-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PcCHhdR8Q665B+HGACBvyYSVstFt3/OQhNsJwDHpuqPOo4lKi9CUoKpUpRWciBOj xrqMkJ+tiDkgUgLuc45ZQQ== 0000950134-96-005949.txt : 19961113 0000950134-96-005949.hdr.sgml : 19961113 ACCESSION NUMBER: 0000950134-96-005949 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONTINENTAL MORTGAGE & EQUITY TRUST CENTRAL INDEX KEY: 0000319416 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 942738844 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-10503 FILM NUMBER: 96658569 BUSINESS ADDRESS: STREET 1: 10670 N CENTRAL EXPWY STE 300 CITY: DALLAS STATE: TX ZIP: 75231 BUSINESS PHONE: 2146924700 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED CAPITAL SPECIAL TRUST DATE OF NAME CHANGE: 19901122 10-Q/A 1 AMENDMENT TO FORM 10-Q PERIOD END JUNE 30, 1996 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q/A [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1996 Commission File Number 0-10503 CONTINENTAL MORTGAGE AND EQUITY TRUST ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) California 94-2738844 -------------------------------- ---------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 10670 North Central Expressway, Suite 300, Dallas, TX 75231 ---------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) (214) 692-4700 -------------------------------- (Registrant's Telephone Number, Including Area Code) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Shares of Beneficial Interest, no par value 4,185,240 - ------------------------------ -------------------------------- (Class) (Outstanding at July 26, 1996) 1 2 This Form 10-Q/A amends the Registrant's quarterly report on Form 10-Q for the quarter ended June 30, 1996 as follows: PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - pages 4, 7 and 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - pages 18 and 19 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - EXHIBIT 27.0 FINANCIAL DATA SCHEDULE - page 25 3 CONTINENTAL MORTGAGE AND EQUITY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------ ---------------------- 1996 1995 1996 1995 ---------- ---------- ---------- --------- (dollars in thousands, except per share) Revenues Rents....................... $ 11,063 $ 9,345 $ 21,770 $ 17,706 Interest.................... 302 204 553 404 --------- ---------- --------- --------- 11,365 9,549 22,323 18,110 Expenses Property operations......... 6,693 5,575 12,903 10,560 Interest.................... 3,136 2,411 6,063 4,517 Depreciation................ 1,157 1,067 2,294 2,030 Provision for losses........ - - - 541 Advisory fee to affiliate... 469 393 851 745 General and administrative.. 590 264 939 629 --------- ---------- --------- --------- 12,045 9,710 23,050 19,022 --------- ---------- --------- --------- (Loss) from operations....... (680) (161) (727 (912) Equity in income (loss) of partnerships.............. (219) 78 176 185 Gain on sale of real estate... 5,421 - 5,799 - --------- ---------- --------- --------- Income (loss) before extra- ordinary gain (loss)........ 4,522 (83) 5,248 (727) Extraordinary gain............ (34) - 663 - --------- ---------- --------- --------- Net income (loss)............. $ 4,488 $ (83) $ 5,911 $ (727) ========= ========== ========= ========= Earnings per share Income (loss) before extraordinary gain........ $ 1.07 $ (.02) $ 1.23 $ (.17) Extraordinary gain.......... - - .16 - --------- ---------- --------- --------- Net income (loss)........... $ 1.07 $ (.02) $ 1.39 $ (.17) ========= ========== ========= ========= Weighted average shares of beneficial interest used in computing earnings per share 4,214,062 4,377,167 4,273,916 4,377,177 ========= ========= ========= =========
The accompanying notes are an integral part of these Consolidated Financial Statements. 4 4 CONTINENTAL MORTGAGE AND EQUITY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
For the Six Months Ended June 30, ------------------------- 1996 1995 ---------- ---------- (dollars in thousands) Reconciliation of net income (loss) to net cash provided by operating activities Net income (loss).................................. $ 5,911 $ (727) Adjustments to reconcile net income (loss) to net cash provided by operating activities Depreciation and amortization.................... 2,294 1,949 Provision for loss............................... - 541 Gain on sale of real estate...................... (5,799) - Extraordinary gain............................... (663) - (Increase) in interest receivable................ (50) (94) Decrease in other assets......................... 2,399 133 Increase (decrease) in other liabilities......... (543) 82 Increase in interest payable..................... 93 307 Distributions from partnerships' operating cash flow........................................... 941 517 Equity in (income) of partnerships............. (176) (185) ---------- ------- Net cash provided by operating activities...... $ 4,407 $ 2,523 ========== ========== Noncash investing and financing activities Notes payable from acquisition of real estate.... $ 3,200 $ 16,640 Interest on wraparound mortgage loan paid directly to underlying lienholder.............. 12 - Unrealized gain on marketable equity securities.. 1,173 55 Note receivable from the sale of real estate..... 750 - Carrying value of real estate acquired through insubstance foreclosure in satisfaction of a note receivable with a carrying value of $891.. - 891
The accompanying notes are an integral part of these Consolidated Financial Statements. 7 5 CONTINENTAL MORTGAGE AND EQUITY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Operating results for the six month period ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. Dollar amounts in tables are in thousands. For further information, refer to the Consolidated Financial Statements and Notes thereto included in the Trust's Annual Report on Form 10-K for the year ended December 31, 1995 ("1995 Form 10-K"). Certain balances for 1995 have been reclassified to conform to the 1996 presentation. Shares and per share data have been restated for the three for two forward share split effected February 15, 1996. NOTE 2. INVESTMENTS IN PARTNERSHIPS The Trust's investments in partnerships accounted for using the equity method consisted of the following at June 30, 1996: Sacramento Nine....................... $ (34) Indcon, L.P........................... 2,093 ------------- $2,059
The Trust and National Income Realty Trust ("NIRT") are partners in Sacramento Nine, the Trust having a 30% interest in the partnership's earnings, losses and distributions. The Trust and NIRT are also partners in Income Special Associates ("ISA"), a joint venture partnership in which the Trust has a 60% interest in earnings, losses and distributions. ISA in turn owns a 100% interest in Indcon, L.P. The partnership agreements require the consent of both the Trust and NIRT for any material changes in the operations of the partnerships' properties, including sales, refinancings and changes in property management. The Trust, as a noncontrolling partner, accounts for its investment in the partnerships using the equity method. In February and March 1996, Indcon sold 25 of its industrial warehouses for a total of $36.2 million in cash. Indcon received net cash of $14.2 million, of which the Trust's equity share was $8.5 million, after the payoff of existing mortgage debt with a principal balance of $23.4 million. Indcon recognized a gain of $617,000 on the sale, of which the Trust's equity share was $370,000. Indcon paid a real estate sales commission of $585,000 to Carmel Realty, Inc. ("Carmel Realty"), an affiliate of Basic Capital Management, Inc. ("BCM"), the Trust's advisor, based upon the $36.2 million sales price of the properties. In March 1996, Indcon reached a settlement with an insurance company on the fire loss of one of its industrial warehouses. Indcon received a 8 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations Continued a $1.5 million second lien mortgage in February 1996 and a $750,000 wraparound mortgage note accepted in February 1996 in conjunction with the sale of Rivertree Apartments. Interest income for the remainder of 1996 is expected to approximate that of the first six months of 1996. Property operating expenses increased from $5.6 million and $10.6 million for the three and six months ended June 30, 1995 to $6.7 million and $12.9 million for the three and six months ended June 30, 1996. Increases of $1.3 million and $1.7 million are due to the acquisition of four apartment complexes and four commercial properties subsequent to June 30, 1995. The remainder of the increase is primarily due to increased repair and maintenance and personnel expenses in an effort to maintain the Trust's increased rental and occupancy rates. These increases are partially offset by decreases of $261,000 and $312,000 due to properties sold in 1996. Interest expense increased from $2.4 million and $4.5 million for the three and six months ended June 30, 1995 to $3.1 million and $6.1 million for the three and six months ended June 30, 1996. Of this increase, $340,000 and $1.0 million for the three and six months, respectively, is due to interest expense recorded on mortgages secured by nine properties, encumbered by debt, acquired during 1996 and 1995. An additional $278,000 and $434,000 for the three and six months, respectively, is due to interest expense recorded on borrowings during 1996 and 1995, secured by mortgages on three previously unencumbered apartment complexes and the refinancing of four existing mortgages. Interest expense is expected to increase in the remainder of 1996, as a result of the Trust's acquisition of other properties and refinancings during the remainder of 1996. Depreciation expense increased from $1.1 million and $2.0 million for the three and six months ended June 30, 1995 to $1.1 million and $2.2 million for the same period in 1996. This increase is due to the acquisition of five apartment complexes and six commercial properties during 1996 and 1995. Depreciation is expected to increase in the remainder of 1996, as a result of the Trust's acquisition of three commercial properties and one apartment complex in 1996, as well as acquisitions subsequent to June 30, 1996. A provision for losses of $541,000 was recognized in the six months ended June 30, 1995 to provide for the loss on the discounted payoff of the mortgage note receivable secured by Alderwood Apartments. No provision was required in 1996. Advisory fee to affiliate increased from $393,000 and $745,000 for the three and six months ended June 30, 1995 to $469,000 and $851,000 for the three and six months ended June 30, 1996. This increase is due to an increase in the Trust's gross assets, the basis for the advisory fee, as a result of property acquisitions 1995 and 1996. The advisory fee is expected to continue to increase as the Trust makes additional property acquisitions. 18 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued) Results of Operations (Continued) General and administrative expenses increased from $264,000 and $629,000 for the three and six months ended June 30, 1995 to $590,000 and $939,000 for the three and six months ended June 30, 1996. This increase is primarily attributable to an increase in legal fees and Advisor cost reimbursements. The Trust's equity in earnings of partnerships was a loss of $213,000 for the three months ended June 30, 1996 and income of $176,000 for the six months ended June 30, 1996 as compared to income of $176,000 and $189,000 in the three and six months ended June 30, 1996. Included in equity earnings of partnerships for the six months ended June 30, 1996 is a $370,000 gain on sale of real estate, the Trust's equity share of the gain recognized by Indcon, L.P. ("Indcon"), a joint venture partnership, on the sale of 27 of its industrial warehouses. Excluding such gain, the Trust's equity in earnings of partnerships would have been a loss of $194,000 for the six months ended June 30, 1996. This decrease in equity in earnings of partnerships is primarily due to the sale of 27 warehouse facilities owned by Indcon in the first quarter of 1996. In addition, interest expense for Sacramento Nine ("SAC 9"), also a joint venture partnership, increased as a result of new mortgage financing secured on a previously unencumbered office building owned by SAC 9. See NOTE 2. "INVESTMENTS IN PARTNERSHIPS." Equity in earnings of partnerships is expected to be minimal for the remainder of 1996. For the three and six months ended June 30, 1996, the Trust recognized gains on the sale of real estate of $378,000 on the sale of Rivertree Apartments in February 1996 and $5.4 million on the sale of Sunset Towers Apartments in May 1996. See NOTE 4. "REAL ESTATE." In the six months ended June 30, 1996, the Trust recognized an extraordinary gain of $663,000, its equity share of an insurance settlement from a fire loss on one of Indcon's industrial warehouses . See NOTE 2. "INVESTMENTS IN PARTNERSHIPS." Tax Matters As more fully discussed in the Trust's 1995 Form 10-K, the Trust has elected and in the opinion of the Trust's management, qualified to be taxed as a Real Estate Investment Trust ("REIT") as defined under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, (the "Code"). To continue to qualify for federal taxation as a REIT under the Code, the Trust is required to hold at least 75% of the value of its total assets in real estate assets, government securities and cash and cash equivalents at the close of each quarter of each taxable year. The Code also requires a REIT to distribute at least 95% of its REIT taxable income plus 95% of its net income from foreclosure property, as defined in Section 857 of the Code, on an annual basis to shareholders. 19 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued) Inflation The effects of inflation on the Trust's operations are not quantifiable. Revenues from property operations fluctuate proportionately with increases and decreases in housing costs. Fluctuations in the rate of inflation also affect the sales values of properties and, correspondingly, the ultimate gains to be realized by the Trust from 19A EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 14,870 5,926 8,807 6,128 0 0 203,847 17,372 221,825 0 135,205 0 0 0 80,168 221,824 0 21,770 0 12,903 2,294 0 6,063 (727) 0 (727) 0 663 0 5,911 1.39 1.39
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