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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
August 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 August 18, 1997, Continental Mortgage and Equity Trust (the "Trust")
purchased the Eagle Rock Apartments, an apartment complex in Los Angeles,
California, for $4.4 million (1.7% of the Trust's assets at December 31, 1996).
The seller of the property was Eagle Rock Corporation, a California
corporation. The property was constructed in 1984 and consists of 99 units
which were 97% occupied at the date of acquisition. The Trust paid $1.1
million in cash with the seller providing purchase money financing for the
remaining $3.3 million of the purchase price.
The purchase of this property, when aggregated with other property purchases
the Trust has made in 1997 exceed 10% of the Trust's assets at December 31,
1996.
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 August 1997, the Trust purchased Eagle Rock Apartments, a 99 unit apartment
complex in Los Angeles, California, for $4.4 million. The Trust paid $1.1
million in cash with the seller providing purchase money financing for the
remaining $3.3 million of the purchase price. The mortgage bears interest at
10.5% per annum, requires monthly payments of interest only and matures in
February 1998.
The purchase price of this property is 1.7% of the Trust's assets at December
31, 1996. Although not a significant acquisition in itself, when aggregated
with the other purchases completed by the Trust in 1997 as described below,
such purchases constitute a significant acquisition.
In addition to the Eagle Rock purchase discussed above, the Trust has purchased
two apartment complexes, three commercial properties and four parcels of
undeveloped land in 1997. The properties, located in North Carolina, Texas,
Washington, D.C. and Florida, were purchased for a total of $52.9 million in
separate transactions from unaffiliated sellers and represent approximately 21%
of the Trust's assets at December 31, 1996. The Trust paid a total of $14.8
million in cash and financed the remainder of the purchase prices. The
mortgages bear interest at rates ranging from 8.0% to 10.5% per annum and
mature from 1998 to 2009.
The Trust has previously provided audited statements of operations for the two
other apartment complexes and three commercial properties acquired during 1997,
totaling $45.6 million or 18.2% of the Trust's assets at December 31, 1996.
See the Trust's Current Report on Form 8-K, dated July 18, 1997.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (Continued)
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 Eagle Rock
Assets Actual Centre(1) Apartments Pro forma(2)
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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 4,445 255,990
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) (1,182) (701)
Other assets ................................................... 16,663 (4,157) -- 12,506
---------- ---------- ---------- ----------
$ 275,436 $ 14,500 $ 3,263 $ 293,199
========== ========== ========== ==========
Liabilities and Shareholders' Equity
Liabilities
Notes and interest payable ..................................... $ 179,832 $ 14,500 $ 3,263 $ 197,595
Other liabilities .............................................. 7,473 -- -- 7,473
---------- ---------- ---------- ----------
187,305 14,500 3,263 205,068
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 $ 3,263 $ 293,199
========== ========== ========== ==========
</TABLE>
(1) The property was purchased on July 18, 1997 and has previously been
included in the Trust's current report on Form 8-K, dated July 18, 1997.
(2) The balance sheet affect of all other 1997 income producing property
purchases and sales 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 Eagle Rock
Actual Complexes(1)(2) Properties(1)(3) Land (1)(4) Apartments Sales(1) Pro forma
--------- -------------- ------------- -------- ---------- --------- ---------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C>
Income
Rents .......................... $ 26,205 $ 463 $ 2,736 $ -- $ 321 $ (1,214) $ 28,511
Interest ....................... 466 -- -- -- -- -- 466
--------- ------------ ------------ --------- ---------- --------- ---------
26,671 463 2,736 -- 321 (1,214) 28,977
Expenses
Property operations ............ 15,131 207 978 -- 272 (785) 15,803
Interest ....................... 7,895 137 976 254 171 (386) 9,047
Depreciation ................... 2,977 47 299 -- 44 (176) 3,191
Advisory fee to affiliate ...... 1,004 -- -- -- -- -- 1,004
Net income fee ................. 386 -- -- -- -- -- 386
General and administrative ..... 1,402 -- -- -- -- -- 1,402
--------- ------------ ------------ --------- ---------- --------- ---------
28,795 391 2,253 254 487 (1,347) 30,833
--------- ------------ ------------ --------- ---------- --------- ---------
Income (loss) from operations .. (2,124) 72 483 (254) (166) 133 (1,856)
Equity in income of partnerships 73 -- -- -- -- -- 73
Gain on sale of real estate .... 6,810 -- -- -- -- -- 6,810
--------- ------------ ------------ --------- ---------- --------- ---------
Net income (loss) .............. $ 4,759 $ 72 $ 483 $ (254) $ (166) $ 133 $ 5,027
========= ============ ============ ========= ========== ========= =========
Earnings per share
Net income ..................... $ 1.18 $ 1.25
========= =========
Shares of beneficial interest
outstanding. 4,026,099 4,026,099
========= =========
</TABLE>
(1) Assumes purchase or sale 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, Bay Plaza Office Center and Durham
Centre Office Building whose results of operations are separately
presented in the Trust's Current Reports on Form 8-K, dated June 24, 1997
and July 18, 1997.
(4) Includes the Stacy Road, Watters Road, Opubco and McKinney 140 land which
are separately presented in the Trust's Current Reports on Form 8-K, dated
June 24, 1997 and July 18, 1997.
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CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Apartment Commercial
Complexes Properties Land Eagle Rock
Actual (1)(2) (1)(3) (1)(4) Apartments Sales(1) Pro forma
--------- ----------- ----------- --------- --------- --------- ---------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C>
Income
Rents ................................... $ 44,244 $ 1,871 $ 6,994 $ -- $ 643 $ (1,654) $ 52,098
Interest ................................ 1,119 -- -- -- -- -- 1,119
--------- ----------- ----------- --------- --------- --------- ---------
45,363 1,871 6,994 -- 643 (1,654)
Expenses
Property operations ..................... 26,738 1,000 2,525 -- 544 (1,045) 29,762
Interest ................................ 12,773 552 2,322 758 343 (708) 16,040
Depreciation ............................ 4,819 184 783 -- 89 (233) 5,642
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 5,630 758 976 (1,986) 54,913
--------- ----------- ----------- --------- --------- --------- ---------
Income (loss) from operations ........... (2,436) 135 1,364 (758) (333) 332 (1,696)
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 1,364 (758) (333) 7,142 (1,696)
Extraordinary gain ...................... 812 -- -- -- -- -- 812
--------- ----------- ----------- --------- --------- --------- ---------
Net income (loss) ....................... $ 8,726 $ 135 $ 1,364 $ (758) $ (333) $ 7,142 $ 16,276
========= =========== =========== ========= ========= ========= =========
Earnings per share
Income before extraordinary gain ........ $ 1.89 $ 3.68
Extraordinary gain ...................... .19 .19
--------- ---------
Net income (loss) ....................... $ 2.08 $ 3.87
========= =========
Shares of beneficial interest
outstanding ........................... 4,199,147 4,199,147
========= =========
</TABLE>
(1) Assumes purchase or sale 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, Bay Plaza Office Center and Durham
Centre Office Building whose results of operations are separately
presented in the Trust's Current Reports on Form 8-K, dated June 24, 1997
and July 18, 1997.
(4) Includes the Stacy Road, Watters Road, Opubco and McKinney 140 land which
are separately presented in the Trust's Current Reports on Form 8-K, dated
June 24, 1997 and July 18, 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
(incorporated by reference to Exhibit No. 99.4 to the Registrant's Current Report on Form 8-K, dated July 18,
1997).
99.5 Eagle Rock Apartments, Audited Statement of Revenues and Direct Operating Expenses for the year ended December
31, 1996, filed herewith.
</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: October 14, 1997 By: /s/ Thomas A. Holland
------------------------- ------------------------------
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 August 18, 1997
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------- -------------------------------------------- ------
<S> <C> <C>
99.5 Eagle Rock Apartments, Audited Statement of 9
Revenue and Direct Operating Expenses for
the year ended December 31, 1996.
</TABLE>
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EXHIBIT 99.5
EAGLE ROCK APARTMENTS
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 Eagle Rock Apartments 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 Eagle Rock Apartments for the year ended December
31, 1996, in conformity with generally accepted accounting principles.
Farmer, Fuqua, Hunt & Munselle, P.C.
Dallas, Texas
September 4, 1997
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EAGLE ROCK APARTMENTS
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
Year Ended December 31, 1996
<TABLE>
<S> <C>
REVENUES
Net rental revenues $ 625,976
Other revenues 16,990
---------------
Total revenues 642,966
DIRECT OPERATING EXPENSES
Repairs and maintenance 261,493
Utilities 115,082
Salaries 89,532
Property taxes 59,750
Insurance 17,867
---------------
Total direct operating expenses 543,724
---------------
REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES $ 99,242
===============
</TABLE>
The accompanying notes are an integral part of this statement.
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EAGLE ROCK APARTMENTS
NOTES TO STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
December 31, 1996
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
The Eagle Rock Apartments is a 99-unit apartment complex located in
Los Angeles, California. During 1996, the property was owned by
Eagle Rock Corporation.
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
<TABLE>
<S> <C>
Other revenues consist of the following:
Damage fees, late charges and application fees $ 8,662
Laundry and vending income 6,610
Miscellaneous 1,718
-------
$ 16,990
=======
</TABLE>
NOTE 4: SUBSEQUENT EVENT
The property was sold to Continental Mortgage and Equity Trust, a
California business trust, on August 18, 1997.
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