FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1997
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[ ] 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
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Commission file number 0-6103
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Watermark Investors Realty Trust
(Exact name of registrant as specified in the charter)
Texas 75-1372785
- ---------------------------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
227 West Trade Street, Suite 2320, Charlotte, North Carolina 28202
- ------------------------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704/343-9334
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which 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 (ss.229.405 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 178,996 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.
1
<PAGE>
As of March 25, 1998, there were 542,413 shares of Beneficial Interest
of the Registrant.
DOCUMENTS INCORPORATED BY REFERENCE
None
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995: This Annual Report, on Form 10-K, may contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 which are not historical facts, and
involve risks and uncertainties that could cause actual results to differ
materially from those expected and projected. Such risks and uncertainties
include the following: general economic conditions and conditions specific to
the real estate industry including its cyclical nature, and competitive factors,
changes in generally accepted accounting principles, changes in federal tax laws
regarding Real Estate Investment Trusts, and the risk factors listed from time
to time in the Company's Securities and Exchange Commission filings.
Accordingly, there can be no assurance that the actual results will conform to
the forward-looking statements in the Annual Report.
PART I
Item 1. Business.
Watermark Investors Realty Trust (herein referred to as the "Trust" or
"Watermark" 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. On December 5, 1995, the Trust's name was changed to
Watermark Investors Realty Trust 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.
Although not currently active, the Trust's primary business and only industry
segment has been investing in equity interests in real estate and related real
estate activities.
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.
Item 2. Properties.
At December 31, 1997, the Trust's only significant asset was its
ownership interest in its subsidiary, Watermark Texas 1, Inc., which owns a
parcel of unimproved land consisting of approximately 4.5 acres located on
Parker Road in Houston, Harris County, Texas. 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 associated with the Parker Road
property are currently limited to property taxes, insurance, and maintenance.
Item 3. Legal Proceedings.
At December 31, 1997, 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.
None.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.
The Trust's shares of Beneficial Interest (the "Shares") are traded on
a sporadic basis. The Trust believes there has been no established independent
trading market for the Shares since the Shares were delisted from NASDAQ in
1988. A limited number of Shares are believed to have been traded in privately
negotiated transactions.
No regular dividends on Shares were paid in 1996 or 1997. As of March
25, 1998, 542,413 Shares were held by approximately 300 holders of record.
(dollars in thousands, except per share)
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,
--------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data
Rental Operations, net $ - $ - $ - $ 70 $ -
Real estate sales, net - - - - -
Interest Income - - - - 22
Gain on Sale of Land - - 4 - -
Net earnings <loss> <31> <31> <99> <44> 7
Earnings <loss> per share $ <.06> $ <.06> $ <.18> $ <.09> $ .01
Distributions per share $ - $ - $ - $ - $ 2.80
Weighted average shares 542,413 542,413 542,413 505,172 498,985
outstanding
Balance Sheet Data
- ------------------
Total assets 1 12 1 33 116
(deficit) <118> $ <87> $ <56> $ <1> $ <1>
</TABLE>
Item 7.ld Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Results of Operations
Watermark's primary revenue sources for the three years ended December
31, 1997, were interest income and sales of real estate. Watermark's properties
consisted of the Parker Road property. In February of 1995, Watermark sold a
4,429 square foot strip of land to the City of Houston, Texas, for $3,765.
Watermark did not have any rental operations in 1995, 1996 or 1997.
Liquidity and Capital Resources
Management currently plans for the subsidiary 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, insurance and maintenance. There are no other known material demands,
commitments, events or uncertainties that will result in
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or that are reasonably likely to result in Watermark's liquidity increasing or
decreasing in any material way. However, in order to meet corporate expenses and
the carrying costs of the Parker Road property, Watermark will have to (i) raise
additional funds (either by selling or leasing the Parker Road property) or (ii)
generate additional funds (either by selling or leasing the Parker Road
property). There are no material commitments for capital expenditures.
Inflationary Factors
In recent years, inflation has neither increased Watermark's revenues
from operating assets nor beneficially affected the current value of its
remaining real estate assets to any significant degree.
4
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Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Page
Report of Farmer, Fuqua, Hunt & Munselle, P.C.
Independent Auditors.................................................6
Consolidated Balance Sheets as of December 31, 1997 and 1996..................7
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995..............................................8
Consolidated Statements of Shareholders' Equity (Deficit)
for the years ended December 31, 1997, 1996 and 1995..........................9
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.............................................10
Notes to Consolidated Financial Statements...................................11
Schedule III - Real Estate Investments and Accumulated Depreciation..........14
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.
5
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INDEPENDENT AUDITORS' REPORT
To Board of Trustees and Shareholders
Watermark Investors Realty Trust
We have audited the accompanying consolidated balance sheets of Watermark
Investors Realty Trust and subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity (deficit)
and cash flows for the years ended December 31, 1997, 1996 and 1995. These
consolidated financial statements are the responsibility of the Trust's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated 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.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Watermark Investors Realty Trust and subsidiary as of December 31, 1997 and 1996
and the results of their operations and their cash flows for each of the years
ended December 31, 1997, 1996 and 1995, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Trust will continue as a going concern. As discussed in Note 10 to the
consolidated financial statements, the Trust has no operating assets or
revenues, and is dependent upon the financial support of its shareholders. These
matters raise substantial doubt about the Trust's ability to continue as a going
concern. Management's plans in regard to these matters are also discussed in
Note 10. These consolidated financial statements do not include any adjustments
that might result from this uncertainty.
As more fully described in Note 2, Watermark Investors Realty Trust was
operating under a Plan of Complete Liquidation and Termination until June 30,
1994. The consolidated financial statements include adjustments to reflect
assets at their net realizable value as determined by the Trust'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 Trust's management.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule III is presented
for the purpose of complying with the Securities and Exchange Commission's rules
and is not a required part of the basic consolidated financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of
the basic consolidated 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 consolidated financial statements taken as a whole.
FARMER, FUQUA, HUNT & MUNSELLE, P.C.
Dallas, Texas
April 4, 1998
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WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Real estate $ 168,588 $ 168,588
Less allowance for possible losses (168,588) (168,588)
---------- ----------
-- --
-- --
Cash 74 12,152
---------- ----------
$ 74 $ 12,152
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Liabilities
Note payable - related party $ 70,350 $ 60,000
Accounts payable and accrued liabilities 17,478 16,860
Accrued interest payable - related party 10,306 2,584
Unclaimed dividends 20,174 20,174
-------- ---------
118,308 99,618
Shareholders' Equity (Deficit)
Preferredshares of beneficial interest; $.01 par value; authorized,
10,000,000 shares; -0- shares issued and outstanding at
December 31, 1997 and 1996 --- ---
Common shares of beneficial interest; $1.00 par value; authorized,
10,000,000 shares; 542,413 shares issued and outstanding at
December 31, 1997 and 1996 196,235 196,235
Additional paid-in capital 44,205 44,205
Accumulated deficit (358,674) (327,906)
--------- ---------
(118,234) (87,466)
--------- ---------
$ 74 $ 12,152
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
7
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WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues
Gain on sale of land $ --- $ --- $ 3,765
-------- -------- ---------
--- --- 3,765
-------- -------- ---------
Expenses
Interest - related party 7,722 2,584 ---
Property expenses 6,805 7,967 4,722
Legal and professional 16,241 20,948 98,457
-------- -------- --------
30,768 31,499 103,179
-------- -------- --------
NET LOSS $(30,768) $(31,499) $(99,414)
======== ======== ========
Loss per share (.06) $ (.06) $ (.18)
======== ======== ========
Distributions per share $ --- $ --- $ ---
======== ======== ========
Weighted average shares of beneficial interest used in
computing loss per share 542,413 542,413 542,413
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Shares of Additional
Beneficial Paid-in Accumulated
Interest Capital Deficit Total
<S> <C> <C> <C> <C>
Balance at January 1, 1995 $196,235 $ --- $(196,993) $ (758)
Contribution by Shareholders --- 44,205 --- 44,205
Net loss for the year --- --- (99,414) (99,414)
-------- ------- --------- --------
Balance at December 31, 1995 196,235 44,205 (296,407) (55,967)
Net loss for the year --- --- (31,499) (31,499)
-------- ------- --------- --------
Balance at December 31, 1996 196,235 44,205 (327,906) (87,466)
-------- ------- --------- --------
Net loss for the year --- --- (30,768) (30,768)
-------- ------- --------- --------
Balance at December 31, 1997 $196,235 $ 44,205 $(358,674) $(118,234)
======== ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
9
<PAGE>
WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $(30,768) $ (31,499) $ (99,414)
Adjustments to reconcile net loss to net cash used for
operating activities
Gain on sale of real estate --- --- (3,765)
Increase (decrease) in accounts payable and accrued
liabilities 8,340 (17,229) 23,002
Expenses paid directly by shareholder --- --- 44,205
-------- --------- ---------
Net cash used for operating activities (22,428) (48,728) (35,972)
Cash flows from investing activities
Proceeds from sale of real estate --- --- 3,765
-------- --------- ---------
Net cash provided by investing activities --- --- 3,765
Cash flows from financing activities
Proceeds from loans 10,350 60,000 ---
-------- --------- ---------
Net cash provided by financing activities 10,350 60,000 ---
-------- --------- ---------
Increase (decrease) in cash (12,078) 11,272 (32,207)
Cash at beginning of year 12,152 880 33,087
-------- --------- ---------
Cash at end of year $ 74 $ 12,152 $ 880
-------- ========= =========
Supplemental cash flow information $ --- $ --- $ ---
-------- --------- ---------
Cash paid for interest
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE>
WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996 and 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
Watermark Investors Realty Trust (Watermark) 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. On December 5, 1995, the Trust's name was changed to
Watermark Investors Realty Trust pursuant to an Amendment to the Declaration of
Trust. The Trust has elected to be treated as a Real Estate Investment Trust
("REIT") under Sections 856 through 860 of the Internal Revenue Code. 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. Although not
currently active, 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.
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.
Principles of Consolidation
The consolidated financial statements include the accounts of Watermark, and its
wholly-owned subsidiary, Watermark Texas 1, Inc. All significant intercompany
transactions and accounts have been eliminated.
Real Estate
Watermark carries real estate at the lower of cost or estimated net realizable
value.
Allowance for Possible Losses
Watermark provides for possible losses on real estate when such amounts are
considered necessary after making periodic reviews of the estimated net
realizable values of the real estate.
Earnings (Loss) Per Share
Earnings (loss) per share (EPS) are calculated in accordance with Statement of
Financial Accounting Standards No. 128, Earnings per Share (SFAS 128) which was
adopted in 1997 for all years presented. Basic EPS is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding during the period. Diluted EPS does not apply to Watermark
due to the absence of dilutive potential common shares. The adoption of SFAS 128
had no effect on previously reported EPS.
Consolidated Statements of Cash Flows
Watermark does not consider any of its assets to meet the definition of a cash
equivalent.
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WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued
Accounting Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Legal and Other Expenses
Legal and other expenses incurred for 1997, 1996 and 1995 include legal expenses
of approximately $5,900, $9,700, and $62,000, respectively.
Income Taxes
Watermark is qualified as a REIT. To retain its REIT qualification, Watermark
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,
Watermark must pay out at least 95% of its taxable income, excluding capital
gains, as dividends, provided that Watermark pays tax at corporate rates on
capital gains not distributed. No distributions were required in 1997, 1996 or
1995, due to net operating losses.
NOTE 2 - PLAN OF LIQUIDATION AND TERMINATION
Watermark operated under a Plan of Complete Liquidation and Termination (the
"Plan" or the "Watermark Plan") approved by the shareholders in 1985 until June
30, 1994.
NOTE 3 - REAL ESTATE
At December 31, 1997 and 1996, Watermark'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 Parker Road land to its estimated net realizable value, which was determined
to be zero at December 31, 1992. During March 1995, the Trust formed a
wholly-owned subsidiary and contributed the Park Road property to such
subsidiary. At December 31, 1997 and 1996, the Trust's only significant asset
was its ownership interest in such subsidiary.
During February 1995, the Trust sold 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.
NOTE 4 - NOTE PAYABLE
Note payable to Abbestate Holding, Inc., a related party, with an interest rate
of 12%, uncollateralized, with interest and principal due August 1, 1998.
1997 1996
---- ----
$70,350 $60,000
====== ======
NOTE 5 - FEDERAL INCOME TAXES
No Federal income taxes have been provided for financial statement purposes
because, as a REIT with no operating income, Watermark has no tax liability. At
December 31, 1997, net operating loss carryforwards of approximately $876,000
were available for tax purposes which, if not utilized, will expire at various
dates through 2010.
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WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
December 31, 1997, 1996 and 1995
NOTE 6 - RELATED PARTY TRANSACTIONS
From November 10, 1993 to December 5, 1995, Davister Corp. ("Davister") provided
office space and legal, administrative and accounting services to the Trust
under the supervision of the Trust's officers at that time (who were also
officers of Davister or one of its affiliates). Davister was not compensated by
the Trust for any services rendered during this period.
Since December 5, 1995, HPI Capital, LLC has provided administrative and
accounting services to the Trust under supervision of the Trust's officers (two
of whom are also officers of HPI Capital, LLC). HPI Capital, LLC has not been
compensated by the Trust for any services rendered to the Trust.
NOTE 7 - FINANCIAL INSTRUMENTS
The estimated fair values of Watermark's financial instruments at December 31,
1997 and 1996 follow:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C> <C> <C>
Carrying Fair Carrying Fair
amount value amount value
-------- ------- -------- -------
Cash $ 74 $ 74 $12,152 $12,152
Note payable-related party 70,350 70,350 60,000 60,000
</TABLE>
The fair value amounts for each of the financial instruments listed above
approximate carrying amounts due to the short maturities of these instruments.
NOTE 8 - LIQUIDATING DISTRIBUTION
The recorded par value of the outstanding common shares of beneficial interest
has been reduced by $346,178, which represents the amount of a 1993 liquidating
distribution in excess of additional paid-in capital.
NOTE 9 - RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 consolidated
financial statements to conform to the 1997 presentation.
NOTE 10 - GOING CONCERN
The Trust has no operating assets or revenues. Its continuation as a going
concern is dependent upon the Trust's ability to raise additional capital from
its shareholders or from third parties. The shareholders anticipate that they
will continue to provide such financial support to the Trust. However, there can
be no assurances that the shareholders will continue to provide such support or
that the Trust will be successful in raising additional capital from other
sources. Further, there can be no assurance, assuming the Trust successfully
obtains such support, that the Trust will achieve profitability or positive cash
flow.
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SCHEDULE III
WATERMARK INVESTORS REALTY TRUST AND SUBSIDIARY
REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Cost Gross Amount
Capitalized at which
Initial Subsequent Carried at
Cost to to December 31, Valuation Accumulated Date Depreciable
Description Watermark Acquisition 1997 Allowance Depreciation Acquired Life (years)
----------- --------- ----------- ------ --------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Undeveloped $162,729 $5,859 $168,588 $(168,588) --- Various ---
land Houston, TX ======== ====== ======== ========== =====
</TABLE>
A summary of activity in real estate and accumulated depreciation for the three
years in the period ended December 31, 1997 is as follows:
<TABLE>
<S> <C> <C> <C>
REAL ESTATE 1997 1996 1995
- ----------- ---- ---- ----
Balance at beginning of year $168,588 $168,588 $168,588
Sales --- --- ---
Foreclosure additions --- --- ---
Improvements --- --- ---
------- ------- -------
Balance at end of year $168,588 $168,588 $168,588
======= ======= =======
ACCUMULATED DEPRECIATION
Balance at beginning of year $ --- $ --- $ ---
Sales --- --- ---
Depreciation --- --- ---
------- ------- -------
Balance at end of year $ --- $ --- $ ---
======= ======= =======
</TABLE>
Item 9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
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 current number of Trustees is set at
three (3). 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. Commencing with the 1996 annual meeting of
shareholders, the Board of Trustees of the Trust has been divided into three
classes, each class consists as nearly as possible of one-third of the Trustees.
The term of office of one
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class of Trustees expires each year. After the 1996 annual meeting of
shareholders, the Trustees of the class elected at each annual meeting of
shareholders thereafter shall hold office for a term of three years.
The current Trustees of the Trust (two of whom are also the executive
officers) are listed below, together with their ages, all positions and offices
with the Trust and their principal occupations, business experience and
directorships with other companies during the last five years or more.
David S. Givner, 53, has been Trustee, President and Treasurer of the
Trust since December 5, 1995, and is also the President/Managing Director of HPI
Capital, LLC. Since 1992, Mr. Givner has been President and Chief Operating
Officer of various affiliates of HPI Capital, LLC. From 1987 until 1992, he was
Senior Vice President/Director of Leasing and Consulting Services for Williams
Real Estate Company based in New York, New York. Mr. Givner is also the sole
shareholder and the President of DAGI Corporation, a Delaware corporation and
the general partner of DAGI Limited Partnership, a Delaware limited partnership.
Mr. Givner beneficially owns 59,655 Shares through DAGI Limited Partnership.
Simon Mizrachi, 49, has been Trustee of the Trust since December 5,
1995 and is also the President of Midatlantic Agency, Inc. a Florida corporation
and financial consulting company. Mr. Mizrachi has served as President of
Midatlantic Agency, Inc. since 1992. Mr. Mizrachi and Midatlantic Agency, Inc.
are the sole partners of MIZ Investors Associates, a Delaware general
partnership. Mr. Mizrachi has been a director and officer of PAZ Securities,
Inc., an NASD broker/dealer firm, since 1978. Mr. Mizrachi is an officer with
PAK Investors, Inc., Pudgie's Chicken, Inc., Topaz Securities, Inc., Topaz,
Inc., Cal-Mar, Inc., TMT Hanes, Inc., and TMT Sales, Inc. Mr. Mizrachi is also
an officer of various affiliates of MIZ Investors Associates and Midatlantic
Agency, Inc. Mr. Mizrachi beneficially owns 59,655 Shares through MIZ Investors
Associates.
Michael S. Verruto, 37, has been Trustee, Vice President and Secretary
of the Trust since December 5, 1995 and is also the Vice President/Managing
Director of HPI Capital, LLC, a North Carolina limited liability company that
develops real estate. Since January 1990, Mr. Verruto has held various positions
with various affiliates of HPI Capital, LLC, all of which are active in real
estate development and management. Mr. Verruto is also the sole shareholder and
the President and Treasurer of Fletcher Napolitano Styles and Verruto Holding
Company, Inc., a Delaware corporation and the general partner of Fletcher
Napolitano Styles and Verruto Family Property Partners, L.P., a Delaware limited
partnership. Mr. Verruto beneficially owns 59,655 Shares through Fletcher
Napolitano Styles and Verruto Family Property Partners, L.P.
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, 1997, the Board of
Trustees held no formal meetings and no 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 1997. 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.
15
<PAGE>
Item 11. Executive 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, 1997. The Trust has no retirement, annuity or pension plans
covering its trustees or officers. Based upon the Trust's current operations,
the Board of Trustees does not believe compensation will be paid or given in the
near future.
16
<PAGE>
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 March 25, 1998, of more than five percent (5%) of the
outstanding Shares of the Trust:
<TABLE>
<CAPTION>
Name and Address Amount of Percent of Shares
of Beneficial Owner Beneficial Ownership Outstanding1
<S> <C> <C>
Fletcher Napolitano Styles and 59,6652 11.02
Verruto Family Property Partners, L.P.3 Shares
227 W. Trade Street
Suite 2320
Charlotte, NC 28202
Attn: Michael S. Verruto
MIZ Investors Associates4 59,6652 11.02
6971 N. Federal Highway Shares
Suite 203
Boca Raton, FL 33487
Attn: Simon and Joseph Mizrachi
DAGI Limited Partnership5 59,6652 11.02
227 W. Trade Street Shares
Suite 2320
Charlotte, NC 28202
Attn: David S. Givner
Antapolis N.V. 184,4222 34.02
c/o MeesPierson Trust Shares
(Curacao) N.V.
Number 6 Curacao
Netherlands Antilles
Attn: John B. Goisiraweg
- ------------------------------------
1Based on 542,413 Shares outstanding on March 25, 1998.
2Does 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.
3Through 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.
4Through their control of MIZ Investors Associates, Simon and Joseph Mizrachi
are deemed to share beneficial ownership of 59,665 shares.
5Through his control of DAGI Limited Partnership, David S. Givner is deemed the
beneficial owner of 59,665 shares.
17
<PAGE>
Security Ownership of Management
According to the Share transfer records of the Trust and other
information available to the Trust, as of March 25, 1998, the current trustees
and executive officers of the trust beneficially owned the following Shares:
</TABLE>
<TABLE>
<CAPTION>
Name and Offices of Beneficial Amount of
Owner Beneficial Ownership Percent of Class1
<S> <C> <C>
David S. Givner, Trustee,3 59,6652 11.02
President and Treasurer
Simon Mizrachi, Trustee4 59,6652 11.02
Michael S. Verruto, Trustee,5 59,6652 11.02
Vice President and Secretary
All trustees and executive 178,9952 33.02
officers as a group
</TABLE>
- ------------------------------------
1Based on 542,413 Shares outstanding on March 25, 1998.
2Does 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.
3Through his control of DAGI Limited Partnership, David S. Givner is deemed the
beneficial owner of 59,665 shares.
4Through their control of MIZ Investors Associates, Simon and Joseph Mizrachi
are deemed to share beneficial ownership of 59,665 shares.
5Through 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.
Item 13. Certain Relationships and Related Transactions.
Since December 5, 1995, HPI Capital, LLC has provided administrative
and accounting services to the Trust under the supervision of the Trust's
officers (two of whom are also officers of HPI Capital, LLC). HPI Capital, LLC
has not been compensated by the Trust for any services rendered to the Trust.
18
<PAGE>
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:
1. Consolidated Financial Statements:
Balance Sheets as of December 31, 1997 and 1996.
Statements of Operations for the years ended December 31, 1997,
1996 and 1995.
Statements of Shareholders' Equity for the years ended December
31, 1997, 1996 and 1995.
Statements of Cash Flows for the years ended December 31, 1997,
1996 and 1995.
Notes to Financial Statements.
2. Schedules:
Schedule III - 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.
3. Exhibits:
The following documents are filed as exhibits to this report:
Exhibit
Number Description
3.1 Declaration of Trust, as amended (Incorporated by reference
to Exhibit 3.1 to Registrant's Form 10-K for the year ended
December 31, 1995).
3.2 By-laws, as amended (Incorporated by reference to Exhibit
3.1 to Registrant's Form 10-K for the year ended December
31, 1995).
21 List of Subsidiaries. (Incorporated by reference to Exhibit
21 to Registrant's Form 10-K for the year ended December 31,
1996).
27 Financial Data Schedule
(b) Reports on Form 8-K.
During the last quarter of the period covered by this report, no
reports on Form 8-K were filed.
19
<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, on this the 14th day
of April, 1998.
WATERMARK INVESTORS REALTY TRUST
/s/ David S. Givner
-------------------------------------
David S. Givner
Trustee, President and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
Signature Title Date
/s/ David S. Givner Trustee, President and Treasurer April 14, 1998
- --------------------------- (Principal Executive Officer and
David S. Givner Principal Financial and Accounting
Officer)
/s/ Michael S. Verruto Trustee, Vice President and April 14, 1998
- --------------------------- Secretary
Michael S. Verruto
20
<PAGE>
Exhibit 21
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains Summary Financial Statements of Watermark Investors
Realty Trust for the year ended December 31, 1997 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 74
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 74
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 196,235
<OTHER-SE> (314,469)
<TOTAL-LIABILITY-AND-EQUITY> 74
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 23,046
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,722
<INCOME-PRETAX> (30,768)
<INCOME-TAX> 0
<INCOME-CONTINUING> (30,768)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (30,768)
<EPS-PRIMARY> (.06)
<EPS-DILUTED> 0
</TABLE>
