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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, 1995
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 1-8965
PRUDENTIAL REALTY TRUST
(Exact name of Registrant as specified in its charter)
Massachusetts 22-6400284
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
Prudential Plaza, Newark, New Jersey 07102-3777
(Address of principal executive offices) (Zip code)
201-802-4302
(Registrant's Telephone Number, including area code)
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 for 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
The number of shares outstanding as of August 15, 1995 was 11,135,000
Income Shares of Beneficial Interest ($.Ol par value, $8.00 stated value)
and 11,135,000 Capital Shares of Beneficial Interest ($.Ol par value).
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PRUDENTIAL REALTY TRUST
(Registrant)
INDEX
Part I - Financial Information Page
Item 1. Financial Statements (Unaudited)
Balance Sheets - June 30, 1995
and December 31, 1994
Statements of Operations - Six months ended
June 30, 1995 and 1994; three months
ended June 30, 1995 and 1994
Statements of Cash Flows - Six months ended
June 30, 1995 and 1994; three months
ended June 30, 1995 and 1994
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II - Other Information
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior securities
Item 4. Submission of Matters to a Vote of Security
Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signature
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PRUDENTIAL REALTY TRUST
BALANCE SHEETS
(Unaudited)
June 30, December 31,
1995 1994
(Unaudited) (Audited)
ASSETS
Real Estate owned (net of accumulated
depreciation and amortization and
impairment of $55,011,433 in 1995
and $52,954,244 in 1994) $69,523,975 71,514,788
Cash and cash equivalents 2,509,589 2,253,075
Accounts receivable (net of allowance
for doubtful accounts of $11,552
in 1995 and 1994) 620,469 486,148
Prepaid expenses 239,455 83,333
Deferred rent receivables 2,523,701 2,366,718
Deferred financing costs (net of
accumulated amortization of $93,750
in 1995 and $75,000 in 1994) 56,250 75,000
TOTAL ASSETS $75,473,439 $76,779,062
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued expenses (Note 4) $2,506,295 $2,376,430
Loans payable (Notes 3 and 7) 18,062,123 16,975,000
Due to advisor (Note 2) 250,312 276,108
Security deposits 405,046 403,443
Other liabilities 97,651 96,321
Total Liabilities 21,321,427 20,127,302
Income Shares ($.01 par value,$8.00 stated
value) 11,135,000 shares authorized,
issued and outstanding 89,080,000 89,080,000
Capital Shares ($.01 par value, 11,135,000
shares authorized, issued and outstanding 111,350 111,350
Paid-in-capital 12,879,052 12,879,052
Distributions in excess of
accumulated net income (47,918,390) (45,418,642)
Total Shareholders' Equity (Note 5) 54,152,012 56,651,760
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $75,473,439 $76,779,062
See Notes to Financial Statements.
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PRUDENTIAL REALTY TRUST
STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Three Months
Ended Ended
June 30, June 30,
1995 1994 1995 1994
REVENUES
Property revenue $6,451,325 $5,484,893 $3,294,820 $2,747,161
EXPENSES
Operating expenses 2,407,996 2,513,369 1,227,880 1,140,242
Depreciation and amortization 2,115,784 1,786,541 1,053,679 818,265
Total expenses from operations 4,523,780 4,299,910 2,281,559 1,958,507
Income from operations 1,927,545 1,184,983 1,013,261 788,654
Interest income 57,954 10,742 32,036 4,985
Interest expense 635,774 354,642 329,152 185,506
Portfolio management fee and
other expenses (Note 6) 1,879,673 746,670 1,327,868 367,563
Gain on sale of property
(Note 4) 34,500 0 34,500 0
NET INCOME (LOSS) $(495,448) $ 94,413 $(577,223) $ 240,570
NET INCOME (LOSS)
PER INCOME SHARE $ (0.04) $ 0.01 $ (0.05) $ 0.02
Number of shares of each
class outstanding 11,135,000 11,135,000 11,135,000 11,135,000
See Notes to Financial Statements.
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PRUDENTIAL REALTY TRUST
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(Unaudited)
Six Months Ended
June 30,
1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) income $ (495,448) $ 94,413
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Depreciation and amortization 2,115,784 1,786,541
Net rental concessions earned (156,983) (88,881)
Changes in assets and liabilities:
(Increase) in accounts receivable,
prepaid expenses, and deferred
financing costs (271,693) (291,594)
(Decrease) increase in accounts
payable and accrued expenses, due
to advisor, security deposits
and other liabilities 107,003 56,135
Gain on sale of property (34,500) 0
Net cash provided by operating activities 1,264,163 1,556,614
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to real estate owned (356,378) (1,125,263)
Proceeds on sale of property 265,906 0
Net cash used in investing activities (90,472) (1,125,263)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment on credit agreement (16,001,877) (5,772,000)
Drawdown on credit agreement 17,089,000 6,956,000
Distributions to Income Shareholders (2,004,300) (1,002,150)
Net cash (used in) provided by
financing activities (917,177) 181,850
Net increase in cash and cash equivalents 256,514 613,201
Cash and Cash equivalents-Beginning of period 2,253,075 516,908
Cash and Cash equivalents-End of period $2,509,589 $1,130,109
Supplemental information:
Interest paid $ 583,348 $ 309,340
Taxes paid, state and local $ 75,000 $ 46,979
See Notes to Financial Statements
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PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 1995
NOTE 1 - SUMMARY TRUST DESCRIPTION AND BASIS OF FINANCIAL
STATEMENT PREPARATION
Prudential Realty Trust, a Massachusetts business trust (the
"Trust"), was formed pursuant to a Declaration of Trust dated
June 19, 1985 and amended August 20, 1985. Since its inception,
the Trust has qualified as a real estate investment trust in
accordance with the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and anticipates that it will
qualify as a real estate investment trust under the Code for the
period ended June 30, 1995. The Trust has become aware that in
years prior to 1993 it did not follow a procedural requirement of
the Code and regulations thereunder regarding requesting and
retaining certain information from large shareholders. As a
result, the status of the trust as a real estate investment trust
in years prior to 1993 is uncertain even though the Trust
believes that the substantive requirements of the Code were
satisfied. The Prudential Realty Advisors, Inc. (the "Advisor")
has agreed to indemnify the Trust against any resulting taxes and
related costs the Trust may incur. Accordingly, the Trust does
not believe that there will be any adverse effect on its results
of operations or financial condition.
Since the Trust intends to distribute all of its net taxable
income to its shareholders, no provision has been made for
federal income taxes. The Trust pays applicable state and local
taxes.
The Trust is nearing its originally scheduled liquidation period.
This fact, combined with the recent flurry of investor activity
in real estate markets, the Trust's favorable occupancy rates,
and the well maintained condition of the Trust's properties,
caused the Trustees to engage the firm of J.P. Morgan Securities,
Inc. to solicit bids for the Trust's assets. In January 1995,
J.P. Morgan Securities, Inc. recommended that the Trustees
proceed to solicit bids for the shares of the Trust or its
assets, in the form of cash and/or stock. On February 9, 1995,
the Board of Trustees accepted J.P. Morgan's and the Advisor's
recommendation and the Trustees approved the engagement of J.P.
Morgan to solicit bids for the Trust assets.
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PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 1995
On June 2, 1995, in furtherance of the Board of Trustee's (the
"Board") desire to comply with the longstanding policy and intent
of the Trust and in accordance with the Declaration of Trust (the
"Declaration"), the Board adopted a series of resolutions to
effect the liquidation and termination of the Trust, effective
immediately prior to completion of the sale of the Trusts' Park
100 property located in Indianapolis, Indiana. (On August 3,
1995, this resolution was amended so that the liquidation plan
becomes effective immediately prior to the sale of the Trust's
Park 100, Huntington Business Campus, or Maple Plaza properties,
whichever occurs first.) The resolutions, among other things,
authorize certain officers of the Trust to sell or otherwise
liquidate the remaining properties of the Trust upon such terms
as may be approved by a majority of the Unaffiliated Trustees (as
defined in the Declaration), and require that, after paying or
adequately providing for the payment of all liabilities of the
Trust, the Trustees shall distribute the remaining Trust Estate
(as defined in the Declaration), in cash or in kind or partly
each, among the shareholders of the Trust according to their
respective rights under the Declaration.
The Trust entered into a Purchase and Sale Agreement dated June
7, 1995, with Security Capital Industrial Trust, a Maryland real
estate investment trust, for the sale of the Trust's Park 100
property. The purchase price for Park 100 is $39.2 million,
(subject to adjustment as provided for in the agreement), which
is payable in cash.
Once the liquidation plan becomes effective, the accounting
principles of the Trust will change to a liquidation basis with
the principal effect being that all assets will be carried at the
lower of cost or net realizable value. Net realizable value is
generally calculated as the sales price of the Trust assets less
costs associated with the closing, including selling commissions,
expenses and additional taxes related to the sale. The Trust
believes that the net realizable value upon the sale of the Trust
assets will exceed total assets at June 30, 1995.
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PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 1995
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions for Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements.
In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six
months ended June 30, 1995 are not necessarily indicative of the
results that may be expected for the year ending December 31,
1995. For further information, refer to the financial statements
and notes thereto included in the Trust's December 31, 1994,
Annual Report on Form 10-K.
NOTE 2 - RELATED PARTY TRANSACTIONS
Transactions between the Trust and its affiliates for the six
months ended June 30, 1995 and 1994 are summarized below.
Six Months Ended June 30,
1995 1994
Fees incurred for portfolio
management and other advisory
services, provided by the
Advisor $ 498,100 $ 447,751
Fees incurred for property
management, construction management
and leasing services, provided by
PREMISYS Real Estate Services, Inc. $ 280,957 $ 251,272
Rental revenue earned from space
leased to various affiliates of the
Advisor, excluding expense recoveries $ 703,164 $ 655,191
Refer to Note 1, Summary Trust Description and Basis of Financial
Statement Preparation, regarding an indemnification the Advisor
has provided to the Trust.
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PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 1995
Refer to Note 6, Litigation and Tender Offer, regarding a
reimbursement of settlement costs the Advisor has agreed to make
to the Trust.
NOTE 3 - REVOLVING CREDIT AGREEMENT
The Trust has a revolving Credit Agreement (the "Agreement") with
First Fidelity Bank, N.A. New Jersey. The original credit line
of $20,000,000 has been reduced to $19,918,123. The reduction is
caused by the partial repayment of $81,877 from the sale of Park
100 Building 10. The proceeds of the loan may be drawn upon as
needed, and are used for tenant alterations, leasing commissions
and certain other capital expenditures. The aggregate unpaid
principal balance will become due on August 28, 1997 or if the
duration of the Trust is extended, August 28, 1999. Individual
loans may be extended each year until the expiration of the
Agreement.
Interest accrues at an annual rate of either the bank's base
rate, the LIBOR rate plus 1%, or the bank's Certificate of
Deposit rate plus 1%. The Trust determines the interest rate
option at the inception of each loan. As of June 30, 1995,
$1,937,877 was available under the Agreement.
At June 30, 1995, thirteen credit notes totalling $18,062,123
were outstanding under this Agreement, all due in 1995. The
weighted average interest rate at June 30, 1995 and December 31,
1994 was 6.92% and 6.23% respectively.
In connection with this Agreement, the Trust must comply with
certain financial covenants and other restrictive provisions
related to net worth, total debt and debt service. The Trust
must show, each quarter, Minimum Tangible Net Worth, as defined
in the declaration of Trust, to be greater than or equal to three
times the aggregate value of the loans outstanding. The Trust
must also show, each quarter, Distributable Cash of not less than
12.5% of the loans outstanding at the end of the quarter. At
June 30, 1995, the Trust was in compliance with all financial
covenants under the loan agreement.
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PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 1995
NOTE 4 - ENVIRONMENTAL REMEDIATION LIABILITY
In December 1994, the Trust became aware of soil contamination at
one of its smaller Park 100 properties in Indianapolis, Indiana.
The contamination involved an underground storage tank. Based on
information available at that time, the Trust recorded a loss
contingency of $100,000 the year ended December 31, 1994. The
Trust has since completed remediation proceedings and removed all
contaminated soil from the site. On May 12, 1995, this property
was sold for $285,000, resulting in a gain of $34,500.
NOTE 5 - SHAREHOLDERS' EQUITY
Shareholders' equity includes distributions in excess of
accumulated net income of $47,918,390 at June 30, 1995. The net
decrease in equity of $2,499,748 from December 31, 1994 is the
result of cash dividends totalling $2,004,300 paid on March 1,
1995 and June 1, 1995, and a net loss for the six months ended
June 30, 1995 of $495,448.
NOTE 6 - LITIGATION AND TENDER OFFER
On April 5, 1995, Richard M. Osborne, a stockholder of the Trust,
commenced a lawsuit in the Massachusetts Probate Court against
the Trust and all Trustees, seeking to have the Trustees removed
for allegedly engaging in "a pattern of conduct" to waste the
Trust's assets by liquidating the Trust and paying high advisory
fees. On April 14, 1995, Mr. Osborne and another stockholder
filed another suit, in the Massachusetts Superior Court, making
virtually the same allegations of breach of fiduciary duty by the
Trustees and asking for treble damages. On May 30, 1995, The
Trust responded to both actions by answering the complaint and
filing counterclaims.
On May 17, 1995, Black Bear Realty, Ltd., a newly-formed Ohio
limited liability company, of which Richard M. Osborne is the
sole managing member, commenced a tender offer to purchase all of
the outstanding Capital Shares of the Trust upon the terms and
subject to the conditions set forth in the Offer to Purchase
dated May 17, 1995, and the related letter of Transmittal. The
tender offer was originally scheduled to expire on June 14, 1995,
but was ultimately extended to July 17, 1995.
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PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 1995
On July 17, 1995, the Trust, the Advisor, and the Trustees
entered into a Settlement and Standstill Agreement with Mr.
Osborne, Black Bear Realty, Ltd., and Turkey Vulture Fund XIII,
Ltd., an Ohio limited liability company of which Osborne is the
sole managing member (the "Fund"). Pursuant to the Settlement
Agreement, the parties agreed, among other things, to execute a
stipulation of dismissal with prejudice of all claims,
counterclaims and/or third party claims that were asserted by the
parties and a joint motion for dismissal in the Probate Action
and the Superior Court Action. Each of Mr. Osborne and the Fund
agreed to withdraw their request for a special meeting of the
shareholders of the Trust to be called to consider certain
matters relating to the liquidation of the Trust and Black Bear
Realty, Ltd. agreed not to extend the expiration date of the
Offer beyond the then current expiration date of July 17, 1995.
In consideration of the foregoing, the Trust agreed to pay Mr.
Osborne an aggregate amount of $550,000. The Trust paid $550,000
to Mr. Osborne on July 19, 1995. The Advisor agreed to partially
reimburse the Trust for settlement costs that were paid to Mr.
Osborne or his affiliates pursuant to the Settlement Agreement.
The amount of the reimbursement from the Advisor will not exceed
$150,000 and will be paid only to the extent that the settlement
costs pursuant to the Settlement Agreement exceed $400,000 net of
any reimbursement received from the Trust's Directors and
Officers liability insurance carrier. Consequently, the maximum
cost to be incurred by the Trust will be $400,000, and that
amount has been recorded in Portfolio management fees and other
expenses for the six months ended June 30, 1995.
Also, in connection with the dismissal of the Osborne litigation, the Trust
has agreed to pay the legal fees and expenses of the intervenor's counsel
in the amount of $80,000, which has been recorded in Portfolio management
fees and other expenses for the six months ended June 30, 1995.
Other significant costs included in Portfolio management fees and
other expenses are $498,976 in legal costs related to the
litigation and tender offer as described above, and the
liquidation of the Trust ; $102,540 in investment banking fees
related to the J.P. Morgan engagement, and $75,000 in information
agent and mailing costs.
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PRUDENTIAL REALTY TRUST
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 1995
NOTE 7 - EVENTS SUBSEQUENT TO JUNE 30, 1995
On July 7, 1995, the Trust entered into a Purchase and Sale
Agreement with Reckson FS Limited Partnership, a Delaware limited
partnership, for the sale of its Huntington Business Campus
property located in Melville, New York. The price for Huntington
Business Campus is $11.475 million (subject to adjustment as
provided for in the agreement), payable in cash. Closing is
contingent upon the satisfactory completion of the purchaser's
due diligence review and other customary conditions for
transactions of this nature.
On July 13, 1995, the Trust repaid $13,144,000 of the revolving
credit notes outstanding at June 30, 1995, with interest of
$309,195 on the entire balance outstanding under the Agreement.
The Trust concurrently borrowed $13,269,000 under the Agreement,
with an interest rate of 6.25%, due on October 13, 1995.
On July 19, 1995, the Trust paid $550,000 to Mr. Richard Osborne
in connection with the Settlement Agreement discussed in more
detail in Note 6 to the Financial Statements.
On July 25, 1995, there was a small fire at the Trust's
Huntington Business Campus II property, which was contained
almost immediately. The damage from the fire was confined to a
small area and the Trust believes that its property and casualty
insurance plan will cover the costs of the fire. Therefore, the
impact on the financial statements should not be material.
On August 3, 1995 the Board of Trustees declared a dividend of
$0.09 per Income Share which will be paid on September 1, 1995,
to Income Shareholders of record on August 17, 1995.
On August 11, 1995, the Trust entered into a Purchase and Sale
Agreement with Equitable Real Estate Investment Management, Inc.,
a Delaware corporation, for the sale of its Maple Plaza property
located in Parsippany, New Jersey. The price for Maple Plaza is
$31.35 million (subject to adjustment as provided for in the
agreement), payable in cash.
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Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
(a) Liquidity and Capital Resources
On December 28, 1994, the Board of Trustees engaged J.P. Morgan
Securities, Inc., an investment banking firm, to review and
provide recommendations on the strategic options available to
maximize the value of the Trust to its shareholders as it
approaches its scheduled liquidation date. Subsequent to
December 31, 1994, J.P. Morgan recommended that the Trustees
proceed to solicit bids for the shares of the Trust or its
assets, in the form of cash and/or stock. On February 9, 1995,
the Board of Trustees accepted J.P. Morgan's and the Advisor's
recommendation and the Trustees approved the engagement of J.P.
Morgan to solicit bids for the Trust assets.
On June 2, 1995, in furtherance of the Board's desire to comply
with the longstanding policy and intent of the Trust and in
accordance with the Declaration, the Board adopted a series of
resolutions to effect the liquidation and termination of the
Trust, effective immediately prior to completion of the sale of
the Trust's Park 100 property located in Indianapolis, Indiana.
(On August 3, 1995, this resolution was amended so that the
liquidation plan becomes effective immediately prior to the sale
of the Trust's Park 100, Huntington Business Campus, or Maple
Plaza properties, whichever occurs first. The resolutions, among
other things, authorize certain officers of the Trust to sell or
otherwise liquidate the remaining properties of the Trust upon
such terms as may be approved by a majority of the Unaffiliated
Trustees (as defined in the Declaration), and require that, after
paying or adequately providing for the payment of all liabilities
of the Trust, the Trustees shall distribute the remaining Trust
Estate (as defined in the Declaration), in cash or in kind or
partly each, among the shareholders of the Trust according to
their respective rights under the Declaration.
The Trust entered into a Purchase and Sale Agreement dated June
7, 1995, with Security Capital Industrial Trust, a Maryland real
estate investment trust, for the sale of the Trust's Park 100
property. The purchase price for Park 100 is $39.2 million
(subject to adjustment as provided for in the agreement), which
is payable in cash.
<page 14>
On July 7, 1995, the Trust entered into a Purchase and Sale
Agreement with Reckson FS Limited Partnership, a Delaware limited
partnership, for the sale of its Huntington Business Campus
property located in Melville, New York. The purchase price for
Huntington Business Campus is $11.475 million (subject to
adjustment as provided for in the agreement), payable in cash.
Closing is contingent upon the satisfactory completion of the
purchaser's due diligence review and other customary conditions
for transactions of this nature.
On August 11, 1995, the Trust entered into a Purchase and Sale
Agreement with Equitable Real Estate Investment Management, Inc.,
a Delaware corporation, for the sale of its Maple Plaza property
located in Parsippany, New Jersey. The purchase price for Maple
Plaza is $31.35 million (subject to adjustment as provided for in
the agreement), payable in cash.
The Trust's cash and cash equivalents totalled $2,509,589 at June
30, 1995, an increase of $256,514 over the December 31, 1994
balance of $2,253,075. The Trust's primary sources of funds are
(i) cash provided by operations set aside at the discretion of
the Trustees subject to certain constraints set forth in the
Declaration of Trust and (ii) a $19,918,123 revolving Credit
Agreement with First Fidelity Bank, N.A. New Jersey (the "Credit
Agreement"). As of June 30, 1995 and December 31, 1994, the
Trust had loans outstanding of $18,062,123 and $16,975,000,
respectively, under the Credit Agreement, an increase of
$1,087,123 (6.4%). The increase is due to drawdowns made to
replenish operating cash utilized for tenant alterations and
leasing commissions in the fourth quarter of 1994 and the first
quarter of 1995. The increase is offset by the mandatory
prepayment on the line of credit due to the sale of the Park 100
Building 10 on May 12, 1995. The Trust is required to prepay
portions of the Credit Line as assets are sold, but has the
option to repay the entire Credit Line at any time.
The Trust's policy was to fund tenant alterations and leasing
commissions utilizing the Credit Agreement (see notes 3 and 7 to
the financial statements). However, since the Credit Agreement
may be repaid using the proceeds from the sale of the Trust
assets, future capital expenditures that previously qualified for
financing could be funded from sales proceeds.
<page 15>
Other capital expenditures are reviewed, and at the discretion of
the Trustees, may be funded entirely from property operations or
financed, totally or in-part, under the Credit Agreement.
Capital expenditures for the six months ended June 30, 1995,
totalled $356,378, including $323,435 for tenant alterations and
leasing commissions financed under the Credit Agreement.
Excluding tenant alterations and leasing commissions, there are
no more capital expenditures planned for the remainder of 1995.
Tenant alterations and leasing commissions qualifying for
financing, are projected to be approximately $694,000 for the
remainder of 1995. The Trust may finance these in accordance with
its policy. Of the total, approximately $640,000 is projected
for Huntington Business Campus and $52,000 is projected for Park
100. The actual amount of such expenditures will depend on the
number of new leases, the needs of the particular tenants, the
timing of lease executions and the timing of property sales.
On May 12, 1995, the Trust sold one of its smaller Park 100
properties for $285,000, resulting in a gain of $34,500.
Cash provided by operating activities for the six months ended
June 30, 1995 was $1,264,163. This was $292,451 (15.5%) less
than the $1,556,614 for the corresponding period of 1994. This
was partly due to a decrease of $260,618 in income before
depreciation and amortization for the six months ended June 30,
1995 versus 1994 as described under Results of Operations.
For the six months ended June 30, 1995, the Trust paid cash
dividends totalling $2,004,300 ($0.18 per income share). This
amount represents distributable cash generated from fourth
quarter 1994 and first quarter 1995 operations. This is a 100%
increase from dividends totalling $1,002,150 ($0.09 per income
share) paid during the first six months of 1994. This was
primarily due to higher occupancy at the Trust's properties for
the six months ended June 30, 1995 versus 1994.
It is the intent of the Trust to continue to distribute on an
annual basis all of the Distributable Cash generated from
operations and to comply with Sections 856 through 860 of the
Internal Revenue Code.
<page 16>
The sale of Park 100 and the Huntington Business Campus, together
with the potential sale of the Maple Plaza property, located in
Parsippany, Morris County, New Jersey, at a price equal to the
highest cash bid received to date, could result in a distribution
to holders of Income Shares upon liquidation of the Trust of over
$5.00 per Income Share. There would be no available distribution
to holders of Capital Shares. This assumes liquidation takes
place in December 1995, and includes estimates for commissions
and state and local taxes related to the sales, and other
expenses related to the liquidation of the Trust.
Management anticipates that ongoing operations and the Credit
Agreement will satisfy the Trust's liquidity needs through 1996.
Loans under the Credit Agreement mature annually, but each may be
extended for additional periods until the agreement expires.
Management anticipates that the Credit Line will be paid off with
the proceeds from the sale of the Trust assets, but could extend
the maturity of outstanding loans under this agreement.
(b) Results of Operations
Year-to-date 1995 as compared with year-to-date 1994
Income from property operations before depreciation and amort-
ization for the six months ended June 30, 1995, was $4,043,329.
This was an increase of $1,071,805 (36.1%) from $2,971,524 for
the corresponding period of 1994. Property revenues increased
$966,432 (17.6%) to $6,451,325 for the first six months of 1995
from $5,484,893 for the corresponding period of 1994 primarily
due to increased occupancy at Maple Plaza and Huntington Business
Campus.
Property operating expenses decreased $105,373 (4.2%) for the
first six months of 1995 as compared to the corresponding period
of 1994. The increase was caused primarily by lower snow removal
costs at Maple Plaza.
As more fully discussed in Note 4 to the Financial Statements,
environmental remediation proceedings at one of the Trust's Park
100 properties were completed during the first quarter of 1995.
The Trust had accrued $100,000 to cover the cost of the
proceedings in the 12/31/94 financial statements; no further
accruals are deemed necessary at this time.
<page 17>
Depreciation and amortization expense for the six months ended
June 30, 1995 increased $329,243 (18.4%) from the corresponding
period of 1994. This increase was due to depreciation on capital
expenditures made during 1994.
Interest income for the six months ended June 30, 1995 increased
$47,212 (439.5%) from the corresponding period of 1994. This was
the result of increased balances invested and higher
interest rates.
Interest expense for the six months ended June 30, 1995 increased
$281,132 (79.3%) from the corresponding period of 1994. This was
the result of higher outstanding balances under the Agreement,
and higher interest rates.
Portfolio management fee and other expenses for the six months
ended June 30, 1995 increased $1,133,003 (151.7%) from the
corresponding period of 1994. As more fully discussed in Note 6
to the Financial Statements, this increase was due to $400,000
for the Settlement Agreement with Mr. Osborne and Black Bear
Realty, Ltd,; $75,000 in information agent and mailing costs
related to the litigation and tender offer; $498,976 in legal
costs related to the litigation and tender offer, and the
liquidation of the Trust; $102,540 in investment banking fees
related to the J.P. Morgan engagement; and other expenses in
connection with the liquidation of the Trust.
Second quarter 1995 as compared with second quarter 1994
Income from property operations before depreciation and
amortization for the second quarter 1995 was $2,066,940, an
increase of $460,021 (28.6%) from the $1,606,919 for the
corresponding period of 1994. Property revenues increased
$547,659 (19.9%) to $3,294,820 for the second quarter of 1995
from $2,747,161 for the second quarter of 1994 primarily due to
increased occupancy at the properties.
Property operating expenses for the second quarter of 1995 were
$1,227,880, an increase of $87,638 (7.7%) from $1,140,242 for the
corresponding period of 1994.
Depreciation and amortization expense for the second quarter of
1995 increased $235,414 (28.8%) from the corresponding period of
1994. This increase was due to depreciation on additional
capital expenditures.
<page 18>
Interest income for the second quarter of 1995 increased $27,051
(542.7%) from the corresponding period of 1994. This was the
result of increased balances invested and higher interest rates.
Interest expense for the second quarter of 1995 increased
$143,646 (77.4%) from the corresponding period of 1994. This was
the result of higher outstanding balances under the Agreement,
and higher interest rates.
Portfolio management fees and other expenses for the second
quarter of 1995 increased $960,305 (261.3%) from the
corresponding period of 1994. As more fully discussed in Note 6
to the Financial Statements, this increase was primarily due to
$400,000 for the Settlement Agreement with Mr. Osborne and Black
Bear Realty, Ltd.; $75,000 in information and mailing costs
related to the litigation and tender offer; $498,976 in legal
costs related to the litigation and tender offer, and the
liquidation of the Trust; and other expenses in connection with
the liquidation of the Trust.
Property leasing activity
As of June 30, 1995 and December 31, 1994, Maple Plaza was 97%
leased. No leases are scheduled to expire during 1995.
As of June 30, 1995, the Huntington Business Campus was 74%
leased, compared to 100% at December 31, 1994. AT&T vacated
approximately 40,000 square feet during the second quarter of
1995. The Trust is currently in negotiations with prospective
tenants. No other leases are scheduled to expire during 1995.
As of June 30, 1995, Park 100 was 95% leased, as compared to 93%
as of December 31, 1994. During the six months ended June 30,
1995, the Trust signed five leases totalling 16,200 square feet
(1.2% of Park 100), and three leases totalling 7,200 square feet
(0.5% of Park 100) expired. During the remainder of 1995, an
additional 26 leases, covering approximately 264,600 square feet
(19% of Park 100), are scheduled to expire. The Trust is
marketing the space and is discussing renewal terms with its
current tenants.
There were no other changes in significant tenants, the principal
businesses of those tenants, or occupations or professions
carried on in any of the Trust's properties during the three
months ended June 30, 1995.
<page 19>
The current conditions in the office markets that the properties
are located in continue to improve. Although rental rates on new
leases have not increased significantly, leasing activity has
increased and rental concessions to attract new tenants have been
reduced. As a result, the Trust's results of operations and
distributable cash for the period ended June 30, 1995 are higher
than for the corresponding period in 1994.
Reconciliation of Net Income (Loss) to Distributable Cash
Management believes that the following table is useful in
understanding the sources of the dividends available to Income
Shareholders and potential investors and assessing the cash flows
from the Trust.
Six Months Three Months
Ended Ended
June 30, June 30,
1995 1994 1995 1994
Net (loss) income $ (495,448) $ 94,413 $ (577,223) $240,570
Depreciation and
amortization 2,115,784 1,786,541 1,053,679 818,264
Net sales proceeds,
Park 100, Building 10 184,029 0 184,029 0
Provision for doubtful
accounts, net of
write-offs 0 610 4,202 459
Net rental concessions
earned (156,983) (88,881) (77,416) (22,220)
(Increase) decrease in
cash reserve 356,918 (567,833) 414,879 (368,974)
Distributable Cash $2,004,300 $1,224,850 $1,002,150 $668,100
Distributable Cash
per Income Share $ 0.18 $ 0.11 $ 0.09 $ 0.06
<page 20>
PART II
Item 1. Legal Proceedings
On April 5, 1995, Richard M. Osborne, a stockholder of the Trust,
commenced a lawsuit in the Massachusetts Probate Court against the
Trust and all Trustees, seeking to have the Trustees removed for
allegedly engaging in "a pattern of conduct" to waste the Trust's
assets by liquidating the Trust and paying high advisory fees. On
April 14, 1995, Mr. Osborne and another stockholder filed another
suit, in the Massachusetts Superior Court, making virtually the
same allegations of breach of fiduciary duty by the Trustees and
asking for treble damages. On May 30, 1995, the Trust responded to
both actions by answering the complaint and filing counterclaims.
On July 17, 1995, the Trust, the Advisor, and the Trustees entered
into a Settlement and Standstill Agreement with Mr. Osborne, Black
Bear Realty, Ltd., and Turkey Vulture Fund XIII, Ltd., an Ohio
limited liability company of which Osborne is the sole managing
member (the "Fund"). Pursuant to the Settlement Agreement, the
parties agreed, among other things, to execute a stipulation of
dismissal with prejudice of all claims, counterclaims, and/or third
party claims that were asserted by the parties and a joint motion
for dismissal in the Probate Action and the Superior Court Action.
Each of Mr. Osborne and the Fund agreed to withdraw their request
for a special meeting of the shareholders of the Trust to be called
to consider certain matters relating to the liquidation of the
Trust and Black Bear Realty, Ltd. agreed not to extend the
expiration date of the Offer beyond the then current expiration
date of July 17, 1995.
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
<page 21>
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
Reporting Date: April 25, 1995. Item Reported: Item 5, Other
Events. The Trust reported the legal proceeding discussed in the
first paragraph in Part II, Item 1. above.
Reporting Date: May 10, 1995. Item Reported: Item 5, Other
Events. The Trust reported first quarter 1995 dividend and
earnings, and the re-election of its five Trustees.
Reporting Date: June 20, 1995. Item Reported: Item 5, Other
Events. The Trust reported that it had entered into a Purchase and
Sale Agreement, dated June 7, 1995, with Security Capital
Industrial Trust for the sale of the Trust's Park 100 property
located in Indianapolis, Indiana. In addition, the Trust reported
that the Board had adopted a series of resolutions to effect the
liquidation and termination of the Trust, effective immediately
prior to completion of the sale of Park 100.
Reporting Date: August 4, 1995. Item Reported: Item 5, Other
Events. The Trust reported that on July 17, 1995, the Trust, The
Prudential Realty Advisors, Inc. and the trustees of the Trust,
entered into a Settlement and Standstill Agreement with Richard M.
Osborne, Turkey Vulture Fund XIII, Ltd., and Black Bear Realty,
Ltd. In addition, the Trust reported second quarter 1995 dividend
and earnings.
<page 22>
S I G N A T U R E
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.
Prudential Realty Trust
Registrant
Date: August 15, 1995 By: /s/ James W. McCarthy
James W. McCarthy
Vice President,
Comptroller and
Principal Accounting
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Trust's Income Shareholders (Preferred-Mandatory) are entitled to all
Distributable Cash of the Trust and, at or prior to the termination of the
Trust, to redemption of such shares up to the stated value of $8.00. The
Trust's Capital Shareholders (Common) are entitled to Distributions only after
distributions to the Income Shareholders.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 2510
<SECURITIES> 0
<RECEIVABLES> 632
<ALLOWANCES> 12
<INVENTORY> 0
<CURRENT-ASSETS> 5949
<PP&E> 124535
<DEPRECIATION> 55011
<TOTAL-ASSETS> 75473
<CURRENT-LIABILITIES> 21321
<BONDS> 0
<COMMON> 111
89080
0
<OTHER-SE> (35039)
<TOTAL-LIABILITY-AND-EQUITY> 75473
<SALES> 6451
<TOTAL-REVENUES> 6451
<CGS> 2408
<TOTAL-COSTS> 2408
<OTHER-EXPENSES> 1880
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 636
<INCOME-PRETAX> (495)
<INCOME-TAX> 0
<INCOME-CONTINUING> (495)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (495)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
