SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
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For Quarterly Period Ended June 30,1995
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Commission File Number 1 - 8330
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LNH REIT, Inc.
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(Exact name of small business issuer as specified in its charter)
Maryland 75-1732388
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
300 One Jackson Place
188 East Capitol Street
P.O. Box 22728
Jackson, Mississippi 39225-2728
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(Address of principal executive offices) Zip Code
Issuer's telephone number, including area code (601) 948-4091
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Former name, former address and former fiscal year,
if changed since last report
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
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2,200,000 Shares of common stock $.50 par value, were outstanding
at August 10, 1995.
LNH REIT, INC.
FORM 10-QSB
TABLE OF CONTENTS
FOR THE QUARTER ENDED JUNE 30, 1995
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Part I. Financial Information
Pages
Item 1. Consolidated financial statements
Consolidated balance sheets, June 30, 1995
and December 31, 1994
Consolidated statements of operations for the
three months and six months ended
June 30, 1995 and 1994
Consolidated statements of cash flow for the
three months and six months ended
June 30, 1995 and 1994
Consolidated statements of stockholders'
equity for the six months ended
June 30, 1995 and 1994
Notes to consolidated financial statements
Item 2. Management's discussion and analysis of
financial condition and results of operations
Part II. Other Information
Item 1. Legal Proceedings
Item 4. Submission of Matters to a vote of security holders
Item 6. Exhibits and Reports on Form 8-K
Signatures
Authorized signatures
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, December 31,
1995 1994
----------- ----------
(Unaudited)
Assets
Mortgage loans $ 7,173 $ 5,149
Mortgage loans subject to foreclosure
proceedings 5,966 5,960
Real estate properties:
Earning
Warehouse 4,069 4,073
Shopping center 6,881 6,867
Accumulated depreciation (607) (427)
Non-earning land 776 3,067
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24,258 24,689
Less allowance for losses (525) (525)
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23,733 24,164
Marketable equity securities 638 525
Cash and cash equivalents 983 1,660
Accrued interest and other receivables 404 285
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$ 25,758 $ 26,634
=========== ==========
Liabilities
Minority interest payable $ 1,484 $ 1,510
Other liabilities 546 493
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2,030 2,003
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Stockholders' Equity
Common stock, $.50 par value,
15,000,000 shares authorized,
2,200,000 shares issued and
outstanding in 1995 and 1994 1,100 1,100
Paid in capital 25,367 27,215
Deficit (3,208) (4,040)
Unrealized gain on marketable
equity securities 469 356
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23,728 24,631
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$ 25,758 $ 26,634
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See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
------------------ ----------------
1995 1994 1995 1994
Revenues -------- ------ ----- -----
Interest:
Mortgage loans $ 183 $ 135 $ 317 $ 474
Cash equivalents and other 10 35 29 60
Revenue from real estate properties 346 298 725 518
Other income 16 28 43 56
------- ------ ------ -----
555 496 1,114 1,108
Expenses ------- ------ ------ -----
Management fees 72 89 148 177
Real estate expenses
Operating 130 199 260 305
Depreciation 90 72 180 118
Professional fees 28 15 69 42
General and administrative 72 44 113 86
Minority interest expense 21 8 47 15
------- ----- ----- -----
413 427 817 743
------- ----- ----- -----
Income from operations 142 69 297 365
------- ----- ----- -----
Gain on investments
Real estate and mortgage loans 535 - 535 135
------- ----- ----- -----
Net Income $ 677 $ 69 $ 832 $ 500
======= ====== ====== ======
Net Income per share
Income from operations $ .07 $ .03 $ .14 $ .17
Income from investments .24 - .24 .06
------- ------ ------ ------
Net Income $ .31 $ .03 $ .38 $ .23
======= ====== ====== ======
Average number of shares outstanding 2,200 2,200 2,200 2,200
======= ====== ====== ======
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOW (Unaudited)
(In thousands)
Six Months Ended
June 30,
-------------------------
1995 1994
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Operating Activities
Net income $ 832 $ 500
Adjustments to reconcile
net income to net cash provided
by operating activities:
Amortization of deferred financing
fees and discount on mortgage loans (31) (29)
Depreciation 180 118
Gain on investments (535) (135)
Other (23) (14)
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Funds from operations 423 440
Net change in receivables, payables
and other assets (72) (280)
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Cash provided by operating activities 351 160
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Investing Activities
Collections on mortgage loans 205 3,994
Improvements to real estate (10) (35)
Proceeds from sale of real estate 625 44
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Cash provided by investing activities 820 4,003
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Financing Activities
Dividends paid (1,848) (616)
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Cash used in financing activities (1,848) (616)
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Net increase (decrease) in cash and
cash equivalents (677) 3,547
Cash and cash equivalents at
beginning of year 1,660 1,340
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Cash and cash equivalents at
end of year $ 983 $ 4,887
=========== ==========
See notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
(In thousands)
Six Months Ended
June 30,
--------------------------
1995 1994
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Common stock, $.50 par value
Balance at beginning and
end of period $ 1,100 $ 1,100
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Paid-in capital
Balance at beginning of period 27,215 31,527
Cash dividends declared and paid (1,848) (616)
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Balance at end of period 25,367 30,911
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Deficit
Balance at beginning of period (4,040) (4,299)
Net income 832 500
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Balance at end of period (3,208) (3,799)
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Unrealized gain on marketable
equity securities
Balance at beginning of period 356 -
Change in unrealized gain on
securities 113 356
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Balance at end of period 469 356
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Total stockholders' equity $ 23,728 $ 28,568
=========== ==========
See notes to consolidated financial statements
Notes to Consolidated Financial Statements (Unaudited)
(1) Basis of Presentation
The accompanying unaudited financial statements have been
prepared in accordance with generally accepted accounting
principles for interim financial information and with the
instructions to Form 10-QSB and Rule 10-01 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. In the opinion of management,
all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
The financial statements should be read in conjunction with the
annual report and the notes thereto.
(2) Reclassifications
Certain reclassifications have been made in the fiscal 1994
financial statements to conform to the fiscal 1995
classifications.
(3) Supplemental Cash Flow Information
Six Months Ended
June 30
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1995 1994
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Loan foreclosures added to
real estate owned $ - $ 6,806
Loans made to facilitate sales
of real estate owned 2,200 200
Change in gain on marketable
equity securities 113 470
(4) Marketable Equity Securities
The Company's investment in marketable equity securities
consists of the following:
June 30, 1995 December 31, 1994
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Quoted Quoted
Ownership Carrying Market Ownership Carrying Market
Interest Value Value Interest Value Value
--------- ------- ------ -------- --------- ------
Liberte'
Investors 2.41% $ 638 $ 638 2.41% $ 525 $ 525
("Liberte'") ======= ====== ======= =====
On January 1, 1994, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115 "Accounting
for Certain Investments in Debt and Equity Securities" and
classified its investments as securities available-for-sale.
Accordingly, investment securities are carried at fair value with
the unrealized gain of $469,000 at June 30, 1995 and $356,000 at
December 31, 1994, presented as a separate component of
stockholders' equity.
LNH REIT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
(Comments are for the balance sheet dated June 30, 1995 compared
to December 31, 1994.)
Total assets of the Company at June 30, 1995 were
$25,758,000 compared to $26,634,000 at December 31, 1994. Total
liabilities increased from $2,003,000 at December 31, 1994 to
$2,030,000 at June 30, 1995.
The Company's mortgage loan balance increased $2,024,000
during the reporting period. This increase was primarily due to
a new loan of $2,200,000 made for the sale of the 90 acre
Baypointe property located in Houston, Texas. In addition, the
Company collected principal payments of $205,000 on loans and
recognized loan discounts and deferred financing fees of $31,000
during the reporting period.
The Company closed three sales of its Houston land during
the period ending June 30, 1995. During the first quarter of
1995 the Company sold a 2.78 acre and a 12.60 acre tract of
Houston land. The Company received cash of $265,000 (net of
closing costs) for these sales. No gain or loss was recognized
on these sales. On April 20, 1995, the Company closed a 90 acre
sale of its Baypointe property for $550,000 in cash and
$2,200,000 in seller financing. The Company received $360,000 in
cash (net of closing costs). As part of the seller financing, a
$137,500 principal payment was due within 45 days of closing.
This payment was made on June 8, 1995, and a gain of $535,000
($.24 per share) was recognized during the second quarter of
1995. Depreciation expense of $180,000 was recorded during the
six months ended June 30, 1995 and improvements of $10,000 were
made to the real estate properties.
Stockholders' equity decreased $903,000 for the six months
ended June 30, 1995, reflecting net income of $832,000, dividends
declared and paid of $1,848,000 and the unrealized gain on
securities of $113,000.
RESULTS OF OPERATIONS
(Comments are for the three months and six months ended June 30,
1995, compared to the three months and six months ended June 30,
1994.)
The Company recorded income from operations of $142,000
($.07 per share) for the three months ended June 30, 1995
compared to $69,000 ($.03 per share) for the same period of 1994.
For the six months ended June 30, 1995, the Company recorded
income from operations of $297,000 ($.14 per share) compared to
$365,000 ($.17 per share) for the same period of 1994.
The Company recorded a gain on investments of $535,000
($.24 per share) related to the sale of the 90 acre Baypointe
land in Houston, Texas in the quarter ended June 30, 1995. The
Company recorded a gain on investments of $135,000 ($.06 per
share) related to the payoff of a mortgage loan during the six
months ended June 30, 1994.
Interest income on mortgage loans increased during the
second quarter of 1995 compared to the second quarter of 1994,
primarily due to the interest income recognized from the
Baypointe land loan. Interest income on mortgage loans decreased
$157,000 during the first six months of 1995 compared to the
first six months of 1994, reflecting primarily the payoff of the
Rivercrest Apartments, the foreclosure of the Liberty Corners
Shopping Center, and the cash flow payments of the Cowesett
Corners Shopping Center. Interest income on these three mortgage
loans during the first six months of 1994 was $263,000 compared
to $6,000 for 1995. During the first six months of 1995 cash
from operations of the Cowesett Corners Shopping Center of
$94,354 was collected. The amounts were placed in escrow
accounts and $12,154 in distributions for expenses were made.
Any distribution of any excess funds from this account is pending
the results of the foreclosure proceedings. The Company reported
$6,000 from amortization of financing fees and no interest income
related to this mortgage during the first six months of 1995.
Interest income on mortgage loans was increased by $100,000 in
1995 compared to 1994 primarily due to interest received from the
Meadowbend land loan, the Baypointe land loan and from the
interest rate increase on the Hickory Creek land loan.
Management fees decreased during the second quarter and six
months ended June 30, 1995 compared to 1994, reflecting primarily
the decrease in the management fee base of average invested
assets from $28,252,000 at June 30, 1994 to $23,242,000 at June
30, 1995.
The foreclosure of the Liberty Corners mortgage loan accounts
for the increase in revenue from real estate owned, the increase
in depreciation expense and the increase in minority interest
expense for the three months and six months ended June 30, 1995
compared to 1994. Only four months of revenue and expense from
Liberty Corners was included in the first six months of 1994
while six months of revenue and expense was included in the first
six months of 1995. The decrease in real estate operating
expense was due to lower costs of property taxes, insurance
expense and repair and maintenance.
The increase in Professional Fees is primarily the legal
costs incurred in foreclosure proceedings against the borrowers
of the Cowesett mortgage loan.
The increase in General and Administrative expense is
primarily due to increased costs of insurance.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of funds continue to be
monthly principal and interest payments on its mortgage
investments and net operating income from real estate properties.
The Company believes that these funds, along with cash balances,
are sufficient to meet its long and short-term operating needs as
well as to continue the payment of cash dividends as required for
its continued qualification as a real estate investment trust.
At June 30, 1995, the Company had $983,000 in cash and cash
equivalents available for general corporate use. During the
first quarter of 1995, the Company completed two sales of Houston
acreage. The Company received cash of $48,000 (net of closing
costs) for the sale of a 3 acre portion of one parcel, and it
received cash of $217,000 (net of closing costs) for the sale of
a 12 acre portion of a separate parcel. During the second quarter
of 1995, the Company completed one sale of Houston acreage. The
Company received $360,000 (net of closing costs) for the sale of
the 90 acre Baypointe tract.
The Company's portfolio of investments has been impacted
negatively by the generally depressed condition of the national
real estate markets that persisted in the early 1990s. A number
of factors contributed to these depressed conditions including a
surplus of retail real estate of every type in almost every major
market and real estate acquired through foreclosure by financial
institutions, the Federal Deposit Insurance Corporation and the
Resolution Trust Corporation being placed on the market for sale
or lease at distressed prices. Although the current real estate
conditions have generally improved, borrowers that depend on cash
flow from real estate projects to meet operating expenses and
interest payments may continue to be adversely affected. This,
in turn, will continue to have a negative impact on the operating
results of the Company if its borrowers fail to make scheduled
principal and interest payments.
Three of the Company's mortgage loan investments defaulted
under terms of the original notes during 1993. The Liberty
Corners mortgage went into default on July 1, 1993 and the
Company received a deed in lieu of foreclosure on the property on
February 25, 1994. The Company owns 77.78% of the investment and
records the total assets, liabilities, revenues and expenses of
the center with minority interest provided for the 22.22% not
owned. The loan had a $5,294,000 balance net of allowance for
losses and deferred income, and the Company recorded the asset at
$6,806,000, which included the participant's 22.22% minority
interest of $1,512,000. Subsequent to February 25, 1994, the
Company reported $1,143,829 in revenue (including the 22.22%
minority interest) from the operations of the property. The
Cowesett Corners mortgages, with a total outstanding principal
balance of $6,000,000, went into default on May 1, 1993. The
borrower continued making payments from cash flow under a short-
term work out agreement. However, the Company discontinued the
accrual of interest income from the loan and now records interest
income on the cash basis since the owner of Cowesett Corners
filed for bankruptcy in February 1995. Also as a result of the
bankruptcy proceedings, LNH recorded a provision for loss of
$250,000 at December 31, 1994 to reduce the net carrying value of
the loans to the estimated fair value of the investment. This
loan is secured by a 135,713 square foot shopping center that is
in a good location in Warwick, Rhode Island and in good physical
condition. In July 1995, the Company collected $653,699 in cash
from the operations of the Cowesett Corners Shopping Center.
This cash was placed in an escrow account. Also, during July
1995, past due property taxes of $505,574 and operating expenses
of $60,311 were paid leaving a balance in the escrow account of
$170,014. The Citrus Center mortgage, with an outstanding balance
of $1,872,000, went into default on December 1, 1993. Since that
time, the borrowers have failed to make five scheduled payments
and, as a result, the Company recorded a provision for loss of
$275,000 at December 31, 1994 to write down the investment to its
estimated net realizable value. In June 1995, a Modification
Agreement between the borrowers and the Company was agreed on.
Basically, the Modification calls for the interest rate to be
reduced from 9% to 8%, with 1% to be deferred until the note
matures on November 30, 1998. Also, of the five past due
payments the two most current payments were to be brought
current, with the three remaining payments becoming due on
November 30, 1998. The Company is no longer accruing interest on
this loan and only recognizes interest income as cash is
collected. During the first six months of 1995, the Company has
recognized interest income of $79,000 on this loan. The
Company's mortgage loan portfolio performance in 1995 will be
dependent on the ability of the Citrus Center owners to cure
their existing default and the settlement obtained in the
Cowesett Corners bankruptcy proceedings. While management of the
Company does not believe it will incur additional losses on these
investments, there can be no assurance that the defaults will be
cured at terms as favorable to the Company as the original note
terms.
It is the Company's policy, consistent with its status as a
real estate investment trust, to distribute at least 100% of
taxable income. During the first six months of 1995, the Company
paid distributions to its stockholders of $1,848,000 ($.84 per
share), which included a special dividend of $1,452,000 ($.66 per
share).
LNH REIT, INC.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As reported in the December 31, 1994 10-KSB, the
Company initiated foreclosure proceedings against the
owner of Cowesett Corners Shopping Center, Cowesett
Partners, L.P. in February 1995, as the result of the
owner's June 1993 default under the terms of a certain
Mortgage Deed (with Security Agreement and Assignment of
Rents and Leases) dated March 31, 1988, and a certain
Modification of Lien Agreement. The Mortgage and
Modification of Lien Agreements secured two Promissory
Notes with unpaid principal balances of $11,975,000 and
$25,000 payable to the Company and a 50% participant.
The Company's foreclosure was stayed by the filing of
bankruptcy by Cowesett Partners, L.P. on February 13,
1995, in Rhode Island. The Company filed for relief
from the automatic stay in the Cowesett Partners, L.P.
bankruptcy case and initiated a lawsuit in the United
States District Court for the Northern District of Texas
against the guarantors of the Notes. In July of 1995,
the bankruptcy court lifted the automatic stay which
would allow the Company to proceed with its foreclosure.
The debtor has appealed this decision. However, on
August 9, 1995, the bankruptcy court converted the
debtor's Chapter 11 case to a Chapter 7 liquidation and
a trustee has been appointed. In early July 1995, the
Company received a judgment against one of the
guarantors of the Notes in its lawsuit filed in the
United States District Court for the Northern District
of Texas. The Company then docketed its judgment in
Rhode Island Superior Court. The Company is pursuing
collection of its judgment. Also, the Company is
continuing its action against the remaining guarantor.
Item 4. Submission of Matters to a Vote of Security Holders
On May 31, 1995, the Registrant held its Annual
Meeting of Shareholders. At the Annual Meeting, H.C.
Bailey, Jr., Robert Ted Enloe, III, George R. Farish,
and Leland R. Speed were elected directors of the
Registrant, each to serve until the 1996 Annual Meeting.
The following is a summary of the voting for directors:
Vote Vote
Nominee For Withheld
------------- ------------- -------------
H.C. Bailey, Jr. 2,019,127 95,106
Robert Ted Enloe, III 2,019,027 95,206
George R. Farish 2,019,227 95,006
Leland R. Speed 2,019,227 95,006
Item 6. Exhibits and reports on Form 8-K
(a) Exhibit 27 - Financial Data Schedule attached hereto.
(b) Reports on Form 8-K
Document
Items reported Filed Date
-------------------- ---------------
Item 2. Acquisition on
Disposition of Assets April 20, 1995
(A) Sale of the 90-acre
Baypointe Parcel of land
located in Houston, Texas.
Item 7. Financial Statements and Exhibits
(b) Pro forma financial information
Description
Pro Forma Balance Sheet
dated December 31, 1994
Pro Forma Statement of Income
dated December 31, 1994
Notes to Pro Forma Financial
Statements
(c) Exhibit Index
Exhibit
Number Description
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2(a) Purchase and Sale
Agreement dated as of
October 7, 1994. Exhibits
and schedules were
omitted, but would be
provided upon request.
2(b) First Amendment to
Purchase and Sale
Agreement dated as of
October 14, 1994.
2(c) Second Amendment to
Purchase and Sale
Agreement dated as of
January 3, 1995.
2(d) Third Amendment to
Purchase and Sale
Agreement dated as of
February 7, 1995.
2(e) Fourth Amendment to
Purchase and Sale
Agreement dated as of
February 24, 1995.
Exhibits and schedules
were omitted, but would
be provided upon request.
2(f) Fifth Amendment to
Purchase and Sale
Agreement dated as of
April 12, 1995.
2(g) Amended and Restated
Fifth Amendment to
Purchase and Sale
Agreement dated as of
April 13, 1995.
2(h) Promissory Note dated
April 20, 1995. Exhibits
and schedules were
omitted, but would
be provided upon request.
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 thereunto duly authorized.
Dated: August 10, 1995 LNH REIT, Inc.
By: /s/ N. Keith McKey
---------------------
N. Keith McKey, CPA
Senior Vice President
Chief Financial Officer
and Assistant Secretary
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