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.)
10670 North Central Expressway, Suite 300, Dallas, Texas 75231
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(Address of Principal Executive Office) (Zip Code)
(214) 692-4700
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(Registrant's Telephone Number,
Including Area Code)
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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 [ ].
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 3,875,944
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(Class) (Outstanding at October 30, 1998)
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
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. (the "Company"), all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of the Company'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,
1998 1997
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Assets (dollars in thousands)
Notes and interest receivable
Performing .......................................... $ 1,610 $ 4,388
Nonperforming, nonaccruing .......................... 806 450
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2,416 4,838
Less - allowance for estimated losses .................. (891) (891)
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1,525 3,947
Foreclosed real estate held for sale ................... 3,867 1,356
Real estate held for sale, net of accumulated
depreciation ($74 in 1998 and $1,350 in 1997) ....... 6,524 3,630
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10,391 4,986
Real estate held for investment, net of
accumulated depreciation ($58,426 in 1998 and
$55,487 in 1997) .................................... 309,039 270,245
Investment in real estate entities ..................... 3,877 4,333
Cash and cash equivalents .............................. 19,657 24,733
Other assets (including $495 in 1998 and $497 in
1997 from affiliates) ............................... 15,614 11,291
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$ 360,103 $ 319,535
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Liabilities and Stockholders' Equity
Liabilities
Notes and interest payable ............................. $ 258,782 $ 222,029
Other liabilities (including $681 in 1998 and $1,157
in 1997 to affiliates) .............................. 8,738 10,973
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267,520 233,002
Stockholders' equity
Common stock, $.01 par value, authorized, 10,000,000
shares; issued and outstanding, 3,872,505 shares
in 1998 and 3,889,200 shares in 1997 ................ 39 39
Paid-in capital ........................................ 217,431 217,688
Accumulated distributions in excess of
accumulated earnings ................................ (124,887) (131,194)
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92,583 86,533
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$ 360,103 $ 319,535
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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,
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1998 1997 1998 1997
----------- ----------- ----------- -----------
(dollars in thousands, except per share)
Income
Rents ................................. $ 18,021 $ 13,781 $ 51,414 $ 39,205
Interest .............................. 200 510 593 1,283
----------- ----------- ----------- -----------
18,221 14,291 52,007 40,488
Expenses
Property operations ................... 10,072 8,378 27,355 23,403
Interest .............................. 5,921 4,242 16,865 12,004
Depreciation .......................... 2,753 2,443 7,882 7,048
Advisory fee to affiliate ............. 671 503 1,927 1,459
Net income fee to affiliate ........... 604 -- 651 --
General and administrative ............ 584 713 1,649 1,977
----------- ----------- ----------- -----------
20,605 16,279 56,329 45,891
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(Loss) from operations ................... (2,384) (1,988) (4,322) (5,403)
Equity in income (loss) of
investees ............................. (90) (97) 342 680
Gain on sale of real estate .............. 9,883 -- 12,015 1,455
----------- ----------- ----------- -----------
Net income (loss) ........................ $ 7,409 $ (2,085) $ 8,035 $ (3,268)
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Earnings Per Share
Net income (loss) ........................ $ 1.91 $ (.53) $ 2.07 $ (.83)
=========== =========== =========== ===========
Weighted average Common
shares used in computing
earnings per share .................... 3,871,438 3,899,487 3,876,505 3,910,991
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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
For the Nine Months Ended September 30, 1998
Accumulated
Distributions
Common Stock in Excess of
------------------------------ Paid-in Accumulated Stockholders'
Shares Amount Capital Earnings Equity
------------ ------------ ------------ ------------ ------------
(dollars in thousands, except per share)
Balance, January 1, 1998 ....... 3,889,200 $ 39 $ 217,688 $ (131,194) $ 86,533
Repurchase of Common Stock ..... (21,950) -- (336) -- (336)
Sale of Common Stock under
dividend reinvestment
plan ........................ 5,255 -- 79 -- 79
Dividends ($.45 per share) .... -- -- -- (1,728) (1,728)
Net income ..................... -- -- -- 8,035 8,035
------------ ------------ ------------ ------------ ------------
Balance, September 30, 1998 .... 3,872,505 $ 39 $ 217,431 $ (124,887) $ 92,583
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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,
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1998 1997
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(dollars in thousands)
Cash Flows from Operating Activities
Rents collected ................................... $ 51,083 $ 41,841
Interest collected ................................ 592 882
Interest paid ..................................... (15,630) (11,389)
Payments for property operations .................. (27,940) (29,827)
Advisory and net income fee paid to affiliate ..... (2,782) (1,409)
General and administrative expenses paid .......... (1,844) (2,062)
Distributions from operating cash flow of equity
investees ...................................... 112 1,695
Insurance settlement .............................. -- 9,633
Other ............................................. (2,442) 786
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Net cash provided by operating activities ...... 1,149 10,150
Cash Flows from Investing Activities
Acquisition of real estate ........................ (59,260) (24,559)
Real estate improvements .......................... (5,739) (4,408)
Proceeds from sale of real estate ................. 30,383 3,800
Deposits on pending purchases ..................... (655) (510)
Deferred merger costs ............................. (477) --
Collections on notes receivable ................... 2,711 5,028
Distributions of equity investees' investing
cash flow ...................................... 701 --
Contributions to equity investees ................. (16) (727)
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Net cash (used in) investing activities ........ (32,352) (21,376)
Cash Flows from Financing Activities
Payments on notes payable ......................... (29,280) (25,085)
Proceeds from notes payable ....................... 62,677 42,689
Deferred borrowing costs .......................... (1,428) (1,358)
Reimbursements to advisor ......................... (61) (410)
Repurchase of Common Stock ........................ (336) (302)
Sale of Common Stock under dividend reinvestment
plan ........................................... 79 --
Dividends to stockholders ......................... (5,524) (819)
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Net cash provided by financing activities ...... 26,127 14,715
Net increase (decrease) in cash and cash
equivalents ....................................... (5,076) 3,489
Cash and cash equivalents, beginning of period ....... 24,733 960
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Cash and cash equivalents, end of period ............. $ 19,657 $ 4,449
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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,
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1998 1997
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(dollars in thousands)
Reconciliation of net income (loss) to net cash
provided by operating activities
Net income (loss) ..................................... $ 8,035 $ (3,268)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization ...................... 8,473 7,294
Gain on sale of real estate ........................ (12,015) (1,455)
Equity in (income) of investees .................... (342) (680)
Distributions from operating cash flow of equity
investees ....................................... 112 1,695
(Increase) in interest receivable .................. (1) (244)
(Increase) in other assets ......................... (3,178) (6,207)
Increase in interest payable ....................... 644 211
Increase (decrease) in other liabilities ........... (579) 12,804
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Net cash provided by operating activities ....... $ 1,149 $ 10,150
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Schedule of noncash investing and financing
activities
Notes payable from purchase of real estate ............ $ 2,970 $ 7,744
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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
NOTE 1. BASIS OF PRESENTATION
The Company, a Nevada corporation, is successor to a California business trust which was organized on September 6, 1983. The Company invests in real estate through direct equity ownership and partnerships and also invests in mortgage loans on real estate, including first, wraparound and junior mortgage loans.
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. Operating results for the nine month period ended September 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the Consolidated Financial Statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997 (the "1997 Form 10- K").
NOTE 2. REAL ESTATE
In January 1998, the Company purchased the 188 unit Mountain Plaza Apartments in El Paso, Texas, for $4.0 million. The Company paid $1.0 million in cash and obtained new mortgage financing of $3.0 million. The mortgage bears interest at 8.2% per annum, requires monthly payments of interest only and matures in January 2000. A real estate brokerage commission of $139,000 was paid to Carmel Realty, Inc. ("Carmel Realty"), an affiliate of Basic Capital Management, Inc. ("BCM"), the Company's advisor, and a real estate acquisition fee of $39,000 to BCM.
Also in January 1998, the Company purchased the 212 unit Hunters Glen Apartments in Midland, Texas, for $2.5 million. The Company paid $600,000 in cash and obtained seller financing of the remaining $1.9 million of the purchase price. The financing bears interest at a variable rate, currently 8.0% per annum, requires monthly payments of interest only for the first 24 months and thereafter requires monthly payments of principal and interest of $14,302 and matures in January 2003. A real estate brokerage commission of $94,000 was paid to Carmel Realty and a real estate acquisition fee of $25,000 to BCM.
Further in January 1998, the Company purchased the Laws Street land, a 1.41 acre parcel in Dallas, Texas, for $1.9 million in cash. A real estate brokerage commission of $39,000 was paid to Carmel Realty and a real estate acquisition fee of $19,000 to BCM.
In January 1998, the Company purchased the 204 unit Bent Tree Garden Apartments in Addison, Texas, for $8.1 million. The Company paid $1.7 million in cash and obtained new mortgage financing of $6.4 million. The mortgage bears interest at 7.2% per annum, requires monthly payments
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 2. REAL ESTATE (Continued)
of principal and interest of $46,054 and matures in February 2008. A real estate brokerage commission of $232,000 was paid to Carmel Realty and a real estate acquisition fee of $81,000 to BCM.
In February 1998, the Company purchased Parkway North, a 71,041 sq. ft. office building in Dallas, Texas, for $5.4 million. The Company paid $1.5 million in cash and obtained new mortgage financing of $3.9 million. The mortgage bears interest at a variable rate, currently 8.69% per annum, requires monthly payments of interest only and matures in March 2000. A real estate brokerage commission of $179,000 was paid to Carmel Realty and a real estate acquisition fee of $54,000 to BCM.
Also in February 1998, the Company purchased the Lemmon Carlisle land, a 2.14 acre parcel in Dallas, Texas, for $3.4 million in cash. A real estate brokerage commission of $54,000 was paid to Carmel Realty and a real estate acquisition fee of $34,000 to BCM.
In December 1997, the Company entered into a contract to sell Shaws Plaza, a 103,482 sq. ft. shopping center in Sharon, Massachusetts, for $3.8 million. The agreed sales price was $1.4 million less than the property's carrying value. Accordingly, at December 31, 1997, a provision for loss of $1.4 million was recognized to reduce the property's carrying value to its sales price less estimated costs of sale. In March 1998, the sale was completed, the Company received net cash of $1.2 million after paying off $2.6 million of existing mortgage debt and the payment of various closing costs. A real estate brokerage commission of $134,000 was paid to Carmel Realty. No gain or loss was incurred on the sale.
In March 1998, the Company purchased the Plaza on Bachman Creek, a 80,278 sq. ft. retail/office complex in Dallas, Texas, for $3.5 million. The Company paid $1.1 million in cash and obtained new mortgage financing of $2.4 million. The mortgage bears interest at a variable rate, currently 9% per annum, requires monthly payments of principal and interest of $21,593 and matures in March 2018. A real estate brokerage commission of $124,000 was paid to Carmel Realty and a real estate acquisition fee of $35,000 to BCM.
In April 1998, the Company purchased in a single transaction the 178 unit Ashton Way Apartments in Midland, Texas, and the 92 unit 4400 Apartments, also in Midland, Texas and in May 1998, the Company purchased the 232 unit Woodview Apartments in Odessa, Texas, for a total of $6.8 million. The Company paid a total of $1.5 million in cash and obtained new mortgage financing secured by all three properties totaling $5.3 million. The first mortgage of $4.5 million bears interest at 7.2% per annum and the second mortgage of $845,000 bears interest at a variable rate, currently 8.2% per annum. The mortgages require monthly payments of principal and interest totaling $38,003 and mature in
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 2. REAL ESTATE (Continued)
October 1999 and May 2008, respectively. A real estate brokerage commission of $244,000 was paid to Carmel Realty and a real estate acquisition fee of $68,000 to BCM.
Also in May 1998, the Company purchased the Eagle Crest land, a 22.99 acre parcel in Farmers Branch, Texas, for $2.5 million in cash. A real estate brokerage commission of $95,000 was paid to Carmel Realty and a real estate acquisition fee of $25,000 to BCM.
Further in May 1998, the Company purchased the 172 unit Emerald Terrace Apartments in Midland, Texas, for $1.5 million. The Company paid $425,000 in cash, assumed the existing mortgage of $584,000 and obtained seller financing of the remaining $491,000 of the purchase price. The mortgages bear interest at variable and fixed rates, currently 9.91% and 7.5% per annum, respectively, require monthly payments of principal and interest totaling $10,643 and mature in November 1999 and June 2008. A real estate brokerage commission of $59,000 was paid to Carmel Realty and a real estate acquisition fee of $15,000 to BCM.
In May 1998, the Company purchased in a single transaction, Daley Plaza, a 62,425 sq. ft. office building in San Diego, California, and View Ridge, a 25,062 sq. ft. office building, also in San Diego, California, for a total of $6.5 million. The Company paid $1.7 million in cash and obtained new mortgage financing totaling $4.8 million. The mortgages bear interest at a variable rate, currently 9.5% per annum, require monthly payments of principal and interest totaling $42,416 and mature in May 2005. A real estate brokerage commission of $200,000 was paid to Carmel Realty and a real estate acquisition fee of $65,000 to BCM.
In June 1998, the Company purchased the Atrium, a 74,603 sq. ft. office building in Palm Beach, Florida, for $5.4 million. The Company paid $1.3 million in cash and obtained new mortgage financing of $4.1 million. The mortgage bears interest at a variable rate, currently 7.93% per annum, requires monthly payments of principal and interest of $31,455 and matures in July 2001. A real estate brokerage commission of $179,000 was paid to Carmel Realty and a real estate acquisition fee of $54,000 to BCM.
At June 30, 1998, the Company reclassified from real estate held for investment to real estate held for sale the following three properties under contract for sale at such date: (i) Northtown Mall, a 354,174 sq. ft. shopping center in Dallas, Texas; (ii) Denton Drive Warehouse, 123,800 sq. ft. industrial warehouse in Dallas, Texas, and (iii) Chesapeake Ridge, a 100,484 sq. ft. office building in San Diego, California.
In July 1998, the Company purchased Valley Rim, a 54,194 sq. ft. office building in San Diego, California, for $5.1 million. The Company paid $1.4 million in cash and obtained new mortgage financing of $3.7
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 2. REAL ESTATE (Continued)
million. The mortgage bears interest at a variable rate, currently 9.5% per annum, requires monthly payments of principal and interest of $32,576 and matures in June 2005. A real estate brokerage commission of $172,000 was paid to Carmel Realty and an acquisition fee of $51,000 to BCM.
Also in July 1998, the Company purchased the Limestone Canyon land, a 27 acre parcel of undeveloped land in Austin, Texas, for $1.8 million in cash. In conjunction with the purchase, the Company obtained a financing commitment of $13.0 million for the construction of a 260 unit apartment complex on the site. The mortgage bears interest at a variable rate, currently 7.63% per annum, requires monthly payments of interest only and matures in July 2000. A real estate brokerage commission of $70,000 was paid to Carmel Realty and an acquisition fee of $18,000 to BCM. Construction of the apartment complex was commenced in August 1998 and is expected to be completed by January 2000.
In 1997, Montgomery Ward ("Ward"), a tenant at the Northtown Mall, a 354,174 sq. ft. shopping center in Dallas, Texas, filed for bankruptcy protection. In an attempt to keep the Ward lease from being sold, Northtown Mall was placed in administrative bankruptcy. The Ward lease, however, was sold for the benefit of the Ward bankruptcy estate. In September 1998, the Company bought back the lease concurrent with the $15.6 million sale of Northtown Mall. The Company received net cash of $12.2 million after paying off $2.5 million of existing mortgage debt, $900,000 for the Ward lease and the payment of various closing costs. In conjunction with the sale, the Northtown Mall bankruptcy proceeding was dismissed. A real estate brokerage commission of $135,000 was paid to Carmel Realty. A gain of $3.3 million was recognized.
In September 1998, the Company completed the sale of Chesapeake Ridge, a 100,484 sq. ft. office building in San Diego, California, under contract for sale at June 30, 1998, for $13.2 million in cash. The Company received net cash of $7.9 million after paying off $5.3 million of existing mortgage debt and the payment of various closing costs. A real estate brokerage commission of $317,000 was paid to Carmel Realty. A gain of $5.9 million was recognized.
NOTE 3. NOTES AND INTEREST RECEIVABLE
In February 1994, the Company provided $6.7 million of purchase money financing in conjunction with the sale of 1,406 acres of land in 16 developed residential and commercial subdivisions in Maumelle, Arkansas, secured by a first mortgage on the properties sold. The borrower did not make the scheduled February 1995 principal and interest payments. In September 1995, a settlement was reached with the borrower that provided for, among other things the payment by the borrower of $2.5 million in cash, and the Company's acceptance of a new $1.4 million
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 3. NOTES AND INTEREST RECEIVABLE (Continued)
note secured by 36.3 acres of commercial land. Such note matured in January 1996. In April 1998, the Company received $2.1 million in full settlement of its note and accrued, but unpaid, interest. The original sale had been recorded under the cost recovery method with gain being deferred until the note was collected. Accordingly, the previously deferred gain of $2.1 million was recognized on collection of its note receivable.
At June 30, 1998, the Company held a wraparound mortgage note receivable with a principal balance of $2.5 million secured by a K-Mart in Wake County, North Carolina. In February 1998, the Company was informed that the first lien mortgage in the amount of $2.0 million was in default. To protect its interest, the Company foreclosed on the property in August 1998 and refinanced the first lien mortgage in the amount of $2.0 million. The Company paid $265,000 in cash to complete the refinancing. The new mortgage bears interest at 7.51% per annum, requires monthly payments of principal and interest of $15,721 and matures in September 2008. A mortgage brokerage and equity refinancing fee of $19,500 was paid to BCM. No loss was recognized on the foreclosure as the fair value of the property exceeded the carrying value of the note receivable.
In July 1998, a mortgage note receivable which had been written off in a prior year, was collected. A gain of $671,000 was recognized.
In August 1998, a mortgage note receivable with a principal balance of $2.0 million and a carrying value of $207,000 secured by a second lien on a hotel in Lake Charles, Louisiana became delinquent. To protect its interest, the Company purchased the first lien mortgage for $154,000. Foreclosure proceedings have commenced and title to the property is expected to be received in the first quarter of 1999. No loss is expected to be incurred on foreclosure, as the estimated fair value of the property exceeds the carrying value of the mortgage notes receivable.
NOTE 4. INVESTMENTS IN EQUITY METHOD REAL ESTATE ENTITIES
Set forth below are summarized results of operations of the real estate entities the Company accounts for using the equity method for the nine months ended September 30, 1998 (dollars in thousands):
Rents and interest income ............................... $13,093
Depreciation ............................................ 1,980
Property operations ..................................... 6,708
Interest expense ........................................ 4,616
Gain on sale of real estate ............................. 496
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Net income .............................................. $ 285
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The Company owns a combined 63.7% general and limited partner interest in Tri-City Limited Partnership ("Tri-City"), which, prior to January
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 4. INVESTMENTS IN EQUITY METHOD REAL ESTATE ENTITIES (Continued)
1998, owned five properties in Texas. In May 1998, Tri-City sold two apartment complexes for a total of $3.3 million in cash. Tri-City received net cash of $1.4 million after paying off $1.9 million in existing mortgage debt and the payment of various closing costs associated with the sale. The Company received a distribution of $701,000 of such net cash. Tri-City recognized a gain of $496,000 on the sale of which the Company's equity share was $316,000. Tri-City paid a real estate brokerage commission of $119,000 to Carmel Realty.
NOTE 5. NOTES AND INTEREST PAYABLE
In March 1998, the Company refinanced the mortgage debt secured by the Tricon Warehouses in Atlanta, Georgia in the amount of $10.2 million. The Company received net cash of $5.4 million after paying off $4.8 million in existing mortgage debt, funding of required escrows and the payment of various closing costs. The new mortgage bears interest at a variable rate, currently 7.53% per annum, requires monthly payments of principal and interest of $75,576 and matures in April 2008. A mortgage brokerage and equity refinancing fee of $102,000 was paid to BCM.
In May 1998, the Company obtained mortgage financing of $2.2 million secured by the previously unencumbered Lemmon Carlisle land in Dallas, Texas. The Company received net cash of $2.1 million after the payment of various closing costs. The mortgage bears interest at 9.25% per annum, requires monthly payments of interest only and matures in May 2000. A mortgage brokerage and equity refinancing fee of $22,000 was paid to BCM.
Also in May 1998, the Company refinanced the mortgage debt secured by the Plaza Office Building in St. Petersburg, Florida, in the amount of $7.4 million. The Company received net cash of $2.6 million after paying off $4.8 million in existing mortgage debt, funding of required escrows and the payment of various closing costs. The new mortgage bears interest at a variable rate, currently 7.57% per annum, requires monthly payments of principal and interest of $55,023 and matures in June 2008. A mortgage brokerage and equity refinancing fee of $74,000 was paid to BCM.
In July 1998, the Company refinanced the matured mortgage debt secured by the Villas at Countryside Apartments in Sterling, Virginia, in the amount of $5.4 million. The Company received net cash of $400,000 after paying off $5.0 million in existing mortgage debt, funding of required escrows and the payment of various closing costs. The new mortgage bears interest at 6.85% per annum, requires monthly payments of principal and interest of $35,692 and matures in August 2005. A mortgage brokerage and equity refinancing fee of $54,000 was paid to BCM.
In August 1998, the Company obtained second lien financing of $1.8 million secured by the Terrace Hills Apartments in El Paso, Texas. The
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 5. NOTES AND INTEREST PAYABLE (Continued)
Company received net cash of $1.7 million after the payment of various closing costs. The mortgage bears interest at 7.275% per annum, requires monthly payments of principal and interest of $11,968 and matures in September 2009. A mortgage brokerage and equity refinancing fee of $18,000 was paid to BCM.
NOTE 6. COMMITMENTS AND CONTINGENCIES
The Company is involved in various lawsuits arising in the ordinary course of business. The Company's management is of the opinion that the outcome of these lawsuits will have no material impact on the Company's financial condition.
NOTE 7. SUBSEQUENT EVENTS
In October 1998, the Company purchased the 208 unit Cliffs of Eldorado Apartments in McKinney, Texas, for $12.8 million. The Company paid $1.6 million in cash, assumed the existing mortgage of $10.6 million and issued 5,829 shares of Series A Cumulative Convertible Preferred Stock with a total liquidation value of $583,000. The assumed mortgage bears interest at 8.125% per annum, requires monthly payments of principal and interest of $75,197 and matures in November 2037. A real estate brokerage commission of $312,000 was paid to Carmel Realty and a real estate acquisition fee of $128,000 to BCM.
Also in October 1998, the Company completed the sale of the Denton Drive Warehouse, a 123,800 sq. ft. industrial warehouse in Dallas, Texas, under contract for sale at June 30, 1998, for $1.2 million in cash. The Company received net cash of $891,000 after paying off $309,000 in existing mortgage debt and the payment of various closing costs. A real estate brokerage commission of $46,000 was paid to Carmel Realty. A gain of approximately $200,000 will be recognized.
Further in October 1998, the Company refinanced the matured mortgage debt secured by the Bonita Plaza Office Building in Bonita, California in the amount of $5.2 million. The Company received net cash of $1.2 million after paying off $4.0 million in existing mortgage debt, funding of required escrows and the payment of various closing costs. The new mortgage bears interest at a variable rate, currently 7.4% per annum, requires monthly payments of principal and interest of $37,722 and matures in November 2001. A mortgage brokerage and equity refinancing fee of $52,000 was paid to BCM.
In October 1998, the Company sold approximately 19 acres of foreclosed land held for sale in Greensboro, North Carolina for $375,000 in cash. The Company received net cash of $371,000 after the payment of various closing costs. A real estate brokerage commission of $15,000 was paid to Carmel Realty. A gain of approximately $350,000 will be recognized.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
Transcontinental Realty Investors, Inc. (the "Company") invests in real estate through direct ownership and partnerships and invests in mortgage loans, including first, wraparound and junior mortgage loans. The Company is the successor to a business trust which was organized on September 6, 1983, and commenced operations on January 31, 1984.
Liquidity and Capital Resources
Cash and cash equivalents aggregated $19.7 million at September 30, 1998 compared with $24.7 million at December 31, 1997. The Company'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. The Company anticipates that its cash on hand, as well as cash generated from the collection of mortgage notes receivable, sales of properties, borrowings against certain of the Company's unencumbered properties and refinancing or extensions of certain of its mortgage debt will be sufficient to meet all of the Company's cash requirements including debt service obligations and expenditures for property maintenance and improvements.
The Company's cash flow from property operations (rents collected less payments for expenses applicable to rental income) increased from $12.0 million in the first nine months of September 30, 1997 to $23.1 million in the first nine months of 1998. Of this increase $4.9 million is the result of the Company having acquired 32 properties during 1997 and 1998, $1.6 million is due to an increase in rental rates and common area maintenance income at the Company's commercial properties and $1.7 million is due to the sale of Republic Towers in 1997. These increases were partially offset by a decrease of $615,000 due to properties sold during 1997 and 1998.
In January 1998, the Company purchased (i) the Mountain Plaza Apartments in El Paso, Texas, for $4.0 million, consisting of $1.0 million in cash and mortgage financing of $3.0 million, (ii) the Hunters Glen Apartments in Midland, Texas, for $2.5 million, consisting of $600,000 in cash and seller financing of $1.9 million, (iii) a 1.41 acre parcel of land in Dallas, Texas, for $1.9 million in cash, and (iv) the Bent Tree Garden Apartments in Addison, Texas, for $8.1 million, consisting of $1.7 million in cash and mortgage financing of $6.4 million.
In February 1998, the Company purchased (i) the Parkway North Office Building in Dallas, Texas, for $5.4 million, consisting of $1.5 million in cash and mortgage financing of $3.9 million, and (ii) a 2.14 acre parcel of land in Dallas, Texas, for $3.4 million in cash.
In March 1998, the Company refinanced the mortgage debt secured by the Tricon Warehouses in Atlanta, Georgia. The Company received net cash of $5.4 million after paying off $4.8 million in mortgage debt.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Also in March 1998, the Company completed the sale of the Shaws Plaza Shopping Center in Sharon, Massachusetts. The Company received net cash of $1.2 million after paying off $2.6 million in mortgage debt.
Further in March 1998, the Company purchased the Plaza on Bachman Creek, a retail/office complex in Dallas, Texas, for $3.5 million, consisting of $1.1 million in cash and mortgage financing of $2.4 million.
In April 1998, the Company purchased in a single transaction, the Ashton Way and 4400 Apartments in Midland, Texas, for $3.4 million, consisting of $700,000 in cash and mortgage financing of $2.7 million.
Also in April 1998, the Company received $2.1 million in cash in settlement of a mortgage note receivable which had been in default.
In May 1998, the Company purchased (i) the Woodview Apartments in Odessa, Texas, for $3.4 million, consisting of $800,000 in cash and mortgage financing of $2.6 million, (ii) a 22.99 acre parcel of land in Farmers Branch, Texas, for $2.5 million in cash, (iii) the Emerald Terrace Apartments in Midland, Texas, for $1.5 million, consisting of $425,000 in cash and mortgage financing of $1.1 million, (iv) Daley Plaza Office Building in San Diego, California, for $4.6 million, consisting of $1.1 million in cash and $3.5 million in mortgage financing, and (v) the View Ridge Office Building in San Diego, California, for $1.9 million, consisting of $600,000 in cash and $1.3 million in mortgage financing.
Also in May 1998, the Company obtained mortgage financing on its previously unencumbered Lemmon Carlisle land. The Company received net cash of $2.1 million.
Further in May 1998, the Company refinanced the mortgage debt secured by the Plaza Office Building in St. Petersburg, Florida. The Company received net cash of $2.6 million after paying off $4.8 million in mortgage debt.
In June 1998, the Company purchased the Atrium Office Building in Palm Beach, Florida, for $5.4 million, consisting of $1.3 million in cash and mortgage financing of $4.1 million.
In July 1998, the Company purchased the Valley Rim Office Building in San Diego, California, for $5.1 million, consisting of $1.4 million in cash and mortgage financing of $3.7 million.
Also in July 1998, the Company purchased the Limestone Canyon land in Austin, Texas, for $1.8 million in cash.
Further in July 1998, the Company refinanced the matured mortgage debt secured by the Villas at Countryside Apartments in Sterling, Virginia. The Company received net cash of $400,000 after paying off $5.0 million in mortgage debt.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
In July 1998, the Company received $671,000 in settlement of a mortgage note receivable which had been written off as uncollectible in a prior year.
In August 1998, the Company obtained second lien financing secured by the Terrace Hills Apartments in El Paso, Texas. The Company received net cash of $1.7 million.
Also in August 1998, the Company sold the Chesapeake Ridge Office Building in San Diego, California, for $13.2 million in cash. The Company received net cash of $7.9 million after paying off $5.3 million in mortgage debt.
In September 1998, the Company purchased a first lien mortgage secured by a hotel in Lake Charles, Louisiana for $154,000 in order to protect its second lien secured by such property.
Also in September 1998, the Company sold the Northtown Mall Shopping Center in Dallas, Texas, for $15.6 million. The Company received net cash of $12.2 million after paying off $2.5 million in mortgage debt and paying $900,000 to buyout a tenant's lease.
In October 1998, the Company purchased the Cliffs of Eldorado Apartments in McKinney, Texas, for $12.8 million, consisting of $1.6 million in cash, assumed mortgage debt of $10.6 million and 5,829 shares of Class A Cumulative Convertible Preferred Stock with a total liquidation value of $583,000.
Also in October 1998, the Company sold the Denton Drive Warehouse in Dallas, Texas, for $1.2 million in cash. The Company received net cash of $891,000 after paying off $309,000 in mortgage debt.
Further in October 1998, the Company refinanced the matured mortgage debt secured by the Bonita Plaza in Bonita, California. The Company received net cash of $1.2 million after paying off $4.0 million in mortgage debt.
In October 1998, the Company sold approximately 19 acres of foreclosed land held for sale in Greensboro, North Carolina, for $375,000. The Company received net cash of $371,000.
In the first nine months of 1998, the Company paid quarterly dividends of $.45 per share, or a total of $1.7 million. In January 1998, a special dividend of $1.00 per share which had been declared in December 1997, was also paid.
The Company's Board of Directors has approved the repurchase of a total of 687,000 shares of the Company's Common Stock. Through September 30, 1998, a total of 409,765 shares had been repurchased at a total cost of $3.3 million. During the first nine months of 1998, 21,950 shares had been repurchased at a total cost of $336,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
During the first nine months of 1998, the Company sold 5,255 shares of its Common Stock, through its dividend reinvestment plan for a total of $79,000.
Management reviews the carrying values of the Company'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. In those instances where 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 selective property inspections, discussions with the manager of the property and visits to selected properties in the surrounding area and a review of the following (i) the property's current rents compared to market rents; (ii) the property's expenses; (iii) maintenance requirements, and (iv) the property's cash flow.
Results of Operations
The Company had net income for the three and nine months ended September 30, 1998, of $7.4 million and $8.0 million as compared to a net loss of $2.1 million and $3.3 million in the corresponding periods in 1997. The net income for the three and nine months ended September 30, 1998, includes $9.9 million and $12.0 million of gains on the sale of real estate. The net loss for the three and nine months ended September 30, 1997, includes gains on sale of real estate of $1.5 million. Fluctuations in this and other components of revenues and expenses between the 1997 and 1998 periods are discussed below.
Rents in the three and nine months ended September 30, 1998, were $18.0 million and $51.4 million compared to $13.8 million and $39.2 million in the corresponding periods in 1997. Of these increases, $405,000 and $1.6 million was due to an increase in rental rates and common area maintenance income at the Company's commercial properties and $4.3 million and $11.6 million was due to the acquisition of 32 properties in 1997 and 1998. These increases were partially offset by decreases of $815,000 and $1.7 million due to the sale of 7 properties in 1997 and 1998. Rents are expected to continue to increase due to properties acquired in 1997 and 1998.
Interest income decreased to $200,000 and $593,000 in the three and nine months ended September 30, 1998, compared to $510,000 and $1.3 million in the corresponding periods in 1997. These decreases were due to 4 mortgage notes receivable being paid in full in 1997 and 1998. Interest income for the fourth quarter of 1998 is expected to approximate that of the third quarter of 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Property operations expense in the three and nine months ended September 30, 1998 was $10.1 million and $27.4 million compared to $8.4 million and $23.4 million in the corresponding periods in 1997. Of these increases, $2.7 million and $6.7 million for the three and nine months ended September 30, 1998, was due to the acquisition of 32 properties in 1997 and 1998. These increases were partially offset by decreases of $979,000 and $2.8 million for the three and nine months ended September 30, 1998, due to the sale of 7 properties during 1997 and 1998 and $20,000 and $97,000 due to a decrease in property replacements at the Company's commercial properties. Property operating expenses are expected to continue to increase due to properties acquired in 1997 and 1998.
Interest expense increased to $5.9 million and $16.9 million in the three and nine months ended September 30, 1998, compared to $4.2 million and $12.0 million in the corresponding periods in 1997. Of these increases, $1.4 million and $4.3 million for the three and nine months ended September 30, 1998 is due to the debt incurred or assumed on 25 of the 32 properties acquired in 1997 and 1998 and $371,000 and $873,000 is due to refinancings where the debt balance was increased and financing obtained on unencumbered properties. These increases were partially offset by decreases of $85,000 and $430,000 for the three and nine months ended September 30, 1998, due to the sale of 7 properties in 1997 and 1998. Interest expense for the fourth quarter of 1998 is expected to be comparable to that of the third quarter of 1998.
Depreciation expense increased to $2.8 million and $7.9 million for the three and nine months ended September 30, 1998, compared to $2.4 million and $7.0 million in the corresponding periods in 1997. Of these increases, $561,000 and $1.5 million for the three and nine months ended September 30, 1998 is due to the acquisition of 32 properties in 1997 and 1998, with 17 of the properties being acquired in the first nine months of 1998, and $151,000 and $458,000 due to capital improvements. These increases were partially offset by a decrease of $371,000 and $978,000 for the three and nine months ended September 30, 1998 due to 7 properties being sold during 1997 and 1998. Depreciation is expected to continue to increase during the remainder of 1998 as a result of depreciation on the properties acquired in 1998.
Advisory fee increased to $671,000 and $1.9 million for the three and nine months ended September 30, 1998, compared to $503,000 and $1.5 million in the corresponding periods in 1997. These increases were due to an increase in gross assets, the basis for such fee. Advisory fees are expected to continue to increase with increases in the Company's gross assets, the basis for such fee.
Net income fee was $604,000 and $651,000 for the three and nine months ended September 30, 1998. The net income fee is payable to the Company's advisor based on 7.5% of the Company's net income. No such fee was incurred for the corresponding periods in 1997.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
General and administrative expenses decreased to $584,000 and $1.6 million for the three and nine months ended September 30, 1998, compared to $713,000 and $2.0 million in the corresponding periods in 1997. The decrease for the three and nine months ended September 30, 1998 was mainly due to a decrease in legal fees relating to the Republic Towers and Olive litigation.
Equity in earnings of investees was a loss of $90,000 and income of $342,000 for the three and nine months ended September 30, 1998, compared to a loss of $97,000 and income of $680,000 for the corresponding periods in 1997. Included in equity earnings of investees for the nine months ended September 30, 1998, is a gain on the sale of real estate of $316,000 which is the Company's equity share of the gain recognized by Tri-City Limited Partnership ("Tri-City") on the sale of two apartment complexes. Included in equity earnings of investees for the nine months ended September 30, 1997, is a gain on sale of real estate of $747,000, which is the Company's equity share of the gain recognized by Income Opportunity Realty Investors, Inc. on the sale of two apartment complexes. At October 30, 1998, the Company owned approximately 22.8% of IORI's outstanding shares of common stock.
In the three and nine months ended September 30, 1998, the Company recognized
net gains from the sale of real estate totaling $9.9 million and $12.0 million .
In the three months, gains totaling $9.3 million were recognized on the sale of
the Chesapeake Ridge Office Building and Northtown Mall Shopping Center, both of
which were held for sale at June 30, 1998. In addition, gains in the nine
months, includes $671,000 from the collection of a mortgage note receivable
written off as uncollectible in a prior year and the recognition of a $2.1
million deferred gain on the collection of a mortgage note receivable. See NOTE
3. "NOTES AND INTEREST RECEIVABLE." In the nine months ended September 30, 1997,
the Company recognized gains totaling $1.5 million on the sale of the following:
(i) the Fiesta Mart, a shopping center; (ii) a parcel of land in the Dallas
central business district; and, (iii) a foreclosed single family residence.
Tax Matters
As more fully discussed in the Company's 1997 Form 10-K, the Company has elected and, in the opinion of the Company's management, qualified to be taxed as a Real Estate Investment Trust ("REIT"), as defined under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, (the "Code"). To continue to qualify for federal taxation as a REIT under the Code, the Company is 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. The Code also requires a REIT to distribute at least 95% of its REIT taxable income, plus 95% of its net income from foreclosure property, all as defined in Section 857 of the Code, on an annual basis to stockholders.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Inflation
The effects of inflation on the Company's operations are not quantifiable. Revenues from property operations generally fluctuate proportionately with inflationary increases and decreases in housing costs. Fluctuations in the rate of inflation also affect the sales values of properties, and correspondingly, the ultimate gains to be realized by the Company from property sales. To the extent that inflation affects interest rates, the Company's earnings from short-term investments and the cost of new financings as well as the cost of its variable note financing will be affected.
Environmental Matters
Under various federal, state and local environmental laws, ordinances and regulations, the Company 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 the Company's business, assets or results of operations.
Year 2000
Basic Capital Management, Inc. ("BCM"), the Company's advisor, has informed the Company that its computer hardware operating system and computer software have been certified as year 2000 compliant.
Further, Carmel Realty Services, Ltd. ("Carmel, Ltd."), an affiliate of BCM, that performs property management services for the Company's properties, has informed the Company that it is currently testing year 2000 compliant property management computer software for the Company's commercial properties. Carmel, Ltd. expects to begin utilizing such software January 1, 1999. With regards to the Company's apartment properties, Carmel, Ltd. has informed the Company that its subcontractors either have in place or will have in place in the first quarter of 1999, year 2000 compliant property management computer software.
The Company has not incurred, nor does it expect to incur, any costs related to its accounting and property management computer software being modified, upgraded or replaced in order to make it year 2000 compliant. Such costs have been or will be borne by either BCM, Carmel, Ltd. or the property management subcontractors of Carmel, Ltd.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Year 2000 (Continued)
Management has not completed its evaluation of the Company's computer controlled building systems, such as security, elevators, heating and cooling, etc., to determine what systems are not year 2000 compliant. Management does not believe that any necessary modifications to such systems will require significant expenditures or cause interruptions in operations, as such enhanced operating systems are readily available.
The Company has or will have in place the year 2000 compliant systems that will allow it to operate. The risks the Company faces are that certain of its vendors will not be able to supply goods or services and that financial institutions and taxing authorities will not be able to accurately apply payments made to them. Management believes that other vendors are readily available and that financial institutions and taxing authorities will, if necessary, apply monies received manually. The likelihood of the above having a significant impact on the Company's operations is negligible.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Olive Litigation. In February 1990, the Company, together with Continental
Mortgage and Equity Trust ("CMET"), Income Opportunity Realty Investors, Inc.
("IORI") and National Income Realty Trust, three real estate entities with, at
the time, the same officers, directors or trustees and advisor as the Company,
entered into a settlement of a class and derivative action entitled Olive et al.
v. National Income Realty Trust et al. pending before the United States District
Court for the Northern District of California and 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 a Stipulation of Settlement.
On May 4, 1994, the parties entered into a Modification of Stipulation of Settlement dated April 27, 1994 (the "Olive Modification") that settled subsequent claims of breaches of the settlement that were asserted by the plaintiffs and that modified certain provisions of the April 1990 settlement. The Olive Modification was preliminarily approved by the Court on July 1, 1994, and final Court approval was entered on December 12, 1994. The effective date of the Olive Modification was January 11, 1995.
The Court retained jurisdiction to enforce the Olive Modification, and during August and September 1996, the Court held evidentiary hearings to
ITEM 1. LEGAL PROCEEDINGS (Continued)
assess compliance with the terms of the Olive Modification by various parties. The Court issued no ruling or order with respect to the matters addressed at the hearings.
Separately in 1996, legal counsel for the plaintiffs notified the Company's Board of Directors that he intended to assert that certain actions taken by the Board of Directors breached the terms of the Olive Modification. On January 27, 1997, the parties entered into an Amendment to the Olive Modification effective January 9, 1997 (the "Olive Amendment"), which was submitted to the Court for approval on January 29, 1997. The Olive Amendment provides for the settlement of all matters raised at the evidentiary hearings and by plaintiffs' counsel in his notices to the Company's Board of Directors. On May 2, 1997, a hearing was held for the Court to consider approval of the Olive Amendment. As a result of the hearing, the parties entered into a revised Amendment. The Court issued an order approving the Olive Amendment on July 3, 1997.
The Olive Amendment provided for the addition of four new unaffiliated members to the Company's Board of Directors and set forth new requirements for the approval of any transactions with certain affiliates until April 28, 1999. In addition, the Company, CMET, IORI and their shareholders released the defendants from any claims relating to the plaintiffs' allegations and matters which were the subject of the evidentiary hearings. The plaintiffs' allegations of any breaches of the Olive Modification shall be settled by mutual agreement of the parties or, lacking such agreement, by an arbitration proceeding.
Under the Olive Amendment, all shares of the Company owned by Gene E. Phillips or any of his affiliates shall be voted at all stockholder meetings of the Company held until April 28, 1999 in favor of all new Board members added under the Olive Amendment. The Olive Amendment also requires that, until April 28, 1999, all shares of the Company owned by Gene E. Phillips or his affiliates in excess of forty percent (40%) of the Company's outstanding shares shall be voted in proportion to the votes cast by all non-affiliated shareholders of the Company.
In accordance with the Olive Amendment, Richard W. Douglas, Larry E. Harley and R. Douglas Leonhard were added to the Company's Board of Directors in January 1998 and Murray Shaw was added to the Company's Board of Directors in February 1998.
ITEM 5. OTHER INFORMATION
Proposed Merger with Continental Mortgage and Equity Trust
On September 21, 1998, the Company and Continental Mortgage and Equity Trust ("CMET") jointly announced the agreement of their respective Boards, for the Company to acquire CMET. Under the proposal the Company would acquire all of the outstanding shares of beneficial interest of CMET, in a tax free exchange, for shares of Common Stock of the Company. The Company would issue 1.181 shares of its Common Stock for each
ITEM 5. OTHER INFORMATION
Proposed Merger with Continental Mortgage and Equity Trust
outstanding CMET share. Upon the exchange of shares, CMET would merge into the Company. The share exchange and merger are subject to the negotiation of a definitive merger agreement and a vote of the shareholders of both entities. CMET has the same Board and advisor as the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
------ --------------------------------------------------------------
3.1 Articles of Amendment to the Articles of Incorporation of
Transcontinental Realty Investors, Inc., setting forth the
Certificate of Designations, Preferences and Rights of
Series A Cumulative Convertible Preferred Stock, dated
October 20, 1998, filed herewith.
10.0 Advisory Agreement dated as of October 15, 1998, between
Transcontinental Realty Investors, Inc. and Basic Capital
Management, Inc., filed herewith.
27.0 Financial Data Schedule, filed herewith.
|
(b) Reports on Form 8-K as follows:
A Current Report on Form 8-K, dated May 29, 1998, was filed July 2, 1998, with respect to Item 2. "Acquisition or Disposition of Assets," and Item 7. "Financial Statements and Exhibits," which reports the acquisition of the Mountain Plaza Apartments, Hunters Glen Apartments, Bent Tree Garden Apartments, Parkway North, Plaza on Bachman Creek, Ashton Way Apartments, 4400 Apartments, Woodview Apartments, Emerald Terrace Apartments, Daley Office Building and Viewridge Office Building, as amended on Form 8-K/A, filed September 23, 1998.
A Current Report on Form 8-K, dated June 26, 1998, was filed July 21, 1998, with respect to Item 2. "Acquisition or Disposition of Assets," and Item 7. "Financial Statements and Exhibits," which reports the acquisition of the Atrium Office Building and Valley Rim Office Building, as amended on Form 8-K/A, filed October 16, 1998.
A Current Report on Form 8-K, dated September 21, 1998, was filed September 28, 1998, with respect to Item 5. "Other Events," which reports the agreement of the respective Boards of Transcontinental Realty Investors, Inc. ("TCI") and Continental Mortgage and Equity Trust to form a single consolidated entity with TCI as the survivor.
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 12, 1998 By: /s/ Randall M. Paulson
-------------------------- ------------------------
Randall M. Paulson
President
Date: November 12, 1998 By: /s/ Thomas A. Holland
-------------------------- -----------------------
Thomas A. Holland
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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TRANSCONTINENTAL REALTY INVESTORS, INC.
EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q
For the Nine Months ended September 30, 1998
Exhibit Page
Number Description Number
------ -------------------------------------------------------------------- ------
3.1 Articles of Amendment to the Articles of Incorpora- 26
tion of Transcontinental Realty Investors, Inc.
setting forth the Certificate of Designations, Preferences and
Rights of Series A Cumulative Convertible Preferred Stock,
dated October 20, 1998.
10.0 Advisory Agreement dated as of October 15, 1998, 35
between Transcontinental Realty Investors, Inc. and
Basic Capital Management, Inc.
27.0 Financial Data Schedule 67
|
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 A 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 20, 1998, 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:
Section 1. Designation and Amount. The shares of such series shall be designated as "Series A Cumulative Convertible Preferred Stock" (the "Series A Stock") and each share of the Series A Stock shall have a par value of $0.01 per share and a preference on liquidation as specified in Section 6 below. The number of shares constituting the Series A Stock shall be 6,000. Such number of shares may be increased or decreased by the Board by filing an amendment to this Certificate of Designation, provided, however, that no decrease shall reduce the number of shares of Series A Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants.
Section 2. Dividends and Distributions.
(A) The holders of Series A 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 A Stock, in an amount per share (rounded to the next highest cent) equal to 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 A 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 A 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 A 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 A 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 A 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 fifty (50) days prior to the date fixed for the payment thereof.
(C) So long as any shares of the Series A 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 A 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 A 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 A Stock) for any dividend period unless all dividends, in the case dividends are being paid in full on the Series A 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 A Stock, have been or are, contemporaneously, paid and declared and set apart for payment on all outstanding series of Preferred Stock (including the Series A 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 A Stock, such payment will be distributed ratably among the then holders of Series A Stock so that an equal amount is paid with respect to each outstanding share.
Section 3. Conversion Rights.
(A) The Series A Stock may be converted at any time and from time to time in whole or in part after November 1, 2003, 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 A 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 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 A 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 simple average of the daily closing price of the Common Stock for the closing sale price 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 A 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 A 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 A Stock that the Corporation is
exercising its option to redeem the Series A 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 A Stock so redeemed.
The date of surrender of any Series A Stock shall be the date of receipt by the
Corporation or its agent of such surrendered shares of Series A Stock.
(E) A number of authorized shares of Common Stock sufficient to provide for the conversion of the Series A 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 A 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 shares of Common Stock authorized and reserved for conversion of the outstanding Series A Stock on the new basis.
(F) In case the Corporation shall propose at any time before all shares of the Series A 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 A 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 (G), it shall set forth such facts with respect
thereto as shall reasonably be necessary to inform the holders of the Series A
Stock as to the effect of such action upon the conversion rights of such
holders.
Section 4. Voting Rights and Powers. The holders of shares of Series A Stock shall have only the following voting rights:
(A) Except as may otherwise be specifically required by law or otherwise provided herein, the holders of the shares of Series A Stock shall not have the right to vote such stock, directly or indirectly, at any meeting of the stockholders of the Corporation, and such shares of stock shall not be counted in determining the total number of outstanding shares to constitute a quorum at any meeting of stockholders.
(B) In the event that, under the circumstances, the holders of the Series A Stock are required by law to vote upon any matter, the approval of such series shall be deemed to have been obtained only upon the affirmative vote of the holders of a majority of the shares of the Series A Stock then outstanding.
(C) Except as set forth herein, or as otherwise provided by the Articles of Incorporation or by law, holders of the Series A Stock shall have no voting rights and their consent shall not be required for the taking of any corporate action.
Section 5. Reacquired Shares. Any shares of Series A Stock purchased or otherwise acquired by the Corporation in any manner whatsoever or surrendered for conversion hereunder shall no longer be deemed to be outstanding and all rights with respect to such shares of stock, including the right, if any, to receive notices, shall forthwith cease except, in the case of stock surrendered for conversion hereunder, rights of the holders thereof to receive Common Stock in exchange therefor. All shares of Series A Stock obtained by the Corporation shall be retired and canceled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Articles of Incorporation, or in any other Certificates of Designations creating a series of Preferred Stock or any similar stock or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. The Liquidation Value of the Series A Stock shall be $100.00 per share. 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 A Stock then outstanding shall be entitled, before any distribution of 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 A 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 A Stock. Neither the consolidation nor merger of the Corporation with or into 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.
Section 7. Ranking. Except as provided in the following sentence, the Series A Stock shall rank on parity as to dividends and upon liquidation, dissolution or winding up with all other shares of Preferred Stock issued by the Corporation. The Corporation shall not issue any shares of Preferred Stock of any series which are superior to the Series A Stock as to dividends or rights upon liquidation, dissolution or winding up of the Corporation as long as any shares of the Series A Stock are issued and outstanding without the prior written consent of the holders of at least a majority of such shares of Series A Stock then outstanding voting separately as a class.
Section 8. Redemption at the Option of the Holder. The shares of Series A Stock shall not be redeemable at the option of a holder of Series A Stock.
Section 9. Redemption at the Option of the Corporation.
(A) In addition to the redemption right of the Corporation set forth in
Section 3(A), above, the Corporation shall have the right to redeem all or
a portion of the Series A Stock issued and outstanding at any time and from
time to time, at its option, for cash. The redemption price of the Series A
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 A 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 A Stock at his address as it appears on the stock transfer records of the Corporation. The right of the Corporation to redeem shares of Series A Stock shall remain effective notwithstanding prior receipt by the Corporation of notice by any holder of Series A Stock of such holder's intent to convert shares of Series A Stock in accordance with Section 3 above, provided that the Redemption Notice is given on or prior to the second Business Day following the date of surrender of shares made to convert said shares to Common Stock. The Redemption Notice shall state (i) the total number of shares of Series A Stock held by such holder; (ii) the total number of shares of the holder's Series A 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 A 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 to redeem one or more such shares without redeeming all such
shares of Series A 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 A 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 A 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 A Stock so called for redemption and, in either event, from and
after the Redemption Date (a) the share(s) of Series A Stock shall be
deemed to be redeemed; (b) such setting aside or deposit shall be deemed to
constitute full payment for such share(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 stockholder 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 A 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 A 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 A 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 A 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.
Section 10. Sinking Fund. The Corporation shall not be required to maintain any so-called "sinking fund" for the retirement on any basis of the Series A Stock.
Section 11. Notice. Any notice or request made to the Corporation in connection with the Series A Stock shall be given in writing, and shall conclusively be deemed to have been given and received three (3) Business Days following deposit thereof, in the U.S. mails, certified mail, return receipt requested, duly stamped and addressed to the Corporation, to the attention of its General Counsel, at its principal executive offices (which shall be deemed to be the address most recently provided to the Securities and Exchange Commission ("SEC") as its principal executive offices for so long as the Corporation is required to file reports with the SEC).
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf of the Corporation by its President and its Secretary as of the 30th day of October, 1998.
/s/ Randall M. Paulson ----------------------------- Randall M. Paulson, President /s/ Thomas A. Holland ----------------------------- Thomas A. Holland, Secretary |
STATE OF TEXAS )
)
COUNTY OF DALLAS )
|
This instrument was acknowledged before me on October 30, 1998 by Randall M. Paulson.
/s/ S. L. Bratton ----------------------------- Notary Public, State of Texas |
EXHIBIT 10.0
ADVISORY AGREEMENT
BETWEEN
TRANSCONTINENTAL REALTY INVESTORS, INC.
AND
BASIC CAPITAL MANAGEMENT, INC.
THIS AGREEMENT dated as of October 15, 1998, between Transcontinental Realty Investors, Inc., a Nevada corporation (the "Company") and Basic Capital Management, Inc., a Nevada corporation (the "Advisor")
W I T N E S S E T H:
WHEREAS:
1. The Company owns a complex, diversified portfolio of real estate, mortgages and other assets, including many non-performing or troubled assets.
2. The Company is an active real estate investment trust with funds available for investment primarily in the acquisition of income-producing real estate and to a lesser extent in short and medium term mortgages.
3. The Advisor and its employees have extensive experience in the administration of real estate assets and the origination, structuring and evaluation of real estate and mortgage investments.
NOW THEREFORE, in consideration of the premises and of the mutual covenants herein contained, the parties agree as follows:
1. DUTIES OF THE ADVISOR. Subject to the supervision of the Board of Directors, the Advisor will be responsible for the day-to-day operations of the Company and, subject to Section 17 hereof, shall provide such services and activities relating to the assets, operations and business plan of the Company as may be appropriate, including:
(a) preparing and submitting an annual budget and business plan for approval by the Board of the Company (the "Business Plan");
(b) using its best efforts to present to the Company a continuing and suitable investment program consistent with the investment policies and objectives of the Company as set forth in the Business Plan;
(c) using its best efforts to present to the Company investment opportunities consistent with the Business Plan and such investment program as the Directors may adopt from time to time;
(d) furnishing or obtaining and supervising the performance of the ministerial functions in connection with the administration of the day-to-day operations of the Company,
including the investment of reserve funds and surplus cash in short-term money market investments;
(e) serving as the Company's investment and financial advisor and providing research, economic, and statistical data in connection with the Company's investments and investment and financial policies;
(f) on behalf of the Company, investigating, selecting and conducting relations with borrowers, lenders, mortgagors, brokers, investors, builders, developers and others; provided however, that the Advisor shall not retain on the Company's behalf any consultants or third party professionals, other than legal counsel, without prior Board approval;
(g) consulting with the Directors and furnishing the Directors with advice and recommendations with respect to the making, acquiring (by purchase, investment, exchange, or otherwise), holding, and disposition (through sale, exchange, or otherwise) of investments consistent with the Business Plan of the Company;
(h) obtaining for the Directors such services as may be required in acquiring and disposing of investments, disbursing and collecting the funds of the Company, paying the debts and fulfilling the obligations of the Company, and handling,
prosecuting, and settling any claims of the Company, including foreclosing and otherwise enforcing mortgage and other liens securing investments;
(i) obtaining for and at the expense of the Company such services as may be required for property management, loan disbursements, and other activities relating to the investments of the Company, provided, however, the compensation for such services shall be agreed to by the Company and the service provider;
(j) advising the Company in connection with public or private sales of shares or other securities of the Company, or loans to the Company, but in no event in such a way that the Advisor could be deemed to be acting as a broker dealer or underwriter;
(k) quarterly and at any other time requested by the Directors, making reports to the Directors regarding the Company's performance to date in relation to the Company's approved Business Plan and its various components, as well as the Advisor's performance of the foregoing services;
(l) making or providing appraisal reports, where appropriate, on investments or contemplated investments of the Company;
(m) assisting in preparation of reports and other documents necessary to satisfy the reporting and other requirements of any governmental bodies or agencies and to maintain effective communications with stockholders of the Company; and
(n) doing all things necessary to ensure its ability to render the services contemplated herein, including providing office space and office furnishings and personnel necessary for the performance of the foregoing services as Advisor, all at its own expense, except as otherwise expressly provided for herein.
2. NO PARTNERSHIP OR JOINT VENTURE. The Company and the Advisor are not partners or joint venturers with each other, and nothing herein shall be construed so as to make them such partners or joint venturers or impose any liability as such on either of them.
3. RECORDS. At all times, the Advisor shall keep proper books of account and records of the Company's affairs which shall be accessible for inspection by the Company at any time during ordinary business hours.
4. ADDITIONAL OBLIGATIONS OF THE ADVISOR. The Advisor shall refrain from any action (including, without limitation, furnishing or rendering services to tenants of property or managing or
operating real property) that would (a) adversely affect the status of the
Company as a real estate investment trust, as defined and limited in Sections
856-860 of the Internal Revenue Code, (b) violate any law, rule, regulation, or
statement of policy of any governmental body or agency having jurisdiction over
the Company or over its securities, (c) cause the Company to be required to
register as an investment company under the Investment Company Act of 1940, or
(d) otherwise not be permitted by the Articles of Incorporation of the Company.
5. BANK ACCOUNTS. The Advisor may establish and maintain one or more bank accounts in its own name, and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of the Company, under such terms and conditions as the Directors may approve, provided that no funds in any such account shall be commingled with funds of the Advisor; and the Advisor shall from time to time render appropriate accounting of such collections and payments to the Directors and to the auditors of the Company.
6. BOND. The Advisor shall maintain a fidelity bond with a responsible surety company in such amount as may be required by the Directors from time to time, covering all directors, officers,
employees, and agents of the Advisor handling funds of the Company and any investment documents or records pertaining to investments of the Company. Such bond shall inure to the benefit of the Company in respect to losses of any such property from acts of such directors, officers, employees, and agents through theft, embezzlement, fraud, negligence, error, or omission or otherwise, the premium for said bond to be at the expense of the Company.
7. INFORMATION FURNISHED ADVISOR. The Directors shall have the right to change the Business Plan at any time, effective upon receipt by the Advisor of notice of such change. The Company shall furnish the Advisor with a certified copy of all financial statements, a signed copy of each report prepared by independent certified public accountants, and such other information with regard to the Company's affairs as the Advisor may from time to time reasonably request.
8. CONSULTATION AND ADVICE. In addition to the services described above, the Advisor shall consult with the Directors, and shall, at the request of the Directors or the officers of the Company, furnish advice and recommendations with respect to any aspect of the business and affairs of the Company, including any
factors that in the Advisor's best judgment should influence the policies of the Company.
9. ANNUAL BUSINESS PLAN AND BUDGET. No later than January 15th of each year, the Advisor shall submit to the Directors a written Business Plan for the current Fiscal Year of the Company. Such Business Plan shall include a twelve-month forecast of operations and cash flow with explicit assumptions and a general plan for asset sales or acquisitions, lending, foreclosure and borrowing activity, other investments or ventures and proposed securities offerings or repurchases or any proposed restructuring of the Company. To the extent possible, the Business Plan shall set forth the Advisor's recommendations and the basis therefor with respect to all material investments of the Company. Upon approval by the Board of Directors, the Advisor shall be authorized to conduct the business of the Company in accordance with the explicit provisions of the Business Plan, specifically including the borrowing, leasing, maintenance, capital improvements, renovations and sale of investments set forth in the Business Plan. Any transaction or investment not explicitly provided for in the approved Business Plan shall require the prior approval of the Board of Directors unless made pursuant to authority expressly delegated to the Advisor. Within sixty (60) days of the end of
each calendar quarter, the Advisor shall provide the Board of Directors with a report comparing the Company's actual performance for such quarter against the Business Plan.
10. DEFINITIONS. As used herein, the following terms shall have the meanings set forth below:
(a) "Affiliate" shall mean, as to any Person, any other Person who owns beneficially, directly, or indirectly, 1% or more of the outstanding capital stock, shares or equity interests of such Person or of any other Person which controls, is controlled by, or is under common control with such Person or is an officer, retired officer, director, employee, partner, or trustee (excluding noninterested trustees not otherwise affiliated with the entity) of such Person or of any other Person which controls, is controlled by, or is under common control with, such Person.
(b) "Appraised Value" shall mean the value of a Real Property according to an appraisal made by an independent qualified appraiser who is a member in good standing of the American Institute of Real Estate Appraisers and is duly licensed to perform such services in accordance with the applicable state law, or, when pertaining to Mortgage Loans, the value of the underlying property as determined by the Advisor.
(c) "Book Value" of an asset or assets shall mean the value of such asset or assets on the books of the Company, before provision for amortization, depreciation, depletion or valuation reserves and before deducting any indebtedness or other liability in respect thereof, except that no asset shall be valued at more than its fair market value as determined by the Directors.
(d) "Book Value of Invested Assets" shall mean the Book Value of the Company's total assets (without deduction of any liabilities), but excluding (i) goodwill and other intangible assets, (ii) cash, and (iii) cash equivalent investments with terms which mature in one year or less.
(e) "Business Plan" shall mean the Company's investment policies and objectives and the capital and operating budget based thereon, approved by the Board as thereafter modified or amended.
(f) "Fiscal Year" shall mean any period for which an income tax return is submitted to the Internal Revenue Service and which is treated by the Internal Revenue Service as a reporting period.
(g) "Gross Asset Value" shall mean the total assets of the Company after deduction of allowance for amortization, depreciation or depletion and valuation reserves.
(h) "Mortgage Loans" shall mean notes, debentures, bonds, and other evidences of indebtedness or obligations, whether negotiable or non-negotiable, and which are secured or collateralized by mortgages, including first, wraparound, construction and development, and junior mortgages.
(i) "Net Asset Value" shall mean the Book Value of all the assets of the Company minus all the liabilities of the Company.
(j) "Net Income" for any period shall mean the Net Income of the Company for such period computed in accordance with generally accepted accounting principles after deduction of the Gross Asset Fee, but before deduction of the Net Income Fee, as set forth in Sections 11 (a) and 11(b), respectively, herein, and inclusive of gain or loss of the sale of assets.
(k) "Net Operating Income" shall mean rental income less property operations expenses.
(l) "Operating Expenses" shall mean the aggregate annual expenses regarded as operating expenses in accordance with generally accepted accounting principles, as determined by the independent auditors selected by the Directors and including the Gross Asset Fee payable to the Advisor and the fees and expenses paid to the Directors who are not employees or Affiliates of the
Advisor. The operating expenses shall exclude, however, the following:
(i) the cost of money borrowed by the Company;
(ii) income taxes, taxes and assessments on real property and all other taxes applicable to the Company;
(iii) expenses and taxes incurred in connection with the issuance, distribution, transfer, registration, and stock exchange listing of the Company's securities (including legal, auditing, accounting, underwriting, brokerage, printing, engraving and other fees);
(iv) fees and expenses paid to independent mortgage servicers, contractors, consultants, managers, and other agents retained by or on behalf of the Company;
(v) expenses directly connected with the purchase, origination, ownership, and disposition of Real Properties or Mortgage Loans (including the costs of foreclosure, insurance, legal, protective, brokerage, maintenance, repair, and property improvement services) other than expenses with respect thereto of employees of the Advisor, except legal, internal auditing, foreclosure and transfer agent services performed by employees of the Advisor;
(vi) expenses of maintaining and managing real estate equity interests and processing and servicing mortgage and other loans;
(vii) expenses connected with payments of dividends, interest or distributions by the Company to shareholders;
(viii) expenses connected with communications to shareholders and bookkeeping and clerical expenses for maintaining shareholder relations, including the cost of printing and mailing share certificates, proxy solicitation materials and reports;
(ix) transfer agent's registrar's and indenture trustee's fees and charges; and
(x) the cost of any accounting, statistical, bookkeeping or computer equipment necessary for the maintenance of books and records of the Company.
Additionally, the following expenses of the Advisor shall be excluded:
(i) employment expenses of the Advisor's personnel (including Directors, officers, and employees of the Company who are directors, officers, or employees of the Advisor or its Affiliates), other than the expenses of those employee services listed at (v) above;
(ii) rent, telephone, utilities, and office furnishings and other office expenses of the Advisor (except those relating to a separate office, if any, maintained by the Company); and
(iii) the Advisor's overhead directly related to performance of its functions under this Agreement.
(m) "Person" shall mean and include individuals, corporations, limited partnerships, general partnerships, joint stock companies or associations, joint ventures, associations, companies, trusts, banks, trust companies, land trusts, business trusts, or other entities and governments and agencies and political subdivisions thereof.
(n) "Real Property" shall mean and include land, rights in land, leasehold interests (including but not limited to interests of a lessor or lessee therein), and any buildings, structures, improvements, fixtures, and equipment located on or used in connection with land, leasehold interests, and rights in land or interests therein.
All calculations made pursuant to this Agreement shall be based on statements (which may be unaudited, except as provided herein) prepared on an accrual basis consistent with generally accepted accounting principles, regardless of whether the Company
may also prepare statements on a different basis. All other terms shall have the same meaning as set forth in the Company's Articles of Incorporation and Bylaws.
11. ADVISORY COMPENSATION.
(a) Gross Asset Fee. On or before the twenty-eighth day of each month during the term hereof, the Company shall pay to the Advisor, as compensation for the basic management and advisory services rendered to the Company hereunder, a fee at the rate of .0625% per month of the average of the Gross Asset Value of the Company at the beginning and at the end of the next preceding calendar month. Without negating the provisions of Sections 18, 19, 22 and 23 hereof, the annual rate of the Gross Asset Fee shall be .75% per annum.
(b) Net Income Fee. As an incentive for successful investment and management of the Company's assets, the Advisor will be entitled to receive a fee equal to 7.5% per annum of the Company's Net Income for each Fiscal Year or portion thereof for which the Advisor provides services. To the extent the Company has Net Income in a quarter, the 7.5% Net Income Fee is to be paid quarterly on or after the third business day following the filing of the report on Form 10-Q with the Securities and Exchange Commission, except for the payment for the fourth quarter, ended
December 31, which is to be paid on or after the third business day following the filing of the report on Form 10-K with the Securities and Exchange Commission. The 7.5% Net Income Fee is to be cumulative within any Fiscal Year, such that if the Company has a loss in any quarter during the Fiscal Year, each subsequent quarter's payment during such Fiscal Year shall be adjusted to maintain the 7.5% per annum rate, with final settlement being made with the fourth quarter payment and in accordance with audited results for the Fiscal Year. The 7.5% Net Income Fee is not cumulative from year to year.
(c) Acquisition Commission. For supervising the acquisition, purchase or long term lease of Real Property for the Company, the Advisor is to receive an Acquisition Commission equal to the lesser of (i) up to 1% of the cost of acquisition, inclusive of commissions, if any, paid to nonaffiliated brokers; or (ii) the compensation customarily charged in arm's-length transactions by others rendering similar property acquisition services as an ongoing public activity in the same geographical location and for comparable property. The aggregate of each purchase price of each property (including the Acquisition Commissions and all real estate brokerage fees) may not exceed such property's Appraised Value at acquisition.
(d) Incentive Sales Compensation. To encourage periodic sales of appreciated Real Property at optimum value and to reward the Advisor for improved performance of the Company's Real Property, the Company shall pay the Advisor, on or before the 45th day after the close of each Fiscal Year, an incentive fee equal to 10% of the amount, if any, by which the aggregate sales consideration for all Real Property sold by the Company during such Fiscal Year exceeds the sum of: (i) the cost of each such Real Property as originally recorded in the Company's books for tax purposes (without deduction for depreciation, amortization or reserve for losses), (ii) capital improvements made to such assets during the period owned by the Company and (iii) all closing costs (including real estate commissions) incurred in the sale of such Real Property; provided, however, no incentive fee shall be paid unless (a) such Real Property sold in such Fiscal Year, in the aggregate, has produced an 8% simple annual return on the Company's net investment including capital improvements, calculated over the Company's holding period, before depreciation and inclusive of operating income and sales consideration and (b) the aggregate Net Operating Income from all Real Property owned by the Company for all of the prior Fiscal Year and the current Fiscal Year shall be
at least 5% higher in the current Fiscal Year than in the prior Fiscal Year.
(e) Mortgage or Loan Acquisition Fees. For the acquisition or purchase from an unaffiliated party of any existing mortgage or loan by the Company, the Advisor or an Affiliate is to receive a Mortgage or Loan Acquisition Fee equal to the lesser of (a) 1% of the amount of the mortgage or loan purchased by the Company or (b) a brokerage or commitment fee which is reasonable and fair under the circumstances. Such fee will not be paid in connection with the origination or funding by the Company of any mortgage loan.
(f) Mortgage Brokerage and Equity Refinancing Fees. For obtaining loans to the Company or refinancing on Company properties, the Advisor or an Affiliate is to receive a Mortgage Brokerage and Equity Refinancing Fee equal to the lesser of (a) 1% of the amount of the loan or the amount refinanced or (b) a brokerage or refinancing fee which is reasonable and fair under the circumstances; provided, however that no such fee shall be paid on loans from the Advisor or an Affiliate without the approval of the Board of Directors. No fee shall be paid on loan extensions.
12. LIMITATION ON THIRD PARTY MORTGAGE PLACEMENT FEES. The Advisor or any of its Affiliates shall pay to the Company, one-half of any compensation received by the Advisor or any such Affiliate from third parties with respect to the origination, placement or brokerage of any loan made by the Company, provided, however, the compensation retained by the Advisor or Affiliate shall not exceed the lesser of (a) 2% of the amount of the loan committed by the Company or (b) a loan brokerage and commitment fee which is reasonable and fair under the circumstances.
13. STATEMENTS. The Advisor shall furnish to the Company not later than the tenth day of each calendar month, beginning with the second calendar month of the term of this Agreement, a statement showing the computation of the fees, if any, payable in respect to the next preceding calendar month (or, in the case of incentive compensation, for the preceding Fiscal Year, as appropriate) under the Agreement. The final settlement of incentive compensation for each Fiscal Year shall be subject to adjustment in accordance with, and upon completion of, the annual audit of the Company's financial statements; any payment by the Company or repayment by the Advisor that shall be indicated to be necessary in accordance therewith shall be made promptly after the completion of such audit and shall
be reflected in the audited statements to be published by the Company.
14. COMPENSATION FOR ADDITIONAL SERVICES. If and to the extent that the Company shall request the Advisor or any director, officer, partner, or employee of the Advisor to render services for the Company other than those required to be rendered by the Advisor hereunder, such additional services, if performed, will be compensated separately on terms to be agreed upon between such party and the Company from time to time. In particular, but without limitation, if the Company shall request that the Advisor perform property management, leasing, loan disbursement or similar functions, the Company and the Advisor shall enter into a separate agreement specifying the obligations of the parties and providing for reasonable additional compensation to the Advisor for performing such services.
15. EXPENSES OF THE ADVISOR. Without regard to the amount of compensation or reimbursement received hereunder by the Advisor, the Advisor shall bear the following expenses:
(a) employment expenses of the personnel employed by the Advisor (including Directors, officers, and employees of the Company who are directors, officers, or employees of the Advisor or
of any company that controls, is controlled by, or is under common control with the Advisor), including, but not limited to, fees, salaries, wages, payroll taxes, travel expenses, and the cost of employee benefit plans and temporary help expenses except for those personnel expenses described in Sections 16(e) and (p);
(b) advertising and promotional expenses incurred in seeking investments for the Company;
(c) rent, telephone, utilities, office furniture and furnishings, and other office expenses of the Advisor and the Company, except as any of such expenses relates to an office maintained by the Company separate from the office of the Advisor; and
(d) miscellaneous administrative expenses relating to performance by the Advisor of its functions hereunder.
16. EXPENSES OF THE COMPANY. The Company shall pay all of its expenses not assumed by the Advisor and, without limiting the generality of the foregoing, it is specifically agreed that the following expenses of the Company shall be paid by the Company and shall not be paid by the Advisor:
(a) the cost of money borrowed by the Company;
(b) income taxes, taxes and assessments on real property, and all other taxes applicable to the Company;
(c) legal, auditing, accounting, underwriting, brokerage, listing, registration and other fees, printing, and engraving and other expenses, and taxes incurred in connection with the issuance, distribution, transfer, registration, and stock exchange listing of the Company's securities;
(d) fees, salaries, and expenses paid to officers and employees of the Company who are not directors, officers or employees of the Advisor, or of any company that controls, is controlled by, or is under common control with the Advisor;
(e) expenses directly connected with the origination or purchase of
Mortgage Loans and with the acquisition, disposition, and ownership of real
estate equity interests or other property (including the costs of foreclosure,
insurance, legal, protective, brokerage, maintenance, repair, and property
improvement services) and including all compensation, traveling expenses, and
other direct costs associated with the Advisor's employees or other personnel
engaged in (i) real estate transaction legal services, (ii) internal auditing,
(iii) foreclosure and other mortgage finance services, (iv) sale or solicitation
for sale of mortgages, (v) engineering and appraisal services, and (vi) transfer
agent services;
(f) expenses of maintaining and managing real estate equity interests;
(g) insurance, as required by the Directors (including directors' liability insurance);
(h) the expenses of organizing, revising, amending, converting, modifying, or terminating the Company;
(i) expenses connected with payments of dividends or interest or distributions in cash or any other form made or caused to be made by the Directors to holders of securities of the Company;
(j) all expenses connected with communications to holders of securities of the Company and the other bookkeeping and clerical work necessary in maintaining relations with holders of securities, including the cost of printing and mailing certificates for securities and proxy solicitation materials and reports to holders of the Company's securities;
(k) the cost of any accounting, statistical, bookkeeping or computer equipment or computer time necessary for maintaining the books and records of the Company and for preparing and filing Federal, State and Local tax returns;
(l) transfer agent's, registrar's, and indenture trustee's fees and charges;
(m) legal, accounting, investment banking, and auditing fees and expenses charged by independent parties performing these services not otherwise included in clauses (c) and (e) of this Section 16;
(n) expenses incurred by the Advisor, arising from the sales of Company properties, including those expenses related to carrying out foreclosure proceedings;
(o) commercially reasonable fees paid to the Advisor for efforts to liquidate mortgages before maturity, such as the solicitation of offers and negotiation of terms of sale;
(p) costs and expenses connected with computer services, including but not limited to employee or other personnel compensation, hardware and software costs, and related development and installation costs associated therewith;
(q) costs and expenses associated with risk management (i.e. insurance relating to the Company's assets);
(r) loan refinancing compensation; and
(s) expenses associated with special services requested by the Directors pursuant to Section 14 hereof.
17. OTHER ACTIVITIES OF ADVISOR. The Advisor, its officers, directors, or employees or any of its Affiliates may engage in other business activities related to real estate investments or act
as advisor to any other person or entity (including another real estate investment trust), including those with investment policies similar to the Company, and the Advisor and its officers, directors, or employees and any of its Affiliates shall be free from any obligation to present to the Company any particular investment opportunity that comes to the Advisor or such persons, regardless of whether such opportunity is in accordance with the Company's Business Plan. However, to minimize any possible conflict, the Advisor shall consider the respective investment objectives of, and the appropriateness of a particular investment to each such entity in determining to which entity a particular investment opportunity should be presented. If appropriate to more than one entity, the Advisor shall present the investment opportunity to the entity that has had sufficient uninvested funds for the longest period of time.
18. LIMITATION ON OPERATING EXPENSES. To the extent that the Operating Expenses of the Company for any fiscal year exceed the lesser of (a) 1.5% of the average of the Book Values of Invested Assets of the Company at the end of each calendar month of such fiscal year, or (b) the greater of 1.5% of the average of the Net Asset Value of the Company at the end of each calendar month of such fiscal year or 25% of the Company's Net Income, the Advisor
shall a refund to the Company from the fees paid to the Advisor the amount if any, by which the Operating Expenses so exceed the applicable amount; provided, however, that the Advisor shall not be required to refund to the Company, with respect to any fiscal year, any amount which exceeds the aggregate of the Gross Asset Fees paid to the Advisor under this Agreement with respect to such fiscal year.
19. TERM; TERMINATION OF AGREEMENT. This Agreement shall continue in force until the next Annual Meeting of Stockholders of the Company, and, thereafter, it may be renewed from year to year, subject to any required approval of the Stockholders of the Company and, if any Director is an Affiliate of the Advisor, the approval of a majority of the Directors who are not so affiliated. Notice of renewal shall be given in writing by the Directors to the Advisor not less than 60 days before the expiration of this Agreement or of any extension thereof. This Agreement may be terminated for any reason without penalty upon 60 days' written notice by the Company to the Advisor or 120 days' written notice by the Advisor to the Company, in the former case by the vote of a majority of the Directors who are not Affiliates of the Advisor or by the vote of holders of a majority of the outstanding shares of the Company. Notwithstanding the foregoing, however, in the event of any
material change in the ownership, control, or management of the Advisor, the Company may terminate this Agreement without penalty and without advance notice to the Advisor.
20. AMENDMENTS. This Agreement shall not be changed, modified, terminated or discharged in whole or in part except by an instrument in writing signed by both parties hereto, or their respective successors or assigns, or otherwise as provided herein.
21. ASSIGNMENT. This Agreement shall not be assigned by the Advisor without the prior consent of the Company. The Company may terminate this Agreement in the event of its assignment by the Advisor without the prior consent of the Company. Such an assignment or any other assignment of this Agreement shall bind the assignee hereunder in the same manner as the Advisor is bound hereunder. This Agreement shall not be assignable by the Company without the consent of the Advisor, except in the case of assignment by the Company to a corporation, association, trust, or other organization that is a successor to the Company. Such successor shall be bound hereunder and by the terms of said assignment in the same manner as the Company is bound hereunder.
22. DEFAULT, BANKRUPTCY, ETC. At the option solely of the Directors, this Agreement shall be and become terminated
immediately upon written notice of termination from the Directors to the Advisor if any of the following events shall occur:
(a) If the Advisor shall violate any provision of this Agreement, and after notice of such violation shall not cure such default within 30 days; or
(b) If the Advisor shall be adjudged bankrupt or insolvent by a court of competent jurisdiction, or an order shall be made by a court of competent jurisdiction for the appointment of a receiver, liquidator, or trustee of the Advisor or of all or substantially all of its property by reason of the foregoing, or approving any petition filed against the Advisor for its reorganization, and such adjudication or order shall remain in force or unstayed for a period of 30 days; or
(c) If the Advisor shall institute proceedings for voluntary bankruptcy or shall file a petition seeking reorganization under the Federal bankruptcy laws, or for relief under any law for the relief of debtors, or shall consent to the appointment of a receiver of itself or of all or substantially all its property, or shall make a general assignment for the benefit of its creditors, or shall admit in writing its inability to pay its debts generally, as they become due.
The Advisor agrees that if any of the events specified in subsections
(b) and (c) of this Section 22 shall occur, it will give written notice thereof
to the Directors within seven days after the occurrence of such event.
23. ACTION UPON TERMINATION. From and after the effective date of termination of this Agreement, pursuant to Sections 19, 21 or 22 hereof, the Advisor shall not be entitled to compensation for further services hereunder but shall be paid all compensation accruing to the date of termination. The Advisor shall forthwith upon such termination:
(a) pay over to the Company all monies collected and held for the account of the Company pursuant to this Agreement;
(b) deliver to the Directors a full accounting, including a statement showing all payments collected by it and a statement of any monies held by it, covering the period following the date of the last accounting furnished to the Directors; and
(c) deliver to the Directors all property and documents of the Company then in the custody of the Advisor.
24. MISCELLANEOUS. The Advisor shall be deemed to be in a fiduciary relationship to the shareholders of the Company. The Advisor assumes no responsibility under this Agreement other than
to render the services called for hereunder in good faith, and shall not be responsible for any action of the Directors in following or declining to follow any advice or recommendations of the Advisor. Neither the Advisor nor any of its shareholders, directors, officers, or employees shall be liable to the Company, the Directors, the holders of securities of the Company or to any successor or assign of the Company for any losses arising from the operation of the Company if the Advisor had determined, in good faith, that the course of conduct which caused the loss or liability was in the best interests of the Company and the liability or loss was not the result of negligence or misconduct by the Advisor. However, in no event will the directors, officers or employees of the Advisor be personally liable for any act or failure to act unless it was the result of such person's willful misfeasance, bad faith, gross negligence or reckless disregard of duty.
25. NOTICES. Any notice, report, or other communication required or permitted to be given hereunder shall be in writing unless some other method of giving such notice, report, or other communication is accepted by the party to whom it is given, and
shall be given by being delivered at the following addresses of the parties hereto:
The Directors and/or the Company:
Transcontinental Realty Investors, Inc.
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: President
The Advisor:
Basic Capital Management, Inc.
10670 North Central Expressway
Suite 600
Dallas, Texas 75231
Attention: Executive Vice President and
Chief Financial Officer
Either party may at any time give notice in writing to the other party of a change of its address for the purpose of this Section 25.
26. HEADINGS. The section headings hereof have been inserted for convenience of reference only and shall not be construed to affect the meaning, construction, or effect of this Agreement.
27. GOVERNING LAW. This Agreement has been prepared, negotiated and executed in the State of Texas. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Texas applicable to agreements made and to be performed entirely in the State of Texas.
28. EXECUTION. This instrument is executed and made on behalf of the Company by an officer of the Company, not individually but solely as an officer, and the obligations under this Agreement are not binding upon, nor shall resort be had to the private property of, any of the Directors, stockholders, officers, employees, or agents of the Company personally, but bind only the Company property.
IN WITNESS WHEREOF, TRANSCONTINENTAL REALTY INVESTORS, INC. and BASIC CAPITAL MANAGEMENT, INC., by their duly authorized officers, have signed these presents all as of the day and year first above written.
TRANSCONTINENTAL REALTY INVESTORS, INC.
By: /s/ Randall Paulson
-------------------------------------
Randall M. Paulson
President
|
BASIC CAPITAL MANAGEMENT, INC.
By: /s/ Thomas A. Holland
-------------------------------------
Thomas A. Holland
Executive Vice President
|
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 3 MOS |
| FISCAL YEAR END | DEC 31 1998 |
| PERIOD START | JAN 01 1998 |
| PERIOD END | SEP 30 1998 |
| CASH | 19,657 |
| SECURITIES | 0 |
| RECEIVABLES | 2,416 |
| ALLOWANCES | 891 |
| INVENTORY | 0 |
| CURRENT ASSETS | 0 |
| PP&E | 377,930 |
| DEPRECIATION | 58,500 |
| TOTAL ASSETS | 360,103 |
| CURRENT LIABILITIES | 0 |
| BONDS | 258,782 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 39 |
| OTHER SE | 92,544 |
| TOTAL LIABILITY AND EQUITY | 360,103 |
| SALES | 0 |
| TOTAL REVENUES | 51,414 |
| CGS | 0 |
| TOTAL COSTS | 27,355 |
| OTHER EXPENSES | 7,882 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 16,865 |
| INCOME PRETAX | 8,035 |
| INCOME TAX | 0 |
| INCOME CONTINUING | 8,035 |
| DISCONTINUED | 0 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 8,035 |
| EPS PRIMARY | 2.07 |
| EPS DILUTED | 2.07 |