SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1996
------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------------------ to --------------------------
Commission file number 0-15880
--------------------------------------------------------
PROPERTY RESOURCES EQUITY TRUST
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3959770
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S.
Employer Identification No.)
P. O. BOX 7777, SAN MATEO, CALIFORNIA 94403-7777
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (415) 312-2000
-----------------------------
N/A
- --------------------------------------------------------------------------------
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 June 30, 1996: 1,090,067
Shares of Series B Common Stock Outstanding as of June 30, 1996: 1,000
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROPERTY RESOURCES EQUITY TRUST
BALANCE SHEETS
JUNE 30, 1996 AND DECEMBER 31, 1995
-----------------------------------
(Unaudited)
(Dollars in thousands, except per share amounts) 1996 1995
- -------------------------------------------------------------------------------
ASSETS:
Rental property:
Land $2,099 $2,789
Buildings and improvements 6,214 6,548
Tenant improvements 135 194
Furniture and fixtures - 5
- -------------------------------------------------------------------------------
8,448 9,536
Less: accumulated depreciation 1,887 2,145
- -------------------------------------------------------------------------------
6,561 7,391
Cash and cash equivalents 741 612
Mortgage-backed securities, available for sale 191 198
Deferred rent receivable 69 71
Note receivable 745 -
Other assets 95 78
- -------------------------------------------------------------------------------
Total assets $8,402 $8,350
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY:
Note payable $2,750 $2,750
Tenants' deposits and other liabilities 141 88
- -------------------------------------------------------------------------------
Total liabilities 2,891 2,838
- -------------------------------------------------------------------------------
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 1996 and 1995 9,384 9,384
Common stock, Series B, without par value,
stated value $10 per share; 1,000 shares
authorized, issued and outstanding in 1996
and 1995 10 10
Unrealized loss on mortgage-backed securities (12) (7)
Retained earnings (deficit) (3,871) (3,875)
- -------------------------------------------------------------------------------
Total stockholders' equity 5,511 5,512
- -------------------------------------------------------------------------------
Total liabilities and stockholders' equity $8,402 $8,350
===============================================================================
The accompanying notes are an integral part of these financial statements.
PROPERTY RESOURCES EQUITY TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30 JUNE 30 JUNE 30
(Dollars in thousands, except per
share amounts) 1996 1995 1996 1995
- ------------------------------------------------- ------------- ------------- ------------
REVENUE:
<S> <C> <C> <C> <C>
Rent $258 $288 $539 $550
Interest 17 11 27 20
Dividends 1 - 2 1
Gain on sale of rental property 88 - 88 -
- ------------------------------------------------- ------------- ------------- ------------
Total revenue 364 299 656 571
- ------------------------------------------------- ------------- ------------- ------------
EXPENSES:
Interest 46 50 87 103
Depreciation and amortization 70 61 132 123
Operating 68 71 154 160
Related party 23 24 46 48
General and administrative 21 6 37 29
- ------------------------------------------------- ------------- ------------- ------------
Total expenses 228 212 456 463
- ------------------------------------------------- ------------- ------------- ------------
NET INCOME $136 $87 $200 $108
================================================= ============= ============= ============
Net income per share of Series A
common stock $.12 $.08 $.18 $.10
================================================= ============= ============= ============
Dividends per share of Series A
common stock $.09 $.07 $.18 $ .14
================================================= ============= ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
PROPERTY RESOURCES EQUITY TRUST
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTH PERIOD ENDED JUNE 30, 1996
----------------------------------------------
(Unaudited)
Common Stock
-----------------------------------------------
Series A Series B
----------------------- -----------------------
<TABLE>
<CAPTION>
Excess of
Accumulated
Unrealized Distributions
Gain/Loss in
(Dollars in on Excess of
thousands) Shares Amount Shares Amount Securities Net Income Total
- --------------------------- --------------- ------------ ------------- ------------ ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance,
beginning of
period 1,090,067 $9,384 1,000 $10 $ (7) $(3,875) $5,512
Unrealized
loss on
mortgage-
backed
securities - - - - (5) - (5)
Net income - - - - - 200 200
Distributions
declared - - - - - (196) (196)
- --------------------------- --------------- ------------ ----------- -------------- --------- --------------- -------------
Balance,
end of period 1,090,067 $9,384 1,000 $10 $(12) $(3,871) $5,511
=========================== =============== ============ =========== ============== ========= =============== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
PROPERTY RESOURCES EQUITY TRUST
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- ------------------------------------------------------------------------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $200 $108
- ------------------------------------------------------------------------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 132 123
Increase (decrease) in deferred rent receivable 2 13
Increase (decrease) in other assets 35 26
Increase in tenants' deposits and other liabilities 53 (11)
Gain on sale of rental property (88) -
- ------------------------------------------------------------------------- -----------
134 151
- ------------------------------------------------------------------------- -----------
Net cash provided by operating activities 334 259
- ------------------------------------------------------------------------- -----------
Cash flow from investing activities:
Origination of note receivable (750) -
Principal received on note receivable 5 -
Improvements to rental property (7) -
Proceeds from sale of rental property 643 -
Disposition of mortgage-backed securities 2 15
- ------------------------------------------------------------------------- -----------
Net cash provided by (used in) investing activities (107) 15
- ------------------------------------------------------------------------- -----------
Cash flow from financing activities:
Distributions paid (98) (153)
- ------------------------------------------------------------------------- -----------
Net cash used in financing activities (98) (153)
- ------------------------------------------------------------------------- -----------
Net increase in cash and cash equivalents 129 121
Cash and cash equivalents,
beginning of period 612 418
- ------------------------------------------------------------------------- -----------
Cash and cash equivalents,
end of period $741 $539
========================================================================= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
PROPERTY RESOURCES EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
---------------------------------
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, 1995.
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 June 30, 1996, cash equivalents included $2,000 invested in Franklin Money
Fund which is an investment company managed by an affiliate of the Advisor. For
the six month period ended June 30, 1996 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 six month period ended June 30, 1996:
Management advisory fees, charged to related
party expense $10,000
Reimbursement for data processing expenses,
charged to related party expense 11,000
Property management fees, charged to related
party expense 18,000
Shareholder services fees, charged to related
party expense 7,000
Leasing commission, capitalized and amortized
over the term of the related lease 31,000
PROPERTY RESOURCES EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1996
-------------------------------
NOTE 4 - SALE OF RENTAL PROPERTY AND NOTE RECEIVABLE
- ----------------------------------------------------
On April 16, 1996, the Fund sold the Agora Office Building to an unaffiliated
buyer for a total sales price of $850,000. The total sales price included a
$750,000 promissory note, collateralized by a second deed of trust against the
Agora Office Building. Principal and interest payments are due monthly in the
amount of $5,815 commencing on April 16, 1996 until maturity on April 16, 1998.
As of June 30, 1996, the outstanding balance of the note was $745,000.
NOTE 5 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
- ---------------------------------------------------------
For the six month period ended June 30, 1996, interest paid amounted to $87,000.
PROPERTY RESOURCES EQUITY TRUST
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.
RESULTS OF OPERATIONS
- ---------------------
COMPARISON OF THE SIX MONTH PERIODS ENDED JUNE 30, 1996 AND 1995
Net income for the six month period ended June 30, 1996 increased $92,000, or
85%, as compared to 1995 primarily due to gain on sale of rental property of
$88,000.
Total revenue for the six month period ended June 30, 1996 increased $85,000, or
15%, compared to the same period in 1995. The increase is primarily attributable
to an increase in gain on sale of rental property of $88,000 partially offset by
a decrease in rental revenue of $11,000, as a result of the sale of the Agora
Office Building in April, 1996.
Total expenses for the six month period ended June 30, 1996 decreased $7,000, or
2%, from $463,000 in 1995 to $456,000 in 1996. The decrease in total expenses
primarily resulted from a decrease in interest expense of $16,000, reflecting
interest rate changes on the outstanding note payable. Explanations of other
material changes in total expenses are as follows:
Depreciation and amortization expense increased $9,000 reflecting the expense of
the remaining balance of Agora Office Building's unamortized leasing commission
as a result of the sale of the property.
General and administrative expense increased $8,000 aa a result of increases in
audit fee and legal 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 six month period ended June 30, 1996,
the Fund recorded $10,000 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 six month period ended June 30,
1996, the Fund recorded $18,000 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.
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 cash flow after payment of distributions.
At June 30, 1996, cash and cash equivalents totaled $741,000 and investments in
mortgage-backed securities totaled $191,000.
PROPERTY RESOURCES EQUITY TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
- -------------------------------
As of June 30, 1996, one of the Fund's properties was subject to secured
financing with an outstanding balance of $2,750,000. Otherwise, the Fund's
properties are owned free of indebtedness. Interest on the note accrues at a
variable rate which is based on a certain bond index. The interest rate is not
subject to a minimum or maximum rate of interest.
On June 30, 1996, the interest rate was 6.77%. 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 April 16, 1996, the Fund sold the Agora Office Building to an unaffiliated
buyer for a total sales price of $850,000. The total sales price included a
$750,000 promissory note ( the "Note" ) payable to the Fund, secured by the
Property and tenant rents. The terms of the Note include a 7% interest rate, a
two year term and monthly principal and interest payments of $5,815. The Note is
non-recourse to the other assets of the buyer.
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 distributions.
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.
DISTRIBUTIONS
- -------------
Distributions are declared quarterly at the discretion of the Board of
Directors. The Fund's present distribution policy is to at least annually
evaluate the current distribution rate in light of anticipated tenant turnover
over the next two or three years, the estimated level of associated improvements
and leasing commissions, planned capital expenditures, any debt service
requirements and the Fund's other working capital requirements. After balancing
these considerations, and considering the Fund's earnings and cash flow, the
level of its liquid reserves and other relevant factors, the Fund seeks to
establish a distribution rate which:
i) provides a stable distribution which is sustainable despite short
term fluctuations in property cash flows;
ii) maximizes the amount of cash flow paid out as distributions
consistent with the above listed objective; and
iii) complies with the Internal Revenue Code requirement that a REIT
annually pay out as distributions not less than 95% of its
taxable income.
During the six-month period ended June 30, 1996, the Fund declared distributions
totaling $196,000.
PROPERTY RESOURCES EQUITY TRUST
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 June 30, 1996.
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: AUGUST 8, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 741
<SECURITIES> 191
<RECEIVABLES> 69
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,448
<DEPRECIATION> 1,887
<TOTAL-ASSETS> 8,402
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 9,394
<OTHER-SE> (3,883)
<TOTAL-LIABILITY-AND-EQUITY> 8,402
<SALES> 0
<TOTAL-REVENUES> 656
<CGS> 0
<TOTAL-COSTS> 369
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 200
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
