1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1995
Commission File Number 1-9948
AMERICAN REALTY TRUST, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Georgia 54-0697989
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10670 North Central Expressway, Suite 300, Dallas, Texas 75231
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(Address of Principal Executive Offices) (Zip Code)
(214) 692-4700
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(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $.01 par value New York Stock Exchange
Share Purchase Rights New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for at least the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
As of March 15, 1996, the Registrant had 5,858,328 shares of Common Stock
outstanding. Of the total shares outstanding 2,072,498 were held by other than
those who may be deemed to be affiliates, for an aggregate value of $19,430,000
based on the closing price on the New York Stock Exchange on March 15, 1996
The basis of this calculation does not constitute a determination by the
Registrant that all of such persons or entities are affiliates of the
Registrant as defined in Rule 405 of the Securities Act of 1933, as amended.
Documents Incorporated by Reference:
NONE
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INDEX TO
ANNUAL REPORT ON FORM 10-K
Page
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PART I
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Item 1. Business......................................... 3
Item 2. Properties....................................... 7
Item 3. Legal Proceedings................................ 26
Item 4. Submission of Matters to a Vote of Security
Holders....................................... 26
PART II
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Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters................... 27
Item 6. Selected Financial Data ......................... 29
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........... 30
Item 8. Consolidated Financial Statements and
Supplementary Data............................ 40
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........... 80
PART III
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Item 10. Directors, Executive Officers and Advisor of the
Registrant.................................... 80
Item 11. Executive Compensation........................... 88
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................ 91
Item 13. Certain Relationships and Related Transactions... 92
PART IV
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Item 14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K........................... 96
Signature Page.............................................. 99
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PART I
ITEM 1. BUSINESS
American Realty Trust, Inc. (the "Company" or the "Registrant"), a Georgia
corporation, is the successor to a District of Columbia business trust
organized pursuant to a declaration of trust dated July 14, 1961. The business
trust merged into the Company on June 24, 1988. The Company elected to be
treated as a Real Estate Investment Trust ("REIT") under Sections 856 through
860 of the Internal Revenue Code of 1986, as amended (the "Code"), during the
period June 1, 1987 through December 31, 1990. The Company allowed its REIT
tax status to lapse in 1991.
Business Plan and Investment Policy
The Company's primary business and only industry segment is investing in equity
interests in real estate (including equity securities of real estate-related
entities), leases, joint venture development projects and partnerships and
financing real estate and real estate activities through investments in
mortgage loans, including first, wraparound and junior mortgage loans.
Information regarding the real estate and mortgage notes receivable portfolios
of the Company is set forth in ITEM 2. "PROPERTIES" and in Schedules III and IV
to the Consolidated Financial Statements included at ITEM 8. "CONSOLIDATED
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
The Company's business is not seasonal. The Company has determined to pursue a
balanced investment policy, seeking both current income and capital
appreciation. The Company's plan of operation is to continue, to the extent
its liquidity permits, to make equity investments in income producing real
estate such as apartment complexes and commercial properties or equity
securities of real estate-related entities and to continue to service and hold
for investment its mortgage notes. The Company also intends to pursue higher
risk, higher reward investments, such as undeveloped land where it can obtain
financing of 100% of a property's purchase price. The Company also continues to
seek selected dispositions of certain of its assets where the prices obtainable
for such assets justify their disposition. The Company also intends to pursue
its rights vigorously with respect to mortgage notes receivable that are in
default.
The Company's Board of Directors has broad authority under the Company's
governing documents to make all types of real estate investments, including
mortgage loans and equity real estate investments, as well as investments in
the securities of other entities, whether or not such entities are engaged in
real estate related activities.
The Company's Board of Directors may devote available assets to particular
investments or types of investments, without restriction on the amount or
percentage of the Company's assets that may be so devoted to a single
investment or to any particular type of investment, and without limit on the
percentage of securities of any one issuer that the Company may acquire. The
Company's investment objectives and policies may be changed at any time by the
Company's Board of Directors without
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ITEM 1. BUSINESS (Continued)
Business Plan and Investment Policy (Continued)
the approval of the Company's stockholders. By allowing its REIT tax status to
lapse in 1991, the Company relieved itself of investment and operational
restrictions imposed on REITS under the Code.
The specific composition of the Company's real estate and mortgage notes
receivable portfolios from time to time will depend largely on the judgment of
the Company's management as to changing investment opportunities and the level
of risk associated with specific investments or types of investments. The
Company's management intends to continue to maintain real estate and mortgage
notes receivable portfolios diversified by location and type of property.
In addition to its equity investments in real estate and mortgage notes, the
Company has also invested in private and open market purchases of the equity
securities of Continental Mortgage and Equity Trust ("CMET"), Income
Opportunity Realty Investors, Inc., formerly Income Opportunity Realty Trust
(collectively "IORI"), and Transcontinental Realty Investors, Inc. ("TCI") and
units of limited partner interest in National Realty, L.P. ("NRLP"). See ITEM
2. "PROPERTIES - Investments in Real Estate Investment Trusts and Real Estate
Partnerships."
Management of the Company
Although the Company's Board of Directors is directly responsible for managing
the affairs of the Company and for setting the policies which guide it, the
day-to-day operations of the Company are performed by Basic Capital
Management, Inc. ("BCM" or the "Advisor"), a contractual advisor under the
supervision of the Company's Board of Directors. The duties of the Advisor
include, among other things, locating, investigating, evaluating and
recommending real estate and mortgage note investment and sales opportunities,
as well as financing and refinancing sources for the Company. The Advisor also
serves as a consultant in connection with the Company's business plan and
investment policy decisions made by the Company's Board of Directors.
BCM is a company owned by a trust for the benefit of the children of Gene E.
Phillips, the Chairman of the Board and a Director of the Company until
November 16, 1992. Mr. Phillips served as a director of BCM until December 22,
1989 and as Chief Executive Officer of BCM until September 1, 1992. Mr.
Phillips serves as a representative of the trust for the benefit of his children
that owns BCM and, in such capacity, has substantial contact with the management
of BCM and input with respect to BCM's performance of advisory services to the
Company. Ryan T. Phillips, the son of Mr. Phillips and a Director of the
Company, is also a director of BCM and a trustee of the trust for the benefit of
the children of Mr. Phillips which owns BCM. As of March 15, 1996, BCM owned
2,465,930 shares of the Company's Common Stock, approximately 42% of the shares
then outstanding. BCM is more fully described in ITEM 10. "DIRECTORS, EXECUTIVE
OFFICERS AND ADVISOR OF THE REGISTRANT - The Advisor." BCM has been providing
advisory services to the Company since February 6, 1989. BCM also serves as
advisor to CMET, IORI and TCI. Randall M. Paulson, Bruce A. Endendyk and Thomas
A. Holland, executive
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ITEM 1. BUSINESS (Continued)
Management of the Company (Continued)
officers of the Company, are also executive officers of CMET, IORI and TCI.
Oscar W. Cashwell, a Director of the Company, serves as Executive Vice
President of BCM. Randall M. Paulson, Executive Vice President of the Company,
serves as President and director of Syntek Asset Management, Inc. ("SAMI"), the
managing general partner of Syntek Asset Management, L.P. ("SAMLP"), the
general partner of NRLP and National Operating, L.P. ("NOLP"), the operating
partnership of NRLP. Mr. Phillips is also a general partner of SAMLP and
serves as a director and Chief Executive Officer of SAMI. SAMI is a company
owned by BCM. BCM performs certain administrative functions for NRLP and NOLP
on a cost reimbursement basis.
Since February 1, 1990, affiliates of BCM have provided property management
services to the Company. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides such property management services. Carmel, Ltd. subcontracts
with other entities for the provision of the property-level management services
to the Company at various rates. The general partner of Carmel, Ltd. is BCM.
The limited partners of Carmel, Ltd. are (i) Syntek West, Inc. ("SWI"), of
which Mr. Phillips is the sole shareholder, (ii) Mr. Phillips and (iii) a
trust for the benefit of the children of Mr. Phillips. Carmel, Ltd.
subcontracts the property-level management of the Company's hotels, shopping
centers, one of its office buildings and the Denver Merchandise Mart to Carmel
Realty, Inc. ("Carmel Realty") which is a company owned by SWI. Carmel Realty
is entitled to receive property and construction management fees and leasing
commissions in accordance with the terms of its property-level management
agreement with Carmel, Ltd.
Affiliates of the Advisor are also entitled to receive real estate brokerage
commissions in accordance with the terms of the Advisory Agreement as discussed
in ITEM 10. "DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT - The
Advisor."
The Company has no employees. Employees of the Advisor render services to the
Company.
Competition
The real estate business is highly competitive and the Company competes with
numerous entities engaged in real estate activities (including certain entities
described in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Related
Party Transactions"), some of which may have greater financial resources than
those of the Company. The Company's management believes that success against
such competition is dependent upon the geographic location of the property, the
performance of property managers in areas such as marketing, collections and
the ability to control operating expenses, the amount of new construction in
the area and the maintenance and appearance of the property. Additional
competitive factors with respect to commercial properties are the ease of
access to the property, the adequacy of related facilities, such as parking,
and sensitivity to market conditions in setting rent levels. With respect to
apartments, competition is also based upon the design
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ITEM 1. BUSINESS (Continued)
Competition (Continued)
and mix of the units and the ability to provide a community atmosphere for the
tenants. With respect to the hotels, competition is also based upon market
served, i.e., transient, commercial or group users. The Company's management
believes that general economic circumstances and trends and the development of
new or renovated properties in the vicinity of each of the Company's properties
are also competitive factors.
To the extent that the Company seeks to sell any of its properties, the sales
prices for such properties may be affected by competition from other real
estate entities and financial institutions, also attempting to sell their
properties in areas in which the Company's properties are located.
As described above and in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Related Party Transactions," Messrs. Paulson, Endendyk and
Holland, executive officers of the Company, also serve as executive officers of
certain other entities, each of which is also advised by BCM, and each of which
has business objectives similar to the Company's. The Company's officers and
Advisor owe fiduciary duties to such other entities as well as to the Company
under applicable law. In determining to which entity a particular investment
opportunity will be allocated, the executive officers and Advisor consider the
respective investment objectives of each such entity and the appropriateness of
a particular investment in light of each such entity's existing real estate and
mortgage notes receivable portfolios. To the extent that any particular
investment opportunity is appropriate to more than one of such entities, such
investment opportunity will be allocated to the entity which has had funds
available for investment for the longest period of time or, if appropriate, the
investment may be shared among all or some of such entities.
In addition, also as described in ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS - Certain Business Relationships," the Company also competes with
other entities which are affiliates of the Advisor and which may have
investment objectives similar to the Company's and that may compete with the
Company in purchasing, selling, leasing and financing real estate and real
estate-related investments. In resolving any potential conflicts of interest
which may arise, the Advisor has informed the Company that it intends to
continue to exercise its best judgment as to what is fair and reasonable under
the circumstances in accordance with applicable law.
Certain Factors Associated with Real Estate and Related Investments
The Company is subject to all the risks incident to ownership and financing of
real estate and interests therein, many of which relate to the general
illiquidity of real estate investments. These risks include, but are not
limited to, changes in general or local economic conditions, changes in
interest rates and availability of permanent mortgage financing which may
render the acquisition, sale or refinancing of a property difficult or
unattractive and which may make debt service
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ITEM 1. BUSINESS (Continued)
Certain Factors Associated with Real Estate and Related Investments
(Continued)
burdensome; changes in real estate and zoning laws, increases in real estate
taxes, federal or local economic or rent controls, floods, earthquakes,
hurricanes and other acts of God and other factors beyond the control of the
Company's management or Advisor. The illiquidity of real estate investments
generally may impair the ability of the Company to respond promptly to changing
circumstances. The Company's management believes that such risks are partially
mitigated by the diversification by geographic region and property type of the
Company's real estate and mortgage notes receivable portfolios. However, to
the extent new property acquisitions and mortgage lending are concentrated in
any particular region the advantages of geographic diversification may be
mitigated.
Virtually all of the Company's mortgage notes receivable, real estate, equity
security holdings in CMET, IORI, TCI, NRLP and its trading portfolio of equity
securities are held subject to secured indebtedness. Such borrowings increase
the Company's risk of loss because they represent a prior claim on the
Company's assets and require fixed payments regardless of profitability. If
the Company defaults on such secured indebtedness, the lender may foreclose on
the Company's assets securing such indebtedness, and the Company could lose its
investment in the pledged assets.
ITEM 2. PROPERTIES
The Company's principal offices are located at 10670 North Central Expressway,
Suite 300, Dallas, Texas 75231. In the opinion of the Company's management,
the Company's offices are suitable and adequate for its present operations.
Details of the Company's real estate and mortgage notes receivable portfolios
at December 31, 1995, are set forth in Schedules III and IV, respectively, to
the Consolidated Financial Statements included at ITEM 8. "CONSOLIDATED
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA." The discussions set forth below
under the headings "Real Estate" and "Mortgage Loans" provide certain summary
information concerning the Company's real estate and mortgage notes receivable
portfolios.
At December 31, 1995, the mortgage notes receivable secured by the Continental
Hotel and Casino and by the Las Vegas Plaza Shopping Center, both of which are
in Las Vegas, Nevada, net of applicable premiums, discounts, interest and
deferred gains, each accounted for 11% of the Company's total assets. No
other single asset of the Company accounted for 10% or more of its total
assets. At December 31, 1995, 37% of the Company's assets consisted of real
estate, 31% consisted of notes and interest receivable and 25% consisted of
investments in the equity securities of CMET, IORI, TCI and NRLP. The
remaining 7% of the Company's assets were invested in cash, cash equivalents,
marketable equity securities and other assets. The percentage of the Company's
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ITEM 2. PROPERTIES (Continued)
assets invested in any one category is subject to change and no assurance can
be given that the composition of the Company's assets in the future will
approximate the percentages listed above.
At December 31, 1995, the Company's real estate was located in the Midwest,
Southwest and Mountain regions of the continental United States, as shown more
specifically in the table under "Real Estate" below. The Company also holds
mortgage notes receivable secured by real estate located in various geographic
regions of the continental United States, with a concentration in the Mountain
region, as shown more specifically in the table under "Mortgage Loans" below.
Geographic Regions
The Company has divided the continental United States into the following six
geographic regions.
Northeast region comprised of the states of Connecticut, Delaware, Maine,
Maryland, Massachusetts, New Hampshire, New Jersey, New York,
Pennsylvania, Rhode Island and Vermont, and the District of Columbia. The
Company has no properties in this region.
Southeast region comprised of the states of Alabama, Florida, Georgia,
Mississippi, North Carolina, South Carolina, Tennessee and Virginia. The
Company has no properties in this region.
Southwest region comprised of the states of Arizona, Arkansas, Louisiana,
New Mexico, Oklahoma and Texas. The Company has one commercial property
in this region.
Midwest region comprised of the states of Illinois, Indiana, Iowa, Kansas,
Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, Ohio,
South Dakota, West Virginia and Wisconsin. The Company has three
commercial properties and 3one hotel in this region.
Mountain region comprised of the states of Colorado, Idaho, Montana,
Nevada, Utah and Wyoming. The Company has one commercial property and one
hotel in this region.
Pacific region comprised of the states of California, Oregon and
Washington. The Company has no properties in this region.
Excluded from the above are eight parcels of developed and undeveloped land, as
described below.
Real Estate
At December 31, 1995, approximately two-thirds of the Company's assets were
invested in real estate and the equity securities of real estate entities. The
Company has invested in real estate located throughout
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ITEM 2. PROPERTIES (Continued)
Real Estate (Continued)
the continental United States, either on a leveraged or nonleveraged basis.
The Company's real estate portfolio consists of properties held for investment,
investments in partnerships, properties held for sale and investments in equity
securities of CMET, IORI, TCI and NRLP.
Types of Real Estate Investments. The Company's real estate consists of
commercial properties (office buildings, shopping centers and a merchandise
mart) and hotels. In selecting new real estate investments, the location, age
and type of property, gross rents, lease terms, financial and business standing
of tenants, operating expenses, fixed charges, land values and physical
condition are among the factors considered. The Company may acquire properties
subject to or assume existing debt and may mortgage, pledge or otherwise obtain
financing for its properties. The Company's Board of Directors may alter the
types of and criteria for selecting new real estate investments and for
obtaining financing without a vote of the Company's stockholders.
The Company intends to begin a major expansion of the Denver Merchandise Mart
and renovation of the Inn at the Mart, both in Denver, Colorado, in 1996, if
suitable financing can be obtained.
In the opinion of the Company's management, the properties owned by the Company
are adequately covered by insurance.
The following table sets forth the percentages, by property type and geographic
region, of the Company's owned real estate (excluding the eight parcels of
developed and undeveloped land, described below) at December 31, 1995.
Commercial
Region Properties Hotels
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Midwest.......................... 26% 56%
Mountain......................... 68 44
Southwest........................ 6 -
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100% 100%
The foregoing table is based solely on the commercial square footage and hotel
rooms owned by the Company, and does not reflect the value of the Company's
investment in each region. Excluded from the above table are 22 developed
residential lots in a residential subdivision in Fort Worth, Texas, 2 parcels
of partially developed land in Las Colinas, Texas totaling 160.6 acres, 3.5
acres of undeveloped land in downtown Atlanta, Georgia, and four additional
parcels of land totaling approximately 426 acres. See Schedule III to the
Consolidated Financial Statements included at ITEM 8. "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA" for a more detailed description of the Company's real
estate portfolio.
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ITEM 2. PROPERTIES (Continued)
Real Estate (Continued)
A summary of the activity in the Company's owned real estate portfolio during
1995 is as follows:
Owned properties in real estate portfolio at
January 1, 1995.................................... 16*
Properties acquired through purchase..................... 2
Property acquired through settlement..................... 1
Properties released through settlement................... (2)
Properties sold.......................................... (2)
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Owned properties in real estate portfolio at
December 31, 1995.................................. 15*
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* Includes two residential subdivisions with a total of 33 developed
residential lots at January 1, 1995 and one residential subdivision
with 22 developed residential lots at December 31, 1995.
Properties Held for Investment. Set forth below are the Company's properties
held for investment and the average annual rental rate for commercial
properties and the average daily room rate for hotels and occupancy at December
31, 1995, 1994 and 1993 for commercial properties and average occupancy during
1995, 1994 and 1993 for hotels:
Rent Per
Units/ Square Foot Occupancy
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Property Location Square Footage 1995 1994 1993 1995 1994 1993
- ----------------- -------------- --------------- ------ ------ ------ ------ ------ ------
Office Building
- ---------------
Rosedale Towers Minneapolis, MN 84,798 Sq.Ft. $13.16 $ 14.46 $ 14.00 90% 94% 92%
Shopping Center
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Oak Tree Village Lubbock, TX 45,623 Sq.Ft. 7.34 * * 91% * *
Park Plaza Manitowoc, WI 105,507 Sq.Ft. 5.72 5.65 5.65 93% 93% 86%
Merchandise Mart
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Denver Mart Denver, CO 509,008 Sq.Ft. 14.53 14.18 * 96% 97% *
Hotels
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Inn at the Mart Denver, CO 156 Rooms 44.69 42.38 * 40% 42% *
Kansas City Holiday
Inn Kansas City, MO 196 Rooms 61.66 52.47 48.76 75% 75% 70%
____________________
* Property was acquired in 1995 or 1994.
Occupancy presented above and through this ITEM 2. is without reference to
whether leases in effect are at, below or above market rates.
In March 1995, the Company exercised its option to extend the maturity date of
the loan secured by the Kansas City Holiday Inn to March 1997. In April and
October 1995, the Company refinanced the mortgage debt secured by the Kansas
City Holiday Inn. The Company received net cash of $2.8 million after the
payoff of the existing $2.9 million mortgage and the payment of closing costs
associated with the refinancings. The Company paid BCM a total of $95,000 in
mortgage brokerage and equity refinancing fees based upon the initial
refinancing of $3.5 million and the second refinancing of $6.0 million.
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ITEM 2. PROPERTIES (Continued)
Real Estate (Continued)
In November 1995, the Company obtained the Oak Tree Village, a 42,000 square
foot shopping center in Lubbock, Texas, as a portion of a settlement with an
insurance company. See "Mortgage Loans" below.
Properties held for sale. As of December 31, 1994, the Company reclassified
from "Real estate held for investment" to "Real estate held for sale" the
Boulevard Villas Apartments, a 303 unit apartment complex in Las Vegas, Nevada.
In February 1995, the Company sold the apartment complex for $9.6 million. The
Company initially treated the sale as a financing transaction, the Company
having provided the purchaser with the $1.6 million down payment, by loaning a
like amount, secured by a second lien on an office building in Houston, Texas.
In March 1995, the office building was sold and the Company's loan was paid in
full. The Company received net cash of $3.4 million from the sale of the
apartment complex, after the payoff of $5.9 million in existing mortgage debt,
recognizing a gain of $924,000 on the sale. The Company paid a real estate
brokerage commission of $288,000 to Carmel Realty, an affiliate of BCM, the
Company's advisor, based on the $9.6 million sales price.
In May 1995, the Company purchased a 74.9 acre parcel of partially developed
land in Las Colinas, Texas, for $13.5 million. The Company paid a real estate
brokerage commission of $405,000 to Carmel Realty based on the $13.5 million
purchase price. In connection with the acquisition, the Company borrowed $15.0
million under a term loan, which bears interest at the prime rate plus 4%,
(12.50% per annum at December 31, 1995), requires monthly interest only
payments, a 1% annual maintenance fee, principal reduction payments of $1.5
million on the first day of November 1995 and May 1996 and $3.0 million every
six months thereafter commencing November 1996, with the balance of principal
and accrued but unpaid interest due at maturity on May 1, 1998. The term loan
is secured by the land in Las Colinas, Texas, a participation interest in two of
the Company's notes receivable, land in Atlanta, Georgia and a pledge of 586,800
NRLP units of limited partner interest owned by the Company. The Company
received net financing proceeds of $210,000 after the purchase of the land and
payment of associated closing costs. In June 1995, the Company borrowed an
additional $3.0 million from this lender increasing the term loan principal
balance to $18.0 million. The additional $3.0 million borrowing was paid in
full prior to its March 31, 1996, maturity date as discussed below.
In September 1995, the Company sold 6.9 acres of the 74.9 acre
parcel for $2.9 million in cash. In accordance with the provisions of the term
loan, the Company applied the $2.6 million net proceeds of the sale to pay down
the term loan. Such paydown was credited against the principal payments the
Company was otherwise required to make in 1995 and 1996. The principal
balance of the term loan was $15.5 million at December 31, 1995. The Company
recognized a $1.5 million gain on the sale.
On February 2, 1996, the Company refinanced the $7.8 million of debt secured
by its $18.0 million mortgage note receivable secured by the Las
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ITEM 2. PROPERTIES (Continued)
Real Estate (Continued)
Vegas Shopping Center in Las Vegas, Nevada, for $12.0 million. The Company
received net refinancing proceeds of $2.3 million after the payment of closing
costs associated with the refinancing and making a $1.5 million down on the term
loan discussed above. Such $1.5 million payment was required to obtain the term
loan lender's release of its lien on the Company's mortgage note receivable.
The mortgage bears interest at 15% per annum, requires $151,733 monthly
principal and interest payments, and matures February 6, 1998. The Company paid
BCM a mortgage brokerage and equity refinancing fee of $120,000 based upon the
$12.0 million refinancing.
On March 11, 1996, the Company sold an additional 2.3 acres of the 74.9 acre
parcel for $961,000 in cash. In accordance with the provisions of the term
loan, the Company applied the net proceeds of the sale, $891,000, to pay down
the term loan, $400,000 being applied to payoff the remaining balance owing on
the $3.0 million principal payment due March 31, 1996, with the remaining
$491,000 being applied against the principal payment of $1.5 million due in May
1996.
In October 1995, the Company purchased an additional tract of partially
developed land in Las Colinas, Texas, totaling 92.6 acres for $7.1 million. The
Company paid a real estate acquisition fee of $212,000 to Carmel Realty based on
the $7.1 million purchase price. The Company paid $959,000 in cash and borrowed
the remaining $6.1 million. The mortgage bears interest at the prime rate plus
5%, (13.50% at December 31, 1995), requires monthly interest only payments
through September 30, 1996, four quarterly deferred commitment fee payments of
$50,000 and $50,000 monthly principal reduction payments beginning October 1,
1996. The principal balance, accrued but unpaid interest and a $500,000
"maturity fee" is due at maturity on December 1, 1996. The Company has an option
to extend the maturity date to October 1, 1997 if no event of default has
occurred, written notice is given prior to maturity and the principal balance of
the loan has been reduced by $2.1 million. The Company has also agreed to
pledge to the lender, as additional collateral for the loan, $2.0 million of
newly issued shares of the Company's Common Stock.
On February 13, 1996 the Company entered into a contract to sell 72.5 of the
92.6 acres for $12.9 million in cash. The contract calls for the sale to close
in two phases. The first phase is to close on or before May 23, 1996 but may be
extended to July 24, 1996, and the second phase is to close on or before
December 31, 1996.
In 1991, the Company purchased all of the capital stock of a corporation which
owned 198 developed residential lots in Fort Worth, Texas. Through December
31, 1994, 172 of the residential lots had been sold. During 1995, 4 additional
lots were sold for an aggregate gain of $6,000. At December 31, 1995, 22 lots
remained to be sold.
Also in 1991, the Company purchased all of the capital stock of a company which
owned a 60% interest in a joint venture, which in turn
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ITEM 2. PROPERTIES (Continued)
Real Estate (Continued)
owned 113 partially developed residential lots in Denton, Texas. Through
December 31, 1994, 109 of the residential lots had been sold. During 1995, the
remaining four lots were sold for an aggregate gain of $24,000.
At December 31, 1995, the Company also owned 3.5 acres of undeveloped land in
downtown Atlanta, Georgia, four additional parcels of land totaling
approximately 426 acres and a fully depreciated office building in St. Louis,
Missouri, all of which are held for sale. See Schedule III to the Consolidated
Financial Statements included at ITEM 8. "FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA."
Mortgage Loans
In addition to real estate, a substantial portion of the Company's assets have
been and are expected to continue to be invested in mortgage notes receivable,
principally those secured by income-producing real estate. The Company's
mortgage notes receivable consist of first, wraparound, and junior mortgage
loans.
Types of Mortgage Activity. In addition to originating its own mortgage loans,
the Company has acquired existing mortgage notes either directly from builders,
developers or property owners, or through mortgage banking firms, commercial
banks or other qualified brokers. BCM, in its capacity as a mortgage servicer,
services the Company's mortgage notes receivable.
Types of Properties Subject to Mortgages. The types of properties securing the
Company's mortgage notes receivable portfolio at December 31, 1995 consisted of
office buildings, apartment complexes, shopping centers, single-family
residences, hotels and developed land. The Company's Board of Directors may
alter the types of properties subject to mortgages in which the Company invests
without a vote of the Company's stockholders.
At December 31, 1995, the obligors on $13.0 million or 24% of the Company's
mortgage notes receivable portfolio were affiliates of the Company. Also at
that date, $1.8 million or 3% of the Company's mortgage notes receivable
portfolio was in default.
The following table sets forth the percentages (based on the outstanding
mortgage note balance at December 31, 1995), by both property type and
geographic region, of the properties that serve as collateral for the Company's
mortgage notes receivable at December 31, 1995. See Schedule IV to the
Consolidated Financial Statements included at ITEM 8.
13
14
ITEM 2. PROPERTIES (Continued)
Mortgage Loans (Continued)
"CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA" for additional
details of the Company's mortgage notes receivable portfolio.
Commercial
Region Apartments Properties Total
- ---------- ---------- ---------- -------
Mountain............. -% 73.8% 73.8%
Southeast............ - 17.6 17.6
Midwest.............. 6.3 - 6.3
Northeast............ 2.3 - 2.3
--- ---- -----
8.6% 91.4% 100.0%
A summary of the activity in the Company's mortgage notes receivable portfolio
during 1995 is as follows:
Loans in mortgage notes receivable portfolio at
January 1 and December 31, 1995............................14*
- ---------------------
* Includes a mortgage note receivable collateralized by three condominium
mortgage loans.
During 1995, the Company collected $4.9 million in interest and $1.6 million in
principal on its mortgage notes receivable. The Company plans, for the
foreseeable future, to hold, to the extent its liquidity permits, rather than
to sell in the secondary market, the mortgage notes in its portfolio.
First Mortgage Loans. The Company may invest in first mortgage loans, with
either short-, medium- or long-term maturities. First mortgage loans generally
provide for level periodic payments of principal and interest sufficient to
substantially repay the loan prior to maturity, but may involve interest-only
payments or moderate or negative amortization of principal and a "balloon"
principal payment at maturity. With respect to first mortgage loans, it is the
Company's general policy to require that the borrower provide a mortgagee's
title policy or an acceptable legal opinion of title as to the validity and the
priority of the mortgage lien over all other obligations, except liens arising
from unpaid property taxes and other exceptions normally allowed by first
mortgage lenders in the relevant area. The Company may grant to other lenders
participations in first mortgage loans originated by the Company.
The following discussion briefly describes the events that affected previously
funded first mortgage loans during 1995.
In June 1991, the Company entered into an asset sales agreement with an
insurance company whereby the Company sold real estate and participations in
various of its assets in an effort to develop a potential source for future
financing and to generate cash from otherwise illiquid assets. Assets
transferred by the Company pursuant to the asset sales agreement included a
retail shopping center in
14
15
ITEM 2. PROPERTIES (Continued)
Mortgage Loans (Continued)
Lubbock, Texas, with a carrying value of $2.0 million prior to transfer, a $1.5
million senior participation in a second lien mortgage note secured by the Las
Vegas Plaza, a retail shopping center in Las Vegas, Nevada, with a carrying
value of $18.8 million prior to transfer, a $315,000 participation in a first
mortgage note secured by unimproved land in Virginia Station, Virginia and a
$799,000 participation in a second lien mortgage note secured by the Country
Club Apartments in Flagstaff, Arizona. In return, the Company received a $1.9
million participation in a first mortgage note secured by a hotel site in
Lihue, Hawaii, a $1.0 million first mortgage note secured by land in Maricopa
County, Arizona, a $118,000 first mortgage note secured by a single-family
residence in Silver Creek, Colorado and $1.5 million in cash. The asset sales
agreement contained put and guaranty provisions whereby, at any time, either
party could demand that the seller reacquire any asset sold pursuant to the
terms of the asset sales agreement for the consideration originally received.
In March 1992, the Company received payment in full on the $118,000 note
secured by the single- family residence in Silver Creek, Colorado.
In March 1992, the insurance company was placed in receivership and in June
1992, the Company provided notice to the insurance company, under the terms of
the put and guaranty provisions of the asset sales agreement, of its desire to
divest itself of all assets received. The Receiver refused to allow the
enforcement of the put and guaranty provisions of the asset sales agreement.
In March 1992, the Company recorded a provision for loss of $496,000 to reduce
the $1.0 million note receivable secured by land in Maricopa County, Arizona to
its then estimated fair value. In June 1992, the Company foreclosed on the
land. In September 1992, the Company recorded the insubstance foreclosure of
the hotel site in Lihue, Hawaii, which secured a $1.9 million first mortgage
participation received by the Company. In March 1995, the Company collected in
full the second lien mortgage note secured by the Country Club Apartments, but
did not remit such amount to the insurance company.
A settlement between the Company and the Receiver was approved by the court on
February 15, 1995. Under the terms of the settlement, the insurance company
returned to the Company all of the assets which it received from the Company,
except for the participation in the first mortgage note secured by unimproved
land in Virginia Station, Virginia. In exchange, the Company returned to the
insurance company $1.0 million in cash and all the assets which it received
from the insurance company, other than the note secured by the residence in
Colorado which the Company had collected. The asset transfers and the
Company's cash payment were completed in the fourth quarter of 1995. The
Company incurred no loss on the settlement.
The borrower on a $1.7 million first mortgage note receivable secured by land
in Osceola, Florida, failed to pay the note on its November 1, 1993 maturity.
The Company instituted foreclosure proceedings and was awarded a summary
judgment in January 1994. During 1994 and 1995, the
15
16
ITEM 2. PROPERTIES (Continued)
Mortgage Loans (Continued)
borrower paid the Company a total of $270,000 in nonrefundable fees to delay
foreclosure of the property until April 24, 1995. On April 21, 1995, the
borrower filed for bankruptcy protection. In July 1995, the Company filed a
motion with the bankruptcy court to lift the court's stay and allow the Company
to proceed with foreclosure. In September 1995, the bankruptcy court denied
the Company's motion to lift stay and the borrower was allowed to file a plan
of reorganization. The bankruptcy court has set a hearing date of May 15, 1996
for confirmation of the borrower's plan of reorganization. The note had a
principal balance of $1.6 million at December 31, 1995. The Company does not
expect to incur any loss if it is allowed to foreclose on the collateral
property as its estimated fair value exceeds the carrying value of the note.
Wraparound Mortgage Loans. The Company may invest in wraparound mortgage
loans, sometimes called all-inclusive loans, made on real estate subject to
prior mortgage indebtedness. A wraparound mortgage note is a mortgage note
having an original principal amount equal to the outstanding balance under the
prior existing mortgage loan plus the amount actually advanced under the
wraparound mortgage loan.
Wraparound mortgage loans may provide for full, partial or no amortization of
principal. The Company's policy is to make wraparound mortgage loans in
amounts and on properties as to which it would otherwise make a first mortgage
loan. The following discussion briefly describes events that affected
previously funded wraparound mortgage loans during 1995.
In August 1990, the Company foreclosed on its fourth lien note receivable
secured by the Continental Hotel and Casino in Las Vegas, Nevada. The Company
acquired the hotel and casino property at foreclosure subject to first and
second lien mortgages totaling $10.0 million and a disputed third lien
mortgage. In June 1992, the Company sold the hotel and casino to the third
lienholder for a $22 million wraparound mortgage note receivable, a $500,000
unsecured note receivable, and $100,000 in cash. The $22 million note bears
interest at 11% and was scheduled to mature June 19, 1995. The Company
recorded a deferred gain of $4.3 million in connection with the sale of the
hotel and casino resulting from the disputed third lien mortgage being
subordinated to the Company's wraparound mortgage note receivable. In April
1994, the Company, the borrower and the underlying lienholder agreed to modify
and extend both the Company's wraparound note receivable and the underlying
liens. The Company's modified wraparound mortgage note receivable and the
underlying liens were scheduled to mature July 1, 1995. Subsequently, the
Company, the borrower and the underlying lienholder again agreed to extend the
wraparound mortgage note receivable and the underlying liens to December 31,
1995. A one percent extension fee was added to the principal balance of the
wraparound mortgage note. The monthly payments on both the wraparound note and
the first lien remained at $175,000 per month as did the other terms of the
notes. The Company, the borrower and the underlying lienholder have again
agreed to extend the Company's wraparound mortgage
16
17
ITEM 2. PROPERTIES (Continued)
Mortgage Loans (Continued)
note and underlying liens to July 1, 1996. A one percent extension fee was
again added to the principal balance of the Company's wraparound mortgage note.
The monthly payments on both the wraparound mortgage note and the first lien
remained at $175,000 per month as did the other terms of the notes. The
Company's modified wraparound note continues to accrue interest at 11% per annum
with any unpaid interest being added monthly to the principal balance. The
borrower is making payments in accordance with the terms of the modified note.
The Company's wraparound mortgage note receivable had a principal balance of
$22.7 million at December 31, 1995. The Company recognizes interest income on
this wraparound mortgage note only to the extent interest is collected.
In conjunction with the modification of the Company's wraparound mortgage note
receivable, the underlying lienholder has agreed to forebear exercising its
rights under the first and second liens on the condition that the Company
continue to remit to it the greater of either $175,000 or all sums received by
the Company on the Company's wraparound mortgage note receivable. The Company
remains in compliance with the terms of the forbearance agreement.
Junior Mortgage Loans. The Company may invest in junior mortgage loans. Such
notes are secured by mortgages that are subordinate to one or more prior liens
either on the fee or a leasehold interest in real estate. Recourse on such
notes ordinarily includes the real estate which secures the note, other
collateral and personal guarantees of the borrower.
The following discussion briefly describes the junior mortgage loans funded in
1995 and the events that affected previously funded junior mortgage notes
during 1995.
At December 31, 1995, the Company held a mortgage note receivable secured by a
third lien mortgage secured by a commercial property in South Carolina and
personal guaranties of several individuals. The borrower has failed to
make the required payments of principal and interest since December 1, 1994.
The Company accelerated the note and instituted foreclosure proceedings as well
as actions against the guarantors of the note. Effective September 1, 1995, the
note was extended to September 1, 1996, requiring a $68,000 principal reduction
payment, with the monthly interest, quarterly principal payments and all other
terms remaining the same. The Company has received $43,000 of the required
principal payment and is to receive the remaining $25,000 April 1, 1996. The
principal balance of the note was $279,000 at December 31, 1995. The Company
expects to incur no loss on the note in excess of the reserves previously
provided.
The Company holds a junior mortgage note receivable secured by the
Williamsburg Hospitality House in Williamsburg, Virginia, that is
17
18
ITEM 2. PROPERTIES (Continued)
Mortgage Loans (Continued)
subject to underlying liens totaling $11.7 million at December 31, 1995. In
October 1993, the first lien debt was restructured and split in three pieces.
During 1995, the Company advanced the borrower $3.3 million to payoff the then
second lien, allowing the borrower to receive a $2.4 million discount offered by
the lender for the early pay off of such lien. In conjunction with such
advance, the Company extended the maturity of its note to April 1, 1996. All
other terms of the note remained unchanged.
Investments in Real Estate Investment Trusts and Real Estate
Partnerships
The Company's investment in real estate entities includes (i) equity securities
of three publicly traded REITs (collectively the "Trusts"), CMET, IORI and TCI,
(ii) units of limited partner interest of NRLP, (iii) a general partner
interest in NRLP and NOLP, through its 76.8% limited partner interest in SAMLP,
the general partner of NRLP and NOLP, and (iv) interests in real estate joint
venture partnerships. Gene E. Phillips, Chairman of the Board and a Director
of the Company until November 16, 1992, serves as a director and Chief
Executive Officer of SAMI, a company owned by BCM, which serves as SAMLP's
managing general partner. Mr. Phillips is also a general partner of SAMLP.
BCM serves as advisor to the Trusts, and performs certain administrative and
management functions for NRLP and NOLP on behalf of SAMLP.
Since acquiring its initial investments in the equity securities of the Trusts
and NRLP in 1989, the Company has made additional investments in the equity
securities of these entities through private and open market purchases. The
Company's cost with respect to shares of the Trusts at December 31, 1995
totaled $25.9 million, and its cost with respect to units of limited partner
interest in NRLP totaled $28.6 million. The aggregate carrying value (cost
plus or minus equity in income or losses and less distributions received) of
such equity securities of the Trusts and NRLP was $36.7 million at December
31, 1995 and the aggregate market value of such equity securities was $69.2
million. The aggregate
18
19
ITEM 2. PROPERTIES (Continued)
Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)
investee book value of the equity securities of the Trusts and the Company's
share of NRLP's revaluation equity based upon the December 31, 1995 financial
statements of each such entity was $59.7 million and $161.5 million,
respectively. See ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
In 1990, the Company's Board of Directors authorized and in May 1993 reaffirmed
the expenditure by the Company of up to an aggregate of $17.0 million to
acquire, in open market purchases, additional units of NRLP and shares of the
Trusts. In March 1995, the Company's Board of Directors increased such
authorization to $25.0 million. As of December 31, 1995, the Company had
expended $2.7 million to acquire additional units of NRLP and an aggregate of
$4.5 million to acquire additional shares of the Trusts, in open market
purchases, in accordance with these authorizations. The Company expects to
make additional investments in the equity securities of the Trusts and NRLP.
At December 31, 1995, SAMLP, the general partner of NRLP and NOLP, owned 26,475
shares of TCI. The Company owns a 76.8% limited partnership interest in SAMLP
which the Company consolidates for financial statement purposes.
The purchases of the equity securities of the Trusts and NRLP were made for the
purpose of investment and were based principally on the opinion of the
Company's management that the equity securities of each were and are currently
undervalued. The determination by the Company to purchase additional equity
securities of the Trusts and NRLP is made on an entity-by-entity basis and
depends on the market price of each entity's equity securities relative to the
value of its assets, the availability of sufficient funds and the judgment of
the Company's management regarding the relative attractiveness of alternative
investment opportunities. Substantially all of the equity securities of the
Trusts and NRLP owned by the Company are pledged as collateral for borrowings.
Pertinent information regarding the Company's investment in the equity
securities of the Trusts and NRLP, at December 31, 1995, is summarized below
(dollars in thousands):
Equivalent
Percentage Carrying Investee
of the Company's Value of Book Value Market Value
Ownership at Investment at at of Investment at
Investee December 31, 1995 December 31, 1995 December 31, 1995 December 31, 1995
- -------- ----------------- ---------------- ------------------ -----------------
NRLP.... 52.1% $ 12,712 $ * $ 38,020
CMET.... 37.2 12,116 28,297 15,757
IORI.... 25.9 2,752 6,271 4,065
TCI..... 28.2 9,162 25,195 11,335
-------- --------
$ 36,742 $ 69,177
======== ========
- --------------------
* At December 31, 1995, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity, however, was $161.5
19
20
ITEM 2. PROPERTIES (Continued)
Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)
million. Revaluation equity is defined as the difference
between the appraised value of the partnership's real
estate, adjusted to reflect the partnership's estimate of
disposition costs, and the amount of the mortgage notes
payable and accrued interest encumbering such property as
reported in NRLP's Annual Report on Form 10-K for the
year ended December 31, 1995.
Each of the Trusts and NRLP own a considerable amount of real estate, much of
which, particularly in the case of NRLP, has been held for many years. Because
of depreciation, these entities may earn substantial amounts in periods in
which they sell real estate and will probably incur losses in periods in which
they do not. The Company's reported income or loss attributable to these
entities will differ materially from its cash flow attributable to them.
The Company does not have a controlling equity interest in any of the Trusts
and therefore it cannot, acting by itself, determine either the individual
investments or the overall investment policies of such investees. However, due
to the Company's equity investments in, and the existence of common officers
with, each of the Trusts, and that the Trusts have the same advisor as the
Company and that Mr. Paulson, an Executive Officer of the Company, is also the
President of the Trusts and BCM, the Company's advisor, and the President and a
director of SAMI, a Company owned by BCM, that is the managing general partner
of SAMLP, the Company may be considered to have the ability to exercise
significant influence over the operating and investing policies of these
entities. The Company accounts for its investment in these entities using the
equity method. Under the equity method, the Company recognizes its
proportionate share of the income or loss from the operations of these entities
currently, rather than when realized through dividends or on sale. The
Company continues to account for its investment in NRLP under the equity method
due to the pending resignation of SAMLP as general partner of NRLP and NOLP, as
more fully discussed in "NRLP" below. The carrying value of the Company's
investment in these entities, as set forth in the table above, is the original
cost of each such investment adjusted for the Company's proportionate share of
each entity's income or loss and distributions received.
The following is a summary description of each of NRLP and the Trusts, based
upon information publicly reported by such entities.
NRLP. NRLP is a publicly traded master limited partnership which was formed
under the Delaware Uniform Limited Partnership Act on January 29, 1987. It
commenced operations on September 18, 1987 when, through NOLP, it acquired all
of the assets, and assumed all of the liabilities, of 35 public and private
limited partnerships sponsored by or otherwise related to Southmark Corporation
("Southmark"). NRLP is the sole limited partner of NOLP and owns 99% of the
beneficial interest in NOLP. NRLP and NOLP operate as an economic unit and,
unless the context otherwise requires, all references herein to the Partnership
shall
20
21
ITEM 2. PROPERTIES (Continued)
Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)
constitute references to NRLP and NOLP as a unit. The general partner and
owner of 1% of the beneficial interest in each of NRLP and NOLP is SAMLP, a
Delaware limited partnership. SAMI, a company owned by BCM, is the managing
general partner of SAMLP. In November 1992, NOLP transferred 52 apartment
complexes and a wraparound mortgage note receivable to Garden Capital, L.P.
("GCLP"), a Delaware limited partnership in which NOLP owns a 99.3% limited
partner interest. Concurrent with such transfer, GCLP refinanced all of the
mortgage debt associated with the transferred properties and the wraparound
mortgage note under a new first mortgage in the amount of $223 million.
The Company is a limited partner in SAMLP, holding a 76.8% limited partner
interest therein, which the Company consolidates for financial statement
purposes. Southmark owns a 19.2% limited partner interest in SAMLP. Gene E.
Phillips and SAMI are the general partners of SAMLP.
SAMI, as the managing general partner of SAMLP, has discretion in determining
methods of obtaining funds for the Partnership's operations, and the
acquisition and disposition of its assets. The Partnership's governing
documents place no limitation on the amount of leverage that the Partnership
may incur either in the aggregate or with respect to any particular property or
other investment. At December 31, 1995, the aggregate loan-to-value ratio of
the Partnership's real estate portfolio was 47.3% computed on the basis of the
ratio of total property-related debt to aggregate appraised values.
As of December 31, 1995, NRLP owned 83 properties located in 22 states. These
properties consisted of 67 apartment complexes comprising 16,848 units, seven
office buildings with an aggregate of 495,594 square feet and nine shopping
centers with an aggregate of 1.1 million square feet.
For the year ended December 31, 1995, the Partnership reported net income of
$3.8 million compared to $5.0 million for the year ended December 31, 1994.
The Partnership's net income in 1995 was attributable to a $7.7 million gain on
the sale of two apartment complexes. The Partnership's net income in 1994 was
attributable to a $8.3 million gain on the sale of two apartment complexes.
The Partnership's loss from operations of $3.9 million in 1995 was a 21%
increase when compared to its $3.2 million loss from operations in 1994. The
increase is due in part to increased interest expense from an increase in the
interest rate on $223 million of variable rate debt and increased borrowings
resulting from debt refinancings in 1994 and 1995. The remainder of the
increase is due to higher general and administrative expense as a result of
higher legal and consulting fees related to the Moorman Settlement Agreement,
discussed below. At December 31, 1995, the Partnership had total assets of
$292.9 million which consisted of $229.5 million in real estate held for
investment, $10.2 million in notes and interest receivable, net of allowance for
estimated losses, $32.5 million in other assets and $20.7 million in cash and
cash equivalents.
21
22
ITEM 2. PROPERTIES (Continued)
Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)
In the fourth quarter of 1993, the Partnership resumed quarterly distributions
to unitholders. In 1995, the Company received a total of $719,000 in
distributions from the Partnership. At December 31, 1995, the Company accrued
$3.3 million in distributions from the Partnership that were paid January 2,
1996.
The Partnership, SAMLP, Mr. Phillips and William S. Friedman, a general partner
of SAMLP until March 4, 1994, were among the defendants in a class action
lawsuit arising out of the transactions discussed above whereby the Partnership
was formed. An agreement settling such lawsuit as to the defendants, the
Partnership, SAMLP and Messrs. Phillips and Friedman (the "Moorman Settlement
Agreement"), became effective on July 5, 1990. The Moorman Settlement
Agreement provided for, among other things, the appointment of an oversight
committee for NRLP; the establishment of specified annually increasing targets
for a five-year period relating to the price of NRLP units; a limitation and
deferral or waiver of NRLP's reimbursement to SAMLP of certain future salary
costs; and a deferral or waiver of certain future compensation to SAMLP; the
required distribution to unitholders of all of the Partnership's cash from
operations in excess of certain renovation costs unless the NRLP oversight
committee approves alternative uses for such cash from operations; the issuance
of unit purchase warrants to members of the plaintiff class; the contribution
by certain co- defendants of cash and notes payable to the Partnership
aggregating $5.5 million including $2.5 million contributed by SAMLP. The
Partnership also agreed to pay certain settlement costs, including plaintiffs'
attorneys' fees in the amount of $3.4 million. The settlement plan remains in
effect until the withdrawal of SAMLP as general partner of NRLP and NOLP.
The Moorman Settlement Agreement provides for the resignation and replacement
of SAMLP as general partner if the price targets are not met for two
consecutive anniversary dates. The Partnership did not meet the unit price
targets for the first and second anniversary dates. On July 8, 1992, SAMLP
notified the NRLP Oversight Committee of the failure to meet the unit price
targets for two successive years and that it expects to resign as general
partner of NRLP and NOLP.
The withdrawal of SAMLP as general partner would require the Partnership to
purchase SAMLP's general partner interest (the "Redeemable General Partner
Interest") at its then fair value, and to pay certain fees and other
compensation as provided in the partnership agreement. SAMI, the managing
general partner of SAMLP, has calculated the fair value of such Redeemable
General Partner Interest to be $36.2 million at December 31, 1995, before
reduction for the principal balance ($4.2 million at December 31, 1995) and
accrued interest ($4.4 million at December 31, 1995) on the note receivable
from SAMLP for its original capital contribution to the Partnership.
In January 1995, NRLP, SAMLP, and the NRLP oversight committee and William H.
Elliott executed an Implementation Agreement which provides for the nomination
of an entity controlled by Mr. Elliott as successor
22
23
ITEM 2. PROPERTIES (Continued)
Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)
general partner and for the resolution of all related matters under the Moorman
Settlement Agreement. On February 20, 1996, the parties to the Implementation
Agreement executed an Amended and Restated Implementation Agreement.
Provided that the successor general partner is elected pursuant to the terms of
the Amended and Restated Implementation Agreement, SAMLP shall receive
$12,471,500 from the Partnership. This amount represents a compromise
settlement of the net amounts owed by the Partnership to SAMLP upon SAMLP's
withdrawal as General Partner and any amounts which SAMLP and its affiliates
may owe to the Partnership. This amount shall be paid to SAMLP pursuant to a
promissory note in accordance with the terms set forth in the Amended and
Restated Implementation Agreement.
The Amended and Restated Implementation Agreement has been submitted to the
Judge supervising the implementation of the Moorman Settlement Agreement (the
"Supervising Judge") for tentative approval and approval of the notice to be
sent to the original class members. Upon final approval by the Supervising
Judge, the proposal to elect the successor general partner will be submitted to
NRLP's unitholders for a vote. In addition, the unitholders will
vote upon amendments to the Partnership Agreement which relate to the proposed
compensation of the successor general partner and other related matters.
Upon approval by NRLP's unitholders, SAMLP shall withdraw as General Partner and
the successor general partner shall take office. If the required approvals are
obtained, it is anticipated that the successor general partner will be elected
and take office during the second or third quarter of 1996.
The Amended and Restated Implementation Agreement provides that SAMLP, and its
affiliates owning units in the Partnership shall not vote to remove the
successor general partner, except for removal with cause, for a period of 36
months from the date the successor general partner takes office.
Upon the election and taking office of the successor general partner, the class
action settlement plan and the NRLP oversight committee shall terminate. If
the successor general partner is not elected, the existing settlement shall
remain in full force and effect and all of the provisions of the Amended and
Restated Implementation Agreement shall be voided, including the compromise
settlement, referred to above, of amounts owed by SAMLP and the Partnership to
each other.
On April 24, 1995, the Company's Board of Directors approved the Company's
entering into a comfort and indemnification letter whereby the Company would
agree to indemnify Mr. Elliott and any entity controlled by Mr. Elliott which
is elected to serve as the successor general partner of NRLP and NOLP. Such
indemnification will stand behind any indemnification to which Mr. Elliott or
any entity controlled by Mr. Elliott may be entitled to under the NRLP
partnership agreement.
23
24
ITEM 2. PROPERTIES (Continued)
Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)
CMET. CMET is a California business trust organized in 1980 which commenced
operations on December 3, 1980. CMET's primary business is investing in real
estate through direct equity investments, and partnerships and financing real
estate and real estate-related activities through investments in mortgage
notes, including first, wraparound and junior mortgage notes. CMET holds
equity investments in apartment complexes and commercial properties (office
buildings, industrial facilities and shopping centers) throughout the
continental United States. CMET's apartment complexes and commercial
properties are concentrated in the Southeast, Southwest and Midwest regions of
the continental United States. CMET also holds mortgage notes receivable
secured by real estate located in the Southeast, Southwest and Midwest regions
of the continental United States, with a concentration in the Southeast and
Southwest regions.
For the year ended December 31, 1995, CMET reported a net loss of $1.4 million
as compared with a net loss of $833,000 for the year ended December 31, 1994.
CMET's net loss for 1995 includes no gain on sale of real estate as compared to
a $1.7 million gain in 1994. CMET's cash flow from property operations (rents
collected less payments for property operating expenses) improved to $15.1
million in 1995 compared to $10.7 million in 1994. At December 31, 1995, CMET
had total assets of $218.6 million which consisted of $5.4 million in mortgage
notes and interest receivable (net of allowance for estimated losses), $174.7
million in real estate held for investment, $7.7 million in real estate held
for sale, $24.4 million in investments in partnerships and other assets and
$6.4 million in cash and cash equivalents.
In March 1993, CMET resumed the payment of quarterly distributions. The Company
received a total of $521,000 in distributions from CMET in 1995 and $587,000 in
1994.
As of March 15, 1995, CMET owned 409,044 shares of the Company's Common Stock,
approximately 7% of the shares then outstanding.
IORI. IORI is a Nevada corporation which was originally organized in 1984 as a
California business trust which commenced operations on April 10, 1985. On
March 15, 1996, IORI's stockholders approved a proposal to convert IORI from a
finite life business trust, which was scheduled to begin liquidation of its
assets prior to October 24, 1996, to a perpetual life corporation. IORI holds
equity investments in apartment complexes and office buildings in the Pacific,
Southwest, Southeast and Midwest regions of the continental United States.
IORI also holds one mortgage note receivable.
For the year ended December 31, 1995, IORI reported a net loss of $906,000 as
compared with a net loss of $287,000 for the year ended December 31, 1994. The
increase in IORI's net loss is due to an increase in equity losses of
partnerships which went from income of $86,000 in 1994 to a loss of $744,000 in
1995. The equity loss is primarily due to the writedown of a wraparound
mortgage note receivable
24
25
ITEM 2. PROPERTIES (Continued)
Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)
by a partnership in which IORI has a 40% general partner interest. IORI's cash
flow from property operations however, improved to $4.1 million in 1995 from
$3.7 million in 1994. At December 31, 1995, IORI had total assets of $49.2
million which consisted of $39.5 million in real estate held for investment,
$845,000 of real estate held for sale, $2.0 million in notes and interest
receivable, $3.9 million in investments in partnerships and other assets and
$3.0 million in cash and cash equivalents.
IORI resumed the payment of quarterly dividends in March 1993. The Company
received a total of $88,000 in distributions from IORI in 1994 and $99,000 in
1995. In March 1996, IORI increased its quarterly dividend from $.15 to $.20
per share.
TCI. TCI is a Nevada corporation which was originally organized in 1984 as a
California business trust, and commenced operations on January 31, 1984. TCI
has investment policies similar to those of CMET. TCI holds equity investments
in a hotel, apartment complexes and commercial properties (office buildings,
industrial facilities and shopping centers) throughout the continental United
States with a concentration in the Northeast, Southeast and Southwest regions.
TCI also holds mortgage notes receivable secured by real estate located
Northeast, Midwest, Southeast and Southwest regions, with a concentration in
the Northeast and Southeast regions.
For the year ended December 31, 1995, TCI reported a net loss of $3.7 million
as compared with a net loss of $3.4 million for the year ended December 31,
1994. TCI's 1995 net loss includes gains on the sale of real estate of $5.8
million and an extraordinary gain of $1.4 million. TCI's 1994 net loss
includes gains on the sale of real estate and partnership interests totaling
$4.7 million and an extraordinary gain of $1.2 million. TCI's cash flow from
property operations increased significantly to $15.3 million in 1995 as
compared to $8.6 million in 1994. At December 31, 1995, TCI had total assets
of $260.2 million, which consisted of $10.0 million in notes and interest
receivable (net of allowance for estimated losses), $220.3 million in real
estate held for investment, $5.9 million in real estate held for sale, $14.4
million in investments in real estate entities and other assets and $9.6
million in cash and cash equivalents. At December 31, 1995, TCI owned 170,750
of IORI's shares of common stock, approximately 22% of the shares then
outstanding.
TCI resumed the payment of quarterly dividends in the fourth quarter of 1995.
The Company received $21,000 in dividends from TCI in 1995.
SAMLP. Prior to February 25, 1992, the Company owned a 96% limited partner
interest in SAMLP, the general partner of and holder of a 1% beneficial
interest in each of NRLP and NOLP. In accordance with the settlement of
adversary proceedings with Southmark on February 25, 1992 the Company assigned
to Southmark a 19.2% limited partner interest in SAMLP.
25
26
ITEM 2. PROPERTIES (Continued)
Investments in Real Estate Investment Trusts and Real Estate
Partnerships (Continued)
The Company consolidates SAMLP for financial statement purposes and accordingly
SAMLP's accounts and operations are included in the accompanying Consolidated
Financial Statements. See ITEM 8. "CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA." As a limited partner, the Company has no role in the
management of the business affairs of SAMLP. Rather, Gene E. Phillips, as a
general partner of SAMLP, and SAMI, the managing general partner of SAMLP, have
full and complete authority to manage SAMLP.
River Trails II. In January 1992, the Company entered into a partnership
agreement with an entity affiliated with the owner of, at the time, in excess of
14% of the Company's outstanding shares of Common Stock, to acquire 287
developed residential lots adjacent to the Company's other residential lots in
Fort Worth, Texas. The partnership agreement designates the Company as managing
general partner. The partnership agreement also provides each of the partners
with a guaranteed 10% return on their respective investments. Through December
31, 1994, 60 residential lots had been sold. In 1995, an additional 72 lots
were sold and 155 lots remained to be sold at December 31, 1995. Through
December 31, 1995, each partner had received $226,000 in return of capital
distributions and $120,000 in profit distributions from the partnership.
R. G. Bond, Ltd. In June 1995, the Company purchased the corporate general
partner of a limited partnership which owns apartment complexes in Illinois,
Florida and Minnesota, with a total of 900 units. The purchase price of the
corporate general partner was $628,000 in cash. The corporate general partner
has a 1% interest in the partnership which is subordinated to a priority return
of the limited partner.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on February 6, 1996, at
which meeting the Company's stockholders elected the following individual as a
Class I Director of the Company:
Shares Voting
---------------------------
Withheld
Director For Authority
- ------------------ --------- ----------
Oscar W. Cashwell............................ 2,821,092 39,167
The Directors whose terms did not expire in 1995 and therefore did not stand
for reelection were Al Gonzalez, Class II Director and Dale A. Crenwelge and
Ryan T. Phillips, Class III Directors.
26
27
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange using the
symbol "ARB". The following table sets forth the high and low sales prices as
reported in the consolidated reporting system of the New York Stock Exchange.
QUARTER ENDED HIGH LOW
- ------------------------------------- ---------- ---------
March 31, 1996....................... $ 9 1/2 $ 9 3/8
(through March 15, 1996)
March 31, 1995....................... 6 7/8 * 6 7/16*
June 30, 1995........................ 6 15/16* 6 9/16*
September 30, 1995................... 7 13/16* 6 9/16*
December 31, 1995.................... 7 11/16* 7 1/8 *
March 31, 1994....................... 6 5/8 * 6 1/4 *
June 30, 1994........................ 6 1/16* 6 1/16*
September 30, 1994................... 5 15/16*
December 31, 1994.................... 6 9/16* 5 11/16*
- --------------------------
* Adjusted for the 2 for 1 forward Common Stock split effected
January 2, 1996.
As of March 15, 1996, the closing market price of the Company's Common Stock on
the New York Stock Exchange was $9.50 per share.
As of March 15, 1996, the Company's Common Stock was held by 2,747 stockholders
of record.
On December 6, 1988, the Company's Board of Directors authorized the repurchase
of up to $5.0 million of the Company's Common Stock. As of March 15, 1996, no
shares had been repurchased pursuant to such authorization. See ITEM 7.
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - Liquidity and Capital Resources."
The Company's dividend policy provides for an annual determination of dividend
distributions, after the Company's year end. No dividends were declared or
paid in 1995. The Company last paid dividends in 1990.
In April 1990, the Company's Board of Directors adopted a Preferred Share
Purchase Rights Plan (the "Rights Plan") and approved the distribution to
stockholders of a dividend of one share purchase right (the "Rights") for each
then outstanding share of the Company's Common Stock. Each Right will entitle
stockholders to purchase one one- hundredth of a share of a new series of
preferred stock at an exercise price of $25.00.
The Rights will generally be exercisable only if a person or group (the
"Adverse Group") increases its then current ownership in the Company by
27
28
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS (Continued)
more than 25% or commences a tender offer for 25% or more of the Company's
Common Stock. If any person or entity actually increases its current ownership
in the Company by more than 25% or if the Board of Directors of the Company
determines that any 10% stockholder is adversely affecting the business of the
Company, holders of the Rights, other than the Adverse Group, will be entitled
to buy, at the exercise price, Common Stock of the Company with a market value
of twice the exercise price. Similarly, if the Company is acquired in a merger
or other business combination, each Right will entitle its holder to purchase,
at the Right's exercise price, the number of shares of the surviving company
having a market value of twice the Right's exercise price. In connection with
the one for three reverse Common Stock split effected in December 1990, the
Rights were proportionately adjusted so that each post-split share represented
three Rights, each of which permitted the holder thereof to purchase one
one-hundredth of a preferred share for $25.00 under such circumstances. In
connection with the two for one forward Common Stock split effected January 2,
1996, the Rights were again proportionately adjusted so that each post-split
share represents one and one-half Rights, each of which permit the holder
thereof to purchase one one-hundredth of a preferred share for $25.00 under
such circumstances. The Rights expire in 2000 and may be redeemed at the
Company's option for $.01 per Right under certain circumstances.
On March 5, 1991, the Company's Board of Directors approved an amendment to the
Rights Plan. The amendment excludes the Company, the Company's subsidiaries,
and the Advisor or its officers and directors from the class of persons who may
cause the Rights to become exercisable by increasing their ownership of the
Company's Common Stock.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
28
29
ITEM 6. SELECTED FINANCIAL DATA
For the Years Ended December 31,
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- --------- ----------
(dollars in thousands, except per share)
Earnings DATA
Revenue..................... $ 22,952 $ 23,070 $ 13,427 $ 11,481 $ 13,687
Expense..................... 33,437 29,019 22,142 21,631 25,465
------------ ------------ ------------ ------------ -----------
(Loss) before gain on sale
of real estate and
extraordinary gain.......... (10,485) (5,949) (8,715) (10,150) (11,778)
Gain on sale of real
estate...................... 6,866 3,200 481 566 1,271
Extraordinary gain.......... 783 323 3,807 - 7,628
------------ ------------ ------------ ------------ -----------
Net (loss).................. (2,836) (2,426) (4,427) (9,584) (2,879)
Redeemable Common Stock,
accretion of discount....... - - (129) (258) -
------------ ------------- ------------- ------------- -----------
(Loss) applicable to
Common shares............... $ (2,836) $ (2,426) (4,556) (9,842) $ (2,879)
============ ============ ============ ============ ===========
PER SHARE DATA
(Loss) before extra-
ordinary gain............... $ (.61) $ (.45) $ (1.36) $ (1.95) $ (2.48)
Extraordinary gain.......... .13 .05 .63 - 1.80
------------ ------------ ------------ ------------ -----------
Net (loss).................. (.48) (.40) (.73) (1.95) (.68)
Redeemable Common Stock,
accretion of discount....... - - (.02) (.05) -
------------ ------------ ------------ ------------ -----------
(Loss) applicable to
Common shares............... $ (.48) $ (.40) $ (.75) $ (2.00) $ (.68)
============ ============ ============ ============ ===========
Dividends per share......... $ - $ - $ - $ - $ -
Weighted average shares
outstanding................. 5,858,328 6,104,438 6,050,550 4,906,584 4,235,398
December 31,
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- --------- ----------
(dollars in thousands, except per share)
BALANCE SHEET DATA
Notes and interest
receivable.................. $ 49,741 $ 45,664 $ 51,769 $ 72,808 $ 68,507
Real estate................. 59,424 47,526 52,437 45,317 52,654
Total assets................ 162,033 137,362 139,861 151,010 153,131
Notes and interest
payable..................... 61,163 45,695 53,693 63,698 65,074
Stockholders' equity........ 53,058 55,894 56,120 60,476 70,221
Book value per share........ $ 9.06 $ 9.54 $ 11.11 $ 11.88 $ 16.58
- -------------------------
Shares and per share data have been adjusted for the 2 for 1 forward Common
Stock split effected January 2, 1996.
29
30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Introduction
American Realty Trust, Inc. (the "Company") was organized in 1961 to provide
investors with a professionally managed, diversified portfolio of real estate
and mortgage loan investments selected to provide opportunities for capital
appreciation as well as current income.
Liquidity and Capital Resources
General. Cash and cash equivalents at December 31, 1995 aggregated $1.1
million, compared with $193,000 at December 31, 1994. Although the Company
anticipates that during 1996 it will generate excess cash from operations, as
discussed below, such excess cash is not expected to be sufficient to discharge
all of the Company's debt obligations as they mature. The Company will
therefore again rely on externally generated funds, including borrowings
against its investments in various real estate entities, mortgage notes
receivable, the sale or refinancing of properties and, to the extent available
and necessary, borrowings from its advisor to meet its debt service
obligations, pay taxes, interest and other non-property related expenses.
Notes payable totaling $26.4 million are scheduled to mature during 1996. Of
the notes payable that mature in 1996, $3.5 million is secured by the
Continental Hotel and Casino's $22.7 million wraparound mortgage note payable to
the Company, the July 1, 1996, due date of which coincides with that of the
underlying note payable. Also included in scheduled 1996 maturities is $12.5
million secured by the Las Colinas, Texas, land parcels purchased by the Company
in 1995. In February 1996, $1.5 million of these scheduled maturities were paid
from refinancing proceeds of the debt secured by the Company's note receivable
secured by the Las Vegas Plaza Shopping Center, discussed below. In March 1996,
an additional $891,000 was paid from the net sales proceeds of a 2.3 acre tract
of Las Colinas land. The Company has entered into a contract to sell a 72.5
acre tract of Las Colinas land for $12.9 million in cash and an additional 2.2
acre tract for $981,000 in cash. See NOTE 19. "SUBSEQUENT EVENTS." An
additional $5.1 million of 1996 maturities is mortgage debt secured by the
Denver Merchandise Mart. The Company is currently in negotiations with a lender
to refinance this mortgage. Also included in the 1996 maturities is a $2.5
million mortgage loan secured by the Rosedale Towers Office Building. The loan
matures June 1, 1996. In February 1996, the Company refinanced the debt secured
by its mortgage note received secured by the Las Vegas Plaza Shopping Center in
Las Vegas, Nevada. The Company received net refinancing proceeds of $2.3 million
after the payoff of the existing debt secured by the note receivable and after
making a $1.5 million paydown on the term loan secured by one of the Las
Colinas land parcels, as discussed above. See NOTE 19. "SUBSEQUENT EVENTS."
The Company intends to either payoff, extend the maturity dates or obtain
alternate financing for its debt obligations that mature in 1996. There can be
no assurance, however, that these efforts to obtain alternate financing or debt
extensions will be successful.
30
31
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
The Company expects an increase in cash flow from property operations in 1996.
Such increase is expected to be derived from operations of the Denver
Merchandise Mart, the Inn at the Mart and Oak Tree Village Shopping Center. See
NOTE 3. "NOTES AND INTEREST RECEIVABLE." The Company is also expecting
continued lot sales at its Texas residential subdivision and substantial sales
of the Las Colinas, Texas, land to generate additional cash flow.
In March 1995, the Company completed the sale of the Boulevard Villas
Apartments in Las Vegas, Nevada, which property had been acquired through
foreclosure in 1993. The Company received net cash of $3.4 million after the
payoff of the $5.9 million in existing mortgage debt. See NOTE 4. "REAL
ESTATE." Also in March 1995, the Company collected a second lien mortgage note
receivable with a principal balance of $860,000 in full. See NOTE 3. "NOTES
AND INTEREST RECEIVABLE."
In May 1995, the Company purchased 74.9 acres of partially developed land in Las
Colinas, Texas, for $13.5 million. See NOTE 4. "REAL ESTATE." The Company
borrowed $15.0 million under a term loan to purchase the land which is discussed
below in "Notes Payable". In September 1995 the Company sold 6.9 acres for $2.9
million in cash. The Company applied the net proceeds of the sale, $2.6
million, to pay down the term loan. In March 1996, the Company sold an
additional 2.3 acres for $961,000 in cash, the net sales proceeds of $891,000
were also used to paydown the term loan.
In October 1995, the Company acquired an additional 92.6 acres of partially
developed land in Las Colinas, Texas, for $7.0 million. The Company paid
$959,000 in cash and borrowed the remainder of the purchase price. The loan
terms are discussed below in "Notes Payable". See NOTE 4. "REAL ESTATE."
The Company expects that funds from existing cash resources, collections on
mortgage notes receivable, sales or refinancing of real estate and/or mortgage
notes receivable, and borrowings against its investments in marketable equity
securities, mortgage notes receivable, and to the extent available borrowings,
if required, from the Company's advisor, which totaled $2.5 million at December
31, 1995, will be sufficient to meet the cash requirements associated with the
Company's current and anticipated level of operations, maturing debt
obligations and existing commitments in the foreseeable future. To the extent
that the Company's liquidity permits or financing sources are available, the
Company may make investments in real estate, continue making additional
investments in real estate entities and marketable equity securities, and fund
or acquire mortgage notes.
Notes Receivable. Scheduled principal maturities of $38.4 million are due in
1996 of which $1.8 million is due on nonperforming notes receivable. The
balance of the Company's mortgage notes receivable are due over the next one to
ten years and provide for "balloon" principal
31
32
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
payments. It may be necessary for the Company to consider extending certain
notes if the borrowers do not have the resources to repay the loans, are unable
to sell the property securing such loans, or are unable to refinance the debt
owed.
In August 1990, the Company foreclosed on its fourth lien note receivable
secured by the Continental Hotel and Casino in Las Vegas, Nevada. The Company
acquired the hotel and casino property at foreclosure subject to first and
second lien mortgages totaling $10.0 million and a disputed third lien mortgage.
In June 1992, the Company sold the hotel and casino to the third lienholder
accepting as partial payment a $22.0 million wraparound mortgage note
receivable, with an extended maturity of July 1, 1996. Payments of interest and
principal on the Company's wraparound note receivable are made directly by the
borrower to the holder of the first and second lien mortgages and are applied
against interest and principal thereon. The extended wraparound note receivable
continues to accrue interest at 11% per annum and requires monthly payments of
$175,000. In conjunction with the extension of the Company's wraparound
mortgage note receivable, the underlying lienholder agreed to forebear
exercising its rights under its first and second liens on the condition that the
Company remit to it the greater of either $175,000 or all sums received by the
Company. Both notes are performing under their modified terms. The Company's
wraparound mortgage note receivable had a principal balance of $22.7 million at
December 31, 1995.
The Company anticipates a continued improvement in the operations of the
properties securing its mortgage notes receivable in certain regions of the
continental United States. In spite of this perceived improvement in the real
estate market in general, the Company can give no assurance that it will not
continue to experience deterioration in cash flow from notes receivable due to
new problem loans.
Loans Payable. The Company has margin arrangements with various brokerage
firms which provide for borrowings up to 50% of the market value of marketable
equity securities. The borrowings under such margin arrangements are secured
by such equity securities and bear interest rates ranging from 7.0% to 11.0%.
Margin borrowings were $34.0 million (approximately 47% of market value) at
December 31, 1995, compared to $26.4 million at December 31, 1994.
In March 1995, the Company modified and extended a loan from a financial
institution with a principal balance of $7.8 million at December 31, 1995 and
collateralized by a note receivable with principal balance of $17.1 million at
such date. On February 5, 1996 the loan was refinanced for $12.0 million. The
Company received net cash of
32
33
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
$1.8 million from the refinancing after the payoff of the financial
institution's debt and after making a $1.5 million paydown on the term loan
secured by land in Las Colinas, Texas, in exchange for the lender's release of
its second lien on such note receivable. The new loan bears interest at 15%
per annum, requires monthly principal and interest payments of $152,000, and
matures January 31, 1998. See NOTE 8. "NOTES AND INTEREST PAYABLE" and NOTE 19.
"SUBSEQUENT EVENTS."
In March 1995, the Company exercised its option to extend the maturity date of
the loan secured by the Kansas City Holiday Inn to March 1997. In April and
October 1995, the Company refinanced the mortgage debt secured by the Kansas
City Holiday Inn. The Company received net cash of $2.8 million after the
payoff of the existing $2.9 million mortgage and the payment of closing costs
associated with the refinancings. See NOTE 8. "NOTES AND INTEREST PAYABLE."
In May 1995, the Company obtained a $15.0 million term loan in order to acquire
74.9 acres of partially developed land in Las Colinas, Texas. In June the
Company borrowed an additional $3.0 million from this lender increasing the
balance to $18.0 million. See NOTE 4. "REAL ESTATE." The principal balance of
the term loan was $15.5 million at December 31, 1995. See NOTE 8. "NOTES AND
INTEREST PAYABLE."
In October 1995, the Company obtained $7.0 million of purchase money financing
in order to acquire an additional 92.6 acres of partially developed land in Las
Colinas, Texas. See NOTE 4. "REAL ESTATE." The outstanding principal balance
of this note was $6.5 million at December 31, 1995.
Equity Investments. During the fourth quarter of 1988, the Company began
purchasing shares of various real estate investment trusts having the same
advisor as the Company, and units of limited partner interest in National
Realty, L.P. ("NRLP"). It is anticipated that additional equity securities of
NRLP and the trusts, Continental Mortgage and Equity Trust ("CMET"), Income
Opportunity Realty Investors, Inc., formerly Income Opportunity Realty Trust
(collectively "IORI") and Transcontinental Realty Investors, Inc. ("TCI"), will
be acquired in the future through open-market and negotiated transactions to
the extent the Company's liquidity permits.
Equity securities of CMET, IORI, TCI and NRLP held by the Company may be deemed
to be "restricted securities" under Rule 144 of the Securities Act of 1933
("Securities Act"). Accordingly, the Company may be unable to sell such
equity securities other than in a registered public offering or pursuant to an
exemption under the Securities Act for a period of two years after they are
acquired. Such restrictions may reduce the Company's ability to realize the
full fair market value of such investments if the Company attempted to dispose
of such securities in a short period of time.
33
34
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
The Company's cash flow from these investments is dependent on the ability of
each of the entities to make distributions. In March 1993, CMET and IORI
resumed the payment of regular quarterly distributions, in December 1993, NRLP
resumed regular quarterly distributions and in December 1995, TCI resumed
regular quarterly distributions. In 1995, the Company received total
distributions from CMET, IORI and TCI of $641,000 and $719,000 from NRLP. The
Company has accrued $3.3 million in distributions from NRLP at December 31, 1995
which were paid January 2, 1996. The Company anticipates receiving
distributions totaling $1.3 million from CMET, IORI and TCI and $4.2 million
from NRLP in 1996.
On a quarterly basis, the Company's management reviews the carrying value of
the Company's mortgage loans, properties held for investment and properties
held for sale. Generally accepted accounting principles require that the
carrying value of an investment held for sale cannot exceed the lower of its
cost or its estimated net realizable value. In those instances in which
estimates of net realizable value of the Company's properties or loans are less
than the carrying value thereof at the time of evaluation, a provision for loss
is recorded by a charge against operations. The estimate of net realizable
value of the mortgage loans is based on management's review and evaluation of
the collateral properties securing such notes. The review generally includes
selective property inspections, a review of the property's current rents
compared to market rents, a review of the property's expenses, a review of the
maintenance requirements, discussions with the manager of the property and a
review of the surrounding area.
Results of Operations
1995 Compared to 1994. The Company reported a net loss of $2.8 million in 1995
as compared to a net loss of $2.4 million in 1994. The primary factors
contributing to the increase in the Company's net loss are discussed in the
following paragraphs.
Net rental income (rents less property operating expenses) decreased from $5.0
million in 1994 to $4.6 million in 1995. This decrease is primarily
attributable to the sale of four apartment complexes in November 1994 and the
sale of an additional apartment complex in February 1995 contributing a combined
$2.4 million to the decrease. Offsetting the decrease in part, is a $1.2
million increase in net rental income from the Denver Merchandise Mart and Inn
at the Mart, acquired in the second quarter of 1994 and a $529,000 increase
at the Kansas City Holiday Inn due to increased room rates directly
attributable to the capital improvements made to the property in 1994. Net
rental income is expected to increase in 1996 from continued improvement at the
Kansas City Holiday Inn and on a full years operations of the Oak Tree Village
Shopping Center acquired in November 1995.
Interest income increased from $4.0 million in 1994 to $4.9 million in 1995.
This increase is primarily attributable to the Continental Hotel
34
35
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
wraparound mortgage note receivable performing throughout 1995. Interest
income in 1996 is expected to approximate that of 1995.
Other income decreased from $1.1 million in 1994 to $154,000 in 1995. This
decrease is primarily attributable to the fourth quarter write down of the
Company's marketable equity securities trading portfolio by $998,000 due to a
decline in market value.
Interest expense increased from $7.9 million in 1994 to $8.9 million in 1995.
This increase is primarily due to a $1.2 million increase in margin interest due
to a $7.6 million increase in margin debt from December 1994 to December 1995
and a $2.0 million increase due to the debt incurred in connection with the
Company's two land purchases in Las Colinas, Texas, during 1995. These
increases are offset by a $1.5 million decrease due to a reduction in debt as a
result of the sale of four apartment complexes in November 1994 and an
additional apartment complex in February 1995 and reductions in loan principal
balances from scheduled principal payments. Interest expense is expected to
increase in 1996 as a result of a full years interest on the debt incurred in
1995 to acquire the land in Las Colinas, Texas.
Advisory and mortgage servicing fees were comparable in 1995 and 1994 at $1.2
million as were general and administrative expense at $2.6 million, in 1995 and
1994.
Depreciation increased from $1.6 million in 1994 to $1.7 million in 1995. This
increase is primarily attributable to the 1994 acquisitions of the Denver
Merchandise Mart and the Inn at the Mart offset by the sale of four apartment
complexes in November 1994 and the sale of an additional apartment complex in
February 1995.
Equity in losses of investees increased from a loss of $2.5 million in 1994 to
$5.1 million in 1995. This increase in equity losses is primarily attributable
to an increase in the net loss of both IORI and TCI, resulting from $1.5 million
writedown of a wraparound mortgage note receivable to the balance of the
underlying first lien mortgage by a partnership in which IORI and TCI are the
sole partners.
Gains on the sale of real estate increased from $3.2 million in 1994 to $6.9
million in 1995. The 1995 gains are attributable to the Company's equity share
($1.8 million) of NRLP's fourth quarter gain on the sale of two apartment
complexes, the Company's equity share ($2.5 million) of TCI's gain on the sale
of land in the third quarter and a apartment complex in the fourth quarter of
1995, a $1.6 million gain recognized by the Company on the sale of 6.9 acres of
partially developed land in Las Colinas, Texas, acquired by the Company in May
1995 and a $924,000 gain recognized by the Company on the sale of the Boulevard
Villas Apartments in February 1995. The 1994 gains are attributable to the
Company's equity share ($1.9 million) of NRLP's fourth quarter gain on the sale
of two apartment complexes and the Company's equity share ($895,000) of TCI's
1994 third quarter gain on the sale of an apartment complex.
The Company reported $323,000 in extraordinary gains in 1994 compared to
$783,000 in extraordinary gains in 1995. The 1995 extraordinary gain is the
Company's equity share of TCI's extraordinary gain from the early payoff of
mortgage debt. In 1994, $273,000 of the extraordinary gain is
35
36
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
the Company's equity share of TCI's settlement of litigation with a lender and
the remaining $50,000 is due to a lender's forgiveness of a portion of a first
mortgage, due to the Company's early payoff of the second lien mortgage secured
by the same property.
1994 Compared to 1993. The Company reported a net loss of $2.4 million in 1994
as compared to a net loss of $4.4 million in 1993. The primary factors
contributing to the decrease in the Company's net loss are discussed in the
following paragraphs.
Net rental income (rents less property operating expenses) increased from $2.6
million in 1993 to $5.0 million in 1994. This increase is primarily
attributable to increases of $486,000 and $444,000 from Boulevard Villas
Apartments and the Kansas City Holiday Inn, respectively, both acquired in
1993, an increase of $1.1 million due to the acquisition of the Denver
Merchandise Mart and Inn at the Mart, both of which were acquired in March 1994,
and an increase in the Company's other commercial properties of $503,000 as a
result of improved occupancy and rents. These increases are offset by a
decrease of $253,000 due to the sale of the Culver City Shopping Center in
August 1993.
Interest income decreased from $5.0 million in 1993 to $4.0 million in 1994.
Of the decrease, $335,000 is attributable to the August 1993 Collecting Bank
settlement, $257,000 to the Continental Hotel and Casino note being
nonperforming prior to June 1994, $248,000 due to the nonperforming Osceola
land note receivable and $118,000 due to the Boulevard Villas note receivable
foreclosure in July 1993.
Equity in losses of investees decreased from a loss of $4.0 million in 1993 to
a loss of $2.5 million in 1994. The decrease in equity losses is primarily
attributable to a $4.6 million reduction in NRLP's loss from operations. At
December 31, 1994, the Company owned approximately 48% of the then outstanding
units of limited partner interest in NRLP.
Interest expense increased from $6.5 million in 1993 to $7.9 million in 1994.
This increase is attributable to a $563,000 increase in interest from property
acquisitions and refinancings, an $879,000 increase in interest on margin
borrowings, and $319,000 due to an increase in the interest rate on the Las
Vegas Plaza underlying lien. These increases were offset in part by a $314,000
reduction from the August 1993 sale of the Culver City Shopping Center,
$383,000 attributable to the 1993 Collecting Bank Settlement and $219,000 due
to payoffs of notes and principal reductions in 1993 and 1994.
Advisory and mortgage servicing fees in 1994 and 1993 were comparable at $1.3
million.
General and administrative expenses increased from $1.8 million in 1993 to $2.6
million in 1994. The increase is primarily attributable to a $259,000 increase
in consulting fees relating to the Continental Hotel
36
37
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations (Continued)
and Casino and Las Vegas Plaza wraparound notes receivable, a $258,000 increase
in legal fees and a $146,000 increase in advisor cost reimbursements.
Depreciation and amortization expense increased from $1.1 million in 1993 to
$1.6 million in 1994. The increase is attributable to the Denver Merchandise
Mart and Inn at the Mart, properties the Company acquired in March 1994, and
full year of depreciation on the properties the Company acquired in March and
July 1993.
The Company recorded no provision for losses in 1994 compared to $2.3 million
in 1993. The 1993 provision for losses is comprised of a $2.0 million reserve
against the carrying value of undeveloped land in downtown Atlanta, Georgia and
a $300,000 reduction in the estimated fair value of the collateral securing a
mortgage note receivable.
Gains on sale of real estate increased from $481,000 in 1993 to $3.2 million in
1994. This increase is primarily attributable to the Company's equity share
($895,000) of TCI's third quarter $2.2 million gain on the sale of an apartment
complex and the Company's equity share ($1.9 million) of NRLP's fourth quarter
gain on the sale of two apartment complexes.
The Company reported $3.8 million extraordinary gain in 1993 compared to a
$323,000 extraordinary gain in 1994. In 1993, $3.4 million of the
extraordinary gain represents the Company's equity share of NRLP's
extraordinary gain of $9.0 million from the acquisition at a discount of its
mortgage debt and $443,000 is due to a lender's forgiveness of a portion of a
first mortgage, upon the Company's early payoff of a second lien mortgage
secured by the same property. In 1994, $273,000 of the extraordinary gain is
the Company's equity share of TCI's settlement of litigation with a lender and
the remaining $50,000 is due to a lender's forgiveness of a portion of a first
mortgage, due to the Company's early payoff of the second lien mortgage secured
by the same property.
Contingencies
In January 1995, NRLP, Syntek Asset Management, L.P. ("SAMLP") and the NRLP
oversight committee executed an Implementation Agreement which provides for the
nomination of a successor general partner to succeed SAMLP as general partner
of NRLP and National Operating, L.P. ("NOLP"), the operating partnership of
NRLP and for the resolution of all related matters under the 1990 settlement of
a class action lawsuit. On February 20, 1996, the parties to the
Implementation Agreement executed an Amended and Restated Implementation
Agreement.
Provided that the successor general partner is elected pursuant to the terms of
the Amended and Restated Implementation Agreement, SAMLP shall receive
$12,471,500 from the Partnership. This amount represents a compromise
settlement of the net amounts owed by the Partnership to SAMLP upon SAMLP's
withdrawal as general partner and any amounts which
37
38
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Contingencies (Continued)
SAMLP and its affiliates may owe to the Partnership. This amount shall be paid
to SAMLP pursuant to a promissory note in accordance with the terms set forth
in the Amended and Restated Implementation Agreement.
The Amended and Restated Implementation Agreement has been submitted to the
Judge appointed to supervise the class action settlement (the "Supervising
Judge") for tentative approval and approval of the notice to be sent to the
original class members. Upon final approval by the Supervising Judge, the
proposal to elect the successor general partner will be submitted to the NRLP's
unitholders for a vote. In addition, the unitholders will vote upon amendments
to the NRLP's partnership agreement which relate to the proposed compensation
of the successor general partner and other related matters.
Upon approval by NRLP's unitholders, SAMLP shall withdraw as General Partner
and the successor general partner shall take office. If the required approvals
are obtained, it is anticipated that the successor general partner will be
elected and take office during the second or third quarter of 1996.
The Amended and Restated Implementation Agreement provides that SAMLP, and its
affiliates owning units in NRLP shall not vote to remove the successor general
partner, except for removal with cause, for a period of 36 months from the date
the successor general partner takes office.
Upon the election and taking office of the successor general partner, the class
action settlement and the NRLP oversight committee shall be terminated. If the
successor general partner is not elected, the existing class action settlement
shall remain in full force and effect and all of the provisions of the Amended
and Restated Implementation Agreement shall be voided, including the compromise
settlement of amounts owed by SAMLP and NRLP to each other. See NOTE 2.
"SYNTEK ASSET MANAGEMENT, L.P."
Environmental Matters
Under various federal, state and local environmental laws, ordinances and
regulations, the Company may be potentially liable for removal or remediation
costs, as well as certain other potential costs relating to hazardous or toxic
substances (including governmental fines and injuries to persons and property)
where property-level managers have arranged for the removal, disposal or
treatment of hazardous or toxic substances. In addition, certain
environmental laws impose liability for release of asbestos-containing
materials into the air, and third parties may seek recovery from the Company
for personal injury associated with such materials.
The Company's management is not aware of any environmental liability relating
to the above matters that would have a material adverse effect on the Company's
business, assets or results of operations.
38
39
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Inflation
The effects of inflation on the Company's operations are not quantifiable.
Revenues from property operations fluctuate proportionately with inflationary
increases and decreases in housing costs. Fluctuations in the rate of
inflation also affect the sales values of properties and, correspondingly, the
ultimate gains to be realized by the Company from property sales.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 121 - "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to Be Disposed Of".
The statement requires that long-lived assets be considered impaired "...if the
sum of the expected future cash flows (undiscounted and without interest
charges) is less than the carrying amount of the asset." If impairment exists,
an impairment loss shall be recognized, by a charge against earnings, equal to
"...the amount by which the carrying amount of the asset exceeds the fair value
of the asset." If impairment of a long-lived asset is recognized, the carrying
amount of the asset shall be reduced by the amount of the impairment, shall be
accounted for as the asset's "new cost" and such new cost shall be depreciated
over the asset's remaining useful life.
SFAS No. 121 further requires that long-lived assets held for sale "...be
reported at the lower of carrying amount or fair value less cost to sell." If
a reduction in a held for sale asset's carrying amount to fair value less cost
to sell is required, a provision for loss shall be recognized by a charge
against earnings. Subsequent revisions, either upward or downward, to a held
for sale asset's fair value less cost to sell shall be recorded as an
adjustment to the asset's carrying amount, but not in excess of the asset's
carrying amount when originally classified as held for sale. A corresponding
charge or credit to earnings is to be recognized. Long-lived assets held for
sale are not to be depreciated. SFAS No. 121 is effective for fiscal years
beginning after December 15, 1995.
The Company's management estimates that if the Company had adopted SFAS No. 121
effective January 1, 1995, its depreciation and net loss for 1995 would not
have been affected and that a provision for loss for either impairment of its
properties held for investment or for a decline in estimated fair value less
cost to sell of its properties held for sale would not have been required. The
Company adopted SFAS No. 121 effective January 1, 1996.
39
40
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
------
Report of Independent Certified Public Accountants....... 41
Consolidated Balance Sheets -
December 31, 1995 and 1994.............................. 42
Consolidated Statements of Operations -
Years Ended December 31, 1995, 1994 and 1993.......... 43
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1995, 1994 and 1993........... 45
Consolidated Statements of Cash Flows -
Years Ended December 31, 1995, 1994 and 1993........... 46
Notes to Consolidated Financial Statements............... 49
Schedule III - Real Estate and Accumulated Depreciation.. 75
Schedule IV - Mortgage Loans on Real Estate............. 77
All other schedules are omitted because they are not required, are not
applicable or the information required is included in the Consolidated
Financial Statements or the notes thereto.
40
41
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors of
American Realty Trust, Inc.
We have audited the accompanying consolidated balance sheets of American Realty
Trust, Inc. and Subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. We have also
audited the schedules listed in the accompanying index. These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules 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 financial statements and
schedules are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and schedules. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements and schedules.
We believe 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
American Realty Trust, Inc. and Subsidiaries as of December 31, 1995 and 1994,
and the consolidated results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
Also, in our opinion, the schedules referred to above present fairly, in all
material respects, the information set forth therein.
BDO Seidman, LLP
Dallas, Texas
March 29, 1996
41
42
AMERICAN REALTY TRUST, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
-----------------------------
1995 1994
--------- ---------
Assets (dollars in thousands)
------
Notes and interest receivable
Performing (including $9,422 in 1995 and
$6,127 in 1994 from affiliate)................... $ 51,840 $ 47,378
Nonperforming, nonaccruing....................... 1,827 2,315
--------- --------
53,667 49,693
Less - allowance for estimated losses............ (3,926) (4,029)
--------- --------
49,741 45,664
Real estate held for sale, net of accumulated
depreciation ($5,098 in 1995 and $5,423
in 1994)....................................... 32,627 23,748
Less - allowance for estimated losses............ (3,328) (4,172)
--------- --------
29,299 19,576
Real estate held for investment net of accumu-
lated depreciation ($2,646 in 1995 and $1,396
in 1994)....................................... 30,125 27,950
Marketable equity securities, at market value.... 2,093 1,309
Cash and cash equivalents........................ 1,054 193
Investments in real estate entities.............. 41,072 38,844
Other assets (including $3,336 in 1995 from
affiliate)..................................... 8,649 3,826
--------- --------
$ 162,033 $137,362
========= ========
Liabilities and Stockholders' Equity
------------------------------------
Liabilities
Notes and interest payable (including $8,556 in
1995 and $9,732 in 1994 due to affiliates)..... $ 61,163 $ 45,695
Margin borrowings................................ 34,017 26,391
Accounts payable and other liabilities
(including $4,584 in 1995 and $1,505 in 1994
due to affiliate).............................. 12,698 8,921
--------- --------
107,878 81,007
Minority interest................................ 1,097 461
Commitments and contingencies
Stockholders' equity
Common stock, $.01 par value, authorized
16,666,667 shares; issued and outstanding
5,858,328 shares in 1995 and 1994.............. 59 59
Paid-in capital.................................. 66,719 66,719
Accumulated (deficit)............................ (13,720) (10,884)
--------- --------
53,058 55,894
--------- --------
$ 162,033 137,362
========= ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
42
43
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,
----------------------------------------------------
1995 1994 1993
---------- ---------- ----------
(dollars in thousands, except per share)
Income
Rents..................................... $ 17,869 $ 18,013 $ 7,885
Interest (including $506 in 1995, $366 in
1994 and $48 in 1993 from affiliates).. 4,929 3,959 4,984
Other..................................... 154 1,098 558
------------- ------------- --------------
22,952 23,070 13,427
Expenses
Property operations (including $1,200 in
1995, $899 in 1994 and $348 in 1993 to
affiliates)............................ 13,260 13,013 5,273
Interest (including $437 in 1995, $589 in
1994 and $1,029 in 1993 to affiliates). 8,941 7,875 6,497
Advisory and servicing fees to affiliate.. 1,195 1,242 1,257
General and administrative (including
$516 in 1995, $434 in 1994 and $288
in 1993 to affiliate).................. 2,554 2,562 1,819
Depreciation and amortization............. 1,691 1,620 1,130
Provision for losses...................... - - 2,300
Equity in losses of investees............. 5,123 2,529 4,014
Minority interest......................... 671 169 (159)
------------- ------------- --------------
33,435 29,010 22,131
------------- ------------- --------------
(Loss) from operations..................... (10,483) (5,940) (8,704)
Income tax expense......................... 2 9 11
------------- ------------- --------------
(Loss) before gain on sale of real estate
and extraordinary gain.................... (10,485) (5,949) (8,715)
Gain on sale of real estate................ 6,866 3,200 481
Extraordinary gain......................... 783 323 3,807
------------- ------------- --------------
Net (loss)................................. (2,836) (2,426) (4,427)
Redeemable Common Stock,
accretion of discount..................... - - (129)
------------- ------------- --------------
Net (loss) applicable to Common shares..... $ (2,836) $ (2,426) $ (4,556)
============= ============= ==============
The accompanying notes are an integral part of these Consolidated Financial
Statements.
43
44
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
Years Ended December 31,
--------------------------------------------------
1995 1994 1993
---------- --------- ----------
Earnings per share
(Loss) before extraordinary gain............ $ (.61) $ (.45) $ (1.36)
Extraordinary gain.......................... .13 .05 .63
----------- ----------- ------------
Net (loss).................................. (.48) (.40) (.73)
Redeemable Common Stock,
accretion of discount..................... - - (.02)
----------- ----------- ------------
Net (loss) applicable to Common
shares.................................... $ (.48) $ (.40) $ (.75)
=========== =========== ============
Weighted average Common shares used in
computing earnings per share.............. 5,858,328 6,104,438 6,050,550
============= ============= ============
The accompanying notes are an integral part of these Consolidated Financial
Statements.
44
45
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Common Stock Accumulated
------------------- Paid-in Earnings Stockholders'
Shares Amount Capital (Deficit) Equity
------ ------ -------- ---------- -------------
(dollars in thousands)
Balance,
January 1, 1993........ 5,089,562 $ 51 $ 64,327 (3,902) 60,476
Common Stock issued..... 349,018 4 196 - 200
Fractional shares
reacquired............. (252) - - - -
Accretion of discount
on redeemable
Common Stock............ - - - (129) (129)
Common Stock retired.... (390,000) (4) 4 - -
Net (loss).............. - - - (4,427) (4,427)
--------- ------- --------- --------- --------
Balance,
December 31, 1993...... 5,048,328 51 64,527 (8,458) 56,120
Reclassification of
Redeemable Common
Stock.................. 720,000 7 2,193 - 2,200
Common Stock issued..... 480,000 5 (5) - -
Common Stock retired.... (390,000) (4) 4 - -
Net (loss).............. - - - (2,426) (2,426)
--------- ------- --------- --------- --------
Balance,
December 31, 1994...... 5,858,328 59 66,719 (10,884) 55,894
Net (loss).............. - - - (2,836) (2,836)
--------- ------- --------- --------- --------
Balance,
December 31, 1995...... 5,858,328 $ 59 $ 66,719 $ (13,720) $ 53,058
========= ======= ========= ========= ========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
45
46
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31,
------------------------------------------------
1995 1994 1993
---------- ---------- ----------
(dollars in thousands)
- -
Cash Flows From Operating Activities
Rentals collected......................... $ 18,473 $ 17,130 $ 8,317
Interest collected (including $399 in
1995, $366 in 1994 and $48 in 1993 from
affiliates)............................. 4,845 3,829 4,584
Distributions from equity investees'
operating activities.................... 1,464 1,642 676
Interest paid (including $19 in 1995,
$213 in 1994 and $275 in 1993 to
affiliate).............................. (8,296) (4,286) (4,689)
Payments for property operations
(including $1,200 in 1995, $899 in 1994
and $348 in 1993 to affiliate).......... (13,442) (13,162) (6,122)
Advisory fee paid to affiliate............ (1,195) (1,242) (1,295)
General and administrative expenses paid
(including $516 in 1995, $434 in 1994
and $288 in 1993 to affiliate).......... (2,448) (2,384) (1,517)
Litigation settlement..................... (100) (750) -
Other..................................... 500 235 91
--------- ------------- -------------
Net cash provided by (used in) operating
activities............................ (199) 1,012 45
Cash Flows From Investing Activities
Collections on notes receivable (including
$394 in 1995 from affiliates)........... 1,604 2,757 1,481
Purchase of marketable equity securities.. (19,394) (16,518) -
Proceeds from sale of marketable
equity securities....................... 18,374 15,123 2,202
Deposit on acquisition of mortgage note
receivable.............................. - - (300)
Notes receivable funded................... (3,295) (700) (609)
Proceeds from sale of real estate......... 11,992 4,058 2,305
Return of capital distributions........... - 514 -
Acquisition of real estate................ (21,394) - -
Real estate improvements.................. (1,802) (2,168) (2,013)
Investment in real estate entities........ (7,169) (6,884) (3,976)
--------- ------------- -------------
Net cash (used in) investing activities. (21,084) (3,818) (910)
The accompanying notes are an integral part of these Consolidated Financial
Statements.
46
47
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For The Years Ended December 31,
-------------------------------------------
1995 1994 1993
-------- -------- --------
(dollars in thousands)
Cash Flows From Financing Activities
Proceeds from notes payable............... $ 36,211 $ 710 $ 15,677
Margin borrowings, net.................... 7,626 8,598 6,466
Proceeds from issuance of Common Stock.... - - 200
Payments on notes payable (including
$990 in 1995, $1,320 in 1994 and $384
in 1993 to affiliate)................... (22,268) (5,151) (17,350)
Southmark settlement payments............. - (435) (950)
Deferred borrowing costs.................. (2,475) - -
Net collections (advances) to/from
affiliates.............................. 3,050 (1,566) (2,845)
-------- ---------- ---------
Net cash provided by financing
activities............................ 22,144 2,156 1,198
-------- ---------- ---------
Net increase (decrease) in cash and cash
equivalents............................... 861 (650) 333
Cash and cash equivalents, beginning of year 193 843 510
--------- ---------- ---------
Cash and cash equivalents, end of year...... $ 1,054 $ 193 $ 843
========= ========== =========
Reconciliation of net (loss) to net
cash provided by (used in) operating
activities
Net (loss).................................. $ (2,836) $ (2,426) $ (4,427)
Adjustments to reconcile net (loss) to net
cash provided by (used in) operating
activities
Extraordinary gain...................... (783) (323) (3,807)
Gain on sale of real estate............. (6,866) (3,200) (481)
Depreciation and amortization........... 1,691 1,620 1,130
Provision for losses.................... - - 2,300
Equity in losses of investees........... 5,123 2,529 4,014
Distributions from equity investees'
operating activities.................... 1,464 1,642 676
(Increase) decrease in accrued interest
receivable.............................. 79 (18) (1,588)
Decrease in other assets................ 1,439 228 422
Increase (decrease) in accrued interest
payable............................... (5) 575 1,954
Increase (decrease) in accounts payable
and other liabilities................... 495 150 (148)
Other................................... - 235 -
--------- ---------- ---------
Net cash provided by (used in) operating
activities............................ $ (199) $ 1,012 $ 45
========= ========== =========
The accompanying notes are an integral part of these Consolidated Financial
Statements.
47
48
AMERICAN REALTY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For The Years Ended December 31,
------------------------------------------
1995 1994 1993
------- -------- --------
(dollars in thousands)
Schedule of noncash investing activities
Acquisition of real estate financed by debt. $ 21,394 $ 6,800 $ 5,400
Real estate sales financed by purchase
money mortgages........................... - 1,400 -
Carrying value of real estate acquired
through foreclosure in satisfaction of
notes receivable with carrying value of
$8,443.................................... - - 7,115
Carrying value of real estate securities
acquired through assumption of debt with a
carrying value of $6,080 in 1994.......... - 9,810 -
Sale of real estate subject to debt........ (5,878) - (5,534)
Settlement of term loan obligation in
exchange for a note receivable
participation with a carrying value of
$9,895.................................... - - (9,863)
Carrying value of real estate obtained in
satisfaction of a receivable with a
carrying value of $125.................... - 125 -
Settlement with insurance company
Carrying value of real estate received.... 1,619 - -
Carrying value of note receivable
participation received.................. 1,500 - -
Carrying value of notes receivable
returned................................ (32) - -
Carrying value of real estate returned.... (2,183) - -
The accompanying notes are an integral part of these Consolidated Financial
Statements.
48
49
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements of American Realty Trust,
Inc. and consolidated entities (the "Company") have been prepared in conformity
with generally accepted accounting principles, the most significant of which
are described in NOTE 1. "SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES." These,
along with the remainder of the Notes to Consolidated Financial Statements, are
an integral part of the Consolidated Financial Statements. The data presented
in the Notes to Consolidated Financial Statements are as of December 31 of each
year and for the year then ended, unless otherwise indicated. Dollar amounts
in tables are in thousands, except per share amounts.
Certain balances for 1993 and 1994 have been reclassified to conform to the
1995 presentation. Shares and per share data have been restated for the 2 for
1 forward Common Stock split effected January 2, 1996.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and company business. American Realty Trust, Inc. ("ART") a
Georgia corporation is successor to a District of Columbia business trust, that
primarily invests in real estate and real estate-related entities and purchases
and originates mortgage loans.
Basis of consolidation. The Consolidated Financial Statements include the
accounts of ART, and all majority-owned subsidiaries and partnerships other
than National Realty, L.P. ("NRLP"). The Company uses the equity method to
account for its investment in NRLP as control is considered to be temporary.
See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P."). All significant intercompany
transactions and balances have been eliminated.
Accounting estimates. In the preparation of the Company's Consolidated
Financial Statements in conformity with generally accepted accounting
principles it was necessary for the Company's 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 Consolidated
Financial Statements and the reported amounts of revenues and expense for the
year then ended. Actual results could differ from these estimates.
Interest recognition on notes receivable. It is the Company's policy to cease
recognizing interest income on notes receivable that have been delinquent for
60 days or more. In addition, accrued but unpaid interest income is only
recognized to the extent that the net realizable value of the underlying
collateral exceeds the carrying value of the receivable.
Allowance for estimated losses. Valuation allowances are provided for
estimated losses on notes receivable and properties held for sale to the extent
that the investment in the notes or properties exceeds the Company's estimate
of net realizable value of the property or the
49
50
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
collateral securing such note, or fair value of the collateral if foreclosure
is probable. In estimating net realizable value, consideration is given to the
current estimated collateral or property value adjusted for costs to complete
or improve, hold and dispose. The provision for losses is based on estimates,
and actual losses may vary from current estimates. Such estimates are reviewed
periodically, and any additional provision determined to be necessary is
charged against earnings in the period in which it becomes reasonably
estimable.
Foreclosed real estate held for sale. Foreclosed real estate is initially
recorded at new cost, defined as the lower of original cost or fair value minus
estimated costs of sale. After foreclosure, the excess of new cost, if any,
over fair value minus estimated costs of sale is recognized in a valuation
allowance. Subsequent changes in fair value either increase or decrease such
valuation allowance. See "Allowance for estimated losses" above. Properties
held for sale are depreciated in accordance with the Company's established
depreciation policies. See "Real estate and depreciation" below.
Annually, all foreclosed properties held for sale are reviewed by the Company's
management and a determination is made if the held for sale classification
remains appropriate. The following are among the factors considered in
determining that a change in classification to held for investment is
appropriate: (i) the property has been held for at least one year; (ii)
Company management has no intent to dispose of the property within the next
twelve months; (iii) property improvements have been funded, and (iv) the
Company's financial resources are such that the property can be held long-
term. The subsequent classification of property previously held for sale to
held for investment does not result in a restatement of previously reported
revenues, expenses or net (loss).
Investment in real estate entities. Because the Company may be considered to
have the ability to exercise significant influence over the operating and
investment policies of certain of its investees, the Company accounts for such
investments by the equity method. Under the equity method, the Company's
initial investment, recorded at cost, is increased by the Company's
proportionate share of the investee's operating income and any additional
investment and decreased by the Company's proportionate share of the investee's
operating losses and distributions received.
Real estate and depreciation. Real estate is carried at the lower of cost or
estimated net realizable value, except that foreclosed properties held for
sale, which are recorded at the lower of original cost or fair value minus
estimated costs of sale. Depreciation is provided by the straight-line method
over the estimated useful lives of the assets, which range from 10 to 40 years.
50
51
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Present value premiums/discounts. The Company provides for present value
premiums and discounts on notes receivable or payable that have interest rates
that differ substantially from prevailing market rates and amortizes such
premiums and discounts by the interest method over the lives of the related
notes. The factors considered in determining a market rate for notes
receivable include the borrower's credit standing, nature of the collateral and
payment terms of the note.
Revenue recognition on the sale of real estate. Sales of real estate are
recognized when and to the extent permitted by Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate" ("SFAS No.
66"). Until the requirements of SFAS No. 66 for full profit recognition have
been met, transactions are accounted for using either the deposit, the
installment, the cost recovery or the financing method, whichever is
appropriate.
Fair value of financial instruments. The Company used the following
assumptions in estimating the fair value of its notes receivable, marketable
equity securities and notes payable. For performing notes receivable, the fair
value was estimated by discounting future cash flows using current interest
rates for similar loans. For nonperforming notes receivable the estimated fair
value of the Company's interest in the collateral property was used. For
marketable equity securities fair value was based on the year end closing
market price of each security. The estimated fair values presented do not
purport to present amounts to be ultimately realized by the Company. The
amounts ultimately realized may vary significantly from the estimated fair
values presented. For notes payable the fair value was estimated using
current rates for mortgages with similar terms and maturities.
Cash equivalents. For purposes of the Consolidated Statements of Cash Flows,
the Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
Earnings per share. Loss per share is computed based upon the weighted average
number of shares of Common Stock and redeemable Common Stock outstanding during
each year, adjusted for the two for one forward Common Stock split effected
January 2, 1996.
NOTE 2. SYNTEK ASSET MANAGEMENT, L.P.
The Company owns 76.8% limited partner interest in Syntek Asset Management,
L.P. ("SAMLP"), the general partner of NRLP and National Operating, L.P.
("NOLP"), the operating partnership of NRLP. Gene E. Phillips, a Director and
Chairman of the Board of the Company until November 16, 1992, is a general
partner of SAMLP, and until March 4, 1994, William S. Friedman, a Director and
President of the Company until December 31, 1992, was also general partner of
SAMLP.
51
52
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. SYNTEK ASSET MANAGEMENT, L.P. (Continued)
NRLP, SAMLP and Messrs. Phillips and Friedman were among the defendants in a
class action lawsuit arising from the formation of NRLP. An agreement settling
such lawsuit for the above mentioned defendants became effective on July 5,
1990. The settlement agreement provided for, among other things, the
appointment of an NRLP oversight committee; the establishment of specified
annually increasing targets for five years relating to the price of NRLP's
units of limited partner interest; a limitation and deferral or waiver of
NRLP's reimbursement to SAMLP of certain future salary costs; a deferral or
waiver of certain future compensation to SAMLP; the required distribution to
unitholders of all of NRLP's cash from operations in excess of certain
renovation costs unless the NRLP oversight committee approves alternative uses
for such cash from operations; the issuance of unit purchase warrants to
members of the plaintiff class; and the contribution by the then individual
general partners of $2.5 million to NRLP over a four-year period. In
accordance with the indemnification provisions of SAMLP's agreement of limited
partnership, SAMLP agreed to indemnify Messrs. Phillips and Friedman, the
individual general partners, at the time, of SAMLP, for the $2.5 million
payment to NRLP. The final annual installment of principal and interest was
paid by SAMLP in May 1994.
The settlement agreement provides for the resignation and replacement of SAMLP
as general partner if the unit price targets are not met for two consecutive
anniversary dates. NRLP did not meet the unit price targets for the first and
second anniversary dates. On July 8, 1992, SAMLP notified the NRLP oversight
committee of the failure of NRLP to meet the unit price targets for two
successive years and that it expects to resign as general partner of NRLP and
NOLP.
The withdrawal of SAMLP as general partner would require NRLP to purchase
SAMLP's general partner interest (the "Redeemable General Partner Interest") at
its then fair value, and to pay certain fees and other compensation as provided
in the partnership agreement. Syntek Asset Management, L.P. ("SAMI"), the
managing general partner of SAMLP, has calculated the fair value of such
Redeemable General Partner Interest to be $36.2 million at December 31, 1995,
before reduction for the principal balance ($4.2 million at December 31, 1995)
and accrued interest ($4.4 million at December 31, 1995) on the note receivable
from SAMLP for its original capital contribution to the Partnership.
In January 1995, NRLP, SAMLP and the NRLP oversight committee executed an
Implementation Agreement which provides for the nomination of a successor
general partner to succeed SAMLP and for the resolution of all related matters
under the class action settlement. On February 20, 1996, the parties to the
Implementation Agreement executed an Amended and Restated Implementation
Agreement.
Provided that the successor general partner is elected pursuant to the terms of
the Amended and Restated Implementation Agreement, SAMLP shall receive
$12,471,500 from the NRLP. This amount represents a compromise
52
53
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. SYNTEK ASSET MANAGEMENT, L.P. (Continued)
settlement of the net amounts owed by NRLP to SAMLP upon SAMLP's withdrawal as
general partner and any amounts which SAMLP and its affiliates may owe to NRLP.
This amount shall be paid to SAMLP pursuant to a promissory note in accordance
with the terms set forth in the Amended and Restated Implementation Agreement.
The Amended and Restated Implementation Agreement has been submitted to the
Judge appointed to supervise the class action settlement (the "Supervising
Judge") for tentative approval and approval of the notice to be sent to the
original class members. Upon final approval by the Supervising Judge, the
proposal to elect the successor general partner will be submitted to the NRLP
unitholders for a vote. In addition, the unitholders will vote upon amendments
to NRLP's partnership agreement which relate to the proposed compensation of
the successor general partner and other related matters.
Upon approval by NRLP's unitholders, SAMLP shall resign as general partner of
NRLP and NOLP and the successor general partner shall take office. If the
required approvals are obtained, it is anticipated that the successor general
partner may be elected and take office during the second or third quarter of
1996.
The Amended and Restated Implementation Agreement provides that SAMLP, and its
affiliates owning units in NRLP, shall not vote to remove the successor general
partner, except for removal with cause, for a period of 36 months from the date
the successor general partner takes office.
Upon the election and taking office of the successor general partner, the class
action settlement and the NRLP oversight committee shall be terminated. If the
successor general partner nominee is not elected, the existing settlement shall
remain in full force and effect and all of the provisions of the Amended and
Restated Implementation Agreement shall be voided, including the compromise
settlement referred to above.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
53
54
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. NOTES AND INTEREST RECEIVABLE
1995 1994
--------------------------------- -------------------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
-------------- ------------ ------------ ------------
Notes Receivable
Performing (including $12,962
in 1995 and $10,930 in 1994
from affiliates)........... $ 60,121 $ 56,335 $ 54,032 $ 51,844
Nonperforming, nonaccruing... 1,784 1,784 2,325 2,206
-------------- ------------ ------------ ------------
$ 61,905 58,119 $ 56,357 54,050
============== ============
Interest receivable.......... 267 286
Unamortized premiums/
(discounts)................ (102) (26)
Deferred gains............... (4,617) (4,617)
------------ ------------
$ 53,667 $ 49,693
============ ============
The Company does not recognize interest income on nonperforming notes
receivable. For the years 1995, 1994 and 1993 unrecognized interest income on
such nonperforming notes receivable totaled $1.2 million, $2.0 million and $3.1
million, respectively.
Notes receivable at December 31, 1995, mature from 1996 to 2014 with interest
rates ranging from 6.0% to 12.9% and a weighted average rate of 8.8%. A
small percentage of these notes receivable carry a variable interest rate.
Notes receivable include notes generated from property sales which have
interest rates adjusted at the time of sale to yield rates ranging from 6% to
14%. Notes receivable are generally nonrecourse and are generally
collateralized by real estate. Scheduled principal maturities of $38.4 million
are due in 1996 of which $1.8 million is due on nonperforming notes receivable.
Nonrecourse participations totaling $1.1 million and $2.6 million at December
31, 1995 and 1994, respectively, have been deducted from notes receivable.
In June 1991, the Company entered into an asset sales agreement with an
insurance company whereby the Company sold real estate and participations in
various of its assets in an effort to develop a potential source for future
financing and to generate cash from otherwise illiquid assets. Assets
transferred by the Company pursuant to the asset sales agreement included a
retail shopping center in Lubbock, Texas with a carrying value of $2.0 million
prior to transfer, a $1.5 million senior participation in a second lien
mortgage note secured by the Las Vegas Plaza, a retail shopping center in Las
Vegas, Nevada, a $315,000 participation in a first mortgage note secured by
unimproved land in Virginia Station, Virginia and a $799,000 participation in a
second lien mortgage note secured by the Country Club Apartments, an apartment
complex in Flagstaff, Arizona. In return, the Company received a $1.9 million
participation in a first mortgage note
54
55
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. NOTES AND INTEREST RECEIVABLE (Continued)
secured by a hotel site in Lihue, Hawaii, a $1.0 million first mortgage note
secured by land in Maricopa County, Arizona, a $118,000 first lien mortgage
note secured by a single-family residence in Silver Creek, Colorado and $1.5
million in cash. The asset sales agreement contained put and guaranty
provisions whereby, at any time, either party could demand that the seller
reacquire any asset sold pursuant to the terms of the asset sales agreement for
the consideration originally received. In March 1992, the Company received
payment in full on the $118,000 note secured by the single-family residence in
Silver Creek, Colorado.
In March 1992, the insurance company was placed in receivership and in June
1992, the Company provided notice to the insurance company, under the terms of
the put and guaranty provisions, of the asset sales agreement, of its desire to
divest itself of all assets received. The Receiver refused to allow the
enforcement of the put and guaranty provisions of the asset sales agreement.
In June 1992, the Company foreclosed on the note receivable secured by land in
Maricopa County, Arizona, and recorded provision for loss of $845,000 to reduce
the land's carrying value to its then estimated fair value. During September
1992, the Company recorded the insubstance foreclosure of the hotel site in
Lihue, Hawaii. In March 1995, the Company collected in full the second lien
mortgage note secured by the Country Club Apartments, but did not remit such
amount to the insurance company.
A settlement between the Company and Receiver was approved by the court on
February 15, 1995. Under the terms of the settlement, the insurance company
returned to the Company all of the assets which it received from the Company,
except for the participation in the first mortgage note secured by unimproved
land in Virginia Station, Virginia. In exchange, the Company returned to the
insurance company $1.0 million in cash and all the assets which it received
from the insurance company, other than the note secured by the residence in
Colorado which the Company had collected. The asset transfers and the
Company's cash payment were completed in the fourth quarter of 1995. The
Company incurred no loss on the settlement.
The borrower on a $1.7 million first mortgage note receivable secured by land
in Osceola, Florida failed to make the required principal payment on the note's
November 1, 1993 maturity. The Company instituted foreclosure proceedings and
was awarded a summary judgment in January 1994. During 1994 and 1995, the
borrower paid the Company a total of $270,000 in nonrefundable fees to delay
foreclosure of the property until April 24, 1995. On April 21, 1995, the
borrower filed for bankruptcy protection. In July 1995, the Company filed a
motion with the bankruptcy court to lift the court's stay and allow the Company
to proceed with foreclosure. In September 1995, the bankruptcy court denied
the Company's motion to lift stay and the borrower was allowed to file a plan
of reorganization. The bankruptcy court has set a hearing
55
56
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. NOTES AND INTEREST RECEIVABLE (Continued)
date of May 15, 1996, for confirmation of the borrower's plan of
reorganization. The note had a principal balance of $1.6 million at December
31, 1995. The Company does not expect to incur any loss if it is allowed to
foreclose on the collateral property as its estimated fair value exceeds the
carrying value of the note.
The Company did not receive the payment due on October 1, 1991 on the first
mortgage note receivable secured by the 386 Ocean Parkway Co-op. In December
1993, the Company recorded a provision for loss of $300,000 to reduce the
carrying value of the note to the estimated fair value of the collateral
property. In February 1994, the Company agreed to reinstate and modify its
note in exchange for the pledge of additional collateral. The reinstated note
reduced the principal balance from $900,000 to $750,000, waived all defaults on
the note and extended the maturity date of the note to September 15, 1999. In
June 1994, the Company sold its mortgage note for $450,000 in cash. The
Company incurred no loss on the sale in excess of the amounts previously
provided.
In March 1994, as partial consideration for the sale of a restaurant site in
Los Angeles, California, the Company provided $100,000 of purchase money
financing. See NOTE 4. "REAL ESTATE."
In August 1990, the Company foreclosed on its fourth lien note receivable
secured by the Continental Hotel and Casino in Las Vegas, Nevada. The Company
acquired the hotel and casino property at foreclosure subject to first and
second lien mortgages totaling $10.0 million and a disputed third lien mortgage.
In June 1992, the Company sold the hotel and casino to the third lienholder
accepting as partial payment a $22.0 million wraparound mortgage note
receivable. The $22.0 million note bears interest at 11%, requires monthly
payments of $175,000, and has an extended maturity of December 31, 1995. The
Company recorded a deferred gain of $4.3 million in connection with the sale of
the hotel and casino resulting from the disputed third lien mortgage being
subordinated to the Company's wraparound mortgage note receivable. The Company,
the borrower and the underlying lienholder have again agreed to extend the
wraparound mortgage note receivable and underlying liens to July 1, 1996. A one
percent extension fee was added to the principal balance of the wraparound note.
The Company's modified wraparound note receivable continues to accrue interest
at 11% per annum with any unpaid interest being added monthly to the principal
balance. All other terms remained the same. The borrower is making payments in
accordance with the terms of the modified note. The Company's wraparound
mortgage note receivable had a principal balance of $22.7 million at December
31, 1995.
In conjunction with the modification of the Company's wraparound mortgage note
receivable, the underlying lienholder has agreed to forebear exercising its
rights under the first and second liens on the condition that the Company
continue to remit to it the greater of either $175,000 or all sums received by
the Company. The Company remains in compliance with the terms of the
forbearance agreement.
56
57
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. NOTES AND INTEREST RECEIVABLE (Continued)
Also as discussed in NOTE 4. "REAL ESTATE", in November 1994, the Company sold
its apartment complex in San Antonio, Texas, along with its three apartment
complexes in Biloxi, Mississippi to a newly formed partnership in exchange for
a 27% limited partner interest, $3.2 million in net cash, a $100,000
certificate of deposit and second and third lien mortgages totaling $1.3
million secured by the apartment complex in San Antonio, Texas. Both notes
require interest only payments and mature September 1, 2004.
At December 31, 1995, the Company held a mortgage note receivable secured by a
third lien on a commercial property in South Carolina and personal guaranties of
several individuals. The borrower has failed to make the required
payments of principal and interest since December 1, 1994. The Company
accelerated the note and instituted foreclosure proceedings, as well as actions
against the guarantors of the note. Upon notice of acceleration, the borrowers
had 30 days to cure their default. Effective September 1, 1995, the note was
extended to September 1, 1996, requiring a $68,000 principal reduction payment
with the monthly interest, quarterly principal payments and all other terms
remaining the same. The Company has received $43,000 of the required principal
payment and is to receive the remaining $25,000 on April 1, 1996. The principal
balance of the note was $279,000 at December 31, 1995. The Company expects to
incur no loss on this note in excess of reserves previously provided.
The Company holds a junior mortgage note receivable secured by the Williamsburg
Hospitality House in Williamsburg, Virginia, that was subject to underlying
liens totaling $11.7 million.
57
58
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. NOTES AND INTEREST RECEIVABLE (Continued)
In October 1993, the first lien debt was restructured and split in three pieces.
During 1995, the Company advanced the borrower $3.3 million to payoff the second
lien, allowing the borrower to receive a $2.4 million discount offered by the
lender for early pay off of such lien. In conjunction with such advance, the
Company extended the maturity of its note to April 1, 1996. All other terms of
the note remained unchanged.
NOTE 4. REAL ESTATE
In February 1995, the Company sold the Boulevard Villas Apartments in Las
Vegas, Nevada, for $9.6 million. The Company initially treated the sale as a
financing transaction, the Company having provided the purchaser with its $1.6
million down payment, by loaning a like amount, secured by a second lien on an
office building in Houston, Texas. In March 1995, the office building was sold
and the Company's loan was paid in full. The Company received net cash of $3.4
million from the sale after the payoff of $5.9 million in existing mortgage
debt and the payment of various closing costs associated with the sale. The
Company recognized a gain of $924,000 on the sale.
In May 1995, the Company purchased a 74.9 acre parcel of partially developed
land in Las Colinas, Texas, for $13.5 million. In connection with the
acquisition, the Company borrowed $15.0 million under a term loan, which bears
interest at the prime rate plus 4%, (12.50% per annum at December 31, 1995),
requires monthly interest only payments, a 1% annual maintenance fee, principal
reduction payments of $1.5 million on the first day of November 1995 and May
1996 and $3.0 million every six months thereafter commencing November 1996, with
the balance of principal and accrued but unpaid interest due at maturity on May
1, 1998. The loan is secured by the land in Las Colinas, Texas, a participation
interest in two of the Company's notes receivable, land in Atlanta, Georgia and
a pledge of 586,800 NRLP limited partner units owned by the Company. The
Company received net financing proceeds of $210,000 after the purchase of the
land and payment of associated closing costs. In June 1995, the Company
borrowed an additional $3.0 million from this lender increasing the term loan
principal balance to $18.0 million. The additional $3.0 million borrowing was
paid in full prior to its March 31, 1996 maturity.
In September 1995, the Company sold 6.9 acres of the 74.9 acre parcel, for $2.9
million in cash. In accordance with the provisions of the term loan, the
Company applied the net proceeds of the sale, $2.6 million, to pay down the term
loan. Such paydown was credited against the principal payments the Company was
otherwise required to make in 1995 and 1996. The principal balance of the
term loan was $15.5 million at December 31, 1995. The Company recognized a $1.6
million gain on the sale. In February 1996, the Company refinanced the $7.8
million of debt on the Las Vegas Plaza Shopping Center in Las Vegas, Nevada, for
$12.0 million, paying $1.5 million of the refinancing proceeds on the term loan
balance due by March 31, 1996. See NOTE 19. "SUBSEQUENT EVENTS."
58
59
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. REAL ESTATE (Continued)
In March 1996, the Company sold an additional 2.3 acres for $961,000 in cash.
See NOTE 19. "SUBSEQUENT EVENTS." The Company applied the net proceeds of the
sale, $891,000 to pay down the term loan.
In October 1995, the Company purchased an additional tract of partially
developed land in Las Colinas, Texas, totaling 92.6 acres for $7.1 million. The
Company paid $959,000 in cash and borrowed the remaining $6.1 million. The
mortgage bears interest at the prime rate plus 5%, (13.50% at December 31,
1995), requires monthly interest only payments through September 30, 1996, four
quarterly deferred commitment fee payments of $50,000 and $50,000 monthly
principal payments beginning October 1, 1996. The principal balance, accrued
but unpaid interest and a $500,000 "maturity fee" is due at maturity on December
1, 1996. The Company has an option to extend the maturity date to October 1,
1997 if no event of default has occurred, written notice is given prior to
maturity and the principal balance of the note has been reduced by $2.1 million.
The Company has also agreed to pledge to the lender, as additional collateral
for the loan, $2.0 million of newly issued shares of the Company's Common Stock.
On February 13, 1996, the Company entered into a contract to sell 72.5 of the
92.6 acres for $12.9 million. See NOTE 19. "SUBSEQUENT EVENTS."
In November 1994, the Company sold its three Mississippi apartment complexes,
Watersedge III Apartments, Edgewater Garden Apartments, Chateau Bayou
Apartments, and its apartment complex in San Antonio, Texas, Mediterranean
Villa Apartments, to a newly formed limited partnership in exchange for, a 27%
limited partner interest in the partnership, $3.2 million in net cash, a
$100,000 certificate of deposit, and second and third liens totaling $1.3
million secured by the Mediterrean Villa Apartments. See NOTE 3. "NOTES AND
INTEREST RECEIVABLE." The Company has deferred any gain related to the
property sales due to the Company having a continuing ownership interest in the
properties, through its 27% limited partner interest in the owning partnership
and the Company also having the option to reacquire the properties at anytime
prior to September 2, 1997, and unwind the partnership under certain
circumstances. The deferred gain of $5.6 million is offset against the
Company's investment in the partnership in the accompanying Consolidated
Balance Sheets.
In March 1994, the Company sold a restaurant site in Los Angeles, California,
that was held for sale for $190,000. The Company received $90,000 in cash and
provided purchase money financing of $100,000. The Company recognized a gain
of $18,000 gain on the sale. See NOTE 3. "NOTES AND INTEREST RECEIVABLE."
59
60
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. REAL ESTATE (Continued)
Also in March 1994, the Company acquired for $26,000 in cash, all of the
capital stock of the corporate general partner of Merchandise Mart Associates,
Ltd. (" Mart, Ltd."). Concurrently, the Company also acquired all of the
capital stock of Garden Capital Merchandise Mart, Inc. ("GCMMI") for $1,000 and
the assumption of $271,000 in debt including $125,000 payable to the Company.
The GCMMI stock was purchased from individuals who also own the corporate
general partner of a limited partnership in which NOLP is a 99.3% limited
partner. (See NOTE 6. "INVESTMENTS IN REAL ESTATE ENTITIES.") The acquired
assets of GCMMI included a wraparound mortgage note receivable with a principal
balance of $33.4 million secured by the Denver Merchandise Mart, a 509,008
square foot merchandise mart in Denver, Colorado, title to the Inn at the Mart,
a 156 room hotel adjacent to the Denver Merchandise Mart, and parcels of land
contiguous to the Denver Merchandise Mart. In May 1992, the Company had
acquired title to land in Denver, Colorado subject to a ground lease to Mart,
Ltd. as lessee, for the operation of the Denver Merchandise Mart and a 2.9%
limited partner interest in Mart, Ltd. Effective April 1, 1994, the Company
recorded the acquisition of the Denver Merchandise Mart and the assumption of
underlying debt of $6.1 million. The Company acquired the wraparound mortgage
and the general partner of Mart, Ltd. with the intent of acquiring the Denver
Merchandise Mart, hence its classification as held for investment. See NOTE 8.
"NOTES AND INTEREST PAYABLE."
In 1991, the Company purchased all of the capital stock of a corporation which
owned 198 developed residential lots in Fort Worth, Texas. Through December
31, 1994, a total of 172 of the residential lots were sold for an aggregate
gain of $250,000. During 1995, an additional 4 lots were sold for aggregate
gain of $6,000. At December 31, 1995, 22 lots remained to be sold.
Also in 1991, the Company purchased all of the capital stock of a company which
owned a 60% interest in a joint venture which in turn owned 113 partially
developed residential lots in Denton, Texas. Through 1994, 109 of the
residential lots were sold for an aggregate gain of $992,000. During 1995, the
remaining 4 lots were sold for an aggregate gain of $24,000.
NOTE 5. ALLOWANCE FOR ESTIMATED LOSSES
Activity in the allowance for estimated losses was as follows:
1995 1994 1993
---------- ---------- ---------
Balance January 1,............. $ 8,201 $ 9,913 $ 12,444
Provision for losses........... - - 2,300
Amounts charged off............ (947) (1,712) (3,159)
Amounts reclassified to
liabilities................... - - (1,672)
------------- ------------- -------------
Balance December 31,........... $ 7,254 $ 8,201 $ 9,913
============= ============= =============
60
61
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6. INVESTMENTS IN REAL ESTATE ENTITIES
The Company's investment in real estate entities at December 31, 1995, includes
(i) equity securities of three publicly traded real estate investment trusts
(collectively the "Trusts"), Continental Mortgage and Equity Trust ("CMET"),
Income Opportunity Realty Investors, Inc., formerly Income Opportunity Realty
Trust (collectively "IORI"), and Transcontinental Realty Investors, Inc.
("TCI"), (ii) units of limited partner interest of NRLP, (iii) a general
partner interest in NRLP and NOLP, the operating partnership of NRLP, through
its 76.8% limited partner interest in SAMLP and (iv) interests in real estate
joint venture partnerships. Gene E. Phillips, the Chairman of the Board and a
Director of the Company until November 16, 1992, is a general partner of SAMLP,
the general partner of NRLP and NOLP and a director and Chief Executive Officer
of SAMI. Randall M. Paulson, an executive officer of the Company, serves as a
director of SAMI and as President of the Trusts, SAMI and BCM. In addition,
BCM serves as advisor to the Trusts, and performs certain administrative and
management functions for NRLP and NOLP on behalf of SAMLP.
The Company accounts for its investment in the Trusts, NRLP and the joint
venture partnerships using the equity method as more fully described in NOTE 1.
"SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Investment in real estate
entities." The Company continues to account for its investment in NRLP under
the equity method due to the pending resignation of SAMLP as general partner
of NRLP. See NOTE 2. "SYNTEK ASSET MANAGEMENT, L.P."
Substantially all of the Company's equity securities of the Trusts and NRLP are
pledged as collateral for borrowings. See NOTE 8. "NOTES AND INTEREST
PAYABLE."
The Company's investment in real estate entities, accounted for using the
equity method, at December 31, 1995 was as follows:
Equivalent
Percentage Carrying Investee
of the Company's Value of Book Value Market Value
Ownership at Investment at at of Investment at
Investee December 31, 1995 December 31, 1995 December 31, 1995 December 31, 1995
- -------- ----------------- ----------------- ----------------- ------------------
NRLP 52.1% $ 12,712 $ * $ 38,020
CMET 37.2 12,116 28,297 15,757
IORI 25.9 2,752 6,271 4,065
TCI 28.2 9,162 25,195 11,335
-------- --------
36,742 $ 69,177
========
General partner
interest in NRLP and NOLP 7,726
Other (3,396)
--------
$ 41,072
========
- --------------------
* At December 31, 1995, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity, however, was $161.5 million
(unaudited). Revaluation equity is defined as the difference between the
appraised value of the partnership's real estate, adjusted
61
62
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6. INVESTMENTS IN REAL ESTATE ENTITIES (Continued)
to reflect the partnership's estimate of disposition costs, and the
amount of the mortgage notes payable and accrued interest
encumbering such property as reported in NRLP's Annual Report on
Form 10-K for the year ended December 31, 1995.
The Company's investment in real estate entities, accounted for using the
equity method, at December 31, 1994 was as follows:
Equivalent
Percentage Carrying Investee
of the Company's Value of Book Value Market Value
Ownership at Investment at at of Investment at
Investee December 31, 1994 December 31, 1994 December 31, 1994 December 31, 1994
- -------- ----------------- ----------------- ----------------- ------------------
NRLP 48.1% $ 13,727 $ -* $ 31,623
CMET 33.9 11,389 26,723 14,850
IORI 21.0 2,285 5,378 3,267
TCI 24.6 7,833 22,909 9,782
--------- ---------
35,234 $ 59,522
=========
General partner
interest in NRLP and NOLP 7,791
Other (4,181)
---------
$ 38,844
=========
- -------------------------
* At December 31, 1994, NRLP reported a deficit partners' capital. The
Company's share of NRLP's revaluation equity, however, was $144.9 million.
Revaluation equity is defined as the difference between the appraised value
of the partnership's real estate, adjusted to reflect the partnership's
estimate of disposition costs, and the amount of the mortgage notes payable
and accrued interest encumbering such property as reported in NRLP's Annual
Report on Form 10-K for the year ended December 31, 1994.
The Company's management continues to believe that the market value of each of
the Trusts and NRLP undervalues their assets and the Company has, therefore,
continued to increase its ownership in these entities in 1995, as its liquidity
has permitted.
IORI was scheduled to begin liquidation of its assets prior to October 24,
1996. However, on March 15, 1996, IORI's stockholders approved a proposal to
convert IORI from a finite life business trust to a perpetual life corporation.
In January 1992, the Company entered into a partnership agreement with an
entity affiliated with the owner, at the time, of in excess of 14% of the
Company's outstanding shares of Common Stock, to acquire 287 developed
residential lots adjacent to the Company's other residential lots in Fort
Worth, Texas. The partnership agreement designates the Company as managing
general partner. The partnership agreement also provides each of the partners
with a guaranteed 10% return on their
62
63
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6. INVESTMENTS IN REAL ESTATE ENTITIES (Continued)
respective investments. Through December 31, 1994, 73 of the residential lots
owned by the partnership were sold. During 1995, an additional 72 lots were
sold with 142 lots remaining to be sold at December 31, 1995. Through December
31, 1995, each partner had received $226,000 in return of capital distributions
and $120,000 in profit distributions from the partnership. See NOTE 8. "NOTES
AND INTEREST PAYABLE".
In November 1994, the Company sold four apartment complexes to a newly formed
limited partnership in exchange for cash, a 27% limited partner interest in the
partnership and two mortgage notes receivable, secured by one of the properties
sold by the Company. In conjunction with the exchange transaction the Company
recorded a deferred gain of $5.6 million which is offset against the Company's
investment in the partnership. See NOTE 3. "NOTES AND INTEREST RECEIVABLE" and
NOTE 4. "REAL ESTATE."
In June 1995, the Company purchased the corporate general partner of a limited
partnership which owns apartment complexes in Illinois, Florida and Minnesota,
with a total of 900 units. The purchase price of the corporate general partner
was $628,000 in cash. The corporate general partner has a 1% interest in the
partnership which is subordinated to a priority return of the limited partner.
Set forth below are summary financial data for the real estate entities the
Company accounts for using the equity method:
1995 1994
---------- ----------
Property and notes
receivable, net............. $ 705,948 $ 680,451
Other assets.................. 114,899 89,527
Notes payable................. (656,695) (591,258)
Other liabilities............. (74,059) (73,027)
---------- ----------
Equity........................ $ 90,093 $ 105,693
========== ==========
1995 1994 1993
---------- ---------- ----------
Revenues...................... $ 205,622 $ 181,639 $ 166,050
Depreciation.................. (24,218) (20,310) (18,984)
Provision for losses.......... (541) (1,429) (1,094)
Interest...................... (63,058) (54,409) (50,661)
Operating expenses............ (135,043) (120,815) (112,975)
Gains on sale of real estate.. 13,523 14,627 389
Extraordinary gains........... 1,437 1,189 11,446
---------- ---------- ----------
Net income (loss)............. $ (2,278) $ 492 $ (5,829)
========== ========== ==========
The difference between the carrying value of the Company's investment and the
equivalent investee book value is being amortized over the life of the
properties held by each investee.
63
64
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6. INVESTMENTS IN REAL ESTATE ENTITIES (Continued)
The Company's cash flow from the Trusts and NRLP is dependent on the ability of
each of the entities to make distributions. In the first quarter of 1993, CMET
and IORI resumed regular quarterly distributions, NRLP in the fourth quarter of
1993 and TCI in the fourth quarter of 1995. In 1995, the Company received
distributions from CMET, IORI and TCI totaling $641,000 and $719,000 from NRLP.
At December 31, 1995 the Company accrued $3.3 million in NRLP distributions
which were paid January 2, 1996. The Company received total distributions from
CMET and IORI of $675,000 in 1994 and $1.4 million from NRLP in December 1994.
The Company's investments in the Trusts and NRLP were initially acquired in
1989. In 1995, the Company purchased an additional $6.5 million of equity
securities of the Trusts and NRLP.
NOTE 7. MARKETABLE EQUITY SECURITIES - TRADING PORTFOLIO
In 1994, the Company began purchasing equity securities of entities other than
those of the Trusts and NRLP to diversify and increase the liquidity of its
margin accounts. In 1995, the Company purchased $19.4 million and sold $18.4
million of such securities. These equity securities are considered a trading
portfolio and are carried at market value. At December 31, 1995, the Company
recognized an unrealized decline in the market value of the equity securities
in its trading portfolio of $998,000. In 1995, the Company realized a net gain
of $349,000 from the sale of trading portfolio securities and received $852,000
in dividends and $238,000 in return of capital distributions on such
securities. At December 31, 1994, the Company recognized an unrealized decline
in the market value of the equity securities in its trading portfolio of
$242,000, realized a net loss of $101,000 from the sale of trading portfolio
securities and received $274,000 in dividends on such securities. Unrealized
and realized gains and losses in the trading portfolio are included in other
income in the accompanying Consolidated Statements of Operations.
64
65
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8. NOTES AND INTEREST PAYABLE
Notes and interest payable consisted of the following:
1995 1994
-------------------------- -------------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
---------- --------- --------- ---------
Notes payable
Mortgage loans............. $ 18,376 $ 22,086 $ 26,020 $ 26,239
Borrowings from financial
institutions............. 27,052 29,945 7,929 9,298
Notes payable to affiliates 1,554 4,176 1,533 5,166
---------- --------- --------- ---------
$ 46,982 56,207 $ 35,482 40,703
========= =========
Interest payable (including
$4,380 in 1995 and $4,566
in 1994 to affiliate).... 4,956 4,992
--------- ---------
$ 61,163 $ 45,695
========= =========
Scheduled principal payments on notes payable are due as follows:
1996............................................... $ 26,442
1997............................................... 13,053
1998............................................... 3,747
1999............................................... 369
2000............................................... 293
Thereafter......................................... 12,303
---------
$ 56,207
=========
Stated interest rates on notes payable ranged from 6.0% to 14% at December 31,
1995, and mature in varying installments between 1996 and 2007. At December
31, 1995, notes payable were collateralized by mortgage notes receivable with a
net carrying value of $18.5 million and by deeds of trust on real estate with a
net carrying value of $73.2 million.
In March 1995, the Company modified and extended a loan from a financial
institution with a principal balance of $7.8 million at December 31, 1995 and
collateralized by a note receivable with a principal balance of $17.1 million
at such date. On February 5, 1996, the loan was refinanced for $12.0 million.
See NOTE 19. "SUBSEQUENT EVENTS."
In March 1995, the Company exercised its option to extend the maturity date of
the loan secured by the Kansas City Holiday Inn, from March 1995 to March 1997.
In April and October 1995, the Company refinanced the mortgage debt in the
amount of $6.0 million. The Company received net cash of $2.8 million after
the payoff of $2.9 million of existing
65
66
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8. NOTES AND INTEREST PAYABLE (Continued)
mortgage debt and various closing costs associated with the refinancing. The
new mortgage bears interest at 9.45% per annum, requires monthly principal and
interest payments of $55,732 and matures on November 1, 2005.
In May 1995, the Company obtained a $15.0 million term loan, the proceeds of
which were used to acquire 74.9 acres of partially developed land in Las
Colinas, Texas. In June 1995, the Company borrowed an additional $3.0 million
from this lender increasing the term loan balance to $18.0 million. See NOTE
4. "REAL ESTATE." The principal balance of the loan was $15.5 million at
December 31, 1995. The loan bears interest at the prime rate plus 4%, (12.50%
per annum at December 31, 1995), requires monthly interest only payments, a 1%
annual maintenance fee, principal reduction payments of $1.5 million on the
first day of November 1995 and May 1996 and $3.0 million every six months
thereafter commencing November 1996, with the balance of principal and accrued
but unpaid interest due at maturity on May 1, 1998. The loan is secured by the
land in Las Colinas, Texas, a participation interest in two of the Company's
notes receivable, land in Atlanta, Georgia and a pledge of 586,800 NRLP units
of limited partner interest owned by the Company. The Company received net
financing proceeds of $210,000 after the purchase of the land and payment of
associated closing costs. In June 1995, the Company borrowed an additional
$3.0 million from this lender increasing the term loan principal balance to
$18.0 million. The additional $3.0 million borrowing was paid in full prior to
its March 31, 1996, maturity.
In October 1995, the Company obtained $6.1 million of purchase money
financing in conjunction with the acquisition of an additional 92.6 acres of
partially developed land in Las Colinas, Texas. See NOTE 4. "REAL ESTATE." The
outstanding principal balance of this note was $6.5 million at December 31,
1995. The mortgage bears interest at the prime rate plus 5%, (13.50% at
December 31, 1995), requires monthly interest only payments through September
30, 1996, four quarterly deferred commitment fee payments of $50,000 and $50,000
monthly principal reduction payments beginning October 1, 1996. The principal
balance, accrued but unpaid interest and a $500,000 "maturity fee" is due at
maturity on December 1, 1996. The Company has an option to extend the maturity
date to October 1, 1997 if no event of default has occurred, written notice is
given prior to maturity and the principal balance of the loan has been reduced
by $2.1 million.
Notes payable to affiliates at December 31, 1995 and 1994 include a $4.2
million note due to NRLP as payment for SAMLP's general partner interest in
NRLP. The note bears interest at 10% per annum compounded semi-annually and is
due at the earlier of September 2007, the liquidation of NRLP or the withdrawal
of SAMLP as general partner of NRLP. See NOTE 2. "SYNTEK ASSET MANAGEMENT,
L.P."
66
67
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8. NOTES AND INTEREST PAYABLE (Continued)
In June 1992, the Company obtained a $3.3 million loan from the owner, at the
time, of in excess of 14% of the Company's outstanding shares of Common Stock.
The note was paid in full at its May 1995 maturity. The loan also provided for
the lender's participation in the proceeds from either the sale or refinancing
of the Company's land in Atlanta, Georgia, or to put his participation to the
Company in exchange for a payment of $623,000. On December 2, 1993, the lender
exercised his put and required full payment by the Company by January 2, 1996.
The Company paid its $623,000 put obligation in May 1995.
The Company has margin arrangements with various brokerage firms which provide
for borrowings of up to 50% of the market value of the Company's marketable
equity securities. The borrowings under such margin arrangements are secured
by equity securities of the Trusts, NRLP and the Company's trading portfolio
and bear interest rates ranging from 7.0% to 11.0%. Margin borrowings were
$34.0 million at December 31, 1995, and $26.4 million at December 31, 1994, 47%
and 45%, respectively, of the market values of such equity securities at such
dates.
NOTE 9. REDEEMABLE COMMON STOCK
In June 1992, the Company sold 794,718 newly issued shares of its Common Stock
to Donald C. Carter for $2.0 million in cash. Terms of the sale agreement
provided Mr. Carter with the option of requiring the Company to reacquire up to
720,000 of the purchased shares at a price of $3.06 per share, a total of $2.2
million. The Company accreted the difference between the issuance price and
the redemption price using the "interest method". In December 1994, Mr.
Carter contributed his shares of the Company's Common Stock to a newly formed
partnership in which he is a limited partner. Concurrent with the share
contribution, the partnership rescinded the put provision of the original sales
agreement. Accordingly, as of December 31, 1994, the Company reclassified such
redeemable Common shares to stockholder's equity.
NOTE 10. RIGHTS PLAN
In April 1990, the Company adopted a Preferred Share Purchase Rights Plan (the
"Rights Plan") and approved the distribution to stockholders of a dividend of
one share purchase right (the "Rights") for each then outstanding share of the
Company's Common Stock. Each Right will entitle stockholders to purchase one
one-hundredth of a share of a new series of preferred stock at an exercise
price of $25.00. The Rights will generally be exercisable only if a person or
group (the "Adverse Group") increases its then current ownership in the Company
by more than 25% or commences a tender offer for 25% or more of the Company's
Common Stock. If any person or entity actually increases its then current
ownership in the Company by more than 25% or if the Company's Board of
Directors determines that any 10% stockholder is adversely affecting the
business of the Company, holders of the Rights, other than the Adverse Group,
will be entitled to buy, at the exercise price, the Common Stock
67
68
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10. RIGHTS PLAN (Continued)
of the Company with a market value of twice the exercise price. Similarly, if
the Company is acquired in a merger or other business combination, each Right
will entitle its holder to purchase, at the Right's exercise price, the number
of shares of the surviving company having a market value of twice the Right's
exercise price. In connection with the one for three reverse Common Stock
split effected in December 1990, the Rights were proportionately adjusted so
that each post-split share certificate represented three Rights, each of which
permitted the holder thereof to purchase one one- hundredth of a preferred
share for $25.00 under such circumstances. The Rights expire in 2000 and may
be redeemed at the Company's option for $.01 per Right under certain
circumstances. In connection with the two for one forward Common Stock split
effected January 2, 1996, the Rights were again proportionately adjusted so that
each post-split share represents one and one-half Rights, each of which permit
the holder thereof to purchase one one-hundredth of a preferred share for $25.00
under such circumstances.
On March 5, 1991, the Company's Board of Directors approved an amendment to the
Rights Plan. The amendment excludes the Company, the Company's subsidiaries,
and the Company's advisor or its officers and Directors from the class of
persons who may cause the Rights to become exercisable by increasing their
ownership of the Company's stock.
NOTE 11. ADVISORY AGREEMENT
Although the Company's Board of Directors is directly responsible for managing
the affairs of the Company and for setting the policies which guide it, the
day-to-day operations of the Company are performed by BCM, a contractual
advisor under the supervision of the Company's Board of Directors. The duties
of the advisor include, among other things, locating, investigating, evaluating
and recommending real estate and mortgage loan investment and sales
opportunities as well as financing and refinancing sources for the Company.
BCM as advisor also serves as a consultant in connection with the Company's
business plan and investment policy decisions made by the Company's Board of
Directors.
BCM has been providing advisory services to the Company since February 6, 1989.
BCM is a company owned by a trust for the benefit of the children of Gene E.
Phillips. Mr. Phillips served as Chairman of the Board and as a Director of
the Company until November 16, 1992. Mr. Phillips also served as a director of
BCM until December 22, 1989, and as Chief Executive Officer of BCM until
September 1, 1992. Mr. Phillips serves as a representative of the trust for
the benefit of his children that owns BCM and, in such capacity, has
substantial contact with the management of BCM and input with respect to BCM's
performance of advisory services to the Company. Ryan T. Phillips, a Director
of the Company, is a director of BCM and a trustee of the trust that owns BCM.
Oscar W. Cashwell, a Director of the Company, serves as Executive Vice
President of BCM.
68
69
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 11. ADVISORY AGREEMENT (Continued)
The Advisory Agreement provides that BCM shall receive base compensation at the
rate of 0.125% per month (1.5% on an annualized basis) of the Company's Average
Invested Assets. On October 23, 1991, based on the recommendation of BCM, the
Company's advisor, the Company's Board of Directors approved a reduction in
BCM's base advisory fee by 50% effective October 1, 1991. This reduction
remains in effect until the Company's earnings for the four preceding quarters
equals or exceeds $1.00 per share.
In addition to base compensation, the Advisory Agreement provides that BCM, or
an affiliate of BCM, receive an acquisition fee for locating, leasing or
purchasing real estate for the Company; a disposition fee for the sale of each
equity investment in real estate; a loan arrangement fee; an incentive fee
equal to 10% of net income for the year in excess of a 10% return on
stockholders' equity, and 10% of the excess of net capital gains over net
capital losses, if any; and a mortgage placement fee, on mortgage loans
originated or purchased.
The Advisory Agreement further provides that BCM shall bear the cost of certain
expenses of its employees not directly identifiable to the Company's assets,
liabilities, operations, business or financial affairs; and miscellaneous
administrative expenses relating to the performance by BCM of its duties under
the Advisory Agreement.
If and to the extent that the Company shall request BCM, or any director,
officer, partner or employee of BCM, to render services to the Company other
than those required to be rendered by BCM under the Advisory Agreement, such
additional services, if performed, will be compensated separately on terms
agreed upon between such party and the Company from time to time. The Company
has requested that BCM perform loan administration functions, and the Company
and BCM have entered into a separate agreement, as described below.
The Advisory Agreement automatically renews from year to year unless terminated
in accordance with its terms. The Company's management believes that the terms
of the Advisory Agreement are at least as fair as could be obtained from
unaffiliated third parties.
Since October 4, 1989, BCM has acted as loan administration/servicing agent for
the Company, under an agreement terminable by either party upon thirty days'
notice, under which BCM services the Company's mortgage notes and receives as
compensation a monthly fee of .125% of the month-end outstanding principal
balances of the mortgage notes serviced.
NOTE 12. PROPERTY MANAGEMENT
Since February 1, 1990, affiliates of BCM have provided property management
services to the Company. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides property management services for a fee of 5% or less of the
monthly gross rents collected on the properties under
69
70
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12. PROPERTY MANAGEMENT (Continued)
its management. Carmel, Ltd. subcontracts with other entities for the
property-level management services to the Company at various rates. The
general partner of Carmel, Ltd. is BCM. The limited partners of Carmel, Ltd.
are (i) Syntek West, Inc. ("SWI"), of which Mr. Phillips is the sole
shareholder, (ii) Mr. Phillips and (iii) a trust for the benefit of the
children of Mr. Phillips. Carmel, Ltd. subcontracts the property-level
management of the Company's hotels, shopping centers, one of its office
buildings and the Denver Merchandise Mart to Carmel Realty, Inc. ("Carmel
Realty"), which is a company owned by SWI. Carmel Realty is entitled to
receive property and construction management fees and leasing commissions in
accordance with the terms of its property-level management agreement with
Carmel, Ltd.
NOTE 13. ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC.
Fees and cost reimbursements to BCM, the Company's advisor, and its affiliates
were as follows:
1995 1994 1993
------------ -------------- ------------
Fees
Advisory and mortgage
servicing................. $ 1,195 $ 1,242 $ 1,258
Brokerage commissions...... 905 497 180
Property and construction
management and leasing
commissions*.............. 1,200 899 348
Loan arrangement........... 95 25 102
------------ -------------- ------------
$ 3,395 $ 2,663 $ 1,888
============ ============== ============
Cost reimbursements........ $ 516 $ 434 $ 288
============ ============== ============
- ---------------------
* Net of property management fees paid to subcontractors, other than Carmel
Realty.
NOTE 14. INCOME TAXES
Financial statement income varies from taxable income, principally due to the
accounting for income and losses of investees, gains and losses from asset
sales, depreciation on owned properties, amortization of discounts on notes
receivable and payable and the difference in the allowance for estimated
losses. At December 31, 1995, the Company had a tax net operating loss
carryforward of $17.3 million expiring through 2009.
At December 31, 1995, the Company recognized a deferred tax benefit of $4.7
million due to tax deductions available to it in future years. However, due to,
among other factors, the Company's inconsistent earnings history, the Company
was unable to conclude that the future realization of such deferred tax
benefit, which requires the generation
70
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AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14. INCOME TAXES (Continued)
of taxable income, was more likely than not. Accordingly, a valuation
allowance for the entire amount of the deferred tax benefit has been recorded.
The components of tax expense are as follows:
1995 1994 1993
-------------- -------------- -------------
Income tax provision
Current..................... $ 2 $ 9 $ 11
============== ============== =============
A reconciliation of the federal statutory tax rate (34%) with the income tax
provision in the Consolidated Statements of Operations is as follows:
1995 1994 1993
------------- -------------- -------------
Income tax at statutory rate... $ (2,185) $ (825) $ (1,450)
Carryforward of net operating
loss income tax benefit...... 2,185 825 1,450
State income tax, net of
federal benefit.............. 2 9 11
------------- -------------- -------------
Income tax provision........... $ 2 $ 9 $ 11
============= ============== =============
NOTE 15. EXTRAORDINARY GAIN
In 1995, the Company recognized an extraordinary gain of $783,000 representing
its equity share of TCI's extraordinary gain due to the early payoff of debt.
In 1994, the Company recognized an extraordinary gain of $273,000 representing
its equity share of TCI's extraordinary gain from the settlement of claims
against it by a lender. The Company also recognized $50,000 from the
forgiveness of a portion of a first mortgage due to the early payoff of the
second mortgage.
In 1993, the Company recognized an extraordinary gain of $3.4 million
representing its equity share of NRLP's extraordinary gain of $9.0 million from
its acquisition at a discount of certain of its mortgage debt. The Company
also recognized an additional $443,000 from the forgiveness of a portion of a
first mortgage from the early payoff of a second mortgage.
NOTE 16. RENTS UNDER OPERATING LEASES
The Company's operations include the leasing of office buildings and shopping
centers. The leases thereon expire at various dates through
71
72
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 16. RENTALS UNDER OPERATING LEASES (Continued)
2006. The following is a schedule of minimum future rents on non-cancelable
operating leases as of December 31, 1995:
1996.................................. $ 1,740
1997.................................. 1,450
1998.................................. 1,100
1999.................................. 775
2000.................................. 609
Thereafter............................ 1,982
------------
$ 7,656
============
NOTE 17. COMMITMENTS AND CONTINGENCIES
The Company is involved in various lawsuits arising in the ordinary course of
business. In the opinion of the Company's management the outcome of these
lawsuits will not have a material impact on the Company's financial condition,
results of operations or liquidity.
NOTE 18. QUARTERLY RESULTS OF OPERATIONS
The following is a tabulation of the Company's quarterly results of operations
for the years 1995 and 1994:
Three Months Ended
------------------------------------------------------------------------------
1995 March 31, June 30, September 30, December 31,
- ---------- ------------- -------------- ----------------- ---------------
Revenue.................... $ 6,080 $ 5,552 $ 7,066 $ 4,254
Expense.................... 8,200 9,010 7,933 8,294
------------- -------------- ----------------- ---------------
(Loss) before gain
on sale of real estate
and extraordinary gain... (2,120) (3,458) (867) (4,040)
Gain on sale of
real estate.............. 924 24 1,596 4,322
Extraordinary gain......... 315 12 431 25
------------- -------------- ----------------- ---------------
Net income (loss).......... $ (881) $ (3,422) $ 1,160 $ 307
============= ============== ================= ===============
Earnings per share
Income (loss) before extra-
ordinary gain............ $ (.20) $ (.59) $ .13 $ .05
Extraordinary gain......... .05 - .07 .01
------------- ------------- --------------- --------------
Net income (loss).......... $ (.15) $ (.59) $ .20 $ .06
============= ============= =============== ==============
Expense includes equity in losses of investees of $1.3 million, $1.7 million,
$1.4 million and $754,000 in the first, second, third and fourth quarters of
1995, respectively.
72
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AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 18. QUARTERLY RESULTS OF OPERATIONS (Continued)
Three Months Ended
------------------------------------------------------------------------------
1994 March 31, June 30, September 30, December 31,
- ----------- ------------- -------------- ----------------- ---------------
Revenue.................... $ 2,960 $ 5,685 $ 7,260 $ 4,636
Expense.................... 4,529 6,946 7,844 7,171
------------- -------------- ----------------- ---------------
(Loss) before gain on sale
of real estate and extra-
ordinary gain............ (1,569) (1,261) (584) (2,535)
Gain on sale of real
estate................. 176 57 910 2,057
Extraordinary gain......... 36 14 273 -
------------- -------------- ----------------- ---------------
Net income (loss).......... $ (1,357) $ (1,190) $ 599 $ (478)
============= ============== ================= ===============
Earnings per share
(Loss) before extra-
ordinary gain............ $ (.23) $ (.19) $ (.05) $ (.08)
Extraordinary gain......... .01 - .05 -
------------ ------------ ---------------- -------------
Net income (loss).......... $ (.22) $ (.19) $ .10 $ (.08)
============ ============ ================ =============
Revenue includes equity in losses of investees of $527,000, $545,000, $1.0
million and $415,000 in the first, second, third and fourth quarters of 1994,
respectively.
NOTE 19. SUBSEQUENT EVENTS
In March 1995, the Company modified and extended a loan from a financial
institution with a principal balance of $7.8 million at December 31, 1995 and
collateralized by a note receivable with principal balance of $17.1 million at
such date. On February 5, 1996 the loan was refinanced for $12.0 million. The
Company received net cash of $1.8 million from the refinancing after the payoff
of the financial institution's debt and after making a $1.5 million paydown on
the term loan secured by land in Las Colinas, Texas, in exchange for that
lender's release of its second lien on such note receivable. The new loan bears
interest at 15% per annum, requires monthly principal and interest payments of
$152,000, and matures January 31, 1998. See NOTE 8. "NOTES AND INTEREST
PAYABLE."
In May 1995, the Company purchased 74.9 acres of partially developed land in
Las Colinas, Texas, for $13.5 million. See NOTE 4. "REAL ESTATE."
73
74
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 19. SUBSEQUENT EVENTS (Continued)
In March 1996, the Company sold 2.3 acres for $961,000 in cash, the net sales
proceeds of $891,000 were used to paydown the term loan. Also in March 1996,
the Company entered into a contract to sell an additional 2.2 acres for $923,000
in cash. This sale is scheduled to close in April 1996.
In October 1995, the Company purchased an additional 92.6 acres of partially
developed land in Las Colinas, Texas. On February 13, 1996, the Company entered
into a contract to sell 72.5 of the 92.6 acres for 12.9 million in cash. The
contract calls for the sale to close in two phases. The first phase is to close
on or before May 23, 1996, but may be extended to July 24, 1996, and the second
phase on or before December 31, 1996.
74
75
AMERICAN REALTY TRUST, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1995
Cost
Capitalized
Subsequent
Initial Cost to Gross of Which Carried
to Company Acquisition at End of Year
------------------- ------------ ----------------------------------
Buildings Buildings
Encum- & Improve- & Improve- (1) Accumulated
Property/Description brances Land ments Improvements Land ments Total Depreciation
- ---------------------- --------- ------- ---------- ------------ ------- ---------- ---------- ------------
(Dollars in thousands)
PROPERTIES HELD FOR
INVESTMENT
OFFICE BUILDING
- ---------------
Rosedale Towers........ $ 2,500 $ 665 $ 3,769 $ 787 $ 715 $ 4,506 $ 5,221 $ 736
Roseville, MN
SHOPPING CENTER
- ---------------
Oaktree Shopping Village 1,547 192 1,431 - 192 1,431 1,623 3
Lubbock, TX
Park Plaza............. 3,405 891 3,584 1,029 891 4,613 5,504 631
Manitowoc, WI
MERCHANDISE MART
- ----------------
Denver Mart............ 5,181 4,824 5,184 2,241 5,098 7,151 12,249 619
Denver, CO
HOTELS
- ------
Inn at the Mart........ - - 302 405 - 707 707 61
Denver, CO
KC Holiday Inn.......... 5,992 1,110 4,535 1,821 1,110 6,356 7,466 596
Kansas City, MO ------- ------- ------- ------- ------- -------- ------- -------
18,625 7,682 18,805 6,283 8,006 24,764 32,770 2,646
PROPERTIES HELD FOR SALE
OFFICE BUILDING
- ---------------
Mopac.................. - 677 5,098 - 677 5,098 5,775 5,098
St. Louis, MO
LAND
- ----
Las Colinas, Tx........ 15,497 14,076 - (986) 13,090 - 13,090 -
B.P. Las Colinas, Tx... 6,509 7,318 - - 7,318 - 7,318 -
Atlanta Land, GA....... - (2) 11,052 - - 11,052 - 11,052 -
Rivertrails I, TX...... - 1,139 - (848) 291 - 291 -
Other (4 properties)... - 200 - - 200 - 200 -
------- ------- ------- ------- ------- -------- ------- -------
22,006 34,462 5,098 (1,834) 32,628 5,098 37,726 5,098
------- ------- ------- ------- ------- -------- ------- -------
$40,631 $42,144 $23,903 $ 4,449 $40,634 $ 29,862 70,496 $ 7,744
======= ======= ======= ======= ======= ======== =======
Allowance for
estimated losses...... (3,328)
-------
$67,168
=======
Life On Which
Depreciation
in Latest
Statement
Date of Date of Operations
Property/Description Construction Acquired is Computed
- ---------------------- ------------ -------- -------------
PROPERTIES HELD FOR
INVESTMENT
OFFICE BUILDING
- ---------------
Rosedale Towers........ 1974 1990 10 - 40 years
Roseville, MN
SHOPPING CENTER
- ---------------
Oaktree Shopping Village 1995 10 - 40 years
Lubbock, TX
Park Plaza............. 1957 1992 10 - 40 years
Manitowoc, WI
MERCHANDISE MART
- ----------------
Denver Mart............ 1965/ 1992 10 - 40 years
Denver, CO 1986
HOTELS
- ------
Inn at the Mart........ 1974 1994 10 - 40 years
Denver, CO
KC Holiday Inn.......... 1974 1993 10 - 40 years
Kansas City, MO
PROPERTIES HELD FOR SALE
OFFICE BUILDING
- ---------------
Mopac.................. 1925 1965 10 - 40 years
St. Louis, MO
LAND
- ----
Las Colinas, TX........ N/A 1995 -
B.P. Las Colinas, TX... N/A 1995 -
Atlanta Land, GA....... N/A 1990 -
Rivertrails I, TX...... N/A 1991 -
Other (4 properties)... N/A Various -
- -------------------------
(1) The aggregate cost for federal income tax purposes is $63.9 million.
(2) Property is pledged as additional collateral for a note payable with
a principal balance of $15.5 million.
75
76
SCHEDULE III
(Continued)
AMERICAN REALTY TRUST, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
1995 1994 1993
---------- ---------- ---------
(dollars in thousands)
Reconciliation of Real Estate
Balance at January 1,................ $ 58,517 $ 59,181 $ 51,475
Additions
Acquisitions and improvements...... 23,196 9,714 9,900
Foreclosures....................... - - 5,645
Property received in settlement
with insurance company........... 1,622 - -
Deductions
Sales of real estate............... (9,813) (10,378) (7,839)
Property transferred in settlement
with insurance company........... (3,027) - -
--------------- ---------------- --------------
Balance at December 31,.............. $ 70,495 $ 58,517 $ 59,181
=============== ================ ==============
Reconciliation of Accumulated Depreciation
Balance at January 1,................ $ 6,819 $ 6,744 $ 6,158
Additions
Depreciation....................... 1,250 1,026 657
Deductions
Sales of real estate............... (325) (951) (71)
--------------- ---------------- --------------
Balance at December 31,.............. $ 7,744 $ 6,819 $ 6,744
=============== ================ ==============
76
77
SCHEDULE IV
AMERICAN REALTY TRUST, INC.
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
Periodic
Interest Maturity Payment Prior
Description Rate (1) Date (1) Terms Liens
- ------------------ ------- ------- ------------------------ ----------
FIRST MORTGAGE LOANS
Hall Land.................. 10.00% 08/94 Principal and interest due $ -
Secured by 4.2 acres of at maturity.
residential land in Maricopa
County, Arizona.
Osceola Land..................... 12.00% 11/93 Principal and interest due -
Secured by unimproved land in monthly.
Osceola County, Florida.
Webster & Banc Boston............ Various Various Principal and interest -
Secured by condominiums in Ft. monthly.
Lauderdale, Florida.
J. W. Sherman.................... 7.00% 08/98 Principal and interest -
Secured by 1 co-op apartment in payments due monthly.
Brooklyn, NY.
Nak Chung Building............... 8.00% 04/99 Interest due monthly. -
Secured by restaurant in Principal to be paid down
Los Angeles, California. to $50,000 by May 1, 1997,
balance due at maturity.
WRAPAROUND MORTGAGE LOANS
Las Vegas Plaza.................. 9.74% 12/97 Principal and interest due 9,298
Secured by 93,320 square foot monthly of $168,000 based on
retail shopping center in Las 25 year amortization.
Vegas, Nevada
Continental Hotel................ 11.00% 07/96 Principal and interest of 5,346
Secured by hotel and casino in $175,000 due monthly.
Las Vegas, Nevada.
JUNIOR MORTGAGE LOANS
Williamsburg Hospitality House(3) 9.75% 04/96 Pay greater of available 11,677
- --------------------------------- cash or 6% from 2/1/94 to
7/1/94. Thereafter, pay
Secured by 297 room hotel in greater of available cash
Williamsburg, Virginia. or 8%.
NO. SO. II...................... 12.00% 09/96 Interest due monthly, with 1,317
Secured by shopping center in principal reductions of
Columbia, South Carolina. $25,000 due quarterly.
Principal balance due at
maturity.
Principal Amount of
Face Carrying Loan Subject to
Amount of Amount of Delinquent Principal
Description Mortgages Mortgages (2) or Interest
- ------------------- --------- ------------ --------------------
(dollars in thousands)
FIRST MORTGAGE LOANS
Hall Land.................. $ 100 $ 112 $ 112
Secured by 4.2 acres of
residential land in Maricopa
County, Arizona.
Osceola Land..................... 1,960 1,592 1,592
Secured by unimproved land in
Osceola County, Florida.
Webster & Banc Boston............ 158 143
Secured by condominiums in Ft.
Lauderdale, Florida.
J. W. Sherman.................... 32 31
Secured by 1 co-op apartment in
Brooklyn, NY.
Nak Chung Building............... 100 100
Secured by restaurant in
Los Angeles, California.
WRAPAROUND MORTGAGE LOANS
Las Vegas Plaza.................. 17,600 18,458
Secured by 93,320 square foot
retail shopping center in Las
Vegas, Nevada
Continental Hotel................ 22,000 22,713
Secured by hotel and casino in
Las Vegas, Nevada.
JUNIOR MORTGAGE LOANS
Williamsburg Hospitality House(3) 8,862 9,422
- ---------------------------------
Secured by 297 room hotel in
Williamsburg, Virginia.
NO. SO. II...................... 852 279
Secured by shopping center in
Columbia, South Carolina.
77
78
SCHEDULE IV
(Continued)
AMERICAN REALTY TRUST, INC.
MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1995
Periodic
Interest Maturity Payment Prior
Description Rate (1) Date (1) Terms Liens
- ------------------- --------- -------- --------------------- -----------
JUNIOR MORTGAGE LOANS - Continued
Hall Land.................... 10.00% 08/94 Principal and interest $ 112
Secured by 4.2 acres of due at maturity.
residential land in Maricopa
County, Arizona.
OTHER
MS Holding................ Prime +3% 12/96 Principal and interest 5,727
Secured by loans secured by of $40,000 due monthly.
personal and real property
in Dallas, Texas.
Tiberon Trails(4)............ Greater of 11/96 Interest only monthly. 7,014
Secured by assignment of 99% Prime +2.5% Principal at maturity.
limited partner interest in a or 10.00%
375 unit apartment complex in
Merrillville, Indiana.
Mediterranean Villas(4)...... 09/04 Interest only monthly. -
Secured by second and third 09/04 Principal at maturity. -
liens on an apartment complex
in San Antonio, Texas. ----------
$ 40,491
=========
Principal Amount of
Face Carrying Loan Subject to
Amount of Amount of Delinquent Principal
Description Mortgages Mortgages (2) or Interest
- --------------- --------- ------------- --------------------
(dollars in thousands)
JUNIOR MORTGAGE LOANS - Continued
Hall Land.................... $ 71 $ 80 $ 80
Secured by 4.2 acres of
residential land in Maricopa
County, Arizona.
OTHER
MS Holding............... 3,100 386
Secured by loans secured by
personal and real property
in Dallas, Texas.
Tiberon Trails(4)............ 4,000 3,503
Secured by assignment of 99%
limited partner interest in a
375 unit apartment complex in
Merrillville, Indiana.
Mediterranean Villas(4)...... 1,000 1,000 -
Secured by second and third 300 300 -
liens on an apartment complex
in San Antonio, Texas. ----------- ----------- -----------
$ 60,135 58,119 $ 1,784
=========== ===========
Interest receivable 267
Deferred gains (4,617)
Discounts (102)
Allowance for estimated losses (3,926)
-----------
$ 49,741
- ------------------------------ ===========
(1) Interest rates and maturity dates shown are as stipulated
in the loan documents at December 31, 1995. Where
applicable, these rates have been adjusted at issuance
to yield between 8% and 12%.
(2) The aggregate cost for federal income tax purposes is
$58.4 million.
(3) Mortgage note is receivable from a related party.
(4) Mortgage note is receivable from a partnership in which
the Company is a 27% limited partner.
78
79
SCHEDULE IV
(Continued)
AMERICAN REALTY TRUST, INC.
MORTGAGE LOANS ON REAL ESTATE
1995 1994 1993
---------- ---------- ---------
(dollars in thousands)
Balance at January 1,................ $ 54,050 $ 56,018 $ 75,402
Additions
New mortgage loans................. - 1,400 32
Compounding of interest............ - - 369
Funding on existing loans.......... 3,295 600 609
Deductions
Collections of principal........... 1,590 (2,446) (1,332)
Settlement of term loan obligation
in exchange for receivable
participation.................... - - (9,940)
Transfer in settlement with
insurance company................ (816) - -
Write-off of principal............. - (1,522) (679)
Foreclosures....................... - - (8,443)
--------------- ---------------- --------------
Balance at December 31,.............. $ 58,119 $ 54,050 $ 56,018
=============== ================ ==============
79
80
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
______________________________________
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
Directors
The affairs of American Realty Trust, Inc. (the "Company" or the "Registrant")
are managed by a Board of Directors. The Company's By-laws provide for three
classes of Directors to serve for staggered three-year terms. The Directors
are elected at the annual meeting of stockholders or are appointed by the
Company's incumbent Board of Directors and serve until their respective terms
expire or until a successor has been elected or appointed.
The Directors of the Company are listed below, together with their ages, terms
of service, all positions and offices with the Company or its advisor, Basic
Capital Management, Inc. ("BCM" or the "Advisor"), their principal occupations,
business experience and directorships with other companies during the last five
years or more. The designation "Affiliate" when used below with respect to a
Director means that the Director is an officer, director or employee of the
Advisor or an officer or employee of the Company. The designation
"Independent", when used below with respect to a Director, means that the
Director is neither an officer or employee of the Company nor a director,
officer or employee of the Advisor, although the Company may have certain
business or professional relationships with such Director, as discussed in ITEM
13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - Certain Business
Relationships."
OSCAR W. CASHWELL: Age 68, Director (Class I) (Affiliated) (since November
1992).
Executive Vice President (since August 1995), President and Director of
Property and Asset Management (January 1994 to August 1995) and Assistant
to the President, Real Estate Operations (July 1989 to December 1993) of
BCM; President (February 1994 to August 1995) of Continental Mortgage and
Equity Trust ("CMET"), Income Opportunity Realty Investors, Inc., formerly
Income Opportunity Realty Trust (collectively, "IORI"), and
Transcontinental Realty Investors, Inc. ("TCI"); President (February 1994
to August 1995) and Director (March 1994 to August 1995) of Syntek Asset
Management, Inc. ("SAMI"), the managing general partner of Syntek Asset
Management, L.P. ("SAMLP"), which is the general partner of National
Realty, L.P. ("NRLP") and National Operating, L.P. ("NOLP"), and a company
owned by BCM; and Assistant to the President, Real Estate Operations
(March 1982 to June 1989) of Southmark Corporation ("Southmark").
80
81
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)
Directors (Continued)
DALE A. CRENWELGE: Age 37, Director (Class III) (Independent) (since December
1994).
President (since 1989) of Longhorn Consultants Commercial Real Estate
Group, Inc. and Crenwelge Commercial Consultants, Inc. real estate
marketing and management firms; and Assistant to the President (1985 to
1989) of Thompson Properties, a commercial real estate development,
brokerage, management and investment company.
AL GONZALEZ: Age 59, Director (Class II) (Independent) (since 1989).
President (since March 1991) of AGE Refining, Inc., a petroleum refining
and marketing firm; President (January 1988 to March 1991) of Moody-Day
Inc., which sells and leases construction equipment and supplies; owner
and President of Gulf-Tex Construction Company ("Gulf-Tex"); owner and
lessor of two restaurant sites in Dallas, Texas; Director (since April
1990) of Avacelle, Inc. ("Avacelle"); Director (1988 to 1992) of Medical
Resource Companies of America; and member (1987 to 1989) of the Dallas
City Council.
On March 18, 1992, Avacelle filed a voluntary petition under Chapter 11 of the
United States Bankruptcy Code and an Order confirming its plan of
Reorganization was entered October 18, 1993 by the United States Bankruptcy
Court, Northern Division of Oklahoma.
RYAN T. PHILLIPS: Age 26, Director (Class III) (Affiliated) (since 1992).
President (since July 1994) of Signature Asset Management, Inc., a real
estate investment company in Dallas, Texas; Real Estate Investor (since
January 1992); Real Estate Analyst (1991 to 1993) with Kelley, Lundeen &
Crawford in Dallas, Texas; and Trustee of a trust for the benefit of the
children of Gene E. Phillips. Such trust is the 100% beneficial owner of
BCM, the advisor to the Company. Ryan T. Phillips is the son of Gene E.
Phillips, and has served as a Director of BCM since February 1991.
Board Meetings and Committees
The Company's Board of Directors held four meetings during 1995. For such
year, no incumbent Director attended fewer than 75% of (i) the total number of
meetings held by the Board of Directors during the period for which he had been
a Director and (ii) the total number of meetings held by all committees of the
Board of Directors on which he served during the periods that he served.
81
82
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)
Board Meetings and Committees (Continued)
The Company's Board of Directors has an Audit Committee the function of which
is to review the Company's operating and accounting procedures. The members of
the Audit Committee are Messrs. Gonzalez (Chairman) and Crenwelge. The Audit
Committee met once during 1995.
The Company's Board of Directors has a Stock Option Committee to administer its
1987 Stock Option Plan. The function of the Stock Option Committee is, among
other things, to determine which persons will be granted options, the number of
shares to be covered by the options and the exercise period of the options
within the terms of the 1987 Stock Option Plan. The only member of the Stock
Option Committee is Mr. Gonzalez. The Stock Option Committee did not meet in
1995.
The Company's Board of Directors does not have nominating or compensation
committees.
Executive Officers
The following persons currently serve as executive officers of the Company:
Karl L. Blaha, President; Bruce A. Endendyk, Executive Vice President; Thomas
A. Holland, Executive Vice President and Chief Financial Officer; and Randall
M. Paulson, Executive Vice President. Their positions with the Company are not
subject to a vote of the Company's stockholders. The age, terms of service,
all positions and offices with the Company or BCM, other principal occupations,
business experience and directorships with other companies during the last five
years or more is set forth below.
KARL L. BLAHA: Age 47, President (since October 1993) and Executive Vice
President and Director of Commercial Management (April 1992 to September 1993).
Executive Vice President (since October 1992) of Carmel Realty, Inc.
("Carmel Realty"), a company owned by Syntek West, Inc. ("SWI"); Executive
Vice President and Director of Commercial Management (April 1992 to August
1995) of BCM, SAMI, CMET, IORI and TCI; Executive Vice President and
Director of Commercial Management (April 1992 to February 1994) of
National Income Realty Trust ("NIRT") and Vinland Property Trust ("VPT");
Partner - Director of National Real Estate Operations of First Winthrop
Corporation (August 1988 to March 1992); Corporate Vice President of
Southmark (April 1984 to August 1988); and President of Southmark
Commercial Management (March 1986 to August 1988).
82
83
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)
Executive Officers (Continued)
BRUCE A. ENDENDYK: Age 47, Executive Vice President (since January 1995).
President (since January 1995) of Carmel Realty; Executive Vice President
(since January 1995) of BCM, SAMI, CMET, IORI and TCI; Management
Consultant (November 1990 to December 1994); Executive Vice President
(January 1989 to November 1990) of Southmark; President and Chief
Executive Officer (March 1988 to January 1989) of Southmark Equities
Corporation; and Vice President/Resident Manager (December 1975 to March
1988) of Coldwell Banker Commercial/Real Estate Services in Houston,
Texas.
THOMAS A. HOLLAND: Age 53, Executive Vice President and Chief Financial
Officer (since August 1995) and Senior Vice President and Chief Accounting
Officer (July 1990 to August 1995).
Executive Vice President and Chief Financial Officer (since August 1995)
and Senior Vice President and Chief Accounting Officer (July 1990 to
August 1995) of BCM, SAMI, CMET, IORI and TCI; Senior Vice President and
Chief Accounting Officer (July 1990 to February 1994) of NIRT and VPT;
Vice President and Controller (December 1986 to June 1990) of Southmark;
Vice President-Finance (January 1986 to December 1986) of Diamond Shamrock
Chemical Company; Assistant Controller (May 1976 to January 1986) of Maxus
Energy Corporation (formerly Diamond Shamrock Corporation); Trustee
(August 1989 to June 1990) of Arlington Realty Investors; and Certified
Public Accountant (since 1970).
RANDALL M. PAULSON: Age 49, Executive Vice President (since January 1995).
President (since January 1995) and Executive Vice President (January 1995
to August 1995) of SAMI, CMET, IORI and TCI and (October 1994 to August
1995) of BCM; Director (since August 1995) of SAMI; Vice President (1993
to 1994) of GSSW, LP, a joint venture of Great Southern Life and
Southwestern Life; Vice President (1990 to 1993) of Property Company of
America Realty, Inc.; President (1990) of Paulson Realty Group; President
(1983 to 1989) of Johnstown Management Company; and Vice President (1979
to 1982) of Lexton-Ancira.
83
84
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)
Officers
Although not executive officers of the Company, the following persons currently
serve as officers of the Company: Robert A. Waldman, Senior Vice President,
Secretary and General Counsel and Drew D. Potera, Treasurer. Their positions
with the Company are not subject to a vote of the Company's stockholders.
Their ages, terms of service, all positions and offices with the Company or
BCM, other principal occupations, business experience and directorships with
other companies during the last five years or more are set forth below.
ROBERT A. WALDMAN: Age 43, Senior Vice President and General Counsel (since
January 1995), Vice President (January 1993 to January 1995) and Secretary
(since December 1989).
Senior Vice President and General Counsel (since January 1995); Vice
President (December 1990 to January 1995) and Secretary (since December
1993) of CMET, IORI and TCI; Vice President (December 1990 to February
1994) and Secretary (December 1993 to February 1994) of NIRT and VPT;
Senior Vice President and General Counsel (since November 1994), Vice
President and Corporate Counsel (November 1989 to November 1994) and
Secretary (since November 1989) of BCM; Senior Vice President and General
Counsel (since January 1995), Vice President (April 1990 to January 1995)
and Secretary (since December 1990) of SAMI; Director (February 1987 to
October 1989) and General Counsel and Secretary (1985 to October 1989) of
Red Eagle Resources Corporation (oil and gas); Assistant General Counsel,
Senior Staff Attorney and Staff Attorney (1981 to 1985) of Texas
International Company (oil and gas) and Staff Attorney (1979 to 1981) of
Iowa Beef Processors, Inc.
DREW D. POTERA: Age 36, Treasurer (since August 1991) and Assistant Treasurer
(December 1990 to August 1991).
Treasurer (since December 1990) of CMET, IORI and TCI; Treasurer (December
1990 to February 1994) of NIRT and VPT; Vice President, Treasurer and
Securities Manager (since July 1990) of BCM; Vice President and Treasurer
(since February 1992) of SAMI; and Financial Consultant with Merrill
Lynch, Pierce, Fenner & Smith, Incorporated (June 1985 to June 1990).
In addition to the foregoing officers, the Company has several vice presidents
and assistant secretaries who are not listed herein.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Under the securities laws of the United States, the Company's Directors,
executive officers, and any persons holding more than ten percent of the
Company's shares of Common Stock are required to report their ownership
84
85
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)
Compliance with Section 16(a) of the Securities Exchange Act of 1934
(Continued)
of the Company's shares and any changes in that ownership to the Securities and
Exchange Commission (the "Commission"). Specific due dates for these reports
have been established and the Company is required to report any failure to file
by these dates during 1995. All of these filing requirements were satisfied by
the Company's Directors and executive officers and ten percent holders. In
making these statements, the Company has relied on the written representations
of its incumbent Directors and executive officers and its ten percent holders
and copies of the reports that they have filed with the Commission.
The Advisor
Although the Company's Board of Directors is directly responsible for managing
the affairs of the Company and for setting the policies which guide it, the
day-to-day operations of the Company are performed by BCM, a contractual
advisor under the supervision of the Company's Board of Directors. The duties
of the advisor include, among other things, investigating, evaluating and
recommending real estate and mortgage loan investment and sales opportunities
as well as financing and refinancing sources for the Company. The advisor also
serves as consultant in connection with the Company's business plan and
investment policy decisions made by the Company's Board of Directors.
BCM has served as advisor to the Company since February 1989. BCM is a
company owned by a trust for the benefit of the children of Gene E. Phillips,
who served as Chairman of the Board and a Director of the Company until
November 16, 1992. Ryan T. Phillips, the son of Mr. Phillips and a Director of
the Company, is also a director of BCM and a trustee of the trust for the
benefit of the children of Mr. Phillips which owns BCM. Mr. Cashwell, a
Director of the Company, serves as Executive Vice President of BCM. Mr.
Paulson, an Executive Officer of the Company, also serves as President of BCM,
SAMI, CMET, IORI and TCI and as a director of SAMI. Mr. Phillips served as a
director of BCM until December 22, 1989 and as Chief Executive Officer of BCM
until September 1, 1992. Mr. Phillips serves as a representative of the trust
for the benefit of his children which owns BCM and, in such capacity, has
substantial contact with the management of BCM and input with respect to BCM's
performance of advisory services to the Company. As of March 15, 1996, BCM
owned 2,465,930 shares of the Company's Common Stock, approximately 42% of the
shares then outstanding.
The Advisory Agreement provides for the advisor to receive monthly base
compensation at the rate of 0.125% per month (1.5% on an annualized basis) of
Average Invested Assets. On October 23, 1991, based on the recommendation of
BCM, the Company's advisor, the Company's Board of Directors approved a
reduction in the advisor's base fee by 50% effective October 1, 1991. This
reduction remains in effect until the Company's earnings for the four preceding
quarters equals or exceeds $1.00 per share.
85
86
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)
The Advisor (Continued)
In addition to base compensation, BCM, or an affiliate of BCM, receives the
following forms of additional compensation:
(a) an acquisition fee for locating, leasing or purchasing real estate for the
Company in an amount equal to the lesser of (i) the amount of compensation
customarily charged in similar arm's-length transactions or (ii) up to 6%
of the costs of acquisition, inclusive of commissions, if any, paid to
non-affiliated brokers;
(b) a disposition fee for the sale of each equity investment in real estate in
an amount equal to the lesser of (i) the amount of compensation
customarily charged in similar arm's-length transactions or (ii) 3% of the
sales price of each property, exclusive of fees, if any, paid to
non-affiliated brokers;
(c) a loan arrangement fee in an amount equal to 1% of the principal amount of
any loan made to the Company arranged by BCM;
(d) an incentive fee equal to 10% of net income for the year in excess of a
10% return on stockholders' equity, and 10% of the excess of net capital
gains over net capital losses, if any, realized from sales of assets made
under contracts entered into after April 15, 1989; and
(e) a mortgage placement fee, on mortgage loans originated or purchased, equal
to 50%, measured on a cumulative basis, of the total amount of mortgage
origination and placement fees on mortgage loans advanced by the Company
for the fiscal year.
The Advisory Agreement further provides that BCM shall bear the cost of certain
expenses of its employees, excluding fees paid to the Company's Directors; rent
and other office expenses of both BCM and the Company (unless the Company
maintains office space separate from that of BCM); costs not directly
identifiable to the Company's assets, liabilities, operations, business or
financial affairs; and miscellaneous administrative expenses relating to the
performance by BCM of its duties under the Advisory Agreement.
If and to the extent that the Company shall request BCM, or any director,
officer, partner or employee of BCM, to render services to the Company other
than those required to be rendered by BCM under the Advisory Agreement, such
additional services, if performed, will be compensated separately on terms
agreed upon between such party and the Company from time to time. The Company
has requested that BCM perform loan administration functions, and the Company
and BCM have entered into a separate agreement, as described below.
The Advisory Agreement automatically renews from year to year unless terminated
in accordance with its terms. The Company's management believes that the terms
of the Advisory Agreement are at least as fair as could be obtained from
unaffiliated third parties.
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)
The Advisor (Continued)
Pursuant to the Advisory Agreement, BCM serves as the loan administration/
servicing agent for the Company, under an agreement dated as of October 4,
1989, and terminable by either party upon thirty days' notice, under which BCM
services most of the Company's mortgage notes and receives as compensation a
monthly fee of 0.125% of the month-end outstanding principal balances of the
mortgage loans serviced.
Situations may develop in which the interests of the Company are in conflict
with those of one or more Directors or officers in their individual capacities
or of BCM, or of their respective affiliates. In addition to services
performed for the Company, as described above, BCM actively provides similar
services as agent for, and advisor to, other real estate enterprises, including
persons and entities involved in real estate development and financing,
including CMET, IORI and TCI. BCM also performs certain administrative
services for NRLP and NOLP, the operating partnership of NRLP, on behalf of
NRLP's and NOLP's general partner, SAMLP. The Advisory Agreement provides that
BCM may also serve as advisor to other entities. As advisor, BCM is a
fiduciary of the Company's public investors. In determining to which entity a
particular investment opportunity will be allocated, BCM will consider the
respective investment objectives of each entity and the appropriateness of a
particular investment in light of each such entity's existing mortgage note and
real estate portfolios and business plan. To the extent any particular
investment opportunity is appropriate to more than one such entity, such
investment opportunity will be allocated to the entity that has had funds
available for investment for the longest period of time, or, if appropriate,
the investment may be shared among various entities. See ITEM 13. "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS - Certain Business Relationships."
The directors and principal officers of BCM are set forth below:
MICKEY N. PHILLIPS: Director
RYAN T. PHILLIPS: Director
RANDALL M. PAULSON: President
MARK W. BRANIGAN: Executive Vice President
OSCAR W. CASHWELL: Executive Vice President
BRUCE A. ENDENDYK: Executive Vice President
THOMAS A. HOLLAND: Executive Vice President and Chief Financial
Officer
COOPER B. STUART: Executive Vice President
CLIFFORD C. TOWNS, JR.: Executive Vice President, Finance
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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF THE REGISTRANT
(Continued)
The Advisor (Continued)
ROBERT A. WALDMAN: Senior Vice President, Secretary and General
Counsel
DREW D. POTERA: Vice President, Treasurer and Securities
Manager
Mickey N. Phillips is the brother of Gene E. Phillips and Ryan T. Phillips is
the son of Gene E. Phillips. Gene E. Phillips serves as a representative of
the trust established for the benefit of his children which owns BCM and, in
such capacity, has substantial contact with the management of BCM and input
with respect to its performance of advisory services to the Company.
Property Management
Since February 1, 1990, affiliates of BCM have provided property management
services to the Company. Currently, Carmel Realty Services, Ltd. ("Carmel,
Ltd.") provides such property management services for a fee of 5% or less of
the monthly gross rents collected on the properties under management. Carmel,
Ltd. subcontracts with other entities for the provision of the property-level
management services to the Company at various rates. The general partner of
Carmel, Ltd. is BCM. The limited partners of Carmel, Ltd. are (i) SWI, of
which Mr. Phillips is the sole shareholder, (ii) Mr. Phillips and (iii) a
trust for the benefit of the children of Mr. Phillips. Carmel, Ltd.
subcontracts the property-level management of the Company's hotels, shopping
centers, one of its office buildings and the Denver Merchandise Mart to Carmel
Realty, which is company owned by SWI. Carmel Realty is entitled to receive
property and construction management fees and leasing commissions in accordance
with terms of its property-level management agreement with Carmel, Ltd.
Real Estate Brokerage
Affiliates of BCM provide real estate brokerage services to the Company and
receive brokerage commissions in accordance with the Advisory Agreement.
ITEM 11. EXECUTIVE COMPENSATION
The Company has no employees, payroll or benefit plans and pays no compensation
to the executive officers of the Company. The Directors and executive officers
of the Company who are also officers or employees of the Company's Advisor are
compensated by the Advisor. Such affiliated Directors and executive officers
of the Company perform a variety of services for the Advisor and the amount of
their compensation is determined solely by the Advisor. BCM does not allocate
the cash compensation of its officers among the various entities for which it
serves as advisor. See ITEM 10. "DIRECTORS, EXECUTIVE OFFICERS AND ADVISOR OF
THE REGISTRANT - The Advisor" for a more detailed discussion of compensation
payable to BCM by the Company.
88
89
ITEM 11. EXECUTIVE COMPENSATION (Continued)
The only direct remuneration paid by the Company is to those Directors who are
not officers or employees of BCM or its affiliated companies. The Company
compensates such Independent Directors at a rate of $5,000 per year, plus $500
per Board of Directors meeting attended and $300 per Audit Committee meeting
attended. During 1995, $25,350 was paid to Independent Directors in total
Directors' fees for all meetings as follows: Dale A. Crenwelge, $7,500; Al
Gonzalez, $7,300; Ryan T. Phillips, $5,750; and G. Wayne Watts, $4,800.
In July 1987, the Company's Board of Directors, including all of the
Independent Directors, approved the Company's 1987 Stock Option Plan (the
"Plan"). The Plan was approved by the Company's Stockholders at the Company's
annual meeting of stockholders held on June 8, 1988. The Plan was intended
principally as an incentive for, and as a means of encouraging ownership of the
Company's Common Stock by, eligible persons, including certain Directors and
officers of the Company. Options may be granted either as incentive stock
options (which qualify for certain favorable tax treatment), or as
non-qualified stock options. Incentive stock options can not be granted to,
among others, persons who are not employees of the Company, or to persons who
fail to satisfy certain criteria concerning ownership of less than 10% of the
Company's shares of Common Stock. The Plan is administered by the Stock Option
Committee, which currently consists of two Independent Directors of the
Company. The exercise price per share of an option can not be less than 100%
of the fair market value per share on the date of grant. The Company receives
no consideration for the grant of an option. As of March 15, 1996, there were
no stock options outstanding under the Plan.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
89
90
ITEM 11. EXECUTIVE COMPENSATION (Continued)
Performance Graph
The following graph compares the cumulative total stockholder return on the
Company's shares of Common Stock with the Dow Jones Equity Market Index ("DJ
Equity Index") and the Dow Jones Real Estate Investment Index ("DJ Real Estate
Index"). The comparison assumes that $100 was invested on December 31, 1990 in
shares of the Company's Common Stock and in each of the indices and further
assumes the reinvestment of all dividends. Past performance is not necessarily
an indicator of future performance.
1990 1991 1992 1993 1994 1995
THE COMPANY 100 95 114 220 236 268
DJ EQUITY INDEX 100 132 145 158 159 221
DJ REAL ESTATE INDEX 100 112 101 118 112 139
90
91
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Security Ownership of Certain Beneficial Owners. The following table sets
forth the ownership of the Company's Common Stock both beneficially and of
record, both individually and in the aggregate, for those persons or entities
known by the Company to be the owner of more than 5% of the shares of the
Company's Common Stock as of the close of business on March 15, 1996.
Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial Ownership Class (1)
- ------------------------------------ ---------------------- ----------
Basic Capital Management, Inc. 2,465,930 42.1%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Davister Corp./Nanook Partners, L.P. 834,718 14.2%
10670 N. Central Expressway
Suite 640
Dallas, TX 75231
Rosedale Equities, Inc. 762,352 13.0%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Continental Mortgage and Equity
Trust 409,044 7.0%
10670 N. Central Expressway
Suite 300
Dallas, Texas 75231
Ryan T. Phillips 2,515,096 (2)(3) 42.9%
10670 N. Central Expressway
Suite 600
Dallas, Texas 75231
_________________________
(1) Percentages are based upon 5,858,238 shares outstanding as of March 15,
1996.
(2) Includes 2,465,930 shares owned by BCM over which Ryan T. Phillips may be
deemed to be the beneficial owner by virtue of his position as a director
of BCM. Mr. Phillips disclaims beneficial ownership of such shares.
(3) Includes 49,166 shares owned by the Gene E. Phillips' Children's Trust.
Ryan T. Phillips is a beneficiary of such trust.
91
92
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT (Continued)
Security Ownership of Management. The following table sets forth the ownership
of shares of the Company's Common Stock, both beneficially and of record, both
individually in the aggregate, for the Directors and executive officers of the
Company, as of the close of business on March 15, 1996.
Number of
Shares Beneficially Percent of
Name of Beneficial Owner Owned Class (1)
- ------------------------ -------------------------------- ----------
All Directors and 3,785,740 (2)(3) 64.0%
Executive Officers as a (4)(5)(6)
group (8 persons)
___________________________
(1) Percentage is based upon 5,858,328 shares outstanding as of March 15,
1996.
(2) Includes 409,044 shares owned by CMET over which the executive officers of
the Company may be deemed to be beneficial owners by virtue of their
positions as executive officers of CMET. Also includes 97,866 shares
owned by NOLP over which the executive officers of the Company may be
deemed to be beneficial owners by virtue of their positions as executive
officers of SAMI, the managing general partner of SAMLP, the general
partner of NOLP. The executive officers of the Company disclaim
beneficial ownership of such shares.
(3) Includes 2,465,930 shares owned by BCM over which Ryan T. Phillips may be
deemed to be the beneficial owner by virtue of his position as a director
of BCM. Mr. Phillips disclaim beneficial ownership of such shares.
(4) Includes 49,166 shares owned by Gene E. Phillips' Children's Trust, of
which Ryan T. Phillips is a beneficiary.
(5) Includes 1,216 shares owned directly over which Thomas A. Holland and his
wife jointly hold voting and dispositive power and an additional 166
shares held by Mr. Holland in an individual retirement account.
(6) Includes 762,352 shares issued to Rosedale Equities, Inc., a wholly-owned
subsidiary of the Company. Such shares are pledged as additional
collateral for loans to the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Policies with Respect to Certain Activities
The By-laws of the Company as amended, provide, in accordance with Georgia law,
that no contract or transaction between the Company and one
92
93
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Policies with Respect to Certain Activities (Continued)
or more of its Directors or officers, or between the Company and any other
corporation, partnership, association or other organization in which one or
more of its Directors or officers are directors or officers, or have a
financial interest, shall be void or voidable solely for that reason, or solely
because the Director or officer is present at or participates in the meeting of
the Company's Board of Directors or committee thereof which authorizes the
contract or transaction, or solely because his or her votes are counted for
such purpose, if one or more of the following three conditions are met: (i)
the material facts as to his or her interest and as to the contract or
transaction are disclosed or are known to the Company's Board of Directors or
the committee, and Board or committee in good faith authorizes the contract or
transaction by the affirmative vote of a majority of the disinterested
Directors, even though the disinterested Directors constitute less than a
quorum; (ii) the material facts as to his or her interest and as to the
contract or transaction are disclosed or are known to the stockholders entitled
to vote thereon, and the contract or transaction is specifically approved or
ratified in good faith by vote of such stockholders; or (iii) the contract or
transaction is fair to the Company as of the time it is authorized, approved or
ratified by the Company's Board of Directors, a committee thereof, or the
stockholders.
The Company's policy is to have such contracts or transactions approved or
ratified by a majority of the disinterested Directors of the Company with full
knowledge of the character of such transactions, as being fair and reasonable
to the stockholders at the time of such approval or ratification under the
circumstances then prevailing. Such Directors also consider the fairness of
such transactions to the Company. The Company's management believes that,
to date, such transactions have represented the best investments available at
the time and that they were at least as advantageous to the Company as other
investments that could have been obtained.
The Company expects to enter into future transactions with entities the
officers, trustees, directors or stockholders of which are also officers,
Directors or stockholders of the Company, if such transactions would be
beneficial to the operations of the Company and consistent with the Company's
then-current investment objectives and policies, subject to approval by a
majority of disinterested Directors as discussed above.
The Company does not prohibit its officers, Directors, stockholders or related
parties from engaging in business activities of the types conducted by the
Company.
Certain Business Relationships
BCM, the Company's advisor, is a company of which Messrs. Paulson, Endendyk and
Holland serve as executive officers. BCM is a company owned by a trust for the
benefit of the children of Gene E. Phillips, a trustee of which is Ryan T.
Phillips. Ryan T. Phillips is the son of
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94
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
Certain Business Relationships (Continued)
Gene E. Phillips, and serves as a Director of the Company and also as director
of BCM.
Mr. Paulson is the President of CMET, IORI and TCI, and owes fiduciary duties
to such entities as well as to BCM under applicable law. CMET, IORI and TCI
have the same relationship with BCM as does the Company. In addition, BCM has
been engaged to perform certain administrative functions for NRLP and NOLP.
Gene E. Phillips is a general partner of SAMLP, NRLP's and NOLP's general
partner, and is director and Chief Executive Officer of SAMLP's managing
general partner, SAMI. Mr. Paulson serves as President and a director of SAMI.
BCM is the sole shareholder of SAMI. The Company owns a 76.8% limited partner
interest in SAMLP.
In February 1995, Davister Corp., a general partner of Nanook Partners, L.P.,
which owns in excess of 14% of the outstanding shares of the Company's Common
Stock, funded two loans each in the amount of $100,000 to Al Gonzalez, a
director of the Company. One note is dated February 14, 1995 and the second
note is dated February 28, 1995. Both notes were unsecured, accrued interest at
12% per annum and both matured 120 days from the date of their respective
originations. Both notes were paid in full December 4, 1995.
In October 1995, Nevada Sea Investments, Inc., an affiliate of BCM, advanced
$100,000 to Mr. Gonzalez and agreed to fund Mr. Gonzalez' obligation under a
$400,000 promissory note relating to his purchase of the common stock of AGE
Refining, Inc. ("AGE"). In consideration of this funding, Nevada Sea
Investments, Inc. received ownership of 49% of the common stock of AGE and Mr.
Gonzalez retained 51% of the common stock of AGE. Mr. Gonzalez is President of
AGE.
In March 1994, an entity affiliated with Ryan Phillips, a Director of the
Company, advanced BCM $893,000 on an unsecured demand note. The note bears
interest at 10% per annum with interest only payable monthly. During 1995, BCM
made several principal reduction payments. The principal balance of the loan
was $361,000 at December 31, 1995.
In February 1996, BCM advanced an entity affiliated with Ryan Phillips $986,000
on an unsecured demand note. The note bears interest at 10% per annum with
interest only payable monthly.
Since February 1, 1990, the Company has contracted with affiliates of BCM for
property management services. Currently, Carmel, Ltd. provides such property
management services. The general partner of Carmel, Ltd. is BCM. The limited
partners of Carmel, Ltd. are (i) SWI, a company of which Mr. Phillips is the
sole shareholder, (ii) Mr. Phillips and (iii) a trust for the benefit of the
children of Mr. Phillips. Carmel, Ltd. subcontracts the property-level
management of the Company's hotels, shopping centers, one of its office
buildings and Denver Merchandise Mart to Carmel Realty, which is a company
owned by SWI.
Affiliates of BCM provide real estate brokerage services to the Company and
receive brokerage commissions in accordance with the Advisory Agreement.
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95
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (Continued)
Certain Business Relationships (Continued)
The Company owns an equity interest in each of CMET, IORI, TCI, NRLP and SAMLP.
In addition, CMET and NRLP own an equity interest in the Company and SAMLP owns
an equity interest in TCI. See ITEM 1. "PROPERTIES - Investments in Real
Estate Investment Trusts and Real Estate Partnerships."
Related Party Transactions
In January 1992, the Company entered into a partnership agreement with an
entity affiliated with Donald C. Carter, a private investor, to acquire 287
developed residential lots adjacent to the Company's other residential lots in
Fort Worth, Texas. The Company paid $717,000 in cash for its 50% general
partner interest. The partnership agreement designates the Company as managing
general partner. The partnership agreement also provides each of the partners
with a guaranteed 10% return on their respective investments. Through December
31, 1994, 60 of the lots were sold and during 1995 an additional 42 lots were
sold and at December 31, 1995, 155 lots remained to be sold. Through December
31, 1995, Mr. Carter had received $226,000 in return of capital distributions
and $120,000 in profit distributions from the partnership.
In June 1992, the Company obtained a $3.3 million loan from Mr. Carter. The
note was collateralized by an assignment of the Company's interest in a
partnership which owns residential lots in Fort Worth, Texas and the Company's
interest in undeveloped land in downtown Atlanta, Georgia. The loan also
provided for Mr. Carter's participation in the proceeds from either the sale or
refinancing of the Company's land in Atlanta, Georgia. Mr. Carter also had the
right to put his participation to the Company in exchange for a payment of
$623,000. On December 2, 1993, Mr. Carter exercised his put which required
full payment by the Company by January 2, 1996. The put was paid in full in
May 1995 and the note was paid off at its May 11, 1995 maturity.
In 1995, the Company paid BCM and its affiliates $1.2 million in advisory and
mortgage servicing fees, $905,000 in real estate brokerage commissions, $95,000
in loan arrangement fees and $1.2 million in property and construction
management fees and leasing commissions, net of property management fees paid
to subcontractors, other than Carmel Realty. In addition, as provided in the
Advisory Agreement, BCM received cost reimbursements from the Company of
$516,000 in 1995.
[THIS SPACE INTENTIONALLY LEFT BLANK.]
95
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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
Report of Independent Certified Public Accountants
Consolidated Balance Sheets -
December 31, 1995 and 1994
Consolidated Statements of Operations -
Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows -
Years Ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation
Schedule IV - Mortgage Loans on Real Estate
All other schedules are omitted because they are not applicable or because the
required information is shown in the financial statements or the notes thereto.
3. Incorporated Financial Statements
Consolidated Financial Statements of National Realty, L.P. (Incorporated by
reference to Item 8 of National Realty, L.P.'s Annual Report on Form 10-K for
the year ended December 31, 1995).
Consolidated Financial Statements of Continental Mortgage and Equity Trust
(Incorporated by reference to Item 8 of Continental Mortgage and Equity Trust's
Annual Report on Form 10-K for the year ended December 31, 1995).
Consolidated Financial Statements of Income Opportunity Realty Trust
(Incorporated by reference to Item 8 of Income Opportunity Realty Trust's
Annual Report on Form 10-K for the year ended December 31, 1995).
Consolidated Financial Statements of Transcontinental Realty Investors, Inc.
(Incorporated by reference to Item 8 of Transcontinental Realty Investors,
Inc.'s Annual Report on Form 10-K for the year ended December 31, 1995).
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97
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(Continued)
4. Exhibits
The following documents are filed as Exhibits to this Report:
Exhibit
Number Description
- ------- --------------------------------------------------------------------
3.0 Articles of Incorporation dated November 24, 1987 and By-laws dated
December 30, 1987 for American Realty Trust, Inc. (Incorporated by
reference to Exhibits No. 3.1 and No. 3.1(a), respectively, of
Registrant's Registration Statement No. 33-19636 on Form S-4).
3.1 Amendment to Articles of Incorporation dated September 15, 1989
(Incorporated by reference to Exhibit No. 3.2 of the Registrant's
Registration Statement No. 33-19920 on Form S-11).
3.2 Articles of Amendment setting forth Certificate of Designation of
Series A Cumulative Participating Preferred Stock dated as of April
11, 1990 (Incorporated by reference to Exhibit No. 3-1 of the
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1990).
3.3 Articles of Amendment dated December 10, 1990 to Articles of
Incorporation (Incorporated by reference to Exhibit No. 3.4 of
Registrant's Current Report on Form 8-K dated December 5, 1990).
3.4 Amended By-laws of American Realty Trust, Inc., dated December 11,
1991. (Incorporated by reference to Exhibit No. 3.5 of Registrant's
Annual Report on Form 10-K for the year ended December 31, 1991).
4.0 Rights Agreement dated April 11, 1990 between American Realty Trust,
Inc. and American Stock Transfer and Trust Company, as Rights Agent
(Incorporated by reference to Registrant's Current Report on Form 8-K
dated April 20, 1990).
4.1 Amendment No. 1 to Rights Agreement dated March 5, 1991 between
American Realty Trust, Inc. and American Stock Transfer and Trust
Company, as Rights Agent (Incorporated by reference to Registrant's
Amendment No. 1 on Form 8 dated March 27, 1991).
4.2 Amendment No. 2 to Rights Agreement dated June 23, 1992 between
American Realty Trust, Inc. and American Stock Transfer and Trust
Company, as Rights Agent (Incorporated by reference to Registrant's
Amendment No. 2 on Form 8 dated June 30, 1992).
10.0 1987 Stock Option Plan (Incorporated by reference to Appendix E to
Proxy Statement/Prospectus filed as part of Registration Statement
No. 33-19636 on Form S-4).
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ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON FORM 8-K
(Continued)
Exhibit
Number Description
- ------- --------------------------------------------------------------------
10.1 Advisory Agreement between American Realty Trust, Inc. and Basic
Capital Management, Inc., formerly National Realty Advisors, Inc.,
dated as of October 4, 1989 (Incorporated by reference to Exhibit No.
10.15 to Registrant's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1989).
10.2 Amendment No. 1 to the Advisory Agreement between American Realty
Trust, Inc. and Basic Capital Management, Inc., formerly National
Realty Advisors, Inc., dated as of December 5, 1989 (Incorporated by
reference to Exhibit No. 10.17 to the Registrant's Registration
Statement No. 33-19920 on Form S-11).
10.3 Amendment No. 2 to the Advisory Agreement between American Realty
Trust, Inc. and Basic Capital Management, Inc., formerly National
Realty Advisors, Inc., dated August 1, 1990 (Incorporated by
reference to Exhibit No. 10.1 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1990).
10.4 Loan Servicing Agreement between American Realty Trust, Inc. and
Basic Capital Management, Inc., formerly National Realty Advisors,
Inc., dated as of October 4, 1989 (Incorporated by reference to
Exhibit No. 10.16 to Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1989).
21.0 Subsidiaries of the Registrant, filed herewith.
27.0 Financial Data Schedule, filed herewith.
(b) Reports on Form 8-K:
None.
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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.
AMERICAN REALTY TRUST, INC.
Dated: March 30, 1996 By: /s/ Karl L. Blaha
-------------------------- ---------------------------------
Karl L. Blaha
President
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.
By: /s/ Oscar W. Cashwell By: /s/ Al Gonzalez
----------------------------- ---------------------------------
Oscar W. Cashwell Al Gonzalez
Director Director
By: /s/ Dale A. Crenwelge By: /s/ Ryan T. Phillips
----------------------------- ---------------------------------
Dale A. Crenwelge Ryan T. Phillips
Director Director
By: /s/ Thomas A. Holland
---------------------------------
Thomas A. Holland
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Dated: March 30, 1996
----------------------------
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100
ANNUAL REPORT ON FORM 10-K
EXHIBIT INDEX
FOR THE YEAR ENDED DECEMBER 31, 1995
Exhibit Page
Number Description Number
- ------- ----------------------------- ------
21.0 Subsidiaries of Registrant. 101
27.0 Financial Data Schedule. 102
100