SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Nevada 94-6565852
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1800 Valley View Lane, Suite 300, Dallas, Texas 75234
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(Address of Principal Executive Office) (Zip Code)
(469) 522-4200
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(Registrant's Telephone Number,
Including Area Code)
10670 North Central Expressway, Suite 300, Dallas, Texas 75231
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(Former Name, Former Address and Former Fiscal Year, If Changed from Last
Report)
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date.
Common Stock, $.01 par value 8,636,373
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(Class) (Outstanding at October 27, 2000)
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PART I. FINANCIAL INFORMATION
The accompanying Consolidated Financial Statements have not been audited by independent certified public accountants, but in the opinion of the management of Transcontinental Realty Investors, Inc. ("TCI"), all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of TCI's consolidated financial position, consolidated results of operations and consolidated cash flows at the dates and for the periods indicated, have been included.
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2000 1999
------------- ------------
(dollars in thousands,
except per share)
Assets
------
Notes and interest receivable
Performing (including $5,837 from affiliates
in 2000) ....................................... $ 9,098 $ 11,691
Nonperforming ..................................... -- 382
-------- --------
9,098 12,073
Less - allowance for estimated losses ................ (537) (543)
-------- --------
8,561 11,530
Foreclosed real estate held for sale ................. 1,790 1,790
Real estate held for investment, net of
accumulated depreciation ($93,168 in 2000 and
$84,986 in 1999) .................................. 650,755 599,746
Investment in real estate entities ................... 4,878 2,310
Investment in marketable equity securities of
affiliate, at market .............................. 12,699 13,954
Cash and cash equivalents ............................ 16,999 41,266
Other assets (including $10,347 in 2000 and
$14,945 from affiliates in 1999) .................. 40,390 43,599
-------- --------
$736,072 $714,195
======== ========
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The accompanying notes are an integral part of these Consolidated Financial Statements.
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS - Continued
September 30, December 31,
2000 1999
------------- ------------
(dollars in thousands,
except per share)
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
Notes and interest payable ............................... $516,460 $503,406
Other liabilities (including $1,133 in 2000
and $2,356 in 1999 to affiliates) ..................... 29,327 31,677
-------- --------
545,787 535,083
Stockholders' equity
Preferred Stock
Series A; $.01 par value; authorized, 6,000
shares; issued and outstanding 5,829 shares in
2000 and 1999 (liquidation preference $583).......... -- --
Common Stock, $.01 par value, authorized,
10,000,000 shares; issued and outstanding,
8,633,696 shares in 2000 and 8,626,611 in 1999 ........ 86 86
Paid-in capital .......................................... 278,209 278,119
Accumulated distributions in excess of
accumulated earnings.................................... (87,472) (99,811)
Unrealized gain/(loss) on marketable equity
securities.............................................. (538) 718
-------- --------
190,285 179,112
-------- --------
$736,072 $714,195
======== ========
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The accompanying notes are an integral part of these Consolidated Financial Statements.
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------------- --------------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(dollars in thousands, except per share)
Property revenue
Rents................................................ $ 35,121 $ 18,445 $ 103,722 $ 57,628
Property expense
Property operations.................................. 19,872 9,676 56,589 30,154
---------- ---------- ---------- ----------
Operating income................................ 15,249 8,769 47,133 27,474
Other income
Interest and other................................... 936 174 1,928 297
Equity in income/(loss) of equity investees.......... (185) 1,631 (477) 2,135
Gain on sale of real estate.......................... 11,755 5,850 29,562 16,001
---------- ---------- ---------- ----------
12,506 7,655 31,013 18,433
Other expense
Interest............................................. 12,232 6,289 35,338 18,722
Depreciation......................................... 5,387 2,891 14,839 8,737
Advisory fee to affiliates........................... 1,353 765 3,915 2,220
Net income fee to affiliate.......................... 567 396 1,319 1,055
General and administrative........................... 1,325 962 5,713 2,165
---------- ---------- ---------- ----------
20,864 11,303 61,124 32,899
Net income.............................................. 6,891 5,121 17,022 13,008
Preferred dividend requirement.......................... (7) (9) (22) (23)
---------- ---------- ---------- ----------
Net income applicable to Common shares.................. $ 6,884 $ 5,112 $ 17,000 $ 12,985
========== ========== ========== ==========
Earnings per share
Net income applicable to Common shares.................. $ .80 $ 1.32 $ 1.97 $ 3.35
========== ========== ========== ==========
Weighted average Common shares used
in computing earnings per share...................... 8,633,211 3,880,617 8,630,029 3,879,954
========== ========== ========== ==========
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The accompanying notes are an integral part of these Consolidated Financial Statements.
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Accumulated
Common Stock Distributions Accumulated
-------------------------
in Excess of Other
Paid-in Accumulated Comprehensive Stockholders'
Shares Amount Capital Earnings Income Equity
---------- ---------- ---------- ------------ ------------- ------------
(dollars in thousands, except per share)
Balance, January 1, 2000... 8,626,611 $ 86 $ 278,119 $ (99,811) $ 718 $ 179,112
Comprehensive income
Unrealized loss on
marketable equity
securities of
affiliate............. -- -- -- -- (1,256) (1,256)
Net income.............. -- -- -- 17,022 -- 17,022
------------
15,766
Sale of Common Stock under
dividend reinvestment
plan.................... 8,014 -- 90 -- -- 90
Fractional shares.......... (929) -- -- -- -- --
Common dividends ($.54 per
share).................. -- -- -- (4,661) -- (4,661)
Preferred dividends ($3.75
per share).............. -- -- -- (22) -- (22)
---------- ---------- ---------- ------------ ------------- ------------
Balance, September 30,
2000.................... 8,633,696 $ 86 $ 278,209 $ (87,472) $ (538) $ 190,285
========== ========== =========== ============ ============= ============
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The accompanying notes are an integral part of these Consolidated Financial Statements.
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months
Ended September 30,
----------------------------------
2000 1999
----------- -----------
(dollars in thousands)
Cash Flows from Operating Activities
Rents collected................................................ $ 102,445 $ 56,724
Interest collected............................................. 594 289
Interest paid.................................................. (33,798) (28,686)
Advisory and net income fee paid to affiliate.................. (5,741) (2,128)
General and administrative expenses paid....................... (6,486) (2,257)
Distributions from operating cash flow of equity investees..... 236 376
Other.......................................................... 1,917 (698)
----------- -----------
Net cash provided by operating activities................ 1,086 5,660
Cash Flows from Investing Activities
Acquisition of real estate..................................... (30,531) (40,443)
Real estate improvements....................................... (9,986) (15,360)
Proceeds from sale of real estate.............................. 33,528 44,266
Refunds of deposits on pending purchases and financings........ 1,840 1,772
Deferred merger costs.......................................... -- (257)
Collections on notes receivable ($6.5 million from............. 15,017 33
affiliates in 2000)
Funding of notes receivable to affiliate....................... (12,000) --
Distributions of equity investees' investing cash flow, net.... 1,296 3,556
Contributions to equity investees.............................. -- (9)
----------- -----------
Net cash (used in) investing activities.................. (836) (6,442)
Cash Flows from Financing Activities
Payments on notes payable...................................... (89,156) (43,111)
Proceeds from notes payable.................................... 67,981 62,070
Deferred borrowing costs....................................... (914) (1,028)
Payments (to)/from advisor..................................... 5,465 (9,655)
Advance to affiliate........................................... (3,300) --
Dividends to stockholders...................................... (4,683) (1,780)
Sale of Common Stock under dividend reinvestment plan.......... 90 35
----------- -----------
Net cash (used in) provided by financing activities...... (24,517) 6,531
Net (decrease) increase in cash and cash equivalents.............. (24,267) 5,749
Cash and cash equivalents, beginning of period.................... 41,266 10,505
----------- -----------
Cash and cash equivalents, end of period.......................... $ 16,999 $ 16,254
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The accompanying notes are an integral part of these Consolidated Financial Statements.
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
For the Nine Months
Ended September 30,
-------------------------------
2000 1999
----------- -----------
(dollars in thousands)
Reconciliation of net income to net cash provided by
operating activities
Net income........................................................................... $ 17,022 $ 13,008
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization..................................................... 14,839 9,454
Gain on sale of real estate....................................................... (29,562) (16,001)
Equity in (income)/loss of equity investees....................................... 477 (2,135)
Distributions from operating cash flow of equity investees........................ 236 376
(Increase) in interest receivable................................................. (403) (8)
(Increase) decrease in other assets............................................... 1,311 (4,019)
Increase (decrease) in interest payable........................................... (482) 45
Increase (decrease) in other liabilities.......................................... (2,352) 4,940
----------- ----------
Net cash provided by operating activities...................................... $ 1,086 $ 5,660
=========== ==========
Schedule of noncash investing and financing activities
Notes payable assumed on purchase of real estate..................................... $ 50,294 $ 7,348
Notes payable assumed by buyer on sale of real estate................................ (16,798) --
Unrealized loss on marketable equity securities of affiliate......................... (1,256) --
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The accompanying notes are an integral part of these Consolidated Financial Statements.
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TCI is a Nevada corporation and successor to a California business trust which was organized on September 6, 1983. TCI invests in real estate through direct ownership, leases and partnerships. TCI has also invested in mortgage loans on real estate.
TCI elected to be treated as a Real Estate Investment Trust ("REIT") under sections 856 through 860 of the Internal Revenue Code ("Code") of 1986, as amended for the year ended December 31, 1984 through December 31, 1999. Performing routine third quarter testing of the Code requirements to qualify as a REIT for federal income tax purposes, TCI determined that it no longer met those requirements. Based on publicly disclosed information, acquisitions of the stock in June, July and August 2000 by entities not previously holding TCI shares caused a concentration of ownership in excess of that permitted by the Code. The Code prohibits five or fewer shareholders of owning more than 50 percent of an entity for it to continue to qualify as a REIT. Under the Code, TCI also cannot re-qualify as a REIT for at least five years.
The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Dollar amounts in tables are in thousands, except per share amounts. Certain balances for 1999 have been reclassified to conform to the 2000 presentation.
Operating results for the nine month period ended September 30, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the Consolidated Financial Statements and notes included in TCI's Annual Report on Form 10-K for the year ended December 31, 1999 (the "1999 Form 10-K").
On September 25, 1998, TCI and Continental Mortgage and Equity Trust ("CMET") jointly announced the agreement of their respective Boards of Directors for TCI to acquire CMET through merger. At special meetings held on September 28, 1999, the stockholders of both companies approved the merger transaction. The merger was completed on November 30, 1999. Pursuant to the merger agreement, TCI acquired all of the outstanding CMET shares of beneficial interest in a tax free exchange of shares, issuing 1.181 shares of its Common Stock for each outstanding CMET share. TCI accounted for the merger as a purchase.
The consolidation of TCI's accounts with those of CMET resulted in an increase in TCI's net real estate of $258.8 million. This amount was allocated to the individual real estate assets based on their relative individual fair market values.
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Pro forma operating results for the first three quarters of 1999, as if TCI had acquired CMET on January 1, 1999, would have been:
Revenues................................................ $ 108,005
Property operating expenses............................. (59,003)
Interest................................................ (34,554)
Depreciation............................................ (14,810)
Advisory fee............................................ (4,046)
Net income fee.......................................... (1,233)
General and administrative expenses..................... (4,058)
---------
(Loss) from operations.................................. (9,699)
Equity in income of investees........................... 2,299
Gain on sale of real estate............................. 22,601
---------
Net income.............................................. $ 15,201
=========
NOTE 3. REAL ESTATE
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In 2000, TCI purchased the following properties:
Net
Units/ Purchase Cash Debt Interest Maturity
Property Location Acres/Sq.Ft. Price Paid Incurred Rate Date
---------- ---------- ------------ -------- ------ -------- ------ -----
First Quarter
Apartments
Quail Creek Lawrence, KS 95 Units $ 3,250 $ 1,088 $ 2,254 7.44% 07/03
Apple Lane Lawrence, KS 75 Units 1,575 595 1,005 8.63 05/07
Land
Netzer Collin County, TX 20 Acres 400 418 -- -- --
Lamar/Parmer Austin, TX 17.07 Acres 1,500 517 1,030 10.00 12/00
Manhattan Farmers Branch, TX 108.9 Acres 10,743 6,144 5,000 14.00 02/01
DF Fund Collin County, TX 79.5 Acres 2,545 1,047 1,545 10.00 03/01
Second Quarter
Apartments
Autumn Chase Midland, TX 64 Units 1,338 458 936 9.45 * 04/05
Primrose Bakersfield, CA 162 Units 4,100 1,189 3,000 9.25 * 03/07
Paramount Terrace Amarillo, TX 181 Units 3,250 561 2,865 9.38 09/01
Office Building
9033 Wilshire Blvd. Los Angeles, CA 44,253 Sq.Ft. 9,225 2,536 6,861 8.07 08/09
Bay Plaza II Tampa, FL 78,882 Sq.Ft. 4,825 4,786 -- -- --
Land
Limestone Canyon II Austin, TX 9.96 Acres 504 424 -- -- --
Third Quarter
Office Center and
Retail
Countryside
Portfolio** Sterling, VA 265,718 Sq.Ft. 44,940 4,825 36,297 7.75 12/02
Fourth Quarter
Land
Folsom Dallas, TX 36.38 Acres 1,750 1,738 -- -- --
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TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
* Variable interest rate. ** Countryside Portfolio consists of four commercial buildings: the 133,422 sq. ft. Countryside Retail Center, the 72,062 sq. ft. Harmon Office Building, the 35,127 sq. ft. Mimado Office Building and the 25,107 sq. ft. Ambulatory Surgical Center.
In 2000, TCI sold the following properties:
Net
Units/ Sales Cash Debt Gain on
Property Location Rooms/Sq.Ft. Price Received Discharged Sale
---------- ---------- ------------- ------- ---------- ---------- -------
First Quarter
Apartments
Hunters Bend San Antonio, TX 96 Units $ 1,683 $ 418 $ 1,127 * $ 572
Westgate of Laurel Laurel, MD 218 Units 11,290 2,599 7,525 * 3,575
Second Quarter
Apartments
Apple Creek Dallas, TX 216 Units 4,300 2,155 1,723 3,240
Villas at Fairpark Los Angeles, CA 49 Units 3,435 792 2,386 1,188
Hotel
Chateau Charles Lake Charles, LA 245 Rooms 1,000 928 -- 633
Third Quarter
Apartments
Villas at Countryside Sterling, VA 102 Units $ 8,100 $ 2,686 5,334 * $ 1,520
Eagle Rock Los Angeles, CA 99 Units 5,600 1,967 3,246 1,021
Woodbridge Denver, CO 194 Units 6,856 3,328 2,845 3,796
Ashley Crest Houston, TX 168 Units 3,950 1,102 2,812 * 706
Office Building/
Warehouse
Brookfield Corporate
Center Chantilly, VA 63,504 Sq.Ft. 4,850 1,729 2,838 1,369
Shady Trail Dallas, TX 42,900 Sq.Ft. 900 340 521 206
Land
McKinney ** McKinney, TX 255 Acres 8,783 5,035 4,423 2,091
Allen *** Allen, TX 5.49 Acres 370 86 281 184
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In June 2000, a $3.0 million loan was funded to Basic Capital Management, Inc. ("BCM"), TCI's advisor. The loan was secured by 108,802 shares of common stock of Income Opportunity Realty Investors,
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Inc. ("IORI"). IORI is also advised by BCM. The loan bore interest at 15.0% per annum and matured in October 2000. All principal and interest were due at maturity. The loan and all accrued but unpaid interest was paid off in August 2000.
In June 2000, a $9.0 million loan was funded to American Realty Trust, Inc. ("ART"), an affiliate of BCM. The loan was secured by 409,934 shares of IORI. The loan bore interest at 15.0% per annum and matured in October 2000. All principal and interest were due at maturity. The loan and all accrued but unpaid interest was paid off in October 2000.
At December 31, 1999, mortgage notes receivable with a combined principal
balance of $4.6 million and a carrying value of $356,000, secured by first and
second liens on a closed hotel in Lake Charles, Louisiana were in default. Title
to the collateral property was obtained in February 2000 through foreclosure. No
loss was incurred on foreclosure as the estimated fair value of the property,
less estimated costs of sale, exceeded the carrying value of the mortgage notes
receivable. The property was sold in June 2000, for a gain of $633,000.
See NOTE 3. "REAL ESTATE."
In December 1999, TCI provided $8.5 million of purchase money financing in conjunction with the sale of 253 acres of unimproved land in McKinney and Collin County, Texas. The note receivable bore interest at 8.5% per annum, required a $1.0 million principal paydown in February 2000, required payment of all accrued interest in June 2000, and required the payment of all principal and remaining accrued interest at maturity in September 2000. The loan was repaid in accordance with its terms. In conjunction with the loan payoff, TCI recognized a previously deferred gain on the sale of $4.8 million.
TCI owns a 63.7% general partner interest in Tri-City Limited Partnership ("Tri- City"), which owns the 70,275 sq.ft. Chelsea Square Shopping Center in Houston, Texas. In February 2000, Tri-City obtained mortgage financing of $2.1 million secured by the previously unencumbered shopping center. Tri-City received net cash of $2.0 million after the funding of required escrows and the payment of various closing costs. The mortgage bears interest at a fixed rate of 10.24% per annum until February 2001 and thereafter at a variable rate, requires monthly payments of principal and interest of $20,601 and matures in February 2005. TCI received a distribution of $1.3 million of the net financing proceeds.
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In 2000, TCI financed/refinanced the following properties:
Net
Debt Debt Cash Interest Maturity
Property Location Units/Sq.Ft. Incurred Discharged Received Rate Date
-------- -------- -------------- -------- ---------- -------- -------- --------
First Quarter
Apartments
Crescent Place Houston, TX 120 Units $ 2,165 $ 1,722 $ 370 7.04%* 03/30
Madison @ Bear Creek Houston, TX 180 Units 3,500 2,625 730 7.04 * 03/30
Office Buildings
Westgrove Air Plaza Addison, TX 78,326 Sq.Ft. 2,087 1,180 742 9.02 * 01/05
Venture Center Atlanta, GA 38,772 Sq.Ft. 2,700 1,113 1,592 8.75 03/10
Second Quarter
Apartments
Country Crossing Tampa, FL 227 Units 3,825 2,645 985 9.65 * 06/03
Fontenelle Hills ** Bellevue, NE 338 Units 2,010 -- 1,967 8.51 06/10
Office Building
Technology Trading Sterling, VA 197,659 Sq.Ft. 6,300 3,881 2,065 8.26 * 05/05
Warehouses
5360 Tulane Atlanta, GA 67,850 Sq.Ft. 375 208 134 9.65 * 04/03
Space Center San Antonio, TX 101,500 Sq.Ft. 1,125 691 402 9.65 * 04/03
Third Quarter
Office Building
Jefferson Washington, DC 71,876 Sq.Ft. 9,875 8,955 557 9.50 07/25
Fourth Quarter
Warehouses
Kelly Dallas, TX 330,406 Sq.Ft. 5,000 2,173 2,628 9.50 * 10/03
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Revenue, fees and cost reimbursements to BCM and its affiliates for the nine months ended:
September 30,
2000
-------------
Fees
Advisory................................................... $ 3,915
Net income................................................. 1,319
Property acquisition....................................... 1,800
Real estate brokerage...................................... 1,790
Mortgage brokerage and equity refinancing.................. 339
Property and construction management and
leasing commissions*.................................. 2,896
---------
$ 12,059
=========
Cost reimbursements.......................................... $ 1,595
=========
Hotel lease revenue.......................................... $ 1,652
=========
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TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
* Net of property management fees paid to subcontractors, other than Regis Realty, Inc., which is owned by an affiliate of BCM.
Significant differences among the accounting policies of the operating segments as compared to the Consolidated Financial Statements principally involve the calculation and allocation of administrative expenses. Management evaluates the performance of each of the operating segments and allocates resources to them based on their net operating income and cash flow. Items of income that are not reflected in the segments are interest, equity in partnerships and gains on sales of real estate totaling $31.0 million and $18.4 million for the nine months ended September 30, 2000 and 1999, respectively. Expenses that are not reflected in the segments are general and administrative expenses, and advisory and net income fees totaling $10.9 million and $5.4 million for the nine months ended September 30, 2000 and 1999, respectively. Also excluded from segment assets are assets of $83.5 million at September 30, 2000, and $49.0 million at September 30, 1999, which are not identifiable with an operating segment. There are no intersegment revenues and expenses and all business is conducted in the United States.
Presented below is the operating income of each operating segment for the nine months ended September 30, and each segment's assets at September 30.
Commercial
Land Properties Apartments Hotels Total
-------- ---------- ---------- -------- ---------
2000
Rents......................... $ 532 $ 44,401 $ 57,137 $ 1,652 $ 103,722
Property operating expenses... 468 22,620 33,356 145 56,589
-------- ---------- ---------- -------- ---------
Segment operating income...... $ 64 $ 21,781 $ 23,781 $ 1,507 $ 47,133
======== ========== ========== ======== =========
Depreciation.................. $ -- $ 7,869 $ 6,226 $ 744 $ 14,839
Interest...................... 2,812 15,343 16,012 1,171 35,338
Real estate improvements...... 84 7,768 1,270 864 9,986
Assets........................ 57,879 329,676 245,486 19,504 652,545
Property Sales
Commercial
Land Properties Apartments Hotels Total
-------- ---------- ---------- -------- ---------
Sales price................... $ 9,155 $ 5,750 $ 45,214 $ 1,000 $ 61,119
Cost of sales................. (6,880) (4,089) (29,596) (367) (40,932)
-------- --------- --------- -------- ---------
Gain on sale.................. $ 2,275 $ 1,661 $ 15,618 $ 633 $ 20,187*
======== ========= ========= ======== =========
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* Excludes a $4.8 million gain previously deferred on the sale of land and TCI's share of gains recognized by an equity affiliate of $4.6 million.
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Commercial
Land Properties Apartments Hotels Total
-------- ---------- ---------- -------- ----------
1999
Rents......................... $ 656 $ 23,472 $ 29,188 $ 4,312 $ 57,628
Property operating expenses... 543 9,501 17,553 2,557 30,154
-------- ---------- ---------- -------- ----------
Operating income.............. $ 113 $ 13,971 $ 11,635 $ 1,755 $ 27,474
======== ========== ========== ======== ==========
Depreciation.................. $ -- $ 4,603 $ 3,631 $ 503 $ 8,737
Interest on debt.............. 1,196 7,862 8,579 1,085 18,722
Real estate improvements...... -- 3,988 9,801 1,571 15,360
Assets........................ 30,705 161,767 164,065 18,944 375,481
Property Sales
Commercial
Land Properties Apartments Total
-------- ---------- ---------- ----------
Sales price................... $ 1,800 $ 34,400 $ 6,700 $ 42,900
Cost of sales................. 1,125 20,942 4,832 26,899
-------- ---------- ---------- ----------
Gain on sale.................. $ 675 $ 13,458 $ 1,868 $ 16,001
======== ========== ========== ==========
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TCI is involved in various lawsuits arising in the ordinary course of business. Management is of the opinion that the outcome of these lawsuits will have no material impact on TCI's financial condition, results of operations or liquidity.
On September 25, 1998, TCI and CMET jointly announced the agreement of their respective Boards of Directors for TCI to acquire CMET through merger. At special meetings held on September 28, 1999, the stockholders of both companies approved the merger transactions. The merger was completed on November 30, 1999. Pursuant to the merger agreement, TCI acquired all of the outstanding CMET shares of beneficial interest in a tax-free exchange of shares, issuing 1.181 shares of its Common Stock for each outstanding CMET share. TCI accounted for the merger as a purchase. See NOTE 2. "ACQUISITION OF CONTINENTAL MORTGAGE AND EQUITY TRUST."
Cash and cash equivalents totaled $17.0 million at September 30, 2000, compared with $41.3 million at December 31, 1999. TCI's principal sources of cash have been and will continue to be from property operations, proceeds from property sales, the collection of mortgage notes receivable and borrowings. Management anticipates that TCI's cash on hand, as well as cash generated from property operations, the sale of properties and the refinancing of certain of TCI's mortgage debt will be sufficient to meet all of TCI's cash requirements, including debt service obligations and expenditures for property maintenance and improvements.
Net cash from operating activities decreased to $1.1 million for the nine months ended September 30, 2000, from $5.7 million in the nine months ended September 30, 1999. The primary factors affecting TCI's cash from operations are discussed in the following paragraphs.
Cash from property operations (rents collected less payments for expenses applicable to rental income) increased to $44.4 million in the nine months ended September 30, 2000, from $28.0 million in 1999. Of this increase, $2.9 million was due to the purchase of 16 income producing properties during 1999 and 2000 and $20.5 million was due to the properties obtained in the merger with CMET, and $969,000 was due to the completion of construction projects. These increases were partially offset by a decrease of $5.0 million due to the sale of 18 income producing properties during 1999 and the first nine months of 2000.
Interest income increased to $594,000 in the nine months ended September 30, 2000, from $289,000 in 1999. The increase is due to loans of $9.0 million to ART and $3.0 million to BCM funded in June 2000. See NOTE 4. "NOTES AND INTEREST RECEIVABLE."
Interest paid increased to $33.8 million in the nine months ended September 30, 2000, from $18.0 million in 1999. Of this increase, $13.3 million was due to the properties obtained in the merger with CMET, $3.0 million was due to the acquisition of 17 properties subject to debt during 1999 and 2000 and $1.4 million was due to refinancings of properties where the debt balance was increased. These increases were partially offset by a decrease of $2.6 million due to the sale of 15 properties subject to debt during 1999 and the first nine months of 2000.
Advisory and net income fees paid increased to $5.7 million in the nine months ended September 30, 2000, from $2.1 million in the nine months ended September 30, 1999. The increase was primarily due to the increase in TCI's assets due to the merger with CMET, and not being entitled to a refund of any of its 1999 advisory fee. In the first quarter of 1999, TCI had received a $458,000 refund of advisory fees for 1998. Under its advisory agreement, all or a portion of the annual advisory fee must be refunded by the advisor if the operating expenses of TCI exceed certain limits specified in the advisory agreement.
General and administrative expenses paid increased to $6.5 million in the nine months ended September 30, 2000, from $2.3 million in 1999. This increase was mainly due to an increase in legal fees, audit and other professional fees, franchise taxes and cost reimbursements to the advisor, primarily due to the merger with CMET.
In the first nine months of 2000, TCI sold eight apartments, one office building, one warehouse, two parcels of land and one hotel for a total of $61.1 million, receiving net cash of $23.2 million, after the payoff of existing debt and the payment of various closing costs. The purchasers assumed $16.8 million in mortgage debt. Also in the first nine months of 2000, TCI purchased five apartments, three office buildings and five parcels of unimproved land for a total of $88.2 million, paying $24.6 million in cash, including various closing costs, and either obtaining new mortgage financing or assuming existing mortgage debt of $60.8 million. Further in the first nine months of 2000, TCI refinanced three apartments, four office buildings and two warehouses and obtained second lien financing on an apartment for a total of $34.0 million, receiving net cash of $9.5 million after paying off $23.0 million in mortgage debt and the payment of various closing costs.
In the fourth quarter of 2000, TCI refinanced one warehouse for $5.0 million, receiving $2.6 million in cash after paying off $2.2 million in mortgage debt and the payment of various closing costs and purchased a 36.4 acre parcel of land in Dallas, Texas, for $1.7 million in cash, and payment of various closing costs.
In the first nine months of 2000, TCI paid dividends to Common stockholders of $.54 per share, or a total of $4.7 million, and $3.75 per share or a total of $22,000 to Preferred stockholders. TCI sold 8,014 shares of Common Stock through its dividend reinvestment program, for a total of $90,000.
The Board of Directors has approved the repurchase of a total of 1.4 million shares of TCI's Common Stock. Through September 30, 2000, a total of 409,765 shares had been repurchased at a total cost of $3.3 million. No shares have been repurchased under this program since May 1998.
Management reviews the carrying values of TCI's properties and mortgage notes receivable at least annually and whenever events or a change in circumstances indicate that impairment may exist. Impairment is considered to exist if, in the case of a property, the future cash flow from the property (undiscounted and without interest) is less than the carrying amount of the property. For notes receivable impairment is considered to exist if it is probable that all amounts due under the terms of the note will not be collected. If impairment is found to exist, a provision for loss is recorded by a charge against earnings. The mortgage note receivable review includes an evaluation of the collateral property securing each note. The property review generally
includes: (1) selective property inspections; (2) a review of the property's
current rents compared to market rents; (3) a review of the property's expenses;
(4) a review of maintenance requirements; (5) a review of the property's cash
flow; (6) discussions with the manager of the property; and (7) a review of
properties in the surrounding area.
TCI had net income applicable to common shareholders of $6.9 million and $17.0 million in the three and nine months ended September 30, 2000, including gains on sale of real estate totaling $11.8 million and $29.6 million, compared to net income applicable to common shareholders of $5.1 million and $13.0 million in the corresponding periods in 1999, including gains on sale of real estate totaling $5.9 million and $16.0 million. Fluctuations in these and other components of revenues and expense between the 2000 and 1999 periods are discussed below.
Rents in the three and nine months ended September 30, 2000, increased to $35.1 million and $103.7 million compared to $18.4 million and $57.6 million in 1999. Increases of $2.4 million and $6.0 million were due to the purchase of 16 income producing properties in 2000 and 1999, increases of $16.2 million and $48.4 million were due to the properties obtained in the merger with CMET and increases of $657,000 and $1.9 million were due to the completion of construction of Limestone Canyon Apartments. These increases were partially offset by decreases of $2.2 million and $8.5 million due to the sale of 18 income producing properties in 2000 and 1999.
Property operations expense in the three and nine months ended September 30, 2000 increased to $19.9 million and $56.6 million from $9.7 million and $30.2 million in 1999. Of these increases, $1.0 million and $2.9 million were due to the purchase of 16 income producing properties in 2000 and 1999, $10.0 million and $27.9 million were due to the properties obtained in the merger with CMET and $367,000 and $917,000 were due to the completion of construction of Limestone Canyon Apartments. These increases were partially offset by decreases of $1.1 million and $3.5 million due to the sale of 18 income producing properties during 2000 and 1999.
Rents and property operating expenses in the fourth quarter are both expected to approximate that of the third quarter of 2000.
Interest and other income increased to $936,000 and $1.9 million in the three and nine months ended September 30, 2000, compared to $174,000 and $297,000 in 1999. Of these increases, $14,000 and $44,000 were due to the two mortgage notes receivable obtained in the merger with CMET, $345,000 and $390,000 is due to TCI funding two loans in the second quarter of 2000 and $102,000 and $523,000 were due to TCI having provided purchase money financing in conjunction with two property sales in 1999, $308,000 and $387,000 is due to the short-term investments and
$87,000 and $434,000 is due to proceeds from the Olive Settlement. Interest income for the fourth quarter of 2000 is expected to approximate that of each of the first three quarters of 2000.
In the three and nine months ended September 30, 2000, gains on sale of real estate totaling $11.8 million and $29.6 million were recognized, $572,000 on the sale of Hunters Bend Apartments, $3.6 million on the sale of Westgate of Laurel Apartments, $3.2 million on the sale of Apple Creek Apartments, $1.2 million on the sale of Villas at Fairpark Apartments, $633,000 on the sale of Chateau Charles Hotel, a $4.8 million previously deferred gain on the sale of McKinney land, TCI's share of gains recognized by an equity affiliate of $4.6 million, $1.4 million on the sale of Brookfield Corporate Center, $706,000 on the sale of Ashley Crest Apartments, $184,000 on the partial sale of Stacy Road land, $1.0 million on the sale of Eagle Rock Apartments, $206,000 on the sale of Shady Trail Warehouse, $2.1 million on the McKinney land, $3.8 million on Woodbridge Apartments and $1.5 million on the sale of Villas at Countryside Apartments.
In the three and nine months ended September 30, 1999, gains on sale of real estate totaling $5.9 million and $16.0 million were recognized, $1.9 million on the sale of Mariner's Pointe Apartments, $8.3 million on the sale of 74 New Montgomery Office Building, $675,000 on the sale of Republic land parcel and $5.2 million on the sale of the Parke Long Office Building.
Interest expense increased to $12.2 million and $35.3 million in the three and nine months ended September 30, 2000, from $6.3 million and $18.7 million in 1999. Of the increase, $5.0 million and $14.6 million were due to the properties obtained in the merger with CMET, $1.1 million and $3.1 million were due to the debt incurred or assumed on 17 properties acquired in 1999 and the first nine months of 2000, and $264,000 and $700,000 were due to refinancings where the debt balance was increased. These increases were partially offset by decreases of $852,000 and $2.6 million, due to the sale of 12 properties in 2000 and nine properties subject to debt in 1999. Interest expense for the fourth quarter of 2000 is expected to increase from the third quarter due to anticipated property refinancings and the properties purchased on a leveraged basis in the first nine months of 2000.
Depreciation increased to $5.4 million and $14.8 million in the three and nine months ended September 30, 2000, from $2.9 million and $8.7 million in 1999. Of these increases, $394,000 and $1.0 million were due to the acquisition of 16 income producing properties in 1999 and the first nine months of 2000 and $2.0 million and $5.5 million were due to the properties obtained in the merger with CMET and $583,000 and $1.0 million were due to completed construction projects in 2000. These increases were partially offset by decreases of $437,000 and $1.5 million due to the sale of 18 income producing properties in 2000 and 1999. Depreciation is expected to continue to increase in the fourth
quarter of 2000 due to a full year of depreciation of properties acquired or completed in 1999 and the income producing properties purchased in the first nine months of 2000.
Advisory fee increased to $1.4 million and $3.9 million in the three and nine months ended September 30, 2000, from $765,000 and $2.2 million in 1999. These increases were due to an increase in TCI's gross assets, the basis for such fee. Advisory fees are expected to continue to increase with increases in TCI's gross assets, including the assets obtained in the merger with CMET.
Net income fee to affiliate was $567,000 and $1.3 million in the three and nine months ended September 30, 2000, as compared to $396,000 and $1.1 million in 1999. The net income fee is payable to TCI's advisor based on 7.5% of TCI's net income.
General and administrative expenses increased to $1.3 million and $5.7 million in the three and nine months ended September 30, 2000, from $962,000 and $2.2 million in 1999. These increases were mainly due to an increase in legal fees, audit and other professional fees, franchise taxes and cost reimbursements to the advisor, primarily due to the merger with CMET.
As more fully discussed in TCI's 1999 Form 10-K, TCI elected and, in the opinion of management, qualified to be taxed as a Real Estate Investment Trust ("REIT"), as defined under Sections 856 through 860 of the Internal Revenue Code ("Code") of 1986, as amended, for the years ended December 31, 1994 through December 31, 1999. To qualify for federal taxation as a REIT, TCI was required to hold at least 75% of the value of its total assets in real estate assets, government securities, cash and cash equivalents at the close of each quarter of each taxable year. As a REIT, TCI also was required to distribute at least 95% of its REIT taxable income, plus 95% of its net income from foreclosure property on an annual basis to stockholders.
Performing routine third quarter testing of the Code requirements to qualify as a REIT for federal income tax purposes, TCI determined that it no longer met those requirements. Based on publicly disclosed information, acquisitions of the stock in June, July and August 2000 by entities not previously holding TCI shares caused a concentration of ownership in excess of that permitted by the Code. The Code prohibits five or fewer shareholders of owning more than 50 percent of an entity for it to continue to qualify as a REIT. Under the Code, TCI also cannot re-qualify as a REIT for at least five years.
In the opinion of management, TCI's loss of REIT status will have no material adverse impact on its operations, balance sheet or cash flow.
The effects of inflation on TCI's operations are not quantifiable. Revenues from property operations tend to fluctuate proportionately with inflationary increases and decreases in housing costs. Fluctuations in the rate of inflation also affect sales values of properties and the ultimate gain to be realized from property sales. To the extent that inflation affects interest rates, TCI's earnings from short-term investments, the cost of new financings as well as the cost of variable interest rate debt will be affected.
Under various federal, state and local environmental laws, ordinances and regulations, TCI may be potentially liable for removal or remediation costs, as well as certain other potential costs, relating to hazardous or toxic substances (including governmental fines and injuries to persons and property) where property-level managers have arranged for the removal, disposal or treatment of hazardous or toxic substances. In addition, certain environmental laws impose liability for release of asbestos-containing materials into the air, and third parties may seek recovery for personal injury associated with such materials.
Management is not aware of any environmental liability relating to the above matters that would have a material adverse effect on TCI's business, assets or results of operations.
Even though January 1, 2000, has passed and no adverse impact from the transition to the year 2000 was experienced, no assurance can be provided that TCI's suppliers and tenants have not been affected in a manner that is not yet apparent. As a result, management will continue to monitor TCI's year 2000 compliance and the year 2000 compliance of TCI's suppliers and tenants.
At September 30, 2000, TCI's exposure to a change in interest rates on its debt is as follows:
Weighted Effect of 1%
Average Increase In
Balance Interest Rate Base Rates
--------- ------------- -----------
(Amounts in thousands, except per share)
Notes payable:
Variable rate............................ $ 134,583 9.34% $ 1,346
========= =========
Total decrease in TCI's
annual net income........................ $ 1,346
=========
Per share.................................. $ .16
=========
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PART II. OTHER INFORMATION
Olive Litigation. In February 1990, TCI, together with CMET, IORI and National Income Realty Trust, three real estate entities with, at the time, the same officers, directors or trustees and advisor as TCI, entered into a settlement (the "Settlement") of a class and derivative action entitled Olive et al. v. National Income Realty Trust et al. relating to the operation and management of each of the entities (the "Olive Litigation"). On April 23, 1990, the Court granted final approval of the terms of the Settlement. The Settlement was modified in 1994 (the "Modification").
On January 27, 1997, the parties entered into an Amendment to the Modification effective January 9, 1997 (the "Olive Amendment"). The Olive Amendment provided for the settlement of additional matters raised by plaintiffs' counsel in 1996. The Court issued an order approving the Olive Amendment on July 3, 1997.
The Olive Amendment provided that TCI's Board of Directors retain a management/compensation consultant or consultants to evaluate the fairness of TCI's advisory contract with Basic Capital Management, Inc. ("BCM") and any contract of its affiliates with TCI, CMET and IORI, including, but not limited to, the fairness to TCI, CMET and IORI of such contracts relative to other means of administration. In 1998, the Board engaged a management/compensation consultant to perform the evaluation which was completed in September 1998.
In 1999, plaintiffs' counsel asserted that the Board did not comply with the provision requiring such engagement and requested that the Court exercise its retained jurisdiction to determine whether there was a breach of this provision of the Olive Amendment. In January 2000, after the merger of CMET with TCI, the Board engaged another management/compensation consultant to perform the required evaluation again. This evaluation was completed in April 2000 and was provided to plaintiffs' counsel. The Board believes that any alleged breach of the Olive Amendment has been fully remedied by the Board's engagement of the second consultant. Although several status conferences have been held on this matter, there has been no Court order resolving whether there was any breach of the Olive Amendment.
In addition, plaintiffs' counsel has asserted that the loans made by TCI to BCM and American Realty Trust, Inc. in June 2000 breached the provisions of the Modification. These loans were repaid in August and October 2000, respectively. The Board believes that the provisions of the Settlement, the Modification and Olive Amendment terminated on April 28, 1999. However, plaintiffs' counsel has asserted that certain provisions continue to be effective after the termination date. This matter is pending before the Court.
The annual meeting was held on October 10, 2000, at which stockholders were asked to consider and vote upon (1) the election of directors; (2) the approval of the Director Stock Option Plan; (3) approval of the 2000
Stock Option Plan; and (4) approval to amend the Articles of Incorporation to increase the total number of authorized shares to 10,000,000 shares of Preferred Stock and 25,000,000 shares of Common Stock. At the meeting, stockholders elected the following individuals as Directors:
Shares Voting
------------------------------------------
Withheld
Director For Authority
--------------------------------- ------------------- --------------------
R. Douglas Leonhard............. 7,142,215 103,591
Murray Shaw..................... 7,142,215 103,852
Ted P. Stokely.................. 7,142,786 103,281
Martin L. White................. 7,144,039 102,028
Edward G. Zampa................. 7,143,996 102,071
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Also at the meeting, stockholders approved the following proposals:
Votes Votes Votes
For Against Abstaining
----------- -------------- --------------
Director Stock Option Plan.................. 6,405,573 250,429 12,538
2000 Stock Option Plan...................... 6,446,564 206,534 114,926
Amendment to the Articles of
Incorporation............................. 6,042,479 626,547 98,996
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(a) Exhibits:
Exhibit
Number Description
------ -----------------------------------------------------------------
3.0 Certificate of Amendment of Articles of Incorporation of
Transcontinental Realty Investors, Inc., dated October 10, 2000.
3.1 Certificate of Designation of Transcontinental Realty Investors,
Inc. setting forth the Voting Powers, Designations, Preference,
Limitations, Restrictions and Relative Rights of Series B
Cumulative Convertible Preferred Stock, dated October 23, 2000.
27.0 Financial Data Schedule, filed herewith.
|
(b) Reports on Form 8-K as follows:
A Current Report on Form 8-K, dated September 27, 2000, was filed October
12, 2000, with respect to ITEM 2. "ACQUISITION AND DISPOSITION OF ASSETS,"
and ITEM 7. "FINANCIAL STATEMENTS AND EXHIBITS," which reports the
acquisition of Countryside Commercial and Professional Center and five
apartments, two office buildings and five parcels of land.
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.
TRANSCONTINENTAL REALTY
INVESTORS, INC.
Date: November 13, 2000 By: /s/ Karl L. Blaha
-------------------------- --------------------------------
Karl L. Blaha
President
Date: November 13, 2000 By: /s/ Mark W. Branigan
-------------------------- --------------------------------
Mark W. Branigan
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
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TRANSCONTINENTAL REALTY INVESTORS, INC.
EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q
For the Quarter ended September 30, 2000
Exhibit Page
Number Description Number
------ -------------------------------------------------- ------
3.0 Certificate of Amendment of Articles of Incorporation 25
of Transcontinental Realty Investors, Inc., dated
October 10, 2000.
3.1 Certificate of Designation of Transcontinental Realty 26
Investors, Inc. setting forth the Voting Powers,
Designations, Preference, Limitations, Restrictions
and Relative Rights of Series B Cumulative
Convertible Preferred Stock, dated October 23, 2000.
27.0 Financial Data Schedule 36
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EXHIBIT 3.0
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
TRANSCONTINENTAL REALTY INVESTORS, INC.
We, the undersigned, Karl L. Blaha and Robert A. Waldman, President and Secretary, respectively, of Transcontinental Realty Investors, Inc. (the "Corporation"), DO HEREBY CERTIFY:
That the Board of Directors of said corporation, by unanimous written consent dated August 30, 2000, adopted a resolution to amend the Restated Articles of Incorporation as follows:
FOURTH: The total number of shares of all classes which the Corporation shall have authority to issue is 35,000,000 shares, of which 25,000,000 shares, par value $0.01 per share shall be of a class designated "Common Stock," and 10,000,000 shares, par value $0.01 per share, shall be of a class designated "Preferred Stock".
The number of shares of the Corporation outstanding and entitled to vote thereon was 8,633,845; that the said change and amendment have been consented to and approved by a majority vote of the stockholders holding at least a majority of each class of stock outstanding and entitled to vote thereon.
/s/ Karl L. Blaha ---------------------------------------- Karl L. Blaha, President /s/ Robert A. Waldman ---------------------------------------- Robert A. Waldman, Secretary |
On October 10, 2000, personally appeared before me, a Notary Public, Karl L. Blaha, President and Robert A. Waldman, Secretary who acknowledged to me that they executed the above instrument.
/s/ Carolyn A. Stefanek
----------------------------------------
Notary Public, State of Texas
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EXHIBIT 3.1
CERTIFICATE OF DESIGNATION
of
TRANSCONTINENTAL REALTY INVESTORS, INC.
setting forth the
VOTING POWERS, DESIGNATIONS, PREFERENCES, LIMITATIONS,
RESTRICTIONS AND RELATIVE RIGHTS
of
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
(Pursuant to Section 78.1955 of
the Nevada Revised Statutes)
Pursuant to Section 78.1955 of the Nevada Revised Statutes ("NRS"), the undersigned, being the President and Secretary, respectively, of Transcontinental Realty Investors, Inc. (the "Corporation"), a Nevada corporation, hereby certify that (a) the following resolution was duly adopted on October 2, 2000, by the Board of Directors of the Corporation (the "Board"), for the purposes of establishing a separate series of the Corporation's authorized preferred stock, $0.01 par value ("Preferred Stock"), and fixing the relative rights and preferences of such series of Preferred Stock, and (b) such resolution has not been subsequently modified or rescinded:
RESOLVED, that in accordance with the provisions of ARTICLE FOURTH of the Articles of Incorporation of the Corporation, a series of Preferred Stock be, and hereby is, created, and the voting powers, designations, preferences, limitations, restrictions and relative, participating, optional or other special rights of the shares of such series, and the qualifications, limitations or restrictions thereof, be, and hereby are, as follows:
plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants.
(A) The holders of shares of Series B Stock shall be entitled to receive, when, as, and if declared by the Board and to the extent permitted under the NRS, out of funds legally available for the purpose and in preference to and with priority over dividends upon all Junior Securities (as defined in Section 6 below), quarterly cumulative dividends payable in arrears in cash on the tenth day following the end of each calendar quarter, unless such day is a Saturday, Sunday or holiday, in which case such dividends shall be payable on the next succeeding business day (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series B Stock, in an amount per share (rounded to the next highest cent) equal to 7.5% per annum of the Liquidation Value (as defined in Section 6 below), as determined immediately prior to the beginning of such calendar quarter assuming each year consists of 360 days and each quarter consists of 90 days.
(B) Dividends shall commence accruing cumulatively on outstanding shares
of the Series B Stock from the date of issuance of such shares to and including
the date on which the Redemption Price (as defined in Section 9(A) below) of
such shares is paid, whether or not such dividends have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of such dividends. For purposes of this
Section 2, the date on which the Corporation has issued any share of Series B
Stock is its date of issuance, regardless of the number of times a transfer of
such share is made on the stock records maintained by or for the Corporation and
regardless of the number of certificates that may be issued to evidence such
share (whether by reason of transfer of such share or for any other reason).
Dividends paid on the shares of Series B Stock in an amount less than the total
amount of dividends at the time accrued and payable on such shares shall be
allocated among the holders of such shares in proportion to their respective
Unpaid Accrual Amounts, where for this purpose the "Unpaid Accrual Amount" of a
holder of shares of Series B Stock at any time equals the total of accrued
unpaid dividends on all such shares held by such holder. The Board may fix a
record date for the determination of holders of shares of Series B Stock
entitled to receive payment of a dividend or distribution declared thereon other
than a quarterly dividend paid on the Quarterly Dividend Payment Date
immediately after such dividend accrued; which record date shall be not more
than 50 days prior to the date fixed for the payment thereof.
(C) So long as any shares of the Series B Stock are outstanding, the Corporation will not make, directly or indirectly, any distribution (as such term is defined in the NRS) with respect to Junior Securities unless, on the date specified for measuring such
distribution, (a) all accrued dividends on the Series B Stock for all past
quarterly dividend periods have been paid in full and the full amount of accrued
dividends for the then current quarterly dividend period has been paid or
declared and a sum sufficient for the payment thereof set apart and (b) after
giving effect to such distribution (i) the Corporation would not be rendered
unable to pay its debts as they become due in the usual course of business and
(ii) the Corporation's total assets would not be less than the sum of its total
liabilities plus the amount that would be needed, if the Corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights
upon dissolution of the holders of the Series B Stock as provided in this
Certificate of Designation. Dividends shall not be paid (in full or in part) or
declared and set apart for payment (in full or in part) on any series of
Preferred Stock (including the Series B Stock) for any dividend period unless
all dividends, in the case dividends are being paid in full on the Series B
Stock, or a ratable portion of all dividends (i.e., so that the amount paid on
each share of each series of Preferred Stock as a percentage of total accrued
and unpaid dividends for all periods with respect to each such share is equal),
in the case dividends are not being paid in full on the Series B Stock, have
been or are, contemporaneously, paid and declared and set apart for payment on
all outstanding series of Preferred Stock (including the Series B Stock)
entitled thereto for each dividend period terminating on the same or earlier
date. If at any time the Corporation pays less than the total amount of
dividends then accrued with respect to the Series B Stock, such payment will be
distributed ratably among the then holders of Series B Stock so that an equal
amount is paid with respect to each outstanding share.
(A) The Series B Stock may be converted at any time and from time to time in whole or in part after October 25, 2001, at the option of the holders thereof, in accordance with subsection (D) below at the Conversion Price (as defined in subsection (B) below) into fully paid and nonassessable shares of common stock, $.01 par value, of the Corporation ("Common Stock"). The number of shares of Common Stock to be issued pursuant to such conversion shall be equal to the number of shares offered for conversion multiplied by the Liquidation Value per share and divided by the Conversion Price; provided, however, that (1) as to any shares of Series B Stock which shall have been called for redemption pursuant to Section 9, the right of conversion shall terminate upon receipt by the holder of the notice of redemption from the Corporation and (2) on the earlier of (a) the commencement of any liquidation, dissolution or winding up of the Corporation by the filing of the relevant document with the Secretary of State of the State of Nevada or with a federal bankruptcy court or (b) the adoption by the stockholders of the Corporation of any resolution authorizing the commencement thereof, the right of conversion shall terminate. Notwithstanding anything to the contrary herein provided, the Corporation may elect to redeem the shares of Series B Stock sought
to be converted, pursuant to Section 9 hereunder, instead of issuing shares of
Common Stock in replacement thereof, in accordance with the provisions of
Section 3(D) below.
(B) For purposes of this Section 3, the term "Conversion Price" shall be and mean the amount obtained (rounded upward to the next highest cent) by multiplying (i) 0.9 by (ii) the simple average of the daily closing price of the Common Stock for the five (5) Business Days immediately prior to the date of conversion on the New York Stock Exchange or, if the Common Stock is not then being traded on the New York Stock Exchange, then on the principal stock exchange (including without limitation The Nasdaq Stock Market) on which the Common Stock is then listed or admitted to trading as determined by the Corporation ("Principal Stock Exchange") or, if the Common Stock is not then listed or admitted to trading on a Principal Stock Exchange, the average of the last reported closing bid and asked prices on such days in the over-the-counter market or, if no such prices are available, the fair market value per share of the Common Stock, as determined by the Board in its sole discretion. The Conversion Price shall not be subject to any adjustment as a result of the issuance of any additional shares of Common Stock by the Corporation for any purpose, except for stock splits (whether accomplished by stock dividends or otherwise) or reverse stock splits occurring during the five (5) Business Days referenced in the calculation of the Conversion Price. For purposes of calculating the Conversion Price, the term "Business Day" shall mean a day on which the Principal Stock Exchange is open for business or, if no such exchange, the term "Business Day" shall have the meaning given such term in Section 3(D) below.
(C) Upon any conversion, fractional shares of Common Stock shall not be issued but any fractions shall be adjusted by the delivery of one additional share of Common Stock in lieu of any cash. Any accrued but unpaid dividends shall be convertible into shares of Common Stock as provided for in this Section. The Corporation shall pay all issue taxes, if any, incurred in respect to the issuance of Common Stock on conversions, provided, however, that the Corporation shall not be required to pay any transfer or other taxes incurred by reason of the issuance of such Common Stock in names other than those in which the Series A Stock surrendered for conversion may stand.
(D) Any conversion of Series B Stock into Common Stock shall be made by
the surrender to the Corporation, at the office of the Corporation set forth in
Section 11 hereof or at the office of the transfer agent for such shares, of the
certificate or certificates representing the Series B Stock to be converted,
duly endorsed or assigned (unless such endorsement or assignment be waived by
the Corporation) together with a written request for conversion. The Corporation
shall either (i) issue as of the date of receipt by the Corporation of such
surrender shares of Common Stock calculated as provided above and evidenced by a
stock certificate delivered to the holder as soon as practicable after the date
of such surrender; or (ii) within two (2) Business Days (unless otherwise
provided,
"Business Day" herein shall mean any day other than a Saturday, a Sunday or a
day on which banking institutions in Dallas, Texas are authorized or obligated
by law or executive order to remain closed) after the date of such surrender
advise the holder of the Series B Stock that the Corporation is exercising its
option to redeem the Series B Stock pursuant to Section 9, in which case the
Corporation shall have sixty (60) days from the date of such surrender to pay to
the holder cash in an amount equal to the Redemption Price (as defined in
Section 9(A) below) for each share of Series B Stock so redeemed. The date of
surrender of any Series B Stock shall be the date of receipt by the Corporation
or its agent of such surrendered shares of Series B Stock.
(E) A number of authorized shares of Common Stock sufficient to provide for the conversion of the Series B Stock outstanding upon the basis hereinbefore provided shall at all times be reserved for such conversion. If the Corporation shall propose to issue any securities or to make any change in its capital structure which would change the number of shares of Common Stock into which each share of Series B Stock shall be convertible as herein provided, the Corporation shall at the same time also make proper provision so that thereafter there shall be a sufficient number of share of Common Stock authorized and reserved for conversion of the outstanding Series B Stock on the new basis.
(F) In case the Corporation shall propose at any time before all shares of the Series B Stock have been redeemed by the Corporation or converted into Common Stock:
(i) to pay any dividend on the Common Stock outstanding payable in Common Stock or to make any other distribution, other than cash dividends to the holders of the Common Stock outstanding; or
(ii) to offer for subscription to the holders of the Common Stock outstanding any additional shares of any class or any other rights or option; or
(iii) to effect any re-classification or recapitalization of the Common Stock outstanding involving a change in the Common Stock, other than a subdivision or combination of the Common Stock outstanding; or
(iv) to merge or consolidate with or into any other corporation (unless the Corporation is the surviving entity and holders of Common Stock continue to hold such Common Stock without modification and without receipt of any additional consideration), or to sell, lease, or convey all or substantially all its property or business, or to liquidate, dissolve or wind up;
then, in each such case, the Corporation shall mail to the holders of record of each of the shares of Series B Stock at their last known address as shown by the Corporation's records a statement, signed by an officer of the Corporation, with respect to the
proposed action. Such statement shall be so mailed at least thirty (30) days prior to the date of the taking of such action or the record date for holders of the Common Stock for the purposes thereof, whichever is earlier. If such statement relates to any proposed action referred to in clauses (iii) or (iv) of this subsection (F), it shall set forth such facts with respect thereto as shall reasonably be necessary to inform the holders of the Series B Stock as to the effect of such action upon the conversion rights of such holders.
(A) Each holder of outstanding shares of the Series B Stock shall be entitled to vote the number of votes equal to the number of shares of the Series B Stock held by such person at each meeting of the stockholders of the Corporation (or actions by written consent of the stockholders of the Corporation in lieu of meetings) with respect to any and all matters presented to the stockholders of the Corporation for their action or consideration.
(B) The outstanding shares of the Series B Stock shall not be counted in determining the total number of outstanding shares to constitute a quorum at any meeting of the stockholders of the Corporation.
(C) The Corporation shall not amend, alter or repeal preferences, rights, powers or other terms of the Series B Stock so as to affect adversely the Series B Stock, without the written consent or affirmative vote of the holders of a majority of the then outstanding shares of Series B Stock, either at a meeting of the holders of the Series B Stock or by written consent in lieu of a meeting.
Upon any liquidation, dissolution or winding up of the Corporation, and after paying and providing for the payment of all creditors of the Corporation, the holders of shares of the Series B Stock then outstanding shall be entitled, before any distribution or payment is made upon the Common Stock and any other equity security of any kind, other than Preferred Stock, which the Corporation at any time has issued, issues or is authorized to issue (collectively, "Junior Securities"), to receive a liquidation preference in an amount in cash equal to the Adjusted Liquidation Value as of the date of such payment, whether such liquidation is voluntary or involuntary, and the holders of the Series B Stock shall not be entitled to any other or further distributions of the assets. If, upon any liquidation, dissolution or winding up of the affairs of the Corporation, the net assets available for distribution shall be insufficient to permit payment to the holders of all outstanding shares of all series of Preferred Stock of the amount to which they respectively shall be entitled, then the assets of the Corporation to be distributed to such holders will be distributed ratably among them based upon the amounts payable on the shares of each such series of Preferred Stock in the event of voluntary or involuntary liquidation, dissolution or winding up, as the case may be, in proportion to the full preferential amounts, together with any and all arrearages to which they are respectively entitled. Upon any such liquidation, dissolution or winding up of the Corporation, after the holders of Preferred Stock have been paid in full the amounts to which they are entitled, the remaining assets of the Corporation may be distributed to holders of Junior Securities, including Common Stock, of the Corporation. The Corporation will mail written notice of such liquidation, dissolution or winding up, not less than twenty (20) nor more than fifty (50) days prior to the payment date stated therein to each record holder of Series B Stock. Neither the consolidation nor merger of the Corporation into or with any other corporation or corporations, nor the sale or transfer by the Corporation of less than all or substantially all of its assets, nor a reduction in the capital stock of the Corporation, nor the purchase or redemption by the Corporation of any shares of its Preferred Stock or Common Stock or any other class of its stock will be deemed to be a liquidation, dissolution or winding up of the Corporation within the meaning of this Section 6. "Adjusted Liquidation Value" shall mean the Liquidation Value as defined in this Section 6 plus all accrued and unpaid dividends through the applicable date.
(A) The shares of Series B Stock shall be redeemable for cash at the option of the holder of Series B Stock at any time after October 25, 2001 by giving written notice to the Corporation, at the office of the Corporation set forth in Section 11 hereof. The cash to be paid to the holder pursuant to such redemption shall be the Redemption Price (as defined in Section 9); provided, however, that the right of redemption shall terminate on the earlier of (i) the commencement of any liquidation, dissolution or winding up of the Corporation by the filing of the relevant documents with the Secretary of State of Nevada or with a federal bankruptcy court or (ii) the adoption by the stockholders of the Corporation of any resolution authorizing the commencement thereof.
(B) Upon receipt of the written request for redemption, the Corporation shall provide the holder of the certificate or certificates of Series B Stock to be redeemed with: (i) the date on which the payment of cash will be available, which date shall be no later than thirty (30) days after the receipt of the written request; and (ii) the place at or the manner in which the holder of the Series B Stock to be redeemed may surrender the certificate or certificates representing the Series B Stock to be redeemed and obtain payment of the applicable Redemption Price.
(A) The Corporation shall have the right to redeem all or a portion of the Series B Stock issued and outstanding at any time and from time to time, at its option, for cash. The redemption price of the Series B Stock pursuant to this Section 9 shall be an amount per share equal to the Adjusted Liquidation Value as of the Redemption Date (the "Redemption Price").
(B) The Corporation may redeem all or a portion of any holder's shares of
Series B Stock by giving such holder not less than twenty (20) days nor more
than thirty (30) days notice thereof prior to the date on which the
Corporation desires such shares to be redeemed, which date shall be a
Business Day (the "Redemption Date"). Such notice shall be in writing and
shall be hand delivered or mailed, postage prepaid, to the holder (the
"Redemption Notice"). If mailed, such notice shall be deemed to be delivered
when deposited in the United States Mail, postage prepaid, addressed to the
holder of shares of Series B Stock at his address as it appears on the stock
transfer records of the Corporation. The Redemption Notice shall state (i)
the total number of shares of Series B Stock held by such holder; (ii) the
total number of shares of the holder's Series B Stock that the Corporation
intends to redeem; (iii) the Redemption Date and the Redemption Price; and
(iv) the place at which the holder(s) may obtain payment of the applicable
Redemption Price upon surrender of the share certificate(s).
(C) If fewer than all shares of the Series B Stock at any time outstanding shall be called for redemption, such shares shall be redeemed pro rata, by lot drawn or other manner deemed fair in the sole discretion of the Board of Directors to redeem one or more such shares without redeeming all such shares of Series B Stock. If a Redemption Notice shall have been so mailed, at least two (2) Business Days prior to the Redemption Date the Corporation shall provide for payment of a sum sufficient to redeem the applicable number of shares of Series B Stock subject to redemption either by (i) setting aside the sum required to be paid as the Redemption Price by the Corporation, separate and apart from its other funds, in trust for the account of the holder(s) of the shares of Series B Stock to be redeemed or (ii) depositing such sum in a bank or trust company (either located in the state where the principal executive office of the Corporation is maintained, such bank or trust company having a combined surplus of at least $20,000,000 according to its latest statement of condition, or such other bank or trust company as may be permitted by the Articles of Incorporation, or by law) as a trust fund, with irrevocable instructions and authority to the bank or trust company to give or complete the notice of redemption and to pay, on or after the Redemption Date, the applicable Redemption Price on surrender of certificates evidencing the share(s) of Series B Stock so called for redemption and, in either event, from and after the Redemption Date (a) the share(s) of Series B Stock shall be deemed to be redeemed, (b) such setting aside or deposit shall be deemed to constitute full payment for such shares(s), (c) such share(s) so redeemed shall no longer be deemed to be outstanding, (d) the holder(s) thereof shall cease to be a shareholder of the Corporation with respect to such share(s), and (e) such holder(s) shall have no rights with respect thereto except the right to receive the Redemption Price for the applicable shares. Any interest on the funds so deposited shall be paid to the Corporation. Any and all such redemption deposits shall be irrevocable except to the following extent: any funds so deposited which shall not be required for the redemption of any shares of Series B Stock because of any prior sale or purchase by the Corporation other than through the redemption process, subsequent to the date of deposit but prior to the Redemption Date, shall be repaid to the Corporation forthwith and any balance of the funds so deposited and unclaimed by the holder(s) of any shares of Series B Stock entitled thereto at the expiration of one calendar year from the Redemption Date shall be repaid to the Corporation upon its request or demand therefor, and after any such repayment of the holder(s) of the share(s) so called for redemption shall look only to the Corporation for payment of the Redemption Price thereof. All shares of Series B Stock redeemed shall be canceled and retired and no shares shall be issued in place thereof, but such shares shall be restored to the status of authorized but unissued shares of Preferred Stock.
(D) Holders whose shares of Series B Stock have been redeemed hereunder shall surrender the certificate or
certificates representing such shares, duly endorsed or assigned (unless such endorsement or assignment be waived by the Corporation), to the Corporation by mail, courier or personal delivery at the Corporation's principal executive office or other location so designated in the Redemption Notice, and upon the Redemption Date the Redemption Price shall be payable to the order of the person whose name appears on such certificate or certificates as the owner thereof, and each surrendered certificate shall be canceled and retired. In the event fewer than all of the shares represented by such certificates are redeemed, a new certificate shall be issued representing the unredeemed shares.
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation by its President and its Secretary as of the 20th day of October, 2000.
/s/ Karl L. Blaha ----------------------------------- Karl L. Blaha, President /s/ Robert A. Waldman ----------------------------------- Robert A. Waldman, Secretary |
STATE OF TEXAS (S)
(S)
COUNTY OF DALLAS (S)
|
This instrument was acknowledged before me on October 20, 2000 by Karl L. Blaha.
/s/ Carolyn A. Stefanek ----------------------------------- Notary Public, State of Texas |
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 9 MOS |
| FISCAL YEAR END | DEC 31 2000 |
| PERIOD START | JAN 01 2000 |
| PERIOD END | SEP 30 2000 |
| CASH | 16,999 |
| SECURITIES | 0 |
| RECEIVABLES | 9,098 |
| ALLOWANCES | 537 |
| INVENTORY | 0 |
| CURRENT ASSETS | 0 |
| PP&E | 745,713 |
| DEPRECIATION | 93,168 |
| TOTAL ASSETS | 736,072 |
| CURRENT LIABILITIES | 0 |
| BONDS | 516,460 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 87 |
| OTHER SE | 190,202 |
| TOTAL LIABILITY AND EQUITY | 736,072 |
| SALES | 0 |
| TOTAL REVENUES | 103,722 |
| CGS | 0 |
| TOTAL COSTS | 56,589 |
| OTHER EXPENSES | 14,839 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 35,338 |
| INCOME PRETAX | 17,022 |
| INCOME TAX | 0 |
| INCOME CONTINUING | 17,022 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 17,022 |
| EPS BASIC | 1.97 |
| EPS DILUTED | 1.97 |