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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1995
Commission File Number 0-10503
CONTINENTAL MORTGAGE AND EQUITY TRUST
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(Exact Name of Registrant as Specified in Its Charter)
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<S> <C>
California 94-2738844
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10670 North Central Expressway, Suite 300, Dallas, TX 75231
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(Address of Principal Executive Offices) (Zip Code)
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(214) 692-4700
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(Registrant's Telephone Number,
Including Area Code)
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
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Shares of Beneficial Interest,
no par value 2,918,106
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(Class) (Outstanding at July 28, 1995)
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This Form 10-Q/A amends the Registrant's quarterly report on Form 10-Q for the
quarter ended June 30, 1995 as follows:
ITEM 1. FINANCIAL STATEMENTS - pages 3 and 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - pages 10 and 12
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CONTINENTAL MORTGAGE AND EQUITY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
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For the Three Months For the Six Months
Ended June 30, Ended June 30,
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1995 1994 1995 1994
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(dollars in thousands, except per share)
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Revenue
Rents....................... $ 9,345 $ 6,383 $ 17,706 $ 12,261
Interest.................... 204 781 404 1,447
Equity in income (loss) of
partnerships................ 78 (364) 185 (387)
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9,627 6,800 18,295 13,321
Expenses
Property operations......... 5,575 4,009 10,560 7,673
Interest.................... 2,411 1,866 4,517 3,526
Depreciation................ 1,067 772 2,030 1,497
Provision for losses........ - - 541 200
Advisory fee to affiliate... 393 357 745 646
General and administrative.. 264 395 629 707
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9,710 7,399 19,022 14,249
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(Loss) before gain on sale
of real estate.............. (83) (599) (727) (928)
Gain on sale of real estate.. - 577 - 577
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Net (loss)................... $ (83) $ (22) $ (727) $ (351)
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Earnings per share
Net (loss).................. $ (.03) $ (.01) $ (.25) $ (.12)
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Weighted average shares of
beneficial interest used in
computing earnings per share. 2,918,111 2,913,840 2,918,118 2,916,496
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The accompanying notes are an integral part of these Consolidated Financial
Statements.
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CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4. REAL ESTATE (Continued)
In May 1995, the Trust purchased the Will-O-Wick Apartments, a 152 unit
apartment complex in Pensacola, Florida, for $3.6 million. The Trust paid
$687,000, assumed an existing first mortgage of $2.8 million and the seller
provided additional financing of $79,000. The $2.8 million first mortgage
bears interest at 9.915% per annum, requires monthly payments of principal and
interest of $26,000 and matures in April 2001. The $79,000 seller financing
bears interest at 9.9% per annum and requires monthly payments of interest only
through maturity in May 1997 at which time the entire outstanding principal
balance and all accrued and unpaid interest is due. The Trust paid a real
estate brokerage commission of $127,000 to Carmel Realty and an acquisition fee
of $36,000 to BCM based on the $3.6 million purchase price of the property.
NOTE 5. NOTES PAYABLE
In February 1995, after determining that further investment in Genesee Towers,
an office building in Flint, Michigan, could not be justified without a
substantial modification of the mortgage debt, the Trust ceased making debt
service payments on the $8.8 million nonrecourse mortgage secured by the
property. The Trust is attempting to negotiate with the lender to modify the
mortgage. However, there can be no assurance that such negotiations will be
successful or that the Trust will continue to own the property. Accordingly,
as of December 31, 1994, the carrying value of the property was written down by
$1.2 million, which was included in the 1994 provision for losses, to the
amount of the nonrecourse mortgage.
In May 1995, the Trust obtained new mortgage financing secured by the Sunset
Lake Apartments in Waukegan, Illinois in the amount of $5.4 million. The Trust
received net cash of $2.2 million after the payoff of $1.9 million in existing
mortgage debt that was scheduled to mature in September 1995. The remainder of
the financing proceeds were used to fund a $1.0 million escrow for replacements
and repairs and to pay various closing costs associated with the financing.
The new $5.4 million mortgage bears interest at a variable rate of prime plus
1-1/2%, (10.5% at June 30, 1995), requires monthly payments of principal and
interest and matures in May 2000. The Trust paid a mortgage brokerage and
equity refinancing fee of $54,000 to BCM based upon the new first mortgage
financing of $5.4 million.
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Trust is involved in various lawsuits arising in the ordinary course of
business. Management of the Trust is of the opinion that the outcome of these
lawsuits would have no material impact on the Trust's financial condition or
results of operations.
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CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7. SUBSEQUENT EVENTS
In July 1995, the Trust purchased the McCallum Glen Apartments, a 275 unit
apartment complex in Dallas, Texas for $6.0 million. The Trust paid $1.8
million and obtained new mortgage financing of $4.2 million. The new first
mortgage bears interest at a variable rate, currently 8.6% per annum, requires
monthly payments of principal and interest and matures on August 1, 2002. The
Trust paid a real estate brokerage commission of $190,000 to Carmel Realty and
an acquisition fee of $60,000 to BCM based on the $6.0 million purchase price.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Introduction
Continental Mortgage and Equity Trust (the "Trust") was formed to invest in
real estate through acquisitions, leases and partnerships and in mortgage loans
on real estate, including first, wraparound and junior mortgage loans. The
Trust was organized on August 27, 1980 and commenced operations on December 3,
1980.
Liquidity and Capital Resources
Cash and cash equivalents aggregated $6.6 million at June 30, 1995, compared
with $7.5 million at December 31, 1994. The principal reasons for the
reduction in cash are discussed in the paragraphs below.
The Trust's principal sources of cash have been and will continue to be
property operations, proceeds from property sales, collections of mortgage
notes receivable and borrowings. The Trust expects that net cash provided by
operating activities and from anticipated external sources, such as property
sales and refinancings, will be sufficient to meet the Trust's various cash
needs, including, but not limited to, debt service obligations, shareholder
distributions and property maintenance and improvements.
The Trust's cash flow from property operations (rents collected less payments
for expenses applicable to rental income) increased from $4.3 million in the
first six months of 1994 to $7.1 million in the first six months of 1995. Of
this net increase, $2.1 million is the result of the Trust acquiring nine
additional income producing properties in the last six months of 1994 and first
six months of 1995. In addition, $531,000 of the increase is due to increases
in cash flow from one of the Trust's apartment complexes and two of the Trust's
commercial properties due to an increase in occupancy rates and a decrease in
operating expenses. The Trust's management believes that the Trust's cash flow
from property operations will continue to increase as the Trust benefits from
the properties acquired in the last six months of 1994 and first six months of
1995.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - (Continued)
Liquidity and Capital Resources (Continued)
recorded by a charge against earnings. The estimate of net realizable value
of mortgage notes receivable is based on management's review and evaluation of
the collateral property securing the mortgage note. The property review
generally includes selective property inspections, a review of the property's
current rents compared to market rents, a review of the property's expenses, a
review of maintenance requirements, discussions with the manager of the
property and a review of the surrounding area. See "Recent Accounting
Pronouncement," below.
Results of Operations
For the three and six months ended June 30, 1995, the Trust had a net loss of
$83,000 and $727,000, compared to a net loss of $22,000 and $351,000 for the
three and six months ended June 30, 1994. The primary factors contributing to
the Trust's increased net loss are discussed in the following paragraphs.
Net rental income (rental income less expenses applicable to rental income)
increased from $2.4 million and $4.6 million for the three and six months ended
June 30, 1994 to $3.8 million and $7.1 million for the three and six months
ended June 30, 1995. Of this increase, $1.1 million for the three months and
$2.1 million for the six months is due to the acquisition of six apartment
complexes and three commercial properties subsequent to June 30, 1994. In
addition, an increase of $218,000 for the six months is due to the acquisition
of two apartment complexes in June 1994 and one apartment complex in March
1994. An additional increase of $531,000 for the six months is due to an
increase in occupancy rates and a decrease in operating expenses at one of the
Trust's apartment complexes and two of the Trust's commercial properties.
These increases are partially offset by a decrease in net rental income at two
of the Trust's apartment complexes and one of the Trust's commercial properties
due to a decrease in occupancy rates and an increase in operating expenses.
Interest income decreased from $781,000 and $1.4 million for the three and six
months ended June 30, 1994 to $204,000 and $404,000 for the three and six
months ended June 30, 1995. Of this decrease $390,000 for the three months and
$778,000 for the six months is attributable to a $14.0 million wraparound
mortgage note receivable which was paid in full in December 1994 and an
additional $188,000 for the three months and $274,000 for the six months is due
to the foreclosure of two properties during 1994 and one property during 1995
which secured three of the Trust's other mortgage notes receivable. Interest
income is expected to continue at approximately the second quarter's level for
the remainder of 1995, as the Trust is not considering new mortgage lending
except in connection with purchase money financing of sales of Trust
properties.
The Trust's equity in partnerships improved from a loss of $364,000 and
$387,000 for the three and six months months ended June 30, 1994 to income of
$78,000 and $185,000 for the three and six months ended June
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