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, 1999
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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 Identification No.)
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 (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, 1999: 1,090,051
Shares of Series B Common Stock Outstanding as of March 31, 1999:
1,000
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROPERTY RESOURCES EQUITY TRUST
BALANCE SHEETS
MARCH 31, 1999 AND DECEMBER 31, 1998
(Unaudited)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER 1999 1998
SHARE AMOUNTS)
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(LIQUIDATION (Going
BASIS) Concern
Basis)
ASSETS:
Cash and cash equivalents $226 $2,501
Other assets, net 12 21
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Total assets $238 $2,522
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LIABILITIES AND STOCKHOLDERS' EQUITY:
Accounts payable and other liabilities $68 $18
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Total liabilities 68 18
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Stockholders' equity:
Common stock, Series A, without par value,
stated value $10 per share; 10,000,000 shares 9,384 9,384
authorized;
1,090,051 shares issued and outstanding
in 1999 and 1998
Common stock, Series B, without par value,
stated value $10 per share; 1,000 shares 10 10
authorized,
issued and outstanding in 1999 and 1998
Accumulated distributions in excess of net (9,224) (6,890)
income
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Total stockholders' equity 170 2,504
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Total liabilities and stockholders' $238 $2,522
equity
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The accompanying notes are an intregal part of these financial statements.
PROPERTY RESOURCES EQUITY TRUST
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(Unaudited)
THREE MONTHS
ENDED
MARCH 31, March 31,
(DOLLARS IN THOUSANDS, EXCEPT 1999 1998
PER SHARE AMOUNTS)
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(LIQUIDATION (Going
BASIS) Concern
Basis)
REVENUE:
Rent $21 $176
Interest, dividends and 17 19
other
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Total revenue 38 195
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EXPENSES:
Interest - 68
Depreciation and - 39
amortization
Operating 6 30
Related party 9 13
General and administrative 68 31
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Total expenses 83 181
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NET (LOSS) INCOME $(45) $14
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Net (loss) income per share
of Series A common stock $(0.04) $0.01
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Dividends per share of Series $2.10 $0.06
A 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 MONTHS ENDED MARCH 31, 1999 AND 1998
(Unaudited)
(Dollars in thousands) 1999 1998
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Cash flows from operating activities:
Net (loss) income $(45) $14
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Adjustments to reconcile net (loss) income
to net cash
provided by operating activities:
Depreciation and amortization - 45
Increase in deferred rent receivable - (6)
Decrease in other assets 9 3
Increase in tenants' deposits and other 50 13
liabilities
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59 55
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Net cash provided by operating activities 14 69
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Cash flows from investing activities:
Principal received on note receivable - 5
Improvements to rental property - (4)
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Net cash provided by investing activities - 1
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Cash flows from financing activities:
Principal payments on note payable - (8)
Distributions paid (2,289) -
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Net cash used in financing activities (2,289) (8)
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Net (decrease) increase in cash and cash (2,275) 62
equivalents
Cash and cash equivalents, beginning of 2,501 461
period
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Cash and cash equivalents, end of period $226 $523
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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, 1999
UNAUDITED
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.
The shareholders of the Fund approved a Plan of Dissolution and Termination
on January 26, 1999 and it is now likely that liquidation of the Fund will
occur in 1999. Accordingly the Fund has adopted the liquidation basis of
accounting with effect from January 26, 1999. The financial statements for
the period ended March 31, 1999 have been prepared on a liquidation basis.
No adjustment has been made to the prior period financial statements, which
were prepared on a going concern basis, as was appropriate at the time that
they were presented. The going concern basis contemplates the realization of
assets and the satisfaction of liabilities in the normal course of business.
Liquidation basis accounting requires management to estimate and record the
value of all transactions up until the date of liquidation, including any
adjustments relating to the recoverability and classification of assets and
liabilities. Liquidation accounting is only used when it is reasonably
certain that a business will terminate.
These financial statements should be read in conjunction with the Fund's
audited financial statements for the year ended December 31, 1998.
NOTE 2 - TAXATION
From 1989 to 1998 the Fund qualified as a real estate investment trust
("REIT"), having elected to do so under the applicable provisions of the
Internal Revenue Code. 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
REIT tests are met. During 1999, the Fund failed to meet all of the
conditions necessary to remain qualified as a REIT and consequently the Fund
has become liable for income taxes for the current fiscal year. The Fund
expects to incur losses in 1999 associated with its liquidation activities
and accordingly no provision for income taxes has been made.
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.
When used in the following discussion, the words "believes," "anticipates"
and similar expressions are intended to identify forward-looking statements.
Such statements are subject to certain risks and uncertainties which could
cause actual results to differ materially from those projected, including,
but not limited to, those set forth in the section entitled "Potential
Factors Affecting Future Operating Results," below. Readers are cautioned
not to place undue reliance on these forward-looking statements that speak
only as of the date hereof. The Fund undertakes no obligation to publicly
release any revisions to these forward-looking statements that may be made to
reflect events or circumstances after the date hereof or to reflect the
occurrence of unanticipated events.
RESULTS OF OPERATIONS
COMPARISON OF THE THREE-MONTH PERIODS ENDED MARCH 31, 1999 AND 1998
During the three months ended March 31, 1999, the Fund incurred losses of
$45,000 compared to income of $14,000 in the comparable period last year.
The losses are due to expenditures made in connection with the Fund's
liquidation and the decreased revenue as a result of the sale of the Fund's
remaining property in the final quarter of 1998.
Revenues declined in the three months ended March 31, 1999 when compared with
the same period in 1998 due to the sale of Good Guys Plaza and Graham Court
Business Park ("the Properties") which both provided rental revenues during
the first quarter of 1998.
Expenses declined in the three months ended March 31, 1999 from the same
period in the previous year as a result of the sale of the Properties.
General and administrative expenses in the current fiscal year include an
estimate of all the charges that the Fund may incur through June 1999, the
estimated date of the liquidation.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, cash and cash equivalents aggregated $226,000, which the
Fund believes is adequate to meet its short-term operating cash requirements,
pending a final distribution payment which is expected to be made in June
1999.
Net cash provided by operating activities decreased $55,000 when compared to
the same period in 1998. This was primarily due to the changes in the results
from operations discussed above.
Cash flows used in financing activities increased $2,281,000 in 1999 as a
result the initial liquidating distribution paid on February 16, 1999.
Management expects to make a final distribution payment in June 1999.
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, through June 1999,
the estimated date of the liquidation.
PROPERTY RESOURCES EQUITY TRUST
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES (Continued)
During the three-month period ended March 31, 1998, the Fund declared and
paid an initial liquidating distribution totaling $2,289,000. The final
liquidating distribution is expected to be made in June 1999.
YEAR 2000
Management is in the process of assessing the impact of Year 2000 issues on
its computer systems and applications. At this time, management believes that
the Fund will be liquidated before December 31, 1999 and that any issues
related to its preparedness are no longer relevant.
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
On January 26, 1999 the Fund filed Form 8-K. This filing details the
decision to dissolve and liquidate the Fund by a majority of the shareholders
of the Fund at a Special Meeting held on January 26, 1999.
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, 1999
