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, 1997
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 No. 1-10150
ANGELES PARTICIPATING MORTGAGE TRUST
(Exact name of registrant as specified in its charter)
California 95-6881527
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
3 Pickwick Plaza, Suite 250 06830
Greenwich, CT (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (203) 861-0752
Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange on
Title of each class: which registered:
Class A Shares, $1.00 par
value per share, of Angeles Participating American Stock Exchange
Mortgage Trust
Securities registered pursuant to Section 12(g) of the Act: None
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 [ ]
As of October 31, 1997, there were 7,550,000 Class A Shares of Angeles
Participating Mortgage Trust Class A, $1.00 par value, outstanding.
Total Pages 13
<PAGE>
ANGELES PARTICIPATING MORTGAGE TRUST
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Consolidated Balance Sheets at September 30, 1997 and December 31, 1996 3
Consolidated Statements of Operations - For the three and nine months ended
September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows - For the nine months ended
September 30, 1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
</TABLE>
2
<PAGE>
Angeles Participating Mortgage Trust
Consolidated Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1997 1996
----------------------------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 842,000 $ 1,888,000
Investments 6,666,000 --
Mortgage note receivable 3,524,000 3,707,000
Accrued interest 53,000 56,000
Other receivables 2,000 8,000
Other assets 24,000 15,000
------------ -------------
Total assets $ 11,111,000 $ 5,674,000
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable $ 35,000 $ 37,000
Accrued expenses 203,000 142,000
------------ -------------
Total liabilities 238,000 179,000
------------ -------------
Minority interest 4,340,000 3,917,000
------------ -------------
Shareholders' equity:
Class A Shares (7,550,000 shares issued and outstanding,
$1.00 par value, unlimited shares authorized) 7,550,000 2,550,000
Class B Shares (3,775,000 shares issued and outstanding,
$.01 par value, unlimited shares authorized) 38,000 13,000
Unrealized gain on "available for sale" investments 6,000 --
Additional paid in capital 42,228,000 42,329,000
Accumulated undistributed net realized gain from sale of
mortgages 2,545,000 2,545,000
Accumulated distributions in excess of cumulative net
income other than gain from sale of mortgages (45,834,000) (45,859,000)
------------ ------------
Total shareholders' equity 6,533,000 1,578,000
------------ ------------
Total liabilities and shareholders' equity $ 11,111,000 $ 5,674,000
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Angeles Participating Mortgage Trust
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------------------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue:
Interest income from mortgage notes $ 150,000 $ 6,000 $ 457,000 $ 6,000
Interest income from investments 96,000 29,000 247,000 58,000
Other income -- -- 2,000 --
----------- ----------- ----------- -----------
Total revenue 246,000 35,000 706,000 64,000
----------- ----------- ----------- -----------
Costs and expenses:
General and administrative 104,000 275,000 261,000 560,000
----------- ----------- ----------- -----------
Total costs and expenses 104,000 275,000 261,000 560,000
----------- ----------- ----------- -----------
Net income (loss) before minority interest 142,000 (240,000) 445,000 (496,000)
----------- ----------- ----------- -----------
Minority interest (140,000) (6,000) (420,000) (6,000)
----------- ----------- ----------- -----------
Net income (loss) $ 2,000 $ (246,000) $ 25,000 $ (502,000)
=========== =========== =========== ===========
Net income (loss) per Class A Share $ 0.01 $ (0.10) $ 0.01 $ (0.19)
=========== =========== =========== ===========
Cash distributions per Class A Share $ 0.00 $ 0.00 $ 0.00 $ 0.00
=========== =========== =========== ===========
Weighted average of shares outstanding 7,550,000 2,550,000 7,143,000 2,550,000
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Angeles Participating Mortgage Trust
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Nine months ended
September 30,
-----------------------------------
1997 1996
----------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 25,000 $ (502,000)
Adjustment to reconcile net income (loss) to cash flows
from operating activities
Minority interest 420,000 6,000
Accrued interest -- (6,000)
Decrease in other receivables 9,000 8,000
Increase in other assets (9,000) --
Increase in accounts payable and accrued
expenses 59,000 128,000
------------ ------------
Cash flows provided (used) by operating activities $ 504,000 $ (366,000)
------------ ------------
Cash flows from investing activities
Investments in securities (16,255,000) --
Principal collections from investment securities 32,000 1,196,000
Sale of investment securities 9,566,000 --
Principal collections from mortgage note 183,000 --
------------ ------------
Cash flows (used) provided by investing activities $ (6,474,000) $ 1,196,000
------------ ------------
Cash flows from financing activity
Exercise of warrants 4,924,000 --
------------ ------------
Cash flows provided by financing activity $ 4,924,000 $ --
------------ ------------
Increase (decrease) in cash and cash equivalents (1,046,000) 830,000
Cash and cash equivalents at beginning of period $ 1,888,000 $ 863,000
------------ ------------
Cash and cash equivalents at end of period $ 842,000 $ 1,693,000
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Angeles Participating Mortgage Trust
Notes to Consolidated Financial Statements
Note 1 - General
In the opinion of management, the accompanying unaudited financial
statements contain all of the adjustments necessary to present fairly the
consolidated financial position of Angeles Participating Mortgage Trust
("APART") and its investee operating partnership, APMT Limited Partnership, a
Delaware limited partnership (the "Partnership"), at September 30, 1997 and the
results of operations for the three and nine months ended September 30, 1997 and
1996, and its cash flows for the nine months ended September 30, 1997 and 1996,
in conformity with generally accepted accounting principles applied on a
consistent basis. All adjustments included are of a normal and recurring nature.
Although APART owns less than 50% of the Partnership, the operations and
financial position of APART and the Partnership are consolidated under generally
accepted accounting principles, because APART controls the Partnership in its
capacity as general partner of the Partnership. Furthermore, both APART and the
other investor in the Partnership are under common control as further described
in Note 4. The accounting policies followed by APART are more fully described in
Note 2 to APART's financial statements included as part of its 1996 Annual
Report on Form 10-K which is incorporated herein by reference.
The results of operations for the nine month period ended September 30,
1997 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997.
Note 2 - Organization
APART is a California business trust which was formed as a real estate
investment trust ("REIT") under applicable provisions of the Internal Revenue
Code of 1986, as amended, initially for the purpose of making and acquiring
various types of mortgages and other loans, primarily with entities affiliated
with APART's former advisor.
On September 26, 1996, the shareholders of APART approved a Restated
Declaration of Trust which, among other things, revised APART's investment
policy to allow APART to acquire a diversified portfolio of interests (the
"Diversified Portfolio") in real estate or real estate-related assets, including
originating or acquiring mortgage loans, acquiring real estate-related debt
securities, making purchase money loans with respect to assets sold by APART and
acquiring non-performing or under performing debt secured by real estate assets.
APART currently intends to focus its acquisition efforts on assets which exhibit
one or more of the following characteristics: (a) assets owned by distressed
sellers; (b) assets priced below or having a deemed value for collateralization
purposes that is less than reproduction cost; (c) equity interests in, and/or
debt interests secured by, assets located in markets or submarkets experiencing
population or job growth, and which are located near historically stable
employment generator bases, such as government, university and medical centers;
and (d) interests which are publicly traded, including other REIT equities,
limited partnership interests and debt interests. This investment policy is
subject to restrictions which require the approval of certain shareholders as to
certain types of investments.
On September 26, 1996, APART became the sole general partner of the
Partnership (see Note 4). Initially, APART will not be required to operate
exclusively through the Partnership and, thus, will not have any obligation to
contribute additional cash. However, due to the exercise of the warrants (as
discussed in Note 5), the Board of Trustees has the right to cause APART to
contribute substantially all of APART's uncontributed assets to the Partnership
for additional interests in the Partnership. Following any such exercise APART
must agree to conduct all of its real estate-related investment activities
exclusively through the Partnership.
Note 3 - Investments
As of September 30, 1997, APART held four investments in Government
National Mortgage Association securities ("GNMA") aggregating $1.5 million. The
GNMAs each have a coupon rate of 7.5%; three of the GNMAs mature in 2027 and the
other GNMA matures in 2026. In accordance with Statement of Financial Accounting
Standards No. 115 ("FASB 115") APART has classified all GNMA investments as
"available for sale" because they are freely tradeable. As of September 30,
1997, APART recorded a current unrealized gain of $6,000 from its GNMAs which is
reflected in the shareholders' equity section of the balance sheet in accordance
with FASB 115. The Federal Home Loan Mortgage Corporation ("FHLMC") discount
notes held by APART matured in July 1997 and the $5.1 million of proceeds were
reinvested into a FHLMC discount note, a Federal National Mortgage Association
("FNMA") discount note, and a Federal Home Loan Bank Construction discount note.
All of these notes mature in 3 months, at which time interest is fully paid. In
addition, the Partnership invested approximately $0.1 million in various REITs
during the third quarter.
6
<PAGE>
Note 4 - The Partnership
On September 26, 1996, APART became the sole general partner of the
Partnership by contributing $400,000 in cash, evidenced by 400,000 Operating
Partnership Units ("OPU")(a 8.05% interest) in the Partnership. Starwood
Mezzanine Investors, L.P. ("Starwood Mezzanine") contributed to the Partnership
its entire interest in certain mortgage participation certificates valued by
APART at approximately $4.6 million as of September 30, 1996, evidenced by
4,568,944 OPU (a 91.95% interest) in the Partnership. These OPU are convertible
into registered Class A Shares of APART on a one-for-one basis, subject to
certain restrictions.
APART and the Partnership are considered to be entities under common
control and the consolidated operations of APART and the Partnership have been
accounted in accordance with generally accepted accounting principles governing
such entities. The mortgage participation certificates contributed by Starwood
Mezzanine into the Partnership were reflected in the financial statements at its
predecessor basis of $3.76 million. As of September 30, 1997, the mortgage
participation certificates had a basis of $3.52 million.
The mortgage participation certificates comprise the first mortgage note on
the Warwick Hotel, a 20-story hotel and apartment complex located in
Philadelphia, PA. The mortgage had a face value of $4.9 million at the time of
transfer and requires monthly payments of approximately $71,000, representing
principal and interest at a rate of 9% per annum. The note was originally issued
with a face amount of $8.5 million on December 1, 1979 with the final payment
due November 30, 2004. Starwood Mezzanine acquired this note at a discount from
face value in February 1995 and has been accounting for it under the effective
interest method.
On October 1, 1997 the Warwick Hotel note was repaid and the $4.6 million
were reinvested in government securities that mature in December 1997.
Note 5 - Shareholders' Equity
The shares of APART are of two classes: Class A Shares (par value $1.00 per
share) and Class B Shares (par value $.01 per share). There is no limit on the
number of either Class A or Class B Shares which APART is authorized to issue.
Class B Shares in an amount equal to one-half of the number of Class A Shares
outstanding are required to be issued by APART upon issuance of Class A Shares.
Class A and Class B Shares are each entitled to one vote per share with respect
to the election of Trustees and other matters. The Class B Shares are
convertible at the option of the Class B Shareholder into Class A Shares on the
basis of 49 Class B Shares for one Class A Share. All distributions of net cash
will be distributed 99% to the Class A Shareholders and 1% to the Class B
Shareholders.
In November 1993, APART was notified that SAHI, Inc. had acquired all of
APART's 1,275,000 outstanding Class B Shares. Subsequent to the acquisition of
the Class B Shares, SAHI Partners ("SAHI") purchased the Class B Shares from
SAHI, Inc. and accumulated 244,100 Class A Shares or 9.57% of the total
outstanding Class A Shares of APART as of September 30, 1997.
On September 26, 1996, APART became sole general partner of the Partnership
by contributing $400,000 in cash, in exchange for a 8.05% interest in the
Partnership evidenced by 400,000 OPU. Starwood Mezzanine became the 91.95%
limited partner by contributing to the Partnership its entire interest in the
participation certificates in the Warwick Hotel mortgage note valued by APART at
approximately $4.6 million at the time of contribution. Starwood Mezzanine's
interest in the Partnership is evidenced by 4,568,944 OPU, which are convertible
into Class A Shares pursuant an exchange rights agreement. In addition, Starwood
Mezzanine has the right to require APART to register for public sale, any or all
of the Class A Shares in the Partnership issued to it upon the exercise of the
Class A Warrant or upon exchange of the OPU issued to Starwood Mezzanine. These
OPU are convertible into registered Class A shares of APART on a one-for-one
basis, subject to certain restrictions.
On January 22, 1997, Starwood Mezzanine exercised all of the outstanding
Class A Warrants to acquire 5,000,000 Class A Shares at $1 per share, bringing
its total beneficial ownership to 5,000,000 Class A Shares and 4,568,944 OPU. In
addition, SAHI, Inc. exercised all of the outstanding Class B Warrants to
acquire 2,500,000 Class B Shares, bringing its total beneficial ownership to
3,775,000 Class B Shares and 244,100 Class A Shares, with the opportunity to
acquire an additional 2,284,472 Class B Shares upon conversion of the OPU to
Class A Shares. Each share of Class A Shares and Class B Shares is entitled to
one vote per share. Due to the exercise of the entire Class A and Class B
Warrants, SAHI, SAHI, Inc., and Starwood Mezzanine (collectively, the "SAHI
Nominees") jointly own 70% of the outstanding Class A Shares and, with the
voting interest of the Class B Shares, control 80% of the voting interest of
APART.
7
<PAGE>
Note 6 - Incentive Plan
On September 26, 1996, the shareholders approved an incentive plan for the
Trustees (the "Trustee Plan") and an incentive plan for employees (the "Employee
Plan"). The Trustee Plan provides for the issuance of up to 50,000 stock options
and the Employee Plan provides for the grant of up to 377,500 shares in the form
of stock options, share appreciation rights, restricted shares, and deferred
shares. As of September 30, 1997, 2,000 stock options were granted under the
Trustee Plan. All Trustees affiliated with the SAHI Nominees waived their rights
to receive stock options during 1996 and 1997. The options are fully vested and
have an exercise price of $1.38 per share. No stock options have been granted
under the Employee Plan.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
General
Angeles Participating Mortgage Trust ("APART") is a California business
trust organized to operate as a real estate investment trust ("REIT"). On March
15, 1994, APART announced that it had entered into an agreement with SAHI
Partners ("SAHI") and SAHI, Inc. for the sale of warrants for the right to
purchase five million of APART's Class A Shares at a price of $1 per share (the
"Class A Warrant") and a warrant for the right to purchase 2,500,000 Class B
Shares for a price of $0.01 per share (the "Class B Warrant" and together with
the Class A Warrant, the "Warrants"). SAHI and SAHI, Inc. purchased the Warrants
for $101,000, which amount was applied against the purchase price for the Class
A and Class B Shares purchased pursuant to the Warrants. On March 28, 1996, the
Class A Warrants were assigned to Starwood Mezzanine Investors ("Starwood
Mezzanine").
On September 26, 1996, APART became sole general partner of the APMT
Limited Partnership ("the Partnership") by contributing $400,000 in cash in
exchange for a 8.05% interest in the Partnership evidenced by 400,000 Operating
Partnership Units ("OPU"). Starwood Mezzanine became the 91.95% limited partner
by contributing to the Partnership its entire interest in the participation
certificates in the Warwick Hotel mortgage note valued by APART at approximately
$4.6 million at the time of contribution. Starwood Mezzanine's interest in the
Partnership is evidenced by 4,568,944 OPU, which are convertible into Class A
Shares pursuant to an exchange rights agreement. In addition, Starwood Mezzanine
has the right to require APART to register for public sale, any or all of the
Class A Shares in the Partnership issued to it upon the exercise of the Class A
Warrant or upon exchange of the OPU issued to Starwood Mezzanine. These OPU are
convertible into Class A Shares on a one-for-one basis, subject to certain
restrictions.
On January 22, 1997, Starwood Mezzanine exercised the Class A Warrant to
acquire 5,000,000 Class A Shares. In addition, SAHI, Inc. exercised the Class B
Warrant to acquire 2,500,000 Class B Shares. As a result of the exercise of the
Warrants, APART's capital increased by $5,025,000, and funds from this
capitalization are available to be invested in accordance with the APART
business plan.
Although APART did not pursue its stated investment policy in 1994 and
1995, the investment policy of APART prior to September 26, 1996 was
predominantly to make mortgage loans to certain entities affiliated with APART's
former advisor. On September 26, 1996, the shareholders approved a Restated
Declaration of Trust which significantly changed the investment policy of APART.
APART currently intends to focus its acquisition efforts on assets which exhibit
one or more of the following characteristics: (a) assets owned by distressed
sellers; (b) assets priced below or having a deemed value for collateralization
purposes that is less than reproduction cost; (c) equity interests in, and/or
debt interests secured by, assets located in markets or submarkets experiencing
population or job growth, and which are located near historically stable
employment generator bases, such as government, university and medical centers;
(d) interests which are publicly traded, including other REIT equities, limited
partnership interests and debt interests. This investment policy is subject to
restrictions that require the approval of certain shareholders as to certain
types of investments.
Liquidity and Capital Resources
APART's primary source of cash from operations is from interest earned on
the mortgage note receivable, investments and cash and cash equivalents. In
addition, on January 22, 1997, Starwood Mezzanine and SAHI, Inc exercised the
Warrants and APART received a gross amount of $5,025,000. This cash is available
to be invested in accordance with the APART business plan. APART's investments
and cash and cash equivalents were approximately $7.5 million and $1.9 million
as of September 30, 1997 and December 31, 1996, respectively. Of the September
30, 1997 total, $1.0 million was invested in a Federal National Mortgage
Association ("FNMA") discount note, $4.1 million was invested in Federal Home
Loan Mortgage Corporation ("FHLMC") discount notes and $1.5 million was invested
in Government National Mortgage Association securities ("GNMA"), with the
remainder held in various REIT shares and money market funds.
On October 1, 1997 the Warwick Hotel note was repaid and the $4.6 million
of proceeds were invested in government securities that mature in December 1997.
APART has paid no dividends since 1993. The amount and timing of any future
cash dividends, if any, is impossible to predict at this time. Shareholders'
equity approximates the amount of remaining cash, investments, and other assets.
Management believes that there will be sufficient cash available from operations
to meet the obligations of APART in future periods and to operate as a going
concern through the 1997 fiscal year.
9
<PAGE>
APART has historically operated as a REIT and maintained its qualification
as a REIT under the Internal Revenue Code. APART currently intends to continue
to operate so as to qualify as a REIT under the Internal Revenue Code of 1986,
as amended.
Results of Operations
During the three and nine months ended September 30, 1997, total revenue
increased $211,000 and $642,000 respectively, as compared to total revenue for
the comparable periods in 1996. This increase is a result of the interest income
generated by the mortgage participation certificates contributed into the
Partnership in September 1996 and the investments made with the funds received
from the exercise of the Warrants in January 1997.
The decrease in APART's total costs and expenses during the three and nine
months ended September 30, 1997 compared to the same period ending 1996 is
primarily due to lower legal fees and proxy costs in 1997, combined with the
elimination of payroll and office rental costs in 1997 and lower professional
and trustee fees.
The minority interest represents Starwood Mezzanines' share of the net
income generated by the Partnership.
10
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Refer to Exhibit Index on page 12 of this report.
b. Reports on Form 8-K
None.
Note: All items required under Part II of Form 10-Q which are applicable
have been reported herein.
11
<PAGE>
ANGELES PARTICIPATING MORTGAGE TRUST
Exhibit Index
Exhibit Number Description of Exhibit
3.1 Restated Declaration of Trust of Angeles Participating Mortgage Trust. (1)
(1) Filed as an exhibit to APART's Form 10-Q dated September 30, 1996 and
incorporated herein by reference.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, APART
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
ANGELES PARTICIPATING MORTGAGE TRUST
Date: October 31, 1997 /s/ Barry S. Sternlicht
-------------------------
Barry S. Sternlicht
Trustee and Chairman
(Chief Executive Officer)
Date: October 31, 1997 /s/ Jerome C. Silvey
-------------------------
Jerome C. Silvey
Chief Financial Officer
(Principal Financial and Accounting Officer)
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 842,000
<SECURITIES> 6,666,000
<RECEIVABLES> 3,588,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,096,000
<PP&E> 15,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,111,000
<CURRENT-LIABILITIES> 238,000
<BONDS> 0
0
0
<COMMON> 7,588,000
<OTHER-SE> (1,061,000)
<TOTAL-LIABILITY-AND-EQUITY> 11,111,000
<SALES> 0
<TOTAL-REVENUES> 706,000
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 261,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 25,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 25,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,000
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
</TABLE>
