<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
December 13, 1996
----------------------------------------------------
Date of Report (Date of Earliest Event Reported)
CONTINENTAL MORTGAGE AND EQUITY TRUST
-----------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
California 0-10503 94-2738844
- --------------------------------------------------------------------------------
(State of Incorporation) (Commission (IRS Employer
File No.) Identification No.)
10670 North Central Expressway, Suite 300, Dallas, TX 75231
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (214) 692-4700
--------------
Not Applicable
-----------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
Exhibit Index Appears on Page 9
Page 1 of 18
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
- -----------------------------------------------
On December 13, 1996, Continental Mortgage and Equity Trust (the "Trust")
purchased the Oak Run Apartments in Pasadena, Texas for $3.8 million (1.7% of
the Trust's assets at December 31, 1995). The seller of the property was
Philip Edmundson, Trustee. The property was constructed in 1982 and consists
of 160 units which were 96% occupied at the date of acquisition. The Trust paid
$1.2 million in cash and obtained new mortgage financing for the remaining $2.6
million of the purchase price.
On December 27, 1996, the Trust purchased the Northpoint Central Office
Building in Houston, Texas for $8.5 million (3.9% of the Trust's assets at
December 31, 1995). The seller of the property was Alpha Northpoint
Associates, L.P., a Texas limited partnership. The property was constructed in
1983 and consists of 176,043 square feet which were 90% occupied at the date of
acquisition. The Trust paid $5.8 million in cash with the seller financing the
remaining $2.7 million of the purchase price.
On December 31, 1996, the Trust purchased the 2626 Cole Office Building in
Dallas, Texas for $8.7 million (4.0% of the Trust's assets at December 31,
1995). The seller of the property was Amerus Properties, Inc., an Iowa
corporation. The property was constructed in 1986 and consists of 119,632
square feet which were 99% occupied at the date of acquisition. The Trust paid
$2.2 million in cash and obtained new mortgage financing for the remaining $6.5
million of the purchase price.
These purchases combined with other property purchases the Trust has made in
1996 exceed 10% of the Trust's assets at December 31, 1995.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
- --------------------------------------------
(a) Pro forma financial information:
Pro forma statements of operations are presented for the year ended December
31, 1995 and the nine months ended September 30, 1996. A pro forma balance
sheet as of September 30, 1996 is also presented.
A summary of the pro forma transactions follows:
In December 1996, the Trust purchased Oak Run Apartments, a 160 unit apartment
complex in Pasadena, Texas for $3.8 million, exclusive of commissions and
closing costs. The Trust paid $1.2 million in cash and obtained new mortgage
financing secured by the apartment complex for the remaining $2.6 million of
the purchase price. The mortgage bears interest at 8.88% per annum, requires
monthly payments of principal and interest of $21,805 and matures January,
2002.
Also in December 1996, the Trust purchased the Northpoint Central Office
Building, a 176,043 square foot office building in Houston, Texas for $8.5
million, exclusive of commissions and closing costs. The Trust paid $5.8
million in cash with the seller financing the remaining $2.7 million of the
purchase price. The mortgage bears interest at 9.5% per annum, requires
monthly payments of interest only and matures September 1997.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (Continued)
- --------------------------------------------
Also in December 1996, the Trust purchased the 2626 Cole Office Building, a
199,632 square foot office building in Dallas, Texas for $8.7 million,
exclusive of commissions and closing costs. The Trust paid $2.2 million in
cash and obtained new mortgage financing for the remaining $6.5 million of the
purchase price. The mortgage bears interest at 9.0% per annum, requires
monthly payments of principal and interest of $59,409 and matures December 30,
1998.
The combined $21.0 million purchase prices of these properties is approximately
9.6% of the Trust's assets at December 31, 1995. Although not a significant
acquisitions in themselves, when aggregated with the other acquisitions
completed by the Trust in 1996 as described below, such acquisitions constitute
a significant acquisition.
In addition to the acquisitions discussed above, the Trust purchased three
other apartment complexes, six commercial properties and one parcel of raw land
in 1996. The properties, located in Texas, Louisiana and Colorado, were
purchased for a total of $46.6 million in separate transactions from
unaffiliated sellers and represent approximately 21% of the Trust's assets at
December 31, 1995. The Trust paid a total of $21.2 million in cash and
financed the remainder of the purchase prices. The mortgages bear interest at
rates ranging from 8.01% to 10% and mature from 1997 to 2004.
The Trust has previously filed audited statements of operations on five of
these acquisitions, totaling $27.5 million or 12.5% of the Trust's assets at
December 31, 1995.
The Trust has not provided audited financial statements of operations on the
remaining five acquisitions totaling $19.0 million or 8.7% of the Trust's
assets at December 31, 1995. None of the acquisitions for which audited
statements of operations have not been provided exceed 5% of the Trust's assets
at December 31, 1995.
In addition to the purchases described above, during 1996 the Trust has sold,
or otherwise disposed of, five apartment complexes and one office building.
The Trust recognized a total gain on these dispositions of $9.7 million.
The pro forma statements of operations present the Trust's operations as if the
transactions described above had occurred at the beginning of each of the
periods presented.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
3
<PAGE> 4
CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Northpoint 2626 Cole Other
Oak Run Office Office Property
Actual Apartments Building Building Acquisitions(1) Pro forma
------ ---------- -------- -------- ------------ -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
------
Notes and interest receivable
Performing.................. $ 6,119 $ - $ - $ - $ - $ 6,119
Nonperforming, nonaccruing.. 2,287 - - - - 2,287
--------- --------- ---------- ----------- ------- -----------
8,406 - - - - 8,406
Less - allowance for estimated
losses...................... (1,188) - - - - (1,188)
--------- --------- ---------- ----------- ------- -----------
7,218 - - - - 7,218
Foreclosed real estate held for
sale, net of accumulated
depreciation................. 10,657 - - - - 10,657
Less - allowance for estimated
losses....................... (4,941) - - - - (4,941)
--------- --------- ---------- ---------- ------- -----------
5,716 - - - - 5,716
Real estate held for invest-
ment, net of accumulated
depreciation................. 182,724 3,940 8,865 9,095 4,383 209,007
Investments in marketable
equity securities of
affiliates, at market........ 6,676 - - - - 6,676
Investments in partnerships.... 2,265 - - - - 2,265
Cash and cash equivalents...... 16,537 (1,315) (3,115) (2,555) (1,497) 8,055
Other assets................... 11,254 11,254
--------- --------- ---------- ---------- ------- -----------
$ 232,390 $ 2,625 $ 5,750 $ 6,540 $ 2,886 $ 250,191
========= ========= ========== ========== ======= ===========
</TABLE>
4
<PAGE> 5
CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Northpoint 2626 Cole Other
Oak Run Office Office Property
Actual Apartments Building Building Acquisitions(1) Pro forma
---------- ---------- ---------- ------------ --------------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Liabilities and Shareholders' Equity
- ------------------------------------
Liabilities
Notes and interest payable....... $ 142,516 $ 2,625 $ 5,750 $ 6,540 $ 2,886 $ 160,317
Other liabilities................ 7,462 - - - 7,462
--------- --------- ---------- ---------- -------- -----------
149,978 2,625 5,750 6,540 2,886 167,779
Commitments and contingencies
Shareholders' equity
Shares of Beneficial Interest, no
par value; authorized shares,
unlimited; issued and out-
standing, 4,182,030 shares..... 8,379 - - - - 8,379
Paid-in capital.................. 258,545 - - - - 258,545
Accumulated distributions in
excess of accumulated earnings. (189,468) - - - - (189,468)
Net unrealizable gains on market-
able equity securities......... 4,956 - - - - 4,956
--------- --------- ---------- --------- ------- -----------
82,412 - - - - 82,412
--------- --------- ---------- ---------- ------- -----------
$ 232,390 $ 2,625 $ 5,750 $ 6,540 $ 2,886 $ 250,191
========= ========= ========== ========== ======= ===========
</TABLE>
_________________________
(1) The balance sheet effect of all other 1996 property purchases and
dispositions are included in the September 30, 1996 actual balances
presented.
5
<PAGE> 6
CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA
STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Northpoint 2626 Cole Other
Oak Run Office Office Property Property
Actual Apartments(1) Building(1) Building(1) Acquisitions(1)Dispositions(1) Pro forma
------ ---------- -------- -------- ------------ ------------ ---------
Income (dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C>
Rents............... $ 33,205 $ 662 $ 1,411 $ 1,267 $ 5,770 $ (3,926) $ 38,389
Interest............ 821 - - - 821
--------- ---------- ---------- ------------ --------- ---------- ----------
34,026 662 1,411 1,267 5,770 (3,926) 39,210
Expenses
Property operations. 20,091 465 871 611 3,192 (2,560) 22,670
Interest............ 9,317 174 410 439 1,827 (1,079) 11,088
Depreciation........ 3,565 59 133 136 644 (461) 4,076
Provision for losses (884) - - - - - (884)
Advisory fee to
affiliate......... 1,300 - - - - - 1,300
General and
administrative.... 1,400 - - - - - 1,400
-------- ----------- ---------- ---------- ------------ --------- ----------
34,789 698 1,414 1,186 5,663 (4,100) 39,650
-------- ----------- ---------- ---------- ------------ --------- ----------
Income (loss) from
operations.......... (763) (36) (3) 81 107 174 (440)
Equity in income of
partnerships........ 197 - - - - 197
Gain on sale of real
estate.............. 9,397 - - - - - 9,397
--------- ----------- ---------- ---------- ------------ --------- -----------
Income (loss) before
extraordinary gain... 8,831 (36) (3) 81 107 174 9,154
Extraordinary gain.... 812 - - - - - 812
--------- ----------- ---------- ---------- ------------ --------- ----------
Net income (loss)..... $ 9,643 $ (36) $ (3) $ 81 $ 107 $ 174 $ 9,966
========= =========== ========== ========== ============ ========= ==========
Earnings per share
Net income before
extraordinary gain $ 2.08 $ 2.16
Extraordinary gain.. .20 .20
--------- ----------
Net income.......... $ 2.28 $ 2.36
========= ==========
Shares of beneficial
interest outstanding 4,243,754 4,243,754
========= =========
</TABLE>
___________________
(1) Assumes acquisition or disposition by the Trust on January 1, 1996. Pro
forma amounts for other property acquisitions are from January 1 through
the date of acquisition only, results subsequent to the date of acquisition
are included in the "Actual" column.
6
<PAGE> 7
CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
Northpoint 2626 Cole Other
Oak Run Office Office Property Property
Actual Apartments(1) Building(1) Building(1)Acquisitions(1) Dispositions(1) Pro forma
------ ---------- -------- -------- ------------ ------------ ---------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C>
Income
Rents . . . . . . . $37,586 $882 $1,881 $1,690 $7,694 $(7,339) $42,394
Interest . . . . . 723 - - - - - 723
------- ---- ------ ------ ------ ------- -------
38,309 882 1,881 1,690 7,694 (7,339) 43,117
Expenses
Property operations. 22,682 620 1,161 814 4,255 (4,442) 25,090
Interest . . . . . 10,009 232 546 584 2,434 (1,990) 11,815
Depreciation . . . 4,279 79 177 182 859 (950) 4,626
Advisory fee to
affiliate. . . . 1,264 - - - - - 1,264
General and
administrative . 1,207 - - - - - 1,207
Provision for losses 541 - - - - - 541
------ ---- ------ ------ ------ ------ -------
39,982 931 1,884 1,580 7,548 (7,382) 44,543
------ ---- ------ ------ ------ ------ -------
Income (loss) from
operations . . . (1,673) (49) (3) 110 146 43 (1,426)
Equity in income of
partnerships . . 230 - - - - - 230
------ ---- ------ ------ ------ ------ -------
Net income (loss). $(1,443) $(49) $ (3) $ 110 $ 146 $ 43 $(1,196)
======= ==== ====== ====== ====== ======= =======
Earnings per share
Net income $ (.33) $ (.27)
======== ==========
Shares of beneficial
interest outstanding 4,377,165 4,377,165
========= =========
</TABLE>
___________________
(1) Assumes acquisition or disposition by the Trust on January 1, 1995.
7
<PAGE> 8
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (Continued)
- --------------------------------------------
(b) Financial statements of properties acquired:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
99.0 Oak Run Apartments Audited Statement of Revenues and Direct
Operating Expenses for the year ended December 31, 1995.
99.1 Northpoint Central Office Building Audited Balance Sheet as of
December 31, 1995 and related Statement of Profit and Loss and
Statement of Cash Flow for the year ended December 31, 1995.
</TABLE>
___________________________________
SIGNATURE
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 hereto duly authorized.
CONTINENTAL MORTGAGE AND EQUITY TRUST
Date: February 11, 1997 By:/s/ Thomas A. Holland
----------------------- -----------------------------------
Thomas A. Holland
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
8
<PAGE> 9
CONTINENTAL MORTGAGE AND EQUITY TRUST
EXHIBIT TO ITS
CURRENT REPORT ON FORM 8-K
Dated December 13, 1996
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------- ---------------------------------------------- ------
<S> <C> <C>
99.0 Oak Run Apartments Audited Statement of 10
Revenues and Direct Operating Expenses for
the year ended December 31, 1995.
99.1 Northpoint Central Office Building Audited 15
Statement of Revenues and Direct Operating
Expenses for the year ended December 31, 1995.
</TABLE>
<PAGE> 1
EXHIBIT 99.0
NORTHPOINT CENTRAL
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
Year Ended December 31, 1995
<PAGE> 2
[FARMER, FUQUA, HUNT & MUNSELLE, P.C. LETTERHEAD]
Independent Auditors' Report
----------------------------
To the Board of Trustees
Continental Mortgage and Equity Trust
We have audited the accompanying statement of revenues and direct operating
expenses of Northpoint Central for the year ended December 31, 1995. This
statement of revenues and direct operating expenses is the responsibility of
the Property's management. Our responsibility is to express an opinion on this
statement of revenues and direct operating expenses based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the statement of revenues and direct
operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement of revenues and direct operating expenses. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall statement of revenues and
direct operating expenses presentation. We believe that our audit provides a
reasonable basis for our opinion.
The accompanying financial statement is prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in Form 8-K of Continental Mortgage and Equity Trust) and, as
described in Note 1, is not intended to be a complete presentation of the
results of operations.
In our opinion, the statement of revenues and direct operating expenses
referred to above presents fairly, in all material respects, the revenues and
direct operating expenses of Northpoint Central for the year ended December 31,
1995, in conformity with generally accepted accounting principles.
/s/ FARMER, FUQUA, HUNT & MUNSELLE, P.C.
Dallas, Texas
February 5, 1997
<PAGE> 3
NORTHPOINT CENTRAL
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
Year Ended December 31, 1995
<TABLE>
<S> <C>
REVENUES
Net rental revenues $ 1,751,402
Other revenues 40,413
------------
Total revenue 1,791,815
OPERATING EXPENSES
Repairs and maintenance 376,315
Utilities 233,611
Property taxes 203,916
Salaries and benefits 119,222
Insurance 27,829
------------
Total direct operating expenses 960,893
------------
REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES $ 830,922
============
</TABLE>
The accompanying notes are an integral part of this statement.
<PAGE> 4
NORTHPOINT CENTRAL
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
Year ended December 31, 1995
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
Northpoint Central is a 176,043 square-foot office building,
located in Houston, Texas. During 1996, the property was
owned by Alpha Northpoint Associates, L.P.
The accompanying financial statement does not include a
provision for depreciation and amortization, bad debt expense,
interest expense or income taxes. Accordingly, this statement
is not intended to be a complete presentation of the results
of operations.
NOTE 2: OTHER REVENUES
Other revenues consist of the following:
Rent escalations $ 36,196
Miscellaneous 4,217
----------
$ 40,413
==========
NOTE 3: ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 4: SUBSEQUENT EVENT
The property was sold to Continental Mortgage and Equity
Trust, a California business trust, on December 27, 1996.
<PAGE> 1
EXHIBIT 99.1
[ANDREW V. SCHNURR & CO. LETTERHEAD]
November 20, 1996
Partners
Oak Run Manor
100 Huguenot Avenue
Englewood, NJ 07631
Gentlemen:
In accordance with the terms of our engagement, we have made an
examination of the accounts and records of Oak Run Manor for the twelve month
period ended December 31, 1995. Our examination was made in accordance with
generally accepted auditing standards and, except as explained in the following
paragraphs, it included such other auditing procedures as we considered
necessary in the circumstances.
Cash:
Written confirmation of the bank balances of $131,641. was not
obtained directly from the depository bank as of December 31, 1995. The
balances shown on the depository's statements were reconciled with the balances
shown by the books.
Cash on hand held in the project's on-site office, in amount of
$1,600.00, was not confirmed but was in agreement with management's control.
Property and Equipment:
Depreciation lapse schedules are maintained to show changes in the
assets and related depreciation allowances account since date of acquisition.
Depreciation has been computed at the maximum allowed by the Treasury
Department.
<PAGE> 2
(2)
Liabilities:
A listing of vouchers payable was prepared as of December 31, 1995. We
examined vendor's invoices paid subsequent to December 31, 1995 and prior to
completion of our field work and any unpaid invoices on hand to determine that
all significant liabilities were included in the listing.
We checked the company's liability as of December 31, 1995 for payroll
taxes withheld and accrued.
In our opinion, subject to the aforesaid comments, the accompanying
balance sheet and related statement of profit and loss presents fairly the
financial position of Oak Run Manor as of December 31, 1995, in conformity with
generally accepted accounting principles.
/s/ ANDREW V. SCHNURR
----------------------------
Andrew V. Schnurr
ANDREW V. SCHNURR & CO.
<PAGE> 3
OAK RUN MANOR
BALANCE SHEET
AS OF DECEMBER 31, 1995
ASSETS
<TABLE>
<S> <C> <C>
CURRENT ASSETS
Cash in Bank and on Hand $ 110,156.
Cash in Bank - Security Account 23,085.
Security Deposits 2,370.
Prepaid Expenses 7,500.
----------
TOTAL CURRENT ASSETS $ 143,111.
FIXED ASSETS
Land 328,000.
Buildings 2,952,175.
----------
Total 3,280,175.
Less: Reserve for Depreciation 621,698.
----------
TOTAL FIXED ASSETS 2,658,477.
-----------
TOTAL ASSETS 2,801,588.
-----------
LIABILITIES
CURRENT LIABILITIES
Accounts Payable $ 129,414.
Tenants Prepaid Rents 6,650.
Tenants Security Deposits Held 23,085.
----------
TOTAL CURRENT LIABILITIES 159,149.
PARTNERS CAPITAL ACCOUNT
Balance, January 1, 1995 2,763,843.
Add: Net Profit for Period 154,596.
----------
Total 2,918,439.
Deduct: Returns of Capital 276,000.
----------
TOTAL PARTNERS CAPITAL ACCOUNT 2,642,439.
-----------
TOTAL LIABILITIES $ 2,801,588.
-----------
</TABLE>
ANDREW V. SCHNURR & CO.
<PAGE> 4
OAK RUN MANOR
STATEMENT OF PROFIT AND LOSS
FOR THE 12 MONTH PERIOD ENDING DECEMBER 31, 1995
INCOME
<TABLE>
<S> <C> <C>
Rental Income $879,170.
Interest Income, Late Charges, Etc. 2,758.
--------
TOTAL INCOME $881,928.
EXPENSES
Advertising $ 18,908.
Office Expenses 14,461.
Management Fees 42,267.
Legal & Accounting 4,645.
Telephone 3,373.
Janitor Payroll 81,571.
Electric 9,189.
Water & Sewer 53,331.
Exterminating 1,018.
Hospitalization 3,828.
Repairs - Materials 170,852.
Decorating Supplies & Contracts 33,916.
Provision for Depreciation 107,341.
Taxes - Real Estate 128,756.
- Payroll 10,181.
Insurance - Hazard 20,602.
Gardening 22,802.
Bank Charges 291.
---------
TOTAL EXPENSES 727,332.
--------
NET PROFIT $154,596.
--------
</TABLE>
ANDREW V. SCHNURR & CO.
<PAGE> 5
OAK RUN MANOR
STATEMENT OF CASH FLOW 12 MONTH PERIOD
ENDED DECEMBER 31, 1995
OPERATING ACTIVITIES
<TABLE>
<S> <C> <C>
Net Income $154,596.
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and Amortization $107,341.
Changes in Operating Assets & Liabilities:
Decrease in Accounts Receivable 1,243.
Increase in Prepaid Expenses (3,090.)
Increase in Accounts payable &
Accrued Expenses 33,813.
Decrease in Tenants Security Deposit (1,120.)
Decrease in Prepaid Rents (200.) 137,987.
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 292,583.
FINANCING ACTIVITIES
Distributions to Partners (276,000.)
--------
INCREASE IN CASH AND CASH EQUIVALENTS 16,583.
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 116,658.
--------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $133,241.
========
</TABLE>
ANDREW V. SCHNURR & CO.
