1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 November 5, 1996 ------------------------------------------------ Date of Report (Date of Earliest Event Reported) CONTINENTAL MORTGAGE AND EQUITY TRUST ------------------------------------------------------ (Exact Name of Registrant as Specified in its Charter) California 0-10503 94-2738844 - -------------------------------------------------------------------------------- (State of Incorporation) (Commission (IRS Employer File No.) Identification No.) 10670 North Central Expressway, Suite 300, Dallas, TX 75231 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: (214) 692-4700 Not Applicable ------------------------------------------------------------- (Former Name or Former Address, if Changed Since Last Report) 1 2 ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS On November 5, 1996, Continental Mortgage and Equity Trust (the "Trust") purchased the Glenwood Apartments in Addison, Texas for $4.2 million (1.9% of the Trust's assets at December 31, 1995). The seller of the property was VRRM, Inc., a Texas corporation. The property was constructed in 1975 and consists of 168 units which were 92% occupied at the date of acquisition. The Trust paid $1.3 million in cash and assumed existing mortgage financing of $2.9 million. This purchase combined with other property purchases the Trust made in 1996 exceed 10% of the Trust's assets at December 31, 1995. During 1996, the Trust has sold, or otherwise disposed of, five apartment complexes and one office building. The Trust has recognized a total gain on these dispositions of $9.7 million. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (a) Pro forma financial information: Pro forma statements of operations are presented for the year ended December 31, 1995 and the nine months ended September 30, 1996. A pro forma balance sheet as of September 30, 1996 is also presented. A summary of the pro forma transactions follows: In October 1996, the Trust purchased Glenwood Apartments, a 168 unit apartment complex in Addison, Texas for $4.2 million, exclusive of commissions and closing costs. The Trust paid $1.3 million in cash and assumed the first lien mortgage secured by the apartment complex of $2.9 million. The mortgage bears interest at 9.25% per annum, requires monthly payments of principal and interest of $27,476 and matures November 1, 2004. The $4.2 million purchase price of Glenwood Apartments is approximately 1.9% of the Trust's assets at December 31, 1995. Although not a significant acquisition in itself, when aggregated with the other acquisitions completed by the Trust in 1996 as described below, such acquisitions constitute a significant acquisition. In addition to the Glenwood Apartments acquisition discussed above, the Trust purchased two other apartment complexes, six commercial properties and one parcel of raw land in 1996. The properties, located in Texas, Louisiana and Colorado, were purchased for a total of $42.4 million in separate transactions from unaffiliated sellers and represent approximately 20% of the Trust's assets at December 31, 1995. The Trust paid a total of $19.9 million in cash and financed the remainder of the purchase prices. The mortgages bear interest at rates ranging from 8.01% to 10% and mature from 1997 to 2001. The Trust has previously filed audited statements of operations on four of these acquisitions, totaling $23.4 million or 10.7% of the Trust's assets at December 31, 1995. 2 3 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (Continued) The Trust has not provided audited financial statements of operations on the remaining five acquisitions totaling $19.0 million or 8.7% of the Trust's assets at December 31, 1995. None of the acquisitions for which audited statements of operations have not been provided exceed 5% of the Trust's assets at December 31, 1995. In addition to the purchases described above, during 1996 the Trust has sold, or otherwise disposed of, five apartment complexes and one office building. The Trust recognized a total gain on these dispositions of $9.7 million. The pro forma statements of operations present the Trust's operations as if the transactions described above had occurred at the beginning of each of the periods presented. [THIS SPACE INTENTIONALLY LEFT BLANK.] 3 4 CONTINENTAL MORTGAGE AND EQUITY TRUST PRO FORMA CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1996 Glenwood Actual Apartments(1) Pro forma ------ ---------- --------- (dollars in thousands) Assets ------ Notes and interest receivable Performing . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,119 $ - $ 6,119 Nonperforming, nonaccruing . . . . . . . . . . . . . . . . . . 2,287 - 2,287 ------------ -------- ---------- 8,406 - 8,406 Less - allowance for estimated losses . . . . . . . . . . . . . . . . (1,188) - (1,188) ------------ -------- ----------- 7,218 - 7,218 Foreclosed real estate held for sale, net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 10,657 - 10,657 Less - allowance for estimated losses . . . . . . . . . . . . . . . . (4,941) - (4,941) ------------ -------- ---------- 5,716 - 5,716 Real estate held for investment, net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . 182,724 4,383 187,107 Investments in marketable equity securities of affiliates, at market . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,676 - 6,676 Investments in partnerships . . . . . . . . . . . . . . . . . . . . . 2,265 - 2,265 Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . 16,537 (1,497) 15,040 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,254 - 11,254 ------------ -------- ---------- $ 232,390 $ 2,886 $ 235,276 ============ ======== ========== 4 5 CONTINENTAL MORTGAGE AND EQUITY TRUST PRO FORMA CONSOLIDATED BALANCE SHEET SEPTEMBER 30, 1996 Glenwood Actual Apartments(1) Pro forma ------ ---------- --------- (dollars in thousands) Liabilities and Shareholders' Equity - ------------------------------------ Liabilities Notes and interest payable . . . . . . . . . . . . . . . . . . . . . $ 142,516 $ 2,886 $ 145,402 Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 7,462 - 7,462 ---------- ----------- ----------- 149,978 2,886 152,864 Commitments and contingencies Shareholders' equity Shares of Beneficial Interest, no par value; authorized shares, unlimited; issued and outstanding, 4,182,030 shares . . 8,379 - 8,379 Paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 258,545 - 258,545 Accumulated distributions in excess of accumulated earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . (189,468) - (189,468) Net unrealizable gains on marketable equity securities . . . . . . . 4,956 - 4,956 ---------- ----------- ----------- 82,412 - 82,412 ---------- ----------- ----------- $ 232,390 $ 2,886 $ 235,276 ========== =========== =========== - --------------------------------- (1)The balance sheet effect of all other 1996 property purchases and dispositions are included in the September 30, 1996 actual balances presented. 5 6 CONTINENTAL MORTGAGE AND EQUITY TRUST PRO FORMA STATEMENT OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 Other Glenwood Property Property Actual Apartments(1) Acquisitions(1) Dispositions(1) Pro forma ------ ---------- ------------ ------------ --------- (dollars in thousands) Income Rentals . . . . . . . . . . . . . . . . . . . . . . $ 33,205 $ 810 $ 4,960 $ (3,926) $ 35,049 Interest . . . . . . . . . . . . . . . . . . . . . 821 - - - 821 ---------- -------- --------- ---------- ---------- 34,026 810 4,960 (3,926) 35,870 Expenses Property operations . . . . . . . . . . . . . . . . 20,091 415 2,777 (2,560) 20,723 Interest . . . . . . . . . . . . . . . . . . . . . 9,317 210 1,617 (1,079) 10,065 Depreciation . . . . . . . . . . . . . . . . . . . 3,565 66 578 (461) 3,748 Provision for losses . . . . . . . . . . . . . . . (884) - - - (884) Advisory fee to affiliate . . . . . . . . . . . . . 1,300 - - - 1,300 General and administrative . . . . . . . . . . . . 1,400 - - - 1,400 ---------- -------- --------- ---------- ---------- 34,789 691 4,972 (4,100) 36,352 ---------- -------- --------- ---------- ---------- Income (loss) from operations. . . . . . . . . . . . . . (763) 119 (12) 174 (482) Equity in income of partnerships. . . . . . . . . . . . . 197 - - - 197 Gain on sale of real estate . . . . . . . . . . . . . . . 9,397 - - - 9,397 ---------- -------- --------- ---------- ---------- Income (loss) before extraordinary gain . . . . . . . . . . . . . . . . . . . . . . 8,831 119 (12) 174 9,112 Extraordinary gain . . . . . . . . . . . . . . . . . . . 812 - - - 812 ---------- -------- --------- ---------- ---------- Net income (loss) . . . . . . . . . . . . . . . . . . . . $ 9,643 $ 119 $ (12) $ 174 $ 9,924 ========== ======== ========= ========== ========== Earnings per share Net income before extraordinary gain . . . . . . . . . . . . . . . . . . . . . . $ 2.08 $ 2.14 Extraordinary gain . . . . . . . . . . . . . . . . . . . .20 .20 ---------- ---------- Net income . . . . . . . . . . . . . . . . . . . . . . $ 2.28 $ 2.34 ========== ========== Shares of beneficial interest outstanding. . . . . . . . . . . . . . . . . . . . 4,243,754 4,243,754 ========== ========== - ------------------------- (1) Assumes acquisition or disposition by the Trust on January 1, 1996. Pro forma amounts for other property acquisitions are from January 1, through the date of acquisition only, results subsequent to the date of acquisition are included in the "Actual" column. 6 7 CONTINENTAL MORTGAGE AND EQUITY TRUST PRO FORMA STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1995 Other Glenwood Property Property Actual Apartments(1) Acquisitions(1) Dispositions(1) Pro forma ------ ---------- ------------ ------------ --------- (dollars in thousands) Income Rentals . . . . . . . . . . . . . . . . . . . . . . $ 37,586 $ 1,080 $ 6,614 $ (7,339) $ 37,941 Interest . . . . . . . . . . . . . . . . . . . . . 723 - - - 723 ---------- -------- --------- ---------- ---------- 38,309 1,080 6,614 (7,339) 38,664 Expenses Property operations. . . . . . . . . . . . . . . . 22,682 553 3,702 (4,442) 22,495 Interest . . . . . . . . . . . . . . . . . . . . . 10,009 278 2,156 (1,990) 10,453 Depreciation . . . . . . . . . . . . . . . . . . . 4,279 88 771 (950) 4,188 Advisory fee to affiliate. . . . . . . . . . . . . 1,264 - - - 1,264 General and administrative . . . . . . . . . . . . 1,207 - - - 1,207 Provision for losses . . . . . . . . . . . . . . . 541 - - - 541 ---------- -------- --------- ---------- ---------- 39,982 919 6,629 (7,382) 40,148 ---------- -------- --------- ---------- ---------- Income (loss) from operations . . . . . . . . . . . (1,673) 161 (15) 43 (1,484) Equity in income of partnerships . . . . . . . . . 230 - - - 230 ---------- -------- --------- ---------- ---------- Net income (loss) . . . . . . . . . . . . . . . . . . . . $ (1,443) $ 161 $ (15) $ 43 $ (1,254) ========== ======== ========= ========== ========== Earnings per share Net loss . . . . . . . . . . . . . . . . . . . . . $ (.33) $ (.29) ========== ========== Shares of beneficial interest outstanding . . . . . . . . . . . . . . . . . . . . 4,377,165 4,377,165 ========== ========= - ------------------------- (1) Assumes acquisition or disposition by the Trust on January 1, 1995. 7 8 ITEM 7.FINANCIAL STATEMENTS AND EXHIBITS (Continued) (b) Financial statements of properties acquired: Exhibit Number Description - ------- ----------------------------------------------------------------------------------------------------------- 99.0 Glenwood Apartments Audited Statement of Revenues and Direct Operating Expenses for the year ended December 31, 1995. -------------------------------- SIGNATURE 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 hereto duly authorized. CONTINENTAL MORTGAGE AND EQUITY TRUST Date: January 6, 1996 By: /s/ Thomas A. Holland -------------------------- ---------------------------- Thomas A. Holland Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 8 9 CONTINENTAL MORTGAGE AND EQUITY TRUST EXHIBIT TO ITS CURRENT REPORT ON FORM 8-K Dated November 5, 1996 Exhibit Page Number Description Number - ------- ------------------------------------------ ------ 99.0 Glenwood Apartments Audited Statement of 10 Revenues and Direct Operating Expenses for the year ended December 31, 1995. 9