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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
April 3, 1998
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Date of Report (Date of Earliest Event Reported)
CONTINENTAL MORTGAGE AND EQUITY TRUST
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(Exact Name of Registrant as Specified in its Charter)
California 0-10503 94-2738844
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(State of Incorporation) (Commission (IRS Employer
File No.) Identification No.)
10670 North Central Expressway, Suite 300, Dallas, TX 75231
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (214) 692-4700
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Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On March 3, 1998, Continental Mortgage and Equity Trust (the "Trust") purchased
1010 Common Street, a 494,579 square foot office building in New Orleans,
Louisiana, for $14.5 million (4.8% of the Trust's assets at December 31, 1997).
The seller of the property was BHNO Partners, Ltd., an unrelated party. The
property was constructed in 1970 and was 12% occupied at the date of
acquisition. The Trust paid $6.3 million in cash and obtained new mortgage
financing of $8.2 million. The lender has committed to fund an additional $3.8
million for tenant improvements. The mortgage bears interest at 9.7% per annum,
requires monthly payments of interest only and matures in March 2001.
On March 5, 1998, the Trust purchased 225 Baronne Street, a 416,834 square foot
office building also in New Orleans, Louisiana, for $11.2 million (3.7% of the
Trust's assets at December 31, 1997). The seller of the property was 225 Baronne
Street, Inc., an unrelated party. The property was constructed in 1960 and was
53% occupied at the date of acquisition. The Trust paid $3.8 million in cash and
obtained new mortgage financing of $7.4 million. The lender has committed to
fund an additional $1.6 million for tenant improvements. The mortgage bears
interest at 9.7% per annum, requires monthly payments of interest only and
matures in March 2001.
On April 3, 1998, the Trust purchased Fontenelle Hills, a 338 unit apartment
complex in Bellevue, Nebraska, for $12.8 million (4.3% of the Trust's assets at
December 31, 1997). The seller of the property was Fontenelle Hills Associates,
an unrelated party. The property was constructed in 1970 and was 95% occupied at
the date of acquisition. The Trust paid $2.0 million in cash and obtained new
mortgage financing of $10.8 million. The mortgage bears interest at 7.16% per
annum, requires monthly payments of principal and interest of $73,017 and
matures in April 2008.
These purchases of income producing properties, when combined, exceed 10% of the
Trust's assets at December 31, 1997.
In addition to the income producing properties described above, on January 23,
1998, the Trust purchased the McKinney 36 land in Collin County, Texas for $2.1
million in cash, from an unrelated party. The property consists of 36 acres of
undeveloped land.
In assessing each purchase of income producing property described above, the
following were among the factors considered by the Trust's management,
geographic location of the property, performance of the property, new or
renovated properties in the vicinity of the property and the maintenance and
appearance of the property. Additional factors considered with respect to
commercial properties were the ease of access to the property, the adequacy of
related facilities, such as parking, and the property's sensitivity to market
conditions in establishing rental rates. With respect to apartment complexes the
design and mix of units and the ability to provide a community atmosphere for
the tenants was also considered.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Pro forma financial information:
Pro forma statements of operations are presented for the year ended December 31,
1997 and the three months ended March 31, 1998. A pro forma balance sheet as of
March 31, 1998 is also presented.
A summary of the pro forma transactions follows:
In January 1998, the Trust purchased the McKinney 36 land, 36.4 acres of
undeveloped land in Collin County, Texas, for $2.1 million in cash.
In March 1998, the Trust purchased 1010 Common Street Office Building in New
Orleans, Louisiana, for $14.5 million. The Trust paid $6.3 million in cash and
obtained new mortgage financing of $8.2 million.
Also in March 1998, the Trust purchased 225 Baronne Street Office Building also
in New Orleans, Louisiana, for $11.2 million. The Trust paid $3.8 million in
cash and obtained new mortgage financing of $7.4 million.
In April 1998, the Trust purchased Fontenelle Hills Apartments in Bellevue,
Nebraska, for $12.8 million. The Trust paid $2.0 million in cash and obtained
new mortgage financing of $10.8 million.
In addition to the purchases described above, through March 31, 1998 the Trust
sold one apartment complex and one industrial building. In connection with the
sales, the Trust received net proceeds totaling $3.5 million, after the payoff
of $10.1 million in existing mortgage debt and the payment of various closing
costs associated with the sales. The Trust recognized gains totaling $5.6
million on the sales.
The Pro Forma Combined 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. The Trust's management is not aware of any material
factors relating to the purchased properties that would cause the reported
financial information not to be necessarily indicative of future operating
results, except for the 1010 Common Street and 225 Baronne Street Office
Buildings where the Trust's management expects that it will, over time, be able
to increase each building's occupancy and operating performance from that at
their respective dates of acquisition.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
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CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA
COMBINED BALANCE SHEET
MARCH 31, 1998
Fontenelle
Hills Pro Forma
Actual Apartments(1) Combined
---------- ------------- ----------
(dollars in thousands)
Assets
Notes and interest receivable
Performing ............................... $ 2,836 $ -- $ 2,836
Nonperforming, nonaccruing ............... 2,257 -- 2,257
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5,093 -- 5,093
Less - allowance for estimated losses ....... (1,481) -- (1,481)
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3,612 -- 3,612
Foreclosed real estate held for sale,
net of accumulated depreciation .......... 5,670 -- 5,670
Real estate held for investment, net
of accumulated depreciation .............. 275,823 13,203 289,026
Investments in marketable equity
securities of affiliates, at market ...... 13,631 -- 13,631
Cash and cash equivalents ................... 7,184 (2,403) 4,781
Other assets ................................ 15,323 -- 15,323
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$ 321,243 $ 10,800 $ 332,043
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Liabilities and Shareholders' Equity
Liabilities
Notes and interest payable .................. $ 221,527 $ 10,800 $ 232,327
Other liabilities ........................... 8,338 -- 8,338
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229,865 10,800 240,665
Commitments and contingencies
Shareholders' equity
Shares of Beneficial
Interest, no par value; authorized
shares, unlimited; issued and
outstanding 4,006,441 shares ............. 8,024 -- 8,024
Paid-in capital ............................. 256,891 -- 256,891
Accumulated distributions in excess of
accumulated earnings ..................... (185,863) -- (185,863)
Net unrealizable gains on marketable
equity securities ........................ 12,326 -- 12,326
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91,378 -- 91,378
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$ 321,243 $ 10,800 $ 332,043
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(1) The balance sheet effect of all other 1998 property purchases and
dispositions are included in the March 31, 1998 actual balances presented.
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CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
1010 225 Fontenelle McKinney
Common Baronne Hills 36 Property Pro Forma Pro Forma
Actual Street Street Apartments Land Dispositions Adjustments Combined
---------- ---------- ---------- ---------- ---------- ------------ ----------- ----------
(dollars in thousands, except per share)
Income
Rents .................. $ 14,810 $ 184 $ 345 $ 600 $ -- $ (187) $ -- $ 15,752
Interest ............... 231 -- -- -- -- -- -- 231
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
15,041 184 345 600 -- (187) -- 15,983
Expenses
Property operations .... 8,477 182 210 266 5 (244) -- 8,896
Interest ............... 5,084 -- -- -- -- (126) 446 5,404
Depreciation ........... 2,085 -- -- -- -- (16) 181 2,250
Advisory and net
income fees to
affiliate ........... 855 -- -- -- -- -- -- 855
General and
administrative ...... 604 -- -- -- -- -- -- 604
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
17,105 182 210 266 5 (386) 627 18,009
Income (loss) from
operations ............. (2,064) 2 135 334 (5) 199 (627) (2,026)
Equity in income of
partnerships ........... 35 -- -- -- -- -- -- 35
Gain on sale of real
estate ................. 5,616 -- -- -- -- -- -- 5,616
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) ......... $ 3,587 $ 2 $ 135 $ 334 $ (5) $ 199 $ (627) $ 3,625
========== ========== ========== ========== ========== ========== ========== ==========
Earnings per share
Net income ............. $ .89 $ .90
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Shares of beneficial
interest outstanding ... 4,013,236 4,013,236
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The accompanying footnotes are an integral part of this Pro Forma Combined
Statement of Operations.
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CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO PRO FORMA COMBINED
STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998
1. The Pro Forma Combined Statement of Operations assumes that each
property was purchased or sold by the Trust on January 1, 1998. Pro
forma amounts for purchased properties are from January 1 through the
respective dates of purchase only. Results subsequent to the respective
dates of purchase are included in the "Actual" column.
2. A statement of operations for the month of January 1998 was available
for 1010 Common Street and a statement of operations for the two months
ended February 28, 1998 was available for 225 Baronne Street which are
the basis for operating results for the period January 1 to the date of
purchase.
3. No interim financial statements were available for Fontenelle Hills
Apartments. Therefore, the previous years' actual amounts were used to
estimate the interim period January 1 to the date of purchase.
4. The pro forma interest adjustment is based on the mortgages obtained for
each property at its respective date of purchase. The pro forma
depreciation adjustment is based on each property's purchase price
depreciated under the Trust's established depreciation policies.
Interest:
1010 Common $ 133
225 Baronne 120
Fontenelle Hills 193
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Total $ 446
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Depreciation:
1010 Common $ 63
225 Baronne 44
Fontenelle Hills 74
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Total $ 181
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5. Interim operating results for sold properties are their actual operating
results from January 1 to their respective dates of sale.
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CONTINENTAL MORTGAGE AND EQUITY TRUST
PRO FORMA COMBINED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
1010 225 Fontenelle McKinney
Common Baronne Hills 36 Property Pro Forma Pro Forma
Actual Street Street Apartments Land Dispositions Adjustments Combined
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(dollars in thousands, except per share)
Income
Rents .................... $ 55,180 $ 1,119 $ 1,681 $ 2,401 $ -- $ (2,697) $ -- $ 57,684
Interest ................. 1,295 -- -- -- -- -- -- 1,295
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
56,475 1,119 1,681 2,401 -- (2,697) -- 58,979
Expenses
Property operations ...... 32,041 1,426 1,424 1,065 26 (1,625) -- 34,357
Interest ................. 17,142 -- -- -- -- (988) 2,286 18,440
Depreciation ............. 6,236 -- -- -- -- (244) 933 6,925
Advisory fee to
affiliate ......... 1,496 -- -- -- -- -- -- 1,496
Incentive and net
income fees ....... 1,005 -- -- -- -- -- -- 1,005
General and
administrative .... 2,727 -- -- -- -- -- -- 2,727
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
60,647 1,426 1,424 1,065 26 (2,857) 3,219 64,950
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from
operations ............... (4,172) (307) 257 1,336 (26) 160 (3,219) (5,971)
Equity in income of
partnerships ............. 99 -- -- -- -- -- -- 99
Gain on sale of real
estate ................... 8,249 -- -- -- -- 5,616 -- 13,865
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) ......... $ 4,176 $ (307) $ 257 $ 1,336 $ (26) $ 5,776 $ (3,219) $ 7,993
========== ========== ========== ========== ========== ========== ========== ==========
Earnings per share
Net income ............. $ 1.04 $ 1.99
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Shares of beneficial
interest outstanding ... 4,025,794 4,025,794
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The accompanying footnotes are an integral part of this Pro Forma Combined
Financial Statement of Operations.
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CONTINENTAL MORTGAGE AND EQUITY TRUST
NOTES TO PRO FORMA COMBINED
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
1. The Pro Forma Combined Statement of Operations assumes that each
property was purchased or sold by the Trust on January 1, 1997.
2. Audited statements of operations for the year ended December 31, 1997
were obtained for 1010 Common Street, 225 Baronne Street and Fontenelle
Hills. For McKinney land estimates of operations were used.
3. The pro forma interest adjustment is based on the mortgages obtained for
each property at its respective date of purchase. The pro forma
depreciation adjustment is based on each property's purchase price
depreciated under the Trust's established depreciation policies.
Interest:
1010 Common $ 795
225 Baronne 718
Fontenelle Hills 773
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Total $ 2,286
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Depreciation:
1010 Common $ 375
225 Baronne 261
Fontenelle Hills 297
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Total $ 933
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4. Operating results for sold properties are their actual operating results
for 1997.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (Continued)
(b) Financial statements of properties acquired:
Exhibit
Number Description
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99.0 1010 Common Street Audited Statement of Revenues and Direct
Operating Expenses for the year ended December 31, 1997, filed
herewith.
99.1 225 Baronne Street Audited Statement of Revenues and Direct
Operating Expenses for the year ended December 31, 1997, filed
herewith.
99.2 Fontenelle Hills Apartments Audited Statement of Revenues and
Direct Operating Expenses for the year ended December 31, 1997,
filed herewith.
99.3 1010 Common Street Budget Comparison Report for the one month
ended January 31, 1998, filed herewith.
99.4 225 Baronne Street Income Statement for the two months ended
February 28, 1998, filed herewith.
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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: June 25, 1998 By: /s/ Thomas A. Holland
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Thomas A. Holland
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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CONTINENTAL MORTGAGE AND EQUITY TRUST
EXHIBIT TO ITS
CURRENT REPORT ON FORM 8-K
Dated March 3, 1998
Exhibit Page
Number Description Number
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99.0 1010 Common Audited Statement of 11
Revenues and Direct Operating Expenses for
the year ended December 31, 1997.
99.1 225 Baronne Audited Statement of Revenues 15
and Direct Operating Expenses for the year
ended December 31, 1997.
99.2 Fontenelle Hills Apartments Audited 19
Statement of Revenues and Direct Operating
Expenses for the year ended December 31, 1997.
99.3 1010 Common Street Budget Comparison Report 23
for the one month ended January 31, 1998.
99.4 225 Baronne Street Income Statement for the 27
two months ended February 28, 1998.
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