<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended JUNE 30, 2000
-------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number 0-8003
TARRAGON REALTY INVESTORS, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 94-2432628
--------------------------------------------- -------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
1775 Broadway, 23rd Floor, New York, NY 10019
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
(212) 949-5000
----------------------------------------------------
(Registrant's telephone number, including area code)
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
--- ---
Common Stock, $.01 per value 6,989,926
---------------------------- ------------------------------
(Class) (Outstanding at July 31, 2000)
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements for the period ended June 30,
2000, have not been audited by independent certified public accountants, but, in
our opinion, all adjustments (consisting of normal recurring accruals) necessary
for a fair presentation of consolidated financial position, consolidated results
of operations, and consolidated cash flows at the dates and for the periods
indicated have been included.
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
---------- ------------
Assets 2000 1999
---------- ------------
<S> <C> <C>
Real estate held for sale (net of accumulated depreciation of
$24,721 in 2000 and $25,282 in 1999) ....................... $ 103,448 $ 52,885
Less - allowance for estimated losses ........................ (1,156) (1,156)
--------- ---------
102,292 51,729
Real estate held for investment (net of accumulated
depreciation of $43,243 in 2000 and $36,143 in 1999) ....... 352,391 253,595
Investments in and advances to partnerships .................. 30,513 48,834
Cash and cash equivalents .................................... 1,605 3,951
Restricted cash .............................................. 8,085 6,538
Other assets, net ............................................ 16,365 14,418
--------- ---------
$ 511,251 $ 379,065
========= =========
Liabilities and Stockholders' Equity
Liabilities
Notes, debentures, and interest payable (including $6,349
in 2000 and $5,108 in 1999 due to affiliates) .............. $ 427,435 $ 287,767
Other liabilities ............................................ 15,389 18,305
--------- ---------
442,824 306,072
Commitments and contingencies.................................
Minority interest ............................................ 5,162 --
Stockholders' equity
Common stock, $.01 par value; authorized shares, 20,000,000;
shares outstanding, 7,013,127 in 2000 and 7,993,999 in 1999
(after deducting 3,294,742 shares in 2000 and 2,891,713
shares in 1999 held in treasury) ........................... 70 80
Special stock, $.01 par value; authorized shares,
7,500,000; shares outstanding, none ....................... -- --
Preferred stock, $.01 par value; authorized shares, 2,500,000;
shares outstanding, 595,726 in 2000; liquidation preference,
$7,149 or $12 per share ................................... 6 --
Paid-in capital .............................................. 295,578 299,528
Accumulated dividends in excess of accumulated earnings ...... (232,276) (226,575)
Accumulated other comprehensive income (loss) ................ (113) (40)
--------- ---------
63,265 72,993
--------- ---------
$ 511,251 $ 379,065
========= =========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
2
<PAGE> 3
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue
Rentals ............................ $ 22,371 $ 18,156 $ 43,092 $ 36,379
Interest ........................... 50 391 147 428
Management fees .................... 99 135 198 254
Equity in income
(loss) of partnerships .......... 320 26 (239) (481)
-------- -------- -------- --------
22,840 18,708 43,198 36,580
Expenses
Property operations ................ 11,108 8,962 21,632 18,148
Interest (including $97 in the three
month period and $156 in the six
month period ended June 30,
2000, to affiliates) ............ 7,820 5,373 14,686 10,516
Depreciation ....................... 3,710 2,832 6,850 5,326
Amortization of goodwill ........... 127 124 254 248
General and administrative
Corporate ....................... 1,338 1,393 2,849 2,721
Property ........................ 976 805 1,991 1,859
-------- -------- -------- --------
25,079 19,489 48,262 38,818
-------- -------- -------- --------
(Loss) before minority interest in
income of consolidated partnership,
gain on sale of real estate, gain on
sale of investments, gain on
insurance settlement, litigation
settlement, and extraordinary items (2,239) (781) (5,064) (2,238)
Minority interest in income of
consolidated partnership ........... (98) -- (162) --
Gain on sale of real estate .......... 281 3,923 378 4,261
Gain on sale of investments .......... 26 -- 46 --
Gain on insurance settlement ...... -- 231 -- 231
Litigation settlement ................ -- (350) -- (350)
-------- -------- -------- --------
Income (loss) from continuing
operations ......................... (2,030) 3,023 (4,802) 1,904
Extraordinary items .................. (826) (244) (839) (248)
-------- -------- -------- --------
Net income (loss) .................... (2,856) 2,779 (5,641) 1,656
Dividends on cumulative
preferred stock .................... (60) -- (60) --
-------- -------- -------- --------
Net income (loss) available to
common stockholders ................ $ (2,916) $ 2,779 $ (5,701) $ 1,656
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
3
<PAGE> 4
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Other comprehensive income (loss):
Net income (loss) .................... $ (2,856) $ 2,779 $ (5,641) $ 1,656
Unrealized net gains (losses) on
marketable equity securities .... (10) 8 (27) 11
Realized gains on marketable
equity securities ............... (26) -- (46) --
------------- ------------- ------------- -------------
Net income (loss) recognized in other
comprehensive income (loss) ........ (36) 8 (73) 11
------------- ------------- ------------- -------------
Comprehensive income (loss) .......... $ (2,892) $ 2,787 $ (5,714) $ 1,667
============= ============= ============= =============
Earnings per common share
Income (loss) from continuing operations
available to common stockholders ... $ (.28) $ .37 $ (.62) $ .23
Extraordinary items .................. (.11) (.03) (.11) (.03)
------------- ------------- ------------- -------------
Net income (loss) available to
common stockholders ................ $ (.39) $ .34 $ (.73) $ .20
============= ============= ============= =============
Weighted average shares of
common stock used in computing
earnings per common share .......... 7,539,249 8,287,186 7,756,514 8,353,594
============= ============= ============= =============
Earnings per common share -
assuming dilution
Income (loss) from continuing operations
available to common stockholders ... $ (.28) $ .36 $ (.62) $ .23
Extraordinary items .................. (.11) (.03) (.11) (.03)
------------- ------------- ------------- -------------
Net income (loss) available to
common stockholders ................ $ (.39) $ .33 $ (.73) $ .20
============= ============= ============= =============
Weighted average shares of common
stock used in computing earnings per
common share - assuming dilution ... 7,539,249 8,394,791 7,756,514 8,462,781
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
4
<PAGE> 5
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
--------------- ------------
Shares Amount Shares Amount
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 ... -- $ -- 7,993,999 $ 80
Exchange of preferred stock
for common stock ........... 596,836 6 (596,836) (6)
Repurchase of shares
of common stock ............ -- -- (403,029) (4)
Retirement of preferred
stock ...................... (1,110) -- -- --
Stock options exercised ...... -- -- 18,993 --
Dividends on cumulative
preferred stock ............ -- -- -- --
Net (loss) recognized in
other comprehensive
income (loss) .............. -- -- -- --
Net (loss) ................... -- -- -- --
---------- ---------- ---------- ----------
Balance, June 30, 2000 ....... 595,726 $ 6 7,013,127 $ 70
========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Dividends Accumulated
in Excess of Other
Paid-in Accumulated Comprehensive Stockholders'
Capital Earnings Income (Loss) Equity
---------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Balance, December 31, 1999 ... $ 299,528 $ (226,575) $ (40) $ 72,993
Exchange of preferred stock
for common stock ........... -- -- -- --
Repurchase of shares
of common stock ............ (4,079) -- -- (4,083)
Retirement of preferred
stock ...................... (11) -- -- (11)
Stock options exercised ...... 140 -- -- 140
Dividends on cumulative
preferred stock ............ -- (60) -- (60)
Net (loss) recognized in
other comprehensive
income (loss) .............. -- -- (73) (73)
Net (loss) ................... -- (5,641) -- (5,641)
---------- ---------- ---------- ----------
Balance, June 30, 2000 ....... $ 295,578 $ (232,276) $ (113) $ 63,265
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
5
<PAGE> 6
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
----------------------
2000 1999
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Rentals collected ........................................ $ 43,594 $ 36,744
Interest collected ....................................... 110 70
Interest paid (including $59 to affiliates in 2000) ...... (14,240) (9,580)
Payments for property operations ......................... (23,422) (18,252)
General and administrative expenses paid
Corporate ............................................. (2,711) (3,049)
Property .............................................. (2,034) (1,914)
Deferred borrowing costs paid ............................ (1,704) (528)
-------- --------
Net cash provided by (used in) operating activities ... (407) 3,491
Cash Flows from Investing Activities
Acquisition of real estate ............................... (725) (1,674)
Proceeds from the sale of real estate .................... 4,823 6,489
Real estate improvements ................................. (24,758) (5,119)
Earnest money deposits paid, net ......................... (1,056) (337)
Note receivable collections .............................. 25 76
Proceeds from sale of marketable equity securities ....... 385 --
Net contributions and advances to partnerships ........... (3,254) (5,966)
-------- --------
Net cash (used in) investing activities ............... (24,560) (6,531)
Cash Flows from Financing Activities
Proceeds from borrowings ................................. 78,773 23,143
Payments of mortgage notes payable ....................... (52,416) (11,697)
Advances (repayment of advances) from affiliates, net .... 1,144 (1,518)
Margin account repayments, net ......................... (422) (1,101)
Replacement escrow receipts (deposits), net ............. 190 (13)
Distribution from partnerships' financing activities ..... 381 1,771
Repurchase of shares of common stock ..................... (4,083) (3,585)
Retirement of preferred stock ............................ (11) --
Proceeds from the exercise of stock options .............. 140 64
Dividends to common stockholders ......................... (1,075) (1,640)
-------- --------
Net cash provided by financing activities ............. 22,621 5,424
-------- --------
Net increase (decrease) in cash and cash equivalents ....... (2,346) 2,384
Cash and cash equivalents, beginning of period ............. 3,951 2,442
-------- --------
Cash and cash equivalents, end of period ................... $ 1,605 $ 4,826
======== ========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
6
<PAGE> 7
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
Reconciliation of net income (loss) to net cash provided by
(used in) operating activities:
Net income (loss) .............................................. $ (5,641) $ 1,656
Write-off of deferred borrowing costs in connection with
refinancings ................................................ 337 14
Litigation settlement .......................................... -- 350
Gain on insurance settlement ................................... -- (231)
Gain on sale of investments .................................... (46) --
Gain on sale of real estate .................................... (378) (4,261)
Minority interest in income of consolidated partnership ........ 162 --
Depreciation and amortization .................................. 8,462 6,573
Equity in loss of partnerships ................................. 239 481
Interest on advances to partnerships ........................... (37) (347)
Noncash compensation related to stock options exercised ........ -- 37
Changes in other assets and liabilities, net of effects of
noncash investing and financing activities:
(Increase) decrease in interest receivable .................. (1) 1
(Increase) in other assets .................................. (3,207) (1,051)
Increase (decrease) in other liabilities .................... (219) 111
Increase (decrease) in interest payable ..................... (78) 158
--------- ---------
Net cash provided by (used in) operating activities ................ $ (407) $ 3,491
========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Changes in assets and liabilities in connection with the
purchase of real estate:
Real estate .................................................... $ 140,876 $ 9,493
Restricted cash ................................................ 609 --
Investments in and advances to partnerships .................... (21,089) --
Other assets ................................................... 1,295 302
Notes and interest payable ..................................... (114,742) (7,973)
Other liabilities .............................................. (1,224) (148)
Minority interest .............................................. (5,000) --
--------- ---------
Cash paid ................................................... $ 725 $ 1,674
========= =========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
7
<PAGE> 8
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30,
----------------------
2000 1999
-------- --------
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES (Continued):
Assets disposed of and liabilities released in connection
with the sale of real estate:
Real estate ............................................................... $ 6,984 $ 10,524
Other assets .............................................................. (8) 200
Notes and interest payable ................................................ (2,497) (8,186)
Other liabilities ......................................................... (34) (303)
Gain on sale .............................................................. 378 4,261
Extraordinary loss on early extinguishment of debt ........................ -- (7)
-------- --------
Cash received .......................................................... $ 4,823 $ 6,489
======== ========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
8
<PAGE> 9
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
NOTE 1. BASIS OF PRESENTATION
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 six month period ended June 30, 2000, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. For further information, refer to the Consolidated
Financial Statements and Notes included in our Annual Report on Form 10-K for
the year ended December 31, 1999. Dollar amounts in tables are in thousands.
Certain 1999 balances have been reclassified to conform to the 2000
presentation.
NOTE 2. REAL ESTATE
In January 2000, we sold three of the four buildings (representing approximately
two-thirds of the net carrying value) of Rancho Sorrento Office Park for $6.5
million, receiving $3.8 million of net cash proceeds after the payoff of the
mortgage and other closing costs. We recognized a $38,000 gain in connection
with this transaction.
In February 2000, we sold a portion of our property in Charlotte, North
Carolina, remaining after the May 1999 sale of the K-Mart building. We gave the
buyer a $140,000 mortgage and received the balance of the $175,000 sale price in
cash. We recognized a gain of $59,000 on the sale. In May 2000, we sold an
additional portion of this property for $1.1 million. After closing costs, we
received net cash of $1 million and recognized a gain of $281,000.
Also in February 2000, we purchased our partner's interest in National Omni
Associates, L.P., for $875,000. The operations of 5600 Collins Avenue, the
partnership's sole property, are now consolidated. We began the condominium
conversion of this property during 1999, and it is classified as held for sale
in the accompanying June 30, 2000, Consolidated Balance Sheet. As of July 31,
2000, we had entered into contracts and reservations for the sale of over 60% of
the units at this project.
Additionally, in February 2000, Tarragon acquired the interests of Robert C.
Rohdie and his affiliates in ten apartment communities recently completed or
currently under construction, as well as in all joint venture development
projects still in the planning stages, for a total value of up to $10 million.
Mr. Rohdie, Tarragon's joint venture partner in the development of these
projects, contributed his equity interests to an operating partnership formed by
Tarragon in exchange for a preferred interest in the operating partnership which
gives him a guaranteed fixed return of $200,000 for the first two years,
increasing by $40,000 per year for the next five years, plus an annual amount
equal to the dividends payable on 98,160 shares of Tarragon common stock.
In addition, upon completion and lease up of each of the five identified
apartment communities presently under construction or in advanced stages of
development planning, Mr. Rohdie will receive an increase in his guaranteed
fixed return based on the previously agreed value of his equity in the completed
property. After one year, Mr. Rohdie has the right to convert his preferred
interest in the operating partnership into 98,160 shares of our common stock and
preferred stock with a face value of up to $8 million and a dividend equal to
his guaranteed fixed return from the operating partnership. If we do not have
preferred stock at the time of the conversion, or at our discretion, we may pay
the cash value of Mr. Rohdie's preferred interest over three years. Because
Tarragon controls the new operating partnership, its operations are now
consolidated.
9
<PAGE> 10
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 2. REAL ESTATE (Continued)
Mr. Rohdie's preferred interest in the operating partnership has been initially
valued at $5 million (based on the value of five of the ten properties that have
been completed). Once the remaining five properties are completed and leased up,
Mr. Rohdie will receive an additional preferred interest in the operating
partnership to be valued at up to $5 million. Mr. Rohdie's interest in the
operating partnership is presented as a minority interest in the accompanying
June 30, 2000, Consolidated Balance Sheet.
This transaction was recorded using the purchase method of accounting. The value
of Mr. Rohdie's preferred interest in the operating partnership was allocated to
the completed assets of the operating partnership based on relative fair values.
The guaranteed fixed return payable to Mr. Rohdie has been recorded based on an
annual effective yield of 8.67% and is presented as minority interest in income
of consolidated partnership in the accompanying Consolidated Statements of
Operations for the three and six month periods ended June 30, 2000.
In connection with this transaction, Tarragon formed a new development
subsidiary to expand our real estate development and renovation program. Mr.
Rohdie joined Tarragon as President and Chief Executive Officer of Tarragon
Development Corporation and as a member of our Board of Directors effective
February 7, 2000.
During the second quarter of 2000, we began construction of a 199 unit luxury
apartment community in Ocoee, Florida. Total development costs are projected to
be $16.6 million, and we closed a $14 million construction loan in June 2000.
In June 2000, we reclassified seven apartment properties with an aggregate 882
units and an aggregate net carrying value of $16.2 million to real estate held
for sale. These properties are currently under contract to sell to third party
purchasers. We will cease depreciating these properties in July 2000. Because
the estimated fair values of these properties less their estimated selling costs
exceed their respective net carrying values, no losses were recognized upon
their reclassification to held for sale.
NOTE 3. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
Investments in and advances to partnerships, accounted for using the equity
method, consisted of the following at June 30, 2000:
<TABLE>
<S> <C>
801 Pennsylvania Avenue ................ $ 29
Ansonia Apartments, L.P. ............... 20,901
Antelope Pines Estates, L.P. ........... 509
Calistoga Ranch Owners, L.L.C .......... 400
Larchmont Associates, L.P. ............. 1,945
Merritt 8 Acquisitions, L.L.C .......... 2,384
Merritt Stratford, L.L.C ............... 516
Sacramento Nine ........................ 1,021
Stone Creek Associates I, L.L.C ........ 1,650
Woodcreek Garden Apartments, L.P. ...... 1,158
-------
$30,513
=======
</TABLE>
10
<PAGE> 11
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 3. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS (Continued)
In January 2000, we acquired a 50% interest in Merritt Stratford with a cash
investment of $516,000. In January 2000, Merritt Stratford purchased for future
development a 19 acre parcel of land in Merritt 8 Corporate Park in Stratford,
Connecticut, adjacent to the property owned by Merritt 8 Acquisitions.
In June 2000, Ansonia refinanced Lakeview Apartments with a new $2.9 million
mortgage. After the payoff of the prior mortgage and closing costs, Ansonia
received net cash proceeds of $381,000, all of which was distributed to
Tarragon. In July 2000, Ansonia refinanced two of its apartment communities,
Parkview and Sagamore Hills, with new mortgages totaling $14.3 million. After
the payoff of the prior mortgages and paying closing costs, Ansonia received net
cash proceeds of $2.6 million. Ansonia used $700,000 to pay down the mortgage
secured by one of its other properties, Nutmeg Woods, and distributed the
remaining $1.9 million to Tarragon. Tarragon used $1 million of this amount to
pay down the $2 million bridge loan obtained in May 2000.
Below are summarized financial data for Ansonia and other partnerships still
owned as of and for the six months ended June 30, 2000, and summarized operating
data of the partnerships in which we acquired Mr. Rohdie's interests in 2000 for
the period prior to their acquisition (unaudited):
<TABLE>
<CAPTION>
June 30, 2000
Acquired All
Ansonia Other Partnerships Partnerships
--------- --------- ------------ ------------
<S> <C> <C> <C> <C>
Real estate $ 98,803 $ 91,630 $ -- $ 190,433
Accumulated depreciation (3,827) (4,060) -- (7,887)
Other assets, net 3,528 4,132 -- 7,660
Notes and interest payable (75,196) (67,039) -- (142,235)
Other liabilities (6,502) (4,362) -- (10,864)
--------- --------- --------- ---------
Partners' capital $ 16,806 $ 20,301 $ -- $ 37,107
========= ========= ========= =========
Our proportionate share of capital $ 16,806 $ 5,671 $ -- $ 22,477
Advances 4,095 3,941 -- 8,036
--------- --------- --------- ---------
Investments in and advances to
partnerships $ 20,901 $ 9,612 $ -- $ 30,513
========= ========= ========= =========
Six months ended June 30, 2000
Rental revenue $ 8,854 $ 7,263 $ 1,288 $ 17,405
Property operating expenses (4,721) (3,147) (593) (8,461)
Interest expense (3,251) (2,232) (772) (6,255)
Depreciation expense (1,284) (1,088) (291) (2,663)
--------- --------- --------- ---------
Net income (loss) $ (402) $ 796 $ (368) $ 26
========= ========= ========= =========
Equity in income (loss) of
partnerships $ (402) $ 421 $ (258) $ (239)
========= ========= ========= =========
</TABLE>
11
<PAGE> 12
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 4. INVESTMENTS IN MARKETABLE EQUITY SECURITIES
Investments in marketable equity securities consist of securities of
unaffiliated real estate companies and are available for sale. In accordance
with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," the investments with a cost basis of $210,000 as of June 30, 2000,
are carried at fair value of $97,000 as of June 30, 2000, and are included in
"Other assets" in the accompanying Consolidated Balance Sheets. Unrealized
holding gains and losses are included in other comprehensive income (loss).
Unrealized holding gains and losses, securities sold, and realized gains on the
sale of marketable equity securities were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2000 2000
-------------- --------------
<S> <C> <C>
Unrealized holding gains ........................................ $ 10 $ 10
Unrealized holding losses ....................................... (20) (37)
Marketable equity securities sold ............................... 183 385
Cost basis of marketable equity securities sold ................. 157 339
Realized gains on the sale of marketable equity securities ...... 26 46
</TABLE>
NOTE 5. NOTES, DEBENTURES, AND INTEREST PAYABLE
In February 2000, the mortgage secured by liens on both the retail and office
portions of Emerson Center was modified and extended. The mortgage was increased
from $6.9 million to $7.9 million, and maturity date was extended to February
2003. At closing of this transaction, Tarragon received net cash proceeds of
$900,000 after closing costs.
In March 2000, we obtained a $4 million bridge loan that bears interest at prime
plus 1% and matures in October 2000. The loan is secured by assignment of
certain stock and partnership interests. In June 2000, we repaid $2.3 million of
this loan with proceeds from mortgage refinancing. We repaid the remaining
balance of the loan in August 2000 with proceeds from mortgage refinancing.
In May 2000, we obtained a $2 million bridge loan secured by 300,000 shares of
Tarragon common stock. $500,000 of this loan was repaid in June 2000, and the
remaining balance was repaid in July and August 2000 with proceeds received from
mortgage refinancing.
In June 2000, we obtained a $31 million revolving loan secured by a mortgage on
5600 Collins. Net proceeds from this loan will be used to finance the
improvements to this property in connection with the condominium conversion. At
closing, $28 million of this loan was funded, and, after the payoff of the
existing mortgages totaling $26.1 million, establishing required escrows, and
paying closing costs, we received net cash proceeds of $1.2 million. The
remaining $3 million of this loan represents an interest reserve and renovation
loan funds and will be advanced as needed in the future.
During the first half of 2000, we obtained permanent mortgage financing totaling
$26.7 million on five properties. After the payoff of the existing mortgages and
paydowns on the bridge loans discussed above totaling $22.8 million,
establishing required escrows, and paying closing costs, we received net cash
proceeds of $3.1 million.
12
<PAGE> 13
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 5. NOTES, DEBENTURES, AND INTEREST PAYABLE (Continued)
During the first six months of 2000, we received net advances from affiliates of
William S. Friedman, our President and Chief Executive Officer and a member of
our Board of Directors, totaling $1.1 million pursuant to a two year line of
credit arrangement. Advances under the line of credit, totaling $6.3 million as
of June 30, 2000, bear interest at LIBOR plus 1% per annum and are payable in
January 2001.
Extraordinary items presented in the Consolidated Statements of Operations for
the three and six month periods ended June 30, 2000, represent prepayment
penalties and the write-off of deferred borrowing costs in connection with
certain mortgage refinancings.
NOTE 6. EARNINGS PER COMMON SHARE
Earnings per common share have been computed based on the weighted average
number of shares of common stock outstanding for the three and six month periods
ended June 30, 2000 and 1999. Following is a reconciliation of the weighted
average shares of common stock outstanding used in the computation of earnings
per common share and earnings per common share - assuming dilution. The effect
of stock options on weighted average shares of common stock outstanding -
assuming dilution for the three and six month periods ended June 30, 2000, is
not reflected because their effect is anti-dilutive due to net losses in both
periods. The effect of outstanding stock options with exercise prices exceeding
the average market price of our common stock during the three and six month
periods ended June 30, 2000 and 1999, is not reflected because their effect is
anti-dilutive.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average shares of
common stock outstanding ............. 7,539,249 8,287,186 7,756,514 8,353,594
Stock options .......................... -- 107,605 -- 109,187
--------- --------- --------- ---------
Weighted average shares of
common stock outstanding -
assuming dilution .................... 7,539,249 8,394,791 7,756,514 8,462,781
========= ========= ========= =========
</TABLE>
NOTE 7. PREFERRED STOCK EXCHANGE OFFER
On May 30, 2000, Tarragon offered to exchange one share of 10% Cumulative
Preferred Stock for each share of common stock held by its stockholders, up to a
maximum of 2,000,000 shares. The class of 10% Cumulative Preferred Stock is
designated to consist of 2,500,000 shares. The number of shares validly tendered
and accepted for exchange was 596,836. 1,903,164 shares are available for future
distribution in connection with the acquisition of assets, or for other uses, at
the discretion of our Board of Directors. On May 31, 2000, after Tarragon issued
596,836 shares of the 10% Cumulative Preferred Stock pursuant to the exchange
offer, there were 7,056,751 shares of common stock outstanding.
13
<PAGE> 14
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 7. PREFERRED STOCK EXCHANGE OFFER (Continued)
The 10% Cumulative Preferred Stock pays a fixed dividend of $1.20 per year and
has a liquidation value of $12 per share. It is a class of equity and is junior
in ranking in right of payment to our outstanding indebtedness but is senior to
common stock. It ranks on a parity as to dividends and liquidation with all
other shares of special or preferred stock which we might issue. Shares of 10%
Cumulative Preferred Stock may be redeemed at Tarragon's option at any time
after June 30, 2003, at the liquidation value plus a premium of $0.50 per share
reducing by $0.10 per share each year thereafter. No mandatory redemption or
"sinking fund" is required. The 10% Cumulative Preferred Stock has only the
voting rights specifically required by law under the Nevada General Corporation
Law, and is not convertible into any other securities of Tarragon.
Beginning September 15, 2000, dividends on the 10% Cumulative Preferred Stock
are payable quarterly on the 15th day of March, June, September, and December of
each year on a cumulative basis.
NOTE 8. INCOME TAXES
In February 2000, we filed a revocation of REIT election with the Internal
Revenue Service, terminating our status as a REIT effective December 1, 1999
(the beginning of the 2000 tax year). The results of our operations are now
subject to income taxes. No current or deferred income tax expense has been
recognized for the three and six month periods ended June 30, 2000, resulting
from the change in tax status due to the application of net operating loss
carryforwards.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Tarragon is a party to various claims and routine litigation arising in the
ordinary course of business. We do not believe that the results of such claims
and litigation, individually or in the aggregate, will have a material adverse
affect on our business, financial position, or results of operations.
NOTE 10. SUBSEQUENT EVENTS
In July 2000, we closed a $24 million mortgage secured by Devonshire Apartments.
After the existing loan was paid off, the remaining balance of the $2 million
bridge loan was paid off, establishing required escrows, and paying closing
costs, we received net cash proceeds of $3.8 million.
In August 2000, we obtained a $4.9 million mortgage secured by Creekwood North
Apartments. The proceeds of the loan were used to repay the existing mortgage
secured by the property, establish required escrows, pay closing costs, and pay
off the remaining balance of the $4 million bridge loan obtained in March 2000.
Also in August 2000, we obtained a $4.6 million mortgage secured by Courtyard at
the Park Apartments. We received net cash proceeds of $294,000 at closing after
the existing mortgage was paid off, required escrows were funded, and closing
costs were paid.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Please read this discussion along with the Consolidated Financial Statements and
Notes included elsewhere in this report.
Liquidity and Capital Resources
Our principal sources of cash are property operations, borrowings, and proceeds
from the sale of properties. We believe these sources will continue to meet our
cash requirements, including debt service payments, property maintenance and
improvements, development costs on construction properties, projected purchases
of operating properties, dividends, and planned repurchases of common stock.
Although we expect these sources of cash to be more than sufficient to fund
planned uses of cash, we make no assurance that the expected sales and
refinancings of properties will be completed as planned.
Net cash from property operations (rentals collected less payments for property
operations) provided $20.2 million in the first half of 2000, up 9% over the
corresponding period in 1999 primarily due to the addition of ten properties to
the portfolio in connection with the acquisition of partnership interests.
In the first half of 2000, net proceeds from borrowings generated $28 million
from the refinancing of mortgages on directly owned properties, construction
loan fundings, and net borrowings under line of credit facilities. Of the net
borrowings under line of credit facilities, we received advances of $1.1 million
from affiliates of William S. Friedman, President, Chief Executive Officer, and
a Director of Tarragon.
Principal payments on notes payable collateralized by real estate or marketable
securities totaling $28 million come due during the remainder of 2000, including
$27 million of balloon payments. We intend to either pay off the loans or extend
the due dates while seeking to obtain long term refinancing. We estimate that
refinancing of directly owned properties will generate $15 million in net cash
proceeds during the remainder of 2000. We believe we can arrange new financing
as needed but cannot assure that we will be successful in our efforts or that
the timing of new financing will coincide with the due dates of maturing loans.
In the first half of 2000, net cash proceeds from the sale of real estate
totaled $4.8 million. We sold portions of two properties with an aggregate net
carrying amount of $7 million and paid off a mortgage of $2.5 million. We
estimate proceeds from the sale of real estate (excluding the 5600 Collins
condominium units discussed below) will provide an additional $10 million during
the second half of 2000.
In the first half of 2000, we paid interest on notes and debentures payable of
$14.2 million, up 49% over the corresponding period in 1999 predominantly due to
the addition of ten properties to the portfolio in connection with the
acquisition of partnership interests in February 2000 and to the increase in
mortgage debt related to refinancings and other borrowings.
Beginning in 1997, Tarragon and Robert C. Rohdie formed nine partnerships to
build and own luxury apartment communities in Florida, Georgia, and Alabama.
Tarragon's aggregate contributions and advances through January 2000 of $18.5
million, $370,000 of which were made in 2000, provided substantially all of the
development costs not covered by construction loans. In February 2000, Tarragon
effectively acquired Mr. Rohdie's interests in these partnerships. The
properties owned by these partnerships were contributed to a new operating
partnership that Tarragon controls, and Mr. Rohdie received a preferred interest
in this partnership valued at up to $10 million. These properties have been
consolidated since February 2000.
15
<PAGE> 16
In 1997, Tarragon formed National Omni Associates, L.P., which purchased 5600
Collins Avenue, a 289-unit high rise apartment building in Miami Beach, Florida,
for $32 million in February 1998. In 1999, we implemented a condominium
conversion program for this property. We have begun to offer the condominium
units for sale and have accepted contracts and non-binding reservations for the
sale of more than 60% of the units. Based on such contracts and reservations, we
expect to receive more than $10 million in net cash proceeds from sales in 2000.
We invested $7.6 million ($380,000 January 2000) in this partnership. In
February 2000, we bought out our partner in National Omni for $875,000, and this
property has been consolidated since February 2000.
In the first half of 2000, Tarragon made capital improvements to its directly
owned real estate of $24.8 million, $17.7 million of which was spent on
construction at four development properties and $2.6 million of which was spent
on the condominium conversion of 5600 Collins Avenue. We expect to spend
approximately $15 million on construction of five apartment communities in
various stages of development during the remainder of 2000, of which $13 million
will be funded by construction loans. We plan to spend $8 million during the
remainder of 2000 on improvements to 5600 Collins Avenue, all of which will be
funded by a new mortgage loan. We plan to invest approximately $5.5 million in
capital improvements to our directly owned operating properties during the
remainder of 2000.
We expect to spend $10 million in 2000 for the acquisition of real estate.
In 1997, Tarragon formed Ansonia Apartments, L.P., with Richard Frary, Joel
Mael, Robert Rothenberg, and Saul Spitz. Since then, Ansonia has purchased 16
apartment properties with an aggregate 2,580 units and a 160,000 square foot
historic mill for conversion to residential lofts, all located in Connecticut.
The cash required to purchase the properties was provided by Tarragon in the
form of capital contributions that earn a preferred return and have priority
over distributions to the partners. We have also made interest-bearing advances
to Ansonia for major renovations to four of its properties. Our contributions
and advances to date total $19.4 million, $927,000 of which was made during the
first half of 2000. We received $2.3 million from Ansonia during June and July
2000 from the refinancing of three of its properties. We expect to receive $2
million in excess of Ansonia's likely cash needs during the remainder of 2000
from the refinancing of five of its properties.
During the first half of 2000, Tarragon advanced funds totaling almost $2
million to two new partnerships, one of which purchased an operating apartment
complex in Sacramento, California, and one of which purchased land for office
development in Stratford, Connecticut, adjacent to our Merritt 8 Office Park.
The Board of Directors has authorized a stock repurchase program. We will
continue to repurchase shares of our common stock as long as we believe the fair
market value of our net assets per share is substantially greater than the
market price of our stock. During the first half of 2000, Tarragon repurchased
403,029 shares of its common stock in open market transactions at a cost of $4.1
million. As of June 30, 2000, there were 651,774 shares authorized for
repurchase, and we plan to spend $1 million during the remainder of 2000 on
share repurchases.
16
<PAGE> 17
Results of Operations
The significant components of the decreases in net operating results between the
three and six month periods ended June 30, 1999 and 2000, are discussed in the
following paragraphs.
The properties acquired directly in 1999 and 2000 reduced net operating results
$500,000 and $800,000 for the three and six month periods ended
June 30, 2000, compared to the corresponding periods in 1999. These amounts are
comprised of increases in net rental income of $2.5 million and $4.4 million,
increases in interest expense of $2.1 million and $3.6 million, and increases in
depreciation expense of $900,000 and $1.5 million. Increases in net rental
income (rental revenue less property operating expenses) of $2.4 million and $4
million came from multifamily properties acquired in 2000. At June 30, 2000,
Tarragon's directly owned multifamily properties accounted for 87% of its real
estate and included 11,105 operating apartment units. One commercial property
acquired in 1999 contributed $132,000 and $336,000 to the increases in net
rental income. At June 30, 2000, Tarragon owned commercial properties with an
aggregate 1.8 million square feet.
For properties held in both years, net rental income decreased slightly.
Increased rental revenue from increased rental rates at certain properties was
offset by increased operating expenses, primarily cleaning and decorating,
repairs and maintenance, and replacements.
For properties held in both years, interest expense increased for the three and
six month periods by $700,000 and $1.2 million due to long term and interim
mortgage financing and advances under line of credit facilities which have
increased indebtedness by $22 million since June 30, 1999.
Equity in income (loss) of partnerships increased $294,000 and $242,000 for the
three and six month periods. The improvement in earnings primarily resulted from
the acquisition of additional interests in nine partnerships in February 2000.
The properties of these partnerships are now consolidated. They were accounted
for using the equity method during 1999. Most of these properties were in
lease-up or under development and reported operating losses in 1999, resulting
in increases in net operating results for the three and six month periods of
$157,000 and $568,000. Additionally, increases of $140,000 and $165,000 resulted
from the acquisition of an interest in Stone Creek Associates, which owns an
operating apartment property. For the six month period, a decrease in net
operating results of approximately $400,000 relates to Ansonia Apartments, L.P.,
in which Tarragon holds a 70% noncontrolling interest. Six properties acquired
by Ansonia in 1999 and for which operations have not yet stabilized reported
losses for the three and six month periods ended June 30, 2000. For the three
month period, however, these losses were offset by improved operating results of
certain existing properties which are reaching stabilization.
Decreases in interest revenue of $341,000 and $281,000 for the three and six
month periods resulted primarily from the acquisition of Mr. Rohdie's interests
in ten properties in February 2000. Interest-bearing priority loans to the
partnerships that owned these properties were eliminated upon our consolidation
of these properties.
During the first six months of 1999, we recognized gains totaling $4.3 million
relating to the sale of three properties and portions of two other properties.
During the first six months of 2000, we recognized gains totaling $378,000
relating to the sale of portions of two properties.
Also during the first six months of 1999, we recognized a gain on insurance
settlement of $231,000 and incurred a $350,000 litigation settlement.
We recognized extraordinary expenses of $248,000 resulting from prepayment
penalties and the write-off of deferred financing expenses associated with
certain refinancings during the six months ended June 30, 1999, and $839,000
during the six months ended June 30, 2000.
17
<PAGE> 18
Funds from Operations
Please read the following information along with the Consolidated Financial
Statements and Notes included elsewhere in this report and with the discussion
above in "Liquidity and Capital Resources" and "Results of Operations."
Funds from operations (or FFO) for the three and six month periods ended June
30, 2000 and 1999, are as follows (unaudited) (dollars in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) ........................... $(2,856) $ 2,779 $(5,641) $ 1,656
Extraordinary items ......................... 826 244 839 248
Litigation settlement ....................... -- 350 -- 350
Gain on insurance settlement ................ -- (231) -- (231)
Gain on sale of real estate ................. (281) (3,923) (378) (4,261)
Depreciation and amortization of real
estate assets.............................. 3,897 2,877 7,165 5,431
Depreciation and amortization of
real estate assets of partnerships ........ 773 891 1,935 1,734
------- ------- ------- -------
Funds from operations ....................... $ 2,359 $ 2,987 $ 3,920 $ 4,927
======= ======= ======= =======
</TABLE>
Tarragon considers FFO to be an appropriate measure of the performance of a real
estate company. FFO, as defined by the National Association of Real Estate
Investment Trusts ("NAREIT"), equals net income (loss), computed in accordance
with generally accepted accounting principles ("GAAP"), excluding gains (or
losses) from debt restructuring and sales of property, plus depreciation and
amortization of real estate assets, and after adjustments for unconsolidated
partnerships and joint ventures. Adjustments for unconsolidated partnerships and
joint ventures are calculated to reflect FFO on the same basis. The amortization
of deferred financing costs is not added back to net income (loss) in our
calculation, consistent with our historical method of calculating FFO. In
October 1999, NAREIT clarified the definition of FFO. According to this
clarification, nonrecurring items that are not defined as extraordinary under
GAAP will be included in FFO. Extraordinary items and gains and losses from
sales of depreciable operating property will continue to be excluded from FFO.
The clarification of FFO was effective January 1, 2000. We have reported FFO
using the clarification beginning in the first quarter of 2000. We believe that
FFO is useful to investors as a measure of the performance of a real estate
company because, along with cash flows from operating activities, investing
activities, and financing activities, it provides investors an understanding of
our ability to incur and service debt and to make capital expenditures. We also
believe that a clear understanding of our operating results is best gained by
examining FFO along with net income (loss) as shown in the Consolidated
Financial Statements and Notes. FFO does not represent cash generated from
operating activities in accordance with GAAP, and is not an alternative to net
income as an indication of our operating performance or to cash flow as a
measure of liquidity, nor is it necessarily indicative of cash available to fund
cash needs and cash dividends. Our calculation of FFO may be different from the
methods used by other companies and, therefore, may not be comparable to other
companies.
Allowance for Estimated Losses and Provisions for Losses
Tarragon periodically reviews the carrying values of properties held for sale.
Generally accepted accounting principles require the carrying value of a
property held for sale not to exceed the lower of its cost or its estimated fair
value less costs to sell. In instances where a property's estimated fair value
less costs to sell is less than its carrying value at the time of evaluation, we
provide an allowance for loss by making a charge against operations. Our review
of properties held for sale generally includes selective site inspections,
18
<PAGE> 19
comparing the property's current rents to market rents, reviewing the property's
expenses and maintenance requirements, discussions with the property manager,
and a review of the surrounding area. We may make adjustments to estimated fair
value based on future reviews.
Tarragon also evaluates its properties held for investment for impairment
whenever events or changes in circumstances indicate that a property's carrying
value may not be recoverable. This evaluation generally consists of reviewing
the property's cash flow and current and projected market conditions, as well as
changes in general and local economic conditions. If we conclude that a property
has been impaired, we reduce its carrying value by making a charge against
current earnings in the amount by which the carrying value of the property
exceeds its estimated fair value.
Environmental Matters
Under federal, state, and local environmental laws, ordinances, and regulations,
Tarragon may be liable for removal or remediation costs, as well as other costs
(such as fines or injuries to persons and property) where our employees may have
arranged for removal, disposal, or treatment of hazardous or toxic substances.
In addition, environmental laws impose liability for release of
asbestos-containing materials into the air, and third parties can seek recovery
from Tarragon for personal injury associated with those materials. We are not
aware of any liability relating to these matters that would have a material
adverse affect on our business, financial position, or results of operations.
Tax Matters
Until November 30, 1999, we elected and, in our opinion, qualified to be taxed
as a Real Estate Investment Trust, as that term is defined in Sections 856
through 860 of the Internal Revenue Code of 1986. A REIT is required to
distribute at least 95% of its REIT taxable income, plus 95% of its net income
from foreclosure property, as defined in Section 857 of the Internal Revenue
Code of 1986, on an annual basis to stockholders. We have terminated our status
as a REIT effective as of December 1, 1999, the beginning of our 2000 tax year,
but we do not expect this to impact our current policy of paying annual
dividends to common stockholders in an amount not greater than 50% of funds from
operations.
Risks Associated with Forward-Looking Statements Included in this Form 10-Q
In addition to historical information, this Form 10-Q contains forward-looking
statements. Forward-looking statements are expressions of our current beliefs
and expectations, based on information currently available to us, estimates and
projections about our industry, and certain assumptions made by our management.
These statements are not historical facts. We use words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," and similar
expressions to identify our forward-looking statements.
Because we are unable to control or predict many of the factors that will
determine our future performance and financial results, including future
economic, competitive, and market conditions, our forward-looking statements are
not guarantees of future performance. They are subject to risks, uncertainties,
and errors in assumptions that could cause our actual results to differ
materially from those reflected in our forward-looking statements. We believe
that the assumptions underlying our forward-looking statements are reasonable.
However, you should not place undue reliance on these forward-looking
statements. They only reflect our view and expectations as of the date of this
Form 10-Q. We undertake no obligation to publicly update or revise any
forward-looking statement in light of new information, future events, or
otherwise.
19
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Tarragon is exposed to market risk from changes in interest rates that may
adversely affect our financial position, results of operations, and cash flows.
In seeking to minimize the risks from interest rate fluctuations, we manage
exposures through our regular operating and financing activities. We do not use
financial instruments for trading or other speculative purposes.
At June 30, 2000, Tarragon had approximately $170 million of variable rate debt.
The primary base rate is the 30-day LIBOR. Using this balance of debt, if LIBOR
or any other indexes on which the rates are based increased by 100 basis points
(1%), our pre-tax earnings and cash flows would decrease by approximately $1.7
million. On the other hand, if interest rates decreased by 100 basis points, our
pre-tax earnings and cash flows would increase by approximately $1.7 million.
At June 30, 2000, unconsolidated partnerships had approximately $73.4 million of
variable rate debt. A 100 basis point increase in the index on which the rates
are based would reduce our pre-tax earnings by approximately $617,000 (based on
our interests in the partnerships). A 100 basis point decrease in the index on
which the rates are based would increase our pre-tax earnings by approximately
$617,000. Assuming these partnerships distribute all of their available cash to
the partners, our cash flow would be changed by these same amounts.
Tarragon has entered into a reverse repurchase agreement with an investment bank
for a mortgage-backed security (or MBS) secured by a mortgage on Heather Hills
Apartments. If market interest rates increase, the value of the MBS generally
decreases, which would require us to deposit more funds with the investment bank
(assuming no change in margin requirements). Decreases in market interest rates
generally increase the value of the MBS and allow the release to us of margin
funds held by the investment bank (again assuming no change in margin
requirements). The repurchase price of the MBS bears interest at a variable rate
based on LIBOR. An increase in interest rates of 100 basis points would result
in a decrease of $151,000 in our pre-tax earnings and a decrease of $875,000 in
our cash flow. A 100 basis point decrease in interest rates would result in an
increase of $152,000 in our pre-tax earnings and an increase of $702,000 in our
cash flow.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27.0 Financial Data Schedule.
(b) The following report on Form 8-K was filed during the second quarter
covered by this report or with respect to events occurring after the
period covered by this report but prior to the filing of this report.
<TABLE>
<CAPTION>
Date of Event Date Filed Items Reported
----------------- -------------- --------------------
<S> <C> <C>
May 30, 2000 July 6, 2000 Item 5. Other Events
Reporting results of
preferred stock
exchange offer
</TABLE>
20
<PAGE> 21
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.
TARRAGON REALTY INVESTORS, INC.
Date: August 14, 2000 By: /s/ William S. Friedman
------------------------------ -------------------------------------
William S. Friedman
President, Chief Executive
Officer, and Director
Date: August 14, 2000 By: /s/ Erin D. Davis
------------------------------ -------------------------------------
Erin D. Davis
Executive Vice President and
Chief Financial Officer
(Principal Financial and Accounting
Officer)
21
<PAGE> 22
TARRAGON REALTY INVESTORS, INC.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION Page
------- ----------- ----
<S> <C> <C>
27.0 Financial Data Schedule 23
</TABLE>
