SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1995
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE CHANGE ACT OF 1934
For the transition period from TO
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Commission file number 0-15880
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PROPERTY RESOURCES EQUITY TRUST
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(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3959770
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
P. O. BOX 7777, SAN MATEO, CALIFORNIA 94403-7777
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 312-2000
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N/A
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Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or 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
Shares of Series A Common Stock Outstanding as of September 30, 1995: 1,090,067
Shares of Series B Common Stock Outstanding as of September 30, 1995: 1,000
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PROPERTY RESOURCES EQUITY TRUST
BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
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(Dollars in 000's except per share amounts)
(Unaudited) (Audited)
1995 1994
---- ----
ASSETS
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Rental property:
Land $ 2,789 $ 2,789
Buildings and improvements 6,528 6,523
Tenant improvements 191 187
Furniture and fixtures 5 5
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9,513 9,504
Less: accumulated depreciation 2,087 1,912
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7,426 7,592
Cash and cash equivalents 630 418
Mortgage-backed securities, available for sale 218 217
Deferred rent receivable 74 86
Other assets 74 83
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Total assets $ 8,422 $ 8,396
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LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Notes payable $ 2,750 $ 2,750
Tenants' deposits and other liabilities 103 78
Dividends payable 76 -
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Total liabilities 2,929 2,828
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Stockholders' equity:
Common stock, Series A, without par value. Stated value
$10 per share; 10,000,000 shares authorized; 1,090,067
shares issued and outstanding in 1995 and 1994 9,384 9,384
Common stock, Series B, without par value.
Stated value $10 per share; 1,000 shares authorized,
issued and outstanding in 1995 and 1994 10 10
Unrealized loss on mortgage-backed securities (9) (25)
Retained earnings (deficit) (3,892) (3,801)
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Total stockholders' equity 5,493 5,568
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Total liabilities and stockholders' equity $ 8,422 $ 8,396
================================================================================
See notes to financial statements.
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
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(Unaudited)
(Dollars in 000's except per share amounts)
1995 1994
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Revenue:
Rent $255 $270
Dividends 1 1
Interest 10 8
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Total revenue 266 279
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Expenses:
Interest 44 49
Depreciation and amortization 61 66
Operating 103 106
Related party 24 26
General and administrative 4 6
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Total expenses 236 253
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Net income $ 30 $ 26
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Net income per share of Series
A common stock $.03 $.02
================================================================================
Dividends per share of Series
A common stock $.07 $.06
================================================================================
See notes to financial statements.
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
STATEMENTS OF OPERATIONS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
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(Unaudited)
(Dollars in 000's except per share amounts)
1995 1994
---- ----
Revenue:
Rent $805 $843
Dividends 2 4
Interest 30 21
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Total revenue 837 868
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Expenses:
Interest 147 139
Depreciation and amortization 184 204
Operating 263 289
Related party 72 75
General and administrative 33 37
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Total expenses 699 744
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Net income $138 $124
================================================================================
Net income per share of Series
A common stock $.13 $.11
================================================================================
Dividends per share of Series
A common stock $.21 $.18
================================================================================
See notes to financial statements.
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1995
--------------------------------------------------
(Unaudited)
(Dollars in 000's)
<TABLE>
<CAPTION>
Common Stock
Series A Series B
Accumulated
Unrealized Dividends
Gain/Loss in Excess
Shares Amount Shares Amount on of Net Total
Securities Income
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
beginning of period 1,090,067 $9,384 1,000 $10 $(25) $(3,801) $5,568
Unrealized gain on
mortgage-backed securities - - - - 16 - 16
Net income - - - - - 138 138
Dividends declared - - - - - (229) (229)
- -------------------------------------------------------------------------------------------------
Balance,end of period 1,090,067 $9,384 1,000 $10 $(9) $(3,892) $5,493
=================================================================================================
</TABLE>
See notes to financial statements
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
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(Unaudited)
(Dollars in 000's)
1995 1994
---- ----
Cash flows from operating activities:
Net income $138 $124
- --------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 184 204
Decrease in deferred rent receivable 12 16
Decrease in other assets - 45
Increase in tenants' deposits
and other liabilities 25 16
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Total adjustments 221 281
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Net cash provided by operating activities 359 405
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Cash flows from investing activities:
Improvements to rental property (9) (3)
Decrease in investment in mortgage-backed securities 15 44
Net cash provided by investing activities 6 41
Cash flows from financing activities:
Dividends paid (153) (196)
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Net cash used in financing activities (153) (196)
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Net increase in cash and cash equivalents 212 250
Cash and cash equivalents, beginning of period 418 240
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Cash and cash equivalents, end of period $630 $490
================================================================================
See notes to financial statements.
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
------------------------------------------
NOTE 1 - ORGANIZATION
Property Resources Equity Trust (the "Fund") is a California corporation formed
on February 20, 1985 for the purpose of investing in income-producing real
property. The offering period for the sale of the Fund's Series A common stock
terminated on July 17, 1987 with total proceeds raised of $10,889,000 less
offering costs of $1,505,000. As of the close of the offering, Property
Resources Inc., (the "Advisor") had purchased 1,000 shares of the Fund's Series
B common stock for $10,000 cash.
The Fund is a real estate investment trust ("REIT") and elected REIT status for
income tax purposes for the tax years commencing 1988. Under the Internal
Revenue Code and applicable state income tax law, a qualified REIT is not
subject to income tax if at least 95% of its taxable income is currently
distributed to its stockholders and other tests are met. The Fund intends to
distribute substantially all of its taxable income in the future. Accordingly,
no provision is made for income taxes in these financial statements.
NOTE 2- BASIS OF PRESENTATION
The accompanying unaudited financial statements contain all adjustments
(consisting of normal recurring accruals) which are necessary, in the opinion of
management, for a fair presentation. The statements, which do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements, should be read in conjunction with
the Fund's financial statements for the year ended December 31, 1994.
NOTE 3 - RELATED PARTY TRANSACTIONS
The Fund has entered into an agreement with the Advisor to administer the
day-to-day operations of the Fund. Under the terms of the agreement, which is
renewable annually, the Advisor will receive a fee equal to 5% of the total
amount distributed to the stockholders. The fee is not payable with regard to
distributions from the sale or refinancing of property.
At September 30, 1995, cash equivalents included $2,000 invested in Franklin
Money Fund which is an investment company managed by an affiliate of the
Advisor. For the nine month period ended September 30, 1995 dividend income
earned amounted to $2,000.
The agreements between the Fund and the Advisor, or affiliates, provide for
certain types of compensation and payments including but not limited to the
types of compensation and payments which were paid or accrued by the Fund for
those services rendered for the nine month period ended September 30, 1995:
Management advisory fees,
charged to related party expense $12,000
Reimbursement for data processing expenses,
charged to related party expense 27,000
Property management fees,
charged to related party expense 26,000
Shareholder services fees,
charged to related party expense 7,000
Leasing commission, capitalized and amortized
over the term of the related lease 18,000
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
NOTE 4 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the nine month period ended September 30, 1995, interest paid amounted to
$147,000.
NOTE 5 - SUBSEQUENT EVENT
On Wednesday, November 1, the Company entered into an Agreement of Purchase and
Sale with the intent of selling the Agora Office Building. The buyer is an
unaffiliated third party. The contractual purchase price is $850,000. 75% of the
purchase price will be paid in the form of a promissory note payable to the
Company. Interest at 9% will be payable monthly and all remaining principal will
be due and payable two years after the sale. The balance of the purchase price
will be paid to the Company in cash at the close of escrow, subject to customary
closing costs and prorations. Certain contractual contingencies remain and there
can be no assurances that the sale will be completed under these terms or at
all.
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion
and Analysis of Financial Condition
AND RESULTS OF OPERATIONS
INTRODUCTION
Management's discussion and analysis of financial condition and results of
operations should be read in conjunction with the Financial Statements and Notes
thereto.
COMPARISON OF THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1994
Net income for the nine month period ended September 30, 1995 amounted to
$138,000, an increase of $14,000 as compared to net income of $124,000 in 1994.
The increase is due to the following factors: a decrease in rental revenue of
$38,000; an increase in interest and dividends of $7,000; an increase in
interest expense of $8,000; a decrease in depreciation and amortization of
$20,000; a decrease in operating expenses of $26,000; a decrease in related
party expense of $3,000; and a decrease in general and administrative expense of
$4,000.
Rental income for the nine month period decreased by $38,000, or 5%, primarily
due to a decrease in the average occupancy rate at two of the Fund's properties.
The average occupancy rate of net rentable square feet for the nine month
periods ended September 30, 1995 and 1994 at Graham Court Business Park was 88%
and 90%; and at Good Guys Plaza Shopping Center was 94% and 96%, respectively.
Interest and dividend income increased $7,000, or 28%, primarily due to higher
yields realized on short-term money market investments.
Total expenses for the nine month period decreased by $45,000, or 6%, from
$744,000 in 1994 to $699,000. The decrease in total expenses is attributable to
the following factors: an increase in interest expense of $8,000, or 6%; a
decrease in depreciation and amortization of $20,000, or 10%; a decrease in
operating expenses of $26,000, or 9%; a decrease in related party expense of
$3,000 or 4%; and a decrease in general and administrative expense of $4,000, or
11%.
Interest expense increased $8,000, reflecting rate changes on the outstanding
note payable.
Operating expenses decreased $26,000, as a result of a decrease in property
taxes, utilities, and capital expenses.
Related party expense decreased $3,000 due to a decrease in the reimbursement
for data processing expenses.
General and administrative expense decreased $4,000 due to a decrease in
printing and other Fund related expenses.
RELATED PARTY EXPENSES
The Fund has entered into an agreement with the Advisor to administer the
day-to-day operations of the Fund. For the nine month period ended September 30,
1995, the Fund recorded $12,000 of advisory fee expense to the Advisor in
accordance with the Advisory Agreement.
The Fund's properties are managed by Continental Property Management Co.,
("CPMC"), an affiliate of the Advisor. For the nine month period ended September
30, 1995, the Fund recorded $26,000 of property management fee expense to CPMC
in accordance with the Property Management Agreement.
The Fund's Board of Directors (including all of its Independent Directors) have
determined, after review, that the compensation paid to the Advisor and to CPMC
referenced above, as well as the expense reimbursements made by the Fund to the
Advisor reflected in Note 3 to the accompanying financial statements, are fair
and reasonable to the Fund.
PART I - FINANCIAL INFORMATION
Item 2. Management's Discussion
and Analysis of Financial Condition
AND RESULTS OF OPERATIONS
IMPACT OF INFLATION
The Fund's management believes that inflation may have a positive effect on the
Fund's property portfolio, but this effect generally will not be fully realized
until such properties are sold or exchanged. The Fund's policy of negotiating
leases which incorporate operating expense "pass-through" provisions is intended
to protect the Fund against increased operating costs resulting from inflation.
LIQUIDITY AND CAPITAL RESOURCES
The Fund's principal sources of capital for the acquisition and renovation of
property and for working capital reserves have been proceeds from the initial
offering of its common stock and from funds from operations after payment of
dividends.
At September 30, 1995, cash and cash equivalents totaled $630,000 and
investments in mortgage-backed securities totaled $218,000.
As of September 30, 1995, one of the Fund's properties were subject to secured
financing. The Good Guys Plaza shopping center is subject to a promissory note
collateralized by a Deed of Trust in the amount of $2,750,000. The note is
payable, interest only, at an adjustable rate of interest which is based on a
certain bond index. The interest rate is not subject to a minimum or maximum
rate of interest. On September 30, 1995, the interest rate was 6.5%. In certain
circumstances, the payments due may be less than accrued interest. Any resulting
accrued interest bears interest at the then current rate. The note is due in
full in December, 1996.
On Wednesday, November 1, the Company entered into an Agreement of Purchase and
Sale with the intent of selling the Agora Office Building. The buyer is an
unaffiliated third party. The contractual purchase price is $850,000. 75% of the
purchase price will be paid in the form of a promissory note (the "Seller
Carryback") payable to the Company. Interest at 9% will be payable monthly and
all remaining principal will be due and payable two years after the sale. The
balance of the purchase price will be paid to the Company in cash at the close
of escrow, subject to customary closing costs and prorations. Certain
contractual contingencies remain and there can be no assurances that the sale
will be completed under these terms or at all.
Under the terms of the Seller Carryback, the potential buyer will be obligated
to pay the Company approximately $57,000 in interest per year. Since this amount
exceeds the net cash flow generated by the Agora Office Building in either 1993
or 1994, it is anticipated that the sale will not materially affect the capital
resources of the Company during the term of the Seller Carryback. After the
repayment of the Seller Carryback, if the sale proceeds are distributed, a
material reduction in net cash flow could result.
However, even with the potential reduction resulting from the possible sale of
the Agora Office Building, in the short-term and in the long-term, management
believes that the Fund's current sources of capital will continue to be adequate
to meet both its operating requirements and the payment of dividends.
DIVIDENDS
Dividends are paid quarterly at the discretion of the Board of Directors and
depend on the Fund's earnings, cash flow, financial condition and other relevant
factors. During the nine month period ended September 30, 1995, the Fund
declared dividends totaling $229,000.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Not applicable
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the quarter
ended September 30, 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PROPERTY RESOURCES EQUITY TRUST
By: /S/ DAVID P. GOSS
David P. Goss
Chief Executive Officer
Date: NOVEMBER 10, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 630
<SECURITIES> 218
<RECEIVABLES> 74
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,513
<DEPRECIATION> 2,087
<TOTAL-ASSETS> 8,422
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 9,394
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 8,422
<SALES> 0
<TOTAL-REVENUES> 266
<CGS> 0
<TOTAL-COSTS> 236
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
