<PAGE>
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 SEPTEMBER 30, 1999
------------------
Commission File Number 1-9240
------
TRANSCONTINENTAL REALTY INVESTORS, INC.
--------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Nevada 94-6565852
- --------------------------------- ---------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10670 North Central Expressway, Suite 300, Dallas, Texas 75231
- -----------------------------------------------------------------------
(Address of Principal Executive Office) (Zip Code)
(214) 692-4700
------------------------------
(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 .
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
Common Stock, as of the latest practicable date.
Common Stock, $.01 par value 3,883,041
- ---------------------------- ---------------------------------
(Class) (Outstanding at October 29, 1999)
1
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- -----------------------------
The accompanying Consolidated Financial Statements have not been audited by
independent certified public accountants, but in the opinion of the management
of Transcontinental Realty Investors, Inc. (the "Company"), all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of
the Company's consolidated financial position, consolidated results of
operations and consolidated cash flows at the dates and for the periods
indicated, have been included.
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(dollars in thousands,
except per share)
Assets
------
<S> <C> <C>
Notes and interest receivable
Performing........................................ $ 1,378 $ 1,429
Nonperforming..................................... 383 950
-------- --------
1,761 2,379
Less - allowance for estimated losses............... (293) (886)
-------- --------
1,468 1,493
Foreclosed real estate held for sale................ 281 1,356
Real estate held for investment, net of
accumulated depreciation ($62,288 in 1999 and
$61,241 in 1998)................................... 375,200 347,389
Investment in real estate entities.................. 1,669 3,458
Cash and cash equivalents........................... 16,254 10,505
Other assets (including $14,276 in 1999 and $1,325
in 1998 from affiliates).......................... 29,380 18,002
-------- --------
$424,252 $382,203
======== ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
2
<PAGE>
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
(dollars in thousands,
except per share)
Liabilities and Stockholders' Equity
------------------------------------
<S> <C> <C>
Liabilities
Notes and interest payable............................ $ 308,801 $ 282,688
Other liabilities (including $866 in 1999 and $62
in 1998 to affiliates).............................. 12,672 8,383
--------- ---------
321,473 291,071
Minority interest..................................... 384 -
Stockholders' equity
Preferred stock
Series A; $.01 par value; authorized, 6,000 shares;
issued and outstanding 5,829 shares in 1999 and
1998 (liquidation preference $583).................. - -
Common stock, $.01 par value, authorized, 10,000,000
shares; issued and outstanding, 3,881,503 shares
in 1999 and 3,878,463 in 1998........................ 39 39
Paid-in capital....................................... 218,122 218,087
Accumulated distributions in excess of
accumulated earnings................................. (115,766) (126,994)
--------- ---------
102,395 91,132
--------- ---------
$ 424,252 $ 382,203
========= =========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
3
<PAGE>
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ----------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Income
Rents.......................... $ 18,445 $ 18,021 $ 57,628 $ 51,414
Interest and other income...... 174 200 297 593
---------- ---------- ---------- ----------
18,619 18,221 57,925 52,007
Expenses
Property operations............ 9,676 10,072 30,154 27,355
Interest....................... 6,289 5,921 18,722 16,865
Depreciation................... 2,891 2,753 8,737 7,882
Advisory fee to affiliate...... 765 671 2,220 1,927
Net income fee to affiliate. 396 604 1,055 651
General and administrative..... 962 584 2,165 1,649
---------- ---------- ---------- ----------
20,979 20,605 63,053 56,329
---------- ---------- ---------- ----------
<Loss> from operations.......... (2,360) (2,384) (5,128) (4,322)
Equity in income <loss> of
investees..................... 1,631 <90> 2,135 342
Gain on sale of real estate..... 5,850 9,883 16,001 12,015
---------- ---------- ---------- ----------
Net income...................... 5,121 7,409 13,008 8,035
Preferred dividend requirement (9) - (23) -
---------- ---------- ---------- ----------
Net income applicable to
Common shares................. $ 5,112 $ 7,409 $ 12,985 $ 8,035
========== ========== ========== ==========
Earnings Per Share
Net income.................... $ 1.32 $ 1.91 $ 3.35 $ 2.07
========== ========== ========== ==========
Weighted average Common
shares used in computing
earnings per share.......... 3,880,617 3,871,438 3,879,954 3,876,505
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
4
<PAGE>
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Accumulated
Distributions
Common Stock in Excess of
--------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Earnings Equity
---------- -------- ----------- ------------- ------------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1999.......................... 3,878,463 $ 39 $ 218,087 $ <126,994> $ 91,132
Sale of Common Stock under dividend reinvestment
plan............................................ 3,040 - 35 - 35
Common dividends ($.45 per share)................. - - - (1,757) (1,757)
Preferred dividends($3.75 per share).............. - - - (23) (23)
Net income........................................ - - - 13,008 13,008
---------- -------- ----------- ------------- ------------
Balance, September 30, 1999....................... 3,881,503 $ 39 $ 218,122 $ (115,766) $ 102,395
========== ======== =========== ============= ============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
5
<PAGE>
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
----------------------
1999 1998
--------- ---------
(dollars in thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Rents collected..................................... $ 56,724 $ 51,083
Interest collected.................................. 289 592
Interest paid....................................... (17,960) (15,630)
Payments for property operations.................... (28,686) (27,566)
Advisory and net income fee paid to affiliate....... (2,128) (2,782)
General and administrative expenses paid............ (2,257) (1,844)
Distributions from operating cash flow of equity
investees......................................... 376 112
Other............................................... (698) (2,816)
-------- --------
Net cash provided by operating activities......... 5,660 1,149
Cash Flows from Investing Activities
Acquisition of real estate.......................... (40,443) (59,260)
Real estate improvements............................ (15,360) (5,739)
Proceeds from sale of real estate................... 44,266 30,383
Deposits on pending purchases....................... 1,772 (655)
Deferred merger costs............................... (257) (477)
Collections on notes receivable..................... 33 2,711
Distributions of equity investees' investing
cash flow, net.................................... 3,556 701
Contributions to equity investees................... (9) (16)
-------- --------
Net cash (used in) investing activities........... (6,442) (32,352)
Cash Flows from Financing Activities
Payments on notes payable........................... (43,111) (29,280)
Proceeds from notes payable......................... 62,070 62,677
Deferred borrowing costs............................ (1,028) (1,428)
Reimbursements to advisor........................... (9,655) (61)
Repurchase of common stock.......................... - (336)
Sale of common stock under dividend reinvestment
plan.............................................. 35 79
Dividends to stockholders........................... (1,780) (5,524)
-------- --------
Net cash provided by financing activities.......... 6,531 26,127
Net increase <decrease> in cash and cash
equivalents........................................ 5,749 (5,076)
Cash and cash equivalents, beginning of period....... 10,505 24,733
-------- --------
Cash and cash equivalents, end of period............. $ 16,254 $ 19,657
========= ========
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
6
<PAGE>
TRANSCONTINENTAL REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
------------------------
1999 1998
----------- ----------
(dollars in thousands)
<S> <C> <C>
Reconciliation of net income to net cash
provided by operating activities
Net income.............................................. $ 13,008 $ 8,035
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization......................... 9,454 8,473
Gain on sale of real estate........................... (16,001) (12,015)
Equity in (income) of investees....................... (2,135) (342)
Distributions from operating cash flow of equity
investees........................................... 376 112
(Increase) in interest receivable..................... (8) (1)
(Increase) in other assets............................ (4,019) (3,178)
Increase in interest payable.......................... 45 644
Increase (decrease) in other liabilities.............. 4,940 (579)
-------- --------
Net cash provided by operating activities........... $ 5,660 $ 1,149
======== ========
Schedule of noncash investing and financing
activities
Notes payable from purchase of real estate.............. $ 7,348 $ 2,970
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
7
<PAGE>
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
that was organized on September 6, 1983. The Company invests in real estate
through direct equity ownership and partnerships and also invests in mortgage
loans on real estate, including first and junior mortgage loans.
The accompanying Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Operating results for the nine month period ended September 30,
1999, are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. For further information, refer to the
Consolidated Financial Statements and notes included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 (the "1998 Form 10-K").
NOTE 2. REAL ESTATE
- --------------------
In February 1999, the Company sold the 368 unit Mariner's Pointe Apartments in
St. Petersburg, Florida, for $6.7 million, receiving net cash of $2.6 million
after paying off $3.9 million in mortgage debt and the payment of various
closing costs, including a real estate brokerage commission of $204,000 to
Carmel Realty, Inc. ("Carmel Realty"), an affiliate of Basic Capital Management,
Inc. ("BCM"), the Company's advisor. A gain of $1.9 million was recognized on
the sale.
In March 1999, the Company purchased the 264 unit Vista Hills Apartments in El
Paso, Texas, for $5.2 million, paying $1.6 million in cash and obtaining
mortgage financing of $3.6 million. The mortgage bears interest at a variable
rate, currently 8.34% per annum, requires monthly payments of principal and
interest of $26,897 and matures in April 2004. A real estate brokerage
commission of $173,000 was paid to Carmel Realty and a real estate acquisition
fee of $52,000 was paid to BCM.
Also in March 1999, the Company purchased the Dominion land, a 14.39 acre parcel
of unimproved land in Dallas, Texas, for $3.6 million, paying $1.2 million in
cash and obtaining mortgage financing of $2.4 million. The mortgage bears
interest at 15% per annum, requires quarterly payments of interest only and
matures in March 2000. A real estate brokerage commission of $56,000 was paid
to Carmel Realty and a real estate acquisition fee of $36,000 was paid to BCM.
In May 1999, the Company purchased the Red Cross land, a 2.89 acre parcel of
improved land in Dallas, Texas, for $7.6 million, paying $3.3 million in cash
and obtaining mortgage financing of $4.3 million. The mortgage bears interest
at a variable rate, currently 12.75% per
8
<PAGE>
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 2. REAL ESTATE (Continued)
- --------------------
annum, requires monthly payments of interest only and matures in October 2000.
A real estate brokerage commission of $70,000 was paid to Carmel Realty and a
real estate acquisition fee of $76,000 was paid to BCM.
Also in May 1999, the Company sold the 109,497 sq. ft. 74 New Montgomery Office
Building in San Francisco, California, for $19.3 million, receiving net cash of
$12.1 million after paying off $6.5 million in mortgage debt and the payment of
various closing costs, including a real estate brokerage commission of $410,000
to Carmel Realty. A gain of $8.3 million was recognized on the sale.
In June 1999, the Company purchased the 90,000 sq. ft. 4135 Beltline Road Office
Building in Addison, Texas, for $4.5 million, paying $1.0 million in cash and
obtaining mortgage financing of $3.5 million. The mortgage bears interest at a
variable rate, currently 9.62% per annum, requires monthly payments of interest
only and matures in June 2001. A real estate brokerage commission of $154,000
was paid to Carmel Realty and a real estate acquisition fee of $45,000 was paid
to BCM.
In July 1999, the Company purchased the 57,493 sq. ft. Chesapeake Center Office
Building in San Diego, California, for $5.2 million. The Company paid $2.2
million in cash, assumed the existing mortgage of $2.5 million and obtained
seller financing of the remaining $500,000 of the purchase price. The mortgage
bears interest at 8.875% per annum, requires monthly payments of principal and
interest of $24,076 and matures in August 2005. The seller financing bears
interest at 7.25% per annum, requires quarterly payments of interest only and
matures in July 2002. The Company paid a real estate brokerage commission of
$174,000 to Carmel Realty and a real estate acquisition fee of $52,000 to BCM.
Also in July 1999, the Company sold the Republic land a .925 acre parcel of
improved land in Dallas, Texas, for $1.8 million, receiving net cash of $443,000
after paying off $1.2 million in mortgage debt and the payment of various
closing costs, including a real estate brokerage commission of $75,000 to Carmel
Realty. A gain of $675,000 was recognized on the sale.
In July 1999, the Company sold the 216,131 sq. ft. Parke Long Industrial
Warehouse in Chantilly, Virginia, for $15.1 million, receiving net cash of $6.4
million after paying off $7.6 million in mortgage debt and the payment of
various closing costs, including a real estate brokerage commission of $347,000
to Carmel Realty. A gain of $5.1 million was recognized on the sale.
In September 1999, the Company purchased the 90,009 sq. ft. Remington Office
Tower in Tulsa, Oklahoma, for $4.6 million. The Company paid $1.0 million in
cash and assumed the existing mortgage of $3.6 million. The mortgage bears
interest at 7.38% per annum, requires monthly payments of principal and interest
of $27,055 and matures in May 2005. The Company paid a real estate brokerage
commission of $157,000 to Carmel Realty and a real estate acquisition fee of
$46,000 to BCM.
9
<PAGE>
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 2. REAL ESTATE (Continued)
- --------------------
In September 1999, the Company purchased the Alamo Springs land, a .678 acre
parcel of unimproved land in Dallas, Texas, for $1.3 million, paying $533,000 in
cash and assuming the existing mortgage of $750,000. The mortgage bears interest
at 16.5% per annum, requires monthly payments of interest only and matures in
September 2001. The Company paid a real estate brokerage commission of $51,000
to Carmel Realty and a real estate acquisition fee of $13,000 to BCM.
Also in September 1999, the Company purchased the 222,654 sq. ft. Eton Square
Building in Tulsa, Oklahoma, for $14.0 million paying $3.5 million in cash and
obtaining mortgage financing of $10.5 million. The mortgage bears interest at
8.5% per annum requires monthly payments of principal and interest of $84,549
and matures in October 2004. A real estate brokerage commission of $330,000 was
paid to Carmel Realty and a real estate acquisition fee of $140,000 to BCM.
Related Party. Effective July 1, 1999, the Company leased its three hotels, in
Chicago, Illinois and its hotel in San Francisco, California, to Regis Hotel
Corporation ("Regis"), an affiliate of BCM, the Company's advisor. Each lease
agreement provides for an annual base rent plus 30% of the revenues to be paid
by Regis. The lease expires July 1, 2007.
NOTE 3. NOTES AND INTEREST RECEIVABLE
- --------------------------------------
In March 1999, the Company accepted $33,000 for the early discounted payoff of
four mortgage notes receivable with a combined principal balance of $55,000 and
secured by unimproved residential lots in Greensboro, North Carolina. No loss
was incurred in excess of the reserves previously established.
In June 1999, seven mortgage notes receivable with an aggregate principal
balance of $570,000 were written off as uncollectible. No loss was recognized
in excess of the reserve previously established.
NOTE 4. INVESTMENTS IN EQUITY METHOD REAL ESTATE ENTITIES
- ----------------------------------------------------------
Set forth below are summarized results of operations of the real estate entities
the Company accounts for using the equity method for the nine months ended
September 30, 1999 (dollars in thousands):
Rents and interest income.......................... $17,615
Depreciation....................................... 2,323
Property operations................................ 6,803
Interest expense................................... 4,533
-------
Net income......................................... $ 3,956
=======
The Company owns a combined 63.7% general and limited partner interest in Tri-
City Limited Partnership ("Tri-City"), which, at January 1, 1999, owned three
commercial properties in Texas. In June 1999, Tri-City sold
10
<PAGE>
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 4. INVESTMENTS IN EQUITY METHOD REAL ESTATE ENTITIES (Continued)
- ---------------------------------------------------------
the 48,696 sq. ft. Summit at Bridgewood Shopping Center in Ft. Worth, Texas, for
$3.3 million, receiving net cash of $3.1 million after the payment of various
closing costs, including a real estate brokerage commission of $119,000 to
Carmel Realty. The Company received a distribution of $2.0 million of such net
cash. Tri-City recognized a gain of $587,000 on the sale of which the Company's
equity share was $374,000. In July 1999, Tri-City sold the 53,472 sq. ft.
MacArthur Mills Office Building in Carrollton, Texas, for $3.9 million,
receiving net cash of $2.3 million after paying off $1.3 million in mortgage
debt and the payment of various closing costs, including a real estate brokerage
commission of $137,000 to Carmel Realty. The Company received a distribution of
$1.5 million of such net cash. Tri-City recognized a gain of $2.3 million on
the sale of which the Company's equity share was $1.4 million.
NOTE 5. NOTES AND INTEREST PAYABLE
- ----------------------------------
In January 1999, the maturity date of the $4.9 million mortgage secured by the
242 unit Summerstone Apartments in Houston, Texas, was extended from December
1998 to July 1999. In July 1999, the Company refinanced the matured mortgage
debt in the amount of $5.3 million, receiving net cash of $258,000 after paying
off $4.9 million in mortgage debt and the payment of various closing costs. The
new mortgage bears interest at 7.67% per annum, requires monthly payments of
principal and interest of $37,535 and matures in August 2009. A mortgage
brokerage and equity refinancing fee of $53,000 was paid to BCM.
In March 1999, the Company refinanced the matured mortgage debt secured by the
74,603 sq. ft. Lexington Center Office Building in Colorado Springs, Colorado,
in the amount of $4.3 million, receiving net cash of $136,000 after paying off
$4.0 million in mortgage debt and the payment of various closing costs. The new
mortgage bears interest at a variable rate, currently 8.34% per annum, requires
monthly payments of principal and interest of $32,479 and matures in April 2004.
A mortgage brokerage and equity refinancing fee of $43,000 was paid to BCM.
In April 1999, the Company refinanced the matured mortgage debt secured by the
97,846 sq. ft. Texstar Industrial Warehouse in Arlington, Texas, in the amount
of $1.3 million, receiving net cash of $100,000 after paying off $1.2 million in
mortgage debt and the payment of various closing costs. The new mortgage bears
interest at 8.5% per annum, requires monthly payments of principal and interest
of $11,282 and matures in April 2004. A mortgage brokerage and equity
refinancing fee of $13,000 was paid to BCM.
Also in April 1999, the Company refinanced the mortgage debt secured by the
106,257 sq. ft. Waterstreet Office Building in Boulder, Colorado, in the amount
of $13.3 million receiving net cash of $5.4 million after paying off $7.9
million in mortgage debt and the payment of various closing costs. The new
mortgage bears interest at 7.76% per annum,
11
<PAGE>
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 5. NOTES AND INTEREST PAYABLE (Continued)
- ----------------------------------
requires monthly payments of principal and interest of $95,375 and matures in
April 2009. A mortgage brokerage and equity refinancing fee of $133,000 was
paid to BCM.
Further in April 1999, the Company refinanced the matured mortgage debt secured
by the 70,295 sq. ft. Sadler Square Shopping Center in Amelia Island, Florida,
in the amount of $2.9 million, receiving net cash of $500,000 after paying off
$2.4 million in mortgage debt and the payment of various closing costs. The new
mortgage bears interest at 7.96% per annum, requires monthly payments of
principal and interest of $22,382 and matures in April 2009. A mortgage
brokerage and equity refinancing fee of $29,000 was paid to BCM.
In September 1999, the Company refinanced the mortgage debt secured by the 49
unit Villas at Fairpark Apartments in Los Angeles, California, in the amount of
$2.4 million, receiving net cash of $847,000 after paying off $1.5 million in
mortgage debt and the payment of various closing costs. The new mortgage bears
interest at a variable rate, currently 8.75% per annum, requires monthly
payments of principal and interest of $19,054 and matures in September 2006. A
mortgage brokerage and equity refinancing fee of $24,000 was paid to BCM.
On October 1, 1999, the $845,000 in debt secured by an assignment of the
Company's ownership interest in Transcontinental 4400, Inc. ("4400, Inc."), a
wholly-owned subsidiary of the Company matured. Such debt was not paid at
maturity. 4400, Inc. owns three apartments in Midland, Texas, secured by
mortgages from the same lender totaling $6.0 million. The debt was not paid at
maturity due to the lender's failure to advance by October 1, 1999, an
additional $1.5 million on the $6.0 million in mortgages, as required by the
loan agreement. The lender has declared an event of default as it relates to
these mortgages. The Company has commenced litigation against such lender. If
the Company and the lender can not reach agreement to restructure the debt, the
Company will pay it off.
NOTE 6. OPERATING SEGMENTS
- --------------------------
Significant differences among the accounting policies of the Company's operating
segments as compared to the Company's consolidated financial statements
principally involve the calculation and allocation of general and administrative
expenses. Management evaluates the performance of the operating segments and
allocates resources to each of them based on their operating income and cash
flow. The Company based reconciliation of expenses that are not reflected in
the segments is $2.2 million of general and administrative expenses in the nine
months ended September 30, 1999, and $1.6 million in 1998. There are no
intersegment revenues and expenses and the Company conducts all of its business
in the United States.
12
<PAGE>
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 6. OPERATING SEGMENTS (Continued)
- --------------------------
Presented below is the operating income of each of the Company's reportable
operating segments, for the nine months ended September 30, 1999, and each
segment's assets at September 30.
<TABLE>
<CAPTION>
Commercial
Properties Apartments Hotels Land Total
---------- ---------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
1999
- ---------
Rents............... $ 23,472 $ 29,188 $ 4,312 $ 656 $ 57,628
Property operating
expenses........... 9,501 17,553 2,557 543 30,154
---------- ---------- ------- ------- --------
Operating income.... $ 13,971 $ 11,635 $ 1,755 $ 113 $ 27,474
========== ========== ======= ======= ========
Depreciation........ $ 4,603 $ 3,631 $ 503 $ - $ 8,737
Interest on debt.... 7,862 8,579 1,085 1,196 18,722
Real estate
improvements....... 3,988 9,801 1,571 - 15,360
Assets.............. 161,767 164,065 18,944 30,705 375,481
Commercial
Properties Apartments Land Total
---------- ---------- ------- --------
Sales price........ $ 34,400 $ 6,700 $ 1,800 $ 42,900
Cost of sale....... 20,942 4,832 1,125 26,899
---------- ---------- ------- --------
Gain on sale....... $ 13,458 $ 1,868 $ 675 $ 16,001
========== ========== ======= ========
Commercial
Properties Apartments Hotels Land Total
---------- ---------- ------- ------- --------
1998
--------
Rents............... $ 22,965 $ 25,900 $ 2,091 $ 458 $ 51,414
---------- ---------- ------- ------- --------
Property operating
expenses........... 9,660 16,169 1,271 255 27,355
---------- ---------- ------- ------- --------
Operating income.... $ 13,305 $ 9,731 $ 820 $ 203 $ 24,059
========== ========== ======= ======= ========
Depreciation........ $ 4,704 $ 2,962 $ 216 $ - $ 7,882
Interest on debt.... 8,153 7,617 434 661 16,865
Real estate
improvements....... 3,897 1,631 143 68 5,739
Assets.............. 152,964 138,576 5,404 22,086 319,030
Commercial
Properties Land Total
---------- ------- --------
Sales price........ $ 32,504 $ - $ 32,504
Cost of sale....... 23,292 - 23,292
---------- ------- --------
Gain on sale....... $ 9,212 $ 2,132* $ 11,344
========== ======= ========
- -----------------
</TABLE>
* In April 1998, the Company recognized the previously deferred gain on a prior
years' land sale, on collection of the mortgage note receivable secured by the
land parcel.
13
<PAGE>
TRANSCONTINENTAL REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 7. 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 8. SUBSEQUENT EVENTS
- -------------------------
In October 1999, the Company refinanced the mortgage debt secured by the 132
unit Villa Piedra Apartments in Los Angeles, California, in the amount of $4.7
million, receiving net cash of $1.1 million after paying off $3.5 million in
mortgage debt, funding required escrows and the payment of various closing
costs. The new mortgage bears interest at a variable rate, currently 8.18% per
annum, requires monthly payments of principal and interest of $35,664 and
matures in October 2002. A mortgage brokerage and equity refinancing fee of
$47,000 was paid to BCM.
Also in October 1999, the Company sold the 177,563 sq. ft. Corporate Center in
Ashburn, Virginia, for $12.3 million, receiving net cash of $4.9 million after
paying off $6.8 million in mortgage debt and the payment of various closing
costs, including a real estate brokerage commission of $293,000 to Carmel
Realty. A gain will be recognized on the sale.
-----------------------
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
Introduction
- ------------
The Company invests in real estate through direct ownership and partnerships and
invests in mortgage loans, including first, wraparound and junior mortgage
loans. The Company is the successor to a business trust that was organized on
September 6, 1983, and commenced operations on January 31, 1984.
Liquidity and Capital Resources
- -------------------------------
Cash and cash equivalents aggregated $16.3 million at September 30, 1999,
compared with $10.5 million at December 31, 1998. 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 property operations, the sale of properties and the refinancing
of certain of its mortgage debt will be sufficient to meet all of the Company's
cash requirements including debt service obligations and expenditures for
property maintenance and improvements.
14
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
---------------------
Liquidity and Capital Resources (Continued)
- -------------------------------
Net cash provided by operating activities increased to $5.7 million for the nine
months ended September 30, 1999, from $1.1 million for the nine months ended
September 30, 1998. The primary factors affecting the Company's cash flow from
operations are discussed in the following paragraphs.
The Company's cash flow from property operations (rents collected less payments
for expenses applicable to rental income) increased to $28.0 million in 1999,
from $23.5 million in 1998. Of this increase, $2.5 million was due to the
Company having acquired 29 properties during 1998 and 1999 and $2.5 million was
due to an increase in rental rates and a decrease in vacancies at the Company's
commercial and residential properties. These increases were partially offset by
a decrease of $1.8 million due to seven properties being sold during 1998 and
1999.
Interest collected decreased to $289,000 in 1999, from $592,000 in 1998. The
decrease was due to eight mortgage notes receivable being collected in full in
1998 and 1999, the foreclosure of the collateral securing one note receivable in
1998 and the foreclosure of the collateral securing another note receivable
which is expected to occur in the fourth quarter of 1999.
Interest paid increased to $18.0 million in 1999, from $15.6 million in 1998.
This increase was due to the acquisition of 26 properties subject to debt,
refinancings of properties where the debt balance was increased and financings
obtained on two previously unencumbered properties during 1998 and 1999. The
increase was partially offset by a decrease of $1.2 million due to the sale of
seven properties in 1998 and 1999.
Advisory and net income fee payments decreased to $2.1 million in 1999, from the
$2.8 million paid in 1998. The decrease was due to the payment in 1998 of the
accrued fourth quarter 1997 net income fee of $1.0 million, no such fee being
earned by the advisor in 1998, and an additional $458,000 was due to an increase
in the advisory fee refund for 1998 received in the first quarter of 1999.
Under its advisory agreement with BCM, all or a portion of the annual advisory
fee must be refunded by the advisor if the operating expenses of the Company
exceed certain limits specified in the advisory agreement.
General and administrative expenses paid increased to $2.3 million in 1999, from
$1.8 million in 1998. This increase was mainly due to an increase in legal and
other professional fees.
Distributions received from equity joint ventures' operating cash flow increased
to $376,000 in 1999, from $112,000 in 1998. This increase is mainly due to a
decrease in vacancies at Tri-City's properties.
In February 1999, the Company sold the Mariner's Point Apartments in St.
Petersburg, Florida, receiving net cash of $2.6 million after paying off $3.9
million in mortgage debt and the payment of various closing costs.
15
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
---------------------
Liquidity and Capital Resources (Continued)
- -------------------------------
In March 1999, the Company purchased (1) the Vista Hills Apartments in El Paso,
Texas, for $5.2 million, consisting of $1.6 million in cash and mortgage
financing of $3.6 million; and, (2) the Dominion land in Dallas, Texas, for $3.6
million, consisting of $1.2 million in cash and mortgage financing of $2.4
million.
Also in March 1999, the Company received $33,000 on the early discounted payoff
of four mortgage note receivables.
Further in March 1999, the Company refinanced the mortgage debt secured by the
Lexington Center Office Building in Colorado Springs, Colorado, receiving net
cash of $136,000 after paying off $4.0 million in mortgage debt and the payment
of various closing costs.
In April 1999, the Company refinanced the mortgage debt secured by (1) the
Texstar Industrial Warehouse in Arlington, Texas, receiving net cash of $100,000
after paying off $1.2 million in mortgage debt and the payment of various
closing costs; (2) the Waterstreet Office Building in Boulder, Colorado,
receiving net cash of $5.4 million after paying off $7.9 million in mortgage
debt and the payment of various closing costs; and, (3) the Sadler Square
Shopping Center in Amelia Island, Florida, receiving net cash of $500,000 after
paying off $2.4 million in mortgage debt and the payment of various closing
costs.
In May 1999, the Company sold the 74 New Montgomery Office Building in San
Francisco, California, receiving net cash of $12.1 million after paying off $6.5
million in mortgage debt and the payment of various closing costs and (2)
purchased the Red Cross land in Dallas, Texas, for $7.6 million, consisting of
$3.3 million in cash and mortgage financing of $4.3 million.
In June 1999, the Company purchased the 4135 Beltline Road Office Building in
Addison, Texas, for $4.5 million, consisting of $1.0 million in cash and
mortgage financing of $3.5 million.
In July 1999, the Company purchased Chesapeake Center Office Building in San
Diego, California, for $5.2 million, paying $2.2 million in cash, assuming of
the existing mortgage of $2.5 million and obtaining seller financing of
$500,000.
Also in July 1999, the Company refinanced the mortgage debt secured by the
Summerstone Apartments in Houston, Texas, receiving net cash of $258,000 after
paying off $4.9 million in mortgage debt and the payment of various closing
costs.
Further in July 1999, the Company sold (1) the Republic land parcel in Dallas,
Texas, receiving net cash of $443,000 after paying off $1.2 million in
mortgage debt and the payment of various closing costs and (2) the Parke Long
Industrial Warehouse in Chantilly, Virginia, receiving net cash of $6.4
million after paying off $7.6 million in mortgage debt and the payment of
various closing costs.
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
---------------------
Liquidity and Capital Resources (Continued)
- -------------------------------
In September 1999, the Company purchased (1) the Remington Tower in Tulsa,
Oklahoma, for $4.6 million, paying $1.0 million in cash and assuming the
existing mortgage of $3.6 million; (2) the Alamo Springs land in Dallas, Texas,
for $1.3 million, paying $533,000 in cash and assuming the existing mortgage of
$750,000; and (3) the Eaton Square Building in Tulsa, Oklahoma, for $14.0
million, paying $3.5 million in cash and obtaining mortgage financing of $10.5
million.
Also in September 1999, the Company refinanced the mortgage debt secured by the
Villas at Fairpark Apartments in Los Angeles, California, receiving net cash of
$847,000 after paying off $1.5 million in mortgage debt and the payment of
various closing costs.
On October 1, 1999, the $845,000 in debt secured by an assignment of the
Company's ownership interest in 4400, Inc., a wholly-owned subsidiary of the
Company matured. Such debt was not paid at maturity. 4400, Inc. owns three
apartments in Midland, Texas, secured by mortgages from the same lender totaling
$6.0 million. The debt was not paid at maturity due to the lender's failure to
advance by October 1, 1999, an additional $1.5 million on the $6.0 million in
mortgages, as required by the loan agreement. The lender has declared an event
of default as it relates to these mortgages. The Company has commenced
litigation against such lender. If the Company and the lender can not reach
agreement to restructure the debt, the Company will pay it off.
In October 1999, the Company refinanced the mortgage debt secured by the Villa
Piedra Apartments in Los Angeles, California, receiving net cash of $1.1 million
after paying off $3.5 million in mortgage debt and various closing costs and
escrows.
Also in October 1999, the Company sold the 177,563 sq. ft. Corporate Center in
Ashburn, Virginia, receiving net cash of $4.9 million after paying off $6.8
million in mortgage debt and the payment of various closing costs.
In the first nine months of 1999, the Company paid quarterly dividends to common
stockholders of $.45 per share, or a total of $1.8 million, and $3.75 per share
or a total of $23,000 to preferred stockholders and 3,040 shares of common stock
were sold through the dividend reinvestment program for a total of $35,000.
The Company's Board of Directors has approved the repurchase of a total of
687,000 shares of the Company's Common Stock. Through September 30, 1999, a
total of 409,765 shares had been repurchased at a total cost of $3.3 million.
During the first nine months of 1999, no shares were repurchased.
Management reviews the carrying values of the Company's properties and mortgage
notes receivable at least annually and whenever events or a change in
circumstances indicate that impairment may exist. Impairment is considered to
exist if, in the case of a property, the future cash
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
---------------------
Liquidity and Capital Resources (Continued)
- -------------------------------
flow from the property (undiscounted and without interest) is less than the
carrying amount of the property. For notes receivable, impairment is considered
to exist if it is probable that all amounts due under the terms of the note will
not be collected. If impairment is found to exist, a provision for loss is
recorded by a charge against earnings. The mortgage note receivable review
includes an evaluation of the collateral property securing each note. The
property review generally includes: (1) selective property inspections; (2) a
review of the property's current rents compared to market rents; (3) a review of
the property's expenses; (4) a review of maintenance requirements; (5) a review
of the property's cash flow; (6) discussions with the manager of the property;
and, (7) a review of properties in the surrounding area.
Results of Operations
- ---------------------
The Company had net income of $5.1 million and $13.0 million in the three and
nine months ended September 30, 1999, as compared to net income of $7.4 million
and $8.0 million in the corresponding periods in 1998. Net income in the three
and nine months ended September 30, 1999, included $5.9 million and $16.0
million of gains on the sale of real estate. Net income in the three and nine
months ended September 30, 1998, included gains on sale of real estate of $9.9
million and $12.0 million. Fluctuations in these and the other components of
revenue and expense between the 1998 and 1999 periods are discussed below.
Rents in the three and nine months ended September 30, 1999, increased to $18.4
million and $57.6 million from $18.0 million and $51.4 million in 1998. Of
these increases, $971,000 and $2.5 million were due to an increase in rental
rates and an increase in occupancy at the Company's commercial and residential
properties and $1.6 million and $7.3 million were due to the acquisition of 29
properties in 1998 and 1999. These increases were partially offset by decreases
of $1.7 million and $3.8 million due to the sale of seven properties in 1998 and
1999 and $417,000 due to the leasing of the Company's four hotels effective July
1, 1999. Rents are expected to continue to increase due to properties acquired
in 1998 and 1999.
Interest and other income decreased to $174,000 and $297,000 in the three and
nine months ended September 30, 1999, compared to $200,000 and $593,000 in 1998.
The decrease was due to the collateral securing a mortgage note receivable being
foreclosed in 1998 and the collateral securing a note receivable expected to be
foreclosed in the fourth quarter of 1999. Interest income for the remainder of
1999 is expected to be insignificant.
Property operations expense in the three and nine months ended September 30,
1999 decreased to $9.7 million and increased to $30.2 million from $10.1
million and $27.4 million in 1998. The decrease for the three months ended
September 30, 1999 is due to the sale of seven properties in 1998 and 1999,
and the leasing of the Company's four hotels effective July 1, 1999 partially
offset by an increase of $795,000 from the
18
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
---------------------
Results of Operations (Continued)
- ---------------------
acquisition of 29 properties in 1998 and 1999 and an increase of $208,000 in
repairs and maintenance expenses. The increase for the nine months ended
September 30, 1999 is due to the acquisition of 29 properties in 1998 and 1999
partially offset by a decrease due to the sale of seven properties during 1998
and 1999. Property operating expenses are expected to continue to increase due
to properties acquired in 1998 and 1999.
Interest expense increased to $6.3 million and $18.7 million in the three and
nine months ended September 30, 1999, from $5.9 million and $16.9 million in
1998. Of these increases, $903,000 and $2.9 million were due to the debt
incurred or assumed on 26 of the 29 properties acquired in 1998 and 1999 and
$107,000 and $406,000 due to refinancings where the debt balance was increased
and financing obtained on unencumbered properties. These increases were
partially offset by decreases of $561,000 and $1.2 million due to the sale of
seven properties in 1998 and 1999. Interest expense for the remainder of 1999
is expected to increase due to properties acquired on a leverage basis in 1998
and 1999.
Depreciation increased to $2.9 million and $8.7 million in the three and nine
months ended September 30, 1999, from $2.8 million and $7.9 million in 1998. Of
these increases, $337,000 and $1.3 million were due to the acquisition of 23
income producing properties in 1998 and 1999 and $241,000 and $525,000, due to
depreciation of prior years capital and tenant improvements. These increases
were partially offset by decreases of $440,000 and $972,000 due to seven
properties being sold during 1998 and 1999. Depreciation is expected to
continue to increase during the remainder of 1999 as a result of the properties
acquired in 1998 and 1999.
Advisory fee increased to $765,000 and $2.2 million in the three and nine months
ended September 30, 1999, from $671,000 and $1.9 million in 1998. These
increases were due to an increase in the Company's gross assets, the basis for
such fee. Advisory fees are expected to continue to increase with increases in
the Company's gross assets.
Net income fee increased to $396,000 and $1.1 million in the three and nine
months ended September 30, 1999 as compared to $604,000 and $651,000 in the
three and nine months ended September 30, 1998. The net income fee is payable
to the Company's advisor based on 7.5% of the Company's net income.
General and administrative expenses increased to $962,000 and $2.2 million in
the three and nine months ended September 30, 1999, from $584,000 and $1.6
million in 1998. These increases were mainly due to increases in legal and
other professional fees.
Equity in earnings of investees increased to $1.6 million and $2.1 million in
the three and nine months ended September 30, 1999, from a
19
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
- -----------------------------------------------------------------------
RESULTS OF OPERATIONS (Continued)
---------------------
Results of Operations (Continued)
- ---------------------
loss of $90,000 and income of $342,000 in 1998. The increases were mainly due
to gains on sale of real estate in the Tri-City joint venture.
In the three and nine months ended September 30, 1999, the Company recognized
gains on sale of real estate of $5.9 million and $16.0 million as compared to
$9.9 million and $12.0 million in 1998. Gains in the three months ended
September 30, 1999, included $675,000 from the sale of the Republic land and
$5.2 million from the sale of Park Longe Industrial Warehouse. In addition,
gains in the nine months included $1.9 million from the sale of Mariner's Pointe
Apartments and $8.3 million from the sale of 74 New Montgomery Office Building,
respectively. In the three months ended September 30, 1998, the Company
recognized gains on sale of real estate of $3.4 million on the sale of Northtown
Mall Shopping Center and $5.9 million from the sale of Chesapeake Ridge Office
Building. In addition in the nine months ended September 30, 1998, a previously
deferred gain of $2.1 million was recognized on the sale of real estate in the
first quarter of 1998. Such gain had been deferred on a prior years sale on one
of the Company's properties until the financing provided by the Company was
collected. In addition, gains in the nine months included $671,000 from the
collection of a mortgage note receivable written off as uncollectible in a prior
year.
Tax Matters
- -----------
As more fully discussed in the Company's 1998 Form 10-K, the Company has elected
and, in the opinion of 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 apartment operations tend to fluctuate proportionately with
inflationary increases and decreases in housing costs. Fluctuations in the
rate of inflation also affect sales values of properties, and the ultimate
gain to be realized from property sales. To the extent that inflation affects
interest rates, the Company's earnings from short-term investments, the cost
of new financings as well as the cost of variable interest rate debt will be
affected.
20
<PAGE>
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 for personal injury associated with such
materials. Management is not aware of any environmental liability relating to
the above matters that would have a material adverse effect on the Company's
business, assets or results of operations.
Year 2000
- ---------
BCM, the Company's advisor, has informed management that its computer hardware
operating system and computer software have been certified as year 2000
compliant.
Further, Carmel Realty Services, Ltd. ("Carmel, Ltd."), an affiliate of BCM,
that performs property management services for the Company's properties, has
informed management that effective January 1, 1999, it began using year 2000
compliant computer hardware and property management software for the Company's
commercial properties. With regard to the Company's apartments, Carmel, Ltd.
has informed management that its subcontractors are also using year 2000
compliant computer hardware and property management software.
The Company has not incurred, nor does it expect to incur, any costs related to
its computer hardware and accounting and property management software being
modified, upgraded or replaced in order to make them year 2000 compliant. Such
costs have been or will be borne by either BCM, Carmel, Ltd. or the property
management subcontractors of Carmel, Ltd.
Management has completed its evaluation of the Company's computer controlled
building systems, such as security, elevators, heating and cooling, etc., to
determine what systems are not year 2000 compliant. Management believes that
necessary modifications to such systems are insignificant and do not require
significant expenditures as such enhanced operating systems are readily
available.
The Company has or will have in place the year 2000 compliant systems that will
allow it to operate. The risks the Company faces are that certain of its
vendors will not be able to supply goods or services and that financial
institutions and taxing authorities will not be able to accurately apply
payments made to them. Management believes that other vendors are readily
available and that financial institutions and taxing authorities will, if
necessary, apply monies received manually. The likelihood of the above having a
significant impact on the Company's operations is negligible.
21
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
- -------------------------
Proposed Merger with Continental Mortgage and Equity Trust
- ----------------------------------------------------------
On September 28, 1999, the Company's stockholders approved a proposal for the
Company to acquire Continental Mortgage and Equity Trust ("CMET"). Under the
proposal the Company will acquire all of CMET's outstanding shares of beneficial
interest in a tax free exchange, for shares of the Company's common stock. The
Company will issue 1.181 shares of its common stock for each outstanding share
of beneficial interest of CMET. Upon the exchange of shares, CMET will merge
with and into the Company. The share exchange and merger are expected to be
completed in the first quarter of 2000. The Company has the same Board and
advisor as CMET.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- -----------------------------------------
(a) Exhibits:
Exhibit
Number Description
- ------- ---------------------------------------------------------
3.0 Certificate of Correction of Articles of Incorporation of
Transcontinental Realty Investors, Inc., dated August 5, 1999,
filed herewith.
3.1 Amendment to Articles of Incorporation of Transcontinental Realty
Investors, Inc., dated September 28, 1999, filed herewith.
27.0 Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K as follows:
None.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRANSCONTINENTAL REALTY
INVESTORS, INC.
Date: November 12, 1999 By: /s/ Karl L. Blaha
------------------------- --------------------------------
Karl L. Blaha
President
Date: November 12, 1999 By: /s/ Thomas A. Holland
------------------------- --------------------------------
Thomas A. Holland
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
23
<PAGE>
TRANSCONTINENTAL REALTY INVESTORS, INC.
EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q
For the Nine Months ended September 30, 1999
Exhibit Page
Number Description Number
- ------- --------------------------------------------------- ------
3.0 Certificate of Correction of Articles of 25
Incorporation of Transcontinental Realty Investors,
Inc., dated August 5, 1999, filed herewith.
3.1 Amendment to Articles of Incorporation of 26
Incorporation of Transcontinental Realty Investors,
Inc., dated September 28, 1999, filed herewith.
27.0 Financial Data Schedule 28
24
<PAGE>
EXHIBIT 3.0
CERTIFICATE OF CORRECTION
TRANSCONTINENTAL REALTY INVESTORS, INC.
This Certificate of Correction is submitted pursuant to section 78.0295 of the
Nevada Revised Statutes (the "NRS"), to correct a document which is an
inaccurate record of the entity action, contains an inaccurate or erroneous
statement, or was defectively executed, attested, sealed, verified or
acknowledged.
ARTICLE ONE
The name of the corporation is Transcontinental Realty Investors, Inc.
ARTICLE TWO
The document to be corrected is the Articles of Incorporation of
Transcontinental Realty Investors, Inc., which was filed in the Office of the
Secretary of State on the 20th day of December, 1991.
ARTICLE THREE
The inaccuracy, error, or defect to be corrected is in the Tenth Article, Part
-----
A, which is due to a subscriber error and incorrectly cites certain provisions
of the NRS.
ARTICLE FOUR
As corrected, the inaccurate, erroneous, or defective portion of the document
reads as follows:
TENTH: A. The Corporation expressly elects not to be governed by the
- -----
"Combinations with Interested Stockholders" statute contained in NRS
Sections 78.411 through 78.444, inclusive and the "Acquisition of
Controlling Interest" statute contained in NRS Sections 78.378
through 78.3793, inclusive.
Dated this 5/th/ day of August, 1999.
By: /s/ Randall M. Paulson
---------------------------
Its: President
--------------------------
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
TRANSCONTINENTAL REALTY INVESTORS, INC.
We, the undersigned Thomas A. Holland, Executive Vice President and Robert
A. Waldman, Secretary of Transcontinental Realty Investors, Inc. (the
"Corporation") do hereby certify:
1. That the board of directors of the Corporation at a meeting duly
convened, held on the 28th day of July, 1999, adopted a resolution to
amend the Corporation's Articles of Incorporation (the "Articles")
pursuant to Section 78.385 of the Nevada Revised Statutes, as amended.
2. That the stockholders of the Corporation, upon recommendation of the
Corporation's board of directors, at a meeting duly convened, held on
the 28th day of September, 1999, adopted a resolution to amend the
Articles.
3. Part C of Article TENTH is hereby amended (the "Amendment") to read as
-----
follows:
"C. The provisions of part B of this Article TENTH shall not be
-----
applicable to a Business Combination of the Corporation and Continental
Mortgage and Equity Trust(or any successor to Continental Mortgage and
Equity Trust), which such Business Combination shall require only such
affirmative vote, if any, as is required by applicable law or by any other
provision of these Articles of Incorporation or the By-Laws of the
Corporation, or any agreement with any national securities exchange. The
provisions of part B of this Article TENTH shall not be applicable to any
-----
particular Business Combination, and such Business Combination shall
require only such affirmative vote, if any, as is required by applicable
law or by any other provision of these Articles of Incorporation or the By-
Laws of the Corporation, or any agreement with any national securities
exchange, if such Business Combination shall have been approved, either
specifically or as a transaction which is within an approved category of
transactions, by a majority of the members of the Board of Directors or, in
the case of such a Business Combination involving any Person (as
hereinafter defined) that is an Affiliate (as hereinafter defined) of the
Corporation, by a majority of the Board of Directors including a majority
of the members of the Board of Directors who at the time are neither
officers or employees of the Corporation nor Directors, officers or
employees of any Advisor (as defined in Article THIRTEENTH), prior to the
----------
Acquisition Date (as hereinafter defined) with respect to any Person
involved in such Business Combination."
<PAGE>
4. The number of shares of the Corporation outstanding and entitled to
vote on the Amendment is 3,880,014. The Amendment has been recommended
by more than fifty percent of the entire board of directors of the
Corporation and consented to and approved by a majority vote of the
stockholders holding at least a majority of stock outstanding and
entitled to vote thereon.
In Witness Whereof, the undersigned have set forth their hands this 28th
day of September, 1999, hereby declaring and certifying the facts stated herein
as true.
TRANSCONTINENTAL REALTY INVESTORS,
INC.
By: /s/ Thomas A. Holland
---------------------------------------------
Thomas A. Holland, Executive Vice President
By: /s/ Robert A. Waldman
---------------------------------------------
Robert A. Waldman, Secretary
STATE OF TEXAS )
)ss.
COUNTY OF DALLAS )
On September 28, 1999 personally appeared before me, a Notary Public,
Thomas A. Holland and Robert A. Waldman, who acknowledged that they executed the
above instrument.
/s/ S. L. Bratton
----------------------------------
Signature of Notary
[STAMP APPEARS HERE]
-2-
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<TOTAL-LIABILITY-AND-EQUITY> 424,252
<SALES> 0
<TOTAL-REVENUES> 57,628
<CGS> 0
<TOTAL-COSTS> 30,154
<OTHER-EXPENSES> 8,737
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,722
<INCOME-PRETAX> 13,008
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,008
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,008
<EPS-BASIC> 3.35
<EPS-DILUTED> 3.35
</TABLE>