SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM l0-Q
Quarterly Report Under Section 13 or 15(d)
of The Securities Exchange Act of 1934
For Quarter Ended September 30, 2000
Commission file number O-17248
OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership
(Exact Name of Registrant as Specified In Its Charter)
California 68-0023931
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2221 Olympic Boulevard
Walnut Creek, California 94595
(Address of principal executive office) (Zip Code)
(925) 935-3840
(Registrant's Telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No_________
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
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OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
Consolidated Balance Sheets
(UNAUDITED)
September 30 December 31
2000 1999
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 9,978,067 $ 5,216,326
Certificates of deposit 50,000 250,000
Loans secured by trust deeds 214,991,403 200,356,517
Less: Allowance for loan losses (4,000,000) (4,000,000)
210,991,403 196,356,517
Real estate properties held for sale, net of allowance
for losses of $1,136,000 in 2000 and $1,336,000 in 1999 5,688,969 12,397,722
Real estate properties held for investment, net of depreciation
and amortization of $51,556 in 2000 13,065,885 -
Interest and other receivables 2,200,827 2,150,952
Total Assets $241,975,151 $216,371,517
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued distributions payable $ 609,837 $ 577,281
Accounts payable and accrued liabilities 97,679 430,664
Due to General Partner 915,325 751,759
Note payable 6,023,217 -
Total Liabilities 7,646,058 1,759,704
Minority interest 117,706 -
PARTNERS' CAPITAL:
General partners 2,273,775 2,104,936
Limited partners (Subject to Redemption) 231,937,612 212,506,877
Total Partners' Capital 234,211,387 214,611,813
Total Liabilities and Partners' Capital $241,975,151 $216,371,517
The accompanying notes are an integral part of these consolidated financial
statements.
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<CAPTION>
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
Consolidated Statements of Income (Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30 eptember 30 September 30 September 30
2000 1999 2000 1999
REVENUES:
<S> <C> <C> <C> <C>
Interest income on loans secured by trust deeds $ 6,025,118 $ 5,015,553 $ 17,471,340 $ 14,472,585
Gain on sale of real estate 2,879,267 822,316 2,879,267 840,640
Rental income 612,393 171,107 1,122,601 511,353
Other income 39,366 68,055 160,592 318,252
Total revenues 9,556,144 6,077,031 21,633,800 16,142,830
EXPENSES:
Management fees to General Partner 1,186,069 817,267 3,147,729 1,740,594
Servicing fees to General Partner 134,669 123,670 392,101 355,790
Carried interest (formerly promotional interest)
to General Partner 24,478 24,602 71,335 54,972
Administrative 7,875 10,000 23,625 22,500
Legal and accounting 21,489 13,130 112,366 123,287
Rental expenses 214,728 130,848 484,794 403,218
Interest expense 93,620 - 93,620 -
Minority interest 17,706 - 17,706 -
Provision for loan losses - 250,000 - 250,000
Other 1,325 100 23,294 62,860
Total operating expenses 1,701,959 1,369,617 4,366,570 3,013,221
Net income $ 7,854,185 $ 4,707,414 $ 17,267,230 $ 13,129,609
Net income allocated to General Partner $ 77,324 $ 46,398 $ 169,842 $ 129,565
Net income allocated to limited partners $ 7,776,861 $ 4,661,016 $ 17,097,388 $ 13,000,044
Net income allocated to limited partners
per weighted average limited partnership unit $.034 $.022 $.077 $.063
Weighted average limited partnership units 229,131,000 208,589,000 222,223,000 204,916,000
The accompanying notes are an integral part of these consolidated financial
statements.
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<TABLE>
<CAPTION>
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended
September 30 September 30
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net Income $ 17,267,230 $ 13,129,609
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation and amortization 45,138 -
Gain on sale of real estate properties (2,879,267) (840,640)
Provision for loan losses - 250,000
Changes in operating assets and liabilities:
Interest and other receivables (49,875) (122,298)
Accounts payable and accrued liabilities (332,985) (128,668)
Due to General Partner 163,566 251,312
Net cash provided by operating activities 14,213,807 12,539,315
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of loans secured by trust deeds (81,558,576) (92,479,859)
Principal collected on loans 919,801 1,243,618
Loan payoffs 59,466,576 66,673,967
Sales of loans secured by trust deeds at face value 6,665,913 7,207,294
Investment in real estate properties (180,911) (206,147)
Net proceeds from disposition of real estate properties 959,097 851,498
Investment in corporate joint venture (2,845,574) (255,564)
Repayment received from corporate joint venture 581,250 -
Proceeds from sale of real estate in corporate joint venture 7,195,640 -
Purchase of real estate in corporate joint venture (3,337,888) -
Minority interest in corporate joint venture 117,706 -
Proceeds from maturities of certificates of deposit 200,000 184,006
Proceeds from maturity of commercial paper - 3,084,044
Net cash used in investing activities (11,816,966) (13,697,143)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of partnership Units 19,110,931 15,714,358
Accrued distributions payable 32,556 45,295
Partners' cash distributions (5,387,904) (4,874,487)
Partners' capital withdrawals (11,390,683) (13,644,598)
Net cash provided by (used in) financing activities 2,364,900 (2,759,432)
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 4,761,741 (3,917,260)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 5,216,326 8,260,599
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 9,978,067 $ 4,343,339
See notes 2 , 4 and 5 for supplemental disclosure of non-cash investing and
financing activities.
The accompanying notes are an integral part of these consolidated financial
statements.
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OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(1) Summary of Significant Accounting Policies
In the opinion of the management of the Partnership, the accompanying
unaudited consolidated financial statements contain all adjustments,
consisting of normal, recurring adjustments, necessary to present
fairly the financial information included therein. These consolidated
financial statements should be read in conjunction with the audited
financial statements included in the Partnership's Form 10-K for the
fiscal year ended December 31, 1999 filed with the Securities and
Exchange Commission. The results of operations for the three-month and
nine-month periods ended September 30, 2000 are not necessarily
indicative of the operating results to be expected for the full year.
The consolidated financial statements include the accounts of the
Partnership and its majority-owned limited liability company. All
significant inter-company transactions and balances have been
eliminated in consolidation.
(2) Loans Secured by Trust Deeds
The Partnership's investment in loans delinquent greater than ninety
days is $7,945,000 and $7,415,000 as of September 30, 2000 and December
31, 1999, respectively. As of September 30, 2000, $1,717,000 of the
delinquent loans has a specific related allowance for credit losses
totaling $650,000. There is a non-specific allowance for credit losses
of $3,350,000 for the remaining delinquent balance and for other
current loans. The Partnership has discontinued the accrual of interest
on all loans that are delinquent greater than ninety days.
As of September 30, 2000 and December 31, 1999, loans past maturity
totaled approximately $43,729,000 and $29,451,000, respectively. Of the
past maturity loans at September 30, 2000, $1,717,000 represent loans
for which interest payments are delinquent more than ninety days.
During the quarter ended September 30, 2000 and 1999, the Partnership
refinanced loans totaling $475,000 and $110,000, respectively.
During the quarter ended September 30, 2000, the Partnership sold for
cash, partial interests in one loan to third parties in the total
amount of $500,000. The sale of this loan resulted in no gain or loss
to the Partnership in the accompanying consolidated financial
statements.
During the nine months ended September 30, 2000, the Partnership sold
two delinquent loans at book value to the General Partner for notes
receivable in the total amount of $1,178,000. The General Partner
subsequently foreclosed on the loans. The General Partner repaid the
notes in full to the Partnership during the quarter ended September 30,
2000.
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(3) Transactions with Affiliates
The General Partner of the Partnership, Owens Financial Group, Inc.
(OFG), is entitled to receive from the Partnership a management fee of
up to 2.75% per annum of the average unpaid balance of the
Partnership's mortgage loans at the end of each of the preceding twelve
months for services rendered as manager of the Partnership.
All of the Partnership's loans are serviced by OFG, in consideration
for which OFG receives up to .25% per annum of the unpaid principal
balance of the loans.
OFG, at its sole discretion may, on a monthly basis, adjust the
management and servicing fees as long as they do not exceed the
allowable limits calculated on an annual basis. In determining the
management and servicing fees and hence the yield to the Partnership,
OFG may consider a number of factors, including the then-current market
yields. Even though the fees for a particular month may exceed
one-twelfth of the maximum limits, at the end of the calendar year the
sum of the fees collected for each of the twelve months may not exceed
the stated limits. Management fees amounted to approximately $1,186,000
and $817,000 for the three months ended September 30, 2000 and 1999,
respectively, and $3,148,000 and $1,741,000 for the nine months ended
September 30, 2000 and 1999, respectively. Service fee payments to OFG
approximated $135,000 and $124,000 for the three months ended September
30, 2000 and 1999, respectively, and $392,000 and $356,000 for the nine
months ended September 30, 2000 and 1999, respectively.
(4) Real Estate Properties Held for Investment
In 1995, the Partnership foreclosed on a $571,853 loan and obtained
title to a commercial lot in Los Gatos, California that secured the
loan. In 1997, the Partnership contributed the lot to a limited
liability company (the Company) formed with an unaffiliated developer
to develop and sell a commercial office building on the lot. The
Partnership provided construction financing to the Company at the rate
of prime plus two percent.
During the nine months ended September 30, 2000 and the year ended
December 31, 1999, the Partnership advanced an additional $2,846,000
and $1,417,000, respectively, to the Company for development. In
addition, the Partnership received repayment of advances from the
Company in the amount of $581,000 during the nine months ended
September 30, 2000.
Construction of the building was substantially completed in June 2000.
Prior to the sale of the building in July 2000, the Company entered
into a reverse, like-kind exchange, whereby the proceeds attributable
to the Partnership's interest in the Company from the sale of the
building (approximately $3,338,000), net of repayment of the
outstanding advances to the Partnership in the amount of $3,858,000,
were reinvested into the purchase of a retail commercial development in
Greeley, Colorado. The purpose of this exchange was to defer the
recognition of gain for tax purposes to the Company and, hence, the
Partnership. The sale resulted in a book gain to the Partnership of
approximately $2,691,000. The Company also incurred a note payable in
the amount of $6,023,000 as part of the purchase of the new property. A
new member that will act as the property manager of the Greeley
property was admitted to the Company in August, 2000.
OWENS MORTGAGE INVESTMENT FUND
(A California Limited Partnership)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000
(4) Real Estate Properties Held for Investment, Continued
Operation of the new property began in August 2000, and net income to
the Partnership was approximately $33,000 for the quarter ended
September 30, 2000. The assets, liabilities, income and expenses of the
Company have been consolidated into the accompanying consolidated
balance sheet and income statement of the Partnership. The minority
interest of the joint venture partner of $117,706 as of September 30,
2000 is reported in the accompanying consolidated balance sheet.
In addition, the Partnership transferred two properties held for sale
to real estate held for investment in the amount of $3,655,000 during
the quarter ended September 30, 2000. Real estate properties held for
investment consist of the following as of September 30, 2000:
Land $ 4,936,259
Buildings 7,392,764
Improvements 676,751
Other 111,667
13,117,441
Less: Accumulated depreciation
and amortization (51,556)
$ 13,065,885
Real estate properties held for investment are stated as cost.
Depreciation is provided on the straight-line method over the estimated
useful lives of buildings and improvements of 39 years. Amortization of
lease commissions is provided on the straight-line method over the
lives of the related leases. Depreciation and amortization for the
quarter ended September 30, 2000 was $45,138.
(5) Real Estate Properties Held for Sale
During the three months ended September 30, 2000, an industrial
building located in Lathrop, California that was acquired by the
Partnership through foreclosure in April 2000 was sold for cash of
$90,000 and a note of $814,000, resulting in a gain to the Partnership
of approximately $142,000. In addition, 84 residential lots located in
Lake Don Pedro, California were sold for cash resulting in a gain to
the Partnership of approximately $46,000.
(6) Note Payable
The Partnership has a note payable with a bank through its investment
in the limited liability company (see note 4), which is secured by the
retail development in Greeley, Colorado. The note requires monthly
interest payments with the balance of unpaid principal and interest due
on May 22, 2003. The interest rate on the note is variable based on the
LIBOR rate plus 2.75%. Interest expense for the quarter ended September
30, 2000 was approximately $94,000. The principal balance on the note
as of September 30, 2000 is approximately $6,023,000. The Company also
has the option to draw an additional $1,370,000 on the note for capital
expenditures, tenant improvements or leasing commissions. The note
contains certain covenants, which the Company has complied with as of
September 30, 2000.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements
Some of the information in this Form 10-Q may contain forward-looking
statements. Such statements can be identified by the use of forward-looking
words such as "may," "will," "expect," "anticipate," "estimate," "continue" or
other similar words. These statements discuss future expectations, contain
projections of results of operations or of financial conditions or state other
forward-looking information. When considering such forward-looking statements
you should keep in mind the risk factors and other cautionary statements in the
Partnership'S Prospectus. Although management of the Partnership believes that
the expectations reflected in such forward-looking statements are based on
reasonable assumptions, there are certain factors, in addition to these risk
factors and cautioning statements, such as general economic conditions, local
real estate conditions, adequacy of reserves, or weather and other natural
occurrences that might cause a difference between actual results and those
forward-looking statements.
Results of Operations
Three Months Ended September 30, 2000 Compared to 1999
The net income increase of $3,147,000 (66.8%) for 2000 compared to 1999, was due
to:
o an increase in gain on sale of real estate of $2,057,000;
o an increase in interest income on loans secured by trust deeds of
$1,010,000;
o an increase in rental income of $441,000; and
o a decrease in provision for loan losses of $250,000.
The net income increase in 2000 as compared to 1999, was offset by:
o an increase in rental expenses of $84,000;
o an increase in interest expense of $94,000; and
o an increase in management fees to General Partner of $369,000.
Gain on sale of real estate increased $2,057,000 (250%) for the three
months ended September 30, 2000, as compared to the same period in 1999. This
increase was due to the sale of the Los Gatos office building within the
corporate joint venture in July 2000.
Interest income on loans secured by trust deeds increased $1,010,000
(20.1%) for the three months ended September 30, 2000, as compared to the same
period in 1999. This increase was a result of an increase in the weighted
average yield of the loan portfolio from 10.84% for the three months ended
September 30, 1999 to 11.38% for the three months ended September 30, 2000. In
addition, the average loan portfolio grew by 8.9% for the quarter ended
September 30, 2000 as compared to 1999, and the Partnership's investment in
delinquent loans decreased by $2,067,000 (20.6%) as of September 30, 2000 as
compared to September 30, 1999.
Rental income from real estate properties increased by $441,000 (258%)
during the three months ended September 30, 2000 as compared to the same period
in 1999. Rental expenses from real estate properties also increased by $84,000
(64.1%) during the the three months ended September 30, 2000 as compared to the
same period in 1999. These increases are a result of increased occupancy and
rental rates on several of the Partnership's properties during 2000 and the
purchase of the Greeley, Colorado retail property through the related corporate
joint venture via the reverse, like-kind exchange of the Los Gatos office
building in July 2000.
Interest expense increased by $94,000 (100%) during the three months
ended September 30, 2000 as compared to the same period in 1999, due to the note
payable incurred by the corporate joint venture as a result of the purchase of
the Greeley, Colorado retail property.
Management fees to the General Partner are paid pursuant to the
Partnership Agreement between the General Partner and Limited Partners.
Management fees increased by $369,000 (45.1%) during the three months ended
September 30, 2000 as compared to the same period in 1999, because the
Partnership remained fully invested in loans during this period.
Nine Months Ended September 30, 2000 Compared to 1999
The net income increase of $4,138,000 (31.5%) for 2000 compared to 1999, was due
to:
o an increase in gain on sale of real estate of $2,039,000;
o an increase in interest income on loans secured by trust deeds of
$2,999,000;
o an increase in rental income of $611,000;
o a decrease in provision for loan losses of $250,000; and
o a decrease in other expenses of $40,000.
The net income increase in 2000 as compared to 1999, was offset by:
o a decrease in other income of $158,000;
o an increase in management fees to General Partner of $1,407,000;
o an increase in rental expenses of $82,000; and
o an incrase in interest expense of $93,000.
Gain on sale of real estate increased $2,039,000 (243%) for the nine
months ended September 30, 2000, as compared to the same period in 1999. This
increase was due to the sale of the Los Gatos office building within the
corporate joint venture in July 2000.
Interest income on loans secured by trust deeds increased $2,999,000
(20.7%) for the nine months ended September 30, 2000, as compared to the same
period in 1999. This increase was a result of an increase in the weighted
average yield of the loan portfolio from 10.79% for the nine months ended
September 30, 1999 to 11.29% for the nine months ended September 30, 2000. In
addition, the average loan portfolio grew by 10.2% for the quarter ended
September 30, 2000 as compared to 1999, and the Partnership''s investment in
delinquent loans decreased by $2,067,000 (20.6%) as of September 30, 2000 as
compared to September 30, 1999.
Rental income from real estate properties increased by $611,000 (120%)
during the nine months ended September 30, 2000 as compared to the same period
in 1999. Rental expenses from real estate properties also increased by $82,000
(20.2%) during the the nine months ended September 30, 2000 as compared to the
same period in 1999. These increases are a result of increased occupancy and
rental rates on several of the Partnership's properties during 2000 and the
purchase of the Greeley, Colorado retail property.
Interest expense increased by $94,000 (100%) during the nine months
ended September 30, 2000 as compared to the same period in 1999, due to the note
payable incurred by the corporate joint venture as a result of the purchase of
the Greeley, Colorado retail property.
Other expenses decreased by $40,000 (62.9%) during the nine months
ended September 30, 2000 as compared to the same period in 1999. This decrease
was due primarily to registration expenses incurred during the nine months ended
September 30, 1999 as a result of a new Form S-11 Registration Statement filed
with the Securities and Exchange Commission and changes made to the Partnership
Agreement during that period.
Other income decreased by $158,000 (49.5%) due primarily to a decrease
in interest income earned on investments (money market funds, certificates of
deposit, etc.) as the Partnership was able to remain fully invested in loans
secured by deeds of trust during the nine months ended September 30, 2000.
Management fees to the General Partner are paid pursuant to the
Partnership Agreement between the General Partner and Limited Partners.
Management fees increased by $1,407,000 (80.8%) during the nine months ended
September 30, 2000 as compared to the same period in 1999, because the
Partnership remained fully invested in loans during this period.
Financial Condition
September 30, 2000 and December 31, 1999
Loan Portfolio
The number of Partnership mortgage investments decreased from 142 to
116 and the average loan balance increased from $1,411,000 to $1,853,000 between
December 31, 1999 and September 30, 2000.
Approximately $7,945,000 (3.7%) and $7,415,000 (3.7%) of the loans
invested in by the Partnership were more than 90 days delinquent in payment as
of September 30, 2000 and December 31, 1999, respectively. Of these amounts,
approximately $5,202,000 (2.4%) and $850,000 (0.4%) were in the process of
foreclosure. A loan loss reserve in the amount of $4,000,000 was maintained on
the books of the Partnership as of September 30, 2000 and December 31, 1999,
respectively.
As of September 30, 2000 and December 31, 1999, approximately 45% and
40% of the Partnership's mortgage loans are secured by real property in Northern
California. The increase in the percentage of loans secured by real property in
Northern California has been due to the purchase of new loans secured by
properties within Northern California during the quarter ended September 30,
2000.
The Partnership's investment in construction loans rose by $14,454,000
(63.7%) since December 31, 1999. Improvement in real estate market conditions
have made development and, thus, construction loans more attractive. All of the
Partnership's construction loans are first trust deeds and none of these loans
is delinquent in payments more than 90 days as of September 30, 2000.
The Partnership's investment in unimproved land decreased by $4,704,000
(30.5%) since December 31, 1999, due to the payoff of one large loan during the
quarter ended September 30, 2000. All of the Partnership's loans secured by
unimproved land are first trust deeds. In addition, only one of these loans, in
the amount of $802,000, is more than 90 days delinquent in payment as of
September 30, 2000.
Real Estate Properties Held for Sale and Investment
The Partnership currently holds title to thirteen properties that were
foreclosed on from January 1, 1993 through September 30, 2000 in the amount of
$9,344,000, net of allowance for losses of $1,336,000. As of September 30, 2000,
properties held for sale total $5,689,000 and properties held for investment
total $3,655,000 (excluding the property held in the corporate joint venture -
see below). When the Partnership acquires property by foreclosure, it typically
earns less income on those properties than could be earned on mortgage loans and
may not be able to sell the properties in a timely manner. During the three
months ended September 30, 2000, the Partnership acquired no properties through
foreclosure. During the three months ended September 30, 2000, an industrial
building located in Lathrop, California that was acquired by the Partnership
through foreclosure in April 2000 was sold for cash of $90,000 and a note of
$814,000 resulting in a gain to the Partnership of approximately $142,000. In
addition, 84 residential lots located in Lake Don Pedro, California were sold
for cash resulting in a gain to the Partnership of approximately $46,000.
Seven of the Partnership's thirteen properties do not currently
generate revenue. Excluding the property held in the corporate joint venture,
expenses from rental properties have decreased from approximately $131,000 to
$104,000 (20.7%) for the three months ended September 30, 1999 and 2000,
respectively, and revenues associated with these properties have increased from
$171,000 to $357,000 (109%), thus generating a net income from real estate held
for sale of $253,000 during the three months ended September 30, 2000. The
increase in income is a result of increased occupancy and rental rates on
several of the Partnership's properties during the end of 1999 and the first
quarter of 2000.
Investment in Corporate Joint Venture
In 1995, the Partnership foreclosed on a $571,853 loan and obtained
title to a commercial lot in Los Gatos, California that secured the loan. In
1997, the Partnership contributed the lot to a limited liability company (the
Company) formed with an unaffiliated developer to develop and sell a commercial
office building on the lot. The Partnership provided construction financing to
the Company at the rate of prime plus two percent.
During the nine months ended September 30, 2000 and the year ended
December 31, 1999, the Partnership advanced an additional $2,846,000 and
$1,417,000, respectively, to the Company for development. In addition, the
Partnership received repayment of advances from the Company in the amount of
$581,000 during the nine months ended September 30, 2000.
Construction of the building was substantially completed in June 2000.
Prior to the sale of the building in July 2000, the Company entered into a
reverse, like-kind exchange, whereby the proceeds attributable to the
Partnership's interest in the Company from the sale of the building, net of
repayment of the outstanding advances to the Partnership in the amount of
$3,858,000, (appoximately $3,338,000) were reinvested into the purchase of a
retail commercial development in Greeley, Colorado. The purpose of this exchange
was to defer the recognition of gain for tax purposes to the Company and, hence,
the Partnership. The sale resulted in a book gain to the Partnership of
approximately $2,691,000. The Company also incurred a note payable in the amount
of $6,023,000 as part of the purchase of the new property. A new member that
will act as the property manager of the Greeley property was admitted to the
Company in August, 2000.
Operation of the new property began in August 2000, and net income to
the Partnership was approximately $33,000 for the three months ended September
30, 2000. The assets, liabilities, income and expenses of the Company have been
consolidated into the accompanying consolidated balance sheet and income
statement of the Partnership. The minority interest of the joint venture partner
of $117,706 as of September 30, 2000 is reported in the accompanying
consolidated balance sheet.
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities decreased from approximately
$431,000 as of December 31, 1999 to $98,000 as of September 30, 2000 ($333,000
or 77.3%) due to the accrual of a progress billing on the Los Gatos office
building construction as of December 31, 1999. There were no such accruals as of
September 30, 2000, as construction was completed in July 2000.
Asset Quality
Some losses are normal when lending money and the amounts of losses
vary as the loan portfolio is affected by changing economic conditions and
financial experiences of borrowers. There is no precise method of predicting
specific losses or amounts that ultimately may be charged off on particular
segments of the loan portfolio.
The conclusion that a Partnership loan may become uncollectible, in
whole or in part, is a matter of judgment. Although lenders such as banks and
savings and loans are subject to regulations that require them to perform
ongoing analyses of portfolio, loan to value ratios, reserves, etc., and to
obtain current information regarding its borrowers and the securing properties,
the Partnership is not subject to these regulations and has not adopted these
practices. Rather, management of the General Partner, in connection with the
quarterly closing of the accounting records of the Partnership and the
preparation of the financial statements, evaluates the Partnership's mortgage
loan portfolio. Based upon this evaluation, a determination is made as to
whether the allowance for loan losses is adequate to cover potential losses of
the Partnership. As of September 30, 2000, management believes that the
allowance for loan losses of $4,000,000 is adequate. As of then, loans secured
by trust deeds include $7,945,000 in loans delinquent over 90 days, of which
$5,202,000 was invested in loans that were in the process of foreclosure. Due to
the loan-to-value criteria established by the General Partner, in its opinion,
the mortgage loans held by the Partnership appear in general to be adequately
secured.
The General Partner's judgment of the adequacy of loan loss reserves includes
consideration of:
o economic conditions;
o borrower's financial condition;
o evaluation of industry trends;
o review and evaluation of loans identified as having loss potential; and
o quarterly review by Board of Directors.
Liquidity and Capital Resources
Purchases of Units and loan payoffs provide the capital for mortgage
investments. A substantial increase in general market interest rates could have
an adverse affect on the Partnership, because then the Partnership's investment
yield could be lower than other debt-related investments. In that event,
purchases of additional Units could decline, which, in turn, would reduce the
liquidity of the Partnership and its ability to make additional mortgage
investments. In contrast, a significant increase in the dollar amount of loan
payoffs and/or additional limited partner investments without the origination of
new loans of the same amount would increase the liquidity of the Partnership.
This increase in liquidity could result in a decrease in the yield paid to
limited partners as the Partnership would be required to invest the additional
funds in lower yielding, short term investments. The Partnership has not and
does not intend to borrow money for the purpose of making or purchasing loans.
There was little variation in the percentage of capital withdrawals to
total capital invested by the limited partners between 1994 and 1998, excluding
regular distributions of net income to limited partners. The annualized
withdrawal percentage increased during 1999 and 2000 primarily due to an
increase in the maximum quarterly amount which could be withdrawn by limited
partners from $75,000 to $100,000 as a result of a change in the Partnership
Agreement in December 1998. Withdrawal percentages have been 7.37%, 6.11%,
7.85%, 6.63%, 7.33%, and 7.99% for the years ended December 31, 1994, 1995,
1996, 1997, 1998 and 1999 and 6.98% (annualized) for the nine months ended
September 30, 2000. These percentages are the annual average of the limited
partners capital withdrawals in each calendar quarter divided by the total
limited partner capital as of the end of each quarter.
The limited partners may withdraw, or partially withdraw, from the
Partnership and obtain the return of their outstanding capital accounts at $1.00
per Unit (book value) within 61 to 91 days after written notices are delivered
to the General Partner, subject to the following limitations, among others:
o No withdrawal of Units can be requested or made until at least one year
from the date of purchase of those Units, for Units purchased on or after
February 16, 1999, other than Units received under the Partnership's
Reinvested Distribution Plan.
o Any such payments are required to be made only from net proceeds and
capital contributions (as defined) during said 91-day period.
o A maximum of $100,000 per partner may be withdrawn during any calendar
quarter.
o The General Partner is not required to establish a reserve fund for the
purpose of funding such payments.
o No more than 10% of the outstanding limited partnership interest may be
withdrawn during any calendar year except upon dissolution of the
Partnership.
Contingency Reserves
The Partnership maintains cash, cash equivalents and marketable
securities as contingency reserves in an aggregate amount of 2% of the limited
partners' capital accounts to cover expenses in excess of revenues or other
unforeseen obligations of the Partnership. Although the General Partner believes
that contingency reserves are adequate, it could become necessary for the
Partnership to sell or otherwise liquidate certain of its investments to cover
such contingencies on terms which might not be favorable to the Partnership.
Current Economic Conditions
The current economic climate in Northern California and the Western
United States is generally strong. Despite the Partnership's ability to purchase
mortgage loans with relatively strong yields which has resulted in increased net
yields paid to the limited partners, increased competition or changes in the
economy could have the effect of reducing mortgage yields in the future. Current
loans with relatively high yields could be replaced with loans with lower
yields, which in turn could reduce the net yield paid to the limited partners.
In addition, if there is less demand by borrowers for loans and, thus, fewer
loans for the Partnership to invest in, the Partnership will invest its excess
cash in shorter-term alternative investments yielding considerably less than the
current investment portfolio.
The General Partner has the ability to purchase delinquent loans from
the Partnership as long as certain criteria outlined in the Partnership
Agreement are met. Although the General Partner has purchased delinquent loans
from the Partnership in the past, they are not required to do so; therefore, the
Partnership could sustain losses with respect to loans secured by properties
located in areas of declining real estate values. This could result in a
reduction of the net income of the Partnership for a year in which those losses
occur. There is no way of making a reliable estimate of these potential losses
at the present time.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Partnership is not presently involved in any material legal proceedings.
Item 6(a). Exhibits
3. Exhibit A. Fifth Amended and Restated Limited Partnership Agreement
dated November 10, 2000.
10(a). Exhibit B. Subscription Agreement and Power of Attorney, as amended on
November 15, 2000.
Item 6(b). Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September 30, 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Dated: November 15, 2000 OWENS MORTGAGE INVESTMENT FUND,
a California Limited Partnership
By: Owens Financial Group, Inc., General Partner
Dated: November 15, 2000 By: /William C. Owens/
William C. Owens, President
Dated: November 15, 2000 By: /Bryan H. Draper/
Bryan H. Draper, Chief Financial Officer
Dated: November 15, 2000 By: /Melina A. Platt/
Melina A. Platt, Controller
