UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 33-7707
CAPITAL GROWTH MORTGAGE INVESTORS, L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3434580
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) identification No.)
3 World Financial Center, 29th Floor, New York, NY 10285
(Address of principal executive offices) (Zip code)
(212) 526-3237
(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
Balance Sheets
September 30, December 31,
1994 1993
Assets
Second Mortgage loans receivable,
net of unamortized discount of $10,175
in 1994 and $13,414 in 1993 $ 33,378,986 $ 68,030,204
Less-valuation allowance (33,378,986) (68,030,204)
---------- ----------
0 0
First Mortgage loan receivable 11,341,611 10,528,370
Cash 988,454 632,903
Accounts receivable 50,000 50,000
Investments in U.S. Treasury securities 959,971 898,144
Deferred charges, net of accumulated
amortization of $752,916 in 1994 and
$1,253,720 in 1993 233,664 578,500
---------- ----------
Total Assets $ 13,573,700 $ 12,687,917
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 29,111 $ 45,981
Due to affiliates 7,121 10,753
------ -------
Total Liabilities 36,232 56,734
Partners' Capital (Deficit):
General Partner (983,819) (968,819)
Limited Partners
(7,047,000 units outstanding) 14,521,287 13,600,002
---------- ----------
Total Partners' Capital 13,537,468 12,631,183
---------- ----------
Total Liabilities and Partners' Capital $ 13,573,700 $ 12,687,917
========== ==========
Statements of Operations
Three months ended Nine months ended
September 30, September 30,
1994 1993 1994 1993
Income
Interest income $ 1,156,638 $ 2,825,035 $ 5,065,827 $ 9,063,924
Less - valuation allowance (849,782) (1,816,557) (4,166,853) (5,347,294)
--------- --------- --------- ---------
Net interest income 306,856 1,008,478 898,974 3,716,630
Mortgage loan recovery (Note A) 0 0 2,018,716 0
Loan prepayment premium 0 4,549,808 0 4,549,808
Gain on sale of U.S.
Treasury securities 0 0 0 17,785
Miscellaneous income 2,778 52,045 7,353 54,445
------- --------- --------- ---------
Total Income 309,634 5,610,331 2,925,043 8,338,668
------- --------- --------- ---------
Expenses
Amortization of organization
costs and deferred charges 25,963 411,692 344,836 560,050
General and administrative 24,148 57,273 109,422 187,105
Investment management fee 18,750 18,750 56,250 56,250
------ ------- ------- -------
Total Expenses 68,861 487,715 510,508 803,405
------ ------- ------- -------
Net Income $ 240,773 $ 5,122,616 $ 2,414,535 $ 7,535,263
======= ========= ========= =========
Net Income Allocated:
To the General Partner $ 0 $ 0 $ 0 $ 0
To the Limited Partners 240,773 5,122,616 2,414,535 7,535,263
------- --------- --------- ---------
$ 240,773 $ 5,122,616 $ 2,414,535 $ 7,535,263
======= ========= ========= =========
Per limited partnership unit
(7,047,000 outstanding) $.03 $.73 $.34 $1.07
Statement of Partners' Capital
For the nine months ended September 30, 1994
Limited General Total
Partners' Partner's Partners'
Capital (Deficit) Capital
Balance at December 31, 1993 $ 13,600,002 $ (968,819) $ 12,631,183
Distributions to foreign
limited partners (16,068) 0 (16,068)
Cash Distribution (1,477,182) (15,000) (1,492,182)
Net income 2,414,535 0 2,414,535
--------- ---------- ---------
Balance at September 30, 1994 $ 14,521,287 $ (983,819) $ 13,537,468
========== ========== ==========
Statements of Cash Flows
For the nine months ended September 30, 1994 and 1993
1994 1993
Cash Flows from Operating Activities:
Net income $ 2,414,535 $ 7,535,263
Adjustments to reconcile net income to net
cash provided by (used for) operating
activities:
Gain on sale of U.S. Treasury securities 0 (17,785)
Loan prepayment premium 0 (4,549,808)
Mortgage loan recovery (Note A) (2,018,716) 0
Valuation allowance 4,166,853 5,347,294
Amortization of organization costs
and deferred charges 344,836 560,050
Amortization of discount on loans (3,239) (7,736)
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Mortgage loans receivable (4,976,855) (8,848,979)
Accounts receivable 0 (50,000)
Investment in U.S. Treasury securities (61,827) (60,334)
Accounts payable and accrued expenses (16,870) (29,046)
Due to affiliates (3,632) (13,521)
-------- --------
Net cash used for operating activities (154,915) (134,602)
-------- --------
Cash Flows from Investing Activities:
Proceeds from sale of U.S. Treasury securities 0 151,122
Proceeds from retirement of loan 2,018,716 49,174,622
--------- ----------
Net cash provided by investing activities 2,018,716 49,325,744
--------- ----------
Cash Flows from Financing Activities:
Distributions - income tax withholdings
for foreign partners (16,068) 0
Cash Distribution (1,492,182) (48,626,553)
--------- ----------
Net cash used for financing activities (1,508,250) (48,626,553)
--------- ----------
Net increase in cash 355,551 564,589
Cash, beginning of period 632,903 140,669
--------- ----------
Cash, end of period $ 988,454 $ 705,258
========= ==========
Notes to the Financial Statements
The unaudited interim financial statements should be read in conjunction with
the Partnership's annual 1993 audited financial statements within Form 10-K.
The unaudited financial statements include all adjustments consisting of only
normal recurring accruals which are, in the opinion of management, necessary to
present a fair statement of financial position as of September 30, 1994 and the
results of operations, changes in partners' capital, and cash flows for the
nine months then ended. Results of operations for the period are not
necessarily indicative of the results to be expected for the full year.
The following significant events have occurred, or material contingencies
exist, and require disclosure in this interim report per Regulation S-X, Rule
10-01, Paragraph (a)(5).
A. 417 Fifth Avenue Loan On or about May 10, 1994 (the "Closing Date"),
pursuant to the Intercreditor Agreement dated August 5, 1993 as amended on
September 22, 1993 (the "Intercreditor Agreement") between the Partnership and
Equitable Life Assurance Society of the United States (the "First Mortgagee"),
the First Mortgagee assigned all of its rights in the office building at 417
Fifth Avenue (the "Office Building") in Midtown Manhattan, New York to Fiel
Organization, Inc., including the First Mortgagee's rights in its first
mortgage on the Office Building (the "First Mortgage") in the original
principal amount of $33,000,000 (the "First Mortgage Loan").
On the Closing Date, the Partnership executed and delivered a Satisfaction of
Mortgage to release the Partnership's $17,500,000 nonrecourse zero coupon
second mortgage (the "Second Mortgage") on the Office Building. Pursuant to
the Intercreditor Agreement, the Partnership received $1,565,079 from the
proceeds of the assignment of the First Mortgage on or about May 11, 1994.
Pursuant to a letter agreement between 417 Fifth Avenue Realty Company (the
"Borrower") and the Partnership dated July 10, 1987, certain reserve accounts
were established by the Borrower in favor of the Partnership (the "Reserve").
Pursuant to the terms of the Plan of Reorganization of the Borrower which was
confirmed on March 3, 1994, the Partnership obtained all rights to the
proceeds of the Reserve which amounted to $453,637 on or about the Closing
Date.
The accreted value of the loan on the Closing Date was $38,818,072 and had
been fully reserved. The total proceeds received on the Closing Date of
$2,018,716 were recorded as a gain on assignment of the loan. The assignment
also resulted in the write-off of $234,653 of deferred charges related to the
original financing.
Part of the assignment proceeds were distributed to the partners. On July
15, 1994, a distribution was paid totalling $1,500,000, of which $15,000 was
paid to the general partner pursuant to the terms of the Partnership
Agreement, and $1,485,000 was paid to the limited partners, or $.21 per unit.
The Partnership withheld $7,818 from the limited partners' distribution to
recoup foreign withholding taxes previously paid by the partnership on behalf
of certain limited partners.
Part I, Item 2.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
- - -------------------------------
The Partnership's primary assets are its zero coupon mortgage loans. The
Partnership originally held two zero coupon first mortgage loans and two zero
coupon second mortgage loans. During 1993, the loan secured by EQK Green Acres
Mall was repaid together with a prepayment premium. In early 1994, the loan
secured by 417 Fifth Avenue was retired. Below is a summary of the 417 Fifth
Avenue transaction and the status of the Partnership's two remaining loans
secured by Laurel Centre Mall and the Grand Hyatt San Francisco.
417 Fifth Avenue Loan -- On May 10, 1994, Equitable Life Assurance Society of
the United States ("Equitable") sold the 417 Fifth Avenue property, which
secured the Partnership's second mortgage loan. Pursuant to the Intercreditor
Agreement between Equitable and the Partnership, the Partnership received
$1,565,079 from the sale proceeds. As a result of the receipt of these
proceeds, a cash distribution, in the amount of $.21 per unit, was paid on July
15, 1994. In addition to the sale proceeds, the Partnership obtained
approximately $451,000 from certain reserve accounts which were added to the
Partnership's cash reserves to fund projected operating expenses and
contingencies. The assignment of the loan also resulted in the write-off of
$234,653 of deferred charges related to the original financing. For a detailed
discussion of the events leading up to the sale of the 417 Fifth Avenue
property, reference is made to the Partnership's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994.
Union Square Loan -- The Partnership holds a zero coupon second mortgage in the
original amount of $13,325,000 funded to Union Square Hotel Partners L.P.
("Union Square," formerly Shearson Union Square Associates L.P.), which owns
the Grand Hyatt San Francisco Hotel (the "Hotel") located in San Francisco,
California. The Partnership's loan is subordinate to a first mortgage held by
the Bank of Nova Scotia (the "Bank") in the original principal amount of
$70,000,000. On June 30, 1992, Union Square consummated a restructuring of its
financing and property management arrangements with the Bank, the Partnership
and certain other creditors. A detailed description of the terms of the
restructuring is incorporated herein by reference to the Partnership's Current
Report on Form 8-K filed with the Securities and Exchange Commission on July
14, 1992.
The restructuring was designed to reduce the near-term cash demands on Union
Square in order to help the Hotel overcome the recent difficulties in the San
Francisco market. The Hotel has reported improved operating results since the
June 1992 restructuring of its debt and the strengthening of San Francisco
market conditions. Average occupancy and room rates were 74.73% and $138.46 in
the nine months ended September 30, 1994 compared to 73.11% and $137.32 in the
corresponding period in 1993. The Hotel has generated sufficient cash flow to
meet its quarterly debt service payments due through October 1994. However, it
remains uncertain if the Hotel will generate sufficient cash flow to fund
future minimum debt service payments. In April 1993, Lehman Brothers Holdings
Inc. (formerly Shearson Lehman Brothers Holdings, Inc.), an affiliate of the
Union Square general partner, elected not to renew its guaranty of the minimum
debt service payment under the restructured first mortgage. Lehman indicated
that it would evaluate the future need for additional funding support on a
quarterly basis. If required, the Union Square general partner is prepared to
request an additional loan from Lehman to supplement cash flow from the Hotel,
however, there is no assurance that Lehman will provide such loan.
As part of the restructuring, the Partnership agreed to extend the maturity
date of its loan to January 1999, provided the first mortgagee chooses to
extend its loan to such date. Accordingly, the Partnership may be required to
hold this investment longer than the original January 1997 maturity.
During the third quarter of 1992, the Partnership received an appraisal that
indicated that the Hotel's value was insufficient to collateralize its loan.
Accordingly, the General Partner fully reserved the carrying value of the loan
during the third quarter of 1992. The valuation allowance for this loan at
September 30, 1994 totals $33,378,986, representing the accreted value of the
loan at such date. All interest on the loan is being fully reserved for as it
accrues. The level of the allowance will be assessed on a quarterly basis.
The General Partner continues to believe that the value of the Partnership's
loan has been impaired and the ultimate collectibility of the Partnership's
loan remains uncertain.
Laurel Centre Loan -- The Partnership holds a 24% interest in a zero coupon
first mortgage loan in the original amount of $5,555,431. At September 30,
1994, Laurel Centre, was 90.6% occupied, compared with 93.2% a year earlier.
Tenant sales at the mall (excluding anchor tenants) totaled $33.9 million in
the first eight months of 1994, compared with $34.9 million in the 1993
period.
Kemper Investors Life Insurance Company ("Kemper") sold its 76% participating
interest in the Laurel Centre loan during 1993 to a real estate mortgage
investment conduit. The sale of Kemper's participating interest to a real
estate conduit may affect the Borrower's ability to refinance or restructure
the loan. The most recent appraised value of the property was in excess of the
fully accreted amount of the Partnership's first mortgage loan. However, the
ability of the Partnership to collect its portion of the fully accreted amount
at maturity in October 1996 will be contingent upon an improvement in capital
markets for real estate lending and investment and the borrower's ability to
refinance the loan or sell the property at maturity.
The Partnership's investment in zero coupon Treasury securities and cash
comprise the Partnership's working capital reserve. At September 30, 1994, the
Partnership had $959,971 invested in zero coupon U.S. Treasury securities and
cash of $988,454, compared to $898,144 and $632,903, respectively, at December
31, 1993. The increase in U.S. Treasury securities represents interest accrued
on the securities for the nine months ended September 30, 1994. The increase
in the cash balance reflects residual proceeds from the retirement of the 417
Fifth Avenue loan and associated reserve accounts. This remaining balance in
the Partnership's cash reserve will be retained to meet the Partnership's
operating expenses.
Results of Operations
- - ---------------------
For the three and nine months ended September 30, 1994, net income totalled
$240,773 and $2,414,535 respectively, compared with $5,122,616 and $7,535,263
for the corresponding periods in 1993.
Total income for the three and nine months ended September 30, 1994 was
$309,634 and $2,925,043, compared with $5,610,331 and $8,338,668 for the
corresponding periods in 1993. The decrease in the nine-month results
primarily reflects the prepayment of the EQK/Green Acres mortgage loan on
August 19, 1993. This loan had previously generated net interest income of
approximately $1 million per quarter. For the nine-month period, this decrease
was offset by the gain on the retirement of the 417 Fifth Avenue loan of
$2,018,716.
The Partnership realized a gain of $17,785 for the nine months ended September
30, 1993 from the sale of U.S. Treasury securities. The Partnership did not
sell any securities in the nine months ended September 30, 1994.
Total expenses for the three and nine months ended September 30, 1994 were
$68,861 and $510,508, compared with $487,715 and $803,405 for the corresponding
periods in 1993. This decrease for the three-month period is primarily
attributable to decreases in amortization of organization costs and is offset
for the nine-month period by a write-off of $234,653 of loan origination costs
related to the 417 Fifth Avenue loan which was retired on May 10, 1994.
General and administrative expenses have decreased due to lower legal costs.
PART II OTHER INFORMATION
Items 1-5 Not applicable
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits - None
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended September 30, 1994.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CAPITAL GROWTH MORTGAGE INVESTORS, L.P.
BY: CG REALTY FUNDING INC.
General Partner
Date: November 11, 1994 BY: /S/ Kenneth L. Zakin
------------------------
Director and President
Date: November 11, 1994 BY: /S/ Daniel M. Palmier
-------------------------
Vice President, and
Chief Financial Officer
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<S> <C>
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<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 988,454
<SECURITIES> 959,971
<RECEIVABLES> 44,770,597
<ALLOWANCES> 33,378,986
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 000
<DEPRECIATION> 000
<TOTAL-ASSETS> 13,573,700
<CURRENT-LIABILITIES> 36,232
<BONDS> 000
<COMMON> 000
000
000
<OTHER-SE> 13,537,468
<TOTAL-LIABILITY-AND-EQUITY> 13,573,700
<SALES> 000
<TOTAL-REVENUES> 2,925,043
<CGS> 000
<TOTAL-COSTS> 510,508
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<INCOME-PRETAX> 2,414,535
<INCOME-TAX> 000
<INCOME-CONTINUING> 2,414,535
<DISCONTINUED> 000
<EXTRAORDINARY> 000
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