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, 1998
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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 incorporation or organization) (I.R.S. Employer
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 March 31, 1998: 1,090,052
Shares of Series B Common Stock Outstanding as of March 31, 1998:
1,000
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROPERTY RESOURCES EQUITY TRUST
BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997
(Unaudited)
(Dollars in thousands, except per share amounts) 1998 1997
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ASSETS:
Real estate:
Land $1,702 $1,702
Buildings and improvements 4,132 4,132
Tenant improvements 160 157
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5,994 5,991
Less: accumulated depreciation 1,444 1,409
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Real estate, net 4,550 4,582
Cash and cash equivalents 523 461
Mortgage-backed securities, available for sale - -
Deferred rent receivable 63 57
Note receivable 712 717
Other assets, net 256 268
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Total assets $6,104 $6,085
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Note payable $2,819 $2,827
Tenants' deposits and other liabilities 37 24
Distributions payable 65 -
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Total liabilities 2,921 2,851
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Stockholders' equity:
Common stock, Series A, without par value, stated
value $10 per share; 10,000,000 shares authorized; 9,384 9,384
1,090,052 shares issued and outstanding in
1998 and 1997
Common stock, Series B, without par value, stated
Value $10 per share; 1,000 shares authorized,
issued and outstanding in 1998and 1997 10 10
Unrealized loss on mortgage-backed securities -
Accumulated distributions in excess of net income (6,211) (6,160)
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Total stockholders' equity 3,183 3,234
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Total liabilities and stockholders' equity $6,104 $6,085
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The accompanying notes are an intregal part of these financial statements.
PROPERTY RESOURCES EQUITY TRUST
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
(Dollars in thousands, except 1998 1997
per share amounts)
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REVENUE:
Rent $176 $172
Interest 13 24
Dividends 6 10
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Total revenue 195 206
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EXPENSES:
Interest 68 46
Depreciation and amortization 39 60
Operating 30 47
Related party 13 20
General and administrative 31 27
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Total expenses 181 200
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Operating income before gain on 14 6
sale of property
Gain on sale of property - 370
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NET INCOME $14 $376
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Net income per share of Series A $.01 $.35
common stock
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Dividends per share of Series A $.06 $.09
common stock
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The accompanying notes are an integral part of these financial statements.
PROPERTY RESOURCES EQUITY TRUST
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
(Unaudited)
(Dollars in thousands) 1998 1997
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Cash flows from operating activities:
Net income $14 $376
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Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 45 61
(Increase) decrease in deferred rent (6) 35
receivable
Decrease (increase) in other assets 3 (58)
Increase (decrease) in tenants' deposits and 13 (32)
other liabilities
Gain on sale of rental property - (370)
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55 (364)
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Net cash provided by operating activities 69 12
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Cash flow from investing activities:
Principal received on note receivable 5 5
Improvements to rental property (4) -
Proceeds from sale of rental property - 2,093
Disposition of mortgage-backed securities - 1
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Net cash provided by investing activities 1 2,099
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Cash flow from financing activities:
Origination of note payable - 2,850
Borrowings under notes payable - -
Principal payments on note payable (8) (2,750)
Distributions paid - (98)
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Net cash (used in) provided by financing (8) 2
activities
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Net increase in cash and cash equivalents 62 2,113
Cash and cash equivalents, beginning of period 461 772
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Cash and cash equivalents, end of period $523 $2,885
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The accompanying notes are an integral part of these financial statements.
PROPERTY RESOURCES EQUITY TRUST
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
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, 1997.
NOTE 2 - BUSINESS ACTIVITY
As of March 31, 1998, 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 has commenced marketing activity. At
March 31, 1998, 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 three-month period ended March 31, 1998, interest paid amounted to
$61,754.
NOTE 6 - SUBSEQUENT EVENT
On April 16, 1998, the note receivable, $712,000 collateralized by the Agora
building was paid in full. The proceeds will be distributed to shareholders
in the second quarter.
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, 1998 AND 1997
Net income for the three-month period decreased $362,000 primarily due to the
gain related to the sale of Graham Court in 1997.
Total revenue for the three-month period ended March 31, 1998 decreased
$11,000 or 5% due a decline in interest and dividend revenue. The decrease
of $15,000 in these accounts from the comparable period in the prior year was
attributable to lower average investment balances in the current period.
Good Guys Plaza experienced a 3% increase in rental revenues in 1998 compared
to the prior year and a tenant reimbursement made in 1997 was not repeated in
the first quarter of 1998. These two factors led to an increase in rental
revenues of $4,000 over the corresponding period in the prior year, despite
the sale of Graham Court in March 1997.
Total expenses for the three-month period decreased $20,000 or 10% due to the
sale of Graham Court in March 1997. Operating expense, related party,
depreciation and general and administrative expenses decreased as a result of
the sale, however interest expense increased $21,000 due to the refinance of
the Good Guys note in March 1997.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, cash and cash equivalents aggregated $523,000, which the
Fund believes is adequate to meet its short-term operating cash requirements.
Net cash provided by operating activities increased $57,000 when compared to
the same period in 1997. The increase in cash flow from operating activities
is attributable the improved occupancy and higher rents charged at the Good
Guys Plaza.
Cash flows provided by investing activities decreased $2,098,000 in 1998 as a
result of proceeds received from the sale of Graham Court Business that
occurred in 1997.
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 decreased $10,000 due to the
refinancing of the note payable in 1997.
As of March 31, 1998, the Fund had one remaining property in its portfolio.
Management is currently marketing the property for sale, and a sale may occur
in 1998. At March 31, 1998, 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 three-month period ended March 31, 1998, the Fund declared
distributions totaling $65,403.
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 March 31, 1998.
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
Chief Executive Officer
Date: MAY 13, 1998
