1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
[X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------
Commission File Number 1-9948
------
AMERICAN REALTY TRUST, INC.
------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Georgia 54-0697989
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10670 North Central Expressway, Suite 300, Dallas, Texas 75231
- -------------------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(214) 692-4700
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- ---------------------------- ------------------------
Common Stock, $.01 par value 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
--- ---
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 6, 1998, the Registrant had 10,711,921 shares of Common Stock
outstanding. Of the total shares outstanding 3,933,513 were held by other than
those who may be deemed to be affiliates, for an aggregate value of $57,528,000
based on the closing price on the New York Stock Exchange on March 6, 1998. 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:
Consolidated Financial Statements of National Realty, L.P.;
Commission File No. 1-9648
Consolidated Financial Statements of Continental Mortgage and Equity Trust;
Commission File No. 0-10503
Consolidated Financial Statements of Income Opportunity Realty Investors, Inc.;
Commission File No. 1-9525
Consolidated Financial Statements of Transcontinental Realty Investors, Inc.;
Commission File No. 1-9240
1
2
This Form 10-K/A Amendment No. 1 amends the Registrant's annual report
on Form 10-K for the year ended December 31, 1997 as follows:
ITEM 2. PROPERTIES - REAL ESTATE - page 12 and 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS - RESULTS OF OPERATIONS - page 50.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - NOTE 3. NOTES AND INTEREST
RECEIVABLE - page 71 and NOTE 17. INDUSTRY SEGMENTS - page 95.
3
ITEM 2. PROPERTIES (Continued)
Real Estate (Continued)
undeveloped land in Harris County, Texas; 9 parcels of undeveloped land in
Collin County, Texas, totaling 638.2 acres; 6 parcels of undeveloped land in
Framers Branch, Texas, totaling 88.6 acres; 2 parcels of undeveloped land in
Plano, Texas, totaling 352.2 acres; 1,448 acres of undeveloped land in Austin,
Texas; 315.2 acres of undeveloped land in Palm Desert, California; 20.6 acres of
undeveloped land in Santa Clarita, California; and 7 additional parcels of land
totaling approximately 114.5 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.
A summary of the activity in the Company's owned real estate portfolio during
1997 is as follows:
Owned properties in real estate portfolio at January 1,
1997 ............................................................ 26*
Properties purchased ............................................... 32
Property obtained through foreclosure .............................. 1
Properties sold .................................................... 3
----
Owned properties in real estate portfolio at
December 31, 1997 ............................................... 56*
====
- ----------
* Includes a residential subdivision with 22 developed residential lots at
January 1, 1997, and 1 developed residential lot at December 31, 1997.
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 and hotel room revenue divided by total
available rooms for hotels and occupancy thereof at December 31, 1997, 1996 and
1995 for commercial properties and average occupancy during 1997, 1996 and 1995
for hotels:
Rent Per Square Foot
Average Room Rate Occupancy %
Square Footage/ -------------------------- -----------------------
Property Location Rooms 1997 1996 1995 1997 1996 1995
- ----------------- -------------- --------------- ------ ------ ------ ------ ------ -----
Office Building
Rosedale Towers Minneapolis, MN 84,798 Sq.Ft. $ 15.03 $ 14.88 $ 13.16 93 91 90
Shopping Center
Collection Denver, CO 267,812 Sq.Ft. 9.46 * * 82 * *
Oaktree Village Lubbock, TX 45,623 Sq.Ft. 8.17 7.98 7.34 90 89 91
Preston Square Dallas, TX 35,508 Sq.Ft. 15.26 * * 92 * *
Merchandise Mart
Denver Mart Denver, CO 509,008 Sq.Ft. 14.75 15.33 14.53 93 95 96
Hotels
Best Western Virginia Beach, VA 110 Rooms 90.44 41.11 * 60 42 *
Oceanside
Inn at the Mart Denver, CO 161 Rooms 53.15 46.66 44.69 53 36 40
Kansas City
Holiday Inn Kansas City, MO 196 Rooms 70.73 66.46 61.66 77 79 75
12
4
ITEM 2. PROPERTIES (Continued)
Real Estate (Continued)
Average Room Rate Occupancy %
-------------------------- ----------------------
Property Location Rooms 1997 1996 1995 1997 1996 1995
- ------------------- -------------- ------------- ------ ------ ------ ------ ------ ----
Hotels - Continued
Piccadilly Airport Fresno, CA 185 Rooms $ 62.98 * * 50 * *
Piccadilly Chateau Fresno, CA 78 Rooms 50.86 * * 49 * *
Piccadilly Shaw Fresno, CA 194 Rooms 64.07 * * 62 * *
Piccadilly
University Fresno, CA 190 Rooms 62.22 * * 49 * *
Williamsburg
Hospitality House Williamsburg, VA 296 Rooms 81.87 * * 60 * *
Total Room Revenues
Divided by
Total Available Rooms
-------------------------------
Property Location Rooms 1997 1996 1995
- -------------------- ----------------- --------- ------ ------ ------
Hotels
Best Western
Oceanside Virginia Beach, VA 110 Rooms $ 54.03 $17.69 $ *
Inn at the Mart Denver, CO 161 Rooms 28.02 16.80 17.79
Kansas City
Holiday Inn Kansas City, MO 196 Rooms 54.13 52.63 46.31
Piccadilly Airport Fresno, CA 185 Rooms 35.94** * *
Piccadilly Chateau Fresno, CA 78 Rooms 27.74** * *
Piccadilly Shaw Fresno, CA 194 Rooms 41.17** * *
Piccadilly
University Fresno, CA 190 Rooms 35.65** * *
Williamsburg
Hospitality House Williamsburg, VA 296 Rooms 55.30** * *
Single Family Residence
Tavel Circle Dallas, TX 2,271 Sq.Ft.
- -----------
* Property was acquired in 1997 or 1996.
** For only that portion of the year owned by the Company.
Occupancy presented above and through this ITEM 2. is without reference to
whether leases in effect are at, below or above market rates.
In September 1997, the Company purchased the Collection, a 267,812 square foot
retail and commercial center in Denver, Colorado, for $19.5 million. The Company
paid $791,000 in cash and assumed existing mortgages totaling $14.7 million, and
issued 400,000 shares of the Company's Series F Cumulative Convertible Preferred
Stock. See ITEM 5. "MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS." A first mortgage in the amount of $14.2 million bears
interest at 8.64% per annum, requires monthly principal and interest payments of
$116,000 and matures in May 2017. A second lien mortgage in the amount of
$580,000 bears interest at 7% per annum until April 2001, 7.5% per annum from
May 2001 to April 2006, and 8% per annum from May 2006 to May 2010, requires
monthly principal and interest payments of $3,000 and matures in May 2010. The
Company paid a real estate brokerage commission of $646,000 to Carmel Realty
based on the $19.5 million purchase price of the property.
In October 1997, the Company contributed the Denver Merchandise Mart in Denver,
Colorado, to a limited partnership in exchange for $6.0 million in cash, a 1%
managing general partner interest in the partnership, all of the Class B limited
partner units in the partnership and the partnership's assumption of the $23.0
million in mortgage debt secured by such property. The existing general and
limited partners converted their general and limited partner interests into
Class A limited partner units in the partnership. The Class A units have an
agreed value of $1.00 per unit and are entitled to a fixed preferred return of
10% per annum, paid quarterly. The Class A units may be converted into a total
of 529,000 shares of the Company's Series F Cumulative Convertible Preferred
Stock at any time after the first but not later than the sixth anniversary of
the closing, on the basis of one share of Series F Preferred Stock for each ten
Class A units. See ITEM 5. "MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS."
13
5
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (Continued)
Liquidity and Capital Resources (Continued)
review includes an evaluation of the collateral property securing such note. The
property 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 maintenance requirements, a review of the
property's cash flow, discussions with the manager of the property and a review
of properties in the surrounding area.
Results of Operations
1997 COMPARED TO 1996. The Company reported a net loss of $2.4 million in 1997
as compared to a net loss of $5.6 million in 1996. The primary factors
contributing to the Company's net loss are discussed in the following
paragraphs.
Sales and cost of sales were $17.9 million and $14.5 million, respectively, in
1997. The Company had no sales or cost of sales prior to May 1997. These items
of revenue and cost relate to Pizza World Supreme, Inc. ("PWSI"), consolidated
in May 1997. See NOTE 7.
"ACQUISITION OF PIZZA WORLD SUPREME, INC."
Rents increased from $20.7 million in 1996 to $29.1 million in 1997. Hotel rents
increased from $6.1 million in 1996 to $12.7 million while rents from other real
estate activities increased from $14.6 million in 1996 to $16.4 million in 1998.
The increase in the hotel rents is due to the acquisition of the four Piccadilly
Hotels in October 1997 and the Company obtaining the Williamsburg Hospitality
House through foreclosure in September 1997. The increase in rents from other
real estate activities is due to the acquisition of the Collection Retail Center
in September 1997.
Property operations expense increased from $15.9 million in 1996 to $24.2
million in 1997. Hotel property operations expense increased from $4.8 million
in 1996 to $9.9 million in 1997 while the other real estate activities property
operations expense increased from $11.1 million in 1996 to $14.3 million in
1997. The increase in hotel property operations expense is due to the
acquisition of the four Piccadilly Hotels and the Company obtaining the
Williamsburg Hospitality House through foreclosure in 1997. The property
operating expenses of other real estate activities increased due to the
acquisition of the Collection Retail Center and twenty-four land parcels in
1997.
Interest income decreased from $4.7 million in 1996 to $2.8 million in 1997.
This decrease is primarily attributable to the sale of two notes receivable and
the payoff of a third note receivable in 1997. Interest income in 1998 is
expected to approximate that in 1997.
Other income decreased from $1.6 million in 1996 to $134,000 in 1997. This
decrease is due in part to recognizing a unrealized gain on marketable equity
securities of $486,000 in 1996 compared to an unrealized loss of $850,000 in
1997. This decrease is also attributable in part to a decrease in dividend
income and net gains on sales of marketable equity securities of $67,000 and
$56,000, respectively.
Interest expense increased from $16.5 million in 1996 to $30.2 million in 1997.
Of this increase, $10.8 million is due to the debt secured by the Best Western
Oceanside Hotel acquired in 1996 and the Williamsburg Hospitality House,
Piccadilly Hotels, Pin Oak land, Scout land, Katy land, McKinney land, Lacy
Longhorn land, Santa Clarita land, Chase Oaks land, Pioneer Crossing land,
Pantex land, Keller land, Perkins land, Rasor land, Dowdy land, Palm Desert land
and LBJ land acquired in 1997, $2.0 million is due to additional borrowings and
a full years interest
50
6
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. NOTES AND INTEREST RECEIVABLE
1997 1996
--------------------------------- --------------------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
-------------- ------------ ------------ -------------
Notes Receivable
Performing (including $1,307
in 1997 and $13,563 in 1996
from affiliates).................... $ 9,217 $ 9,340 $ 52,939 $ 55,161
Nonperforming, nonaccruing............. 26,344 23,212 1,884 1,584
-------------- ------------ ------------ -------------
$ 35,561 32,552 $ 54,823 56,745
============== ============
Interest receivable.................... 380 445
Unamortized premiums/
(discounts)......................... (124) (162)
Deferred gains.......................... (4,884) (4,617)
------------ -------------
$ 27,924 $ 52,411
============ =============
The Company recognizes interest income on nonperforming notes receivable on a
cash basis. For the years 1997, 1996 and 1995 unrecognized interest income on
such nonperforming notes receivable totaled $2.2 million, $1.6 million and $1.2
million, respectively.
Notes receivable at December 31, 1997, mature from 1998 to 2014 with interest
rates ranging from 6.0% to 12.9% and a weighted average rate of 12.78%. 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 $31.2 million are due in 1998 of which
$23.2 million is due on nonperforming notes receivable.
At December 31, 1996, a $1.1 million nonrecourse participation was deducted from
notes receivable. Such participation was satisfied in conjunction with the
Company's foreclosure of its $8.9 million junior mortgage note receivable
secured by the Williamsburg Hospitality House, as discussed below.
In August 1990, the Company obtained the Continental Hotel and Casino in Las
Vegas, Nevada, through foreclosure subject to first and second lien mortgages
totaling $10.0 million. In June 1992, the Company sold the hotel and casino
accepting, among other consideration, a $22.0 million wraparound mortgage note
receivable. The Company recorded a deferred gain of $4.6 million in connection
with the sale of the hotel and casino resulting from a disputed third lien
mortgage being subordinated to the Company's wraparound mortgage note
receivable. In March 1997, the wraparound note was modified and extended. In
exchange for the extension, the borrower was required to invest $2.0 million in
improvements to the hotel and casino within four months of the March 1997
modification and an additional $2.0 million prior to December 1997. The borrower
also pledged 1,500,000 shares of common stock in Crowne Ventures, Inc., as
additional collateral. The Company's wraparound mortgage note receivable had a
principal balance of $13.3 million at
71
7
AMERICAN REALTY TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15. PROPERTY MANAGEMENT (Continued)
("Carmel Realty"), which is a company owned by First Equity. 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 16. ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC.
Fees and cost reimbursements to BCM and its affiliates were as follows:
1997 1996 1995
------- ------ ------
Fees
Advisory and mortgage
servicing .............................. $ 2,657 $1,539 $1,195
Loan arrangement ......................... 592 806 95
Brokerage commissions ....................... 7,586 1,889 905
Property and construction
management and leasing
commissions* ............................. 865 892 1,200
------- ------ ------
$11,700 $5,126 $3,395
======= ====== ======
Cost reimbursements ...................... $ 1,809 $ 691 $ 516
======= ====== ======
- ----------
* Net of property management fees paid to subcontractors, other than Carmel
Realty.
NOTE 17. INDUSTRY SEGMENTS
Other
Real Pizza
1997 Hotels Estate Parlor Total
- ------ ------ --------- ------- ---------
Revenues ............................... $12,708 $ 16,367 $17,926 $ 47,001
Income (loss) before
income taxes ...................... 240 (4,247) 1,579 (2,428)
Identifiable assets .................... 49,371 360,629 23,799 433,799
Depreciation and
amortization ...................... 779 1,873 686 3,338
Capital expenditures ................... 905 10,088 6,693 17,686
NOTE 18. 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, 1997, the Company had a tax net operating loss carryforwards of
$21.0 million expiring through 2011.
95
8
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: November 24, 1998 By: /s/ Karl L. Blaha
------------------------ ------------------------
Karl L. Blaha
Director and 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/ Karl L. Blaha By: /s/ Cliff Harris
------------------------------- ---------------------------
Karl L. Blaha Cliff Harris
Director and President Director
By: /s/ Roy E. Bode By: /s/ Al Gonzalez
------------------------------- ---------------------------
Roy E. Bode Al Gonzalez
Director Director
By: /s/ Thomas A. Holland
-------------------------------
Thomas A. Holland
Executive Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Dated: November 24, 1998
---------------------
129