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 March 31, 1996
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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 (I.R.S. Employer Identification No.)
of incorporation
or organization)
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 March 31, 1996: 1,090,067
Shares of Series B Common Stock Outstanding as of March 31, 1996: 1,000
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PROPERTY RESOURCES EQUITY TRUST
BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(Unaudited)
(Dollars in 000's except per share amounts) 1996 1995
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ASSETS
Rental property:
Land $2,789 $2,789
Buildings and improvements 6,548 6,548
Tenant improvements 201 194
Furniture and fixtures 5 5
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9,543 9,536
Less: accumulated depreciation 2,203 2,145
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7,340 7,391
Cash and cash equivalents 630 612
Mortgage-backed securities, available for sale 194 198
Deferred rent receivable 75 71
Other assets 97 78
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Total assets $8,336 $8,350
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Note and bond payable $2,750 $2,750
Tenants' deposits and other liabilities 111 88
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Total liabilities 2,861 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 (10) (7)
Retained earnings (deficit) (3,909) (3,875)
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Total stockholders' equity 5,475 5,512
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Total liabilities and stockholders' equity $8,336 $8,350
===============================================================================
See notes to financial statements.
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
STATEMENTS OF OPERATIONS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
(Dollars in 000's except per share amounts) 1996 1995
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Revenue:
Rent $281 $262
Dividends 1 1
Interest 10 9
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Total revenue 292 272
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Expenses:
Interest 41 53
Depreciation and amortization 62 62
Operating 86 89
Related party 23 24
General and administrative 16 23
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Total expenses 228 251
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Net income $64 $21
===============================================================================
Net income per share of Series A common stock $ 06 $.02
===============================================================================
Dividends per share of Series A common stock $.09 $.07
===============================================================================
See notes to financial statements.
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Stock
-------------------------------------
Series A Series B
-------------------- ---------------
Unrealized
Gain/Loss
on Retained
Mortgage-BackEarnings
(Dollars in 000's) Shares Amount Shares Amount Securities (Deficit) 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 - - - - (3) - (3)
Net income - - - - - 64 64
Distributions - - - - - (98) (98)
declared
- -------------------------------------------------------------------------------------------
Balance,
end of period 1,090,067 $9,384 1,000 $10 $(10) $(3,909) $5,475
===========================================================================================
</TABLE>
See notes to financial statements.
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1996 AND 1995
(Unaudited)
(Dollars in 000's) 1996 1995
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Cash flows from operating activities:
Net income $64 $21
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 62 62
(Increase) decrease in deferred rent receivable (4) 6
(Increase) decrease in other assets (23) 11
Increase in tenants' deposits and other liabilities 23 51
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58 130
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Net cash provided by operating activities 122 151
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Cash flows from investing activities:
Improvements to rental property (7) -
Disposition of mortgage-backed securities 1 1
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Net cash provided by (used in) investing activities (6) 1
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Cash flows from financing activities:
Distributions paid (98) (76)
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Net cash used in financing activities (98) (76)
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Net increase in cash and cash equivalents 18 76
Cash and cash equivalents, beginning of period 612 418
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Cash and cash equivalents, end of period $630 $494
================================================================================
See notes to financial statements.
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 March 31, 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 three month period ended March 31, 1996 dividend income
earned amounted to $1,000.
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 three month period ended March 31, 1996:
Item 1. Financial Statements
(continued)
PROPERTY RESOURCES EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 3 - RELATED PARTY TRANSACTIONS (Continued)
Management advisory fees, charged to related party expense $5,000
Reimbursement for data processing expenses,
charged to related party expense 8,000
Property management fees, charged to related party expense 9,000
Shareholder services fees, charged to related party expense 3,000
Leasing commission, capitalized and amortized
over the term of the related lease 3,000
NOTE 4 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the three month period ended March 31, 1996, interest paid amounted to
$41,000.
NOTE 5 - SUBSEQUENT EVENT
On April 16, 1996, pursuant to a contract entered into on February 26, 1996
and amended April 15, 1996, the Fund sold the Agora Office Building ( the
`Property" ) 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 approximately $6,000. The Note is
non-recourse to the other assets of the buyer.
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 QUARTER ENDED MARCH 31, 1996 TO QUARTER ENDED MARCH 31, 1995
Net income for the quarter ended March 31, 1996 amounted to $64,000, an
increase of $43,000 as compared to the same period in 1995. The increase is
due to the following factors: an increase in rental revenue of $19,000; an
increase in interest and dividends of $1,000; a decrease in interest expense
of $12,000; a decrease in operating expenses of $3,000; a decrease in
related party expense of $1,000; and a decrease in general and
administrative expense of $7,000.
Rental revenue for the quarter increased $19,000, or 7%, as a result of an
increase in the rental and average occupancy rates at the Fund's
properties. The average occupancy rate of net rentable square feet for the
quarter ended March 31, 1996 and 1995 at Graham Court Business Park was 100%
and 93%; and Agora Office Building was 68% and 63%; respectively. Good Guys
Plaza Shopping Center remained unchanged at 94%.
Total expenses for the quarter decreased $23,000, or 9%, from $251,000 in
1995 to $228,000. The decrease in total expenses was primarily due to a
decrease in interest expense of $12,000, reflecting interest rate changes on
the outstanding note payable and to a decrease in general and administrative
expense of $7,000, as a result of a decrease in accounting 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 quarter ended March 31, 1996,
the Fund recorded $5,000 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 quarter ended March 31,
1996, the Fund recorded $9,000 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 cash flow after payment of
distributions.
At March 31, 1996, cash and cash equivalents totaled $630,000 and
investments in mortgage-backed securities totaled $194,000.
As of March 31, 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 March 31, 1996,
the interest rate was 6.00%. 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, pursuant to a contract entered into on February 26, 1996
and amended April 15, 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 approximately $6,000. 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.
DISTRIBUTIONS
Distributions 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 quarter ended March 31, 1996, the Fund
declared and paid distributions totaling $98,000.
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 March 31, 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: May 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
REGISTRANT'S FINANCIAL STATEMENTS FOR THE QUARTER ENDED MARCH 31, 1996 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-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 630
<SECURITIES> 194
<RECEIVABLES> 75
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 9,543
<DEPRECIATION> 2,203
<TOTAL-ASSETS> 8,336
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 9,394
<OTHER-SE> (3,919)
<TOTAL-LIABILITY-AND-EQUITY> 8,336
<SALES> 0
<TOTAL-REVENUES> 281
<CGS> 0
<TOTAL-COSTS> 187
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41
<INCOME-PRETAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 64
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</TABLE>
