-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, T7aL93cJEgZnqAXftO623LIYa8PDEIEe7Wa3MtiJc6roWjOxVTIoAkp34rmoI57P knlbaOmZH7FnhIENCrCICA== 0000950148-94-000397.txt : 19940912 0000950148-94-000397.hdr.sgml : 19940912 ACCESSION NUMBER: 0000950148-94-000397 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940331 FILED AS OF DATE: 19940908 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COMMONWEALTH EQUITY TRUST CENTRAL INDEX KEY: 0000314485 STANDARD INDUSTRIAL CLASSIFICATION: 6798 IRS NUMBER: 942255677 STATE OF INCORPORATION: CA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-09097 FILM NUMBER: 94548366 BUSINESS ADDRESS: STREET 1: 705 UNIVERSITY AVE CITY: SACRAMENTO STATE: CA ZIP: 95825 BUSINESS PHONE: 9169298244 MAIL ADDRESS: STREET 2: 705 UNIVERSITY AVE CITY: SACRAMENTO STATE: CA ZIP: 95825 10-Q 1 FORM 10-Q FOR QUARTER ENDED 3/31/94 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of 1934 For Quarter Ended March 31, 1994 Commission file number 0-9097 ------------- ------ COMMONWEALTH EQUITY TRUST - - ------------------------------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) California 94-2255677 - - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1300 Ethan Way, Suite 200, Sacramento, California 95825 - - ------------------------------------------------------------------------------ (Address of registrant's principal executive offices) (Zip Code) (916) 929-8244 --------------------------------------------------- (Registrants telephone number, including area code) --------------------------------------------------- (Former name) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. X Yes No --- --- Indicate the number of share outstanding of each of the issuer's classes of common stock, as of the close of the latest practical date. Class Outstanding at March 31, 1994 ------------------------------ ---------------------------- Shares of Beneficial Interest 25,093,426 Par value one dollar per share 2 COMMONWEALTH EQUITY TRUST AND AFFILIATE INDEX Part I. Financial Information Consolidated Condensed Balance Sheets - March 31, 1994 and September 30, 1993 3 Consolidated Condensed Statements of Income - For the Three Months and Six Months ended March 31, 1994 and 1993 4 Consolidated Condensed Statements of Cash Flows - For the Three Months and Six Months ended March 31, 1994 and 1993 5 Notes to Consolidated Condensed Financial Statements 6 Management's Discussion and Analysis of Financial Condition and Results of Operations Capital Resources and Liquidity 8 Results of Operations 8 Part II. Item 5: Other Information 11 Item 6: Reports on Form 8-K 2 3 Part I. FINANCIAL INFORMATION COMMONWEALTH EQUITY TRUST AND AFFILIATES Consolidated Condensed Balance Sheets
March 31, September 30, 1994 1993 (Unaudited) (Audited) ------------------ ------------- Assets Investments: Rental properties, less accumulated depreciation of $33,818,000 and $31,708,000 and valuation allowance of $78,350,000 and $78,659,000 at March 31, 1994 and September 30, 1993, respectively $ 128,682,000 133,030,000 Partnership interests, net of valuation allowance of $17,925,000 and $17,429,000 at March 31, 1994 and September 30, 1993, respectively 4,000,000 4,000,000 Notes receivable, net of valuation allowance of $6,320,000 and $6,964,000 at March 31, 1994 and September 30, 1993, respectively, and unaccreted discount of $1,924,000 and $1,466,000 at March 31, 1994 and September 30, 1993, respectively 18,679,000 19,262,000 ------------------ ------------ 151,361,000 156,292,000 Cash 6,252,000 6,994,000 Restricted cash 111,000 111,000 Rents and accrued interest receivable, net of valuation allowance of $3,534,000 and $2,478,000 at March 31, 1994 and September 30, 1993, respectively 1,583,000 1,179,000 Other assets 3,745,000 4,637,000 ------------------ ------------ Total assets $ 163,052,000 169,213,000 ================== ============ Liabilities and Shareholders' Equity Liabilities: Long-term notes payable, collateralized by deeds of trust on rental properties $ 13,338,000 15,874,000 Accounts payable and accrued expenses 7,574,000 3,526,000 ------------------ ------------ 20,912,000 19,400,000 Liabilities subject to compromise 132,886,000 133,065,000 ------------------ ------------ Total liabilities 153,798,000 152,465,000 ------------------ ------------ Minority interests 6,951,000 6,947,000 ------------------ ------------ Shareholders' Equity: Shares of beneficial interest, par value of $1 a share, unlimited authorization, 25,093,000 shares outstanding at March 31, 1994 and September 30, 1993 25,093,000 25,093,000 Additional paid-in capital 219,848,000 219,848,000 Accumulated deficit (242,638,000) (235,140,000) ------------------ ------------ Total shareholders' equity 2,303,000 9,801,000 ------------------ ------------ Total liabilities and shareholders' equity $ 163,052,000 169,213,000 ================== ============
See accompanying notes to consolidated condensed financial statements. 3 4 COMMONWEALTH EQUITY TRUST AND AFFILIATES Consolidated Condensed Statements of (Loss) (Unaudited)
Three Months Ended Six Months Ended March 31, March 31, 1994 1993 1994 1993 ---- ---- ---- ---- Revenues: Rent $ 3,888,000 5,942,000 $ 7,626,000 11,753,000 Interest 505,000 584,000 961,000 1,308,000 Hotel 3,354,000 - 7,741,000 - -------------------- ----------- ------------------- ----------- 7,747,000 6,526,000 16,328,000 13,061,000 -------------------- ----------- ------------------- ----------- Expenses: Operating expenses 1,784,000 1,982,000 3,261,000 4,689,000 Hotel operating expenses 2,953,000 - 7,118,000 - Property management 121,000 312,000 307,000 699,000 Depreciation and amortization 1,243,000 1,620,000 2,517,000 3,407,000 Interest 3,348,000 3,933,000 6,816,000 7,836,000 Legal settlement - 368,000 - 368,000 General and administrative 835,000 1,510,000 1,630,000 2,507,000 -------------------- ----------- ------------------- ----------- 10,284,000 9,725,000 21,649,000 19,506,000 -------------------- ----------- ------------------- ----------- Loss before reorganization items, (loss) gain on foreclosure or sale of investments, valuation losses and minority interest (2,537,000) (3,199,000) (5,321,000) (6,445,000) Reorganization items (936,000) -- (1,428,000) -- -------------------- ----------- ------------------- ----------- Loss before (loss) gain on foreclosure or sale of investments, valuation losses and minority interest (3,473,000) (3,199,000) (6,749,000) (6,445,000) (Loss) gain on foreclosure or sale of investments (215,000) (303,000) (215,000) 162,000 -------------------- ----------- ------------------- ----------- Loss before valuation losses and minority interest (3,688,000) (3,502,000) (6,964,000) (6,283,000) Valuation losses -- (477,000) (688,000) (693,000) -------------------- ----------- ------------------- ----------- Loss before minority interest (3,688,000) (3,979,000) (7,652,000) (6,976,000) Minority interest in net income (4,000) 21,000 154,000 111,000 -------------------- ----------- ------------------- ----------- Net loss $ (3,692,000) (3,958,000) $ (7,498,000) (6,865,000) ==================== =========== =================== =========== Weighted average number of shares of beneficial interest outstanding $ 25,093,000 25,093,000 $ 25,093,000 25,093,000 ==================== =========== =================== =========== Net loss per share of beneficial interest $ (0.15) (0.16) $ (0.30) (0.27) ==================== =========== =================== ===========
See accompanying notes to consolidated condensed financial statements. 4 5 COMMONWEALTH EQUITY TRUST AND AFFILIATES Consolidated Condensed Statements of Cash Flows (Unaudited)
Nine Months Ended March 31, 1994 1993 ---- ---- Cash flows from operating activities: Net loss $ ( 7,498,000) (6,865,000) -------------------- ----------- Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 2,517,000 3,311,000 Accretion of discount on notes receivable (169,000) - Gain on sales of rental properties and partnership interest 215,000 (162,000) Minority interest in net loss (154,000) (111,000) Valuation losses 688,000 215,000 Changes in other assets and liabilities, net of acquisition effects of affiliates: Increase in rents and accrued interest receivable (355,000) (227,000) Decrease in other assets 88,000 690,000 (Decrease) increase in accounts payable and accrued expenses 4,084,000 (416,000) -------------------- ----------- Total adjustments to net loss 6,914,000 3,300,000 -------------------- ----------- Net cash used by operating activities (584,000) (3,565,000) -------------------- ----------- Cash flows from investing activities: Proceeds from sale of rental properties - 1,027,000 Purchases of and improvements to rental properties (647,000) (2,531,000) Collections from notes receivable 704,000 13,941,000 Investment in affiliates - 368,000 -------------------- ----------- Net cash provided by investing activities 57,000 12,805,000 -------------------- ----------- Cash flows from financing activities: Principal payments on long-term notes payable (215,000) (6,318,000) Distributions paid to minority shareholders - (190,000) Proceeds from the sale of shares - 10,000 Proceeds from issuance of long-term notes payable - 2,000 -------------------- ----------- Net cash used by financing activities (215,000) (6,496,000) -------------------- ----------- Net (decrease) increase in cash (742,000) 2,744,000 Cash, beginning of year 6,994,000 2,002,000 -------------------- ----------- Cash, end of year $ 6,252,000 4,746,000 ==================== ===========
See accompanying notes to consolidated condensed financial statements. 5 6 COMMONWEALTH EQUITY TRUST AND AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) In the opinion of the Trust, the accompanying unaudited consolidated condensed financial statements contain all adjustments necessary to present fairly the Trust's financial position as of March 31, 1994, and the results of its operations for the three months and six months ended March 31, 1994 and 1993 and cash flows for the six months ended March 31, 1994 and 1993. The accounting policies followed by the Trust are set forth in Note 1 to the Trust's financial statements in the 1993 Form 10-K, which are incorporated herein by reference. (2) In 1977, the Trust elected to be and was taxed as a real estate investment trust ("REIT") through the year ended September 30, 1992. Under the Internal Revenue Code, a qualified REIT is relieved, in part, of federal income taxes on ordinary income and capital gains distributed to shareholders. State tax benefits may also accrue to a qualified REIT. The Trust maintained a general policy of distributing cash to its shareholders that approximated taxable income plus noncash charges such as depreciation and amortization. As a result, distributions to shareholders often exceeded cumulative net income. During the year ended September 30, 1993, the Trust did not qualify to be taxed as a REIT. The termination of its REIT status was effective as of the beginning of that fiscal year. Furthermore, the circumstances of that termination were such that it is unlikely that the Trust will be eligible to re-elect to be taxed as a REIT prior to its taxable year ending September 30, 1998. (3) Effective October 1, 1993, the Trust implemented Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes." SFAS 109 changes the way deferred income tax liabilities or assets are recorded and requires ongoing adjustments for enacted changes and tax rates and regulations. As permitted by the standard, the Trust has elected not to restate prior period financial statements. As a result of applying the provisions of the SFAS, there was no cumulative effect in the quarter ended March 31, 1994 for the change in accounting principle. The provision for income taxes for the quarter ended March 31, 1994 has been computed based upon the estimated annual effective tax rates of the Trust of 40.2%, which includes federal of 34% and state, net of federal benefit, of 6.2%. Under current state regulations, the moratorium on the recognition of state operating loss carryforwards expired as of December 31, 1992. 6 7 COMMONWEALTH EQUITY TRUST AND AFFILIATES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) (4) Reorganization items are calculated from August 2, 1993, the date on which the Trust filed its petition for reorganization, and consist of the following: Interest earned on accumulated cash $ 3,000 Professional fees (1,392,000) Other (39,000) ----------- Net reorganization items $(1,428,000) =========== 7 8 COMMONWEALTH EQUITY TRUST AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CAPITAL RESOURCES AND LIQUIDITY The Trust anticipates that its principal source of funds during 1994 will be operating income. Because the Trust will be under the protection of Chapter 11 during the fiscal year, the payment of certain liabilities has been stayed. The Trust's Third Amended Plan was confirmed by the bankruptcy court on August 8, 1994. A condition to the Plan is that the Trust obtain a working capital loan of approximately ten million dollars to meet capital needs in excess of available income. Capital resources and the amount and timing of Trust liabilities cannot be finally determined until the status of all claims contained in the Amended Plan are finally determined. RESULTS OF OPERATIONS Rental revenue decreased $4,127,000 and $2,054,000 for the six months and three months ended March 31, 1994 as compared to the same period in the prior year. These decreases are primarily due to rental property dispositions, cancellation of the Trust's hotel leases, further described below in hotel revenues and operating expenses, and decreases resulting from lower lease renewal rates. Interest income decreased $347,000 and $79,000 for the six months and three months ended March 31, 1994 as compared to the same period in the prior year. These decreases were primarily due to the retirement of notes receivable in connection with asset acquisitions and from collections on notes receivable. Decreases were offset in part by increases resulting from new notes receivable acquired through property sales. Hotel revenues and hotel operating expenses are a result of the July 1993 action taken by CET to cancel the leases on the Trusts hotel properties and assume day to day management responsibility for the hotels. The hotels were previously leased by the North Main Street Company. Since the lease cancellation, the Trust has recorded gross revenues and expenses separately on the income statement. Prior to the take over, monthly rent was collected from the hotels and recorded as rent revenue. Additionally, Cal REIT, through a deed in lieu of foreclosure on a note receivable, acquired the Casa Grande Motor Inn in January 1993, and is also now recording gross revenues and expenses for that hotel property. Operating expenses decreased $1,428,000 and $198,000 for the six months and three months ended March 31, 1994 as compared to the same period in the prior year. These decreases were primarily due to property dispositions. 8 9 COMMONWEALTH EQUITY TRUST AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS (Continued) Interest expenses decreased $1,020,000 and $585,000 for the six months and three months ended March 31, 1994 as compared to the same period in the prior year. These decreases were primarily due to note payoffs resulting from property dispositions, payment of $3,445,000 of capitalized interest accruing interest at 9.5%, and fully reserving interest on an unsecured $2,500,000 note payable due to the bankruptcy treatment of the unsecured debt. Depreciation and amortization decreased $890,000 and $377,000 for the six months and three months ended March 31, 1994 as compared to the same period in the prior year. These decreases were primarily due to rental property dispositions and from the completed depreciation of various properties relating to the fee paid B & B on December 27, 1989, to terminate the portion of the Advisory Agreement which granted B & B an exclusive authorization to act as a real estate broker in connection with the sale of Trust's 1989 Properties. This termination fee was amortized over one to four years, depending on the assumed sale dates of the various 1989 Properties, and, accordingly, a larger portion of the fee was amortized in 1991 and 1992 than 1993 and 1994. This reduction in the amortization charge, relating to the termination fee, continues through March 1994, at which time the fee will be fully amortized. Legal settlement of $368,000 relates to the transfer of 91,000 shares of California Real Estate Investment Trust. General and administrative expenses decreased $877,000 and $675,000 for the six months and three months ended March 31, 1994 as compared to the same period in the prior year. As of October 1993, the Trust changed to a self-administration management structure and started paying salaries and benefits to its employees. In the prior year these costs were borne by the Trust's Advisor. The $688,000 valuation loss relates to valuation write downs on Cal REIT's investment in Totem Square and the property at Totem Square. The Trust establishes allowances for possible investment losses which represent the excess of the face amount of the note over the appraised or net realizable value of the property securing the note. 9 10 COMMONWEALTH EQUITY TRUST AND AFFILIATES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) RESULTS OF OPERATIONS (Continued) Loss on disposition of partnership of $215,000 relates to the disposition of 3604 Fair Oaks Boulevard, a property owned by a partnership in which CET has a 75% partnership interest. (See Part II Item 5: for further discussion of transactions) IMPACT OF INFLATION The effect of inflation on the Trust's operations and properties is varied. Although revenues and operating expenses are impacted by inflation, the effects of inflation have not been material during the six months and three months ended March 31, 1994. 10 11 COMMONWEALTH EQUITY TRUST AND AFFILIATES PART II. OTHER INFORMATION ITEM 5: OTHER INFORMATION In February 1994, the lender on the Trust's Pacific Palisades property was granted relief from the automatic stay, in place due to the Chapter 11 filing, in order to commence foreclosure proceedings on the property. The foreclosure was completed in July 1994. On April 14, 1994 the Board of CET voted its' shares of Cal REIT to elect a new Board of Trustees for Cal REIT. The new Board is comprised of Frank Morrow, Howard Cohn, and Mark Bennett all of whom are key management personnel of CET. The new Cal REIT Board then terminated certain management and advisory agreements with B & B and B & B Property, Cal REIT's former advisor and property manager. Certain disputes with B & B and B & B Property in connection with the termination were settled in May 1994, resulting in a payment, by Cal REIT, of $45,000 to those entities. In April 1994, Cal REIT sold the Imperial Canyon property for $4,093,000, net of selling expenses, resulting in a gain of $114,000. The Trust did not receive any cash from this transaction. In May 1994, the Trust sold the Howard Johnson's located in Lake of the Ozarks, Missouri for $1,936,000, net of selling expenses, resulting in a gain of $62,000. The Trust received $541,000 in cash. ITEM 6: REPORTS ON FORM 8-K The Trust filed no reports on Form 8-K during the quarter ended March 31, 1994. 11 12 SIGNATURES Pursuant to the requirement 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. COMMONWEALTH EQUITY TRUST ---------------------------------------- 9-7-94 /s/ FRANK A. MORROW _______________ ________________________________________ Date Frank A. Morrow Chief Executive Officer 9-7-94 /s/ HOWARD COHN _______________ ________________________________________ Date Howard Cohn Trustee 12 -----END PRIVACY-ENHANCED MESSAGE-----