UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) of THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended: December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) of THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period _____ to _____
Commission file number: 33-7707
CAPITAL GROWTH MORTGAGE INVESTORS, L.P.
Exact name of registrant as specified in its charter
Delaware
State or other jurisdiction 13-3434580
of incorporation or organization I.R.S. Employer Identification No.
Attn.: Andre Anderson
3 World Financial Center, 29th Floor,
New York, New York 10285
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
DEPOSITARY UNITS OF LIMITED PARTNERSHIP INTEREST
Title of Class
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 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
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
Documents Incorporated by Reference: None
PART I
Item 1. Business
(a) General Development of Business
Capital Growth Mortgage Investors, L.P. (the "Partnership", formerly Shearson
Lehman Pension and Retirement Investors Fund, L.P.), was formed on July 30,
1986 as a limited partnership under the Partnership Laws of the State of
Delaware. The general partner of the Partnership is CG Realty Funding Inc.
(the "General Partner", formerly Shearson Lehman Realty Funding Inc.), a
Delaware Corporation and affiliate of Lehman Brothers Inc. ("Lehman", formerly
Shearson Lehman Brothers Inc.). The Partnership was formed to invest in and
originate zero coupon first and second mortgage loans on properties owned by
limited partnerships sponsored by affiliates of the General Partner, properties
owned by unaffiliated entities, or to refinance existing mortgage debt.
On October 15, 1986, the Partnership commenced an offering of a minimum of
3,900,000 and a maximum of 30,000,000 units of limited partnership interests
(the "Units") pursuant to a Registration Statement on Form S-11 filed under the
Securities Act of 1933. The offering was terminated on June 30, 1987 with a
total of 7,047,000 Units sold for proceeds of $70,470,000. The net proceeds of
the offering, after deducting selling expenses and other offering and
organizational costs, aggregated $66,246,500. During the period from June 30,
1987 (inception of operations) to July 30, 1987, the Partnership invested
$61,999,973 of its offering proceeds in four zero coupon mortgage loans (the
"Mortgage Loans"). On October 27, 1987, the Partnership invested $1,452,974 in
zero coupon U.S. Treasury securities.
Under the terms of the Agreement of Limited Partnership (the "Agreement"), the
General Partner has sole responsibility for the overall management of the
investment portfolio and affairs of the Partnership.
The Partnership's investment objectives are to:
(1) preserve and protect the Partnership's invested capital;
(2) receive accrued interest and principal at maturity of the Mortgage
Loans; and
(3) share, in certain instances, in the appreciation of properties
securing the Mortgage Loans through a participation in those loans.
(b) Narrative Description of Business
The Partnership's sole business is the origination and ownership of the
Mortgage Loans. The Partnership originally held two zero coupon first mortgage
loans and two zero coupon second mortgage loans. During 1993, one of the first
mortgage loans was prepaid together with a prepayment premium. In early 1994,
one of the second mortgage loans was exchanged for an agreement to share in the
proceeds from sale of the property. A description of the Partnership's four
original loans follows.
Former Loan Investments
(1) On July 28, 1987, the Partnership purchased a 50% interest in a zero
coupon loan for $24,099,945 which included accrued interest to the date of
purchase of $2,099,945 on a mortgage loan to EQK Green Acres, L.P. ("EQK"), a
limited partnership which owns and operates the Green Acres Mall in
southwestern Nassau County, Long Island, New York. This loan represented
approximately 35% of the Partnership's original loan portfolio. The property
consists of a mall anchored by four major department stores and 13 freestanding
outparcel buildings, located on a site of approximately 93 acres. In August
1993, EQK secured financing for a prepayment of the Partnership's loan. On
August 19, 1993 the Partnership received a total of $49,174,622, of which
$44,624,814 represented the accreted value of the loan and $4,549,808
represented a prepayment premium in accordance with the terms of the loan
agreement.
(2) On July 30, 1987, the Partnership originated a participating zero
coupon second mortgage loan in the amount of $17,500,000 to 417 Fifth Avenue
Realty Company (the "Borrower"), a New York general partnership which owned 417
Fifth Avenue, New York, New York. This loan represented approximately 30% of
the Partnership's original loan portfolio. The property consists of an
eleven-story office building containing a total of 371,648 gross square feet
located in midtown Manhattan. The Borrower was in default on the loan since
February 1992. In an effort to preserve a portion of the Partnership's loan
investment, the Partnership exchanged the loan in early 1994 for an agreement
to share in the proceeds from sale of the property.
On May 10,1994, Equitable Life Assurance Society of the United States
("Equitable"), the holder of the first mortgage, 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 out of the sale proceeds. In addition to the
sale proceeds, the Partnership obtained $453,637 from certain escrowed 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.
Remaining Loan Investments
(1) On July 28, 1987, the Partnership purchased a 24% interest in a
participating zero coupon mortgage for $5,555,431 which included accrued
interest to the date of purchase of $155,431 on a first mortgage loan to Laurel
Owner Partners Limited Partnership (the "Owner Partnership"), a Maryland
limited partnership which owns Laurel Centre (the "Mall"), a regional shopping
mall in Laurel, Prince George's County, Maryland. This loan represents
approximately 10% of the Partnership's original loan portfolio. The Mall,
which contains approximately 660,148 square feet of gross leasable area,
consists of two levels containing a total of 100 retail tenants (as of December
31, 1995) and two attached anchor stores. Attached to the Mall is a third
anchor store which is not owned by the Owner Partnership.
Two shopping centers are considered competitive with the Mall - Laurel Lakes
and Columbia Mall. Proposed competition includes the Bowie Town Center in
Bowie and Konterra near Laurel. Bowie Town Center is a planned mixed use
development which will have a regional mall component and will be decidedly
more upscale than Laurel Centre. Based on its location, which is 15 miles
southeast of Laurel Centre, Bowie Town Center is expected to have some adverse
effects on the sales level at the Mall when it opens. Although a portion of
the office and residential space has been completed at Bowie Town Center, a
construction date for the retail phase of this project remains uncertain.
Konterra is proposed to have a regional shopping center within its master
planned community. Initial construction continues to be delayed pending the
resolution of several environmental and zoning issues.
(2) On July 28, 1987, the Partnership purchased a zero coupon second
mortgage loan for $14,844,597, which included accrued interest to date of
purchase of $1,519,597 on a second mortgage loan 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") in San Francisco,
California. This loan represents approximately 25% of the Partnership's
original loan portfolio. During 1992, Union Square defaulted on its mortgages
and subsequently completed a restructuring of its debt, including the
Partnership's loan. See Note 4 "Loans Receivable" of the Notes to Financial
Statements for a discussion of the restructuring and the modified terms of the
Partnership's zero coupon second mortgage loan.
The Hotel is a 36-story, 693-room hotel built in 1973. After a $20 million
renovation and name conversion, completed during the first quarter of 1990, the
Hotel re-opened as the "Grand Hyatt San Francisco" on February 1, 1990. The
cost of the renovation and conversion was borne by Union Square and California
Hyatt Corporation. The Hotel is centrally located within a short walking
distance of the financial district, Moscone Convention Center, the Union Square
shopping district and the city's wide array of theaters, restaurants and other
tourist attractions.
The Hotel operates in a highly competitive market. There are 21 existing
first-class and luxury properties with a total of approximately 12,885 guest
rooms which are competitive with the Hotel. The Westin St. Francis, the Hyatt
Regency, the Fairmont Hotel, the Ritz Carlton and the Sheraton Palace with a
total of 3,485 guest rooms are considered to be primary competitors. These
hotels are considered primary competitors due to their size, meeting facilities
and market mix relative to the Hotel. The remaining 16 properties, with a
total of approximately 9,400 rooms, are considered to be secondary competitors
which compete with the Hotel to a lesser degree. Eight hotels, the Ritz
Carlton, the Sheraton Palace, the Mandarin Hotel, the Pan Pacific Hotel
(formerly the Portman Hotel), the Nikko Hotel, the Park Hyatt, the San
Francisco Marriott and the Hyatt Fisherman's Wharf opened since the funding of
the zero coupon mortgage loan in 1987. These hotels have a total of 4,110
rooms and compete in varying degrees with the Hotel.
See Note 4 "Loans Receivable" of the Notes to Financial Statements for a
discussion of the terms of the Partnership's zero coupon mortgage loans.
Zero Coupon U.S. Treasury Securities
In 1987 the Partnership purchased $1,452,974 in zero coupon Treasury securities
with net proceeds from the offering not invested in the zero coupon mortgage
loans. These zero coupon Treasury securities yield 9.1% with interest
compounded semi-annually and mature on August 15, 1996. The Partnership did
not sell any Treasury securities in 1994 or 1995. At December 31, 1995, the
Partnership's Treasury securities had a carrying value, which included accreted
interest, of $1,073,105.
Employees
The Partnership has no employees.
Item 2. Properties
The Partnership owns no property other than its interests in the mortgage
loans.
Item 3. Legal Proceedings
The Partnership is not subject to any material pending legal proceedings.
Item 4. Submissions of Matters to a Vote of Security Holders
No matters were submitted to the Unitholders for a vote during the fourth
quarter of the year for which this report is filed.
PART II
Item 5. Market for Registrant's Limited Partnership Units and Related Security
Holder Matters
(a) Market Information
There is no established trading market for the Units nor is there anticipated
to be any in the future.
(b) Holders
At December 31, 1995, there were 8,331 Unitholders.
(c) Distributions
On September 23, 1993, the Partnership made a cash distribution to the partners
totaling $48,674,622 relating to the prepayment of the EQK Loan. Of this
amount, $486,746 was paid to the General Partner pursuant to the terms of the
Partnership Agreement, and $48,187,876 was paid to the limited partners, or
$6.84 per Unit.
On July 15, 1994, the Partnership paid a cash distribution totalling
$1,508,250, or $.21 per Unit, resulting from the Partnership's share of sale
proceeds from 417 Fifth Avenue property in May 1994. In addition to the sale
proceeds, the Partnership obtained $453,637 from certain reserve accounts which
were added to the Partnership's cash reserves to fund projected operating
expenses and contingencies. The Partnership does not anticipate making any cash
distributions until the remaining mortgage loans mature. The amount of any
future distributions will depend on the collection of principal and interest
from the loans. Upon liquidation of the Partnership, after distribution of the
final repayment proceeds from the last mortgage loan, any remaining unused
working capital will also be distributed.
Item 6. Selected Financial Data
(dollars in thousands except per Unit data)
For the years ended December 31,
1995 1994 1993 1992 1991
Net Interest Income (1) $1,356 $1,221 $4,002 $5,057 $9,107
Loan Prepayment Premium - - 4,550 - -
Total Income 1,363 3,250 8,625 5,150 9,114
Net Income (Loss) 1,088 2,677 7,707 (48,628)(2) 8,474
Net Income (Loss) per
Limited Partnership Unit
(7,047,000 outstanding) .15 .38 1.09 (6.83)(2) 1.20
Cash Distributions per
Limited Partnership Unit - .21(3) 6.84(4) - -
Total Assets 14,934 13,838 12,688 53,662 102,576
(1)Net of allowance of $3,770,483 in 1995, $5,016,635 in 1994, $7,184,222 in
1993, $6,425,950 in 1992 and $1,545,794 in 1991. See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(2)Includes valuation allowance of $52,874,238 against the Union Square and 417
Fifth Avenue loans.
(3)Represents the July 1994 distribution of proceeds from the Partnership's
share of the proceeds from the sale of the 417 Fifth Avenue property in May
1994.
(4)Represents the September 1993 distribution of proceeds of the prepayment of
the EQK Loan in August 1993.
The above selected financial data should be read in conjunction with the
Financial Statements and notes thereto in Item 8, "Financial Statements and
Supplementary Data."
Item 7. 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 the 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
January 1, 1995 the mall had an appraised value of $81,000,000. The January 1,
1996 appraisal was not available prior to the filing of this report. However,
the potential for the Partnership to collect its portion of the loan at
maturity will depend upon the borrower's ability to refinance or sell the
property in the prevailingly unfavorable market for retail properties. The
General Partner is monitoring the situation closely, and will consider all
available alternatives to maximize the Partnership's loan interest in the
property. At December 31, 1995, Laurel Centre, was 88.1% occupied, compared
with 93.4% a year earlier. Tenant sales at the mall (excluding anchor tenants)
totaled $57.3 million for 1995, compared with $58.7 million for 1994.
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. 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 difficulties in the
San Francisco market. The Hotel has reported improved operating results since
the June 1992 restructuring of its debt due to the strengthening of the San
Francisco hospitality market. Average occupancy and room rates at the Hotel
were 81.30% and $142.25 for the year ended December 31, 1995 compared to 75.45%
and $141.17 in 1994. Although the Hotel has generated sufficient cash flow to
meet its quarterly debt service payments due through January 1995, there is no
assurance the Hotel will be able to meet future minimum debt service payments.
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.
In April 1993, 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. 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
December 31, 1995 totals $37,999,250, 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.
The Partnership's investment in zero coupon Treasury securities and cash
comprise the Partnership's working capital reserve. At December 31, 1995, the
Partnership had $1,073,105 invested in zero coupon U.S. Treasury securities and
cash of $910,771, compared to $981,734 and $1,018,759, respectively, at
December 31, 1994. The increase in U.S. Treasury securities represents
interest accrued on the securities for the twelve months ended December 31,
1995. The decrease in the cash balance at December 31, 1995, is due to the
Partnership meeting its normal operating expenses.
Results of Operations
1995 versus 1994
Net income for the year ended December 31, 1995, totalled $1,087,928 compared
with $2,677,094 for 1994. The decrease in net income from 1994 reflects the
inclusion in 1994 of a gain on mortgage retirement of the 417 Fifth Avenue loan
totalling $2,018,716, partially offset by a decrease in amortization of
deferred charges.
Net interest income for the year ended December 31, 1995, totalled $1,355,969
compared to $1,221,305 for 1994. The increase is primarily attributable to the
compounding of interest on the Laurel Centre loan and higher interest rates
earned on the Partnership's cash balances in 1995, paritally offset by the
retirement of the 417 Fifth Avenue loan.
Total expenses were $274,941 and $572,875, respectively, for the years ended
December 31, 1995 and 1994. The decrease in 1995 is primarily attributable to
a decrease in amortization of deferred charges due to the write-off of deferred
charges relating to the 417 Fifth Avenue loan in 1994. The decrease in total
expenses is also attributable to lower general and administrative expenses
resulting from lower legal and other professional fees in 1995.
1994 versus 1993
For the year ended December 31, 1994, net income totalled $2,677,094 as
compared with net income of $7,707,032 for the year ended December 31, 1993.
Total income for the year ended December 31, 1994 was $3,249,969, compared with
$8,625,379 for the year ended December 31, 1993. The decrease 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 1994, 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 year ended December 31, 1993
from its sale of U.S. Treasury securities. The Partnership did not sell any
securities in 1994.
Total expenses for the year ended December 31, 1994 were $572,875, compared
with $918,347 for the year ended 1993. The decrease is primarily attributable
to decreases in amortization of organization costs and is offset 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.
Item 8. Financial Statements and Supplementary Data
See Item 14 "Exhibits, Financial Statement Schedules, and Reports on Form 8-K"
for a listing of the financial statements filed with this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The Partnership has no officers or directors. The General Partner of the
Partnership is CG Realty Funding Inc. (formerly Shearson Lehman Realty Funding
Inc.), a Delaware Corporation and affiliate of Lehman Brothers Inc. The General
Partner manages and controls substantially all of the Partnership's affairs and
has general responsibility and ultimate authority in all matters affecting the
Partnership's business.
On July 31, 1993, Shearson Lehman Brothers Inc. ("Shearson") sold certain of
its domestic retail brokerage and asset management businesses to Smith Barney,
Harris Upham & Co. Incorporated ("Smith Barney"). Subsequent to this sale,
Shearson changed its name to Lehman Brothers Inc. The transaction did not
affect the ownership of the Partnership or the Partnership's General Partner.
However, the assets acquired by Smith Barney included the name "Shearson."
Consequently, effective October 22, 1993, Shearson Lehman Realty Funding Inc.
changed its name to CG Realty Funding Inc to delete any references to
"Shearson."
Certain officers and directors of CG Realty Funding Inc. are now serving (or in
the past have served) as officers and directors of entities which have sought
protection under the provisions of the Federal Bankruptcy Code. The
partnerships which have filed bankruptcy petitions own real estate which has
been adversely affected by the economic conditions in the markets in which that
real estate is located and, consequently, the partnerships sought the
protection of the bankruptcy laws to protect the partnerships' assets from loss
through foreclosure.
The directors and executive officers of the General Partner are as follows:
Name Office
Kenneth L. Zakin Director and President
Moshe Braver Director
Daniel M. Palmier Vice President and Chief Financial Officer
Kenneth L. Zakin, 48, is a Senior Vice President of Lehman Brothers and has
held such title since November 1988. He is currently a senior manager in
Lehman Brothers' Diversified Asset Group and was formerly group head of the
Commercial Property Division of Shearson Lehman Brothers' Direct Investment
Management Group responsible for the management and restructuring of limited
partnerships owning commercial properties throughout the United States. From
January 1985 through November 1988, Mr. Zakin was a Vice President of Shearson
Lehman Brothers Inc. Mr. Zakin is a director of Lexington Corporate
Properties, Inc. He is a member of the Bar of the State of New York and
previously practiced as an attorney in New York City from 1973 to 1984
specializing in the financing, acquisition, disposition, and restructuring of
real estate transactions. Mr. Zakin is a member of the Real Estate Lender's
Association and is currently an associate member of the Urban Land Institute
and a member of the New York District Council Advisory Services Committee. He
received a Juris Doctor degree from St. John's University School of Law in
1973 and a B.A. degree from Syracuse University in 1969.
Moshe Braver, 42, is currently a Managing Director of Lehman Brothers and has
held such position since October 1985. During this time, he has held positions
with the Business Analysis Group, International and Capital Markets
Administration and currently, with the Diversified Asset Group. Mr. Braver
joined Shearson Lehman Brothers in August 1983 as Senior Vice President. Prior
to joining Shearson, Mr. Braver was employed by the accounting firm of Coopers
& Lybrand from January 1975 through August 1983 as an Audit Manager. He
received a Bachelor of Business Administration degree from Bernard Baruch
College in January 1975 and is a Certified Public Accountant.
Daniel M. Palmier, 34, is a Vice President of Lehman Brothers Inc. in its
Diversified Asset Group, and has been employed by Lehman Brothers since June
1990. He is responsible for the asset management and restructuring of a
diverse portfolio of assets including commercial real estate and mortgages.
From March of 1988, Mr. Palmier worked for LJ Hooker Corporation, Inc. and held
positions of Senior Associate of Mergers and Acquisitions/Corporate Finance and
Vice President in the Real Estate division. From September 1986, Mr. Palmier
was a Real Estate Acquisitions Officer at John Anthony Associates, Inc. in New
York. From June 1983, Mr. Palmier worked in the public accounting field, most
notably for the firm Price Waterhouse. Mr. Palmier, a New York Certified
Public Accountant, earned a Masters of Science in Real Estate Degree from New
York University in 1995 and graduated from the University of Notre Dame in 1983
with a B.B.A. in Accounting.
Item 11. Executive Compensation
All of the Directors and Executive Officers of the General Partner are
employees of Lehman Brothers Inc. They do not receive any salaries or other
compensation from the Partnership. See Item 13 "Certain Relationships and
Related Transactions" with respect to a description of certain transactions of
the General Partner or its affiliates with the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
(a) Security ownership of certain beneficial owners
As of December 31, 1995, no person was known by the Partnership to be the
beneficial owner of more than five percent (5%) of the outstanding Units of the
Partnership.
(b) Security ownership of management
As of December 31, 1995 none of the officers and directors of the General
Partner owned any Units.
(c) Changes in control
None.
Item 13. Certain Relationships and Related Transactions
The Partnership has and will continue to have certain relationships with the
General Partner and its affiliates, as discussed below. However, there have
been no direct financial transactions between the Partnership and the directors
or executive officers of the General Partner.
The General Partner is entitled to an Annual Investment Management Fee of
$75,000 for managing the Partnership's portfolio of mortgages and Treasury
securities. In addition, the General Partner receives 1% of any Repayment
Proceeds, as defined in the agreement of limited partnership, until the limited
partners have received their capital contributions and a 14% cumulative
non-compounded annual return. Thereafter, the General Partner will be entitled
to any amount owed to it as a disposition fee and 1% of any remaining proceeds
thereafter.
First Data Investor Services Group (formerly The Shareholder Services Group),
an unaffiliated company, provides partnership accounting and investor relations
services for the Partnership. Prior to May 1993, these services were provided
by an affiliate of the General Partner. The Partnership's transfer agent and
certain tax reporting services are provided by Service Data Corporation, an
unaffiliated company. A summary of amounts paid to the General Partner or its
affiliates during the past three fiscal years is included in Note 5
"Transactions with Related Parties" of the Notes to Financial Statements.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) (2) Financial statements and financial statement schedules:
CAPITAL GROWTH MORTGAGE INVESTORS, L.P.
Page
Independent Auditors' Report F-1
Balance Sheets - At December 31, 1995 and 1994 F-2
Statements of Partners' Capital (Deficit) - For
the years ended December 31, 1995, 1994 and 1993 F-2
Statements of Operations - For the years ended
December 31, 1995, 1994 and 1993 F-3
Statements of Cash Flows - For the years ended
December 31, 1995, 1994 and 1993 F-4
Notes to Financial Statements F-5
Schedule II - Valuation and Qualifying Accounts F-12
Schedule IV - Mortgage Loans on Real Estate F-13
(3) Exhibits:
3.1 Amended and Restated Agreement of Limited Partnership (filed as
Exhibit A to Prospectus dated October 15, 1986) is hereby
incorporated by reference.
10.1 Amended and Restated Shearson Union Square Associates Limited
Partnership Zero Coupon Mortgage Note due January 2,
1997 (filed as Exhibit 10(A) to the Partnership's Current
Report on Form 8-K filed July 14, 1992) is hereby incorporated
by reference.
10.2 Settlement of Loan Defaults and Bankruptcy (Filed as exhibit
10.2 to the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1994) is hereby incorporated by
reference.
(A) Intercreditor Agreement dated August 5, 1993 between
Capital Growth Mortgage Investors, L.P. and the
Equitable Life Assurance Society of The United States.
(B) Letter Agreement dated September 1, 1993 between The
Equitable Life Assurance Society of The United States
and 417 Fifth Avenue Realty Company.
(C) Letter Agreement dated September 22, 1993 between
Capital Growth Mortgage Investors, L.P. and the
Equitable Life Assurance Society of The United States.
27 Financial Data Schedule
(b) Reports on Form 8-K:
No reports on Form 8-K were filed in the fourth quarter of the year for
which this report is filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: March 28, 1996
CAPITAL GROWTH MORTGAGE INVESTORS L.P.
BY: CG Realty Funding Inc.
General Partner
BY: /s/ Kenneth L. Zakin
Name: Kenneth L. Zakin
Title: Director and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.
CG REALTY FUNDING INC.
A General Partner
Date: March 28, 1996 BY: /s/ Kenneth L. Zakin
Kenneth L. Zakin
Director and President
Date: March 28, 1996 BY: /s/ Moshe Braver
Moshe Braver
Director
Date: March 28, 1996 BY: /s/ Daniel M. Palmier
Daniel M. Palmier
Vice President and Chief
Financial Officer
Independent Auditors' Report
The Partners
Capital Growth Mortgage Investors Fund, L.P.:
We have audited the financial statements of Capital Growth Mortgage Investors
Fund, L.P. (a Delaware limited partnership) as listed in the accompanying
index. In connection with our audits of the financial statements, we have also
audited the financial statement schedules as listed in the accompanying index.
These financial statements and financial statement schedules are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Growth Mortgage
Investors Fund, L.P. at December 31, 1995 and 1994, and the results of its
operations and cash flows for each of the years in the three-year period ended
December 31, 1995, in conformity with generally accepted accounting principles.
Also in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Boston, Massachusetts
March 25, 1996
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Zero coupon second mortgage loan
receivable, net of unamortized
discount of $4,779 in 1995 and $9,096
in 1994 (Note 4) $37,999,250 $34,228,767
Less - valuation allowance (37,999,250) (34,228,767)
_ _
Zero coupon first mortgage loan receivable (Note 4) 12,846,120 11,629,648
Cash and cash equivalents 910,771 1,018,759
Investments in U.S. Treasury securities 1,073,105 981,734
Notes receivable, net of allowance for doubtful
accounts of $2,611,952 in 1995 and 1994 (Note 4) _ _
Deferred charges, net of accumulated
amortization of $882,731 in 1995 and
$778,879 in 1994 103,849 207,701
Total Assets $ 14,933,845 $ 13,837,842
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $31,496 $29,633
Due to affiliates (Note 5) 14,394 8,182
Total Liabilities 45,890 37,815
Partners' Capital (Deficit):
General Partner (983,819) (983,819)
Limited Partners (Depositary units: 30,000,000
authorized, 7,047,000 issued and outstanding) 15,871,774 14,783,846
Total Partners' Capital 14,887,955 13,800,027
Total Liabilities and Partners' Capital $ 14,933,845 $ 13,837,842
Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
Limited General
Partners Partner Total
Balance at December 31, 1992 $54,034,191 $(483,487) $53,550,704
Distributions to foreign
limited partners (5,466) - (5,466)
Cash distributions to partners (48,134,341) (486,746) (48,621,087)
Net income 7,705,618 1,414 7,707,032
Balance at December 31, 1993 13,600,002 (968,819) 12,631,183
Distributions to foreign
limited partners (16,068) - (16,068)
Cash distributions to partners (1,477,182) (15,000) (1,492,182)
Net income 2,677,094 - 2,677,094
Balance at December 31, 1994 14,783,846 (983,819) 13,800,027
Net income 1,087,928 - 1,087,928
Balance at December 31, 1995 $15,871,774 $(983,819) $14,887,955
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Interest income $5,126,452 $6,237,940 $11,186,023
Less - allowance for doubtful
accounts (Note 4) (3,770,483) (5,016,635) (7,184,222)
Net interest income 1,355,969 1,221,305 4,001,801
Gain on sale of U.S. Treasury
securities - - 17,785
Miscellaneous income (Note 5) 6,900 9,948 55,985
Loan prepayment premium (Note 4) - - 4,549,808
Gain on mortgage retirement (Note 4) - 2,018,716 -
Total Income 1,362,869 3,249,969 8,625,379
Expenses
Amortization of deferred
charges 103,852 370,799 608,361
General and administrative
(Note 5) 96,089 127,076 234,986
Investment management fee
(Note 5) 75,000 75,000 75,000
Total Expenses 274,941 572,875 918,347
Net Income $ 1,087,928 $ 2,677,094 $ 7,707,032
Net Income Allocated:
To the General Partner $ - $ - $ 1,414
To the Limited Partners 1,087,928 2,677,094 7,705,618
$ 1,087,928 $ 2,677,094 $ 7,707,032
Per limited partnership unit
(7,047,000 outstanding) $.15 $.38 $1.09
Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities:
1995 1994 1993
Net income $1,087,928 $2,677,094 $7,707,032
Adjustments to reconcile
net income to net cash
used for operating activities:
Gain on sale of
U.S. Treasury securities - - (17,785)
Loan prepayment premium - - (4,549,808)
Gain on mortgage
retirement - (2,018,716) -
Valuation allowance 3,770,483 5,016,635 7,184,222
Amortization of
deferred charges 103,852 370,799 608,361
Amortization of
discount on loan (4,317) (4,318) (8,814)
Increase (decrease) in
cash arising from changes
in operating assets
and liabilities:
Mortgage loan interest
receivable (4,982,638) (6,113,595) (10,945,589)
Accounts receivable - 50,000 (50,000)
Investment in U.S. Treasury
securities (91,371) (83,590) (80,245)
Accounts payable and
accrued expenses 1,863 (16,348) (42,968)
Due to affiliates 6,212 (2,571) (11,363)
Net cash used for
operating activities (107,988) (124,610) (206,957)
Cash Flows from Investing Activities:
Proceeds from retirement
of mortgage loan - 2,018,716 -
Proceeds from prepayment
of mortgage loan - - 49,174,622
Proceeds from sale of U.S.
Treasury securities - - 151,122
Net cash provided by
investing activities - 2,018,716 49,325,744
Cash Flows from Financing Activities:
Cash distributions to partners - (1,492,182) (48,621,087)
Distributions - income tax
withholdings for foreign partners - (16,068) (5,466)
Net cash used for financing
activities - (1,508,250) (48,626,553)
Net increase (decrease) in
cash and cash equivalents (107,988) 385,856 492,234
Cash and cash equivalents,
beginning of year 1,018,759 632,903 140,669
Cash and cash equivalents,
end of year $910,771 $1,018,759 $632,903
Notes to the Financial Statements
December 31, 1995, 1994 and 1993
1. Organization
Capital Growth Mortgage Investors, L.P. (formerly Shearson Lehman Pension &
Retirement Investors Fund, L.P.), (the "Partnership"), a Delaware limited
partnership, was formed on July 30, 1986 for the purpose of investing in and
originating zero coupon first and second mortgage loans made for purposes of
financing the acquisition of properties by limited partnerships sponsored by
affiliates of CG Realty Funding Inc. (formerly Shearson Lehman Realty Funding
Inc.), (the "General Partner"), an affiliate of Lehman Brothers Inc. and by
unaffiliated entities or to refinance existing mortgage debt. The initial
capital was $200, representing capital contributions of $100 by the General
Partner and $100 by Shearson Zero Coupon Depositary Corp.
On July 31, 1993, certain of Shearson Lehman Brothers Inc.'s domestic retail
brokerage and management businesses were sold to Smith Barney, Harris Upham &
Co. Inc. Included in the purchase was the name "Shearson." Consequently, the
General Partner's name was changed to CG Realty Funding Inc. to delete any
reference to "Shearson."
The agreement of limited partnership authorizes the issuance of 30,000,000
Depositary Units (the "Units"), which represent assignments of the economic and
certain other rights attributable to the Partnership interests. The offering
period ended on June 30, 1987 at which time 7,047,000 Depositary Units had been
issued and aggregate capital contributed by investors, (the "Limited Partners")
was $70,470,000.
As of December 31, 1995, the Partnership owns two Mortgage Investments more
fully described in Note 4 to the Financial Statements.
2. Significant Accounting Policies
Basis of Accounting
The accompanying financial statements have been prepared on the accrual basis
of accounting in accordance with generally accepted accounting principles.
Interest income on the zero coupon loans is recognized based upon the
contractual amounts due. Other revenues are recognized as earned and expenses
are recorded as obligations are incurred.
Accounting for Impairment of a Loan
In May 1993, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a
Loan" ("FAS 114") as amended by FAS No. 118, "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures." FAS 114 states that
a loan is considered impaired and a provision for credit losses is required if
it is probable that all amounts of principal and interest due will not be
collected when due. Impaired loans generally would be stated at an amount
based on the present value of expected future cash flows discounted at the
loan's effective interest rate. The Partnership's adoption of these statements
had no impact on the financial statements.
The Partnership's zero coupon mortgage loan receivables are considered impaired
when it is probable that the Partnership will be unable to collect all amounts
due according to the contractual terms of the loan agreements. A provision for
loss is recognized when management believes all principal balance and accrued
interest due under the terms of the zero coupon loan agreements will not be
recovered. Management's determination of the adequacy of the valuation
allowance is based on current economic conditions and interest rates, a
borrower's ability to refinance its loan, the value of the underlying
collateral and other relevant factors.
Cash Equivalents
Cash equivalents consist of short-term, highly liquid debt-instruments
purchased with an original maturity of three months or less. The carrying value
approximates fair value because of the short maturity of these instruments.
Concentration of Credit Risk
Financial instruments which potentially subject the Partnership to a
concentration of credit risk principally consist of cash in excess of the
financial institutions' insurance limits. The Partnership invests available
cash with high credit quality financial institutions.
Marketable securities
Marketable securities, which consist of United States Treasury securities, are
carried at amortized cost, which approximates market. It is the intent of
management to hold these securities through maturity.
Deferred Charges
Deferred charges consisting of mortgage placement and mortgage evaluation fees
are amortized using the straight-line method over the life of the respective
loans.
Use of 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 assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
No provision is made for income taxes since such liability is that of the
individual partners.
3. Partnership Agreement
Allocation of income and losses
Net income from temporary investments is allocated 99% to the Limited Partners
and 1% to the General Partner. Net income in excess of income earned from
temporary investments is allocated 100% to the Limited Partners until such time
as each investor has received an amount equal to their Preferred Return (a 14%
annual cumulative non-compounded return on their adjusted capital
contribution). Additional net income is allocated 100% to the General Partner
until such allocation equals 2% of the Gross Proceeds received from the sale of
limited partnership units ($70,470,000). Thereafter, net income is allocated
98% to the Limited Partners and 2% to the General Partner. Net loss shall be
allocated 99% to the Limited Partners and 1% to the General Partner.
Cash Distributions
Adjusted cash from operations and repayment proceeds shall be distributed 99%
to the Limited Partners and 1% to the General Partner.
Dissolution of Partnership
If, upon dissolution of the Partnership, the General Partner has a negative
capital account, it shall contribute capital equal to the amount of the
deficit. In no event, however, shall the required capital contribution exceed
1.01% of the total capital contributed by the Limited Partners less all prior
contributions by the General Partner.
4. Loans Receivable
Descriptions of the loans comprising the Partnership's portfolio follow:
Remaining Loan Investments
The Union Square Loan
The Partnership owns a zero coupon second mortgage loan (the "Second Mortgage")
to Union Square Hotel Partners, L.P. ("Union Square"), formerly Shearson Union
Square Associates limited partnership, which is collateralized by the Grand
Hyatt San Francisco Hotel in San Francisco, California. The principal amount
of the first mortgage is $70,000,000 (the "First Mortgage").
On January 9, 1992, the Bank of Nova Scotia (the "First Mortgagee") delivered a
notice of default under the First Mortgage note as a result of Union Square's
failure to pay a scheduled interest payment due on January 2, 1992. On March
9, 1992, the First Mortgagee recorded with the San Francisco County Recorder a
Notice of Default and Election to Sell under Deed of Trust (the "Default
Notice"). An event of default under the First Mortgage constitutes an event of
default under the Partnership's Second Mortgage.
On March 17, 1992, the Partnership delivered to Union Square a notice of
acceleration of the Second Mortgage. Pursuant to the terms of the mortgage
agreement, Union Square also owed an additional premium (the "Default Premium")
as a result of the Default Notice in the amount of $4,476,875. Upon
acceleration, the terms of the Second Mortgage also call for interest to accrue
at a default rate of 15.5% on the accreted value of the loan, including the
Default Premium.
On June 30, 1992 Union Square consummated a restructuring of its financing and
property management arrangements with the First Mortgagee, the Partnership,
certain other creditors and the hotel management company. As part of the
restructuring, the Partnership agreed to reduce the interest rate on its Second
Mortgage Loan from 12.5% to 11%. The reduction of the interest rate is
effective from and after January 2, 1992. The Partnership also agreed to waive
the mandatory prepayments of interest of $261,199, $1,014,379 and $1,996,457,
otherwise required to be paid on January 2, 1995, January 2, 1996 and January
2, 1997, respectively. As a result of these changes, the total revised amount
due upon maturity is $42,207,709 or approximately $3 million less than the
amount that would have otherwise been due if the interest rate remained at
12.5% and the scheduled interest prepayments been made as scheduled. The
Partnership also agreed to waive any prepayment (or yield maintenance) charges
in connection with the prepayment of all or any portion of the principal or
accrued interest under the Second Mortgage Loan.
The Partnership also agreed to automatically extend, from time to time, the
maturity date of the Second Mortgage Loan to the same maturity date as the
First Mortgagee may from time to time extend the maturity of the First Mortgage
(the "Extended Bank Maturity Date"), so long as the Extended Bank Maturity Date
is no later than January 2, 1999. The Partnership also agreed that if the
Extended Bank Maturity Date is later than January 2, 1999, the Partnership will
not unreasonably withhold its approval to extend the maturity date of the
Second Mortgage Loan to such Extended Bank Maturity Date, provided that such
extension will not, in the Partnership's reasonable judgment, diminish its
security for the Second Mortgage Loan below the level of such security as of
the most recent Extended Bank Maturity Date.
Also, as part of the restructuring, Lehman Brothers Holdings Inc. (formerly
Shearson Lehman Brothers Holdings Inc., hereafter referred to as "Lehman"),
assigned to the Partnership two unsecured interest bearing notes previously
executed by Union Square and held by Lehman (the "Unsecured Notes"). The total
indebtedness evidenced by the Unsecured Notes (and certain related obligations
of Union Square) was $2,611,952 in original principal plus accrued interest.
The Unsecured Notes will continue to accrue interest at the following interest
rates: (a) 9.699% per annum on $1,000,000 of the indebtedness represented by
the Unsecured Notes; and (b) the prime rate plus 1% per annum on the remaining
portion of the indebtedness represented by the Unsecured Notes. The Unsecured
Notes will mature simultaneously with the maturity of the Second Mortgage Loan.
At that time Union Square will also be required to pay all accrued but unpaid
interest on the Unsecured Notes. The Partnership agreed that no payments will
be made with respect to the Unsecured Notes unless and until the First Mortgage
Loan and certain other indebtedness of Union Square have been paid in full.
Union Square waived all claims and defenses that it might have had with respect
to the Second Mortgage Loan.
The restructuring was designed to reduce the near-term cash demands on Union
Square in order to help the Hotel overcome the persistent difficulties in the
San Francisco market. Since the restructuring, the Hotel has reported improved
operating results. Average occupancy and room rates increased to 81.30% and
$142.25 in 1995 compared to 75.45% and $141.17 in 1994, and progress has been
made in reducing the Hotel's operating expenses. During 1995 and 1994, the
Hotel generated sufficient cash flow to meet the minimum payments due under the
restructured terms of its first mortgage. However, there can be no assurance
that the Hotel will continue to generate sufficient cash flow to meet such
payments in the future. Pursuant to the terms of the restructuring, Union
Square is required to make debt service payments on a quarterly basis. Lehman,
an affiliate of the Union Square general partner, elected not to renew its
guaranty to pay any shortfalls in minimum debt service on the first mortgage,
which guaranty expired on June 30, 1993. The general partner of Union Square
reports that this decision does not reflect a change of position by Lehman,
rather only that they will evaluate the future need for additional funding on a
quarterly basis.
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 has fully reserved the carrying value of the
loan during the third quarter of 1992. The valuation allowance for this loan
at December 31, 1995 totals $37,999,250, representing the accreted value of the
loan at such date. The level of the allowance will be assessed on a quarterly
basis.
The Laurel Centre
Loan On July 28, 1987, the Partnership purchased a 24% interest in a zero
coupon loan for $5,555,431 which included accrued interest to the date of
purchase of $155,431 on a first mortgage loan to Laurel Owner Partners Limited
Partnership (the "Owner Partnership"), a Maryland limited partnership which
owns Laurel Centre, a regional shopping mall in Laurel, Prince George's County,
Maryland (the "Mall"). Shopco Laurel Centre, L.P., a Delaware limited
partnership, is the General Partner. The nonrecourse zero coupon loan accrues
interest at an annual implicit rate of 10.2% per annum, compounded
semiannually, and has a term of nine and one-half years and matures October 15,
1996. The loan is collateralized by a first deed on the Mall and an assignment
of leases. In addition, the Partnership will receive additional interest equal
to the proportionate share of 5% of any appreciation in the Mall throughout the
term of the participation in excess of $72,500,000 (the appraised value of the
Mall on January 1, 1987). The current accreted amount of the Partnership's
share of the loan is $12,846,120. The accreted amount of the Partnership's
share of the loan at maturity, excluding the amount of additional interest due,
if any, will be $13,894,578.
The mortgage agreement specifically provides for an annual covenant with which
the Owner Partnership 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 of the
Property on January 1, 1995 of $81,000,000 this covenant was met at December
31, 1994. However, because the January 1, 1996 appraisal was not available
prior to the filing of this report, it is uncertain if this covenant was met at
December 31, 1995.
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 effect the Borrower's ability to refinance or restructure
the loan. The most recent appraisal value of the Mall was in excess of the
fully accreted amount of the Partnership's first mortgage loan. 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 Mall at maturity. However, the General Partner believes that
although it is probable the Partnership may not collect its share of the loan
on the maturity date (October 15, 1996) the Partnership will ultimately collect
its share of the loan plus additional interest, if any. Therefore, under FAS
114 the loan is impaired, but no reserve is required at December 31, 1995.
Former Loan Investments
The EQK Loan
On July 28, 1987, the Partnership purchased a 50% interest in a zero coupon
loan for $24,099,945 which included accrued interest to the date of purchase of
$2,099,945 on a first mortgage loan to EQK Green Acres L.P. ("EQK"), a limited
partnership, which owns and operates the Green Acres Mall in Southwestern
Nassau County, Long Island, New York.
On August 19, 1993 the Partnership received a total of $49,174,622, of which
$44,624,814 represented the accreted value of the loan and $4,549,808
represented a prepayment premium. As a result of the prepayment the
Partnership wrote-off $349,341 of net deferred charges. On September 23, 1993
a cash distribution was paid totalling $48,674,622, of which $486,746 was
distributed to the General Partner and $48,187,876 to the Limited Partners or
$6.84 per limited partnership unit. The amount paid to the Limited Partners
was reduced by a foreign withholding recoupment of $53,535.
The 417 Fifth Avenue Loan
The Partnership owned a zero coupon loan in the face amount of $17,500,000 to
417 Fifth Avenue Realty Company (the "Borrower"), a New York general
partnership. The loan was secured by a second mortgage on an eleven story
office building located at 417 Fifth Avenue in Manhattan, New York (the "Office
Building"). The carrying value of the loan was fully reserved for in 1992.
The First Mortgage Holder commenced a foreclosure proceeding against the
borrower. On May 1, 1992, the Partnership delivered a notice of default
informing the Borrower of its default on the Partnership's second mortgage loan
and also commenced its own foreclosure proceeding.
On or about August 9, 1993, the Borrower filed a voluntary bankruptcy petition
in the Southern District of New York. On August 15, 1993 the Partnership
agreed with the First Mortgage Holder to coordinate activities in the
bankruptcy and to give the Partnership an interest in whatever the First
Mortgage Holder ultimately realized in the Property (the "Intercreditor
Agreement").
Pursuant to the Intercreditor Agreement, the Partnership realized $1,565,079
from its investment in 1994. In addition to the sales proceeds, the Partnership
obtained approximately $450,000 from certain reserve accounts. The Partnership
distributed $1,508,250 of the proceeds to the partners and the remaining funds
were added to the Partnership's cash reserves to fund the 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.
On July 15, 1994, a cash 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 limited partnership 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.
5. Transactions with Related Parties
Cash and cash equivalents reflected on the Partnership's balance sheets at
December 31, 1995 and 1994 were on deposit with an affiliate of the General
Partner.
Under the terms of the Partnership Agreement, the Partnership reimburses the
General Partner, at cost, for the performance of certain administrative
services provided by a third party. For the years ended December 31, 1995,
1994, and 1993, the cost of such services were $13,067, $6,297 and $8,563,
respectively. At December 31, 1995 and 1994, $1,894 and $1,932 were due to the
General Partner for the performance of these services.
The General Partner and its affiliates received fees and compensation for the
offering of interests in the Partnership, fees for acting as general partner of
the Partnership, and reimbursement of organization and offering expenses. The
aforementioned amount of fees and organizational and offering costs was
$7,042,300. In addition, the General Partner earned investment management fees
of $75,000 in 1995, 1994 and 1993 of which $12,500 was unpaid at December 31,
1995 and $6,250 were unpaid at December 31, 1994.
During 1993, the right of first refusal on the EQK Loan was sold to an
affiliate of the General Partner for $50,000 which amount was received on
November 22, 1994.
6. Reconciliation of Financial Statement Net Income to Federal Income Tax Basis
Net Income (Loss)
Year Ended December 31,
1995 1994 1993
Financial statement net income $1,087,928 $2,677,094 $7,707,032
Tax loss on retirement of note - (29,409,324) -
Other 405 - -
Federal income tax basis
net income (loss) $1,088,333 $(26,732,230) $7,707,032
7. Supplemental Information (Unaudited)
The following are condensed financial statements of the borrowers on the loans
comprising the Partnership's portfolio. This information is not covered by the
independent auditors' report.
Union Square Hotel Partners, L.P.
(A Delaware Limited Partnership)
Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Real estate, at cost:
Land $32,231,229 $32,231,229
Building 80,121,007 80,121,007
Furniture, fixtures and equipment 29,586,047 28,749,108
141,938,283 141,101,344
Less accumulated depreciation (43,176,995) (38,235,817)
98,761,288 102,865,527
Cash and cash equivalents 3,378,174 2,668,685
Replacement reserve receivable 500,440 89,506
Rent receivable 318,626 194,244
Deferred charges, net of accumulated
amortization of $3,849,203 in 1995
and $3,388,028 in 1994 495,582 956,757
Total Assets $103,454,110 $106,774,719
Liabilities and Partners' Deficit
Liabilities:
Accounts payable and accrued expenses $41,645 $66,420
Due to affiliates 20,397 28,342
Mortgage loan payable 70,000,000 70,000,000
Accrued interest 13,104,156 11,580,105
Deferred interest 8,800,319 8,020,283
Notes and Loans - Affiliate 53,016,740 48,891,636
Loan payable - Hyatt 3,772,578 3,772,578
Total Liabilities 148,755,835 142,359,364
Partners' Deficit:
General Partner (1,136,237) (1,039,066)
Limited Partners (44,165,488) (34,545,579)
Total Partners' Deficit (45,301,725) (35,584,645)
Total Liabilities and Partners' Deficit $103,454,110 $106,774,719
Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental income:
Operating income $7,677,616 $5,816,107 $4,045,593
Replacement escrow 1,247,873 1,147,573 1,080,728
Interest income 123,210 39,454 29,677
Miscellaneous income 2,757 2,765 256,652
Total Income 9,051,456 7,005,899 5,412,650
Expenses
Interest expense 13,159,716 12,337,774 11,453,674
Depreciation and amortization 5,402,353 5,474,406 6,165,463
General and administrative 206,467 208,946 198,079
Total Expenses 18,768,536 18,021,126 17,817,216
Net Loss (9,717,080) $(11,015,227) $(12,404,566)
Net Loss Allocated:
To the General Partner $(97,171) $(110,152) $(124,045)
To the Limited Partners (9,619,909) (10,905,075) (12,280,521)
$(9,717,080) $(11,015,227) $(12,404,566)
Per limited partnership unit
(7,174,100 outstanding): $(1.34) $(1.52) $(1.71)
7. Supplemental Information (Unaudited) Continued
The following are condensed financial statements of the borrowers on the loans
comprising the Partnership's portfolio. This information is not covered by the
independent auditors' report.
Shopco Laurel Centre, L.P. and Consolidated Partnership
(A Delaware Limited Partnership)
Consolidated Balance Sheets
December 31, 1995 and 1994
Assets 1995 1994
Real estate, at cost:
Land $5,304,011 $5,304,011
Building 61,062,234 60,029,923
Improvements 3,668,110 3,181,448
70,034,355 68,515,382
Less accumulated depreciation
and amortization (14,100,499) (12,170,608)
55,933,856 56,344,774
Cash and cash equivalents 13,427,085 10,431,820
Accounts receivable, net of
allowance of $254,927 in 1995 and
$131,759 in 1994 242,818 528,845
Deferred rent receivable 482,624 309,478
Deferred charges, net of accumulated
amortization of $273,442
in 1995 and $218,353 in 1994 133,295 142,322
Prepaid expenses 553,034 530,446
Total Assets $70,772,712 $68,287,685
Liabilities, Minority Interest
and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $285,035 $179,794
Zero coupon first mortgage note payable 53,525,503 48,456,864
Second mortgage note payable 2,000,000 2,000,000
Second mortgage note accrued
interest payable 19,167 19,167
Due to affiliates 8,851 9,891
Security deposits payable 14,633 14,633
Deferred income 804,171 766,727
Distribution payable 588,384 588,384
Total Liabilities 57,245,744 52,035,460
Minority interest (583,239) (526,787)
Partners' Capital:
General Partner 917,755 944,444
Limited Partners (4,660,000 limited
partnership units authorized,
issued and outstanding) 13,192,452 15,834,568
Total Partners' Capital 14,110,207 16,779,012
Total Liabilities, Minority Interest and
Partners' Capital $70,772,712 $68,287,685
Consolidated Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental income $5,835,838 $5,526,093 $5,373,724
Escalation income 5,092,316 5,004,831 4,763,187
Interest income 567,284 274,960 170,185
Miscellaneous income 454,382 316,315 290,117
Total Income 11,949,820 11,122,199 10,597,213
Expenses
Interest expense 5,298,639 4,822,735 4,384,130
Property operating expenses 3,737,361 3,642,418 3,325,995
Depreciation and amortization 1,984,980 1,873,237 1,835,776
Real estate taxes 1,023,297 1,034,656 1,050,690
General and administrative 223,623 209,045 245,158
Total Expenses 12,267,900 11,582,091 10,841,749
Loss before minority interest (318,080) (459,892) (244,536)
Minority interest 2,811 2,547 84
Net Loss $(315,269) $(457,345) $(244,452)
Net Loss Allocated:
To the General Partner $(3,153) $(4,573) $(2,445)
To the Limited Partners (312,116) (452,772) (242,007)
$(315,269) $(457,345) $(244,452)
Per limited partnership unit
(4,660,000 outstanding) $(.07) $(.10) $(.05)
Schedule II
Valuation and Qualifying Accounts
December 31, 1995
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
Allowance for
doubtful accounts:
Year ended
December 31, 1993:
Mortgage loans
receivable $60,845,982 $7,184,222 $- $68,030,204
Year ended
December 31, 1994:
Mortgage loans
receivable $68,030,204 $5,016,635 $(38,818,072) $34,228,767
Year ended
December 31, 1995:
Mortgage loans
receivable $34,228,767 $3,770,483 $- $37,999,250
Schedule IV - Mortgage Loans on Real Estate
December 31, 1995
Final
Description Interest Rate Maturity Date Periodic Payment Terms
The Grand Hyatt Implicit annual 01/02/97 No payment of interest
San Francisco rate of 11% or principal are due
compounded annually until maturity. (1)
Principal Amount of
Face amount Loans Subject to
of mortgages Carrying Amount Delinquent Principal
Prior Liens at maturity of Mortgages or Interest
$70,000,000 $42,207,709 $ 0 N/A
Final
Description Interest Rate Maturity Date Periodic Payment Terms
The Laurel Implicit annual 10/15/96 No payments of interest
Centre Loan rate of 10.2% or principal are due
Participation compounded until maturity.
semiannually
Principal Amount of
Face amount Loans Subject to
of mortgages Carrying Amount Delinquent Principal
Prior Liens at maturity of Mortgages or Interest
None $13,894,578(2) $12,846,120(2) N/A
$56,102,287 $12,846,120
The aggregate cost for Federal income tax purposes of the mortgage loans at
December 31, 1995 is $37,878,879.
1 Prior to restructuring, three interim interest payments were required.
2 Represents the Partnership's 24% interest.
Reconciliation of Mortgage Loans on Real Estate
For the years ended December 31, 1995, 1994 and 1993
1995 1994 1993
Beginning of year $11,629,648 $10,528,370 $51,383,003
Accrued interest 4,982,638 6,113,596 10,945,589
Amortization of discount 4,317 4,317 8,814
Allowance for
doubtful accounts (3,770,483) (5,016,635) (7,184,222)
Retirement of
mortgage loan - - (44,624,814)
End of year $12,846,120 $11,629,648 $10,528,370
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