SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 0-16856
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
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(Exact name of registrant as specified in its charter)
Delaware 13-3368726
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue, Suite 270, Greenwich, CT 06830
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(Address of principal executive offices) (Zip Code)
(203) 862-7444
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(Registrant's telephone number, including area code)
(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 [ ]
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
FORM 10-Q - MARCH 31, 1998
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - March 31, 1998 and December 31, 1997 ...................
STATEMENTS OF INCOME - For the three months ended March 31, 1998
and 1997 ..........................................................
STATEMENT OF PARTNERS' EQUITY - For the three months ended March 31, 1998
STATEMENTS OF CASH FLOWS - For the three months ended March 31, 1998
and 1997 ..........................................................
NOTES TO FINANCIAL STATEMENTS ...........................................
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ..............................
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K ..................................
SIGNATURES......................................................................
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
BALANCE SHEETS
March 31, December 31,
1998 1997
----------- -----------
ASSETS
Investments in mortgage loans (net of allowance for
loan losses of $12,133,380) ................... $16,616,033 $16,616,033
Cash and cash equivalents ........................ 2,932,064 2,908,425
Other receivable ................................. 12,660 12,582
----------- -----------
$19,560,757 $19,537,040
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Accounts payable and accrued expenses ............ $ 99,820 $ 94,140
----------- -----------
Commitments and contingencies
Partners' equity
Limited partners' equity (187,919 units
issued and outstanding) ....................... 18,974,439 18,956,853
General partners' equity ......................... 486,498 486,047
----------- -----------
Total partners' equity .................... 19,460,937 19,442,900
----------- -----------
$19,560,757 $19,537,040
=========== ===========
See notes to financial statements.
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
STATEMENTS OF INCOME
For the three months ended
March 31,
--------------------------
1998 1997
------- -------
Revenues
Short term investment interest ................ $36,834 $34,481
Other income .................................. 5,700 6,090
------- -------
42,534 40,571
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Costs and expenses
General and administrative expenses ........... 24,497 4,854
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Net income ......................................... $18,037 $35,717
======= =======
Net income attributable to
Limited partners .............................. $17,586 $34,824
General partners .............................. 451 893
------- -------
$18,037 $35,717
======= =======
Net income per unit of limited partnership
interest (187,919 units outstanding) .......... $ 0.09 $ 0.19
======= =======
See notes to financial statements.
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
STATEMENT OF PARTNERS' EQUITY
General Limited Total
Partners' Partners' Partners'
Equity Equity Equity
----------- ----------- -----------
Balance, January 1, 1998 ............ $ 486,047 $18,956,853 $19,442,900
Net income for the three months ended
March 31, 1998 ................. 451 17,586 18,037
----------- ----------- -----------
Balance, March 31, 1998 ............. $ 486,498 $18,974,439 $19,460,937
=========== =========== ===========
See notes to financial statements.
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
STATEMENTS OF CASH FLOWS
For the three months ended
March 31,
----------------------------
1998 1997
----------- -----------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating activities
Net income ............................................... $ 18,037 $ 35,717
Changes in assets and liabilities
Other receivable ...................................... (78) (245)
Accounts payable and accrued expenses ................. 5,680 (37,898)
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Net cash provided by (used in) operating activities 23,639 (2,426)
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Net increase (decrease) in cash and cash equivalents .......... 23,639 (2,426)
Cash and cash equivalents, beginning of period ................ 2,908,425 2,873,084
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Cash and cash equivalents, end of period ...................... $ 2,932,064 $ 2,870,658
=========== ===========
See notes to financial statements.
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
NOTES TO FINANCIAL STATEMENTS
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, 1997. The results of operations for the three months ended March
31, 1998, are not necessarily indicative of the results to be expected
for the full year.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in mortgage loans
The Partnership principally invests 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. None of the Partnership's mortgage loans are
currently recognizing revenue under the investment method.
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.
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
NOTES TO FINANCIAL STATEMENTS
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Allowance for loan losses
An allowance for loan losses is established based upon a quarterly
review of each of the mortgage loans in the Partnership's portfolio. In
performing this review, management considers the estimated net
realizable 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 property and the economic situation
in the region where the property is located. Because this determination
of net realizable value is based upon projections of future economic
events which are inherently subjective, the amounts ultimately realized
at disposition may differ materially from the carrying value as of
March 31, 1998.
The allowance is inherently subjective and is based upon management's
best estimate of current conditions and assumptions about expected
future conditions. The Partnership may provide for additional losses in
subsequent periods and such provisions could be material. No allowance
for loan losses was required for the quarters ended March 31, 1998 and
1997.
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The Managing General Partner of the Partnership, RAM Funding, Inc., is
a wholly-owned subsidiary of Presidio Capital Corp. ("Presidio"). The
Associate General Partner of the Partnership is Presidio AGP Corp., a
Delaware Corporation ("Presidio AGP"), which is also a wholly-owned
subsidiary of 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. Presidio controls the Partnership
through its direct and 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.
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
NOTES TO FINANCIAL STATEMENTS
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES(continued)
Under the terms of the management agreement NorthStar Presidio will
provide the day-to-day management of Presidio and its direct and
indirect subsidiaries and affiliates. For the quarter ended March 31,
1998 reimbursable expenses due to NorthStar Presidio amounted to
$1,000.
Subject to the rights of the Limited Partners under the Limited
Partnership Agreement, Presidio controls the Partnership through its
direct and 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.
The Partnership had invested principally in mortgage loans on
properties owned or acquired by privately syndicated limited
partnerships which were controlled by Presidio. Transactions entered
into between the Partnership and such entities are subject to inherent
conflicts of interest.
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. For the quarters ended March 31, 1998 and
1997, the Managing General Partner and Associate General Partner were
allocated net income of $442 and $9 and $875 and $18, respectively.
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES
The Partnership invests 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 three outstanding mortgage loans.
The Partnership has prepared internal appraisals for the properties
owned by Twin Oak Plaza Associates, L.P. ("Twin Oak") and High Cash
Partners, L.P. ("High Cash"). The general partners of Twin Oak are
affiliated with the Managing General Partner of the Partnership. Until
June 1997, the general partners of High Cash were affiliated with the
Managing General Partner of the Partnership. The Twin Oak and High Cash
loans require that if the appraisal indicates that 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.
The Twin Oak and High Cash borrowers may not have sufficient liquidity
available to restore the 85% loan to value ratio should this amount be
called by the Partnership.
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES(continued)
Twin Oak loan
The first mortgage on this property, which is held by an unaffiliated
third party, was due to mature on July 1, 1993, however, during 1993,
this loan was extended for three years until July 1, 1996. The terms
and conditions of the extension were essentially the same as the
original loan. 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. Twin Oak is currently pursuing the
sale of its property.
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:
Mortgage Mortgage Mortgage
Interest Compound Loan Maturity Amount Purchased Placement
Description Rate % Period Type Date Date Advanced Interest Fees
- ----------- ------ ------ ---- ---- ---- -------- -------- ----
Office Building
Harbor Plaza 13.307 Monthly 2nd 13-Feb-89 1-Dec-98 $10,000,000 $ 23,513 $ 594,867
Boston, MA (a)(e)
Shopping Centers
Sierra Marketplace (b)(c) 11.220 Monthly 1st 10-Feb-89 28-Feb-01 6,500,000 - 385,757
Reno, NV
Twin Oak (b) 12.280 Annually 2nd 3-Apr-90 1-May-02 1,200,000 - 71,218
Ft. Lauderdale, FL
----------- ----------- -----------
$17,700,000 $ 23,513 $ 1,051,842
=========== =========== ===========
(d)
Interest recognized Carrying value Contractual Balance
------------------- -------------- -------------------
March 31, 1997 and Reserves/ March 31, Dec. 31, March 31, Dec. 31,
Description 1998 Prior Write-offs 1998 1997 1998 1997
- ----------- ---- ----- ---------- ---- ---- ---- ----
Office Building
Harbor Plaza $ - $ - $(10,618,380) $ - $ - $ 33,269,849 $32,401,302
Boston, MA (a)
Shopping Centers
Sierra Marketplace (b)(c) - 9,093,598 - 15,979,355 15,979,355 18,025,933 17,529,616
Reno, NV
Twin Oak (b) - 880,460 (1,515,000) 636,678 636,678 3,020,320 2,934,380
Ft. Lauderdale, FL
----------- ----------- ------------ ------------ ------------ ------------ -----------
$ - $ 9,974,058 $(12,133,380) $ 16,616,033 $ 16,616,033 $ 54,316,102 $52,865,298
=========== =========== ============ ============ ============ ============ ===========
(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 extended until December 1, 1999.
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES(continued)
Summary of mortgage activity is as follows:
Three months ended Year ended
March 31, 1998 December 31, 1997
----------------------------------------- -------------------------------------------
Investment Interest Investment Interest
Method Method Total Method Method Total
------- ----------- ----------- ----------- ----------- -----------
Opening balance . $ -- $16,616,033 $16,616,033 $16,616,033 $16,616,033 $16,616,033
Income recognized -- -- -- -- -- --
------- ----------- ----------- ----------- ----------- -----------
Ending balance .. $ -- $16,616,033 $16,616,033 $16,616,033 $16,616,033 $16,616,033
======= =========== =========== =========== =========== ===========
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 in principal and secured by
properties owned principally by privately and publicly syndicated
limited partnerships originally sponsored by affiliates of the general
partners. The Partnership currently has investments in three of these
four mortgage loans with outstanding balances of approximately
$17,700,000 in principal.
As of March 31, 1998, the Partnership had working capital reserves of
approximately $2,832,000. 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. The
Partnership does not anticipate making any distributions from cash flow
during its first 8 to 12 years of operations, or until such time as the
mortgage loans mature or are prepaid.
Results of operations
Net income decreased for the three months ended March 31, 1998 compared
to the same period in 1997. The decrease in net income was due to a
greater increase in costs and expenses than the increase in revenues.
Revenues increased for the three months ended March 31, 1998 compared
to the same period in 1997. The increase was primarily a result of an
increase in short-term investment interest, which increased as a result
of an increase in cash and cash equivalents on which the interest is
earned.
Costs and expenses increased for the three months ended March 31, 1998.
The increase was due to an increase in general and administrative
expenses. General and administrative expenses increased due to payroll
costs being accrued in 1996 and subsequently reversed in 1997, causing
1997 expenses to be reduced.
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.
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.
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
Dated: May 14, 1998 By: /s/ Richard Sabella
-------------------
Richard Sabella
President
(Duly Authorized Officer)
Dated: May 14, 1998 By: /s/ Lawrence Schachter
----------------------
Lawrence Schachter
Senior Vice President and
Chief Financial Officer