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, 1997
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
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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
of incorporation or organization) 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 (650) 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, 1997: 1,090,052
Shares of Series B Common Stock Outstanding as of September 30, 1997: 1,000
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROPERTY RESOURCES EQUITY TRUST
BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
(Unaudited)
(Dollars in thousands, except per share amounts) 1997 1996
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ASSETS:
Rental property:
Land $1,702 $2,099
Buildings and improvements 4,181 6,215
Tenant improvements 107 135
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5,990 8,449
Less: accumulated depreciation 1,373 1,995
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4,617 6,454
Cash and cash equivalents 327 772
Mortgage-backed securities, available for sale 138 173
Deferred rent receivable 53 77
Note receivable 722 736
Other assets 268 162
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Total assets $6,125 $8,374
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Note payable $2,837 $2,750
Tenants' deposits and other liabilities 47 59
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Total liabilities 2,884 2,809
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Stockholders' equity:
Common stock, Series A, without par value,
stated value $10 per share; 10,000,000
shares authorized; 1,090,052 shares issued
and outstanding in 1997 and 1996 9,384 9,384
Common stock, Series B, without par value,
stated value $10 per share; 1,000 shares
authorized, issued and outstanding in 1997
and 1996 10 10
Unrealized loss on mortgage-backed securities (8) (11)
Retained earnings (deficit) (6,145) (3,818)
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Total stockholders' equity 3,241 5,565
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Total liabilities and stockholders' equity $6,125 $8,374
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The accompanying notes are an intregal part of these financial statements.
PROPERTY RESOURCES EQUITY TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER September SEPTEMBER September
30, 30, 30, 30,
(Dollars in thousands,
except per share amounts) 1997 1996 1997 1996
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REVENUE:
Rent $160 $264 $531 $803
Interest 19 23 66 50
Dividends - 3 39 5
Gain on sale of rental property - - 370 88
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Total revenue 179 290 1,006 946
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EXPENSES:
Interest 70 49 199 136
Depreciation and amortization 39 58 138 190
Operating 31 8 111 162
Related party 19 23 88 69
General and administrative 5 5 39 42
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Total expenses 164 143 575 599
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NET INCOME $15 $147 $431 $347
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Net income per share
of Series A common stock $.02 $.13 $.40 $.32
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Dividends per share
of Series A common stock $.06 $.09 $2.53 $.27
===============================================================================
The accompanying notes are an intregal part of these financial statements.
PROPERTY RESOURCES EQUITY TRUST
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND 1996
(Unaudited)
(Dollars in thousands) 1997 1996
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Cash flows from operating activities:
Net income $431 $347
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 151 190
Decrease in deferred rent receivable 24 (2)
(Increase) decrease in other assets (138) (30)
Increase in tenants' deposits and other liabilities (12) (34)
Gain on sale of rental property (370) (88)
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(345) 36
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Net cash provided by operating activities 86 383
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Cash flow from investing activities:
Origination of note receivable - (750)
Principal received on note receivable 14 9
Improvements to rental property (5) (7)
Proceeds from sale of rental property 2,093 812
Disposition of mortgage-backed securities 38 3
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Net cash provided by investing activities 2,140 67
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Cash flow from financing activities:
Borrowings under notes payable 2,850 -
Principal payments on note payable (2,763) -
Distributions paid (2,758) (294)
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Net cash used in financing activities (2,671) (294)
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Net (decrease) increase in cash and cash equivalents (445) 156
Cash and cash equivalents, beginning of period 772 612
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Cash and cash equivalents, end of period $327 $768
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The accompanying notes are an intregal part of these financial statements.
PROPERTY RESOURCES EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
NOTE 1- BASIS OF PRESENTATION
The accompanying unaudited interim financial statements of Property Resources
Equity Trust (the "Fund") have been prepared in accordance with the instructions
to Form 10-Q pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. In the opinion of management, all appropriate adjustments necessary
to a fair presentation of the results of operations have been made for the
periods shown. All adjustments are of a normal recurring nature. Certain prior
year amounts have been reclassified to conform to current year presentations.
These financial statements should be read in conjunction with the Fund's audited
financial statements for the year ended December 31, 1996.
NOTE 2 - BUSINESS ACTIVITY
As of September 30, 1997, the Fund had one remaining property in its portfolio,
Good Guys Shopping Center. Management currently intends to dispose of the Good
Guys Plaza Shopping Center and, in that regard, expects to commence marketing
activity in 1998. At September 30, 1997, management estimates that the net
realizable value of the property approximates its carrying value; however, there
can be no assurance that the eventual sales price of the property will not
result in a loss or that a sale will be consummated.
NOTE 3 - NOTE PAYABLE
On March 3, 1997, the note payable collateralized by the Good Guys Plaza
Shopping Center was repaid from the proceeds of a new note payable. The new note
payable, which is also collateralized by the property and matures in 2022,
requires monthly payments of principal and interest at 8.8% until 2007, at which
time the interest rate increases to at least 13.8% under an adjustment formula
defined in the note agreement.
NOTE 4 - SALE OF RENTAL PROPERTY
On March 4, 1997, the Fund sold the Graham Court Business Park to an
unaffiliated buyer for a total sales price of $2,200,000 resulting in net cash
proceeds to the Fund of $2,093,000. In connection with the sale, the Fund
recognized a gain of $370,000.
NOTE 5 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the nine month period ended September 30, 1997, interest paid amounted to
$186,000.
NOTE 6 - SUBSEQUENT EVENTS
On November 12, 1997, the board of directors of the Fund held a special meeting
to discuss certain offers for the purchase of Good Guys Plaza Shopping Center
and an offer to tender for the shares of the Fund. The board of directors voted
to commence negotiations with the entity proposing the tender offer. There is no
assurance that the negotiations will result in a completed transaction.
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 THREE- AND NINE-MONTH PERIODS ENDED SEPTEMBER 30, 1997 AND
1996
Total revenue for the three-month period decreased $111,000 or 38% primarily as
a result of a decrease in rental revenue due to the sale of the Graham Court
Business Park in March, 1997. Total revenue for the nine-month period ended
September 30, 1997 increased $60,000 or 6% when compared to the same period in
1996 primarily due to the gain on sale of rental property as a result of the
sale of the Graham Court Business Park. Interest and dividend revenue for the
three-month period ended September 30, 1997 decreased slightly when compared to
the same period in 1996 as a result of lower average investment balances for the
period. For the nine month period ended September 30, 1997 interest and dividend
revenue increased $50,000 compared to the same period in 1996 as a result of
interest earned on the note receivable relating to the sale of the Agora Office
Building in April 1996 and dividends earned from an increase in the average
investment balance as a result of proceeds received from the sale of the Graham
Court Business Park in March, 1997. The sale proceeds were subsequently
distributed to the shareholders in June 1997.
Total expenses for the three-month period increased $21,000, or 15% primarily as
a result of an increase in interest as a result of the refinancing of the note
payable collateralized by the property Good Guys Shopping Center and an increase
in operating expenses due to a refund of prior year property taxes at the Good
Guys Plaza in 1996. Total expenses for the nine month period ended September 30,
1997 decreased $24,000, or 4%, from $599,000 in 1996 to $575,000 in 1997. The
decrease in total expenses was primarily due to a decrease in operating expenses
and depreciation and amortization as a result of the sale of the Agora Office
Building and Graham Court Business Park. The decrease was partially offset by an
increase in interest expense resulting from the refinancing of the note payable
for Good Guys Shopping Center.
Net income for the three-month period decreased $132,000 primarily due to a
decrease in rental revenue as a result of the sale of Graham Court Business Park
in March 1997. Net income for the nine month period ended September 30, 1997
increased $84,000 as compared to the same period in 1996 primarily as a result
of the recognized gain on sale of Graham Court Business Park which was partially
offset by an increase in interest expense resulting from the refinancing of the
note payable for Good Guys Shopping Center.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1997, cash and cash equivalents aggregated $327,000 which the
Fund believes is adequate to meet its short-term operating cash requiremnets.
Net cash provided by operating activities decreased $297,000 when compared to
the same period in 1996. The decrease in cash flow from operating activities is
attributable to the Fund having one remaining property in its portfolio after
the sale the sale of the Agora Office Building in April 1996 and Graham Court
Business Park in March 1997.
Cash flows provided by investing activities increased $2,073,000 when compared
to the same period in 1996 primarily as a result of proceeds received from the
sale of Graham Court Business Park.
PROPERTY RESOURCES EQUITY TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (Continued)
Cash flows used in financing activities increased $2,377,000 primarily as a
result of cash distributions paid to shareholders from the sale proceeds of
Graham Court Business Park.
As of September 30, 1997, the Fund had one remaining property in its portfolio.
At September 30, 1997, management estimates that the net realizable value of the
property approximates its carrying value; however, there can be no assurance
that the eventual sales price of the property will not result in a loss or that
a sale will be consummated.
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.
On March 3, 1997, the note payable collateralized by the Good Guys Plaza
Shopping Center was repaid from the proceeds of a new note payable. The new note
payable, which is also collateralized by the property and matures in 2022,
requires monthly payments of principal and interest at 8.8% until 2007, at which
time the interest rate increases to at least 13.8% under an adjustment formula
defined in the note agreement.
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 policy of negotiating leases which incorporate operating expense
"pass-through" provisions is intended to protect the Fund against increased
operating costs resulting from inflation.
CASH DISTRIBUTION POLICY
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 nine-month period ended September 30, 1997, the Fund declared
distributions totaling $2,758,000.
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 September 30, 1997.
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 13, 1997
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THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
REGISTRANT'S FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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<COMMON> 9,384
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