SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
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 0-16856
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3368726
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue, Suite 270, Greenwich, CT 06830
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(203) 862-7444
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by checkmark 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 [ ]
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
FORM 10-Q - SEPTEMBER 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - September 30, 1998 and December 31, 1997
STATEMENTS OF INCOME - For the three months ended September 30, 1998
and 1997 and for the nine months ended September 30, 1998 and
1997
STATEMENT OF PARTNERS' EQUITY - For the nine months ended September 30,
1998
STATEMENTS OF CASH FLOWS - For the nine months ended September 30, 1998
and 1997
NOTES TO FINANCIAL STATEMENTS
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
BALANCE SHEETS
September 30, December 31,
1998 1997
<S> <C> <C>
ASSETS
Investments in mortgage loans (net of allowance for
loan losses of $12,433,380 and $12,133,380) ... $16,316,033 $16,616,033
Cash and cash equivalents ......................... 2,952,305 2,908,425
Other receivable .................................. 17,741 12,582
----------- -----------
$19,286,079 $19,537,040
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Accounts payable and accrued expenses ............. $ 86,491 $ 94,140
Commitments and contingencies
Partners' equity
Limited partners' equity (187,919 units
issued and outstanding) ........................ 18,719,623 18,956,853
General partners' equity .......................... 479,965 486,047
----------- -----------
Total partners' equity ..................... 19,199,588 19,442,900
----------- -----------
$19,286,079 $19,537,040
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
STATEMENTS OF INCOME
For the three months ended For the nine months ended
September 30, September 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Short term investment interest ............. $ 38,739 $ 49,380 $ 112,343 $ 120,321
Other income ............................... 5,300 6,375 16,300 19,815
--------- --------- --------- ---------
44,039 55,755 128,643 140,136
--------- --------- --------- ---------
Costs and expenses
General and administrative expenses ........ 21,936 29,587 71,955 73,494
Allowance for loan losses .................. 300,000 -- 300,000 --
--------- --------- --------- ---------
Net income ...................................... 321,936 29,587 (371,955) 66,642
--------- --------- --------- ---------
Net (loss) income ............................... $(277,897) $ 26,168 $(243,312) $ 66,642
========= ========= ========= =========
Net (loss) income attributable to
Limited partners ........................... $(270,950) $ 25,514 $(237,230) $ 64,976
General partners ........................... (6,947) 654 (6,082) 1,666
--------- --------- --------- ---------
$(277,897) $ 26,168 $(243,312) $ 66,642
========= ========= ========= =========
Net (loss) income per unit of limited partnership
interest (187,919 units outstanding) ....... $ (1.44) $ .14 $ (1.26) $ .35
========= ========= ========= =========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
STATEMENT OF PARTNERS' EQUITY
General Limited Total
Partners' Partners' Partners'
Equity Equity Equity
----------- ----------- -----------
<S> <C> <C> <C>
Balance, January 1, 1998 ........... $ 486,047 $18,956,853 $19,442,900
Net loss for the nine months ended
September 30, 1998 ............ (6,082) (237,230) (243,312)
----------- ----------- -----------
Balance, September 30, 1998 ........ $ 479,965 $18,719,623 $19,199,588
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
STATEMENTS OF CASH FLOWS
For the nine months ended
September 30,
1998 1997
----------- -----------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating activities
Net income (loss)............................... $ (243,312) $ 66,642
Adjustments to reconcile net (loss) income to
net cash provided by used in operating
activities
Provision for loan losses ...................... 300,000 ---
Changes in assets and liabilities
Other receivable ............................ (5,159) 11,899
Accounts payable and accrued expenses ....... (7,649) (38,887)
----------- -----------
Net cash provided by operating activities 43,880 39,654
----------- -----------
Net increase in cash and cash equivalents ........... 43,880 39,654
Cash and cash equivalents, beginning of period ...... 2,908,425 2,873,084
----------- -----------
Cash and cash equivalents, end of period ............ $ 2,952,305 $ 2,912,738
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
NOTES TO FINANCIAL STATEMENTS
1 INTERIM FINANCIAL INFORMATION
The summarized financial information contained herein is unaudited;
however, in the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary for a fair presentation of such
financial information have been included. The accompanying financial
statements, footnotes and discussions should be read in conjunction
with the financial statements, related footnotes and discussions
contained in the Resources Accrued Mortgage Investors 2 L.P. (the
"Partnership") annual report on Form 10-K for the year ended December
31, 1997. The results of operations for the nine months ended September
30, 1998, are not necessarily indicative of the results to be expected
for the full year.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in mortgage loans
The Partnership principally invests in zero coupon senior and junior
mortgage loans on properties owned or acquired by limited partnerships
originally sponsored by affiliates of the General Partners. Certain of
these loans contain provisions whereby the Partnership may be entitled
to additional interest represented by participation in the appreciation
of the underlying property.
The Partnership accounts for its investments in mortgage loans under
the following methods:
Investment method
Mortgage loans representing transactions in which the Partnership
is considered to have substantially the same risks and potential
rewards as the borrower are accounted for as investments in real
estate rather than as loans. Although the transactions are
structured as loans, due to the terms of the zero coupon
mortgage, it is not readily determinable at inception that the
borrower will continue to maintain a minimum investment in the
property. Under this method of accounting, the Partnership will
recognize as revenue the lesser of the amount of interest as
contractually provided for in the mortgage loan, or its pro rata
share of the actual cash flow from operations of the underlying
property inclusive of depreciation and interest expense on any
senior indebtedness. None of the Partnership's mortgage loans are
currently recognizing revenue under the investment method.
Interest method
Under this method of accounting, the Partnership recognizes
revenue as interest income over the term of the mortgage loan so
as to produce a constant periodic rate of return. Interest income
will not be recognized as revenue during periods where there are
concerns about the ultimate realization of the interest or loan
principal.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
NOTES TO FINANCIAL STATEMENTS
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Allowance for loan losses
An allowance for loan losses is established based upon a quarterly
review of each of the mortgage loans in the Partnership's portfolio. In
performing this review, management considers the estimated net
realizable value of the mortgage loan or collateral as well as other
factors, such as the current occupancy, the amount and status of any
senior debt, the prospects for the property and the economic situation
in the region where the property is located. Because this determination
of net realizable value is based upon projections of future economic
events which are inherently subjective, the amounts ultimately realized
at disposition may differ materially from the carrying value as of
September 30, 1998.
The allowance is inherently subjective and is based upon management's
best estimate of current conditions and assumptions about expected
future conditions. The Partnership may provide for additional losses in
subsequent periods and such provisions could be material. A $300,000
allowance for loan losses was recorded on the Twin Oak loan for the
quarter ended September 30, 1998. No allowance was recorded for the
quarter ended September 30, 1997.
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The Managing General Partner of the Partnership, RAM Funding, Inc., is
a wholly-owned subsidiary of Presidio Capital Corp. ("Presidio"). The
Associate General Partner of the Partnership is Presidio AGP Corp., a
Delaware Corporation ("Presidio AGP"), which is also a wholly-owned
subsidiary of Presidio. The general partners and certain affiliates of
the general partners, are general partners in several other limited
partnerships which are also affiliated with Presidio, and which are
engaged in businesses that are, or may be in the future, in direct
competition with the Partnership.
Subject to the rights of the Limited Partners under the Limited
Partnership Agreement, Presidio controls the Partnership through its
indirect ownership of the General Partners. Effective July 31, 1998,
Presidio is indirectly controlled by NorthStar Capital Investment
Corp., ("NorthStar") a Maryland corporation.
Effective as of August 28, 1997, Presidio has entered into a management
agreement with NorthStar Presidio Management Company, LLC ("NorthStar
Presidio"), pursuant to which NorthStar Presidio provides the
day-to-day management of Presidio and its direct and indirect
subsidiaries and affiliates. For the nine months ended September 30,
1998, reimbursable expenses due NorthStar Presidio amounted to $1,000.
The Partnership had invested principally in mortgage loans on
properties owned or acquired by privately syndicated limited
partnerships which are controlled by Presidio. Transactions entered
into between the Partnership and such entities are subject to inherent
conflicts of interest.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
NOTES TO FINANCIAL STATEMENTS
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
The General Partners are allocated 2.5% of the net income or loss of
the Partnership and are entitled to 2.5% of distributions. The 2.5%
shall be apportioned 98% to the Managing General Partner and 2% to the
Associate General Partner. For the quarters ended September 30, 1998
and 1997, the Managing General Partner and Associate General Partner
were allocated net income of $541 and $11 and $641 and $13,
respectively.
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES
The Partnership invests in zero-coupon, nonrecourse senior and junior
mortgage loans. Collection of the amounts due on the Partnership's
junior mortgage loans is solely dependent upon the sale or refinancing
of the underlying properties at amounts sufficient to satisfy the
Partnership's mortgage notes after payment of the senior mortgage notes
owned by unaffiliated third parties.
The Partnership currently has three outstanding mortgage loans.
The general partners of Twin Oak are affiliated with the Managing
General Partner of the Partnership. The loan to Twin Oak Plaza
Associates, L.P. ("Twin Oak") and a loan to High Cash Partners, L.P.
("High Cash") require that if the appraisal indicates that the value of
all indebtedness senior to and including the Partnership's loan, taking
into account principal plus accrued interest in excess of 5% per annum,
exceeds 85% of the then current appraisal, the borrower must repay the
indebtedness to a point where the 85% loan to value ratio is restored.
The Twin Oak and High Cash borrowers may not have sufficient liquidity
available to restore the 85% loan to value ratio should this amount be
called by the Partnership.
Twin Oak loan
The first mortgage on this property, which is held by an unaffiliated
third party, was originally due to mature on July 1, 1993; however,
during 1993, the loan maturity was extended to July 1, 1996. The terms
and conditions of the extension were essentially the same as the
original loan. During October 1997, the Twin Oak borrower and its first
mortgage lender formally agreed to extend the maturity date to July 1,
1998. It was the intention of the general partners of Twin Oak to sell
the property prior to July 1, 1998 extended maturity date. The property
was marketed for sale duirng the first and second quarters of 1998, and
the Twin Oak Partnership entered into a formal contract of sale
(Contract #1) with an unaffiliated third party in May of 1998. The
purchaser failed to perform on Contract #1 in August of 1998. The
property was again marketed for sale. During this period, the first
mortgage matured on July 1, and was not repaid. On October 20, 1998 a
formal agreement was executed in which the first mortgagee again agreed
to extend the maturity of the loan to July 1, 1999 in exchange for a
modification to the interest rate and payent of an extension fee. On
October 15, 1998, a new contract of sale (Contract #2) was executed
with Emmes Ventures, an affiliate of NorthStar, also an affiliate of
the general partner of Twin Oak and RAM2. Emmes is currently completing
its due diligence on the property. While there is no guarantee that
Emmes Ventures will ultimately purchase the property, based on the
forgoing, the carrying value of the Twin Oak loan was written down by
$300,000 in the third quarter, to $336,678.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Information with respect to the Partnership's mortgage loans is as
follows:
<TABLE>
<CAPTION>
Original Mortgage Mortgage Mortgage
Interest Compound Loan Maturity Amount Purchased Placement
Description Rate % Period Type Date Date Advanced Interest 1998
----------- ------ ------ ---- ---- ---- -------- -------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Office Building
Harbor Plaza 13.3 Monthly 2nd 13-Feb-89 1-Dec-98 $10,000,000 $ 23,513 $ 594,867
Boston, Mass (a) (e)
Shopping Centers
Sierra Marketplace (b) (c) 11.2 Monthly 1st 10-Feb-89 28-Feb-01 6,500,000 - 385,757
Reno, Nevada
Twin Oak (b) 12.2 Annually 2nd 3-Apr-90 1-May-02 1,200,000 - 71,218
Ft. Lauderdale, Florida ----------- -------- ----------
$17,700,000 $ 23,513 $1,051,842
=========== ======== ==========
<CAPTION>
Interest recognized (d)
----------------------- Carrying value Contractual balance
---------------------------- ---------------------------
September 30, 1997 and Reserves/ September 30, December 31, September 30, December 31,
Description 1998 Prior Write-offs 1998 1997 1998 1997
----------- ---- ----- ---------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Office Building
Harbor Plaza $ - $ - $(10,618,380) $ - $ - $ 35,545,741 $ 32,401,302
Boston, Mass (a) (e)
Shopping Centers
Sierra Marketplace (b) (c) - 9,093,598 - 15,979,355 15,979,355 19,061,123 17,529,616
Reno, Nevada
Twin Oak (b) - 880,460 (1,815,000) 336,678 636,678 3,208,091 2,934,380
Ft. Lauderdale, Florida ------ ----------- ------------ ------------ ------------ ------------ ------------
$ - $ 9,974,058 $(12,433,380) $ 16,316,033 $ 16,616,033 $ 57,814,955 $ 52,865,298
====== =========== ============ ============ ============ ============ ============
</TABLE>
(a) This loan is accounted for under the investment method.
(b) These loans are accounted for under the interest method.
(c) The Partnership may be entitled to additional interest in the appreciation
of the property which is subordinated to a specified return to the
borrower. It is unlikely that the Partnership will realize any additional
interest from this loan.
(d) Contractual balance represents the amount that would be paid by the
borrower if the loan was liquidated (principal plus accrued interest earned
to date).
(e) This mortgage loan was extended until January 1, 1999.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Summary of mortgage activity is as follows:
<TABLE>
<CAPTION>
Nine months ended Year ended
September 30, 1998 December 31, 1997
------------------------------------------- -------------------------------------------
Investment Interest Investment Interest
Method Method Total Method Method Total
----------- ---------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Opening balance . $ -- 16,616,033 $ 16,616,033 $ -- $16,616,033 $16,616,033
Provision for
loan losses ... -- (300,000) (300,000) -- -- --
Income recognized -- -- -- -- -- --
----------- ---------- ------------ ----------- ----------- -----------
Ending balance .. $ -- $16,316,033 $ 16,316,033 $ -- $16,616,033 $16,616,033
=========== =========== ============ =========== =========== ===========
</TABLE>
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership initially invested the net proceeds of its public
offering in four zero coupon first and junior mortgage loans
aggregating $23,300,000. These loans are secured by properties owned
principally by privately and publicly syndicated limited partnerships
originally sponsored by affiliates of the general partners. The
Partnership currently has investments in three of these four mortgage
loans with outstanding balances of approximately $17,700,000 in
principal.
As of September 30, 1998, the Partnership had working capital reserves
of approximately $2,865,000. Working capital reserves are invested in
short-term instruments and are expected to be sufficient to pay
administrative expenses during the term of the Partnership. The
Partnership does not anticipate making any distributions from cash flow
during its first 8 to 12 years of operations, or until such time as the
mortgage loans mature or are prepaid.
Results of operations
Net income decreased for the three and nine month periods ended
September 30, 1998 as compared to the same periods in 1997. The
decrease was principally due to the provision for loan losses recorded
on the Twin Oak loan and a decrease in short term investment interest
partially offset by a decrease in general and administrative expenses.
Costs and expenses decreased for the three and nine month periods ended
September 30, 1998 as compared to the corresponding periods in 1997.
The decrease was primarily the result of the provision for loan losses
recorded on the Twin Oak loan.
Inflation has not had a material effect on the Partnership's recent
operations or financial condition and is not expected to have a
material effect in the future.
<PAGE>
Year 2000 Compliance
The Year 2000 compliance issue concerns the inability of computerized
information systems and equipment to accurately calculate, store or use
a date after December 31, 1999, as a result of the year being stored as
a two digit number. This could result in a system failure or
miscalculations causing disruptions of operations. The Partnership and
its Manager (NorthStar Presidio Management Co., LLC) recognize the
importance of ensuring that its business operations are not disrupted
as a result of Year 2000 related computer system and software issues.
The Manager is in the process of assessing its internal computer
information systems and is now taking the further steps necessary to
remediate these systems so that they will be Year 2000 compliant. In
connection therewith, the Manager is currently in the process of
installing a new fully compliant accounting and reporting system. The
Manager is also currently reviewing its other internal systems and
programs, along with those of its unaffiliated third party service
providers, in order to insure compliance.
Further, the Manager and these service providers are currently
evaluating and assessing those computer systems not related to
information technology. These systems, that generally operate in a
building include, without limitation, telecommunication systems,
security systems (such as card-access door lock systems), energy
management systems and elevator systems. As a result of the technology
used in this type of equipment, it is possible that this equipment may
not be repairable, and accordingly may require complete replacement.
Because this assessment is ongoing, the total cost of bringing all
systems and equipment into Year 2000 compliance has not been fully
quantified. Based upon available information, the Manager does not
believe that these costs will have a material adverse effect on the
Partnership's business, financial condition or results. However, it is
possible that there could be adverse consequences to the Partnership as
a result of Year 2000 issues that are outside the Partnership's
control. The Manager is in the preliminary stages of evaluating these
issues and will be developing contingency plans.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
(a) None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
<PAGE>
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.
RESOURCES ACCRUED MORTGAGE
INVESTORS 2 L.P.
By: RAM Funding, Inc.
Managing General Partner
By: /s/ Allan B. Rothschild
-----------------------
Allan B. Rothschild
President
By: /s/ Lawrence Schachter
----------------------
Lawrence Schachter
Senior Vice President and
Chief Financial Officer
Dated: November 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the September 30, 1998 Form 10-Q of Resources Accrued Mortgage
Investors 2 L.P. and is qualified in its entirety by reference for such
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,952,305
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,970,046
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,286,079
<CURRENT-LIABILITIES> 86,491
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,199,588
<TOTAL-LIABILITY-AND-EQUITY> 19,286,079
<SALES> 0
<TOTAL-REVENUES> 128,643
<CGS> 0
<TOTAL-COSTS> 71,955
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 300,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (243,312)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (243,312)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
