash of SC - 1307 Richland Avenue, Aiken, South Carolina; masonry,
brick and block building; 2,344 square feet; adequate parking; construction
date--1966; no mortgages or liens; two-year lease expires December 31,
2000. Annual base rent $9,600; property taxes for 1998--$2,069.
<PAGE>
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 $34,446; three-year
lease expires April 16, 2001; property taxes for 1998--$3,968.
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
1998--$4,396.
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
1998--$1,763.
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, 1998--$681,800; 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 1998--$2,386.
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, 1999. Annual base
rent $9,900.
<PAGE>
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, 1998--$2,534,200; collateral for line of
credit balance of $-0-; property taxes for 1998--$86,577.
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, 2001.
Annual base rent $15,180.
Joey's Inc. Three-year lease expires
April 30, 2001.
Annual base rent $15,480.
Mother's Love Annual base rent $3,960.
Month-to-month rental.
Olan Mills Studio Five-year lease expires April
30, 2001. Annual base rent
$6,900.
Pleasantburg Shoe Service Three-year lease expires
December 31, 1999. Annual
base rent $4,800.
Rogers Jewelers Month-to-month rental.
Annual base rent $3,600.
SharMari Hair Extraordinaire Two-year lease expires
January 31, 2001. Annual
base rent $4,740.
<PAGE>
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.
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 $10,800.
Nichole's Two-year lease expires May
31, 2000. Annual base rent
$4,950.
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 $4,800.
<PAGE>
G. Pleasantburg Shopping Center (continued)
PRINCIPAL TENANTS LEASE ARRANGEMENTS
----------------- ------------------
Act II Month-to-month rental. Annual
base rent $5,100.
King David Salon Two-year lease expires June
30, 2000.
Annual base rent $4,992.
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.
Today's Beauty Supply Five-year lease expires
February 28, 2003.
Annual base rent $21,600.
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 1998--$6,533.
PRINCIPAL TENANTS LEASE ARRANGEMENTS
----------------- ------------------
Mr. Curtis Hair Design Three-year option expires
August 31, 2001.
Annual base rent $7,200.
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 One-year lease expires August
31, 1999. Annual base
rent $6,600.
<PAGE>
H. Wade Hampton Property (continued)
PRINCIPAL TENANTS LEASE ARRANGEMENTS
----------------- ------------------
ABC Title Loans, Inc. Two-year lease expires
October 31, 2000. Annual base
rent $5,700.
Beltone Hearing Aid Center Three-year lease expires
June 30, 2001; 900 square
feet. Annual base rent is
$10,560.
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 $24,680;
five-year lease expires May 15, 2001.
Property taxes 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 $61,710; 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
1998--$2,008.
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, 2001.
Annual base rent $6,384.
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
$32,664; three-year lease expires July 14, 2000; 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.
<PAGE>
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.
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 $42,830; 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; no mortgages or liens; 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; no mortgages or liens; 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, 1998 -
$2,144,000; property taxes for 1998--$39,826.
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, 2001.
Annual base rent $23,352.
Blockbuster Video Video rental. Month-to-month
rental; 6,400 square feet.
Annual base rent $81,600.
Brenda's Boutique Three-year lease
expires October 31, 1999.
Annual base rent $10,200.
Foremost Insurance Two-year lease
expires August 31, 2000.
Annual base rent is $7,003.
Hardee's Restaurant Fifteen-year lease
expires December 30, 2004.
Annual base rent $22,200.
<PAGE>
R. Taylors Point Shopping Center (continued)
PRINCIPAL TENANTS LEASE ARRANGEMENTS
----------------- ------------------
Harvey's Family Restaurant Month-to-month rental; 4,788
square feet. Annual base rent
$14,400.
Little Caesar's Pizza Five-year
lease expires May 14, 2000.
Annual base rent $17,100.
Impressions Three-year lease expires
April 30, 1999. Annual base
rent $8,100.
On Deck Circle Lease under negotiation.
Month-to-month rental
Annual base rent $8,100.
Grand Computers Three-year lease
expires April 30, 2000.
Annual base rent $8,100.
Great Wall Five-year lease expires
October 31, 2001. Annual base
rent $19,200.
TCBY Yogurt Five-year lease
expires January 31, 2000.
Annual base rent $21,600.
All In a Basket One-year lease
expires February 28, 1999.
Annual base rent $10,500.
Easy Swing Golf Three-year lease expires June
30, 2001.
Annual base rent $18,000.
Midsouth Data Systems Three-year lease expires
March 31, 2000.
Annual base rent $50,000.
<PAGE>
S. Potomac Place Shopping Center - 3214 Augusta Road, Greenville, South
Carolina; brick and masonry building containing 23,486 square feet located
on 2.3 acres; acquired in 1998, mortgage balance at December 31,
1998--$996,000; property taxes for 1998--$18,973.
PRINCIPAL TENANTS LEASE ARRANGEMENTS
----------------- ------------------
Advance Auto Five-year lease expires
December 31, 1999; 6,574
square feet; annual base rent
$32,870.
Cozy Corner Pub Three-year lease expires June
30, 2001. 1,700 square feet;
annual base rent $15,711.
Generation Gap Three-year lease expires
February 15, 2002; 1,700
square feet; annual base rent
$11,025.
Goodwill Industries Five-year lease expires
November 30, 2002;
3,500 square feet; annual
base rent $20,700.
Rainbow Rental Five-year lease expires May
31, 2003; 7,512 square feet
annual base rent $31,926.
Sarah's Kitchen Five-year lease
expires November 30, 2003;
2,500 square feet; annual
base rent $20,755.
Bell South Year-to-year rental; annual
base rent $900.
ITEM 3. LEGAL PROCEEDINGS
There were no material pending legal proceedings by the Trust or against the
Trust or its properties at December 31, 1998.
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
1998.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS
The information under the caption "Common Stock Information" in the
Annual Report is incorporated herein by reference.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information contained in the section captioned "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" in the Annual Report is incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS
The report of the independent auditors and financial statements
contained in the Annual Report which are listed under Item 13 herein
are incorporated herein by reference.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND
FINANCIAL DISCLOSURE - None.
PART III
ITEM 9. TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT
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 is hereby
incorporated by reference from registrant's definitive proxy
statement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
13 Annual report to stockholders
27.1 Financial Data Schedule
b. Report on Form 8-K - none
<PAGE>
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: March 17, 1999 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 March 17, 1999
- -------------------------------- --------------
William J. Ables
/s/ Hunter Howard, Sr. Vice- President March 17, 1999
- --------------------------------- --------------
Hunter Howard, Sr.
/s/ Melvin K. Younts Secretary/Treasurer March 17, 1999
- --------------------------------- --------------
Melvin K. Younts
/s/ C. Laney Younts Trustee March 17, 1999
- --------------------------------- --------------
Laney Younts
/s/ Billy B. Huskey Trustee March 17, 1999
- --------------------------------- --------------
Billy B. Huskey
/s/ Hunter Howard, Jr. Trustee March 17, 1999
- --------------------------------- --------------
Hunter Howard, Jr.
/s/ R. Riggie Ridgeway Trustee March 17, 1999
- --------------------------------- --------------
R. Riggie Ridgeway
<PAGE>
Palmetto Real Estate Trust
45 Liberty Lane
Greenville, South Carolina 29607
(864) 233-6007
PALMETTO REAL ESTATE TRUST
Annual Report
December 31, 1998
<PAGE>
<PAGE>
PALMETTO REAL ESTATE TRUST
Annual Report
December 31, 1998
CONTENTS
Independent Auditors' Report.................................................1
Audited Financial Statements
Balance Sheet............................................................2
Statements of Income.....................................................3
Statements of Shareholders' Equity.......................................4
Statements of Cash Flow................................................5-6
Notes to Financial Statements.........................................7-13
Common Stock Information....................................................14
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................15-16
Directors and Officers......................................................17
<PAGE>
<PAGE>
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, 1998, and the related statements of income, shareholders'
equity and cash flows for the two years ended December 31, 1998. 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 audit 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 as
of December 31, 1998, and the results of its operations and its cash flows for
the two years ended December 31, 1998 in conformity with generally accepted
accounting principles.
Greenville, South Carolina
January 8, 1999
1
<PAGE>
<PAGE>
PALMETTO REAL ESTATE TRUST
Balance Sheet
December 31, 1998
ASSETS
Real estate investments, at cost:
Rental property, net of accumulated depreciation $ 9,020,495
Timberlands 24,864
----------
Total real estate investments 9,045,359
Other assets:
Cash 300,878
Rent receivable 32,290
Note receivable 215,488
Deferred loan expense, net of
accumulated amortization 21,491
----------
Total other assets 570,147
----------
Total assets $ 9,615,506
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Mortgage notes payable $ 6,356,000
Accounts payable and accrued expenses 139,196
Dividends payable 216,826
Deferred revenue 147,307
----------
Total liabilities 6,859,329
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 487,437
----------
Total shareholders' equity 2,756,177
----------
Total liabilities and shareholders' equity $ 9,615,506
===========
See accompanying notes to financial statements.
2
<PAGE>
<PAGE>
PALMETTO REAL ESTATE TRUST
Statements of Income
Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Income:
Rental income $ 1,605,881 $ 1,546,026
Other income 21,622 34,673
----------- -----------
Total income 1,627,503 1,580,699
----------- -----------
Expenses:
Depreciation and amortization 286,381 263,499
Interest 468,628 469,437
Repairs and maintenance 55,346 75,936
Property taxes 156,887 142,504
General and administrative 190,688 195,699
----------- -----------
Total expenses 1,157,930 1,147,075
----------- -----------
Income from operations before income taxes 469,573 433,624
Gain on sale of real estate 8,570 7,835
----------- -----------
Income before income taxes 478,143 441,459
Income tax expense 5,000 4,700
----------- -----------
Net income $ 473,143 $ 436,759
============ ============
Basic earnings per share of beneficial interest $ 0.27 $ 0.24
============ ============
See accompanying notes to financial statements.
3
<PAGE>
<PAGE>
<TABLE>
PALMETTO REAL ESTATE TRUST
Statements of Shareholders' Equity
Years Ended December 31, 1998 and 1997
SHARES OF
BENEFICIAL INTEREST
$1 PAR VALUE CAPITAL UNDISTRIBUTED
SHARES AMOUNT SURPLUS EARNINGS TOTAL
------ ------ ------- -------- -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 1,770,006 $ 1,770,006 $ 498,734 $ 476,396 $ 2,745,136
Net income - - - 436,759 436,759
Distributions to shareholders - - - (435,003) (435,003)
--------------- ------------- ----------- --------- ----------
Balance at December 31, 1997 1,770,006 1,770,006 498,734 478,152 2,746,892
Net income - - - 473,143 473,143
Distributions to shareholders - - - (463,858) (463,858)
--------------- ------------- ----------- --------- ----------
Balance at December 31, 1998 1,770,006 $ 1,770,006 $498,734 $ 487,437 $ 2,756,177
========= ========== ======= ======== ==========
See accompanying notes to financial statements.
4
</TABLE>
<PAGE>
<PAGE>
PALMETTO REAL ESTATE TRUST
Statements of Cash Flows
Years Ended December 31, 1998 and 1997
1998 1997
---- ----
Cash from operating activities:
Net income $ 473,143 $ 436,759
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 263,766 257,993
Amortization of deferred expenses 22,615 5,506
Gain on sale of real estate (8,570) (7,835)
(Increase) decrease in:
Rent receivable 10,721 (5,655)
Prepaid expense - 4,034
Increase (decrease) in:
Accounts payable and accrued expenses 15,800 9,654
----------- ----------
Net cash provided by operating activities 777,475 700,456
----------- ----------
Cash from investing activities:
Property additions and improvements (1,000,350) (34,125)
Collections on mortgage notes receivable 42,896 17,056
----------- -----------
Net cash provided by (used in) investing
activities (957,454) (17,069)
----------- -----------
Cash from financing activities:
Deferred loan costs (22,940) -
Payments on demand note payable - (160,372)
Principal payments on long-term debt (4,644,000) (280,017)
Proceeds from long-term debt 5,548,530 -
Payment of dividends (469,257) (367,278)
----------- -----------
Net cash used in financing activities 412,333 (807,667)
----------- -----------
Net increase (decrease) in cash 232,354 (124,280)
Cash at beginning of year 68,524 192,804
----------- -----------
Cash at end of year $ 300,878 $ 68,524
============ ============
Supplemental disclosures of cash flow information: Cash paid during the year:
Interest $ 461,854 $ 469,437
============ ============
Income taxes $ 5,364 $ 6,209
============ ============
Noncash transactions:
Accrued dividends $ 5,399 $ 67,725
============ ============
See accompanying notes to financial statements.
5
<PAGE>
<PAGE>
PALMETTO REAL ESTATE TRUST
Notes to Financial Statements
December 31, 1998
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.
The Trust reviews the carrying value of long-lived assets if the facts and
circumstances suggest that its recoverability may have been impaired. The
Trust believes that no impairment of rental property exists at December
31, 1998.
Deferred Loan Expense - Costs associated with obtaining financing are
amortized over the lives of the respective loans. Net deferred loan costs
at December 31, 1998 amounted to:
Deferred loan costs $ 33,926
Accumulated amortization 12,435
---------
$ 21,491
=========
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 1998 and
1997.
6
<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. At times, cash
balances may exceed federally insured amounts. The Trust has not
experienced any losses on such accounts and management does not believe
the Trust is exposed to any significant credit risk on cash and cash
equivalents.
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.
7
<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
SUBSEQUENT
INITIAL COST TO COMPANY ACQUISITION
BUILDING AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS
- ------------ ------------ ------ ------------ ------------
Aiken, SC $ - $24,500 $ 33,123 $ 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 681,800 350,000 670,000 -
Venture Park--Greenville, SC - 11,000 81,017 3,125
Pleasantburg Shopping Center--
Greenville, SC 2,534,200 977,759 1,739,570 1,245,043
Wade Hampton Property--
Greenville, SC - 40,000 200,000 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
Transit Drive--Greenville, SC - 50,000 175,000 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
Atlas Services--Columbia, SC - 75,000 670,000 -
Taylors Point Shopping Center--
Greenville, SC 2,144,000 500,000 2,300,000 -
Atlas Services--Mauldin, SC - 50,000 621,000 -
Potomac Place Shopping
Center--Greenville, SC 996,000 150,000 850,350
Other - - - 104,443
-------- --------- ---------- ---------
$6,356,000 $2,554,478 $8,716,021 $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
------ ------------ ------- ------------ ------------ ------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 24,500 $ 34,473 $ 58,973 $ 33,701 1966 1965 33
20,000 90,004 110,004 88,204 1966 1974 25
10,000 39,820 49,820 39,820 1970 1970 25
350,000 670,000 1,020,000 229,892 (1) 1993 31/15
11,000 84,142 95,142 48,531 1977 1979 25
977,759 2,984,613 3,962,372 2,255,752 1965 1976 31
40,000 218,282 258,282 127,348 1982 1983 25
55,984 79,140 135,124 29,458 1993 1993 15
100,000 328,736 428,736 279,069 1985 1986 25
16,235 85,917 102,152 29,437 1973 1988 31
50,000 194,213 244,213 47,764 (1) 1991 31
50,000 160,000 210,000 33,862 (1) 1992 31
30,000 200,000 230,000 22,917 1994 1994 39
26,000 234,000 260,000 24,863 (1) 1994 39
18,000 182,485 200,485 18,834 (1) 1994 39/20
75,000 670,000 745,000 54,438 1995 1995 40
500,000 2,300,000 2,800,000 177,292 1990 1995 40
50,000 621,000 671,000 36,225 1996 1996 40
150,000 850,350 1,000,350 4,792 1998 40
- 104,443 104,443 83,402 - Various 7
- ---------- ----------- ----------- ----------
$2,554,478 $10,131,618 $12,686,096 $3,665,601
========== =========== =========== ==========
8
</TABLE>
<PAGE>
<PAGE>
PALMETTO REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
The aggregate cost and accumulated depreciation for federal income tax
purposes is $12,198,101 and $3,676,085 at December 31, 1998, respectively.
Activity in the Trust's investment in real estate for the two years in the
period ended December 31, 1998, is summarized as follows:
YEARS ENDED DECEMBER 31
1998 1997
---- ----
Investment in Real Estate
-------------------------
Balance at beginning of year $ 11,685,746 $ 11,655,593
Acquisitions 1,000,350 34,125
Cost of property sold - (3,972)
-------- -----------
Balance at end of year $ 12,686,096 $ 11,685,746
============ ============
Accumulated Depreciation
------------------------
Balance at beginning of year $ 3,401,835 $ 3,147,814
Depreciation expense 263,766 257,993
Accumulated depreciation on property disposed - (3,972)
-------- -----------
Balance at end of year $ 3,665,601 $ 3,401,835
============ ============
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 Statement of Financial Accounting Standards 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 $8,570 and $7,835 was
recognized for 1998 and 1997, 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 had a mortgage note receivable, which bore interest at 10% and
was payable in monthly installments of $661, on the sale of its Charlotte
property. The note was repaid during 1998.
9
<PAGE>
<PAGE>
PALMETTO REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
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 $215,488 at December 31, 1998.
4. MORTGAGE NOTES PAYABLE
Long-term debt at December 31, 1998, consists of the following:
Term note payable in monthly payments of $2,000 plus interest through
September 2003, at 7.75%; final balloon payment due October 2003;
collateralized by rental property located on
Augusta Road in Greenville, SC. $ 996,000
Term note payable in monthly payments of $2,275 plus interest through
March 2003, at 7.75%; final balloon payment due April 2003;
collateralized by rental property located on
Haywood Road in Greenville, SC. 681,800
Term note payable in monthly payments of $8,225 plus interest through
March 2003, at 7.75%; final balloon payment due April 2003;
collateralized by rental property located on
Pleasantburg Drive in Greenville, SC. 2,534,200
Term note payable in monthly payments of $7,000 plus interest through
March 2003, at 7.75%; final balloon payment due April 2003;
collateralized by rental property located on
Wade Hampton Boulevard in Greenville, SC. 2,144,000
------------
Total mortgage notes payable $ 6,356,000
============
Future maturities of debt at December 31, 1998 are as follows:
1999 $ 234,000
2000 234,000
2001 234,000
2002 234,000
2003 5,420,000
-----------
$ 6,356,000
===========
10
<PAGE>
<PAGE>
PALMETTO REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
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 8.5% 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, 1998, there was no outstanding
balance under the line of credit. During 1998, the maximum borrowing
outstanding on the line of credit was approximately $165,000. The line
expires in April 1999.
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 carrying value for note receivable and notes
payable approximates fair value.
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
---- -----------
1999 $ 1,457,509
2000 1,092,306
2001 802,118
2002 558,562
2003 395,550
Thereafter 1,159,696
-----------
$ 5,465,741
===========
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 $12,000 for 1998 and
$17,000 for 1997. Leases with renewal options generally contain escalation
clauses.
11
<PAGE>
<PAGE>
PALMETTO REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
8. DISTRIBUTIONS TO SHAREHOLDERS
Cash dividends of $469,257 and $367,278 were paid during the years ended
December 31, 1998 and 1997, respectively. All dividends are distributions
of earnings and not a return of capital.
9. RELATED PARTY TRANSACTIONS
During the years ended December 31, 1998 and 1997, 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:
1998 1997
---- ----
Rental income $ 4,200 $ 81,900
Repairs and maintenance 6,150 5,400
General and administrative expenses 30,000 33,775
10. INCOME TAXES
A summary of income tax expenses for the years ending December 31, 1998
and 1997 follows:
Federal State Total
1998
Current $ 3,700 $ 1,300 $ 5,000
========== ========== ==========
1997
Current $ 3,500 $ 1,200 $ 4,700
========== ========== ==========
The difference between income from operations before income taxes and
taxable income is as follows:
1998 1997
---- ----
Income before income taxes $ 478,143 $ 441,459
Differences:
Gain on sale of real estate (8,570) (7,835)
Depreciation 25,100 20,809
Dividends paid deduction (468,850) (436,630)
Other (1,147) 5,178
----------- -----------
Taxable income $ 24,676 $ 22,981
============ ============
12
<PAGE>
<PAGE>
PALMETTO REAL ESTATE TRUST NOTES TO FINANCIAL STATEMENTS (continued)
- -------------------------------------------------------------------------------
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 are reconciled as follows:
1998 1997
---- ----
Income taxes at the statutory rate $ 162,000 $ 147,000
State taxes net of federal benefits 1,000 1,000
Surtax exemption (12,000) (12,000)
Dividend paid deduction (146,000) (131,300)
----------- -----------
$ 5,000 $ 4,700
============ ============
13
<PAGE>
<PAGE>
COMMON STOCK INFORMATION
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,
1998 was 1,122.
DIVIDENDS - The dividends declared quarterly in 1998 and 1997 are as follows:
PER
1998 TOTAL SHARE
---- ----- -----
First Quarter $ 70,032 .04
Second Quarter 88,500 .05
Third Quarter 88,500 .05
Fourth Quarter 216,826 .1225
------- -----
$463,858 .2625
======= =====
PER
1997 TOTAL SHARE
---- ----- -----
First Quarter $ 71,178 .04
Second Quarter 70,800 .04
Third Quarter 70,800 .04
Fourth Quarter 222,225 .125
------- -----
$435,003 .245
======= =====
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.
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.
14
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The discussion and analysis that follows addresses the financial condition,
changes in financial condition, and results of operations.
FINANCIAL CONDITION
- -------------------
During the fourth quarter of 1998, the Trust purchased property in Greenville,
South Carolina for $1,000,350. This purchase was partially financed by
obtaining a mortgage in the amount of $1,000,000, payable in monthly
installments of $2,000 plus interest at 7.75% through October 2003, with a
final balloon payment of $882,000 due on that date. Also, during the third
quarter of 1998, the Trust refinanced five loans totaling approximately
$5,500,000 to obtain a more favorable interest rate. Repayments will be payable
in monthly aggregate installments of $17,500 plus interest at 7.75% through
April 2003, with final balloon payments of $4,467,500 due on that date.
RESULTS OF OPERATIONS
- ---------------------
Rental income has increased by approximately 3.9% in 1998 as a result of the
acquisition of an additional property acquired in 1998 which produced rental
income of approximately $31,000. The Trust intends to continue to invest in
profitable income-producing properties which will command long-term leases.
Depreciation expense and property taxes increased for 1998 due to the purchase
of new property. Repairs and maintenance decreased in 1998 due to roof repairs,
glass replacement and painting that occurred during 1997 that were not required
in 1998.
The gain of $8,600 recognized during 1998 relates to the deferred gain on sale
of property being recognized on the installment method.
15
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The primary liquid asset of the Trust is cash. Cash provided by operating
activities was $777,475 in 1998 and $700,456 in 1997. The cash provided was
used for the repayment of debt and payment of dividends. The Trust showed net
cash provided during 1998 of $232,354, as compared to net cash used in 1997 of
$124,280.
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
this time, 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 annual report. Past capital acquisitions and improvements have
been financed through funds provided from operations and the incurrence of
long-term debt. 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 data
processing vendor which are Year 2000 compliant. 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.
16
<PAGE>
<PAGE>
PALMETTO REAL ESTATE TRUST
BOARD OF TRUSTEES
December 31, 1998
OFFICERS
James A. Boling
Chairman of the Board of Trustees
William J. Ables
President
Hunter Howard, Sr.
Vice President
Melvin K. Younts
Secretary/Treasurer
C. Laney Younts
Trustee
Billy B. Huskey
Trustee
Hunter Howard, Jr.
Trustee
R. Riggie Ridgeway
Trustee
INDEPENDENT AUDITORS
Crisp Hughes Evans LLP
GENERAL COUNSEL
Younts, Alford, Brown & Goodson
17
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 300878
<SECURITIES> 0
<RECEIVABLES> 247778
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12686096
<DEPRECIATION> 3666601
<TOTAL-ASSETS> 9615506
<CURRENT-LIABILITIES> 0
<BONDS> 6356000
0
0
<COMMON> 1770006
<OTHER-SE> 986171
<TOTAL-LIABILITY-AND-EQUITY> 9615506
<SALES> 0
<TOTAL-REVENUES> 1627503
<CGS> 0
<TOTAL-COSTS> 1157930
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 468628
<INCOME-PRETAX> 478143
<INCOME-TAX> 5000
<INCOME-CONTINUING> 473143
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 473143
<EPS-PRIMARY> 0.27
<EPS-DILUTED> 0.27
</TABLE>
