-----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, AyiushEuDekEzwAjgHI4JLDhcfYLSSUtLW8lWFulxa1XMAmcNwXpRTDqEpVTp9XM w84SJmL0CfuQluBBmSwepw== 0000773337-95-000004.txt : 19951119 0000773337-95-000004.hdr.sgml : 19951119 ACCESSION NUMBER: 0000773337-95-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTENNIAL MORTGAGE INCOME FUND II CENTRAL INDEX KEY: 0000773337 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 330112106 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-15448 FILM NUMBER: 95592020 BUSINESS ADDRESS: STREET 1: 1540 S LEWIS STREET CITY: ANAHEIM STATE: CA ZIP: 92805 BUSINESS PHONE: 7145028484225 MAIL ADDRESS: STREET 2: 1540 S LEWIS STREET CITY: ANAHEIM STATE: CA ZIP: 92805 10-Q 1 CENTENNIAL MORTGAGE INCOME FUND II PART 1 ITEM 1. FINANCIAL STATEMENTS CENTENNIAL MORTGAGE INCOME FUND II A Limited Partnership Consolidated Balance Sheets (Unaudited)
September 30, December 31, ASSETS 1995 1994 ------------------------------- Cash and cash equivalents $ 2,317,000 $ 1,908,000 Restricted cash 11,000 11,000 Real estate loans receivable, earning 26,000 305,000 Real estate loans receivable from unconsolidated investees (note 4) 560,000 213,000 Real estate loans receivable from unconsolidated investees, nonearning, (note 4) 2,128,000 2,600,000 ------------------------------- 2,714,000 3,118,000 Less allowance for possible loan losses 8,000 8,000 ------------------------------ Net real estate loans receivable 2,706,000 3,110,000 Real estate owned, net, held for sale (note 3) 11,311,000 11,284,000 Less allowance for possible losses on real estate owned 2,545,000 2,445,000 ------------------------------ Net real estate owned 8,766,000 8,839,000 Due from affiliates --- 99,000 Accrued interest receivable --- 10,000 Other assets 23,000 20,000 ------------------------------ $ 13,823,000 $ 13,997,000 ==============================
See accompanying notes to consolidated financial statements CENTENNIAL MORTGAGE INCOME FUND II A Limited Partnership Consolidated Balance Sheets (Unaudited) (Continued)
September 30, December 31, LIABILITIES AND PARTNERS' EQUITY 1995 1994 ------------------------------- Note payable $ 195,000 $ 224,000 Accounts payable and accrued liabilities 23,000 26,000 Interest and property taxes payable on real estate owned 205,000 155,000 Payable to affiliates (note 4) 721,000 7,000 -------------------------------- Total liabilities 1,144,000 412,000 Partners' equity (deficit)-- 29,141 limited partnership units outstanding at September 30, 1995 and December 31, 1994 General partners' (195,000) (195,000) Limited partners' 12,874,000 13,780,000 --------------------------------- Total partners' equity 12,679,000 13,585,000 Contingencies (note 5) ---------------------------------- $ 13,823,000 $ 13,997,000 ==================================
See accompanying notes to consolidated financial statements CENTENNIAL MORTGAGE INCOME FUND II A Limited Partnership Consolidated Statements of Operations (Unaudited)
Nine Months Three Months Ended September 30, Ended September 30, 1995 1994 1995 1994 -------------------------------------------------------- Revenue: Interest on loans to non-affiliates, including fees $ 37,000 $ 82,000 $ 14,000 $ 55,000 Interest on loans to affiliates, including fees 32,000 --- 32,000 --- Interest-bearing deposits 39,000 25,000 12,000 7,000 Income from operations of real estate owned 103,000 211,000 35,000 65,000 -------------------------------------------------------- Total revenue 211,000 318,000 93,000 127,000 Expenses: Provision for possible losses 199,000 137,000 99,000 73,000 Share of losses in unconsolidated investees 472,000 --- 162,000 --- Loss on sale of real estate owned --- 6,000 --- 10,000 Operating expenses from operations of real estate owned 62,000 131,000 25,000 38,000 Operating expenses from operations of real estate owned paid to affiliates 9,000 11,000 3,000 3,000 Expenses associated with non-operating real estate owned 176,000 241,000 66,000 41,000 Depreciation and amortization expense 8,000 10,000 4,000 3,000
CENTENNIAL MORTGAGE INCOME FUND II A Limited Partnership Consolidated Statements of Operations (Unaudited) (Continued)
Nine Months Three Months Ended September 30, Ended September 30, 1995 1994 1995 1994 -------------------------------------------------------- Interest expense 15,000 151,000 5,000 13,000 General and administrative, affiliates 101,000 121,000 37,000 39,000 General and administrative, nonaffiliates 50,000 80,000 12,000 12,000 Mortgage investment servicing fees, affiliates 25,000 32,000 7,000 10,000 -------------------------------------------------------- Total expenses 1,117,000 920,000 420,000 242,000 -------------------------------------------------------- Net loss $ (906,000) $ (602,000) $ (327,000) $ (115,000) ======================================================== Net loss per limited partnership unit $ (31.09) $ (20.66) $ (11.22) $ (3.95) ========================================================
See accompanying notes to consolidated financial statements CENTENNIAL MORTGAGE INCOME FUND II A Limited Partnership Consolidated Statement of Partners' Equity (Unaudited) For the nine months ended September 30, 1995
Total General Limited Partners' Partners Partners Equity ------------------------------------------- Balance at December 31, 1994 $ (195,000) $ 13,780,000 $ 13,585,000 Net loss --- (906,000) (906,000) ------------------------------------------- Balance at September 30, 1995 $ (195,000) $ 12,874,000 $ 12,679,000 ===========================================
See accompanying notes to consolidated financial statements CENTENNIAL MORTGAGE INCOME FUND II A Limited Partnership Consolidated Statements of Cash Flows (Unaudited) For the nine months ended September 30, 1995 and 1994
1995 1994 -------------------------- Cash flow from operating activities: Net loss $ (906,000) $ (602,000) Adjustments to reconcile net loss to cash provided by (used in) operating activities: Provision for possible losses 199,000 137,000 Share of losses in unconsolidated investees 472,000 --- Amortization of fees and discounts --- (8,000) Depreciation and amortization expense 8,000 10,000 Changes in assets and liabilities: Decrease in accrued interest receivable 10,000 6,000 Increase in other assets (7,000) (19,000) Increase (decrease) in payable to affiliates 714,000 1,000 Decrease in due from affiliates --- 8,000 Decrease in accounts payable and accrued liabilities (3,000) (23,000) Increase in interest and taxes payable on real estate owned 50,000 141,000 ------------------------ Net cash provided by (used in) operating activities 537,000 (349,000) ------------------------ Cash flows from investing activities: Principal collected on loans 279,000 507,000 Advances on loans made to unconsolidated investees (note 4) (347,000) (90,000) Additions to real estate owned (31,000) (8,000) Proceeds from sale of real estate owned --- 72,000 ------------------------ Net cash provided by (used in) investing activities (99,000) 481,000 ------------------------
CENTENNIAL MORTGAGE INCOME FUND II A Limited Partnership Consolidated Statements of Cash Flows (Unaudited) (Continued) For the nine months ended September 30, 1995 and 1994
1995 1994 -------------------------- Cash flows from financing activities: Principal payments on notes payable (29,000) (26,000) -------------------------- Net cash used in financing activities (29,000) (26,000) -------------------------- Net increase in cash 409,000 106,000 Beginning cash and cash equivalents 1,908,000 1,542,000 -------------------------- Ending cash and cash equivalents $ 2,317,000 $ 1,648,000 ==========================
See accompanying notes to consolidated financial statements CENTENNIAL MORTGAGE INCOME FUND II A Limited Partnership Consolidated Statements of Cash Flows (Unaudited) (Continued) For the nine months ended September 30, 1995 and 1994
1995 1994 Supplemental disclosures of cash flow information: Cash paid during the quarter for: Interest $ 15,000 $ 64,000 Supplemental schedule of noncash investing and financing activities: Decrease in real estate owned through transfer of ownership $ --- $ 6,449,000 Increase in real estate loans receivable through transfer of ownership of real estate owned --- 3,004,000 Decrease in allowance for possible losses on real estate owned as a result of partial chargeoff upon transfer of ownership --- 2,477,000 Decrease in notes payable through transfer of ownership --- 1,910,000 Decrease in interest and property taxes payable on real estate owned through transfer of ownership --- 327,000 Decrease in real estate owned through deed in lieu of foreclosure or foreclosure --- 5,091,000 Decrease in allowance for possible losses on real estate owned as a result of partial chargeoff upon foreclosure --- 1,185,000 Decrease in other assets through deed in lieu of foreclosure or foreclosure --- 52,000 Decrease in notes payable through deed in lieu of foreclosure or foreclosure --- 3,745,000 Decrease in interest and property taxes payable on real estate owned through deed in lieu of foreclosure --- 613,000 Transfer of restricted cash to workout loan --- 501,000 Decrease in accounts payable and accrued liabilities through transfer of ownership --- 5,000 Decrease in other assets through chargeoff to the allowance for possible losses 99,000 ---
See accompanying notes to consolidated financial statements CENTENNIAL MORTGAGE INCOME FUND II A Limited Partnership Notes to Consolidated Financial Statements (Unaudited) September 30, 1995 and 1994 (1) BUSINESS Centennial Mortgage Income Fund II (the "Partnership") has historically invested in commercial, industrial and residential income-producing real property through mortgage investments consisting of participating first mortgage loans, other equity participation loans, construction loans, and wrap-around and other junior loans. The Partnership's underwriting policy for granting credit was to fund loans secured by first and second deeds of trust on real property. The Partnership's area of concentration is in California. Management believes that the real estate industry in California continues to stabilize. However, due to the long-term recession and falling real estate values, many of the Partnership's loans became delinquent and management of the Partnership elected to foreclose, thereby increasing real estate owned balances. Nearly all of the Partnership's performing loans have now been repaid. As a result, the Partnership has become a direct investor in real estate and intends to manage operating properties and develop raw land until such time as the Partnership is able to sell this real estate owned. As required by the Partnership Agreement, the Partnership is currently in the repayment stage, and as a result, cash proceeds from mortgage investments are no longer available for reinvestment. (2) BASIS OF PRESENTATION The consolidated financial statements are unaudited and reflect all adjustments, consisting only of normal recurring accruals, which are, in the opinion of management, necessary for a fair statement of the results of operations for the interim periods. Results for the nine months ended September 30, 1995 and 1994 are not necessarily indicative of results which may be expected for any other interim period, or for the year as a whole. Information pertaining to the nine months ended September 30, 1995 and 1994 is unaudited and condensed inasmuch as it does not include all related footnote disclosures. The condensed consolidated financial statements do not include all information and footnotes necessary for fair presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. Notes to consolidated financial statements included in Form 10-K for the year ended December 31, 1994 on file with the Securities and Exchange Commission, provide additional disclosures and a further description of accounting policies. NET LOSS PER LIMITED PARTNERSHIP UNIT Net loss per limited partnership unit was based on the weighted average number of limited partnership units outstanding of 29,141 for all periods presented. IMPAIRED LOANS Effective January 1, 1995, the Partnership adopted Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS 114"), as amended by Statement of Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" ("SFAS 118"). Under SFAS 114, a loan is impaired when it is "probable" that a creditor will be unable to collect all amounts due (i.e. both principal and interest) according to the contractual terms of the loan agreement. The measurement of impairment may be based on (i) the present value of the expected future cash flows of the impaired loan discounted at the loan's original effective interest rate, (ii) the observable market price of the impaired loan, or (iii) the fair value of the collateral of a collateral- dependent loan. SFAS 114 does not apply to large groups of smaller balance homogeneous loans that are collectively evaluated for impairment. The adoption of SFAS 114, as amended by SFAS 118, had no material impact on the Partnership's consolidated financial statements as the Partnership's existing policy of measuring loan impairment is consistent with methods prescribed in these standards. The Partnership considers a loan to be impaired when based upon current information and events, it believes it is probable that the Partnership will be unable to collect all amounts due according to the contractual terms of the loan agreement. In determining impairment, the Partnership considers large non-homogeneous loans including nonaccrual loans, troubled debt restructurings and performing loans which exhibit, among other characteristics, high loan-to-value ratios, low debt-coverage ratios, or other indications that the borrowers are experiencing increased levels of financial difficulty. The Partnership bases the measurement of collateral-dependent impaired loans on the fair value of the loan's collateral. The amount by which the recorded investment of the loan exceeds the measure of the impaired loan's value is recognized by recording a valuation allowance. At September 30, 1995, the carrying value of loans that are considered to be impaired under SFAS 114 totaled $2,128,000 (of which $2,128,000 were on nonaccrual status). At September 30, 1995, there was no allowance for possible loan losses determined in accordance with the provisions of SFAS 114, related to loans considered to be impaired under SFAS 114 recorded by the Partnership. However, the nonconsolidated affiliates have recorded an allowance for losses of $967,000. There was no investment in impaired loans during the nine months ended September 30, 1995. For the nine months ended September 30, 1995, the Partnership recognized no interest income nor cash basis income on these impaired loans. NEWLY ISSUED ACCOUNTING PRONOUNCEMENTS In March 1995, the FASB issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 provides guidance for recognition and measurement of impairment of long-lived assets, certain identifiable intangibles and goodwill related both to assets to be held and used by an entity and assets to be disposed of. SFAS 121 is effective for financial statements for fiscal years beginning after December 15, 1995. Although the Partnership has not yet adopted SFAS 121, management does not expect such adoption to have a material impact on the Partnership's consolidated financial statements. (3) REAL ESTATE OWNED Real estate owned consists of the following:
(dollars in thousands) September 30, December 31, 1995 1994 ---------------------------- 1. Office building in San Bernardino, CA $ 837 $ 837 2. 45 acres in Sacramento, CA 4,123 4,092 3. Proposed marina and condominiums in Redwood City, CA 5,360 5,360 4. 10.66 acres in Roseville, CA 1,003 1,003 ------------------------- Subtotal 11,323 11,292 Less accumulated depreciation 12 8 ------------------------- Total real estate owned $ 11,311 $ 11,284 =========================
(4) TRANSACTIONS WITH AFFILIATES CMIF, Inc., an affiliate of the general partners, and Centennial Corporation, "CC", are entitled to receive from the Partnership, mortgage investment servicing fees for loans serviced equal to an annual rate of 1/4 of 1 percent of the committed amount to be funded by the Partnership. Mortgage investment servicing fees for the nine and three months ended September 30, 1995 were $25,000 and $7,000, respectively, payable to CMIF, Inc. and CC. Mortgage investment servicing fees for the nine and three months ended September 30, 1994 were $32,000 and $10,000, respectively, payable to CMIF, Inc. and CC. Under the Partnership Agreement, the general partners are to receive compensation for their services in supervising the affairs of the Partnership. This partnership management compensation shall be equal to 10 percent of the cash available for distribution, as defined in the Partnership Agreement. The general partners will not receive this compensation until the limited partners have received a 12 percent per annum cumulative return of their adjusted invested capital, but are entitled to receive a 5 percent interest in cash available for distribution in any year until this provision has been met. Adjusted invested capital is defined as the original capital invested less distributions from mortgage reductions. Payments to the general partners have been limited to 5 percent of cash available for distribution as the limited partners have not yet received their 12 percent per annum cumulative return. The Partnership received a payoff on September 29, 1995 for a loan which was participated with Centennial Mortgage Income Fund III, ("CMIF III"). Payable to affiliates at September 30, 1995 includes CMIF III's share of the payoff of $712,000 which was paid to CMIF III on October 2, 1995. The Partnership holds 50 percent of the outstanding capital stock of LCR Development, Inc., ("LCR"). The balance of outstanding capital stock of LCR is owned by Centennial Mortgage Income Fund ("CMIF"), an affiliate. The Partnership holds a 50 percent participation in a note in the amount of $2,115,000 due from LCR. The Partnership's share of the note at September 30, 1995 is $1,059,000 and the Partnership had applied $328,000 of cumulative losses from unconsolidated investees against the carrying value of the note as of that same date. The Partnership has not accrued its share of interest on this note which was approximately $74,000 as of September 30, 1995. LCR has been evaluating various alternative strategies for liquidating its investment in the 179 lots in Lancaster ranging from the sale of the lots in their present condition to a full- scale buildout and sale of single-family homes at the project. During late 1993 and through 1994, LCR had numerous discussions with several independent real estate brokers and home-building companies to assist it in determining its best alternatives for the project. After these discussions, LCR determined that its best course of action appeared to be the full-scale buildout and sale of single-family homes since the market for finished lots had fallen so precipitously. In late 1993, discussions with one home builder advanced to the point of a draft joint venture agreement, whereby the home builder was to build and sell homes at the project and obtain construction financing. Under this draft joint venture agreement, LCR was to complete improvements to the lots, pay all developer fees at an estimated cost of $12,619 per lot and then contribute finished lots to the joint venture in exchange for an initial capital contribution credit of $32,000 per lot. The home builder was to obtain construction financing and supervise the construction and sale of single family homes at the project. The home builder was to be reimbursed for all onsite costs of construction and marketing of the project and receive an overhead fee equal to 3% of all sales revenues. After these costs had been paid, LCR was to receive distributions from the joint venture equal its $32,000 initial capital contribution. Subsequent to the return of LCR's initial capital contribution, the joint venture partner was to receive distributions equal to $5,000 of the first $7,000 in profits. Thereafter, LCR and the joint venture partner would split profits and distributions equally. At the time LCR was conducting its negotiations with this home builder, it did not have the financial resources to build homes at the project without additional funds. Thus, the ability of the independent home builder to obtain construction financing was the principal reason for utilizing a third party to construct the homes. The joint venture negotiations were terminated when the home builder insisted on managerial control of the joint venture, which would have been in violation of paragraph 10.9 of the Partnership Agreement of the Partnership. Subsequent to the termination of the joint venture negotiations discussed above, LCR has obtained construction financing commitments from CMIF and the Partnership. LCR has entered into a joint venture agreement entitled Silverwood Homes ("Silverwood") with Home Devco, Inc., ("Home Devco"), an affiliate of the general partners to construct and sell single-family homes at the project. This new joint venture agreement includes substantially the same terms as the draft joint venture discussed above except that: i) the contribution value per lot has been adjusted from $32,000 to $19,381 in order to reflect the fact that the joint venture rather than LCR will now be responsible for paying the $12,619 in estimated costs to complete improvements to the lots and pay developer fees; ii) Home Devco will not obtain construction financing for the project; and iii) Home Devco will not receive any priority interest in profits after LCR has received the equivalent of $19,381 in distributions per lot contributed to the joint venture but rather will receive only a 50 percent interest in profits and distributions form the joint venture. LCR's cost basis of lots contributed to the joint venture was approximately $19,810. Management believes that the market value of finished lots in Lancaster has fallen since the original joint venture was negotiated and that the new joint venture agreement with Home Devco is on more favorable terms to LCR than could now be obtained with an independent home builder. The new joint venture began constructing a model home complex at the project in June 1995. Construction commenced in September 1995 on Phase I at the project. At September 30, 1995, the Partnership holds a 50 percent participation in three notes, due from Silverwood consisting of a land development loan, a model home loan and a home construction loan. The Partnership's disbursed balance of the $3,265,700 development loan at September 30, 1995 is $153,000. The Partnership's disbursed balance of the $490,000 model loan at September 30, 1995 is $105,000. The Partnership's disbursed balance of the $1,034,000 Phase I construction loan at September 30, 1995 is $302,000. The consolidated balance sheet and income statement of LCR have not been consolidated in the Partnership's financial statements. The Partnership accounts for its investment in this corporation using the equity method. The following represents condensed financial information for LCR Development, Inc. at September 30, 1995 and for the nine months ended September 30, 1995: LCR DEVELOPMENT, INC. CONSOLIDATED BALANCE SHEET
September 30, Assets 1995 --------------- Cash $ 1,000 Real estate owned 4,588,000 Less allowance for losses on real estate investments 287,000 --------------- Net real estate owned 4,301,000 Organization costs 2,000 ---------------- $ 4,304,000 ================
LCR DEVELOPMENT, INC. CONSOLIDATED BALANCE SHEET (Continued)
September 30, Liabilities and Stockholders' Deficit 1995 --------------- Notes payable to affiliates $ 4,453,000 Accounts payable and accrued liabilities 177,000 Interest and property taxes payable on real property 329,000 ---------------- Total liabilities 4,959,000 Stockholders' deficit (655,000) ---------------- $ 4,304,000 ================ LCR DEVELOPMENT, INC. CONSOLIDATED STATEMENT OF OPERATIONS Nine months ended September 30, 1995 ---------------- Provision for losses on real estate investments $ 341,000 ---------------- Net loss $ 341,000 ================
The Partnership holds 50 percent of the outstanding capital stock of BKS Development, Inc. ("BKS"). The balance of outstanding capital stock of BKS is also owned by CMIF. The Partnership holds a 50 percent participation in a note secured by a second trust deed in the amount of $3,894,000 due from BKS. The Partnership's share of the note receivable at September 30, 1995 is $1,947,000 and the Partnership had applied $550,000 of cumulative losses from unconsolidated investees against the carrying value of the note as of that same date. The balance sheet and statement of operations of BKS have not been consolidated in the Partnership's financial statements. The Partnership accounts for its investment in this corporation using the equity method. The following represents condensed financial information for BKS at September 30, 1995 and for the nine months ended September 30, 1995: BKS DEVELOPMENT, INC. BALANCE SHEET
September 30, Assets 1995 --------------- Cash $ 1,000 Real property 5,199,000 Less allowance for losses on real estate investments 680,000 --------------- Net real estate owned 4,519,000 --------------- $ 4,520,000 =============== Liabilities and Stockholders' Deficit Bonds payable $ 899,000 Notes payable to affiliates 3,893,000 Interest and property taxes payable on real property 829,000 ---------------- Total liabilities 5,621,000 Stockholders' deficit (1,101,000) ---------------- $ 4,520,000 ================
BKS DEVELOPMENT, INC. STATEMENT OF OPERATIONS
Nine months ended September 30, 1995 Interest expense $ 79,000 Provision for losses on real estate investments 443,000 Property taxes 79,000 General and administrative 1,000 ---------------- Net loss $ 602,000 ================
(5) CONTINGENCIES There are no material pending legal proceedings other than ordinary routine litigation incidental to the registrant's business. CENTENNIAL MORTGAGE INCOME FUND II SEPTEMBER 30, 1995 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL References to the "Partnership" in the following discussion refers to Centennial Mortgage Income Fund II and its wholly-owned subsidiaries. The Partnership had net losses and losses per limited partnership unit of $(906,000) and $(31.09), and $(327,000) and $(11.22), respectively, for the nine and three months ended September 30, 1995 and $(602,000) and $(20.66), and $(115,000) and $(3.95), respectively, for the nine and three months ended September 30, 1994. The increase in loss from 1994 to 1995 is primarily the result of an increase in the share of losses in unconsolidated investees. LIQUIDITY AND CAPITAL RESOURCES At September 30, 1995, the Partnership had $2,317,000 in unrestricted cash and interest-bearing deposits. However, $712,000 of this cash was paid to CMIF III on October 2, 1995 (see note 4). The Partnership had no unfunded loan commitments at September 30, 1995. Sources of funds are expected to be from future loan payoffs and the sale of real estate owned. Future operations of real estate owned are not expected to be a significant source of funds. The Partnership funded advances on loans to affiliates totaling $347,000 and received payoffs and paydowns on loans totaling $279,000 during the nine months ended September 30, 1995. During the first nine months of 1995, the Partnership disbursed advances on real estate owned of $31,000. The Partnership's notes payable commitments consist of interest and principal payments due of approximately $58,000 payable during the next twelve months. In addition to the note payable commitments, the Partnership's principal capital requirements include: i) real property taxes on real estate owned of approximately $396,000 payable during the next twelve months, and ii) selling, general and administrative costs. These commitments are expected to be made from existing cash reserves, future loan payoffs, and the sale of real estate owned. The Partnership is continuously evaluating various alternative strategies for liquidating its real estate assets under current market conditions. These alternative strategies include the potential joint venture and/or build out of certain of the Partnership's properties in order to increase their marketability and maximize the return to the limited partners. In the event the Partnership decides to implement some of these strategies, it may require the investment of proceeds received from the payoff of existing loans and the sale of other real estate assets. The decision to invest additional cash in existing assets will only be made if, based on management's best judgment at the time, there is a clear indication that such investment should generate a significantly greater return to the limited partners than any other strategies available to the Partnership. Effective with the third quarter of 1991, the Partnership suspended cash distributions to partners, due to a decline in liquidity and the uncertainty of the cash requirements for existing and potential real estate owned. Pursuant to the Partnership Agreement, 60 months after the closing of the offering, cash proceeds from mortgage investments are no longer available for reinvestment by the Partnership. Management believes that current and projected liquidity is sufficient to fund operating expenses and to meet the contractual obligations and cash flow operating requirements of the Partnership. However, although no new mortgage investments shall be made, the general partners expect that the cash proceeds from mortgage reductions and the sale of real estate owned will be retained by the Partnership until such time as the Partnership has sufficient cash to fulfill operating requirements due to the amount of real estate owned within the portfolio. RESULTS OF OPERATIONS Due to the downturn in the real estate industry in California, several of the Partnership's loans have become nonperforming and subsequently real estate owned. As a result, interest income on loans to nonaffiliates continues to decline. Interest income on loans to nonaffiliates, including fees decreased to $69,000 and $46,000 for the nine and three months ended September 30, 1995 from $82,000 and $55,000 for the nine and three months ended September 30, 1994. The decrease in interest income on loans for the nine months ended September 30, 1994 to 1995 is primarily due to a decrease in interest earned on notes secured by time share interests. Interest income on loans to affiliates, including fees totaled $32,000 for both the nine and three months ended September 30, 1995. There was no comparable income for the same periods in 1994. The interest income on loans to affiliates represents interest earned on the Silverwood loans. The outstanding principal balance of loans on nonaccrual at September 30, 1995 totaled $2,413,000 as compared to $503,000 at September 30, 1994. Loans on "nonaccrual" refers to loans upon which the Partnership is no longer accruing interest. Management's policy is to cease accruing interest on loans when interest and/or principal repayments become 90 days past due. Had interest accrued throughout the first nine months of 1994 on the nonaccrued nonaffiliated loans, interest income would have been approximately $30,000 higher than was actually reported for that period. The real estate owned balance at September 30, 1995 and 1994 was $11,311,000 and $11,284,000, respectively. The following sections entitled Nonaccrual Loans and Real Estate Owned provide a detailed analysis of these assets. NONACCRUAL LOANS During 1994, the Partnership converted a 50 percent participation in a note secured by a second trust deed into a 50 percent participation in a $2,115,000 unsecured note representing a workout loan due from LCR. This loan and an additional loan funded by CMIF reflect the majority of the cost basis of lots contributed to Silverwood Homes. LCR's only source of repayment of this note is proceeds from the sale of the fully developed lots. Management has estimated the proceeds for repayment of this note to be less than the principal balance of the loan. As a result, the loan has been placed on nonaccrual. The principal balance and nonaccrued interest balances at September 30, 1995 are $1,059,000, and $136,000, respectively. During 1994, the Partnership acquired a 50 percent participation in a $3,894,000 note due from BKS. The loan is secured by 283 acres in Bakersfield, CA. The property has declined in value and is subject to delinquent bonds and taxes. As a result, the Partnership has placed the loan on nonaccrual. The principal balance and nonaccrued interest balances at September 30, 1995 are $1,947,000, and $339,000, respectively. REAL ESTATE OWNED A description of the Partnership's principal real estate owned follows: Office Building in San Bernardino, California The Partnership funded a loan during January 1988 with an original committed amount of $921,000 which was secured by a second trust deed on an office building comprised of 15,984 square feet of rentable space located in San Bernardino, California. The loan was provided as gap financing behind a first deed of trust in the amount of $350,000 to another financial institution. The borrower was unable to payoff the loan at maturity and the Partnership foreclosed on April 20, 1993. The Partnership restructured the note secured by the first trust deed to a more favorable term and rate. The project is 73 percent leased and is beginning to generate positive net operating income. The property generated net operating income before debt service of $31,000 during the first nine months of 1995. The property is being marketed for sale. The carrying value at September 30, 1995 was $837,000 less depreciation of $12,000. The property is encumbered by a fully amortizing note secured by a first trust deed of $195,000 which will be paid off on December 31, 1999. 45 Acres in Sacramento, California The Partnership funded a loan in 1987 with a committed amount of $4,000,000 secured by a first trust deed on 44.52 acres in Sacramento, California. The loan was provided for the development of offsite improvements. The maturity date was February 1, 1991. The borrower was unable to obtain construction financing and bring interest current. The Partnership accepted a grant deed on the property on March 10, 1992. The property is zoned for multi-family and light industrial use. The Partnership is in the process of rezoning and subdivision of portions of the property to facilitate two separate escrows which were opened during the first quarter of 1995 for separate portions of the property. The Partnership is not expecting to realize any material gains or losses related to these potential sales. However, there is no assurance that either of the escrows will actually close. At September 30, 1995, the carrying value was $4,123,000. Proposed Marina and Condominiums in Redwood City, California On April 7, 1989, the Partnership foreclosed on a land loan and now owns the property. The Partnership originally committed $3,487,000 for a land loan located in Redwood City, California. The purpose of the loan was to acquire the land and provide for the planning of a 122-slip marina plus an office building and restaurant. The original maturity date of October 21, 1986 was extended to March 1, 1987. In March 1987, the borrower filed bankruptcy. The property is included in real estate owned at its carrying value of $5,360,000. In February and March of 1992, the Redwood City Planning Commission formally approved the Certificate of Negative Declaration, Tentative Tract Map and the Planned Unit Development. Management has also obtained an extension on the 404B1 permit for the marina through March 1996. The above-referenced entitlements enable the owner to build the currently proposed 104-slip boat marina and 117 condominium units. The Partnership has completed approximately 70 percent of the dredging of the marina site. Residential sales in this entire area have seen a steady decline over the last 2-3 years, however the area appears to have stabilized. As a result management is pursuing both, (i) the sale or joint venture of the property and (ii) Partnership buildout of the project and sale thereafter. 10.66 Acres in Roseville, California The Partnership funded a loan in 1990 with an original committed amount of $2,779,000 secured by a second deed of trust on 982 acres in Roseville, California. The borrower failed to make the required yearly principal payment to the first and second trust deed holders. The first trust deed holder filed a notice of default for nonpayment. Management negotiated a settlement agreement to accept substitute collateral for the outstanding balance of $2,086,000. The substitute collateral is a 10.66 acre commercial site with a carry value at September 30, 1995 of $1,003,000. The property has no additional debt. This area has seen an increase in residential development during this year which hopefully will increase interest in this property. Management is marketing the property for sale and is evaluating a possible rezone. INTEREST ON INTEREST-BEARING DEPOSITS Interest on interest-bearing deposits totaled $39,000 and $12,000 for the nine and three months ended September 30, 1995 and $25,000 and $7,000 for the same respective periods in 1994. Interest on interest-bearing deposits represents interest earned on Partnership funds invested for liquidity in time certificate and money market deposits. The increase in income on interest-bearing deposits is principally due to increased cash balances for the nine months ended September 30, 1995. INCOME FROM OPERATIONS OF REAL ESTATE OWNED Income from operations of real estate owned consists of operating revenues of $103,000 and $35,000 for the nine and three months ended September 30, 1995 and $211,000 and $65,000 for the nine and three months ended September 30, 1994. The 1995 revenues are from the office building in San Bernardino. The 1994 revenues are from the lube center and car wash in San Marcos (sold in 1994), the office building in San Bernardino and January income from the multi-tenant industrial buildings in Moreno Valley. PROVISION FOR POSSIBLE LOSSES The provision for possible losses was $199,000 and $99,000 for the nine and three months ended September 30, 1995. The provision for possible losses was $137,000 and $73,000 for the nine and three months ended September 30, 1994. The 1995 provision relates primarily to the office building in San Bernardino and the chargeoff of certain costs associated with the acquisition of notes secured by time share interests. The 1994 provision relates primarily to the lube center and car wash in San Marcos. The provision for possible losses results from the change in the allowance for possible loan losses and the allowance for possible losses on real estate owned net of charge-offs, if any. Management believes that the allowance for possible loan losses at September 30, 1995 is adequate to absorb the known and inherent risks in the Partnership's loan portfolio. SHARE OF LOSSES IN UNCONSOLIDATED INVESTEES The Partnership has invested in corporations in which it has less than a majority ownership. The Partnership's share of losses in these unconsolidated investees was $472,000 and $162,000 for the nine and three months ended September 30, 1995. There were no comparable expenses for the nine and three months ended September 30, 1994. The share of losses consists primarily of provisions for losses on real estate owned related to the 179 lots in Lancaster owned by LCR and the 283 acres in Bakersfield owned by BKS. OTHER EXPENSES Operating expenses from operations of real estate owned were $62,000 and $25,000 for the nine and three months ended September 30, 1995 and $131,000 and $38,000 for the nine and three months ended September 30, 1994, respectively. These expenses were associated with the lube center and car wash in San Marcos, the multi-tenant industrial building in Moreno Valley and the office building in San Bernardino. The decrease in 1995 is due to the sale of the lube center and car wash in San Marcos and the loss of the multi-tenant industrial buildings in Moreno Valley. Operating expenses from operations of real estate owned paid to affiliates were $9,000 and $3,000 for the nine and three months ended September 30, 1995 and $11,000 and $3,000 for the nine and three months ended September 30, 1994. The operating expenses consist of property management fees paid to an affiliate. Expenses associated with non-operating real estate owned were $176,000 and $66,000 for the nine and three months ended September 30, 1995 and $241,000 and $41,000 for the nine and three months ended September 30, 1994. The expenses relate to the proposed marina and office building in Redwood City, the 45 acres in Sacramento, the 10.66 acres in Roseville and the 128 single-family lots in Redlands. The decrease for the nine months ended September 30, 1995 is due to a decrease in property tax expenses due to the loss of the 128 single-family lots in Redlands. The increase for the three months ended September 30, 1995 is due to an increase in costs due to development of the 45 acres in Sacramento. Depreciation and amortization expense was $8,000 and $4,000 for the nine and three months ended September 30, 1995 and $10,000 and $3,000 for the nine and three months ended September 30, 1994. The decrease for 1995 is due to the loss of the multi-tenant industrial buildings in Moreno Valley. Interest expense was $15,000 and $5,000 for the nine and three months ended September 30, 1995 and $151,000 and $13,000 for the nine and three months ended September 30, 1994. The interest expense relates to the office building in San Bernardino, the 128 lots in Redlands, the lube center and car wash in San Marcos and the multi-tenant industrial buildings in Moreno Valley. The decrease for 1995 is due to the loss of the Moreno Valley real estate owned, the loss of the 128 lots in Redlands and the sale of the lube center and car wash in San Marcos. General and administrative expenses, affiliates for the nine and three months ended September 30, 1995 totaled $101,000 and $37,000, respectively. General and administrative expenses, affiliates for the nine and three months ended September 30, 1994 totaled $121,000 and $39,000, respectively. These expenses are primarily salary allocation reimbursements paid to affiliates. The decrease for 1995 is due to a decrease in the number of employees performing administrative functions. General and administrative expenses, nonaffiliates totaled $50,000 and $12,000 for the nine and three months ended September 30, 1995 and $80,000 and $12,000 for the nine and three months ended September 30, 1994. These expenses consist of other costs associated with the administration of the Partnership and real estate owned. The decrease for 1995 is primarily due to a decrease in outside services and investor printing services. Mortgage investment servicing fees, affiliates for the nine and three months ended September 30, 1995 totaled $25,000 and $7,000 and $32,000 and $10,000 for the nine and three months ended September 30, 1994. This consists of fees paid to CMIF Inc., an affiliate of the general partners, and Centennial Corporation, for servicing the Partnership's loan and real estate owned portfolio. The decrease for 1995 is due to decreases in the number of loans and real estate owned serviced. CENTENNIAL MORTGAGE INCOME FUND II SEPTEMBER 30, 1995 PART II OTHER INFORMATION Item 1. Legal Proceedings NONE Item 2. Changes in Securities NONE Item 3. Defaults Upon Senior Securities NONE Item 4. Submission of Matters to a Vote of Security Holders NONE Item 5. Other Information NONE Item 6. Exhibits and Reports on Form 8-K (a) NONE (b) NONE SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. CENTENNIAL MORTGAGE INCOME FUND II, A California Limited Partnership By: /s/John B. Joseph November 14, 1995 John B. Joseph Date General Partner By: /s/Ronald R. White November 14, 1995 Ronald R. White Date General Partner By: CENTENNIAL CORPORATION, a California corporation General Partner /s/Joel H. Miner November 14, 1995 Joel H. Miner Date Chief Financial Officer EX-27 2 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 1,000 3-MOS DEC-31-1994 SEP-30-1995 2,328 0 2,714 8 0 2,351 0 0 13,823 949 195 0 0 0 12,679 13,823 0 211 0 0 903 199 15 (906) 0 (906) 0 0 0 (906) (31.09) (31.09)
-----END PRIVACY-ENHANCED MESSAGE-----