<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 SEPTEMBER 30, 1997
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 0-9211
NATIONAL INCOME REALTY TRUST
------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 94-2537061
- --------------------------------------------- ------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
280 Park Avenue, East Building, 20th Floor, New York, NY 10017
--------------------------------------------------------------
(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
--- ---
Shares of Beneficial Interest, No par value 3,812,137
- ------------------------------------------- -------------------------------
(Class) (Outstanding at November 3, 1997)
1
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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 National Income Realty Trust (the "Trust"), all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of consolidated
results of operations, consolidated financial position, and consolidated cash
flows at the dates and for the periods indicated have been included.
NATIONAL INCOME REALTY TRUST
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
------------- -----------
1997 1996
------------- -----------
<S> <C> <C>
Assets
Real estate held for sale (net of accumulated depreciation
of $347 in 1997 and $397 in 1996) ............................................ $ 4,440 $ 12,198
Less - allowance for estimated losses .......................................... (1,195) (1,529)
--------- ---------
3,245 10,669
Real estate held for investment (net of accumulated
depreciation of $43,434 in 1997 and $41,854 in 1996) ......................... 224,844 183,053
Investments in partnerships .................................................... 9,211 4,739
Investments in marketable equity securities .................................... 1,177 --
Cash and cash equivalents ...................................................... 4,469 3,862
Restricted cash ................................................................ 6,515 2,850
Other assets, net .............................................................. 7,832 6,168
--------- ---------
$ 257,293 $ 211,341
========= =========
Liabilities and Shareholders' Equity
Liabilities
Notes and interest payable ..................................................... $ 173,555 $ 134,270
Other liabilities .............................................................. 11,385 8,008
--------- ---------
184,940 142,278
Commitments and contingencies...................................................
Shareholders' equity
Shares of beneficial interest, no par value; authorized
shares, unlimited; shares outstanding, 3,811,808 in 1997 and 3,523,729 in 1996
(not adjusted for share distributions), after deducting 896,962 in 1997 and
767,294 in 1996 held in treasury ............................................. 11,444 10,579
Paid-in capital ................................................................ 281,336 277,795
Accumulated distributions in excess of
accumulated earnings ......................................................... (220,703) (219,311)
Unrealized gains on marketable equity securities ............................... 276 --
--------- ---------
72,353 69,063
--------- ---------
$ 257,293 $ 211,341
========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
2
<PAGE> 3
NATIONAL INCOME REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------------- ---------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue
Rentals .......................... $ 13,126 $ 12,297 $ 37,299 $ 36,010
Interest ......................... 88 150 245 510
Equity in income of partnerships . 185 119 541 1,299
----------- ----------- ----------- -----------
13,399 12,566 38,085 37,819
Expenses
Property operations .............. 7,662 7,642 21,114 21,455
Interest ......................... 3,378 3,067 9,119 9,389
Depreciation ..................... 1,677 1,346 4,770 3,989
Advisory fees to affiliate ....... 332 231 1,009 767
General and administrative ....... 544 451 1,561 1,517
Provision for losses ............. -- 300 -- 300
----------- ----------- ----------- -----------
13,593 13,037 37,573 37,417
----------- ----------- ----------- -----------
Income (loss) before gains on sale of
real estate and investments,
gain on insurance settlement,
and extraordinary gain ........... (194) (471) 512 402
Gain on sale of real estate ......... 2,774 3,681 4,350 3,692
Gain on sale of investments ......... 686 -- 686 --
Gain on insurance settlement ........ -- -- -- 451
----------- ----------- ----------- -----------
Income from continuing operations ... 3,266 3,210 5,548 4,545
Extraordinary gain .................. 353 -- 353 --
----------- ----------- ----------- -----------
Net income .......................... $ 3,619 $ 3,210 $ 5,901 $ 4,545
=========== =========== =========== ===========
Earnings per share
Income from continuing operations .. $ .86 $ .79 $ 1.45 $ 1.11
Extraordinary gain .................. .09 -- .09 --
----------- ----------- ----------- -----------
Net income .......................... $ .95 $ .79 $ 1.54 $ 1.11
=========== =========== =========== ===========
Weighted average shares of
beneficial interest used in
computing earnings per share ..... 3,818,431 4,086,721 3,838,723 4,095,702
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
3
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NATIONAL INCOME REALTY TRUST
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated Unrealized
Shares of Distributions Gains on
Beneficial Interest in Excess of Marketable
-------------------------- Paid-in Accumulated Equity Shareholders'
Shares Amount Capital Earnings Securities Equity
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 ... 3,523,729 $ 10,579 $ 277,795 $ (219,311) $ -- $ 69,063
Repurchase of shares
of beneficial interest ..... (48,472) (145) (603) -- -- (748)
Cash distributions
($.55 per share) ........... -- -- -- (2,139) -- (2,139)
Share distributions .......... 336,551 1,010 4,144 (5,154) -- --
Unrealized gains on marketable
equity securities .......... -- -- -- -- 962 962
Realized gains on marketable
equity securities .......... -- -- -- -- (686) (686)
Net income ................... -- -- -- 5,901 -- 5,901
---------- ---------- ---------- ---------- ---------- ----------
Balance, September 30, 1997 .. 3,811,808 $ 11,444 $ 281,336 $ (220,703) $ 276 $ 72,353
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated
Financial Statements.
4
<PAGE> 5
NATIONAL INCOME REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
----------------------
1997 1996
-------- --------
<S> <C> <C>
Cash Flows from Operating Activities
Rentals collected ...................................................... $ 37,260 $ 36,579
Interest collected ..................................................... 251 415
Interest paid .......................................................... (8,235) (8,772)
Payments for property operations ....................................... (22,906) (20,569)
General and administrative expenses paid ............................... (1,544) (1,732)
Advisory fees paid to affiliate ........................................ (1,083) (908)
Deferred borrowing costs paid .......................................... (2,009) (1,370)
-------- --------
Net cash provided by operating activities ........................... 1,734 3,643
Cash Flows from Investing Activities
Acquisition of real estate ............................................. (14,506) (3,199)
Real estate improvements ............................................... (19,461) (8,155)
Proceeds from sale of real estate ...................................... 6,378 6,156
Earnest money deposits paid ............................................ (237) --
Note receivable collections ............................................ 176 530
Cash collateral received ............................................... -- 202
Investments in marketable equity securities ............................ (2,446) --
Proceeds from the sale of marketable equity
securities .......................................................... 2,231 --
Loans and advances to partnerships ..................................... (4,255) --
Distribution from partnership's investing activities ................... -- 6,809
Distribution of partnership's insurance settlement
proceeds ............................................................ -- 759
Net distributions from partnerships .................................... 270 578
-------- --------
Net cash provided by (used in) investing activities ................. (31,850) 3,680
Cash Flows from Financing Activities
Proceeds from borrowings ............................................... 51,208 33,238
Payments of mortgage notes payable ..................................... (18,213) (29,169)
Margin account (deposits) borrowings, net .............................. 1,049 (719)
Repayment of advances from affiliates, net ............................. -- (319)
Replacement escrow (deposits), net ..................................... (1,172) (535)
Repurchase of shares of beneficial interest ............................ (748) (1,605)
Distributions to shareholders .......................................... (1,401) (2,024)
-------- --------
Net cash provided by (used in) financing activities ................. 30,723 (1,133)
-------- --------
Net increase in cash and cash equivalents ................................ 607 6,190
Cash and cash equivalents, beginning of period ........................... 3,862 1,674
-------- --------
Cash and cash equivalents, end of period ................................. $ 4,469 $ 7,864
======== ========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
5
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NATIONAL INCOME REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
----------------------
1997 1996
-------- --------
<S> <C> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income ............................................................. $ 5,901 $ 4,545
Extraordinary gain ..................................................... (353) --
Gain on insurance settlement ........................................... -- (451)
Gain on sale of investments ............................................ (686) --
Gain on sale of real estate ............................................ (4,350) (3,692)
Provision for losses ................................................... -- 300
Depreciation and amortization .......................................... 5,389 4,776
Equity in (income) of partnerships ..................................... (541) (1,299)
Changes in other assets and liabilities, net of effects of
noncash investing and financing activities
(Increase) decrease in interest receivable .......................... 5 (88)
(Increase) in other assets .......................................... (4,890) (2,921)
Increase in other liabilities ....................................... 853 2,387
Increase in interest payable ........................................ 406 86
-------- --------
Net cash provided by operating activities ................................ $ 1,734 $ 3,643
======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Assets acquired and liabilities assumed in connection with
the purchase or foreclosure of real estate
Real estate ............................................................ $ 30,553 $ 14,954
Notes and interest receivable .......................................... -- (8,568)
Allowance for estimated losses ......................................... -- 3,000
Other assets ........................................................... 431 44
Notes and interest payable ............................................. (15,756) (6,157)
Other liabilities ...................................................... (722) (74)
-------- --------
Cash paid ........................................................... $ 14,506 $ 3,199
======== ========
Assets disposed of and liabilities released in connection with
the sale of real estate
Real estate ............................................................ $ 9,572 $ 23,221
Other assets ........................................................... 29 596
Notes and interest payable ............................................. (7,493) (21,127)
Other liabilities ...................................................... (134) (212)
Gain on sale ........................................................... 4,404 3,678
-------- --------
Cash received ....................................................... $ 6,378 $ 6,156
======== ========
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
6
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NATIONAL INCOME REALTY TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-------------------
1997 1996
------ ------
<S> <C> <C>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
(Continued):
Real estate written off pursuant to condemnation .................. $2,209 $ --
Note and accrued interest receivable written off .................. $ 977 $ --
Note payable written off pursuant to the condemnation of
the collateral property ......................................... $1,725 $ --
Allowances for estimated losses charged off in connection
with the write-off of real estate and note receivable ........... $1,462 $ --
Conversion of convertible subordinated debenture .................. $ -- $1,000
</TABLE>
The accompanying notes are an integral part of these
Consolidated Financial Statements.
7
<PAGE> 8
NATIONAL INCOME REALTY TRUST
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 nine month period ended September 30,
1997, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1997. For further information, refer to the
Consolidated Financial Statements and Notes thereto included in the Trust's
Annual Report on Form 10-K for the year ended December 31, 1996. Dollar amounts
in tables are in thousands. Certain 1996 balances have been reclassified to
conform to the 1997 presentation. Earnings per share have been computed based on
the weighted average number of shares of beneficial interest outstanding for the
three and nine month periods ended September 30, 1997 and 1996. 1996 share and
per share data have been restated to give effect to the 10% share distribution
paid to shareholders in September 1997.
Effective January 1, 1997, the Trust implemented prospectively a change in
accounting estimate whereby capital expenditures for carpet; appliance; and
heating, ventilation, and air conditioning (HVAC) replacements are capitalized
rather than expensed. The Trust believes that capitalizing these expenditures
and depreciating them over lives ranging from three to five years more
appropriately reflects the timing of the economic benefits to be received from
these expenditures. Additionally, the Trust believes this treatment is
consistent with policies currently being used by other real estate investment
trusts. For the three and nine month periods ended September 30, 1997, the
effect of this change in accounting estimate was to decrease property operating
expenses and increase net income by $548,000 and $1 million, respectively. Had
the Trust implemented this change on January 1, 1996, property operating
expenses for the three and nine months periods ended September 30, 1996, would
have been reduced by $318,000 and $728,000, respectively. This change has no
effect on the advisory fee as Tarragon Realty Advisors, Inc. ("Tarragon"), the
Trust's advisor since April 1, 1994, waived any fee resulting from this change
in accounting estimate.
NOTE 2. NOTES AND INTEREST RECEIVABLE
In March 1997, the Trust wrote off a note receivable with a balance of
$977,000, including accrued interest, secured by an apartment complex in Paris,
Texas, which had matured in 1988. The Trust had fully-reserved the loan in
previous years. Consequently, no loss was recognized in connection with the
write-off.
NOTE 3. REAL ESTATE
In January 1997, after an evaluation of its real estate portfolio, the Trust
reclassified Jackson Square Shopping Center from real estate held for sale to
real estate held for investment. As the estimated fair value of the property
exceeded its carrying value, no loss was recognized upon the reclassification.
In November 1995, the City of Indianapolis (the "City") initiated condemnation
proceedings against the Trust's K-Mart Shopping Center acquired through a deed
in lieu of foreclosure in December 1994. The shopping center was vacant at the
time the Trust acquired it although leased to K-Mart under a net lease expiring
in 1999. The lease was assigned by K-Mart to the City in September 1995. In
March 1996, the Trust ceased payments
8
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NATIONAL INCOME REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 3. REAL ESTATE (Continued)
on the $1.7 million non-recourse mortgage loan secured by the shopping center.
In January 1997, the Trust wrote off the property and related debt, as the
mortgage is now secured by the condemnation award. No loss was recognized in
excess of amounts previously provided.
During the nine months ended September 30, 1997, the Trust purchased five
multifamily properties and one shopping center, as presented below, and, in
connection with these acquisitions, paid Tarragon real estate acquisition fees
totaling $215,550. These properties are located in the same geographical areas
where the Trust currently operates and were acquired in separate transactions.
<TABLE>
<CAPTION>
Cost of Acquisition
Date Square -----------------------
Property Location Acquired Units Footage Cash Debt
- --------------- ---------------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Morningside Jacksonville, FL Feb-97 112 89,200 $ 521 $ 1,641
Fountainhead Kissimmee, FL Jun-97 184 187,080 7,690 --
Newport Jacksonville, FL Jun-97 152 139,364 1,526 5,058
English Village Memphis, TN Jul-97 300 364,680 1,018 6,059
Park Grove Miami, FL Jul-97 127 106,266 728 2,973
Mariner Plaza Panama City, FL Aug-97 -- 52,288 1,458 --
------ -------- ------- --------
875 938,878 $12,941 $15,731
====== ======== ======= ========
</TABLE>
The Trust also sold three multifamily properties during the nine months ended
September 30, 1997, for an aggregate sale price of $14 million, recognizing
gains totaling $4.4 million.
In September 1997, the Trust received a 1% general partner and a 59% limited
partner interest in Danforth National Apartments, Ltd., in exchange for a $6,000
capital contribution. This partnership was formed to construct a 288-unit luxury
apartment complex to be known as Danforth Apartments in Jacksonville, Florida,
at an estimated cost of $16.3 million. The property is expected to be completed
during 1998. The Trust has also loaned the partnership $1.7 million which is to
be repaid following completion and lease-up of the property. As the Trust holds
a controlling interest in this partnership, it has been consolidated.
NOTE 4. INVESTMENTS IN PARTNERSHIPS
Investments in partnerships, accounted for under the equity method, consisted of
the following at September 30, 1997:
<TABLE>
<S> <C>
Income Special Associates ("ISA") ................... $1,417
801 Pennsylvania Avenue ............................. 2,994
RI Windsor, Ltd. .................................... 2,634
RI Panama City, Ltd. ................................ 1,650
Sacramento Nine ..................................... 516
------
$9,211
======
</TABLE>
9
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NATIONAL INCOME REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 4. INVESTMENTS IN PARTNERSHIPS (Continued)
In January 1997, in exchange for a capital contribution of $200,000, which was
matched by the other partners, the Trust received a 1% general partner interest
and a 49% limited partner interest in RI Windsor, Ltd., a limited partnership
formed to construct a 324-unit luxury apartment complex to be known as The
Mayfaire at Windsor Parke in Jacksonville, Florida, at an estimated cost of $19
million. The property is expected to be completed in the first quarter of 1998.
The partnership has obtained an $18 million construction loan to finance the
construction. The Trust has also loaned the partnership $2.5 million which is to
be repaid following completion and lease-up of the property. Until lease-up of
the property, the construction loan is guaranteed by the other general partner.
As the Trust holds a non-controlling interest, it accounts for its investment in
the partnership using the equity method.
The proceeds for the Trust's loan to the partnership were obtained from a $2.2
million loan secured by 352,000 of the Trust's shares of beneficial interest.
The lender has no voting rights with and does not receive cash distributions on
these shares. Therefore, these shares are not included with outstanding shares
in the accompanying September 30, 1997, Consolidated Balance Sheet and the
Consolidated Statement of Shareholders' Equity for the nine months ended
September 30, 1997. The loan matures in January 2000; however, the Trust intends
to repay the loan prior to December 1997 with proceeds received from the
partnership's construction loan.
In a similar transaction, in June 1997, in exchange for a capital contribution
of $200,000, the Trust received a 1% general partner interest and a 49% limited
partner interest in RI Panama City, Ltd. This partnership was formed to
construct a 200-unit luxury apartment complex to be known as Harbor Green
Apartments in Panama City, Florida, at an estimated cost of $10.4 million. The
property is expected to be completed during 1998. The partnership has obtained
an $8.8 million construction loan to finance construction. The Trust has also
loaned the partnership $1.5 million which is to be repaid from construction loan
proceeds following completion and lease-up of the property. Until lease-up of
the property, the construction loan is guaranteed by the other general partner.
The Trust also accounts for its investment in this partnership using the equity
method.
In July 1997, the Trust acquired an additional 40% interest in English Village
Partners, L.P., increasing its total interest to 90%, in exchange for a capital
contribution of $1 million. As the Trust now holds a controlling interest, the
operations of English Village Apartments, the partnership's sole property, have
been consolidated since July 1997. See NOTE 3. "REAL ESTATE."
The following information summarizes the results of operations of these
partnership's for the nine months ended September 30, 1997:
<TABLE>
<S> <C>
Rentals ........................................... $ 2,966
Property operations ............................... (1,156)
Interest .......................................... (559)
Depreciation ...................................... (396)
-------
Income before loss on sale of real estate ......... 855
Loss on sale of real estate ....................... (134)
-------
Net income ........................................ $ 721
=======
</TABLE>
10
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NATIONAL INCOME REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 5. INVESTMENTS IN MARKETABLE EQUITY SECURITIES
In accordance with Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," investments
in marketable equity securities are carried at fair value. Unrealized gains are
included as a separate component of shareholders' equity. During the third
quarter of 1997, unrealized gains increased $528,000, and investments with a
cost basis of $1.5 million (determined by the average cost method) were sold for
$2.2 million, resulting in realized gains of $686,000.
NOTE 6. NOTES, DEBENTURES, AND INTEREST PAYABLE
Pursuant to a Master Repurchase Agreement (the "Agreement") with an investment
bank entered into in April 1996, the Trust purchased the $3.1 million Fannie Mae
mortgage backed security ("Fannie Mae Certificate") issued by the lender in
connection with the financing of Forest Oaks Apartments at a 1/2% discount in
June 1996 and the $16.8 million Government National Mortgage Association
mortgage backed security ("GNMA Certificate") issued by the lender in connection
with the financing of Heather Hills Apartments at a 2.7% discount in July 1996.
The investment bank purchased the Fannie Mae Certificate and the GNMA
Certificate from the Trust for 92% of the aggregate value, or $17.9 million, and
the Trust agreed to repurchase the Certificates from the investment bank one
month later at the same price plus interest at the London Interbank Offered Rate
("LIBOR") plus 1/2% per annum. As provided for in the Agreement, the Trust and
the investment bank extended the repurchase date monthly. The December 1996
purchase price and, consequently, the January 1997 repurchase price were
increased to 95% of the aggregate value of the Certificates, or $19.3 million,
and the interest rate associated with the repurchase agreement was reduced to
LIBOR plus 1/4% per annum. In January 1997, the Trust entered into a similar
repurchase transaction with a government sponsored enterprise which purchased
the Certificates for 97% of their aggregate value, or $19.3 million, and the
Trust agreed to repurchase them in February 1997 for the same price plus
interest at 5.4% per annum. The repurchase date has been extended to November
1997, and the current repurchase price is $19.4 million. The repurchase
transaction has resulted in effective interest rates as of September 30, 1997,
on the Forest Oaks and Heather Hills financings of 6.8% and 6%, respectively.
The Trust is exposed to a demand for additional collateral or, in the
alternative, credit loss in the event the interest rate associated with the
repurchase transaction fluctuates in a manner that is unfavorable to the Trust's
interest in the Certificates. However, the Trust intends to either pay off the
mortgages or modify the mortgages to increase the interest rate prior to any
significant credit loss.
11
<PAGE> 12
NATIONAL INCOME REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 6. NOTES, DEBENTURES, AND INTEREST PAYABLE (Continued)
In May 1997, the Trust accepted a commitment from GMAC Commercial Mortgage
Corporation for a $50 million revolving credit facility. Advances under the
facility are available to finance properties currently owned by the Trust as
well as new acquisitions. The outstanding balance is limited to the lesser of
75% of the value of the collateral properties or an amount supported by a
debt service coverage ratio of 1.25. The borrowing base may be increased by
adding new or existing properties to the collateral pool. Advances are limited
to the lesser of 75% of the appraised value of the property as stabilized or
80% of total acquisition costs which include the purchase price of a newly
acquired property and the cost of improvements incurred between the date of
acquisition and the date that any mortgage secured by that property is
recorded. A newly acquired property is defined as a property owned by the Trust
for less than one year. The outstanding balance under the facility bears
interest at the 30 day LIBOR plus a variable spread of between 2% and 2.5%
which is determined based on the loan-to- value and debt service coverage
maintained. Payment terms include interest only monthly with the outstanding
balance due at maturity, which is 36 months from the date of the first advance.
The Trust may extend the maturity by two six-month terms, but no new fundings
may occur under the facility during any extension period. Between June 1997 and
September 1997, the Trust obtained fundings under this revolving credit
facility totaling $24.1 million secured by first mortgages against four Trust
properties. The Trust received net cash proceeds of $21 million from these
fundings after the payoff of existing mortgage debt of $1.9 million,
establishing escrows for taxes, insurance, and repairs, and paying the
associated closing costs. In connection with these fundings, the Trust paid
Tarragon financing fees totaling $242,000.
During the nine months ended September 30, 1997, the Trust closed separate
mortgage loans, secured by four properties, totaling $24.7 million. After the
payoff of $13.6 million in existing mortgage debt, establishing escrows for
taxes, insurance, and repairs, and closing costs, the Trust received net cash
proceeds of $7.8 million. In connection with these financings, the Trust paid
Tarragon fees totaling $247,000.
NOTE 7. INCOME TAXES
No provision has been made for federal income taxes because the Trust's
management believes the Trust has qualified as a Real Estate Investment Trust,
as defined under Sections 856 through 860 of the Internal Revenue Code of 1986,
as amended, and expects that it will continue to do so.
NOTE 8. COMMITMENTS AND CONTINGENCIES
The Trust is a party to various claims and routine litigation arising in the
ordinary course of business. Management of the Trust does not believe that the
results of these claims and litigation, individually or in the aggregate, will
have a material adverse effect on its business or financial position.
12
<PAGE> 13
NATIONAL INCOME REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued)
NOTE 9. SUBSEQUENT EVENTS
In October 1997, the Trust purchased Landmark Apartments, a 128-unit property
located in Tallahassee, Florida, for $1.9 million in cash. The Trust paid an
acquisition fee of $18,600 to Tarragon in connection with this transaction.
Also in October 1997, the Trust obtained additional fundings under the $50
million revolving credit facility totaling $10.3 million secured by mortgages on
two Trust properties. The Trust received net cash proceeds of $3 million after
the payoff of existing mortgage debt, establishing escrows for taxes, insurance,
and repairs, and paying the associated closing costs. The Trust paid Tarragon
financing fees totaling $103,000.
In November 1997, the Trust sold its 40% interest in ISA to the other partner in
the partnership for $1.6 million in cash. The Trust will recognize a gain of
approximately $200,000 in connection with this disposition.
Also in November 1997, the Trust obtained first mortgage financing of $2.3
million secured by Stewart Square Shopping Center, a previously unencumbered
property. The Trust received net cash proceeds of $2 million and paid Tarragon a
fee of $22,500.
[This space intentionally left blank.]
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and the accompanying Notes thereto.
Introduction
National Income Realty Trust (the "Trust") invests in real estate through
acquisitions, leases, and partnerships and, to a lesser extent, in mortgages
secured by real estate. The Trust was organized on October 31, 1978, and
commenced operations on March 27, 1979. At September 30, 1997, the Trust's real
estate portfolio included 60 properties, seven of which were held for sale,
located throughout the United States, with concentrations in the Southeast and
Southwest. These properties consisted of 39 apartment complexes, 14 shopping
centers, three office buildings, three parcels of land, and one single-family
residence. All of the Trust's real estate, except for 16 properties, is
encumbered by mortgages. The Trust's current policy is to make mortgage loans
only in connection with, and to facilitate, the sale or acquisition of real
estate. Accordingly, as existing mortgage loans are paid off, the Trust's
portfolio of mortgage notes receivable is expected to decline.
The Trust's objective is to maximize the long term value of its real estate
portfolio with an emphasis on increasing operating income and future cash
distributions to shareholders. Management focuses on both the appreciation of
the existing real estate portfolio through intensive management and capital
improvements and enlarging the portfolio with highly selective and opportunistic
acquisitions concentrated on older, undermanaged, and underperforming
multifamily projects in geographic locations where the Trust presently owns
properties. The Trust also intends to invest increasing amounts in new
construction of apartment properties either directly or through partnerships.
The Trust currently has four properties under construction, three of which are
owned through partnerships. To the extent it invests in construction projects,
the Trust is subject to business risks, such as cost overruns and delays,
associated with such higher risk activities. In addition to raising capital
through operating income, the Trust intends to generate capital through mortgage
refinancings and selective disposition of certain assets.
Liquidity and Capital Resources
Cash and cash equivalents aggregated $4.5 million at September 30, 1997,
compared with $3.9 million at December 31, 1996. The Trust's principal sources
of cash have been property operations and external sources, such as property
sales and refinancings, as discussed in the paragraphs below. The Trust expects
these sources will continue to be sufficient to meet projected cash
requirements, including debt service obligations, property maintenance and
improvements, and continuation of regular cash distributions.
The Trust purchased six properties during the nine months ended September 30,
1997, for an aggregate purchase price of $28.9 million, a portion of which was
financed through the assumption of first mortgage loans totaling $15.7 million.
The cash portion of the aggregate purchase price was $12.8 million.
In September 1997, the Trust received a 60% interest in Danforth National
Apartments, Ltd., which is constructing an apartment property, in exchange for a
$6,000 capital contribution. The Trust has also advanced $1.7 million to the
partnership. The Trust is consolidating the partnership since it holds a
controlling interest.
The Trust sold three properties during the nine months ended September 30, 1996,
recognizing gains totaling $4.4 million and receiving net cash proceeds of $6.4
million.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (Continued)
The Trust made real estate improvements totaling $19.5 million to its properties
during the first nine months of 1997, including $6.8 million on the construction
of The Vistas at Lake Worth, which is in development and should be completed in
the fourth quarter of 1997. Projected construction costs for this property are
$2.2 million for the remainder of 1997. The Trust anticipates expenditures for
capital improvements on its other properties during the remainder of 1997 to
total approximately $3.4 million.
During the nine months ended September 30, 1997, the Trust acquired 50%
interests in two partnerships in exchange for capital contributions totaling
$400,000. The partnerships, RI Windsor, Ltd., and RI Panama City, Ltd., are each
constructing an apartment property. The Trust also made advances to the
partnerships totaling $4.3 million, $2.2 million of which was obtained through a
loan which matures in January 2000.
During the nine months ended September 30, 1997, the Trust made investments in
marketable equity securities of $2.4 million. During this same period, the Trust
received proceeds from the sale of marketable equity securities of $2.2 million
and realized gains on these sales totaling $686,000. As of September 30, 1997,
there were unrealized gains on the remaining investments of $276,000.
During the nine months ended September 30, 1997, the Trust obtained first
mortgage financing totaling $48.8 million involving eight properties and
received net cash proceeds of $28.8 million after the payoff of existing debt of
$15.6 million, funding escrows, and paying associated closing costs. The Trust
made additional principal payments of $2.7 million during the first nine months
of 1997. Principal payments of $3.5 million, including balloon payments of $3
million, are due during the remainder of 1997. The Trust intends to either pay
off the maturing mortgages or extend the due dates while attempting to obtain
long term refinancing. However, while management is confident of its ability to
acquire refinancing as needed, there is no assurance that the Trust will
continue to be successful in its efforts in this regard.
During the nine months ended September 30, 1997, the Trust repurchased 48,472 of
its shares of beneficial interest at a total cost of $748,000. During 1996, the
Trust's Board of Trustees (the "Board") authorized the Trust to repurchase up to
an additional 281,592 shares of beneficial interest, of which 216,363 had been
purchased through September 30, 1997.
Cash distributions to shareholders totaling $2.1 million, or $0.55 per share,
have been declared by the Board during the nine month period ended September 30,
1997. The Trust also paid a 10% share distribution in September 1997. The Trust
has paid regular quarterly cash distributions since September 1993.
Results of Operations
The Trust reported net income of $3.6 million and $5.9 million, respectively,
for the three and nine month periods ended September 30, 1997, compared to $3.2
million and $4.5 million, respectively, for the three and nine month periods
ended September 30, 1996. The major components of the change in results of
operations are discussed in the following paragraphs.
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
Net rental income (rental revenue less property operating expenses) increased
from $4.7 million and $14.6 million for the three and nine month periods ended
September 30, 1996, to $5.5 million and $16.2 million for the corresponding
periods in 1997.
Multifamily Properties
The Trust's multifamily portfolio, which represented 78% of the Trust's real
estate and included 7,592 operating units and 553 units in various stages of
construction at September 30, 1997, reported increases in net rental income
of $1 million, or 29%, and $2.4 million, or 22%, respectively, for the three
and nine month periods ended September 30, 1997, as compared to the
corresponding periods in 1996. Of these increases, $427,000 and $776,000 are
related to properties acquired in 1996 and 1997. Decreases of $204,000 and
$239,000 resulted from the sale of three multifamily properties during 1997.
The remainder of the increase comes from higher rents for properties held in
both years. Overall, both physical and economic occupancy levels have
remained relatively stable for properties held in both years.
Commercial Properties
The Trust's commercial portfolio included 1.6 million square feet at
September 30, 1997. The sale of Century Centre II Office Building ("Century
Centre") in September 1996 resulted in decreases in net rental income of
$338,000 and $1.2 million, respectively, for the three and nine month periods
ended September 30, 1997, as compared to the corresponding periods in 1996.
Commercial properties held in both years reported overall increases in net
rental income of $116,000 and $512,000, respectively, principally due to
higher rents and lower economic vacancies resulting from improved overall
physical occupancy levels.
Interest revenue decreased for the three and nine month periods ended September
30, 1997, compared to the corresponding periods in 1996. These decreases
resulted primarily from the payoff of the Sherwood Trust mortgage note
receivable in November 1996. The Trust does not anticipate making new mortgage
loans in the future except in connection with the sale of real estate.
Therefore, as existing loans are paid off, interest revenue is expected to
continue to decline.
Equity in income of partnerships decreased approximately $750,000 for the nine
month period ended September 30, 1997, compared to the corresponding period in
1996. This decrease was primarily due to income recorded in 1996 related to
distributions received from Sacramento Nine, a tenancy-in-common in which the
Trust holds a 70% undivided interest in earnings, losses, and distributions, and
English Village, a partnership in which, until July 1997, the Trust held 1%
general partner and 49% limited partner interests, in excess of the Trust's
investments in the partnerships. The funds distributed to the Trust by the
partnerships represented refinancing proceeds, and equity in income of
partnerships for the current year is not expected to match that recognized in
1996. In July 1997, the Trust obtained an additional 40% interest in English
Village. See NOTE 4. "INVESTMENTS IN PARTNERSHIPS" in the Notes to Consolidated
Financial Statements. The partnerships which the Trust accounts for using the
equity method have an aggregate 524 units in various stages of construction.
These properties are expected to be completed during 1998.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
Interest expense was $3.1 million and $9.4 million, respectively, for the three
and nine month periods ended September 30, 1996, compared to $3.4 million and
$9.1 million, respectively, for the corresponding periods 1997. The sale of
Century Centre and the lower rates produced by the repurchase transaction
discussed in NOTE 6. "NOTES, DEBENTURES, AND INTEREST PAYABLE" in the Notes to
Consolidated Financial Statements were the primary reasons for the decrease for
the nine month period. Although these items had a similar effect on interest
expense for the three month period, interest expense increased due to the
mortgage refinancings during 1997 which increased debt outstanding by $33.2
million.
Advisory fees to Tarragon Realty Advisors, Inc. ("Tarragon"), were $332,000 and
$1 million for the three and nine month periods ended September 30, 1997, as
compared to $231,000 and $767,000 for the corresponding periods in 1996. The
advisory agreement calls for a monthly incentive fee equal to 16% per annum of
adjusted funds from operations, as defined in the advisory agreement approved by
the Board. The Trust's funds from operations increased 89% and 57%,
respectively, for these periods. See "Funds from Operations" below.
In September 1996, the Trust recorded a $300,000 provision for loss to reduce
the carrying value of Mariposa Manor Apartments to its then estimated fair
value.
During the first nine months of 1997, the Trust recognized gains totaling $4.4
million on the sale of Plaza Hills Apartments, Huntington Green Apartments, and
Pheasant Pointe Apartments and a $54,000 loss related to the sale of a warehouse
owned by Indcon, L.P. ("Indcon"), in which the Trust holds an effective 40%
interest.
In August 1997, the Trust recognized an extraordinary gain on debt forgiveness
of $436,000 in connection with the discounted payoff of the mortgage loan
secured by Southgate Shopping Center.
During the third quarter of 1997, the Trust recognized gains totaling $686,000
related to sales of investments in marketable equity securities.
During the first nine months of 1996, the Trust reported a gain of $3.7 million
on the sale of Century Centre, a gain of $14,000 related to the sale of the
Indcon warehouses, and a $451,000 gain due to Indcon's insurance settlement
received as a result of the warehouse fire in September 1995.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (CONTINUED)
Funds from Operations
The following information should be read in conjunction with all of the
financial statements and notes thereto and with the discussion set forth in
"Liquidity and Capital Resources" and "Results of Operations" included elsewhere
in this report.
Funds from operations ("FFO") for the three and nine month periods ended
September 30, 1997 and 1996, are as follows (unaudited) (dollars in thousands):
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
-------------------- --------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net income ......................... $ 3,619 $ 3,210 $ 5,901 $ 4,545
Extraordinary gain ................. (353) -- (353) --
Gain on insurance settlement ....... -- -- -- (451)
Gain on sale of real estate ........ (2,774) (3,681) (4,350) (3,692)
Provision for losses ............... -- 300 -- 300
Depreciation and amortization of
real estate assets ............... 1,724 1,346 4,902 3,989
Depreciation and amortization of
real estate assets of partnerships 79 75 270 214
Distributions from partnerships in
excess of the Trust's investments
in the partnerships .............. (2) (34) (41) (878)
------- ------- ------- -------
Funds from operations .............. $ 2,293 $ 1,216 $ 6,329 $ 4,027
======= ======= ======= =======
</TABLE>
The Trust generally considers FFO to be an appropriate measure of the
performance of an equity real estate investment trust ("REIT"). 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, 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 the Trust's calculation. This treatment is consistent with the Trust's
historical calculation of FFO. The Trust believes that FFO is useful to
investors as a measure of the performance of an equity REIT because, along with
cash flows from operating activities, investing activities, and financing
activities, it provides investors an understanding of the ability of the Trust
to incur and service debt and to make capital expenditures. The Trust believes
that in order to facilitate a clear understanding of its operating results, FFO
should be examined in conjunction with net income (loss) as presented in the
financial statements included elsewhere in this report. FFO does not represent
cash generated from operating activities in accordance with GAAP and therefore
should not be considered an alternative to net income as an indication of the
Trust's operating performance or to cash flow as a measure of liquidity and is
not necessarily indicative of cash available to fund cash needs and cash
distributions. The
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Funds from Operations (Continued)
Trust's calculation of FFO may differ from the methodology for calculating FFO
utilized by other REITs and, accordingly, may not be comparable to such other
REITs.
Effective January 1, 1997, the Trust modified its calculation of FFO to include
the add back of amortization of leasing commissions associated with its
commercial properties. The Trust believes that this calculation of FFO is
consistent with a majority of other REITs. If the Trust had calculated FFO in
the same manner for the three and nine month periods ended September 30, 1996,
FFO would have been higher by $82,000 and $244,000, respectively.
Included in FFO for the three and nine month periods ended September 30, 1997,
are gains totaling $686,000 resulting from the Trust's sale of investments in
marketable equity securities.
Implementation of Change in Accounting Estimate
Effective January 1, 1997, the Trust implemented prospectively a change in
accounting estimate whereby capital expenditures for carpet; appliances; and
heating, ventilation, and air conditioning (HVAC) replacements are capitalized
rather than expensed. The Trust believes that capitalizing these expenditures
and depreciating them over lives ranging from three to five years more
appropriately reflects the timing of the economic benefits to be received from
these expenditures. Additionally, the Trust believes this treatment is
consistent with policies currently being used by a majority of other REITs. For
the three and nine month periods ended September 30, 1997, the effect of this
change in accounting estimate was to decrease property operating expenses and
increase net income by $548,000 and $1 million, respectively. Had the Trust
implemented this change on January 1, 1996, property operating expenses for the
three and nine month periods ended September 30, 1996, would have been reduced
by $318,000 and $728,000, respectively.
Allowances for Estimated Losses and Provisions for Losses
The Trust's management, on a quarterly basis, reviews the carrying values of the
Trust's mortgage loans and properties held for sale. Generally accepted
accounting principles require that the carrying value of a mortgage loan or a
property held for sale cannot exceed the lower of its cost or its estimated fair
value less estimated costs to sell. In those instances in which estimates of
fair value less estimated costs to sell of the collateral securing the Trust's
mortgage loans or properties held for sale are less than the carrying values
thereof at the time of evaluation, an allowance for loss is provided by a charge
against operations. The evaluation of the carrying values of the mortgage loans
is based on management's review and evaluation of the collateral properties
securing the mortgage loans. The review of collateral properties and properties
held for sale generally includes selective site inspections, a review of the
property's current rents compared to market rents, a review of the property's
expenses, a review of maintenance requirements, discussions with the property
manager, and a review of the surrounding area. Future quarterly reviews could
cause the Trust's management to adjust current estimates of fair value.
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Allowances for Estimated Losses and Provisions for Losses (Continued)
The Trust's management also evaluates the Trust's properties held for investment
for impairment whenever events or changes in circumstances indicate that the
carrying value of an asset may not be recoverable. This evaluation generally
consists of a review of the property's cash flow and current and projected
market conditions, as well as any changes in general and local economic
conditions. If an impairment loss exists based on the results of this review, a
loss is recognized by a charge against current earnings and a corresponding
reduction in the respective asset's carrying value. The amount of this
impairment loss is equal to the amount by which the carrying value of the
property exceeds its estimated fair value.
Environmental Matters
Under various federal, state, and local environmental laws, ordinances, and
regulations, the Trust may be potentially liable for removal or remediation
costs, as well as certain other potential costs (including governmental fines
and injuries to persons and property) relating to hazardous or toxic substances
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 from the Trust for personal injury
associated with such materials.
The Trust's management is not aware of any environmental liability relating to
the above matters that would have a material adverse effect on the Trust's
business, assets, or results of operations.
Income Tax Aspects
As more fully discussed in the Trust's Annual Report on Form 10-K for the year
ended December 31, 1996, the Trust has elected and, in the opinion of the
Trust's management, qualified to be taxed as a REIT, as defined under Sections
856 through 860 of the Internal Revenue Code of 1986, as amended, and, as such,
will not be taxed for federal income tax purposes on that portion of its taxable
income which is distributed to shareholders, provided that at least 95% of its
REIT taxable income is distributed.
Risks Associated with Forward-Looking Statements Included in this Form 10-Q
This form 10-Q contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934, which are intended to be covered by the safe harbors
created thereby. These statements include the plans and objectives of management
for future operations, including plans and objectives relating to capital
expenditures on Trust properties. The forward-looking statements included herein
are based on current expectations that involve numerous risks and uncertainties.
Assumptions relating to the foregoing involve judgments with respect to, among
other things, future economic, competitive, and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Trust. Although the
Trust believes that the assumptions underlying the forward-looking statements
are reasonable, any of the assumptions could be inaccurate, and, therefore,
there can be no assurance that the forward-looking statements included in this
Form 10-Q will prove to be accurate. In light of the significant uncertainties
inherent in the forward-looking statements included herein, the inclusion of
such information should not be regarded as a representation by the Trust or any
other person that the objectives and plans of the Trust will be achieved.
20
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27.0 - Financial Data Schedule
(b) Reports on Form 8-K:
None.
[This space intentionally left blank.]
21
<PAGE> 22
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.
NATIONAL INCOME REALTY TRUST
Date: November 14, 1997 By:/s/ William S. Friedman
--------------------- -------------------------------
William S. Friedman
President, Chief Executive
Officer, and Trustee
Date: November 14, 1997 By:/s/ Robert C. Irvine
--------------------- -------------------------------
Robert C. Irvine
Executive Vice President and
Chief Financial Officer
Date: November 14, 1997 By:/s/ Erin D. Davis
--------------------- -------------------------------
Erin D. Davis
Vice President and
Chief Accounting Officer
22
<PAGE> 23
NATIONAL INCOME REALTY TRUST
INDEX TO EXHIBITS
EXHIBIT 27.0 Financial Data Schedule Page 24
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 4,469
<SECURITIES> 1,177
<RECEIVABLES> 0
<ALLOWANCES> (1,195)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 273,065
<DEPRECIATION> (43,781)
<TOTAL-ASSETS> 257,293
<CURRENT-LIABILITIES> 0
<BONDS> 173,555
0
0
<COMMON> 0
<OTHER-SE> 72,353
<TOTAL-LIABILITY-AND-EQUITY> 257,293
<SALES> 0
<TOTAL-REVENUES> 38,085
<CGS> 0
<TOTAL-COSTS> 21,114
<OTHER-EXPENSES> 5,779
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,119
<INCOME-PRETAX> 5,548
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,548
<DISCONTINUED> 0
<EXTRAORDINARY> 353
<CHANGES> 0
<NET-INCOME> 5,901
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.54
</TABLE>
