-----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, HajVj5E6G4EtVRJf46bZ3JiBzK7eQZZuQIA0Mxr1N0NegMW1vdj2Jpbv+uA3/8nV bS32fZY43CpGiux/egWbgg== 0000950134-96-005951.txt : 19961113 0000950134-96-005951.hdr.sgml : 19961113 ACCESSION NUMBER: 0000950134-96-005951 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 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-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-10503 FILM NUMBER: 96658578 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-K/A 1 AMENDMENT TO FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A [X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1995 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, Texas 75231 - -------------------------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) (214) 692-4700 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities Registered Pursuant to Section 12(b) of the Act: NONE Securities Registered Pursuant to Section 12(g) of the Act: Shares of Beneficial Interest, no par value Indicate by check mark whether the Registrant (1) has filed all reports required to 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 at least the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 15, 1996, the Registrant had 4,246,868 shares of beneficial interest outstanding. Of the total shares outstanding, 2,149,254 were held by other than those who may be deemed to be affiliates, for an aggregate value of $20,686,570 based on the last trade as reported on The Nasdaq Stock Market on March 15, 1996. The basis of this calculation does not constitute a determination by the Registrant that all of such persons or entities are affiliates of the Registrant as defined in Rule 405 of the Securities Act of 1933, as amended. Documents Incorporated by Reference: NONE 1 2 This Form 10-K/A amends the Registrant's annual report on Form 10-K for the fiscal year ended December 31, 1995 as follows: ITEM 6. SELECTED FINANCIAL DATA - page 25 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - pages 29, 30, 31, 32 and 33 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - pages 37, 40 and 42 ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K - EXHIBIT 27.0 FINANCIAL DATA SCHEDULE - page 95 3 ITEM 5. MARKET FOR THE REGISTRANT'S SHARES OF BENEFICIAL INTEREST AND RELATED SHAREHOLDER MATTERS (Continued) may have owned, the limitation should no longer apply to Mr. Friedman or his affiliates. The Board of Trustees also determined that there was no reason to object to the purchase of additional shares of the Trust by the shareholder group and on August 23, 1994, the Trust's Board of Trustees adopted a resolution to the effect that they do not object to the acquisition of up to 49% of the Trust's outstanding shares of beneficial interest by Mr. Phillips and his affiliates. In determining total ownership, shares of beneficial interest of the Trust, if any, owned by Mr. Friedman and his affiliates are no longer to be included. Pursuant to this action, Mr. Phillips and his affiliates may not acquire more than 49% of the Trust's outstanding shares of beneficial interest without the prior action of the Trust's Board of Trustees to the effect that they do not object to such increased ownership. At March 15, 1996, Mr. Phillips and his affiliates, primarily ART and BCM, owned approximately 51% of the Trust's outstanding shares of beneficial interest. The increase in ownership above 49% is the result of the Trust repurchasing its shares in 1996. On March 21, 1996, the Trust's Board of Trustees reconsidered the share ownership limitation and determined that there was no reason to object to the purchase by Mr. Phillips and his affiliates of additional shares in excess of 49% of the Trust's outstanding shares. Accordingly, there is no longer any limitation on the percentage of shares of the Trust which may be acquired by Mr. Phillips and his affiliates. ITEM 6. SELECTED FINANCIAL DATA
For the Years Ended December 31, ------------------------------------------------------------- 1995 1994 1993 1992 1991 -------- --------- --------- --------- --------- (dollars in thousands, except per share) EARNINGS DATA Revenues................ $ 38,309 $ 29,741 $ 24,288 $ 21,162 $ 15,486 Expenses................ 39,982 31,803 23,460 20,443 15,812 --------- --------- --------- --------- --------- Income (loss) from operations............ (1,673) (2,062) 828 719 (326) Equity in income (loss) of partnerships....... 230 98 (213) (344) (308) Gain on sale of real estate........... - 1,131 - 383 91 Extraordinary gain...... - - - - 930 --------- --------- --------- --------- --------- Net income (loss)....... $ (1,443) $ (833) $ 615 $ 758 $ 387 ========= ========= ========= ========= ========= EARNINGS PER SHARE DATA Income (loss) before extraordinary gain.... $ (.33) $ (.19) $ .13 $ .15 $ (.10) Extraordinary gain...... - - - - .17 --------- --------- --------- --------- --------- Net income (loss)....... $ (.33) $ (.19) $ .13 $ .15 $ .07 ========= ========= ========= ========= ========= Distributions per share. $ .40 $ .40 $ .33 $ - $ .71 Weighted average shares outstanding.... 4,377,165 4,379,722 4,521,384 5,058,762 5,308,398
25 4 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations (Continued) $1.8 million is due to the acquisition of four apartment complexes and three commercial properties in 1995, $1.7 million is due to the acquisition of seven apartment complexes and one commercial property in 1994, which did not contribute to net rental income for the full year in 1994, and $804,000 of the increase is attributable to two apartment complexes obtained through foreclosure in 1994. An additional increase of $640,000 is attributable to generally higher rents and occupancy at the Trust's apartment complexes. These increases are offset in part by a $244,000 decrease in net rental income at one of the Trust's commercial properties and one of the Trust's apartment complexes due to a decrease in occupancy and higher operating expenses incurred in an effort to increase occupancy. Net rental income is expected to continue to increase in 1996, primarily from a full year of operations from the four apartment complexes and three commercial properties acquired in 1995 and from the anticipated purchase of additional real estate in 1996. Interest income decreased from $2.7 million in 1994 to $723,000 in 1995. Of this decrease, $1.7 million is attributable to a $14.0 million wraparound mortgage note receivable which was paid in full in December 1994 and $99,000 is attributable to the discounted payoff of a $1.5 million first mortgage note receivable in May 1995. An additional $486,000 is due to the foreclosure of two properties during 1994 and one property during 1995 which secured three of the Trust's other mortgage notes receivable. These decreases are partially offset by an increase of $299,000 attributable to a $1.4 million first mortgage note receivable which was received in December 1994 in connection with the payoff of the $14.0 million mortgage note receivable discussed above. Interest income is expected to continue at the current level in 1996, as the Trust is generally not considering new mortgage lending except in connection with purchase money financing of sales of the Trust's properties. Interest expense increased from $7.7 million in 1994 to $10.0 million in 1995. Of this increase, $2.4 million is due to interest expense recognized on mortgages secured by properties acquired in 1994 and 1995. An additional $766,000 is due to interest expense on six borrowings in 1994 and 1995, secured by mortgages on previously unencumbered apartment complexes and refinancing of existing mortgages. These increases are partially offset by a decrease of $855,000 due to the payoff of the underlying lien related to the payoff of a $14.0 million wraparound mortgage note receivable in December 1994. Depreciation expense increased from $3.2 million in 1994 to $4.3 million in 1995. This increase is due to the acquisition of four apartment complexes and three commercial properties in 1995 and seven apartment complexes and one commercial property in 1994. A provision for losses of $541,000 was recorded in 1995 to provide for the loss on the discounted payoff of the mortgage note receivable secured by Alderwood Apartments. A provision for losses of $1.2 million 29 5 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations (Continued) was recorded in 1994 to write down the Genessee Towers, an office building, to the amount of the nonrecourse mortgage debt. In addition, a provision for losses of $200,000 was recorded in 1994 to provide for the loss on the sale of Oak Forest Apartments, one of the Trust's foreclosed properties held for sale. See NOTE 4. "REAL ESTATE AND DEPRECIATION." Advisory fee to affiliate was comparable at $1.3 million in 1995 and 1994. Although the Trust's gross assets, the basis for the advisory fee, increased in 1995, the advisory agreement requires a portion of the advisory fee be refunded if certain operating expenses exceed limits specified in the Declaration of Trust. The effect of this limitation was to require that BCM refund $250,000 of the annual advisory fee for 1995. General and administrative expenses were comparable at $1.2 million in 1995 and 1994. A decrease in legal fees was offset by expenses incurred in connection with the Trust's annual meeting. The Trust's equity in earnings of partnerships improved from $98,000 in 1994 to $230,000 in 1995. Included in the 1994 equity in earnings of partnerships is a $577,000 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 one of its industrial warehouses. Excluding such gain, the Trust's equity in earnings of partnerships would have been a loss of $479,000 in 1994. The improvement in equity earnings of partnerships in 1995 over 1994 is primarily due to higher rents and occupancy at the 31 industrial warehouse facilities owned by Indcon. This improvement is partially offset by an increase in losses in Sacramento Nine ("SAC 9"), also a joint venture partnership, due to increased interest expense, as a result of new mortgage financing secured by a previously unencumbered office building. In February and March 1996, Indcon completed the sale of 25 of its 31 industrial warehouse facilities. See NOTE 6. "INVESTMENT IN EQUITY METHOD PARTNERSHIPS." For the year 1994, the Trust recognized a gain of $1.1 million on the settlement of a profit participation related to the December 1994 payoff of one of the Trust's wraparound mortgage note receivable. See NOTE 2. "NOTES AND INTEREST RECEIVABLE." 1994 compared to 1993. For the year 1994, the Trust had a net loss of $833,000, as compared to net income of $615,000 for the year 1993. The primary factors contributing to the decrease in the Trust's net income are discussed in the following paragraphs. Net rental income (rents income less expenses applicable to rents) increased from $8.2 million in 1993 to $10.2 million in 1994. Of this increase, $1.5 million is due to the acquisition of seven apartment complexes and one commercial property in 1994. An additional $284,000 of the increase is attributable to two apartment complexes obtained through foreclosure in 1994 and $1.1 million is due to the acquisition 30 6 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations (Continued) of three apartment complexes and one commercial property in 1993. An additional increase of approximately $400,000 is attributable to generally higher rents and occupancy at the Trust's properties. These increases are offset in part by a $1.3 million decrease in net rental income at four of the Trust's commercial properties and three of the Trust's apartment complexes due to a decrease in occupancy and higher operating expenses incurred in an effort to increase occupancy. Interest income decreased from $3.3 million in 1993 to $2.7 million in 1994. Of this decrease, $356,000 is attributable to a loan on which the borrower filed for bankruptcy protection in November 1993 and began making cash flow only payments in April 1994. The Trust completed foreclosure of the property securing this loan in October 1994. Of the decrease, an additional $191,000 is attributable to three loans which were paid off subsequent to August 1993 and $38,000 is attributable to loans which were classified as nonperforming in 1994. Interest income is expected to decline further in 1995 due to a $14.0 million wraparound mortgage note receivable being paid in full in December 1994 and due to the foreclosure during 1994 of two properties securing two of the Trust's other mortgage notes receivable. Interest expense increased from $5.5 million in 1993 to $7.7 million in 1994. Of this increase, $1.5 million is due to interest expense recorded on mortgages secured by properties acquired in 1993 and 1994. An additional $597,000 is due to interest expense on a borrowing in September 1993 and four borrowings in 1994, all secured by mortgages on previously unencumbered apartment complexes. Depreciation expense increased from $2.4 million in 1993 to $3.2 million in 1994. This increase is due to the acquisition of seven apartment complexes and one commercial property in 1994 and four apartment complexes and one commercial property in 1993. A provision for losses of $1.2 million was recorded in 1994 to write down the Genessee Towers, an office building, to the amount of the nonrecourse mortgage debt. In addition, a provision for losses of $200,000 was recorded in 1994 to provide for the loss on the sale of Oak Forest Apartments, one of the Trust's foreclosed properties held for sale. (See NOTE 4. "REAL ESTATE AND DEPRECIATION.") A provision for loss of $221,000 was recorded in 1993 to provide for the loss on the sale of English Hills Apartments, also a foreclosed property held for sale. Advisory fee to affiliate increased from $1.2 million in 1993 to $1.3 million in 1994. This increase is due to an increase in the Trust's gross assets, the basis for the advisory fee, as a result of the Trust's acquisition of eight properties in 1994 and five properties in 1993. General and administrative expenses decreased from $1.3 million in 1993 to $1.2 million in 1994. A decrease in legal fees and expenses incurred in connection with the Trust's annual meeting were offset in part by an increase in cost reimbursements to the Trust's advisor. 31 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations (Continued) The Trust's equity in earnings of partnerships improved from a loss of $213,000 in 1993 to income of $98,000 in 1994. The 1993 equity in earnings of partnerships includes a gain on the sale of real estate of $365,000 related to the sale of three properties of SAC 9, a joint venture partnership. The 1994 equity in earnings of partnerships includes a gain on the sale of real estate of $577,000 related to the sale of an industrial warehouse facility by Indcon, also a joint venture partnership. Excluding such gains, equity in earnings of partnerships would have improved from a loss of $578,000 in 1993 to a loss of $479,000 in 1994. This improvement in equity earnings of partnerships is primarily due to higher rents and occupancy at the industrial warehouse facilities owned by Indcon. For the year 1994, the Trust recognized a gain of $1.1 million on the settlement of a profit participation related to the 1994 payoff of one of the Trust's notes receivable. The Trust recognized no such gains in 1993. Environmental Matters Under various federal, state and local environmental laws, ordinances and regulations, the Trust may be potentially liable for removal or remediation costs, as well as certain other potential costs relating to hazardous or toxic substances (including governmental fines and injuries to persons and property) where property-level managers have arranged for the removal, disposal or treatment of hazardous or toxic substances. In addition, certain environmental laws impose liability for release of asbestos-containing materials into the air, and third parties may seek recovery from the Trust for personal injury associated with such materials. The Trust's management is not aware of any environmental liability relating to the above matters that would have a material adverse effect on the Trust's business, assets or results of operations. 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 property sales. Inflation also has an effect on the Trust's earnings from short-term investments. Tax Matters For the years ended December 31, 1995, 1994 and 1993, the Trust elected and in the opinion of the Trust's management, qualified to be treated as a REIT as defined under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the "Code"). To continue to qualify for 32 8 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Tax Matters (Continued) 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, 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. Recent Accounting Pronouncements In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of". The statement requires that long-lived assets be considered impaired "...if the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset." If impairment exists, an impairment loss shall be recognized, by a charge against earnings, equal to "...the amount by which the carrying amount of the asset exceeds the fair value of the asset." If impairment of a long-lived asset is recognized, the carrying amount of the asset shall be reduced by the amount of the impairment, shall be accounted for as the asset's "new cost" and such new cost shall be depreciated over the asset's remaining useful life. SFAS No. 121 further requires that long-lived assets held for sale "...be reported at the lower of carrying amount or fair value less cost to sell." If a reduction in a held for sale asset's carrying amount to fair value less cost to sell is required, a provision for loss shall be recognized by a charge against earnings. Subsequent revisions, either upward or downward, to a held for sale asset's fair value less cost to sell shall be recorded as an adjustment to the asset's carrying amount, but not in excess of the asset's carrying amount when originally classified or held for sale. A corresponding charge or credit to earnings is to be recognized. Long-lived assets held for sale are not to be depreciated. SFAS No. 121 is effective for fiscal years beginning after December 15, 1995. The Trust's management estimates that if the Trust had adopted SFAS No. 121 effective January 1, 1995, the Trust's depreciation for 1995 would have been reduced by $229,000, its net loss would have been reduced by a like amount and a provision for loss for either impairment of its properties held for investment or for a decline in estimated fair value less cost to sell of its properties held for sale would not have been required. The Trust adopted SFAS No. 121 effective January 1, 1996. 33 9 CONTINENTAL MORTGAGE AND EQUITY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, ------------------------------------------ 1995 1994 1993 ---------- ---------- --------- (dollars in thousands, except per share) Revenues Rents.............................. $ 37,586 $ 27,042 $ 20,996 Interest (including $20 in 1993 from affiliates)................. 723 2,699 3,292 --------- --------- --------- 38,309 29,741 24,288 Expenses Property operations (including $806 in 1995, $570 in 1994 and $296 in 1993 to affiliates)...... 22,682 16,888 12,791 Interest........................... 10,009 7,711 5,531 Depreciation....................... 4,279 3,214 2,431 Provision for losses............... 541 1,429 221 Advisory fee to affiliate.......... 1,264 1,326 1,160 General and administrative (including $506 in 1995, $524 in 1994 and $453 in 1993 to affiliate)....................... 1,207 1,235 1,326 --------- --------- --------- 39,982 31,803 23,460 --------- --------- Income (loss) from operations........ (1,673) (2,062) 828 Equity in income (loss) of partnerships........................ 230 98 (213) Gain on sale of real estate.......... - 1,131 - --------- --------- --------- Net income (loss).................... $ (1,443) $ (833) $ 615 ========= ========= ========= Earnings per share Net income (loss).................... $ (.33) $ (.19) $ .13 ======== ========= ========= Weighted average shares of beneficial interest used in computing earnings per share....... 4,377,165 4,379,722 4,521,384 ========= ========= =========
The accompanying notes are an integral part of these Consolidated Financial Statements. 37 10 CONTINENTAL MORTGAGE AND EQUITY TRUST CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended December 31, ------------------------------------- 1995 1994 1993 ---------- ----------- --------- (dollars in thousands) Cash Flows from Financing Activities Proceeds from notes payable......... $ 12,506 $ 10,078 $ 2,389 Payments on notes payable........... (7,590) (3,666) (808) Proceeds from margin borrowings..... - - 500 Distributions to shareholders....... (1,751) (1,752) (1,504) Repurchase of shares of beneficial interest.......................... - (84) (2,320) Distribution from partnership's financing cash flows.............. 1,025 - - ------------- ------------ ------------ Net cash provided by (used in) financing activities.......... 4,190 4,576 (1,743) ------------- ------------ ------------ Net increase (decrease) in cash and cash equivalents.................... (1,092) 5,707 (606) Cash and cash equivalents, beginning of year............................. 7,478 1,771 2,377 ------------- ------------ ------------ Cash and cash equivalents, end of year................................ $ 6,386 $ 7,478 $ 1,771 ============= ============ ============ Reconciliation of net income (loss) to net cash provided by operating activities Net income (loss)................. $ (1,443) $ (833) $ 615 Adjustments to reconcile net income (loss) to net cash provided by operating activities Gain on sale of real estate....... - (1,131) - Depreciation and amortization..... 4,240 3,307 2,663 Equity in (income) loss of partnerships.................... (230) (98) 213 Provision for losses.............. 541 1,429 221 (Increase) decrease in interest receivable...................... (1) 309 (219) (Increase) decrease in other assets.......................... 432 (785) 98 Increase (decrease) in other liabilities..................... 204 468 407 Increase in interest payable...... 756 156 80 Distributions from partnerships' operating cash flow............. 41 191 - ------------- ------------ ------------ Net cash provided by operating activities........ $ 4,540 $ 3,013 $ 4,078 ============= ============ ============
The accompanying notes are an integral part of these Consolidated Financial Statements. 40 11 CONTINENTAL MORTGAGE AND EQUITY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The accompanying Consolidated Financial Statements of Continental Mortgage and Equity Trust and consolidated entities (the "Trust") have been prepared in conformity with generally accepted accounting principles, the most significant of which are described in NOTE 1. "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES". These, along with the remainder of the Notes to the Consolidated Financial Statements, are an integral part of the Consolidated Financial Statements. The data presented in the Notes to Consolidated Financial Statements are as of December 31 of each year and for the year then ended, unless otherwise indicated. Dollar amounts in tables are in thousands, except per share amounts. Certain balances for 1994 and 1993 have been reclassified to conform to the 1995 presentation. Shares and per share data have been restated for the three for two forward share split effected February 15, 1996. NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Trust business. Continental Mortgage and Equity Trust ("CMET") is a California business trust organized on August 27, 1980. The Trust may invest in real estate through direct ownership, leases and partnerships and it may also invest in mortgage loans on real estate, including first, wraparound and junior mortgage loans. Basis of consolidation. The Consolidated Financial Statements include the accounts of CMET and partnerships and subsidiaries which it controls. All intercompany transactions and balances have been eliminated. Accounting estimates. In the preparation of the Trust's Consolidated Financial Statements in conformity with generally accepted accounting principles it was necessary for the Trust's management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the Consolidated Financial Statements and the reported amounts of revenues and expenses for the year then ended. Actual results could differ from these estimates. Interest recognition on notes receivable. It is the Trust's policy to cease recognizing interest income on notes receivable that have been delinquent for 60 days or more. In addition, accrued but unpaid interest income is only recognized to the extent that the net realizable value of the underlying collateral exceeds the carrying value of the receivable. Allowance for estimated losses. Valuation allowances are provided for estimated losses on notes receivable and properties held for sale to the extent that the investment in the notes or properties exceeds the Trust's estimate of net realizable value of the property or collateral securing each such note, or fair value of the collateral if foreclosure is probable. In estimating net realizable value, consideration is given to the current estimated collateral or property value adjusted for costs 42 EX-27 2 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 6,386 4,753 6,539 6,305 0 0 205,269 17,735 218,568 0 135,590 0 0 0 75,985 218,568 0 37,586 0 22,682 4,279 541 10,009 (1,673) 0 (1,673) 0 0 0 (1,443) (.33) (.33)
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