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, 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 - JUNE 30, 1998
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - June 30, 1998 and December 31, 1997 ..................
STATEMENTS OF INCOME - For the three months ended June 30, 1998 and
1997 and for the six months ended June 30, 1998 and 1997 .......
STATEMENT OF PARTNERS' EQUITY - For the six months ended
June 30, 1998 ....................................................
STATEMENTS OF CASH FLOWS - For the six months ended
June 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
June 30, December 31,
1998 1997
----------- -----------
ASSETS
<S> <C> <C>
Investments in mortgage loans (net of allowance for
loan losses of $12,133,380) ................... $16,616,033 $16,616,033
Cash and cash equivalents ........................ 2,952,563 2,908,425
Other receivable ................................. 12,000 12,582
----------- -----------
$19,580,596 $19,537,040
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Accounts payable and accrued expenses ............ $ 103,111 $ 94,140
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (187,919 units
issued and outstanding) ....................... 18,990,573 18,956,853
General partners' equity ......................... 486,912 486,047
----------- -----------
Total partners' equity .................... 19,477,485 19,442,900
----------- -----------
$19,580,596 $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 six months ended
June 30, June 30,
-------------------------- -------------------------
1998 1997 1998 1997
------ ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
Short term investment interest ...... $36,770 $36,460 $73,604 $70,941
Other income ........................ 5,300 7,350 11,000 13,440
------- ------- ------- -------
42,070 43,810 84,604 84,381
------- ------- ------- -------
Costs and expenses
General and administrative expenses . 25,522 39,053 50,019 43,907
------- ------- ------- -------
Net income ............................... $16,548 $ 4,757 $34,585 $40,474
======= ======= ======= =======
Net income attributable to
Limited partners .................... $16,134 $ 4,638 $33,720 $39,462
General partners .................... 414 119 865 1,012
------- ------- ------- -------
$16,548 $ 4,757 $34,585 $40,474
======= ======= ======= =======
Net income per unit of limited partnership
interest (187,919 units outstanding) $ .09 $ .02 $ .18 $ .21
======= ======= ======= =======
</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 income for the six months ended
June 30, 1998 ............................ 865 33,720 34,585
----------- ----------- -----------
Balance, June 30, 1998 ........................ $ 486,912 $18,990,573 $19,477,485
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
STATEMENTS OF CASH FLOWS
For the six months ended
June 30,
---------------------------
1998 1997
----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
<S> <C> <C>
Cash flows from operating activities
Net income ..................................... $ 34,585 $ 40,474
Changes in assets and liabilities
Other receivable ............................ 582 11,899
Accounts payable and accrued expenses ....... 8,971 (45,515)
----------- -----------
Net cash provided by operating activities 44,138 6,858
----------- -----------
Net increase in cash and cash equivalents ........... 44,138 6,858
Cash and cash equivalents, beginning of period ...... 2,908,425 2,873,084
----------- -----------
Cash and cash equivalents, end of period ............ $ 2,952,563 $ 2,879,942
=========== ===========
</TABLE>
See notes to financial statements.
<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
Rate % Period Type Date Date Advanced Interest Fees
-------- ------- ---- --------- -------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Harbor Plaza 13.307 Monthly 2nd 13-Feb-89 1-Dec $10,000,000 $ 23,513 $ 594,867
Boston, Mass (a) (e)
Sierra Marketplace (b) (c) 11.220 Monthly 1st 10-Feb-89 28-Feb-01 6,500,000 - 385,757
Reno, Nevada
Twin Oak (b) 12.280 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>
(d)
Interest recognized Carrying value Contractual balance
---------------------- --------------------------- ----------------------------
June 30, 1997 and Reserves/ June 30, December 31, June 30, December 31,
1998 Prior Write-offs 1998 1997 1998 1997
-------- ----------- ------------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Harbor Plaza $ - $ - $(10,618,380) $ - $ - $ 34,388,973 $ 32,401,302
Boston, Mass (a) (e)
Sierra Marketplace (b) (c) - 9,093,598 - 15,979,355 15,979,355 18,536,303 17,529,616
Reno, Nevada
Twin Oak (b) - 880,460 (1,515,000) 636,678 636,678 3,113,692 2,934,380
-- ----------- ----------- ----------- -------- ---------- ------------
Ft. Lauderdale, Florida
$ - $ 9,974,058 $(12,133,380) $ 16,616,033 $16,616,033 $ 56,038,968 $ 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 December 1, 1999.
<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 six months ended June 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. These loans
generally 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
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 June
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. No allowance
for loan losses was required for the quarters ended June 30, 1998 and
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 on August 28, 1997, Presidio entered into a management
agreement with NorthStar Presidio Management Company LLC, ("NorthStar
Presidio"), an affiliate of NorthStar, pursuant to which NorthStar
Presidio provides the day-to-day management of Presidio and its direct
and indirect subsidiaries and affiliates. For the six months ended June
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 were 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 June 30, 1998 and
1997, the Managing General Partner and Associate General Partner were
allocated net income of $406 and $8 and $117 and $2, 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 Partnership has prepared an internal appraisal for the property
owned by High Cash Partners, L.P. ("High Cash") and had a third party
appraisal performed for the Twin Oak Plaza Associates L.P. ("Twin Oak")
property. The general partners of Twin Oak are affiliated with the
Managing General Partner of the Partnership. Until June 1997, the
general partners of High Cash were affiliated with the Managing General
Partner of the Partnership. The Twin Oak and High Cash loans 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 due to mature on July 1, 1993, however, during 1993,
this loan was extended for three years until 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 of the
first mortgage until July 1, 1998 which has been further extended until
August 31, 1998. Twin Oak currently has negotiated a contract of sale
on its property. There is no guarantee that the contract will be
executed.
<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>
Six months ended Year ended
June 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
Income recognized - - - - - -
----------- ----------- ----------- ----------- ----------- -----------
Ending balance $ - $16,616,033 $16,616,033 $ - $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 June 30, 1998, the Partnership had working capital reserves of
approximately $2,849,000. 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 increased for the three months and decreased for the six
months ended June 30, 1998 compared to the same period in 1997. The
increase for the three months ended June 30, 1998 was due to a decrease
in cost and expenses slightly offset by an increase in revenue. The
decrease for the six months ended June 30, 1998 was primarily due to an
increase in payroll costs.
Revenues remained relatively even for both the three and six months
ended June 30, 1998 compared to the same periods in 1997.
Costs and expenses decreased for the three months and increased for the
six months ended June 30, 1998 compared to the same period in 1997. The
decrease for the three months ended June 30, 1998 is the result of a
decrease in payroll. The increase for the six months ended June 30,
1998 is primarily due to payroll costs being less than anticipated in
1996 and reversed in 1997.
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>
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
Dated: August 12, 1998 By: /s/ Richard Sabella
-------------------
Richard Sabella
President
(Duly Authorized Officer)
Dated: August 12, 1998 By: /s/ Lawrence Schachter
----------------------
Lawrence Schachter
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the financial
statements of the June 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,952,563
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,964,563
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,580,596
<CURRENT-LIABILITIES> 103,111
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,477,485
<TOTAL-LIABILITY-AND-EQUITY> 19,580,596
<SALES> 0
<TOTAL-REVENUES> 84,604
<CGS> 0
<TOTAL-COSTS> 50,019
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 34,585
<INCOME-TAX> 0
<INCOME-CONTINUING> 34,585
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,585
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
