<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- --------------------
Commission file number 1-13220
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PARAGON GROUP, INC.
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(Exact name of Registrant as specified in its charter)
Maryland 75-2540957
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
7557 Rambler Road, Suite 1200, Dallas, Texas 75231
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(Address of principal executive offices)
(Zip Code)
(214) 891-2000
--------------
(Registrant's telephone number, including area code)
N/A
----------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
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 month (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes....X.....No..........
APPLICABLE ONLY TO CORPORATE ISSUERS;
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
14,791,165 Shares of common stock, $.01 par value, as of August 14, 1996.
- --------------
1
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PARAGON GROUP, INC.
FORM 10-Q
INDEX
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Page
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Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets of Paragon
Group, Inc. as of June 30, 1996 and December 31, 1995 . . . . . 3
Condensed Consolidated Statements of Operations of
Paragon Group, Inc. for the three months and six
months ended June 30, 1996 and 1995 . . . . . . . . . . . . . . 4
Condensed Consolidated Statements of Cash Flows of
Paragon Group, Inc. for the six months ended
June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . 5
Notes to Condensed Consolidated Financial Statements . . . . . . 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . . 11
Part II - OTHER INFORMATION
Item 1. Legal Proceedings. . . . . . . . . . . . . . . . . . . . . . . 17
Item 2. Changes in Securities . . . . . . . . . . . . . . . . . . . . 17
Item 3. Defaults on Senior Securities . . . . . . . . . . . . . . . . 17
Item 4. Submission of Matters to a Vote of Security Holders . . . . . 17
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . 17
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . 17
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2
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PARAGON GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
JUNE 30, DECEMBER 31,
1996 1995
------------ -------------
(UNAUDITED)
ASSETS
Real estate assets:
Land $ 83,438 $ 86,602
Buildings and improvements 486,032 516,925
----------- -----------
569,470 603,527
Less: Accumulated depreciation (124,827) (126,437)
----------- -----------
Operating real estate assets 444,643 477,090
Construction in process 22,283 27,944
Real estate held for sale 11,154 -
----------- -----------
Net real estate assets 478,080 505,034
Cash and cash equivalents 3,990 6,583
Restricted cash 4,448 3,909
Accounts receivable, including amounts
due from affiliates of $589 and $1,424,
respectively in 1996 and 1995 2,669 4,716
Receivable from sale of commercial
property services business 18,072 -
Advances to affiliates 823 186
Investment in ventures 15,417 7,401
Note receivable from venture 2,406 -
Deferred charges, net 6,247 9,254
Other assets 2,318 2,528
----------- -----------
Total assets $ 534,470 $ 539,611
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 289,455 $ 293,780
Accounts payable and accrued liabilities,
including amounts due to affiliates of $50
in 1996 17,613 17,155
Deferred gain on sale of commercial property
services business 1,100 -
----------- -----------
Total liabilities 308,168 310,935
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Minority interests 49,255 50,210
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Stockholders' equity:
Common stock $.01 par value, authorized
100,000,000 shares, issued 14,791,165 shares 148 148
Additional paid-in capital 204,617 204,537
Unamortized employee restricted stock
compensation (1,647) (4,085)
Accumulated deficit (24,371) (21,236)
----------- -----------
178,747 179,364
Less: Cost of 80,022 treasury shares
(42,266 in 1995) (1,700) (898)
----------- -----------
Total stockholders' equity 177,047 178,466
----------- -----------
Total liabilities and stockholders' equity $ 534,470 $ 539,611
----------- -----------
----------- -----------
See accompanying notes.
3
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PARAGON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------------ ------------------------------
1996 1995, AS RESTATED 1996 1995, AS RESTATED
------------ ----------------- ------------ -----------------
<S> <C> <C> <C> <C>
Revenue
Rental $ 22,083 $ 19,739 $ 44,975 $ 38,681
Property management services - third party 639 1,735 2,128 3,800
Property management services - affiliates 744 1,112 1,774 2,069
Leasing and other property services - third
party 1,152 2,277 2,634 4,106
Leasing and other property services -
affiliates 408 446 776 750
Interest income 120 163 255 242
Other - properties 830 736 1,592 1,428
Other - property services 169 58 549 493
------------ ------------ ----------- ------------
Total revenue 26,145 26,266 54,683 51,569
------------ ------------ ----------- ------------
Expenses
Property operating expense 7,164 6,270 14,233 11,948
Real estate taxes and insurance 2,509 2,335 5,306 4,595
Depreciation and amortization 4,748 4,221 9,859 8,304
Property management, net of amounts
reimbursed by affiliates of $28 and $20
for the three months ended and $51 and $63
for the six months ended June 30, 1996 and
1995, respectively 4,146 4,111 8,573 9,153
Interest 5,375 4,078 11,001 7,963
General and administrative - property services,
net of amounts reimbursed by affiliates of
$65 and $52 for the three months ended and
$126 and $115 for the six months ended
June 30, 1996 and 1995, respectively 1,302 1,467 2,873 2,876
General and administrative - corporate 541 607 988 1,074
------------ ------------ ------------ ------------
Total expenses 25,785 23,089 52,833 45,913
------------ ------------ ------------ ------------
Income before equity in income of ventures,
impairment loss, gain on sale and minority
interests 360 3,177 1,850 5,656
Equity in income of ventures 332 199 564 294
Impairment loss on real estate held for sale (1,143) - (1,143) -
Gain on sale of commercial property
services business 11,930 - 11,930 -
------------ ------------ ----------- ------------
Income before minority interests 11,479 3,376 13,201 5,950
Minority interests (2,276) (699) (2,620) (1,219)
------------ ------------ ----------- ------------
Net income $ 9,203 $ 2,677 $ 10,581 $ 4,731
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Net income per share of common stock $ 0.62 $ 0.18 $ 0.72 $ 0.32
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
Weighted average common shares
outstanding 14,791,165 14,697,047 14,791,165 14,697,047
------------ ------------ ----------- ------------
------------ ------------ ----------- ------------
</TABLE>
See accompanying notes.
4
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PARAGON GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
---------------------------
1996 1995, AS RESTATED
--------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,581 $ 4,731
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,859 8,304
Amortization of deferred financing costs 803 740
Amortization of employee restricted stock
compensation 869 763
Impairment loss on real eastate held for sale 1,143 -
Gain on sale of commercial property services
business (11,930) -
Post-Measurement Date cash flow of commercial
property services business 167 -
Minority interests in income 2,620 1,219
Changes in assets and liabilities:
Increase in restricted cash (590) (298)
Decrease in accounts receivable 2,194 514
Increase in prepaid leasing costs (53) (55)
Increase in other assets (144) (605)
Increase in accounts payable and accrued
liabilities 1,213 1,049
---------- ---------
Net cash provided by operating activities 16,732 16,362
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to real estate assets, net of payables (26,544) (21,940)
Additions to investment in ventures (51) (3,579)
Payments of organization costs - (23)
Distributions received from ventures 6,654 436
Increase in note receivable from venture (2,406) -
---------- ---------
Net cash used in investing activities (22,347) (25,106)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends (13,716) (13,639)
Distributions to minority interests (3,595) (3,556)
Payments of deferred financing costs (85) (101)
Proceeds from notes payable 37,700 25,000
Payments on notes payable (16,242) (91)
Decrease (increase) in advances to affiliates (1,040) 1,593
---------- ---------
Net cash provided by financing activities 3,022 9,206
---------- ---------
Net increase (decrease) in cash and cash equivalents (2,593) 462
Cash and cash equivalents, beginning of period 6,583 5,913
---------- ---------
Cash and cash equivalents, end of period $ 3,990 $ 6,375
---------- ---------
---------- ---------
See accompanying notes.
5
<PAGE>
PARAGON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION AND FORMATION OF THE COMPANY
Paragon Group, Inc. (together with its subsidiaries, the "Company")
qualifies as a real estate investment trust ("REIT") for Federal Income tax
purposes and was incorporated in the state of Maryland on March 23, 1994
to continue the operations of certain entities involved in management,
leasing, construction, development and ownership of real estate assets
(collectively the "Predecessors"). On July 27, 1994, the Company completed
an initial public offering (the "Initial Offering") of 13,000,000 shares of
common stock (including 1,000,000 shares issued upon exercise of the
underwriters' over-allotment option), a sale of 695,000 shares of common
stock to the sponsors (the "Private Placement") and a business combination
with the Predecessors. Additionally, in August 1994, the Company issued
324,400 shares of common stock for use in the Employee Restricted Stock
Plan.
Upon completion of the Initial Offering, the Company, through its
wholly-owned subsidiary, Paragon Group LP Holdings, Inc., acquired a 79.1%
limited partner interest in Paragon Group L.P. (the "Operating
Partnership"). The Operating Partnership succeeded to substantially all of
the interests of the Predecessors and certain others in certain properties.
The Company, through its wholly-owned subsidiary, Paragon Group GP
Holdings, Inc., is the sole general partner and the holder of a 1% interest
in the Operating Partnership. In consideration for the sale of certain
properties and partnership interests, certain owners of the Predecessors,
including affiliates of the Company, elected to receive limited partnership
units ("Units") in the Operating Partnership. The Units received by such
owners at formation represented an approximate 19.9% equity interest in the
Operating Partnership. At June 30, 1996, the Company's ownership interest
in the Operating Partnership was 80.1%.
Subsequent to the business combination and prior to June 30, 1996, the
Company's management, leasing, construction and development businesses were
conducted through Paragon Group Property Services, Inc. ("PGPSI"). The
Company, through the Operating Partnership, owned 100% of the non-voting
stock and 1% of the voting stock of PGPSI (collectively representing 99% of
the total equity). As discussed in Note 4, effective June 30, 1996, the
Company sold its interest in PGPSI (after spin-off of the residential
property services business) and formed Paragon Residential Property
Services, Inc. ("PRSI") to conduct the Company's residential property
services business in the future. The Company has a 95% economic interest
in PRSI through ownership of 100% of the nonvoting common stock and 1% of
the voting stock. The remaining 99% of the voting stock, which represents
a 5% economic interest, is owned by a partnership controlled by certain
current and former executive officers of the Company.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been
prepared by the Company's management in accordance with generally accepted
accounting principles for interim financial information and in conjunction
with the rules and regulations of the Securities and Exchange Commission
("SEC"). Accordingly, they do not include all of the information and
footnote disclosure required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting only of normally recurring adjustments) considered
necessary for a fair presentation have been included. The results of
operations for the three months and six months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the full
year. These condensed consolidated financial statements should be read in
conjunction with the Company's December 31, 1995 audited financial
statements and notes thereto included in the Paragon Group, Inc. Annual
Report on Form 10-K, as amended, for the year ended December 31, 1995.
6
<PAGE>
PARAGON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The accompanying condensed consolidated financial statements include the
accounts of the Company, Paragon Group GP Holdings, Inc., Paragon Group LP
Holdings, Inc., Paragon Group L.P., PGPSI (through the date of sale),
Paragon Residential Services, Inc., 9 wholly-owned partnerships and limited
liability companies, and partnerships owning 13 properties where the
Company, through the Operating Partnership, has a controlling interest.
All significant intercompany accounts and transactions have been eliminated
in consolidation.
The Company, subsequent to the business combination on July 27, 1994 and
through the third quarter of 1995, accounted for its investment in PGPSI
under the cost method consistent with prior regulatory direction. However,
in September 1995, the Emerging Issues Task Force of the Financial
Accounting Standards Board ("EITF") reached a consensus in EITF 95-6
"ACCOUNTING BY A REAL ESTATE INVESTMENT TRUST FOR AN INVESTMENT IN A
SERVICE CORPORATION" that the cost method of accounting for such
investments was not appropriate and, based upon the specific facts and
circumstances, either the equity method or consolidation accounting should
be used. As a result, in the fourth quarter of 1995 the Company changed
its method of accounting for PGPSI from the cost method to consolidation of
the financial position and results of operations of PGPSI in the Company's
consolidated financial statements. Accordingly, the accompanying condensed
consolidated financial statements for the three months and six months ended
June 30, 1995 have been restated to consolidate PGPSI. The effect of the
restatement was to decrease stockholders' equity at June 30, 1995 by
$20,782, to decrease net income for the three months and six months ended
June 30, 1995 by $229 and $1,118, respectively, and to decrease net income
per share for the three months and six months ended June 30, 1995 by $.02
and $.08, respectively.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In October 1995, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "ACCOUNTING FOR STOCK
BASED COMPENSATION" ("FAS 123") which establishes financial accounting and
disclosure standards for stock based employee compensation plans and is
effective for fiscal years beginning after December 15, 1995. FAS 123
provides an alternative of adopting the new accounting standards of the
statement or remaining under the existing requirements of Accounting
Principles Board Opinion No. 25 "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES".
The Company has elected to continue to account for its stock compensation
arrangements under the provisions of APB 25.
3. REAL ESTATE INVESTMENTS
REAL ESTATE
As of June 30, 1996, the Company, through the Operating Partnership,
controls either through direct ownership or in some instances through an
investment in a partnership or a limited liability company, 57 multifamily
properties and four commercial properties in Florida, Kentucky, Missouri,
North Carolina, South Carolina and Texas. The Company, through the
Operating Partnership, also owns an interest in a venture formed April 1,
1996 which owns 3 multifamily properties that were previously wholly-owned
by the Company. In addition, the Company, through the Operating
Partnership, owns a minority interest in two ventures which own three
office properties containing 724,470 square feet; one in Missouri and two
in suburban Washington, D.C.
At June 30, 1996, the 57 multifamily properties include 53 operating
properties containing 14,406 apartment units and four properties under
development for which 1,068 units are planned. Two of the operating
properties containing 516 units are in the initial lease-up phase. The
four commercial properties include two retail properties containing 172,884
square feet, one office property containing 102,486 square feet and one
office/warehouse property under development which, when completed, will
contain 108,600 square feet. The three multifamily properties owned by the
venture formed April 1, 1996 include two operating properties containing
928 apartment units and one property under development for which 336 units
are planned.
7
<PAGE>
PARAGON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ACQUISITION AND DEVELOPMENT ACTIVITIES
On January 29, 1996, the Company, through PGPSI, acquired a 5.15 acre
tract of land in suburban Dallas, Texas. Construction activities commenced
immediately on the Post and Paddock office/warehouse development which,
when completed, will contain 108,600 square feet. The Company expects to
sell this development once completed.
In February 1996, the Company completed construction of the Heron Pointe
apartments in Tampa, Florida. Heron Pointe contains 276 apartment units
and was completed at a total cost of $13,420.
DISPOSITION ACTIVITIES
As a result of the sale of its commercial property services business
discussed in Note 4, the Company intends to dispose of its four wholly-
owned commercial properties. The Post and Paddock office/warehouse
property is currently under development and is expected to be sold after
completion. The three operating properties (The Paragon, Southwood Mall
and Westgate Shopping Center) are classified as held for sale at June 30,
1996. In accordance with Statement of Financial Accounting Standards No.
121, "ACCOUNTING FOR THE IMPAIRMENT OF LONG LIVED ASSETS", properties held
for sale are to be carried at the lower of the carrying amount or estimated
fair value less selling costs. Accordingly, for the three months ended
June 30, 1996, the Company recognized an impairment adjustment of $1,143,
all of which related to Southwood Mall. The Company expects to sell the
remaining commercial properties at prices in excess of carrying amounts.
JOINT VENTURE ACTIVITIES
On April 1, 1996, the Company entered into a joint venture ("Paradim")
with Careit Investments Limited Partnership ("Careit"), an affiliate of
Caisse de depot et placement du Quebec, to acquire, develop and operate
selected multifamily residential properties in markets in which the Company
operates. The Company and Careit each have committed up to $22,500 for
investment in Paradim, which will be operated so as to permit its
qualification as a REIT for Federal income tax purposes. The Company and
Careit each effectively own an approximate 45% interest and a number
of private investors own the remaining 10% interest in the joint
venture. In connection with the formation of Paradim, the Company
effectively contributed its interest in three properties (Overlook,
formerly known as The Phoenix, a 220-unit multifamily residential complex
in Charlotte, North Carolina; Highpoint, a 708-unit multifamily residential
complex in Dallas, Texas; and Brassfield Park, a 336-unit multifamily
residential complex under development in Greensboro, North Carolina) and
Careit contributed $7,926 in cash. At formation, the Company also received
a distribution of approximately $6,618, which was used to repay existing
indebtedness under the line of credit. The Company recorded the initial
contribution of these properties at their net carrying value on April 1,
1996, which was approximately $14,726 (net book value of $40,376 subject to
existing indebtedness of $25,650), and is accounting for its investment in
Paradim using the equity method of accounting. As of June 30, 1996, the
Company's net investment in Paradim was approximately $8,135. Additional
investments by Paragon and Careit will be made from time to time when and
if additional property acquisition or development opportunities are
approved.
4. PROPERTY SERVICES
Subsequent to the business combination through June 30, 1996, the
Company's management, leasing, construction and development businesses were
conducted through PGPSI. PGPSI provided residential and commercial
property services to the Company, affiliates of the Company and unrelated
third parties.
8
<PAGE>
PARAGON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In May 1996, the Company executed an agreement to sell its commercial
property services business to an affiliate of Insignia Financial Group,
Inc. ("Insignia"). In order to accomplish the sale, PGPSI's residential
property services business was transferred to PRSI. Immediately following
the transfer, as of June 30, 1996, Insignia acquired all of the outstanding
stock of PGPSI and a $12,432 note receivable from PGPSI held by the
Company. The acquisition price includes initial cash consideration of
$18,200 and two potential earn-out payments totaling up to $4,000 which are
contingent upon PGPSI revenue meeting certain specified targets over the
next three years. The earn-out payments may be reduced by as much as
$2,900 in the event certain management contracts are terminated within a
two year period after closing. In addition, the initial acquisition price
may be reduced by up to $1,100 in the event the employment of certain
employees of PGPSI is terminated within one year after closing or certain
existing management contracts are terminated within a five-year period
after closing.
In connection with the sale, the Company received warrants to purchase up
to 50,000 shares of Insignia Financial Group, Inc. stock at a price of
$28.96 per share and Insignia received warrants to purchase 50,000 shares
of the Company's stock at $18.25 per share and may receive warrants to
purchase an additional 238,000 shares at $18.25 per share, depending on the
termination of certain management contracts during the two-year period
after closing.
As a result of the sale, the Company recognized a gain of $11,930 which
does not consider potential earn-out payments, the value of warrants issued
or received, or $1,100 of the initial acquisition price which is contingent
on future events. The contingent portion of the initial acquisition price
and the earn-out payments, if any, will be recognized when earned.
PRSI will continue the Company's residential property services business
and will provide all residential property service functions previously
provided by PGPSI, including property management, leasing, development,
acquisition and disposition for its owned residential communities as well
as for affiliated and third party residential owners. As of June 30, 1996,
the Company, through PRSI, managed 82 multifamily residential communities
located across the United States, totaling approximately 21,583 apartment
units (of which 55 communities and 15,334 apartment units were for the
Company, including two communities and 928 apartment units for Paradim).
5. NOTES PAYABLE
Mortgages payable consist of 29 loans at June 30, 1996, each of which is
collateralized by properties included in real estate assets. At June 30,
1996, 23 of the loans ($223,234 principal amount) carry a fixed interest
rate and provide for the monthly payment of interest only, and six loans
($21,921 principal amount) provide for monthly payments of principal and
interest at a fixed rate. The fixed rate mortgages bear interest at rates
ranging from 5.75% to 8.52% and mature at various dates through September
2028. During the three month and six month period ended June 30, 1996,
$104 and $8,342, respectively, of principal was paid on existing mortgages.
At June 30, 1996, $44,300 was outstanding under the line of credit which
consists of five contracts, each of which is priced at interest rates
ranging from 7.44% to 7.50% (based upon LIBOR plus 2.0%) and with repricing
maturities ranging from July 1, 1996 through July 25, 1996. Borrowings
under the line of credit are collateralized by specified properties.
During the three month and six month period ended June 30, 1996, $16,500
and $37,700, respectively, of new borrowings were drawn under the line of
credit and $7,900 of principal was repaid.
6. RELATED PARTY TRANSACTIONS
On January 3, 1996, the Company repaid $300 of debt, payable to
affiliates, assumed in connection with the purchase of the Overlook
Apartments. As partial settlement of the debt, the Company, through the
Operating Partnership, issued 4,694 Units to an affiliate.
9
<PAGE>
PARAGON GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Company, through PRSI (and previously PGPSI), uses a centralized
disbursement and receipt system whereby, for certain properties owned by
the Company and other affiliated properties, all project deposits are
transferred to a central operating account and all expenses and other
disbursements are paid therefrom. In other cases, certain properties
maintain a separate cash account for recording project receipts and
disbursements; however, certain common operating expenses are paid through
the centralized account and are subsequently reimbursed by the appropriate
properties. Additionally, cash of PRSI (and previously PGPSI) is
periodically transferred to the Operating Partnership for short term
investment purposes.
PRSI (and previously PGPSI) provides services to affiliated partnerships
on a contractual basis. The related party fees and expenses for such
services are reflected in the accompanying condensed consolidated financial
statements.
7. DIVIDENDS
On February 27, 1996, the Company paid a dividend, with respect to the
fourth quarter of 1995, of $.465 per share of common stock. Concurrent
with the dividend payments, the Operating Partnership distributed $.465 per
Unit.
On May 17, 1996, the Company paid a dividend, with respect to the first
quarter of 1996, of $.465 per share of common stock. Concurrent with the
dividend payments, the Operating Partnership distributed $.465 per unit.
8. SUBSEQUENT EVENTS
On August 6, 1996, the Company declared a dividend, with respect to the
second quarter of 1996, of $.465 per share of common stock, payable August
27, 1996 to holders of record on August 16, 1996. Concurrent with the
dividend announcement, the Operating Partnership authorized a distribution
of $.465 per Unit, payable August 27, 1996 to holders of record on August
16, 1996.
Closing of the sale of PGPSI to Insignia occurred on July 2, 1996, at
which time the Company received net proceeds from the sale of $18,072.
Proceeds from the sale were used to reduce borrowings outstanding under the
line of credit.
On July 30, 1996 the Company entered into a contract to sell Southwood
Mall, a 113,949 square foot shopping center located in Bradenton, Florida
for $3,200. Closing of the sale is expected to occur on or about October
15, 1996. Proceeds from the sale will be used for reinvestment into
multifamily acquisitions or to repay borrowings under the line of credit.
On July 27, 1996, the Company executed a renewal and modification of its
existing line of credit facility. Under the terms of the new agreement,
the Company may borrow up to $85,000 including up to $50,000 related to
development activities. The line of credit matures in July 1998, but may
be extended through July 1999 at the Company's option. Borrowings under
the line of credit are collateralized by specified operating properties and
properties under development. The interest rate on the amounts outstanding
under the line are based on, at the Company's election, either (i) the
greater of the prime rate or the Federal Funds rate plus .50% or, (ii) the
London Interbank Offer Rate ("LIBOR") plus 2.0% - 2.25%, depending on
certain financial ratios concerning leverage and debt service coverage.
10
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is based primarily on, and should be read in
conjunction with, the Condensed Consolidated Financial Statements of Paragon
Group, Inc. and notes thereto appearing elsewhere in this report.
COMPANY ACTIVITIES
On January 3, 1996, the Company, through the Operating Partnership, issued
4,694 Units to an affiliate in partial settlement of debt assumed in connection
with the purchase of the Overlook Apartments.
On January 29, 1996, the Company, through PGPSI, acquired a 5.15 acre tract
of land in suburban Dallas, Texas. Construction activities commenced
immediately on the Post and Paddock office/warehouse development which, when
completed, will contain 108,600 square feet. The Company expects to sell this
development once completed.
On February 27, 1996, the Company paid a dividend, with respect to the
fourth quarter of 1995, of $.465 per share of common stock. Concurrent with the
dividend payments, the Operating Partnership distributed $.465 per Unit.
On April 1, 1996, the Company entered into a joint venture ("Paradim") with
Careit Investments Limited Partnership ("Careit"), an affiliate of Caisse de
depot et placement du Quebec, to acquire, develop and operate selected
multifamily residential properties in markets in which the Company operates.
The Company and Careit each have committed up to $22.5 million for investment in
Paradim, which will be operated so as to permit its qualification as a REIT for
Federal income tax purposes. The Company and Careit each effectively own an
approximate 45% interest and a number of private investors own the remaining
10% interest in the joint venture. In connection with the formation of Paradim,
the Company effectively contributed its interest in three properties (Overlook,
formerly known as The Phoenix, a 220-unit multifamily residential complex in
Charlotte, North Carolina; Highpoint, a 708-unit multifamily residential complex
in Dallas, Texas; and Brassfield Park, a 336-unit multifamily residential
complex under development in Greensboro, North Carolina) and Careit contributed
$7.9 million in cash. At formation, the Company also received a distribution of
approximately $6.6 million, which was used to repay existing indebtedness under
the line of credit. The Company recorded the initial contribution of these
properties at their net carrying value on April 1, 1996, which was approximately
$14.7 million (net book value of $40.3 million subject to existing indebtedness
of $25.6 million) and is accounting for its investment in Paradim using the
equity method of accounting. As of June 30, 1996, the Company's net investment
in Paradim was approximately $8.1 million. Additional investments by Paragon
and Careit will be made from time to time when and if additional property
acquisition or development opportunities are approved.
On May 17, 1996, the Company paid a dividend, with respect to the first
quarter of 1996, of $.465 per share of common stock. Concurrent with the
dividend payment, the Operating Partnership distributed $.465 per Unit.
In May 1996, the Company executed an agreement to sell its commercial
property services business to an affiliate of Insignia Financial Group, Inc.
("Insignia"). In order to accomplish the sale, PGPSI's residential property
services business was transferred to PRSI. Immediately following the transfer,
as of June 30, 1996, Insignia acquired all of the outstanding stock of PGPSI and
a $12.4 million note receivable from PGPSI held by the Company. The acquisition
price includes initial cash consideration of $18.2 million and two potential
earn-out payments totaling up to $4.0 million which are contingent upon PGPSI
revenue meeting certain specified targets over the next three years. The earn-
out payments may be reduced by as much as $2.9 million in the event certain
management contracts are terminated within a two year period after closing. In
addition, the initial acquisition price may be reduced by up to $1.1 million in
the event that the employment of certain employees of PGPSI is terminated within
one year after closing or certain existing management contracts are terminated
within a five-year period after closing.
In connection with the sale, the Company received warrants to purchase up
to 50,000 shares of Insignia Financial Group, Inc. stock at a price of $28.96
per share and Insignia received warrants to purchase 50,000 shares of the
Company's stock at $18.25 per share and may receive warrants to purchase an
additional 238,000 shares at $18.25 per share, depending on the termination of
certain management contracts during the two-year period after closing.
11
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
On August 6, 1996, the Company declared a dividend, with respect to the
second quarter of 1996, of $.465 per share of common stock, payable August 27,
1996 to holders of record on August 16, 1996. Concurrent with the dividend
announcement, the Operating Partnership authorized a distribution of $.465 per
Unit, payable August 27, 1996 to holders of record on August 16, 1996.
The Company anticipates that development properties which were recently
completed will not generate their full net income potential for the year ended
December 1996. Additionally, those properties currently under development are
expected to experience operating losses during their stabilization period from
completion to lease-up. The Company believes, however, that the positive impact
of these development projects, once stabilized occupancy levels are achieved,
will significantly contribute to the net income from operations of the Company.
The Company believes that the property services business has become
increasingly competitive, and is likely to remain so for the foreseeable future,
which could adversely impact future operating results. As a result of the sale
of the commercial property services business, the Company has substantially
reduced its dependence on such service oriented revenues. The Company intends
to continue providing its full range of residential property services to
existing clients and select potential clients where relational, operational or
geographical efficiencies exist and will actively pursue opportunities which
complement its current operations.
PRESENTATION
The gain on sale of the commercial property services business was determined in
accordance with Accounting Principles Board Opinion No. 30, "REPORTING THE
RESULTS OF OPERATIONS", whereby the commercial property services net loss of $.8
million from the date (May 7, 1996) management committed to the disposal of the
commercial property services business (the "Measurement Date") through the date
of sale (June 30, 1996) was treated as a reduction of the gain on sale.
Accordingly, a comparison of the results of operations for the three and six
months ended June 30, 1996 and 1995 is affected by the exclusion of post-
Measurement Date revenue and expenses in the accompanying condensed consolidated
financial statements.
RESULTS OF OPERATIONS - COMPARISON OF THE THREE MONTHS ENDED JUNE 30, 1996 AND
JUNE 30, 1995
Net income increased $6.5 million from the comparable period in 1995
principally as a result of the gain on sale of the commercial property services
business of $11.9 million. Net income was also affected by a decrease in total
revenue of $.1 million, and an increase in expenses of $2.7 million, an increase
in equity in income of ventures of $.1 million, the impairment loss on real
estate held for sale of $1.1 million and an increase in minority interests in
income of $1.6 million.
Rental income increased $2.3 million, or 11.9%, due to an increase of $.25
million in rental income on the 52 properties owned throughout both periods
("same community") and the addition of $2.09 million of income generated from
the acquisition and development of additional apartment units. The 372 unit
Spanish Trace Apartments and the 278 unit Schooner Bay Apartments acquired in
1995 contributed $1.05 million while the completion of units developed by the
Company contributed $1.04 million. The balance of the 1,578 apartment units
acquired in 1995 (the 708 unit Highpoint Apartments and the 220 unit Overlook
Apartments) were contributed to Paradim on April 1, 1996. The results of
operations of the Paradim properties are included in equity in income of
ventures. On a same community basis, average monthly base revenue per leased
apartment unit increased $6, or 1.2%, from $508 to $514 from June 30, 1995 to
June 30, 1996, respectively. The Company believes that the increase in rental
income per occupied apartment unit was achieved primarily as a result of the
implementation of select rental increases allowed by improved economic
conditions in certain of the Company's markets. Average occupancy for those
residential properties increased from 93.8% to 94.0% from June 30, 1995 to June
30, 1996, respectively.
12
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Property management income decreased $1.5 million, or 51.4%. Leasing and
other property services income decreased $1.2 million, or 42.7%. The decreases
were due to the exclusion of post-Measurement Date revenue for the commercial
property services business as well as terminated management contracts that were
not replaced, reduced rates charged for management services on third-party
contracts and to reduced transaction volume on which management, leasing and
other property services' fees are earned.
Property operating expenses and real estate taxes and insurance increased
$1.1 million, or 12.4%, due to the acquisition and development of additional
apartment units. The apartment units acquired in 1995 accounted for $.5 million
of the increase while the completion of units developed by the Company accounted
for $.6 million.
Depreciation and amortization expense increased $.5 million, or 12.5%, due
principally to the acquisition and development of additional apartment units
off-set by the exclusion of post-Measurement Date depreciation and amortization
for the commercial property services business.
Property management expenses remained relatively stable as the decrease
resulting from the exclusion of post-Measurement Date expenses of the commercial
property services business was off-set by additional personnel compensation
primarily attributable to the commercial operation.
Interest expense increased $1.3 million, or 31.8%, due to an increase in
operating debt principally associated with the acquisition and development of
additional apartment units.
General and administrative - property services decreased $.2 million, or
11.2%, due to the exclusion of post-Measurement Date expenses of the commercial
property services business off-set by additional consulting and implementation
expenses associated with the Company's new financial reporting and information
system. General and administrative - corporate decreased $.1 million, or 10.9%.
Equity in income of ventures increased $.1 million, or 66.8%, due to an
increase in income from the Company's commercial ventures and an increase
resulting from the Company's investment in Paradim on April 1, 1996.
During the three months ended June 30, 1996, the Company recognized a gain
on sale of $11.9 million from the sale of its commercial property services
business. Additionally, the Company began marketing for sale its wholly-owned
commercial properties (The Paragon, Southwood Mall and Westgate Shopping
Center). As a result, the Company recognized an impairment loss of $1.1 million
to record the assets at the lower of carrying amount and estimated fair value
less costs to sell. All of the loss was attributable to Southwood Mall. The
Company expects to sell the remaining commercial properties at prices in excess
of carrying amounts.
RESULTS OF OPERATIONS - COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1996 AND
JUNE 30, 1995
Net income increased $5.9 million from the comparable period in 1995
principally as a result of the gain on sale of the commercial property services
business of $11.9 million. Net income was also affected by an increase in total
revenue of $3.1 million, and increase in expenses of $6.9 million, an increase
in equity in income of ventures of $.3 million, an increase in impairment loss
on real estate held for sale of $1.1 million and an increase in minority
interests in income of $1.4 million.
Rental income increased $6.3 million, or 16.3%, due to an increase of $.94
million in rental income on the 52 same community properties owned throughout
both periods and the addition of $5.36 million of income generated from the
acquisition and development of additional apartment units. The apartment units
acquired in 1995 contributed $3.55 million while the completion of units
developed by the Company contributed $1.81 million. Of the 1,578 apartment
units acquired in 1995, 650 units (the 372 unit Spanish Trace Apartments and the
278 unit Schooner Bay Apartments) were owned for the full six month period and
contributed $2.11 million. The balance of the apartment units acquired in 1995
(the 708 unit Highpoint Apartments and the 220 unit Overlook Apartments) were
contributed to Paradim on April 1, 1996. The rental revenue contribution of
these units for the first three months of 1996 was $1.44 million. On a same
community basis, average monthly base revenue per leased apartment unit
increased $6, or 1.2%, from $508 to $514 from June 30, 1995 to June 30, 1996,
respectively. The Company believes that the increase in rental income per
13
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
occupied apartment unit was achieved primarily as a result of the implementation
of select rental increases allowed by improved economic conditions in certain of
the Company's markets. Average occupancy for those residential properties
increased from 93.8% to 94.0% from June 30, 1995 to June 30, 1996, respectively.
Property management income decreased $2.0 million, or 33.5%. Leasing and
other property services income decreased $1.4 million, or 29.8%. The decreases
were due to the exclusion of post-Measurement Date revenue for the commercial
property services business as well as terminated management contracts that were
not replaced, reduced rates charged for management services on third-party
contracts and to reduced transaction volume on which management, leasing and
other property services' fees are earned.
Property operating expenses and real estate taxes and insurance increased
$3.0 million, or 18.1%, due to an increase of $.4 million, or 2.6%, in expenses
for same community properties and an increase of $2.6 million resulting from the
acquisition and development of additional apartment units. The apartment units
acquired in 1995 accounted for $1.6 million of the increase while the completion
of units developed by the Company accounted for $1.0 million. The increase in
expenses associated with same community properties of $.4 million was
principally attributable to increases in repair and maintenance and other
operating expenses on certain of those properties.
Depreciation and amortization expense increased $1.6 million, or 18.7%,
due principally to the acquisition and development of additional apartment units
off-set by the exclusion of post-Measurement Date depreciation and amortization
for the commercial property services business.
Property management expenses decreased $.6 million, or 6.3%, resulting
from the exclusion of post-Measurement Date expenses of the commercial
property services business, off-set by additional personnel compensation
primarily attributable to the commercial operation.
Interest expense increased $3.0 million, or 38.2%, due to an increase in
operating debt principally associated with the acquisition and development of
additional apartment units.
General and administrative - property services remained relatively stable
as the decrease due to the exclusion of post-Measurement Date expenses of the
commercial property services business was offset by additional consulting and
implementation expenses associated with the Company's new financial reporting
and information system. General and administrative - corporate decreased
$.1 million, or 8.0%.
Equity in income of ventures increased $.3 million, or 91.8%, due to an
increase of $.2 million in income from the Company's commercial ventures and
an increase of $.1 million resulting from the acquisition of the Company's
investment in Paradim on April 1, 1996.
During the three months ended June 30, 1996, the Company recognized a gain
on sale of $11.9 million from the sale of its commercial property services
business. Additionally, the Company began marketing for sale its wholly-owned
commercial properties (The Paragon, Southwood Mall and Westgate Shopping
Center). As a result, the Company recognized an impairment loss of $1.1 million
to record the assets at the lower of carrying amount and estimated fair value
less costs to sell. All of the loss was attributable to Southwood Mall. The
Company expects to sell the remaining commercial properties at prices in excess
of carrying amounts.
LIQUIDITY AND CAPITAL RESOURCES
The Company's total debt decreased from $293.8 million at December 31, 1995
to $289.5 million at June 30, 1996. During the three months and six months
ended June 30, 1996, $.1 million and $8.3 million, respectively, of principal
was paid on existing mortgages and $16.5 million and $37.7 million,
respectively, was borrowed under the Company's line of credit. The Company
repaid $7.9 million of principal on the line of credit during the three and six
months ended June 30, 1996. The borrowings under the line of credit were used
to fund development activity and to repay $7.9 million of debt (included in the
$8.3 million of principal paid on existing mortgages) associated with the
purchase of the 278 unit Schooner Bay apartments in December 1995. Mortgages
payable consisted of 29 loans ($245.2 million principal amount) at June 30, 1996
at fixed interest rates ranging from 5.75% to 8.52%. At June 30, 1996, $44.3
million was outstanding under the line of credit which consisted of five
contracts priced at interest rates
14
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
ranging from 7.44% to 7.50% (based upon LIBOR plus 2.0%) and with repricing
maturities ranging from July 1, 1996 through July 25, 1996.
On July 27, 1996, the Company executed a renewal and modification of its
existing line of credit facility. Under the terms of the new agreement, the
Company may borrow up to $85.0 million including up to $50.0 million related to
development activities. The line of credit matures in July 1998, but may be
extended through July 1999 at the Company's option. Borrowings under the line
of credit are collateralized by specified operating properties and properties
under development. The interest rate on the amounts outstanding under the line
are based on, at the Company's election, either (i) the greater of the prime
rate or the Federal Funds rate plus .50% or, (ii) the London Interbank Offer
Rate ("LIBOR") plus 2.0% - 2.25%, depending on certain financial ratios
concerning leverage and debt service coverage. At August 12, 1996, $28.0
million was outstanding under the line of credit in four separate contracts.
The weighted average interest rate under these contracts was 7.54%.
CAPITAL EXPENDITURES
Under the Company's policy regarding repairs, maintenance and capital
expenditures, ordinary repairs and maintenance are expensed as incurred. Major
replacements and betterments are capitalized and depreciated on a straight-line
basis over the estimated useful lives of the properties (buildings and related
land improvements--10 to 40 years; furniture, fixtures and equipment--3 to 10
years; and tenant improvements--over the life of the related tenant lease). With
respect to the apartment properties, the Company capitalizes floor and window
coverings and depreciates such items over 5 years; appliances and heating,
ventilating and air conditioning equipment are capitalized and depreciated over
10 years.
During the three months and six months ended June 30, 1996, the Company
incurred a per unit average of $215 and $347, respectively, for normalized and
revenue enhancing capital expenditures. Included in these per unit averages are
$89 and $139, respectively, representing 1996 revenue enhancing capital
expenditures on same community properties. The Company implemented a program
beginning in late 1995 to upgrade selected properties which it believed would
generate the best long term yields as a result of incremental capital
investment. Properties were generally selected due to locational and submarket
outlook and the property's competitive position in the submarket. This
"repositioning" plan encompasses 39 of the Company's 60 multifamily properties
(including 3 properties owned by Paradim) and is expected to be completed in the
first quarter of 1997.
Also included in the per unit averages are $.40 and $.64 million,
respectively, of deferred maintenance and property repositioning expenditures on
four properties purchased in December 1995. These costs represent a portion of
$2.6 million originally contemplated to be spent on these properties when they
were underwritten for purchase by the Company.
After taking into consideration these factors, the "normalized" capital
expenditures on the properties averaged $97 and $164 per unit, respectively.
The Company expects to expend annually an average of approximately $275 per
apartment unit through 1999 for the residential properties. This amount is
expected to be funded from Company operations, existing cash balances, and
borrowings under the line of credit.
INFLATION
Substantially all of the residential property leases are for a term of one
year or less, which may enable the Company to seek increased rents upon renewal
of existing leases or commencement of new leases. Such short-term leases
generally minimize the risk to the Company of the adverse effects of inflation,
although as a general rule, these leases permit residents to leave at the end of
the lease term without penalty. Commercial property leases range in length from
1 to 25 years and most have expense pass-through provisions.
15
<PAGE>
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
FUNDS FROM OPERATIONS
Funds from Operations ("FFO") is defined by the National Association of
Real Estate Investment Trusts ("NAREIT") to mean net income, computed in
accordance with generally accepted accounting principles ("GAAP"), excluding
gains (or losses) from debt restructuring and sales of property, plus real
estate depreciation and amortization, and after adjustments for unconsolidated
partnerships and joint ventures. In addition, extraordinary or unusual items,
along with significant non-recurring events that materially distort the
comparative measure of FFO, should be disregarded in its calculation. Management
generally considers FFO to be a useful measure of the operating performance of
an equity REIT because, together with net income and cash flows, FFO provides
investors with an additional basis to evaluate the ability of a REIT to incur
and service debt and to fund acquisitions and other capital expenditures. FFO
does not represent cash flows from operating activities as defined by GAAP,
should not be considered as an alternative to net income as an indicator of the
Company's operating performance and is not indicative of cash available to fund
all cash flow needs, including principal amortization, capital improvements and
distributions to stockholders. Further, FFO as disclosed by other REITs may not
be comparable to the Company's calculation of FFO.
Consistent with the interpretive guidance by NAREIT, beginning with the
quarter ended March 31, 1996, the Company changed its method of calculating FFO.
The change primarily results in the Company no longer adding back certain non-
cash and non-real estate depreciation and amortization charges to net income in
determining FFO. The impact of the change was a reduction in FFO of
approximately $718 and $601, respectively, for the three months ended June 30,
1996 and June 30, 1995. The following table represents the Company's
calculation of FFO for the three months ended June 30, 1996 and June 30, 1995,
as restated (dollars in thousands):
<TABLE>
THREE MONTHS ENDED
JUNE 30,
--------
1995,
1996 AS RESTATED
---- -----------
<S> <C> <C>
Net income $ 9,203 $ 2,677
Add:
Minority interests in income 2,276 699
Real estate depreciation/amortization 4,204 3,703
Real estate depreciation/amortization from unconsolidated ventures 241 133
Amortization of management and leasing contracts 261 280
Grants/amortization of employee restricted stock 727 444
Other cash reorganization expenses - 200
Impairment loss on real estate held for sale 1,143 -
Post-Measurement Date FFO from commercial property services business 674 -
Less:
Minority interests in cash flow (51) (81)
Gain on sale of commercial property services business (11,930) -
--------- ---------
Funds from Operations $ 6,748 $ 8,055
--------- ---------
--------- ---------
Supplemental information:
Adjustment for straight-lining of rents $ (17) $ (12)
--------- ---------
--------- ---------
</TABLE>
16
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
An annual meeting of stockholders of the Company was held on May 17,
1996. At the annual meeting, two matters were submitted to a vote of the
stockholders:
1. The following persons, who received the votes set forth opposite
their names, were duly elected as directors to serve until the annual meeting
of stockholders in 1998 or 1999, as applicable or until their respective
successors shall have been elected and qualified, each having received at
least a plurality of the votes cast:
Withheld
Nominess Votes Cast for Authority to Vote
-------- -------------- -----------------
Robert H. Gidel 12,899,511 50,197
Lewis A. Levey 12,891,610 58,098
Richard J. Haayen 12,890,797 58,911
Douglas D. Hawthorne 12,900,111 49,597
2. A total of 12,875,544 votes were cast in favor of the ratification
of the appointment of Ernst & Young LLP as independent auditors for the
fiscal year ending December 31, 1996, with 33,458 votes cast against such
proposal and 40,706 votes abstaining.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit - none
(b) A Current Report on Form 8-K dated June 3, 1996 and reporting
under Items 5 and 7 thereunder was filed with the Securities
and Exchange Commission on June 4, 1996. No financial statements
were filed as part of this Form 8-K.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has fully caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARAGON GROUP, INC.
/s/ Thomas D. Ferguson
--------------------------------------------
Thomas D. Ferguson, Chief Financial Officer
and Senior Vice President
(principal financial officer)
/s/ J.C. Lowenberg, III
--------------------------------------------
J.C. Lowenberg III, Senior Vice President
and Assistant Secretary
(principal accounting officer)
Date: August 14, 1996
18
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 8,438
<SECURITIES> 0
<RECEIVABLES> 1,894
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 602,907
<DEPRECIATION> (124,827)
<TOTAL-ASSETS> 534,470
<CURRENT-LIABILITIES> 0
<BONDS> 289,455
0
0
<COMMON> 148
<OTHER-SE> 176,899
<TOTAL-LIABILITY-AND-EQUITY> 534,470
<SALES> 0
<TOTAL-REVENUES> 54,683
<CGS> 0
<TOTAL-COSTS> 28,112
<OTHER-EXPENSES> 9,859
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,001
<INCOME-PRETAX> 1,850
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,581
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,581
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
</TABLE>
