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 March 31, 2004
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _____________
Commission File No. 000-32633
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Belmar Capital Fund LLC
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(Exact name of registrant as specified in its charter)
Delaware 04-3508106
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(State of organization) (I.R.S. Employer Identification No.)
The Eaton Vance Building
255 State Street
Boston, Massachusetts 02109
--------------------- -----
(Address of principal executive offices) (Zip Code)
Rgistrant's telephone number: 617-482-8260
------------
None
----
(Former Name, Former Address and Former Fiscal Year, if changed since
last report)
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 Rule 12b-2 of the Securities Exchange Act of 1934).
YES X NO
--- ---
BELMAR CAPITAL FUND LLC
Index to Form 10-Q
Page
PART I FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements........................ 3
Condensed Consolidated Statements of Assets and
Liabilities as of March 31, 2004 (Unaudited) and
December 31, 2003.................................................. 3
Condensed Consolidated Statements of Operations
(Unaudited) for the Three Months Ended
March 31, 2004 and 2003............................................ 4
Condensed Consolidated Statements of Changes in Net
Assets for the Three Months Ended March 31, 2004
(Unaudited) and the Year Ended December 31, 2003................... 6
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Three Months Ended
March 31, 2004 and 2003............................................ 7
Financial Highlights (Unaudited) for the Three Months
Ended March 31, 2004............................................... 9
Notes to Condensed Consolidated Financial Statements
as of March 31, 2004 (Unaudited)................................... 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 16
Item 3. Quantitative and Qualitative Disclosures About Market Risk......... 20
Item 4. Controls and Procedures............................................ 21
PART II OTHER INFORMATION.................................................. 22
Item 1. Legal Proceedings.................................................. 22
Item 2. Changes in Securities, Use of Proceeds and Issuer
Purchases of Equity Securities..................................... 22
Item 3. Defaults Upon Senior Securities.................................... 22
Item 4. Submission of Matters to a Vote of Security Holders................ 22
Item 5. Other Information.................................................. 22
Item 6. Exhibits and Reports on Form 8-K................................... 22
SIGNATURES................................................................. 23
EXHIBIT INDEX.............................................................. 24
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------------------------------------------------------------------------------------------------
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of Assets and Liabilities
March 31, 2004 December 31,
(Unaudited) 2003
--------------- --------------
Assets:
Investment in Belvedere Capital Fund Company LLC (Belvedere Company) $1,968,554,205 $1,966,911,184
Investment in Partnership Preference Units 214,071,002 424,780,443
Investment in other real estate 428,790,155 185,138,810
Short-term investments 73,442,000 16,973,476
--------------- ---------------
Total investments $2,684,857,362 $2,593,803,913
Cash 3,754,576 6,605,096
Escrow deposits - restricted 3,005,590 3,817,390
Open interest rate swap agreements, at value - 2,090,845
Distributions and interest receivable 852,305 1,960,318
Other assets 4,166,115 3,661,857
--------------- ---------------
Total assets $ 2,696,635,948 $2,611,939,419
--------------- ---------------
Liabilities:
Loan payable - Credit Facility $ 385,000,000 $ 513,000,000
Mortgages payable 389,748,179 161,157,192
Payable for Fund Shares redeemed - 1,361,403
Distributions payable to minority shareholders - 16,800
Open interest rate swap agreements, at value 3,678,044 -
Swap interest payable 245,022 242,283
Security deposits 749,310 744,420
Notes payable to minority shareholder 565,972 565,972
Accrued expenses:
Interest expense 2,219,471 1,423,780
Property taxes 2,050,024 3,281,589
Other expenses and liabilities 2,068,386 1,586,790
Minority interests in controlled subsidiaries 9,072,424 7,947,333
--------------- ---------------
Total liabilities $ 795,396,832 $ 691,327,562
--------------- ---------------
Net assets $ 1,901,239,116 $1,920,611,857
--------------- ---------------
Shareholders' Capital $ 1,901,239,116 $1,920,611,857
--------------- ---------------
Shares outstanding 21,937,479 22,261,334
--------------- ---------------
Net asset value and redemption price per Share $ 86.67 $ 86.28
--------------- ---------------
See notes to unaudited condensed consolidated financial statements
3
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of Operations (Unaudited)
Three Months Three Months
Ended Ended
March 31, 2004 March 31, 2003
-------------- --------------
Investment Income:
Dividends allocated from Belvedere Company
(net of foreign taxes of $81,514 and $72,603, respectively) $ 6,838,925 $ 5,950,467
Interest allocated from Belvedere Company 33,780 118,842
Expenses allocated from Belvedere Company (2,968,076) (2,427,926)
-------------- --------------
Net investment income allocated from Belvedere Company $ 3,904,629 $ 3,641,383
Distributions from Partnership Preference Units 6,401,602 12,484,532
Rental income 12,178,674 8,587,490
Interest 191,318 24,127
-------------- --------------
Total investment income $ 22,676,223 $ 24,737,532
-------------- --------------
Expenses:
Investment advisory and administrative fees $ 1,961,109 $ 1,736,439
Property management fees 329,154 338,987
Distribution and servicing fees 939,591 759,629
Interest expense on mortgages 6,554,619 3,547,846
Interest expense on Credit Facility 1,670,807 2,745,800
Property and maintenance expenses 2,915,734 2,778,593
Property taxes and insurance 1,169,214 1,177,303
Miscellaneous 511,679 196,810
-------------- --------------
Total expenses $ 16,051,907 $ 13,281,407
Deduct-
Reduction of investment advisory and administrative fees 477,795 382,008
-------------- --------------
Net expenses $ 15,574,112 $ 12,899,399
-------------- --------------
Net investment income before minority interest in net
income of controlled subsidiary $ 7,102,111 $ 11,838,133
Minority interest in net income of controlled subsidiary (48,115) (137,545)
-------------- --------------
Net investment income $ 7,053,996 $ 11,700,588
-------------- --------------
See notes to unaudited condensed consolidated financial statements
4
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of Operations (Unaudited) (Continued)
Three Months Three Months
Ended Ended
March 31, 2004 March 31, 2003
--------------- ----------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) -
Investment transactions from Belvedere Company (identified cost basis) $ 7,200,329 $ (7,241,552)
Investment transactions in Partnership Preference Units (identified cost basis) 30,460,629 638,700
Interest rate swap agreements (3,033,976) (9,691,717)
--------------- ----------------
Net realized gain (loss) $ 34,626,982 $ (16,294,569)
--------------- ----------------
Change in unrealized appreciation (depreciation) -
Investment in Belvedere Company (identified cost basis) $ 29,534,797 $ (73,116,188)
Investment in Partnership Preference Units (identified cost basis) (27,504,776) 14,811,441
Investment in other real estate (net of minority interest in
unrealized gain of controlled subsidiary of $1,076,976 and
$11,992, respectively) (3,426,498) (1,383,288)
Interest rate swap agreements (5,768,889) 7,840,088
--------------- ----------------
Net change in unrealized appreciation (depreciation) $ (7,165,366) $ (51,847,947)
--------------- ----------------
Net realized and unrealized gain (loss) $ 27,461,616 $ (68,142,516)
--------------- ----------------
Net increase (decrease) in net assets from operations $ 34,515,612 $ (56,441,928)
=============== ================
(1) Amount represents periodic payments made in connection with interest rate
swap agreements. (Note 5)
See notes to unaudited condensed consolidated financial statements
5
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of Changes in Net Assets
Three Months
Ended Year Ended
March 31, 2004 December 31,
(Unaudited) 2003
--------------- ---------------
Increase (Decrease) in Net Assets:
Net investment income $ 7,053,996 $ 43,724,019
Net realized gain from investment transactions 34,626,982 5,911,089
Net change in unrealized appreciation (depreciation) of investments (7,165,366) 362,154,142
--------------- ---------------
Net increase in net assets from operations $ 34,515,612 $ 411,789,250
--------------- ---------------
Transactions in Fund Shares -
Net asset value of Fund Shares issued to Shareholders in payment of
distributions declared $ 10,101,552 $ 18,603,373
Net asset value of Fund Shares redeemed (38,403,217) (90,690,145)
--------------- ---------------
Net decrease in net assets from Fund Share transactions $ (28,301,665) $ (72,086,772)
--------------- ---------------
Distributions -
Distributions to Shareholders $ (25,586,688) $ (39,320,426)
--------------- ---------------
Total distributions $ (25,586,688) $ (39,320,426)
--------------- ---------------
Net (decrease) increase in net assets $ (19,372,741) $ 300,382,052
Net assets:
At beginning of period $1,920,611,857 $1,620,229,805
--------------- ---------------
At end of period $1,901,239,116 $1,920,611,857
=============== ===============
See notes to unaudited condensed consolidated financial statements
6
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited)
Three Months Three Months
Ended Ended
March 31, 2004 March 31, 2003
--------------- ---------------
Cash Flows From (For) Operating Activities -
Net increase (decrease) in net assets from operations $ 34,515,612 $ (56,441,928)
Adjustments to reconcile net increase (decrease) in net assets from operations
to net cash flows from operating activities -
Net investment income allocated from Belvedere Company (3,904,629) (3,641,383)
Decrease in escrow deposits 811,800 1,806,306
Decrease in receivable for securities sold - 29,285,540
(Increase) decrease in other assets (504,258) 263,919
Decrease (increase) in distributions and interest receivable 1,108,013 (142)
Increase (decrease) in interest payable for open swap agreements 2,739 (127,669)
Increase in security deposits, accrued interest and accrued other expenses
and liabilities 1,282,177 25,727
Decrease in accrued property taxes (1,231,565) (2,358,160)
Proceeds from sales of Partnership Preference Units 213,665,294 8,033,600
Increase in short-term investments (56,468,524) (3,600,000)
Payments for investment in other real estate (16,058,060) -
Improvements to rental property (267,893) (341,007)
Net increase in investment in Belvedere Company - (10,000,001)
Interest incurred on interest rate swap agreements (3,033,976) (9,691,717)
Minority interests in net income of controlled subsidiary 48,115 137,545
Net realized (gain) loss from investment transactions (34,626,982) 16,294,569
Net change in unrealized (appreciation) depreciation of investments 7,165,366 51,847,947
--------------- ---------------
Net cash flows from operating activities $ 142,503,229 $ 21,493,146
--------------- ---------------
Cash Flows From (For) Financing Activities -
Repayment of Credit Facility $(128,000,000) $ -
Payments on mortgages (1,083,927) (360,425)
Payments for Fund Shares redeemed (767,886) (639,155)
Distributions paid to Shareholders (15,485,136) (21,583,303)
Distributions paid to minority shareholders (16,800) -
--------------- ---------------
Net cash flows for financing activities $(145,353,749) $ (22,582,883)
--------------- ---------------
Net decrease in cash $ (2,850,520) $ (1,089,737)
Cash at beginning of period $ 6,605,096 $ 6,149,096
--------------- ---------------
Cash at end of period $ 3,754,576 $ 5,059,359
=============== ===============
See notes to unaudited condensed consolidated financial statements
7
BELMAR CAPITAL FUND LLC
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
Three Months Three Months
Ended Ended
March 31, 2004 March 31, 2003
--------------- ---------------
Supplemental Disclosure and Non-cash Investing and
Financing Activities -
Interest paid on loan - Credit Facility $ 1,660,547 $ 2,085,315
Interest paid on mortgages $ 5,637,684 $ 3,449,183
Interest paid on swap agreements $ 3,031,237 $ 9,326,614
Market value of securities distributed in payment of redemptions $ 38,996,734 $ 9,617,361
Market value of real property and other assets, net of current
liabilities, assumed in conjunction with the acquisition of other
real estate $ 245,732,974 $ -
Mortgage assumed in conjunction with the acquisition of other real estate $ 229,674,914 $ -
See notes to unaudited condensed consolidated financial statements
8
BELMAR CAPITAL FUND LLC as of March 31, 2004
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Financial Highlights (Unaudited)
For the Three Months Ended March 31, 2004
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value - Beginning of period $ 86.280
- -----------------------------------------------------------------------------------------------------------------------------------
Income (loss) from operations
- -----------------------------------------------------------------------------------------------------------------------------------
Net investment income (6) $ 0.319
Net realized and unrealized gain 1.221
- -----------------------------------------------------------------------------------------------------------------------------------
Total income from operations $ 1.540
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions
- -----------------------------------------------------------------------------------------------------------------------------------
Distributions to Shareholders $(1.150)
- -----------------------------------------------------------------------------------------------------------------------------------
Total distributions $(1.150)
- -----------------------------------------------------------------------------------------------------------------------------------
Net asset value - End of period $86.670
- -----------------------------------------------------------------------------------------------------------------------------------
Total Return (1) 1.80%
- -----------------------------------------------------------------------------------------------------------------------------------
As a Percentage As a Percentage
of Average Net of Average Gross
Ratios Assets(5) Assets (2)(5)
- -----------------------------------------------------------------------------------------------------------------------------------
Expenses of Consolidated Real Property Subsidiaries
Interest and other borrowing costs (7) 1.12% (9) 0.78% (9)
Operating expenses (7) 0.62% (9) 0.43% (9)
Belmar Capital Fund LLC Expenses
Interest and other borrowing costs (4)(8) 0.35% (9) 0.25% (9)
Investment advisory and administrative fees,
servicing fees and other Fund operating expenses (3)(4) 1.22% (9) 0.86% (9)
--------------------------------------------------
Total expenses 3.31% (9) 2.32% (9)
Net investment income 1.48% (9) 1.04% (9)
- -----------------------------------------------------------------------------------------------------------------------------------
Supplemental Data
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (000's omitted) $ 1,901,239
Portfolio turnover of Tax-Managed Growth Portfolio (the Portfolio) 0.61%
- -----------------------------------------------------------------------------------------------------------------------------------
(1) Returns are calculated by determining the percentage change in net asset
value with all distributions reinvested. Total return is not computed on an
annualized basis.
(2) Average Gross Assets is defined as the average daily amount of all assets
of Belmar Capital Fund LLC (Belmar Capital) (including Belmar Capital's
interest in Belvedere Capital Fund Company LLC (Belvedere Company) and
Belmar Capital's ratable share of the assets of its directly and indirectly
controlled subsidiaries), without reduction by any liabilities. For this
purpose, the assets of Belmar Realty Corporation's (Belmar Realty)
controlled subsidiary are reduced by the proportionate interests therein of
investors other than Belmar Realty.
(3) Includes Belmar Capital's share of Belvedere Company's allocated expenses,
including those expenses allocated from the Portfolio.
(4) Includes the expenses of Belmar Capital and Belmar Realty. Does not include
expenses of the real estate subsidiaries majority-owned by Belmar Realty.
(5) For the purpose of calculating ratios, the income and expenses of Belmar
Realty's controlled subsidiary are reduced by the proportionate interests
therein of investors other than Belmar Realty.
(6) Calculated using average shares outstanding.
(7) Includes Belmar Realty's proportional share of expenses incurred by its
majority-owned subsidiaries.
(8) Ratios do not include interest incurred in connection with the interest
rate swap agreements. Had such amounts been included, ratios would be
higher.
(9) Annualized.
See notes to unaudited condensed consolidated financial statements
9
BELMAR CAPITAL FUND LLC as of March 31, 2004
Notes To Condensed Consolidated Financial Statements (Unaudited)
1 Basis of Presentation
The condensed consolidated interim financial statements of Belmar Capital Fund
LLC (Belmar Capital) and its subsidiaries (collectively, the Fund) have been
prepared, without audit, in accordance with accounting principles generally
accepted in the United States of America for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted as permitted by such rules and regulations. All adjustments, consisting
of normal recurring adjustments, have been included. Management believes that
the disclosures are adequate to present fairly the financial position, results
of operations, cash flows and financial highlights as of the dates and for the
periods presented. It is suggested that these interim financial statements be
read in conjunction with the financial statements and the notes thereto included
in the Fund's latest annual report on Form 10-K. Results for interim periods are
not necessarily indicative of those to be expected for the full fiscal year.
The balance sheet at December 31, 2003 has been derived from the December 31,
2003 audited financial statements but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States of America for complete financial statements as permitted by the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Certain amounts in the prior period's condensed consolidated financial
statements have been reclassified to conform with the current period
presentation.
2 Estate Freeze
Shareholders in Belmar Capital are entitled to restructure their Fund Share
interests under what is termed an Estate Freeze Election. Under this election,
Fund Shares are divided into Preferred Shares and Common Shares. Preferred
Shares have a preferential right over the corresponding Common Shares equal to
(i) 95% of the original capital contribution made in respect of the undivided
Shares from which the Preferred Shares and Common Shares were derived, plus (ii)
an annuity priority return equal to 8.5% of the Preferred Shares' preferential
interest in the original capital contribution of the undivided Fund Shares. The
associated Common Shares are entitled to the remaining 5% of the original
capital contribution in respect of the undivided Shares, plus any returns
thereon in excess of the fixed annual priority of the Preferred Shares. At March
31, 2004 and December 31, 2003, the Preferred Shares were valued at $86.67 and
$86.28, respectively, and the Common Shares had no value. The existence of
restructured Fund Shares does not adversely affect Shareholders who do not make
an election nor do the restructured Fund Shares have preferential rights to Fund
Shares that have not been restructured. Shareholders who subdivide Fund Shares
under this election sacrifice certain rights and privileges that they would
otherwise have with respect to the Fund Shares so divided, including redemption
rights and voting and consent rights. Upon the twentieth anniversary of the
issuance of the associated undivided Fund Shares to the original holders
thereof, Preferred and Common Shares will automatically convert into full and
fractional undivided Fund Shares.
10
3 Investment Transactions
The following table summarizes the Fund's investment transactions for the three
months ended March 31, 2004 and March 31, 2003:
Three Months Ended Three Months Ended
Investment Transaction March 31, 2004 March 31, 2003
- ------------------------------------------------------------------------------------------------
Increases in investment in Belvedere Company $ - $ 10,000,001
Decreases in investment in Belvedere Company $ 38,996,734 $ 9,617,361
Acquisition of other real property (1) $ 16,058,060 $ -
Sales of Partnership Preference Units (2) $ 213,665,294 $ 8,033,600
- ------------------------------------------------------------------------------------------------
(1) In January 2004, Belmar Realty purchased an indirect investment in real
property through a controlled subsidiary, Bel Stamford Investors, LLC (Bel
Stamford). At the date of the transaction, the value of the real property
was $242,750,000. The real property is financed through a mortgage loan
assumed at acquisition. The mortgage loan balance assumed at the date of
the transaction was $229,674,914 and accrues interest at a fixed rate of 6%
through the stated maturity date, October 11, 2016.
(2) Sales of Partnership Preference Units for the three months ended March 31,
2004 and 2003 include Partnership Preference Units sold to other investment
funds advised by Boston Management and Research for which a gain of
$22,355,905 and $638,700 was recognized, respectively.
4 Indirect Investment in the Portfolio
The following table summarizes the Fund's investment in Tax-Managed Growth
Portfolio (the Portfolio) through Belvedere Capital Fund Company LLC (Belvedere
Company), for the three months ended March 31, 2004 and March 31, 2003,
including allocations of income, expenses and net realized and unrealized gains
(losses) for the respective periods then ended:
Three Months Ended Three Months Ended
March 31, 2004 March 31, 2003
- -----------------------------------------------------------------------------------------------------------------------
Belvedere Company's interest in the Portfolio (1) $ 11,520,846,141 $ 8,400,349,853
The Fund's investment in Belvedere Company (2) $ 1,968,554,205 $ 1,568,928,236
Income allocated to Belvedere Company from the Portfolio $ 39,365,471 $ 32,398,573
Income allocated to the Fund from Belvedere Company $ 6,872,705 $ 6,069,309
Expenses allocated to Belvedere Company from the Portfolio $ 12,634,511 $ 9,667,954
Expenses allocated to the Fund from Belvedere Company $ 2,968,076 $ 2,427,926
Net realized gain (loss) allocated to Belvedere Company from the Portfolio $ 41,048,575 $ (37,772,155)
Net realized gain (loss) allocated to the Fund from Belvedere Company $ 7,200,329 $ (7,241,552)
Change in unrealized appreciation (depreciation) allocated to Belvedere
Company from the Portfolio $ 163,577,445 $ (389,828,192)
Change in unrealized appreciation (depreciation) allocated to the Fund
from Belvedere Company $ 29,534,797 $ (73,116,188)
- -----------------------------------------------------------------------------------------------------------------------
(1) As of March 31, 2004 and 2003, the value of Belvedere Company's interest in
the Portfolio represents 63.9% and 61.1% of the Portfolio's net assets,
respectively.
(2) As of March 31, 2004 and 2003, the Fund's investment in Belvedere Company
represents 17.1% and 18.7% of Belvedere Company's net assets, respectively.
11
A summary of the Portfolio's Statement of Assets and Liabilities at March 31,
2004, December 31, 2003 and March 31, 2003 and its operations for the three
months ended March 31, 2004, for the year ended December 31, 2003 and for the
three months ended March 31, 2003 follows:
March 31, December 31, March 31,
2004 2003 2003
--------------------------------------------------------------------
Investments, at value $ 18,003,359,532 $ 17,584,390,762 $ 13,797,517,752
Other assets 25,944,066 25,462,745 24,535,362
- ---------------------------------------------------------------------------------------------------------
Total assets $ 18,029,303,598 $ 17,609,853,507 $ 13,822,053,114
Total liabilities 254,697 264,502 73,659,303
- ---------------------------------------------------------------------------------------------------------
Net assets $ 18,029,048,901 $ 17,609,589,005 $ 13,748,393,811
=========================================================================================================
Dividends and interest $ 62,101,320 $ 232,925,912 $ 53,431,732
- ---------------------------------------------------------------------------------------------------------
Investment adviser fee $ 19,348,796 $ 67,584,543 $ 15,490,999
Other expenses 598,921 2,295,653 477,083
- ---------------------------------------------------------------------------------------------------------
Total expenses $ 19,947,717 $ 69,880,196 $ 15,968,082
- ---------------------------------------------------------------------------------------------------------
Net investment income $ 42,153,603 $ 163,045,716 $ 37,463,650
Net realized gain (loss) 64,894,806 70,909,770 (62,969,970)
Net change in unrealized
appreciation (depreciation) 261,922,214 3,174,709,110 (649,928,537)
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in net
assets from operations $ 368,970,623 $ 3,408,664,596 $ (675,434,857)
- ---------------------------------------------------------------------------------------------------------
5 Interest Rate Swap Agreements
Belmar Capital has entered into interest rate swap agreements with Merrill Lynch
Capital Services, Inc. in connection with its real estate investments and the
associated borrowings. Under such agreements, Belmar Capital has agreed to make
periodic payments at fixed rates in exchange for payments at floating rates. The
notional or contractual amounts of these instruments may not necessarily
represent the amounts potentially subject to risk. The measurement of the risks
associated with these investments is meaningful only when considered in
conjunction with all related assets, liabilities and agreements. Interest rate
swap agreements open at March 31, 2004 and December 31, 2003 are listed below.
Notional Initial Unrealized Unrealized
Amount Optional Final Depreciation Appreciation
(000's Fixed Floating Termination Termination At March 31, At December 31,
omitted) Rate Rate Date Date 2004 2003
- -------------------------------------------------------- --------------------------------------------------------------------
$58,363 4.90% LIBOR + 0.20% 8/04 6/10 $ (453,483) $ -
58,363 4.95% LIBOR + 0.20% 2/04 6/10 -* 133,207
55,831 4.875% LIBOR + 0.20% 4/04 6/10 (112,109) 154,214
43,010 4.755% LIBOR + 0.20% 7/04 6/10 (190,000) 163,545
56,978 4.695% LIBOR + 0.20% 9/04 6/10 (316,710) 232,978
64,418 4.565% LIBOR + 0.20% 3/05 6/10 (500,205) 316,702
110,068 3.9725% LIBOR + 0.20% - 6/10 (2,105,537) 1,090,199
- -------------- ----------- ------------------ ---------------- ---------------- ---------------------- -----------------------
$ (3,678,044) $ 2,090,845
- -------------- ----------- ------------------ ---------------- ---------------- ---------------------- -----------------------
* Agreement was terminated on the Initial Optional Termination Date.
12
6 Segment Information
Belmar Capital pursues its investment objective primarily by investing
indirectly in the Portfolio through Belvedere Company. The Portfolio is a
diversified investment company that emphasizes investments in common stocks of
domestic and foreign growth companies that are considered to be high in quality
and attractive in their long-term investment prospects. Separate from its
investment in Belvedere Company, Belmar Capital invests in real estate assets
through its subsidiary, Belmar Realty. Belmar Realty invests directly and
indirectly in Partnership Preference Units and indirectly in real property
through controlled subsidiaries, Bel Alliance Apartments, LLC (Bel Apartments)
and Bel Stamford (for the period January 14, 2004 to March 31, 2004). Management
services for the real property held by Bel Apartments are provided by an
affiliate of its minority shareholder. The management agreement provides for a
management fee and allows for reimbursement of payroll and other direct expenses
incurred by the manager in conjunction with managing properties. Belmar Realty
is currently disputing certain expenditures, allocations and reimbursements by
the property manager under the management agreement.
Belmar Capital evaluates performance of the reportable segments based on the net
increase (decrease) in net assets from operations of the respective segment,
which includes net investment income (loss), net realized gain (loss) and
unrealized appreciation (depreciation). The accounting policies of the
reportable segments are the same as those for the Fund on a consolidated basis.
No reportable segments have been aggregated. Reportable information by segment
is as follows:
Tax-Managed
For the Three Months Ended Growth Real
March 31, 2004 Portfolio* Estate Total
- --------------------------------------------------------------------------------------------------------------------
Revenue $ 3,904,629 $ 18,581,141 $ 22,485,770
Interest expense on mortgages - (6,554,619) (6,554,619)
Interest expense on Credit Facility (300,745) (935,652) (1,236,397)
Operating expenses (460,439) (5,873,117) (6,333,556)
Minority interest in net income of controlled
subsidiary - (48,115) (48,115)
- --------------------------------------------------------------------------------------------------------------------
Net investment income $ 3,143,445 $ 5,169,638 $ 8,313,083
Net realized gain 7,200,329 27,426,653 34,626,982
Change in unrealized appreciation (depreciation) 29,534,797 (36,700,163) (7,165,366)
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets from
operations of reportable segments $ 39,878,571 $ (4,103,872) $ 35,774,699
- --------------------------------------------------------------------------------------------------------------------
Tax-Managed
For the Three Months Ended Growth Real
March 31, 2003 Portfolio* Estate Total
- --------------------------------------------------------------------------------------------------------------------
Revenue $ 3,641,383 $ 21,072,718 $ 24,714,101
Interest expense on mortgages - (3,547,846) (3,547,846)
Interest expense on Credit Facility (302,038) (2,388,846) (2,690,884)
Operating expenses (270,648) (5,514,554) (5,785,202)
Minority interest in net income of controlled
subsidiary - (137,545) (137,545)
- --------------------------------------------------------------------------------------------------------------------
Net investment income $ 3,068,697 $ 9,483,927 $ 12,552,624
Net realized loss (7,241,552) (9,053,017) (16,294,569)
Change in unrealized appreciation (depreciation) (73,116,188) 21,268,241 (51,847,947)
- --------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in net assets from
operations of reportable segments $ (77,289,043) $ 21,699,151 $ (55,589,892)
- --------------------------------------------------------------------------------------------------------------------
13
Tax-Managed Real
At March 31, 2004 Growth Portfolio* Estate Total
- --------------------------------------------------------------------------------------------------------------------
Segment assets $ 1,968,554,205 $ 652,410,612 $ 2,620,964,817
Segment liabilities 86,022,415 585,463,996 671,486,411
- --------------------------------------------------------------------------------------------------------------------
Net assets of reportable segments $ 1,882,531,790 $ 66,946,616 $ 1,949,478,406
- --------------------------------------------------------------------------------------------------------------------
At December 31, 2003
- --------------------------------------------------------------------------------------------------------------------
Segment assets $ 1,966,911,184 $ 623,035,741 $ 2,589,946,925
Segment liabilities 87,378,722 549,380,252 636,758,974
- --------------------------------------------------------------------------------------------------------------------
Net assets of reportable segments $ 1,879,532,462 $ 73,655,489 $ 1,953,187,951
- --------------------------------------------------------------------------------------------------------------------
* Belmar Capital invests indirectly in Tax-Managed Growth Portfolio through
Belvedere Company.
The following tables reconcile the reported segment information to the condensed
consolidated financial statements for the periods indicated:
Three Months Three Months
Ended Ended
March 31, 2004 March 31, 2003
---------------- ----------------
Revenue:
Revenue from reportable segments $ 22,485,770 $ 24,714,101
Unallocated amounts:
Interest earned on cash not invested in the Portfolio or in subsidiaries 190,453 23,431
---------------- ----------------
Total revenue $ 22,676,223 $ 24,737,532
---------------- ----------------
Net increase (decrease) in net assets from operations:
Net increase (decrease) in net assets from operations of reportable segments $ 35,774,699 $(55,589,892)
Unallocated amounts:
Interest earned on cash not invested in the Portfolio or in subsidiaries 190,453 23,431
Unallocated amounts (1):
Distribution and servicing fees (939,591) (759,629)
Interest expense on Credit Facility (434,410) (54,916)
Audit, tax, and legal fees (54,799) (39,664)
Other operating expenses (20,740) (21,258)
---------------- ----------------
Total net increase (decrease) in net assets from operations $ 34,515,612 $(56,441,928)
---------------- ----------------
March 31, 2004 December 31, 2003
---------------- -------------------
Net assets:
Net assets of reportable segments $1,949,478,406 $1,953,187,951
Unallocated cash (2) 2,229,131 5,019,018
Short-term investments (2) 73,442,000 16,973,476
Loan payable - Credit Facility (3) (123,763,585) (54,357,683)
Other liabilities (146,836) (210,905)
---------------- -------------------
Total net assets $1,901,239,116 $1,920,611,857
---------------- -------------------
(1) Unallocated amounts represent expenses incurred that pertain to the overall
operation of Belmar Capital, and do not pertain to either operating
segment.
(2) Unallocated cash and short-term investments represent cash and cash
equivalents not currently invested in the Portfolio or real estate assets.
(3) Unallocated amount of loan payable - Credit Facility primarily represents
borrowings on hand to be used for acquiring investments. However, such
borrowings have also been used to pay selling commissions, organization
expenses and other liquidity needs of the Fund.
14
7 Subsequent Events
On May 3, 2004, Belmar Realty entered into an agreement to establish and acquire
a majority interest in two controlled subsidiaries. These controlled
subsidiaries will indirectly own certain industrial properties with an estimated
value of approximately $519,000,000 at acquisition. Belmar Realty is expected to
own an 80% interest in the controlled subsidiaries and a minority shareholder
will own the remaining interests. Based on the terms of the current agreements,
Belmar Realty expects to acquire the investments in the third quarter of 2004.
The minority shareholder of the controlled subsidiaries, or an affiliate
thereof, will manage the real property.
It is expected that the real property will be financed through first mortgage
loans secured by the properties and an assignment of certain leases and rents.
The loans are expected to be without recourse to Belmar Capital and Belmar
Realty. No financing agreement has been entered into at this time.
On May 3, 2004, Belmar Capital entered into a forward interest rate swap
agreement with Merrill Lynch Capital Services, Inc. in anticipation of its
future investment in the controlled subsidiaries for the purpose of hedging the
interest rate of substantially all of the expected fixed-rate mortgage financing
of the real property over an expected 8-year term. Under such agreement, Belmar
Capital has agreed to made periodic payments at fixed rates in exchange for
payments at floating rates. The notional amount of the contract is $279,760,000,
which approximates Belmar Capital's expected 80% interest in the anticipated
secured debt of the controlled subsidiaries. The floating interest rate to be
received by Belmar Capital is three-month LIBOR and the fixed interest rate to
be paid by Belmar Capital is 4.875%. The swap agreement entered into by Belmar
Capital is effective in June 2004 and terminates in June 2012.
15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The information in this report contains forward-looking statements within the
meaning of the federal securities laws. Forward-looking statements typically are
identified by use of terms such as "may," "will," "should," "might," "expect,"
"anticipate," "estimate," and similar words, although some forward-looking
statements are expressed differently. The actual results of Belmar Capital Fund
LLC (the Fund) could differ materially from those contained in the
forward-looking statements due to a number of factors. The Fund undertakes no
obligation to update publicly any forward-looking statements, whether as a
result of new information, future events, or otherwise, except as required by
applicable law. Factors that could affect the Fund's performance include a
decline in the U.S. stock markets or in general economic conditions, adverse
developments affecting the real estate industry, or fluctuations in interest
rates.
The following discussion should be read in conjunction with the Fund's unaudited
condensed consolidated financial statements and related notes in Item 1 above.
Results of Operations for the Quarter Ended March 31, 2004 Compared to the
Quarter Ended March 31, 2003
(a) Results of Operations.
Increases and decreases in the Fund's net asset value per share are derived from
net investment income or loss, and realized and unrealized gains and losses on
investments. The Fund's net investment income (or loss) is determined by
subtracting the Fund's total expenses from its investment income and then
deducting the minority interest in net income of the controlled subsidiaries of
Belmar Realty Corporation (Belmar Realty). The Fund's investment income includes
the net investment income allocated to the Fund from Belvedere Capital Fund
Company LLC (Belvedere Company), rental income from the properties owned by
Belmar Realty's controlled subsidiaries, partnership income allocated to the
income-producing preferred equity interests in real estate operating
partnerships (Partnership Preference Units) owned by Belmar Realty and interest
earned on the Fund's short-term investments (if any). The net investment income
of Belvedere Company allocated to the Fund includes dividends, interest and
expenses allocated to Belvedere Company by Tax-Managed Growth Portfolio (the
Portfolio) less the expenses of Belvedere Company allocated to the Fund. The
Fund's total expenses include the Fund's investment advisory and administrative
fees, distribution and servicing fees, interest expense from mortgages on
properties owned by Belmar Realty's controlled subsidiaries, interest expense on
the Fund's credit arrangements (the Credit Facility), property management fees,
property taxes, insurance, maintenance and other expenses relating to the
properties owned by Belmar Realty's controlled subsidiaries, and other
miscellaneous expenses. The Fund's realized and unrealized gains and losses are
the result of transactions in, or changes in value of, security investments held
through the Fund's indirect interest (through Belvedere Company) in the
Portfolio, real estate investments held through Belmar Realty, the Fund's
interest rate swap agreements and any other direct investments of the Fund, as
well as periodic payments made by the Fund pursuant to interest rate swap
agreements.
Realized and unrealized gains and losses on investments have the most
significant impact on the Fund's net asset value per share and result primarily
from sales of such investments and changes in their underlying value. The
investments of the Portfolio consist primarily of common stocks of domestic and
foreign growth companies that are considered to be high in quality and
attractive in their long-term investment prospects. Because the securities
holdings of the Portfolio are broadly diversified, the performance of the
Portfolio cannot be attributed to one particular stock or one particular
industry or market sector. The performance of the Portfolio and the Fund are
substantially influenced by the overall performance of the U.S. stock market, as
well as by the relative performance versus the overall market of specific stocks
and classes of stocks in which the Portfolio maintains large positions.
Performance of the Fund.1 The Fund's investment objective is to achieve
long-term, after-tax returns for Shareholders. Eaton Vance Management (Eaton
Vance), as the Fund's manager, measures the Fund's success in achieving its
objective based on the investment returns of the Fund, using the Standard &
Poor's 500 Composite Index (the S&P 500) as the Fund's primary performance
benchmark. The S&P 500 is a broad-based unmanaged index of common stocks widely
used as a measure of U.S. stock market performance. Eaton Vance's primary focus
in pursuing total return is on the Fund's common stock portfolio, which consists
of its indirect interest in the Portfolio. In measuring the performance of the
Fund's real estate investments held through Belmar Realty, Eaton Vance considers
whether, through current returns and changes in valuation, the real estate
1 Past performance is no guarantee of future results. Investment return and
principal value will fluctuate so that shares, when redeemed, may be worth
more or less than their original cost. Returns are calculated by
determining the percentage change in net asset value with all distributions
reinvested. The Portfolio's total return for the period reflects the total
return of another fund that invests in the Portfolio, adjusted for certain
fund expenses. Performance is for the stated time period only and is not
annualized; due to market volatility, the Fund's current performance may be
lower or higher. The performance of the Fund and the Portfolio is compared
to that of their benchmark, the S&P 500. It is not possible to invest
directly in an Index.
16
investments achieve returns that over the long-term exceed the cost of the
borrowing incurred to acquire such investments and thereby add to Fund returns.
The Fund has entered into interest rate swap agreements to fix the cost of its
borrowings under the Credit Facility used to acquire Belmar Realty's equity in
its real estate investments and to mitigate in part the impact of interest rate
changes on the Fund's net asset value.
The Fund's total return was 1.80% for the quarter ended March 31, 2004. This
return reflects an increase in the Fund's net asset value per share from $86.28
to $86.67 and a distribution of $1.15 per share during the period. For
comparison, the S&P 500 had a total return of 1.69% over the same period. The
performance of the Fund trailed that of the Portfolio by approximately 0.32%
during the period. Last year, the Fund's total return was -3.57% for the quarter
ended March 31, 2003 . This return reflected a decrease in the Fund's net asset
value per share from $69.87 to $65.78 and a distribution of $1.70 per share
during the period. For comparison, the S&P 500 had a total return of -3.15% over
the same period . The performance of the Fund exceeded that of the Portfolio by
approximately 1.14% during th at period.
Performance of the Portfolio. For the quarter ended March 31, 2004, the
Portfolio's total return was 2.12%, compared to -4.71% for the quarter ended
March 31, 2003. International unrest coupled with weak employment, a struggling
dollar and surging oil prices pressured domestic markets in the first quarter of
2004. Like the quarter ended March 31, 2003, volatility was high during the
first quarter of 2004. However, unlike the first quarter of 2003, major indices
experienced positive returns in 2004 as fiscal and monetary stimuli supported
robust corporate earnings and productivity growth. During the first quarter of
2004, companies on average reported better than expected sales trends, increased
dividends and initiated sizeable share buybacks reflecting a steady global
economic recovery. While large capitalization stocks outperformed smaller
capitalization stocks during the first quarter of 2003, small capitalization
stocks outperformed large-cap companies during the later months of 2003, and
continued to do so in the first quarter of 2004. In addition, during the first
quarter of 2004 higher quality stocks regained performance leadership over last
year's prevailing higher volatility stocks.
During the quarter ended March 31, 2004, the Portfolio's sector allocation
remained similar to its allocation at March 31, 2003. The Portfolio's stronger
quarterly performance relative to the S&P 500 during the first quarter of 2004
resulted from its diversified industry exposure and positive stock selection
decisions. During the quarter ended March 31, 2004, the Portfolio remained
underweight in the information technology sector, the market's weakest
performing sector. Stock selection by the Portfolio's investment adviser, Boston
Management and Research ( Boston Management ), in the computer peripherals and
electronic equipment industries was particularly beneficial to the Portfolio's
performance during the first quarter of 2004. Similar to the first quarter of
2003, valuation concerns prompted a de-emphasis of the telecommunication sector
during the first quarter of 2004. However, telecommunication services stocks
generally performed well during the first quarter of 2004. Similar to the first
quarter of 2003, the Portfolio was overweight the industrials sector. During the
first quarter of 2004, attractive valuations and positive secular business
trends helped machinery, building products and airfreight stocks of the
aforementioned sector advance higher.
In the first quarter of 2003, Boston Management began increasing the Portfolio's
exposure to the energy sector, a change from its previous underweight stance
versus the S&P 500. This allocation shift has aided performance, as oil
exploration and other energy equipment and service names benefited from rising
oil prices. Although the Portfolio's relative overweight of the financials
sector contributed to its positive return during the quarter ended March 31,
2004 , the sub-par performance of its commercial bank and capital market stocks
hindered returns during the quarter . While Boston Management remained
optimistic on the consumer, it slightly trimmed the Portfolio's relative
overweight in the consumer discretionary and staples sectors. Portfolio holdings
in leisure, retail, and personal products benefited from continued consumer
spending driven by tax refunds, strong refinancing activity and increases in
wages and salaries. The Portfolio maintained an underweight of the healthcare
sector relative to the S&P 500 during the quarter ended March 31, 2004, but
added to holdings of stronger quarterly performers such as healthcare equipment
and service companies.
Performance of Real Estate Investments. The Fund's real estate investments are
held through Belmar Realty. As of March 31, 2004, real estate investments
include a portfolio of Partnership Preference Units that are affiliated with
publicly traded real estate investment trusts (REITs), a majority interest in a
real estate joint venture (Real Estate Joint Venture), and a property subject to
a long-term triple net lease (Net Leased Property). As of March 31, 2004, the
estimated fair value of the Fund's real estate investments represented 23.8% of
the Fund's total assets. Adjusting for the minority interest of the real estate
operating company that is the principal minority investor in the Real Estate
Joint Venture as of March 31, 2004, the Fund's real estate investments
represented 30.5% of the Fund's net assets.
During the quarter ended March 31, 2004, Belmar Realty sold (or experienced
scheduled redemptions of) certain of its Partnership Preference Units totaling
approximately $213.7 million (including sales to other investment funds advised
17
by Boston Management), recognizing gains of $30.5 million on the transactions.
At March 31, 2004, the estimated fair value of Belmar Realty's Partnership
Preference Units totaled $214.1 million compared to $557.8 million at March 31,
2003, a decrease of $343.7 million or 62%. While the decrease in value was
principally due to fewer Partnership Preference Units held at March 31, 2004,
the decrease also reflects lower per unit values of the Partnership Preference
Units held at March 31, 2004 due to their lower average coupon rates. In the
current low interest rate environment, many issuers have been redeeming
Partnership Preference Units as Belmar Realty's call protections expire or
restructuring the terms of outstanding Partnership Preference Units in advance
of their call dates. As a result, many of the higher-yielding Partnership
Preference Units held by Belmar Realty during the quarter ended March 31, 2003
were no longer held at March 31, 2004. Boston Management expects this trend to
continue through 2004.
The Fund saw unrealized depreciation of the estimated fair value in its
Partnership Preference Units of approximately $27.5 million during the quarter
ended March 31, 2004 compared to approximately $14.8 million of unrealized
appreciation during the quarter ended March 31, 2003. The net unrealized
depreciation in the first quarter of 2004 consisted of approximately $1.5
million of unrealized depreciation resulting from decreases in per unit values
of the Partnership Preference Units held by Belmar Realty at March 31, 2004 (as
described above), and approximately $26.0 million of unrealized depreciation
resulting from the reclassification of previously recorded unrealized
appreciation as realized gains due to sales of Partnership Preference Units
during the quarter ended March 31, 2004. For the quarter ended March 31, 2003,
the Fund's investments in Partnership Preference Units generally benefited from
declining interest rates and tightening spreads in income-oriented securities,
particularly in real estate-related securities.
Distributions from Partnership Preference Units for the quarter ended March 31,
2004 totaled $6.4 million compared to $12.5 million for the quarter ended March
31, 2003, a decrease of $6.1 million or 49%. The decrease was principally due to
fewer Partnership Preference Units held on average, as well as to lower average
yields on Partnership Preference Units held during the quarter ended March 31,
2004.
During the quarter ended March 31, 2004, Belmar Realty acquired Bel Stamford LLC
(Bel Stamford) for approximately $16.1 million (including transaction costs).
Bel Stamford owns a Net Leased Property in Stamford, Connecticut, with 682,000
square feet of rentable space. The estimated fair value of the Net Leased
Property on March 31, 2004 was $242.8 million.
Like the quarter ended March 31, 2003, operations of Belmar Realty's Real Estate
Joint Venture were impacted by weak multifamily market fundamentals during the
quarter ended March 31, 2004. While rental income from real estate operations
increased to approximately $12.2 million for the quarter ended March 31, 2004
compared to approximately $8.6 million for the quarter ended March 31, 2003, an
increase of $3.6 million or 42%, this increase was primarily due to the
acquisition of Bel Stamford. The increase was partially offset by a decrease in
revenue from the operations of Belmar Realty's Real Estate Joint Venture. During
the quarter ended March 31, 2004, rental revenue from the Real Estate Joint
Venture was affected by reduced apartment rental rates, increased rent
concessions, and lower occupancy levels, trends that continued from 2003.
Property operating expenses for Belmar Realty's Real Estate Joint Venture were
approximately $4.4 million for the quarter ended March 31, 2004 compared to
approximately $4.3 million for the quarter ended March 31, 2003, an increase of
$0.1 million or 2% (property operating expenses are before certain operating
expenses of Belmar Realty of approximately $1.5 million for the quarter ended
March 31, 2004 and approximately $1.2 million for the quarter ended March 31,
2003). The near-term outlook for multifamily property operations continues to be
weak. While anticipated economic and employment growth is expected to lead to
improvements over the longer term, significant employment growth has not yet
occurred in most markets and low interest rates have contributed to continued
apartment move-outs due to new home purchases and increased competition for new
residents from ongoing development of new multifamily properties. As a result,
Boston Management, Belmar Realty's manager, expects that real estate operating
results in 2004 will continue to be similar to 2003's results. Under the net
lease agreement, the tenant of the Net Leased Property owned by Belmar Realty
pays all property operating expenses. As a result, Belmar Realty does not record
operating expenses for the Net Leased Property.
At March 31, 2004, the estimated fair value of the real properties held through
Belmar Realty was approximately $428.8 million compared to approximately $202.9
million at March 31, 2003, an increase of $225.9 million. The increase in
estimated real property value is principally due to the acquisition of Bel
Stamford. The increase was offset in part by lower values for the properties
held by the Real Estate Joint Venture. Despite weak market conditions, declines
in values for multifamily properties have generally been modest, as lower
near-term property earnings expectations have been offset in part by lower
capitalization rates. The Fund saw unrealized depreciation in the estimated fair
value of its other real estate investments (which includes Belmar Realty's Net
Leased Property and its majority interest in the Real Estate Joint Venture) of
18
approximately $3.4 million during the quarter ended March 31, 2004 compared to
unrealized depreciation of approximately $1.4 million during the quarter ended
March 31, 2003. During the quarter ended March 31, 2003, Belmar Realty
experienced declines in estimated property values resulting from declines in
near-term earning expectations and the economic downturn. However, declines in
asset values for multifamily properties during the quarter ended March 31, 2003
were generally modest as decreases in capitalization rates largely offset
declining income level expectations.
On May 3, 2004, Belmar Realty entered into agreements to establish Brazos
Property Trust (Brazos) and Cimmaron Property Trust (Cimmaron), form ProLogis
Six Rivers Limited Partnership (in association with subsidiaries of other
investment funds advised by Boston Management and ProLogis, a publicly-held
REIT) (Six Rivers) and merge Six Rivers with Keystone Property Trust, a
publicly-held REIT (Keystone). It is expected that the merger will be
consummated during the third quarter of 2004, subject to the satisfaction of
certain conditions precedent. Upon the ultimate consummation of the
transactions, Belmar Realty will own an 80% interest in each of Brazos and
Cimmaron and ProLogis will own a 20% interest in each of Brazos and Cimmaron.
Brazos and Cimmaron each will own a partnership interest in Six Rivers through
which it will own 100% of the economic interest in certain industrial properties
acquired through the merger of Six Rivers and Keystone and valued at
approximately $519 million at the date of acquisition. Prologis, or an affiliate
thereof, will manage the properties. It is anticipated that Keystone's existing
direct fixed-rate obligations will be retired after the merger date. It is
anticipated that first mortgage financing estimated to be 60-65% of the property
value will be obtained in connection with the acquisition and will be secured by
the properties. There can be no assurance that the conditions precedent to the
consummation of the transactions described above will be satisfied or that the
financing required to acquire the properties will be obtained.
Performance of Interest Rate Swap Agreements. For the quarter ended March 31,
2004, net realized and unrealized losses on the Fund's interest rate swap
agreements totaled approximately $8.8 million, compared to approximately $1.9
million of net realized and unrealized losses for the quarter ended March 31,
2003. Net realized and unrealized losses on swap agreements for the quarter
ended March 31, 2004 consisted of $5.8 million of unrealized depreciation due to
changes in swap agreement valuations and $3.0 million of periodic payments made
pursuant to outstanding swap agreements (and classified as net realized losses
on interest rate swap agreements). For the quarter ended March 31, 2003, the
Fund had unrealized appreciation of $7.8 million due to swap agreement valuation
changes, offset by $9.7 million of swap agreement periodic payments. The
negative impact on Fund performance for the quarter ended March 31, 2004 from
changes in swap agreement valuations was attributable to a decline in swap rates
during the period. The positive contribution to Fund performance from changes in
swap valuations for the quarter ended March 31, 2003 was due primarily to the
Fund's swap agreements approaching optional termination dates, as relevant swap
rates were substantially unchanged.
(b) Liquidity and Capital Resources.
Outstanding Borrowings. The Fund has entered into credit arrangements with DrKW
Holdings, Inc. and Merrill Lynch Mortgage Capital, Inc. (collectively, the
Credit Facility) primarily to finance the Fund's equity in its real estate
investments and will continue to use the Credit Facility for such purpose in the
future. The Credit Facility may also be used for other purposes, including any
short-term liquidity needs of the Fund. In the future, the Fund may increase the
size of the Credit Facility (subject to lender consent) and the amount of
outstanding borrowings thereunder. As of March 31, 2004, the Fund had
outstanding borrowings of $385.0 million and unused loan commitments of $118.5
million under the Credit Facility. During the quarter ended March 31, 2004, the
Fund repaid $128.0 million of outstanding borrowings as a result of a reduction
in its equity investments in real estate.
On May 3, 2004, Belmar Realty entered an agreement to establish and acquire
majority interests in two Real Estate Joint Ventures, Brazos and Cimmaron.
Belmar Realty's acquisition of its interests in Brazos and Cimmaron is expected
to occur in the third quarter of 2004. Brazos and Cimmaron are expected to
indirectly own industrial properties with a value of approximately $519 million
at acquisition. Belcrest Realty will own 80% of the interests in each of Brazos
and Cimmaron. The amount of Belmar Realty's net investment in each of Brazos and
Cimmaron will depend in part on the terms of the anticipated mortgage financing
to be obtained for the real estate assets, closing costs and other
consideration. The Fund plans to increase its borrowings under the existing
Credit Facility to fund its equity in each of Brazos and Cimmaron and has begun
discussions with the DrKW Holdings, Inc. and Merrill Lynch Mortgage Capital,
Inc. in anticipation of its investment in each of Brazos and Cimmaron.
The Fund has entered into interest rate swap agreements with respect to its real
estate investments and associated borrowings. Pursuant to these agreements, the
Fund makes periodic payments to the counterparty at predetermined fixed rates,
in exchange for floating-rate payments at a predetermined spread plus one-month
LIBOR. During the terms of the outstanding interest rate swap agreements,
19
changes in the underlying values of the agreements are recorded as unrealized
appreciation or depreciation. As of March 31, 2004, the unrealized depreciation
related to the interest rate swap agreements was approximately $3.7 million. As
of March 31, 2003, the unrealized depreciation related to the interest rate swap
agreements was approximately $39.2 million.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk. The Fund's primary exposure to interest rate risk arises
from its real estate investments that are financed by the Fund with floating
rate borrowings under the Fund's Credit Facility and by fixed-rate secured
mortgage debt obligations of the Real Estate Joint Venture and Net Leased
Property. Partnership Preference Units are fixed rate instruments whose values
will generally decrease when interest rates rise and increase when interest
rates fall. The interest rates on borrowings under the Fund's Credit Facility
are reset at regular intervals based on one-month LIBOR. The Fund has entered
into interest rate swap agreements to fix the cost of its borrowings under the
Credit Facility used to acquire Belmar Realty's equity in its real estate
investments and to mitigate in part the impact of interest rate changes on the
Fund's net asset value. Under the terms of the interest rate swap agreements,
the Fund makes cash payments at fixed rates in exchange for floating rate
payments that fluctuate with one-month LIBOR. The Fund's interest rate swap
agreements will generally increase in value when interest rates rise and
decrease in value when interest rates fall. In the future, the Fund may use
other interest rate hedging arrangements (such as caps, floors and collars) to
fix or limit borrowing costs. The use of interest rate hedging arrangements is a
specialized activity that can expose the Fund to significant loss.
The following table summarizes the contractual maturities and weighted-average
interest rates associated with the Fund's significant non-trading financial
instruments. The Fund has no market risk sensitive instruments held for trading
purposes. This information should be read in conjunction with Note 5 to the
Fund's unaudited condensed consolidated financial statements in Item 1 above.
Interest Rate Sensitivity
Cost, Principal (Notional) Amount
by Contractual Maturity and Callable Date
for the Twelve Months Ended March 31,*
Estimated
2005 2006-2008 2009 Thereafter Total Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
Rate sensitive liabilities:
- ----------------------------------
Long-term debt:
- ----------------------------------
Fixed-rate mortgages $389,748,179 $389,748,179 $422,700,000
Average interest rate 7.03% 7.03%
- ----------------------------------
Variable-rate Credit Facility $385,000,000 $385,000,000 $385,000,000
Average interest rate 1.29% 1.29%
- -----------------------------------------------------------------------------------------------------------------------------------
Rate sensitive derivative financial
instruments:
- ----------------------------------
Pay fixed / receive variable
interest rate swap agreements $388,668,000 $388,668,000 $ (3,678,044)
Average pay rate 4.53% 4.53%
Average receive rate 1.29% 1.29%
- -----------------------------------------------------------------------------------------------------------------------------------
Rate sensitive investments:
- ----------------------------------
Fixed-rate Partnership Preference
Units:
- ----------------------------------
20
Estimated
2005 2006-2008 2009 Thereafter Total Fair Value
- -----------------------------------------------------------------------------------------------------------------------------------
Cabot Industrial Properties,
L.P., 8.625% Series B Cumulative
Redeemable Preferred Units,
Callable 4/29/04, Current Yield:
8.30% $20,147,160 $ 20,147,160 $ 24,945,600
Camden Operating, L.P., 7%
Series B Cumulative Redeemable
Perpetual Preferred Units,
Callable 12/2/08, Current Yield:
7.11% $18,577,900 $ 18,577,900 $ 22,167,000
Essex Portfolio, L.P., 7.875%
Series B Cumulative Redeemable
Preferred Units, Callable
12/31/09, Current Yield: 7.58% $ 11,997,050 $ 11,997,050 $ 16,881,182
Essex Portfolio, L.P., 9.30%
Series D Cumulative Redeemable
Preferred Units, Callable
7/28/10, Current Yield: 8.90% $ 25,465,575 $ 25,465,575 $ 31,332,720
MHC Operating Limited
Partnership, 9% Series D
Cumulative Redeemable Perpetual
Preference Units, Callable
9/29/04, Current Yield: 8.86% $20,544,240 $ 20,544,240 $ 20,320,000
PSA Institutional Partners,
L.P., 6.40% Series NN Cumulative
Redeemable Perpetual Preferred
Units, Callable
3/17/10, Current Yield: 6.90% $ 38,687,415 $ 38,687,415 $ 36,044,900
Price Development Company, L.P.,
8.95% Series B Cumulative
Redeemable Preferred Partnership
Units, Callable
7/28/04, Current Yield: 8.86% $20,085,760 $ 20,085,760 $ 20,200,000
Sun Communities Operating L.P.,
8.875% Series A Cumulative
Redeemable Perpetual Preferred
Units, Callable 9/29/04, Current
Yield: 8.71% $26,227,200 $ 26,227,200 $ 30,552,000
Vornado Realty, L.P., 7% Series
D-10 Cumulative Redeemable
Preferred Units, Callable
11/17/08, Current Yield:
7.04%(1) $11,457,262 $ 11,457,262 $ 11,627,600
* The investments listed reflect holdings as of March 31, 2004. The Fund's
current holdings may differ.
(1) Belmar Realty's interest in these Partnership Preference Units is held
through Bel Holdings LLC.
Item 4. Controls and Procedures.
Eaton Vance, as the Fund's manager, conducted an evaluation of the effectiveness
of the Fund's disclosure controls and procedures (as defined by Rule 13a-15(e)
of the 1934 Act) as of the end of the period covered by this report, with the
participation of the Fund's Chief Executive Officer and Chief Financial Officer.
Based on that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that the Fund's disclosure controls and procedures were
effective. There were no changes in the Fund's internal control over financial
reporting that occurred during the quarter ended March 31, 2004 that have
materially affected, or are reasonably likely to materially affect, the Fund's
internal control over financial reporting.
As the Fund's manager, the complete and entire management, control and operation
of the Fund are vested in Eaton Vance. The Fund's Chief Executive Officer and
Chief Financial Officer intend to report to the Board of Directors of Eaton
Vance, Inc. (the sole trustee of Eaton Vance) any significant deficiency in the
21
design or operation of internal control over financial reporting which could
adversely affect the Fund's ability to record, process, summarize and report
financial data, and any fraud, whether or not material, that involves management
or other employees who have a significant role in the Fund's internal control
over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Although in the ordinary course of business, the Fund, Belmar Realty and Belmar
Realty's controlled subsidiaries may become involved in legal proceedings, the
Fund is not aware of any material pending legal proceedings to which any of them
is subject.
Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of Equity
Securities.
As described in the Fund's Annual Report on Form 10-K for the year ended
December 31, 2003, shares of the Fund may be redeemed by Shareholders on any
business day. Redemptions are met at the net asset value per share of the Fund.
The right to redeem is available to all Shareholders and all outstanding Fund
shares are eligible (except for shares subject to an estate freeze election as
described in Item 5 of the Fund's Report on Form 10-K for the fiscal year ending
December 31, 2003). During each month in the quarter ended March 31, 2004, the
total number of shares redeemed and the average price paid per share were as
follows:
Total No. of Shares Average Price Paid Per
Month Ended Redeemed(1) Share
- -------------------------------------------------------------------------
January 31, 2004 220,402.93 $86.50
- -------------------------------------------------------------------------
February 29, 2004 37,086.161 $87.78
- -------------------------------------------------------------------------
March 31, 2004 184,872.853 $85.14
- -------------------------------------------------------------------------
Total 442,361.944 $85.89
- -------------------------------------------------------------------------
(1) All shares redeemed during the periods were redeemed at the option of
Shareholders pursuant to the Fund's redemption policy. The Fund has not
announced any plans or programs to repurchase shares other than at the
option of Shareholders.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
No matters were submitted to a vote of security holders during the three months
ended March 31, 2004.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports On Form 8-K:
(a) The following is a list of all exhibits filed as part of this Form 10-Q:
31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K:
None.
22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized officer on May 10, 2004.
BELMAR CAPITAL FUND LLC
/s/ Michelle A. Alexander
-------------------------
Michelle A. Alexander
Chief Financial Officer
(Duly Authorized Officer and
Principal Financial Officer)
23
EXHIBIT INDEX
-------------
31.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002
24