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 June 30, 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
State or Other Jurisdiction of
Incorporation or Organization I.R.S. Employer Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 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 At June 30, At December 31,
1996 1995
Assets
Zero coupon second mortgage loan
receivable, net of unamortized discount
of $2,619 in 1996 and $4,779 in 1995 $40,090,480 $37,999,250
Less valuation allowance (40,090,480) (37,999,250)
0 0
Zero coupon first mortgage loan receivable 13,501,271 12,846,120
Cash and cash equivalents 844,383 910,771
Investments in U.S. Treasury securities 1,121,797 1,073,105
Notes receivable, net of allowance for doubtful
accounts of $2,611,952 in 1996 and 1995 0 0
Deferred charges, net of accumulated amortization
of $934,656 in 1996 and $882,731 in 1995 51,924 103,849
Total Assets $15,519,375 $14,933,845
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 28,111 $ 31,496
Due to affiliates 7,450 14,394
Total Liabilities 35,561 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) 16,467,633 15,871,774
Total Partners' Capital 15,483,814 14,887,955
Total Liabilities and Partners' Capital $15,519,375 $14,933,845
Statement of Partners' Capital (Deficit)
For the six months ended June 30, 1996
Limited General
Partners Partner Total
Balance at December 31, 1995 $15,871,774 $(983,819) $14,887,955
Distributions to foreign limited partners (2,267) 0 (2,267)
Net income 598,126 0 598,126
Balance at June 30, 1996 $16,467,633 $(983,819) $15,483,814
Statements of Operations
Three months Six months
ended June 30, ended June 30,
1996 1995 1996 1995
Income
Interest income $1,413,637 $1,278,329 $2,823,660 $2,546,318
Less allowance for
doubtful accounts (1,046,766) (943,139) (2,091,230) (1,884,204)
Net interest income 366,871 335,190 732,430 662,114
Miscellaneous income 2,315 1,430 4,905 2,465
Total Income 369,186 336,620 737,335 664,579
Expenses
Amortization of deferred charges 25,962 25,963 51,925 51,926
General and administrative 26,117 23,871 49,784 55,046
Investment management fee 18,750 18,750 37,500 37,500
Total Expenses 70,829 68,584 139,209 144,472
Net Income $ 298,357 $ 268,036 $ 598,126 $ 520,107
Net Income Allocated:
To the General Partner $ 0 $ 0 $ 0 $ 0
To the Limited Partners 298,357 268,036 598,126 520,107
$ 298,357 $ 268,036 $ 598,126 $ 520,107
Per limited partnership unit
(7,047,100 outstanding) $.04 $.04 $.08 $.07
Statements of Cash Flows
For the six months ended June 30, 1996 1995
Cash Flows From Operating Activities
Net income $ 598,126 $ 520,107
Adjustments to reconcile net income to net cash
used for operating activities:
Allowance for doubtful accounts 2,091,230 1,884,204
Amortization of deferred charges 51,925 51,926
Amortization of discount on loan (2,160) (2,159)
Decrease in cash arising from changes in
operating assets and liabilities:
Zero coupon mortgage loan interest receivable (2,744,221) (2,475,157)
Investments in U.S. Treasury securities (48,692) (44,297)
Accounts payable and accrued expenses (3,385) (317)
Due to affiliates (6,944) 6,718
Net cash used for operating activities (64,121) (58,975)
Cash Flows from Financing Activities:
Distributions - income tax withholdings
for foreign partners (2,267) 0
Net cash used for financing activities (2,267) 0
Net decrease in cash and cash equivalents (66,388) (58,975)
Cash and cash equivalents, beginning of period 910,771 1,018,759
Cash and cash equivalents, end of period $ 844,383 $ 959,784
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 June 30, 1996 and the
results of operations for the three and six months ended June 30,
1996 and 1995, the statement of cash flows for the six months
ended June 30, 1996 and 1995 and the statement of partners'
capital (deficit) for the six months ended June 30, 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 remaining 76% interest in the loan, originally
held by Kemper Investors Life Insurance Company, was sold to a
real estate mortgage investment conduit in 1993. The mortgage
note will mature on October 15, 1996, with a fully accreted value
of $57,894,075. 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 will
depend upon the borrower's ability to refinance or sell the
property. The borrower has informed the Partnership that it has
retained a broker and is currently marketing the property for
sale. Additionally, in April the borrower approached the General
Partner regarding a possible restructuring of the Partnership's
mortgage note. Following discussions with the participant in the
loan, the borrower's request for a modification of the terms of
the loan was denied. In the event the borrower is unable to sell
the property or refinance the loan, the General Partner intends
to take all legal steps necessary to protect the Partnership's
interest in the loan.
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.
At June 30, 1996, Laurel Centre was 80.6% occupied, compared with
90.1% a year earlier. Tenant sales at the mall (excluding anchor
tenants) totaled $19,685,000 in the first five months of 1996,
compared with $20,341,000 in the first five months of 1995.
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 84.7% and $152.43 for the second quarter of 1996
compared to 79.6% and $141.56 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
June 30, 1996 totaled $40,090,480, 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. It is the intention of the General Partner to retain
an appraiser to ascertain the current market value of the Hotel.
The borrower has informed the Partnership that it is seeking to
sell the Hotel or refinance the mortgage prior to the maturity of
the note, and that it has retained a broker to assist in
marketing the Hotel. However, many lenders remain cautious with
respect to hotel refinancings and there can be no assurance a
sale will occur or that the Hotel could be sold for a price
sufficient to satisfy the entire amount of the Hotel's mortgage
obligations.
The Partnership's investment in zero coupon Treasury securities
and cash comprise the Partnership's working capital reserve. At
June 30, 1996, the Partnership had $1,121,797 invested in zero
coupon U.S. Treasury securities and cash of $844,383, 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 six months of 1996. The decrease
in the cash balance is primarily due to the Partnership meeting
its normal operating expenses.
Results of Operations
For the three and six months ended June 30, 1996, net income
totaled $298,357 and $598,126 respectively, compared with net
income of $268,036 and $520,107, respectively, for the three and
six months ended June 30, 1995.
Total income for the three and six months ended June 30, 1996 was
$369,186 and $737,335, respectively, compared with $336,620 and
$664,579, respectively, for the corresponding periods in 1995.
The increase in both the three and six month periods 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 and six months ended June 30, 1996
were $70,829 and $139,209, respectively, compared with $68,584
and $144,472, respectively, for the corresponding periods in
1995. The slight increase for the three-month period is due to
higher general and administrative expenses. The decrease for the
six-month period is due to a decrease in general and
administrative expenses, which is primarily attributable to lower
professional fees and partnership servicing 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 June 30, 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: August 14, 1996 BY: /s/ Kenneth L. Zakin
Director and President
Date: August 14, 1996 BY: /s/ Daniel M. Palmier
Vice President and
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Jun-30-1996
<CASH> 844,383
<SECURITIES> 1,121,797
<RECEIVABLE> 53,591,751
<ALLOWANCES> 40,090,480
<INVENTORY> 0
<CURRENT-ASSETS> 844,383
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 15,519,375
<CURRENT-LIABILITIES> 35,561
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 15,483,814
<TOTAL-LIABILITY-AND-EQUITY> 15,519,375
<SALES> 0
<TOTAL-REVENUES> 2,828,565
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 139,209
<LOSS-PROVISION> 2,091,230
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 598,126
<INCOME-TAX> 0
<INCOME-CONTINUING> 598,126
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 598,126
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0
</TABLE>
