UNITED STATES
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, 2003
OR
- ------- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-18491
CAPITAL MORTGAGE PLUS L.P.
--------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3502020
- -------------------------------- ---------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- ---------------------------------------- ---------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 421-5333
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
----- -----
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes X No
----- -----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
=========== ============
March 31, December 31,
2003 2002
----------- ------------
(Unaudited)
ASSETS
Investments in mortgage loans
(Note 2) $16,045,534 $16,098,198
Cash and cash equivalents 518,485 6,659,016
Accrued interest receivable
(net of allowance of $635,371
and $617,893) 152,622 153,135
Loan origination costs
(net of accumulated
amortization of $166,127
and $162,743) 494,474 497,858
Other assets 0 406,229
----------- -----------
Total assets $17,211,115 $23,814,436
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Accounts payable and other
liabilities $ 31,809 $ 25,741
Due to general partner and
affiliates (Note 3) 71,497 56,407
----------- -----------
Total liabilities 103,306 82,148
----------- -----------
Partners' capital (deficit):
Limited Partners (1,836,660 BACs
issued and outstanding) 17,322,194 23,880,785
General Partner (214,385) (148,497)
----------- -----------
Total partners' capital (deficit) 17,107,809 23,732,288
----------- -----------
Total liabilities and partners' capital
(deficit) $17,211,115 $23,814,436
=========== ===========
See Accompanying Notes to Financial Statements.
2
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF INCOME
(Unaudited)
=========================
Three Months Ended
March 31,
-------------------------
2003 2002
-------------------------
Revenues
Interest income:
Mortgage loans (Note 2) $ 380,956 $ 465,749
Temporary investments 10,539 3,916
Other income 963 1,063
----------- -----------
Total revenues 392,458 470,728
----------- -----------
Expenses
General and administrative 16,571 21,180
General and administrative-
related parties (Note 3) 40,043 47,314
Provision for bad debts 30,559 46,152
Amortization 25,914 54,760
----------- -----------
Total expenses 113,087 169,406
----------- -----------
Net income $ 279,371 $ 301,322
=========== ===========
Allocation of Net income:
Limited Partners $ 273,784 $ 295,296
=========== ===========
General Partner $ 5,587 $ 6,026
=========== ===========
Net income per BAC $ 0.15 $ 0.16
=========== ===========
See Accompanying Notes to Financial Statements.
3
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENT OF CHANGES IN
PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
===============================================
Limited General
Total Partners Partner
-----------------------------------------------
Partners' capital
(deficit) -
January 1, 2003 $ 23,732,288 $23,880,785 $ (148,497)
Net income 279,371 273,784 5,587
Distributions (6,903,850) (6,832,375) (71,475)
Partners' capital ------------ ----------- -----------
(deficit) -
March 31, 2003 $ 17,107,809 $17,322,194 $ (214,385)
============ =========== ===========
See Accompanying Notes to Financial Statements.
4
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
=========================
Three Months Ended
March 31,
-------------------------
2003 2002
-------------------------
Cash flows from operating activities:
Net income $ 279,371 $ 301,322
Adjustments to reconcile net income
to net cash provided
by operating activities:
Provision for bad debts 30,559 46,152
Amortization expense 25,914 54,760
Amortization of interest rate buydown (363) (363)
(Increase) decrease in accrued interest
receivable (30,046) 55,711
Decrease in other assets 406,229 0
Increase in accounts payable
and other liabilities 6,068 5,012
Increase (decrease) in due to general
partner and affiliates 15,090 (5,766)
---------- ----------
Net cash provided by operating
activities 732,822 456,828
---------- ----------
Cash flows from investing activities:
Receipt of principal on mortgage
loans 30,497 43,616
---------- ----------
Cash flows from financing activities:
Distributions to partners (6,903,850) (414,519)
---------- ----------
5
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
=========================
Three Months Ended
March 31,
-------------------------
2003 2002
-------------------------
Net (decrease) increase in cash
and cash equivalents (6,140,531) 85,925
Cash and cash equivalents at
beginning of period 6,659,016 1,110,785
---------- ----------
Cash and cash equivalents at
end of period $ 518,485 $1,196,710
========== ==========
See Accompanying Notes to Financial Statements.
6
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
Note 1 - General
The unaudited financial statements have been prepared on the same basis as the
audited financial statements included in the Partnership's Annual Report on Form
10-K for the year ended December 31, 2002. In the opinion of the General
Partner, the accompanying unaudited financial statements contain all adjustments
(consisting only of normal recurring adjustments) necessary to present fairly
the financial position of the Partnership as of March 31, 2003 and the results
of operations and its cash flows for the three months ended March 31, 2003 and
2002. However, the operating results for the three months ended March 31, 2003
may not be indicative of the results for the year.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these financial statements be read in
conjunction with the financial statements and notes thereto included in the
Partnership's Annual Report on Form 10-K for the year ended December 31, 2002.
The Partnership was formed to invest in insured or guaranteed mortgage
investments. The Partnership has invested in first mortgage construction and
permanent loans ("Mortgages") to finance multifamily residential rental
properties developed by unaffiliated entities. The Partnership has also invested
in uninsured equity loans ("Equity Loans") made directly to developers of
developments on which the Partnership holds a Mortgage.
7
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
Note 2 - Investments in Loans
Information relating to investments in the Mortgages and Equity Loans as of
March 31, 2003 is as follows:
Amounts Advance
---------------------------------------------------------------------------
No. Date Final
Apart- of Matur- Total Investments Investments
Property/ ment Invest- ity Mortgage Equity Amounts in Loans at in Loans at
Location Units ment Date Loans Loans Advanced 3/31/2003(E) 12/31/2002(E)
- -------- ----- ------ ------- ----------- ---------- ----------- ------------ -------------
Windemere 204 9/30 9/30 $ 8,110,300 $ 736,550 $ 8,846,850 $ 7,634,319 $ 7,650,456
Apts./
Wichita,
KS
Fieldcrest 112 8/91 8/31 3,343,700 383,300 3,727,000 3,200,375 3,214,166
III
Apts./
Dothan, AL
Holly 144 3/93 3/33 5,310,100 684,400 5,994,500 5,210,840 5,233,576
Ridge
II Apts./
Gresham,
OR
---------------------------------------------------------------------------
Total $16,764,100 $1,804,250 $18,568,350 $16,045,198 $16,098,198
===========================================================================
Interest earned by the Partnership during 2003
----------------------------------------------------------------------------
Non-contingent Contingent
--------------------------- --------------------------------------------
Cash
Flow
Base Default Annual Partici-
Interest Interest Yield pation Total
Property/ Amount/ Amount/ Amount/ Amount/ Interest
Location Rate (A) Rate (B) Rate (C) Rate (D) Earned
- -------- ------------ ----------- ------------ ------------ -----------
Windemere $ 151,839 $ 30,559 0 0 $182,398
Apts./ 7.95% 1.60% 1.08% 30.00%
Wichita,
KS
Fieldcrest 69,088 0 0 0 69,088
III
Apts./ 8.68% 0% 1.36% 30.00%
Dothan, AL
Holly 103,634 25,836 0 0 129,470
Ridge
II Apts./ 8.125% 1.00% .64% 30.00%
Gresham,
OR
---------------------------------------------------------------------------
Total $ 324,561 $ 56,395 $ 0 $ 0 $380,956
===========================================================================
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
(A) Base Interest on the Mortgages is that amount that is insured/co-insured by
the Department of Housing and Urban Development ("HUD") and is being shown net
of servicing fees.
(B) Default Interest is the minimum amount due over the base rate, and is not
contingent upon cash flow. This interest is secured by partnership interests in
the borrower.
(C) Annual Yield is the amount over the default rate and is contingent upon
property cash flow.
(D) Cash Flow Participation is the percent of cash flow due to the Partnership
after payment of the Annual Yield and is contingent upon property cash flow.
(E) The Investments in Loans amount reflects the unpaid balance of the Mortgages
and the unamortized balance of the Equity Loans in the amounts of $15,915,310
and $130,224, respectively, at March 31, 2003 and $15,945,807 and $152,391,
respectively, at December 31, 2002.
9
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
Investments in loans January 1, 2002 $21,002,372
Additions:
Fieldcrest discount amortization 1,452
Deductions:
Amortization of Equity Loans (192,104)
Collection of principal - Mortenson (4,587,002)
- Windemere (61,867)
- Fieldcrest (21,839)
- Holly Ridge (34,788)
Collection of principal - Equity Loan
- Mortenson* (8,026)
------------
(4,905,626)
------------
Investments in loans
December 31, 2002: 16,098,198
------------
Additions:
Fieldcrest discount amortization 363
Deductions
Amortization of Equity Loans (22,530)
Collection of principal - Windemere (16,255)
- Fieldcrest (5,764)
- Holly Ridge (8,478)
------------
(53,027)
------------
Investments in loans March 31, 2003 $16,045,534
============
* This is the unamortized portion of the Equity Loan.
The Windemere Mortgage is co-insured by HUD and Related Mortgage Corporation
("RMC"), an affiliate of the General Partner. The Fieldcrest III and Holly Ridge
II Mortgages are insured by HUD. Mortenson was co-insured by HUD and RMC.
In addition to the interest rate payable during the post-construction periods,
the Partnership will be entitled to payment of 30% of cash flow remaining after
payment of the permanent loan interest and accrued interest if any, and certain
amounts from sales or refinancing proceeds.
10
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
The equity loans are non-interest bearing and are secured by the assignment of
the owner/developers' interests in the projects. The Equity Loans are not
insured by HUD or any other party and, for financial statement reporting
purposes, are considered to be premiums paid to obtain the Mortgages. These
premiums are amortized over the average expected lives of the respective
Mortgages.
At March 31, 2003, all of the loans due to the Partnership are current with
respect to their Federal Housing Authority ("FHA") Mortgage obligations.
Windemere has not paid its default interest of an aggregate of approximately
$627,000 for the three months ended March 31, 2003 and the years ended December
31, 2002, 2001, 2000, 1999 and 1996. Hollyridge has not paid its default
interest of an aggregate of approximately $53,000 for the three months ended
March 31, 2003 and the year ended December 31, 2001. As a result, an allowance
for uncollectability relating to the default interest amounted to approximately
$635,000 and $618,000 at March 31, 2003 and December 31, 2002, respectively. The
allowance has been reflected in provision for bad debts on the statements of
income.
Note 3 - Related Parties
The costs incurred to related parties for the three months ended March 31, 2003
and 2002 were as follows:
======================
Three Months Ended
March 31,
----------------------
2003 2002
----------------------
Partnership management
fees (a) $ 24,322 $ 31,592
Expense reimbursement (b) 15,721 15,722
--------- ---------
Total general and admin-
istrative-related parties $ 40,043 $ 47,314
========= =========
11
CAPITAL MORTGAGE PLUS L.P.
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2003
(Unaudited)
(a) A Partnership management fee for managing the affairs of the Partnership
equal to .5% per annum of invested assets is payable out of cash flow to the
General Partner. At both March 31, 2003 and December 31, 2002, a balance of
approximately $24,000 was due to the General Partners for these fees.
(b) The General Partner and its affiliates perform services for the Partnership
which include, but are not limited to: accounting and financial management,
registrar, transfer and assignment functions, asset management, investor
communications, printing services and other administrative services. The amount
of reimbursement from the Partnership is limited by the provisions of the
Partnership Agreement. An affiliate of the General Partner performs asset
monitoring services for the Partnership. These asset monitoring services include
site visits and evaluations of the performance of the properties securing the
loans. Fees owed to the General Partner amounting to approximately $48,000 and
$32,000 were accrued and unpaid as of March 31, 2003 and December 31, 2002,
respectively.
RMC is a co-insurer on the Windemere Mortgage in which the Partnership has
invested. RMC is entitled to a mortgage insurance premium which is paid by the
mortgagor.
Note 4 - Subsequent Event
It is anticipated that during May 2003, distributions of approximately $239,000
and $5,000 will be paid to BACs holders and the General Partner, respectively,
representing the 2003 first quarter distribution.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Capital Resources and Liquidity
- -------------------------------
Sources of Partnership funds included interest earned on (1) investments in
mortgage loans and (2) the working capital reserve.
During the three months ended March 31, 2003, cash and cash equivalents of the
Partnership decreased by approximately $6,141,000 due to distributions paid to
Partners of approximately $6,904,000 less cash provided by operating activities
of approximately $733,000 and collections of principal on mortgage loans of
approximately $30,000. Amortization of approximately $26,000 is included in the
adjustments to reconcile the net income to cash provided by operating
activities.
A distribution of approximately $6,832,000 was made to the limited partners or
BACs holders during the three months ended March 31, 2003. A total of
approximately $71,000 was distributed to the General Partner during the three
months ended March 31, 2003. Such distribution resulted from the proceeds from
the repayment of the Mortenson Mortgage and Equity Loan on October 31, 2002.
Management is not aware of any trends or events, commitments or uncertainties
that will impact liquidity in a material way. Management believes the only
impact would be from laws that have not yet been adopted. All base interest and
the principal of the Partnership's investments in Mortgages are insured or
co-insured by HUD and additionally one Mortgage is coinsured by a private
mortgage lender (which is an affiliate of the General Partner). The
Partnership's investments in uninsured non-interest bearing Equity Loans (which
represented approximately 10% of the Partnership's portfolio when originated)
are secured by partnership interests in these properties. The Partnership may
not be protected against a general downturn in the national economy.
Critical Accounting Policies
- ----------------------------
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which requires the
Partnership to make certain estimates and assumptions. A summary of significant
accounting policies is disclosed in Note 2 to the financial statements which are
included in the Partnership's annual report on Form 10-K for the year ended
December 31, 2002. The following section is a summary of certain aspects of
13
those accounting policies that may require subjective or complex judgments and
are most important to the portrayal of Partnership's financial condition and
results of operations. The Partnership believes that there is a low probability
that the use of different estimates or assumptions in making these judgments
would result in materially different amounts being reported in the financial
statements.
o Interest income on the Mortgages consist of contingent and
non-contingent interest as defined in the mortgage notes and other
additional interest agreements. Non-contingent interest consists of
base and default interest, which is recognized on the effective
interest method. Contingent interest is based on the underlying
property's cash flows and is recognized when received.
o If the interest receivable exceeds the estimated value derived by
management, the Partnership adjusts the allowance account to reflect
its estimated fair value.
o The Equity Loans are considered to be premiums paid to obtain the
Mortgages and are amortized over the average expected lives of the
respective Mortgages.
Results of Operations
- ---------------------
Three months ended March 31, 2003 compared with the three months ended March 31,
- --------------------------------------------------------------------------------
2002
- ----
Results of operations for the three months ended March 31, 2003 and 2002
consisted primarily of interest income earned from investment in Mortgages of
approximately $381,000 and $466,000, respectively. The decrease of approximately
$85,000 for the three months ended March 31, 2003 as compared to the same period
in 2002 is primarily due to the repayment of Mortenson Mortgage and Equity Loan
in October 2002.
Interest income from temporary investments increased approximately $7000 for the
three months ended March 31, 2003 as compared to the same period in 2002
primarily due higher cash balance during the 2002 period.
General and administrative decreased approximately $5,000 for the three months
ended March 31, 2003 as compared to the same period in 2002, primarily due to a
decrease in printing expenses in 2003.
14
General and administrative-related parties decreased approximately $7,000 for
the three months ended March 31, 2003 as compared to the same period in 2002,
primarily due to a decrease in the Partnership management fee, which was
calculated on the reduced asset base due to the repayment of the Mortenson
Mortgage and Equity Loan on October 31, 2002.
Amortization expense decreased approximately $29,000 for the three months ended
March 31, 2003 as compared to the same period in 2002, primarily due to the
repayment of the Mortenson Mortgage and Equity Loan on October 31, 2002.
A provision for bad debts of approximately $31,000 was charged to operations for
the three months ended March 31, 2003, representing the 2003 default interest
due for Windemere, none of which is expected to be paid.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
None.
Item 4. Controls and Procedures
The Principal Executive Officer and Principal Financial Officer of CIP
Associates, Inc., the general partner of the Partnership, has evaluated the
Partnership's disclosure controls and procedures relating to the Partnership's
quarterly report on Form 10-Q for the period ending March 31, 2003 as filed with
the Securities and Exchange Commission and has judged such controls and
procedures to be effective as of March 31, 2003 (the "Evaluation Date").
There have been no significant changes in the internal controls or in other
factors that could significantly affect internal controls relating to the
Partnership since the Evaluation Date.
15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds - None
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 8-K
(a) Exhibits:
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Current report on Form 8-K -
No reports on form 8-K were filed during the quarter ended March
31, 2003.
16
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.
CAPITAL MORTGAGE PLUS L.P.
By: CIP ASSOCIATES, INC.
General Partner
Date: May 9, 2003
By: /s/ Alan P. Hirmes
-------------------------
Alan P. Hirmes
Senior Vice President
(Principal Executive and Financial
Officer)
Date: May 9, 2003
By: /s/ Glenn F. Hopps
-------------------------
Glenn F. Hopps
Treasurer
(Principal Accounting Officer)
CERTIFICATION
I, Alan P. Hirmes, Principal Executive Officer and Principal Financial Officer
of CIP Associates, Inc., (the "General Partner"), the general partner of Capital
Mortgage Plus L.P. (the "Partnership"), hereby certify that:
1. I have reviewed this quarterly report on Form 10-Q for the period
ending March 31, 2003 of the Partnership;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Partnership as of, and for, the periods presented in
this quarterly report;
4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15-d-14)
for the Partnership and I have:
a) designed such disclosure controls and procedures to ensure the
material information relating to the Partnership is made known to me,
particularly during the period in which this quarterly report was
being prepared;
b) evaluated the effectiveness of the Partnership's disclosure
controls and procedures as of March 31, 2003 (the "Evaluation Date");
and
c) presented in this quarterly report my conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the
Partnership's auditors and to the boards of directors of the General
Partners:
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Partnership's ability to
record, process, summarize and report financial data and have
identified for the Partnership's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Partnership's
internal controls; and
6. I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Partnership has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
By: /s/ Alan P. Hirmes
--------------------------
Alan P. Hirmes
Principal Executive Officer and
Principal Financial Officer
May 9, 2003
Exhibit 99.1
CERTIFICATION PURSUANT TO
18.U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Capital Mortgage Plus L.P. (the
"Partnership") on Form 10-Q for the period ending March 31, 2003 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Alan P. Hirmes, Principal Executive Officer and Principal Financial Officer of
CIP Associates, Inc., the general partner of the Partnership, certify, pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Partnership.
/s/ Alan P. Hirmes
- ------------------
Alan P. Hirmes
Principal Executive Officer and Principal Financial Officer
May 9, 2003