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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
July 18, 1997
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Date of Report (Date of Earliest Event Reported)
CONTINENTAL MORTGAGE AND EQUITY TRUST
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(Exact Name of Registrant as Specified in its Charter)
California 0-10503 94-2738844
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(State of Incorporation) (Commission (IRS Employer
File No.) Identification No.)
10670 North Central Expressway, Suite 300, Dallas, TX 75231
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (214) 692-4700
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Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On July 18, 1997, the Trust purchased the Durham Centre, an office building in
Durham, North Carolina, for $20.5 million (8.2% of the Trust's assets at
December 31, 1996). The seller of the property was DCV Limited Partnership, a
North Carolina limited partnership. The property was constructed in 1988 and
consists of 207,171 square feet which were 95% occupied at the date of
acquisition. The Trust paid $5.7 million in cash and obtained new mortgage
financing for the remaining $14.8 million of the purchase price.
This purchase combined with other property purchases the Trust has made in 1997
exceed 10% of the Trust's assets at December 31, 1996.
In addition to the income producing property described above, on August 1,
1997, the Trust purchased the McKinney 140 land in McKinney, Texas, for $2.6
million. The seller of the property was Samuel Rosenzweig, Trustee. The
property consists of 140 acres of undeveloped land. The Trust paid $898,000 in
cash and obtained new mortgage financing for the remaining $1.7 million of the
purchase price.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Pro forma financial information:
Pro forma statements of operations are presented for the year ended December
31, 1996 and the six months ended June 30, 1997. A pro forma balance sheet as
of June 30, 1997 is also presented.
A summary of the pro forma transactions follows:
In July 1997, the Trust purchased the Durham Centre, a 207,171 square foot
office building in Durham, North Carolina, for $20.5 million. The Trust paid
$5.7 million in cash and obtained new mortgage financing for the remaining
$14.8 million of the purchase price. The mortgage bears interest at 9.8% per
annum, requires monthly payments of principal and interest of $132,407 and
matures in July 2000.
The purchase price of this property is 8.2% of the Trust's assets at December
31, 1996. Although not a significant acquisition in itself, when aggregated
with the other acquisitions completed by the Trust in 1997 as described below,
such acquisitions constitute a significant acquisition.
In addition to the income producing property described above, in August 1997,
the Trust purchased the McKinney 140 land, 140 acres of undeveloped land in
McKinney, Texas, for $2.6 million. The Trust paid $898,000 in cash and obtained
new mortgage financing for the remaining $1.7 million of the purchase price.
The mortgage bears interest at 9.5% per annum, requires monthly payments of
interest only and matures in April 2000.
In addition to the July and August acquisitions discussed above, prior to June
30, 1997, the Trust had purchased two apartment complexes, two commercial
properties and three parcels of undeveloped land. The
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (Continued)
properties, located in Texas, Washington, D.C. and Florida, were purchased for
a total of $32.4 million in separate transactions from unaffiliated sellers and
represent approximately 13% of the Trust's assets at December 31, 1996. The
Trust paid a total of $8.2 million in cash and financed the remainder of the
purchase prices. The mortgages bear interest at rates ranging from 8.0% to 9.5%
and mature from 1999 to 2009.
The Trust has previously provided audited statements of operations for the two
apartment complexes and two commercial properties acquired prior to June 30,
1997, totaling $25.2 million or 10.1% of the Trust's assets at December 31,
1996. See the Trust's Current Report on Form 8-K, dated June 24, 1997.
In addition to the purchases described above, during 1997 the Trust has sold
two office buildings. In connection with the sales, the Trust received net cash
proceeds totaling $14.0 million, after the payoff of $11.5 million in existing
mortgage debt and the payment of various closing costs associated with the
sales. The Trust recognized a total gain on these sales of $6.8 million.
The pro forma statements of operations present the Trust's operations as if the
purchase and sale transactions described above had occurred at the beginning of
each of the periods presented.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
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CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA
CONSOLIDATED BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
Durham
Actual Centre Pro forma(1)
---------- ---------- ------------
(dollars in thousands)
<S> <C> <C> <C>
Assets
------
Notes and interest receivable
Performing ................................................... $ 4,041 $ -- $ 4,041
Nonperforming, nonaccruing ................................... 3,521 -- 3,521
---------- ---------- ----------
7,562 -- 7,562
Less - allowance for estimated losses ........................... (1,481) -- (1,481)
---------- ---------- ----------
6,081 -- 6,081
Foreclosed real estate held for sale, net of accumulated
depreciation ................................................. 5,738 -- 5,738
Real estate held for investment, net of accumulated
depreciation ................................................. 230,530 21,015 251,545
Investments in marketable equity securities of affiliates,
at market .................................................... 11,429 -- 11,429
Investments in partnerships ..................................... 2,156 -- 2,156
Cash and cash equivalents ....................................... 2,839 (2,358) 481
Other assets .................................................... 16,663 (4,157) 12,506
---------- ---------- ----------
$ 275,436 $ 14,500 $ 289,936
========== ========== ==========
Liabilities and Shareholders' Equity
- ------------------------------------
Liabilities
Notes and interest payable ...................................... $ 179,832 $ 14,500 $ 194,332
Other liabilities ............................................... 7,473 -- 7,473
---------- ---------- ----------
187,305 14,500 201,805
Commitments and contingencies
Shareholders' equity
Shares of Beneficial Interest, no par value; authorized
shares, unlimited; issued and outstanding 4,025,985 shares ... 8,068 -- 8,068
Paid-in capital ................................................. 257,159 -- 257,159
Accumulated distributions in excess of accumulated earnings ..... (187,219) -- (187,219)
Net unrealizable gains on marketable equity securities .......... 10,123 -- 10,123
---------- ---------- ----------
88,131 -- 88,131
---------- ---------- ----------
$ 275,436 $ 14,500 $ 289,936
========== ========== ==========
</TABLE>
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(1) The balance sheet affect of all other 1997 income producing property
purchases and dispositions are included in the June 30, 1997 actual
balances presented.
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CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA
STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
Apartment Commercial McKinney
Complexes Properties Land 140 Land Durham Dispositions
Actual (1)(2) (1)(3) (1)(4) (1) Centre(1) (1) Pro forma
---------- --------- --------- --------- --------- --------- ----------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income
Rents ........................... $ 26,205 $ 463 $ 916 $ -- $ -- $ 1,820 $ (1,214) $ 28,190
Interest ........................ 466 -- -- -- -- -- -- 466
---------- --------- --------- --------- --------- --------- --------- ----------
26,671 463 916 -- -- 1,820 (1,214) 28,656
Expenses
Property operations ............. 15,131 207 344 -- -- 634 (785) 15,531
Interest ........................ 7,895 137 252 173 81 724 (386) 8,876
Depreciation .................... 2,977 47 89 -- -- 210 (176) 3,149
Advisory fee to affiliate ....... 1,004 -- -- -- -- -- -- 1,004
Net income fee .................. 386 -- -- -- -- -- -- 386
General and administrative ...... 1,402 -- -- -- -- -- -- 1,402
---------- --------- --------- --------- --------- --------- --------- ----------
28,795 393 685 173 81 1,568 (1,347) 30,348
---------- --------- --------- --------- --------- --------- --------- ----------
Income (loss) from operations ...... (2,124) 70 231 (173) (81) 252 133 (1,692)
Equity in income of partnerships ... 73 -- -- -- -- -- -- 73
Gain on sale of real estate ........ 6,810 -- -- -- -- -- -- 6,810
---------- --------- --------- --------- --------- --------- --------- ----------
Net income (loss) .................. $ 4,759 $ 70 $ 231 $ (173) $ (81) $ 252 $ 133 $ 5,191
========== ========= ========= ========= ========= ========= ========= ==========
Earnings per share
Net income ..................... $ 1.18 $ 1.29
========== ==========
Shares of beneficial interest
outstanding .................... 4,026,099 4,026,099
========== ==========
</TABLE>
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(1) Assumes acquisition or disposition by the Trust on January 1, 1997. Pro
forma amounts for other property acquisitions are from January 1 through
respective dates of acquisition. Results subsequent to the date of
acquisition are included in the "Actual" column.
(2) Includes the Lost Timbers Apartments and Trails at Windfern Apartments
whose results of operations are separately presented in the Trust's
Current Report on Form 8-K, dated June 24, 1997.
(3) Includes the Jefferson Office Building and Bay Plaza Office Center whose
results of operations are separately presented in the Trust's Current
Report on Form 8-K, dated June 24, 1997.
(4) Includes the Stacy Road, Watters Road and Opubco land which are separately
presented in the Trust's Current Report on Form 8-K, dated June 24, 1997.
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CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Apartment Commercial McKinney
Complexes Properties Land 140 Land Durham Dispositions
Actual (1)(2) (1)(3) (1)(4) (1) Centre(1) (1) Pro forma
---------- --------- --------- --------- --------- --------- ----------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income
Rents ........................... $ 44,244 $ 1,871 $ 3,354 $ -- $ -- $ 3,640 $ (1,654) $ 51,455
Interest ........................ 1,119 -- -- -- -- -- -- 1,119
---------- -------- -------- -------- -------- -------- -------- ----------
45,363 1,871 3,354 -- -- 3,640 (1,654) 52,574
Expenses
Property operations ............. 26,738 1,000 1,257 -- -- 1,268 (1,045) 29,218
Interest ........................ 12,773 552 878 597 161 1,444 (708) 15,536
Depreciation .................... 4,819 184 363 -- -- 420 (233) 5,553
Advisory fee to affiliate ....... 1,091 -- -- -- -- -- -- 1,091
Incentive and net income fees ... 1,049 -- -- -- -- -- -- 1,049
General and administrative ...... 2,213 -- -- -- -- -- -- 2,213
Provision for losses ............ (884) -- -- -- -- -- -- (884)
---------- -------- -------- -------- -------- -------- -------- ----------
47,799 1,736 2,498 597 161 3,132 (1,986) 53,776
---------- -------- -------- -------- -------- -------- -------- ----------
Income (loss) from operations ...... (2,436) 135 856 (597) (161) 508 332 (1,202)
Equity in income of partnerships ... 228 -- -- -- -- -- -- 228
Gain on sale of real estate and
marketable equity securities .... 10,122 -- -- -- -- -- 6,810 16,932
---------- -------- -------- -------- -------- -------- -------- ----------
Income (loss) before
extraordinary gain .............. 7,914 135 856 (597) (161) 508 7,142 15,958
Extraordinary gain ................. 812 -- -- -- -- -- -- 812
---------- -------- -------- -------- -------- -------- -------- ----------
Net income (loss) .................. $ 8,726 $ 135 $ 856 $ (597) $ (161) $ 508 $ 7,142 $ 16,770
========== ======== ======== ======== ======== ======== ======== ==========
Earnings per share
Income before extraordinary
gain .......................... $ 1.89 $ 3.80
Extraordinary gain .............. .19 .19
---------- ----------
Net income (loss) ............... $ 2.08 $ 3.99
========== ==========
Shares of beneficial interest
outstanding ..................... 4,199,147 4,199,147
========== ==========
</TABLE>
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(1) Assumes acquisition or disposition by the Trust on January 1, 1996.
(2) Includes the Lost Timbers Apartments and Trails at Windfern Apartments
whose results of operations are separately presented in the Trust's
Current Report on Form 8-K, dated June 24, 1997.
(3) Includes the Jefferson Office Building and Bay Plaza Office Center whose
results of operations are separately presented in the Trust's Current
Report on Form 8-K, dated June 24, 1997.
(4) Includes the Stacy Road, Watters Road and Opubco land which are separately
presented in the Trust's Current Report on Form 8-K, dated June 24, 1997.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (Continued)
(b) Financial statements of properties acquired:
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- -----------
<S> <C>
99.0 Lost Timbers Apartments, Audited Statement of Revenues and Direct
Operating Expenses for the year ended December 31, 1996 (incorporated
by reference to Exhibit No. 99.0 to the Registrant's Current Report
on Form 8-K, dated June 24, 1997).
99.1 Jefferson Building, Audited Statement of Revenues and Direct
Operating Expenses for the year ended December 31, 1996 (incorporated
by reference to Exhibit No. 99.1 to the Registrant's Current Report
on Form 8-K, dated June 24, 1997).
99.2 Trails at Windfern Apartments, Audited Statement of Revenues and
Direct Operating Expenses for the year ended December 31, 1996
(incorporated by reference to Exhibit No. 99.2 to the Registrant's
Current Report on Form 8-K, dated June 24, 1997).
99.3 Bay Plaza Office Center, Audited Statement of Revenues and Direct
Operating Expenses for the year ended December 31, 1996 (incorporated
by reference to Exhibit No. 99.3 to the Registrant's Current Report
on Form 8-K, dated June 24, 1997).
99.4 Durham Centre, Audited Statement of Revenues and Direct Operating
Expenses for the year ended December 31, 1996, filed herewith.
</TABLE>
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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: August 19, 1997 By: /s/ THOMAS A. HOLLAND
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Thomas A. Holland
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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CONTINENTAL MORTGAGE AND EQUITY TRUST
EXHIBIT TO ITS
CURRENT REPORT ON FORM 8-K
Dated July 18, 1997
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------ ----------- ------
<S> <C> <C>
99.4 Durham Centre, Audited Statement of Revenue 9
and Direct Operating Expenses for the year
ended December 31, 1996.
</TABLE>
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EXHIBIT 99.4
DURHAM CENTRE
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1996
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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 Durham Centre for the year ended December 31, 1996. 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 Durham Centre for the year ended December 31,
1996, in conformity with generally accepted accounting principles.
Farmer, Fuqua, Hunt & Munselle, P.C.
Dallas, Texas
August 14, 1997
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DURHAM CENTRE
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
Year Ended December 31, 1996
<TABLE>
<S> <C>
REVENUES
Net rental revenues and common
area maintenance charges $3,576,320
Other revenues 63,333
----------
Total revenues 3,639,653
DIRECT OPERATING EXPENSES
Repairs and maintenance 513,055
Utilities 384,561
Property taxes 330,000
Insurance 23,646
Salaries 16,380
----------
Total direct operating expenses 1,267,642
----------
REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES $2,372,011
==========
</TABLE>
The accompanying notes are an integral part of this statement.
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DURHAM CENTRE
NOTES TO STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
December 31, 1996
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
Durham Centre is a 205,467 square foot office building located in
Durham, North Carolina. During 1996, the property was owned by DCV
Limited Partnership.
The accompanying financial statement does not include a provision for
depreciation and amortization, bad debt expense, interest expense,
significant non-recurring repairs expense and related insurance
reimbursements or income taxes. Accordingly, this statement is not
intended to be a complete presentation of the results of operations.
NOTE 2: 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 3: OTHER REVENUES
Other revenues consist of the following:
<TABLE>
<S> <C>
Parking income $63,000
Miscellaneous 333
-------
$63,333
=======
</TABLE>
NOTE 4: SUBSEQUENT EVENT
The property was sold to Continental Mortgage and Equity Trust, a
California business trust, on July 18, 1997.
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