<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1994
Commission File Number 1-9948
AMERICAN REALTY TRUST, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Georgia 54-0697989
- - - ------------------------------- -------------------
(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)
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 2,929,164
- - - ---------------------------- ---------------------------------
(Class) (Outstanding at October 28, 1994)
1
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements have not been examined by
independent certified public accountants but in the opinion of the management
of American Realty Trust, Inc. (the "Company"), all adjustments (consisting of
normal recurring accruals) necessary for a fair presentation of consolidated
results of operations, consolidated financial position and consolidated cash
flows at the dates and for the periods indicated, have been included.
AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
(dollars in thousands)
<S> <C> <C>
Assets
------
Notes and interest receivable
Performing.......................................... $ 46,008 $ 28,547
Nonperforming, nonaccruing.......................... 1,878 23,222
--------------- --------------
47,886 51,769
Real estate held for sale, net of accumulated
depreciation ($6,269 in 1994 and $5,320 in 1993).. 30,336 21,426
Less - allowance for estimated losses............... (8,201) (9,913)
--------------- --------------
70,021 63,282
Real estate held for investment, net of accumulated
depreciation ($1,283 in 1994 and $1,424 in 1993).. 28,846 31,011
Marketable equity securities, at market value....... 9,265 -
Cash and cash equivalents........................... 978 843
Investments in real estate entities................. 40,893 40,005
Other assets (including $477 in 1993 due from
affiliates)....................................... 4,318 4,720
--------------- --------------
$ 154,321 $ 139,861
=============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
2
<PAGE> 3
AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS - Continued
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
(dollars in thousands)
<S> <C> <C>
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
Notes and interest payable......................... $ 57,323 $ 53,693
Margin borrowing................................... 28,776 16,147
Accounts payable and other liabilities (including
$4,687 in 1994 and $3,637 in 1993 due to
affiliate)....................................... 11,350 10,552
--------------- --------------
97,449 80,392
Minority interest.................................. 500 1,149
Redeemable Common Stock issued and outstanding
360,000 shares................................... 2,200 2,200
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value; authorized
16,667,000 shares, issued and outstanding
2,569,164 shares in 1994 and 2,524,164 shares
in 1993.......................................... 26 25
Paid-in capital.................................... 64,552 64,553
Accumulated (deficit).............................. (10,406) (8,458)
--------------- --------------
54,172 56,120
--------------- --------------
$ 154,321 $ 139,861
=============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
3
<PAGE> 4
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------------------- ---------------------------------
1994 1993 1994 1993
-------------- --------------- --------------- -------------
(dollars in thousands, except per share)
<S> <C> <C> <C> <C>
Income
Rentals......................... $ 6,737 $ 2,945 $ 13,931 $ 5,541
Interest........................ 1,104 662 2,909 3,969
Equity in income (losses)
of investees.................... (1,042) (1,256) (2,114) (2,478)
Other........................... 461 371 1,179 491
-------------- -------------- --------------- -------------
7,260 2,722 15,905 7,523
Expenses
Property operations............. 4,752 2,116 9,990 3,579
Interest........................ 1,788 1,538 5,472 4,675
Advisory and servicing fees
to affiliate................... 295 319 920 959
General and administrative...... 520 353 1,534 1,232
Depreciation and
amortization................... 489 290 1,245 794
Minority interest............... - 69 158 (161)
-------------- -------------- --------------- -------------
7,844 4,685 19,319 11,078
-------------- -------------- --------------- -------------
(Loss) before gain on
sale of real estate and
extraordinary gain.............. (584) (1,963) (3,414) (3,555)
Gain on sale of real estate...... 910 44 1,143 306
Extraordinary gain............... 273 - 323 3,364
-------------- -------------- --------------- -------------
Net income (loss)................ 599 (1,919) (1,948) 115
Redeemable Common Stock
accretion of discount........... - - - (129)
-------------- -------------- --------------- -------------
Income (loss) applicable to
Common shares................... $ 599 $ (1,919) $ (1,948) $ (14)
============== ============== =============== =============
Earnings per share
(Loss) before gain on
sale of real estate and
extraordinary gain............. $ (.20) $ (.64) $ (1.14) $ (1.18)
Gain on sale of real
estate......................... .31 .01 .39 .10
Extraordinary gain.............. .09 - .10 1.12
-------------- -------------- --------------- -------------
Net income (loss)............... .20 (.63) (.65) .04
Redeemable Common Stock,
accretion of discount.......... - - - (.04)
-------------- -------------- --------------- -------------
Income (loss) applicable to
Common shares................... $ .20 $ (.63) $ (.65) $ -
============== ============== =============== =============
Weighted average Common shares
used in computing earnings
per share....................... 2,946,120 3,079,265 2,974,493 3,007,087
============== ============== =============== =============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
4
<PAGE> 5
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Nine Months Ended September 30, 1994
<TABLE>
<CAPTION>
Common Stock
-------------------------- Paid-in Accumulated Stockholders'
Shares Amount Capital Earnings Equity
---------- ---------- ----------- ----------- ------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance,
January 1, 1994......... 2,524,164 $ 25 $ 64,553 $ (8,458) $ 56,120
Common Stock issued..... 240,000 3 (3) - -
Common Stock retired.... (195,000) (2) 2 - -
Net (loss)............... - - - (1,948) (1,948)
--------- ------------- ------------- -------------- --------------
Balance,
September 30, 1994..... 2,569,164 $ 26 $ 64,552 $ (10,406) $ 54,172
========= ============= ============= ============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
5
<PAGE> 6
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
------------------------------------
1994 1993
--------------- --------------
(dollars in thousands)
<S> <C> <C>
Cash Flows From Operating Activities
Rentals collected........................................ $ 13,019 $ 5,514
Interest collected....................................... 2,818 3,733
Distributions received from real estate entities
operating cash flow................................... 1,656 349
Payments for property operations......................... (8,918) (3,615)
Interest paid............................................ (4,655) (3,419)
Advisory and servicing fees paid to affiliate............ (920) (919)
General and administrative expenses paid................. (1,912) (1,337)
Litigation settlement.................................... (750) -
Other.................................................... 505 47
--------------- --------------
Net cash provided by operating activities............. 843 353
Cash Flows From Investing Activities
Collections on notes receivable.......................... 2,327 1,339
Notes receivable funded.................................. - (609)
Proceeds from sale of real estate........................ 859 1,816
Proceeds from sale of marketable equity
securities............................................ 5,969 1,696
Purchase of marketable equity securities................. (15,144) -
Investment in real estate entities....................... (3,374) (2,789)
Purchase of and improvements to real estate.............. (1,973) (759)
Deposits on acquisition of notes receivable.............. - (300)
--------------- --------------
Net cash provided by (used in) investing
activities.......................................... (11,336) 394
Cash Flows From Financing Activities
Proceeds from notes payable.............................. 710 1,789
Payment on notes payable................................. (3,848) (5,708)
Southmark settlement payments............................ (450) (450)
Proceeds from issuance of Common Stock................... - 200
Net receipts (advances) to/from affiliates............... 1,587 (284)
Margin borrowing, net.................................... 12,629 3,756
--------------- --------------
Net cash provided by (used in) financing
activities.......................................... 10,628 (697)
Net increase in cash and cash equivalents............. 135 50
Cash and cash equivalents, beginning of period............. 843 510
--------------- --------------
Cash and cash equivalents, end of period................... $ 978 $ 560
=============== ==============
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
6
<PAGE> 7
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
------------------------------------
1994 1993
--------------- --------------
(dollars in thousands)
<S> <C> <C>
Reconciliation of net income (loss) to net cash
provided by operating activities
Net income (loss)...................................... $ (1,948) $ 115
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Extraordinary gain.................................. (323) (3,364)
Depreciation and amortization....................... 1,245 794
Gain on sale of real estate......................... (1,143) (306)
Distribution from real estate entities'
operating cash flow............................... 1,656 349
Equity in losses of investees....................... 2,114 2,478
(Increase) decrease in accrued interest
receivable........................................ 14 (132)
Decrease in other assets............................ (1,010) (729)
Increase (decrease) in accounts payable and
other liabilities................................. (267) 1,148
Other............................................... 505 -
--------------- --------------
Net cash provided by operating activities......... $ 843 $ 353
=============== ==============
Schedule of noncash investing activities
Carrying value of real estate acquired through
assumption of debt with a carrying value of
$6,080................................................. $ 9,810 $ -
Carrying value of real estate obtained in
satisfaction of a receivable with a carrying
value of $125.......................................... 125 -
Carrying value of real estate obtained through
foreclosure in satisfaction of notes receivable
with a net carrying value of $8,443.................... - 7,115
Settlement of term loan obligation in exchange for
a note receivable participation with a carrying
value of $9,895........................................ - (9,863)
Sale of real estate subject to debt...................... - (5,534)
Acquisition of real estate financed by debt.............. - 5,400
</TABLE>
The accompanying notes are an integral part of these Consolidated Financial
Statements.
7
<PAGE> 8
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying Consolidated Financial Statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. Operating results for the nine month period ended September 30,
1994 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1994. For further information, refer to the
Consolidated Financial Statements and Notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1993 (the "1993 Form
10-K").
NOTE 2. NOTES AND INTEREST RECEIVABLE
The borrower on a $1.7 million first mortgage note receivable secured by land
in Osceola, Florida failed to make required payments subsequent to August 10,
1993, including the payment of principal and interest due at maturity on
November 1, 1993. The Company instituted judicial foreclosure proceedings and
was awarded a summary judgment in January 1994. To date, the borrower has paid
the Company a total of $225,000 in nonrefundable fees to delay the sale of the
property at foreclosure until December 1, 1994. The Company has agreed to an
additional 30 day extension to December 31, 1994 in exchange for the payment of
an additional $25,000 nonrefundable fee, if such fee is received by the Company
prior to the current December 1, 1994 foreclosure sale date. The note had a
principal balance of $1.6 million at September 30, 1994. The Company does not
expect to incur any loss upon foreclosure as the estimated fair value of the
collateral property exceeds the carrying value of the note.
In conjunction with the sale of a restaurant site in Los Angeles, California,
the Company provided $100,000 of purchase money financing. The note bears
interest at 8% per annum and requires monthly interest only payments until May
1, 1997, by which time the principal balance shall have been paid down to no
more than $50,000. Interest only payments are to continue until maturity on
April 1, 1999, at which time all unpaid principal and accrued interest shall be
due. See NOTE 3. "REAL ESTATE."
In August 1990, the Company foreclosed on its fourth lien note receivable
secured by the Continental Hotel and Casino in Las Vegas, Nevada. The Company
acquired the hotel and casino property at foreclosure subject to first and
second lien mortgages totaling $10.0 million and a disputed third lien
mortgage. In June 1992, the Company sold the hotel and casino to the third
lienholder for a $22 million wraparound mortgage note receivable, a $500,000
unsecured note receivable, and $100,000 in cash. The Company recorded a
deferred gain of $4.3 million in connection with the sale of the hotel and
casino resulting from the disputed third lien mortgage being subordinated to
8
<PAGE> 9
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 2. NOTES AND INTEREST RECEIVABLE (Continued)
the Company's wraparound mortgage note receivable. The $500,000 note was paid
off in July 1993. Payments of interest and principal on the Company's
wraparound note receivable are made directly by the borrower to the holder of
the first and second lien mortgages and are applied against interest and
principal thereon. In October 1993, the borrower ceased making the monthly
payments required by the Company's wraparound mortgage note receivable to the
holder of the first and second lien mortgages. In April 1994, the Company, the
borrower and the underlying lienholder agreed to modify and extend both the
Company's wraparound mortgage note receivable and the underlying liens.
The modified wraparound mortgage note receivable continues to accrue interest
at 11% per annum with any unpaid interest being added monthly to the principal
balance and requires payments of $150,000 per month through January 1, 1995,
at which time the monthly payments increase to $250,000 until maturity on July
1, 1995, when the unpaid principal balance together with any accrued but unpaid
interest is due. The borrower is making payments in a timely manner in
accordance with the terms of the modified note. The Company's wraparound
mortgage note receivable had a principal balance of $22.7 million at September
30, 1994, including compounded interest.
In conjunction with the modification of the Company's wraparound mortgage note
receivable, the underlying lienholder has agreed to forebear exercising its
rights under the first and second liens on the condition that the Company remit
to it the greater of either $150,000 or all sums received by the Company, after
May 1, 1994, on the Company's wraparound mortgage note receivable and a
principal payment of $225,000 upon execution of the forbearance agreement,
which was made on June 29, 1994. The Company is in compliance with the terms
of the forbearance agreement.
In April 1990, Syntek Asset Management, L.P. ("SAMLP") made a $1.4 million
unsecured loan to Equity Health and Finance Corporation ("Equity Health"), an
entity affiliated with Basic Capital Management, Inc. ("BCM"), the Company's
advisor. In June 1991, Equity Health merged into BCM, and BCM assumed the
note. The note matured on May 9, 1994 and its principal balance of $399,000
and accrued interest of $98,000 were paid in full.
In June 1994, the Company and the borrower on a $1.9 million first mortgage
note receivable which had matured on December 31, 1992 and was secured by a
vacant former hotel in Shaker Heights, Ohio entered into an agreement of
settlement and release. The Company accepted $1.0 million in cash and the
right to participate in the future appreciation of the property, if any, in
full settlement of its note. The Company incurred no loss in excess of the
amounts previously provided.
Also in June 1994, the Company sold its $900,000 first mortgage note receivable
secured by the 386 Ocean Parkway Co-op and 21 shares in the
9
<PAGE> 10
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 2. NOTES AND INTEREST RECEIVABLE (Continued)
co-op equating to 21 unsold apartment units for $450,000 in cash. The Company
incurred no loss on the sale in excess of the amounts previously provided.
NOTE 3. REAL ESTATE
In March 1994, the Company sold a restaurant site in Los Angeles, California,
for $190,000, receiving net cash of $68,500 and providing purchase money
financing of $100,000. The Company paid a real estate sales commission of
$5,700 to Carmel Realty, Inc., an affiliate of the Company's advisor, based
upon the $190,000 sales price of the property. The Company recognized an
$18,000 gain on the sale. See NOTE 2. "NOTES AND INTEREST RECEIVABLE."
In May 1992, in conjunction with a litigation settlement, the Company acquired
title to land in Denver, Colorado subject to a ground lease to Merchandise Mart
Associates, Ltd. ("Mart, Ltd.") as lessee, for the operation of the Denver
Merchandise Mart (the "Mart") and a 2.9% limited partner interest in Mart, Ltd.
In March 1994, the Company acquired for $26,000 in cash, all of the capital
stock of the corporate general partner of Mart, Ltd. Also in March 1994, the
Company acquired all of the capital stock of Garden Capital Merchandise Mart,
Inc. ("GCMMI") for $1,000 and the assumption of $271,000 in debt including
$125,000 payable to the Company. The GCMMI stock was purchased from
individuals who also own the corporate general partner of a limited partnership
in which National Realty, L.P. ("NRLP") is a 99% limited partner. (See NOTE 4.
"INVESTMENT IN REAL ESTATE ENTITIES.") The assets of GCMMI included a
wraparound mortgage note receivable with a principal balance of $33.4 million
secured by the Mart, title to a hotel adjacent to the Mart and parcels of land
contiguous to the Mart.
Both the ground lease and the wraparound mortgage note receivable were in
default at their respective dates of acquisition and have remained so. The
Company commenced foreclosure proceedings, which would also extinguish the
ground lease. Subsequently, the Company voluntarily dismissed the foreclosure
proceedings and is considering alternatives to foreclosure proceedings. The
Company is funding property operating deficits. Effective April 1, 1994, the
Company recorded the insubstance foreclosure of the Mart and the assumption of
underlying debt of $6.1 million. The Company acquired the wraparound mortgage
with the intent of acquiring the collateral property, hence the Mart is
classified as held for investment.
As of June 30, 1994, the Company reclassified its three apartment complexes in
Mississippi and its apartment complex in San Antonio, Texas from "Real estate
held for investment" to "Real estate held for sale". In the second quarter of
1994, the Company received an offer from a
10
<PAGE> 11
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 3. REAL ESTATE (Continued)
potential buyer to acquire the four properties. As a result of such offer, the
Company began actively marketing the properties for sale and accordingly has
reclassified them to held for sale. The combined carrying value of the four
properties is $8.8 million at September 30, 1994.
In April 1991, the Company acquired for cash all of the capital stock of a
corporation which owned 181 developed residential lots in Fort Worth, Texas.
Through December 31, 1993, a total of 143 of the residential lots had been
sold. In the first nine months of 1994, 14 additional lots were sold for an
aggregate gain of $47,000.
In September 1991, the Company purchased all of the capital stock of Denton
Road Investment Corporation ("Denton Road"), which owns a 60% interest in a
joint venture, which in turn owned 113 partially developed residential lots in
Denton, Texas. Through December 31, 1993, 84 of the residential lots had been
sold. In the first nine months of 1994, 24 additional lots were sold for an
aggregate gain of $182,000.
NOTE 4. INVESTMENT IN REAL ESTATE ENTITIES
The Company's investment in real estate entities includes (i) equity securities
of three publicly traded real estate investment trusts (collectively the
"Trusts"), Continental Mortgage and Equity Trust ("CMET"), Income Opportunity
Realty Trust ("IORT") and Transcontinental Realty Investors, Inc. ("TCI"), (ii)
units of limited partner interest of NRLP, (iii) a general partnership interest
in NRLP and National Operating, L.P. ("NOLP"), the operating partnership of
NRLP, through the Company's 76.8% limited partner interest in Syntek Asset
Management, L.P. ("SAMLP") and (iv) interests in real estate joint venture
partnerships. BCM, the Company's advisor, serves as advisor to the Trusts, and
performs certain administrative and management functions for NRLP and NOLP on
behalf of SAMLP.
Because the Company may be considered to have the ability to exercise
significant influence over the operating and investing policies of these
entities, the Company accounts for its investment in the Trusts, NRLP, and the
joint venture partnerships under the equity method of accounting.
Substantially all of the Company's equity securities of the Trusts and NRLP are
pledged as collateral for borrowing.
(THIS SPACE INTENTIONALLY LEFT BLANK.)
11
<PAGE> 12
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 4. INVESTMENT IN REAL ESTATE ENTITIES (Continued)
The Company's investment in real estate entities, accounted for under the
equity method, at September 30, 1994 was as follows:
<TABLE>
<CAPTION>
Equivalent
Percentage Carrying Investee
of the Company's Value of Book Value Market Value
Ownership at Investment at at of Investment at
Investee September 30, 1994 September 30, 1994 September 30, 1994 September 30, 1994
- - - -------- ------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
NRLP 46.1% $ 11,577 $ * $ 29,591
CMET 31.9 10,538 25,254 13,010
IORT 19.3 2,138 5,009 2,791
TCI 23.0 7,337 21,817 8,769
------------- ------------
31,590 $ 54,161
============
General partner
interest in NRLP
and NOLP 7,893
Other 1,410
-------------
$ 40,893
=============
</TABLE>
____________________
* At September 30, 1994, NRLP reported a deficit partners' capital.
The Company's share of NRLP's revaluation equity at December 31,
1993, was $113.0 million. Revaluation equity is defined as the
difference between the appraised value of the partnership's real
estate, adjusted to reflect the partnership's estimate of disposition
costs, and the amount of the mortgage notes payable and accrued
interest encumbering such property as reported in NRLP's Annual
Report on Form 10-K for the year ended December 31, 1993.
The Company's management continues to believe that the market value of each of
the Trusts and NRLP undervalues their assets and the Company has, therefore,
continued to increase its ownership in these entities in 1994, as its liquidity
has permitted.
The following information summarizes the combined results of operations of the
real estate entities the Company accounts for using the equity method for the
nine months ended September 30, 1994:
<TABLE>
<S> <C>
Revenues.................................................... $ 134,137
Property operating expenses................................. (90,244)
Depreciation................................................ (15,121)
Interest expense............................................ (40,243)
Provision for losses........................................ (200)
Gain on sale of real estate................................. 2,730
Gain on sale of partnership interest........................ 2,514
Extraordinary gain.......................................... 1,189
-------------
Net (loss).................................................. $ (5,238)
=============
</TABLE>
12
<PAGE> 13
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 4. INVESTMENT IN REAL ESTATE ENTITIES (Continued)
The Company's cash flow from the Trusts and NRLP is dependent on the ability of
each of the entities to make distributions. TCI's distribution policy provides
for an annual determination of distributions after year end, and then only to
the extent necessary to retain its status as a Real Estate Investment Trust
("REIT") for federal tax purposes. The Company expects to receive no
distributions from TCI in 1994. In March 1993, CMET and IORT resumed quarterly
distributions and in December 1993 NRLP also resumed quarterly distributions.
In the first nine months of 1994, the Company has received aggregate
distributions of $1.2 million from CMET, IORT and NRLP.
In the first nine months of 1994, the Company purchased a total of $3.4 million
of equity securities of the Trusts and NRLP.
In January 1992, the Company entered into a partnership agreement with an
entity affiliated with the owner of in excess of 14% of the Company's
outstanding Common Stock, to acquire 287 developed residential lots adjacent to
the Company's other residential lots in Fort Worth, Texas. The partnership
agreement designates the Company as managing general partner. The partnership
agreement also provides the partners with a guaranteed 10% return on their
respective investments. Through December 31, 1993, 18 residential lots had
been sold. In the first nine months of 1994 an additional 38 lots were sold.
At September 30, 1994, 231 lots remained to be sold.
NOTE 5. MARKETABLE EQUITY SECURITIES - TRADING PORTFOLIO
In the first quarter of 1994, the Company began purchasing equity securities of
entities other than those of the Trusts and NRLP. Through September 30, 1994,
the Company had made net purchases of $9.4 million of such equity securities to
diversify and increase the liquidity of its margin accounts. These equity
securities are considered a trading portfolio and are carried at market. At
March 31, June 30 and September 30, 1994, the Company recognized unrealized
declines of $79,000, $16,000 and $103,000, respectively, in the market value
of the equity securities in its trading portfolio at period end. In the second
and third quarters of 1994, the Company realized net gains of $222,000 and
$83,000, respectively, from the sale of trading portfolio securities. The
unrealized decline in market value and the realized net gain on trading
portfolio securities are included in other income in the accompanying
Consolidated Statements of Operations.
NOTE 6. NOTES AND INTEREST PAYABLE
In March 1992, the Company obtained a $1.3 million working capital loan from a
financial institution. The loan was secured by equity securities of the Trusts
and NRLP. The loan originally matured April 1, 1993 and was extended to April
1, 1994. The balance of the loan, $350,000 at March 31, 1994, plus accrued but
unpaid interest, was paid off at maturity.
13
<PAGE> 14
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 6. NOTES AND INTEREST PAYABLE
At December 31, 1993, the Company had reached agreement, with a financial
institution lender, to extend its loan to the Company with a balance of $9.3
million at September 30, 1994 and collateralized by a note receivable with an
outstanding principal balance of $17.2 million, to December 18, 1997. The
Company was not able to satisfy all of the lender's technical requirements for
completing the extension. The loan is now scheduled to mature on December 18,
1994, its original maturity date. The loan continues to bear interest at the
lender's prime rate plus 3%. The loan agreement also provides for monthly
payments of interest and quarterly principal payments of $286,000, with the
unpaid principal balance due at maturity. The Company is in compliance with
the terms of the original loan.
At December 31,1993, the Company reached agreement with another lender to
extend its loan, with a principal balance of $450,000 at September 30, 1994,
which had matured in August 1993. The note extension was completed in April
1994, and provides for a maturity date of July 1995, requires the Company to
make monthly principal payments of $50,000, and to pledge 240,000 newly issued
shares of the Company's Common Stock as additional collateral for the loan.
All other loan terms remained unchanged.
In May 1993, the Company obtained a $1.8 million first lien mortgage secured by
the Rosedale Towers, a 84,798 square foot office building in Minneapolis,
Minnesota, which was previously unencumbered. The Company pledged as
additional collateral for the loan 141,176 newly issued shares of the Company's
Common Stock. The loan matured April 30, 1994. The lender has extended the
loan's maturity date to May 1, 1997, increased the first mortgage principal
balance to $2.5 million and reduced the loan's interest rate to the three-month
LIBOR rate plus 3/4%, fixed at the beginning of each quarter. The loan
extension requires monthly interest only payments, with the principal balance
and accrued but unpaid interest due at maturity.
At the time of paying off the second lien construction loan on the Park Plaza
Shopping Center in December 1993, as discussed in detail in the Company's 1993
Form 10-K, the Company placed $105,000 into an escrow account to complete
remaining parking lot and exterior renovations at the center. The Company
received credit against the first mortgage for one-half of those monies as
expended. As of June 30, 1994, the Company had expended such escrowed funds,
completing the parking lot and exterior renovations, and received a credit of
$50,000 against the first mortgage. The first mortgage balance was $3.6
million at September 30, 1994.
The Company has margin arrangements with various brokerage firms which provide
for borrowing of up to 50% of the market value of the Company's marketable
equity securities. The borrowing under such margin arrangements are secured by
equity securities of the Trusts, NRLP and
14
<PAGE> 15
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 6. NOTES AND INTEREST PAYABLE (Continued)
other marketable equity securities, and bear interest rates ranging from 6.0%
to 9.5%. Margin borrowing totaled $28.8 million at September 30, 1994.
NOTE 7. REDEEMABLE COMMON STOCK
In June 1992, the Company sold 397,359 newly issued shares of its Common Stock
to Donald C. Carter for $2.0 million in cash. Terms of the sale agreement
provide Mr. Carter with the option of requiring the Company to reacquire up to
360,000 of the purchased shares at a price of $6.11 per share, a total of $2.2
million. Such option is exercisable by the investor for a two year period
expiring in March 1995. The Company has accreted the difference between the
issuance price and the redemption price using the "interest method". To secure
its payment obligations under the option agreement, the Company assigned to the
investor its interest in the $22 million note receivable secured by the
Continental Hotel and Casino. In addition, BCM, the Company's advisor, and the
trust that owns BCM, have guaranteed the Company's payment obligation to
repurchase such shares.
NOTE 8. INCOME TAXES
Financial statement income varies from taxable income principally due to the
accounting for income and losses of investees, gains and losses from asset
sales, depreciation on owned properties, amortization of discounts on notes
receivable and payable and the difference in the allowance for estimated
losses. The Company had no taxable income or provision for income taxes in the
nine months ended September 30, 1993 or 1994.
NOTE 9. COMMITMENTS AND CONTINGENCIES
Litigation. The Company is involved in various lawsuits arising in the
ordinary course of business. Management of the Company is of the opinion that
the outcome of these lawsuits would have no material impact on the Company's
financial condition.
NOTE 10. LIQUIDITY
The Company's principal sources of cash flow have been and will continue to be
from property operations, collection of mortgage notes receivable, sales of
real estate and notes receivable and externally generated funds. Externally
generated funds include borrowing against marketable equity securities,
proceeds from borrowing secured by real estate and notes receivable, borrowing
from the Company's advisor, as well as a possible preferred or common equity
offering.
The Company continues to experience liquidity problems and expects that cash
flow from operations together with externally generated funds will be
sufficient to meet its various cash needs only if the Company is able to renew
and extend mortgage financings as they mature. If the Company
15
<PAGE> 16
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
NOTE 10. LIQUIDITY (Continued)
is unsuccessful in obtaining new financing or refinancings, the Company
anticipates it could obtain additional advances from its advisor in amounts
sufficient to satisfy its cash requirements. During the remainder of 1994,
notes payable totaling $11.4 million come due. It is the Company's intention
to either pay such debt when due or seek to extend the maturity dates one or
two years while attempting to obtain long-term financing. Due to the limited
long-term financing available to the Company, there can be no assurance that
the Company will be successful in extending such "balloon" payments or that it
will not ultimately lose certain of its assets to foreclosure. However, the
Company's management believes it will continue to be successful in obtaining at
least the minimum amount of extensions or other proceeds or advances to enable
it to maintain anticipated levels of property operations, existing commitments
and ownership of all properties in which it has equity.
_____________________________
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Introduction
American Realty Trust, Inc. (the "Company") was organized in 1961 to provide
investors with a professionally managed, diversified portfolio of equity real
estate and mortgage loan investments selected to provide opportunities for
capital appreciation as well as current income.
Liquidity and Capital Resources
General. Cash and cash equivalents at September 30, 1994 aggregated $978,000,
compared with $843,000 at December 31, 1993. Although the Company anticipates
that during the remainder of 1994 it will generate excess cash flow from
operations, as discussed below, such excess cash flow is not sufficient to
discharge all of the Company's debt obligations as they mature. The Company
will therefore continue to rely on externally generated funds, including
borrowing against its investments in various real estate entities and other
marketable securities, mortgage notes receivable, the sale or refinancing of
properties and to the extent available and necessary, borrowing from its
advisor to meet its debt service obligations, pay taxes, interest and other
non-property related expenses.
At December 31, 1993, notes payable totaling $10.7 million had scheduled
maturities during 1994 or were in default. As discussed below, the Company has
reached agreement with the lenders on $6.9 million of such debt to modify and
extend their debt. In addition, the Company paid off an additional $350,000
debt obligation at maturity on April 1, 1994.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
However, the Company's borrowing from a financial institution, with a balance
of $9.3 million at September 30, 1994 is now scheduled to mature on December
18, 1994. At December 31, 1993, the Company and the lender had reached
agreement to extend the maturity date of the note to December 18, 1997. The
Company was not able to satisfy all of the lender's technical requirements for
completing the extension and the note has reverted to the original maturity
date of December 18, 1994.
The Company intends to either payoff, extend the maturity dates or obtain
alternate financing for its $11.4 million in debt obligations that mature
during the remainder of 1994. There can be no assurance, however, that these
efforts to obtain alternative financing or debt extensions will be successful.
The Company expects an increase in cash flow from property operations during
the remainder of 1994. This increase in cash flow is expected to be derived
from operations of the hotel and apartment complex the Company acquired in 1993
and from the operations of the Denver Merchandise Mart and Hotel (the "Mart")
obtained in the second quarter of 1994. The Company also expects continued lot
sales at its two Texas residential subdivisions to generate additional cash
flow. See NOTE 3. "REAL ESTATE."
The Company expects that funds from existing cash sources, collections on
mortgage notes receivable, sales or refinancing of real estate and/or mortgage
notes receivable, and borrowing against its investments in marketable equity
securities, notes receivables and, to the extent available and necessary,
borrowing from the Company's advisor, will be sufficient to meet the cash
requirements associated with its current and anticipated level of operations,
maturing debt obligations and existing commitments in the foreseeable future.
To the extent that the Company's liquidity permits, the Company may make equity
investments in real estate, additional investments in marketable equity
securities and fund or acquire mortgage notes.
Notes Receivable. The Company anticipates a continued improvement in the
operations of the properties securing its mortgage notes receivable in certain
regions of the continental United States. In spite of this perceived
improvement in the real estate market in general, the Company can give no
assurance that it will not experience renewed deterioration in cash flow from
notes receivable due to new problem loans.
In April 1994, the Company, the borrower and the underlying lienholder agreed
to modify and extend both the Company's $22.7 million wraparound mortgage note
receivable secured by the Continental Hotel and Casino and the underlying notes
payable. The modified note receivable accrues interest at 11% per annum with
any unpaid interest being added monthly to the principal balance and requires
interest payments of $150,000 per month through January 1, 1995, at which time
monthly payments will increase to $250,000 until maturity on July 1, 1995. In
conjunction with the modification of the Company's wraparound mortgage note
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
receivable, the underlying lienholder has agreed to forebear exercising its
rights under its first and second liens on the condition that the Company remit
to it the greater of either $150,000 or all sums received by the Company, after
May 1, 1994, on the Company's wraparound mortgage note receivable and a
principal payment of $225,000, upon execution of the forbearance agreement
which was made on June 29, 1994. Both notes are performing in accordance with
their modified terms.
In April 1990, Syntek Asset Management, L.P. ("SAMLP") made a $1.4 million
unsecured loan to Equity Health and Finance Corporation ("Equity Health"), an
entity affiliated with Basic Capital Management, Inc. ("BCM"), the Company's
advisor. In June 1991, Equity Health merged into BCM, and BCM assumed the
note. The note matured on May 9, 1994, and its principal balance of $399,000
and accrued interest of $98,000 were paid in full.
In June 1994, the Company and the borrower on a $1.9 million first mortgage
note receivable which had matured on December 31, 1992 and was secured by a
vacant former hotel in Shaker Heights, Ohio entered into an agreement of
settlement and release. The Company accepted $1.0 million in cash and the
right to participate in the future appreciation of the property, if any, in
full satisfaction of its note receivable. The Company incurred no loss in
excess of the amounts previously provided.
Also in June 1994, the Company sold its $900,000 first mortgage note receivable
secured by the 386 Ocean Parkway Co-op and 21 shares in the co-op equating to
21 unsold apartment units for $450,000 in cash. The Company incurred no loss
on the sale in excess of the amounts previously provided. See NOTE 2. "NOTES
AND INTEREST RECEIVABLE."
Loans Payable. As discussed above, the Company has reached agreement with the
underlying lienholder on the Company's $22.7 million wraparound mortgage note
receivable secured by the Continental Hotel and Casino. The underlying liens
totaled $5.7 million at September 30, 1994. See NOTE 2. "NOTES AND INTEREST
RECEIVABLE."
The Company has modified and extended the $1.8 million first mortgage secured
by the Rosedale Towers Office Building and increased the loan balance to $2.5
million. The new loan bears interest at the three-month LIBOR rate plus 3/4%,
fixed at the beginning of each quarter and requires monthly interest only
payments, with the principal balance and accrued but unpaid interest due at
maturity on May 1, 1997. See NOTE 6. "NOTES AND INTEREST PAYABLE."
The Company has margin arrangements with various brokerage firms which provide
for borrowing up to 50% of the market value of marketable equity securities.
The borrowing under such margin arrangements are secured by such equity
securities and bear interest rates ranging from 6.0% to 9.5%. Margin borrowing
totaled $28.8 million at September 30, 1994, an increase of $12.7 million from
December 31, 1993.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
Equity Investments. The Company has investments in shares of three Real Estate
Investment Trusts (the "Trusts") having the same advisor as the Company, and
units of limited partner interest in National Realty, L.P. ("NRLP"). It is
anticipated that additional equity securities of the Trusts, Continental
Mortgage and Equity Trust ("CMET"), Income Opportunity Realty Trust ("IORT")
and Transcontinental Realty Investors, Inc. ("TCI"), and of NRLP will be
acquired in the future through open-market and negotiated transactions to the
extent the Company's liquidity permits.
Equity securities of the Trusts and NRLP held by the Company may be deemed to
be "restricted securities" under Rule 144 of the Securities Act of 1933
("Securities Act"). Accordingly, the Company may be unable to sell such equity
securities other than in a registered public offering or pursuant to an
exemption under the Securities Act for a period of two years after they are
acquired. Such restrictions may reduce the Company's ability to realize the
full fair market value of such investments if the Company attempted to dispose
of such securities in a short period of time.
The Company's cash flow from these investments is dependent on the ability of
each of the entities to make distributions. TCI's distribution policy provides
for an annual determination of distributions after year end, and then only to
the extent necessary to retain its status as a REIT for federal tax purposes.
The Company expects to receive no distributions from TCI in 1994. CMET, IORT
and NRLP returned to the payment of quarterly distributions in 1993. The
Company has received distributions totaling $1.2 million in 1994 from CMET,
IORT and NRLP.
On a quarterly basis, the Company's management reviews the carrying value of
the Company's mortgage loans, properties held for investment and properties
held for sale. Generally accepted accounting principles require that the
carrying value of an investment held for sale 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 Company's properties are less than the
carrying value thereof at the time of evaluation, a provision for loss is
recorded by a charge against operations. The estimate of net realizable value
of the mortgage loans is based on management's review and evaluation of the
collateral properties securing such loans. The review generally includes
selective property inspections, a review of the property's current rents
compared to market rents, a review of the property's expenses, a review of the
maintenance requirements, discussions with the manager of the property and a
review of the surrounding area.
Commitments
In June 1992, the Company sold 397,359 newly issued shares of its Common Stock
to a private investor for $2.0 million in cash. Terms of the sale
19
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Commitments (Continued)
agreement provide the purchaser with an option to require the Company to
reacquire up to 360,000 of the shares at $6.11 per share, a total of $2.2
million. Such option is exercisable for a two year period expiring in March
1995. To secure its payment obligations under the option agreement, the
Company assigned its interest in the wraparound mortgage note receivable
secured by the Continental Hotel and Casino. In addition, BCM, the Company's
advisor, and the trust that owns BCM have agreed to guarantee the Company's
payment obligation.
In October 1993, NRLP, Syntek Asset Management, L.P. ("SAMLP"), the NRLP
Oversight Committee and the Company reached an agreement evidenced by a
detailed Term Sheet to nominate a candidate to succeed SAMLP as general partner
of NRLP and National Operating, L.P. ("NOLP"), the operating partnership of
NRLP, and to consummate the 1990 settlement of a class action suit. The Term
Sheet also set forth an agreement in principle to effect a restructuring of
NRLP and the spinoff by NRLP to its unitholders of shares of a newly-formed
subsidiary which would qualify as a REIT for federal tax purposes. The Company
is NRLP's largest unitholder and a 76.8% limited partner of SAMLP. SAMLP
currently serves as the general partner of NRLP and NOLP and a newly formed
subsidiary of SAMLP was to be nominated as successor general partner. The Term
Sheet further provided that within nine months of the spinoff transaction, the
Company would make a cash tender offer to purchase up to 60% of NRLP's units of
limited partner interest held by unitholders unaffiliated with the Company or
SAMLP for $12.00 per unit (an estimated maximum purchase price of $8.0
million), unless the NRLP units had traded at an appreciably higher average
price for the prior thirty days. In July 1994, SAMLP determined that the
proposed spinoff was no longer in the best interests of NRLP's unitholders.
Accordingly, the Term Sheet provisions are not being implemented and the
parties are evaluating other alternatives to consummate the settlement.
Results of Operations
For the three months ended September 30, 1994, the Company had net income of
$599,000, compared to a net loss of $1.9 million for the three months ended
September 30, 1993. For the nine months ended September 30, 1994, the Company
had a net loss of $1.9 million, compared to net income of $115,000 for the nine
months ended September 30, 1993. The primary factors contributing to the
Company's net income and loss in each of the periods are discussed in the
following paragraphs.
Net rental income (rental income less property operating expenses) increased
from $829,000 and $2.0 million for the three and nine months ended September
30, 1993 to $2.0 million and $3.9 million for the three and nine months ended
September 30, 1994. The three and nine month increases are principally due to
the Company's 1993 acquisitions of an apartment complex in Nevada and a hotel
in Kansas City, combined with the Company's obtaining the Mart in April 1994.
These increases were partially offset by the August 1993 sale of the Fox City
Shopping Center.
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Interest income from mortgage notes receivable increased from $662,000 for the
three months ended September 30, 1993 to $1.1 million for the three months
ended September 30, 1994 and decreased from $4.0 million for the nine months
ended September 30, 1993 to $2.9 million for the nine months ended September
30, 1994. The three month increase is primarily due to the collection of
interest on the note receivable secured by the Continental Hotel and Casino
throughout the entire third quarter of 1994 compared to the note's
nonperformance in the third quarter of 1993. The nine month decrease is
primarily attributable to the Continental Hotel and Casino wraparound mortgage
note receivable which was nonperforming in the first and a portion of the
second quarters of 1994 whereas it had been in 1993 and the August 1993
Collecting Bank settlement, discussed in detail in the Company's 1993 Form
10-K.
Equity in losses of investees decreased from a loss of $2.5 million for the
nine months ended September 30, 1993 to a loss of $2.1 million for the nine
months ended September 30, 1994 and from a loss of $1.3 million for the three
months ended September 30, 1993 to a loss of $1.0 million for the three months
ended September 30, 1994. The fluctuation in equity losses is attributable to
the Company's continued increase in equity ownership in each of CMET, IORT, TCI
and NRLP, increasing the Company's proportionate share of equity in the results
of operations of each such entity. Combined operating losses of the four
entities decreased from $12.2 million for the nine months ended September 30,
1993 to an operating loss of $9.2 million for the nine months ended September
30, 1994.
Other income increased from $371,000 and $491,000 for the three and nine months
ended September 30, 1993 to $461,000 and $1.2 million for the three and nine
months ended September 30, 1994. The nine month increase is primarily
attributable to $305,000 in realized net gains on the sale of marketable equity
securities and a $498,000 preferred return from a joint venture, offset by
$198,000 in unrealized declines in the market value of the Company's marketable
equity securities trading portfolio.
Interest expense increased from $1.5 million for the three months ended
September 30, 1993 to $1.8 million for the three months ended September 30,
1994 and from $4.7 million for the nine months ended September 30, 1993 to $5.5
million for the nine months ended September 30, 1994. The three and nine
month increases are attributable to debt refinancings and new debt incurred or
assumed on property acquisitions subsequent to September 30, 1993 and a $12.7
million increase in margin borrowing from December 31, 1993.
Depreciation and amortization increased from $290,000 and $794,000 for the
three and nine months ended June 30, 1993 to $489,000 and $1.2 million for the
three and nine months ended September 30, 1994. These increases are due to the
Company's obtaining the Mart in April 1994 and the acquisition of a hotel in
Kansas City and an apartment complex in Nevada in 1993.
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
Advisory and mortgage servicing fees of $319,000 and $959,000 for the three and
nine months ended September 30, 1993 approximated the $295,000 and $920,000 for
the three and nine months ended September 30, 1994.
General and administrative expenses were $353,000 and $1.2 million for the
three and nine months ended September 30, 1993 compared to $520,000 and $1.5
million for the three and nine months ended September 30, 1994. The three and
nine month increases are primarily attributable to legal fees incurred in 1994
in connection with litigation relating to a loan guarantee and legal and
consulting fees incurred on debt and notes receivable extensions and
modifications.
Gains on sale of real estate sales were $44,000 and $306,000 for the three and
nine months ended September 30, 1993 compared to $910,000 and $1.1 million for
the three and nine months ended September 30, 1994. In the three and nine
months the Company recognized gains on sales of real estate of $897,000 related
to the sale of an apartment complex by TCI, in which the Company owns a 23%
interest.
The Company reported a $3.4 million extraordinary gain for the nine months
ended September 30, 1993 compared to a $323,000 extraordinary gain in the nine
months ended September 30, 1994. The extraordinary gain in 1993 is the
Company's share of an equity investee's first quarter 1993 reported
extraordinary gain of $9.0 million from its discounted payoff of mortgage debt.
Of the 1994 extraordinary gain, $273,000 in the third quarter is the Company's
share of another equity investee's settlement of claims against it by a lender,
and the remaining $50,000 in the nine months is due to the forgiveness of a
portion of a first mortgage from early payoff of the second mortgage by the
Company. See NOTE 6. "NOTES AND INTEREST PAYABLE."
Environmental Matters
Under various federal, state and local environmental laws, ordinances and
regulations, the Company may be potentially liable for removal or remediation
costs, as well as certain other potential costs relating to hazardous or toxic
substances (including governmental fines and injuries to persons and property)
where property-level managers have arranged for the removal, disposal or
treatment of hazardous or toxic substances. In addition, certain environmental
laws impose liability for release of asbestos-containing materials into the
air, and third parties may seek recovery from the Company for personal injury
associated with such materials.
The Company's management is not aware of any environmental liability relating
to the above matters that would have a material adverse effect on the Company's
business, assets or results of operations.
22
<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (Continued)
Recent Accounting Pronouncement
In May 1993, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 114 - "Accounting by Creditors
for Impairment of a Loan", which amends SFAS No. 5 - "Accounting for
Contingencies" and SFAS No. 15 - "Accounting by Debtors and Creditors for
Troubled Debt Restructurings." The statement requires that notes receivable be
considered impaired when "based on current information and events, it is
probable that a creditor will be unable to collect all amounts due, both
principal and interest, according to the contractual terms of the loan
agreement". Impairment is to be measured either on the present value of
expected future cash flows discounted at the note's effective interest rate or
if the note is collateral dependent, on the fair value of the collateral. In
October 1994, the FASB issued SFAS No. 118 - "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure" which amends SFAS No.
114. SFAS No. 118 eliminates the income recognition provisions of SFAS No.
114, substituting disclosure of the creditor's policy of income recognition on
impaired notes. SFAS No. 114 and SFAS No. 118 are both effective for fiscal
years beginning after December 15, 1994. The Trust's management has not fully
evaluated the effects of implementing these statements, but expects that they
will not affect the Trust's interest income recognition policy but may require
the classification of otherwise performing loans as impaired.
________________________________________
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit
Number Description
- - - ------- -----------
27.0 Financial Data Schedule
(b) Reports on Form 8-K as follows:
None.
23
<PAGE> 24
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 thereunto duly authorized.
AMERICAN REALTY TRUST, INC.
Date: November 14, 1994 By: /s/ KARL L. BLAHA
Karl L. Blaha
President
Date: November 14, 1994 By: /s/ HAMILTON P. SCHRAUFF
Hamilton P. Schrauff
Executive Vice President and
Chief Financial Officer
24
<PAGE> 25
AMERICAN REALTY TRUST, INC.
EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q
For the quarter ended September 30, 1994
<TABLE>
<CAPTION>
Exhibit Page
Number Description Number
- - - ------- --------------------------------------------------- ------
<S> <C> <C>
27.0 Financial Data Schedule 26
</TABLE>
25
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 978
<SECURITIES> 9,265
<RECEIVABLES> 47,886
<ALLOWANCES> (8,201)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 66,734
<DEPRECIATION> 7,552
<TOTAL-ASSETS> 154,321
<CURRENT-LIABILITIES> 0
<BONDS> 57,323
<COMMON> 26
0
0
<OTHER-SE> 54,146
<TOTAL-LIABILITY-AND-EQUITY> 154,321
<SALES> 0
<TOTAL-REVENUES> 13,931
<CGS> 0
<TOTAL-COSTS> 9,990
<OTHER-EXPENSES> 1,245
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,472
<INCOME-PRETAX> (3,414)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,414)
<DISCONTINUED> 0
<EXTRAORDINARY> 323
<CHANGES> 0
<NET-INCOME> (1,948)
<EPS-PRIMARY> (.65)
<EPS-DILUTED> (.65)
</TABLE>
