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, 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 (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, 1997: 1,090,064
Shares of Series B Common Stock Outstanding as of March 31, 1997: 1,000
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
PROPERTY RESOURCES EQUITY TRUST
BALANCE SHEETS
MARCH 31, 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 102 135
Furniture and fixtures - -
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5,985 8,449
Less: accumulated depreciation 1,301 1,995
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4,684 6,454
Cash and cash equivalents 2,885 772
Mortgage-backed securities, available for sale 171 173
Deferred rent receivable 42 77
Note receivable 731 736
Other assets 206 162
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Total assets $8,719 $8,374
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Note payable $2,850 $2,750
Tenants' deposits and other liabilities 27 59
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Total liabilities 2,877 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; 1,090,064 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 (12) (11)
Retained earnings (deficit) (3,540) (3,818)
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Total stockholders' equity 5,842 5,565
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Total liabilities and stockholders' equity $8,719 $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
March 31 March 31
(Dollars in thousands, except per share amounts) 1997 1996
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Revenue:
Rent $172 $281
Interest 24 10
Dividends 10 1
Gain on sale of rental property 370 -
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Total revenue 576 292
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Expenses:
Interest 45 41
Depreciation and amortization 61 62
Operating 47 86
Related party 25 23
General and administrative 22 16
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Total expenses 200 228
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Net income $376 $64
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Net income per share of Series A common stock $.35 $.06
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Dividends per share of Series A common stock $.09 $ .09
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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 THREE MONTH PERIODS ENDED MARCH 31, 1997 AND 1996
(Unaudited)
(Dollars in thousands) 1997 1996
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Cash flows from operating activities:
Net income $376 $64
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Adjustments to reconcile net income to net
cash provided by operating
activities:
Depreciation and amortization 61 62
(Increase) decrease in deferred
rent receivable 35 (4)
Increase in other assets (58) (23)
Increase (decrease) in tenants'
deposits and other liabilities (32) 23
Gain on sale of rental property (370) -
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(364) 58
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Net cash provided by operating activities 12 122
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Cash flow from investing activities:
Origination of note payable 2,850 -
Principal received on note receivable 5 -
Improvements to rental property - (7)
Proceeds from sale of rental property 2,093 -
Disposition of mortgage-backed
securities 1 1
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Net cash provided by (used in)
investing activities 4,949 (6)
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Cash flow from financing activities:
Principal payments on note payable (2,750) -
Distributions paid (98) (98)
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Net cash used in financing activities (2,848) (98)
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Net increase in cash and cash equivalents 2,113 18
Cash and cash equivalents,
beginning of period 772 612
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Cash and cash equivalents,
end of period $2,885 $630
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The accompanying notes are an intregal part of these financial statements.
PROPERTY RESOURCES EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 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 Company
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
NOTE 2 - 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 3 - 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 4 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
For the three month period ended March 31, 1997, interest paid amounted to
$45,000.
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 three month periods ended March 31, 1997 and 1996
Total revenue for the three month period ended March 31, 1997 increased $284,000
or 97%, from $292,000 in 1996 to $576,000 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 at the remaining property of
the Fund decreased $6,000 compared to the same period in 1996 as a result of the
refund of the prior year property taxes, insurance and operating expense
reimbursements. For the three month period ended March 31, 1997 interest income
increased $14,000 compared to the same period in 1996 as a result of the note
receivable relating to the sale of the Agora Office Building.
Total expenses for the three month period ended March 31, 1997 decreased
$28,000, or 12%, from $228,000 in 1996 to $200,000 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 to a refund of prior year property
taxes at the Good Guys Plaza. The decrease was offset by increases in interest
and accounting expenses.
Net income for the three month period ended March 31, 1997 increased $312,000 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 $370,000 and interest
income earned on the note receivable of $14,000 partially offset by a $70,000
decrease in net income (decrease in operating expenses of $39,000 and rental
revenue of $109,000) 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 March 31, 1997, cash and cash equivalents totaled $2,885,000 and investments
in mortgage-backed securities totaled $171,000.
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.
PROPERTY RESOURCES EQUITY TRUST
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources (Continued)
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 three-month period ended March 31, 1997, the Fund declared
distributions totaling $98,000.
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
During the quarter ended March 31, 1997, the Registrant filed a report
dated March 19, 1997, (date of earliest event reported) on Form 8-K with respect
to the sale of the Graham Court Business Park.
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 14, 1997
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<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM REGISTRANT'S
FINANCIAL STATEMENTS FOR THE QUARTER ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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