<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A-2
[X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1994
Commission File Number 1-9525
INCOME OPPORTUNITY REALTY TRUST
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
California 94-6578120
- ------------------------------- --------------------
(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 Offices) (Zip Code)
(214) 692-4700
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of each exchange on
Title of each class which registered
- ------------------------------ ----------------------------
<S> <C>
Shares of Beneficial Interest,
no par value American Stock Exchange
</TABLE>
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
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 at least the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of March 3, 1995, the Registrant had 791,444 shares of beneficial interest
outstanding. Of the total shares outstanding 444,718 were held by other than
those who may be deemed to be affiliates, for an aggregate value of $8,728,000
based on the last trade as reported on the American Stock Exchange on March 3,
1995. The basis of this calculation does not constitute a determination by the
Registrant that all of such persons or entities are affiliates of the
Registrant as defined in Rule 405 of the Securities Act of 1933, as amended.
Documents Incorporated by Reference:
NONE
1
<PAGE> 2
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the Years Ended December 31,
-------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C>
EARNINGS DATA
Income................... $ 6,852 $ 7,113 $ 6,593 $ 6,750 $ 8,922
Expense.................. 7,139 7,044 7,063 15,803 18,011
----------- ------------ ------------ ------------- -------------
Income (loss) before
(loss) on sale of
real estate and
extraordinary gain...... (287) 69 (470) (9,053) (9,089)
(Loss) on sale of real
estate.................. - - (81) - -
Extraordinary gain....... - 806 - 4,765 -
----------- ------------ ------------ ------------- -------------
Net income (loss)........ $ (287) $ 875 $ (551) $ (4,288) $ (9,089)
=========== ============ ============ ============= =============
PER SHARE DATA
Income (loss) before
extraordinary gain...... $ (.36) $ .09 $ (.64) $ (9.97) $ (9.79)
Extraordinary gain....... - 1.00 - 5.25 -
----------- ------------ ------------ ------------- -------------
Net income (loss)........ $ (.36) $ 1.09 $ (.64) $ (4.72) $ (9.79)
=========== ============ ============ ============= =============
Distributions per share.. $ .60 $ .50 $ - $ 1.44 $ .88
Weighted average
shares outstanding...... 791,444 804,716 864,321 907,665 928,606
</TABLE>
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Notes and interest
receivable............ $ 1,974 $ 2,983 $ 2,922 $ 2,583 $ 28,850
Foreclosed real estate
held for sale......... 15,878 15,121 15,387 16,946 9,428
Real estate held for
sale.................. 25,157 25,710 26,259 26,833 24,903
Total assets........... 49,035 50,127 51,275 52,401 75,631
Notes and interest
payable............... 20,717 21,354 22,447 22,651 40,798
Redeemable shares of
beneficial interest... - - - 6,062 6,062
Shareholders' equity... 25,572 26,334 26,380 20,904 25,574
Book value per share... $ 32.31 $ 33.27 $ 30.52 $ 30.14 $ 34.00
</TABLE>
Shares and per share data have been restated to give effect to the one-for-four
reverse share split effected September 9, 1991.
16
<PAGE> 3
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
Income Opportunity Realty Trust (the "Trust") was formed to invest in mortgage
loans on real estate, including first, wraparound and junior mortgage loans,
and in equity interests in real estate through acquisitions, leases and
partnerships. The Trust was organized on December 14, 1984 and commenced
operations on April 10, 1985.
Under its Declaration of Trust, the Trust is a self-liquidating trust and is
scheduled, unless and until the Trust's shareholders decide on a contrary
course of action, to begin liquidation of its assets prior to October 24, 1996.
The Trust's Declaration of Trust also requires the distribution to the Trust's
shareholders of (i) the net cash proceeds from sale or refinancing of equity
investments received by the Trust, and (ii) the net cash proceeds from the
satisfaction of mortgage notes receivable received after October 24, 1996.
However, the Trust's Board of Trustees has discretionary authority to hold any
investment past October 24, 1996, should circumstances so dictate.
The Trust's management does not believe that the Trust's status as a
liquidating Trust has impaired the carrying value of the Trust's assets because
liquidation is expected to be carried out in an orderly fashion.
Liquidity and Capital Resources
Cash and cash equivalents at December 31, 1994 aggregated $232,000 compared
with $582,000 at December 31, 1993. The Trust's principal sources of cash have
been and will continue to be property operations, proceeds from property sales,
collection of mortgage notes receivable and partnership distributions. The
Trust anticipates that it will have sufficient cash in 1995 to meet its various
cash requirements including the payment of distributions, debt service
obligations and property renovation and/or improvement costs. Unless the
Trust's Trustees make the determination to sell properties during the remainder
of 1995, or in early 1996, then it is anticipated one or more of the Trust's
properties would have to be refinanced in late 1995 or early 1996 for the
Trust's continued payment of dividends, property maintenance and required
operating cash reserves.
In 1994, the Trust received $254,000 in distributions from the Tri-City Limited
Partnership ("Tri-City"). The Trust owns a 36.3% general partner interest and
Transcontinental Realty Investors, Inc. ("TCI") owns a 63.7% combined general
and limited partner interest in Tri-City. In 1994, the Trust also received
$154,000 in distributions from and made $145,000 in contributions to Nakash
Income Associates ("NIA"). The Trust owns a 40% general partner interest and
TCI owns a 60% general partner interest in NIA.
The Trust's distribution policy had provided for an annual determination of
distributions after the Trust's year end until such time as property operations
stabilized at a level producing cash flow from property operations in excess of
anticipated needs. In January 1993, the Trust's
17
<PAGE> 4
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Board of Trustees approved the resumption of quarterly distributions. In 1994
and 1993, the Trust paid distributions to shareholders totaling $475,000 ($.60
per share) and $406,000 ($.50 per share), respectively. The Trust paid no
distributions to shareholders in 1992.
On a quarterly basis, the Trust's management reviews the carrying values of the
Trust's mortgage notes receivable and properties. Generally accepted
accounting principles require that the carrying value of an investment cannot
exceed the lower of its cost or its estimated net realizable value. In those
instances in which estimates of net realizable value of the Trust's properties
or notes are less than the carrying value thereof, at the time of evaluation, a
provision for loss is recorded by a charge against earnings. Estimated net
realizable value of mortgage notes receivable is based on management's review
and evaluation of the collateral properties securing such notes. 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 maintenance requirements, discussions with the manager of
the property and a review of properties in the surrounding area.
Results of Operations
1994 COMPARED TO 1993. For the year 1994, the Trust had a net loss of
$287,000, as compared with net income of $875,000 in 1993. The Trust's 1993
net income included an extraordinary gain of $806,000 on the early payoff of
mortgage debt. The primary factors contributing to the Trust's 1994 net loss
are discussed in the following paragraphs.
Rental income for the year ended December 31, 1994 was $6.6 million, as
compared to $6.8 million in 1993. Of this decrease, $137,000 is due to reduced
common area maintenance recovery at the Saratoga Office Center due to a
decrease in occupancy from an average of 87% in 1993 to an average of 84% in
1994.
Property operations expense for the year ended December 31, 1994 was $3.4
million, comparable to the $3.4 million for 1993. Increases of $192,000
attributable to increased personnel, cleaning and replacement expenses at two
of the Trust's apartment complexes, were offset by a decrease of $133,000 at
the Trust's office buildings due to decreases in real estate taxes, cleaning
and leasing expenses.
Rental income and property operations are expected to increase in 1995 due to
anticipated increases in rental and occupancy rates and from obtaining the
Cedars Apartments, the collateral securing a note receivable. The property
was recorded as an insubstance foreclosure as of December 31, 1994 with title
to the property being received on March 2, 1995.
Equity in income of partnerships was $86,000 in 1994, as compared to $203,000
in 1993. The decrease is attributable to an increase in repair expenses
representing the deductible portion of a fire loss at one of the Tri-City
apartment complexes.
Interest income of $294,000 for 1994 approximated the $308,000 in 1993.
Interest income in 1995 is expected to decrease due to the insubstance
foreclosure as of December 31, 1994, of the Cedars Apartments, the collateral
securing one of the Trust's mortgage notes receivable. See NOTE 2. "NOTES AND
INTEREST RECEIVABLE."
Interest expense of $1.9 million in 1994 approximated the $1.8 million in 1993.
18
<PAGE> 5
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Depreciation expense was $967,000 in 1994 compared to $949,000 in 1993. The
increase is attributable to an increase in tenant improvements at one of the
Trust's commercial properties.
The advisory fee was $367,000 in 1994 as compared to $447,000 in 1993. The
decrease is due to the Trust having paid a net income incentive fee in 1993,
while no such fee was paid in 1994.
General and administrative expenses were $555,000 in 1994 as compared to
$700,000 in 1993. The decrease is due to a decrease in legal fees associated
with the Olive litigation which was settled in 1994. See NOTE 15. "COMMITMENTS
AND CONTINGENCIES."
In 1993, the Trust recognized an extraordinary gain of $806,000 on the early
payoff of the mortgage secured by the Porticos Apartments. The Trust reported
no such gain in 1994. See NOTE 6. "NOTES AND INTEREST PAYABLE."
1993 COMPARED TO 1992. For the year 1993, the Trust had net income of
$875,000, as compared with a net loss of $551,000 in 1992. The primary factor
contributing to the Trust's 1993 net income was an extraordinary gain of
$806,000 recognized on the early payoff of mortgage debt. This and the other
factors contributing to the Trust's 1993 net income are discussed in the
following paragraphs.
Rental income for the year ended December 31, 1993 was $6.8 million, as
compared to $6.3 million in 1992. The increase is primarily attributable to an
increase of $525,000 due to obtaining the Saratoga Office Center through
foreclosure, which was completed in April 1992.
Property operations expense for the year ended December 31, 1993 was $3.4
million, as compared to $3.3 million in 1992. The increase is primarily
attributable to an increase of $135,000 due to obtaining the Saratoga Office
Center through foreclosure, which was completed in April 1992.
Equity in income of partnerships was $203,000 for 1993, as compared to $26,000
for 1992. The increase is primarily due to decreased administrative expenses
in Tri-City in which the Trust has a 36.3% general partner interest.
Interest income of $308,000 for 1993 approximated the $296,000 in 1992. See
NOTE 2. "NOTES AND INTEREST RECEIVABLE."
Interest expense for 1993 was $1.8 million, which approximated the $1.9 million
in 1992.
Depreciation expense for 1993 was $949,000 compared with $910,000 in 1992. The
increase is attributable to depreciation of improvements made on the Trust's
commercial properties.
The advisory fee for 1993 was $447,000 as compared to $327,000 in 1992. The
increase is due to the Trust's 1993 net income which required the payment of a
net income incentive fee to the Trust's advisor. See NOTE 9. "ADVISORY
AGREEMENT."
19
<PAGE> 6
INCOME OPPORTUNITY REALTY TRUST
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1994 1993
------------- ------------
(dollars in thousands)
Assets
------
<S> <C> <C>
Notes and interest receivable,
performing......................................... $ 1,974 $ 1,962
Nonperforming, nonaccruing.......................... - 1,021
-------------- --------------
1,974 2,983
Foreclosed real estate held for sale, net of
accumulated depreciation ($1,128 in 1994 and $738
in 1993)........................................... 15,999 15,242
Real estate held for sale, net of accumulated
depreciation ($3,927 in 1994 and $3,350 in 1993)... 25,157 25,710
Less - allowance for estimated losses............... (121) (121)
-------------- --------------
43,009 43,814
Investment in partnerships.......................... 3,980 4,157
Cash and cash equivalents........................... 232 582
Other assets (including $44 in 1994 and $58 in
1993 due from affiliates).......................... 1,814 1,574
-------------- --------------
$ 49,035 $ 50,127
============== ==============
Liabilities and Shareholders' Equity
------------------------------------
Liabilities
Notes and interest payable.......................... $ 20,717 $ 21,354
Other liabilities (including $407 in 1994 and $242
in 1993 due to affiliates)......................... 2,746 2,439
-------------- --------------
23,463 23,793
Commitments and contingencies
Shareholders' equity
Shares of beneficial interest, no par value;
authorized shares, unlimited; issued and
outstanding 791,444 shares in 1994 and 1993........ 3,347 3,347
Paid-in capital..................................... 62,093 62,093
Accumulated distributions in excess of accumulated
earnings........................................... (39,868) (39,106)
-------------- --------------
25,572 26,334
-------------- --------------
$ 49,035 $ 50,127
============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
24
<PAGE> 7
INCOME OPPORTUNITY REALTY TRUST
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
----------------------------------------------------------
1994 1993 1992
------------- ------------- -------------
(dollars in thousands, except per share)
<S> <C> <C> <C>
Income
Rentals.............................. $ 6,558 $ 6,805 $ 6,297
Interest (including $11 in 1992
from affiliates).................. 294 308 296
--------------- --------------- --------------
6,852 7,113 6,593
Expenses
Property operations (including $146
in 1994, $133 in 1993 and $64 in
1992 to affiliates)............... 3,425 3,382 3,284
Equity in income of partnerships..... (86) (203) (26)
Interest............................. 1,911 1,769 1,900
Depreciation......................... 967 949 910
Advisory fee to affiliate............ 367 447 327
General and administrative
(including $158 in 1994, $160 in
1993 and $145 in 1992 to
affiliate)........................ 555 700 668
--------------- --------------- --------------
7,139 7,044 7,063
--------------- --------------- --------------
Income (loss) before (loss) on sale of
real estate and extraordinary gain... (287) 69 (470)
(Loss) on sale of real estate......... - - (81)
Extraordinary gain.................... - 806 -
--------------- --------------- --------------
Net income (loss)..................... $ (287) $ 875 $ (551)
=============== =============== ==============
Earnings per share
Income (loss) before extraordinary
gain................................. $ (.36) $ .09 $ (.64)
Extraordinary gain.................... - 1.00 -
--------------- --------------- --------------
Net income (loss)..................... $ (.36) $ 1.09 $ (.64)
=============== =============== ==============
Weighted average shares of
beneficial interest used in
computing earnings per share......... 791,444 804,716 864,321
=============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
25
<PAGE> 8
INCOME OPPORTUNITY REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5. INVESTMENT IN EQUITY METHOD PARTNERSHIPS (Continued)
The Trust uses the equity method to account for its investment in Tri-City, a
36.3% owned limited partnership, and in NIA, a 40% owned partnership.
In June 1989, the Trust issued to F. C. MacArthur, Inc. ("MacArthur"), a
wholly-owned subsidiary of Collecting Bank, N.A. (a national bank in
liquidation), 170,750 of its shares of beneficial interest with a market value
at the date of issuance of $6.1 million, in exchange for a 36.3% general
partner interest in Tri-City, which owns and operates five properties in Texas.
Transcontinental Realty Investors, Inc. ("TCI") with a 23.6% general partner
interest is the other general partner in Tri-City. In November 1992, TCI
purchased MacArthur's 40.1% limited partner interest in Tri-City increasing its
ownership interest to 63.7%. Also in November 1992, TCI acquired all of the
shares of beneficial interest of the Trust owned by MacArthur. As of March 3,
1995, TCI owned approximately 22% of the Trust's outstanding shares of
beneficial interest.
In September 1989, the Trust acquired a 40% interest in the NIA partnership
from Nakash Brothers Realty in exchange for 50,000 of its shares of beneficial
interest with a market value at the date of issuance of $1.3 million, cash of
$800,000 and a contribution of property and notes with a carrying value of
$462,000. In addition, 12,500 of the Trust's shares of beneficial interest
were issued to consultants for services provided in connection with the
acquisition of the partnership interest. In February 1993, the Trust purchased
the 62,500 shares of beneficial interest for a total purchase price of
$375,000. TCI owns the remaining 60% interest in NIA.
Set forth below are summarized financial data for the partnerships the Trust
accounts for using the equity method :
<TABLE>
<CAPTION>
1994 1993
------------- -------------
<S> <C> <C>
Notes receivable............................ $ 4,099 $ 4,099
Real estate, net of accumulated
depreciation ($2,586 in 1994 and $1,982
in 1993)................................... 10,757 11,132
Other assets................................ 1,016 307
Notes payable............................... (2,634) (2,699)
Other liabilities........................... (520) (423)
-------------- --------------
Partners' capital........................... $ 12,718 $ 12,416
============== ==============
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
-------------- -------------- -------------
<S> <C> <C> <C>
Rental income................ $ 2,380 $ 2,409 $ 2,369
Interest income.............. 349 397 988
Interest expense............. (283) (317) (904)
Property operations.......... (1,656) (1,528) (1,666)
Depreciation expense......... (605) (583) (516)
Provision for losses......... - - (263)
-------------- -------------- --------------
Net income................... $ 185 $ 378 $ 8
============== ============== ==============
</TABLE>
33
<PAGE> 9
INCOME OPPORTUNITY REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5. INVESTMENT IN EQUITY METHOD PARTNERSHIPS (Continued)
The Trust's equity share of the above net income for 1994, 1993 and 1992 was
$102,000, $219,000 and $42,000, respectively, before amortization of property
acquisition costs discussed below.
The Trust's share of the above partnership's capital was $3.6 million in 1994
and $3.8 million in 1993.
The excess of the Trust's investment over its respective share of the equity in
the underlying net assets of the partnerships relates principally to the
remaining unamortized property acquisition costs of $373,000 in 1994 and
$389,000 in 1993. These amounts are being amortized over the remaining
estimated useful lives of the properties.
NOTE 6. NOTES AND INTEREST PAYABLE
Notes and interest payable consisted of the following:
<TABLE>
<CAPTION>
1994 1993
-------------------------------- -------------------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
------------ ----------- ------------- -----------
<S> <C> <C> <C> <C>
Notes payable................... $ 19,408 $ 20,580 $ 21,746 $ 21,214
=============
Interest payable................ 137 140
------------ ------------
$ 20,717 $ 21,354
============ ============
</TABLE>
Scheduled notes payable principal payments are due as follows:
<TABLE>
<S> <C>
1995.................................... $ 511
1996.................................... 339
1997.................................... 370
1998.................................... 5,865
1999.................................... 316
Thereafter.............................. 13,179
-------
$20,580
=======
</TABLE>
Mortgage notes payable at December 31, 1994, bear interest at rates ranging
from 7.75% to 10.0% and mature between 1995 and 2025. These notes are
collateralized by deeds of trust on real estate with a net carrying value of
$25.2 million.
In November 1993, the Trust refinanced the Porticos Apartments, an apartment
complex in Milwaukee, Wisconsin for $10.0 million. The Trust used cash of
$10.1 million with the lender accepting a second lien mortgage of $500,000, to
pay the existing mortgage of $11.5 million. In accordance with the terms of
the extinguished first mortgage, the Trust received a discount of $806,000 and
recognized an extraordinary gain of a like amount. The second lien mortgage
bears interest at 8.5% per annum, requires monthly principal payments of
$25,000 plus interest and matures August 1, 1995. As a condition of accepting
the second lien mortgage, the lender required that the Trust's advisor pledge
to it 166,667 shares of American Realty Trust, Inc. ("ART") common stock owned
by the advisor as additional collateral for the second lien mortgage. As of
March 3, 1995, ART owned approximately 22% of the Trust's outstanding shares of
beneficial interest.
34
<PAGE> 10
INCOME OPPORTUNITY REALTY TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15. COMMITMENTS AND CONTINGENCIES (Continued)
total of $1.2 million to the Trust, CMET, NIRT and TCI, of which the Trust's
share is $150,000. The Trust received $12,300 in May 1994. The remaining
$137,700 is to be paid in 18 monthly installments which began February 1, 1995.
Under the Modification, the Trust, CMET, NIRT, TCI and their shareholders
released the defendants from any claims relating to the plaintiffs'
allegations. The Trust, CMET, NIRT and TCI also agreed to waive any demand
requirement for the plaintiffs to pursue claims on behalf of each of them
against certain persons or entities. The Modification also requires that any
shares of the Trust held by Messrs. Phillips, Friedman or their affiliates
shall be (i) voted in favor of the reelection of all current members of the
Trust's Board of Trustees that stand for reelection during the two calendar
years following the effective date of the Modification and (ii) voted in favor
of all new members of the Trust's Board of Trustees appointed pursuant to the
terms of the Modification that stand for reelection during the three calendar
years following the effective date of the Modification.
Pursuant to the terms of the Modification, any related party transaction which
the Trust may enter into prior to April 27, 1999, will require the unanimous
approval of the Trust's Board of Trustees. In addition, related party
transactions may only be entered into in exceptional circumstances and after a
determination by the Trust's Board of Trustees that the transaction is in the
best interests of the Trust and that no other opportunity exists that is as
good as the opportunity presented by such transaction.
For purposes of the Modification requirements, the term "related party
transaction" means and includes "(i) any transaction between or among the Trust
or CMET, NIRT or TCI or any of their affiliates or subsidiaries; (ii) any
transaction between or among the Trust, its affiliates or subsidiaries and the
Advisor, Mr. Phillips, Mr. Friedman or any of their affiliates; and (iii) any
transaction between or among the Trust or any of its affiliates or subsidiaries
and a third party with whom the Advisor, Mr. Phillips, Mr. Friedman or any of
their affiliates has an ongoing or contemplated business or financial
transaction or relationship of any kind, whether direct or indirect, or has had
such a transaction or relationship in the preceding one year."
The Modification requirements for related party transactions do not apply to
direct contractual agreements for services between the Trust and the Advisor or
one of its affiliates (i.e. the Advisory Agreement, Property Management
Contracts, etc.). These agreements require the prior approval by two-thirds of
the Trustees of the Trust, and if required, approval by a majority of the
shareholders. The Modification requirements for related party transactions
also do not apply to joint ventures between or among the Trust and CMET, NIRT
or TCI or any of their affiliates or subsidiaries and a third party having no
prior or intended future business or financial relationship with Mr. Phillips,
Mr. Friedman, the Advisor, or any affiliate of such parties. Such joint
ventures may be entered into on the affirmative vote of a majority of the
Trustees of the Trust.
The Modification also terminated a number of the provisions of the settlement,
including the requirement that the Trust, CMET, NIRT and TCI maintain a Related
Party Transaction Committee and a Litigation Committee of their respective
Boards. The court retained jurisdiction to enforce the Modification.
Other Litigation. The Trust is also involved in various other lawsuits arising
in the ordinary course of business. The Trust's management is of the opinion
that the outcome of these lawsuits will have no material impact on the Trust's
financial condition, results of operations or liquidity.
40
