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, 1997
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE 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 (I.R.S. Employer
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 June 30, 1997: 1,090,055
Shares of Series B Common Stock Outstanding as of June 30, 1997: 1,000
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROPERTY RESOURCES EQUITY TRUST
BALANCE SHEETS
JUNE 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 1,337 1,995
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4,653 6,454
Cash and cash equivalents 388 772
Mortgage-backed securities, available for sale 173 173
Deferred rent receivable 47 77
Note receivable 726 736
Other assets 212 162
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Total assets $6,199 $8,374
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Note payable $2,843 $2,750
Tenants' deposits and other liabilities 65 59
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Total liabilities 2,908 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; 1,090,055 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 (9) (11)
Retained earnings (deficit) (6,094) (3,818)
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Total stockholders' equity 3,291 5,565
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Total liabilities and
stockholders' equity $6,199 $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 SIX MONTHS ENDED
JUNE 30 June 30 JUNE 30 June 30
(Dollars in thousands,
except per share amounts) 1997 1996 1997 1996
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REVENUE:
Rent $199 $258 $371 $539
Interest 23 17 47 27
Dividends 29 1 39 2
Gain on sale of rental property - 88 370 88
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Total revenue 251 364 827 656
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EXPENSES:
Interest 83 46 129 89
Depreciation and amortization 39 70 99 130
Operating 33 68 80 154
Related party 44 23 69 46
General and administrative 12 21 34 37
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Total expenses 211 228 411 456
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NET INCOME $40 $136 $416 $200
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Net income per share of
Series A common stock $.04 $.12 $.38 $.18
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Dividends per share of
Series A common stock $2.38 $.09 $2.47 $ .18
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The accompanying notes are an intregal part of these financial statements.
PROPERTY RESOURCES EQUITY TRUST
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1997 AND 1996
(Unaudited)
(Dollars in thousands) 1997 1996
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Cash flows from operating activities:
Net income $416 $200
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 106 132
Decrease in deferred rent receivable 30 2
(Increase) decrease in other assets (73) 35
Increase in tenants' deposits
and other liabilities 6 53
Gain on sale of rental property (370) (88)
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(301) 134
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Net cash provided by operating activities 115 334
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Cash flow from investing activities:
Origination of note payable 2,850 -
Origination of note receivable - (750)
Principal received on note receivable 10 5
Improvements to rental property (5) (7)
Proceeds from sale of rental property 2,093 643
Disposition of mortgage-backed securities 2 2
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Net cash provided by (used in)
investing activities 4,950 (107)
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Cash flow from financing activities:
Principal payments on note payable (2,757) -
Distributions paid (2,692) (98)
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Net cash used in financing activities (5,449) (98)
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Net (decrease) increase in cash
and cash equivalents (384) 129
Cash and cash equivalents,
beginning of period 772 612
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Cash and cash equivalents,
end of period $388 $741
===============================================================================
The accompanying notes are an intregal part of these financial statements.
PROPERTY RESOURCES EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
NOTE 1- BASIS OF PRESENTATION
The accompanying financial statements of Property Resources Equity Trust (the
"Fund") have been prepared in accordance with generally accepted accounting
principles applicable to interim financial information and pursuant to the
rules and regulations of the Securities and Exchange Commission.
Accordingly, 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. However, in the opinion of management, all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation have been included. The Fund presumes that users of the interim
financial information herein have read or have access to the audited
financial statements for the preceding fiscal year and that the adequacy of
additional disclosure needed for a fair presentation may be determined in
that context. Accordingly, footnote disclosure which would substantially
duplicate the disclosure contained in the Fund's 1996 Annual Report on Form
10-K has been omitted.
Certain 1996 amounts have been reclassified to conform to the 1997
presentation. Such reclassifications had no effect on previously reported
results.
NOTE 2 - BUSINESS ACTIVITY
As of June 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 June 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 six month period ended June 30, 1997, interest paid amounted to
$122,000.
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, 1997 AND 1996
Total revenue for the six month period ended June 30, 1997 increased $171,000
or 26%, from $656,000 in 1996 to $827,000 in 1997. The increase in total
revenue was primarily due to gain on sale of rental property as a result of
the sale of the Graham Court Office Building. Rental revenue for the
remaining property of the Fund increased $12,000 compared to the same period
in 1996 which resulted from an increase in the average occupancy rate at the
Good Guys Plaza. The average occupancy rate at the Good Guys Plaza increased
from 94% in 1996 to 96% in 1997. For the six month period ended June 30,
1997 interest income increased $20,000 compared to the same period in 1996 as
a result of the note receivable relating to the sale of the Agora Office
Building. Dividend income increased $37,000 in 1997 when compared to the
same period in 1996 as a result of an increase in the average investment
balance. The increase in the average investment balance was due to the
proceeds received from the sale of the Graham Court Business Park in March,
1997.
Total expenses for the six month period ended June 30, 1997 decreased
$45,000, or 10%, from $456,000 in 1996 to $411,000 in 1997. The decrease in
total expenses was primarily due to a decrease in operating expenses 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 six month period ended June 30, 1997 increased $216,000 as
compared to the same period in 1996. The increase in net income was
primarily due to the gain recognized on sale of rental property of $280,000
partially offset by a $63,000 decrease in net income (decrease in
depreciation and amortization of $26,000, operating expenses of $74,000,
general and administrative of $5,000 and rental revenue of $168,000)
primarily resulting from the sale of the Agora Office Building in April 1996
and Graham Court Business Park, in March 1997.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, cash and cash equivalents totaled $388,000 and investments
in mortgage-backed securities totaled $173,000.
As of June 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 June 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.
PROPERTY RESOURCES EQUITY TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (Continued)
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 six-month period ended June 30, 1997, the Fund declared
distributions totaling $2,692,000.
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, 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: AUGUST 13, 1997
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THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
REGISTRANT'S FINANCIAL STATEMENTS FOR THE QUARTER ENDED JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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