<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-6103
ARLINGTON REALTY INVESTORS
(Exact name of registrant as specified in the charters)
TEXAS 75-1372785
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10670 NORTH CENTRAL EXPRESSWAY, SUITE 640, DALLAS, 75231
TEXAS
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 214/369-5064
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS REGISTERED
- ---------------------------------------- --------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT
SHARES OF BENEFICIAL INTEREST, $1.00 PAR VALUE
(Title of class)
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 and 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 ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section229.405 of this chapter) 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. / /
The aggregate market value of the 178,986 shares of Beneficial Interest
(voting securities) held by non-affiliates of the Registrant is not
ascertainable since no trading market presently exists for such shares.
As of October 18, 1995, there were 542,413 shares of Beneficial Interest of
the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
Notice of Annual Meeting of Shareholders and Proxy Statement for Annual
Meeting of Stockholders on December 5, 1995 of the Registrant (Part III).
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<PAGE>
PART I
ITEM 1. BUSINESS.
Arlington Realty Investors (herein referred to as the "Trust" or "Arlington"
or the "Registrant") was originally organized as Ryan Mortgage Investors
pursuant to the Texas Real Estate Investment Trust Act under a Declaration of
Trust dated October 13, 1971. On March 6, 1984, its name was changed to
Arlington Realty Investors pursuant to an Amendment to the Declaration of Trust.
The Trust has elected to be treated as a Real Estate Investment Trust ("REIT")
under Section 856 through 860 of the Internal Revenue Code of 1986, as amended.
The Trust has, in the opinion of the Trust's management, qualified for federal
taxation as a REIT for each fiscal year subsequent to December 31, 1971. The
Trust's primary business and only industry segment has been investing in equity
interests in real estate and related real estate activities. Under the Trust's
Declaration of Trust and Bylaws, the Trustees, at their option, may terminate
the Trust's status as a REIT for federal income tax purposes. It is the present
intention of the Trustees to periodically review this issue and pursue a course
of action that such Trustees believe is in the best interest of the
shareholders.
At its Annual Meeting of Shareholders held on February 5, 1985, the Trust's
shareholders approved a Plan of Complete Liquidation and Termination (the
"Termination Plan"), which initially provided for a 12-month liquidation period
pursuant to Section 337 of the Internal Revenue Code. In January 1986, the then
Trustees voted to extend the time of the liquidation period under the
Termination Plan until such time as the Trust's remaining assets could be sold
on satisfactory terms. During the period from 1986 through 1992, all of such
assets were sold (except one remaining item of real estate located in Houston,
Texas). During the period of the Termination Plan, the Trust distributed various
profits from sales, including a distribution on July 6, 1993, which over the
years ultimately aggregated $13.55 per share. At the Annual Meeting held on June
30, 1994, the shareholders approved the proposal to revoke and repeal the
Termination Plan by more than the necessary affirmative vote of the holders of
two-thirds of the then outstanding Shares as required by Section 8.1 of
Arlington's Amended and Restated Declaration of Trust. Accordingly, such
Termination Plan was revoked and repealed and the Trust returned to the status
of an operating Real Estate Investment Trust that may attempt to enter into
regular business transactions involving real estate for the purpose of
generation of profits.
During March 1995, the Trust formed a wholly-owned subsidiary, Watermark
Texas 1, Inc., a Maryland corporation, and contributed its sole property to such
subsidiary.
CHANGES IN CONTROL OF REGISTRANT
Control of the Trust has changed two times in the fourteen months ended
December 31, 1994. On November 10, 1993, Southmark Corporation ("Southmark"),
the owner and holder from 1985 of 319,989 shares of Beneficial Interest, par
value $1.00 per share (the "Shares") of the Trust (which constituted
approximately 64.1% of the Shares then issued and outstanding of the Trust),
sold such 319,989 Shares to Davister Corp., a Nevada corporation ("Davister").
On November 10, 1994, Davister, the owner and holder since 1993 of 319,989
Shares, which constituted approximately 64.1% of the 498,985 Shares of the Trust
then issued and outstanding, sold such 319,989 Shares to a group consisting of
Fletcher Napolitano Styles and Verruto Family Property Partners, L.P., MIZ
Investor Associates, DAGI Limited Partnership and Antapolis N.V. (the
"Controlling Shareholders"). Such sale occurred pursuant to the terms of a
Purchase Agreement dated November 10, 1994 between Davister and the Controlling
Shareholders (the "Purchase Agreement"). Under the terms of the Purchase
Agreement, the Controlling Shareholders paid $23,572 from their own funds or
working capital and Davister agreed to pay up to $50,000 from its working
capital, for the Controlling Shareholders' legal costs incurred in connection
with the Purchase Agreement. In addition, Davister agreed to pay, from its
working capital, $100,000 plus fifty percent of any amount above $100,000 for
the expenses of the Controlling Shareholders incurred in connection with certain
post-closing matters and for the financial advisor's fee for services in
connection with, among other
2
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things, the Purchase Agreement. These post-closing matters are defined in the
Purchase Agreement as, among other things: (i) the amendment or cancellation of
any or all of the Trust's contract; (ii) changing the management of the Trust;
(iii) amending the Declaration of Trust to provide for authorization of
additional classes of Shares; and (iv) amending the Trust's governing documents
as may be necessary or appropriate to carry out such post-closing matters
(collectively, the "Post-Closing Matters"). The financial advisor associated
with the Purchase Agreement was PAZ Securities, Inc., an affiliate of MIZ. The
financial advisor's fee for such services was $15,000.
Under the Purchase Agreement, Davister agreed that after the closing of the
sale contemplated by the Purchase Agreement, it would use reasonable efforts to
cause the Trust and any entity controlling, controlled by or under common
control with Davister or the Trust to cooperate fully with the Controlling
Shareholders and provide any and all necessary assistance to the Controlling
Shareholders in connection with the Post-Closing Matters.
Contemporaneously with the closing under the Purchase Agreement, Davister
and its affiliates contributed five properties, that together had approximately
880 apartment units, to a newly formed partnership, HPI-Southern Properties,
Limited Partnership, a Delaware limited partnership that is controlled by the
Controlling Shareholders ("HPI"). In exchange for this contribution, Davister
and its affiliates received a 30% interest in HPI and $6 million in cash. HPI
accepted the properties subject to $12,447,899 in non-recourse debt. The
payments made by Davister under the Purchase Agreement represent amounts that
Davister would have otherwise paid in connection with the formation of HPI.
On November 10, 1994, pursuant to a Trust Share Purchase Agreement of the
same date, MIZ purchased from the Trust 43,428 Shares (the "Trust Issuance") for
$43,428, which equalled the par value of such Shares. The Trust's management
believes the MIZ purchase was not on the same terms as would have been obtained
by an unrelated third party. The Trust's management has significant doubts as to
whether the Trust's Shares would be valued by a third party as at least equal to
their par value. The Trust's management believes the MIZ purchase price reflects
the Trust's and MIZ's reluctance to issue and buy stock for less than par value.
Although P. Scott Miller and F. Terry Shumate, officers of Davister,
continue to constitute the sole members of the Trust's Board of Trustees, by
virtue of the sale by Davister of 319,989 Shares to the Controlling Shareholders
and the Trust Issuance, an effective change in control of the Trust has
occurred.
Since November 10, 1993, Davister has provided office space and legal,
administrative and accounting services to the Trust under the supervision of the
Trust's officers (who are also officers of Davister or one of its affiliates).
The Trust has no employees.
SOUTHMARK BANKRUPTCY AND PREFERENCE ACTION
On July 14, 1989, Southmark filed a voluntary petition seeking
reorganization under Chapter 11 of the United States Bankruptcy Code, as
amended, in the United States Bankruptcy Court for the Northern District of
Georgia, Atlanta Division, which was subsequently transferred to the Northern
District of Texas, Dallas Division (the "Bankruptcy Proceeding"). Southmark's
Fourth Amended and Restated Plan of Reorganization (the "Plan") became effective
on August 10, 1990. Under that Plan, Southmark was to resolve all pre-petition
creditor claims and liquidate its remaining assets, including its ownership of
64.1% of the outstanding Shares of the Trust. On July 12, 1991, Southmark filed
a Complaint for Avoidance of Recovery of Preferential and Post-Petition
Transfers and Turnover (the "Preference Action") against the Trust, seeking to
have certain transfers from Southmark to the Trust declared voidable by
Southmark. The Preference Action identified (i) a pledge by Southmark of a
promissory note and lien in connection with the Southmark Note on May 11, 1989,
(ii) three payments by Southmark to the Trust of $50,000 on February 8, 1989,
February 10, 1989 and May 9, 1989, and (iii) a set-off by the Trust against the
distribution to Southmark pursuant to the Termination Plan. On June 26, 1992,
Southmark and the Trust agreed to settle the dividend payable to Southmark and
the note receivable from Southmark. Under the terms of the Settlement, the Trust
3
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paid to Southmark $92,500 of the dividend payable and the Trust was given an
allowed claim in Southmark's Bankruptcy Proceeding for $219,000. As a result of
the Preference Action, the Trust agreed to pay Southmark the sum of $28,000,
which liability was satisfied by the Trust assigning its allowed claim to
Southmark. In accordance with the Plan, Southmark entered into an agreement with
Davister whereby Southmark sold its 64.1% interest in the Trust to Davister.
However, prior to such sale, on July 6, 1993, Southmark received $895,969 from
the distribution to Shareholders at the rate of $2.80 per share.
ITEM 2. PROPERTIES.
At December 31, 1994, the Trust's only real estate asset was a parcel of
unimproved land consisting of approximately 4.5 acres located on Parker Road in
Houston, Harris County, Texas. During 1992, a provision was made to reduce the
carrying value of such property to zero. The Parker Road property had a
valuation for ad valorem tax purposes as set by the Harris County Central
Appraisal District of $104,290 at January 1, 1995. The annual property tax
obligation of the Trust for the Parker Road property during 1994 was less than
$5,000.
During February 1995, the Trust sold and conveyed a 4,429 square foot strip
of land on the south side of the Parker Road Property to the City of Houston,
Texas for $3,765 (approximately 85 CENTS per square foot). Such strip of land is
adjacent to East Parker Road, which the City desires to widen. The City of
Houston is to convert East Parker Road from a two-lane black top road without
curbs and underground storm gutters to a four-lane, 80-foot concrete
thoroughfare with curbs and gutters. In connection with such sale, the Board of
Trustees obtained advice from a local real estate appraiser who advised that (i)
the offer by the City of Houston was reasonable and should be accepted "as is,"
(ii) after completion of the planned "upgrade" of East Parker Road the frontage
of the fairly wooded property should be cleared and the site marketed, and (iii)
the "upgrade" should enhance the marketability of the property.
The Trust has held the Parker Road property for sale for several years, has
listed the property with various brokers over that time period, and inquired of
the City of Houston as to the desire of the City to acquire such property for a
park site. Management presently intends to sell the Parker Road property at the
first available opportunity. The anticipated carrying costs of the Trust
associated with the Parker Road property are currently limited to property taxes
and the cost of insurance.
No full and complete independent third-party appraisal has been recently
made of the Parker Road property. A land use analysis was prepared in March 1989
for a lender at the request and expense of the Trust (the "1989 Report").
According to the 1989 Report, (i) the highest and best use of the property
should be for a commercial/industrial facility for a single user, (ii) the
property has available utilities and is physically suitable for development (but
some storm water on-site detention may be required), and (iii) no environmental
concerns existed on the property. The Parker Road property is located in
northern Houston, Texas in an area mostly occupied with single-family homes
(some dating to the 1920's) with some multi-family housing nearby. Small
businesses have randomly arisen in the area; some of which are light industrial,
some commercial and some retail.
On December 24, 1993, the Trust, as landlord, and Plano Outlet Mall, Ltd., a
Texas limited partnership, entered into a ground lease agreement pursuant to
which the Trust leased to such limited partnership the Parker Road land for a
term of one calendar year at a basic rental of $70,000 per year, net to the
Trust, subject to possible future extension of such lease. One of the officers
of the Trust, F. Terry Shumate, is also an officer of a subsidiary of the
corporate general partner of such limited partnership. The lease expired
December 23, 1994 and required prepayment of the total annual rental of $70,000.
For financial reporting purposes, the prepayment was classified as deferred
lease revenue and has been amortized ratably over the life of the lease. On
December 31, 1993, the Trust advanced $70,000 to Davister. Davister agreed to
pay $70,000 in costs and expenses (including legal fees) on behalf of the Trust
to liquidate such advance. As of December 31, 1994, the advance had been fully
paid.
4
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During March 1995, the Trust formed a wholly-owned subsidiary and
contributed the Parker Road property to such subsidiary.
ITEM 3. LEGAL PROCEEDINGS.
At December 31, 1994, and thereafter through the date of this report, the
Trust was not a party, nor was any property or assets of the Trust subject, to
any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the fiscal year covered by this report no
matter was submitted to a vote of security holders of the Trust.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Trust's Shares are traded on a sporadic basis in the over-the-counter
market. Through the first quarter of 1988 the Shares were quoted on the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"). Since
the cessation of quotation or trading on NASDAQ, the Trust believes there has
been no established independent trading market for the Shares, but a limited
number of Shares are believed to have been traded in privately negotiated
transactions. Also, see "Changes in Control of Registrant" under Item 1.
"Business" for information concerning sales of controlling interests. In
addition, on November 10, 1994, contemporaneously with the sale by Davister of
319,989 Shares to the Controlling Shareholders, the Trust sold to MIZ Investors
Associates an aggregate of 43,428 Shares at a purchase price of $43,428 ($1.00
per Share).
No regular dividends on Shares were paid in 1990, 1991, 1992 or 1994. A
partial liquidating distribution of approximately $374,000 ($0.75 per Share) was
paid in 1989 and a partial liquidating distribution of approximately $1,397,000
($2.80 per Share) was paid on July 6, 1993. Since the adoption of the
Termination Plan by the Shareholders on February 5, 1985 and until its
revocation and repeal on June 30, 1994, the Trust has declared and paid
liquidating distributions totaling $13.55 per Share (all of which constitute a
return of capital for accounting purposes of the Trust) as follows:
<TABLE>
<CAPTION>
MONTH AMOUNT OF
DISTRIBUTION DISTRIBUTION
PAID PER SHARE TOTAL PAID
- ------------- ------------ ----------
<S> <C> <C>
March 1985 $ 7.50 $3,742,388
March 1986 1.50 748,478
December 1986 1.00 498,985
August 1989 .75 374,238
July 1993 2.80 1,397,158
------------ ----------
$13.55 $6,761,247
------------ ----------
------------ ----------
</TABLE>
As of December 31, 1994, 542,413 Shares were held by approximately 325
holders of record.
5
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ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth a summary of certain selected financial data
of the Trust. This summary should be read in conjunction with the Notes to
Financial Statements included at Item 8.
<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>
STATEMENT OF OPERATIONS DATA
Rental Operations, net............................ $ 70 $ -- $ 95 $ 194 $ 102
Real estate sales, net............................ -- -- 244 -- --
Interest Income................................... -- 22 19 5 4
Net earnings (loss)............................... (44) 7 333 (112) 38
Earnings (loss) per share......................... $ (.09) .01 $ .67 $ (.22) $ .08
Distributions per share........................... $ -- $ 2.80 $ -- $ -- $ --
Weighted average shares outstanding............... 505,172 498,985 498,985 498,985 498,985
BALANCE SHEET DATA
Real estate, net of allowances.................... $ -- $ -- $ -- $ 1,105 $ 1,298
Mortgages, receivable, net........................ -- -- -- -- --
Total assets...................................... 33 116 1,441 1,360 1,420
Shareholders' equity (deficit).................... $ (1) $ (1) $ 1,389 $ 1,056 $ 1,168
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
RESULTS OF OPERATIONS
Arlington's primary revenue sources for the three years ended December 31,
1994, were net rental property operations, interest income, and sales of real
estate. Arlington's operating properties consisted of a former property known as
Cambridge through August 1992 and a former property known as Willowbrook through
April 1992. Net rental operations decreased to zero for 1993 from 1992 as a
direct result of the sales of the Cambridge and Willowbrook properties. Rental
operations in 1994 consisted of a ground lease on the Parker Road property in
Houston, Texas.
Arlington received $1.142 million from the sale of Cambridge on August 27,
1992, recording a gain of approximately $277,000. Arlington sold Willowbrook on
April 10, 1992, for $300,000, recording a loss of approximately $33,000.
In 1992, provision for loss for the Parker Road property reduced the
carrying values of the property to estimated net realizable values. In 1993 and
1994, no additional provision for loss was made.
In 1992, gain from the Southmark settlement results from an agreement in
which Arlington was given an allowed claim in Southmark's bankruptcy that was
assigned to Southmark as a result of the Southmark Preference Action and the
parties' agreement to settle the dividend payable by Arlington to Southmark.
(See Item 1. "Business").
Arlington's increase in interest in 1993 from 1992 was the result of higher
average balances of cash and cash equivalents held in commercial money market
accounts.
Advisory fees paid to Southmark were approximately $7,200 and $24,000 in
1993 and 1992, respectively.
On December 24, 1993, Arlington entered into a ground lease on its Parker
Road property in Houston, Texas with Plano Outlet Mall, Ltd., a limited
partnership. One of the officers of Arlington is also an officer of a subsidiary
of the corporate general partner of Plano Outlet Mall, Ltd. The lease is for a
period of one year and expired December 23, 1994. As a result of the lease
Arlington received a required prepayment of $70,000, representing the total
amount of the annual rental. Although no precise comparison is available,
management believes the one-year rental represents at least the market rate. For
financial reporting purposes, the prepayment has been classified as deferred
lease
6
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revenue and has been amortized ratably over the twelve-month life of the lease.
On December 31, 1993, Arlington advanced the $70,000 to Davister. In 1994,
Davister agreed to pay $70,000 in legal fees and other costs on behalf of
Arlington to liquidate the advance.
LIQUIDITY AND CAPITAL RESOURCES
In 1985, Arlington's shareholders approved the Termination Plan, which
provides for the disposal of Arlington's assets and distribution of the proceeds
therefrom to shareholders. The Termination Plan initially provided for a
twelve-month liquidation period, which should have expired in February 1986. The
Trustees voted in January 1986 to extend such liquidation period until
Arlington's assets could be sold on terms believed reasonable to Arlington. The
Company sold Willowbrook and Cambridge during 1992, leaving only the Parker Road
property. In 1994, Arlington's shareholders revoked and repealed the Termination
Plan.
Management currently plans to sell the Parker Road property at the first
available opportunity. The anticipated carrying costs associated with the Parker
Road property are currently limited to property taxes and insurance. See Item 2
"Properties" for a description of the perceived highest and best use of such
property and the use of surrounding properties.
In accordance with the Termination Plan, liquidating dividends of $374,000
were declared in 1989. On August 16, 1989, Arlington distributed its available
cash of $134,000 to its minority shareholders and $55,000 to Southmark. The
balance of $185,000 due to Southmark was settled June 26, 1992, and Arlington
paid Southmark $92,500 for the dividend. See Item 1. "Business." In 1993, the
Trust made a liquidating distribution of $1,397,158 to its shareholders.
Southmark received $895,969 of the liquidating distribution made during 1993,
the balance of liquidation distribution in the amount of $501,189 was received
by the minority shareholders.
On November 10, 1994, the Trust sold 43,428 newly issued Shares for $43,428
in cash (the par value) to MIZ Investor Associates.
INFLATIONARY FACTORS
In recent years, inflation has neither increased Arlington's revenues from
operating assets nor beneficially affected the current value of its remaining
real estate assets to any significant degree.
7
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Farmer, Fuqua, Hunt & Robert, LLC, Independent Auditors.......................................... 9
Report of Wallace Sanders & Company, Independent Auditors.................................................. 10
Balance Sheets as of December 31, 1994 and 1993............................................................ 11
Statements of Operations for the years ended December 31, 1994, 1993 and 1992.............................. 12
Statements of Shareholders' Equity (Deficit) for the years ended December 31, 1994, 1993 and 1992.......... 13
Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992.............................. 14
Notes of Financial Statements.............................................................................. 15
Schedule XI -- Real Estate Investments and Accumulated Depreciation........................................ 18
</TABLE>
All other schedules are omitted since they are not required, are not
applicable, or the financial information required is included in the financial
statements or the notes thereto.
8
<PAGE>
REPORT OF FARMER, FUQUA, HUNT & ROBERT, LLC, INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Arlington Realty Investors
We have audited the accompanying balance sheets of Arlington Realty
Investors as of December 31, 1994 and 1993, and the related statements of
operations, shareholders' equity (deficit) and cash flows for each of the years
then ended. These financial statements and the schedule referred to below are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
As more fully described in Note 2, Arlington Realty Investors was operating
under a Plan of Complete Liquidation and Termination until June 30, 1994. The
financial statements include adjustments to reflect assets at their net
realizable value as determined by the Company's management. The ultimate value
of the assets will be determined at the time of sale and may differ
significantly from the value as determined by the Company's management.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Arlington Realty Investors
as of December 31, 1994 and 1993 and the results of its operations and its cash
flows for each of the years then ended in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The December 31, 1994 and 1993 schedule
listed in the index to the financial statements is presented for the purpose of
complying with the Securities and Exchange Commission's rules and is not a
required part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, in our opinion, fairly states in all material respects
the financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
[SIGNATURE]
Farmer, Fuqua, Hunt & Robert, LLC
Dallas, Texas
February 10, 1995
9
<PAGE>
REPORT OF WALLACE SANDERS & COMPANY, INDEPENDENT AUDITORS
The Board of Trustees and Shareholders
Arlington Realty Investors
We have audited the 1992 financial statements of Arlington Realty Investors
listed in the accompanying index to financial statements (Item 14[a] [1] and
[2]). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
As more fully described in Note 2, Arlington Realty Investors is operating
under a Plan of Complete Liquidation and Termination. The financial statements
include adjustments to reflect assets at their net realizable value as
determined by the Company's management. The ultimate value of the assets will be
determined at the time of sale and may differ significantly from the value as
determined by the Company's management.
In our opinion, the 1992 financial statements listed in the accompanying
index to financial statements (Item 4[a] [1] and [2]) present fairly, in all
material respects, the results of operations and cash flows of Arlington Realty
Investors for the year then ended in conformity with generally accepted
accounting principles.
[SIGNATURE]
Wallace Sanders & Company
Dallas, Texas
March 18, 1993
10
<PAGE>
ARLINGTON REALTY INVESTORS
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
------------ ------------
<S> <C> <C>
Real estate (Schedule XI)............................................................. $ 168,588 $ 168,588
Less allowance for possible losses.................................................... (168,588) (168,588)
------------ ------------
-- --
------------ ------------
Cash and cash equivilents............................................................. 33,087 46,357
Accounts receivable -- shareholder.................................................... -- 70,000
------------ ------------
$ 33,087 $ 116,357
------------ ------------
------------ ------------
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<S> <C> <C>
Accrued liabilities................................................................... $ 13,671 $ 26,715
Deferred lease revenue................................................................ -- 70,000
Unclaimed dividends................................................................... 20,174 20,174
------------ ------------
33,845 116,889
------------ ------------
Shareholders' Equity (Deficit)
Shares of beneficial interest, $1.00 par value, authorized 10,000,000 shares with
542,413 and 498,985 shares issued and outstanding at December 31, 1994 and 1993,
respectively......................................................................... 196,235 152,807
Accumulated deficit................................................................... (196,993) (153,339)
------------ ------------
(758) (532)
------------ ------------
$ 33,087 $ 116,357
------------ ------------
------------ ------------
</TABLE>
See notes to financial statements.
11
<PAGE>
ARLINGTON REALTY INVESTORS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1994 1993 1992
----------- --------- -----------
<S> <C> <C> <C>
REVENUES
Rental operations, net.................................................... $ 70,000 $ -- $ 95,300
Interest.................................................................. -- 22,143 18,940
Insurance proceeds........................................................ 7,049 31,956 --
Other..................................................................... -- 909 1
----------- --------- -----------
77,049 55,008 114,241
----------- --------- -----------
EXPENSES AND OTHER INCOME
Interest.................................................................. -- 8,305 --
Advisory fees............................................................. -- 7,212 23,966
Depreciation.............................................................. -- -- 15,334
Legal and other........................................................... 120,703 32,046 32,051
Provision for losses...................................................... -- -- 47,051
Gain from Southmark settlement............................................ -- -- (92,496)
----------- --------- -----------
120,703 47,563 25,906
----------- --------- -----------
EARNINGS (LOSS) FROM OPERATIONS............................................. (43,654) 7,445 88,335
GAIN ON SALE OF REAL ESTATE................................................. -- -- 244,411
----------- --------- -----------
NET EARNINGS (LOSS)......................................................... $ (43,654) $ 7,445 $ 332,746
----------- --------- -----------
----------- --------- -----------
EARNINGS (LOSS) PER SHARE................................................... $ (.09) $ .01 $ .67
----------- --------- -----------
----------- --------- -----------
DISTRIBUTIONS PER SHARE..................................................... $ -- $ 2.80 $ --
----------- --------- -----------
----------- --------- -----------
SHARES OF BENEFICIAL INTEREST USED IN COMPUTING EARNINGS (LOSS) PER SHARE... 505,172 498,985 498,985
----------- --------- -----------
----------- --------- -----------
</TABLE>
See notes to financial statements.
12
<PAGE>
ARLINGTON REALTY INVESTORS
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
SHARES OF ADDITIONAL
BENEFICIAL PAID-IN ACCUMULATED
INTEREST CAPITAL DEFICIT TOTAL
------------ -------------- ------------ --------------
<S> <C> <C> <C> <C>
Balance at December 31, 1991.......................... $ 498,985 $ 1,050,980 $ (493,530) $ 1,056,435
Net earnings for the year........................... -- -- 332,746 332,746
------------ -------------- ------------ --------------
Balance at December 31, 1992.......................... 498,985 1,050,980 (160,784) 1,389,181
Distribution to Shareholders........................ (346,178) (1,050,980) -- (1,397,158)
Net earnings for the year........................... -- -- 7,445 7,445
------------ -------------- ------------ --------------
Balance at December 31, 1993.......................... 152,807 -- (153,339) (532)
Issuance of shares.................................. 43,428 -- -- 43,428
Net loss for the year............................... -- -- (43,654) (43,654)
------------ -------------- ------------ --------------
Balance at December 31, 1994.......................... $ 196,235 $ -- $ (196,993) $ (758)
------------ -------------- ------------ --------------
------------ -------------- ------------ --------------
</TABLE>
See notes to financial statements.
13
<PAGE>
ARLINGTON REALTY INVESTORS
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------
1994 1993 1992
---------- -------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss)................................................. $ (43,654) $ 7,445 $ 332,746
Adjustments to reconcile net earnings (loss) to net cash provided by
(used in) operating activities
Depreciation...................................................... -- -- 15,334
Gain on sales of real estate...................................... -- -- (244,411)
Provision for losses.............................................. -- -- (107,950)
Reduction in payable to Southmark................................. -- -- (184,991)
Net change in other assets and accrued liabilities................ (13,044) 144,490 (83,362)
---------- -------------- -------------
Net cash provided by (used in) operating activities............. (56,698) 151,935 (272,634)
---------- -------------- -------------
Cash flows from investing activities
Sales of real estate................................................ -- -- 1,442,500
Shareholder advance................................................. -- (70,000) --
---------- -------------- -------------
Net cash provided by (used in) investing activities............. -- (70,000) 1,442,500
---------- -------------- -------------
Cash flows from financing activities
Distribution to shareholders........................................ -- (1,410,118) --
Sale of shares...................................................... 43,428 -- --
---------- -------------- -------------
Net cash provided by (used in) financing activities............. 43,428 (1,410,118) --
---------- -------------- -------------
Increase (decrease) in cash........................................... (13,270) (1,328,183) 1,169,866
Cash
At beginning of year................................................ 46,357 1,374,540 204,674
---------- -------------- -------------
At end of year...................................................... $ 33,087 46,357 $ 1,374,540
---------- -------------- -------------
---------- -------------- -------------
Supplemental cash flow information
Cash paid for interest.............................................. $ -- $ 8,305 $ --
---------- -------------- -------------
---------- -------------- -------------
</TABLE>
See notes to financial statements.
14
<PAGE>
ARLINGTON REALTY INVESTORS
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REAL ESTATE
Real estate is carried at the lower of cost or estimated net realizable
value. Depreciation was provided using the straight-line method over the
estimated 30 year useful life of the property. Arlington discontinued recording
depreciation expense as of June 30, 1991 on Willowbrook Security Storage as a
result of the Company's policy to adjust values assigned to its investments in
Willowbrook Security Storage and Parker Road properties to their net realizable
values.
ALLOWANCE FOR POSSIBLE LOSSES
Arlington provides for possible losses on real estate and notes receivable
when such amounts are considered necessary after making periodic reviews of the
estimated net realizable values of real estate, the financial condition of the
borrower and the payment terms for notes receivable.
EARNINGS (LOSS) PER SHARE
Earnings (loss) per share is computed based upon the weighted average number
of shares of beneficial interest outstanding during the year.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents includes cash held in commercial money market
accounts.
RECLASSIFICATIONS
Certain accounts in the December 31, 1992 financial statements have been
reclassified for comparative purposes to conform with the presentation in the
current-year financial statements.
Willowbrook's operations for 1992 reflect activity through April 10, 1992,
the date of sale. Cambridge Station's operations for 1992 reflect activity
through August 27, 1992, the date of sale.
LEGAL AND OTHER EXPENSES
Legal and other expenses incurred for 1994, 1993 and 1992 include legal
expenses of approximately $100,000, $17,000 and $26,000, respectively.
INCOME TAXES
Arlington is qualified as a real estate investment trust ("REIT") under
Sections 856 through 858 of the Internal Revenue Code. To retain its REIT
qualification, Arlington must restrict its investments principally to rental
properties or notes secured by real estate, and must not realize more than 30%
of its gross income from gain on the sale of real estate assets held for less
than four years. In addition, Arlington must pay out at least 95% of its taxable
income, excluding capital gains, as dividends, provided that Arlington pays tax
at corporate rates on capital gains not distributed. No distributions were
required in 1994 or 1992 due to net operating loss carry forwards. Arlington
made a liquidating distribution during 1993 in order to maintain its REIT
qualification. This distribution represented a return of capital.
NOTE 2. PLAN OF LIQUIDATION AND TERMINATION
Arlington operated under a Plan of Complete Liquidation and Termination (the
"Plan" or the "Arlington Plan") approved by the shareholders in 1985 until June
30, 1994. In January 1986, the time deadline for liquidation under the Plan was
extended by the Trustees until Arlington's largest remaining asset (a 50%
interest in Cambridge) was sold. Arlington sold properties during 1992, and
anticipated distributing the proceeds from the sales and operations pro rata to
the shareholders as a liquidating distribution in 1993.
15
<PAGE>
ARLINGTON REALTY INVESTORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 2. PLAN OF LIQUIDATION AND TERMINATION (CONTINUED)
Southmark Corporation ("Southmark"), a real estate-based financial services
company, headquartered in Dallas, Texas, owned approximately 64.1% of
Arlington's outstanding Shares. On July 14, 1989, Southmark filed a voluntary
petition seeking reorganization under Chapter 11 of the United States Bankruptcy
Code, as amended in the United States Bankruptcy Court for the Northern District
of Georgia, Atlanta Division, and subsequently transferred to the Northern
District of Texas, Dallas Division (the "Bankruptcy Court"). Southmark's Fourth
Amended and Restated Plan of Reorganization became effective on August 10, 1990.
In accordance with its Reorganization Plan and in an effort to liquidate its
interest in Arlington, Southmark entered into discussions with parties
interested in acquiring Southmark's 64.1% ownership of Arlington. On November
10, 1993 Southmark's interest was acquired by Davister Corp. Davister Corp. sold
its interest to four investor groups on November 10, 1994 (See Note 6).
NOTE 3. FEDERAL INCOME TAXES
No Federal income taxes have been provided for financial statement purposes
because Arlington was not subject to Federal income taxes. Additionally,
Arlington has net operating loss carryforwards. At December 31, 1994, net
operating loss carryforwards of approximately $786,000 were available for tax
purposes which, if not utilized, will expire between 1998 and 2009.
NOTE 4. RELATED PARTY TRANSACTIONS
On July 14, 1989 Southmark filed for bankruptcy protection. On July 12, 1991
Southmark filed a Complaint for Avoidance and Recovery of Preferential and
Postpetition Transfers and Turnover (the "Southmark Preference Action") with the
Bankruptcy Court seeking to have certain transfers from Southmark to Arlington
declared voidable by Southmark. The Southmark Preference Action identified the
following: (1) a pledge by Southmark of a promissory note and lien in connection
with the Southmark Note on May 11, 1989; (2) three payments by Southmark to
Arlington of $50,000 each on February 8, 1989, February 10, 1989 and May 9,
1989; and (3) a set-off by Arlington against a distribution to Southmark
pursuant to the Liquidation Plan.
Of Arlington's $374,000, 1989 liquidating dividend, Southmark was entitled
to receive $240,000. Arlington paid Southmark $55,000 in August 1989. The
remainder of $185,000 remained due and payable to Southmark. Arlington was not
permitted to offset the balance of the dividend payable to Southmark against the
note receivable from Southmark due to Southmark's Chapter 11 bankruptcy filing
and its subsequent operation under the rules and procedures of the United States
Bankruptcy Code.
On June 26, 1992, Southmark and Arlington agreed to settle the dividend
payable to Southmark and the note receivable from Southmark. Under the terms of
the settlement, Arlington paid to Southmark $92,500 of the dividend payable and
Arlington was given an allowed claim in Southmark's bankruptcy for $219,000. As
a result of the Southmark Preference Action, Arlington agreed to pay Southmark
the sum of $28,000. Arlington satisfied this liability by assigning its allowed
claim in the Southmark bankruptcy proceeding to Southmark. Arlington recorded a
gain of approximately $92,000 for the reduction of the payable.
Arlington does not believe that the bankruptcy filing of Southmark has had
any significant impact on its operations.
Southmark provided headquarters and legal, administrative and accounting
services to Arlington under the supervision of Arlington's officers (who also
were officers of Southmark). Southmark received an annual advisory fee equal to
2% of Arlington's total assets (reduced for advances to
16
<PAGE>
ARLINGTON REALTY INVESTORS
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1994
NOTE 4. RELATED PARTY TRANSACTIONS (CONTINUED)
Southmark) and had received a mortgage servicing fee of 1/4% of total
outstanding mortgages receivable. Southmark was paid an aggregate of
approximately $7,200 and $24,000, for rendering such services in 1993 and 1992,
respectively. During 1993, Southmark reduced the annual advisory fee charged to
Arlington to an amount equal to 1% of Arlington's total assets.
Southmark received $895,969 of the liquidating distribution made during
1993.
On November 10, 1993 Davister Corp. replaced Southmark as the majority
shareholder and its officers became officers of Arlington. On December 31, 1993
Arlington advanced $70,000 to Davister. In 1994, Davister agreed to pay $70,000
of legal fees and other costs on behalf of Arlington to liquidate the advance.
Since November 10, 1993, Davister has provided office space and legal,
administrative and accounting services to the Trust under the supervision of the
Trust's officers (who are also officers of Davister or one of its affiliates).
Davister was not compensated by the Trust for any services rendered during the
years ended December 31, 1994 and 1993.
On December 24, 1993, Arlington Realty Investors entered into a ground lease
on its Parker Road property in Houston, Texas with Plano Outlet Mall, Ltd., a
related party. The lease expired December 23, 1994 and required prepayment of
the total annual rental of $70,000. For financial reporting purposes, the
prepayment was classified as deferred lease revenue and was amortized ratably
over the life of the lease.
NOTE 5. RENTAL OPERATIONS
Rental operations for the year ended December 31, 1992 attributed to
Arlington's Willowbrook Security Storage and 50% ownership interest in Cambridge
Station were as follows:
<TABLE>
<CAPTION>
1992 CAMBRIDGE WILLOWBROOK TOTAL
- ------------------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Rental revenue........................................ $ 291,780 $ 35,732 $ 327,512
Expenses
Property taxes...................................... 41,418 6,850 48,268
Management fees..................................... 14,911 2,121 17,032
Repairs and maintenance............................. 30,253 856 31,109
Other property operating expenses................... 121,322 14,481 135,803
----------- ----------- -----------
Rental operations, net............................ $ 83,876 $ 11,424 $ 95,300
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE 6. ISSUANCE OF STOCK
On November 10, 1994, Arlington issued 43,428 shares of beneficial interest
for $43,428. The shares were purchased by one of the investor groups that
acquired Davister's interest in Arlington (See Note 2).
17
<PAGE>
SCHEDULE XI
ARLINGTON REALTY INVESTORS
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1994
<TABLE>
<CAPTION>
COST GROSS AMOUNT
CAPITALIZED AT WHICH
INITIAL SUBSEQUENT CARRIED AT
COST TO TO DECEMBER 31, VALUATION ACCUMULATED DATE DEPRECIABLE
DESCRIPTION ARLINGTON ACQUISITION 1994 ALLOWANCE DEPRECIATION ACQUIRED LIFE (YEARS)
- -------------------------------- ----------- ----------- ------------- ------------ ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Undeveloped land
Houston, TX.................... $ 162,729 $ 5,859 $ 168,588 $ (168,588) -- Various --
----------- ----------- ------------- ------------ -----
----------- ----------- ------------- ------------ -----
</TABLE>
A summary of activity in real estate and accumulated depreciation for the
three years in the period ended December 31, 1994, is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- --------------
<S> <C> <C> <C>
REAL ESTATE
Balance at beginning of year.......................................... $ 168,588 $ 168,588 $ 1,858,008
Sales................................................................. -- -- (1,689,420)
Foreclosure additions................................................. -- -- --
Improvements.......................................................... -- -- --
----------- ----------- --------------
Balance at end of year.............................................. $ 168,588 $ 168,588 $ 168,588
----------- ----------- --------------
----------- ----------- --------------
ACCUMULATED DEPRECIATION
Balance at beginning of year.......................................... $ -- $ -- $ 475,997
Sales................................................................. -- -- (491,331)
Depreciation.......................................................... -- -- 15,334
----------- ----------- --------------
Balance at end of year.............................................. $ -- $ -- $ --
----------- ----------- --------------
----------- ----------- --------------
</TABLE>
18
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Wallace Sanders & Company served as the independent accountant previously
engaged as the principal accountant to audit the financial statements of the
Trust for the year ended December 31, 1992. On February 18, 1994, the Trust's
Board of Trustees selected Farmer, Fuqua, Hunt & Robert, LLC, to serve the Trust
as independent accountant to audit the Trust's financial statements for the
calendar year ended December 31, 1993. The failure of the Board of Trustees to
select Wallace Sanders & Company as the Trust's independent accountant to audit
the financial statements for the year ended December 31, 1993 constituted
Wallace Sanders & Company being "Dismissed" (as such term is used in Item 304 of
Regulation S-K).
Wallace Sanders & Company's report on the Trust's financial statements for
the year ended December 31, 1992 did not contain any adverse opinion or
disclaimer of opinion and was not qualified or modified as to uncertainty, audit
scope or accounting principles. During the year Wallace Sanders & Company served
as independent accountants to audit the financial statements of the Trust for
the year ended December 31, 1992, commencing January 19, 1993 (the date of their
original selection) and thereafter through the date hereof, the Trust had not
any disagreement with Wallace Sanders & Company on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure which disagreement, if not resolved to the satisfaction of Wallace
Sanders & Company, would have caused Wallace Sanders & Company to make reference
to the subject matter of the disagreement in connection with its report. The
decision to change accountants made on February 18, 1994 was not recommended by
any audit or similar committee (since the Board of Trustees has no such
committee) and was made only by the Board of Trustees.
On January 11, 1995, the Trust's Board of Trustees again selected Farmer,
Fuqua, Hunt & Robert, LLC to serve the Trust as independent accountants to audit
the Trust's financial statements for the calendar year ended December 31, 1994.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The business affairs of the Trust are managed by, or under the direction of,
the Board of Trustees. The Trustees are responsible for the general investment
policies of the Trust and for such general supervision of the business of the
Trust conducted by officers, agents, employees, investment advisors or
independent contractors of the Trust as may be necessary to insure that such
business conforms to the provisions of the Declaration of Trust. Pursuant to
Article II, Section 2.1 of the Declaration of Trust, as amended, of the Trust,
there shall not be less than two (2), nor more than fifteen (15), Trustees of
the Trust. The number of Trustees shall be determined from time to time by
resolution of the Trustees and the last fixing of the number of Trustees was at
two (2). The term of office of each Trustee is one year and until the election
and qualification of his successor. Trustees may succeed themselves in office
and are required to be individuals at least 21 years old not under legal
disability and at least a majority must be natural persons and residents of the
State of Texas.
The current Trustees of the Trust (who are also the executive officers) are
listed below, together with their ages, all positions and offices with the
Trust, their principal occupations, business experience and directorships with
other companies during the last five years or more.
P. Scott Miller, 33, has been President to the Trust since November 10, 1993
and a trustee of the Trust since December 28, 1993. Mr. Miller has been the
President of Syntek West, Inc. (real estate investment) since November 1990.
Since July 28, 1994, he has been Vice President, Secretary and Treasurer of
Davister (real estate). Since October 1992, he has also been a director and the
Chief Executive Officer of Carmel Realty, Inc. (property management and real
estate brokerage) and a director and President of Carmel Realty Services, Inc.
(property management). Prior to November 1990, and for more than five years, Mr.
Miller was Vice President of Fraser Mortgage Company in Cleveland, Ohio.
19
<PAGE>
F. Terry Shumate, 55, has been Vice President, Secretary and Treasurer of
the Trust since November 10, 1993 and a trustee of the Trust since December 28,
1993. For more than five years prior thereto and until July 28, 1994, Mr.
Shumate was Vice President, Secretary and Treasurer of Davister (real estate) in
Dallas, Texas. For more than the past five years, he has been Vice President and
Secretary of Syntek West, Inc. (real estate investment) in Dallas, Texas. He has
been Secretary and Treasurer of Carmel Realty, Inc. (property management and
real estate brokerage) since June 1992; a director and Vice President, Secretary
and Treasurer of Carmel Realty Services, Inc. (property management) since July
1990; Vice President of Syntek Asset Management, Inc. (the General Partner of
the General Partner of National Realty, L.P., an American Stock Exchange listed
real estate limited partnership) since February 1989; and Vice President of
Basic Capital Management, Inc. (an advisor to real estate investment trusts and
other entities) since May 1990.
MEETINGS AND COMMITTEES OF TRUSTEES
The business affairs of the Trust are managed by, or under the direction of,
the Board of Trustees. During the fiscal year ended December 31, 1994, the Board
of Trustees held no formal meetings and five matters were handled by unanimous
written consent. The Board of Trustees has no standing audit, nominating or
compensation committee.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, the Trust's trustees,
executive officers, and any persons holding more than ten percent of the Trust's
Shares are required to report their ownership of the Shares and any changes in
that ownership to the Securities and Exchange Commission (the "Commission").
Specific due dates for these reports have been established under applicable law
and the Trust is required to report any failure to file by these dates during
1994. To the best knowledge of the current officers of the Trust, based upon the
representations of its former trustees and executive officers and its ten
percent holders and copies of the reports that they have filed with the
Commission, all of these filing requirements were satisfied by its trustees and
executive officers and ten percent holders.
20
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
PERFORMANCE GRAPH
Commission rules require that a line graph performance presentation be
provided comparing cumulative total Shareholder return with a performance
indicator of a broad market index and either a nationally recognized industry
index or a registrant constructed peer group index over a minimum period of five
years. The following graph demonstrates a five-year comparison of cumulative
total returns for the Trust, the S&P 500 Stock Index and NAREIT All REIT Total
Return Index.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
AMONG ARLINGTON REALTY INVESTORS, S&P 500 STOCK INDEX
AND NAREIT ALL REIT TOTAL RETURN INDEX
FISCAL YEAR ENDING DECEMBER 31
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ARLINGTON REALTY
INVESTORS S&P 500 STOCK INDEX NAREIT ALL REIT TOTAL RETURN INDEX
<S> <C> <C> <C>
1989 100 100 100
1990 0 97 83
1991 0 126 112
1992 0 138 126
1993 0 150 149
1994 0 152 150
</TABLE>
- ------------------------
*No information is available from any reliable source as to the market price of
the Shares since no established market exists. A number of Shares have traded
in privately negotiated transactions. See "Principal Shareholders -- Change in
Control."
The data set forth above in the graph and related table was obtained from
the National Association of Real Estate Investment Trusts, Inc. ("NAREIT"). All
of the data is based upon the last closing price of the month for all
tax-qualified REITs listed on the New York Stock Exchange, American Stock
Exchange and the NASDAQ National Market System. The data is market weighted. The
total return calculation is based upon the weighting at the beginning of the
period. The total return index includes dividends reinvested on a monthly basis.
At year end 1994, there were 223 tax-qualified REIT's in the NAREIT All REIT
Total Return Index with a total market capitalization of $44.3 billion.
21
<PAGE>
COMPENSATION
Neither the trustees nor the officers of the Trust received salaries or
other cash compensation from the Trust for acting in such capacities during the
year ended December 31, 1994. The Trust has no retirement, annuity or pension
plans covering its trustees or officers. The Purchase Agreement contemplates
that the Trust's trustees and officers will be compensated initially as follows:
Chairman of the Board of Trustees, President and Chief Executive Officer,
$150,000 per year; Senior Vice President -- Development/Acquisition, $135,000
per year; Secretary and Chief Financial Officer, $125,000 per year; independent
trustees, annual trustee's fee of $10,000, plus $1,000 for each regular and
special meeting of such entity's Board of Trustees attended, $250 for each
special telephonic meeting of the Board of Trustees participated in and $500 for
each committee meeting attended. The Trust's offices and the specific titles of
such offices currently differ, and in the future will likely differ, from those
contemplated by the Purchase Agreement. Based upon the Trust's current
operations, the Board of Trustees does not believe this compensation will be
paid or given in the near future.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
According to the Share transfer records of the Trust and other information
available to the Trust, the following persons were known to be the beneficial
owners, as of February 27, 1995, of more than five percent (5%) of the
outstanding Shares of the Trust:
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND ADDRESS BENEFICIAL PERCENT OF
OF BENEFICIAL OWNER OWNERSHIP SHARES OUTSTANDING (1)
- ------------------------------------------------- ------------------- ------------------------
<S> <C> <C>
Fletcher Napolitano Styles and 59,665(2) 11.0(2)
Verruto Family Property Partners, L.P. (4) Shares
227 W. Trade Street
Suite 2320
Charlotte, NC 28202
Attn: Michael S. Verruto
MIZ Investors Associates (5) 59,665(2) 11.0(2)
6971 N. Federal Highway Shares
Suite 203
Boca Raton, FL 33487
Attn: Simon and Joseph Mizrachi
DAGI Limited Partnership (6) 59,665(2) 11.0(2)
227 W. Trade Street Shares
Suite 2320
Charlotte, NC 28202
Attn: David S. Givner
Antapolis N.V. 184,422(2) 34.0(2)
c/o MeesPierson Trust Shares
(Curacao) N.V.
Number 6 Curacao
Netherlands Antilles
Attn: John B. Goisiraweg
</TABLE>
- ------------------------
(1) Based on 542,413 Shares outstanding on February 27, 1995.
(2) Does not include shares owned by others in group that filed a Schedule 13D
dated November 10, 1994. The group consists solely of the four entities
listed above, which collectively own 363,417 Shares or 67.0% of the issued
and outstanding Shares.
(4) Through his control of Fletcher Napolitano Styles and Verruto Family
Property Partners, L.P., Michael S. Verruto is deemed the beneficial owner
of 59,665 shares.
22
<PAGE>
(5) Through their control of MIZ Investors Associates, Simon and Joseph Mizrachi
share beneficial ownership of 59,665 shares.
(6) Through his control of DAGI Limited Partnership, David S. Givner is deemed
the beneficial owner of 59,665 shares.
SECURITY OWNERSHIP OF MANAGEMENT
According to the Share transfer records of the Trust and other information
available to the Trust, as of February 27, 1995, the current trustees and
executive officers of the trust beneficially owned the following Shares:
<TABLE>
<CAPTION>
AMOUNT OF
NAME AND OFFICES OF BENEFICIAL PERCENT
BENEFICIAL OWNER OWNERSHIP OF CLASS
- ---------------------------------------- ------------------- ---------
<S> <C> <C>
P. Scott Miller, None None
Trustee and President
F. Terry Shumate, None None
Trustee, Vice President Secretary and
Treasurer
All trustees and executive officers as a None None
group
</TABLE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since November 10, 1993, Davister has provided office space and legal,
administrative and accounting services to the Trust under the supervision of the
Trust's officers (who are also officers of Davister or one of its affiliates).
Except as otherwise disclosed herein, Davister has not been compensated by the
Trust for any services rendered to the Trust.
On December 24, 1993, the Trust entered into a ground lease on its Parker
Road property in Houston, Texas with Plano Outlet Mall, Ltd., a related party.
The lease expired December 23, 1994 and required prepayment of the total annual
rental of $70,000. For financial reporting purposes, the prepayment was
classified as deferred lease revenue and has been amortized ratably over the
life of the lease. On December 31, 1993, the Trust advanced $70,000 to Davister.
Davister agreed to pay $70,000 in costs and expenses (including legal fees) on
behalf of the Trust to repay such advance. As of December 31, 1994, the advance
has been fully paid. One of the Trust's officers is also an officer of a
subsidiary of the general partner of Plano Outlet Mall, Ltd.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
<TABLE>
<C> <S>
1. Financial Statements:
Balance Sheets as of December 31, 1994 and 1993.
Statements of Operations for the years ended December 31, 1994, 1993 and 1992.
Statements of Shareholders' Equity for the years ended December 31, 1994, 1993
and 1992.
Statements of Cash Flows for the years ended December 31, 1994, 1993 and 1992.
Notes to Financial Statements.
2. Schedules:
Schedule XI -- Real Estate Investments and Accumulated Depreciation.
All other schedules are omitted since they are not required, are not applicable, or
the information required is included in the financial statements or the notes
thereto.
</TABLE>
23
<PAGE>
<TABLE>
<C> <S>
3. Exhibits:
The following documents are filed as exhibits to this report:
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------
<C> <S>
3.1 Declaration of Trust and amendments through February 5, 1985. (Incorporated by reference to
Exhibit 3.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1990.)
3.2 By-laws, as amended through March 6, 1984. (Incorporated by reference to Exhibit 3.1 to
Registrant's Annual Report on Form 10-K for the year ended December 31, 1990.)
4.1 Agreement with respect to long-term debt, pursuant to Item 601(b)(4). (Incorporated by
reference to Exhibit 4.1 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1985.)
10.1 Ground Lease Agreement dated December 24, 1993 between Arlington Realty Investors and Plano
Outlet Mall, Ltd. (Incorporated by reference to Exhibit 10.1 to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993.)
99.1 Trust Share Purchase Agreement dated November 10, 1994 between Arlington Realty Investors and
MIZ Investors Associates. (Incorporated by reference to Exhibit 28.1 to Registrant's Current
Report on Form 8-K for November 10, 1994.)
</TABLE>
(b) Reports on Form 8-K. During the last quarter of the period covered by this
report, reports on Form 8-K were filed as follows:
<TABLE>
<CAPTION>
DATE OF EVENT ITEMS REPORTED
- ----------------- --------------
<S> <C>
November 10, 1994 1 and 5
</TABLE>
24
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ARLINGTON REALTY INVESTORS
Date: October 18, 1995 By: /s/ P. SCOTT MILLER
-------------------------------------
P. Scott Miller
TRUSTEE AND PRESIDENT
(PRINCIPAL EXECUTIVE OFFICER)
By: /s/ F. TERRY SHUMATE
-------------------------------------
F. Terry Shumate
TRUSTEE, VICE PRESIDENT, SECRETARY
AND TREASURER (PRINCIPAL FINANCIAL
AND ACCOUNTING OFFICER)
25
<PAGE>
[This Page Intentionally Left Blank]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
STATEMENT OF FINANCIAL CONDITION AT DECEMBER 31, 1994 AND THE STATEMENT OF
INCOME FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 33,087
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 33,087
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 33,087
<CURRENT-LIABILITIES> 33,845
<BONDS> 0
<COMMON> 196,235
0
0
<OTHER-SE> (196,993)
<TOTAL-LIABILITY-AND-EQUITY> 33,087
<SALES> 77,049
<TOTAL-REVENUES> 77,049
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 120,703
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (43,654)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (43,654)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> (.09)
</TABLE>
