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 March 31, 1996
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
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State or Other Jurisdiction of I.R.S. Employer Identification No.
Incorporation or Organization
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
- ------------------------------------- ---------
Address of Principal Executive Offices Zip Code
(212) 526-3237
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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
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Balance Sheets At March 31, At December 31,
1996 1995
Assets
Zero coupon second mortgage loan
receivable, net of unamortized discount
of $3,699 in 1996 and $4,779 in 1995 $ 39,043,714 $ 37,999,250
Less valuation allowance (39,043,714) (37,999,250)
----------- ----------
-- --
Zero coupon first mortgage loan receivable 13,166,880 12,846,120
Cash and cash equivalents 879,660 910,771
Investments in U.S. Treasury securities 1,096,911 1,073,105
Notes receivable, net of allowance for doubtful
accounts of $2,611,952 in 1996 and 1995 -- --
Deferred charges, net of accumulated amortization
of $908,694 in 1996 and $882,731 in 1995 77,886 103,849
---------- ----------
Total Assets $ 15,221,337 $ 14,933,845
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 26,363 $ 31,496
Due to affiliates 7,250 14,394
---------- ----------
Total Liabilities 33,613 45,890
Partners' Capital (Deficit):
General Partner (983,819) (983,819)
Limited Partners (Depository units: 30,000,000
authorized, 7,047,000 issued and outstanding) 16,171,543 15,871,774
---------- ----------
Total Partners' Capital 15,187,724 14,887,955
---------- ----------
Total Liabilities and Partners' Capital $ 15,221,337 $ 14,933,845
========== ==========
Statement of Partners' Capital (Deficit)
For the three months ended March 31, 1996
Limited General
Partners Partner Total
Balance at December 31, 1995 $15,871,774 $(983,819) $14,887,955
Net income 299,769 -- 299,769
Balance at March 31, 1996 $16,171,543 $(983,819) $15,187,724
Statements of Operations
For the three months ended March 31, 1996 1995
Income
Interest income $ 1,410,023 $1,267,989
Less allowance for doubtful accounts (1,044,464) (941,065)
Net interest income 365,559 326,924
Miscellaneous income 2,590 1,035
Total Income 368,149 327,959
Expenses
Amortization of deferred charges 25,963 25,963
General and administrative 23,667 31,175
Investment management fee 18,750 18,750
Total Expenses 68,380 75,888
Net Income $ 299,769 $ 252,071
Net Income Allocated:
To the General Partner $ -- $ --
To the Limited Partners 299,769 252,071
$ 299,769 $ 252,071
Per limited partnership unit
(7,047,000 outstanding) $.04 $.04
Statements of Cash Flows
For the three months ended March 31, 1996 1995
Cash Flows From Operating Activities
Net income $299,769 $252,071
Adjustments to reconcile net income to net cash
used for operating activities:
Allowance for doubtful accounts 1,044,464 941,065
Amortization of deferred charges 25,963 25,963
Amortization of discount on loan (1,080) (1,080)
Decrease in cash arising from changes in
operating assets and liabilities:
Zero coupon mortgage loan interest receivable (1,364,144) (1,230,370)
Investments in U.S. Treasury securities (23,806) (21,780)
Accounts payable and accrued expenses (5,133) (1,743)
Due to affiliates (7,144) (832)
Net cash used for operating activities (31,111) (36,706)
Net decrease in cash and cash equivalents (31,111) (36,706)
Cash and cash equivalents, beginning of period 910,771 1,018,759
Cash and cash equivalents, end of period $879,660 $982,053
Notes to the Financial Statements
- ---------------------------------
The unaudited interim financial statements should be read in
conjunction with the Partnership's annual 1995 audited financial
statements within Form 10-K.
The unaudited financial statements include all adjustments which
are, in the opinion of management, necessary to present a fair
statement of financial position as of March 31, 1996 and the
results of operations and cash flows for the three months ended
March 31, 1996 and 1995 and the statement of partners' capital
(deficit) for the three months ended March 31, 1996. Results of
operations for the period are not necessarily indicative of the
results to be expected for the full year.
No significant events have occurred subsequent to fiscal year
1995, and no material contingencies exist which would require
disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5).
Part 1, 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 by means of a transaction
which resulted in the receipt of proceeds upon sale of that
property. Below is a summary of the status of the Partnership's
two remaining loans secured by Laurel Centre Mall and the Grand
Hyatt San Francisco.
Laurel Centre Loan - The Partnership holds a 24% interest in a zero
coupon first mortgage loan in the original amount of $5,555,431.
The mortgage note will mature in October 1996, with a fully
accreted value of $57,894,075. At March 31, 1995, Laurel Centre
was 84.6% occupied, compared with 90.2% a year earlier. Tenant
sales at the mall (excluding anchor tenants) totaled $6.9 million
in the first two months of 1996, compared with $7.5 million in
the first two months of 1995.
At January 1, 1996 the mall had an appraised value of
$77,000,000. The mortgage agreement specifically provides for an
annual covenant with which the borrower must comply. The
covenant provides that the current accrued value of the zero
coupon loan shall not exceed 70% of the most recent appraised
value of the Property. Based upon the appraised value at
January 1, 1996, this covenant was met at December 31, 1995.
Although the January 1, 1996 appraised value of the property was
in excess of the fully accreted amount of the Partnership's first
mortgage loan, the potential for the Partnership to collect its
portion of the loan at maturity in October of this year will
depend upon the borrower's ability to refinance or sell the
property in the prevailingly unfavorable market for retail
properties. As the maturity date draws closer, the General
Partner is monitoring the situation closely, and will consider
all available alternatives to maximize the Partnership's loan
interest in the property. As a result of the uncertainty of the
ability of the borrower to pay-off the loan at maturity, the loan
is impaired. However, the General Partner believes that the
Partnership will ultimately collect its share of the contractual
amounts due on the loan plus additional interest, if any.
During 1993 Kemper Investors Life Insurance Company ("Kemper")
sold its 76% participating interest in the Laurel Centre loan 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.
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. Under the restructuring, the terms
of the first, second, and third mortgages and the Hotel
management agreement were modified. As part of the
restructuring, the Partnership agreed to extend the maturity date
of its loan to January 1999, should the first mortgagee also
choose to extend its loan to such date. Accordingly, the
Partnership may be required to hold its loan beyond the original
maturity date of January 2, 1997. 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 help the Hotel overcome the
difficulties in the San Francisco market. The Hotel has reported
improved operating results since the June 1992 restructuring of
its debt, as market conditions in the San Francisco hospitality
industry have improved. Average occupancy and room rates at the
Hotel were 81.4% and $146.66 for the first quarter of 1996
compared to 78.5% and $136.97 for the corresponding period in
1995. Although the Hotel has generated sufficient cash flow to
meet its quarterly debt service payments on its first mortgage
through April 1996, there is no assurance the Hotel will be able
to fund future minimum debt service payments, which increase over
time. In April 1993, an affiliate of the Union Square general
partner elected not to renew its guarantee of the minimum debt
service payment under the restructured first mortgage. The
affiliate of the Union Square general partner 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 to supplement cash flow
from the Hotel, however, there is no assurance that such loan
will be provided.
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 March
31, 1996 totaled $39,043,714, 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. It remains the General Partner's
belief that the value of the Partnership's loan has been impaired
and that its ultimate collectibility is uncertain.
The Partnership's investment in zero coupon Treasury securities
and cash comprise the Partnership's working capital reserve. At
March 31, 1996, the Partnership had $1,096,911 invested in zero
coupon U.S. Treasury securities and cash of $879,660, compared to
$1,073,105 and $910,771, respectively, at December 31, 1995. The
increase in U.S. Treasury securities represents interest accrued
on the securities for the first quarter of 1996. The decrease in
the cash balance is due to the Partnership meeting its normal
operating expenses.
Results of Operations
- ---------------------
For the three months ended March 31, 1996, net income totaled
$299,769, compared with net income of $252,071 for the three
months ended March 31, 1995.
Total income for the three months ended March 31, 1996 was
$368,149, compared with $327,959 for the corresponding period in
1995. The increase is primarily due to higher interest income
earned on the Laurel Centre loan and an increase in interest
income earned on the Partnership's cash.
Total expenses for the three months ended March 31, 1996 were
$68,380, compared with $75,888 for the corresponding period in
1995. The decrease is due to the decrease in general and
administrative expenses, which is primarily attributable to lower
professional fees.
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were
filed during the quarter ended March 31, 1996.
SIGNATURES
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.
CAPITAL GROWTH MORTGAGE INVESTORS, L.P.
BY: CG REALTY FUNDING INC.
General Partner
Date: May 13, 1996 BY: /s/ Kenneth L. Zakin
Director and President
Date: May 13, 1996 BY: /s/ Daniel M. Palmier
Vice President and
Chief Financial Officer
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Mar-31-1996
<CASH> 879,660
<SECURITIES> 1,096,911
<RECEIVABLES> 52,210,594
<ALLOWANCES> 39,043,714
<INVENTORY> 0
<CURRENT-ASSETS> 879,660
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,221,337
<CURRENT-LIABILITIES> 33,613
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 15,187,724
<TOTAL-LIABILITY-AND-EQUITY> 15,221,337
<SALES> 0
<TOTAL-REVENUES> 1,412,613
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 68,380
<LOSS-PROVISION> 1,044,464
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 299,769
<INCOME-TAX> 0
<INCOME-CONTINUING> 299,769
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 299,769
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0
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