<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, 1997
Commission File Number 0-10503
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 4,025,985
- ------------------------------ -------------------------------
(Class) (Outstanding at August 1, 1997)
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,
1997 1996
--------- ---------
(dollars in thousands)
<S> <C> <C>
Assets
------
Notes and interest receivable
Performing . . . . . . . . . . . . . . . . . . . $ 4,041 $ 6,268
Nonperforming, nonaccruing . . . . . . . . . . . 3,521 2,287
--------- ---------
7,562 8,555
Less - allowance for estimated losses . . . . . . . . (1,481) (1,481)
--------- ---------
6,081 7,074
Foreclosed real estate held for sale, net of
accumulated depreciation ($725 in 1997 and
1996) . . . . . . . . . . . . . . . . . . . . . 5,738 5,738
Real estate held for investment, net of accumulated
depreciation ($18,229 in 1997 and $16,713 in 1996) 230,530 214,460
Investment in marketable equity securities of
affiliates, at market . . . . . . . . . . . . . 11,429 6,192
Investments in partnerships . . . . . . . . . . . . . 2,156 2,293
Cash and cash equivalents . . . . . . . . . . . . . . 2,839 2,961
Other assets (including $293 in 1997 and $650 in
1996 from affiliates) . . . . . . . . . . . . . 16,663 11,292
--------- ---------
$ 275,436 $ 250,010
========= =========
</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,
1997 1996
--------- ---------
(dollars in thousands)
<S> <C> <C>
Liabilities and Shareholders' Equity
------------------------------------
Liabilities
Notes and interest payable . . . . . . . . . . . . . $ 179,832 $ 160,554
Other liabilities (including $480 in 1997 and
$1,318 in 1996 to affiliates) . . . . . . . . . 7,473 10,273
--------- ---------
187,305 170,827
Commitments and contingencies
Shareholders' equity
Shares of Beneficial Interest, no par value;
authorized shares, unlimited; issued and out-
standing, 4,025,985 shares in 1997 and 4,026,376
shares in 1996 . . . . . . . . . . . . . . . . . 8,068 8,068
Paid-in capital . . . . . . . . . . . . . . . . . . . 257,159 257,159
Accumulated distributions in excess of accumulated
earnings . . . . . . . . . . . . . . . . . . . . (187,219) (190,931)
Net unrealized gains on marketable equity
securities of affiliates . . . . . . . . . . . . 10,123 4,887
--------- ---------
88,131 79,183
--------- ---------
$ 275,436 $ 250,010
========= =========
</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,
----------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Revenues
Rents....................... $ 13,136 $ 11,063 $ 26,205 $ 21,770
Interest.................... 194 302 466 553
---------- ---------- ---------- ----------
13,330 11,365 26,671 22,323
Expenses
Property operations......... 7,426 6,693 15,131 12,903
Interest.................... 4,363 3,136 7,895 6,063
Depreciation................ 1,457 1,157 2,977 2,294
Advisory fee to affiliate... 560 469 1,004 851
Net income fee to affiliate. 386 - 386 -
General and administrative.. 817 590 1,402 939
---------- ---------- ---------- ----------
15,009 12,045 28,795 23,050
---------- ---------- ---------- ----------
(Loss) from operations........ (1,679) (680) (2,124) (727)
Equity in income (loss) of
partnerships................ 26 (219) 73 176
Gains on sale of real estate.. 6,810 5,421 6,810 5,799
---------- ---------- ---------- ----------
Income before extraordinary
gain........................ 5,157 4,522 4,759 5,248
Extraordinary gain............ - (34) - 663
---------- ---------- ---------- ----------
Net income.................... $ 5,157 $ 4,488 $ 4,759 $ 5,911
========== ========== ========== ==========
Earnings per share
Income before extraordinary
gain...................... $ 1.28 $ 1.07 $ 1.18 $ 1.23
Extraordinary gain.......... - - - .16
---------- ---------- ---------- ----------
Net income.................. $ 1.28 $ 1.07 $ 1.18 $ 1.39
========== ========== ========== ==========
Weighted average shares of
beneficial interest used in
computing earnings per share 4,026,002 4,214,062 4,026,099 4,273,916
========== ========== ========== ==========
</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, except per share)
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1997................ 4,026,376 $ 8,068 $ 257,159 $ (190,931) $ 4,887 $ 79,183
Fractional shares..... (391) - - - - -
Distributions ($.26
per share).......... - - - (1,047) - (1,047)
Unrealized gains on
marketable equity
securities.......... - - - - 5,236 5,236
Net income............ - - - 4,759 - 4,759
----------- ----------- ----------- ----------- ----------- -----------
Balance, June 30, 1997 4,025,985 $ 8,068 $ 257,159 $ (187,219) $ 10,123 $ 88,131
=========== =========== =========== =========== =========== ===========
</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,
----------------------
1997 1996
--------- ---------
(dollars in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Rents collected . . . . . . . . . . . . . . . . . . . $ 26,207 $ 21,660
Interest collected . . . . . . . . . . . . . . . . . 585 334
Interest paid . . . . . . . . . . . . . . . . . . . . (7,238) (5,389)
Payments for property operations . . . . . . . . . . (15,365) (12,453)
General and administrative expenses paid . . . . . . (1,901) (1,394)
Advisory and net income fee paid to affiliate . . . . (2,076) (851)
Distributions from partnerships' operating cash
flow . . . . . . . . . . . . . . . . . . . . . . . 210 941
Other . . . . . . . . . . . . . . . . . . . . . . . 524 1,559
--------- ---------
Net cash provided by operating activities . . . . 946 4,407
Cash Flows from Investing Activities
Acquisition of real estate . . . . . . . . . . . . . (10,841) (13,372)
Funding of capital improvement escrows . . . . . . . - (1,500)
Real estate improvements . . . . . . . . . . . . . . (2,039) (194)
Proceeds from sale of real estate . . . . . . . . . . 12,654 10,737
Funding of note receivable . . . . . . . . . . . . . . (73) (1,500)
Collections on notes receivable . . . . . . . . . . . 851 43
Deposits on pending acquisitions . . . . . . . . . . . (4,867) -
Deferred financing costs . . . . . . . . . . . . . . . (445) -
Distributions from a partnership's investing
activities. . . . . . . . . . . . . . . . . . . . - 10,720
--------- ---------
Net cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . . . (4,760) 4,934
Cash Flows from Financing Activities
Distributions to shareholders. . . . . . . . . . . . . (1,047) (1,118)
Proceeds from notes payable and margin borrowings 20,765 18,331
Payments on notes payable . . . . . . . . . . . . . . (16,026) (16,287)
Repurchase of shares of beneficial interest . . . . . - (1,783)
--------- ---------
Net cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . 3,692 (857)
--------- ---------
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . (122) 8,484
Cash and cash equivalents, beginning of period . . . . 2,961 6,386
--------- ---------
Cash and cash equivalents, end of period . . . . . . . $ 2,839 $ 14,870
========= =========
</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,
------------------------
1997 1996
----------- ----------
(dollars in thousands)
<S> <C> <C>
Reconciliation of net income to net cash provided
by operating activities
Net income......................................... $ 4,759 $ 5,911
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation..................................... 2,977 2,294
Gain on sale of real estate...................... (6,810) (5,799)
Extraordinary gain............................... - (663)
(Increase) decrease in interest receivable....... 213 (50)
Decrease in other assets......................... 1,296 2,399
(Decrease) in other liabilities.................. (1,677) (543)
Increase in interest payable..................... 51 93
Distributions from partnerships' operating cash
flow........................................... 210 941
Equity in (income) of partnerships............... (73) (176)
--------- ---------
Net cash provided by operating activities...... $ 946 $ 4,407
========= =========
Noncash investing and financing activities
Notes payable from acquisition of real estate.... $ 8,056 $ 3,200
Interest on wraparound mortgage loan paid
directly to underlying lienholder.............. - 12
Unrealized gain on marketable equity securities.. 5,236 1,173
Note receivable from the sale of real estate..... - 750
</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, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997. 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, 1996 ("1996 Form 10-K").
NOTE 2. INVESTMENTS IN PARTNERSHIPS
The Trust's investments in equity method partnerships consisted of the
following at June 30, 1997:
<TABLE>
<S> <C>
Sacramento Nine ("SAC 9")........... $ 132
Indcon, L.P. ("Indcon")............. 2,024
------
$2,156
======
</TABLE>
The Trust and National Income Realty Trust ("NIRT") are partners in SAC 9, 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. 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.
Set forth below is summarized results of operations for the equity method
partnerships for the six months ended June 30, 1997:
<TABLE>
<S> <C>
Rents................................. $ 909
Depreciation.......................... (243)
Property operations................... (240)
Interest expense...................... (196)
------
Net income............................ $ 230
======
</TABLE>
NOTE 3. MORTGAGE NOTES RECEIVABLE
As more fully discussed in NOTE 5. "NOTES PAYABLE," ten of the Company's
mortgage notes receivable, with a combined principal balance, at the time, of
$2.8 million were pledged as additional collateral on a $4.0 million loan,
primarily secured by the AMOCO Building. In June 1997,
8
<PAGE> 9
CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 3. MORTGAGE NOTES RECEIVABLE (Continued)
one of the mortgage notes receivable, with a principal balance of $134,000, was
paid in full. Such payment was applied to reduce the mortgage note payable.
In June 1997, the Trust obtained financing in the amount of $1.4 million
secured by the mortgage note receivable secured by the Cypress Creek Office
Building in Fort Lauderdale, Florida. The financing bears interest at a
variable rate, currently 9.0% per annum, requires monthly principal and
interest payments of $14,126 and matures in June 2009. The Trust paid a
mortgage brokerage and equity refinancing fee of $14,000 to Basic Capital
Management, Inc. ("BCM"), the Trust's advisor, based on the $1.4 million
financing.
Also in June 1997, the borrower did not make the required $25,000 principal
reduction payment due on the note receivable secured by the English Hills
Apartments in Tampa, Florida. The note is classified as nonperforming at June
30, 1997. The Trust has instituted foreclosure proceedings and anticipates
that it will not incur a loss on foreclosure, as the estimated value of the
collateral property exceeds the carrying value of the note.
NOTE 4. REAL ESTATE
In January 1997, the Trust purchased the Lost Timbers Apartments, a 180 unit
apartment complex in Houston, Texas, for $3.5 million. The Trust paid $800,000
in cash and assumed the existing mortgage of $2.7 million. The mortgage bears
interest at a variable rate, currently 9.29% per annum, adjusted semi-annually,
requires monthly payments of principal and interest of $22,704, also adjusted
semi-annually and matures in June 1999. The Trust paid a real estate brokerage
commission of $125,000 to Carmel Realty, Inc. ("Carmel Realty"), an affiliate
of BCM, the Trust's advisor, and an acquisition fee of $35,000 to BCM based on
the $3.5 million purchase price of the property.
In February 1997, the Trust purchased the Watters Road land, 103 acres of
undeveloped land on State Highway 121 in Collin County, Texas, for $1.7 million
in cash. The Trust paid a real estate brokerage commission of $68,000 to
Carmel Realty and an acquisition fee of $17,000 to BCM based on the $1.7
million purchase price of the property.
Also in February 1997, the Trust purchased the Jefferson Building, a 71,877
square foot office building in Washington, D.C., for $13.2 million. The Trust
paid $4.1 million in cash and obtained new mortgage financing of $9.1 million.
The mortgage bears interest at 8.0% per annum, requires monthly payments of
principal and interest of $70,000 and matures in March 1999. The Trust paid a
real estate brokerage commission of $319,000 to Carmel Realty and a $132,000
acquisition fee to BCM based on the $13.2 million purchase price of the
property.
In April 1997, the Trust sold Tollhill West, a 159,546 square foot office
building in Dallas, Texas, for $14.8 million in cash. The Trust
9
<PAGE> 10
CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4. REAL ESTATE (Continued)
received net cash of $9.8 million after the payoff of $5.0 million in existing
mortgage debt and the payment of various closing costs associated with the
sale. The Trust paid Carmel Realty a real estate brokerage commission of
$244,000 based on the $14.8 million sales price of the property. The Trust
recognized a gain on the sale of $5.4 million.
Also in April 1997, the Trust purchased the OPUBCO land, 156 acres of
undeveloped land in Collin County, Texas, for $3.0 million. In conjunction
with the purchase, the Trust obtained mortgage financing secured by the land
and by two other parcels of previously unencumbered land in the amount of $4.2
million. The Trust received net cash of $1.2 million. The mortgage bears
interest at 9.5% per annum, requires monthly payments of interest only and
matures in April 2000. The Trust paid a real estate brokerage commission of
$109,000 to Carmel Realty and an acquisition fee of $30,000 to BCM based on the
$3.0 million purchase price of the land.
In May 1997, the Trust sold the 2626 Cole Building, a 119,632 square foot
office building in Dallas, Texas. The property was sold for $11.0 million in
cash, the Trust receiving net cash of $4.2 million after the payoff of $6.5
million in existing mortgage debt and the payment of various closing costs
associated with the sale. The Trust paid Carmel Realty a real estate brokerage
commission of $280,000 based on the $11.0 million sales price of the property.
The Trust recognized a gain on the sale of $1.4 million.
Also in May 1997, the Trust purchased the Trails at Windfern, a 240 unit
apartment complex in Houston, Texas, for $4.2 million. The Trust paid $769,000
in cash, assumed the existing mortgage of $3.2 million and the seller provided
purchase money financing of an additional $150,000. The $3.2 million mortgage
bears interest at a variable rate, currently 9.0% per annum, adjusted annually,
requires monthly payments of principal and interest of $26,674 and matures in
January 1999. The $150,000 purchase money financing bears interest at 8.0% per
annum, requires monthly payments of interest only and matures in May 2000. The
Trust paid a real estate brokerage commission of $144,000 to Carmel Realty and
an acquisition fee of $42,000 to BCM based on the $4.2 million purchase price
of the property.
In June 1997, the Trust purchased the Bay Plaza Office Center, a 75,780 square
foot office building in Tampa, Florida, for $4.3 million. The Trust paid $1.2
million in cash, assumed the existing mortgage of $2.1 million with the seller
providing purchase money financing of an additional $1.0 million. The $2.1
million mortgage bears interest at 8.3% per annum, requires monthly payments of
principal and interest of $23,354 and matures in June 2009. The $1.0 million
purchase money financing bears interest at 8.3% per annum, requires monthly
payments of $9,731 and matures in June 2002. The Trust paid a real estate
brokerage
10
<PAGE> 11
CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 4. REAL ESTATE (Continued)
commission of $148,000 to Carmel Realty and an acquisition fee of $43,000 to
BCM based on the $4.3 million purchase price of the property.
Also in June 1997, the Trust purchased the Stacy Road land, 163 acres of
undeveloped land in Allen, Texas, for $2.5 million. The Trust paid $800,000 in
cash and obtained new mortgage financing of $1.7 million. The mortgage bears
interest at 9.5% per annum, requires monthly payments of interest only and
matures in April 2000. The Trust paid a real estate brokerage commission of
$96,000 to Carmel Realty and an acquisition fee of $25,000 to BCM based on the
$2.5 million purchase price of the land.
NOTE 5. NOTES PAYABLE
In March 1997, the Trust obtained mortgage financing secured by the previously
unencumbered AMOCO Building, an office building in New Orleans, Louisiana and
by ten mortgage notes receivable, with a combined principal balance, at the
time, of $2.8 million, in the amount of $4.0 million. The Trust received net
cash of $3.8 million after payment of various closing costs associated with the
financing. The mortgage bears interest at 9.0% per annum, requires monthly
payments of principal and interest of $35,989 and matures in March 1999. The
Trust paid BCM a mortgage brokerage and equity refinancing fee of $40,000 based
on the $4.0 million mortgage. As discussed in NOTE 3. "MORTGAGE NOTES
RECEIVABLE," one of the mortgage notes receivable, with a principal balance of
$134,000, was paid in full in June 1997. Such payment was remitted to the
lender as a paydown of mortgage debt.
In April 1997, the Trust refinanced the mortgage debt secured by the Willo-Wick
Apartments in Pensacola, Florida in the amount of $3.3 million. The Trust
received net cash of $311,000 after the payoff of $2.8 million in existing
mortgage debt and the payment of various closing costs associated with the
refinancing. The new mortgage bears interest at 9.13% per annum, requires
monthly payments of principal and interest of $27,988 and matures in May 2007.
The Trust paid BCM a mortgage brokerage and equity refinancing fee of $33,000
on the new $3.3 million mortgage.
In May 1997, the Trust modified and extended the mortgage secured by the Rio
Pinar Shopping Center in Orlando, Florida. In conjunction with the
modification, the Trust made a principal reduction payment of $500,000. The
modified and extended mortgage bears interest at 9.0% per annum, requires
monthly payments of principal and interest of $49,465 and has an extended
maturity of March 1999. $1.0 million of the extended loan amount is recourse
to the Trust.
In June 1997, the Trust refinanced the mortgage debt secured by the Northgate
Distribution Center in Marietta, Georgia in the amount of $4.7 million. The
Trust received net cash of $1.4 million after the payoff
11
<PAGE> 12
CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 5. NOTES PAYABLE (Continued)
of $3.0 million in existing mortgage debt, the funding of escrows and the
payment of various closing costs associated with the financing. The new
mortgage bears interest at 8.82% per annum, requires monthly payments of
principal and interest of $38,947 and matures in July 2007. The Trust paid BCM
a mortgage brokerage and equity financing fee of $47,000 based on the new $4.7
million mortgage.
Also in June 1997, the Trust refinanced the mortgage debt secured by the
Edgewood Apartments in Lansing, Illinois in the amount of $9.4 million. The
Trust received net cash of $858,000 after the payoff of $8.0 million in
existing mortgage debt, the funding of escrows and the payment of various
closing costs associated with the refinancing. The new mortgage bears interest
at 7.96% per annum, requires monthly payments of principal and interest of
$68,529 and matures in July 2007. The Trust paid BCM a mortgage brokerage and
equity refinancing fee of $94,000 on the new $9.4 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 1997, the note receivable secured by the Garden Villas Apartments in
Phoenix, Arizona, matured. The borrower did not make the required principal
payment at maturity. The note is classified as nonperforming at June 30, 1997.
The Trust has instituted foreclosure proceedings and anticipates that it will
not incur a loss as the estimated value of the collateral property exceeds the
carrying value of the note. This note receivable is pledged as additional
security for the AMOCO Building mortgage debt, as discussed in NOTE 5. "NOTES
PAYABLE."
Also in July 1997, the Trust purchased 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 of $14.8 million. 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 Trust paid a
real estate brokerage commission of $428,000 to Carmel Realty and a $205,000
acquisition fee to BCM based on the $20.5 million purchase price of the
property. The loan is recourse to the Trust.
Further in July 1997, the Trust refinanced the mortgage debt secured by the
Heritage on the River Apartments in Jacksonville, Florida in the amount of $8.0
million. The Trust received net cash of $1.0 million
12
<PAGE> 13
CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
NOTE 7. SUBSEQUENT EVENTS (Continued)
after the payoff of $6.5 million in existing mortgage debt, the funding of
escrows and the payment of various closing costs associated with the
refinancing. The new mortgage bears interest at 8.125% per annum, requires
monthly payments of principal and interest of $59,400 and matures in August
2007. The Trust paid BCM a mortgage brokerage and equity refinancing fee of
$80,000 on the new $8.0 million mortgage.
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 of $1.7 million. The mortgage
bears interest at 9.5% per annum, requires monthly payments of interest only
and matures in April 2000. The Trust paid a real estate brokerage commission
of $98,000 to Carmel Realty and a $26,000 acquisition fee to BCM based on the
$2.6 million purchase price of the property.
--------------------------
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.
Liquidity and Capital Resources
Cash and cash equivalents aggregated $2.8 million at June 30, 1997, compared
with $3.0 million at December 31, 1996. The principal reasons for the decrease
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, and principal payments on
mortgage notes receivable and borrowings. The Trust expects that net cash
provided by operating activities and from anticipated external sources, such as
property sales, financings and refinancings, will be sufficient to meet the
Trust's various cash needs, including, but not limited to, debt service
obligations, shareholder distributions and property maintenance and
improvements.
The Trust's cash flow from property operations (rents collected less payments
for expenses applicable to rental income) increased from $4.3 million in the
first six months of 1996 to $10.8 million in the first six months of 1997. Of
this net increase, $2.8 million is the result of the Trust acquiring fourteen
additional income producing properties
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
during 1996 and 1997. The remainder of the increase is due to increased rental
and occupancy rates and lower operating expenses at the Trust's apartment
complexes and commercial properties. These increases are partially offset by
the sale of two office buildings in 1997 and five apartment complexes in 1996.
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 the last six months of 1996 and first six months of
1997.
In January 1997, the Trust purchased the Lost Timbers Apartments, a 180 unit
apartment complex in Houston, Texas, for $3.5 million. The Trust paid $800,000
in cash and assumed the existing mortgage of $2.7 million.
In February 1997, the Trust purchased the Watters Road land, 103 acres of
undeveloped land on State Highway 121 in Collin County, Texas, for $1.7 million
in cash.
Also in February 1997, the Trust purchased the Jefferson Building, a 71,877
square foot office building in Washington, D.C., for $13.2 million. The Trust
paid $4.1 million in cash and obtained new mortgage financing of $9.1 million.
In March 1997, the Trust obtained mortgage financing, in the amount of $4.0
million, secured by the previously unencumbered AMOCO Building, an office
building in New Orleans, Louisiana, and by ten mortgage notes receivable with a
combined principal balance, at the time, of $2.8 million. The Trust received
net cash of $3.8 million after payment of various closing costs associated with
the financing. In June 1997, one of the mortgage notes receivable, with a
principal balance of $134,000, was paid in full. Such payment was remitted to
the lender as a paydown on the mortgage debt.
In April 1997, the Trust sold Tollhill West, a 159,546 square foot office
building in Dallas, Texas, for $14.8 million in cash. The Trust received net
cash of $9.8 million after the payoff of $5.0 million in existing mortgage debt
and the payment of various closing costs associated with the sale.
Also in April 1997, the Trust purchased the OPUBCO land, 156 acres of
undeveloped land in Collin County, Texas, for $3.0 million. In conjunction
with the purchase, the Trust obtained mortgage financing secured by the land
and by two other parcels of previously unencumbered land in the amount of $4.2
million. The Trust received net cash of $1.3 million.
Further in April 1997, the Trust refinanced the mortgage debt secured by the
Willo-Wick Apartments in Pensacola, Florida in the amount of $3.3 million. The
Trust received net cash of $311,000 after the payoff of $2.8 million in
existing mortgage debt and the payment of various closing costs associated with
the refinancing.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
In May 1997, the Trust sold the 2626 Cole Building, a 119,632 square foot
office building in Dallas, Texas. The property was sold for $11.0 million in
cash. The Trust received net cash of $4.2 million after the payoff of $6.5
million in existing mortgage debt and the payment of various closing costs
associated with the sale.
Also in May 1997, the Trust purchased the Trails at Windfern Apartments, a 240
unit apartment complex in Houston, Texas, for $4.2 million. The Trust paid
$769,000 in cash, assumed the existing mortgage of $3.2 million and the seller
provided purchase money financing of an additional $150,000.
In June 1997, the Trust purchased the Bay Plaza Office Center, a 75,780 square
foot office building in Tampa, Florida, for $4.3 million. The Trust paid $1.2
million in cash, assumed the existing mortgage of $2.1 million with the seller
providing purchase money financing of an additional $1.0 million.
Also in June 1997, the Trust purchased the Stacy Road land, 163 acres of
undeveloped land in Allen, Texas, for $2.5 million. The Trust paid $800,000 in
cash and obtained new mortgage financing of $1.7 million.
Also in June 1997, the Trust obtained financing in the amount of $1.4 million
secured by the mortgage note receivable secured by the Cypress Creek Office
Building in Fort Lauderdale, Florida.
Further in June 1997, the Trust refinanced the mortgage debt secured by the
Northgate Distribution Center in Marietta, Georgia in the amount of $4.7
million. The Trust received net cash of $1.4 million after the payoff of $3.0
million in existing mortgage debt, the funding of escrows and the payment of
various closing costs associated with the refinancing.
Also in June 1997, the Trust refinanced the mortgage debt secured by the
Edgewood Apartments in Lansing, Illinois in the amount of $9.4 million. The
Trust received net cash of $858,000 after the payoff of $8.0 million in
existing mortgage debt, the funding of escrows and the payment of various
closing costs associated with the refinancing.
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 19,371 shares remain
to be purchased as of June 30, 1997. Through June 30, 1997, the Trust had
repurchased 1,445,629 of its shares at a total cost to the Trust of $7.7
million, none of which were purchased in the first six months of 1997.
In the first six months of 1997, the Trust paid quarterly distributions of $.26
per share or a total of $1.0 million.
The Trust's management reviews the carrying value of the Trust's mortgage notes
receivable and properties at least annually and whenever
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
events or a change in circumstances indicate that impairment may exist.
Impairment is considered to exist if, in the case of a property, the future
cash flow from the property (undiscounted and without interest) is less than
the carrying amount of the property. For notes receivable impairment is
considered to exist if it is probable that all amounts due under the terms of
the note will not be collected. In those instances where impairment is found
to exist, a provision for loss is recorded by a charge against earnings. The
Trust's mortgage note receivable review includes an evaluation of the
collateral property securing such 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, a review of the property's cash flow, discussions
with the manager of the property and a review of properties in the surrounding
area.
Results of Operations
For the three and six months ended June 30, 1997, the Trust had net income of
$5.2 million and $4.8 million, including second quarter gains on sale of real
estate of $6.8 million, compared to net income of $4.5 million and $5.9 million
for the three and six months ended June 30, 1996, which included gains on sale
of real estate and an extraordinary gain totaling $5.4 million and $6.5
million, respectively. Fluctuations in these and other components of the
Trust's revenues and expenses between the 1996 and 1997 periods are discussed
below.
Rents increased from $11.1 million and $21.8 million for the three and six
months ended June 30, 1996 to $13.1 million and $26.2 million for the three and
six months ended June 30, 1997. Of these increases, $2.5 million and $5.5
million is attributable to the acquisition of four apartment complexes and
eight commercial properties in 1996 and an additional $894,000 and $1.3 million
is attributable to the acquisition of two apartment complexes and two
commercial properties in 1997. The remainder of the increases are due to
increased rental and occupancy rates at the Trust's apartment complexes and
commercial properties. These increases are partially offset by a decrease of
$1.4 million and $2.8 million due to the sale of five apartment complexes in
1996 and two commercial properties in the second quarter of 1997 and a decrease
of $462,000 and $918,000 due to the loss of a property to foreclosure in 1996.
Rents are expected to continue to increase due to a full year of revenue from
properties acquired in 1996 and 1997.
Interest income was $302,000 and $553,000 for the three and six months ended
June 30, 1996 compared to $194,000 and $466,000 for the three and six months
ended June 30, 1997. These decreases are due to decreases of $25,000 and
$77,000 in short-term investment income, decreases of $30,000 and $57,000 due
to interest no longer being recognized on a note receivable and decreases of
$19,000 and $27,000 due to the payoff of a note receivable. The decreases are
partially offset by increases due to a new loan funded in 1996 and to the
receipt of an interest payment on
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
a note receivable on which the Trust only recognizes interest income as cash
is received. Interest income in the remaining six months of 1997 is expected
to be slightly lower than that of the first six months.
Property operating expenses increased from $6.7 million and $12.9 million for
the three and six months ended June 30, 1996 to $7.4 million and $15.1 million
for the three and six months ended June 30, 1997. Of these increases, $1.6
million and $3.4 million is due to the acquisition of four apartment complexes
and eight commercial properties in 1996 and an additional $383,000 and $600,000
is due to the acquisition of two apartment complexes and two commercial
properties in 1997. These increases are partially offset by a decrease of
$606,000 and $1.4 million due to the sale of five apartment complexes in 1996
and two commercial properties in the second quarter of 1997 and a decrease of
$268,000 and $559,000 due to the loss of a property to foreclosure in 1996.
Property operating expenses are expected to continue to increase due to a full
year of operations from properties acquired in 1996 and 1997.
Interest expense increased from $3.1 million and $6.1 million for the three and
six months ended June 30, 1996 to $4.4 million and $7.9 million for the three
and six months ended June 30, 1997. Of this increase, $1.2 million and $2.5
million is due to interest expense recorded on mortgages secured by ten
properties, encumbered by debt, acquired in 1996 and six properties, encumbered
by debt, acquired in 1997. An additional $461,000 and $631,000 is due to
interest expense recorded on borrowings in 1996 and 1997, secured by mortgages
on a previously unencumbered commercial property in 1997, two previously
unencumbered apartment complexes and two previously unencumbered commercial
properties in 1996 and the refinancing of three existing mortgages in 1997 and
seven existing mortgages in 1996 where the loan balance was increased. These
increases are partially offset by a decrease of $354,000 and $699,000 due to
the sale of three apartment complexes encumbered by debt in 1996 and two
commercial properties in the second quarter of 1997 and a decrease of $165,000
and $330,000 due to the loss of a property to foreclosure in 1996. Interest
expense is expected to increase in the remaining six months of 1997, as a
result of a full year of interest expense on properties acquired or refinanced
in 1996 and the properties acquired or refinanced in the first six months of
1997.
Depreciation expense increased from $1.2 million and $2.3 million for the three
and six months ended June 30, 1996 to $1.4 million and $3.0 million for the
three and six months ended June 30, 1997. These increases are due to the
acquisition of four apartment complexes and eight commercial properties in 1996
and two apartment complexes and two commercial properties in 1997, partially
offset by the sales of two commercial properties in 1997 and five apartment
complexes in 1996. Depreciation is expected to increase during the remaining
six months of 1997, as a result of a full year of depreciation on the
properties acquired in 1996 and the properties acquired in the first six months
of 1997.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Advisory fee to affiliate increased from $469,000 and $851,000 for the three
and six months ended June 30, 1996 to $560,000 and $1.0 million for the three
and six months ended June 30, 1997. This increase is due to an increase in the
Trust's gross assets, the basis for the advisory fee, as a result of the
acquisition of thirteen properties in 1996 and seven properties in 1997
partially offset by the sale of two commercial properties in 1997 and five
apartment complexes in 1996. The advisory fee is expected to continue to
increase as the Trust makes additional property acquisitions.
A net income fee of $386,000 was recorded by the Trust for the three and six
months ended June 30, 1997 as a result of the gains totaling $6.8 million from
the sale of two commercial properties as discussed below. No such fee was
recorded by the Trust in 1996.
General and administrative expenses increased from $590,000 and $939,000 for
the three and six months ended June 30, 1996 to $817,000 and $1.4 million for
the three and six months ended June 30, 1997. These increases are primarily
attributable to an increase in legal fees, directors and officers insurance
premiums and Advisor cost reimbursements.
The Trust's equity in earnings of partnerships was a loss of $219,000 for the
three months ended June 30, 1996 and income of $176,000 for the six months
ended June 30, 1996 as compared to income of $26,000 and $73,000 in the three
and six months ended June 30, 1997. Included in equity earnings of
partnerships for the six months ended June 30, 1996 is a $370,000 gain on sale
of real estate, the Trust's equity share of the gain recognized by Indcon, L.P.
("Indcon"), a joint venture partnership, on the sale of 27 of its industrial
warehouses. Excluding such gain, the Trust's equity in earnings of
partnerships would have been a loss of $194,000 for the six months ended June
30, 1996. This increase in equity in earnings of partnerships is primarily due
to improved performance by the remaining five properties. Equity in earnings
of partnerships is expected to be minimal for the remainder of 1997.
For the three and six months ended June 30, 1997, the Trust recognized gains on
the sale of real estate of $5.4 million on the sale of Tollhill West Office
Building in April 1997 and $1.4 million on the sale of 2626 Cole Office
Building in May 1997. 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 the six months ended June 30, 1996, the Trust recognized an extraordinary
gain of $663,000, its equity share of an insurance settlement from a fire loss
on one of Indcon's industrial warehouses. No such gains were recognized in
1997.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Tax Matters
As more fully discussed in the Trust's 1996 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 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.
-----------------------------
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Olive Litigation. In February 1990, the Trust, together with Income
Opportunity Realty Investors, Inc., National Income Realty Trust and
19
<PAGE> 20
ITEM 1. LEGAL PROCEEDINGS (Continued)
Transcontinental Realty Investors, Inc., three real estate entities with, at
the time, the same officers, directors or trustees and advisor as the Trust,
entered into a settlement of a class and derivative action entitled Olive et
al. v. National Income Realty Trust et al. pending before the United States
District Court for the Northern District of California and relating to the
operation and management of each of the entities (the "Olive Litigation"). On
April 23, 1990, the court granted final approval of the terms of a Stipulation
of Settlement.
On May 4, 1994, the parties entered into a Modification of Stipulation of
Settlement dated April 27, 1994 (the "Olive Modification") that settled
subsequent claims of breaches of the settlement that were asserted by the
plaintiffs and that modified certain provisions of the April 1990 settlement.
The Olive Modification was preliminarily approved by the court on July 1, 1994,
and final court approval was entered on December 12, 1994. The effective date
of the Olive Modification was January 11, 1995.
The Court retained jurisdiction to enforce the Modification, and during August
and September 1996, the Court held evidentiary hearings to assess compliance
with the terms of the Modification by various parties. The Court issued no
ruling or order with respect to the matters addressed at the hearings.
Separately, in 1996, legal counsel for the plaintiffs notified the Trust's
Board of Trustees that he intended to assert that certain actions taken by the
Board of Trustees breached the terms of the Olive Modification. On January 27,
1997, the parties entered into an Amendment to the Modification, effective
January 9, 1997 (the "Olive Amendment"), which was submitted to the Court for
approval on January 29, 1997. The Olive Amendment provides for the settlement
of all matters raised at the evidentiary hearings and by plaintiffs' counsel in
his notices to the Trust's Board of Trustees. On May 2, 1997, a hearing was
held for the Court to consider approval of the Olive Amendment. As a result of
the hearing, the parties entered into a revised Olive Amendment. The Court
issued an order approving the Olive Amendment on July 3, 1997.
The Olive Amendment provides for the addition of four new unaffiliated members
to the Trust's Board of Trustees and sets forth new requirements for the
approval of any transactions with certain affiliates until April 28, 1999. In
addition, the Trust, IORI, TCI and their shareholders released the defendants
from any claims relating to the plaintiffs' allegations and matters which were
the subject of the evidentiary hearings. The plaintiffs' allegations of any
breaches of the Modification shall be settled by mutual agreement of the
parties or, lacking such agreement, by an arbitration proceeding.
Under the Olive Amendment, all shares of the Trust owned by Gene E. Phillips or
any of his affiliates shall be voted at all shareholders' meetings held until
April 28, 1999 in favor of all new Board members added under the Olive
Amendment. The Olive Amendment also requires that, until April 28, 1999, all
shares of the Trust owned by Gene E.
20
<PAGE> 21
ITEM 1. LEGAL PROCEEDINGS (Continued)
Phillips or his affiliates in excess of forty percent (40%) of the Trust's
outstanding shares shall be voted pro rata to the votes cast by all non-
affiliated shareholders of the Trust.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Trust held its annual meeting of shareholders on May 8, 1997, at which
meeting the Trust's shareholders were asked to consider and vote upon (i) the
election of Trustees of the Trust and (ii) the renewal of the Trust's advisory
agreement with Basic Capital Management, Inc. ("BCM").
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>
Ted P. Stokely 3,307,557 67,045
Edward L. Tixier 3,248,736 67,866
Martin L. Whit 3,251,650 64,952
Edward G. Zampa 3,251,949 64,653
</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 3,109,970 votes for the proposal, 62,255 votes
against the proposal and 79,607 votes abstaining.
ITEM 5. OTHER INFORMATION
On October 25, 1996, the Trust's Board of Trustees approved a proposal to
convert the Trust from a California business trust into a Nevada corporation.
The Trust's Board of Trustees believes that the change from a California
business trust to a Nevada corporation will afford the Trust greater legal
certainty in matters of corporate governance and indemnification and therefore
greater predictability in the conduct of its business as a corporation under
Nevada law. The Trust has filed a Proxy Statement/Prospectus with the
Securities and Exchange Commission providing for a special meeting of the
Trust's shareholders. At such meeting the Trust's shareholders will vote on
this proposal. Approval requires the vote of a majority of the Trust's
outstanding shares of beneficial interest. As of August 1, 1997 the Trust's
advisor and its affiliates held shares representing approximately 59.0% of the
Trust's outstanding shares. Under the Olive Amendment (see Part II, ITEM 1.
"LEGAL PROCEEDINGS") the Trust's advisor and its affiliates have discretionary
authority to vote their shares on this matter, up to 40% of the Trust's shares
outstanding. Any shares owned in excess of 40% of the Trust's outstanding
shares, must be voted pro rata with the votes cast by all nonaffiliated
shareholders of the Trust.
Also, pursuant to the Olive Amendment, the proposal will not be presented to
the Trust's shareholders until the four new unaffiliated Board members have been
seated and the Board reapproves the proposal.
21
<PAGE> 22
ITEM 5. OTHER INFORMATION
Accordingly, a date for the special meeting of the Trust's shareholders to vote
on the incorporation proposal has not been set.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
- ----- -----------
27.0 Financial Data Schedule
(b) Reports on Form 8-K as follows:
A Current Report on Form 8-K, dated June 24, 1997, 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 Jefferson
Office Building, the Lost Timbers Apartments, The Trails at Windfern
Apartments, the Bay Plaza Office Center, the OPUBCO Land, the Watters Road
Land and the Stacy Road land.
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 8, 1997 By: /s/ Randall M. Paulson
------------------------ -----------------------------------
Randall M. Paulson
President
Date: August 8, 1997 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, 1997
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------- --------------------------------------------------- ------
<S> <C> <C>
27.0 Financial Data Schedule. 25
</TABLE>
24
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,839
<SECURITIES> 11,429
<RECEIVABLES> 7,562
<ALLOWANCES> 1,481
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 255,222
<DEPRECIATION> 18,954
<TOTAL-ASSETS> 275,436
<CURRENT-LIABILITIES> 0
<BONDS> 179,832
0
0
<COMMON> 0
<OTHER-SE> 88,131
<TOTAL-LIABILITY-AND-EQUITY> 275,436
<SALES> 0
<TOTAL-REVENUES> 26,205
<CGS> 0
<TOTAL-COSTS> 15,131
<OTHER-EXPENSES> 2,977
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,895
<INCOME-PRETAX> 4,759
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,759
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
</TABLE>
