<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
__________
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission File Number: 1-8073
CV REIT, INC.
(Exact name of registrant as specified in its charter)
Delaware 59-0950354
(State of Incorporation) (I.R.S. Employer Identification No.)
100 Century Boulevard, West Palm Beach, Florida 33417
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 407-640-3155
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on
which registered
Common stock, par value New York Stock Exchange
$.01 per share
Securities registered pursuant to Section 12(g) of the Act: None
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
This report contains a total of 17 pages.
<PAGE> 2
CV REIT, INC. AND SUBSIDIARIES
PART I. Financial Information
Item 1. Financial Statements
The consolidated financial statements included herein
have been prepared by the registrant, without audit, pursuant to
the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with
generally accepted accounting principles have been consolidated or
omitted pursuant to such rules and regulations; however, the
registrant believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
consolidated financial statements be read in conjunction with the
financial statements and the notes thereto included in the
registrant's annual report on Form 10-K for the fiscal year ended
December 31, 1993.
The consolidated financial statements for the interim
periods included herein, which are unaudited, include, in the
opinion of management, all adjustments (consisting only of normal
recurring accruals) necessary to present fairly the financial
position and results of operations of the registrant for the
periods presented. The results of operations for interim periods
should not be considered indicative of results to be expected for
the full year.
<PAGE> 3
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
June 30, December 31,
ASSETS 1994 1993
- - ------ -------- ------------
Investments:
Real estate mortgage notes $100,728 $105,863
Real estate acquired by foreclosure 8,951 8,688
Accrued interest receivable 947 470
-------- --------
110,626 115,021
Less allowance for losses (5,084) (5,119)
-------- --------
105,542 109,902
GNMA certificates (market value of
$36,000 in 1993) -- 35,781
Real estate and investments in real
estate partnerships, net of
accumulated depreciation 6,204 6,331
Investment in Hilcoast Development Corp.
10% Cumulative Preferred Stock 5,000 5,000
-------- --------
Total investments 116,746 157,014
Cash (including $851 and $822 restricted) 5,324 5,050
Other 1,009 1,163
-------- --------
$123,079 $163,227
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ------------------------------------
Liabilities and other credits:
Borrowings $39,762 $77,201
Accounts payable, accruals and other
liabilities 611 901
Dividends payable 2,403 2,250
Deferred income taxes 8,179 8,179
-------- --------
Total liabilities and other credits 50,955 88,531
-------- --------
Stockholders' equity:
Common stock, $.01 par-shares authorized
10,000,000; outstanding 7,966,621 80 80
Additional paid-in capital 18,490 18,490
Retained earnings 53,554 56,126
-------- --------
Total stockholders' equity 72,124 74,696
-------- --------
$123,079 $163,227
======== ========
See accompanying notes to consolidated financial statements
<PAGE> 4
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------
1994 1993 1994 1993
-------------------------------------
Income:
Interest, substantially
from mortgage notes $2,986 $3,450 $6,456 $6,942
Rent and other 381 353 759 702
Reversal of losses -- 100 200 100
------ ------ ------ ------
3,367 3,903 7,415 7,744
------ ------ ------ ------
Expenses:
Interest 945 1,524 2,362 3,075
Operating, general and
administrative 386 543 850 1,239
Depreciation 41 33 81 66
------ ------ ------ ------
1,372 2,100 3,293 4,380
------ ------ ------ ------
Income before loss on sale of
GNMA certificates 1,995 1,803 4,122 3,364
Loss on sale of GNMA
certificates 2,392 -- 2,392 --
------ ------ ------ ------
Net income (loss) ($397) $1,803 $1,730 $3,364
====== ====== ====== ======
Net income (loss) per
common share ($0.05) $0.25 $0.22 $0.47
====== ====== ====== ======
Dividends declared per
common share $0.27 $0.25 $0.54 $0.50
====== ====== ====== ======
Average common shares
outstanding 7,966,621 7,218,633 7,966,621 7,218,633
========= ========= ========= =========
See accompanying notes to consolidated financial statements
<PAGE> 5
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF RETAINED EARNINGS
(in thousands)
Balance at December 31, 1993 $56,126
Net income for the six months
ended June 30, 1994 1,730
Cash dividends declared (4,302)
----------
Balance at June 30, 1994 $53,554
==========
See accompanying notes to consolidated financial statements.
<PAGE> 6
CV REIT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
June 30,
-------- --------
1994 1993
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,730 $3,364
Adjustment to reconcile net income to net cash
provided by operating activities:
Depreciation 81 66
Reversal of losses (200) (100)
Amortization of deferred financing costs 276 102
Loss on sale of GNMA certificates 2,392 -
------- -------
Funds from operations 4,279 3,432
Increase in accrued interest receivable
and other assets (553) (520)
Decrease in accounts payable,
accruals and other liabilities (290) (405)
------- -------
Net cash provided by operating activities 3,436 2,507
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate mortgage notes (13,125) (9,817)
Collections on real estate mortgage notes 18,139 11,427
Sale of GNMA certificates 32,412 -
Return of principal on GNMA certificates 977 265
Proceeds from sales of real estate
acquired by foreclosure and other 23 1,302
------- -------
Net cash provided by investing activities 38,426 3,177
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings - 555
Repayments of borrowings (37,439) (814)
Cash dividends paid (4,149) (3,614)
Increase in restricted cash (29) -
------- -------
Net cash used in financing activities (41,617) (3,873)
------- -------
Net decrease in unrestricted cash 245 1,811
Unrestricted cash at beginning of period 4,228 3,283
------- -------
Unrestricted cash at end of period $4,473 $5,094
======= =======
Supplemental disclosure of cash flow information:
Cash paid during period for interest $2,514 $3,124
======= =======
See accompanying notes to consolidated financial statements.
<PAGE> 7
CV REIT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==========================================
(1) Investments
(a) Investments in real estate mortgage notes, substantially
all of which are collateralized by real estate located in southeast
Florida, consist of (in thousands):
June 30, December 31,
1994 1993
-------- ------------
Hilcoast Development Corp.
("Hilcoast"):
Term Loan (Note 1(b)) $ 32,266 $ 34,504
Lines of Credit (Note 1(b)) 8,300 6,525
Other 3,120 3,195
-------- --------
43,686 44,224
First mortgage installment notes,
with self-amortizing equal
monthly principal and interest
payments due through 2012, with
interest averaging 13%, collateral-
ized by recreation facilities at
three Century Village communities
in West Palm Beach, Boca Raton and
Deerfield Beach, Florida
("Recreation Notes" - Note (2)) 44,514 44,808
First mortgage notes, maturing
through 1998, with interest
ranging primarily from
8% to 10.5%, collateralized
principally by real property in
Palm Beach and Broward
Counties, Florida:
Residential 6,291 10,643
Commercial 6,237 6,188
-------- --------
Totals $100,728 $105,863
======== ========
<PAGE> 8
(b) Hilcoast
At June 30, 1994, the Lines of Credit consisted of revolving
construction loan commitments in the amount of $6.5 million (the
"$6.5 million Line of Credit") and $3 million (the "$3 million Line
of Credit"). The Term Loan and the $6.5 million Line of Credit
mature on July 31, 1998, except as described below with respect to
the conversion of the Term Loan, and bear interest, payable
monthly, at prime (7.25% at June 30, 1994) plus 3%, but in any
event not less than 9% nor more than 11%. In July 1994, the $3
million Line of Credit, which originally matured on March 31, 1995,
was extended to March 31, 1996 and the Company agreed to increase
the Lines of Credit by a maximum of $2.5 million (the "$2.5 million
Line of Credit"), generally based on 50% of principal payments
received under the Term Loan commencing on the date the principal
balance of the Term Loan has been reduced to $30 million. The $2.5
million Line of Credit bears interest, payable monthly, at 12.5%
and matures on January 31, 1996. The $3 million Line of Credit
bears interest, payable monthly, at prime plus 3% with a floor of
11%.
The Term Loan and the Lines of Credit are collateralized by
first mortgages on certain residential and commercial real estate
at the Century Village at Pembroke Pines, Florida adult condominium
project ("Century Village"), a second mortgage on the recreation
facilities at Century Village (subordinated to a first mortgage to
The Daiwa Bank, Ltd. ("Daiwa") in the amount of $4.4 million at
June 30, 1994) and certain other assets (the "Collateral").
Hilcoast is required to pay commitment fees of 1.8% and .9% per
annum on the unused portion of the $6.5 million Line of Credit and
the remaining $5.5 million Lines of Credit, respectively. The Term
Loan requires minimum annual principal payments, which include
specific release prices for the Collateral, and which will reduce
the Term Loan to $25 million by July 31, 1998.
Provided that the Daiwa indebtedness (which matures on October
31, 1996) has been satisfied, when the Term Loan has been reduced
to $25 million, it will be converted to an 11%, fixed rate, 25 year
self-amortizing loan providing for equal monthly payments of
principal and interest (the "Permanent Loan"). The release prices
for the Collateral will then be applied to a permanent reduction of
amounts available under the Lines of Credit. The Permanent Loan
may not be prepaid by Hilcoast without a prepayment penalty and
will be collateralized by a first mortgage on the recreation
facilities at Century Village.
In connection with the acquisition by Hilcoast of the
Collateral and certain other assets in July 1992, Hilcoast issued
a promissory note (the "Purchase Note") to the seller, with an
outstanding balance of $2 million at June 30, 1994, guaranteed by
the Company and collateralized by $3 million of the Company's $5
million investment in Hilcoast Preferred Stock. The Purchase Note
bears interest at prime (7.25% at June 30, 1994) plus 1/2%, and is
payable by Hilcoast on July 31, 1995. Upon satisfaction of the
Purchase Note and the release of the Hilcoast Preferred Stock, the
$6.5 million Line of Credit may be increased by Hilcoast to $7.5
million.
<PAGE> 9
(c) Real estate acquired by foreclosure consists of (before
allowance for losses - in thousands):
June 30, December 31,
1994 1993
-------- ------------
Commercial:
Broward County, Florida:
29 acre commercial site in
Miramar $ 2,563 $ 2,563
Nine acre office building
site in Dania 5,000 5,000
Other 600 600
------- -------
Total commercial 8,163 8,163
Residential 788 525
------- -------
Totals $ 8,951 $ 8,688
======= =======
(d) GNMA Certificates
On April 5, 1994, the Company sold its GNMA certificate
portfolio for $32.4 million and realized a $2.4 million loss on the
sale.
(e) Real estate and investments in real estate partnerships
are located in southeast Florida and consist of (in thousands):
June 30, December 31,
1994 1993
-------- ------------
Days Inn Motel, West Palm Beach $ 3,654 $ 3,654
Administration Building, West Palm Beach 764 756
Other 524 520
------- -------
4,942 4,930
Accumulated depreciation (2,021) (1,940)
------- -------
2,921 2,990
45%-50% investments in self-storage
warehouse partnerships in south Florida 3,283 3,341
------- -------
Totals $ 6,204 $ 6,331
======= =======
<PAGE> 10
(2) Borrowings
(a) Borrowings consist of (in thousands):
June 30, December 31,
1994 1993
-------- ------------
Collateralized Mortgage Obligations
("CMO's"), net of unamortized
discount of $1.2 million and $1.3
million based on an effective
interest rate of 8.84% (Note 2(b)) $39,762 $40,579
Short-term reverse repurchase
agreements -- 32,622
Bank loans -- 4,000
------- -------
Totals $39,762 $77,201
======= =======
(b) The CMO's are collateralized by the Recreation Notes
(Note 1(a)), require quarterly self-amortizing principal and
interest payments and mature on March 15, 2007.
(3) Commitments and Contingencies - TGI Development, Inc. ("TGI")
On October 9, 1989, TGI filed a complaint against the Company,
H. Irwin Levy (Note (4)) and certain unrelated parties alleging
misrepresentations by the defendants in connection with the
Plaintiff's purchase and development of land from a previous
borrower of the Company at Boca Grove Plantation. The complaint,
as subsequently amended, consisted of counts of common law fraud
and breach of contract and sought compensatory damages of
approximately $2 million in addition to punitive damages. On
October 3, 1990, the Company filed a counterclaim against TGI in
connection with an $800,000 promissory note from TGI to the
Company. On February 9, 1994, the Court granted a Final Judgment
in favor of the Company as to the count of common law fraud, which
strikes the punitive damage claim. On April 5, 1994, the parties
entered into an agreement which provides for the Plaintiff to
immediately dismiss the breach of contract count and to agree to
the entry of a judgment in the amount of $1.1 million in favor of
the Company on the aforementioned counterclaim. The Company has
agreed not to execute that judgment until completion of the
Plaintiff's appeal of the Final Judgment on the punitive damage
claim. Although the Company believes it has substantial defenses,
the ultimate outcome of this litigation cannot presently be
determined. Accordingly, no provision for any liability that may
result upon final adjudication has been made in the accompanying
financial statements.
<PAGE> 11
(4) Consulting and Advisory Agreement with Hilcoast
(the "Agreement")
Under the Agreement, Hilcoast provides certain investment
advisory, consulting and administrative services to the Company.
The Agreement expires on July 31, 1995, provides for the payment of
$10,000 per month to Hilcoast, plus reimbursement for all out of
pocket expenses, and may be terminated by Hilcoast upon 180 days
notice and by the Company upon 30 days notice. H. Irwin Levy, a
principal stockholder and the former Chairman of the Board of the
Company, Joseph D. Weingard, a former director of the Company, and
Michael S. Rubin and Jack Jaiven, former officers of the Company,
presently serve as officers and/or directors of Hilcoast.
<PAGE> 12
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Results of Operations
During the second quarter ended June 30, 1994, income before
loss on sale of GNMA certificates was $1,995,000 as compared to
$1,803,000 in the corresponding quarter of 1993.
The $192,000 increase in quarterly earnings was principally
attributable to a $115,000 increase in net interest income and a
$157,000 decrease in operating, general and administrative
expenses, partially offset by a $100,000 reversal of losses in
1993.
The $115,000 increase in net interest income was principally
attributable to an approximately $350,000 reduction in interest
expense principally due to the repayment in November 1993 of the
Company's subordinated notes, and an approximately $90,000 increase
in interest income on the Company's variable rate mortgage notes
receivable due to the rise in the prime rate during 1994. These
items were partially offset by a reduction of $334,000 in net
interest income resulting from the sale of the GNMA portfolio.
The decrease in operating, general and administrative expenses
was primarily due to the elimination of costs incurred in
connection with operating residential real estate acquired by
foreclosure, sold during 1993, and reduced legal fees.
For the six months ended June 30, 1994 income before loss on
sale of GNMA certificates was $4,122,000 compared to $3,364,000 for
the same period of 1993.
The $758,000 increase was principally due to a $227,000
increase in net interest income and a $389,000 reduction in
operating, general and administrative expenses.
The increase in net interest income reflects a decrease of
$692,000 in interest expense resulting from the aforementioned
reduction in borrowings, partially offset by $357,000 in reduced
net interest income due to the sale of the GNMA certificates and a
charge of $133,000 representing unamortized deferred financing
costs incurred in 1993 in connection with a bank loan repaid during
the first quarter of 1994.
On April 5, 1994, the Company sold its GNMA certificate
portfolio for $32.4 million and realized a $2.4 million loss on the
sale.
<PAGE> 13
Liquidity and Capital Resources
At June 30, 1994, total assets were $123.1 million, including
$100.7 million in real estate mortgage notes. Approximately $44.5
million of the real estate mortgage notes provide for self-
amortizing, equal monthly installment payments through 2012 and are
collateralized by recreation facilities under long-term leases with
residents living in the approximately 22,000 apartments at Century
Village adult condominium communities at West Palm Beach, Deerfield
Beach and Boca Raton, Florida ("Recreation Notes"). The operations
of these facilities historically have been profitable and, in the
Company's opinion, are not likely to be affected by adverse
economic conditions.
The remaining $56.2 million of real estate mortgage notes
included $43.7 million due from Hilcoast Development Corp.
("Hilcoast"), principally collateralized by first mortgages on
certain real estate at the planned 7780 unit Century Village at
Pembroke Pines adult condominium community in Broward County,
Florida ("Century Village"), and a second mortgage on the
recreation facilities located at Century Village. Of this amount,
approximately $18.7 million is scheduled to be repaid through July
1998 and the remaining $25 million is scheduled to be converted by
July 1998 to a 25 year, self-amortizing loan providing for equal
monthly installment payments of principal and interest,
collateralized by a first mortgage on the recreation facilities at
Century Village. At June 30, 1994, 5,989 units had been sold and
delivered at Century Village and the backlog of units under
contract for future delivery was 275 units with a sales value of
$21 million.
Collections on the Company's real estate mortgage notes will
be affected by the future success of the projects which
collateralize these notes, which may, in turn, be affected by
conditions in the housing and commercial real estate markets and
interest rates.
Operating funds are currently generated from interest income
on mortgage notes, rentals from income producing properties,
distributions from self-storage warehouse partnerships and dividend
income on the Company's investment in Hilcoast Preferred Stock.
Dividend payments to stockholders, in accordance with the
provisions of the Internal Revenue Code, limit the Company from
utilizing significant amounts of income-generated funds for
investment purposes. Repayments received on mortgage notes and
proceeds from sales of real estate are expected to be reinvested in
the Company's outstanding real estate mortgage loan commitments to
Hilcoast, and invested in new real estate investment opportunities
which may arise.
<PAGE> 14
During the six months ended June 30, 1994 and 1993, the
Company declared cash dividends of $.54 per share and $.50 per
share, aggregating $4.3 million and $3.6 million, respectively.
During the same period, the Company's funds from operations (cash
flow from operating activities before changes in operating assets
and liabilities) was $4.3 million or $.54 per share and $3.4
million or $.48 per share, respectively (see Consolidated
Statements of Cash Flows).
The Company had been using its long-term GNMA certificates as
collateral to borrow short term funds (three months or less). In
connection with the sale of its GNMA certificate portfolio on April
5, 1994 for $32.4 million, the Company repaid the $31.9 million
outstanding balances of its short-term borrowings and realized a
$2.4 million loss on the sale. The loss from the sale did not
impact funds from operations and will not affect the remaining 1994
quarterly dividends. However, dependent upon the Company's
replacement investments, net interest income may decrease slightly,
which may have a relatively minor effect on quarterly dividends.
This decrease has been partially offset by increased interest
income on the Company's approximately $40 million of variable rate
mortgage notes receivable as a result of the recent increases in
the prime rate.
At June 30, 1994, the outstanding balance of the Company's
Collateralized Mortgage Obligations (the "CMO's") amounted to
$39.8 million (net of unamortized discount of $1.2 million based on
an effective interest rate of $8.84%). The CMO's are
collateralized by the Recreation Notes and require self-amortizing
principal and interest payments through March 2007. During the
term of the CMO's, the Company's scheduled annual debt service
requirement approximates $5.2 million compared to annual principal
and interest payments scheduled to be received under the Recreation
Notes of $6.5 million.
Commitments on outstanding real estate loans which the Company
expects will require funding consist of $4.7 million under the
Hilcoast Lines of Credit. The Company expects to be able to meet
this commitment with internally generated funds, including
principal repayments on real estate mortgage notes. The Company
has a $2.5 million revolving line of credit with a financial
institution which matures on December 31, 1995. As of June 30,
1994, there was no outstanding balance on this line. There are
currently no material commitments for capital expenditures.
<PAGE> 15
Inflation
The Company's interest-sensitive mortgage notes receivable
approximated $43.2 million, as of June 30, 1994, including $40.6
million from Hilcoast with interest at prime plus 3% (7.25% at June
30, 1994). As a result, inflation may have a positive effect on
the Company's operations if such inflation is accompanied by rising
interest rates. However, interest on the Hilcoast loans generally
cannot be less than 9% nor more than 11%.
Other
The FASB has issued Statement No.106 "Employer's Accounting
for Postretirement Benefits Other than Pensions". The Company
expects that this Statement will not have any impact on its
financial statements.
<PAGE> 16
PART II. Other Information
Item 6 - Exhibits and Reports on Form 8-K:
(a) Exhibits
There are no exhibits to be filed with this report.
(b) Reports on Form 8-K
The Company was not required to file Form 8-K
during the quarter for which this report is filed.
<PAGE> 17
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.
CV REIT, INC.
________________________________
(Registrant)
August 5, 1994 /s/ Alvin Wilensky
_________________________________
Alvin Wilensky, President
August 5, 1994 /s/ Elaine Kahant
_________________________________
Elaine Kahant, Vice President
and Treasurer
