-----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, Wkvzpf5GD/tYHrwjaPDtKCa7zyOBNnyopMZQe29N8rezXYN+hSHsrMu3nSpis3Kv MY+JteijacG87aFY6sv3rQ== 0000950134-96-005950.txt : 19961113 0000950134-96-005950.hdr.sgml : 19961113 ACCESSION NUMBER: 0000950134-96-005950 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 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: 96658574 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 MARCH 31, 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 MARCH 31, 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 4,222,905 - ------------------------------ -------------------------------- (Class) (Outstanding at April 30, 1996) 1 2 This Form 10-Q/A amends the Registrant's quarterly report on Form 10-Q for the quarter ended March 31, 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 14 and 15 PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - EXHIBIT 27.0 FINANCIAL DATA SCHEDULE - page 21 3 CONTINENTAL MORTGAGE AND EQUITY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months Ended March 31, ------------------------------ 1996 1995 ------------ ------------ (dollars in thousands, except per share) Revenues Rents........................................ $ 10,707 $ 8,361 Interest..................................... 251 200 ------------ ------------ 10,958 8,561 Expenses Property operations.......................... 6,210 4,985 Interest..................................... 2,927 2,106 Depreciation................................. 1,137 963 Provision for losses......................... - 541 Advisory fee to affiliate.................... 382 352 General and administrative................... 349 365 ------------ ------------ 11,005 9,312 ------------ ------------ (Loss) from operations ........................ (47) (751) Equity in income of partnerships............... 395 107 Gain on sale of real estate.................... 378 - ------------ ------------- Income (loss) before extraordinary gain........ 726 (644) Extraordinary gain............................. 697 - ------------ ------------ Net income (loss).............................. $ 1,423 $ (644) ============ ============ Earnings per share Income (loss) before extraordinary gain........ $ .17 $ (.15) Extraordinary gain............................. .16 - ----------- ----------- Net income (loss).............................. $ .33 $ (.15) =========== =========== Weighted average shares of beneficial interest used in computing earnings per share......... 4,332,699 4,377,189 =========== ===========
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 Three Months Ended March 31, ------------------------------ 1996 1995 ------------ ------------ (dollars in thousands) Reconciliation of net income (loss) to net cash provided by operating activities Net income (loss).................................. $ 1,423 $ (644) Adjustments to reconcile net income (loss) to net cash provided by operating activities Gain on sale of real estate...................... (378) - Extraordinary gain............................... (697) - Depreciation and amortization.................... 1,134 922 Provision for loss............................... - 541 Equity in (income) of partnerships............... (395) (107) (Increase) in interest receivable................ (71) (75) (Increase) decrease in other assets.............. 84 (254) (Decrease) in other liabilities.................. (443) (13) Increase in interest payable..................... 194 129 Distributions from partnerships' operating cash flow.......................................... 570 224 ----------- ----------- Net cash provided by operating activities........ $ 1,421 $ 723 =========== =========== Noncash investing and financing activities Notes payable from acquisition of real estate.... $ - $ 13,803 Mortgage note receivable from real estate sale... 750 - Unrealized gain on marketable equity securities.. 1,003 61 Carrying value of real estate acquired through insubstance foreclosure....................... - 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 three month period ended March 31, 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 March 31, 1996: Sacramento Nine....................... $ (50) Indcon, L.P........................... 3,873 ---------- $ 3,823 ==========
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 completed the sale of 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 will receive a total of $2.2 million, of which $1.9 million had been received as of 8 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Liquidity and Capital Resources (Continued) to earnings. In the case of properties held for investment the carrying value of the property is written down and a provision for loss is recorded. The estimate of net realizable value of the Trust's mortgage notes receivable is based on management's review and evaluation of the collateral property securing the mortgage note. The property review generally includes selective property inspections, a review of the property's current rents compared to market rents, a review of the property's expenses, a review of maintenance requirements, discussions with the manager of the property and a review of the surrounding area. See "Recent Accounting Pronouncement," below. Results of Operations For the quarter ended March 31, 1996, the Trust had net income of $1.4 million, compared to a net loss of $644,000 for the quarter ended March 31, 1995. The primary factors contributing to the Trust's net income are discussed in the following paragraphs. Rents increased from $8.4 million for the three months ended March 31, 1995 to $10.7 million for the three months ended March 31, 1996. Of this increase, $1.3 million is attributable to the acquisition of four apartment complexes and two commercial properties subsequent to March 31, 1995 and an additional $342,000 is attributable to the acquisition of two commercial properties in March 1995. The remainder of the increase is due to increased rental and occupancy rates at the Trust's apartment complexes. Interest income was $200,000 for the three months ended March 31, 1995 compared to $251,000 for the three months ended March 31, 1996. This increase is due to the funding of a $1.5 million second lien mortgage in February 1996 and a $750,000 wraparound mortgage note issued in February 1996 in conjunction with the sale of Rivertree Apartments. Interest income is expected to increase for the remainder of 1996, as a result of the $1.5 million second lien mortgage funded by the Trust in February 1996. Property operating expenses increased from $5.0 million for the three months ended March 31, 1995 to $6.2 million for the three months ended March 31, 1996. Of this increase, $682,000 is due to the acquisition of four apartment complexes and two commercial properties subsequent to March 31, 1995 and an additional $183,000 is due to the acquisition of two commercial properties in March 1995. The remainder of the increase is primarily due to increased repairs and maintenance and personnel expenses in an effort to maintain the Trust's increased rental and occupancy rates. Interest expense increased from $2.1 million for the three months ended March 31, 1995 to $2.9 million for the three months ended March 31, 1996. Of this increase, $660,000 is due to interest expense recorded on mortgages secured by six properties acquired subsequent to March 31, 1995 and two properties acquired in March 1995. An additional $156,000 14 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations Continued is due to interest expense recorded on borrowings subsequent to March 31, 1995, secured by a mortgage on a previously unencumbered apartment complex and the refinancing of an existing mortgage. Interest expense is expected to increase in the remainder of 1996, as a result of the Trust's acquisition of a commercial property in February 1996 incumbered by debt. Depreciation expense increased from $963,000 for the three months ended March 31, 1995 to $1.1 million for the same period in 1996. This increase is due to the acquisition of four apartment complexes and two commercial properties subsequent to March 31, 1995. Depreciation is also expected to increase in the remainder of 1996, as a result of the Trust's acquisition of a commercial property in February 1996 and two commercial properties in April 1996. A provision for losses of $541,000 was recognized in the three months ended March 31, 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 $352,000 for the three months ended March 31, 1995 to $383,000 for the three months ended March 31, 1996. This increase is due to an increase in the Trust's gross assets, the basis for the advisory fee, as a result of the acquisition of six properties subsequent to March 31, 1995. The advisory fee is expected to continue to increase as the Trust makes additional property acquisitions. General and administrative expenses decreased slightly from $365,000 for the three months ended March 31, 1995 to $349,000 for the three months ended March 31, 1996. This decrease is primarily attributable to a decrease in legal fees. The Trust's equity in earnings of partnerships was $395,000 for the three months ended March 31, 1996 as compared to $107,000 for the three months ended March 31, 1995. Included in equity earnings of partnerships for the three months ended March 31, 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 25 of its industrial warehouses. Excluding such gain, the Trust's equity in earnings of partnerships would have been income of $25,000 for the three months ended March 31, 1996. This decrease in equity in earnings of partnerships is primarily due to the sale of 25 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. See NOTE 2. "INVESTMENTS IN PARTNERSHIPS." 15 8 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations Continued For the three months ended March 31,1996, the Trust recognized a gain on the sale of real estate of $378,000 on the sale of Rivertree Apartments in February 1996. See NOTE 4. "REAL ESTATE." For the three months ended March 31, 1996, the Trust recognized an extraordinary gain of $697,000, its equity share of an insurance settlement from a fire loss on one of Indcon's industrial warehouses. See NOTE 2. "INVESTMENTS IN PARTNERSHIPS." 15A EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 11,670 5,756 8,842 6,305 0 0 211,337 18,259 224,636 0 141,717 0 0 0 76,557 224,636 0 10,707 0 6,210 1,137 0 2,927 (47) 0 (47) 0 697 0 1,423 .33 .33
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