-----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, C+Tijy+COOSMwK9WKQei1mj4SKe5EoM5oIBvhLGMUt4zSUMoWVxW+mEd5UK0zwMQ bNwEjjQoDPT+nRLAvTuy1g== 0000841501-98-000009.txt : 19980518 0000841501-98-000009.hdr.sgml : 19980518 ACCESSION NUMBER: 0000841501-98-000009 CONFORMED SUBMISSION TYPE: 10-QT/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980331 FILED AS OF DATE: 19980515 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: OWENS MORTGAGE INVESTMENT FUND CENTRAL INDEX KEY: 0000841501 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 680023931 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-QT/A SEC ACT: SEC FILE NUMBER: 000-17248 FILM NUMBER: 98623876 BUSINESS ADDRESS: STREET 1: 2221 OLYMPIC BLVD STREET 2: P O BOX 2308 CITY: WALNUT CREEK STATE: CA ZIP: 94595 BUSINESS PHONE: 5109353840 MAIL ADDRESS: STREET 1: 2221 OLYMPIC BLVD STREET 2: P O BOX 2308 CITY: WALNUT CREEK STATE: CA ZIP: 94595 FORMER COMPANY: FORMER CONFORMED NAME: OWENS MORTGAGE INVESTMENT FUND II DATE OF NAME CHANGE: 19920703 10-QT/A 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM l0-Q Quarterly Report Under Section 13 or 15(d) of The Securities Exchange Act of 1934 For Quarter Ended March 31, 1998 Commission file number O-17248 OWENS MORTGAGE INVESTMENT FUND, a California Limited Partnership (Exact Name of Registrant as specified In Its charter) California 68-0023931 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2221 Olympic Boulevard Walnut Creek, California 94595 (Address of principal executive office) (Zip Code) Registrant's Telephone number, including area code (925) 935-3840 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_________ PART I. FINANCIAL INFORMATION Item 1. Financial Statements OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) BALANCE SHEETS -- MARCH 31, 1998 AND DECEMBER 31, 1997 March 31 December 31 1998 1997 ASSETS Cash and cash equivalents (Note 2) $ 13,025,018 $ 3,073,115 Certificates of Deposit (Note 2) 1,000,000 1,000,000 Loans secured by trust deeds (Notes 2 and 3) 173,623,270 174,714,607 less: Allowance for loan losses (Note 2) (3,500,000) (3,500,000) Real estate held for sale (Note 4) 11,377,231 14,151,141 Interest receivable 2,026,153 1,883,435 Other assets 59,074 112,583 ----------- ----------- Total Assets $197,610,746 $191,434,881 =========== =========== LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Accrued distributions payable $ 529,194 $ 544,385 Accounts payable and accrued liabilities 570,293 159,361 ---------- ---------- Total Liabilities 1,099,487 703,746 ---------- ---------- PARTNERS' CAPITAL: General partners (Note 5) 1,922,738 1,864,033 Limited partners (Note 5) 194,588,521 188,867,102 ----------- ----------- Total Partners' Capital 196,511,259 190,731,135 ----------- ----------- Total Liabilities and Partners' Capital $197,610,746 $191,434,881 =========== =========== The accompanying notes are an integral part of these financial statements.
OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997 FOR THE THREE MONTHS ENDED March 31 March 31 1998 1997 ---- ---- REVENUES: Interest income on loans secured by trust deeds $ 4,707,266 $ 4,342,168 Gain on sale of real estate (Note 4) 1,042,704 1,096,353 Other interest income 112,841 151,185 ------------ ------------ Total revenues $ 5,862,811 $ 5,589,706 ----------- ----------- OPERATING EXPENSES: Management Fees paid to General Partner (Note 7) $ 486,171 $ 1,299,458 Servicing Fees paid to General Partner (Note 7) 107,641 120,238 Promotional interest (Note 5) 23,969 22,974 Administrative 14,129 14,129 Legal and accounting 55,786 40,412 Real Estate Owned operations, net 49,973 23,356 Other 3,435 230 -------------- --------------- Total operating expenses $ 741,104 $ 1,520,797 ------------ ----------- Net income $ 5,121,707 $ 4,068,909 =========== =========== Net income allocated to general partner $ 50,710 $ 40,286 ============= ============= Net income allocated to limited partners $ 5,070,997 $ 4,028,623 =========== =========== Net income per limited partnership unit (Note 8) $.026 $.022 ==== ==== The accompanying notes are an integral part of these financial statements.
OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnersbip) STATEMENTS OF CASH FLOWS For the Three Months Ended March 31, 1998 and 1997 March 31 March 31 1998 1997 CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 5,121,707 $ 4,068,909 Adjustments to reconcile net income to net cash provided by operating activities Gain on sale of real estate by limited partnership (1,017,831) - Loss on sale of real estate property 2,701 - Increase in interest receivable (142,718) (168,109) Decrease in accrued distribution payable (15,191) (8,048) Increase in accounts payable and accrued liabilities 410,932 128,350 Decrease in other assets 53,509 0 Increase in deferred income - 162,820 Increase in other liabilities - 25,268 ---------- ---------- Total adjustment (708,598) 140,281 ---------- ---------- Net cash provided by operating activities 4,413,109 4,209,190 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of loans secured by trust deeds (8,164,033) (16,697,126) Principal collected 488,794 534,850 Loan payoffs 9,863,394 10,072,287 Investment in real estate (19,127) 933,268 Investment in limited partnership (838,419) (693,362) Distribution received from limited partnership 3,575,910 2,139,564 Investment in corporate joint venture (26,142) - Investments in Certificates of Deposit (net) 0 (150,000) ---------- ---------- Net cash provided by (used in) investing activities 4,880,377 (3,860,519) ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from sale of partnership Units 5,509,894 5,023,868 Cash distributions (1,575,916) (1,526,796) Capital withdrawals (3,275,561) (2,872,551) ---------- ---------- Net cash provided by financing activities 658,417 624,521 ---------- ---------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,951,903 973,192 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,073,115 11,386,661 ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 13,025,018 $ 12,359,853 ========== ========== The accompanying notes are an integral part of these financial statements.
OWENS MORTGAGE INVESTMENT FUND (A California Limited Partnership) NOTES TO FINANCIAL STATEMENTS MARCH 31, 1998 (1) Organization Owens Mortgage Investment Fund (the Partnership), a California limited partnership, was formed on June 14, 1984 to invest in loans secured by first, second and third trust deeds, wraparound and construction mortgage loans and leasehold interest mortgages. The Partnership commenced operations on the date of formation and will continue until December 31, 2034 unless dissolved prior thereto under the provisions of the partnership agreement. The general partners include Owens Financial Group, Inc. (OFG) and certain individuals who are OFG's shareholders and officers. The individual partners have assigned to OFG their interest in any present or future promotional allowance from the Partnership. OFG is a California corporation engaged in the origination of real estate mortgage loans for eventual sale and the subsequent servicing of those mortgages for the Partnership and other third-party investors. The general partners are authorized to offer and sell units in the Partnership up to an aggregate of 250,000,000 units outstanding at $1.00 per unit, representing $250,000,000 of limited partnership interests in the Partnership. Limited partnership units outstanding were 194,784,543 and 189,063,122, at March 31, 1998 and December 31, 1997, respectively. (2) Summary of Significant Accounting Policies (a) Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (b) Loans Secured by Trust Deeds Loans secured by trust deeds are acquired from OFG and are recorded at cost. Interest income on loans is accrued by the simple interest method. (2) Summary of Significant Accounting Policies, Continued In accordance with the Financial Accounting Standards Board's Statement No. 114, Accounting by Creditors for Impairment of a Loan, and No. 118, Accounting by Creditors for Impairment of a Loan--Income Recognition and Disclosures. Under Statement No. 114, a loan is impaired when, based on current information and events, it is probable that a creditor will be unable to collect the contractual interest and principal payments of a loan according to the contractual terms of the loan agreement. Statement No. 114 requires that impaired loans be measured on the present value of expected future cash flows discounted at the loan's effective interest rate or, as a practical expedient, at the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Statement No. 118 clarifies interest income recognition and disclosure provisions of Statement No. 114. The adoption of these statements did not have a material effect on the financial statements of the Partnership. The Partnership does not recognize interest income on loans once they are determined to be impaired until the interest is collected in cash. Cash receipts are allocated to interest income, except when such payments are specifically designated as principal reduction or when management does not believe the Partnership's investment in the loan is fully recoverable. (c) Allowance for Loan Losses The Partnership maintains an allowance for loan losses equal to $3,500,000 as of March 31, 1998 and December 31, 1997. Management of the Partnership believes that based on historical experience and a review of the loans and their respective collateral, the allowance for loan losses is adequate in amount. The outstanding balance of all loans delinquent greater than ninety days is $11,579,000 and $5,236,000 and as of March 31, 1998 and December 31, 1997, respectively. The Partnership discontinues the accrual of interest on loans when, in the opinion of management, there is significant doubt as to the collectibility of interest or principal from the borrower or when the payment of principal or interest is ninety days past due, unless OFG purchases the interest receivable from the Partnership. As of March 31, 1998 and December 31, 1997, the aforementioned loans totaling $11,579,000 and $5,236,000, respectively, are classified as non-accrual loans. OFG advances certain payments to the Partnership on behalf of borrowers, such as property taxes, mortgage interest pursuant to senior indebtedness, and development costs. Purchases of interest receivable and payments made on loans by OFG during the three months ended March 31, 1998 and the year ended December 31, 1997 but not collected as of March 31, 1998 and December 31, 1997, respectively, totaled approximately $ 23,000 and $219,000, respectively. (2) Summary of Significant Accounting Policies, Continued (d) Cash and Cash Equivalents For purposes of the statements of cash flows, cash and cash equivalents include interest-bearing and noninterest-bearing bank deposits and short-term certificates of deposit with original maturities of three months or less. (e) Certificates of Deposit Certificates of deposit are held with various financial institutions with original maturities of up to one year. (f) Real Estate Held for Sale Real estate held for sale includes real estate acquired through foreclosure and is carried at the lower of the recorded investment in the loan, inclusive of any senior indebtedness, or the property's estimated fair value, less estimated costs to sell. Certain real estate held for sale acquired by the Partnership is held in a limited partnership and corporate joint venture. The Partnership accounts for its investments in limited partnership and corporate joint venture under the equity method of accounting. The limited partnership and corporate joint venture investment in real estate is carried at the lower of cost or estimated fair value, less estimated costs to sell. The Partnership increases its investment by advances made to the limited partnership and corporate joint venture. Any profit generated from the investment in limited partnership and corporate joint venture is recorded as a gain on sale of real estate. In accordance with Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets and Long-lived Assets to Be Disposed Of", the Partnership periodically compares the carrying value of real estate held for sale to expected future cash flows for the purpose of assessing the recoverability of the recorded amounts. If the carrying value exceeds future cash flows, the assets are reduced to fair value. There were no required reductions to the carrying value of real estate held for sale made for the quarter ended March 31, 1998 and 1997. (g) Income Taxes No provision is made for income taxes since the Partnership is not a taxable entity. Accordingly, any income or loss is included in the tax returns of the partners. (3) Loans Secured by Trust Deeds Loans secured by trust deeds as of March 31, 1998 and December 31, 1997 are as follows:
March 31 December 31 1998 1997 ---- ---- Income-producing properties $ 163,441,519 $ 165,201,582 Single-family residences 2,087,879 2,088,606 Unimproved land 8,093,872 7,424,419 ------------- ------------- $ 173,623,270 $ 174,714,607 =========== =========== First mortgages $ 158,664,190 161,275,350 Second mortgages 14,272,485 12,744,274 Third mortgages or all-inclusive deeds of trust 686,595 694,983 ------------- ------------- $ 173,623,270 $ 174,714,607 =========== ============
Scheduled maturities of loans secured by trust deeds as of March 31, 1998 and the interest rate sensitivity of such loans is as follows:
Fixed Variable Year ending interest interest December 31, rate rate Total 1998 $ 48,160,493 9,986,504 58,146,997 1999 35,664,254 8,754,923 44,419,177 2000 1,424,345 25,595,700 27,020,045 2001 1,062,916 2,964,577 4,027,493 2002 1,823,218 10,937,238 12,760,456 Thereafter (through 2012) 6,503,411 20,745,691 27,249,102 ------------- ------------- ------------- $ 94,638,637 78,984,633 173,623,270 ============= ============= ==============
Variable rate loans use as indices the one and five year Treasury Constant Maturity Index (5.39% and 5.62%, respectively, as of March 31, 1998), the prime rate (8.50% as of March 31, 1998) and the weighted average cost of funds index for Eleventh District savings institutions (4.917% as of March 31, 1998). Premiums over these indices have varied from 250-550 basis points depending upon market conditions at the time the loan is made. The scheduled maturities for 1998 include approximately $26,036,000 of loans which are past maturity as of March 31, 1998, of which $9,751,000 represents loans for which interest payments are delinquent over 90 days. During the three months ended March 31, 1998 and the year ended December 31, 1997, the Partnership refinanced loans totaling $325,000 and $2,741,000, respectively, thereby extending the maturity dates of such loans. (3) Loans Secured by Trust Deeds, Continued The Partnership's total investment in loans delinquent over 90 days is $11,579,000 and $5,236,000 as of March 31, 1998 and December 31, 1997, respectively. OFG has purchased the Partnership's receivables for delinquent interest of $23,000 and $18,000, related to delinquent loans for the three months ended March 31, 1998 and the year ended December 31, 1997, respectively. The Partnership's investment in delinquent loans as of March 31, 1998 totals approximately $11,579,000, of which $3,596,000 has a specific related allowance for credit losses totaling approximately $1,683,000. There is a non-specific allowance for credit losses of $1,817,000 for the remaining balance of $7,983,000 and for other current loans. There was no additional allowance for credit losses during the three months ended March 31, 1998. Interest income received on impaired loans during the three months ended March 31, 1998 and the year ended December 31, 1997, totaled approximately $194,000 and $722,000, respectively, $194,000 and $670,000 of which was paid by borrowers and $0 and $52,000 of which related to purchases of interest receivable by OFG, respectively. As of March 31, 1998 and December 31, 1997, the Partnership's loans secured by deeds of trust on real property collateral located in Northern California totaled approximately 60% ($104,360,000) and 67% ($117,352,000), respectively, of the loan portfolio. The Northern California region (which includes the following counties and all counties north: Monterey, Fresno, Kings, Tulare and Inyo) is a large geographic area which has a diversified economic base. The ability of borrowers to repay loans is influenced by the economic strength of the region and the impact of prevailing market conditions on the value of real estate. Such loans are secured by deeds of trust in real estate properties and are expected to be repaid from the cash flow of the properties or proceeds from the sale or refinancing of the properties. The policy of the Partnership is to require real property collateral with a value, net of senior indebtedness, that exceeds the carrying amount of the loan balance and to record a deed of trust on the underlying property. 4)Real Estate Held for Sale Real estate held for sale includes the following components as of March 31, 1998 and December 31, 1997: March 31 December 31 1998 1997 ---- ---- Real estate properties held for sale $ 8,619,244 $ 9,699,656 Investment in limited partnership 2,092,482 3,812,122 Investment in corporate joint venture 665,505 639,363 ----------- ----------- $ 11,377,231 14,151,141 =========== =========== (4) Real Estate Held for Sale, Continued Gain on sale of real estate includes the following components for the years ended March 31, 1998 and 1997:
March 31 March 31 1998 1997 Gain on sale of real estate properties $ 24,873 75,766 Gain on sale of real estate by limited partnership 1,017,831 1,020,587 ---------- ----------- $ 1,042,704 1,096,353 ========== ===========
(a) Real Estate Properties Held for Sale Real estate properties held for sale at March 31, 1998 and December 31, 1997 consists of the following properties acquired through foreclosure in 1993 through 1998:
March 31 December 31 1998 1997 Warehouse, Merced, California, net of valuation allowance of $350,000 $ 650,000 650,000 Undeveloped land, Vallejo, California 1,039,116 1,030,566 Commercial lot, Sacramento, California, net of valuation allowance of $250,000 299,828 299,828 Office building and undeveloped land, Monterey, California, net of valuation allowance of $200,000 1,902,548 1,902,855 Manufactured home subdivision development, Ione, California, net of valuation allowance of $384,000 2,469,059 2,451,286 Commercial storage and office buildings, Oakland, California 444,466 444,063 Undeveloped land, Reno, Nevada 215,000 230,000 Manufactured home subdivision development, Sonora, California, net of valuation allowance of $712,000 as of December 31, 1997 --- 1,149,807 Light industrial building, Paso Robles, California 1,546,042 1,541,251 22% interest in 6-unit residential building, Oakland, California 53,185 --- ----------- ---------- $ 8,619,244 9,699,656 ========= =========
The acquisition of certain of these properties resulted in non-cash increases in real estate held for sale and non-cash decreases in loans secured by trust deeds of $53,185 and $3,279,349 for the three months ended March 31, 1998 and the year ended December 31, 1997, respectively. During 1997, the Partnership sold three properties for a sales price of approximately $1,659,000. On one of the three properties, the Partnership took back a loan secured by a trust deed in the amount of $840,000. (4) Real Estate Held for Sale, Continued During 1997, the Partnership sold two loans secured by second deeds of trust to OFG for $600,000 (face value). The Partnership subsequently purchased the property (located in Paso Robles, California) securing the loans at the senior lienholders trustee sale for $1,350,000; thus, wiping out OFG's junior deeds of trust. OFG recorded a loss of $600,000 as a result of this transaction. In February 1998, OFG purchased the manufactured home subdivision development property located in Sonora, California, from the Partnership for $1,150,000. The Partnership carried back a loan secured by a trust deed for the full purchase price. (b) Investment in Limited Partnership In 1993, the Partnership foreclosed on a loan in the amount of $600,000 secured by a junior lien on 30 residential lots located in Carmel Valley, California, and in 1994, paid off the senior loan in the amount of $500,000. The Partnership incurred additional costs of $502,798 in 1994 to protect its investment, increasing the carrying value of the lots to $1,602,798. The Partnership began to develop the lots and incurred an additional $671,118 in costs during 1995. During 1995, the Partnership entered into a limited partnership, WV-OMIF Partners, L.P. (WV-OMIF Partners) with an unrelated developer/builder, Wood Valley Development, Inc. (Woodvalley), for the purpose of constructing single-family homes on the 30 lots. The Partnership contributed the lots to WV-OMIF Partners in 1996 in exchange for a limited partnership interest. The $671,118 in capitalized costs incurred in 1995 were considered an advance to WV-OMIF Partners pursuant to the limited partnership agreement in 1996 when the lots were contributed. The Partnership provides advances to the WV-OMIF Partners to develop and construct the homes. The Partnership is entitled to receive interest at a rate of prime plus 2% on the advances to WV-OMIF Partners. OFG and Woodvalley have the option of purchasing and developing 34 similar lots which are interspersed among the 30 lots being developed by WV-OMIF Partners. WV-OMIF Partners is incurring the infrastructure costs which benefit all 64 lots, including the 34 lots that can be developed by OFG and Woodvalley. OFG and Woodvalley are reimbursing WV-OMIF Partners their pro rata share of the infrastructure costs with the funds received from the sale of the developed homes. As of March 31, 1998, Woodvalley had purchased thirty-one lots and developed and sold eighteen of them. The remaining three lots as of March 31, 1998 were purchased in April, 1998. As of March 31, 1998, OFG and Woodvalley had reimbursed $667,213 in development costs to WV-OMIF Partners from the sale of homes. The balance of development costs due by OFG and Woodvalley totals $83,461 as of March 31, 1998. (4) Real Estate Held for Sale, Continued During 1997 and 1996, the Partnership advanced an additional $4,152,918 and $2,895,261, respectively, to WV-OMIF Partners for the continued development and construction of the homes. During the three months ended March 31, 1998, the Partnership advanced an additional $838,419 to WV-OMIF. WV-OMIF sold eight homes during the three months ended March 31, 1998 for proceeds of $4,023,753, and the net gain allocable to the Partnership was $1,017,831, including interest income of $121,962. WV-OMIF Partners distributed $3,605,646 (including $19,116 in reimbursements from OFG and Woodvalley) to OMIF during the quarter ended March 31, 1998. WV-OMIF Partners sold fifteen homes in 1997 for proceeds of $8,011,960 and the net gain allocable to the Partnership was $2,355,075, plus interest income of $295,957. WV-OMIF Partners distributed $7,573,669 (including $648,069 in reimbursements from OFG and Woodvalley) to OMIF in 1997. WV-OMIF Partners sold one home in 1996 and distributed $462,103 to OMIF. The Partnership's investment in WV-OMIF Partners totaled $2,092,482 and $3,812,122 as of March 31, 1998 and December 31, 1997, respectively. WV-OMIF Partners is distributing cash received from the sale of the lots in the following priority: (1) to third parties, such as real property taxes and assessments, lenders, contractors, etc.; (2) to pay the Partnership the amount of $70,000 per lot, as each lot sells; (3) to pay the Partnership the interest on the cash advances in full, as each lot sells; (4) to reimburse the Partnership for its out-of-pocket cash advances for each lot, as each lot sells; and (5) the remainder to Woodvalley and the Partnership at a rate of 30% to Woodvalley and 70% to the Partnership. The WV-OMIF Partners Partnership Agreement states that the Partnership shall take no part in the conduct or control of WV-OMIF Partner's business or in the operation, right or authority to act for WV-OMIF Partners. Thus, the Partnership does not have control of WV-OMIF Partners and accounts for its investment in WV-OMIF Partners under the equity method of accounting. (c) Investment in Corporate Joint Venture In 1995, the Partnership foreclosed on a loan in the amount of $571,853 secured by a senior lien on a commercial parcel of land located in Los Gatos, California. During 1997, the Partnership contributed the land into 720 University, LLC (the Company), a corporate joint venture formed between the Partnership and BGC Properties, LLC (BGC). The purpose of the Company is to develop, construct and operate a commercial office building or R&D facility on the land to be held for investment and eventual sale. The Partnership may provide loans to the Company to develop and construct the building or the Partnership will obtain loans from third parties for such purposes. The Partnership is entitled to receive interest at a rate of prime plus 2% on the loans it makes to the Company. (4)Real Estate Held for Sale, Continued During 1997, the Partnership capitalized $56,889 in costs prior to the property being contributed to the Company and advanced $10,621 to the Company for development. During the three months ended March 31, 1998, the Partnership advanced an additional $26,141 to the Company for development. The total investment in the corporate joint venture totals $665,505 and $639,363 as of March 31, 1998 and December 31, 1997, repectively. The net cash flows from the operations of the Company are to be distributed in accordance with the following priorities: 1) 70% to the Partnership and 30% to BGC until the sum of all current and prior distributions of net cash flows equals the members' priority return on capital as of the end of the calendar quarter immediately preceding distribution; and 2) thereafter, 70% to the Partnership and 30% to BGC. The distribution upon dissolution shall be made in accordance with the following priorities: 1) to third parties to pay all debts; 2) to the members to pay all debts; 3) to the members in accordance with and to the extent of their respective positive capital account balances; 4) 70% to the Partnership and 30% to BGC. The Company is considered a corporate joint venture, and, thus, the Partnership accounts for its investment in the Company under the equity method of accounting. (5) Partners' Capital (a) Contributions Limited partners of the Partnership contributed $1.00 for each unit subscribed. Registration costs incurred by the Partnership have been offset against contributed capital. Such costs, which were incurred in 1989, amounted to approximately $198,000. (b) Allocations, Distributions and Withdrawals In accordance with the partnership agreement, the Partnership's profits, gains and losses are allocated to each limited partner and the general partners in proportion to their respective capital contributions. Distributions are made monthly to the limited partners in proportion to their respective units as of the last day of the preceding calendar month. Accrued distributions payable represent amounts to be paid in January and April, 1998 based on their capital balances as of December 31, 1997 and March 31, 1998, respectively. (5) Partners' Capital, Continued The Partnership makes cash distributions to those limited partners who elect to receive such distributions. Those limited partners who elect not to receive cash distributions have their distributions reinvested in additional limited partnership units. Such reinvested distributions totaled $2,614,765 and $10,077,144 for the three months ended March 31, 1998 and the year ended December 31, 1997, respectively. Reinvested distributions are not shown as partners' distributions or sales of partnership units in the accompanying statements of partners' capital. The limited partners may withdraw, or partially withdraw, from the Partnership and obtain the return of their outstanding capital accounts at $1.00 per unit (book value) within 91 days after written notices are delivered to the general partners, subject to the following limitations: o Any such payments are required to be made only from cash available for distribution, net proceeds and capital contributions (as defined) during said 91-day period. o A maximum of $75,000 per partner may be withdrawn during any calendar quarter (or $100,000 in the case of a deceased limited partner). o The general partners are not required to establish a reserve fund for the purpose of funding such payments. o No more than 10% of the outstanding limited partnership interest may be withdrawn during any calendar year except upon dissolution of the Partnership. (c) Promotional Interest of General Partners The general partners contributed capital to the Partnership in the amount of 0.5% of the limited partners' aggregate capital contributions and, together with their promotional interest, the general partners have an interest equal to 1% of the limited partners' contributions. This promotional interest of the general partners of up to 1/2 of 1% is recorded as an expense of the Partnership and credited as a contribution to the general partners' capital account as additional compensation. As of March 31, 1998, the general partners had made cash capital contributions of $981,634 to the Partnership. The general partners are required to continue cash capital contributions to the Partnership in order to maintain their required capital balance. The promotional interest expense charged to the Partnership was $23,969 and $22,974 for the three months ended March 31, 1998 and 1997, respectively. (6) Contingency Reserves In accordance with the partnership agreement and to satisfy the Partnership's liquidity requirements, the Partnership is required to maintain cash as contingency reserves (as defined) in an aggregate amount of at least 1-1/2% of the gross proceeds of the sale of limited partnership units. The cash capital contribution of the general partners (amounting to $981,133 at March 31, 1998), up to a maximum of 1/2 of 1% of the limited partners' capital contributions, will be available as an additional contingency reserve, if necessary. The contingency reserves required at March 31, 1998 and December 31, 1997 were approximately $3,956,000 and $3,829,000, respectively. Certificates of deposit and certain cash equivalents as of the same dates were accordingly maintained as reserves. (7) Transactions with Affiliates OFG is entitled to receive from the Partnership a management fee of up to 2.75% per annum of the average unpaid balance of the Partnership's mortgage loans at the end of each of the preceding twelve months for services rendered as manager of the Partnership. The maximum management fee is reduced to 1.75% per annum if OFG has not provided during the preceding calendar year any of the certain services defined in the limited partnership agreement. All of the Partnership's loans are serviced by OFG, in consideration for which OFG receives up to .25% per annum of the unpaid principal balance of the loans. Servicing fees are paid from the interest income of the loans collected from the borrowers. Interest income on loans secured by trust deeds is collected by OFG and is remitted monthly to the Partnership, net of servicing fees earned by OFG. Interest receivable from OFG amounted to $2,026,153 and $1,773,608 at March 31, 1998 and December 31, 1997, respectively. OFG, at its sole discretion may, on a monthly basis, adjust the management and servicing fees as long as they do not exceed the allowable limits calculated on an annual basis. In determining the management and servicing fees and hence the yield to the Partnership, OFG may consider a number of factors, including the then-current market yields. Even though the fees for a month may exceed one-twelfth of the maximum limits, at the end of the calendar year the sum of the fees collected for each of the twelve months is equal to or less than the stated limits. Management fees amounted to approximately $486,000 and $1,299,000 for the three months ended March 31, 1998 and 1997, respectively, and are included in the accompanying statements of income. Service fee payments to OFG approximated $108,000 and $120,000 for the three months ended March 31, 1998 and 1997, respectively, and are included in the accompanying statements of income. OFG receives late payment charges from borrowers who make delinquent payments. Such charges are in addition to the normal monthly loan payments and totaled approximately $24,000 and $55,000 for the three months ended March 31, 1998 and 1997, respectively. (7) Transactions with Affiliates, Continued OFG originates all loans the Partnership invests in and receives an investment evaluation fee payable from payments made by borrowers. Such fees earned by OFG amounted to approximately $143,000 and $485,000 for the three months ended March 31, 1998 and 1997, respectively. During the three months ended March 31, 1998, OFG purchased the manufactured home subdivision development in Sonora Vista from the Partnership at a loss of approximately $2,000. An allowance for loss on this property in the amount of $712,000 had been recorded in 1997. The Partnership carried back a loan from OFG for the entire purchase price. During the year ended December 31, 1997, OFG purchased three loans secured by trust deeds from OMIF at face values in the total amount of $613,000 for cash of $340,000 and assumption of a loan in the amount of $273,000. OFG then foreclosed on the loans and sold one of the properties during 1997 for a gain of approximately $42,000. Included in loans secured by trust deeds at March 31, 1998 and December 31, 1997 are notes totaling $1,915,332 and $2,215,549, respectively, which are secured by properties owned by OFG. The loans bear interest at 8% per annum and are due on demand. The Partnership received interest income of approximately $15,000 and $62,000 during the three months ended March 31, 1998 and 1997, respectively, from OFG under loans secured by trust deeds and the unsecured loan due from OFG. (8) Net Income Per Limited Partner Unit Net income per limited partnership unit is computed using the weighted average of limited partnership units outstanding during the quarter, which was 192,678,000 and 181,664,000 for the three months ended March 31, 1998 and 1997, respectively. Item 2. Management's Discussion and Ana1ysis of Financial Condition and Results of Operations Results of Operations The net income increases of approximately $1,053,000 (25.9%) for the three months ended March 31, 1998 as compared to the three months ended March 31, 1997 was primarily attributable to the decrease in management fees paid to the Corporate General Partner from $1,299,000 to $486,000 for the three months ended March 31, 1997 and 1998, respectively. Although net income increased by 25.9% for the three months ended March 31, 1998 as compared to the three months ended March 31, 1997, the average annualized net yield of the Partnership decreased from 8.73% to 8.53% for the three months ended March 31, 1997 and 1998, respectively. The net yield represents the net cash distribution of the Partnership in relation to the total limited partners invested capital. This distribution takes into account all items of income and expense with the exception of the provision for losses on loans or Real estate held for sale or the accrual of income on loans in which interest is paid at the maturity date of the loan. During the three months ended March 31, 1998, the Partnership disposed of a property at a loss of approximately $2,000. However, a loss allowance of $712,000 had previously been attributed to this property. In addition, $258,000 of interest income due to be paid at the maturity of a loan was accrued during the three months ended March 31, 1998. Although these items had the effect of increasing net income, they did not effect the net yield. These variations in yield are minor and not considered significant. Portfolio Review The number of Partnership mortgage investments decreased from 236 to 206 and the average loan balance increased from approximately $679,000 to $843,000 as of March 31, 1997 and 1998, respectively. The average mortgage investment made by the Partnership during the period of April 1, 1997 through March 31, 1998 was approximately $1,427,000 showing a trend of increasing average mortgage investments. These average loan increases reflect the Partnership's ability to invest in larger mortgage loans meeting the Partnership's objectives. The Corporate General Partner had previously purchased all interest receivable of the Partnership on all delinquent loans made or invested in by the Partnership. However, on loans originated by the Corporate General Partner on or after May 1, 1993, and effective November 1, 1994, for certain other loans originated prior to May 1, 1993, the Corporate General Partner has adopted the policy to not purchase delinquent interest or principal. As of March 31, 1998 and 1997, there were approximately $10,896,000 and $8,528,000, respectively, in loans held by the Partnership on which payments were more than 90 days delinquent and on which such delinquent interest was not being purchased by the Corporate General Partner. The Corporate General Partner purchased approximately $23,000 and $18,000 in delinquent interest receivables of the Partnership during the three months ended March 31, 1998 and 1997, respectively, that had not been collected from the borrower by the Corporate General Partner as of March 31, 1998 or 1997. Approximately $11,579,000 (6.7%) and $5,236,000 (3.0%) of the loans invested in by the Fund were more than 90 days delinquent in payment as of March 31, 1998 and December 31, 1997, respectively. Of these amounts, approximately $3,834,000 (2.2%) and $3,279,000 (1.9%) were in the process of foreclosure as of March 31, 1998 and December 31, 1997, respectively. A loan loss reserve in the amount of $3,500,000 was maintained on the books of the Partnership as of March 31, 1998 and December 31, 1997. As of this date the General Partners have determined that this loan loss reserve is adequate. As of March 31, 1998 and December 31, 1997 approximately 60% and 67%, respectively, of the mortgage loans made or invested in by the Partnership are secured by real property located in Northern California. The following table sets forth the principal amount of mortgage investments, by classification of property securing each loan, held by the Partnership on March 31, 1998 and December 31, 1997: Principal Amount March 31 December 31 1998 1997 ---- ---- (000) (000) Single-Family Dwellings $ 2,088 $ 2,089 Income-Producing Property 163,441 165,202 Unimproved Land 8,094 7,424 ------- ------- $ 173,623 $ 174,715 ======= ======= First Mortgages $ 158,664 $ 161,275 Second Mortgages 14,272 12,745 Third Mortgages or All-inclusive Deeds of Trust 687 695 ------- ------- $ 173,623 $ 174,715 ======= ======= The following amount of delinquent loans held by the Partnership have been acquired and foreclosed upon by the Corporate General Partner from January 1, 1994 through March 31, 1998: Delinquent Year Principal Interest Foreclosed 58,000 4,417 1994 1,184,223 252,810 1995 2,320,000 86,981 1996 613,400 50,625 1997 -- -- 1998 The Corporate General Partner has purchased all delinquent interest receivable from the Partnership on the loans foreclosed on in 1994 and 1995. The delinquent interest on the loans foreclosed on in 1996 and 1997 was never purchased from the Partnership by the Corporate General Partner. Of these foreclosed loans, the Partnership held three mortgages totaling $765,332 as of March 31, 1998 on which the Corporate General Partner was making payments which were current. In addition, the Partnership held a mortgage in the amount of $1,150,000 secured by a property sold to the Corporate General Partner during the three months ended March 31, 1998. Real Estate Owned The Partnership currently holds title to the following ten properties which were foreclosed on from January 1, 1993 through March 31, 1998:
Fund Additional Loan Capitalized Delinquent Description Amount Costs Interest Light Industrial Warehouse Merced, CA $ 1,000,000 (1) $ 0 $ 175,333 Commercial Lot/Residential Development, Vallejo, CA $ 525,000 $ 505,566 (2) $ 83,949 Commerical Lot Sacramento, CA $ 500,000 (3) $ 49,828 $ 36,500 Office Building Monterey, CA $ 550,000 (4) $ 1,581,165 (5) $ 30,077 Undeveloped Land Reno, NV $ 215,000 $ 0 $ 0 Residential Lots Ione, CA $ 2,821,675 (6) $ 31,384 $ 1,032,637 Self Storage Oakland, CA $ 464,000 $ 0 $ 209,612 Light Industrial Bldg. Paso Robles, CA $ 600,000 (7) $ 946,042 (7) $ 131,416 23% interest in Multi- Unit Residential Bldg., Oakland, CA $ 53,185 $ 0 $ 4,052 (1) The book value of this asset is net of a loss allowance of $350,000. (2) Of this additional capitalized cost, $450,000 represents the purchase of a minority investor's interest in the property to provide the Partnership with complete ownership. (3) The book value of this asset is net of a loss allowance of $250,000. (4) The book value of this asset is net of a loss allowance of $200,000. (5) Included in this balance is the payoff of a senior loan in the amount of $1,425,000. This senior loan was originally $2,102,646 including late charges and fees. The Corporate General Partner arranged for this loan to be discounted at payoff. (6) The book value of this asset is net of a loss allowance of $384,000. (7) The Partnership held two junior deeds of trust secured by this property. Prior to foreclosure by the senior lienholder, the Corporate General Partner purchased the $600,000 of loans from the Partnership. The Partnership then purchased the property at the foreclosure sale for $1,350,000, and wiped out the Corporate General Partner's junior deeds of trust. The Corporate General Partner incurred a loss of $600,000 at foreclosure.
The properties located in Merced, Vallejo and Sacramento, California and Reno, Nevada do not currently general revenue and, as such, contribute to the Real estate held for sale operating at a deficit. Although income from rental properties has increased from $69,000 to $170,000 for the three months ended March 31, 1997 and 1998, respectively, expenses associated with these properties have also increased from $92,000 to $220,000 for the three months ended March 31, 1997 and 1998, respectively. Since 1993, the Partnership's investment in Real estate held for sale has increased due to the Corporate General Partner's policy to generally not acquire property subject to foreclosure on which the Partnership has a trust deed investment. During the three months ended March 31, 1998, the Partnership sold a property to the Corporate General Partner at a book loss of $2,000, net of an allowance for losses attributable to the property of $712,000 which was recorded in 1997. The Partnership also acquired a 23% interest in a multi-unit residential property located in Oakland, California through foreclosure in which it had invested $53,185. Development Limited Partnership In 1993, the Partnership foreclosed on a $600,000 loan secured by a junior lien on 30 residential lots located in Carmel Valley, California, and, in 1994, paid off the $500,000 senior loan. The Partnership incurred additional costs of $503,000 in protecting its investment, thus increasing the carrying value of the lots to $1,603,000. During 1995, the Partnership began to develop the lots and in 1995 incurred an additional $671,000 in costs. In 1995, the Partnership became the sole limited partner in a limited partnership formed with Wood Valley Development, Inc., an unrelated developer/builder and sole general partner, for the development and buildout of these lots. In exchange for its interest in this development limited partnership, the Partnership in 1996 contributed the lots to the development limited partnership and agreed to make additional advances to fund the development costs. During the year ended December 31, 1997 and the three months ended March 31, 1998, the Partnership had advanced additional development costs aggregating $4,153,000 and $838,000, respectively. The amount invested in or advanced by the Partnership at December 31, 1997 and March 31, 1998, equaled $3,812,000 and $2,092,000, net of distributions through such date. Under the terms of the agreement governing the development limited partnership, the Partnership is entitled to receive certain distributions of cash before the developer receives any funds. The cash received by the development limited partnership from sales of developed lots is distributed as follows: (i) to third parties (e.g., contractors, taxing authorities, etc.) for amounts incurred by the development limited partnership and related to the lots sold; (ii) to the Partnership, in an amount equal to $70,000 per lot sold; (iii) to the Partnership, in an amount equal to a pro rata portion of the development costs advanced, plus interest at prime plus 2%; (iv) to the Partnership, in an amount equal to other out-of-pocket expenses incurred by Partnership with respect to the lots sold, plus interest at prime plus 2%; and (v) the balance, if any, 70% to the Partnership, and 30% to the developer. The development limited partnership is building single-family residences of between approximately 2,200 and 2,800 square feet on the lots During 1997, 15 homes were sold for aggregate proceeds of $8,012,000, and the development limited partnership distributed $7,574,000 to the Partnership, $2,355,000 of which represented profit and interest. During the three months ended March 31, 1998, eight homes were sold for aggregate proceeds of $4,024,000 and the development limited partnership distributed $3,576,000 (including $19,000 from the joint venture formed between the Corporate General Partner and Wood Valley, Inc.) to the Partnership, $1,018,000 of which represented profit and interest. As of March 31, 1998, a total of 24 homes had been completed and sold and construction had been completed or commenced on the remaining 6 lots. The Corporate General Partner has entered into a joint venture with Wood Valley Development, Inc. to purchase and build out up to 34 lots that are contiguous to and interspersed with the lots in Carmel Valley owned by the development limited partnership formed between the Partnership and Wood Valley Development, Inc. As of March 31, 1997, the joint venture between the Corporate General Partner and Wood Valley Development, Inc. had purchased 31 lots and developed and sold 18 of these lots. The remaining three lots are expected to be purchased by this joint venture during 1998. The Partnership does not have any direct or indirect interest in these 34 lots nor do any of these lots provide any security for the original Partnership loan which was foreclosed on in 1993. The development limited partnership has, however, incurred certain infrastructure and soft costs that benefited not only the 30 lots owned by the development limited partnership, but the 34 contiguous lots owned by the Corporate General Partner/Wood Valley Development, Inc. joint venture. As sales of these 34 lots occur, the development limited partnership is being reimbursed on a pro rata basis, without interest, for such development, infrastructure and soft costs incurred by the development limited partnership. Upon receipt of any such funds the development limited partnership will distribute monies as outlined above. During the three months ended March 31, 1998, the development limited partnership received reimbursement of $19,000 in development costs and the balance of development advances receivable is $83,000 as of March 31, 1998. Development Limited Liability Company/Corporate Joint Venture In 1995, the Partnership foreclosed on a $571,853 loan and obtained title to a commercial lot in Los Gatos, California. In 1997, the Partnership formed a limited liability company (the "Company") with BGC Properties LLC, an unaffiliated developer, and contributed the land valued at $760,000 to the newly-formed limited liability company in exchange for a 70% interest in the profits and losses of the Company. The sole purpose of the Company is to develop, construct and operate a commercial office building on the land, to be held for investment or sale. The Partnership is required to provide construction financing to the Company in the form of additional contributions or loans to the Company, or to obtain such financing from third parties. To the extent the Partnership lends such funds, it will receive interest at a rate of prime plus 2%. Upon completion of construction of improvements, the Partnership is required to obtain or provide permanent financing. The Partnership is the sole manager of the Company. As such, the Partnership has exclusive control and authority over the Company's affairs, subject to certain rights of BGC. The Partnership will not receive any compensation for serving as manager of the Company. BGC will provide certain development services to the Company and will receive a development fee. At BGC's election, BGC may defer payment of all or a portion of the fee, and earn interest thereon at the rate of 8% per annum, simple. Additionally, an affiliate of BGC will serve as property manager and earn an asset management fee. Prior to contributing the land to the Company, the Partnership invested approximately $629,000 (including $57,000 in capitalized costs subsequent to foreclosure) in such land. Since contributing the land to the Company the Partnership has loaned $37,000 to the Company, which amount will be repaid, with interest, as discussed above. The Company expects to have development rights by mid-1998 and have construction completed in 1999. Liquidity and Capital Resources The Partnership relies upon purchases of limited partnership interests and loan payoffs for the creation of capital for mortgage investments. The Partnership has not and does not intend to borrow money for investment purposes. Contingency Reserves The Partnership maintains cash and certificates of deposit as contingency reserves in an aggregate amount of at least 2% of the gross proceeds of the sale of Limited Partners' Units. To the extent that such funds are not sufficient to pay expenses in excess of revenues or to meet any obligation of the Partnership, it may be necessary for the Partnership to sell or otherwise liquidate certain of its investments on terms which may not be favorable to the Partnership. Current Economic Conditions The Partnership has been affected by regional declines in commercial property values and general economic conditions; however, the Partnership has not sustained any principal losses to date. Due to the conservative loan-to-value criteria established by the Corporate General Partner, the mortgage loans held by the Partnership appear in general to be, in the opinion of the General Partners, adequately secured. The Partnership generally invests in relatively short-term commercial loans (1-7 years). In addition, the Corporate General Partner is generally able to fund loans in a shorter time frame than institutional lenders which allows it to collect a higher rate of interest from those borrowers that consider time to be an essential factor. Due to this, the net income of the Partnership has, in recent years, remained in the range of 8.5-9.0 percent of limited partners' capital per year. If there were a reduction in the demand for loans originated by the Corporate General Partner and, thus, fewer loans for the Partnership to invest in, the Partnership would have to invest excess cash in shorter term investments or reduce the interest rate charged on mortgage loans which would yield considerably less than the current investment portfolio. The Partnership continues to receive substantial additional investments from new and existing Limited Partners which provide capital for loans, purchases of existing notes and redemption of existing Limited Partnership Units. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Partnership is not presently involved in any material legal proceedings. Item 6(b). Reports on Form 8-K No reports on Form 8-K have been filed during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements 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. Dated: May 15, 1998 OWENS MORTGAGE INVESTMENT FUND a California Limited Partnership (Registrant) By: Owens Financial Group, Inc. a General Partner By: \s\ William C. Owens William C. Owens President By: \s\ Bryan H. Draper Bryan H. Draper Chief Financial Officer Principal Financial and Accounting Officer EX-27 2 FDS --
5 (Replace this text with the legend) 841501 OWENS MORTGAGE INVESTMENT FUND 1 U.S. DOLLARS 3-MOS DEC-31-1998 JAN-01-1998 MAR-31-1998 1 14,025,018 0 2,026,153 0 0 16,051,171 11,377,231 0 197,610,746 1,099,487 0 0 0 0 196,511,259 197,610,746 0 5,862,811 0 0 741,104 0 0 5,121,707 0 5,121,707 0 0 0 5,121,707 .03 .03
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