UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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 1-9885
Banyan Mortgage Investment Fund
(Exact name of Registrant as specified in its charter)
Delaware 36-3465359
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
150 South Wacker Drive, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (312) 553-9800
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 .
Shares of common stock outstanding as of November 10, 1995: 39,822,304.
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1995 AND DECEMBER 31, 1994
(UNAUDITED)
1995 1994
ASSETS
Cash and Cash Equivalents $ 1,171,731 $ 8,040,629
Repair, Improvement and Real
Estate Tax Escrows 799,444 602,211
Accounts Receivable (Net of
Allowance for Doubtful Accounts
of $53,000 and $34,000 for
1995 and 1994, respectively) 87,200 18,509
Interest Receivable on Cash and
Cash Equivalents 28,918 84,272
------------ -------------
2,087,293 8,745,621
------------ -------------
Investment in Real Estate:
Land 79,215,500 79,400,569
Buildings and Improvements 2,144,722 1,986,851
------------ -------------
81,360,222 81,387,420
Less: Accumulated Depreciation (1,929,991) (1,645,927)
------------ -------------
79,430,231 79,741,493
Developments in Progress 35,995,975 30,752,252
------------ -------------
Net Investment in Real Estate 115,426,206 110,493,745
------------ -------------
Net Investment in Real Estate
Venture 1,151,139 1,325,401
Deferred Financing Costs (Net of
Accumulated Amortization of
$316,419 and $68,034
for 1995 and 1994, respectively) 992,777 1,241,162
Other Assets 2,582,539 2,861,997
------------ -------------
Total Assets $122,239,954 $ 124,667,926
============ =============
LIABILITIES AND STOCKHOLDERS'
EQUITY
Liabilities
Accounts Payable and Accrued
Expenses $ 1,950,377 $ 1,255,286
Interest Payable 1,051,304 810,526
Real Estate Taxes Payable 200,929 ---
Mortgage Loans Payable 32,653,737 31,932,645
------------ ------------
Total Liabilities 35,856,347 33,998,457
------------ ------------
Stockholders' Equity
Shares of Common Stock, $0.01
Par Value, 100,000,000 Shares
Authorized, 39,842,404 Shares
Issued 348,205,447 348,162,496
Accumulated Deficit (261,810,524) (257,481,711)
Treasury Stock, at Cost, for
20,100 Shares of Common Stock (11,316) (11,316)
------------ ------------
Total Stockholders' Equity 86,383,607 90,669,469
------------ ------------
Total Liabilities and Stock-
holders' Equity $122,239,954 $124,667,926
============ ============
Book Value Per Share of Common
Stock (39,822,304 and 39,742,395
Shares Outstanding for 1995
and 1994, respectively) $ 2.17 $ 2.28
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
1995 1994
INCOME
Income From Investing
Activities:
Interest on Cash and Cash
Equivalents $ 164,037 $ 57,187
Income From Property Operating
Activities:
Operating Property Revenue 1,010,011 2,817,803
------------ ------------
Total Income 1,174,048 2,874,990
------------ ------------
EXPENSES
Expenses From Property
Activities:
Operating Property Expenses 348,135 831,428
Development Property Expenses 1,104,937 367,052
Repairs and Maintenance 138,992 281,042
Real Estate Taxes 239,133 454,193
Depreciation 308,928 500,790
Bad Debt (Recovery) Expense (6,000) 9,425
------------ ------------
Total Expenses From Property
Activities 2,134,125 2,443,930
------------ ------------
Other Expenses:
Stockholder Expenses 261,638 304,020
Directors' Fees, Expenses
and Insurance 360,547 396,608
Other Professional Fees 160,532 556,755
General and Administrative 1,010,822 1,148,588
Recovery of Losses on Mortgage
Loans, Notes and Interest
Receivable and Class Action
Settlement Costs and (495,591) (796,985)
Expenses
Interest Expense and Amorti-
zation of Deferred Loan
Costs 1,916,817 1,204,842
------------ ------------
Total Other Expenses 3,214,765 2,813,828
------------ ------------
Total Expenses 5,348,890 5,257,758
------------ ------------
Operating Loss (4,174,842) (2,382,768)
Net (Loss) Income From
Operations (158,361) 504,151
of Real Estate Venture
Arbitration Award --- (3,250,000)
Gain on Dispositions of Real
Estate 4,390 3,054,923
------------ ------------
Net Loss $ (4,328,813) $ (2,073,694)
============ ============
Net Loss Per Share of Common
Stock (Based on Weighted
Average Number of Shares
Outstanding of 39,753,225
and 39,719,131 during 1995
and 1994, respectively) $ (0.11) $ (0.05)
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF INCOME AND EXPENSES
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
1995 1994
INCOME
Income From Investing
Activities:
Interest on Cash and Cash
Equivalents $ 21,525 $ 19,356
Income From Property Operating
Activities:
Operating Property Revenue 209,978 669,343
------------ ------------
Total Income 231,503 688,699
------------ ------------
EXPENSES
Expenses From Property
Activities:
Operating Property Expenses 126,734 182,157
Development Property Expenses 337,804 114,253
Repairs and Maintenance 40,489 77,694
Real Estate Taxes 79,726 146,994
Depreciation 102,976 132,940
Bad Debt Expense 5,000 ---
------------ ------------
Total Expenses From Property
Activities 692,729 654,038
------------ ------------
Other Expenses:
Stockholder Expenses 24,959 65,807
Directors' Fees, Expenses
and Insurance 106,077 136,360
Other Professional Fees 33,089 136,413
General and Administrative 380,861 413,303
Interest Expense and Amorti-
zation of Deferred Loan 596,519 135,885
Costs ------------ ------------
Total Other Expenses 1,141,505 887,768
------------ ------------
Total Expenses 1,834,234 1,541,806
------------ ------------
Operating Loss (1,602,731) (853,107)
Net (Loss) Income From
Operations of Real Estate
Venture (67,645) 717,948
Recovery of Arbitration Award --- 518,743
(Loss) Gain on Dispositions
of Real Estate (3,168) 226,264
------------ ------------
Net (Loss) Income $ (1,673,544) $ 609,848
============ ============
Net (Loss) Income Per Share
of Common Stock (Based on
Weighted Average Number of
Shares Outstanding of
39,774,532 and 39,742,395
during 1995 and 1994,
respectively) $ (0.04) $ 0.02
============ ============
The accompanying notes are an integral part of the consolidated
financial statements.
<TABLE>
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
<CAPTION>
Common Stock Accumulated Treasury
Shares Amount Deficit Stock Total
<S> <C> <C> <C> <C> <C>
Stockholders'
Equity,
December 31,
1994 39,762,495 $348,162,496 $(257,481,711) $ (11,316) $90,669,469
Award Shares
Issued 79,909 42,951 --- --- 42,951
Net Loss --- --- (4,328,813) --- (4,328,813)
---------- ------------ ------------- --------- -----------
Stockholders'
Equity,
September 30,
1995 39,842,404 $348,205,447 $(261,810,524) $ (11,316) $86,383,607
========== ============ ============= ========= ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
BANYAN MORTGAGE INVESTMENT FUND
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(UNAUDITED)
1995 1994
CASH FLOWS FROM OPERATING
ACTIVITIES:
NET LOSS $ (4,328,813) $(2,073,694)
Adjustments to Reconcile Net
Loss to Net Cash Used In
Operating Activities:
Depreciation 308,928 500,790
Amortization of Deferred
Loan Costs 248,385 541,726
(Recovery) Provision for Bad
Debts (6,000) 9,425
Gain on Disposition of Real
Estate (4,390) (3,054,923)
Net Loss (Income) From
Operations 158,361 (504,151)
of Real Estate Venture
Deferred Interest Payable on
Mortgage Loans 1,014,751 ---
Issuance of Award Shares of
Common Stock 42,951 58,002
Net Change In:
Interest Receivable on Cash and
Cash Equivalents 55,354 ---
Real Estate Tax Escrow (31,597) ---
Accounts Receivable (87,691) ---
Other Assets 279,594 (341,135)
Accounts Payable and Accrued
Expenses 695,091 (333,141)
Real Estate Taxes Payable 200,929 (229,540)
Other Payable --- 3,250,000
Interest Payable 987,764 145,641
----------- -----------
Net Cash Used In Operating
Activities (466,383) (2,031,000)
----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Proceeds From Sale of Real 1,012,150 17,888,299
Estate
Increase in Developments in
Progress (6,011,317) (5,734,754)
Increase in Repair and
Improvement Escrow (165,636) (49,197)
Distributions From (Investment
In) Real Estate Venture 15,901 (341,847)
Purchases of Land and Property
Improvements (212,968) ---
----------- -----------
Net Cash (Used in) Provided
By Investing Activities (5,361,870) 11,762,501
----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Issuance of Common Stock --- 1,665
Payment of Mortgage Loans Payable (1,040,645) (11,652,949)
----------- -----------
Net Cash Used In Financing
Activities (1,040,645) (11,651,284)
----------- -----------
Net Decrease in Cash and Cash
Equivalents (6,868,898) (1,919,783)
Cash and Cash Equivalents at
Beginning of Period 8,040,629 3,682,343
----------- -----------
Cash and Cash Equivalents at
End of Period $ 1,171,731 $ 1,762,560
=========== ===========
The accompanying notes are an integral part of the consolidated
financial statements.
BANYAN MORTGAGE INVESTMENT FUND
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
Readers of this quarterly report should refer to Banyan Mortgage
Investment Fund's (the "Fund") audited consolidated financial statements for
the year ended December 31, 1994, which are included in the Fund's 1994 Annual
Report, as certain footnote disclosures which substantially duplicate those
contained in such audited statements have been omitted from this report.
1. ACCOUNTING PRINCIPLES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements, as of September 30,
1995, include the accounts of the Fund, its wholly-owned subsidiaries and
Chapman's Landing, Southbridge, Wayside Village and Bishop Ranch partnerships
in which the Fund holds a controlling 50% general partnership interest.
Losses from these partnerships are allocated to the minority interest partners
to the extent of their respective investments in the partnerships. Since such
partners have made no investment in the partnerships and are not obligated to
fund losses in excess of their investment, their minority interest currently
has no value, therefore the Fund has recorded all of the partnerships' losses
as of September 30, 1995. Profits will be allocated pro rata to the minority
interest partners to the extent that net proceeds generated from the projects
exceed priority returns payable to the Fund. All intercompany balances and
transactions have been eliminated in consolidation. The consolidated
financial statements also include the Fund's 50% interest in the VST/VMIF
Oakridge Partnership accounted for on the equity method.
NON-CASH INVESTING AND FINANCING ACTIVITIES
Pursuant to the Credit Agreement executed October 17, 1994 with Morgens,
Waterfall, Vintiadis & Co., Inc., as agent for a group of lenders, the Fund
has elected to defer payment of $1,761,737 of accrued interest, which has been
added to the principal balance of the loan until January 1, 1996. Of the
$1,761,737 balance of deferred interest, $746,986 was expensed and included as
interest payable at December 31, 1994.
CASH AND CASH EQUIVALENTS
The Fund considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
FINANCIAL STATEMENT PRESENTATION
Certain reclassifications have been made to the previously reported 1994
financial statements in order to provide comparability with the 1995
consolidated financial statements. The reclassifications have not changed the
1994 operating results. In the opinion of management, all adjustments
necessary for a fair presentation have been made to the accompanying
consolidated financial statements as of September 30, 1995 and for the nine
months and quarter ended September 30, 1995 and 1994. These adjustments made
to the financial statements, as presented, are all of a normal recurring
nature to the Fund, unless otherwise indicated.
INCOME TAXES
On January 30, 1995, the Fund notified the Internal Revenue Service of
its intent to revoke its election to be treated as a real estate investment
trust ("REIT") under section 856(c)(1) of the Internal Revenue Code of 1986,
as amended, in order to enable the Fund to develop its large tracts of
undeveloped land and to avoid the adverse tax effects of being deemed a dealer
of real property. For the year ended December 31, 1994 the Fund elected to be
treated as a REIT under the Internal Revenue Code Sections 856-860. In order
to qualify, the Fund was required to distribute at least 95% of its taxable
income to shareholders and meet asset and income tests as well as certain
other requirements.
Income taxes are accounted for in accordance with SFAS No. 109
"Accounting for Income Taxes." Deferred income taxes are recorded to reflect
the tax consequences in future years of differences between the basis of
assets and liabilities for income tax and for financial reporting purposes.
In addition, the amounts of any future tax benefits are reduced by a valuation
allowance to the extent such benefits are not expected to be fully realized.
2. TRANSACTIONS WITH AFFILIATES
Administrative costs, primarily salaries and general and administrative
expenses, are reimbursed by the Fund to Banyan Management Corp. ("BMC").
These costs are allocated to the Fund and other entities to which BMC provides
administrative services based upon the actual number of hours spent by BMC
personnel on matters related to that particular entity. The Fund's allocated
share of costs for the nine months ended September 30, 1995 and 1994
aggregated $835,765 and $897,078, respectively. As one of its administrative
services, BMC serves as the paying agent for general and administrative costs
of the Fund. As part of providing this payment service, BMC maintains a bank
account on behalf of the Fund. As of September 30, 1995, the Fund had a net
payable due to BMC of $350,279. The net payable is included in the accounts
payable and accrued expenses in the Fund's consolidated balance sheet.
3. INVESTMENT IN REAL ESTATE VENTURE
On March 6, 1991, in satisfaction of their mortgage loans receivable,
the Fund and Banyan Short Term Income Trust ("BST") each received a 50%
interest in the VST/VMIF Oakridge Partnership which assumed ownership of the
loans' underlying collateral pursuant to a deed-in-lieu agreement with the
borrower. The property consists of approximately 211 acres located in
Hollywood and Dania, Florida. Of the 211 acres, approximately 206 acres of
the property are currently under contract for a gross sales price of
approximately $6,000,000. The Partnership is also engaged in discussions with
potential purchasers of the remaining 5-acre retail parcel at the Oakridge
site. Proceeds received from any future sale will first be applied to repay
the remaining principal balance of an outstanding first mortgage loan of
approximately $2,000,000 which is collateralized by the Oakridge site. The
Fund's 50% interest in the Partnership was initially recorded at its estimated
fair market value of $568,121 and is being accounted for on the equity method.
Under this method, the Fund has recorded its 50% share of operating losses of
$158,361 and $236,000 for the nine months ended September 30, 1995 and 1994,
respectively.
4. RECOVERY OF LOSSES ON LOANS, NOTES AND INTEREST RECEIVABLE AND CLASS
ACTION SETTLEMENT COSTS AND EXPENSES
On February 9, 1995, the Fund received cash distributions of $566,783 in
respect of its interests in the liquidating trusts established for the benefit
of the unsecured creditors of VMS Realty Partners and its affiliates ("VMS").
A total of $495,591 of this distribution has been treated as a recovery of
losses on mortgage loans, notes and interest receivable on its consolidated
statement of income and expenses. The $495,591 net recovery in 1995
represents the $566,783 distributions received net of an estimated $71,192 due
to the Class Action Settlement Fund representing the Fund's share of amounts
due pursuant to the terms of the previously settled of the VMS securities
litigation. As of September 30, 1995, the Fund has recorded $123,339 in
distributions received from the liquidating trusts as a liability in accounts
payable and accrued expenses on its consolidated balance sheet as required per
the terms of the Class Action Settlement.
On January 25, 1994, the Fund received net proceeds of $796,985 by
terminating an escrow established as part of the Class Action Settlement of
the VMS securities litigation. The escrow was established to provide the
directors and officers of the Fund with monies to fund the cost of any
litigation in which they may be named as defendants following settlement of
the class action. Subsequently, the directors have released the proceeds from
the escrow, and the Fund has purchased an insurance policy to cover the
directors and officers.
5. DISPOSITION AND GAIN ON SALE OF REAL ESTATE
During the nine months ended September 30, 1995, the Fund sold 17 single
family lots to a home developer at the Fund's Wayside Village. The sale of
these lots generated gross sales proceeds of $1,029,830. After payment of
closing costs of $1,291, real estate tax prorations of $1,612 and other costs
of $14,777 the Fund received net cash proceeds of $1,012,150 from the sales.
The sale of these lots resulted in an aggregate net gain on disposition of
real estate of $4,390.
6. AWARD SHARES
On August 25, 1995, the Fund issued 79,909 shares of its common stock to
Leonard G. Levine, its President. Pursuant to Mr. Levine's amended employment
agreement, all incentive amounts earned subsequent to January 1, 1993 are to
be paid 80% in cash on or before March 15 of the year following the period for
which the incentive is earned and 20% in shares ("Award Shares") of the Fund,
the value for which is based on the average closing price of the Fund's common
stock for the last five business days of the year in which the incentive is
earned. Pursuant to Board of Director's approval, Mr. Levine was paid
$120,000 of his 1994 incentive compensation on December 31, 1994. On March
15, 1995, Mr. Levine was paid the balance of his 1994 incentive compensation
in the amount of $51,805. The $171,805 of total cash payments represents 80%
of Mr. Levine's 1994 incentive. The 79,909 Award Shares issued in respect of
the incentive compensation earned during 1994 were valued at a price equal to
$0.537 per share or $42,951. The Award Shares will be held by the Fund,
pending satisfaction of the vesting requirements included in Mr. Levine's
contract which provides that Mr. Levine will fully vest on the earlier of (i)
December 31, 1997; (ii) the termination of Mr. Levine's employment by the Fund
without just cause; or (iii) the permanent disability or death of Mr. Levine.
Mr. Levine will, however, lose his right to these Award Shares if he is not
employed by the Fund on December 31, 1997, unless such failure is due to death
or permanent disability or termination without just cause. Mr. Levine is
entitled to all dividends paid on shares held by the Fund for his benefit.
The Award Shares are included in the total shares outstanding of the Trust
effective August 25, 1995 for the purpose of calculating Net Income Per Share
of Common Stock based on the Weighted Average Number of Shares Outstanding.
7. MORTGAGE LOANS PAYABLE
On November 3, 1995, Societe Generale ("SoGen") declared a default under
its mortgage loan to VMIF/Anden Wayside Venture, a partnership controlled by a
wholly owned subsidiary of the Fund, which loan is collateralized by a first
mortgage on the Wayside Village project and certain other land within the
Fund's Southbridge project. As a result of the default, SoGen has demanded
immediate repayment of all sums due under the loan, amounting to approximately
$6,500,000. In addition, SoGen separately cancelled a $2,000,000 revolving
line of credit facility. The Fund had not drawn any monies to date under the
revolving line. The default arose when a principal payment due October 1,
1995 was not made.
In the Fund's view a limited number of lots were developed at Wayside
Village during the past construction season due, in large part, to a seven-
month delay in obtaining a subordination agreement between a home builder and
SoGen causing the Fund to seek deferral of the mandatory principal payments
due and to become due during the next three calendar quarters. The Fund has
also been unsuccessful in its efforts to obtain a draw under the $2,000,000
revolving loan described above, despite the submission of what the Fund
believes are appropriate draw requests and documentation. The Fund has
expended $3,270,000 in infrastructure improvements and other costs during the
last year as a condition precedent to such funding. SoGen has refused to fund
due to a differing interpretations of the conditions contained in the
revolving loan agreement. The draws are needed to complete the improvements
so that the lots may be delivered. The Fund has been involved in and is
continuing its discussions with SoGen with respect to the alleged default on
the Amended Wayside Loan and cancellation of the Revolving Loan and recently
made a proposal which SoGen has indicated it is reviewing. There can be no
assurance, however, that the parties will reach any resolution of the dispute.
The Fund presently has executed contracts for the sale of lots to two
homebuilding companies desiring to build both single-family and townhome
residences at Wayside Village. The contracts require the delivery of 278 lots
over the next two to three years. Negotiations with other homebuilders as
well as parties expressing interest in the commercial portion of Wayside are
continuing.
The default and acceleration of the SoGen loan constitutes a default
under the Fund's $20,500,000 loan from a group of lenders for which Morgens,
Waterfall & Vintiadis & Co., Inc. ("MWV") served as agent (more fully
described in Note 2 above). MWV has indicated that it does not presently
intend to accelerate repayment of this loan while the Fund attempts to resolve
its issues with SoGen. There can be no assurance, however, that MWV will
continue to refrain from declaring a default of the dispute with SoGen is not
resolved. Other avenues are being explored in the event resolution with SoGen
is not forthcoming.
8. LITIGATION AND CONTINGENCIES
On September 1, 1995, an action was filed in the Circuit Court of Cook
County, Illinois entitled: Monterey County Partners et al v. BMIF Monterey
County Limited Partnership et al 95 CH 8456 (the "Illinois Litigation"). The
plaintiffs in the Illinois Litigation are as follows: (a) Monterey County
Partners, a partnership which itself is a partner of the Fund's subsidiary,
BMIF Monterey County Corp., in a partnership known as BMIF Monterey County
Limited Partnership (the "Ownership Partnership"), which is the entity that
owns the Bishop Ranch project; (b) Investors Liquidating Trust, a Delaware
Trust which has been alleged to own 100% of the common stock of VMS Laguna
Seca, Inc., the general partner of VMS Laguna Seca Limited Partnership, which
is an alleged 80% partner in Monterey County Partners and (c) VMTGZ Mortgage
Investors, L.P.II, the principal beneficiary of Investors Liquidating Trust
which has been alleged to be the Limited Partner in the VMS Laguna Seca
Limited Partnership.
The defendants in the case, in addition to the Ownership Partnership
are: (a) Leonard G. Levine, President of the Fund and (b) Banyan Management
Corp., the company which provides administrative services to the Fund pursuant
to an Administrative Services Agreement.
The complaint as to the Fund seeks: (I) the removal of BMIF Monterey
County Corp. as the general partner of the Ownership Partnership (BMIF
Monterey County Limited Partnership) and the replacement with Kimball Small
Residential Properties, Inc., a partner in Monterey County Partners; (II)
Declaratory relief that BMIF Monterey County Corp. is not entitled to any
"priority return" or "preferred return" on its capital account in the
Ownership Partnership; (III) Avoidance of an alleged fraudulent transfer
whereby the Ownership Partnership became the owner of the project after the
default in 1991 on the Fund's former mortgage loan to Monterey County Partners
upon which the Fund had initiated foreclosure proceedings which culminated in
the execution of the Ownership Partnership agreement and the creation of a
capital account in an amount not less than approximately $4,800,000 in favor
of Monterey County Partners; (IV) an accounting and (V) a constructive trust
to be created for the benefit of one of the plaintiffs. The complaint also
seeks separate relief against Mr. Levine and Banyan Management Corp.
In lieu of an answer to the complaint, the Fund has caused to be filed
motions, supported by briefs. Responses to those motions were filed on
November 13, 1995. A hearing has not been scheduled. Both parties have
served and answered initial discovery requests.
The Fund believes the Illinois Litigation is totally without merit and
intends to vigorously defend it. The partnership agreement which creates the
Ownership Partnership requires an unsuccessful litigant whose claim is based
upon or related to the partnership agreement to pay the reasonable attorneys'
fees of its opponent. The Fund intends to seek reimbursement of all
attorneys' fees expended or incurred in defense of the Illinois litigation.
On October 10, 1995, an action was filed in the Superior Court of
Monterey County, California entitled: Monterey County Partners, et al. v. BMIF
Monterey County Limited Partnership, et al., Case No. 105280 (the "California
Litigation").
The plaintiff entity, which is a partner with the Fund's subsidiary,
BMIF Monterey County Corp., in the limited partnership known as BMIF Monterey
County Limited Partnership, which owns the Bishop Ranch property (the
"Ownership Partnership") has filed suit in its own name and derivatively on
behalf of the Ownership Partnership against the Ownership Partnership and each
of the participant entities in the Morgens, Waterfall, Vintiadis & Co., Inc.
("MWV") loan, which loan is partially guaranteed by the Ownership Partnership,
which partial guaranty is collateralized by a deed of trust recorded against
the Bishop Ranch property.
The California Litigation alleges fraudulent transfer and conspiracy and
seeks the following as remedies: (i) to set aside the Deed of Trust and the
obligations of the Ownership Partnership under the guaranty, (ii) to quiet
title to the Bishop Ranch project, declaring null and void the interest of the
various defendant lenders which arises under the Deed of Trust and (iii) an
award of attorneys' fees and costs.
None of the defendants has yet answered the complaint. The Fund believes
this action is totally without merit and intends to vigorously defend it. The
partnership agreement which creates the Ownership Partnership requires an
unsuccessful litigant whose claim is based upon or related to the partnership
agreement to pay the reasonable attorneys' fees of its opponent. The Fund
intends to seek reimbursement of all attorneys' fees expended or incurred in
defense of the California litigation.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Banyan Mortgage Investment Fund was formed to invest primarily in
construction, land, pre-development, short-term and junior mortgage loans, and
secondarily, in short-term notes to VMS Realty Partners and its affiliates
("VMS"). VMS subsequently defaulted on these loans causing the Fund to
suspend the making of new mortgage loans (except for advances of additional
funds under circumstances in which it is deemed necessary to preserve the
value of existing collateral) and suspended distributions to stockholders.
The Fund's real estate assets consist of an office building, four
undeveloped or partially developed parcels of land aggregating approximately
5,400 acres and a 50% interest in an undeveloped parcel of land. The Fund
believes that the value of these assets can be enhanced through some
combination of: (i) prudent management, (ii) enhancing the entitlements and
zoning applicable to the undeveloped land, (iii) holding the assets until the
underlying values in the various real estate markets return to historical
levels and (iv) completing infrastructure improvements and developing lots for
sale to builders. More than half of the carrying value of the Fund's real
estate assets, is comprised of undeveloped land which is located in
metropolitan Washington D.C. and Northern California all of which are in
various stages of the entitlement process. The current market for the sale of
undeveloped land is limited except at liquidation prices. Consequently, the
Fund is attempting to enhance the value of these parcels by modifying their
zoning and entitlements. During the quarter ended December 31, 1994, the Fund
completed a corporate level financing collateralized by its properties. This
financing enabled it to proceed with various infrastructure and improvements
and to initiate efforts to finish the development of lots for sale to
residential and commercial builders.
The Fund believes that long-term shareholder value will be best
maximized by completing the entitlements and various infrastructure
improvements at the Wayside Village, Southbridge, Chapman's Landing and Bishop
Ranch properties. Management believes that these improvements will likely
make each of these properties more marketable. In order to generate the
capital needed to realize this incremental value, the Fund, during 1995,
initiated efforts to sell, on as is basis, smaller parcels of land at its
Southbridge and Wayside properties. The Fund is also considering an outright
or partial sale of its interest in the 120 South Spalding building.
Management believes that this property is likely more valuable if it is
redeveloped and re-leased. The Fund does not, however, have sufficient monies
available to fund the costs associated with redevelopment and re-leasing and,
therefore, would only proceed with such strategy in conjunction with a partner
who would provide the necessary capital. In the absence of such a joint
venture partner, or if the Fund is unable to sufficiently fund working capital
needs from other sources, then the Fund will seek an outright sale of this
property.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents consist of cash and short-term investments.
The Fund's cash and cash equivalents balance at September 30, 1995 and
December 31, 1994 was $1,171,731 and $8,040,629, respectively. This decrease
in cash and cash equivalents is due primarily to the payment of approximately
$7,300,000 of expenses and capitalized items related to the Chapman's Landing,
Southbridge, Wayside Village and Bishop Ranch properties, the payoff of
approximately $1,041,000 of the Wayside Village and Southbridge mortgage loan
principal, the purchase of approximately $213,000 of land and improvements and
the payment of the Fund's operating expenses. Partially offsetting the
decreases in cash was the receipt of $1,012,150 of net proceeds from the
Wayside Village lot sales, the receipt of a $566,783 distribution from the
Fund's interest in the liquidating trusts established for the benefit of the
unsecured creditors of VMS, interest earned on cash and cash equivalents and
income from property operating activities.
Management has taken a number of steps to enhance the Fund's working
capital position. Over the past several years, the Fund's liquidity has been
provided by cash generated from the operations of the Fund's existing
operating properties which currently consists solely of 120 S. Spalding,
interest on short term investments, cash proceeds from property sales, interim
financing, and cash distributions received from the liquidating trusts.
Historically, these sources were not producing the working capital necessary
to meet the requirements for both development and entitlement costs related to
the Fund's development properties and to meet the Fund's operating costs.
On October 17, 1994, the Fund executed a Credit Agreement with Morgens,
Waterfall, Vintiadis & Co., Inc. (the "Lenders' Agent") as agent for several
institutional investors (the "Lenders") in connection with a loan in the
amount of $20,500,000 (the "Morgens Loan"). Pursuant to the Credit Agreement,
the Fund has agreed to make quarterly interest payments in arrears commencing
January 1, 1995 at an annual rate of 17.5% and is also obligated to make
certain payments, which will be applied to repay loan principal, based on net
cash flow (as defined in the Credit Agreement) generated by the Fund's
individual real estate assets. At the Fund's option, it elected on January 1,
1995 to defer interest due on the Morgens Loan through September 30, 1995.
All such deferred interest has been added to the outstanding principal of the
loan. As of September 30, 1995 the Fund has deferred $1,761,737 of accrued
interest. The Fund currently anticipates paying principal and interest
obligations on the Morgens Loan from cash proceeds derived from the sale of
various undeveloped parcels of land or its operating property as discussed
above. The Fund is obligated to reduce the unpaid principal balance of the
loan to $11,000,000 by October 1, 1997 and must repay any remaining
outstanding principal by September 30, 1998. The Morgens Loan is
collateralized by first mortgages on the Fund's 120 S. Spalding, Chapman's
Landing, Bishop Ranch and portions of its Southbridge properties, as well as
pledges of the common stock and partnership interests of the Fund's
subsidiaries, its accounts receivables, bank accounts and all other tangible
and intangible personal property. As part of the same transaction, the
Lenders also received warrants which entitle them to purchase up to 4,380,000
shares of the Fund's common stock at any time until October 1, 1998 at an
exercise price of $0.70 per share. The Fund has agreed to use its best
efforts to cause the shares issuable upon exercise of the warrants to be
registered under the Securities Act of 1933, as amended.
The Fund utilized the net proceeds (after payment of legal fees, closing
costs and accrued real estate taxes) of the Morgens Loan to fully repay the
outstanding loans collateralized by first mortgages on the Fund's Chapman's
Landing and Bishop Ranch properties in the amount of $1,130,853 and
$1,959,409, respectively, as well as using the sum of $3,250,000 to fund its
obligation arising from the final negotiated settlement of the Buckeye
arbitration. The Fund also used $4,323,630 of the Morgens Loan proceeds to
repay Chase Manhattan Bank N.A. ("Chase"), in exchange for Chase's full
release of its first mortgage lien on the Fund's Wayside Village property and
portions of the Fund's Southbridge property which was pledged to collateralize
a $14,069,462 outstanding loan from Chase, one-half of which was syndicated to
Societe Generale (the "Original Wayside Loan"). The payment to Chase
consisted of a partial principal payment of $4,220,839, which completely
discharged the principal portion of the Original Wayside Loan owed to Chase
aggregating $7,034,732 and accrued interest of $102,791. Simultaneously, the
Fund and Societe Generale ("SoGen") modified the terms of SoGen's $7,034,731
principal portion of the original Wayside Loan (the "Amended Wayside Loan").
The terms of the loan modification agreement with SoGen extended the maturity
date of the Amended Wayside Loan to December 31, 1997 and provides for monthly
interest payments in arrears at an interest rate of prime plus 2%. On
November 1, 1995, the prime rate as established per the terms of the amended
agreement was 8.75%. At the option of the Fund, the maturity date of the
Amended Wayside Loan may be further extended for two one-year periods in the
event certain conditions defined in the amended agreement are met. SoGen also
agreed to provide an additional $2,000,000 revolving credit line (the
"Revolving Loan") to fund "development costs" (as defined in the Amended Loan
Agreement) specifically associated with lot sales contracts for the Wayside
Village property. The terms of the Revolving Loan require the Fund to make
monthly interest payments in arrears at an interest rate of prime plus 3%.
The Amended Wayside Loan and Revolving Loans require principal to be repaid as
lots are sold, based on specified release prices, and are cross-collateralized
and cross-defaulted to each other. In connection with the SoGen transactions,
the Fund paid $34,731 to reduce the outstanding Amended Wayside Loan principal
to $7,000,000. The Fund also paid SoGen accrued interest of $102,791, loan
fees of $95,000 and other fees and expenses totalling approximately $188,500
from the Morgens Loan proceeds, including $126,500 escrowed for future real
estate taxes on the Wayside Village project. As of September 30, 1995, the
outstanding principal balance of the Amended Wayside Loan was $6,360,000.
SoGen has not funded any advances requested under the Revolving Loan.
On November 3, 1995, SoGen declared a default under its mortgage loan to
VMIF/Anden Wayside Venture, a partnership controlled by a wholly owned
subsidiary of the Fund, which loan is collateralized by a first mortgage on
the Wayside Village Project and certain portions of the Fund's Southbridge
project. As a result of the default, SoGen has demanded immediate repayment
of all sums due under the loan, amounting to approximately $6,500,000. In
addition, SoGen cancelled the $2,000,000 revolving line of credit facility.
The Fund had not drawn any monies to date under the revolving line. The
default arose when a principal payment due October 1, 1995 was not made.
In the Fund's view a limited number of lots were developed at Wayside
Village during the past construction season due, in large part, to a seven-
month delay in obtaining a subordination agreement between a home builder and
SoGen causing the Fund to is seek deferral of the mandatory principal payments
due and to become due during the next three calendar quarters on the Amended
Wayside Loan. The Fund has also been unsuccessful in its efforts to obtain a
draw under the Revolving Loan, despite the submission of what the Fund
believes are appropriate draw requests and documentation. The Fund has
expended $3,270,000 in infrastructure improvements and other costs during the
last year as a condition precedent to such funding. SoGen has refused to fund
due to a differing interpretations of the conditions contained in the
revolving loan agreement. The draws are needed to complete the improvements
so that the lots may be delivered. The Fund has been involved in and is
continuing its discussions with SoGen with respect to the alleged default on
the Amended Wayside loan and the cancellation of the Revolving Loan and
recently made a proposal which SoGen has indicated it is reviewing. There can
be no assurance, however, that the parties will reach any resolution of the
dispute.
The Fund presently has executed contracts for the sale of lots to two
homebuilding companies desiring to build both single-family and townhome
residences at Wayside Village. The contracts require the delivery of 278 lots
over the next two to three years. Negotiations with other homebuilders as
well as parties expressing interest in the commercial portion of Wayside are
continuing.
The default and acceleration of the Amended Wayside Loan constitutes a
default under the Fund's $20,500,000 loan from a group of lenders for which
Morgens, Waterfall & Vintiadis & Co., Inc. ("MWV") served as agent (more fully
described in Note 2 above). MWV has indicated that it does not presently
intend to accelerate repayment of this loan while the Fund attempts to resolve
its issues with SoGen. There can be no assurance, however, that the parties
will reach any resolution of the dispute. Other avenues are being explored in
the event resolution with SoGen is not forthcoming.
Management of the Fund believes that its remaining cash reserves from
the Morgens Loan, future draws on the amended Revolving Loan or proceeds from
a refinancing of the Amended Wayside Loan plus net proceeds from future land
parcel sales, and the eventual sale of 120 S. Spalding as is or redeveloped,
will enable the Fund to execute the business plans of its real estate assets
and should provide sufficient funds to meet its reasonably expected liquidity
needs for the foreseeable future. For the remainder of 1995 and 1996, the
Fund will proceed with its efforts to sell or redevelop with a joint venture
partner the 120 S. Spalding property. In addition, the Fund continues with
its efforts to complete and sell finished lots to third-party homebuilders at
Wayside Village and Chapman's Landing. (See Results of Operations for further
details).
On February 9, 1995, the Fund received cash distributions of $566,783 in
respect of its interests in the liquidating trusts established for the benefit
of the unsecured creditors of VMS Realty Partners and its affiliates ("VMS").
A total of $495,591 of this distribution has been treated as a recovery of
losses on mortgage loans, notes and interest receivable on its consolidated
statement of income and expenses. The $495,591 net recovery in 1995
represents the $566,783 distributions received net of an estimated $71,192 due
to the Class Action Settlement Fund representing the Fund's share of amounts
due pursuant to the terms of the previously settled of the VMS securities
litigation. As of September 30, 1995, the Fund has recorded $123,339 in
distributions received from the liquidating trusts as a liability in accounts
payable and accrued expenses on its consolidated balance sheet as required per
the terms of the Class Action Settlement.
On January 25, 1994, the Fund received net proceeds of $796,985 by
terminating an escrow established as part of the Class Action Settlement of
the VMS securities litigation. The escrow was established to provide the
directors and officers of the Fund with monies to fund the cost of any
litigation in which they may be named as defendants following settlement of
the class action. Subsequently, the directors have released the proceeds from
the escrow, and the Fund has purchased an insurance policy to cover the
directors and officers.
Management reviews the properties held by the Fund on a quarterly basis
utilizing current market information, including appraisals, market studies,
financial projections and sales comparisons. When it has been determined, in
management's opinion, that a permanent impairment in the value of a given
property has occurred due to changes in market conditions and/or business
strategy, the carrying value of the property is reduced to its present fair
value.
The Fund's ability to make future distributions to its stockholders is
dependent upon, among other things: (i) the Fund's ability to re-negotiate or
refinance the Amended Wayside Loan; (ii) the Fund's ability to make payments
of principal and interest on the the Morgen's Loan as discussed above (iii)
the Fund's ability to control operating/development expenses and consummate
sales of finished lots and land parcels which are to provide a source of
additional capital for the Fund, as well as the ultimate recovery of cash
proceeds from the sale of the 120 S. Spalding property; (iv) recovery on and
distribution of cash proceeds from the assets of the liquidating trusts in
which the Fund holds an interest which are currently uncertain; and (v) the
general improvement of conditions in the real estate markets where the Fund's
properties are located.
RESULTS OF OPERATIONS
GENERAL
For the nine months ended September 30, 1995 and 1994, the Fund recorded
total income of $1,174,048 and $2,874,990, respectively. For the quarters
ended September 30, 1995 and 1994 the Fund recorded total income of $231,503
and $688,699, respectively. The decreases for the nine months and quarter
ended, 1995 when compared to the same periods in 1994 are due to a decrease in
operating property revenue. Operating property revenue decreased to
$1,010,011 for the nine months ended September 30, 1995 from $2,817,803 for
the same period in 1994. For the quarters ended September 30, 1995 and 1994,
operating property revenue decreased to $209,978 from $669,343, respectively.
The decrease in operating property revenue is primarily attributable to the
67% decrease in occupancy at the 120 S. Spalding property which occurred in
March 1995. Partially offsetting this decline was an increase in interest
income from cash and cash equivalents due to an increase in cash available for
investment resulting from the receipt of cash proceeds from the Morgens Loan
when compared to the same period one year ago.
Expenses from property activities totaled $2,134,125 and $2,443,930 for
the nine months ended September 30, 1995 and 1994, respectively. The decrease
in expenses from property activities for the nine months ended 1995 when
compared to the same period in 1994 is primarily attributable to the Fund's
sale of the Cascades Apartments, the 9025 Wilshire Blvd. building and the
Rocky Point property in the second and third quarters of 1994. Due to the
property sales, operating property expenses, repairs and maintenance, real
estate taxes and depreciation expense decreased by approximately $1,032,000
for the nine months ended 1995 when compared to 1994. Bad debt expense also
decreased for the nine months ended September 30, 1995 when compared to the
same period in 1994 due to the favorable settlement of certain outstanding
receivables in the amount of $13,000 at the 120 S. Spalding building which
occurred during the nine months ended September 30, 1995. Partially
offsetting these decreases was an increase of approximately $738,000 for the
nine months ended September 30, 1995 when compared to the same period in 1994,
in development property expenditures due primarily to costs associated with
the sales and marketing of Wayside Village and Chapman's Landing. For the
quarters ended September 30, 1995 and 1994, expenses from property activities
totaled $692,729 and $654,038, respectively. The $38,691 increase in expenses
from property activities for the quarter ended September 30, 1995 when
compared to the same period in 1994 is attributable to the $223,551 increase
in development property Expenses due primarily to costs associated with sales
and marketing of the Wayside Village and Chapman's Landing. Offsetting this
increase was a $189,860 decrease in operating property expenses, repair and
maintenance, real estate taxes and depreciation due to operating property
sales during 1994 as discussed above.
Total other expenses for the nine months ended September 30, 1995 and
1994 were $3,214,765 and $2,813,828, respectively. This change represents an
increase of $400,937 for the first nine months of 1995 when compared to the
same period in 1994. The increase is primarily attributable to the $711,975
increase in interest expense and amortization of deferred loan costs related
to the Morgens Loan. In addition, the decrease in the recovery of losses on
mortgage loans, notes and interest receivable and class action settlement
costs and expenses is attributable to the fact that the January 25, 1994
receipt of $796,985 representing net proceeds from a recovery of payments
previously made into an escrow established as part of the class action
settlement of the VMS securities litigation is a non-recurring event. The
1994 recovery of $796,985 exceeded the $495,591 recovery of losses on mortgage
loans, notes and interest receivable recorded by the Fund during the first
quarter of 1995 by approximately $301,000. The 1995 recovery related to the
distributions received from the Fund's interests in the liquidating trusts as
discussed above in Liquidity and Capital Resources. Partially offsetting the
increase in expenses was a decrease in other professional fees and general and
administrative expenses. Other professional fees decreased by $396,223 for
the nine months ended September 30, 1995 when compared to the same period in
1994, as a result of the decreased expenditures for legal costs attributable
to the Buckeye arbitration since the matter was settled. For the nine months
ended September 30, 1995, general and administrative expenses decreased by
$137,766 primarily due to a decrease in the number of hours spent by Banyan
Management Corp. personnel on Fund-related matters.
In comparison, during the same period in 1994, a significant amount of
time and resources were devoted to exploring various sources of financing for
the Fund, resolving the Beverly Hills arbitration and negotiating of the sale
of the Cascades and Rocky Point properties. For the quarter ended September
30, 1995 total other expenses increased to $1,141,505 from $887,768 in 1994.
This change represents an increase of approximately $254,000 for the quarter
ended September 30, 1995 when compared to the same period in 1994. This
increase is primarily attributable to the $460,634 increase in interest
expense and amortization of deferred loan costs in respect to the Morgen's
Loan. Partially offsetting this increase was the decrease in other
professional fees, stockholder expenses, general and administrative expenses
and directors' fees, expenses and insurance. Other professional fees
decreased by $103,324 as a result of the decreased expenditures for legal
costs attributable to the Buckeye arbitration. Stockholder expenses decreased
by $40,848 due to the timing of payments for annual report and proxy related
costs. General and Administrative expenses decreased by approximately $32,000
due to the decrease in the number of hours spent by Banyan Management Corp.
personnel on Fund matters, as discussed above. Directors fees, expenses and
insurance decreased due to the improved rates received for directors and
officers insurance.
The Fund recorded $158,361 as its share of the Oakridge Partnership
operating loss for the nine months ended September 30, 1995 as compared to net
income of $504,151 for the same period in 1994. The decrease in the income
between 1995 and 1994 is primarily attributable to the fact that the
comparable 1994 period included the effect of a one time gain of approximately
$870,000 from the sale of a 59 acre parcel. The Fund's share of the Oakridge
Partnership's operating loss for the quarter ended September 30, 1995 was
$67,645 compared to $717,948 of operating income for the same period in 1994
the decrease in income for the quarter is attributable to the property sale as
discussed above.
Impacting the results for the nine months ended September 30, 1994 is
the arbitration award expense incurred by the Fund in the amount of
$3,250,000. The Fund and Banyan Mortgage Investors L.P. II ("BMLPII), acting
for itself and on behalf of THSP Associates L.P. II ("THSP") (formerly Banyan
Mortgage Investors L.P. III), had agreed to resolve, by means of arbitration,
the issue of the amount of compensation, if any, owed by the Fund to BMLPII in
consideration for BMLPII's agreement to relinquish, and take no action with
respect to its interests in certain Beverly Hills, California properties
commonly known as the Buckeye properties when the Fund took control of certain
of these properties in 1990. On July 20, 1994, a majority of two members of a
panel of three arbitrators awarded BMLPII approximately $3,768,000 in
connection with this arbitration. This amount was recorded in the second
quarter of 1994. Subsequently a negotiated settlement was reached and on
October 17, 1994, the Award was satisfied by the Fund's payment of $3,250,000
in full settlement which resulted in a $518,743 recovery on Arbitration Award
for the three months ended September 30, 1994.
For the nine months ended September 30, 1995, the Fund recognized a gain
on the disposition of real estate in the amount of $4,390 from lot sales at
the Wayside Village property. For the quarter ended September 30, 1995, the
Fund recognized a loss on disposition of real estate in the amount of $3,168
from lot sales at the Wayside Village property. During the nine months and
quarter ended September 30, 1994, the Fund recognized a gain on disposition of
real estate of $3,054,923 and $226,264, respectively, primarily related to May
1994 sale of the Cascades Apartment building. See Property Operations below
for additional details.
The combination of the above changes resulted in a net loss of
$4,328,813 ($0.11 per share) for the nine months ended September 30, 1995
compared to a net loss of $2,073,694 ($0.05 per share) for the same period in
1994. For the quarter ended September 30, 1995, the Fund recorded a net loss
of $1,673,544 ($0.04 per share) compared to net income of $609,848 ($0.02 per
share), recorded for the same period in 1994.
PROPERTY OPERATIONS
At September 30, 1995, the Fund owned an office building located at 120
S. Spalding Dr. in Beverly Hills, California which was 27% leased (100% leased
as of September 30, 1994). For the nine months ended September 30, 1995, the
120 S. Spalding property provided the Fund with cash flow from rental income
in excess of operating expenses of approximately $413,000 as compared to
approximately $1,176,000 for 1994. The $763,000 decrease in cash flow is due
primarily to the expiration of the lease of the building's largest tenant,
City National Bank ("City National"), which had occupied two-thirds of the
building. For the quarter ended September 30, 1995, the 120 S. Spalding
property provided the Fund with cash flow from rental income in excess of
operating expenses of approximately $53,000. With notification from City
National that it was relocating and after completing the Morgens Loan, the
Fund proceeded with the previously announced plan to redevelop and re-lease
the space vacated by City National as medical office space along with
marketing the property for sale. The Fund believes that the 120 S. Spalding
Building would generate working capital through an outright sale or a partial
sale pursuant to a joint venture. Management believes that 120 S. Spalding
property is likely more valuable if it is redeveloped and re-leased. The Fund
does not, however, have sufficient monies available to fund the costs
associated with redevelopment and re-leasing and, therefore, would only
proceed with such strategy in conjunction with a partner who would provide the
necessary capital. In the absence of such a joint venture partner, or if the
Fund is unable to sufficiently fund working capital needs from other sources,
then the Fund will seek an outright sale of this property.
In addition to the 120 S. Spalding property, the Fund also owns four
parcels of land. During the nine months ended September 30, 1995, the Fund
disbursed a total of approximately $6,011,000, excluding mortgage loan
principal repayments, for capitalized development costs and carrying costs
which include approximately $1,593,000 on the Chapman's Landing property,
approximately $3,396,000 on Wayside Village and approximately $1,022,000 on
Bishop Ranch. The expenditures were primarily for capitalized interest, real
estate taxes, land planning, engineering site improvements and entitlement
work. (See discussion below for further details).
The Fund's other large land parcel, the Southbridge project, consists of
2,048 acres, of which, 278 acres were previously zoned. On January 5, 1993,
the Prince William County Board of Supervisors approved the zoning and
development plan for the remaining 1,770 acres of land in the project. The
total project is now included in the county's overall comprehensive zoning
plan and is currently zoned for 4,100 residential units and 4,200,000 square
feet of commercial space. The Fund believes that inclusion of the project in
the comprehensive zoning plan of the County enhances the property's value and
marketability.
The Fund will seek to implement its business plan for the Southbridge
project which contemplates continued land planning and marketing efforts
designed to achieve sales of certain portions of the project beginning during
the first quarter of 1996. The Fund contemplates selling small outlying
portions of the site and would utilize 50% of any net sales proceeds to repay
portions of the outstanding Morgens Loan in advance of the schedule outlined
in the business plan to facilitate this process.
The Wayside Village property was acquired by the Fund in May of 1991.
The Fund is continuing to fund site-infrastructure work so that additional
finished lots can be sold to third party developers and builders. The project
was originally zoned for 2,224 residential units and 280,000 square feet of
commercial space. During the nine months ended September 30, 1995, the Fund
sold 17 single family lots to a builder which generated gross lot sales
proceeds of $1,029,830. After payment of closing costs of $1,291, real estate
tax prorations of $1,162 and other costs of $14,777, the Fund received net
cash proceeds of $1,012,150. The sale of the lots resulted in an aggregate
net gain on disposition of real estate of $4,390. Subject to working out the
current situation with SoGen described above, the Fund intends to finish
infrastructure and site improvements on the Wayside Village property. As of
September 30, 1995, there were 1,123 unfinished residential units and 280,000
square feet of commercial space available for sale. The Fund's capitalized
expenditures at Wayside Village have primarily been utilized for completion of
engineering, lot development, capitalized interest, and real estate taxes.
See liquidity and capital resources above for additional information
concerning recent developments regarding the Fund's mortgage loan
collateralized by the Wayside project and project expenditures.
In August 1992, the Chapman's Landing zoning and development plan was
approved by Charles County and the project is now included in the overall
comprehensive development plan for Charles County, Maryland. During the first
nine months of 1995, the Fund continued its efforts to secure the necessary
permits to allow development of the project to commence and completed
engineering work on sections of Phase I of the project. Phase I of the
project consists of 330 acres and is planned for development of 404 single-
family homes and 172 townhomes. On October 11, 1994 Charles County
preliminarily approved proposed zoning modifications increasing the project's
total density count to 4,600 residential units from 3,500 units and 2,000,000
square feet of commercial space from 1,000,000 square feet. The Fund intends
to begin infrastructure work on Phase I at Chapman's Landing in 1996. As of
September 30, 1995, the Fund has one executed sales contract and two pending
contracts with home developers for the sale of an aggregate of approximately
260 residential finished lots in Phase I of the Chapman's Landing development.
Also, the Fund is currently in negotiations with several other national and
regional builders and developers regarding additional sales contracts for
finished lots and/or development sites in Phase I of Chapman's Landing. The
Fund anticipates that additional sales contracts will be finalized sometime in
the first half of 1996 with sales of finished lots to builders beginning in
late 1996. The Fund's expenditures at the Chapman's Landing have primarily
been for completion of zoning, engineering, capitalized interest, and real
estate taxes.
The Fund's Southbridge, Wayside Village and Chapman's Landing properties
are located in the greater Washington D.C. metropolitan region which is
continuing its recovery with new business growth and increasing employment.
Boosted by rising consumer confidence, an overall improvement in the economy
of the greater Washington D.C. metropolitan region continues even though the
demand for lots during the first nine months of 1995 declined likely as a
result of the increases in interest rates on residential mortgage loans. As a
result of the most recent decline in residential mortgage rates, the Fund
anticipates the demand for residential lots to improve during the final three
months of 1995.
During the nine months ended September 30, 1995, the Fund continued to
pursue modified entitlements on the Bishop Ranch property, located in Monterey
County, California. On September 12, 1995 the Monterey County Board of
Supervisors approved the Environmental Impact Report, Zoning and Conditional
Use Permits for the Bishop Ranch property which provides for the development
of 253 single family and townhome lots and an eighteen- hole golf course. The
Monterey peninsula's residential market has been relatively stable. Due to
the constraints on growth in the area imposed by growth management plans and
the public's concern regarding the availability of water, management of the
Fund believes that the land value of the project has not suffered from the
severe declines in real estate values experienced in other areas of
California. In the future, management believes the residential market should
experience gradual growth as the demand for housing increases and the overall
economy improves. There can, however, be no assurance of such growth. The
Fund has begun to explore various strategies for realizing its carrying value
of the property.
The VST/VMIF Oakridge Partnership owns a 211-acre parcel of land located
in Hollywood and Dania, Florida. The Fund owns a 50% interest in this
partnership which is accounted for on the equity method. The remaining 50% is
owned by Banyan Short Term Income Trust. As of September 30, 1995, the
Partnership carried its 50% interest at $1,151,139. Over the past several
years, the Fund has worked to complete entitlement of the property and will be
marketing it for sale. Of the 211 acres, approximately 206 acres of the
property are currently under contract for a gross sales price of approximately
$6,000,000. The Partnership is also engaged in discussions with potential
purchasers of the remaining 5-acre retail parcel at the Oakridge site.
950 L'Enfant Plaza is an office building in Washington D.C. with 232,000
square feet of rentable space. The building is an eight story office building
with two parking levels located in a four-building complex called L'Enfant
Plaza. The property is currently under a renovation and retenanting program
which is anticipated to be completed in 1996. On November 19, 1991 the Fund
entered into an agreement with the senior lender on a loan collateralized by
the 950 L'Enfant Plaza Property. The Fund received $250,000 in cash upon
signing this agreement and is entitled to 2.5% of monthly cash flow from
operation of the property, which provided approximately $28,000 and $122,000
in cash flow to the Fund for the nine months ended 1995 and 1994,
respectively. The $94,000 decrease and current interruption in cash flow is
due to the termination of the lease with the building's tenant while
retenanting of the building is under way. The Fund is also entitled to
receive 4% of the gross sales proceeds of the property upon sale. The Fund
has no other ownership interest in this property and is not entitled to
participate in the decisions of management in respect to the property.
OTHER INFORMATION
On January 30, 1995, the Fund notified the Internal Revenue Service of
its intent to revoke its election to be treated as a real estate investment
trust ("REIT") under section 856(c)(1) of the Internal Revenue Code of 1986,
as amended, in order to enable it to develop its large tracts of undeveloped
land and to avoid the adverse tax effects of being deemed a dealer of real
property. For the year ended December 31, 1994, the Fund had elected to be
treated as a REIT under the Internal Revenue Code Sections 856-860. In order
to qualify, the Fund was required to distribute at least 95% of its taxable
income to shareholders and meet asset and income tests as well as certain
other requirements.
LITIGATION
On September 1, 1995, an action was filed in the Circuit Court of Cook
County, Illinois entitled: Monterey County Partners et al v. BMIF Monterey
County Limited Partnership et al 95 CH 8456 (the "Illinois Litigation"). The
plaintiffs in the Illinois Litigation are as follows: (a) Monterey County
Partners, a partnership which itself is a partner of the Fund's subsidiary,
BMIF Monterey County Corp., in a partnership known as BMIF Monterey County
Limited Partnership (the "Ownership Partnership"), which is the entity that
owns the Bishop Ranch project; (b) Investors Liquidating Trust, a Delaware
Trust which has been alleged to own 100% of the common stock of VMS Laguna
Seca, Inc., the general partner of VMS Laguna Seca Limited Partnership, which
is an alleged 80% partner in Monterey County Partners and (c) VMTGZ Mortgage
Investors, L.P.II, the principal beneficiary of Investors Liquidating Trust
which has been alleged to be the Limited Partner in the VMS Laguna Seca
Limited Partnership.
The defendants in the case, in addition to the Ownership Partnership,
are: (a) Leonard G. Levine, President of the Fund and (b) Banyan Management
Corp., the company which provides administrative services to the Fund pursuant
to an Administrative Services Agreement.
The complaint as to the Fund seeks: (I) the removal of BMIF Monterey
County Corp. as the general partner of the Ownership Partnership (BMIF
Monterey County Limited Partnership) and the replacement with Kimball Small
Residential Properties, Inc., a partner in Monterey County Partners; (II)
Declaratory relief that BMIF Monterey County Corp. is not entitled to any
"priority return" or "preferred return" on its capital account in the
Ownership Partnership; (III) Avoidance of an alleged fraudulent transfer
whereby the Ownership Partnership became the owner of the project after the
default in 1991 on the Fund's former mortgage loan to Monterey County Partners
upon which the Fund had initiated foreclosure proceedings which culminated in
the execution of the Ownership Partnership agreement and the creation of a
capital account in an amount not less than approximately $4,800,000 in favor
of Monterey County Partners; (IV) an accounting and (V) a constructive trust
to be created for the benefit of one of the plaintiffs. The complaint also
seeks separate relief against Mr. Levine and Banyan Management Corp.
In lieu of an answer to the complaint, the Fund has caused to be filed
motions, supported by briefs. Responses to those motions will be filed on
November 10, 1995. A hearing has not been scheduled. Both parties have
served and answered initial discovery requests.
The Fund believes the Illinois Litigation is totally without merit and
intends to vigorously defend it. The partnership agreement which creates the
Ownership Partnership requires an unsuccessful litigant whose claim is based
upon or related to the partnership agreement to pay the reasonable attorneys'
fees of its opponent. The Fund intends to seek reimbursement of all
attorneys' fees expended or incurred in defense of the Illinois litigation.
On October 10, 1995, an action was filed in the Superior Court of
Monterey County, California entitled: Monterey County Partners, et al. V. BMIF
Monterey County Limited Partnership, et al., Case No. 105280 (the "California
Litigation").
The plaintiff entity, which is a partner with the Fund's subsidiary,
BMIF Monterey County Corp., in the limited partnership known as BMIF Monterey
County Limited Partnership, which owns the Bishop Ranch property (the
"Ownership Partnership") has filed suit in its own name and derivatively on
behalf of the Ownership Partnership against the Ownership Partnership and each
of the participant entities in the Morgens, Waterfall, Vintiadis & Co. ("MWV")
loan, which loan is partially guaranteed by the Ownership Partnership, which
partial guaranty is collateralized by a deed of trust recorded against the
Bishop Ranch property.
The California Litigation alleges fraudulent transfer and conspiracy and
seeks the following as remedies: (i) to set aside the Deed of Trust and the
obligations of the Ownership Partnership under the guaranty, (ii) to quiet
title to the Bishop Ranch project, declaring null and void the interest of the
various defendant lenders which arises under the Deed of Trust and (iii) an
award of attorneys' fees and costs.
None of the defendants has yet answered the complaint. The Fund believes
this action is totally without merit and intends to vigorously defend it. The
partnership agreement which creates the Ownership Partnership requires an
unsuccessful litigant whose claim is based upon or related to the partnership
agreement to pay the reasonable attorneys' fees of its opponent. The Fund
intends to seek reimbursement of all attorneys' fees expended or incurred in
defense of the California litigation.
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) No exhibits are included with this Report.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1995 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 Fund has duly caused this Report to be signed on its
behalf by the undersigned thereunto duly authorized.
BANYAN MORTGAGE INVESTMENT FUND
By: /s/ Leonard G. Levine Date: November 14, 1995
Leonard G. Levine, President
By: /s/ Joel L. Teglia Date: November 14, 1995
Joel L. Teglia, Vice President and
Chief Financial and Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"This schedule contains summary financial information extracted from
Banyan Mortgage Investment Fund's 10Q for the quarter ended
September 30, 1995 and is qualified in its entirety by reference
to such Form 10Q."
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 1,171,731
<SECURITIES> 0
<RECEIVABLES> 169,118
<ALLOWANCES> (53,000)
<INVENTORY> 0
<CURRENT-ASSETS> 2,087,293
<PP&E> 117,356,197
<DEPRECIATION> (1,929,991)
<TOTAL-ASSETS> 122,239,954
<CURRENT-LIABILITIES> 3,202,610
<BONDS> 0
<COMMON> 86,394,923
0
0
<OTHER-SE> (11,316)
<TOTAL-LIABILITY-AND-EQUITY> 122,239,954
<SALES> 0
<TOTAL-REVENUES> 1,174,048
<CGS> 0
<TOTAL-COSTS> 2,134,125
<OTHER-EXPENSES> 1,793,539
<LOSS-PROVISION> (495,591)
<INTEREST-EXPENSE> 1,916,817
<INCOME-PRETAX> (4,328,813)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,328,813)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,328,813)
<EPS-PRIMARY> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
