<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED MARCH 31, 1995
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Commission File Number 0-13291
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TRANSCONTINENTAL REALTY INVESTORS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C>
Nevada 94-6565852
- --------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
</TABLE>
<TABLE>
<S> <C>
10670 North Central Expressway, Suite 300, Dallas, Texas 75231
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(Address of Principal Executive Office) (Zip Code)
</TABLE>
(214) 692-4700
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(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 .
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APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, $.01 par value 2,674,850
- ---------------------------- ---------------------------------
(Class) (Outstanding at April 28, 1995)
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements have not been examined by
independent certified public accountants, but in the opinion of the management
of Transcontinental Realty Investors, Inc. (the "Company"), all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the Company's consolidated financial position, consolidated results of
operations and consolidated cash flows at the dates and for the periods
indicated, have been included.
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
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Assets (dollars in thousands)
------
<S> <C> <C>
Notes and interest receivable
Performing........................................ $ 10,706 $ 10,659
Nonperforming, nonaccruing........................ 1,482 1,502
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12,188 12,161
Real estate held for sale, net of accumulated
depreciation ($549 in 1995 and $514 in 1994)...... 8,350 8,373
Less - allowance for estimated losses.............. (951) (960)
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19,587 19,574
Real estate held for investment, net of
accumulated depreciation ($32,989 in 1995 and
$31,035 in 1994).................................. 229,103 213,445
Investment in real estate entities................. 8,795 8,577
Cash and cash equivalents.......................... 755 563
Other assets (including $369 in 1995 and $212 in
1994 due from affiliates)......................... 6,017 5,805
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$ 264,257 $ 247,964
============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
Notes and interest payable......................... $ 158,880 $ 145,514
Other liabilities (including $5,541 in 1995 and
$2,314 in 1994 to affiliates)..................... 13,151 9,273
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172,031 154,787
Stockholders' equity
Common stock, $.01 par value, authorized, 10,000,000
shares; issued and outstanding, 2,674,850 shares.. 27 27
Paid-in capital.................................... 219,049 219,049
Accumulated distributions in excess of
accumulated earnings.............................. (126,850) (125,899)
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92,226 93,177
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$ 264,257 $ 247,964
============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
2
<PAGE> 3
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------------------
1995 1994
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(dollars in thousands,
except per share)
<S> <C> <C>
Income
Rents............................................ $ 11,140 $ 8,440
Interest......................................... 374 424
Equity in income (loss) of investees............. 71 (14)
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11,585 8,850
Expenses
Property operations.............................. 7,337 6,346
Interest......................................... 3,554 2,379
Depreciation..................................... 1,989 1,458
Advisory fee to affiliate........................ 488 431
General and administrative....................... 461 505
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13,829 11,119
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(Loss) before gain on sale of partnership
interests and extraordinary gain................. (2,244) (2,269)
Gain on sale of partnership interests............. - 2,514
Extraordinary gain................................ 1,293 -
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Net income (loss)................................. $ (951) $ 245
============== ==============
Earnings Per Share
(Loss) before gain on sale of partnership
interests and extraordinary gain................. $ (.84) $ (.85)
Gain on sale of partnership interests............. - .94
Extraordinary gain................................ .48 -
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Net income (loss)................................. $ (.36) $ .09
============== ==============
Common shares used in computing earnings per
share............................................ 2,674,850 2,674,850
============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
3
<PAGE> 4
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the Three Months Ended March 31, 1995
<TABLE>
<CAPTION>
Accumulated
Distributions
Common Stock in Excess of
-------------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Earnings Equity
------------- ----------- -------------- -------------- --------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance, January 1,
1995..................... 2,674,850 $ 27 $ 219,049 $ (125,899) $ 93,177
Net (loss)................. - - - (951) (951)
------------- ----------- -------------- -------------- --------------
Balance, March 31, 1995.... 2,674,850 $ 27 $ 219,049 $ (126,850) $ 92,226
============= =========== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
4
<PAGE> 5
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------------------
1995 1994
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(dollars in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Rents collected.................................. $ 10,991 $ 8,433
Interest collected............................... 302 370
Interest paid.................................... (3,226) (2,037)
Payments for property operations................. (7,404) (6,916)
Advisory fee paid to affiliate................... (449) (392)
General and administrative expenses paid......... (451) (642)
Distributions from equity investees' operating
cash flow..................................... 73 88
Other............................................ 204 (108)
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Net cash provided by (used in) operating
activities.................................. 40 (1,204)
Cash Flows from Investing Activities
Collections on notes receivable.................. 36 84
Real estate improvements......................... (3,553) (554)
Acquisition of real estate....................... (166) -
Contributions to equity investees................ (384) (271)
Proceeds from sale of partnership interests...... - 2,651
Proceeds from sale of real estate................ - 1,573
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Net cash provided by (used in) investing
activities.................................. (4,067) 3,483
Cash Flows from Financing Activities
Payments on notes payable........................ (440) (661)
Proceeds from notes payable...................... 6,150 48
Payoffs of notes payable......................... (5,014) -
Advances from advisor............................ 3,523 -
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Net cash provided by (used in) financing
activities.................................. 4,219 (613)
Net increase in cash and cash equivalents.......... 192 1,666
Cash and cash equivalents, beginning of period..... 563 5,902
-------------- --------------
Cash and cash equivalents, end of period........... $ 755 $ 7,568
============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
5
<PAGE> 6
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
<TABLE>
<CAPTION>
For the Three Months
Ended March 31,
-----------------------------------
1995 1994
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(dollars in thousands)
<S> <C> <C>
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities
Net income (loss).................................. $ (951) $ 245
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities
Depreciation and amortization.................... 2,105 1,504
Gain on sale of partnership interests............ - (2,514)
Extraordinary gain............................... (1,293) -
Equity in (income) loss of investees............. (71) 14
Distributions from equity investees in excess of
current period earnings........................ 73 88
(Increase) decrease in interest receivable....... (11) 10
(Increase) decrease in other assets.............. 36 (169)
Increase in interest payable..................... 151 232
Increase (decrease) in other liabilities......... 1 (614)
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Net cash provided by (used in) operating
activities................................... $ 40 $ (1,204)
============== ==============
Noncash investing and financing activities
Note receivable from sale of real estate with
carrying value of $2,579....................... $ - $ 5,537
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
6
<PAGE> 7
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The Company, a Nevada corporation, is successor to a California business trust
which was organized on September 6, 1983. The Company invests in real estate
through direct equity ownership, leases and partnerships and also has invested
in mortgage loans on real estate, including first, wraparound and junior
mortgage loans. The Company is no longer seeking to fund or acquire new
mortgage loans other than those which it may originate in conjunction with
providing purchase money financing of a property sale.
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 three month period ended March 31, 1995
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1995. For further information, refer to the Consolidated
Financial Statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1994 (the "1994 Form 10-K").
NOTE 2. NOTES AND INTEREST RECEIVABLE
In February 1994, the Company provided $6.7 million of purchase money financing
in conjunction with the sale of 1,406 acres of land in sixteen developed
residential and commercial subdivisions located in Maumelle, Arkansas. The
note receivable bears interest at 8.0% per annum, requires annual payments of
principal of $850,000 plus accrued interest through maturity in February 1998,
is secured by a first lien on the properties sold and provides discounts of up
to $1.2 million for early payments. The note is guaranteed by companies
affiliated with the borrower. The borrower did not make the scheduled February
1995 principal and interest payments. The Company has commenced negotiations
with the borrower in an effort to correct the default. As negotiations are in
a preliminary stage, it is too early to predict their outcome. However, if the
Company were to foreclose the collateral property securing the note it would
not incur a loss as the fair value of the property exceeds the carrying amount
of the note.
NOTE 3. INVESTMENTS IN EQUITY METHOD REAL ESTATE ENTITIES
At December 31, 1994, the Company was a 50% general partner in both Twinbrook
Village Associates, which owns Twinbrook Village Apartments in Rockville,
Maryland, and Gate Laurel Associates, which owns the Westgate of Laurel
Apartments in Laurel, Maryland. Effective January 1, 1995, the other 50%
general partners conveyed their interests in the partnerships to the Company in
exchange for a release from their general partner liability.
7
<PAGE> 8
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 3. INVESTMENTS IN EQUITY METHOD REAL ESTATE ENTITIES (Continued)
In January 1995, the Company refinanced the mortgage debt secured by the Shadow
Run Apartments, an apartment complex in Pinellas Park, Florida. The new first
mortgage of $7.2 million bears interest at 10.21% per annum, requires monthly
payments of principal and interest of $64,305 and matures February 1, 2002.
The Company used the refinancing proceeds and $300,000 of its cash reserves to
pay the existing mortgage of $7.0 million, accrued but unpaid interest, real
estate taxes, financing fees and closing costs. The Company paid a mortgage
brokerage and equity refinancing fee of $72,000 to Basic Capital Management,
Inc. ("BCM"), the Company's advisor, based on the $7.2 million refinancing.
Prior to the refinancing, the Company had agreed to purchase the remaining
general partner interest in Shadow Run Associates, which owns the Shadow Run
Apartments, for $50,000 in cash. The purchase was completed in April 1995.
Set forth below is summarized results of operations for the real estate
entities the Company accounts for using the equity method for the three months
ended March 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
1995
-------
<S> <C>
Rents and interest income............................. $ 3,228
Depreciation.......................................... (453)
Property operations................................... (1,800)
Interest expense...................................... (793)
-------
Net income............................................ $ 182
=======
</TABLE>
NOTE 4. NOTES PAYABLE
The Company owns Institute Place Lofts, an office building in Chicago,
Illinois. The Company did not payoff the $6.5 million mortgage secured by the
property on its June 1, 1993 maturity, as the Company determined further
investment in the property could not be justified without a substantial
modification of the mortgage. In July 1994, the property was placed in
bankruptcy. In January 1995, the bankruptcy court approved a plan of
reorganization which provided for a reduction in the mortgage's principal
balance to $4.1 million, reduced the pay rate to 6% per annum in the first
year, increasing to 10.25% per annum in the fourth year, with interest accruing
at 10.25% per annum. In February and March 1995, the Company funded required
escrows of $500,000 to satisfy outstanding property taxes and to cover
projected negative cash flow of the property. The Company recorded no gain or
loss as a result of the debt restructuring.
In March 1995, the Company refinanced the mortgage debt secured by the Fountain
Village Apartments in Tucson, Arizona, in the amount of $6.2 million. The
Company received net cash of $1.1 million after the payoff of $4.9 million in
existing mortgage debt. The remainder of the refinancing proceeds were used to
fund required repair and tax escrows and the payment of various closing costs
associated with the refi-
8
<PAGE> 9
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 4. NOTES PAYABLE (Continued)
nancing. The new mortgage bears interest at a variable rate of 2.75% above the
average yield of United States Treasury Securities, currently 6.375% per annum,
requires monthly payments of principal and interest and matures April 1, 1998.
The Company guaranteed repayment of $1.3 million of the mortgage. The Company
recognized an extraordinary gain of $1.3 million on the payoff of the existing
mortgage. The Company paid a mortgage brokerage and equity refinancing fee of
$62,000 to BCM based on the $6.2 million refinancing.
In April 1995, the Company obtained mortgage financing of $1.2 million secured
by the previously unencumbered Venture Centre Office Building in Atlanta,
Georgia. The Company received net cash of $1.1 million after funding required
tax and insurance escrows and the payment of various closing costs associated
with the financing. The mortgage bears interest at 9.79% per annum, requires
monthly payments of principal and interest of $10,405 and matures May 1, 2005.
The Company guaranteed repayment of the mortgage. The Company paid a mortgage
brokerage and equity refinancing fee of $12,000 to BCM based on the $1.2
million financing.
Also in April 1995, the Company modified and extended three of the mortgage
loans secured by the Dunes Plaza Shopping Center. The three loans, totaling
$4.6 million after a principal reduction payment of $185,000, were consolidated
into one loan. In consideration of the Company's principal paydown, the lender
forgave $48,000 of the consolidated loan's principal balance. The new loan
provides that for every $3.86 of principal prepayments made by the Company
during the first year, the lender will forgive $1.00 of indebtedness, up to
$191,632. Also, for each $3.86 of certain capital and tenant improvement
expenditures approved by the lender, the lender shall forgive an additional
$1.00 of indebtedness, up to $323,507. The consolidated loan bears interest at
9.5% per annum, requires monthly payments of principal and interest of $42,505
and matures March 10, 2000. The Company recorded an extraordinary gain of
$48,000 on the debt forgiveness.
NOTE 5. COMMITMENTS AND CONTINGENCIES
The Company is involved in various lawsuits arising in the ordinary course of
business. The Company's management is of the opinion that the outcome of these
lawsuits will have no material impact on the Company's financial condition.
NOTE 6. SUBSEQUENT EVENTS
On May 5, 1995, the Republic Towers Office Building in Dallas, Texas, sustained
considerable damage from flooding, which disabled the electrical systems of the
building. The Company is still reviewing the extent of the damage, but
believes that it is adequately covered by insurance.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
Transcontinental Realty Investors, Inc. (the "Company") invests in real estate
through direct ownership, leases and partnerships and has invested in mortgage
loans, including first, wraparound and junior mortgage loans. The Company was
organized on September 6, 1983 and commenced operations on January 31, 1984.
Cash and cash equivalents aggregated $755,000 at March 31, 1995 compared with
$563,000 at December 31, 1994. The Company's principal sources of cash have
been and will continue to be from property operations, proceeds from property
sales, the collection of mortgage notes receivable and borrowings. The Company
anticipates that its cash on hand, as well as cash generated from the
collection of mortgage notes receivable, sales of properties, borrowings
against certain of the Company's unencumbered properties and refinancing or
extending certain of its mortgage debt will be sufficient to meet all of the
Company's cash requirements, including debt service obligations and
expenditures for property maintenance and improvements.
Liquidity and Capital Resources
In March 1995, the Company refinanced the mortgage debt secured by the Fountain
Village Apartments in Tucson, Arizona, in the amount of $6.2 million. The
Company received net cash of $1.1 million after the payoff of $4.9 million in
existing mortgage debt. The remainder of the refinancing proceeds were used to
fund required repair and tax escrows and for the payment of various closing
costs associated with the refinancing.
In April 1995, the Company obtained mortgage financing secured by the
previously unencumbered Venture Centre Office Building in Atlanta, Georgia, in
the amount of $1.2 million. The Company received net cash of $1.1 million
after the funding of required tax and insurance escrows and the payment of
various closing costs associated with the financing.
Also in April 1995, the Company modified, extended and consolidated three of
the mortgage loans secured by the Dunes Plaza Shopping Center. In conjunction
with the modification, the Company made a $185,000 principal paydown.
The Company's Board of Directors has approved the Company's repurchase of a
total of 458,000 shares of its Common Stock. Through April 28, 1995, the
Company had purchased a total of 233,725 shares, for an aggregate purchase
price of $1.7 million. The Company has repurchased none of its shares during
1995.
On a quarterly basis, the Company's management reviews the carrying amount of
the Company's mortgage notes receivable, properties held for investment and
properties held for sale. Generally accepted accounting principles require
that the carrying amount of such assets cannot exceed the lower of their
respective carrying amounts or estimated net realiz-
10
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
able value. In an instance where the estimated net realizable value is less
than the carrying amount at the time of evaluation, a provision for loss is
recorded by a charge against earnings. The estimate of net realizable value of
the mortgage notes receivable is based on management's review and evaluation of
the collateral property securing the mortgage note. The property review
generally includes selective property inspections, a review of the property's
current rents compared to market rents, a review of the property's expenses, a
review of the maintenance requirements, discussions with the manager of the
property and a review of the surrounding area. See "Recent Accounting
Pronouncement," below.
Results of Operations
The Company's net loss for the three months ended March 31, 1995 was $951,000
as compared to net income of $245,000 in the corresponding period in 1994. The
Company's 1995 net loss includes extraordinary gains of $1.3 million and its
1994 net income includes a gain on sale of partnership interests of $2.5
million. Fluctuations in the major components of the Company's revenues and
expenses between the 1994 and 1995 periods are discussed below.
Net rental income (rents less property operating expenses) was $3.8 million for
the three months ended March 31, 1995 compared to $2.1 million for the
corresponding period in 1994. The increase is attributable to net rental
income of $1.0 million from properties acquired subsequent to the first quarter
of 1994 and an increase of $773,000 due to increased rents and decreased
property operating expenses at several of the Company's apartment complexes and
commercial properties. These increases were partially offset by a decrease of
$200,000 due to properties sold subsequent to the first quarter of 1994.
Interest income decreased from $424,000 in the three months ended March 31,
1994 to $374,000 in the corresponding period in 1995. The decrease is due
primarily to the paydown and modification of one of the Company's mortgage
notes receivable in June 1994.
Equity in income (loss) of investees was income of $71,000 for the three months
ended March 31, 1995 compared to a loss of $14,000 for the corresponding period
in 1994. The equity income in the three months ended March 31, 1995 is due
primarily to an increase in occupancy rates and common area maintenance cost
recoveries at one of the Company's equity investee's commercial properties.
Interest expense for the three months ended March 31, 1995 was $3.6 million as
compared to $2.4 million for the corresponding period in 1994. This increase
is attributable to properties acquired subject to debt and property
refinancings subsequent to March 31, 1994.
Depreciation expense increased to $2.0 million in the three months ended March
31, 1995 as compared to $1.5 million in the corresponding period
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
in 1994. This increase is attributable to properties acquired, subject to
debt, subsequent to March 31, 1994.
Advisory fee to affiliate increased to $488,000 in the three months ended March
31, 1995 as compared to $431,000 in the corresponding period in 1994. The
increase is due to the increase in the Company's gross assets, the basis for
such fee. The advisory fee is expected to continue to increase as the Company
makes additional property acquisitions.
General and administrative expenses decreased to $461,000 for the three months
ended March 31, 1995 compared to $505,000 in the corresponding period in 1994.
The decrease is primarily attributable to decreased legal fees and advisor cost
reimbursements.
In the first quarter of 1995, the Company recognized extraordinary gains
totaling $1.3 million on the payoff of the mortgage debt secured by the
Fountain Village Apartments and the Dunes Plaza Shopping Center. No such gain
was recognized in 1994. See NOTE 4. "NOTES PAYABLE." In the first quarter of
1994, the Company recognized a gain of $2.5 million on the sale of its
interests in two partnerships. No such gain was recognized in 1995. See NOTE
3. "INVESTMENTS IN EQUITY METHOD REAL ESTATE ENTITIES."
Tax Matters
As more fully discussed in the Company's 1994 Form 10-K, the Company has
elected and, in the opinion of the Company's management, qualified to be taxed
as a Real Estate Investment Trust ("REIT"), as defined under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended, (the "Code"). To
continue to qualify for federal taxation as a REIT under the Code, the Company
is required to hold at least 75% of the value of its total assets in real
estate assets, government securities, cash and cash equivalents at the close of
each quarter of each taxable year. The Code also requires a REIT to distribute
at least 95% of its REIT taxable income, plus 95% of its net income from
foreclosure property, all as defined in Section 857 of the Code, on an annual
basis to stockholders.
Inflation
The effects of inflation on the Company's operations are not quantifiable.
Revenues from property operations generally fluctuate proportionately with
inflationary increases and decreases in housing costs. Fluctuations in the
rate of inflation also affect the sales values of properties, and
correspondingly, the ultimate gains to be realized by the Company from property
sales. To the effect that inflation affects interest rates, the Company's
earnings from short-term investments and the cost of new financings as well as
the cost of its variable note financing will be affected.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Environmental Matters
Under various federal, state and local environmental laws, ordinances and
regulations, the Company may be potentially liable for removal or remediation
costs, as well as certain other potential costs relating to hazardous or toxic
substances (including governmental fines and injuries to persons and property)
where property-level managers have arranged for the removal, disposal or
treatment of hazardous or toxic substances. In addition, certain environmental
laws impose liability for release of asbestos-containing materials into the
air, and third parties may seek recovery from the Company for personal injury
associated with such materials.
The Company's management is not aware of any environmental liability relating
to the above matters that would have a material adverse effect on the Company's
business, assets or results of operations.
Recent Accounting Pronouncement
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of".
The statement requires that long-lived assets be considered impaired "...if the
sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset." If impairment exists,
an impairment loss shall be recognized, by a charge against earnings, equal to
"...the amount by which the carrying amount of the asset exceeds the fair value
of the asset." If impairment of a long-lived asset is recognized, the carrying
amount of the asset shall be reduced by the amount of the impairment, shall be
accounted for as the asset's "new cost" and such new cost shall be depreciated
over the asset's remaining useful life.
SFAS No. 121 further requires that long-lived assets held for sale "...be
reported at the lower of carrying amount or fair value less cost to sell." If
a reduction in a held for sale asset's carrying amount to fair value less cost
to sell is required, a provision for loss shall be recognized by a charge
against earnings. Subsequent revisions, either upward or downward, to a held
for sale asset's fair value less cost to sell shall be recorded as an
adjustment to the asset's carrying amount, but not in excess of the assets
carrying amount when originally classified or held for sale. A corresponding
charge or credit to earnings is to be recognized. Long-lived assets held for
sale are not to be depreciated. SFAS No. 121 is effective for fiscal years
beginning after December 15, 1995.
The Company's management has not fully evaluated the effects of adopting SFAS
No. 121, but expects that the Company's policy with regard to the
classification of foreclosed revenue producing properties as assets held for
sale will require reevaluation.
The Company's management estimates that if the Company had adopted SFAS No. 121
effective January 1, 1995, without a change in its policy of
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Recent Accounting Pronouncement (Continued)
classifying foreclosed revenue producing assets as held for sale its
depreciation in the first quarter of 1995 would have been reduced by $33,000,
its net loss reduced by a like amount and that a provision for loss for either
impairment of its properties held for investment or for a decline in estimated
fair value less cost to sell of its properties held for sale would not have
been required.
__________________________________
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Olive Litigation. In February 1990, the Company together with Continental
Mortgage and Equity Trust ("CMET"), Income Opportunity Realty Trust ("IORT")
and National Income Realty Trust ("NIRT"), three real estate entities with, at
the time, the same officers, directors or trustees and advisor as the Company,
entered into a settlement of a class and derivative action entitled Olive et
al. v. National Income Realty Trust et al. relating to the operation and
management of each of the entities. On April 23, 1990, the court granted final
approval of the terms of the settlement. Final court approval was entered on
December 12, 1994. The effective date of the modification was January 11,
1995.
On May 4, 1994, the parties entered into a Modification of Stipulation of
Settlement dated April 27, 1994 (the "Modification") which settled subsequent
claims of breaches of the settlement agreement which were asserted by the
plaintiffs and modified certain provisions of the April 1990 settlement. Under
the Modification, the Company, CMET, IORT and NIRT and their shareholders
released the defendants from any claims relating to the plaintiffs'
allegations. The Company, CMET, IORT and NIRT have agreed to waive any demand
requirement for the plaintiffs to pursue claims on behalf of each of them
against certain persons or entities.
In March 1995, the plaintiffs brought a derivative suit in the United States
District Court for the Northern Illinois Eastern Division entitled Robert
Johnstone, on behalf of National Income Realty Trust and John Pedjoe, on behalf
of Transcontinental Realty Investors, Inc. v. First Bank System, Inc., First
Bank National Association, First Bank (N.A.), FBS Business Finance Corporation
and David A. Wabick. The suit seeks unspecified damages for breach of
fiduciary duty, fraud, misappropriation and conversion and conspiracy. The
suit alleges that the defendants engaged in a series of transactions with NIRT
and the Company during 1991 and 1992 which resulted in damage to NIRT and the
Company.
14
<PAGE> 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- ---------------------------------------------------------
<S> <C>
27.0 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K as follows:
None.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSCONTINENTAL REALTY
INVESTORS, INC.
Date: May 12, 1995 By: /s/ Oscar W. Cashwell
---------------------------- --------------------------------
Oscar W. Cashwell
President
Date: May 12, 1995 By: /s/ Hamilton P. Schrauff
---------------------------- --------------------------------
Hamilton P. Schrauff
Executive Vice President and
Chief Financial Officer
16
<PAGE> 17
TRANSCONTINENTAL REALTY INVESTORS, INC.
EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q
For the Three Months ended March 31, 1995
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- ------- --------------------------------------------------- ------
<S> <C> <C>
27.0 Financial Data Schedule 18
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> MAR-31-1995
<CASH> 755
<SECURITIES> 0
<RECEIVABLES> 12,188
<ALLOWANCES> 121
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 270,991
<DEPRECIATION> 33,538
<TOTAL-ASSETS> 264,257
<CURRENT-LIABILITIES> 0
<BONDS> 158,880
<COMMON> 27
0
0
<OTHER-SE> 92,199
<TOTAL-LIABILITY-AND-EQUITY> 264,257
<SALES> 0
<TOTAL-REVENUES> 11,140
<CGS> 0
<TOTAL-COSTS> 7,337
<OTHER-EXPENSES> 1,989
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,554
<INCOME-PRETAX> (2,244)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,244)
<DISCONTINUED> 0
<EXTRAORDINARY> 1,293
<CHANGES> 0
<NET-INCOME> (951)
<EPS-PRIMARY> (.36)
<EPS-DILUTED> (.36)
</TABLE>
