================================================================================
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
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-21670
------------------------------------
CARDINAL REALTY SERVICES, INC.
(Exact Name of Registrant as Specified in its Charter)
OHIO 31-4427382
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
6954 AMERICANA PARKWAY
REYNOLDSBURG, OHIO 43068
(Address of Principal Executive Offices including Zip Code)
(614) 759-1566
(Registrant's Telephone Number, including Area Code)
------------------------------------
Indicate by check X 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
Indicate by check X whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes X No
As of August 11, 1997 there were 4,507,437 shares of common stock issued and
outstanding.
Page 1 of 29 sequentially numbered pages
Exhibit Index on page 27
- --------------------------------------------------------------------------------
<PAGE>
2
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
INDEX
Part I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements:
Consolidated Balance Sheets as of June 30, 1997
(Unaudited) and December 31, 1996 (Audited) 3
Consolidated Statements of Income for the Three and
Six Months Ended June 30, 1997 and 1996 (Unaudited) 4
Consolidated Statement of Shareholders' Equity
for the Six Months Ended June 30, 1997 (Unaudited) 5
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996 (Unaudited) 6-7
Notes to Consolidated Financial Statements 8-15
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16-26
Part II - OTHER INFORMATION
Item 1. Legal Proceedings 27
Item 2. Changes in Securities 27
Item 3. Defaults upon Senior Securities 27
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 5. Other Information 27
Item 6. Exhibits and Reports on Form 8-K 27
Signatures 28
2
<PAGE>
3
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 (UNAUDITED) AND DECEMBER 31, 1996 (AUDITED)
<CAPTION>
June 30, December 31,
1997 1996
----------------- ------------------
ASSETS
<S> <C> <C>
Wholly Owned Properties (Note 2):
Land $ 23,652,841 $ 23,652,841
Building and Improvements 138,290,355 137,917,083
----------------- ------------------
161,943,196 161,569,924
Accumulated Depreciation (6,779,337) (4,478,379)
----------------- ------------------
155,163,859 157,091,545
Interests in and Receivables from Syndicated Partnerships (Notes 1 and 4) 54,012,212 54,610,421
Cash (Note 1) 3,355,553 3,593,121
Accounts Receivable, Affiliates (Less an Allowance
of $1,725,143 at June 30, 1997 and $2,034,290 at
December 31, 1996), Residents and Officers (Note 4) 1,580,220 5,044,603
Furniture, Fixtures and Other, Net 1,154,845 1,167,579
Funds Held in Escrow (Note 1) 13,467,547 14,011,013
Intangible Assets, Net (Note 1) 5,825,810 5,973,560
Prepaids and Other (Note 1) 4,559,469 3,875,937
----------------- ------------------
$ 239,119,515 $ 245,367,779
================= ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Mortgages, Term Debt and Other Notes Payable:
Mortgages on Wholly Owned Properties (Notes 2 and 3) $ 147,163,299 $ 148,056,017
Term Debt 7,944,210 15,118,048
Other Notes Payable 91,906 145,220
----------------- ------------------
155,199,415 163,319,285
Accounts Payable 1,268,377 1,560,749
Accrued Interest, Real Estate and Other Taxes (Notes 2 and 3) 4,681,762 4,023,310
Other Accrued Expenses (Note 4) 4,833,909 8,531,031
Other Liabilities (Note 1) 5,550,566 5,424,226
----------------- ------------------
Total Liabilities 171,534,029 182,858,601
----------------- ------------------
Shareholders' Equity (Note 1):
Preferred Stock, 1,500,000 Shares Authorized, No Shares Issued 0 0
Common Stock 13,500,000 Shares Authorized with No Stated Value,
4,007,365 and 3,892,600 Shares Issued and Outstanding
at June 30, 1997 and December 31, 1996, Respectively 29,122,547 29,122,547
Additional Paid-in Capital (Note 1) 18,293,733 15,968,426
Retained Earnings 20,169,206 17,418,205
----------------- ------------------
67,585,486 62,509,178
----------------- ------------------
$ 239,119,515 $ 245,367,779
================= ==================
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</FN>
</TABLE>
3
<PAGE>
4
<TABLE>
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE AND SIX MONTHS
ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<CAPTION>
Three Months Ended Six Months Ended
--------------------------------- -----------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Rental and Other Revenues-Wholly Owned Properties $ 10,441,946 $ 10,253,671 $ 20,628,978 $ 20,443,812
Fee Based 3,841,664 2,762,388 7,745,159 5,583,423
Interest, Principally from Syndicated Partnerships 2,543,987 1,510,352 5,146,242 2,946,685
Income from Disposal of Assets - Net 620,911 105,803 689,356 274,692
Other 76,118 79,042 145,163 151,655
--------------- --------------- --------------- ---------------
17,524,626 14,711,256 34,354,898 29,400,267
--------------- --------------- --------------- ---------------
Expenses:
Rental Operating 5,144,157 5,186,661 10,080,052 10,437,951
Fee Based 3,044,265 1,607,400 6,218,193 3,095,952
Administration 1,520,299 1,149,788 2,816,825 2,121,734
Restructure Costs 0 300,000 250,000 300,000
Interest - Wholly Owned Property Debt 3,489,441 3,636,670 6,936,527 7,200,179
Interest - Corporate Debt 137,395 261,606 307,324 561,466
Depreciation and Amortization 1,475,372 1,324,447 2,940,442 2,652,351
--------------- --------------- --------------- ---------------
14,810,929 13,466,572 29,549,363 26,369,633
--------------- --------------- --------------- ---------------
Income Before Income Taxes 2,713,697 1,244,684 4,805,535 3,030,634
Provision for Income Taxes:
Credited to Paid-in Capital 958,200 394,958 1,674,000 967,158
Current 100,000 92,442 200,000 214,842
--------------- --------------- --------------- ---------------
Income before Extraordinary Item 1,655,497 757,284 2,931,535 1,848,634
Extraordinary Loss, Net of Income Tax Benefit of
$115,000 (Note 3) (180,534) 0 (180,534) 0
--------------- --------------- --------------- ---------------
Net Income $ 1,474,963 $ 757,284 $ 2,751,001 $ 1,848,634
=============== =============== =============== ===============
Net Income per Common Share:
Income Before Extraordinary Item $0.40 $0.19 $0.71 $0.47
Extraordinary Loss (0.04) 0.00 (0.04) 0.00
--------------- --------------- --------------- ---------------
Net Income $0.36 $0.19 $0.67 $0.47
=============== =============== =============== ===============
Weighted Average Shares Outstanding 4,151,000 3,913,000 4,149,000 3,897,000
=============== =============== =============== ===============
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</FN>
</TABLE>
4
<PAGE>
5
<TABLE>
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)
<CAPTION>
Common Stock
------------------------------ Additional Retained
Shares Amount Paid-in Capital Earnings Total
----------- ---------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 3,892,600 $ 29,122,547 $ 15,968,426 $ 17,418,205 $ 62,509,178
Shares issued, in Connection with
the Claims Resolution Process 11,622
Exercise of Options under Non-Qualified
Stock Option Plan 6,760 17,541 17,541
Stock Compensation and Director Restricted
Stock Plan, Net of 45,792 Shares Subject to
Vesting Restrictions (Note 1) 96,383 748,766 748,766
Credit from Utilization of Pre-Confirmation
Tax Benefits 1,559,000 1,559,000
Net Income for the Period 2,751,001 2,751,001
----------- ---------------- --------------- ---------------- ---------------
Balance, June 30, 1997 4,007,365 $ 29,122,547 $ 18,293,733 $ 20,169,206 $ 67,585,486
=========== ================ =============== ================ ===============
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</FN>
</TABLE>
5
<PAGE>
6
<TABLE>
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997, AND 1996
(UNAUDITED)
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1997 June 30, 1996
---------------------- -------------------
<S> <C> <C>
Cash Flows Provided by Operating Activities:
Management and Investment Service Activities:
Cash Received from Fee Based Activities $ 10,847,563 $ 10,845,158
Cash Received from Interests in and Receivables from Syndicated Partnerships 6,154,484 2,726,236
Cash Receipts -- Other 1,189,191 853,392
Cash Paid to Vendors, Suppliers and Employees (11,796,190) (11,298,566)
Interest Paid on Term Debt and Other Notes Payable (320,019) (576,211)
Income Taxes Paid - City and State (153,215) (151,844)
Taxes Paid, Other Than Income Taxes (45,808) (19,183)
Payments Related to Non-Recurring Items (238,333) (899,465)
---------------------- -------------------
5,637,673 1,479,517
---------------------- -------------------
Wholly Owned Properties Activities:
Cash Received from Rental Activities 20,594,388 20,479,614
Payments on Rental Activities (10,015,546) (10,752,429)
Interest Paid on Mortgages (6,928,299) (6,807,110)
---------------------- -------------------
3,650,543 2,920,075
---------------------- -------------------
Net Cash Provided by Operating Activities 9,288,216 4,399,592
---------------------- -------------------
Cash Flows Provided by/(Used in) Investing Activities:
Management and Investment Service Activities:
Proceeds from Sale of Assets and Other 687,661 528,172
Capital Expenditures (263,532) (202,628)
Other 38,576 49,788
Repayment from/(Advances to) Syndicated Partnerships 48,330 559,601
Acquisition of Real Estate Assets (458,363) 0
Wholly Owned Properties Activities:
Funding of Escrows (754,518) (337,782)
Capital Expenditures (373,273) (235,799)
---------------------- -------------------
Net Cash Provided by/(Used in) Investing Activities (1,075,119) 361,352
---------------------- -------------------
Cash Flows (Used in) Financing Activities:
Management and Investment Service Activities:
Proceeds from the Exercise of Stock Options 17,541 47,050
Redemption of Stock held by Syndicated Partnerships 0 (31,330)
Net Proceeds from/(Principal Payments) on Term Debt and Other (7,294,888) (1,847,121)
Wholly Owned Properties Activities:
Proceeds from Mortgage Debt 2,560,000 9,291,000
Payments on Mortgages - Principal Amortization (1,090,584) (989,553)
Payments on Mortgages - Lump Sum (2,642,734) (10,414,347)
---------------------- -------------------
Net Cash (Used in) Financing Activities (8,450,665) (3,944,301)
---------------------- -------------------
Increase/(Decrease) in Cash (237,568) 816,643
Cash at Beginning of Year 3,593,121 2,751,986
---------------------- -------------------
Cash at End of Period $ 3,355,553 $ 3,568,629
====================== ===================
<FN>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
</FN>
</TABLE>
6
<PAGE>
7
<TABLE>
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
<CAPTION>
June 30, 1997 June 30, 1996
---------------- ----------------
<S> <C> <C>
Reconciliation of Net Income to
Net Cash Provided by Operating Activities:
Net Income $ 2,751,001 $ 1,848,634
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 2,940,442 2,652,351
Provision for Losses on Accounts Receivable 68,082 43,207
Loss on Debt Restructuring 295,534 0
Income from Disposal of Assets (689,356) (274,692)
Provision for Income Taxes Credited to Paid-in Capital 1,559,000 967,158
Stock Compensation Credited to Paid-in Capital 748,766 0
Changes in Operating Assets and Liabilities:
Interests in and Receivables from Syndicated Partnerships 1,008,242 252,550
Accounts Receivable and Other Assets 3,666,393 1,296,220
Accounts Payable and Other Liabilities (3,059,888) (2,385,836)
---------------- ----------------
Net Cash Provided by Operating Activities $ 9,288,216 $ 4,399,592
================ ================
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
In the first half of 1996, the Company granted deeds in lieu of foreclosure for
two Wholly Owned Properties. These Properties had an aggregate carrying value of
$2.5 million. No gain or loss was recognized on these transactions because the
assets and the non-recourse mortgages on these Properties had been recorded in
equal amounts.
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
8
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Cardinal
Realty Services, Inc. and its wholly owned subsidiaries (collectively the
"Company"). For consolidated financial statement purposes, the "Company" also
includes limited partnerships and other legal entities which own Wholly Owned
Properties and in which the Company, in turn, owns a 100% equity interest. The
Company holds an ownership interest in multi-family communities either as (i)
the sole owner of various limited partnerships or subsidiaries which own
multi-family communities (the "Wholly Owned Properties"), or (ii) the general
partner in various limited partnerships which own multi-family communities (the
"Syndicated Partnerships"), collectively referred to as the "Properties". The
accounts of the Syndicated Partnerships are not included within the Company's
Consolidated Financial Statements. All significant intercompany balances and
transactions have been eliminated in this consolidation. The accompanying
consolidated financial statements, except for the Consolidated Balance Sheet at
December 31, 1996, are unaudited and have been prepared in accordance with
generally accepted accounting principles for interim financial information and
in accordance with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for a complete
financial statement presentation. The consolidated financial statements, the
notes hereto and the capitalized terms included herein should be read in
conjunction with the Company's Form 10-K for the fiscal year ended December 31,
1996.
The interim consolidated financial statements have been prepared in
accordance with the Company's customary accounting practices. 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 month period ended June 30, 1997 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1997.
Business Overview
- -----------------
The Company engages in two core business activities: 1) management of
multi-family residential real property, including management services to owners
of property in which the Company does not have an ownership interest
("Management Services"); and 2) activities related to the ownership of
multi-family residential real property, including asset management services to
passive co-owners ("Investment Management").
Management Services
-------------------
The Company's Management Services division is charged with the conduct
of the Company's property management business. The Company's property management
business involves all traditional elements of third party property management
including: day-to-day management and maintenance of multi-family residential
properties, attracting and retaining qualified residents, collecting rents and
other receivables from residents, providing cash management services for rental
revenues, security deposits, taxes and insurance and deferred maintenance
escrows, and compiling and furnishing information to property owners.
8
<PAGE>
9
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION (cont'd)
Effective August 1, 1996, the Company acquired Lexford Properties, Inc.
("Lexford") by merger of a wholly owned subsidiary of the Company with and into
Lexford. On that date, Lexford became a wholly owned subsidiary of the Company.
Lexford has been engaged in the business of third party property management
services to the owners of multi-family residential real property since
commencing business operations in June 1988. Lexford succeeded to the operation
of the Company's Management Services division. Accordingly, the Company's
property management business is conducted through Lexford. Management believes
that the acquisition of Lexford has enhanced the Company's property management
capabilities and will facilitate the Company's ability to acquire, as well as
service, additional multifamily residential properties in the future, including
properties owned by the Company. (SEE "LEXFORD ACQUISITION").
The Company's Management Services division also operates an adjunct
business which the Company refers to as "Preferred Vendor Services", formerly
referred to as Ancillary Services. The Company's Preferred Vendor Services
department currently provides assistance to most of the properties managed by
Lexford, in the acquisition of needed parts and supplies and the management of a
coordinated buying group enjoying substantial volume discounts. In consideration
of these services, the Company generates income by retaining some portion of
discounts earned. In addition, Preferred Vendor Services provides services to
residents such as renters insurance.
INVESTMENT MANAGEMENT
---------------------
The objective of the Company's Investment Management division is to
maximize the value of its real estate holdings and its returns on real estate
investments. The Company strives to obtain and maintain the best available
financing for the Properties and to maximize the Properties' operating
performance. The Company evaluates the performance of all real estate holdings
to identify investment requirements, under-performing Properties or those that
can be sold at an attractive price relative to their performance. The Company
maintains a partnership interest in each of the Syndicated Partnerships, ranging
from 1% to 10%. Beyond its equity investment in the Properties, the Company
holds receivables from a majority of the Syndicated Partnerships (SEE "RECORDED
VALUES OF RECEIVABLES FROM SYNDICATED PARTNERSHIPS" AND NOTE 4). The remaining
partnership interests are substantially all owned by unrelated third party
limited partner investors.
The Company's Investment Management division, acting in the Company's
capacity as general partner of the Syndicated Partnerships, provides asset
management services to the Syndicated Partnerships. In addition, the Company's
Investment Management division performs the following services for the accounts
of the co-owners (limited partners) of the Syndicated Partnerships:
informational and financial reporting services (including tax return preparation
and provision of tax return information to the limited partners) and capital and
financial planning (including determination of reserves, funding of capital
requirements and administration of capital distributions to partners).
9
<PAGE>
10
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION (cont'd)
Fresh Start Accounting
- ----------------------
The Company adopted a method of accounting referred to as fresh start
("Fresh Start") reporting as of September 11, 1992 (the "Effective Date") as a
result of the Company's judicial plan of reorganization (the "Plan of
Reorganization"). The Company prepared financial statements on the basis that a
new reporting entity was created with assets and liabilities recorded at their
estimated fair values as of the Effective Date. At the Effective Date, to the
extent the non-recourse debt on certain assets owned by the Company exceeded the
estimated fair value of the respective Wholly Owned Property, the Company
reduced the contractual amount of the related non-recourse first mortgage debt
by the amount of the deficiency (the "Mortgage Deficiency"). The contractual
mortgage balance, net of any applicable Mortgage Deficiency, is referred to as
the "Carrying Value" of the mortgage.
Cash and Other Assets
- ---------------------
Cash at June 30, 1997 is comprised of approximately $3.0 million
related to Wholly Owned Properties, which is held in separate property bank
accounts, and approximately $300,000 in corporate funds.
Funds Held in Escrow at June 30, 1997 includes funds of $7.7 million
held in escrow for the benefit of Wholly Owned Properties for improvements and
deferred maintenance, real estate taxes, insurance and resident security
deposits. In addition, the Company is holding $2.2 million at June 30, 1997 as
funds held primarily for payment of insurance premiums which are collected on
behalf of the Properties. At June 30, 1997 the Company's Funds Held in Escrow
also includes $3.5 million of funds received from the settlement of termite
litigation relating to certain Properties. Although the Company has begun to
distribute funds to the affected Properties, the complete distribution of the
funds is pending the finalization of an allocation of proceeds to the affected
Properties. Applicable corresponding liabilities have been recorded at June 30,
1997 and December 31, 1996 and are included in Other Liabilities.
Intangible Assets at June 30, 1997 is comprised of goodwill and
management contracts, net of amortization, related to the Lexford acquisition
(SEE "LEXFORD ACQUISITION" AND ITEM 2, MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- LIQUIDITY AND CAPITAL RESOURCES
- -- LEXFORD ACQUISITION). In addition, Intangible Assets consists of a leasehold
interest in land of approximately $618,000.
Prepaids and Other assets at June 30, 1997 includes $2.8 million of
capitalized costs associated with refinancing mortgages on Wholly Owned
Properties and approximately $225,000 of loan costs associated with the
refinancing of the Company's corporate lines of credit which are amortized based
upon the maturity date of the new loan. In addition, Prepaids and Other assets
consists of approximately $1,488,000 of other prepaid expenses.
10
<PAGE>
11
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION (cont'd)
Recorded Values of Receivables from Syndicated Partnerships
- -----------------------------------------------------------
The Company owns general partner and, in some cases, nominal limited
partner interests in, and holds second mortgage loans and other receivables
from, Syndicated Partnerships. The majority of these receivables arose prior to
the Effective Date as a result of agreements related to the syndication of the
Syndicated Partnerships. Advances made to Syndicated Partnerships since the
Effective Date primarily were for supplemental financing for debt restructuring
or refinancing transactions. The advances bear interest at one percent over the
prime rate of interest of The Provident Bank (the "Bank"), which was 9.5% at
June 30, 1997. Interests in and Receivables from Syndicated Partnerships were
recorded at their estimated fair value as of the Effective Date based upon Fresh
Start accounting. The contractual amounts of receivables are significantly
greater than the recorded values. At June 30, 1997 and December 31, 1996, the
contractual value of the Company's Interests in and Receivables from Syndicated
Partnerships amounted to $235.6 million and $238.9 million, respectively. The
decrease in the contractual value is attributable to the Syndicated Partnerships
that have been disposed of since December 31, 1996. The decline in the recorded
value of Interests in and Receivables from Syndicated Partnerships was due to
the sale of properties, collection of advances (see Note 4) and the collection
of accrued interest. The gains from the disposals have been included in Income
from Disposal of Assets. There can be no assurance that the Company will collect
any amounts above the recorded Fresh Start value of these receivables.
The Fresh Start values of the Company's Interests in and Receivables
from Syndicated Partnerships were established as of the Effective Date utilizing
an estimation of value based upon a capitalization rate of 10.5% applied to the
net operating income of the respective Syndicated Partnership. The estimated
value was then adjusted by the Syndicated Partnership's mortgage debt and the
Syndicated Partnership's other assets and liabilities to determine an estimated
net fair value. The Company then calculated its share of the estimated net fair
value for each Syndicated Partnership, without regard to the possibility that
payments to limited partners might be required in order to effectuate sales of
the properties owned by certain of the Syndicated Partnerships.
Interest is accrued on the recorded Fresh Start values of second
mortgages and certain other receivables based upon contractual interest rates.
Allowances are provided for estimated uncollectible interest based upon the
underlying Syndicated Partnerships' ability to generate net cash flow sufficient
to pay the amounts due the Company. In certain instances, payments made to the
Company by individual Syndicated Partnerships in excess of carrying amounts of
accrued interest on the recorded values of second mortgages is recorded as
interest income. Any such payments in excess of amounts recorded as accrued
interest normally still represent contractual interest payable from the
Syndicated Partnerships to the Company and is representative of interest which
accrues on the excess of the contractual balance of the second mortgage or other
receivable above that of the recorded Fresh Start value on the Company's balance
sheet. The Company is also entitled to receive incentive management fees and
supplemental second mortgage interest from certain of the underlying Syndicated
Partnerships if certain specified amounts of net operating income are achieved.
Also, in the event the underlying Properties are sold or refinanced, the Company
is generally entitled to a participation interest in the net proceeds, if
available, as a second mortgage holder and on account of its partnership
interest(s).
The Company accounts for its partnership interests in Syndicated
Partnerships by the cost method; no significant recorded value has been ascribed
to these interests. The realization of the Interests in and Receivables from
Syndicated Partnerships is dependent on the future operating performance of the
Syndicated Partnerships generating sufficient net operating income and net
proceeds upon ultimate disposition.
11
<PAGE>
12
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 BASIS OF PRESENTATION (cont'd)
Lexford Acquisition
- -------------------
Effective August 1, 1996 the Company acquired Lexford by way of a
merger (the "Lexford Merger") of a wholly owned subsidiary of the Company with
and into Lexford. The acquisition was accounted for as a purchase. The terms of
the Lexford Merger provided that the Company would succeed to the ownership of
all of the issued and outstanding stock of Lexford and the shareholders of
Lexford would receive 700,000 shares of restricted, newly issued common stock,
without par value ("Common Stock"), of the Company. For purposes of the Lexford
Merger, the Common Stock was valued at $20 per share. Approximately $9.0
million, or 450,000 shares, of the purchase price is subject to forfeiture in
whole or in part in the event Lexford does not achieve certain profitability
criteria by December 31, 1999. These shares are held in escrow pending release.
If the profitability criteria are met, the shares subject to forfeiture will be
released without contingency and the Company will record the additional purchase
price at such time. The Lexford shareholders received 250,000 shares of Common
Stock free of contingencies. The 450,000 shares subject to forfeiture are not
reflected in the Shareholders' Equity section of the Company's Balance Sheet
presented herein.
Net Income Per Share
- --------------------
Net income per share for the period is computed based on the total
weighted average number of shares of the Company's Common Stock outstanding
during the subject period as well as those contingent shares estimated to be
issued to officers, employees and directors in accordance with the Company's
1992 Incentive Equity Plan, as amended (the "Incentive Equity Plan"). In August
1996, the Company issued 700,000 shares of Common Stock in connection with the
Lexford Merger, 450,000 shares of which remain subject to forfeiture in whole or
in part. The 450,000 shares subject to forfeiture are excluded from the weighted
average shares outstanding because the shares are not dilutive if they are
earned. The Company expensed approximately $312,000 related to stock
compensation and recorded approximately $437,000 of stock issued related to the
1996 bonus plan in the first half of 1997. For the three and six months ended
June 30, 1997, the total weighted average shares outstanding was approximately
4,151,000 and 4,149,000, respectively. In February 1997 the Company retired all
treasury shares held by the Company and Wholly Owned Properties.
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted for
periods ending after December 15, 1997. Accordingly as of December 31, 1997, the
Company will be required to change the method currently used to compute earnings
per share and to restate all prior periods. Under the new requirements for
calculating basic earnings per share (which will replace primary earnings per
share) the dilutive effects of stock options and other common stock equivalents
will be excluded. The impact is expected to result in basic earnings per share
of $.37 and $.21 for the quarters ended June 30, 1997 and 1996, respectively,
and $.69 and $.50 for the six months ended June 30, 1997 and 1996, respectively.
The impact of Statement 128 on dilutive earnings per share (which will replace
fully diluted earnings per share) for such periods is not expected to be
material.
Corporate Restructuring
- -----------------------
In the first quarter of 1997, the Company recorded a $250,000 charge
due to costs incurred related to the elimination of overlapping functions
between the Lexford operations and the Company's previous management services
operations.
12
<PAGE>
13
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 WHOLLY OWNED PROPERTIES
At June 30, 1997 and 1996, the Company owned 113 and 114 Wholly Owned
Properties, respectively.
Condensed combined balance sheets, with intercompany payables and
receivables eliminated, of the Company's Wholly Owned Properties as of June 30,
1997 and December 31, 1996 are as follows:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
--------------- -----------------
Assets
<S> <C> <C>
Net Wholly Owned Properties Real Estate Assets $ 155,163,859 $ 157,091,545
Cash 3,057,806 3,322,494
Accounts Receivable 351,941 324,772
Funds Held in Escrow 7,734,660 6,980,142
Prepaids and Other 3,208,930 3,553,497
--------------- -----------------
$ 169,517,196 $ 171,272,450
=============== =================
Liabilities and Equity
Mortgage Payable:
Contractual $ 156,094,499 $ 157,381,603
Mortgage Deficiency (8,931,200) (9,325,586)
--------------- -----------------
147,163,299 148,056,017
Accounts Payable 1,038,872 1,160,426
Accrued Interest and Real Estate Taxes 3,696,849 2,961,795
Other Accrued Expenses 1,245,927 1,337,083
Other Liabilities 882,694 683,202
--------------- -----------------
154,027,641 154,198,523
Equity 15,489,555 17,073,927
--------------- -----------------
$ 169,517,196 $ 171,272,450
=============== =================
</TABLE>
13
<PAGE>
14
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 2 WHOLLY OWNED PROPERTIES (cont'd)
As of the Effective Date, in accordance with Fresh Start reporting,
the mortgages on the Wholly Owned Properties were restated to estimate fair
value (the "Carrying Value") if the Fresh Start value of the respective asset
was less than the outstanding principal amount of its mortgage. Although the
value of the assets may have increased since the Effective Date, the Carrying
Values of the mortgages and the assets have not been adjusted. Interest expense
is recorded based on the Carrying Value of the mortgage using the effective
interest rate method. Mortgages which have been originated following the
Effective Date, are recorded as liabilities on the Consolidated Balance Sheets
in their full principal amount. Typically, each Wholly Owned Property is secured
by a separate mortgage loan. The mortgage loans on a portfolio of 26 Wholly
Owned Properties contain cross collateral and cross default provisions; however,
all of the mortgage loans secured by the Wholly Owned Properties are
non-recourse to the Company.
With respect to those Wholly Owned Properties and other assets which
the Company has acquired, and may acquire, after the Effective Date, the
recorded values are established on the basis of acquisition cost, in accordance
with generally accepted accounting principles.
NOTE 3 MORTGAGE REFINANCINGS
In the first half of 1997, the Company refinanced mortgages on two
Wholly Owned Properties. Mortgage indebtedness on the Wholly Owned Properties,
with a contractual value of $2.6 million and a Carrying Value of $2.3 million,
was refinanced with mortgages bearing a fixed rate of interest of 8.2%, with 25
year amortization and ten year maturities. Annual debt service on the affected
Wholly Owned Properties decreased approximately $40,000. An extraordinary
non-cash loss of approximately $180,000, net of tax benefits, resulted from the
mortgage debt refinancings of the Wholly Owned Properties. The loss arose from
the mortgages repaid from refinance proceeds at the contractual balance which
exceeded the Carrying Value of the mortgages.
In the first half of 1996, the Company completed the refinancing of
the mortgage and related interest debt on seven Wholly Owned Properties.
Mortgage and related interest debt with a contractual value of $12.4 million and
a carrying value of $12.0 million was refinanced with mortgages bearing interest
at a fixed rate of approximately 8.0% per annum, with a 25 year amortization
schedule and a ten year maturity. These transactions funded improvement and
deferred maintenance, tax and working capital escrows of approximately $429,000.
The Company did not recognize an extraordinary gain or loss associated with the
mortgage refinancings on these Properties.
In the first half of 1997, the Company also completed the refinancing
of the mortgage and related accrued interest debt on 12 Syndicated Partnerships.
The new loans bear interest at a fixed rate ranging from 8.2% to 9.0% per annum
with a ten year maturity. The Company negotiated, on behalf of the Syndicated
Partnerships, discounts from the previous mortgage lenders totaling
approximately $1.3 million. Annual debt service requirements for the affected
Syndicated Partnerships decreased, in the aggregate, approximately $230,000 as a
result of these transactions.
14
<PAGE>
15
CARDINAL REALTY SERVICES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 4 RELATED PARTY TRANSACTIONS
The Company manages all of the 113 Wholly Owned Properties and 403 of
the 407 Syndicated Partnerships. The Company also provides various ancillary
services, including a Preferred Vendor purchasing program to the Properties, and
insurance to residents (SEE NOTE 1 - BUSINESS OVERVIEW - MANAGEMENT SERVICES).
The Company earned fee based revenues from the Syndicated Partnerships of
approximately $2.9 million and $2.8 million for the three months ended June 30,
1997 and 1996, respectively, and $5.8 million and $5.6 million for the six
months ended June 30, 1997 and 1996, respectively. The Company also earned a
majority of its interest income on its receivables (including second mortgages)
from the Syndicated Partnerships. Approximately $1.2 million and $4.1 million of
the Accounts Receivable were due from the Syndicated Partnerships as of June 30,
1997 and December 31, 1996, respectively. The decline in the accounts receivable
is cyclical in nature due to the timing of the billing and collection of the
annual insurance premiums collected and paid by the Company on behalf of the
Syndicated Partnerships. The cyclical nature of the insurance billings also
impacted Other Accrued Expenses. Fee Based Revenues and Accounts Receivable
related to the Wholly Owned Properties are eliminated in consolidation.
The Company received principal repayment of advances of approximately
$48,000 from the Syndicated Partnerships in the first six months of 1997 as
compared to $600,000 in the first six months of 1996. These advance repayments
were applied to Interests in and Receivables from Syndicated Partnerships.
15
<PAGE>
16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion explains material changes in the Company's
results of operations, comparing the three and six months ended June 30, 1997
and 1996 and significant developments affecting the Company's financial
condition since the end of 1996. The following discussion should be read in
conjunction with the historical financial statements of the Company.
RESULTS OF OPERATIONS
Rental and Other Revenues are derived from the Wholly Owned
Properties which own and operate apartment communities. Rental and other
revenues increased approximately $188,000, or 1.8%, and approximately $185,000,
or 0.9%, for the three and six months ended June 30, 1997, respectively, as
compared to the same periods in 1996. On a comparable unit basis, revenues from
the 113 Wholly Owned Properties in operation for both periods ("same store")
increased approximately $213,000, or 2.1%, and approximately $440,000, or 2.2%,
for the three and six months ended June 30, 1997, respectively, as compared to
the same periods in 1996, with average rent collected per unit increasing from
$387 in 1996 to $390 in 1997. The average economic occupancy was 90.2% for the
six months ended June 30, 1997 as compared to 92.1% for the six months ended
June 30, 1996. Economic occupancy is defined as the amount of revenue collected
from residents as a percentage of the revenue a property could generate if full
rents, based upon the last rent received, were collected for 100% of the units.
Fee Based Revenues are comprised of Management Services and
Investment Management revenues generated from services provided to Syndicated
Partnerships, third party owners and residents at the Properties. Management
Services revenues principally relate to property management and accounting
services provided to the Syndicated Partnerships and, from and after August 1,
1996, property management services provided to third party property owners (SEE
LIQUIDITY AND CAPITAL RESOURCES -- LEXFORD ACQUISITION). As of June 30, 1997,
the Company had an ownership interest in 520 apartment communities (consisting
of an aggregate of approximately 34,000 rental units) in 14 states. As of the
same date, Lexford managed 599 apartment communities (consisting of an aggregate
of 49,650 apartment units) in 22 states. Lexford's management portfolio included
516 apartment communities (33,840 units) in which the Company has an ownership
interest and 83 apartment communities (15,810 units) managed for third party
owners. In the first quarter of 1997 Lexford lost the management of
approximately 3,000 third party owned units in a portfolio involved in
bankruptcy proceedings which resulted in a change of control of the ownership of
these units. The loss of this portfolio has resulted in a decline in third party
management revenues of approximately $300,000 per quarter in 1997. Third party
management revenues are subject to fluctuation from period to period. Lexford
also provides ancillary services to real estate owners and the Syndicated
Partnerships, including a "Preferred Vendor" discount buying program and laundry
services. In prior years, the Company maintained a warehouse with an inventory
of parts and supplies, which were shipped to the apartment communities upon the
receipt of orders. In November 1996, the Company disposed of such inventory and
Lexford established its Preferred Vendor program that features discounts with
major vendors. The program allows Lexford clients to benefit from volume
purchasing by paying discounted prices. By outsourcing the replacement parts and
supplies, Lexford eliminated its inventory and reduced overhead. The program was
made available to third-party clients effective December 1, 1996. Lexford
receives a rebate for every purchase made through the Preferred Vendor program,
as well as a rebate from residents' use of laundry equipment. Investment
Management revenues consist of partnership administration fees as well as fees
generated from loan refinancing and restructuring. (SEE NOTE 1 OF NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS -- BUSINESS OVERVIEW).
16
<PAGE>
17
The following are the major components of Management Services
revenues and Investment Management fee-based revenues for the three and six
months ended June 30, 1997 as compared to the same periods in 1996:
<TABLE>
<CAPTION>
Three Months Ended June 30 Six Months Ended June 30
---------------------------------- ----------------------------------
1997 1996 1997 1996
--------------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C>
Management Services:
Property Management Services:
Syndicated Partnerships $ 1,968,200 $ 1,945,251 $ 3,864,855 $ 3,874,527
Third Party 951,230 0 1,992,699 0
Other Management Service Fee Revenues 403,559 403,033 768,551 765,370
Preferred Vendor Services:
Furniture Leasing and Renters Insurance 47,250 67,903 190,298 161,434
Preferred Vendor Purchase Rebates 135,571 0 255,920 0
Replacement and Maintenance
Material Revenues - Net 0 34,235 0 150,803
--------------- ---------------- -------------- -----------------
Total Management Services Revenues 3,505,810 2,450,422 7,072,323 4,952,134
--------------- ---------------- -------------- -----------------
Investment Management
Partnership Administration & Other Fees 278,878 289,406 566,796 582,162
Loan Refinancing and Restructuring Fees 56,976 22,560 106,040 49,127
--------------- ---------------- -------------- -----------------
Total Investment Management Fee Revenues 335,854 311,966 672,836 631,289
--------------- ---------------- -------------- -----------------
Total Fee Based Revenues $ 3,841,664 $ 2,762,388 $ 7,745,159 $ 5,583,423
=============== ================ ============== =================
</TABLE>
Fee Based Revenues increased $1.1 million, or 39.1%, and $2.2
million, or 38.7%, for the three and six months ended June 30, 1997,
respectively, as compared to the same periods in 1996. The increase was almost
entirely due to increases in property management and accounting services
revenues from the operations of Lexford Properties, Inc., ("Lexford") acquired
effective August 1, 1996. Preferred Vendor Services Revenues increased
approximately $81,000 and $134,000 for the three and six months ended June 30,
1997, respectively, as compared to the same periods in 1996. The increases were
due to an increase in renters insurance revenues and the volume of revenue
generated from the preferred vendor program rebates as compared to the revenue
earned from the discontinued maintenance parts and supply operation in the prior
year. Lexford successfully converted from a maintenance parts supply warehouse
operation to a preferred vendor program where it earns rebates based on the
volume of purchases while providing competitive prices to the Properties and
apartment communities managed for unrelated third party owners.
Interest Income increased approximately $1.0 million, or 68.4%, and
$2.2 million, or 74.6%, for the three and six months ended June 30, 1997,
respectively, as compared to the same periods in 1996. Interest Income is
primarily derived from the interest collected or accrued on the recorded value
of interests in, and receivables from, Syndicated Partnerships (SEE NOTE 1 OF
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - RECORDED VALUES OF RECEIVABLES
FROM SYNDICATED PARTNERSHIPS ). The increase in Interest Income was primarily
due to lower first mortgage debt service requirements due to refinancings of
Syndicated Partnership mortgages. Although there can be no assurances, Interest
Income should continue to be favorably impacted in the future as a result of
refinanced mortgage debt and, possibly, increasing net operating income (SEE NET
OPERATING INCOME OF SYNDICATED PARTNERSHIPS).
17
<PAGE>
18
Income from Disposal of Assets increased approximately $515,000 and
$415,000 for the three and six months ended June 30, 1997, respectively, as
compared to the same periods in 1996. This income is derived from the net
disposition proceeds in excess of the aggregate recorded value of these assets.
The Company currently intends to sell certain Properties and, although there can
be no assurance, may recognize additional income from disposal of assets. Income
from Disposal of Assets is not a recurring, long term source of revenue.
Rental Operating Expense decreased approximately $42,000, or 1%, and
approximately $358,000, or 3.4%, for the three and six months ended June 30,
1997, respectively, as compared to the same periods in 1996. Improvement and
replacement expenses, in the aggregate, decreased approximately $52,000 and
$315,000 for the three and six months ended June 30, 1997, respectively, as
compared to the same periods in 1996 due to the timing of maintenance work. This
trend is not anticipated to continue. In addition, a mild winter resulted in a
decline in exterior maintenance costs in the first quarter of 1997.
Fee Based Expenses increased approximately $1.4 million and $3.1
million for the three and six months ended June 30, 1997, respectively, as
compared to the same periods in 1996. The increase was primarily due to Fee
Based Expenses related to the third party management operation of Lexford which
was acquired effective August 1, 1996.
Administration Expenses increased approximately $370,000 and
approximately $695,000 for the three and six months ended June 30, 1997,
respectively, as compared to the same periods in 1996. The increase in
administration expenses was due, in part, to the executive and middle management
restructuring implemented at the end of 1995 which resulted in lower payroll
expense during the first half of 1996 due to open positions, principally at the
senior management level, many of which positions have since been filled. In
addition, the Company has incurred additional costs in 1997 associated with
promotional and marketing campaign associated with the Lexford property
management operation.
Restructure Costs of $250,000 were incurred in the first quarter of
1997 as a one time charge related to costs incurred in connection with
realignments to the Company's Management Services division as part of the
integration of the Lexford operations with the pre-existing Management Services
division of the Company.
Interest Expense for mortgages on the Wholly Owned Properties
decreased approximately $147,000 and approximately $263,600 for the three and
six months ended June 30, 1997, respectively, as compared to the same periods in
1996. The decrease is related to the refinancing transactions completed in late
1996. Interest Expense on the Company's corporate lines of credit decreased
approximately $124,000 and approximately $254,000 for the three and six month
comparative periods. This decrease is due primarily to the decline in the
average debt outstanding on the Company's credit facility: $7.9 million was
outstanding at June 30, 1997 as compared to $20.1 million at June 30, 1996.
Depreciation and Amortization Expense increased approximately
$151,000 and approximately $288,000 for the three and six months ended June 30,
1997, respectively, as compared to the same periods in 1996. The increase is
primarily due to the amortization of loan costs capitalized in connection with
the refinancing of corporate debt and mortgages on Wholly Owned Properties and
the amortization of goodwill and management contracts associated with the
Lexford acquisition.
Income before Extraordinary Item amounted to $1.6 million, or $.40
per share, and $2.9 million, or $.71 per share, for the three and six months
ended June 30, 1997, respectively, as compared to approximately $757,000, or
$.19 per share, and $1.8 million, or $.47 per share, for the same periods in
1996. The extraordinary loss of approximately $180,000, net of tax benefits, in
the second quarter of 1997 was a result of mortgage debt refinancings on Wholly
Owned Properties (SEE NOTE 3 OF NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS).
18
<PAGE>
19
Earnings before Interest, Taxes, Depreciation and Amortization
The Company believes that earnings before interest, income taxes,
depreciation, amortization and extraordinary items ("EBITDA"), Recurring EBITDA
(EBITDA adjusted for non recurring items) and Adjusted EBITDA (Recurring EBITDA
less interest on Wholly Owned Property mortgage debt) are significant indicators
of the strength of its results. EBITDA is a measure of a Company's ability to
generate cash to service its obligations, including debt service obligations,
and to finance capital and other expenditures, including expenditures for
acquisitions. EBITDA does not represent cash flow as defined by generally
accepted accounting principles and does not necessarily represent amounts of
cash available to fund the Company's cash requirements. Unaudited EBITDA and the
unaudited computation of Recurring EBITDA and Adjusted EBITDA for the three and
six months ended June 30, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
---------------------------------- ----------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
EBITDA $ 7,815,905 $ 6,467,407 $ 14,989,828 $ 13,444,630
- ------ ---------------- ---------------- ---------------- ----------------
Income from Disposal of Assets (620,911) (105,803) (689,356) (274,692)
Loan Fees (56,976) (22,560) (106,040) (49,127)
Restructure Costs 0 300,000 250,000 300,000
---------------- ---------------- ---------------- ----------------
Recurring EBITDA 7,138,018 6,639,044 14,444,432 13,420,811
- ----------------
---------------- ---------------- ---------------- ----------------
Interest on Wholly Owned Properties (3,489,441) (3,636,670) (6,936,527) (7,200,179)
---------------- ---------------- ---------------- ----------------
Adjusted EBITDA $ 3,648,577 $ 3,002,374 $ 7,507,905 $ 6,220,632
- --------------- ================ ================ ================ ================
</TABLE>
Adjusted EBITDA increased approximately $646,000, or 21.5%, and $1.3
million, or 20.7%, for the three and six months ended June 30, 1997,
respectively, as compared to the same periods in 1996. The increase was
principally due to the increase in interest income derived from Syndicated
Partnerships.
Contribution to Profit by Business Activity
The unaudited net contribution to profit (revenues less direct
expenses) and Adjusted EBITDA by the core business activities of the Company for
the three and six months ended June 30, 1997 and 1996, are as follows. Financial
information presented includes fee based revenue generated from the Wholly Owned
Properties which is eliminated in the Consolidated Financial Statements, and
does not include an allocation of general corporate overhead.
The following presentation shows Property Management and Preferred
Vendor Services separately for the first time. Management believes that this
presentation format is more appropriate since the Preferred Vendor Services
business has expanded beyond properties controlled by the Company. Operational
realignments implemented during the third quarter of 1997 should enable more
accurate allocation of expenses between Management Services and Preferred Vendor
Services, and will be reflected in future reporting of the Company.
19
<PAGE>
20
<TABLE>
Management Services - Net Contribution to Profit
<CAPTION>
For the Three Months Ended For the Six Months Ended
------------------------------------- -------------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
----------------- ----------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues
Syndicated Partnership Contracts $ 3,037,990 $ 2,962,740 $ 5,965,341 $ 5,924,687
Third Party Contracts 951,230 0 1,992,699 0
Other 31,657 168,139 83,369 232,788
----------------- ----------------- ------------------ -----------------
4,020,877 3,130,879 8,041,409 6,157,475
----------------- ----------------- ------------------ -----------------
Direct Expenses 3,003,830 1,677,282 6,147,631 3,207,268
----------------- ----------------- ------------------ -----------------
Net Contribution to Profit $ 1,017,047 $ 1,453,597 $ 1,893,778 $ 2,950,207
================= ================= ================== =================
Adjusted EBITDA $ 1,017,047 $ 1,453,597 $ 1,893,778 $ 2,950,207
================= ================= ================== =================
</TABLE>
The decline in the Management Services net contribution to profit is
due to the fact that a diminution of fee revenue associated with third party
management occurred without significant expense reductions. The revenue losses
were due in large part to the loss of management of 3,000 units in the first
quarter of 1997 as the result of an owner-client's bankruptcy proceedings. Other
factors contributing to the decline in net contribution is a decrease in other
income related to the recovery of fully reserved receivables in 1996 upon
refinancing of properties and the relatively flat growth of revenues from
Syndicated Partnership contracts.
The Company has implemented a realignment of the Management Services
operations in an effort to reduce costs and recover margins.
<TABLE>
Preferred Vendor Services -- Net Contribution to Profit
<CAPTION>
For the Three Months Ended For the Six Months Ended
------------------------------------- -------------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Revenues
Renters' Insurance $ 93,760 $ 79,873 $ 262,456 $ 196,943
Rebate/Parts Sales 211,226 256,424 376,187 571,284
Furniture Leasing and Other 0 84,340 20,423 186,664
----------------- ----------------- ----------------- -----------------
304,986 420,637 659,066 954,891
----------------- ----------------- ----------------- -----------------
Direct Expenses 127,555 238,543 245,192 476,454
----------------- ----------------- ----------------- -----------------
Net Contribution to Profit $ 177,431 $ 182,094 $ 413,874 $ 478,437
================= ================= ================= =================
Adjusted EBITDA $ 177,431 $ 182,094 $ 413,874 $ 478,437
================= ================= ================= =================
</TABLE>
Preferred Vendor Services has consistently maintained a net contribution to
profit while converting from a maintenance parts supply warehouse and furniture
leasing operation to a preferred vendor rebate program. The decline in sales
volume was offset by a corresponding decrease in overhead costs.
20
<PAGE>
21
<TABLE>
Investment Management - Net Contribution to Profit
<CAPTION>
For the Three Months Ended For the Six Months Ended
---------------------------------- -----------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Revenues
Interest Income $ 2,687,145 $ 1,610,352 $ 5,432,734 $ 3,146,685
Fee Based Services
Administrative Fees 364,363 361,161 748,045 748,738
Loan Fees 94,061 54,570 143,125 103,737
Income from Disposal of Assets 620,911 105,803 689,356 274,692
Other 32,689 11,373 50,022 19,337
---------------- ---------------- ---------------- ----------------
3,799,169 2,143,259 7,063,282 4,293,189
---------------- ---------------- ---------------- ----------------
Direct Expenses 524,646 494,001 1,082,846 968,023
---------------- ---------------- ---------------- ----------------
Net Equity/(Loss) in Wholly Owned Properties 125,625 (187,696) 343,686 (471,032)
---------------- ---------------- ---------------- ----------------
Net Contribution to Profit $ 3,400,148 $ 1,461,562 $ 6,324,122 $ 2,854,134
================ ================ ================ ================
Adjusted EBITDA $ 3,974,398 $ 2,516,471 $ 8,017,078 $ 4,913,722
================ ================ ================ ================
</TABLE>
The increase in the Investment Management contribution was derived
principally from the improved financial operating performances and reduced first
mortgage debt service requirements of the Syndicated Partnerships (reflected in
Interest Income) and the Wholly Owned Properties.
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY
-----------------------------------------------------------------------
For the Three Months Ended For the Six Months Ended
----------------------------------- ----------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net Contribution to Profit:
Management Services $ 1,017,047 $ 1,453,597 $ 1,893,778 $ 2,950,207
Preferred Vendor Services 177,431 182,094 413,874 478,437
Investment Management 3,400,148 1,461,562 6,324,122 2,854,134
---------------- ---------------- ---------------- ----------------
4,594,626 3,097,253 8,631,774 6,282,778
---------------- ---------------- ---------------- ----------------
Other Expenses:
Administration 1,520,299 1,149,788 2,816,825 2,121,734
Restructure Costs 0 300,000 250,000 300,000
Interest - Corporate 137,395 261,606 307,324 561,466
Depreciation and Amortization 223,235 141,175 452,090 268,944
---------------- ---------------- ---------------- ----------------
1,880,929 1,852,569 3,826,239 3,252,144
---------------- ---------------- ---------------- ----------------
Income before Income Taxes $ 2,713,697 $ 1,244,684 $ 4,805,535 $ 3,030,634
================ ================ ================ ================
</TABLE>
21
<PAGE>
22
<TABLE>
<CAPTION>
Adjusted EBITDA by Business Activity
------------------------------------------------------------------------------
For the Three Months Ended For the Six Months Ended
-------------------------------------- --------------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Adjusted EBITDA - Net Contribution:
Management Services $ 1,017,047 $ 1,453,597 $ 1,893,778 $ 2,950,207
Preferred Vendor Services 177,431 182,094 413,874 478,437
Investment Management 3,974,398 2,516,471 8,017,078 4,913,722
Corporate Administration (1,520,299) (1,149,788) (2,816,825) (2,121,734)
------------------ ----------------- ------------------ ------------------
Adjusted EBITDA $ 3,648,577 $ 3,002,374 $ 7,507,905 $ 6,220,632
================== ================= ================== ==================
</TABLE>
Wholly Owned Properties' Operating Results
The following table summarizes the unaudited operating results of the Wholly
Owned Properties for the three and six months ended June 30, 1997 and 1996:
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
------------------------------------ --------------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------------ ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Statistical information
- -----------------------
Properties at end of period 113 114 113 114
Average Units 8,453 8,587 8,453 8,682
Ave Economic Occupancy 90.4% 92.5% 90.2% 91.0%
Ave Rent Collected/Unit/Month $392 $385 $390 $382
Property - Operating Expenses/Unit/Month $155 $145 $151 $145
Capital & Maintenance/Unit/Month $30 $39 $29 $33
Real Estate Taxes/Unit/Month $32 $32 $32 $32
Property - Operating Expense Ratio 37.65% 36.44% 37.16% 36.87%
Financial Information
- ---------------------
Revenues
Rental Income $ 9,937,768 $ 9,925,721 $ 19,769,127 $ 19,879,707
Other Property Income 504,178 327,950 859,851 564,105
------------------ ----------------- ------------------ ------------------
Total Revenues 10,441,946 10,253,671 20,628,978 20,443,812
------------------ ----------------- ------------------ ------------------
Expenses
Property Operating 3,931,367 3,736,302 7,666,143 7,538,610
Real Estate Taxes 822,044 813,390 1,625,123 1,655,710
------------------ ----------------- ------------------ ------------------
Operating Expenses 4,753,411 4,549,692 9,291,266 9,194,320
------------------ ----------------- ------------------ ------------------
Net Operating Income 5,688,535 5,703,979 11,337,712 11,249,492
------------------ ----------------- ------------------ ------------------
Interest - Mortgage 3,489,441 3,636,670 6,936,527 7,200,179
Interest - Corporate Advances 145,802 100,000 289,136 200,000
Major Maintenance 557,661 842,133 1,106,440 1,495,736
Non Operating 117,868 129,598 173,570 441,200
Depreciation and Amortization 1,252,137 1,183,272 2,488,352 2,383,407
------------------ ----------------- ------------------ ------------------
Non Operating 5,562,909 5,891,673 10,994,025 11,720,522
------------------ ----------------- ------------------ ------------------
Income/(Loss) before Extraordinary Items 125,626 (187,694) 343,687 (471,030)
------------------ ----------------- ------------------ ------------------
Extraordinary Loss (295,534) 0 (295,534) 0
------------------ ----------------- ------------------ ------------------
Net Income/(Loss) $ (169,908)$ (187,694)$ 48,153 $ (471,030)
================== ================= ================== ==================
Capital Expenditures $ 203,113 $ 173,782 $ 373,273 $ 235,799
================== ================= ================== ==================
</TABLE>
22
<PAGE>
23
Funds from Operations of Wholly Owned Properties
As defined by the National Association of Real Estate Investment Trust
("NAREIT"), Funds From Operations ("FFO") represents net income/(loss) (computed
in accordance with generally accepted accounting principles, consistently
applied) before minority interest, excluding gains (or losses) from debt
restructuring and sales of property, plus real estate related depreciation and
amortization (excluding amortization of deferred financing costs), and after
adjustment for unconsolidated partnerships and joint ventures. The FFO of the
Wholly Owned Properties for the three and six months ended June 30, 1997, as
compared to the same periods in 1996, is as follows:
<TABLE>
<CAPTION>
Funds From Operations
----------------------------------------------------------------------
For the Three Months Ended For the Six Months Ended
--------------------------------- ----------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
---------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Wholly Owned Properties:
Income/(loss) before Extraordinary Items $ 125,626 $ (187,694) $ 343,687 $ (471,030)
Depreciation on Real Estate 1,151,073 1,092,967 2,300,958 2,288,389
Deferred Maintenance Funded from Escrows 0 324,303 0 523,025
---------------- --------------- ---------------- ----------------
$ 1,276,699 $ 1,229,576 $ 2,644,645 $ 2,340,384
================ =============== ================ ================
</TABLE>
FFO increased approximately $47,000, or 3.8%, and approximately
$304,000, or 13.0%, for the three and six months ended June 30, 1997,
respectively, as compared to the same periods in 1996, due to the factors
discussed in "Results of Operations".
Net Operating Income of Syndicated Partnerships
The Company holds receivables from substantially all of the 407
Syndicated Partnerships in which the Company had an ownership interest on June
30, 1997, primarily in the form of second mortgages and general partner advances
to the Syndicated Partnerships. Payments on these receivables generate a
majority of the interest income recognized by the Company.
The following table summarizes certain unaudited aggregated operating
results of the Syndicated Partnerships for the three and six months ended June
30, 1997 and 1996. The financial information presented is based upon accrual
accounting at the partnership level. Certain transactions between the Company
and the Syndicated Partnerships are recorded at amounts at the partnership level
that will not necessarily correspond to amounts recorded at the Company level as
Interest Income due to "Fresh Start" accounting (SEE NOTE 1 OF NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS -- RECORDED VALUES OF RECEIVABLES FROM
SYNDICATED PARTNERSHIPS).
23
<PAGE>
24
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
-------------------------------- ---------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Statistical information
- -----------------------
Properties at end of period 407 414 407 414
Average Units 25,661 26,197 25,661 26,197
Ave Economic Occupancy 90.8% 92.4% 90.6% 91.8%
Ave Rent Collected/Unit/Month $391 $385 $389 $381
Property - Operating Expenses/Unit/Month $157 $146 $154 $149
Capital & Maintenance/Unit/Month $29 $35 $28 $34
Real Estate Taxes/Unit/Month $30 $30 $30 $30
Property - Operating Expense Ratio 38.39% 36.9% 38.02% 37.96%
Financial Information
- ---------------------
Revenues
Rental Income $ 30,075,048 $ 30,256,045 $ 59,907,245 $ 59,897,166
Other Property Income 1,438,704 945,553 2,470,891 1,633,352
--------------- ---------------- --------------- ----------------
Total Revenues 31,513,752 31,201,598 62,378,136 61,530,518
--------------- ---------------- --------------- ----------------
Expenses
Property Operating 12,097,341 11,501,657 23,714,505 23,358,541
Real Estate Taxes 2,308,328 2,321,076 4,608,481 4,699,102
--------------- ---------------- --------------- ----------------
Operating Expenses 14,405,669 13,822,733 28,322,986 28,057,643
--------------- ---------------- --------------- ----------------
Net Operating Income 17,108,083 17,378,865 34,055,150 33,472,875
--------------- ---------------- --------------- ----------------
Interest - Mortgage 9,786,540 10,006,745 19,563,173 19,927,018
Interest - Corporate Advances 3,176,030 3,089,443 6,373,876 6,124,449
Major Maintenance 2,201,233 2,129,302 3,572,616 4,612,948
Non Operating 242,511 1,120,158 967,160 1,652,834
Depreciation and Amortization 4,649,382 4,543,346 9,288,905 9,075,230
--------------- ---------------- --------------- ----------------
Non Operating 20,055,696 20,888,994 39,765,730 41,392,479
--------------- ---------------- --------------- ----------------
Income/(loss) before Extraordinary Item (2,947,613) (3,510,129) (5,710,580) (7,919,604)
--------------- ---------------- --------------- ----------------
Extraordinary Item 1,063,101 0 1,848,381 0
--------------- ---------------- --------------- ----------------
Net Income/(Loss) $ (1,884,512)$ (3,510,129)$ (3,862,199) $ (7,919,604)
=============== ================ =============== ================
Capital Expenditures $ 968,915 $ 587,965 $ 1,643,540 $ 803,130
=============== ================ =============== ================
</TABLE>
On a comparable unit or "same store" basis for the 407 Syndicated
Partnerships, Net Operating Income decreased approximately $62,000 or 0.4%, and
increased approximately $944,000, or 2.9%, for the three and six months ended
June 30, 1997, respectively, as compared to the same periods in 1996. Economic
occupancy for the 407 same store Syndicated Partnerships was 91.3% for the six
months ended June 30, 1997, as compared to 92.5% for the same period in 1996.
The Syndicated Partnership performance for the first half of 1997, as compared
to 1996, is comparable to the Wholly Owned Properties, and was influenced by the
same factors. The extraordinary item recorded on the Syndicated Partnerships
related to debt discounts obtained upon the refinance of the mortgage debt on
certain Syndicated Partnerships.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
---------
The following discussion regarding liquidity and capital resources
should be read in conjunction with the Company's Consolidated Balance Sheets as
of June 30, 1997 and December 31, 1996 and the Consolidated Statements of Cash
Flows for the six months ended June 30, 1997 and 1996.
24
<PAGE>
25
The Company anticipates that cash flow from its operations and
borrowings available under the Company's credit facility should be adequate to
meet the foreseeable capital and liquidity needs of the Company. If the Company
is successful in implementing potential future growth plans, it may be necessary
to seek alternative sources of debt or equity capital.
The principal sources of liquidity for the Company are cash flow from
its operations and borrowing available under the Company's credit facility. The
Company's Net Cash Provided by Operating Activities increased $4.9 million for
the six months ended June 30, 1997, as compared to the same period in 1996. The
increase was due primarily to cash received from interests in and receivables
from Syndicated Partnerships which increased $3.4 million due to improved net
operating income and lower debt service requirements. Payments (uses of cash)
related to non-recurring items included in Operating Activities reflects
payments related to the corporate restructuring costs.
The Company's credit facility provides credit up to $29.7 million, and
is comprised of: a $3.0 million revolving line of credit for operating needs
subject to annual review and extension by the Bank; a $7.0 million line of
credit for acquisitions and Property debt restructuring (the "Acquisition Line")
due in March 2001 with a 7.25% fixed interest rate with monthly installments of
principal and interest of $139,435; a $19.7 million reducing balance line of
credit (the "Reducing Line") due in August 2001 with interest, only, payable
during the first year with quarterly reductions in available credit of $750,000
commencing in October 1996 (collectively, the "Loans"). The credit facility
provides that the variable interest rate on the Loans would be the Bank's prime
rate of interest minus 1%. Excess corporate cash is applied to pay down the
Reducing Line and reborrowed as needed.
In July 1996, the Company received a commitment letter from the Bank
for an additional $10.0 million line of credit. The new line will bear interest
at the Bank's prime rate of interest minus 1% with interest only during the
first year, and will be due in six years. The Company has not needed to access
this credit commitment. On June 30, 1997, including the $10.0 million
commitment, the Company had unrestricted credit availability of approximately
$31.0 million.
In addition, all of the Company and the majority of Property bank
accounts are maintained at the Bank. The banking relationship has increased cash
flow at the Properties as a result of reduced service charges and increased
interest income on the Property bank account balances. The Company benefits from
a portion of the improved cash flow at the Properties.
The Company's capital expenditures for the six months ended June 30,
1997 amounted to approximately $264,000 funded from cash flow and the Company's
credit facility. The Company anticipates that its capital needs in the future
can be satisfied out of cash flow from operations or the Company's credit
facility. The Company is upgrading its software systems in order to obtain
optimal efficiencies from technology. In addition, during the course of 1997 and
1998, the Company intends to lease personal computers and new property
management software for use at the Properties. The total cost to implement this
new system is estimated to be approximately $2.0 million. The cost will be
financed with an operating lease, with each Property absorbing its pro rata
share of the rental costs. Although there can be no assurance, management
believes this enhanced technology should improve property performance and
provide operational efficiencies which should offset the increased costs
associated with the new system. The Company currently forecasts normal recurring
capital expenditures of approximately $400,000 in 1997 (exclusive of capital
expenditures for enhanced software and information systems).
25
<PAGE>
26
Capital Expenditures, combined with Improvement and Replacement Expense
for the Wholly Owned Properties, was $1.5 million during the six months ended
June 30, 1997. These costs are funded from Wholly Owned Properties cash flow and
maintenance escrow funds. The 1997 budget for capital expenditures, improvement
and replacement expense for the Wholly Owned Properties is $4.6 million, as
compared to annual actual expenditures in 1996 of $3.5 million. Approximately
$1.5 million of the $4.6 million relates to non recurring deferred maintenance
which principally will be funded from escrows established in connection with
mortgage refinancing transactions completed in prior years.
Lexford Acquisition
-------------------
Effective August 1, 1996, the Company acquired Lexford Properties,
Inc., a privately held, third-party multi-family management company
headquartered in Dallas, Texas (SEE NOTE 1 OF NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS - BUSINESS OVERVIEW - MANAGEMENT SERVICES). As a result of the
acquisition, the Company derives Management Services fee income from apartment
communities in which it has no ownership interest. At June 30, 1997, Lexford's
third party management portfolio comprised approximately 15,800 units of the
Company's management portfolio of approximately 49,650 units. Lexford's Dallas
office is headquarters for the Company's combined property management business,
which is conducted under the Lexford name.
To acquire Lexford, the Company issued 700,000 shares of Common Stock
valued, for acquisition purposes, at $20 per share representing a maximum
purchase price of $14 million. Approximately $9 million of the purchase price
(450,000 shares) is subject to forfeiture in the event the Company's combined
property management operations do not achieve certain profitability criteria.
Lexford shareholders received 250,000 shares of the Company's Common Stock free
of contingencies. The remaining 450,000 contingent shares will cease to be
subject to risk of forfeiture if and when specified increases in the
profitability of the Company's property management operations are achieved
during the three full fiscal years following the merger (i.e. on or before the
end of the Company's 1999 fiscal year). If, during any one of the three fiscal
years in the specified period, profit from property management operations
increases $1.8 million or more from 1995 levels, the former Lexford shareholders
would own 150,000 of the contingent shares free of contingencies, and if the
increase is $4.0 million or more from 1995 levels, the former Lexford
shareholders would own the entire 700,000 shares free of contingencies, or
approximately 15.0% of the Company's shares outstanding as of June 30, 1997.
Financing And Debt Restructuring of the Properties
--------------------------------------------------
In the first half of 1997 the Company refinanced mortgages on 12
Syndicated Partnerships and two Wholly Owned Properties. The new mortgages on 12
Properties were financed through PaineWebber Incorporated ("PaineWebber") and
the mortgages on two Properties were financed through First Union Capital
Markets Group ("First Union"). The PaineWebber mortgages have fixed interest
rates ranging from 8.2% to 9.0% with a 25 year principal amortization schedule,
beginning in year four on Syndicated Partnerships, and a ten year maturity. The
new First Union mortgages have fixed interest rates of 8.7% with a 25 year
principal amortization and a ten year maturity. The Company was able to
negotiate debt discounts from the previous lenders of approximately $1.3 million
in the aggregate on four of the Syndicated Partnerships. In addition, annual
debt service at the Syndicated Partnerships will decrease in the aggregate,
approximately $230,000 per year over the next three years and approximately
$40,000 per year on the Wholly Owned Properties, as a result of these
transactions.
26
<PAGE>
27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
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
Item 5. Other Information
This Form 10-Q contains certain forward-looking statements regarding
prospects for (i) increased interest income to be received from Syndicated
Partnerships, (ii) possible improvements in net operating income from the
Properties, (iii) gains from future Property dispositions, (iv) possible
acquisitions or other growth opportunities, and (v) the Company's foreseeable
capital and liquidity requirements and sources. The forward- looking statements
represent management's good faith evaluations based upon existing market,
financial and economic conditions. There can be no assurance that the
forward-looking statements will prove to be correct.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE
- ----------------- --------------------------------------------------- -------------------------------------------
<S> <C> <C>
11.1 Statement re: computation of Per Share See Note 1 of Notes to Consolidated
Earnings Financial Statements
27 Financial Data Schedule Filed as an Exhibit to this Form 10-Q
on page 29.
</TABLE>
27
<PAGE>
28
SIGNATURES
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.
CARDINAL REALTY SERVICES, INC.
(Registrant)
Dated: August 13, 1997 By: /s/ John B. Bartling, Jr.
----------------------------------------------
John B. Bartling, Jr.
President and Chief Executive Officer
Dated: August 13, 1997 By: /s/ Mark D. Thompson
----------------------------------------------
Mark D. Thompson
Executive Vice President
and Chief Financial Officer
(Principal Accounting Officer)
Dated: August 13, 1997 By: /s/ Ronald P. Koegler
----------------------------------------------
Ronald P. Koegler
Vice President and Controller
28
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
29
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEET AND THE STATEMENT
OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 3,356
<SECURITIES> 0
<RECEIVABLES> 3,305
<ALLOWANCES> 1,725
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 163,098
<DEPRECIATION> 6,779
<TOTAL-ASSETS> 239,119
<CURRENT-LIABILITIES> 0
<BONDS> 155,199
0
0
<COMMON> 29,122
<OTHER-SE> 38,463
<TOTAL-LIABILITY-AND-EQUITY> 239,119
<SALES> 0
<TOTAL-REVENUES> 34,355
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 22,306
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,243
<INCOME-PRETAX> 4,805
<INCOME-TAX> 1,874
<INCOME-CONTINUING> 2,931
<DISCONTINUED> 0
<EXTRAORDINARY> (180)
<CHANGES> 0
<NET-INCOME> 2,751
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.67
<FN>
THE REGISTRANT HAS A NON-CLASSIFIED BALANCE SHEET
</FN>
</TABLE>
