- --------------------------------------------------------------------------------
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 June 30, 1999
Commission file number 0-16856
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3368726
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue, Suite 270, Greenwich, CT 06830
(Address of principal executive offices)
(203) 862-7444
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
-----
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RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
FORM 10-Q - JUNE 30, 1999
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - June 30, 1999 and December 31, 1998 ............ 1
STATEMENTS OF INCOME - For the three months ended June 30, 1999
and 1998 and for the six months ended June 30,
1999 and 1998 ............................................... 2
STATEMENT OF PARTNERS' EQUITY - For the six months ended
June 30, 1999 .............................................. 3
STATEMENTS OF CASH FLOWS - For the six months ended
June 30, 1999 and 1998 ..................................... 4
NOTES TO FINANCIAL STATEMENTS ................................... 5-10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ........................ 11-12
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS ........................................... 13
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K ............................ 13
SIGNATURES ............................................................... 14
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
BALANCE SHEETS
June 30, December 31,
1999 1998
----------- -----------
ASSETS
Investments in mortgage loans (net of
allowance for loan losses of $0 and
$11,733,380 at June 30, 1999 and
December 31, 1998, respectively) $15,979,355 $17,016,033
Cash and cash equivalents 4,156,269 2,992,413
Other receivable 521 10,761
----------- -----------
$20,136,145 $20,019,207
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 108,200 $ 94,992
Commitments and contingencies
Partners' equity
Limited partners' equity (187,919 units
issued and outstanding) 19,527,272 19,426,135
General partners' equity 500,673 498,080
----------- -----------
Total partners' equity 20,027,945 19,924,215
----------- -----------
$20,136,145 $20,019,207
=========== ===========
See notes to financial statements.
1
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
STATEMENTS OF INCOME
For the three For the six
months ended months ended
June 30, June 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
Revenues
Short term investment interest $ 42,796 $ 36,770 $ 74,891 $ 73,604
Other income 23,770 5,300 69,840 11,000
-------- -------- -------- --------
66,566 42,070 144,731 84,604
-------- -------- -------- --------
Costs and expenses
General and administrative expenses 22,186 25,522 41,001 50,019
-------- -------- -------- --------
Net income $ 44,380 $ 16,548 $103,730 $ 34,585
======== ======== ======== ========
Net income attributable to
Limited partners $ 43,271 $ 16,134 $101,137 $ 33,720
General partners 1,109 414 2,593 865
-------- -------- -------- --------
$ 44,380 $ 16,548 $103,730 $ 34,585
======== ======== ======== ========
Net income per unit of limited partnership
interest (187,919 units outstanding) $ .23 $ .09 $ .54 $ .18
======== ======== ======== ========
See notes to financial statements.
2
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
STATEMENT OF PARTNERS' EQUITY
General Limited Total
Partners' Partners' Partners'
Equity Equity Equity
----------- ----------- -----------
Balance, January 1, 1999 $ 498,080 $19,426,135 $19,924,215
Net income for the six months
ended June 30, 1999 2,593 101,137 103,730
----------- ----------- -----------
Balance, June 30, 1999 $ 500,673 $19,527,272 $20,027,945
=========== =========== ===========
See notes to financial statements.
3
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
STATEMENTS OF CASH FLOWS
For the six months ended
June 30,
------------------------
1999 1998
----------- ----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating activities
Net income $ 103,730 $ 34,585
Changes in assets and liabilities
Other receivable 10,240 582
Accounts payable and accrued expenses 13,208 8,971
---------- ----------
Net cash provided by operating activities 127,178 44,138
---------- ----------
Cash flows from investing activities
Payments received from sale of mortgage loan, net 800,000 --
Mortgage loan payments received 236,678 --
---------- ----------
Net cash provided by investing activities 1,036,678 --
---------- ----------
Net increase in cash and cash equivalents 1,163,856 44,138
Cash and cash equivalents, beginning of period 2,992,413 2,908,425
---------- ----------
Cash and cash equivalents, end of period $4,156,269 $2,952,563
========== ==========
See notes to financial statements.
4
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
FORM 10-Q -- JUNE 30, 1999
1 INTERIM FINANCIAL INFORMATION
The summarized financial information contained herein is unaudited;
however, in the opinion of management, all adjustments (consisting
only of normal recurring accruals) necessary for a fair presentation
of such financial information have been included. The accompanying
financial statements, footnotes and discussions should be read in
conjunction with the financial statements, related footnotes and
discussions contained in the Resources Accrued Mortgage Investors 2
L.P. (the "Partnership") annual report on Form 10-K for the year
ended December 31, 1998. The results of operations for the six months
ended June 30, 1999, are not necessarily indicative of the results to
be expected for the full year.
When used in this quarterly report on Form 10-Q, the words "believes,"
"anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. Statements looking forward in time
are included in this quarterly report on Form 10-Q pursuant to the
"safe harbor" provision on the Private Securities Litigation Reform Act
of 1995. Such statements are subject to certain risks and uncertainties
which could cause actual results to differ materially, including, but
not limited to, those set forth in "management's discussion and
analysis of financial condition and results of operations." Readers are
cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date hereof. The Partnership
undertakes no obligation to publicly revise these forward-looking
statements to reflect events or circumstances occurring after the date
hereof or to reflect the occurrence of unanticipated events.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in mortgage loans
The Partnership principally invested in zero coupon senior and junior
mortgage loans on properties owned or acquired by limited
partnerships originally sponsored by affiliates of the General
Partners. These loans generally contain provisions whereby the
Partnership may be entitled to additional interest represented by
participation in the appreciation of the underlying property.
The Partnership accounts for its investments in mortgage loans under
the following methods:
Investment method
Mortgage loans representing transactions in which the Partnership
is considered to have substantially the same risks and potential
rewards as the borrower are accounted for as investments in real
estate rather than as loans. Although the transactions are
structured as loans, due to the terms of the zero coupon
mortgage, it is not readily determinable at inception that the
borrower will continue to maintain a minimum investment in the
property. Under this method of accounting, the Partnership will
recognize as revenue the lesser of the amount of interest as
contractually provided for in the mortgage loan, or its pro rata
share of the actual cash flow from operations of the underlying
property inclusive of depreciation and interest expense on any
senior indebtedness.
Interest method
Under this method of accounting, the Partnership recognizes
revenue as interest income over the term of the mortgage loan so
as to produce a constant periodic rate of return. Interest income
will not be recognized as revenue during periods where there are
concerns about the ultimate realization of the interest or loan
principal.
Allowance for loan losses
An allowance for loan losses is established based upon a periodic
review of each of the mortgage loans in the Partnership's portfolio.
In performing this review, management considers the estimated fair
value of the mortgage loan or collateral as well as other factors,
such as the current occupancy, the amount and status of any senior
debt, the prospects for the
5
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
FORM 10-Q -- JUNE 30, 1999
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Allowance for loan losses (continued)
property and the economic situation in the region where the property
is located. Because this determination of fair value is based upon
projections of future economic events, the amounts ultimately
realized at disposition may differ materially from the carrying value
as of June 30, 1999. The Partnership may provide for additional
losses in subsequent periods and such provisions could be material.
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The Managing General Partner of the Partnership, RAM Funding, Inc.
and the Associate General Partner, Presidio AGP Corp. are
wholly-owned subsidiaries of Presidio Capital Corp. ("Presidio").
The General Partners and certain affiliates of the General Partners,
are general partners in several other limited partnerships which are
also affiliated with Presidio, and which are engaged in businesses
that are, or may be in the future, in direct competition with the
Partnership.
Subject to the rights of the Limited Partners under the Limited
Partnership Agreement, Presidio controls the Partnership through its
indirect ownership of the General Partners. On August 28, 1997, an
affiliate of NorthStar Capital Partners acquired all of the Class B
shares of Presidio. This acquisition, when aggregated with previous
acquisitions, caused NorthStar Capital Partners to acquire indirect
control of the General Partners. Effective July 31, 1998, Presidio is
indirectly controlled by NorthStar Capital Investment Corp.
("NorthStar"), a Maryland Corporation.
Presidio entered into a management agreement with NorthStar Presidio
Management Company LLC ("NorthStar Presidio"), an affiliate of
NorthStar. Under the terms of the management agreement, NorthStar
Presidio provides the day-to-day management of Presidio and its
direct and indirect subsidiaries and affiliates. For the six months
ended June 30, 1999 and 1998 reimbursable expenses due to NorthStar
Presidio from the Partnership amounted to $3,581 and $1,000,
respectively.
As of June 30, 1999, an affiliate of Presidio has acquired 17,385
units of limited partnership interest of the Partnership. These units
represent 9.3% of the issued and outstanding limited partnership
units.
The General Partners are allocated 2.5% of the net income or loss of
the Partnership and are entitled to 2.5% of distributions. The 2.5%
shall be apportioned 98% to the Managing General Partner and 2% to
the Associate General Partner.
6
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
FORM 10-Q -- JUNE 30, 1999
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES
The Partnership invested in zero-coupon, nonrecourse senior and
junior mortgage loans. Collection of the amounts due on the
Partnership's junior mortgage loans is solely dependent upon the sale
or refinancing of the underlying properties at amounts sufficient to
satisfy the Partnership's mortgage notes after payment of the senior
mortgage notes owned by unaffiliated third parties.
The Partnership currently has one outstanding mortgage loan.
The Partnership's mortgage note contains a provision which require
the borrowers to provide current appraisals based upon certain
conditions or in some cases upon request.
The Partnership has prepared an internal valuation for the property
owned by High Cash Partners, L.P. ("High Cash"). This loan contains a
provision which requires that if an appraisal indicates the value of
all indebtedness senior to and including the Partnership's loan,
taking into account principal plus accrued interest in excess of 5%
per annum, exceeds 85% of the then current appraisal, the borrower
must repay the indebtedness to a point where the 85% loan to value
ratio is restored. Based upon an internal valuation, management does
not believe that the loan to value ratio has been exceeded.
Harborista Loan
A $10,000,000 second mortgage loan ("the Harborista Loan") to
Harborista Associates, L.P. was secured by an office building,
commonly known as the Harbor Plaza, located in Boston, Massachusetts
(the "Harbor Plaza"). The Harborista Loan was funded on February 13,
1989 and bore interest at the rate of 13.307% per annum, compounded
monthly and was originally due to mature on December 1, 1998, at
which time a balloon payment of approximately $36,000,000 would have
been due and payable. Harbor Plaza was also encumbered by a first
mortgage loan in the original amount of $24,475,000 held by
Northwestern Mutual Life Insurance Co. ("Northwestern"). The first
mortgage was due to mature on December 1, 1995, but was extended
until January 1, 1999.
During 1993 management determined that interest on the Harborista
Loan should cease to accrue and that an allowance for loan losses was
necessary for the entire carrying value of the Harborista Loan which
amounted to $10,618,380.
On February 9, 1999, 470 Atlantic Avenue Management Corp. ("470
Atlantic"), which had previously acquired Northwestern's first
mortgage loan filed a motion for foreclosure on its mortgage.
On March 30, 1999, the Partnership sold its interest in the
Harborista Loan to 470 Atlantic for gross proceeds of approximately
$1,000,000, exclusive of legal and other costs related to the
transaction of approximately $200,000. Accordingly, the Partnership
recorded $800,000 of recovery of loan losses with respect to the sale
of this loan as of December 31, 1998.
7
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
FORM 10-Q -- JUNE 30, 1999
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Twin Oak loan
The Partnership held a $1,200,000 second mortgage on the Twin Oak
property. The first mortgage on this property, which was held by an
unaffiliated third party, was due to mature on July 1, 1993. However,
during 1993, the mortgage loan was extended for three years until
July 1, 1996. For the period between July 1996 and October 1997, the
Twin Oak borrower continued to make reduced mortgage payments to the
first mortgage lender in anticipation of a loan extension or
modification. During October 1997, the Twin Oak borrower and its
first mortgage lender formally agreed to extend the maturity date of
the first mortgage until July 1, 1998. In order for the Twin Oak
borrower to consummate this loan extension, the consent of the
Partnership was required. The Partnership agreed to consent on the
condition that the Twin Oak borrower either refinance both the first
mortgage and the Partnership's mortgage on or before July 1, 1998 or
give the Partnership a deed-in-lieu of foreclosure to the Twin Oak
property. It was the intention of the general partners of Twin Oak to
sell the property prior to the July 1, 1998 extended maturity date.
The property was marketed for sale, and Twin Oak entered into a
formal contract of sale with an unaffiliated third party in May of
1998. On July 1, the first mortgage matured and was not repaid.
However, the purchaser failed to perform on this contract in August
of 1998. The property was again marketed for sale. On October 20,
1998, a formal agreement was executed in which the first mortgage
lender again agreed to extend the maturity of the loan to July 1,
1999 in exchange for a modification to the interest rate and payment
of an extension fee. On October 15, 1998, a new contract for sale was
executed with Emmes Ventures ("Emmes"), an affiliate of NorthStar,
also an affiliate of the general partners of Twin Oak and the
Partnership.
During the year ended 1996, a provision for loan losses of $1,515,000
was recorded on the Twin Oak loan. A $400,000 allowance for loan
losses was recorded during 1998 to reduce the carrying value of the
loan to the estimated amount anticipated to be received by the
Partnership under the terms outlined in this new contract.
On March 1, 1999, the Twin Oak property was sold to Emmes for a gross
purchase price of approximately $4,150,000 (subject to customary
adjustments at closing). The Twin Oak borrower used the proceeds from
the sale to repay the first mortgage holder and on May 5, 1999, the
Partnership received approximately $237,000 representing the carrying
value of the Twin Oak loan.
8
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
FORM 10-Q -- JUNE 30, 1999
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Summary of mortgage activity is as follows:
Six months ended Year ended
June 30, 1999 December 31, 1998
-------------------------------------------- -------------------------------------------
Investment Interest Investment Interest
Method Method Total Method Method Total
------------ ------------ ------------ ------------ ------------ ------------
Opening balance $ 800,000 $ 16,216,033 $ 17,016,033 $ -- $ 16,616,033 $ 16,616,033
Recovery of (provision for)
loan losses -- -- -- 800,000 (400,000) 400,000
Payments received, net (800,000) (236,678) (1,036,678) -- -- --
------------ ------------ ------------ ------------ ------------ ------------
Ending balance $ -- $ 15,979,355 $ 15,979,355 $ 800,000 $ 16,216,033 $ 17,016,033
============ ============ ============ ============ ============ ============
9
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Information with respect to the Partnership's mortgage loans is as
follows:
Original Mortgage Mortgage
Interest Compound Loan Maturity Amount Purchased
Description Rate % Period Type Date Date Advanced Interest
- ------------- ------- -------- ----- --------- ----------- ------------ ---------
Office Building
Harbor Plaza 13.307 Monthly 2nd 13-Feb-89 1-Dec-98 $10,000,000 $ 23,513
Boston, Mass (a) (e)
Shopping Centers
Sierra Marketplace (b) (c) 11.220 Monthly 1st 10-Feb-89 28-Feb-01 6,500,000 -
Reno, Nevada
Twin Oak (b) (f) 12.280 Annually 2nd 3-Apr-90 1-May-02 1,200,000 -
Ft. Lauderdale, Florida ----------- ---------
$17,700,000 $ 23,513
=========== =========
Interest recognized Carrying value
Mortgage ------------------------- --------------------------
Placement June 30, 1998 and Reserves/ June 30, December 31,
Description Fees 1999 Prior Write-offs 1999 1998
- ------------- ----------- ----------- ------------ ----------- ----------- ------------
Office Building
Harbor Plaza $ 594,867 $ -- $ -- $ -- $ -- $ 800,000
Boston, Mass (a) (e)
Shopping Centers
Sierra Marketplace (b) (c) 385,757 -- 9,093,598 -- 15,979,355 15,979,355
Reno, Nevada
Twin Oak (b) (f) 71,218 -- 880,460 -- -- 236,678
Ft. Lauderdale, Florida
----------- ----------- ------------ ----------- ----------- ------------
$ 1,051,842 $ -- $ 9,974,058 $ -- $15,979,355 $ 17,016,033
=========== =========== =========== =========== =========== ============
Contractual balance (d)
-------------------------------
June 30, December 31,
Description 1999 1998
- -------------------------------- ------------- -------------
Office Building
Harbor Plaza $ - $ 36,985,751
Boston, Mass (a) (e)
Shopping Centers
Sierra Marketplace (b) (c) 20,726,433 19,600,802
Reno, Nevada
Twin Oak (b) (f) - 3,293,255
------------- -------------
Ft. Lauderdale, Florida
$ 20,726,433 $ 59,879,808
============= =============
(a) This loan is accounted for under the investment method.
(b) These loans are accounted for under the interest method.
(c) The Partnership may be entitled to additional interest in the
appreciation of the property which is subordinated to a specified
return to the borrower. It is unlikely that the Partnership will
realize any additional interest from this loan.
(d) Contractual balance represents the amount that would be paid by
the borrower if the loan was liquidated (principal plus accrued
interest earned to date).
(e) This mortgage loan was repaid during the quarter ended March 31,
1999.
(f) This loan was repaid on May 5, 1999.
See notes to financial statements.
10
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership initially invested the net proceeds of its public
offering in four zero coupon first and junior mortgage loans
aggregating $23,300,000. These loans are secured by properties owned
principally by privately and publicly syndicated limited partnerships
originally sponsored by affiliates of the general partners. The
Partnership currently has an investment in one of these four mortgage
loans with outstanding balances of approximately $6,500,000 in
principal.
As of June 30, 1999, the Partnership had working capital reserves of
approximately $4,049,000, Working capital reserves are invested in
short-term instruments and are expected to be sufficient to pay
administrative expenses during the term of the Partnership.
On March 1, 1999, the Twin Oak Property was sold to Emmes Ventures,
an affiliate of NorthStar for a gross purchase price of approximately
$4,150,000 (subject to customary adjustments at closing). The Twin
Oak Borrower used the proceeds from the sale to repay the first
mortgage to Southern Life Mortgage and on May 5, 1999, the
Partnership received approximately $237,000 representing the carrying
value of the Twin Oak loan.
On March 30, 1999, the Partnership sold its interest in the
Harborista Loan to the holder of the first mortgage on Harbor Plaza
for gross proceeds of approximately $1,000,000, exclusive of legal
and other costs related to the transaction of approximately $200,000.
As of December 31, 1998, the Partnership recorded $800,000 of
recovery of loan losses with respect to this sale.
Results of operations
Net income increased for the three and six month periods ended June
30, 1999 as compared to the same periods in 1998. The increase was
principally due to an increase in other income as a result of
increased transfer fee income and an increase in short-term
investment interest resulting from larger cash balances available for
short term investment as well as a decrease in general and
administrative expenses.
Costs and expenses decreased for the three and six month periods
ended June 30, 1999 as compared to the same period in 1998 primarily
due to a decrease in legal expenses.
Inflation has not had a material effect on the Partnership's recent
operations or financial condition and is not expected to have a
material effect in the future.
Year 2000 compliance
The Year 2000 compliance issue concerns the inability of computerized
information systems and equipment to accurately calculate, store or
use a date after December 31, 1999, as a result of the year being
stored as a two digit number. This could result in a system failure
or miscalculations causing disruptions of operations. The Partnership
and NorthStar Presidio recognize the importance of ensuring that its
business operations are not disrupted as a result of Year 2000
related computer system and software issues.
NorthStar Presidio is in the process of assessing its internal
computer information systems and is taking the steps necessary to
remediate these systems so that they will be Year 2000 compliant. In
connection therewith, NorthStar Presidio has installed a new fully
compliant accounting and reporting system.
11
Year 2000 compliance (continued)
Because this assessment is ongoing, the total cost of bringing all
systems and equipment into Year 2000 compliance has not been fully
quantified. Based upon available information, NorthStar Presidio does
not believe that these costs will have a material adverse effect on
the Partnership's business, financial condition or results. However,
it is possible that there could be adverse consequences to the
Partnership as a result of Year 2000 issues that are outside the
Partnership's control.
12
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
(a) None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: None.
(b) Reports on Form 8-K: None.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
RESOURCES ACCRUED MORTGAGE
INVESTORS 2 L.P.
By: RAM Funding, Inc.
Managing General Partner
By: /s/ Allan B. Rothschild
-------------------------------
Allan B. Rothschild
President
By: /s/ Lawrence Schachter
-------------------------------
Lawrence R. Schachter
Senior Vice President and Chief
Financial Officer
Dated: August 11, 1999
14