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 quarter ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
-------------------------------
Commission File Number 33-36336
INTERVEST MORTGAGE ASSOCIATES L.P.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-3575243
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Rockefeller Plaza, New York, New York 10020-1903
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (212) 757-7300
--------------
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 .
<PAGE>
PART I - FINANCIAL INFORMATION
------------------------------
ITEM 1. Financial Statements
- ------- --------------------
Results for the three months and nine months ended September 30, 1998 and 1997,
include, in the opinion of management, all adjustments (consisting only of
normal recurring accruals) necessary for a fair presentation of the results for
such interim periods. Results for the three months and nine months ended
September 30, 1998 and 1997 are not necessarily indicative of the results for
the full years.
2
<PAGE>
INTERVEST MORTGAGE ASSOCIATES L. P.
BALANCE SHEETS
September 30, December 31,
ASSETS 1998 1997
------ ---- ----
(Unaudited)
Cash and cash equivalents $ 3,202,000 $ 2,087,000
Mortgages receivable, including due from
affiliates $1,300,000 (Note D) 10,765,000 10,682,000
Other receivables 179,000 183,000
----------- -----------
TOTAL $14,146,000 $12,952,000
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Distributions payable (Note G) $ 2,686,000 $ 2,366,000
Escrow deposits payable 251,000 295,000
Deferred fee income 32,000 42,000
----------- -----------
2,969,000 2,703,000
Partners' capital (Note C) 11,177,000 10,249,000
----------- -----------
TOTAL $14,146,000 $12,952,000
=========== ===========
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenue:
Interest income (Note H)
Affiliates $ 32,500 $ 34,000 $ 100,000 $ 102,000
Others 332,500 341,000 1,038,000 853,000
------- ------- --------- -------
365,000 375,000 1,138,000 955,000
Gain on early repayment of discounted
mortgages (Note D) 7,000 22,000
Other income 3,000 2,000 6,000 6,000
------- ------- --------- -------
368,000 377,000 1,151,000 983,000
Expenses:
General and administrative 4,000 4,000
Other expenses 17,000
------- ------- --------- -------
$ 368,000 $ 360,000 $1,147,000 $ 979,000
========== ========== ========== ==========
</TABLE>
The accompanying notes to financial statements
are an integral part hereof.
3
<PAGE>
<TABLE>
<CAPTION>
INTERVEST MORTGAGE ASSOCIATES L.P.
STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,147,000 $ 979,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of discount on mortgages receivable (65,000) (36,000)
Gain on early repayment of discounted mortgages (7,000) (22,000)
Changes in operating assets and liabilities:
Other receivables 3,000 (94,000)
Deferred fee income (9,000) 43,000
----------- -----------
Net cash provided by operating activities 1,069,000 870,000
----------- -----------
Cash flows from investing activities:
Collection of mortgages receivable 2,556,000 2,407,000
Mortgages receivable acquired (2,566,000) (5,975,000)
(Decrease) increase in escrow deposits payable (44,000) 104,000
----------- -----------
Net cash (used in) investing activities (54,000) (3,464,000)
----------- -----------
Cash flows from financing activities:
Proceeds from offering of partnership interests 1,000,000
Partners' contributions to capital 4,000 4,000
Partners' distributions, net of increase in distributions
payable of $319,000 and $164,000 (904,000) (769,000)
----------- -----------
Net cash provided by (used in) financing activities
100,000 (765,000)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,115,000 (3,359,000)
Cash and cash equivalents at beginning of the period 2,087,000 5,730,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF THE PERIOD $ 3,202,000 $ 2,371,000
=========== ===========
</TABLE>
The accompany notes to financial statements
are an integral part hereof.
4
<PAGE>
INTERVEST MORTGAGE ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with Respect to the Three Month and
Nine Month Periods Ended September 30, 1998 and 1997)
(NOTE A) - Organization and Business:
- -------------------------------------
Intervest Mortgage Associates L.P., a Delaware limited partnership (the
"Partnership"), was formed for the primary purpose of investing in mortgages on
improved income-producing real properties. The Partnership will continue until
December 31, 1999, unless terminated sooner in accordance with the provisions of
the partnership agreement.
The special limited partners, Lowell S. Dansker and Lawrence G. Bergman each own
50% of the common stock of Intervest Funds Management Corporation, the General
Partner.
(NOTE B) - Significant Accounting Policies:
- ----------------------------------------------
(1) Cash Equivalents:
------------------
The Partnership considers all highly liquid instruments purchased with an
original maturity of three months or less to be cash equivalents.
(2) Estimates:
----------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses during the
reported period. Actual results could differ from those estimates.
(3) Mortgage Loans:
---------------
Loans are stated at their outstanding principal balances, net of any deferred
fees or costs on originated loans and unamortized discounts on purchased loans.
Interest income is accrued on the unpaid principal balance. Discounts are
amortized to income over the life of the related receivables using the constant
interest method. Loan origination fees net of certain direct origination costs
are deferred and recognized as an adjustment of the yield of the related loans.
(4) Allowance for losses:
-----------------------
An allowance for loss related to loans that are impaired is based on discounted
cash flows using the loan's initial effective interest rate or the fair value of
the collateral. Management's periodic evaluation of the need for, or adequacy
of, the allowance is based on the Company's past loan loss experience, known and
inherent risks in the portfolio, adverse situations that may affect the
borrower's ability to repay (including the timing of future payments), the
estimated value of the underling collateral and other relevant factors. This
evaluation is inherently subjective as it requires material estimates including
the amounts and timing of future cash flows expected to be received on any
impaired loans that may be susceptible to significant change.
5
<PAGE>
INTERVEST MORTGAGE ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with Respect to the Three Month and
Nine Month Periods Ended September 30, 1998 and 1997)
(NOTE C) Offering of Partnership Interest:
- --------------------------------------------
On September 24, 1998, the partnership completed the private placement of an
additional 100 units of limited partnership interest at $10,000 per unit for
aggregate proceeds totaling $1,000,000. The unitholders are generally entitled
to a return on their investment equal to 2% above the prime rate of Chase
Manhattan Bank (subject to a minimum rate of 9% and a maximum rate of 15% per
annum).
(NOTE D) - Mortgages Receivable:
- ---------------------------------
Mortgages receivable consist of first mortgages on residential properties.
Interest rates on mortgages range from 9% to 15%. Certain mortgages have been
discounted utilizing rates ranging from 11% to 17%.
During 1998 and 1997 certain mortgages were paid prior to their maturity date.
This resulted in the recognition of a gain, which represents the balance of the
unamortized discount applicable to these mortgages.
Annual maturities of mortgages receivable during the next five years are
summarized as follows:
Year Ending December 31, September 30, 1998
-------------------------- ------------------
1998 $ 2,402,000
1999 5,335,000
2000 1,702,000
2001 84,000
2002 88,000
Thereafter until 2012 1,250,000
------------
10,861,000
Less unearned discount 96,000
------------
Total $ 10,765,000
============
6
<PAGE>
INTERVEST MORTGAGE ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with Respect to the Three Month and
Nine Month Periods Ended September 30, 1998 and 1997)
(NOTE D) - Mortgages Receivable (contd):
- -------------------------------------------
The Partnership evaluates its portfolio of mortgage loans on an individual
basis, comparing the amount at which the investment is carried to its estimated
net realized value. At September 30, 1998 and at December 31, 1997 no allowance
was required.
(NOTE E) - Duties and Obligations of the General Partner:
- -----------------------------------------------------------
As more fully described in the partnership agreement, the general partner has
agreed, among other things, to:
(1) Manage and control the business of the Partnership;
(2) Pay all operating expenses of the Partnership. Such expenses,
when incurred, are reflected in the financial statements of
the Partnership;
(3) Pay to the Partnership any shortfall with respect to cash
distributions due to unitholders.
(4) Repurchase each year, on a noncumulative basis, a maximum of
10% of units outstanding as of January 1 of each year if
requested by the unitholders, and
(5) Maintain a net worth of at least 10% of the adjusted
contribution of the unitholders, but in no event less than
$500,000. At September 30, 1998, and December 31, 1997, the
financial statements of the general partner showed a net worth
of $1,189,000 and $1,256,000, respectively, including notes
receivable from stockholders of $1,000,000 at September 30,
1998 and at December 31, 1997, respectively.
(NOTE F) - Allocation of Income, Losses and Distributions:
- ----------------------------------------------------------
As more fully described in the partnership agreement, income, losses and
distributions are to be allocated as follows:
(1) Net income and operating cash distributions, first to
unitholders in an amount equal to their investment return
(equal to 2% above the prime rate of Chase Manhattan Bank
subject to a minimum rate of 9% and a maximum rate of 15% per
annum) and then to the general partner (99%) and special
limited partners (1%).
(2) Net loss, other than from a disposition, as defined, 99% to
the general partner and 1% to the special limited partners.
7
<PAGE>
INTERVEST MORTGAGE ASSOCIATES L.P.
NOTES TO FINANCIAL STATEMENTS
(Unaudited with Respect to the Three Month and
Nine Month Periods Ended September 30, 1998 and 1997)
(NOTE F) - Allocation of Income, Losses and Distributions (contd):
- --------------------------------------------------------------------
(3) Net loss from a disposition, to unitholders to the extent of
their positive capital account balances and then to the
general partner and special limited partners.
(4) Disposition proceeds will generally be distributed to
unitholders until each has received an amount equal to his
original invested capital and then to the general partner and
special limited partners.
(NOTE G) - Distribution Accrual Plan:
- -------------------------------------
Under the partnership agreement, unitholders can elect to have the Partnership
retain distributions they are entitled to receive. Such retained amounts will
earn interest at Chase Manhattan Bank's prime rate, compounded monthly, with a
floor of 9% and a ceiling of 15%.
(NOTE H) - Related Parties:
- ------------------------------
Under the terms of the partnership agreement, the Partnership will invest in
mortgages on improved income-producing real properties owned by either
unaffiliated or affiliated borrowers. If the property owner is an affiliated
entity certain conditions must be met before the investment can be made by the
Partnership.
(NOTE I) - Income Taxes:
- --------------------------
The Partnership will not be required to provide for, or pay, any federal income
taxes. Income tax liabilities and/or benefits that arise from its operations
will be passed directly to the individual partners. The Partnership may be
subject to state and local taxes in jurisdictions in which it operates.
(NOTE J) - Unit Repurchase Rights:
- ----------------------------------
Beginning January 1, 1999, or at an earlier date, in the event the Partnership
is to be terminated, the general partner will have the right to purchase all
Units from the unitholders.
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
- --------------------------------------------------------------------------------
Liquidity and Capital Resources:
The Partnership is engaged in the real estate business, including the
origination and purchase of real estate mortgage loans, consisting of first
mortgages, junior mortgages, wraparound mortgages and interim mortgage loans.
The Partnership's current investment policy emphasizes the investment in
mortgage loans on income producing properties. The majority of the Partnership's
loans are expected to mature within approximately five years.
The Partnership's liquidity is managed to ensure that sufficient funds are
available to preserve and protect the Partnership's capital and to provide for
monthly distributions to unitholders at a floating annual rate based on their
adjusted capital contributions equal to two percentage points over the prime
rate of Chase Manhattan Bank, with a minimum rate of 9% and a maximum of 15%.
Results of Operations:
For the three months ended September 30, 1998, interest income was $365,000 as
compared to $375,000 for the same period a year ago. The decrease of $10,000
resulted mainly from lower average value of mortgages receivable during the
quarter ended September 30, 1998.
For the nine months ended September 30, 1998, interest income was $1,138,000 as
compared to $955,000 for the same period a year ago. The increase of $183,000
resulted mainly from an increase in mortgages receivable.
Since the Partnership is engaged in the real estate business, its results of
operations are affected by general economic trends in real estate markets, as
well as by trends in the general economy and the movement of interest rates.
Since the properties underlying the Partnership's mortgages are concentrated in
the New York City area, the economic condition in that area can also have an
impact on the Partnership's operations.
The rental housing market in New York City remains stable and the Partnership
expects that such properties will continue to appreciate in value with little or
no reduction in occupancy rates. The Partnership's mortgage portfolio is
composed predominantly of mortgages on multi-family residential properties, most
of which are subject to applicable rent control and rent stabilization statutes
and regulations. In both cases, any increases in rent are subject to specific
limitations. As such, properties of the nature of those constituting the most
significant portion of the Partnership's mortgage portfolio are not affected by
the general movement of real estate values in the same manner as other
income-producing properties.
Competition:
The Company competes for acceptable investments with real estate investment
trusts, commercial banks, insurance companies, savings and loan associations,
pension funds and mortgage banking firms, many of which have greater resources
with which to compete for desirable mortgage loans.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- ------------------------------------------------------------------
None
9
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds
On September 24, 1998, the Partnership issued 100 Units of limited
partnership interests for aggregate consideration of $1.0 million.
Intervest Securities Corporation, an affiliate of the Partnership acted
as principal placement agent and the Partnership paid aggregate
commissions of $20,000. The Partnership also paid Intervest Securities
Corporation an additional $10,000 as a nonaccountable expense
allowance. The Units were offered to a total of 30 investors, including
25 accredited investors and were offered and sold in reliance upon an
exemption from registration under the Securities Act of 1933, pursuant
to Regulation D promulgated thereunder.
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits - The following exhibit is filed herewith
Exhibit 27 - Financial Data Schedule
(b) No reports on Form 8-K were filed during this quarter
SIGNATURES
PURSUANT to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INTERVEST MORTGAGE ASSOCIATES L.P.
(Registrant)
By: INTERVEST FUNDS MANAGEMENT CORPORATION
General Partner
Dated: November 10, 1998 LowellS. Dansker /S/
--------------------
Lowell S. Dansker: President,
Co-Chairman, Treasurer and
Director of Intervest Funds Management
Corporation (Principal Executive and
Accounting Officer)
Dated: November 10, 1998 Lawrence G. Bergman /S/
-----------------------
Lawrence G. Bergman,
Executive Vice President, Co-Chairman,
Secretary and Director of
Intervest Funds Management
Corporation
(Principal Operating Officer)
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS INFORMATION EXTRACTED FROM FORM 10-Q AT SEPTEMBER 30,
1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,202
<SECURITIES> 0
<RECEIVABLES> 10,765
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,146
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 14,146
<SALES> 0
<TOTAL-REVENUES> 1,151
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,147
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,147
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
