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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
November 30, 1999
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Date of Report (Date of Earliest Event Reported)
TRANSCONTINENTAL REALTY INVESTORS, INC.
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(Exact Name of Registrant as Specified in its Charter)
Nevada 0-13291 94-6565852
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(State of Incorporation) (Commission (IRS Employer
File No.) Identification No.)
10670 North Central Expressway, Suite 300, Dallas, TX 75231
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (214) 692-4700
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Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
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On November 30, 1999, Transcontinental Realty Investors, Inc. ("TCI") and
Continental Mortgage and Equity Trust ("CMET") closed the merger of the two
companies with TCI as the survivor. Pursuant to the merger, TCI acquired all of
the outstanding shares of CMET in a tax-free exchange of shares. TCI issued
1.181 shares of TCI common stock for each outstanding share of beneficial
interest of CMET.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
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(a) Pro forma financial information:
The following unaudited pro forma combined financial information of TCI and CMET
presents the historical consolidated balance sheets and statements of operations
of TCI and CMET after giving effect to the merger. The unaudited pro forma
combined balance sheet data at September 30, 1999 gives effect to the merger as
if it had occurred on September 30, 1999. The unaudited pro forma combined
statements of operations for the nine months ended September 30, 1999 and the
fiscal year ended December 31, 1998 gives effect to the merger as if it had
occurred on January 1, 1998. These statements have been prepared on the basis of
accounting for the merger as a purchase and are based on the assumption set
forth in the notes thereto.
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UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 1999
<TABLE>
<CAPTION>
Historical Pro forma Pro forma
-----------------------
TCI CMET Adjustments Combined
--------- ---------- ----------------- --------------
<S> <C> <C> <C> <C>
(dollars in thousands, except per share)
Assets
------
Notes and interest receivable $ 1,761 $ 649 $ 2,410
Less- allowances for estimated losses (293) (250) (543)
--------- --------- ----------
1,468 399 1,867
Foreclosed real estate held for sale, net of
accumulated depreciation 281 2,830 3,111
Real estate held for investment, net of accumulated
depreciation 375,200 278,926 ${ 500 (B)} 629,522
{ (25,104) (C)}
Investment in real estate entities 1,669 - 1,669
Investment in marketable equity securities of
affiliates, at market - 14,109 (873) (D) 13,236
Cash and cash equivalents 16,254 3,965 20,219
Other assets 29,380 18,465 (1,459) (C) 46,386
--------- --------- ----------- ----------
$ 424,252 $ 318,694 $ (26,936) $ 716,010
========= ========= =========== ==========
</TABLE>
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<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 1999
<TABLE>
<CAPTION>
Historical Pro forma Pro forma
--------------------------
TCI CMET Adjustments Combined
----------- ------------ ------------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Liabilities and Stockholders' Equity
Liabilities
Notes and interest payable $ 308,801 $ 219,278 $ 528,079
Other liabilities 12,672 12,006 $ 500 (B) 25,178
----------- ----------- ----------- -----------
321,473 231,284 500 553,257
Minority interest 384 - - 384
Stockholders' Equity
TCI
Preferred Stock
Series A; $01 par value; authorized, 6,000 shares;
issued and outstanding 5,829 shares (liquidation
preference $583) - -
Common Stock; $.01 par value, authorized 10,000,000
shares; issued and outstanding 3,881,503 shares
historical; 8,549,903 shares pro forma 39 { (1) (D)} 85
{ 47 (A)}
Paid in capital 218,122 { 60,800 (A)} 278,050
{ (872) (D)}
Accumulated distributions in excess of accumulated
earnings (115,766) (115,766)
CMET
Shares of beneficial interest, no par value; authorized
shares unlimited; issued and outstanding 4,021,180
shares 8,058 (8,058) (A) -
Paid in capital 257,121 (257,121) (A) -
Accumulated distributions in
excess of accumulated
earnings (190,520) 190,520 (A) -
Net unrealized gains on marketable equity securities
of affiliates 12,751 (12,751) (A) -
----------- ----------- ----------- -----------
102,395 87,410 (27,436) 162,369
----------- ----------- ----------- -----------
$ 424,252 $ 318,694 $ (26,936) $ 716,010
=========== =========== =========== ===========
</TABLE>
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NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 1999
(dollars in thousands)
Note A. To record the purchase price of CMET at its estimated fair value.
Estimate fair value of 4,749,013 shares of TCI common stock at
$12.8125 per share (the closing price on November 30, 1999) issued at
the exchange rate of 1.181 share of TCI common stock for each of the
4,021,180 outstanding CMET shares of beneficial interest or $60,847.
Note B. To record estimate of additional closing costs.
Note C. To record allocation of purchase price to assets and liabilities
acquired as follows:
Notes and interest receivable $ 399
Foreclosed real estate held for sale 2,830
Real estate held for investment 253,822
Investment in marketable equity securities of
affiliates 14,109
Cash and cash equivalents 3,965
Other assets 17,006
Notes and interest payable (219,278)
Other liabilities (12,006)
----------
$ 60,847
==========
The adjustment to "Real estate held for investment" resulting from the
above allocation is due to the application of purchase accounting, and
is not indicative of the appraised value of such real estate.
Note D. To record retirement of 80,268 shares of TCI common stock included in
the acquired CMET assets at CMET's carrying value (September 30, 1999
market value) of $873.
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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Historical Pro forma Pro forma
---------------------------
TCI CMET Adjustments Combined
------------ ----------- ------------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Revenues
Rents.......................................... $ 57,628 $ 49,764 $ 107,392
Interest....................................... 297 316 $ (36) (C) 577
------------ ----------- ------ -----------
57,925 50,080 (36) 107,969
Expenses
Property operations............................ 30,154 28,849 59,003
Interest....................................... 18,722 15,832 34,554
Depreciation................................... 8,737 6,073 (615) (A) 14,195
Advisory fee................................... 2,220 1,826 (138) (B) 3,908
Net income fee................................. 1,055 178 59 (D) 1,292
General and administrative..................... 2,165 1,893 4,058
------------ ----------- ------ -----------
63,053 54,651 (694) 117,010
------------ ----------- ------ -----------
(Loss) from operations........................... (5,128) (4,571) 658 (9,041)
Equity in income of investees.................... 2,135 164 2,299
Gain on sale of real estate...................... 16,001 6,600 22,601
------------ ----------- ------ -----------
Net income....................................... 13,008 2,193 658 15,859
Preferred dividend requirement................... (23) - (23)
------------ ----------- ------ -----------
Net income applicable to Common shares........... $ 12,985 $ 2,193 $ 658 $ 15,836
============ =========== ====== ===========
Earnings per share
Net income....................................... $ 3.35 $ .55 $ 1.85
============ =========== ===========
Weighted average shares used in computing
earnings per share............................... 3,879,954 4,022,199 8,549,903
============ =========== ===========
</TABLE>
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NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 1999
(dollars in thousands)
Note A. To adjust depreciation for the $24,604 write down of the acquired real
estate held for investment, amortized over such assets' 30 year
estimated average remaining useful life.
Note B. To adjust the .75% per annum advisory fee for the $24,604 write down
of the acquired real estate held for investment.
Note C. To eliminate the divided income of $.15 per share, on the 80,268
shares of TCI common stock acquired with CMET's assets and retired.
Note D. To adjust the 7.5% net income fee for the effects of the items
described in Notes A, B and C, above.
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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
<TABLE>
<CAPTION>
Historical Pro forma Pro forma
--------------------------
TCI CMET Adjustments Combined
----------- ----------- ------------- ------------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Revenues
Rents....................................... $ 69,829 $ 63,593 $ 133,422
Interest.................................... 807 698 $ (48) (C) 1,457
----------- ----------- ------- -----------
70,636 64,291 (48) 134,879
Expenses
Property operations......................... 38,282 37,368 75,650
Interest.................................... 22,797 21,362 44,159
Depreciation................................ 10,691 8,095 (832) (A) 17,954
Advisory fee................................ 1,962 1,507 (187) (B) 3,282
Net income fee.............................. 558 28 76 (D) 662
General and administrative.................. 2,312 2,305 4,617
Provision for losses........................ - (506) (506)
----------- ----------- ------- -----------
76,602 70,159 (943) 145,818
----------- ----------- ------- -----------
(Loss) from operations........................ (5,966) (5,868) 895 (10,939)
Equity in income of investees................. 288 157 445
Gain on sale of real estate................... 12,584 6,058 18,642
----------- ----------- ------- -----------
Net income.................................... 6,906 347 895 8,148
Preferred dividend requirement................ (1) - (1)
----------- ----------- ------- -----------
Net income applicable to Common shares........ $ 6,905 $ 347 $ 895 $ 8,147
=========== =========== ======= ===========
Earnings per share
Net income.................................... $ 1.78 $ .09 $ .95
=========== =========== ===========
Weighted average shares used in computing
earnings per share.......................... 3,876,797 4,012,614 8,615,694
=========== =========== ===========
</TABLE>
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NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1998
(dollars in thousands)
Note A. To adjust depreciation for the $24,971 write down of the acquired real
estate held for investment, amortized over such assets' 30 year
estimated average remaining useful life.
Note B. To adjust the .75% per annum advisory fee for the $24,971 write down of
the acquired real estate held for investment.
Note C. To eliminate the divided income of $.60 per share, on the 80,268 shares
of TCI common stock acquired with CMET's assets and retired.
Note D. To adjust the 7.5% net income fee for the effects of the items
described in Notes A, B and C, above.
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ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (Continued)
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(b) Financial statements of property acquired:
Exhibit
Number Description
- ------- ----------------------------------------------------------------------
99.0 Audited Consolidated Financial Statements of Continental Mortgage and
Equity Trust for the year ended December 1998 (incorporated by
reference to Item 8. of Continental Mortgage and Equity Trust's Annual
Report on Form 10-K, dated March 25, 1999.
99.1 Unaudited Consolidated Financial Statements of Continental Mortgage
and Equity Trust for the nine months ended September 30, 1999
(incorporated by reference to Item 1. of Continental Mortgage and
Equity Trust's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1999, dated November 12, 1999).
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SIGNATURE PAGE
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 hereto duly authorized.
TRANSCONTINENTAL REALTY INVESTORS, INC.
Date: December 13, 1999 By: /s/ Thomas A. Holland
------------------------ -----------------------------------
Thomas A. Holland
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
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