Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT
For Quarter Ended June 30, 2002 Commission File No. 06201
BRESLER & REINER, INC.
- ------------------------------------------------------------------------------
(Exact name of Registrant as Specified in its Charter)
DELAWARE 52-0903424
- -------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification)
incorporation or organization)
401 M Street, S. W., Washington, D. C. 20024
- ------------------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number including area code: (202) 488-8800
- ------------------------------------------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 of the Securities Exchange Act of 1934 during
the preceding twelve months, and (2) has been subject to the filing requirements
for at least ninety (90) days.
Yes: __X__ No: _____
Number of Shares of Common Stock
Outstanding August 14, 2002: 2,738,606
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 2002 (unaudited) and
Consolidated Statements of Income (unaudited) for the Six and Three
Months Ended June 30, 2002 and 2001
Consolidated Statements of Cash Flows (unaudited) for the Six Months
Ended June 30, 2002 and 2001
Notes to Consolidated Financial Statements (unaudited)
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures Abourt Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signature
PART 1
- ------
Item 1.
BRESLER & REINER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 2002 AND DECEMBER 31, 2001
ASSETS
June 30, 2002 Dec. 31, 2001
---------------------- ----------------------
(Unaudited)
Rental Property and Equipment, Net $ 113,980,000 $ 97,156,000
Construction in Process 199,000 3,232,000
Homes Held for Sale 125,000 598,000
Land Held for Sale 13,919,000 14,145,000
Receivables:
Mortgages and Notes, Affiliates 2,507,000 2,577,000
Mortgages and Notes, Other 4,343,000 4,391,000
Other 6,164,000 5,072,000
Investment In and Advances To
Joint Ventures and Partnerships 9,932,000 3,295,000
Cash and Cash Equivalents 5,727,000 3,129,000
Cash Deposits Held in Escrow 3,850,000 4,481,000
Investments 73,733,000 59,077,000
Income Taxes Receivable 166,000 0
Due From Affiliates 295,000 0
Deferred Charges and Other Assets 9,631,000 6,625,000
--------------------- ---------------------
$ 244,571,000 $ 203,778,000
===================== =====================
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Notes Payable $ 0 $ 7,775,000
Real Estate Loans Payable 102,309,000 64,721,000
Distribution Payable to Minority Partner 3,390,000 0
Accounts Payable 1,105,000 694,000
Accrued Expenses 3,842,000 2,823,000
Deposits 1,142,000 1,221,000
Due To Affiliates 0 21,000
Deferred Income 36,000 7,000
Current Income Taxes Payable 0 346,000
Deferred Income Taxes Payable 5,762,000 2,837,000
--------------------- ---------------------
Total Liabilities 117,586,000 80,445,000
Minority Interest 9,998,000 10,892,000
Shareholders' Equity 116,987,000 112,441,000
--------------------- ---------------------
$ 244,571,000 $ 203,778,000
===================== =====================
BRESLER & REINER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
2002 2001
---------------------- ----------------------
Revenues:
Sales of Homes and Lots $ 6,669,000 $ 658,000
Other Construction (Net) 143,000 153,000
Rentals - Apartments 1,391,000 1,358,000
Rentals - Commercial 20,784,000 15,867,000
Hotel Income 3,884,000 4,035,000
Management Fees, Affiliates 299,000 206,000
Leasing Fee, Affiliates 132,000 8,000
Interest:
Affiliates 168,000 179,000
Other 1,401,000 1,408,000
Gain on Sale of Realty Interests 272,000 54,000
Income from Equity Investments 148,000 71,000
Other 71,000 134,000
---------------------- ----------------------
35,362,000 24,131,000
---------------------- ----------------------
Costs And Expenses:
Cost of Home and Lot Sales 6,022,000 586,000
Rentals - Apartments 887,000 862,000
Rentals - Commercial 8,948,000 6,549,000
Hotel Expenses 2,752,000 2,776,000
Land Development Expense 50,000 51,000
General and Administrative 1,264,000 1,098,000
Interest Expense 3,236,000 757,000
Reserve for Advances to Partnerships 390,000 192,000
Other 9,000 11,000
---------------------- ----------------------
23,558,000 12,882,000
---------------------- ----------------------
Net Income Before Income Taxes And
Minority Interest 11,804,000 11,249,000
Minority Interest 4,304,000 3,538,000
---------------------- ----------------------
Net Income Before Income Taxes 7,500,000 7,711,000
Provision For Income Taxes 2,940,000 3,023,000
---------------------- ----------------------
Net Income $ 4,560,000 $ 4,688,000
====================== ======================
Earnings Per Common Share $ 1.66 $ 1.71
====================== ======================
Weighted Average Number of Common
Shares Outstanding 2,738,898 2,738,906
====================== ======================
BRESLER & REINER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2002 AND 2001
(UNAUDITED)
2002 2001
---------------------- ----------------------
Revenues:
Sales of Homes and Lots $ 3,967,000 $ 300,000
Other Construction (Net) 76,000 48,000
Rentals - Apartments 700,000 681,000
Rentals - Commercial 10,604,000 7,896,000
Hotel Income 2,346,000 2,400,000
Management Fees, Affiliates 190,000 99,000
Leasing Fee, Affiliates 87,000 4,000
Interest:
Affiliates 83,000 89,000
Other 791,000 729,000
Gain on Sale of Realty Interests 267,000 27,000
Income from Equity Investments 49,000 42,000
Other 18,000 17,000
---------------------- ----------------------
19,178,000 12,332,000
---------------------- ----------------------
Costs And Expenses:
Cost of Home and Lot Sales 3,502,000 278,000
Rentals - Apartments 478,000 410,000
Rentals - Commercial 4,981,000 3,528,000
Hotel Expenses 1,521,000 1,468,000
Land Development Expense 25,000 26,000
General and Administrative 604,000 536,000
Interest Expense 1,715,000 429,000
Reserve for Advances to Partnerships 200,000 36,000
Other 4,000 6,000
---------------------- ----------------------
13,030,000 6,717,000
---------------------- ----------------------
Net Income Before Income Taxes and
Minority Interest 6,148,000 5,615,000
Minority Interest 1,847,000 1,600,000
---------------------- ----------------------
Net Income Before Income Taxes 4,301,000 4,015,000
Provision For Income Taxes 1,686,000 1,574,000
---------------------- ----------------------
Net Income $ 2,615,000 $ 2,441,000
====================== ======================
Earnings Per Common Share $ 0.95 $ 0.89
====================== ======================
Weighted Average Number of Common
Shares Outstanding 2,738,890 2,738,906
====================== ======================
BRESLER & REINER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002 AND 2001
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(UNAUDITED)
2002 2001
---------------------- ----------------------
Cash Flows from Operating Activities:
Net Income $ 4,560,000 $ 4,688,000
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 3,148,000 2,415,000
Gain on Sale of Realty Interest (272,000) (54,000)
Income from Equity Investments (148,000) (71,000)
Changes in Other Assets and Liabilities:
(Increase) Decrease In:
Construction in Process 3,033,000 (1,762,000)
Homes Held for Sale 473,000 491,000
Mortgages and Notes Receivable 390,000 112,000
Income Taxes Receivable (166,000) 2,840,000
Cash Deposits Held in Escrow 631,000 (5,416,000)
Other Assets (1,353,000) 232,000
Other Liabilities 1,331,000 1,161,000
---------------------- ----------------------
Total Adjustments 7,067,000 (52,000)
---------------------- ----------------------
Net Cash Provided by Operating Activities 11,627,000 4,636,000
---------------------- ----------------------
Cash Flows from Investing Activities:
Investment in Joint Ventures (6,489,000) 2,916,000
Investment in Municipal Bonds (14,656,000) (4,747,000)
Investment in Loans to an Unaffiliated Company 0 (4,000,000)
Other 0 (411,000)
Distribution to Minority Partner 3,390,000 0
Purchase of Rental Property and Equipment (11,459,000) 0
---------------------- ----------------------
Net Cash Used In Investing Activities (29,214,000) (6,242,000)
---------------------- ----------------------
Cash Flows from Financing Activities:
Proceeds of Real Estate Loans Payable 38,010,000 3,800,000
Repayment of Notes and Real Estate
Loans Payable (14,355,000) (491,000)
Deferred Loan Fees (3,456,000) (429,000)
Purchase of Treasury Stock (14,000) 0
---------------------- ----------------------
Net Cash Provided by Financing Activities 20,185,000 2,880,000
---------------------- ----------------------
Net Increase in Cash and
Cash Equivalents 2,598,000 1,274,000
Cash and Cash Equivalents, Beginning of Year 3,129,000 5,935,000
---------------------- ----------------------
Cash and Cash Equivalents, End of Period $ 5,727,000 $ 7,209,000
====================== ======================
Page Two
Consolidated Statements of Cash Flows
2002 2001
---------------------- ----------------------
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Period for:
Interest (Net of Amount Capitalized) $ 3,181,000 $ 1,092,000
Income Taxes (Current and Estimated) 3,453,000 184,000
Supplemental Disclosure of Non-Cash Activities:
Escrowed Cash Deposits Received 143,000 76,000
Escrowed Cash Deposits Refunded 222,000 94,000
Acquisition of Sarnia liabilities and
mortgage note payable 9,871,000
BRESLER & REINER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
General:
The information contained in this report is furnished for the
Registrant, Bresler & Reiner, Inc., and its subsidiaries referred to
collectively as the "Company". In the opinion of Management, the information in
this report reflects all adjustments of a normal recurring nature which are
necessary to present a fair statement of the results for the interim period
shown.
The financial information presented herein should be read in
conjunction with the financial statements included in the Registrant's Form 10-K
for the year ended December 31, 2001 as filed with the Securities and Exchange
Commission.
Certain reclassifications have been made in prior years' financial
statements to conform to the classification used in the current year.
Sarnia Corporation was acquired on January 31, 2002. Its principal
assets are two office buildings which generate annual rental revenues of
approximately $3,500,000. The purchase price was $20,000,000 less certain
liabilities.
Pro-forma information as if Sarnia Corporation was acquired on the
first day of each period is as follows:
6 Months Ended 6 Months Ended
June 30, 2001 June 30, 2002
------------- ---------------
Revenue $25,995,000 $35,672,000
Net Income 5,377,000 4,675,000
Earnings Per Share $1.96 $1.71
On June 26, 2002, the Company entered into a joint venture which acquired
an office building located at 1925 K Street, N. W. Washington, D.C. The Company
invested approximately $6,800,000 for an 85% share of this joint
venture. The Company reported negative earnings of $24,000 as Income from Equity
Investments or a negative $0.01 per share on earnings.
Pro-forma information as if the 1925 K Street joint venture was
acquired on the first date of each period as follows:
6 Months Ended 6 Months Ended
June 30, 2001 June 30, 2002
------------- ---------------
Revenue $25,701,000 $36,932,000
Net Income 3,788,000 6,660,000
85% Share (900,000) (900,000)
Earnings Per Share $1.38 $1.34
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections"
("SFAS No. 145") which rescinds FASB Statement No. 4, "Reporting Gains and
Losses from Extinguishments of Debt," and an amendment of that Statement, FASB
Statement No. 64, "Extinguishments of Debts Made to Satisfy Sinking Fund
Requirements. It also rescinds FASB Statement No. 44, "Accounting for Intangible
Assets or Motor Carriers," and amends FASB Statement No. 13, "Accounting for
Leases." Finally SFAS No. 145 amends other existing authoritative pronouncements
to make various technical correction, clarify meanings, or describe their
applicability under changed conditions. The provisions related to the rescission
of FASB Statement No. 4 and its amendment Statement No. 64 are effective for
fiscal years beginning after May 15, 2002. Provisions related to FASB Statement
No. 13 are effective for transactions occurring after May 15, 2002 and all other
provisions are effective for financial statements issued on or after May 15,
2002. The Company expects that the impact of adopting SFAS No. 145 will not
materially impact the Company subsequent to adoption.
Commitments and Contingencies:
At June 30, 2002, the Company had approximately $764,037 of outstanding
letters of credit for land improvements in a housing project that it is
developing.
The GSA lease terminates on September 13, 2002. As the result of this
termination, gross rental income received by the Company will be reduced by
approximately $3,700,000 for the 4th quarter of 2002. In 2003, the reduction in
gross rental income from the termination of the GSA lease will be approximately
$12,600,000. As the result of the acquisition of Sarnia Corporation and the
joint ventures of Fort Hill and Washington Business Park, the Company estimates
that in
2003 it will receive approximately $10,000,000 in gross rental income from these
properties. At the present time, although we cannot estimate what the 2003 net
rental income from these properties will be, it is likely that the net rental
income from these properties will be substantially less than the net rental
income under the GSA lease in prior years. As the result of the joint venture
for the 1925 K Street office building, the Company estimates that in 2003 it
will receive distributions of approximately $376,000 from this joint venture.
Segment Information:
The company reports segment information for the following categories:
1)Home Sales, 2)Commercial Rental, 3)Residential Rental and 4)Hotel Operations.
Home Sales reflect the sale of homes constructed by the Company and settled
during the current period. Commercial Rental includes income from leases to
tenants ranging from retail businesses to governmental agencies. Residential
Rental income is generated from the leasing of apartments in the Washington
Metropolitan area. Hotel Operations consist of income generated by the Company's
two hotel properties.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company evaluates
performance based upon gross operating income from the combined properties in
each segment.
The Company's reportable segments are a consolidation of related
subsidiaries which offer different products. They are operated separately as
each segment requires different operating, pricing and leasing strategies. All
of the properties have been constructed by the Company and are incorporated into
the applicable segment.
For the Six Months Ended
------------------------
6/30/02 6/30/01
-------------------- -----------------
Revenues:
Home sales & Other construction $ 6,812,000 $ 811,000
Commercial rental 20,784,000 15,867,000
Residential rental 1,391,000 1,358,000
Hotel operations 3,884,000 4,035,000
Other 2,491,000 2,060,000
Consolidation entries 0 0
-------------------- -----------------
Total 35,362,000 24,131,000
-------------------- -----------------
Gross operating income:
Home sales & Other construction 790,000 225,000
Commercial rental 11,836,000 9,318,000
Residential rental 504,000 496,000
Hotel operations 1,132,000 1,259,000
Other (2,458,000) (49,000)
SG&A (1,264,000) (1,099,000)
Income taxes and minority interest (7,244,000) (6,561,000)
Consolidation entries 1,264,000 1,099,000
-------------------- -----------------
Total 4,560,000 4,688,000
-------------------- -----------------
Assets:
Home sales 1,515,000 6,055,000
Commercial rental 131,976,000 59,553,000
Residential rental 2,720,000 2,159,000
Hotel management 10,409,000 9,831,000
Other 97,748,000 77,026,000
Consolidation entries 203,000 (8,943,000)
-------------------- -----------------
Total $ 244,571,000 $ 145,681,000
==================== =================
For the Three Months Ended
--------------------------
6/30/02 6/30/01
---------------- ---------------
Revenues:
Home sales & Other construction $ 4,043,000 $ 348,000
Commercial rental 10,604,000 7,896,000
Residential rental 700,000 681,000
Hotel operations 2,346,000 2,400,000
Other 1,485,000 1,007,000
Consolidation entries 0 0
---------------- ----------------
Total 19,178,000 12,332,000
---------------- ----------------
Gross operating income:
Home sales & Other construction 541,000 70,000
Commercial rental 5,623,000 4,368,000
Residential rental 222,000 271,000
Hotel operations 825,000 932,000
Other (1,063,000) (26,000)
SG&A (604,000) (537,000)
Income taxes and minority interest (3,533,000) (3,174,000)
Consolidation entries 604,000 537,000
---------------- ----------------
Total 2,615,000 2,441,000
================ ================
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Results of Operations
Sales of Homes and Lots. 41 homes and 4 lots were settled in the first
six months of 2002 compared with 4 homes and 1 lot in the same period of 2001.
Net income from Home and Lot Sales was $647,000 in the first six months of 2002
as compared to $72,000 for the same period of 2001. In the second quarter of
2002, 25 homes and no lots were settled versus 2 homes and no lots in the same
period of 2001. Net income from Home and Lot Sales was $465,000 in the second
quarter of 2002 as compared to $22,000 for the same period of 2001.
Registrant funds its home building activities with available funds.
"Cost of home and lot sales" does not include interest expense.
Registrant's backlog of homes under contract of sale as of June 30, 2002
was 9, which is the balance of the Yorkshire project, as compared to 40 in 2001.
Following the sale of these 9 homes, Registrant, at present, has no lots for
construction and, consequently, may exit the home building operation.
Rentals - Apartments: Income and Expenses. Rental income from apartments
was $1,391,000 in the first six months of 2002, an increase of 2.43% over
$1,358,000 for the same period in 2001. Income for the second quarter of 2002
was $700,000, an increase of 2.79% over $681,000 for the same period in 2001.
Expenses for the first six months of 2002 were $887,000 as compared to $862,000
in 2001, an increase of 2.90%. Expenses for the second quarter of 2002 were
$478,000 as compared to $410,000 for the same period in 2001, an increase of
16.59%. The increase in rental expenses was the result of significant
maintenance and repair costs along with increased operating costs at one of
Registrant's apartment buildings. Registrant's residential buildings are over 35
years old. While the buildings have been well maintained, Registrant has
embarked on a long-range program to upgrade, repair, refurbish and replace
building components. Net income was $504,000 for the first six months of 2002 as
compared to $496,000 for the same period in 2001, an increase of 1.61%. For the
second quarter of 2002, net income was $222,000 as compared to $271,000 for the
same period in 2001, a decrease of 18.08%.
Rentals - Commercial: Income and Expenses. Rental income from commercial
operations was $20,784,000 in the first six months of 2002 as compared to
$15,867,000 for the same period in 2001, an increase of 30.99%. Income for the
second quarter of
2002 was $10,604,000, an increase of 34.30% over $7,896,000 for the same period
of 2001. Expenses for the first six months of 2002 were $8,948,000 as compared
to $6,549,000 in 2001, an increase of 36.63%. Expenses for the second quarter of
2002 were $4,981,000 as compared to $3,528,000 for the same period in 2001, an
increase of 41.18%. Net income was $11,836,000 for the first six months of 2002
as compared to $9,318,000 for the same period in 2001, an increase of 27.02%.
For the second quarter of 2002, net income was $5,623,000 as compared to
$4,368,000 for the same period in 2001, an increase of 28.73%. These increases
resulted from the purchase of Washington Business Park in November 2001 and the
acquisition of Sarnia Corporation ("Sarnia") on January 31, 2002.
Rental income does not reflect revenues from the 1925 K Street office
building since income from that joint venture is included in Equity Change in
Investments.
Hotel Income and Hotel Expense. Hotel Income and Hotel Expense
------------ --------------
reflect the operating results for the Company's two hotel properties as follows:
A. For the six months ended June 30;
Colonnade Holiday Inn Express
--------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Income 2,570,000 2,648,000 1,314,000 1,387,000
Expense 1,697,000 1,695,000 1,055,000 1,081,000
--------- --------- --------- ---------
Net Before Taxes 873,000 953,000 259,000 306,000
B. For the three months ended June 30;
Colonnade Holiday Inn Express
--------- -------------------
2002 2001 2002 2001
---- ---- ---- ----
Income 1,574,000 1,560,000 772,000 840,000
Expense 941,000 872,000 580,000 596,000
--------- --------- ------- -------
Net Before Taxes 633,000 688,000 192,000 244,000
The 2002 Colonnade operations reflect a lower occupancy rate of 65.96%
for the six months ended June 30, 2002 as compared to a 71.00% occupancy rate in
the same period of 2001. The average daily room rate of $134.78 increased by
3.37% in the first six months of 2002 over the average daily room rate of
$130.38 during the same period in 2001. Income from the Colonnade operations was
$2,570,000 in the first six months of 2002 as compared to $2,648,000 for the
same period in 2001 or a decrease of 2.95%. Income for the second quarter of
2002 was $1,574,000, an increase of 0.90% over $1,560,000 for the same period of
2001. Expenses for the first six months of 2002 were $1,697,000 as compared to
$1,695,000 in the same period in 2001, an increase of 0.12%. Expenses for the
second quarter of 2002 were $941,000 as compared to $872,000 for the same period
in 2001, an increase of 7.91%. Net income was $873,000 for the
first six months of 2002 as compared to $953,000 for the same period in 2001, a
decrease of 8.39%. For the second quarter of 2002, net income was $633,000 as
compared to $688,000 for the same period in 2001, a decrease of 7.99%.
The 2002 Holiday Inn Express operations reflect a lower occupancy rate
of 63.84% for the six months ended June 30, 2002 as compared to a 67.82% rate in
the same period of 2001. The average daily room rate increased by 2.67% in the
first six months of 2002 over the same period in 2001. Income from the Holiday
Inn Express operations was $1,314,000 in the first six months of 2002 as
compared to $1,387,000 for the same period in 2001 or a decrease of 5.26%.
Income for the second quarter of 2002 was $772,000, a decrease of 8.10% over
$840,000 for the same period in 2001. Expenses for the first six months of 2002
were $1,055,000 as compared to $1,081,000 in 2001, a decrease of 2.41%. Expenses
for the second quarter of 2002 were $580,000 as compared to $596,000 for the
same period in 2001, a decrease of 2.68%. Net income was $259,000 for the first
six months of 2002 as compared to $306,000 for the same period in 2001, a
decrease of 15.36%. For the second quarter of 2002, net income was $192,000 as
compared to $244,000 for the same period in 2001, a decrease of 21.31%.
Management Fees, Affiliates. Management fees, affiliates increased in
the first six months of 2002 by $93,000 from 2001. This increase primarily
resulted from administration fees received from affiliates.
Leasing Fees, Affiliates. Leasing fees, affiliates increased in the
first six months of 2002 by $124,000 from 2001. This increase primarily resulted
from fees received from two affiliated partnerships.
Gain on Sale of Realty Interests. The income of $218,000 in the first
six months of 2002 over the same period in 2001 is primarily the result of
profit from the sale of two Circle K stores. Registrant still owns seven Circle
K stores.
Other Income. The decrease of $59,000 in the first six months of 2002
over the same period in 2001 primarily results from a non-recurring loan fee
received in the earlier period.
General and Administrative Expense. General and administrative expenses
increased in the first six months of 2002 by $166,000 over the same period in
2001. This increase is the result of professional fees related to the
acquisitions and financings.
Interest Expense. Interest expense for the first six months of 2002 was
-----------------
$3,236,000 as compared to $757,000 in the first six months of 2001. The increase
is the result of deed of trust loans placed on the Holiday Inn Express in June
2001, the Colonnade in August 2001, the Washington Business Park in November
2001, the Sarnia Corporation in January 2002, Registrant's Masassas, Virginia
properties in March 2002 and Registrant's Greenbelt, Maryland property in May
2002. Due to the favorable interest rate environment, Registrant has elected to
place non-recourse financing on its real estate properties.
Reserve for Advances to Partnerships. During the first six months of
------------------------------------
2002, Registrant made cash advances of $390,000 to a partnership operating at a
loss. In the first six months of 2001, Registrant made cash advances of $192,000
to the same partnership. Because the partnership operated at a loss during both
periods and the collections of the receivables from this partnership are
uncertain, Registrant expensed these advances.
Assets and Liabilities
- ----------------------
Rental Property and Equipment (Net). $18,639,000 of the increase
------------------------------------
resulted from the January 31, 2002 acquisition of Sarnia.
Investments In and Advances to Joint Ventures and Partnerships.
$6,794,000 of the increase resulted from the joint venture between Registrant
and The Kaempfer Company known as 1925 K Street Associates, LLC. Registrant has
an 85% interest in the venture. However, Registrant does not control this joint
venture.
Investments. The net increase in Investments resulted from the
proceeds received from deeds of trust notes placed on certain of Registrant's
Manassas, Virginia properties, one of Registrant's residential properties and
the pay off on notes payable to two affiliated partnerships. Investments include
$7,370,000 of municipal bonds of a joint venture in which other members have a
46% interest or $3,390,000 of municipal bonds. Registrant has a 54% interest in
this joint venture.
Deferred Charges and Other Assets. The increase resulted from the
----------------------------------
acquisition of Sarnia on January 31, 2002.
Notes Payable. On March 28, 2002, Registrant paid off the notes payable
--------------
to two affiliated partnerships.
Real Estate Loans Payable. The net increase of $37,588,000 is the result
--------------------------
of an $18,010,000 deed of trust loan placed on certain of Registrant's Manassas,
Virginia properties and a $5,000,000 deed of trust loan placed on Registrant's
Greenbelt, Maryland property. The increase also reflects the deed of trust loan
of $15,000,000 placed upon the acquisition of Sarnia.
Distribution Payable to Minority Partner. The liability of
-------------------------------------------
$3,390,000 reflects an amount due a minority member for its share of the joint
venture's investments.
Accrued Expenses. The increase is primarily due from the acquisition
-----------------
of Sarnia.
Deferred Income Taxes Payable. The increase of $2,925,000 is the
--------------------------------
result of the acquisition of Sarnia and Sarnia's use of accelerated
depreciation of its buildings for tax purposes.
Liquidity and Capital Resources
Registrant continues to fund its obligations out of current cash flow.
There is no assurance that Registrant will be able to meet all of its needs out
of cash flow or that additional funding will be available to Registrant if
needed.
During the six month period ended June 30, 2002, Registrant generated
cash flow from operating activities of $11,627,000. Cash flow from operating
activities, along with cash of $20,185,000 provided from financing activities
for a total of $31,812,000, was used in investing activities of $29,214,000.
Cash flow from investing activities consisted of investments in municipal bonds
of $14,656,000, the purchase of rental property and equipment of $11,459,000 and
advances to joint ventures of $6,498,000. Cash from investing activities will be
used to distribute $3,390,000 to a minority interest partner. Cash flow from
financing activities consisted of loan proceeds of $38,010,000 on rental
properties, which was used for the repayment of notes and real estate loans of
$14,355,000, the addition of loan fees of $3,456,000 related to loan financings
and the purchase of treasury stock of $14,000. Overall, cash flow from
operating, investing and financing activities resulted in an increase of
$2,598,000 in cash and cash equivalents for a total of $5,727,000.
Registrant anticipates that, upon expiration in September 2002 of the
GSA lease, in order to relet the Waterside Complex, substantial costs will be
incurred for capital improvements, tenant fit up, leasing fees and tenant
allowances. Without a new major tenant for the space that will be vacated, it
may not be possible to finance the project. Consequently, Registrant must be
prepared to finance these anticipated costs from its cash reserves.
A subsidiary of Registrant has entered into a joint venture agreement
with the Washington, DC based developer, The Kaempfer Company, Inc. and the
national developer, Forest City Enterprises, Inc. (K/FCE). Pursuant to this
agreement, K/FCE joint venture has conducted physical and economic studies and
proposed a redevelopment plan for the Mall Complex. The parties have agreed in
principal to form a joint venture commencing in September 2002 following the
expiration of the GSA lease. The property subject to the joint venture was
placed into a new LLC in which the Registrant has a 99 percent interest and
K/FCE has a 1 percent non-economic interest. The Registrant has a 100 percent
interest because K/FCE has no economic rights to the property. At the
termination of the GSA lease on September 14, 2002, K/FCE has the right, subject
to certain conditions, to increase their ownership in the joint venture. In the
eventuality the additional conditions by the Registrant cannot be met by
September 2002, K/FCE can terminate the agreement and reconvey their 1 percent
interest to the Registrant. Commencing with the fourth quarter of 2002 and
during the ensuing two to five year period necessary for the redevelopment and
re-tenanting of the Mall Complex, Registrant may experience a significant
reduction of revenue.
Disclaimer
Except for historical matters, the matters discussed in this Form 10-Q
are forward looking statements which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are subject to certain risks and uncertainties which could cause
actual results to differ materially from historical results or those
anticipated. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of their dates. The Company
undertakes no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
The following factors could cause actual results to differ materially from
historical results or those anticipated: 1) changes in operations, 2) market
conditions for the Company's properties, 3) the Company's ability to lease and
re-lease, 4) development risks, 5) competition, and 6) changes in the economic
climate.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Registrant does not note any changes subsequent to the FORM 10-K
dated December 31, 2001.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Reports on Form 8-K
Two reports on Form 8-K have been filed during the quarter ended June
30, 2002.
(b) Exhibit 99.1
Certification of Chief Executive Officer.
(c) Exhibit 99.2
Certification of Chief Executive Officer.
S I G N A T U R E S
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.
BRESLER & REINER, INC.
(Registrant)
Date: August 14, 2002
----------------- /S/ Burton J. Reiner
--------------------------------------
Burton J. Reiner, President
Date: August 14, 2002
----------------- /S/ William L. Oshinsky
--------------------------------------
William L. Oshinsky, Treasurer
(Principal Financial Officer)