<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTER ENDED JUNE 30, 1996
-------------
Commission File Number 0-10503
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CONTINENTAL MORTGAGE AND EQUITY TRUST
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
California 94-2738844
-------------------------------- ----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10670 North Central Expressway, Suite 300, Dallas, TX 75231
-----------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
(214) 692-4700
--------------------------------
(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
--- ---
Shares of Beneficial Interest,
no par value 4,185,240
------------------------------ --------------------------------
(Class) (Outstanding at July 26, 1996)
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements have not been audited by
independent certified public accountants, but in the opinion of the management
of Continental Mortgage and Equity Trust (the "Trust"), all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
consolidated results of operations, consolidated financial position and
consolidated cash flows at the dates and for the periods indicated, have been
included.
CONTINENTAL MORTGAGE AND EQUITY TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
---------- ------------
(dollars in thousands)
Assets
------
<S> <C> <C>
Notes and interest receivable
Performing........................................ $ 6,520 $ 4,240
Nonperforming, nonaccruing........................ 2,287 2,299
----------- ------------
8,807 6,539
Less - allowance for estimated losses............... (1,081) (1,188)
----------- ------------
7,726 5,351
Foreclosed real estate held for sale, net of
accumulated depreciation ($738 in 1996 and 1995).. 10,616 11,553
Real estate under contract for sale, net of
accumulated depreciation ($602 in 1995)........... - 1,268
Less - allowance for estimated losses............... (5,047) (5,117)
----------- ------------
5,569 7,704
Real estate held for investment, net of accumulated
depreciation ($16,634 in 1996 and $16,395 in 1995) 175,859 174,713
Investment in marketable equity securities, at
market (including $4,742 in 1996 and $3,812 in
1995 of affiliates)............................... 5,926 4,753
Investments in partnerships......................... 2,146 12,970
Cash and cash equivalents........................... 14,870 6,386
Other assets (including $638 in 1996 and $469 in
1995 from affiliates)............................. 9,728 6,691
----------- ------------
$ 221,824 $ 218,568
=========== ============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
2
<PAGE> 3
CONTINENTAL MORTGAGE AND EQUITY TRUST
CONSOLIDATED BALANCE SHEETS - Continued
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(dollars in thousands)
<S> <C> <C>
Liabilities and Shareholders' Equity
------------------------------------
Liabilities
Notes and interest payable.......................... $ 135,205 $ 135,590
Other liabilities (including $923 in 1995 to
affiliates)....................................... 6,451 6,993
------------ ------------
141,656 142,583
Commitments and contingencies
Shareholders' equity
Shares of Beneficial Interest, no par value;
authorized shares, unlimited; issued and out-
standing, 4,193,914 in 1996 and 4,377,141
shares in 1995.................................... 8,402 8,766
Paid-in capital..................................... 258,641 260,060
Accumulated distributions in excess of accumulated
earnings.......................................... (191,077) (195,870)
Net unrealized gains on marketable equity securities 4,202 3,029
------------ ------------
80,168 75,985
------------ ------------
$ 221,824 $ 218,568
============ ============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
3
<PAGE> 4
CONTINENTAL MORTGAGE AND EQUITY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
--------------------------- ------------------------
1996 1995 1996 1995
---------- ----------- ----------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Revenue
Rents....................... $ 11,063 $ 9,345 $ 21,770 $ 17,706
Interest.................... 302 204 553 404
---------- ----------- ----------- ----------
11,365 9,549 22,323 18,110
Expenses
Property operations......... 6,693 5,575 12,903 10,560
Equity in (income) loss of
partnerships............... 219 (78) 194 (185)
Interest.................... 3,136 2,411 6,063 4,517
Depreciation................ 1,157 1,067 2,294 2,030
Provision for losses........ - - - 541
Advisory fee to affiliate... 469 393 851 745
General and administrative.. 590 264 939 629
---------- ----------- ----------- ----------
12,264 9,632 23,244 18,837
---------- ----------- ----------- ----------
(Loss) before gain on sale
of real estate.............. (899) (83) (921) (727)
Gain on sale of real estate... 4,724 - 6,169 -
Extraordinary gain............ 663 - 663 -
---------- ----------- ----------- ----------
Net income (loss)............. $ 4,488 $ (83) $ 5,911 $ (727)
========== =========== =========== ==========
Earnings per share
Income (loss) before
extraordinary gain......... $ 1.05 $ (.02) $ 1.37 $ (.17)
Extraordinary gain.......... .02 - .02 -
---------- ----------- ----------- ----------
Net income (loss)........... $ 1.07 $ (.02) $ 1.39 $ (.17)
========== =========== =========== ==========
Weighted average shares of
beneficial interest used in
computing earnings per share 4,214,062 4,377,167 4,273,916 4,377,177
========== =========== =========== ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
4
<PAGE> 5
CONTINENTAL MORTGAGE AND EQUITY TRUST
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated Unrealized
Shares of Distributions Gains on
Beneficial Interest in Excess of Marketable
------------------------- Paid-in Accumulated Equity Shareholders'
Shares Amount Capital Earnings Securities Equity
--------- ---------- ----------- ------------- -------------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996................ 4,377,141 $ 8,766 $ 260,060 $ (195,870) $ 3,029 $ 75,985
Repurchase of shares
of beneficial
interest............ (183,227) (364) (1,419) - - (1,783)
Distributions ($.26
per share).......... - - - (1,118) - (1,118)
Unrealized gains on
marketable equity
securities.......... - - - - 1,173 1,173
Net income............ - - - 5,911 - 5,911
----------- --------- ----------- ---------- ---------- --------
Balance, June 30,
1996................ 4,193,914 $ 8,402 $ 258,641 $ (191,077) $ 4,202 $ 80,168
=========== ========= =========== ========== ========== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
5
<PAGE> 6
CONTINENTAL MORTGAGE AND EQUITY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------------
1996 1995
--------- ----------
(dollars in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Rents collected.................................. $ 21,660 $ 17,733
Interest collected............................... 334 232
Interest paid.................................... (5,389) (4,123)
Payments for property operations................. (12,453) (10,601)
General and administrative expenses paid......... (1,394) (673)
Advisory fee paid to affiliate................... (851) (745)
Distributions from partnerships' operating cash
flow......................................... 941 517
Other............................................ 1,559 183
--------- ----------
Net cash provided by operating activities.... 4,407 2,523
Cash Flows from Investing Activities
Acquisition of real estate....................... (13,372) (3,178)
Funding of capital improvement escrows........... (1,500) (1,252)
Real estate improvements......................... (194) (881)
Proceeds from sale of real estate................ 10,737 33
Funding of note receivable....................... (1,500) -
Collections on notes receivable.................. 43 1,040
Distributions from a partnership's investing
activities................................... 10,720 -
--------- ----------
Net cash provided by (used in) investing
activities................................. 4,934 (4,238)
Cash Flows from Financing Activities
Distributions to shareholders.................... (1,118) (874)
Proceeds from notes payable and margin borrowings 18,331 4,219
Payments on notes payable........................ (16,287) (2,541)
Repurchase of shares of beneficial interest...... (1,783) -
--------- ----------
Net cash provided by (used in) financing
activities................................. (857) 804
--------- ----------
Net increase (decrease) in cash and cash
equivalents...................................... 8,484 (911)
Cash and cash equivalents, beginning of period.... 6,386 7,478
--------- ----------
Cash and cash equivalents, end of period.......... $ 14,870 $ 6,567
========= ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
6
<PAGE> 7
CONTINENTAL MORTGAGE AND EQUITY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
-------------------------
1996 1995
----------- ----------
(dollars in thousands)
<S> <C> <C>
Reconciliation of net income (loss) to net cash
provided by operating activities
Net income (loss)................................... $ 5,911 $ (727)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization...................... 2,294 1,949
Provision for loss................................. - 541
Gain on sale of real estate........................ (6,169) -
Extraordinary gain................................. (663) -
(Increase) in interest receivable.................. (50) (94)
Decrease in other assets........................... 2,399 133
Increase (decrease) in other liabilities........... (543) 82
Increase in interest payable....................... 93 307
Distributions from partnerships' operating cash
flow........................................... 941 517
Equity in (income) loss of partnerships............ 194 (185)
----------- ---------
Net cash provided by operating activities...... $ 4,407 $ 2,523
=========== =========
Noncash investing and financing activities
Notes payable from acquisition of real estate...... $ 3,200 $ 16,640
Interest on wraparound mortgage loan paid
directly to underlying lienholder.............. 12 -
Unrealized gain on marketable equity securities.... 1,173 55
Note receivable from the sale of real estate....... 750 -
Carrying value of real estate acquired through
insubstance foreclosure in satisfaction of a
note receivable with a carrying value of $891.. - 891
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
7
<PAGE> 8
CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Operating results for the six month period ended June 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996. Dollar amounts in tables are in thousands. For
further information, refer to the Consolidated Financial Statements and Notes
thereto included in the Trust's Annual Report on Form 10-K for the year ended
December 31, 1995 ("1995 Form 10-K").
Shares and per share data have been restated for the three for two forward
share split effected February 15, 1996.
NOTE 2. INVESTMENTS IN PARTNERSHIPS
The Trust's investments in partnerships accounted for using the equity method
consisted of the following at June 30, 1996:
<TABLE>
<S> <C>
Sacramento Nine....................... $ (34)
Indcon, L.P........................... 2,093
-------------
$ 2,059
=============
</TABLE>
The Trust and National Income Realty Trust ("NIRT") are partners in Sacramento
Nine, the Trust having a 30% interest in the partnership's earnings, losses and
distributions. The Trust and NIRT are also partners in Income Special
Associates ("ISA"), a joint venture partnership in which the Trust has a 60%
interest in earnings, losses and distributions. ISA in turn owns a 100%
interest in Indcon, L.P. The partnership agreements require the consent of
both the Trust and NIRT for any material changes in the operations of the
partnerships' properties, including sales, refinancings and changes in property
management. The Trust, as a noncontrolling partner, accounts for its
investment in the partnerships using the equity method.
In February and March 1996, Indcon sold 25 of its industrial warehouses for a
total of $36.2 million in cash. Indcon received net cash of $14.2 million, of
which the Trust's equity share was $8.5 million, after the payoff of existing
mortgage debt with a principal balance of $23.4 million. Indcon recognized a
gain of $617,000 on the sale, of which the Trust's equity share was $370,000.
Indcon paid a real estate sales commission of $585,000 to Carmel Realty, Inc.
("Carmel Realty"), an affiliate of Basic Capital Management, Inc. ("BCM"), the
Trust's advisor, based upon the $36.2 million sales price of the properties.
In March 1996, Indcon reached a settlement with an insurance company on the
fire loss of one of its industrial warehouses. Indcon received a
8
<PAGE> 9
CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 2. INVESTMENTS IN PARTNERSHIPS (Continued)
total of $2.2 million in cash. Indcon does not intend to rebuild the destroyed
warehouse and accordingly has recognized a gain of $1.2 million, of which the
Trust's equity share was $663,000.
In April 1996, Indcon sold two additional industrial warehouses for $1.8
million in cash, of which the Trust's equity share was $1.1 million. Indcon
paid a real estate sales commission of $16,000 to Carmel Realty based upon the
$1.8 million sales price of the properties.
Set forth below is summarized results of operations for the partnerships the
Trust accounts for using the equity method for the six months ended June 30,
1996:
<TABLE>
<S> <C>
Rents................................... $ 1,788
Depreciation............................ (232)
Property operations..................... (583)
Interest expense........................ (746)
-------------
Income before gain on sale of real
estate............................... 227
Gain on sale of real estate............. 928
-------------
Net income.............................. $ 1,155
=============
</TABLE>
NOTE 3. MORTGAGE NOTES RECEIVABLE
In February 1996, the Trust funded a $1.5 million second lien mortgage secured
by the Signature Athletic Club Building in Dallas, Texas. The note bears
interest at 12% per annum and requires monthly interest only payments to the
extent of available cash flow. Any accrued but unpaid interest is added to the
principal balance of the note annually. In addition, the note requires
quarterly principal payments equal to the excess property cash flow for the
quarter. The note matures in October 1998 with an option to extend the note to
December 2000. The Trust has also guaranteed the underlying $3.0 million first
mortgage secured by the property. The Trust has an option to purchase a 50%
interest in the partnership which owns the Signature Athletic Club Building for
$100 at any time. The option expires in December 2005.
NOTE 4. REAL ESTATE
In February 1996, the Trust sold the Rivertree Apartments in Hurst, Texas for
$1.8 million, a property under contract for sale at December 31, 1995. In
conjunction with the sale, the Trust provided $750,000 of purchase money
financing in the form of a wraparound mortgage note. The Trust received net
cash of $959,000 after the payment of various closing costs associated with the
sale. The Trust paid a real estate sales commission of $70,000 to Carmel
Realty based on the $1.8 million sales price of the property. The Trust
recognized a gain of $378,000 on the sale.
9
<PAGE> 10
CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4. REAL ESTATE (Continued)
In March 1996, the Trust purchased the Hampton Court Office Building, a 104,001
square foot office building in Dallas, Texas, for $7.7 million. The Trust paid
$1.4 million in cash and obtained new mortgage financing of $6.3 million. The
first mortgage bears interest at 8.0% per annum, requires monthly payments of
principal and interest of $42,000 and matures in March 2001. In conjunction
with the financing, the Trust established various escrow accounts in the amount
of $1.5 million. The Trust paid a real estate brokerage commission of $205,000
to Carmel Realty and an acquisition fee of $77,000 to BCM based on the $7.7
million purchase price of the property.
In April 1996, the Trust purchased the Amoco Building, a 378,244 square foot
office building in New Orleans, Louisiana, for $5.9 million in cash. The Trust
paid a real estate brokerage commission of $188,000 to Carmel Realty and an
acquisition fee of $59,000 to BCM based on the $5.9 million purchase price of
the property.
Also in April 1996, the Trust purchased the Central Storage Warehouse, a
216,035 square foot warehouse in Dallas, Texas, for $2.2 million in cash. The
Trust paid a real estate brokerage commission of $86,000 to Carmel Realty and
an acquisition fee of $22,000 to BCM based on the $2.2 million purchase price
of the property.
In May 1996, the Trust sold the Sunset Towers Apartments in San Francisco,
California for $24.1 million in cash. The Trust received $9.7 million after
the payoff of $14.0 million in existing mortgage debt and the payment of
various closing costs associated with the sale. The Trust paid a real estate
sales commission of $482,000 to Carmel Realty based on the $24.1 million sales
price of the property. The Trust recognized a gain of $5.4 million on the
sale.
In June 1996, the Trust purchased the Grove Park Apartments, a 188 unit
apartment complex in Plano, Texas for $4.4 million. The Trust paid $1.2
million in cash and assumed the existing first lien mortgage of $3.2 million.
The mortgage bears interest at a rate of 8.9% per annum, requires monthly
payments of principal and interest of $26,315 and matures in March 1998. The
Trust paid a $153,000 real estate brokerage commission to Carmel Realty and a
$44,000 acquisition commission to BCM based on the $4.4 million purchase price
of the property.
Also in June 1996, the Trust sold the Crystal Court Apartments, a foreclosed
property held for sale, in Detroit, Michigan for $700,000. The Trust paid a
real estate sales commission of $28,000 to Carmel Realty based on the $700,000
sales price of the property. The Trust recognized no loss on the property
beyond that which had already been provided.
NOTE 5. NOTES PAYABLE
In February 1995, after determining that further investment in Genesee Towers
Office Building in Flint, Michigan, could not be justified
10
<PAGE> 11
CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5. NOTES PAYABLE (Continued)
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. Accordingly, as of December 31, 1994, the Trust wrote down
the carrying value of the property by $1.2 million, which is included in the
1994 provision for losses, to the amount of the nonrecourse mortgage. In
February 1996, the Trust and the lender entered into a forbearance agreement
that provides, among other things, that until August 20, 1996, the Trust make
monthly payments of the greater of regular scheduled principal and interest or
cash flow from the property. The deed to the property has been placed in
escrow during the term of the forbearance agreement. The Trust anticipates
that the property will be returned to the lender at the expiration of the
agreement. The Trust does not anticipate incurring a loss as the carrying
value of the property has been written down to the amount of the nonrecourse
mortgage debt, which approximates fair value of the property at June 30, 1996.
In April 1996, the Trust refinanced the mortgage debt secured by the Edgewood
Apartments in Lansing, Illinois in the amount of $8.1 million. The Trust
received net cash of $1.3 million after the payoff of $6.7 million in existing
mortgage debt, including a $60,000 prepayment penalty. The remainder of the
refinancing proceeds were used to pay various closing costs associated with the
refinancing. The new mortgage bears interest at the rate of 8.65% per annum,
requires monthly payments of principal and interest of $66,000 and matures in
May 2006. The Trust paid BCM a mortgage brokerage and equity refinancing fee
of $81,000 based upon the new $8.1 million mortgage.
Also in April 1996, the Trust refinanced the mortgage debt secured by the In
the Pines Apartments in Gainesville, Florida in the amount of $6.0 million.
The Trust received net cash of $415,000 after the payoff of $5.3 million in
existing mortgage debt. The remainder of the refinancing proceeds were used to
pay various closing costs associated with the refinancing. The new mortgage
bears interest at the rate of 8.65% per annum, requires monthly payments of
principal and interest of $49,000 and matures in May 2006. The Trust paid BCM
a mortgage brokerage and equity refinancing fee of $60,000 based upon the new
$6.0 million mortgage.
Also in April 1996, the Trust refinanced the mortgage debt secured by the Quail
Oaks Apartments in Balch Springs, Texas in the amount of $1.3 million. The
Trust received net cash of $413,000 after the payoff of $753,000 in existing
mortgage debt. The remainder of the refinancing proceeds were used to pay
various closing costs associated with the refinancing. The new mortgage bears
interest at 8.875% per annum, requires monthly payments of principal and
interest of $10,798 and matures in May 2006. The Trust paid BCM a mortgage
brokerage and equity refinancing fee of $13,000 based on the new $1.3 million
mortgage.
11
<PAGE> 12
CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5. NOTES PAYABLE (Continued)
In June 1996, the Trust refinanced the mortgage debt secured by the Fairways
Apartments in Longview, Texas in the amount of $2.0 million. The Trust
received net cash of $210,000 after the payoff of $1.7 million in existing
mortgage debt. The remainder of the refinancing proceeds were used to pay
various closing costs associated with the refinancing. The new mortgage bears
interest at 8.9375% per annum, requires monthly payments of principal and
interest of $16,003 and matures in July 2006. The Trust paid BCM a mortgage
brokerage and equity refinancing fee of $20,000 based on the new $2.0 million
mortgage.
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,
results of operations or liquidity.
NOTE 7. SUBSEQUENT EVENTS
In July 1996, the Trust purchased the Promenade Shopping Center, a 133,558
square foot shopping center in Highlands Ranch, Colorado for $8.1 million. The
Trust paid $2.3 million in cash and obtained new mortgage financing for the
remaining $6.3 million of the purchase price. The first lien mortgage bears
interest at 9.0% per annum, requires monthly payments of principal and interest
of $50,385 and matures July 1, 1999. The second lien bears interest at 9.0% per
annum and matures June 30, 1997, at which time all principal and interest is
due. The Trust paid a $232,000 real estate brokerage commission to Carmel Realty
and a $81,000 acquisition commission to BCM based on the $8.1 million purchase
price of the property.
Also in July 1996, the Trust refinanced the mortgage debt secured by the
Woodbridge Apartments in Denver, Colorado in the amount of $3.0 million. The
Trust received net cash of $2.0 million after the payoff of $903,000 in
existing mortgage debt. The remainder of the refinancing proceeds were used to
pay various closing costs associated with the refinancing. The new mortgage
bears interest at 9.125% per annum, requires monthly payments of principal and
interest of $25,433 and matures August 1, 2006. The Trust paid BCM a mortgage
brokerage and equity refinancing fee of $30,000 based on the new $3.0 million
mortgage.
Also in July 1996, the Trust purchased the Park at Colonnade Apartments, a 211
unit apartment complex in San Antonio, Texas for $4.2 million. The Trust paid
$700,000 in cash and obtained new mortgage financing for the remaining $3.5
million of the purchase price. The mortgage bears interest at 10.0% per annum,
through July 1997, increasing to 10.5% per annum thereafter, requires monthly
payments of interest only, and matures January 1, 1998. The Trust paid a
$146,000 real estate brokerage commission to Carmel Realty and a $42,000
acquisition commission to BCM based on the $4.2 million purchase price of the
property.
12
<PAGE> 13
CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7. SUBSEQUENT EVENTS (Continued)
Also in July 1996, the Trust obtained mortgage financing for the unencumbered
Forest Ridge Apartments in Denton, Texas in the amount of $1.2 million. The
Trust received net cash of $1.1 million after payment of various closing costs
associated with the financing. The mortgage bears interest at 8.875% per
annum, requires monthly payments of principal and interest of $10,175 and
matures August 1, 2006. The Trust paid BCM a mortgage brokerage and equity
refinancing fee of $12,000 based on the $1.2 million mortgage.
Also in July 1996, the Trust purchased the 3400 Carlisle Building in Dallas,
Texas for $5.3 million. The Trust paid $800,000 in cash and obtained new
mortgage financing for the remaining $4.5 million of the purchase price. The
mortgage bears interest at 8.93% per annum, requires monthly payments of
principal and interest of $33.488 through July 31, 1998 increasing to $38,457
through maturity and matures March 31, 2001. The Trust paid a $177,000 real
estate brokerage commission to Carmel Realty and a $53,000 acquisition
commission to BCM based on the $5.3 million purchase price of the property.
In August 1996, the Trust obtained mortgage financing for the unencumbered
Central Storage Warehouse in Dallas, Texas in the amount of $1.4 million. The
Trust received net cash of $1.4 million after the payment of various closing
costs associated with the financing. The mortgage bears interest at 8.5%
through July 30, 1999 and at variable rate thereafter, requires monthly
payments of principal and interest of $13,786 through July 30, 1999 adjusted
thereafter based on the interest rate and matures July 31, 2011. The Trust
paid BCM a mortgage brokerage and equity refinancing fee of $14,000 based on
the new $1.4 million mortgage.
Also in August 1996, the Trust sold the Southgate Apartments in Round Rock,
Texas for $6.1 million in cash. The Trust received net cash of $3.0 million
after the payoff of $2.9 million in existing mortgage debt and the payment of
various closing costs associated with the sale. The Trust paid a real estate
sales commission of $192,000 to Carmel Realty based on the $6.1 million sales
price. The Trust will recognize a gain of approximately $3.5 million on the
sale.
-------------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources
Cash and cash equivalents aggregated $14.9 million at June 30, 1996, compared
with $6.4 million at December 31, 1995. The principal reasons for the increase
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, property acquisitions, 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 $7.1 million in the
first six months of 1995 to $9.2 million in the first six months of 1996. Of
this net increase, $1.3 million is the result of the Trust acquiring eight
additional income producing properties subsequent to June 30, 1995 and $307,000
is due to the acquisition of two income producing properties in March 1995.
The remainder of the increase is due to increased rental and occupancy rates
and lower operating expenses at the Trust's apartment complexes. The Trust's
management believes that the Trust's cash flow from property operations will
continue to increase as the Trust continues to benefit from the properties
acquired in 1995 and first six months of 1996.
In February 1996, the Trust funded a $1.5 million second lien mortgage secured
by the Signature Athletic Club Building in Dallas, Texas. See NOTE 3.
"MORTGAGE NOTES RECEIVABLE."
In February 1996, the Trust sold the Rivertree Apartments in Hurst, Texas for
$1.8 million. In conjunction with the sale, the Trust provided $750,000 of
purchase money financing in the form of a wraparound mortgage note. The Trust
received net cash of $959,000 after the payment of various closing costs
associated with the sale.
In February and March 1996, Indcon, L.P. ("Indcon"), a joint venture
partnership in which the Trust has a 60% interest, sold 25 of its industrial
warehouses for a total of $36.2 million in cash. Indcon received net cash of
$14.2 million, of which the Trust's equity share was $8.5 million, after the
payoff of existing mortgage debt with a principal balance of $23.4 million.
In March 1996, Indcon reached a settlement with an insurance company on the
fire loss of one of its industrial warehouses. Indcon received a total of $2.2
million, of which the Trust's equity share was $1.3 million.
In March 1996, the Trust purchased the Hampton Court Office Building, a 104,001
square foot office building in Dallas, Texas, for $7.7 million. The Trust paid
$1.4 million in cash and obtained new mortgage financing
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
of $6.3 million. In conjunction with the financing, the Trust established
various escrow accounts in the amount of $1.5 million.
In April 1996, the Trust purchased the Amoco Building, a 378,244 square foot
office building in New Orleans, Louisiana, for $5.9 million in cash.
Also in April 1996, the Trust purchased the Central Storage Warehouse, a
216,035 square foot warehouse in Dallas, Texas, for $2.2 million in cash.
In April 1996, the Trust refinanced the mortgage debt secured by the Edgewood
Apartments in Lansing, Illinois in the amount of $8.1 million. The Trust
received net cash of $1.3 million after the payoff of $6.7 million in existing
mortgage debt, including a $60,000 prepayment penalty. The remainder of the
refinancing proceeds were used to pay various closing costs associated with the
refinancing.
Also in April 1996, the Trust refinanced the mortgage debt secured by the In
the Pines Apartments in Gainesville, Florida in the amount of $6.0 million.
The Trust received net cash of $415,000 after the payoff of $5.3 million in
existing mortgage debt. The remainder of the refinancing proceeds were used to
pay various closing costs associated with the refinancing.
Also in April 1996, the Trust refinanced the mortgage debt secured by the Quail
Oaks Apartments in Balch Springs, Texas in the amount of $1.3 million. The
Trust received new cash of $413,000 after the payoff of $753,000 in existing
mortgage debt. The remainder of the refinancing proceeds were used to pay
various closing costs associated with the refinancing.
In April 1996, Indcon sold two additional of its industrial warehouses for $1.8
million in cash, of which the Trust's equity share was $1.1 million.
In May 1996, the Trust sold the Sunset Towers Apartments in San Francisco,
California for $24.1 million in cash. The Trust received net cash of $9.7
million after payoff of $14.0 million in existing mortgage debt and the payment
of various closing costs associated with the sale.
In June 1996, the Trust purchased the Grove Park Apartments, a 188 unit
apartment complex in Plano, Texas for $4.4 million. The Trust paid $1.2
million in cash and obtained the property subject to the existing first lien
mortgage of $3.2 million.
Also in June 1996, the Trust sold the Crystal Court Apartments in Detroit,
Michigan for $700,000 in cash.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Also in June 1996, the Trust refinanced the mortgage debt secured by the
Fairways Apartments in Longview, Texas in the amount of $2.0 million. The
Trust received net cash of $210,000 after the payoff of $1.7 million in
existing mortgage debt. The remainder of the refinancing proceeds were used to
pay various closing costs associated with the refinancing.
In July 1996, the Trust purchased the Promenade Shopping Center, a 133,558
square foot shopping center in Highlands Ranch, Colorado for $8.1 million. The
Trust paid $2.5 million in cash and obtained new mortgage financing of $5.6
million.
Also in July 1996, the Trust refinanced the mortgage debt secured by the
Woodbridge Court Apartments in Westminster, Colorado in the amount of $3.0
million. The Trust received net cash of $2.0 million after the payoff of
$903,000 in existing mortgage debt and the payment of various closing costs
associated with the refinancing.
Also in July 1996, the Trust purchased the Park at Colonnade Apartments, a 211
unit apartment complex in San Antonio, Texas for $4.2 million. The Trust paid
$700,000 cash and obtained new mortgage financing of $3.5 million.
Also in July 1996, the Trust obtained mortgage financing of $1.2 million
secured by the unencumbered Forest Ridge Apartments in Denton, Texas. The
Trust received net cash of $1.1 million after the payment of various closing
costs.
Also in July 1996, the Trust purchased the 3400 Carlisle Office Building, a
76,727 square foot office building in Dallas, Texas for $5.3 million. The
Trust paid $800,000 in cash and obtained new mortgage financing of $4.5
million.
In August 1996, the Trust obtained mortgage financing of $1.4 million secured
by the unencumbered Central Storage Warehouse in Dallas, Texas. The Trust
received net cash of $1.4 million after the payment of various closing costs
associated with the financing.
Also in August 1996, the Trust sold the Southgate Apartments in Round Rock,
Texas for $6.1 million. The Trust received net cash of $3.0 million after the
payoff of $2.9 million in existing mortgage debt and the payment of various
closing costs associated with the sale.
The Trust's Board of Trustees has authorized the Trust to repurchase a total of
1,465,000 of its shares of beneficial interest, of which 104,048 shares remain
to be purchased as of June 30, 1996. Through June 30, 1996, the Trust had
repurchased 1,360,952 of its shares at a total cost to the Trust of $6.8
million, of which 183,227 shares were repurchased in 1996 at a total cost of
$1.8 million.
In the first six months of 1996, the Trust paid quarterly distributions of $.26
per share or a total of $1.1 million.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
In August 1996, the Trust announced an offer to buy back its shares of
beneficial interest from shareholders owning 99 or fewer shares. The Trust
will pay a premium of $.50 per share over the average closing price of its
shares as reported from August 8, 1996 through September 30, 1996, the
expiration date of the offer.
On a quarterly basis, the Trust's management reviews the carrying value of the
Trust's mortgage notes receivable and properties held for sale and
periodically, but no less than annually, its properties held for investment.
Generally accepted accounting principles require that the carrying value of
such assets cannot exceed the lower of their respective carrying amounts or
estimated net realizable value. In the initial instance when estimated net
realizable value of a mortgage note receivable or a property held for sale is
less than the carrying amount at the time of evaluation, a reserve is
established and a corresponding provision for loss is recorded by a charge
against earnings. A subsequent revision to estimated net realizable value
either increases or decreases such reserve with a corresponding charge against
or credit to earnings. In the case of properties held for investment the
carrying value of the property is written down and a provision for loss is
recorded. The estimate of net realizable value of the Trust's 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, 1996, the Trust had net income of
$4.6 million and $6.0 million, compared to a net loss of $83,000 and $727,000
for the three and six months ended June 30, 1995. The primary factors
contributing to the Trust's net income are discussed in the following
paragraphs.
Rents increased from $9.3 million and $17.7 million for the three and six
months ended June 30, 1995 to $11.1 million and $21.8 million for the three and
six months ended June 30, 1996. Of these increases $2.0 million and
$3.6 million is attributable to the acquisition of four apartment complexes
and four commercial properties subsequent to June 30, 1995. These increases are
partially offset by a decrease of $488,000 and $511,000 attributable to two
properties sold in 1996.
Interest income was $204,000 and $404,000 for the three and six months ended
June 30, 1995 compared to $302,000 and $553,000 for the three and six months
ended June 30, 1996. This increase is due to the funding of
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations Continued
a $1.5 million second lien mortgage in February 1996 and a $750,000 wraparound
mortgage note accepted in February 1996 in conjunction with the sale of
Rivertree Apartments. Interest income for the remainder of 1996 is expected to
approximate that of the first six months of 1996.
The Trust's equity in income (loss) of partnerships was a loss of $216,000 and
$194,000 for the three and six months ended June 30, 1996 compared to income of
$78,000 and $185,000 for the three and six months ended June 30, 1995. This
decrease in equity income is primarily due to the sale of 27 warehouse
facilities owned by Indcon, L.P. ("Indcon"), a joint venture partnership in
which the Trust owns a 60% interest, in the first quarter of 1996. In
addition, interest expense for Sacramento Nine ("Sac 9"), a joint venture
partnership in which the Trust owns a 30% interest, increased as a result of
new mortgage financing secured on a previously unencumbered office building
owned by Sac 9. See NOTE 2. "INVESTMENTS IN PARTNERSHIPS." Equity income is
expected to be minimal for the remainder of 1996.
Property operating expenses increased from $5.6 million and $10.6 million for
the three and six months ended June 30, 1995 to $6.7 million and $12.9 million
for the three and six months ended June 30, 1996. Increases of $1.3 million
and $1.7 million are due to the acquisition of four apartment complexes and
four commercial properties subsequent to June 30, 1995. The remainder of the
increase is primarily due to increased repair and maintenance and personnel
expenses in an effort to maintain the Trust's increased rental and occupancy
rates. These increases are partially offset by decreases of $261,000 and
$312,000 due to properties sold in 1996.
Interest expense increased from $2.4 million and $4.5 million for the three and
six months ended June 30, 1995 to $3.1 million and $6.1 million for the three
and six months ended June 30, 1996. Of this increase, $340,000 and $1.0
million for the three and six months, respectively, is due to interest expense
recorded on mortgages secured by nine properties, encumbered by debt, acquired
during 1996 and 1995. An additional $278,000 and $434,000 for the three and
six months, respectively, is due to interest expense recorded on borrowings
during 1996 and 1995, secured by mortgages on three previously unencumbered
apartment complexes and the refinancing of four existing mortgages. Interest
expense is expected to increase in the remainder of 1996, as a result of the
Trust's acquisition of other properties and refinancings during the remainder
of 1996.
Depreciation expense increased from $1.1 million and $2.0 million for the three
and six months ended June 30, 1995 to $1.1 million and $2.2 million for the
same period in 1996. This increase is due to the acquisition of five apartment
complexes and six commercial properties during 1996 and 1995. Depreciation is
expected to increase in the remainder of 1996, as a result of the Trust's
acquisition of three commercial properties and one apartment complex in 1996,
as well as acquisitions subsequent to June 30, 1996.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations Continued
A provision for losses of $541,000 was recognized in the six months ended June
30, 1995 to provide for the loss on the discounted payoff of the mortgage note
receivable secured by Alderwood Apartments. No provision was required in 1996.
Advisory fee to affiliate increased from $393,000 and $745,000 for the three
and six months ended June 30, 1995 to $469,000 and $851,000 for the three and
six months ended June 30, 1996. This increase is due to an increase in the
Trust's gross assets, the basis for the advisory fee, as a result of property
acquisitions 1995 and 1996. The advisory fee is expected to continue to
increase as the Trust makes additional property acquisitions.
General and administrative expenses increased from $264,000 and $629,000 for
the three and six months ended June 30, 1995 to $590,000 and $939,000 for the
three and six months ended June 30, 1996. This increase is primarily
attributable to an increase in legal fees and Advisor cost reimbursements.
For the three and six months ended June 30, 1996, the Trust recognized gains on
the sale of real estate of $378,000 on the sale of Rivertree Apartments in
February 1996 and $5.4 million on the sale of Sunset Towers Apartments in May
1996. See NOTE 4. "REAL ESTATE." In addition, the Trust recognized a gain of
$370,000, its 60% equity share of the gain recognized by Indcon on the sale of
27 industrial warehouses and an extraordinary gain of $663,000, also its equity
share of an insurance settlement from a fire loss on another industrial
warehouse owned by Indcon. See NOTE 2. "INVESTMENTS IN PARTNERSHIPS."
Tax Matters
As more fully discussed in the Trust's 1995 Form 10-K, the Trust has elected
and in the opinion of the Trust's management, qualified to be taxed as a Real
Estate Investment Trust ("REIT") as defined under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended, (the "Code"). To continue to
qualify for federal taxation as a REIT under the Code, the Trust is required to
hold at least 75% of the value of its total assets in real estate assets,
government securities and cash and cash equivalents at the close of each
quarter of each taxable year. The Code also requires a REIT to distribute at
least 95% of its REIT taxable income plus 95% of its net income from
foreclosure property, as defined in Section 857 of the Code, on an annual basis
to shareholders.
Inflation
The effects of inflation on the Trust's operations are not quantifiable.
Revenues from property operations fluctuate proportionately with increases and
decreases in housing costs. Fluctuations in the rate of inflation also affect
the sales values of properties and, correspondingly, the ultimate gains to be
realized by the Trust from
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Inflation (Continued)
property sales. To the extent that inflation affects interest rates, the
Trust's earnings from short-term investments and the cost of new borrowings as
well as its existing variable rate borrowings will be affected.
Environmental Matters
Under various federal, state and local environmental laws, ordinances and
regulations, the Trust may be potentially liable for removal or remediation
costs, as well as certain other potential costs relating to hazardous or toxic
substances (including governmental fines and injuries to persons and property)
where property-level managers have arranged for the removal, disposal or
treatment of hazardous or toxic substances. In addition, certain environmental
laws impose liability for release of asbestos-containing materials into the
air, and third parties may seek recovery from the Trust for personal injury
associated with such materials.
The Trust's management is not aware of any environmental liability relating to
the above matters that would have a material adverse effect on the Trust's
business, assets or results of operations.
Recent Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of".
The statement requires that long-lived assets be considered impaired "...if the
sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset." If impairment exists,
an impairment loss shall be recognized, by a charge against earnings, equal to
"...the amount by which the carrying amount of the asset exceeds the fair value
of the asset." If impairment of a long-lived asset is recognized, the carrying
amount of the asset shall be reduced by the amount of the impairment, shall be
accounted for as the asset's "new cost" and such new cost shall be depreciated
over the asset's remaining useful life.
SFAS No. 121 further requires that long-lived assets held for sale "...be
reported at the lower of carrying amount or fair value less cost to sell." If
a reduction in a held for sale asset's carrying amount to fair value less cost
to sell is required, a provision for loss shall be recognized by a charge
against earnings. Subsequent revisions, either upward or downward, to a held
for sale asset's fair value less cost to sell shall be recorded as an
adjustment to the asset's carrying amount, but not in excess of the asset's
carrying amount when originally classified as held for sale. A corresponding
charge or credit to earnings is to be recognized. Long-lived assets held for
sale are not to be depreciated. The Trust adopted SFAS No. 121 effective
January 1, 1996.
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Recent Accounting Pronouncement (Continued)
The effect of adopting SFAS No. 121 was the discontinuance of depreciation on
the Trust's properties held for sale of $26,000 and $50,000 in the three and
six months ended June 30, 1996, and a corresponding increase in its reported
net income.
------------------------------------------
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Trust held its annual meeting of shareholders on May 31, 1996, at which
meeting the Trust's shareholders were asked to consider and vote upon (i) the
election of Trustees of the Trust, (ii) the renewal of the Trust's advisory
agreement with Basic Capital Management, Inc. ("BCM"), (iii) repeal of Subpart
(e) of the Trust's Declaration of Trust which limits the Trust's ability to
invest in certain unimproved, non-income producing property and (iv) the repeal
of Subpart (g) of Section 5.3 of the Trust's Declaration of Trust which limits
the time the Trust may hold investments in equity securities.
At such meeting the Trust's shareholders elected the following individuals as
Trustees of the Trust:
<TABLE>
<CAPTION>
Shares Voting
-------------------------
Withheld
Trustee For Authority
------- --------- -----------
<S> <C> <C>
John P. Parsons 3,018,933 44,661
Bennett B. Sims 3,110,295 43,299
Ted P. Stokely 3,110,346 43,248
Martin L. White 3,106,839 46,775
Edward G. Zampa 3,110,582 43,012
</TABLE>
Also at such meeting the Trust's shareholders approved the renewal of the
Trust's advisory agreement with BCM until the next annual meeting of the
Trust's shareholders with 3,027,397 votes for the proposal, 46,730 votes
against the proposal and 60,667 votes abstaining. The Trust's shareholders
also approved the repeal of Subpart (e) of Section 5.3 of the Trust's
Declaration of Trust with 2,895,151 votes for the proposal, 79,829 votes
against the proposal and 82,848 votes abstaining and the repeal of Subpart (g)
of Section 5.3 of the Trust's Declaration of Trust with 2,901,429 votes for the
proposal, 71,202 votes against the proposal and 86,196 votes abstaining.
21
<PAGE> 22
ITEM 5. OTHER EVENTS
On August 1, 1996, the Trust announced an offer to buy back shares of Common
Stock from shareholders owning 99 or fewer shares as of the record date August
1, 1996. The Trust will pay a premium of $.50 per share over the average of
the closing market prices as reported from August 8, 1996 through September 30,
1996. The purpose of the buy back offer is to reduce expenses of servicing the
shareholders, including the printing and mailing of investor materials.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------------------------------------------------
<S> <C>
27.0 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K as follows:
A Current Report on Form 8-K, dated May 31, 1996, was filed with
respect to Item 5. "Other Events," and Item 7. "Financial Statements
and Exhibits," which reports the vote by shareholders to approve
amendments to the Trust's Declaration of Trust which (i) repealed the
limitation to time which the Trust may hold investments in equity
securities and (ii) repealed the limitation on the Trust's ability to
invest in certain unimproved, non-income producing property.
A Current Report on Form 8-K, dated July 9, 1996, was filed with
respect to Item 2. "Acquisition or Disposition of Assets," and Item
7. "Financial Statements and Exhibits," which reports the acquisition
of the Hampton Court Office Building, the Amoco Office Building, the
Grove Park Apartments and the Promenade Shopping Center.
22
<PAGE> 23
SIGNATURE PAGE
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.
CONTINENTAL MORTGAGE AND EQUITY TRUST
Date: August 12, 1996 By: /s/ Randall M. Paulson
------------------------- -----------------------------------
Randall M. Paulson
President
Date: August 12, 1996 By: /s/ Thomas A. Holland
------------------------- -----------------------------------
Thomas A. Holland
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
23
<PAGE> 24
CONTINENTAL MORTGAGE AND EQUITY TRUST
EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q
For the Six Months Ended June 30, 1996
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------- --------------------------------------------------- ------
<S> <C> <C>
27.0 Financial Data Schedule. 25
</TABLE>
24
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 14,870
<SECURITIES> 5,926
<RECEIVABLES> 8,807
<ALLOWANCES> 6,128
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 203,847
<DEPRECIATION> 17,372
<TOTAL-ASSETS> 221,824
<CURRENT-LIABILITIES> 0
<BONDS> 135,205
<COMMON> 0
0
0
<OTHER-SE> 80,168
<TOTAL-LIABILITY-AND-EQUITY> 221,824
<SALES> 0
<TOTAL-REVENUES> 21,770
<CGS> 0
<TOTAL-COSTS> 12,903
<OTHER-EXPENSES> 2,294
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,063
<INCOME-PRETAX> (921)
<INCOME-TAX> 0
<INCOME-CONTINUING> (921)
<DISCONTINUED> 0
<EXTRAORDINARY> 663
<CHANGES> 0
<NET-INCOME> 5,911
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.39
</TABLE>
