<PAGE> 1
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
April 3, 1998
------------------------------------------------
Date of Report (Date of Earliest Event Reported)
CONTINENTAL MORTGAGE AND EQUITY TRUST
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
California 0-10503 94-2738844
- --------------------------------------------------------------------------------
(State of Incorporation) (Commission (IRS Employer
File No.) Identification No.)
10670 North Central Expressway, Suite 300, Dallas, TX 75231
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (214) 692-4700
----------------
Not Applicable
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
1
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 3, 1998, Continental Mortgage and Equity Trust (the "Trust") purchased
1010 Common Street, a 494,579 square foot office building in New Orleans,
Louisiana, for $14.5 million (4.8% of the Trust's assets at December 31, 1997).
The seller of the property was BHNO Partners, Ltd., an unrelated party. The
property was constructed in 1970 and was 12% occupied at the date of
acquisition. The Trust paid $6.3 million in cash and obtained new mortgage
financing of $8.2 million. The lender has committed to fund an additional $3.8
million for tenant improvements. The mortgage bears interest at 9.7% per annum,
requires monthly payments of interest only and matures in March 2001.
On March 5, 1998, the Trust purchased 225 Baronne Street, a 416,834 square foot
office building also in New Orleans, Louisiana, for $11.2 million (3.7% of the
Trust's assets at December 31, 1997). The seller of the property was 225 Baronne
Street, Inc., an unrelated party. The property was constructed in 1960 and was
53% occupied at the date of acquisition. The Trust paid $3.8 million in cash and
obtained new mortgage financing of $7.4 million. The lender has committed to
fund an additional $1.6 million for tenant improvements. The mortgage bears
interest at 9.7% per annum, requires monthly payments of interest only and
matures in March 2001.
On April 3, 1998, the Trust purchased Fontenelle Hills, a 338 unit apartment
complex in Bellevue, Nebraska, for $12.8 million (4.3% of the Trust's assets at
December 31, 1997). The seller of the property was Fontenelle Hills Associates,
an unrelated party. The property was constructed in 1970 and was 95% occupied at
the date of acquisition. The Trust paid $2.0 million in cash and obtained new
mortgage financing of $10.8 million. The mortgage bears interest at 7.16% per
annum, requires monthly payments of principal and interest of $73,017 and
matures in April 2008.
These purchases of income producing properties, when combined, exceed 10% of the
Trust's assets at December 31, 1997.
In addition to the income producing properties described above, on January 23,
1998, the Trust purchased the McKinney 36 land in Collin County, Texas for $2.1
million in cash, from an unrelated party. The property consists of 36 acres of
undeveloped land.
In assessing each purchase of income producing property described above, the
following were among the factors considered by the Trust's management,
geographic location of the property, performance of the property, new or
renovated properties in the vicinity of the property and the maintenance and
appearance of the property. Additional factors considered with respect to
commercial properties were the ease of access to the property, the adequacy of
related facilities, such as parking, and the property's sensitivity to market
conditions in establishing rental rates. With respect to apartment complexes the
design and mix of units and the ability to provide a community atmosphere for
the tenants was also considered.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Pro forma financial information:
Pro forma statements of operations are presented for the year ended December 31,
1997 and the three months ended March 31, 1998. A pro forma balance sheet as of
March 31, 1998 is also presented.
A summary of the pro forma transactions follows:
In January 1998, the Trust purchased the McKinney 36 land, 36.4 acres of
undeveloped land in Collin County, Texas, for $2.1 million in cash.
In March 1998, the Trust purchased 1010 Common Street Office Building in New
Orleans, Louisiana, for $14.5 million. The Trust paid $6.3 million in cash and
obtained new mortgage financing of $8.2 million.
Also in March 1998, the Trust purchased 225 Baronne Street Office Building also
in New Orleans, Louisiana, for $11.2 million. The Trust paid $3.8 million in
cash and obtained new mortgage financing of $7.4 million.
In April 1998, the Trust purchased Fontenelle Hills Apartments in Bellevue,
Nebraska, for $12.8 million. The Trust paid $2.0 million in cash and obtained
new mortgage financing of $10.8 million.
In addition to the purchases described above, through March 31, 1998 the Trust
sold one apartment complex and one industrial building. In connection with the
sales, the Trust received net proceeds totaling $3.5 million, after the payoff
of $10.1 million in existing mortgage debt and the payment of various closing
costs associated with the sales. The Trust recognized gains totaling $5.6
million on the sales.
The Pro Forma Combined Statements of Operations present the Trust's operations
as if the transactions described above had occurred at the beginning of each of
the periods presented. The Trust's management is not aware of any material
factors relating to the purchased properties that would cause the reported
financial information not to be necessarily indicative of future operating
results, except for the 1010 Common Street and 225 Baronne Street Office
Buildings where the Trust's management expects that it will, over time, be able
to increase each building's occupancy and operating performance from that at
their respective dates of acquisition.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
3
<PAGE> 4
CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA
COMBINED BALANCE SHEET
MARCH 31, 1998
<TABLE>
<CAPTION>
Fontenelle
Hills Pro Forma
Actual Apartments(1) Combined
---------- ------------- ----------
(dollars in thousands)
<S> <C> <C> <C>
Assets
Notes and interest receivable
Performing ............................... $ 2,836 $ -- $ 2,836
Nonperforming, nonaccruing ............... 2,257 -- 2,257
---------- ---------- ----------
5,093 -- 5,093
Less - allowance for estimated losses ....... (1,481) -- (1,481)
---------- ---------- ----------
3,612 -- 3,612
Foreclosed real estate held for sale,
net of accumulated depreciation .......... 5,670 -- 5,670
Real estate held for investment, net
of accumulated depreciation .............. 275,823 13,203 289,026
Investments in marketable equity
securities of affiliates, at market ...... 13,631 -- 13,631
Cash and cash equivalents ................... 7,184 (2,403) 4,781
Other assets ................................ 15,323 -- 15,323
---------- ---------- ----------
$ 321,243 $ 10,800 $ 332,043
========== ========== ==========
Liabilities and Shareholders' Equity
Liabilities
Notes and interest payable .................. $ 221,527 $ 10,800 $ 232,327
Other liabilities ........................... 8,338 -- 8,338
---------- ---------- ----------
229,865 10,800 240,665
Commitments and contingencies
Shareholders' equity
Shares of Beneficial
Interest, no par value; authorized
shares, unlimited; issued and
outstanding 4,006,441 shares ............. 8,024 -- 8,024
Paid-in capital ............................. 256,891 -- 256,891
Accumulated distributions in excess of
accumulated earnings ..................... (185,863) -- (185,863)
Net unrealizable gains on marketable
equity securities ........................ 12,326 -- 12,326
---------- ---------- ----------
91,378 -- 91,378
---------- ---------- ----------
$ 321,243 $ 10,800 $ 332,043
========== ========== ==========
</TABLE>
- ----------------
(1) The balance sheet effect of all other 1998 property purchases and
dispositions are included in the March 31, 1998 actual balances presented.
4
<PAGE> 5
CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
1010 225 Fontenelle McKinney
Common Baronne Hills 36 Property Pro Forma Pro Forma
Actual Street Street Apartments Land Dispositions Adjustments Combined
---------- ---------- ---------- ---------- ---------- ------------ ----------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income
Rents .................. $ 14,810 $ 184 $ 345 $ 600 $ -- $ (187) $ -- $ 15,752
Interest ............... 231 -- -- -- -- -- -- 231
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
15,041 184 345 600 -- (187) -- 15,983
Expenses
Property operations .... 8,477 182 210 266 5 (244) -- 8,896
Interest ............... 5,084 -- -- -- -- (126) 446 5,404
Depreciation ........... 2,085 -- -- -- -- (16) 181 2,250
Advisory and net
income fees to
affiliate ........... 855 -- -- -- -- -- -- 855
General and
administrative ...... 604 -- -- -- -- -- -- 604
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
17,105 182 210 266 5 (386) 627 18,009
Income (loss) from
operations ............. (2,064) 2 135 334 (5) 199 (627) (2,026)
Equity in income of
partnerships ........... 35 -- -- -- -- -- -- 35
Gain on sale of real
estate ................. 5,616 -- -- -- -- -- -- 5,616
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) ......... $ 3,587 $ 2 $ 135 $ 334 $ (5) $ 199 $ (627) $ 3,625
========== ========== ========== ========== ========== ========== ========== ==========
Earnings per share
Net income ............. $ .89 $ .90
========== ==========
Shares of beneficial
interest outstanding ... 4,013,236 4,013,236
========== ==========
</TABLE>
The accompanying footnotes are an integral part of this Pro Forma Combined
Statement of Operations.
5
<PAGE> 6
CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO PRO FORMA COMBINED
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
1. The Pro Forma Combined Statement of Operations assumes that each
property was purchased or sold by the Trust on January 1, 1998. Pro
forma amounts for purchased properties are from January 1 through the
respective dates of purchase only. Results subsequent to the respective
dates of purchase are included in the "Actual" column.
2. A statement of operations for the month of January 1998 was available
for 1010 Common Street and a statement of operations for the two months
ended February 28, 1998 was available for 225 Baronne Street which are
the basis for operating results for the period January 1 to the date of
purchase.
3. No interim financial statements were available for Fontenelle Hills
Apartments. Therefore, the previous years' actual amounts were used to
estimate the interim period January 1 to the date of purchase.
4. The pro forma interest adjustment is based on the mortgages obtained for
each property at its respective date of purchase. The pro forma
depreciation adjustment is based on each property's purchase price
depreciated under the Trust's established depreciation policies.
<TABLE>
<S> <C>
Interest:
1010 Common $ 133
225 Baronne 120
Fontenelle Hills 193
-------
Total $ 446
=======
Depreciation:
1010 Common $ 63
225 Baronne 44
Fontenelle Hills 74
-------
Total $ 181
=======
</TABLE>
5. Interim operating results for sold properties are their actual operating
results from January 1 to their respective dates of sale.
6
<PAGE> 7
CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
1010 225 Fontenelle McKinney
Common Baronne Hills 36 Property Pro Forma Pro Forma
Actual Street Street Apartments Land Dispositions Adjustments Combined
---------- ---------- ---------- ---------- ---------- ------------ ----------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income
Rents .................... $ 55,180 $ 1,119 $ 1,681 $ 2,401 $ -- $ (2,697) $ -- $ 57,684
Interest ................. 1,295 -- -- -- -- -- -- 1,295
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
56,475 1,119 1,681 2,401 -- (2,697) -- 58,979
Expenses
Property operations ...... 32,041 1,426 1,424 1,065 26 (1,625) -- 34,357
Interest ................. 17,142 -- -- -- -- (988) 2,286 18,440
Depreciation ............. 6,236 -- -- -- -- (244) 933 6,925
Advisory fee to
affiliate ......... 1,496 -- -- -- -- -- -- 1,496
Incentive and net
income fees ....... 1,005 -- -- -- -- -- -- 1,005
General and
administrative .... 2,727 -- -- -- -- -- -- 2,727
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
60,647 1,426 1,424 1,065 26 (2,857) 3,219 64,950
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
operations ............... (4,172) (307) 257 1,336 (26) 160 (3,219) (5,971)
Equity in income of
partnerships ............. 99 -- -- -- -- -- -- 99
Gain on sale of real
estate ................... 8,249 -- -- -- -- 5,616 -- 13,865
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) ......... $ 4,176 $ (307) $ 257 $ 1,336 $ (26) $ 5,776 $ (3,219) $ 7,993
========== ========== ========== ========== ========== ========== ========== ==========
Earnings per share
Net income ............. $ 1.04 $ 1.99
========== ==========
Shares of beneficial
interest outstanding ... 4,025,794 4,025,794
========== ==========
</TABLE>
The accompanying footnotes are an integral part of this Pro Forma Combined
Financial Statement of Operations.
7
<PAGE> 8
CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO PRO FORMA COMBINED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
1. The Pro Forma Combined Statement of Operations assumes that each
property was purchased or sold by the Trust on January 1, 1997.
2. Audited statements of operations for the year ended December 31, 1997
were obtained for 1010 Common Street, 225 Baronne Street and Fontenelle
Hills. For McKinney land estimates of operations were used.
3. The pro forma interest adjustment is based on the mortgages obtained for
each property at its respective date of purchase. The pro forma
depreciation adjustment is based on each property's purchase price
depreciated under the Trust's established depreciation policies.
<TABLE>
<S> <C>
Interest:
1010 Common $ 795
225 Baronne 718
Fontenelle Hills 773
-----------------
Total $ 2,286
=================
Depreciation:
1010 Common $ 375
225 Baronne 261
Fontenelle Hills 297
-----------------
Total $ 933
=================
</TABLE>
4. Operating results for sold properties are their actual operating results
for 1997.
8
<PAGE> 9
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (Continued)
(b) Financial statements of properties acquired:
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------- ---------------------------------------------------------------
<S> <C>
99.0 1010 Common Street Audited Statement of Revenues and Direct
Operating Expenses for the year ended December 31, 1997, filed
herewith.
99.1 225 Baronne Street Audited Statement of Revenues and Direct
Operating Expenses for the year ended December 31, 1997, filed
herewith.
99.2 Fontenelle Hills Apartments Audited Statement of Revenues and
Direct Operating Expenses for the year ended December 31, 1997,
filed herewith.
99.3 1010 Common Street Budget Comparison Report for the one month
ended January 31, 1998, filed herewith.
99.4 225 Baronne Street Income Statement for the two months ended
February 28, 1998, 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: June 25, 1998 By: /s/ Thomas A. Holland
------------------ --------------------------------------
Thomas A. Holland
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
9
<PAGE> 10
CONTINENTAL MORTGAGE AND EQUITY TRUST
EXHIBIT TO ITS
CURRENT REPORT ON FORM 8-K
Dated March 3, 1998
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------- ------------------------------------------------ ------
<S> <C> <C>
99.0 1010 Common Audited Statement of 11
Revenues and Direct Operating Expenses for
the year ended December 31, 1997.
99.1 225 Baronne Audited Statement of Revenues 15
and Direct Operating Expenses for the year
ended December 31, 1997.
99.2 Fontenelle Hills Apartments Audited 19
Statement of Revenues and Direct Operating
Expenses for the year ended December 31, 1997.
99.3 1010 Common Street Budget Comparison Report 23
for the one month ended January 31, 1998.
99.4 225 Baronne Street Income Statement for the 27
two months ended February 28, 1998.
</TABLE>
10
<PAGE> 1
EXHIBIT 99.0
1010 COMMONS
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1997
11
<PAGE> 2
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 1010 Commons for the year ended December 31, 1997. 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 1010 Commons for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
FARMER, FUQUA, HUNT & MUNSELLE, P.C.
Dallas, Texas
January 21, 1998 (except for Note 3, as to which
the date is March 3, 1998)
12
<PAGE> 3
1010 COMMONS
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
Year Ended December 31, 1997
<TABLE>
<S> <C>
REVENUES
Net rental revenues $ 1,115,528
Other revenues 3,647
-------------
Total revenues 1,119,175
DIRECT OPERATING EXPENSES
Utilities 325,547
Property taxes 288,585
Repairs and maintenance 271,087
Ground rent 249,447
Salaries and benefits 153,939
Insurance 137,081
-------------
Total direct operating expenses 1,425,686
-------------
DIRECT OPERATING EXPENSES IN EXCESS OF REVENUES $ (306,511)
=============
</TABLE>
The accompanying notes are an integral part of this statement.
13
<PAGE> 4
1010 COMMONS
NOTES TO STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
December 31, 1997
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
1010 Commons is a 505,531 square foot office building located
in New Orleans, Louisiana. During 1997, the property was owned
by BHNO Partners Limited.
The accompanying financial statement does not include a
provision for depreciation and amortization, bad debt expense,
interest expense, or income taxes. Accordingly, this statement
is not intended to be a complete presentation of the results
of operations.
NOTE 2: 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: SUBSEQUENT EVENT
The property was sold to Continental Mortgage and Equity
Trust, a California business trust, on March 3, 1998.
14
<PAGE> 1
EXHIBIT 99.1
225 BARONNE
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1997
15
<PAGE> 2
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 225 Baronne for the year ended December 31, 1997. 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 225 Baronne for the year ended December 31, 1997, in
conformity with generally accepted accounting principles.
FARMER, FUQUA, HUNT & MUNSELLE, P.C.
Dallas, Texas
January 20, 1998 (except for Note 4, as to which
the date is March 5, 1998)
16
<PAGE> 3
225 BARONNE
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
Year Ended December 31, 1997
<TABLE>
<S> <C>
REVENUES
Net rental revenues $ 1,654,559
Other revenues 26,794
------------
Total revenues 1,681,353
DIRECT OPERATING EXPENSES
Utilities 565,373
Repairs and maintenance 392,455
Salaries and benefits 284,269
Property taxes 98,240
Insurance 84,131
------------
Total direct operating expenses 1,424,468
------------
REVENUES IN EXCESS OF DIRECT OPERATING EXPENSE $ 256,885
============
</TABLE>
The accompanying notes are an integral part of this statement.
17
<PAGE> 4
225 BARONNE
NOTES TO STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
December 31, 1997
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
225 Baronne is a 420,902 square foot office building located
in New Orleans, Louisiana. During 1997, the property was owned
by 225 Baronne Street, Inc.
The accompanying financial statement does not include a
provision for depreciation and amortization, bad debt expense,
interest expense, or income taxes. Accordingly, this statement
is not intended to be a complete presentation of the results
of operations.
NOTE 2: 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>
Tenant reimbursements $ 26,436
Miscellaneous 358
-----------
$ 26,794
===========
</TABLE>
NOTE 4: SUBSEQUENT EVENT
The property was sold to Continental Mortgage and Equity
Trust, a California business trust, on March 5, 1998.
18
<PAGE> 1
EXHIBIT 99.2
FONTENELLE HILLS APARTMENTS
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
YEAR ENDED DECEMBER 31, 1997
19
<PAGE> 2
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 Fontenelle Hills Apartments for the year ended December 31, 1997.
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 Fontenelle Hills Apartments for the year ended December
31, 1997, in conformity with generally accepted accounting principles.
FARMER, FUQUA, HUNT & MUNSELLE, P.C.
Dallas, Texas
April 15, 1998
20
<PAGE> 3
FONTENELLE HILLS APARTMENTS
STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
Year Ended December 31, 1997
<TABLE>
<S> <C>
REVENUES
Net rental revenues $ 2,245,327
Other revenues 155,183
------------
Total revenues 2,400,510
DIRECT OPERATING EXPENSES
Salaries and benefits 417,589
Property taxes 253,598
Repairs and maintenance 202,190
Utilities 144,245
Insurance 47,552
------------
Total direct operating expenses 1,065,174
------------
REVENUES IN EXCESS OF DIRECT OPERATING EXPENSES $ 1,335,336
============
</TABLE>
The accompanying notes are an integral part of this statement.
21
<PAGE> 4
FONTENELLE HILLS APARTMENTS
NOTES TO STATEMENT OF REVENUES
AND DIRECT OPERATING EXPENSES
December 31, 1997
NOTE 1: ORGANIZATION AND BASIS OF PRESENTATION
Fontenelle Hills Apartments is a 337-unit apartment complex
located in Bellevue, Nebraska. During 1997, the property was
owned by Fontenelle Hills Associates.
The accompanying financial statement does not include a
provision for depreciation and amortization, bad debt expense,
interest expense, or income taxes. Accordingly, this statement
is not intended to be a complete presentation of the results
of operations.
NOTE 2: 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 fees $ 70,032
Laundry and vending income 23,732
Damages and cleaning 23,526
Corporate unit rental 21,095
Miscellaneous 16,798
------------
$ 155,183
============
</TABLE>
NOTE 4: SUBSEQUENT EVENT
The property was sold to Continental Mortgage and Equity
Trust, a California business trust, on April 3, 1998.
22
<PAGE> 1
EXHIBIT 99.3
1010 COMMON BUILDING & ANNEX-BHNO, INC.
BUDGET COMPARISON REPORT
FOR THE 01 MONTH ENDING JANUARY 31, 1998
<TABLE>
<CAPTION>
CURRENT CURRENT CURR. YTD YTD YTD YTD
ACTUAL BUDGET VARIANCE ACTUAL BUDGET VARIANCE $/SQ. FT.
- ------- ------- --------- ------- ------- ------- ---------
RENTAL INCOME
<S> <C> <C> <C> <C> <C> <C>
$41,987 $46,937 $(4,950) OFFICE RENT (FIXED) $41,987 $46,937 $(4,950) $ 0.0
- ------- ------- ------- ------- ------- ------- ------
$41,987 $46,937 $(4,950) TOTAL RENTAL INCOME 41,987 46,937 (4,950) 0.0
- ------- ------- ------- ------- ------- ------- ------
TENANT REIMBURSEMENTS
49 0 49 TUBES & BULBS 49 0 49 0.0
3 0 3 LOCKS AND KEYS 3 0 3 0.0
68 0 68 LATE FEES 68 0 68 0.0
------ ------- ------ ------- ------- ------- ------
120 0 120 TOTAL TENANT REIMB. 120 0 120 0.0
------ ------- ------ ------- ------- ------- ------
OTHER INCOME
50,000 46,000 4,000 GARAGE NET INCOME 50,000 46,000 4,000 0.1
------ ------- ------ ------- ------- ------- ------
50,000 46,000 4,000 TOTAL OTHER INCOME 50,000 46,000 4,000 0.1
------ ------- ------ ------- ------- ------- ------
92,107 92,937 (830) TOTAL INCOME COLLECTED 92,107 92,937 (830) 0.2
------ ------- ------ ------- ------- ------- ------
OPERATING EXPENSES
CLEANING
149 200 51 SUPPLIES & MATERIAL 149 200 51 0.0
3,700 3,800 100 CONTRACT SERVICES 3,700 3,800 100 0.0
298 190 (108) CARPET & FLOOR CLEANING 298 190 (108) 0.0
200 100 (100) WINDOW CLEANING 200 100 (100) 0.0
402 205 (197) TRASH REMOVAL 402 205 (197) 0.0
0 300 300 MISCELLANEOUS 0 300 300 0.0
------ ------- ------ ------- ------- ------- ------
4,749 4,795 46 TOTAL CLEANING 4,749 4,795 46 0.0
------ ------- ------ ------- ------- ------- ------
REPAIRS & MAINTENANCE
10,452 10,058 (394) WAGES-ENGINEERS 10,452 10,058 (394) 0.0
598 1,000 402 BULB & BALLAST SUPPLIES 598 1,000 402 0.0
0 500 500 ELECTRICAL REPAIRS 0 500 500 0.0
3,926 6,615 2,689 ELEVATORS MAINTENANCE 3,926 6,615 2,689 0.0
2,449 1,600 (849) HVAC REPAIRS & MAINT. 2,449 1,600 (849) 0.0
223 1,000 777 HVAC SUPPLIES 223 1,000 777 0.0
0 100 100 PLANT MAINTENANCE 0 100 100 0.0
0 200 200 MAINTENANCE SUPPLIES 0 200 200 0.0
</TABLE>
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<PAGE> 2
1010 COMMON BUILDING & ANNEX-BHNO, INC.
BUDGET COMPARISON REPORT
FOR THE 01 MONTH ENDING JANUARY 31, 1998
<TABLE>
<CAPTION>
CURRENT CURRENT CURRENT YTD YTD YTD YTD
ACTUAL BUDGET VARIANCE ACTUAL BUDGET VARIANCE $/SQ. FT.
<S> <C> <C> <C> <C> <C> <C> <C>
60 150 90 RADIO COMMUNICATIONS 60 150 90 0.00
32 38 6 PAGERS 32 38 6 0.00
1,535 800 (735) PLUMBING REPAIRS 1,535 800 (735) 0.00
102 175 73 MISCELLANEOUS 102 175 73 0.00
- -------- -------- -------- -------- -------- --------- -------
19,377 22,236 2,859 TOTAL REPAIRS & MAINT. 19,377 22,236 2,859 0.00
- -------- -------- -------- -------- -------- --------- -------
OTHER SERVICES
418 1,675 1,257 ALARM & MONITORING 418 1,675 1,257 0.00
139 170 31 UNIFORMS 139 170 31 0.00
10 50 40 LOCKSMITH 10 50 40 0.00
84 85 1 MUSIC 84 85 1 0.00
125 125 0 PEST CONTROL 125 125 0 0.00
10,289 6,600 (3,689) SECURITY 10,289 6,600 (3,689) 0.00
275 275 0 WATER TESTING 275 275 0 0.00
0 250 250 MISCELLANEOUS 0 250 250 0.00
- -------- -------- -------- -------- -------- --------- -------
11,340 9,230 (2,110) TOTAL OTHER SERVICES 11,340 9,230 (2,110) 0.00
- -------- -------- -------- -------- -------- --------- -------
ADMINISTRATIVE EXPENSE
2,133 2,260 127 MANAGER-SALARIES 2,133 2,260 127 0.00
781 815 34 CLERICAL-SALARIES 781 815 34 0.00
49 60 11 COPIER AGREEMENT 49 60 11 0.00
120 400 280 OFFICE AGREEMENT 120 400 280 0.00
2,500 2,500 0 MANAGEMENT FEE 2,500 2,500 0 0.00
29 100 71 POSTAGE 29 100 71 0.00
798 600 (198) TELEPHONE 798 600 (198) 0.00
89 50 (39) MISCELLANEOUS 89 50 (39) 0.00
- -------- -------- -------- -------- -------- --------- -------
6,499 6,785 286 TOTAL ADMINISTRATIVE 6,499 6,785 286 0.00
- -------- -------- -------- -------- -------- --------- -------
UTILITIES
22,683 35,000 12,317 ELECTRICITY 22,683 35,000 12,317 0.00
1,145 2,400 1,255 GAS 1,145 2,400 1,255 0.00
2,165 1,550 (615) WATER & SEWER 2,165 1,550 (615) 0.00
- -------- -------- -------- -------- -------- --------- -------
25,993 38,950 12,957 TOTAL UTILITIES 25,993 38,950 12,957 0.00
- -------- -------- -------- -------- -------- --------- -------
TAXES & INSURANCE
0 60,000 60,000 AD VALOREM TAXES-TOWER 0 60,000 60,000 0.00
- -------- -------- -------- -------- -------- --------- -------
0 60,000 60,000 TOTAL TAXES & INSURANCE 0 60,000 60,000 0.00
- -------- -------- -------- -------- -------- --------- -------
</TABLE>
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<PAGE> 3
1010 COMMON BUILDING & ANNEX-BHNO, INC.
BUDGET COMPARISON REPORT
FOR THE 01 MONTH ENDING JANUARY 31, 1998
<TABLE>
<CAPTION>
CURRENT CURRENT CURR. YTD YTD YTD YTD
ACTUAL BUDGET VARIANCE ACTUAL BUDGET VARIANCE $/SQ. FT.
- ----------- ----------- ---------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
ANNEX EXPENSES
- ----------- ----------- ---------- -------- -------- ---------- -----------
- ----------- ----------- ---------- -------- -------- ---------- -----------
67,958 141,996 74,038 TOTAL OPERATING EXPENSES 67,958 141,996 74,038 0.10
- ----------- ----------- ---------- -------- -------- ---------- -----------
24,149 (49,059) 73,208 NET FROM OPERATIONS 24,149 (49,059) 73,208 0.00
- ----------- ----------- ---------- -------- -------- ---------- -----------
NON OPERATING EXPENSES
LEASING EXPENSES
26 0 (26) LEASING EXPENSES 26 0 (26) 0.00
761 0 (761) TENANT GIFTS 761 0 (761) 0.00
- ----------- ----------- ---------- -------- -------- ---------- -----------
787 0 (787) TOTAL LEASING EXPENSES 787 0 (787) 0.00
- ----------- ----------- ---------- -------- -------- ---------- -----------
OTHER EXPENSES
21,474 20,786 (688) GROUND RENT 21,474 20,786 (688) 0.03
750 1,500 750 LEGAL & PROFESSIONAL 750 1,500 750 0.00
- ----------- ----------- ---------- -------- -------- ---------- -----------
22,224 22,286 62 TOTAL OTHER EXPENSES 22,224 22,286 62 0.03
- ----------- ----------- ---------- -------- -------- ---------- -----------
1,138 (71,345) 72,483 CASH FLOW AFTER NON-OPER. 1,138 (71,345) 72,483 0.02
- ----------- ----------- ---------- -------- -------- ---------- -----------
2,812 0 (2,812) INS. EXPENSE-5/95 2,812 0 (2,812) 0.01
DEBT SERVICE
- ----------- ----------- ---------- -------- -------- ---------- -----------
- ----------- ----------- ---------- -------- -------- ---------- -----------
(1,674) (71,345) 69,671 CASH FLOW AFTER DEBT SER. (1,674) (71,345) 69,671 0.01
- ----------- ----------- ---------- -------- -------- ---------- -----------
CAPITAL EXPENDITURES
CODE & LIFE SAFETY
- ----------- ----------- ---------- -------- -------- ---------- -----------
- ----------- ----------- ---------- -------- -------- ---------- -----------
TENANT FINISH & CORE REN.
- ----------- ----------- ---------- -------- -------- ---------- -----------
- ----------- ----------- ---------- -------- -------- ---------- -----------
</TABLE>
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25
<PAGE> 4
1010 COMMON BUILDING & ANNEX-BHNO, INC.
BUDGET COMPARISON REPORT
FOR THE 01 MONTH ENDING JANUARY 31, 1998
<TABLE>
<CAPTION>
CURRENT CURRENT CURR. YTD YTD YTD YTD
ACTUAL BUDGET VARIANCE ACTUAL BUDGET VARIANCE $/SQ. FT.
- ----------- ----------- ---------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(1,674) (71,345) 69,671 CASH FLOW AFTER CAP. EXP. (1,674) (71,345) 69,671 0.0
- ----------- ----------- ---------- -------- -------- ---------- -----------
DEPRECIATION & AMORT.
- ----------- ----------- ---------- -------- -------- ---------- -----------
- ----------- ----------- ---------- -------- -------- ---------- -----------
(1,674) (71,345) 69,671 NET CASH FLOW (1,674) (71,345) 69,671 0.0
=========== =========== ========== ======== ======== ========== ===========
</TABLE>
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<PAGE> 1
EXHIBIT 99.4
225 BARONNE STREET, INC.
INCOME STATEMENT
FOR THE TWO MONTHS ENDED FEBRUARY 28, 1998
(See Accountants' Compilation Report)
<TABLE>
<CAPTION>
2 Months Ended
Feb. 28, 1998
--------------
<S> <C>
REVENUE:
RENTAL INCOME 344,542.38
OTHER INCOME 336.22
-------------
TOTAL REVENUE 344,878.60
-------------
COST OF OPERATIONS:
RENTAL OPERATING COSTS 210,412.84
-------------
INCOME (LOSS) FROM OPERATIONS 134,465.76
-------------
OTHER INCOME AND (EXPENSES):
INVESTMENT INCOME 750.00
INTEREST EXPENSE (2,355.70)
-------------
TOTAL OTHER INCOME AND (EXPENSES) (1,605.70)
-------------
NET INCOME (LOSS) $ 132,860.06
=============
</TABLE>
27
