0000773337-95-000003.txt : 19950816 0000773337-95-000003.hdr.sgml : 19950816 ACCESSION NUMBER: 0000773337-95-000003 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950815 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: 95563952 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 ITEM 1. FINANCIAL STATEMENTS CENTENNIAL MORTGAGE INCOME FUND II A Limited Partnership Consolidated Balance Sheets (Unaudited)
ASSETS JUNE 30, DECEMBER 31, 1995 1994 ------------------------------- Cash and cash equivalents $ 1,570,000 $ 1,908,000 Restricted cash 11,000 11,000 Real estate loans receivable, earning 302,000 305,000 Real estate loans receivable from unconsolidated investees (note 4) 2,624,000 2,813,000 ------------------------------- 2,926,000 3,118,000 Less allowance for possible loan losses 8,000 8,000 ------------------------------ Net real estate loans receivable 2,918,000 3,110,000 Real estate owned, net, held for sale (note 3) 11,281,000 11,284,000 Less allowance for possible losses on real estate owned 2,545,000 2,445,000 ------------------------------ Net real estate owned 8,736,000 8,839,000 Due from affiliates 99,000 99,000 Accrued interest receivable 10,000 10,000 Other assets 33,000 20,000 ------------------------------ $ 13,377,000 $ 13,997,000 ==============================
See accompanying notes to consolidated financial statements Consolidated Balance Sheets (Unaudited) (Continued) LIABILITIES AND PARTNERS' EQUITY
Note payable $ 205,000 $ 224,000 Accounts payable and accrued liabilities 18,000 26,000 Interest and property taxes payable on real estate owned 144,000 155,000 Payable to affiliates 4,000 7,000 -------------------------------- Total liabilities 371,000 412,000 Partners' equity (deficit)-- 29,141 limited partnership units outstanding at June 30, 1995 and December 31, 1994 General partners' (195,000) (195,000) Limited partners' 13,201,000 13,780,000 --------------------------------- Total partners' equity 13,006,000 13,585,000 Contingencies (note 5) ---------------------------------- $ 13,377,000 $ 13,997,000 ==================================
See accompanying notes to consolidated financial statements CENTENNIAL MORTGAGE INCOME FUND II A Limited Partnership Consolidated Statement of Operations (Unaudited)
Six Months Three Months Ended June 30, Ended June 30, 1995 1994 1995 1994 -------------------------------------------------------- Revenue: Interest income on loans to affiliates including fees $ --- $ --- $ --- $ (12,000) Interest on loans to nonaffiliates, including fees 23,000 27,000 12,000 6,000 Interest-bearing deposits 27,000 18,000 13,000 8,000 Income from operations of real estate owned 68,000 146,000 35,000 63,000 Other --- 4,000 --- 4,000 -------------------------------------------------------- Total Revenue 118,000 195,000 60,000 69,000 Expenses: Provision for possible losses 100,000 64,000 100,000 --- Share of losses in unconsolidated investees 310,000 --- 157,000 --- Operating expenses from operations of real estate owned paid 37,000 93,000 21,000 47,000 Operating expenses from operations of real estate owned paid to affiliates 6,000 8,000 3,000 3,000 Expenses associated with non-operating real estate owned 110,000 200,000 71,000 108,000 Depreciation expense 4,000 7,000 2,000 2,000 Interest expense 10,000 138,000 4,000 45,000 General and administrative, affiliates 64,000 82,000 37,000 58,000 General and administrative, nonaffiliates 38,000 68,000 20,000 31,000 Mortgage investment servicing fees 18,000 22,000 9,000 10,000 -------------------------------------------------------- Total expenses 697,000 682,000 424,000 304,000 -------------------------------------------------------- Net loss $ (579,000) $ (487,000) $ (364,000) $ (235,000) ======================================================== Net loss per limited partnership unit $ (19.87) $ (16.71) $ (12.49) $ (8.06) ========================================================
See accompanying notes to consolidated financial statements CENTENNIAL MORTGAGE INCOME FUND II A Limited Partnership Consolidated Statement of Partners' Equity (Unaudited) For the six months ended June 30, 1995
Total General Limited Partners' Partners' Partners' Equity ------------------------------------------- Balance at December 31, 1994 $ (195,000) $ 13,780,000 $ 13,585,000 Net loss --- (579,000) (579,000) ------------------------------------------- Balance at June 30, 1995 $ (195,000) $ 13,201,000 $ 13,006,000 ===========================================
See accompanying notes to consolidated financial statements CENTENNIAL MORTGAGE INCOME FUND II A Limited Partnership Consolidated Statements of Cash Flows (Unaudited) For the six months ended June 30, 1995 and 1994
1995 1994 -------------------------- Cash flow from operating activities: Net loss $ (579,000) $ (487,000) Adjustments to reconcile net loss to cash used in operating activities: Provision for possible losses 100,000 64,000 Depreciation expense 4,000 7,000 Equity in losses of unconsolidated investees 310,000 --- Changes in assets and liabilities: Decrease in accrued interest receivable --- 6,000 Increase in other assets (14,000) (14,000) Decrease in payable to affiliates (3,000) --- Increase (decrease) in accounts payable and accrued liabilities (8,000) 119,000 Increase (decrease) in interest and taxes payable on real estate owned (11,000) 6,000 ------------------------ Net cash used in operating activities (201,000) (299,000) Cash flows from investing activities: Principal collected on loans 3,000 23,000 Advances on loans made to unconsolidated investees (note 4) (121,000) (31,000) Disbursements on real estate owned --- (8,000) ------------------------ Net cash used in investing activities (118,000) (16,000) Cash flows from financing activities: Principal payments on notes payable (19,000) (17,000) ------------------------ Net increase (decrease) in cash (338,000) (332,000) Beginning cash and cash equivalents 1,908,000 1,542,000 ------------------------ Ending cash and cash equivalents $ 1,570,000 $ 1,210,000 ========================
See accompanying notes to consolidated financial statements Consolidated Statements of Cash Flows (Unaudited) (Continued) For the six months ended June 30, 1995 and 1994
1995 1994 Supplemental disclosures of cash flow information: Cash paid during the quarter for: Interest $ 10,000 $ 52,000 Supplemental schedule of noncash investing and financing activities: Decrease in real estate owned through transfer of ownership $ --- $ 2,550,000 Increase in real estate loans receivable through transfer of ownership of real estate owned --- 1,058,000 Decrease in allowance for possible losses on real estate owned through transfer of ownership --- 715,000 Decrease in notes payable through transfer of ownership --- 656,000 Decrease in interest and property taxes payable on real estate owned through transfer of ownership --- 121,000 Decrease in real estate owned through deed in lieu of foreclosure --- 5,091,000 Decrease in allowance for possible losses on real estate owned as a result of partial chargeoff upon foreclosure --- 1,112,000 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 taxes payable on real estate owned through deed in lieu of foreclosure --- 286,000 Transfer of restricted cash to workout loan --- 501,000
See accompanying notes to consolidated financial statements CENTENNIAL MORTGAGE INCOME FUND II A Limited Partnership Notes to Consolidated Financial Statements (Unaudited) June 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. Sources of financing for borrowers have become more readily available, however, due to decreased real estate market values the Partnership's borrowers continue to have difficulty obtaining long-term financing to pay off existing loans. As these loans become delinquent, management of the Partnership might elect to foreclose, thereby increasing real estate owned balances. As a result of past foreclosures, the Partnership has become a direct investor in this 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 six months ended June 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 six months ended June 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 June 30, 1995, the Partnership had no loans that are considered to be impaired under SFAS 114. At June 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. There was no investment in impaired loans during the six months ended June 30, 1995. 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) JUNE 30, DECEMBER 31, 1995 1994 ------------------------- 1. Office building in San Bernardino, CA $ 837 $ 837 2. 45 acres in Sacramento, CA 4,092 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 11,292 11,292 Less accumulated depreciation 11 8 ------------------------- Total real estate owned $ 11,281 $ 11,284 =========================
(4) TRANSACTIONS WITH AFFILIATES CMIF, Inc., an affiliate of the general partners, and Centennial Corporation, 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 six and three months ended June 30, 1995 and 1994 were $18,000 and $9,000, respectively, payable to CMIF, Inc. and Centennial Corporation. 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 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 $2,755,000 due from LCR. The Partnership's share of the note at June 30, 1995 is $1,392,000 and the Partnership had applied $266,000 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 $165,000 as of June 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 of 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, LCR has obtained construction financing commitments from CMIF and the Partnership. LCR has entered into a joint venture agreement 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. 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 June 30, 1995 and for the six months ended June 30, 1995: LCR DEVELOPMENT, INC. CONSOLIDATED BALANCE SHEET
Assets June 30, 1995 --------------- Cash $ 2,000 Real property 3,999,000 Organization costs 2,000 ---------------- $ 4,003,000 ================
Liabilities and Stockholders' Deficit Notes payable to affiliates $ 4,005,000 Interest and property taxes payable on real property 532,000 ---------------- Total liabilities 4,537,000 Stockholders' deficit (534,000) ---------------- $ 4,003,000 ================
LCR DEVELOPMENT, INC. CONSOLIDATED STATEMENT OF OPERATIONS
Six months ended June 30, 1995 ---------------- Provision for losses on real estate investments $ 220,000 ---------------- Net loss $ 220,000 ================
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 June 30, 1995 is $1,947,000 and the Partnership had applied $449,000 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 June 30, 1995 and for the six months ended June 30, 1995: BKS DEVELOPMENT, INC. BALANCE SHEET
Assets June 30, 1995 --------------- Cash $ 1,000 Real property 5,199,000 --------------- 5,200,000 ===============
Liabilities and Stockholders' Deficit Bonds payable $ 899,000 Notes payable to affiliates 3,893,000 Interest and property taxes payable on real property 1,307,000 ---------------- Total liabilities 6,099,000 Stockholders' deficit (899,000) ---------------- $ 5,200,000 ================
BKS DEVELOPMENT, INC. STATEMENT OF OPERATIONS
Six months ended June 30, 1995 Interest expense $ 346,000 Property taxes 54,000 ---------------- Net loss $ 400,000 ================
(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 JUNE 30, 1995 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS GENERAL The Partnership had net losses and losses per limited partnership unit of $(579,000) and $(19.87), and $(364,000) and $(12.49), respectively, for the six and three months ended June 30, 1995 and $(487,000) and $(16.71), and $(235,000) and $(8.06), respectively, for the six and three months ended June 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 June 30, 1995, the Partnership had $1,570,000 in unrestricted cash and interest-bearing deposits. The Partnership had no unfunded loan commitments at June 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 $121,000 and received payoffs and paydowns on loans totaling $3,000 during the six months ended June 30, 1995. The Partnership's notes payable commitments consist of interest and non-balloon principal payments due of approximately $34,000 payable in 1995. In addition to the note payable commitments, the Partnership's principal capital requirements include: i) real property taxes on real estate owned of approximately $242,000 payable and delinquent in 1995, 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 was $23,000 and $12,000 for the six and three months ended June 30, 1995 from $27,000 and $6,000 for the six and three months ended June 30, 1994. The decrease in interest income on loans for the six months ended June 30, 1994 to 1995 is primarily due to a decrease in interest earned on notes secured by time share interests. The real estate owned balance at June 30, 1995 and 1994 was $11,281,000 and $16,533,000, respectively. The following section entitled Real Estate Owned provides a detailed analysis of these assets. 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 $25,000 during the first half of 1995. The property is being marketed for sale. The carrying value at June 30, 1995 was $837,000 less depreciation of $11,000. The property is encumbered by a fully amortized note secured by a first trust deed of $205,000 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 June 30, 1995, the carrying value was $4,092,000. 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 June 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 $27,000 and $13,000 for the six and three months ended June 30, 1995 and $18,000 and $8,000 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 six months ended June 30, 1995. INCOME FROM OPERATIONS OF REAL ESTATE OWNED Income from operations of real estate owned consists of operating revenues of $68,000 and $35,000 for the six and three months ended June 30, 1995 and $146,000 and $63,000 for the six and three months ended June 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 $100,000 for the six and three months ended June 30, 1995. The provision for possible losses was $64,000 for the six months ended June 30, 1994. There was no provision for the three months ended June 30, 1994. The 1995 provision relates primarily to the office building in San Bernardino. 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 June 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 the unconsolidated investees was $310,000 and $157,000 for the six and three months ended June 30, 1995. There were no comparable expenses for the six and three months ended June 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 $37,000 and $21,000 for the six and three months ended June 30, 1995 and $93,000 and $47,000 for the six and three months ended June 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 $6,000 and $3,000 for the six and three months ended June 30, 1995 and $8,000 and $3,000 for the six and three months ended June 30, 1994. The operating expenses consist of property management fees paid to an affiliate. Expenses associated with non-operating real estate owned were $110,000 and $71,000 for the six and three months ended June 30, 1995 and $200,000 and $108,000 for the six and three months ended June 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 in 1995 is primarily due to the loss of the 128 single-family lots in Redlands. Depreciation and amortization expense was $4,000 and $2,000 for the six and three months ended June 30, 1995 and $7,000 and $2,000 for the six and three months ended June 30, 1994. The decrease for 1995 is due to the loss of the multi-tenant industrial buildings in Moreno Valley. Interest expense was $10,000 and $4,000 for the six and three months ended June 30, 1995 and $138,000 and $45,000 for the six and three months ended June 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 six and three months ended June 30, 1995 totaled $64,000 and $37,000, respectively. General and administrative expenses, affiliates for the six and three months ended June 30, 1994 totaled $82,000 and $58,000, respectively. These expenses are primarily salary allocation reimbursements paid to affiliates. The decrease for 1995 is due to a decrease in allocation percentages. General and administrative expenses, nonaffiliates totaled $38,000 and $20,000 for the six and three months ended June 30, 1995 and $68,000 and $31,000 for the six and three months ended June 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 for the six and three months ended June 30, 1995 totaled $18,000 and $9,000 and $22,000 and $10,000 for the six and three months ended June 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 JUNE 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 August 14, 1995 John B. Joseph Date General Partner By: /s/Ronald R. White August 14, 1995 Ronald R. White Date General Partner By: CENTENNIAL CORPORATION, a California corporation General Partner /s/Joel H. Miner August 14, 1995 Joel H. Miner Date Chief Financial Officer EX-27 2 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 1,000 3-MOS DEC-31-1994 JUN-30-1995 1,581 0 2,926 8 0 1,624 0 0 13,377 166 205 0 0 0 13,006 13,377 0 118 0 0 587 100 10 (579) 0 (579) 0 0 0 (579) (19.87) (19.87)