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1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]*
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
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COMMISSION FILE NUMBER 0-8003
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TARRAGON REALTY INVESTORS, INC.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
NEVADA 94-2432628
- --------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
280 PARK AVENUE, EAST BUILDING, 20TH FLOOR, NEW YORK, NY 10017
- -------------------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 949-5000
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Securities registered pursuant to Section 12 (b) of the Act:
NONE
Securities registered pursuant to Section 12 (g) of the Act:
9% SERIES A SUBORDINATED DEBENTURES DUE JUNE 30, 2003
COMMON STOCK, $.01 PAR VALUE
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 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. [ ]
As of March 20, 2000, the Registrant had 7,970,801 shares of common stock
outstanding. Of the total shares outstanding, 4,954,216 were held by other than
those who may be deemed to be affiliated, for an aggregate value of $50,780,714
based on the last trade as reported by the National Association of Securities
Dealers Automated Quotation System on March 20, 2000. 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
Item 1. Business...................................................................... 3
Item 2. Properties.................................................................... 6
Item 3. Legal Proceedings............................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders........................... 13
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters............................................ 14
Item 6. Selected Financial Data........................................................ 15
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 18
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.................... 25
Item 8. Financial Statements and Supplementary Data................................... 26
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure....................................................... 68
PART III
Item 10. Directors and Executive Officers of the Registrant............................ 68
Item 11. Executive Compensation........................................................ 72
Item 12. Security Ownership of Certain Beneficial Owners and Management................ 75
Item 13. Certain Relationships and Related Transactions................................ 79
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.............. 80
Signature Page................................................................ 82
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PART I
ITEM 1. BUSINESS
General
Tarragon Realty Investors, Inc., is a growth oriented, fully integrated real
estate development, acquisition, and management company. We control
approximately 17,000 apartment units and almost 2.5 million square feet of
commercial space located throughout the continental United States, with
concentrations in Florida, Texas, California, and Connecticut. Our primary
business and only industry segment is investing in and developing
income-producing real estate directly and through partnerships and joint
ventures. In February 2000, Tarragon elected not to be treated as a real estate
investment trust ("REIT") for federal income tax purposes in order to be able to
engage more fully in real estate operating activities.
We were incorporated in Nevada on April 2, 1997. We are the ultimate successor
in interest to Vinland Property Trust, a California business trust originally
established in July 1973, and National Income Realty Trust ("NIRT"), also a
California business trust, organized in October 1978.
In November 1998, we merged with NIRT, with Tarragon as the surviving entity. In
the merger, NIRT stockholders received 1.97 shares of Tarragon common stock for
each share of beneficial interest of NIRT they held. Immediately following the
merger, we acquired Tarragon Realty Advisors, Inc., our advisor since March 1994
and NIRT's advisor since April 1994, from William S. Friedman and his wife, Lucy
N. Friedman, for 100,000 shares of Tarragon common stock and options to acquire
350,000 additional shares at prices ranging between $13 and $16 per share. Mr.
Friedman also received options to acquire an additional 450,000 shares at prices
ranging between $12 and $15 per share in connection with his employment
agreement with Tarragon. Mr. Friedman is our President, Chief Executive Officer,
and a member of our Board of Directors, and Mr. and Mrs. Friedman are our
principal stockholders.
Tarragon's common stock is traded on the NASDAQ National Market System under the
symbol "TARR." Our principal executive offices are located at 280 Park Avenue,
East Building, 20th Floor, New York, New York 10017, telephone number
212-949-5000.
Business Plan and Investment Policy
Due to the nature and diversity of our properties and tenants, our business is
not seasonal. Our primary investment objective is to increase the value of our
real estate holdings per common share and, secondarily, to maximize funds from
operations and dividends to stockholders. As a matter of policy, cash dividends
to stockholders have been held to less than fifty percent of funds from
operations ("FFO"), as defined by the National Association of Real Estate
Investment Trusts (see ITEM 6. "SELECTED FINANCIAL DATA - Other Data" for the
definition of FFO).
Our real estate portfolio currently consists primarily of multifamily and
commercial properties, including office buildings and shopping centers, having
established income-producing capabilities. Our policy is to continuously improve
the performance and value of our existing properties through intensive
management and consistent capital improvements.
We also seek to improve the quality of our overall portfolio through development
of new projects and through selective and opportunistic acquisitions. In
selecting real estate for purchase, we consider the future prospects, location,
age and type of property, gross rentals, lease terms, financial and business
standing of tenants, operating expenses, fixed charges, land values, and
physical condition of the property. We often acquire under-managed and
under-performing multifamily projects that are not considered of institutional
quality in areas
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ITEM 1. BUSINESS (Continued)
Business Plan and Investment Policy (Continued)
where we presently operate to enhance the efficiency of our existing portfolio.
The actual number and mix in type of income-producing real estate and real
estate interests which we acquire will depend on the particular real estate,
market conditions, and other circumstances existing at the time of acquisition.
We also intend to invest increasing amounts in new construction and development
projects, either directly or in partnership with others.
We have financed acquisitions, development and capital improvements largely
through mortgages and internally generated funds, as well as through property
sales. We expect property sales and borrowings to provide the bulk of funds
available for investment in the future, so the availability and cost of
long-term mortgage funds are key factors in our ability to continue to make new
investments without additional equity offerings.
Currently, Tarragon has approximately 380 employees, including 280 site-level
property employees (such as property managers and maintenance staff) and 100
corporate employees. Tarragon has employment contracts only with Mr. Friedman
and Mr. Robert C. Rohdie, President and Chief Executive Officer of Tarragon
Development Corporation, a wholly-owned subsidiary of Tarragon, and a member of
our Board of Directors since February 2000. See ITEM 11. "EXECUTIVE
COMPENSATION" for the terms of their employment contracts.
Competition
Tarragon has not experienced difficulty in locating investment opportunities. We
believe that ownership of properties in which we invest is highly fragmented
among individuals, partnerships, public and private corporations, and REITs. No
single entity or person dominates the market for such properties. At any given
time, a significant number of apartment properties are available for purchase in
the various markets where we seek additional acquisitions. We believe that there
is and will continue to be a strong demand for well-maintained, affordable
housing in these markets and that the factors discussed above provide a market
where a sufficient number of attractive investment opportunities will be
available to allow Tarragon to continue to expand through acquisitions as well
as through the development of new properties. However, since the success of any
multifamily real estate investment is affected by factors outside of our
control, including general demand for apartment living, interest rates,
operating costs, and job growth, there can be no assurance that we will be
successful in our strategy to continue to expand through acquisitions and
development.
Certain Factors Associated with Real Estate and Related Investments
Tarragon is subject to the risks associated with ownership, operation, and
financing of real estate. These risks include, but are not limited to, liability
for environmental hazards; changes in general or local economic conditions;
changes in interest rates and the 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 burdensome; changes in real
estate and zoning laws; changes in income taxes, real estate taxes, or federal
or local economic or rent controls; floods, earthquakes, and other acts of
nature; and other factors beyond our control. The illiquidity of real estate
investments generally may impair our ability to respond promptly to changing
circumstances. We believe that some of these risks are partially mitigated by
the diversification by geographic region and property type of our real estate.
However, to the extent new investments continue to be concentrated in any
particular region or property type, the advantages of diversification may
diminish.
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5
ITEM 1. BUSINESS (Continued)
Acquisition of Joint Venture Interests
On February 7, 2000, Tarragon acquired the interests of Robert C. Rohdie and his
affiliates in ten apartment communities recently completed or currently under
construction, as well as in all joint venture development projects still in the
planning stages, for a total value of up to $10,000,000. Mr. Rohdie, Tarragon's
joint venture partner in the development of these projects, contributed his
equity interests to an operating partnership formed by Tarragon in exchange for
a preferred interest in the operating partnership and a guaranteed fixed return
of $200,000 for the first two years, increasing by $40,000 per year for the next
five years, plus an annual amount equal to the dividends payable on 96,385
shares of Tarragon common stock. In addition, upon completion and lease-up of
each of the five identified apartment communities presently under construction
or in advanced stages of development planning, Mr. Rohdie will receive an
increase in his guaranteed fixed return based upon the previously agreed value
of his equity in the completed property. After one year, Mr. Rohdie has the
right to convert his preferred interest in the operating partnership into 96,385
shares of our common stock and preferred stock with a face value of up to $8
million and a like dividend to his guaranteed fixed return from the operating
partnership. If we do not have available an issue of preferred stock outstanding
at the time of the conversion, or at our discretion, we may pay the cash value
of Mr. Rohdie's preferred interest over three years.
In connection with this transaction, Tarragon formed a new development
subsidiary to expand our real estate development and renovation program. Mr.
Rohdie joined Tarragon as President and Chief Executive Officer of Tarragon
Development Corporation and as a member of our Board of Directors effective
February 7, 2000.
Termination of REIT Status
On February 29, 2000, Tarragon filed a "Revocation of REIT Election" with the
Internal Revenue Service, effectively terminating our REIT status for the 2000
tax year. We first issued a press release announcing that we were contemplating
terminating our REIT status on October 28, 1999. The primary consideration in
the Board's decision to revoke our REIT election was the "5 or 50" rule: in
order to qualify as a REIT for federal income tax purposes, no more than 50% in
value of our outstanding common stock could be owned, actually or
constructively, by five or fewer individuals. Because our five largest
stockholders already own close to 50% of our outstanding common stock, the "5 or
50" rule limited our ability to attract institutional investors and to continue
our stock repurchase program. Our Board of Directors determined that these
actions were important to enhance stockholder value.
In addition, as a REIT, Tarragon could not engage in certain types of real
estate operations, such as condominium conversions, which the Board considered
to be attractive and potentially profitable lines of business. Because we have
substantial net operating loss carryforwards, the historical advantage of REIT
status, i.e. the ability to shield taxable income from double taxation at the
corporate and stockholder levels, appeared to be outweighed, in the Board's
judgment, by the disadvantages associated with these restrictions on operations
and share ownership.
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ITEM 2. PROPERTIES
At December 31, 1999, our real estate portfolio consisted of 107 properties, 33
of which were owned through partnerships, including 76 apartment communities, 10
office buildings, 13 retail buildings, seven tracts of land, and one house held
for rental. Of these properties, 93 were held for investment. The remaining 14
properties, some of which were obtained through foreclosure of collateral
securing mortgage loans receivable, were held for sale. We believe our
properties are adequately covered by liability and casualty insurance,
consistent with industry standards.
The following table summarizes certain information about our apartment and
commercial properties, including those owned through partnerships, by state. The
number of apartment units includes 506 units under construction owned through
partnerships and 320 units under construction owned directly.
Tarragon Realty Investors, Inc.
Real Estate Summarized By State
December 31, 1999
Mortgage Loans Secured by Real Estate
-----------------------------------------------------------------
(dollars in thousands)
Number
of Commercial Weighted Balance
Apartment Square 12/31/99 Average Due at
Units Footage Balance Interest Maturity Maturity Dates
----------- ----------- ----------- ----------- ----------- ----------------
California 973 227,473 $ 39,293 7.48% $ 37,008 Jan-00 - Nov-29
Colorado 760 -- 19,400 9.01% 19,400 May-00 - Jun-00
Connecticut 2,580 163,986 87,740 7.64% 85,479 Jun-00 - Aug-08
Florida 5,604 463,151 194,623 8.54% 167,540 May-00 - Jan-19
Georgia 360 144,732 25,421 7.46% 23,567 May-01 - Jun-09
Illinois -- 105,363 1,850 8.48% 1,850 Jun-01
Kentucky 424 -- 8,400 7.47% 7,471 Jun-06 - Feb-09
Louisiana 320 -- 6,880 6.56% 5,907 Jan-09
Maryland 459 -- 16,472 7.88% 117 Jan-31
Michigan 169 30,650 5,399 6.96% 4,715 Mar-08
Mississippi -- 341,361 -- -- -- --
Nevada -- 39,600 2,187 8.98% 2,157 Dec-04
North Carolina -- 5,200 -- -- -- --
Ohio 504 -- 5,136 8.02% 4,416 Jan-06
Oklahoma 394 -- 7,408 7.51% 6,580 Feb-02 - Feb-10
Tennessee 832 -- 14,809 8.42% 13,965 Jun-00 - Dec-05
Texas 2,010 260,597 67,117 8.27% 59,064 Feb-00 - Dec-05
Washington DC -- 62,229 4,147 7.12% 3,959 Jun-03
Wisconsin -- 214,620 -- -- -- --
----------- ----------- ---------- ---------- -----------
15,389 2,058,962 $ 506,282 7.99% $ 443,195
=========== =========== ========== ========== ===========
Notes:
(1) This schedule includes information about number of apartment units,
commercial square footage, and mortgage loans on real estate owned both
directly and through unconsolidated joint ventures. It does not include
such information about land, the house held for rental, properties in early
stages of development, or properties we manage in which we hold no
ownership interest.
(2) Weighted average interest is based on the December 31, 1999, balance for
each mortgage loan and is computed using the stated interest rates for
fixed rate mortgages and the interest rates in effect as of December 31,
1999, for variable rate mortgages.
6
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ITEM 2. PROPERTIES (CONTINUED)
The following table lists each of our operating properties owned directly and
through partnerships and presents certain operating and mortgage loan
information for each property. The seven parcels of land, three properties with
826 apartment units currently under construction, and the house held for rental
are not reflected on this schedule. One of the parcels of land is encumbered by
a $2 million mortgage, and another is subject to a $1.1 million land loan. The
property with 320 units under construction is encumbered by a construction loan
of $13.3 million. The two properties with 506 units under construction are owned
through partnerships and are encumbered by construction loans totaling $10.9
million.
[This space intentionally left blank.]
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TARRAGON REALTY INVESTORS, INC.
SUMMARY OF OPERATING REAL ESTATE
DECEMBER 31, 1999
MORTGAGE LOANS SECURED BY REAL ESTATE
-------------------------------------
(DOLLARS IN THOUSANDS)
NUMBER OF PHYSICAL 12/31/99 STATED BALANCE
APARTMENT SQUARE OCCUPANCY MARKET 12/31/99 INTEREST DUE AT MATURITY
PROPERTY LOCATION UNITS FOOTAGE 12/31/99(a) RENT PSF(b) BALANCE RATE(c) MATURITY DATE
- -------------------------- --------------------- --------- ------- ----------- ----------- -------- -------- -------- --------
Directly owned properties:
Apartments
Acadian Place Baton Rouge, LA 120 143,450 92% $ 5.91 $ 3,217 6.56% $ 2,759 Jan-09
Aspentree Dallas, TX 296 212,864 94% 9.61 3,784 8.33% 3,390 Nov-05
Bay West Bradenton, FL 299 323,774 71% 6.73 4,669 8.89% -- Jan-19
Bayfront Houston, TX 200 172,720 94% 8.03 4,242 5.99% 3,605 Nov-08
The Brooks Addison, TX 104 94,176 97% 8.64 3,137 7.25% 2,735 Jun-09
Bryan Hill Bethany, OK 232 193,500 91% 6.11 3,429 6.93% 2,998 Jan-08
783 8.20% 692 Feb-10
Carlyle Towers Detroit, MI 169 256,700 95% 6.72 5,399 6.96% 4,715 Mar-08
Collegewood Tallahassee, FL 162 83,700 90% 10.78 1,993 8.98% 1,867 Nov-02
Cornell Los Angeles, CA 55 30,150 98% 18.09 2,369 6.16% 2,021 Nov-08
Courtyard at the Park Miami, FL 127 106,266 100% 10.38 4,250 8.48% 4,250 Jun-01
Creekwood North Altamonte Springs, FL 180 166,500 97% 7.33 2,949 8.05% 2,678 May-06
Cross Creek Lexington, KY 144 102,258 93% 9.78 2,528 7.54% 2,367 Oct-07
Desert Winds Jacksonville, FL 152 121,056 97% 9.53 1,290 8.50% 341 Jul-10
Devonshire Denver, CO 760 512,800 94% 10.58 15,900 8.98% 15,900 Jun-00
3,500 9.13% 3,500 May-00
Diamond Loch Fort Worth, TX 138 139,354 91% 7.79 3,445 6.80% 3,005 Mar-08
English Village Memphis, TN 300 364,680 97% 6.15 5,809 7.56% 4,965 Dec-05
Fenway Hall Los Angeles, CA 53 27,175 96% 15.60 1,266 8.13% 655 Oct-08
Forest Oaks Lexington, KY 154 132,460 88% 7.64 2,868 8.16% 2,501 Jun-06
Fountainhead Kissimmee, FL 184 187,080 92% 8.82 5,650 8.98% 5,650 Jun-00
French Villa Tulsa, OK 84 84,720 96% 8.76 1,906 6.82% 1,648 Jan-09
Heather Hills Temple Hills, MD 459 401,029 95% 10.25 16,472 7.88% 117 Jan-31
Holly House North Miami, FL 57 45,417 98% 10.59 1,739 6.57% 1,498 Nov-08
Kirklevington Lexington, KY 126 99,080 98% 8.44 3,003 6.74% 2,604 Feb-09
Lake Point Memphis, TN 532 531,960 82% 5.66 9,000 8.98% 9,000 Jun-00
Landmark Tallahassee, FL 128 113,720 87% 7.47 1,500 8.98% 1,500 Jun-00
1,000 9.13% 1,000 May-00
Marina Park Miami, FL 90 83,700 98% 11.49 3,691 6.89% 3,215 Jun-08
Mariposa Manor Los Angeles, CA 41 19,710 98% 10.99 736 7.75% 730 Apr-02
Martins Landing Lakeland, FL 236 207,704 92% 8.00 4,689 7.65% 4,014 Dec-05
1,843 8.43% 1,684 Dec-05
Meadowbrook Baton Rouge, LA 200 126,736 97% 8.98 3,663 6.56% 3,148 Jan-09
Mission Trace Tallahassee, FL 96 104,400 85% 6.79 1,621 7.85% -- May-06
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TARRAGON REALTY INVESTORS, INC.
SUMMARYOF OPERATING REAL ESTATE
DECEMBER 31, 1999
MORTGAGE LOANS SECURED BY REAL ESTATE
-------------------------------------
(DOLLARS IN THOUSANDS)
NUMBER OF PHYSICAL 12/31/99 STATED BALANCE
APARTMENT SQUARE OCCUPANCY MARKET 12/31/99 INTEREST DUE AT MATURITY
PROPERTY LOCATION UNITS FOOTAGE 12/31/99(a) RENT PSF(b) BALANCE RATE(c) MATURITY DATE
- -------------------------- --------------------- --------- --------- ----------- ----------- -------- -------- -------- --------
Directly owned properties:
Apartments
Mission Trace (continued) $ 212 7.60% $ -- May-06
Morningside Jacksonville, FL 112 89,200 96% 7.68 1,574 8.35% 1,474 Apr-03
Mustang Creek Arlington, TX 120 167,880 93% 7.54 4,600 8.48% 4,600 Jun-01
805 8.48% 805 Jun-01
Newport Jacksonville, FL 152 139,364 94% 9.96 4,931 8.18% 4,498 Apr-06
Palm Court Miami, FL 144 125,280 92% 9.38 2,816 9.67% 2,525 Dec-04
Palm Grove Orlando, FL 142 98,017 96% 9.07 1,251 8.50% -- Feb-12
Park Dale Gardens Dallas, TX 224 206,640 94% 7.28 2,808 8.30% 2,448 Jul-05
Park Norton Los Angeles, CA 55 21,744 95% 13.05 527 5.69% 490 Jun-05
Park Place Los Angeles, CA 39 15,640 97% 12.59 -- -- -- --
Pinecrest Ft. Lauderdale, FL 326 227,541 95% 15.70 14,152 7.96% 8,799 Apr-17
3,195 7.81% 2,794 Apr-07
Prado Bay North Bay Village, FL 124 109,756 90% 11.27 4,704 7.05% 4,124 Jan-08
The Regent Jacksonville, FL 304 288,320 89% 6.29 4,900 8.48% 4,900 Jun-01
River City Landing Jacksonville, FL 352 357,200 81% 6.80 7,743 8.98% 7,743 Jun-00
Riverside Austin, TX 145 109,068 98% 11.17 4,114 7.16% 3,627 Dec-07
877 8.09% 775 Jan-10
Silver Creek Tallahassee, FL 152 144,240 93% 7.31 1,220 8.50% -- May-12
Southern Elms Tulsa, OK 78 65,668 95% 7.91 1,290 9.68% 1,242 Feb-02
Summit on the Lake Ft. Worth, TX 198 138,262 91% 9.48 4,666 6.35% -- Aug-27
Vistas at Lake Worth Ft. Worth, TX 265 244,639 83% 9.04 9,500 8.74% 9,500 May-00
Woodcreek Jacksonville, FL 260 199,484 95% 8.43 6,986 6.79% 6,057 Sep-08
----- --------- --- --------- -------- ---- --------
APARTMENTS (d) 9,070 7,936,782 91% 8.45 216,211 8.00% 167,153
----- --------- --- --------- -------- ---- --------
Office Buildings
1505 Highway 6 Houston, TX -- 62,934 26% 14.94 2,000 8.97% 2,000 Nov-01
Emerson Center (e) Atlanta, GA -- 126,979 89% 14.88 6,915 7.38% 6,915 Feb-03
Northwest O'Hare Des Plaines, IL -- 105,363 86% 15.54 1,850 8.48% 1,850 Jun-01
Orlando Central Park Orlando, FL -- 138,574 75% 15.82 8,000 9.73% 8,000 Jun-01
Park 20 West Tallahassee, FL -- 69,065 99% 14.81 1,831 8.68% 1,415 Mar-06
Rancho Sorrento (f) San Diego, CA -- 147,973 85% 10.49 2,494 9.00% 2,400 Aug-00
2,481 8.13% 1,598 Mar-09
Tarzana Towne Plaza San Diego, CA -- 37,208 72% 21.83 2,897 9.81% 2,613 Nov-06
----- --------- --- --------- -------- ---- --------
OFFICE BUILDINGS (d) -- 688,096 79% 14.60 28,468 8.76% 26,791
----- --------- --- --------- -------- ---- --------
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TARRAGON REALTY INVESTORS, INC.
SUMMARY OF OPERATING REAL ESTATE
DECEMBER 31, 1999
NUMBER OF PHYSICAL 12/31/99
APARTMENT SQUARE OCCUPANCY MARKET
PROPERTY LOCATION UNITS FOOTAGE 12/31/99(a) RENT PSF(b)
- --------------------------------------- ------------------ --------- --------- ----------- -----------
Directly owned properties:
Shopping Centers
Briarwest Houston, TX -- 25,323 86% $14.10
Emerson Center (e) Atlanta, GA -- 17,753 100% 15.52
Jackson Square Jackson, MS -- 341,361 37% 3.49
K-Mart Plaza (g) Charlotte, NC -- 5,200 100% 17.88
K-Mart Plaza Temple Terrace, FL -- 63,887 100% 3.65
Lakeview Mall Manitowoc, WI -- 214,620 33% 3.28
Mariner Plaza Panama City, FL -- 52,288 98% 6.30
Midland Plaza Midland, MI -- 30,650 100% 3.38
Midway Mills Carrollton, TX -- 72,065 87% 11.79
Northside Center (h) Gainesville, FL -- 139,337 99% 4.23
Stewart Square Las Vegas, NV -- 39,600 97% 10.78
Times Square Lubbock, TX -- 19,550 84% 6.84
University Center (i) Waco, TX -- 80,725 43% 4.85
----- --------- --- ------
SHOPPING CENTERS (d) -- 1,102,359 62% 5.31
----- --------- --- ------
TOTAL DIRECTLY OWNED (d) 9,070 9,727,237 87% $ 8.53
----- --------- --- ------
Properties owned through partnerships:
801 Pennsylvania Avenue
801 Pennsylvania Avenue Office Building Washington, DC -- 62,229 88% 28.15
Ansonia Apartments, L.P. (70%)
Autumn Ridge East Haven, CT 116 46,400 97% 14.99
Dogwood Hills Hamden, CT 46 39,698 98% 11.79
Emerald Point New London, CT 253 108,790 82% 12.78
Fox Run Ledyard, CT 172 146,028 92% 9.47
Foxon Woods East Haven, CT 78 39,000 91% 14.60
Groton Towers Groton, CT 114 75,582 92% 13.07
Gull Harbor New London, CT 65 39,390 89% 11.63
Hamden Center Hamden, CT 65 41,145 95% 13.88
Lakeview Waterbury, CT 88 74,272 98% 8.54
Meriden East Meriden, CT 66 49,698 97% 9.84
MORTGAGE LOANS SECURED BY REAL ESTATE
--------------------------------------------
(DOLLARS IN THOUSANDS)
STATED BALANCE
12/31/99 INTEREST DUE AT MATURITY
PROPERTY BALANCE RATE(c) MATURITY DATE
- --------------------------------------- -------- -------- -------- --------
Directly owned properties:
Shopping Centers
Briarwest $ 1,653 9.23% $ 1,603 Nov-04
Emerson Center (e) -- -- -- --
Jackson Square -- -- -- --
K-Mart Plaza (f) -- -- -- --
K-Mart Plaza 760 8.50% 70 May-05
Lakeview Mall -- -- -- --
Mariner Plaza 1,709 7.15% 1,467 Jan-09
Midland Plaza -- -- -- --
Midway Mills 3,979 8.64% 3,465 Dec-05
Northside Center (g) 1,383 9.00% -- Nov-05
Stewart Square 2,188 8.98% 2,156 Dec-04
Times Square -- -- -- --
University Center 1,100 9.48% 1,100 Feb-00
------- ------ --------
SHOPPING CENTERS (d) 12,772 8.68% 9,861
------- ------ --------
TOTAL DIRECTLY OWNED (d) 257,451 8.11% 203,805
------- ------ --------
Properties owned through partnerships:
801 Pennsylvania Avenue
801 Pennsylvania Avenue Office Building 4,147 7.12% 3,959 Jun-03
Ansonia Apartments, L.P. (70%)
Autumn Ridge 1,459 7.25% 1,372 Dec-02
Dogwood Hills 2,009 8.00% 2,009 Nov-02
Emerald Point 3,482 8.00% 3,482 Nov-02
Fox Run 5,797 7.09% 5,012 Aug-08
Foxon Woods 1,964 7.09% 1,687 Aug-08
Groton Towers 4,180 7.60% 4,180 Aug-01
Gull Harbor 1,200 8.00% 1,200 Nov-02
Hamden Center 2,908 8.00% 2,908 Nov-02
Lakeview 2,420 8.00% 2,420 Jun-00
Meriden East 1,387 7.33% 1,304 Dec-02
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TARRAGON REALTY INVESTORS, INC.
SUMMARY OF OPERATING REAL ESTATE
DECEMBER 31, 1999
NUMBER OF PHYSICAL 12/31/99
APARTMENT SQUARE OCCUPANCY MARKET
PROPERTY LOCATION UNITS FOOTAGE 12/31/99(a) RENT PSF(b)
- ---------------------------------------- ------------------ --------- ------- ----------- -----------
Properties owned through partnerships:
Ansonia Apartments, L.P. (70%)
Ocean Reef New London, CT 163 121,272 91% $ 11.88
Parkview Naugatuck, CT 160 150,240 97% 9.33
Sagamore Hills Middletown, CT 212 160,272 89% 11.00
Sandalwood New London, CT 39 21,840 82% 11.25
Whalers' Point/Nutmeg Woods New London, CT 382 276,950 87% 11.50
Woodcliff Estates East Hartford, CT 561 371,943 84% 11.56
Antelope Pines Estates, L.P. (49%)
Antelope Pines Lancaster, CA 314 311,888 94% 7.07
Danforth National Apartments, Ltd. (80%)
The Club at Danforth Jacksonville, FL 288 305,460 92% 8.72
Larchmont Associates, L.P. (57%)
Larchmont West Toledo, OH 504 340,094 87% 6.91
Merritt 8 Acquisitions, L.L.C. (80%)
Merritt 8 Corporate Park Stratford, CT -- 163,986 97% 17.07
National Omni Associates, L.P. (70%)
5600 Collins Avenue Miami Beach, FL 289 372,939 86% 13.29
Orange National Partners, L.P. (50%)
Vineyard at Eagle Harbor Orange Park, FL 328 354,136 65% 8.58
RI Panama City, Ltd. (50%)
Harbour Green Panama City, FL 200 205,200 81% 8.68
RI Windsor, Ltd. (50%)
Mayfaire at Windsor Parke Jacksonville, FL 324 339,886 93% 9.93
Sacramento Nine (70%)
Prospect Park Office Building Rancho Cordova, CA -- 42,292 100% 18.52
MORTGAGE LOANS SECURED BY REAL ESTATE
---------------------------------------------------------
(DOLLARS IN THOUSANDS)
STATED BALANCE
12/31/99 INTEREST DUE AT MATURITY
PROPERTY BALANCE RATE(c) MATURITY DATE
- ---------------------------------------- -------- --------- ------------ --------
Properties owned through partnerships:
Ansonia Apartments, L.P. (70%)
Ocean Reef $ 5,166 8.00% $ 5,166 Nov-02
Parkview 4,848 7.60% 4,595 Jun-01
Sagamore Hills 4,343 8.00% 4,193 Jun-01
Sandalwood 1,242 8.00% 1,242 Nov-02
Whalers' Point/Nutmeg Woods 13,757 7.00% 13,478 Aug-01
Woodcliff Estates 13,577 7.00% 13,231 Jul-01
Antelope Pines Estates, L.P. (49%)
Antelope Pines 11,700 6.25% 11,700 Nov-29
Danforth National Apartments, Ltd. (80%)
The Club at Danforth 15,028 7.56% 13,077 Oct-09
Larchmont Associates, L.P. (57%)
Larchmont West 5,136 8.02% 4,416 Jan-06
Merritt 8 Acquisitions, L.L.C. (80%)
Merritt 8 Corporate Park 18,000 7.86% 18,000 Sep-01
National Omni Associates, L.P. (70%)
5600 Collins Avenue 24,800 7.65% 24,800 Feb-01
Orange National Partners, L.P. (50%)
Vineyard at Eagle Harbor 15,683 8.46% 15,683 Feb-01
RI Panama City, Ltd. (50%)
Harbour Green 9,525 7.40% 9,525 Nov-04
RI Windsor, Ltd. (50%)
Mayfaire at Windsor Parke 18,830 7.56% 16,386 Oct-09
Sacramento Nine (70%)
Prospect Park Office Building 23 7.96% -- Jan-00
11
12
TARRAGON REALTY INVESTORS, INC.
SUMMARY OF OPERATING REAL ESTATE
DECEMBER 31, 1999
NUMBER OF PHYSICAL 12/31/99
APARTMENT SQUARE OCCUPANCY MARKET
PROPERTY LOCATION UNITS FOOTAGE 12/31/99(a) RENT PSF(b)
- -------------------------------------- ------------- --------- ---------- ----------- -----------
Properties owned through partnerships:
Tarragon Savannah, L.P. (50%)
The Links at Georgetown Savannah, GA 250 291,626 92% $ 7.81
Woodcreek Garden Apartments, L.P.
(49%)
Woodcreek Garden Lancaster, CA 416 369,696 89% 7.96
------ ---------- --- ------
ALL PARTNERSHIP PROPERTIES (d) 5,493 4,921,952 86% 10.35
------ ---------- --- ------
ALL PROPERTIES (d) 14,563 14,649,189 87% $ 9.14
====== ========== === ======
MORTGAGE LOANS SECURED BY REAL ESTATE
---------------------------------------------------
(DOLLARS IN THOUSANDS)
STATED BALANCE
12/31/99 INTEREST DUE AT MATURITY
PROPERTY BALANCE RATE(c) MATURITY DATE
- -------------------------------------- -------- -------- -------- --------
Properties owned through partnerships:
Tarragon Savannah, L.P. (50%)
The Links at Georgetown $ 14,088 7.31% $ 12,234 Jun-09
Woodcreek Garden Apartments, L.P.
(49%)
Woodcreek Garden 12,800 6.22% 12,800 Apr-04
2,000 .02% 2,000 Apr-04
-------- ----- --------
ALL PARTNERSHIP PROPERTIES (d) 221,499 7.38% 212,059
-------- ----- --------
ALL PROPERTIES (d) $478,950 7.77% $415,864
======== ===== ========
(a) Represents physical occupancy as of the end of the last week of the fiscal
year ended December 31, 1999.
(b) Represents annualized market rental rate per square foot at December 31,
1999, based upon scheduled rents at that date.
(c) For variable rate mortgages, the interest rate in effect at December 31,
1999, is presented.
(d) The total lines for physical occupancy, market rent per square foot, and
interest rate represent weighted averages. The weighted average occupancy
and rent are based on the square footage in each property. The weighted
average interest rate is based on the December 31, 1999, mortgage balances.
(e) The $6.9 million mortgage is secured by both the office and retail portions
of Emerson Center.
(f) The $2.5 million mortgage scheduled to mature in August 2000 was paid off
in connection with the sale of three of the four buildings of Rancho
Sorrento in January 2000.
(g) The former K-Mart store was sold for $1.1 million in May 1999. The
remaining property consists of seven acres of land and free standing
retail.
(h) K-Mart's lease expires September 2002. K-Mart moved out in 1993 and
continues to pay the scheduled rent on the portion of the space it has not
sublet.
(i) In February 2000, the maturity date of the $1.1 million mortgage was
extended to May 2001.
12
13
ITEM 3. LEGAL PROCEEDINGS
Tarragon is a party to various claims and routine litigation arising in the
ordinary course of business. We do not believe that the results of these claims
and litigation, individually or in the aggregate, will have a material adverse
effect on our business, financial position, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of the fiscal year covered by this report, no matter
was submitted to a vote of security holders.
[This space intentionally left blank.]
13
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock is listed on the NASDAQ National Market System under the symbol
"TARR." Prior to the merger of NIRT and Tarragon on November 24, 1998, the NIRT
shares of beneficial interest were listed on the NASDAQ National Market. At that
time, and for several years preceding that event, our common stock was listed on
the NASDAQ Small Cap Market under the symbol "VIPT." Following the merger, we
applied for and obtained the listing of our common stock on the NASDAQ National
Market effective May 3, 1999.
The following table sets forth the high and low bid quotations of our common
stock reported by the NASDAQ system for the periods indicated. Over-the-counter
market quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commissions, and may not necessarily represent actual transactions.
1999 1998
------------------ -----------------
High Low High Low
------- ------- ------ -------
First quarter $ 12.25 $ 11.00 $ 9.14 $ 7.99
Second quarter 13.06 10.63 10.85 8.88
Third quarter 14.00 9.88 14.02 10.66
Fourth quarter 15.63 10.00 12.31 10.00
According to the transfer agent's records, at March 20, 2000, our common stock
was held by approximately 10,000 holders, including beneficial holders. On
March 20, 2000, the closing price of our common stock was $10.25.
Cash dividends per share paid to stockholders in 1999 and 1998 were as follows
(restated to give effect to the November 1998 merger):
1999 1998
----- -----
First quarter $.105 $.102
Second quarter .105 .102
Third quarter .105 .102
Fourth quarter .105 .105
Future dividends to stockholders are dependent upon Tarragon's income, financial
condition, capital requirements, cash flow, tax status, and other factors deemed
relevant by our Board of Directors. The Board intends to continue its current
policy of paying cash dividends to stockholders in an amount not to exceed
one-half of funds from operations. Beginning in 2000, dividends to common
stockholders will be paid annually rather than quarterly, as has been the
practice in the past.
EXCHANGE OFFER
On March 22, 2000, Tarragon announced an offer to exchange one share of 10%
Cumulative Preferred Stock for each share of common stock held by its
stockholders, up to a maximum of 2,000,000 shares. This exchange offer is
scheduled to expire at 5:00 p.m., New York City time, on May 3, 2000, unless
extended.
The exchange offer is directed to those holders of Tarragon common stock who
would prefer to hold a security with a fixed dividend yield and a fixed
liquidation preference in the event of redemption or other disposition of the
security. The exchange offer is not part of any plan to "go private" and not
the first in any series of transactions designed to have a resulting effect upon
the outstanding common stock. However, to the extent shares of common stock are
exchanged for shares of 10% Cumulative Preferred Stock pursuant to the exchange
offer, the number of shares of common stock outstanding in the hands of the
public stockholders will initially decrease. Assuming the maximum of 2,000,000
shares of common stock are tendered pursuant to the exchange offer, a minimum of
3,009,118 shares of common stock will continue to remain in the hands of public
stockholders. The exchange offer should not have an adverse effect upon the
listing of our common stock on the NASDAQ National Market.
The class of 10% Cumulative Preferred Stock will be designated to consist of
2,500,000 shares. The number of shares which may be issued pursuant to the
Exchange Offer is limited to 2,000,000 shares (subject to increase in certain
events), which would result in 500,000 shares being available in the event that
we elect to accept more than the maximum for exchange, for future distribution
in connection with the acquisition of assets, or for other uses, at the
discretion of our Board of Directors.
The 10% Cumulative Preferred Stock will pay a fixed dividend of $1.20 per year,
and has a liquidation value of $12 per share. It is a class of equity and is
junior in ranking in right of payment to our outstanding indebtedness, but is
senior to common stock. It ranks on a parity as to dividends and liquidation
with all other shares of special or preferred stock which we might issue.
Shares of 10% Cumulative Preferred Stock may be redeemed at Tarragon's option at
any time after June 30, 2003, at the liquidation value plus a premium of $0.50
per share reducing by $0.10 per share each year thereafter. No mandatory
redemption or "sinking fund" is required. The 10% Cumulative Preferred Stock
has only the voting rights specifically required by law under the Nevada General
Corporation Law, and is not convertible into any other securities of Tarragon.
14
15
ITEM 6. SELECTED FINANCIAL DATA
Please read the following information along with the Consolidated Financial
Statements and Notes and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Form 10-K.
Because the merger of Tarragon and NIRT was treated as a reverse acquisition of
Tarragon by NIRT for accounting purposes, pre-merger historical balances and
operating information presented below are those of NIRT. Dollar amounts are in
thousands, except per share amounts.
For the Years Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
OPERATING DATA
Revenue ................................... $ 73,756 $ 58,700 $ 52,017 $ 49,962 $ 45,240
Expenses .................................. (79,905) (61,095) (51,749) (49,176) (46,214)
----------- ----------- ----------- ----------- -----------
Income (loss) before net gain on sale
of real estate, gain on sale of
investments, gain on insurance
settlement, litigation settlement, and
extraordinary items ...................... (6,149) (2,395) 268 786 (974)
Net gain on sale of real estate ........... 11,969 2,108 4,350 3,700 533
Gain on sale of investments ............... -- 123 913 -- 412
Gain on insurance settlement .............. 231 -- -- 451 --
Litigation settlement ..................... (350) -- -- -- --
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing
operations .............................. 5,701 (164) 5,531 4,937 (29)
Extraordinary items ....................... (444) (1,231) 61 -- 737
----------- ----------- ----------- ----------- -----------
Net income (loss) ......................... $ 5,257 $ (1,395) $ 5,592 $ 4,937 $ 708
=========== =========== =========== =========== ===========
PER SHARE DATA (1)
EARNINGS PER SHARE
Income (loss) from continuing
operations .............................. $ .69 $ (.02) $ .72 $ .60 $ --
Extraordinary items ....................... (.05) (.16) .01 -- .09
----------- ----------- ----------- ----------- -----------
Net income (loss) ......................... $ .64 $ (.18) $ .73 $ .60 $ .09
=========== =========== =========== =========== ===========
Weighted average shares (2) .................. 8,220,280 7,619,604 7,693,031 8,161,197 8,222,799
EARNINGS PER SHARE - ASSUMING DILUTION
Income (loss) from continuing
operations .............................. $ .68 $ (.02) $ .71 $ .60 $ --
Extraordinary items ....................... (.05) (.16) .01 -- .09
----------- ----------- ----------- ----------- -----------
Net income (loss) ......................... $ .63 $ (.18) $ .72 $ .60 $ .09
=========== =========== =========== =========== ===========
Weighted average shares -
assuming dilution (2) ..................... 8,327,120 7,619,604 7,769,296 8,197,049 8,223,800
Dividends (3) ................................ $ .42 $ .41 $ .38 $ .34 $ .31
- --------------------------------------------
(1) Share and per share data have been restated to give effect to the merger of
Tarragon with NIRT on the basis of 1.97 shares of Tarragon common stock for
each share of beneficial interest of NIRT and 10% stock dividends paid by
NIRT in September 1996 and September 1997.
(2) Represents the weighted average shares of common stock used in the
computation of earnings per share and earnings per share - assuming
dilution.
(3) Dividends in 1995 through 1998 represented return of capital. Dividends in
1999 were 42% taxable to stockholders as ordinary income and 58% return of
capital.
15
16
ITEM 6. SELECTED FINANCIAL DATA (Continued)
December 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
BALANCE SHEET DATA
Real estate ........................... $305,324 $293,975 $233,936 $193,722 $195,675
Notes and interest receivable (1) ..... -- -- -- -- 6,388
Investments in and advances to
partnerships ....................... 48,834 37,356 13,839 4,739 10,780
Total assets .......................... 379,065 357,060 265,640 211,341 222,038
Notes, debentures, and interest payable 287,767 263,361 184,126 134,270 144,497
Stockholders' equity .................. 72,993 76,685 71,091 69,063 69,627
Book value per share .................. $ 9.13 $ 9.06 $ 9.47 $ 9.95 $ 10.42
For the Years Ended December 31,
------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
OTHER DATA
Cash flows provided by (used in):
Operating activities ..................... $ 9,184 $ 2,533 $ 3,261 $ 3,795 $ 2,030
Investing activities ..................... (29,393) (43,828) (43,813) (436) (5,436)
Financing activities ..................... 21,718 39,475 40,952 (1,171) 1,596
Calculation of funds from operations:
Net income (loss) ........................ $ 5,257 $ (1,395) $ 5,592 $ 4,937 $ 708
Extraordinary items ...................... 444 1,231 (61) -- (737)
Litigation settlement .................... 350 -- -- -- --
Gain on insurance settlement (2) ......... (231) -- -- (451) --
Net gain on sale of real estate .......... (11,969) (2,108) (4,350) (3,700) (533)
Gain on sale of investments .............. -- -- (215) -- --
Depreciation and amortization
of real estate assets .................. 10,979 7,602 7,225 5,374 5,959
Depreciation and amortization
of real estate assets of partnerships... 4,641 1,892 356 305 882
Distributions from partnerships
in excess of investment in the
partnerships ........................... (9) (338) (41) (899) --
-------- -------- -------- ------- -------
Funds from operations (3) ..................... $ 9,462 $ 6,884 $ 8,506 $ 5,566 $ 6,279
======== ======== ======== ======= =======
- --------------------------------------------
(1) Notes and interest receivable have been classified with other assets since
December 31, 1996.
(2) The 1999 gain on insurance settlement relates to Lake Point Apartments.
Fire destroyed one building with eight units which was not rebuilt.
Insurance proceeds exceeded the sum of demolition costs, adjuster fees,
other costs, and the portion of the property's carrying value written off.
The 1996 gain on insurance settlement represents Tarragon's share of gain
realized by a partnership in which we held a 40% interest. The insurance
proceeds from the destruction of a partnership property that was not
rebuilt exceeded the basis of the property.
(3) Tarragon considers funds from operations ("FFO") to be an appropriate
measure of the performance of a real estate company. FFO, as defined by the
National Association of Real Estate Investment Trusts ("NAREIT"), equals
net income (loss), computed in accordance with generally accepted
accounting principles ("GAAP"), excluding gains (or losses) from debt
restructuring and sales of property, plus depreciation and amortization of
real estate assets, and after adjustments for unconsolidated partnerships
and joint ventures. Adjustments for unconsolidated partnerships and joint
ventures are calculated to reflect FFO on the same basis. The amortization
of deferred financing costs is not added back to net income (loss) in our
calculation, consistent with our historical method of calculating FFO. In
October 1999, NAREIT clarified the definition of FFO. Consistent with this
clarification, nonrecurring items that are not defined as extraordinary
under GAAP will be reflected in the calculation of FFO. Extraordinary items
and gains and losses from sales of depreciable operating property will
continue to be excluded from FFO.
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17
ITEM 6. SELECTED FINANCIAL DATA (Continued)
The clarification of FFO is effective January 1, 2000. Even though we have
terminated our status as a REIT, we will continue to report FFO using the
clarification beginning in the first quarter of 2000. We believe that FFO
is useful to investors as a measure of the performance of a real estate
company because, along with cash flows from operating activities,
investing activities, and financing activities, it provides investors an
understanding of our ability to incur and service debt and to make capital
expenditures. We also believe that a clear understanding of our operating
results is best gained by examining FFO along with net income (loss) as
shown in the Consolidated Financial Statements and Notes. FFO does not
represent cash generated from operating activities in accordance with
GAAP, and is not an alternative to net income as an indication of our
operating performance or to cash flow as a measure of liquidity, nor is it
necessarily indicative of cash available to fund cash needs and cash
dividends. Our calculation of FFO may be different from the methods used
by other companies and, therefore, may not be comparable to other
companies.
Effective January 1, 1997, we modified our calculation of FFO to include
the add back of amortization of leasing commissions associated with our
commercial properties. We believe this treatment is consistent with a
majority of other real estate companies. If we had calculated FFO in the
same manner for the years ended December 31, 1996 and 1995, FFO would have
been higher by $262,000 and $272,000, respectively.
Included in FFO for the years ended December 31, 1998, 1997 and 1995, are
gains totaling $123,000, $698,000, and $412,000, respectively, resulting
from the sale of investments in marketable equity securities.
Included in FFO for the year ended December 31, 1996, is a provision for
loss of $300,000 related to the write-down of Mariposa Manor to its
estimated fair value. Included in FFO for the year ended December 31,
1995, is a provision for loss credit of $425,000. The provision for loss
credit was comprised of the reversal of a $700,000 allowance provided in
1993 against Pepperkorn Office Building and a provision of $275,000 to
reduce the carrying value of K-Mart Shopping Center in Kansas City,
Missouri, to the net sale proceeds received in July 1995.
[This space intentionally left blank.]
17
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Please read this discussion along with the Consolidated Financial Statements and
Notes found at ITEM 8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA."
Liquidity and Capital Resources
Our principal sources of cash are property operations, borrowings, and proceeds
from the sale of properties. We believe these sources will continue to meet our
cash requirements, including debt service payments, property maintenance and
improvements, development costs on construction properties, projected purchases
of operating properties, dividends, and planned repurchases of common stock.
Although we expect these sources of cash to be more than sufficient to fund
planned uses of cash, we make no assurance that the expected sales and
refinancings of properties will be completed as planned.
Net cash from property operations (rentals collected less payments for property
operations) has provided $88 million since the beginning of 1997. In 1997,
operations of properties contributed approximately $21 million. In 1998, this
source increased to $28 million, and in 1999, increased to $39 million. The
addition of 13 properties to the portfolio in connection with the merger of
Tarragon and NIRT was the primary factor in the 39% increase for 1999 over 1998.
Therefore, net cash from property operations is expected to increase at a much
lower rate in 2000.
Since the beginning of 1997, proceeds from borrowings generated $213 million
from the refinancing of mortgages on directly owned properties, construction
loan fundings, and borrowings under line of credit facilities ($4.7 million of
which was advanced by affiliates of William S. Friedman, President, Chief
Executive Officer, and a Director of Tarragon) and $8.8 million of repayment of
advances or capital distributions from partnerships in connection with
refinancing of partnership properties. The following table provides summary
information about borrowings, which are expected to continue to be a key source
of cash for Tarragon.
1999 1998 1997
----- ----- -----
(in millions)
Proceeds from mortgage refinancing $29.5 $77.7 $77.3
Proceeds from non-mortgage financing 6.7 -- 2.2
Proceeds from construction loan fundings 12.6 1.9 --
Advances (repayment of advances)
from affiliates (1.2) 5.9 --
Payoff of existing debt (13.6) (40.2) (32.9)
Net cash proceeds from borrowings 32.2 38.8 38.5
Repayment of advances/distributions
from partnerships' financing activities 5.0 3.8 --
In 1998, the refinancing of 801 Pennsylvania Avenue provided $3.8 million in
cash. In 1999, repayment of advances from partnerships' financing activities
included $1.6 million from Tarragon Savannah, $2 million from RI Windsor,
$800,000 from Danforth National Apartments, and $600,000 from RI Panama City.
The source of the funds these four partnerships paid to Tarragon was the
permanent financing on their recently constructed properties. We expect to
receive more than $15 million in 2000 from partnerships' financing activities.
18
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (Continued)
Principal payments on notes payable totaling $81.3 million are due in 2000,
including $78.3 million of balloon payments. We intend to either pay off the
loans as they come due or extend the due dates while seeking to obtain long term
refinancing. Of the balloon payments due in 2000, $39.8 million represents
amounts due under the $50 million revolving credit facility, which has two
six-month extension options. We have extended $1.1 million of the 2000 balloon
payments to 2001 and $6.9 million to 2003. We paid off $2.4 million of the 2000
balloon payments in connection with the sale of a portion of a property in
January 2000. We estimate that refinancing of directly owned properties will
generate $20 million in net cash proceeds in 2000. We believe we can arrange new
financing as needed but cannot assure that we will be successful in our efforts
or that the timing of new financing will coincide with the due dates of maturing
loans.
Since the beginning of 1997, net cash proceeds from the sale of real estate
totaled $17.8 million. We sold 11 properties and portions of two other
properties with an aggregate net carrying amount of $27.5 million and paid off
mortgages totaling $24.9 million in connection with these transactions. In the
first quarter of 2000, we sold a portion of an office park and received net cash
proceeds of $3.8 million after the payoff of a $2.5 million mortgage. We
estimate proceeds from the sale of real estate will provide an additional $18
million during 2000.
Since the beginning of 1997, we have paid $47.5 million in interest on notes and
debentures payable. Interest paid was $11.6 million in 1997 and $16.6 million in
1998. In 1999, interest paid was $19 million, reflecting a 16% increase between
1998 and 1999. This increase is predominantly due to 13 properties added to the
portfolio in connection with the merger and to the increase in mortgage debt
related to refinancings. Based on expected refinancings and acquisitions for
2000, interest payments are expected to increase 10% in 2000.
Since the beginning of 1997, Tarragon has purchased 12 operating properties and
two tracts of land (one on which construction is presently underway on a
320-unit apartment community). The aggregate cost of these acquisitions was
$56.5 million, $34.7 million of which was financed with mortgage debt, and $22.4
million of which was paid in cash. We anticipate using cash of $10 million in
2000 for the acquisition of real estate.
As discussed above, in connection with the November 1998 merger of Tarragon and
NIRT, the size of our portfolio increased by 13 operating properties. The
aggregate basis allocated to the real estate assets was $39 million, and
mortgages and debentures assumed total $28 million. The purchase consideration
was valued at $14 million, consisting of 1.2 million shares of common stock.
Since the beginning of 1997, Tarragon has made capital improvements to its
directly owned real estate of $68 million, $27 million of which was spent on
construction at our development properties. We expect to spend approximately $47
million on construction of eight apartment communities in various stages of
development in 2000, of which $34 million will be funded by construction loans.
We plan to invest approximately $10 million in capital improvements to our
directly owned operating properties in 2000.
Since the beginning of 1997, Tarragon and Robert C. Rohdie have formed nine
partnerships to build and own luxury apartment communities in Florida, Georgia,
and Alabama. Tarragon's aggregate contributions and advances through 1999 of
$18.1 million have provided substantially all of the development costs not
covered by construction loans. In February 2000, Tarragon effectively acquired
Mr. Rohdie's interests in these partnerships. The properties owned by these
partnerships were contributed to a new operating partnership that Tarragon
controls, and Mr. Rohdie received a preferred interest in this partnership
valued at up to $10 million. These properties will be consolidated beginning
February 2000.
19
20
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Liquidity and Capital Resources (Continued)
In 1997, Tarragon formed Ansonia Apartments, L.P., with Richard Frary, Joel
Mael, Robert Rothenberg, and Saul Spitz. Since then, Ansonia has purchased 16
apartment properties with an aggregate 2,580 units and a 160,000 square foot
historic mill for conversion to residential lofts, all located in Connecticut.
The cash required to purchase the properties was provided by Tarragon in the
form of capital contributions that earn a preferred return and have priority
over distributions to the partners. We have also made interest-bearing advances
to Ansonia for major renovations to four of its properties. Our contributions
and advances to date total $18.5 million. We expect to fund an additional $5
million to Ansonia in 2000.
In 1997, Tarragon formed National Omni Associates, L.P., which purchased a
289-unit high rise apartment building in Miami Beach, Florida, for $32 million
in February 1998. We have invested $7.2 million in this partnership. In 1999, we
implemented a condominium conversion program for this property. We plan to spend
$2 million in 2000 on improvements to this property. We have begun to offer the
condominium units for sale and have accepted contracts and non-binding
reservations for the sale of more than half of the units. Based on such
contracts and reservations, we expect to receive more than $10 million in net
cash proceeds from sales in 2000. Additionally, we bought out our partner in
National Omni in February 2000 for $850,000, and this property will be
consolidated beginning March 2000.
We have paid regular quarterly dividends since 1993. Since the beginning of
1997, cash dividends totaling $9 million (or $1.21 per share) have been paid to
stockholders. We expect to continue to pay regular dividends, but the Board has
decided to pay dividends annually rather than quarterly in the future to reduce
the associated administrative costs.
The Board of Directors has authorized a stock repurchase program. We will
continue to repurchase shares of our common stock as long as we believe the fair
market value of our net assets per share is substantially greater than the
market price of our stock. Since the beginning of 1997, Tarragon has repurchased
1.1 million shares of its common stock in open market and negotiated
transactions at an aggregate cost of $12.3 million. As of December 31, 1999,
there were 1,054,803 shares authorized for repurchase, and we plan to spend $5
million in 2000 on share repurchases.
Results of Operations
1999 COMPARED TO 1998.
The significant components of the $6.7 million increase in net operating results
between 1998 and 1999 are discussed in the following paragraphs.
The properties acquired directly in 1998 and 1999 contributed $1.3 million to
net income. This amount is comprised of increases in net rental income of $4.9
million, interest expense of $2.6 million, and depreciation of $1 million. An
increase in net rental income (rental revenue less property operating expenses)
of $3.3 million came from multifamily properties acquired in 1998. At December
31, 1999, Tarragon's directly owned multifamily properties accounted for 77% of
its real estate and included 9,070 operating apartment units. Commercial
properties acquired in 1998 and 1999 contributed $1.7 million to the increase in
net rental income. At December 31, 1999, Tarragon owned commercial properties
with an aggregate 1.8 million square feet.
20
21
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
The portfolio of 37 apartment properties with 7,602 units owned for all of 1999
and 1998 had an increase in net rental income of $2.3 million or 12%. Net rental
income as a percentage of rental revenue for the 7,602 units increased to 44%
from 43%. Rental revenue for the same store multifamily properties increased
$3.5 million, or 8%, chiefly due to higher rental rates at some of the
properties. Average monthly rental revenue per unit for the same store
properties increased 8% to $535 from $496. Property operating expenses on a same
store basis increased $1.3 million, or 5%. These properties also achieved a
decrease in vacancy losses of $1.3 million due to slightly improved occupancy
rates.
Commercial properties held in both years reported an overall increase in net
rental income of $657,000 principally due to higher rents at certain properties.
Overall occupancy levels for commercial properties held in both years remained
relatively stable in 1999 compared to 1998.
For properties held in both years, interest expense increased $2.5 million due
to long term and interim mortgage financing, including advances under revolving
credit facilities, which increased mortgage loans by $41 million during 1998 and
1999.
For properties held in both years, depreciation expense increased $2.4 million.
An increase of $1.9 million resulted from the reclassification of nine
properties from held for sale to held for investment, including adjustments to
record depreciation expense for the period during which they were classified as
held for sale. A decrease of $1.2 million resulted from ceasing depreciation of
six properties in 1998 and two properties in 1999 upon their reclassification to
held for sale. The remaining increase is primarily due to the depreciation of
capital improvements made in 1998 and 1999.
Equity in income (loss) of partnerships was $173,000 higher in 1999 compared to
1998. Several partnerships own properties that were under construction or in
lease-up in 1998 and achieved stabilized operations in 1999. Those properties
contributed $892,000 to the increased income. A decline of almost $1 million
came from 801 Pennsylvania Avenue, where income in 1998 included $873,000
resulting from refinancing of the property. Debt service requirements on the new
loan were responsible for the remaining decrease in income in 1999.
Because Tarragon acquired Tarragon Realty Advisors in 1998, we no longer pay
advisory fees. The advisory fee was an incentive fee of 16% of adjusted funds
from operations, as defined in the advisory agreement. Tarragon now pays costs
previously borne by its advisor instead of paying advisory fees, property
management fees, and acquisition and refinancing fees that were paid under the
advisory agreement. This accounts for the bulk of the $6.4 million increase in
general and administrative expenses.
During 1999, Tarragon recognized gains totaling $12 million on the sale of five
properties, portions of two other properties, and its share of the gain on the
sale of one of its joint venture properties. Tarragon also had a gain of
$231,000 from an insurance settlement and paid a $350,000 litigation settlement.
During 1998, Tarragon had gains of $2.1 million from sale of two properties and
$123,000 from sale of investments in securities.
21
22
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
Extraordinary expenses of $444,000 during 1999 and $1.2 million in 1998 were
incurred because of prepayment penalties and write-off of deferred financing
expenses in connection with refinancings of mortgage debt.
1998 COMPARED TO 1997.
The significant components of the $7 million decrease in net operating results
between 1997 and 1998 are discussed in the following paragraphs.
The properties acquired directly in 1997 and 1998 caused a $100,000 decrease in
net operating results. This amount is comprised of increases in net rental
income of $2 million, interest expense of $1.4 million, and depreciation of
$700,000. Courtyard at the Park, acquired in July 1997, accounted for $400,000
of the decrease in net operating results. This property was substantially
renovated during 1998 and incurred significant vacancy losses during this time.
For 1999, net operating results of this property improved by $327,000 over 1998
net operating results. An increase in net rental income of $1.7 million came
from multifamily properties acquired in 1997 and 1998. At December 31, 1998,
Tarragon's directly owned multifamily properties represented 76% of its real
estate and included 9,588 operating apartment units. Commercial properties
acquired in 1997 and 1998 contributed a $337,000 increase in net rental income.
At December 31, 1998, Tarragon owned commercial properties with an aggregate 1.9
million square feet.
The portfolio of 32 apartment properties with 6,581 units owned for all of 1998
and 1997 had an increase in net rental income of $1.9 million or 12%. Net rental
income as a percentage of rental revenue for the 6,581 units increased to 45%
from 43%. Rental revenue for the same store multifamily properties increased
$2.5 million, or 7%, chiefly due to higher rental rates at some of the
properties. Average monthly rental revenue per unit for the same store
properties increased 7% to $506 from $475. Property operating expenses on a same
store basis increased $617,000, or 3%. Overall occupancy levels for multifamily
properties held in both years increased slightly in 1998 compared to 1997.
Commercial properties held in both years reported an overall increase in net
rental income of $339,000 principally due to higher rents at certain properties.
Overall occupancy levels for commercial properties held in both years remained
relatively stable in 1998 compared to 1997.
For properties held in both years, interest expense increased $2.3 million due
to long term and interim mortgage financing, including advances under revolving
credit facilities, which increased mortgage loans by $63 million during 1998 and
1997.
Equity in income (loss) of partnerships was $1.5 million lower in 1998 compared
to 1997. Start-up losses at five partnership properties with a total of 1,390
units caused a $2 million decrease. Tarragon experienced an increase of almost
$1 million from these same five partnerships in 1999 as lease-up at their
properties has approached stabilization. A decrease of $600,000 resulted from
the operating losses of 5600 Collins Avenue, the sole property of National Omni
Associates. These decreases were partially offset by an increase of $873,000
resulting from the refinancing of 801 Pennsylvania Avenue. Of this amount,
$606,000 was accrued interest on Tarragon's original investment and additional
advances, and $267,000 was our 50% participation in the excess financing
proceeds. The properties owned by Ansonia Apartments, L.P., contributed $400,000
to operations in 1998 even though four of the properties were undergoing
substantial renovation.
22
23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Results of Operations (Continued)
During 1998, Tarragon recognized gains totaling $2.1 million on the sale of two
properties. In 1997, Tarragon recognized gains totaling $4.4 million on the sale
of three properties and a $54,000 loss related to the sale of a property owned
through a partnership.
During 1998, a gain of $123,000 was recognized from sale of investments in
securities. In 1997, Tarragon recognized gains of $698,000 from sale of
investments in securities and $215,000 on the sale of an investment in a
partnership.
Extraordinary expenses in 1998 of $1.2 million were incurred from prepayment
penalties and write-off of deferred financing expenses in connection with 1998
refinancings. Extraordinary items in 1997 included a gain on debt forgiveness of
$431,000 in connection with the discounted payoff of the mortgage loan on
University Center and expenses of $370,000 from prepayment penalties and
deferred financing expenses written off in connection with 1997 refinancings.
Allowance for Estimated Losses and Provisions for Losses
Tarragon periodically reviews the carrying values of properties held for sale.
Generally accepted accounting principles require the carrying value of a
property held for sale not to exceed the lower of its cost or its estimated fair
value less costs to sell. In instances where a property's estimated fair value
less costs to sell is less than its carrying value at the time of evaluation, we
provide an allowance for loss by making a charge against operations. Our review
of properties held for sale generally includes selective site inspections,
comparing the property's current rents to market rents, reviewing the property's
expenses and maintenance requirements, discussions with the property manager,
and a review of the surrounding area. We may make adjustments to estimated fair
value based on future reviews.
Tarragon also evaluates its properties held for investment for impairment
whenever events or changes in circumstances indicate that a property's carrying
value may not be recoverable. This evaluation generally consists of reviewing
the property's cash flow and current and projected market conditions, as well as
changes in general and local economic conditions. If we conclude that a property
has been impaired, we reduce its carrying value by making a charge against
current earnings in the amount by which the carrying value of the property
exceeds its estimated fair value.
Environmental Matters
Under federal, state, and local environmental laws, ordinances, and regulations,
Tarragon may be liable for removal or remediation costs, as well as other costs
(such as fines or injuries to persons and property) where our employees may have
arranged for removal, disposal, or treatment of hazardous or toxic substances.
In addition, environmental laws impose liability for release of
asbestos-containing materials into the air, and third parties can seek recovery
from Tarragon for personal injury associated with those materials. We are not
aware of any liability relating to these matters that would have a material
adverse effect on our business, financial position, or results of operations.
23
24
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
Tax Matters
For the 1997 through 1999 tax years, we have elected and, in our opinion,
qualified to be taxed as a Real Estate Investment Trust, as that term is defined
in Sections 856 through 860 of the Internal Revenue Code of 1986. A REIT is
required to distribute at least 95% of its REIT taxable income, plus 95% of its
net income from foreclosure property, as defined in Section 857 of the Internal
Revenue Code of 1986, on an annual basis to stockholders. We have terminated our
status as a REIT effective as of December 1, 1999, the beginning of our 2000 tax
year, but we do not expect this to impact our current policy of paying annual
dividends to common stockholders in an amount not greater than 50% of funds from
operations.
Risks Associated with Forward-Looking Statements Included in this Form 10-K
In addition to historical information, this Form 10-K contains forward-looking
statements. Forward-looking statements are expressions of our current beliefs
and expectations, based on information currently available to us, estimates and
projections about our industry, and certain assumptions made by our management.
These statements are not historical facts. We use words such as "anticipates,"
"expects," "intends," "plans," "believes," "seeks," "estimates," and similar
expressions to identify our forward-looking statements.
Because we are unable to control or predict many of the factors that will
determine our future performance and financial results, including future
economic, competitive, and market conditions, our forward-looking statements are
not guarantees of future performance. They are subject to risks, uncertainties,
and errors in assumptions that could cause our actual results to differ
materially from those reflected in our forward-looking statements. We believe
that the assumptions underlying our forward-looking statements are reasonable.
However, you should not place undue reliance on these forward-looking
statements. They only reflect our view and expectations as of the date of this
Form 10-K. We undertake no obligation to publicly update or revise any
forward-looking statement in light of new information, future events, or
otherwise.
[This space intentionally left blank.]
24
25
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Tarragon is exposed to market risk from changes in interest rates that may
adversely affect our financial position, results of operations, and cash flows.
In seeking to minimize the risks from interest rate fluctuations, we manage
exposures through our regular operating and financing activities. We do not use
financial instruments for trading or other speculative purposes.
At December 31, 1999, Tarragon had approximately $104 million of variable rate
debt. The primary base rate is the 30-day LIBOR. Using this balance of debt, if
LIBOR or any other indexes on which the rates are based increased by 100 basis
points (1%), our pre-tax earnings and cash flows would decrease by approximately
$1 million. On the other hand, if interest rates decreased by 100 basis points,
our pre-tax earnings and cash flows would increase by approximately $1 million.
At December 31, 1999, unconsolidated partnerships had approximately $57 million
of variable rate debt. A 100 basis point increase in the index on which the
rates are based would reduce our pre-tax earnings by approximately $400,000
(based on our interests in the partnerships). A 100 basis point decrease in the
index on which the rates are based would increase our pre-tax earnings by
approximately $400,000. Assuming these partnerships distribute all of their
available cash to the partners, our cash flow would be changed by these same
amounts.
Tarragon has entered into reverse repurchase agreements with an investment bank
for three mortgage-backed securities, or MBSs, secured separately by mortgages
on three of our properties. If market interest rates increase, the value of the
MBSs generally decreases, which would require us to deposit more funds with the
investment bank (assuming no change in margin requirements). Decreases in market
interest rates generally increase the value of the MBSs and allow the release to
us of margin funds held by the investment bank (again assuming no change in
margin requirements). The repurchase price of the MBSs bears interest at a
variable rate based on LIBOR. An increase in interest rates of 100 basis points
would result in a decrease of $201,000 in our pre-tax earnings and a decrease of
$1.2 million in our cash flow. A 100 basis point decrease in interest rates
would result in an increase of $203,000 in our pre-tax earnings and an increase
of $1.1 million in our cash flow.
[This space intentionally left blank.]
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26
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Public Accountants............................ 27
Consolidated Balance Sheets -
December 31, 1999 and 1998........................................ 28
Consolidated Statements of Operations -
Years Ended December 31, 1999, 1998, and 1997..................... 29
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1999, 1998, and 1997..................... 31
Consolidated Statements of Cash Flows -
Years Ended December 31, 1999, 1998, and 1997..................... 32
Notes to Consolidated Financial Statements.......................... 35
Schedule III - Real Estate and Accumulated Depreciation............. 61
All other schedules are omitted because they are not required or are not
applicable or because the information required is included in the Consolidated
Financial Statements or Notes.
26
27
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Tarragon Realty Investors, Inc.
We have audited the accompanying consolidated balance sheets of Tarragon Realty
Investors, Inc., and subsidiaries as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tarragon Realty Investors,
Inc., and subsidiaries as of December 31, 1999 and 1998, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The Supplemental Schedule III is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
Arthur Andersen LLP
Dallas, Texas
March 30, 2000
27
28
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
----------------------
1999 1998
--------- ---------
(dollars in thousands)
Assets
Real estate held for sale (net of accumulated depreciation
of $25,282 in 1999 and $20,884 in 1998) ................................. $ 52,885 $ 79,801
Less - allowance for estimated losses ..................................... (1,156) (1,194)
--------- ---------
51,729 78,607
Real estate held for investment (net of accumulated
depreciation of $36,143 in 1999 and $31,718 in 1998) .................... 253,595 215,368
Investments in and advances to partnerships ............................... 48,834 37,356
Cash and cash equivalents ................................................. 3,951 2,442
Restricted cash ........................................................... 6,538 7,368
Other assets, net ......................................................... 14,418 15,919
--------- ---------
$ 379,065 $ 357,060
========= =========
Liabilities and Stockholders' Equity
Liabilities
Notes, debentures, and interest payable (including $5,108 in
1999 and $5,891 in 1998 due to affiliates) .............................. $ 287,767 $ 263,361
Other liabilities ......................................................... 18,305 17,014
--------- ---------
306,072 280,375
--------- ---------
Commitments and contingencies .............................................
Stockholders' equity
Common stock, $0.01 par value; authorized shares, 20,000,000; shares
outstanding, 7,993,999 in 1999 and 8,467,260 in 1998 (after deducting
2,891,713 shares in 1999 and 2,418,384 shares in 1998 held in
treasury)................................................................ 80 85
Special stock, $0.01 par value; authorized shares,
10,000,000; shares outstanding, none .................................... -- --
Paid-in capital ........................................................... 299,528 305,098
Accumulated dividends in excess of accumulated earnings ................... (226,575) (228,408)
Accumulated other comprehensive income (loss) ............................. (40) (90)
--------- ---------
72,993 76,685
--------- ---------
$ 379,065 $ 357,060
========= =========
The accompanying notes are an integral part of these
Consolidated Financial Statements.
28
29
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31,
--------------------------------------
1999 1998 1997
-------- -------- --------
(dollars in thousands, except per share data)
Revenue
Rentals ............................................................... $ 72,977 $ 58,798 $ 50,745
Interest .............................................................. 984 739 629
Management fees ....................................................... 511 52 --
Equity in income (loss) of partnerships ............................... (716) (889) 643
-------- -------- --------
73,756 58,700 52,017
Expenses
Property operations (including $1,895 in 1998 and
$1,648 in 1997 to affiliates) ....................................... 37,763 32,963 28,596
Interest (including $360 in 1999 to affiliates) ....................... 21,458 16,599 12,602
Depreciation .......................................................... 10,645 7,349 7,022
Amortization of goodwill .............................................. 508 41 --
Advisory fee to affiliate ............................................. -- 1,048 1,438
General and administrative
Corporate (including $1,562 in 1998
and $1,411 in 1997 to affiliates) ................................. 5,687 3,095 2,091
Property ............................................................ 3,844 -- --
-------- -------- --------
79,905 61,095 51,749
-------- -------- --------
Income (loss) before net gain on sale of real estate, gain on sale of
investments, gain on insurance settlement,
litigation settlement, and extraordinary items ........................ (6,149) (2,395) 268
Net gain on sale of real estate ......................................... 11,969 2,108 4,350
Gain on sale of investments ............................................. -- 123 913
Gain on insurance settlement ............................................ 231 -- --
Litigation settlement ................................................... (350) -- --
-------- -------- --------
Income (loss) from continuing operations ................................ 5,701 (164) 5,531
Extraordinary items ..................................................... (444) (1,231) 61
-------- -------- --------
Net income (loss) ....................................................... $ 5,257 $ (1,395) $ 5,592
======== ======== ========
Other comprehensive income (loss):
Unrealized gains (losses) on marketable equity
securities ........................................................ 50 (100) 831
Realized gains on marketable equity securities ........................ -- (123) (698)
-------- -------- --------
Net income (loss) recognized in
other comprehensive income (loss) ..................................... 50 (223) 133
-------- -------- --------
Comprehensive income (loss) ............................................. $ 5,307 $ (1,618) $ 5,725
======== ======== ========
The accompanying notes are an integral part of these
Consolidated Financial Statements.
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30
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
For the Years Ended December 31,
-----------------------------------------------
1999 1998 1997
------------- ------------- -------------
(dollars in thousands, except per share data)
Earnings per share
Income (loss) from continuing operations ................ $ .69 $ (.02) $ .72
Extraordinary items ..................................... (.05) (.16) .01
------------- ------------- -------------
Net income (loss) ....................................... $ .64 $ (.18) $ .73
============= ============= =============
Weighted average shares of common stock
used in computing earnings per share .................. 8,220,280 7,619,604 7,693,031
============= ============= =============
Earnings per share - assuming dilution
Income (loss) from continuing operations ................ $ .68 $ (.02) $ .71
Extraordinary items ..................................... (.05) (.16) .01
------------- ------------- -------------
Net income (loss) ....................................... $ .63 $ (.18) $ .72
============= ============= =============
Weighted average shares of common stock used
in computing earnings per share - assuming dilution ... 8,327,120 7,619,604 7,769,296
============= ============= =============
The accompanying notes are an integral part of these
Consolidated Financial Statements.
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31
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Accumulated
Dividends Accumulated
Common Stock in Excess of Other
---------------------- Paid-in Accumulated Comprehensive Stockholders'
Shares Amount Capital Earnings Income (Loss) Equity
---------- -------- --------- ------------ ------------- -------------
(dollars in thousands)
Balance, December 31, 1996 ........................ 6,941,746 $ 10,579 $ 277,795 $(219,311) $ -- $ 69,063
Repurchase of common stock ........................ (95,490) (145) (603) -- -- (748)
Cash dividends ($0.38 per share) .................. -- -- -- (2,949) -- (2,949)
Stock dividends ................................... 664,179 1,012 4,446 (5,458) -- --
Net income recognized in other comprehensive income
(loss) ......................................... -- -- -- -- 133 133
Net income ........................................ -- -- -- 5,592 -- 5,592
---------- -------- --------- --------- ----- --------
Balance, December 31, 1997 ........................ 7,510,435 11,446 281,638 (222,126) 133 71,091
Repurchase of common stock ........................ (504,059) (685) (5,223) -- -- (5,908)
Adjustment for change in par value ................ -- (10,828) 10,828 -- -- --
Cash dividends ($0.41 per share) .................. -- -- -- (3,198) -- (3,198)
Stock dividends ................................... 142,937 108 1,581 (1,689) -- --
Common stock issued in connection with merger ..... 1,196,556 12 14,048 -- -- 14,060
Common stock issued in connection with
acquisition of TRA ............................. 100,000 1 2,116 -- -- 2,117
Stock options exercised ........................... 21,391 31 110 -- -- 141
Net (loss) recognized in other comprehensive income
(loss) ......................................... -- -- -- -- (223) (223)
Net (loss) ........................................ -- -- -- (1,395) -- (1,395)
---------- -------- --------- --------- ----- --------
Balance, December 31, 1998 ........................ 8,467,260 85 305,098 (228,408) (90) 76,685
Repurchase of common stock ........................ (490,737) (5) (5,692) -- -- (5,697)
Cash dividends ($0.42 per share) .................. -- -- -- (3,424) -- (3,424)
Stock options exercised ........................... 17,476 -- 122 -- -- 122
Net income recognized in other comprehensive income
(loss) ......................................... -- -- -- -- 50 50
Net income ........................................ -- -- -- 5,257 -- 5,257
---------- -------- --------- --------- ----- --------
Balance, December 31, 1999 ........................ 7,993,999 $ 80 $ 299,528 $(226,575) $ (40) $ 72,993
========== ======== ========= ========= ===== ========
The accompanying notes are an integral part of these
Consolidated Financial Statements.
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32
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
-----------------------------------------------------
1999 1998 1997
------------ ------------ -------------
(dollars in thousands)
Cash Flows from Operating Activities
Rentals collected............................................ $ 73,684 $ 59,108 $ 50,578
Interest collected........................................... 549 175 634
Interest paid (including $360 in 1999 to affiliates)......... (19,282) (16,610) (11,564)
Payments for property operations (including
$1,895 in 1998 and $1,648 in 1997 to affiliates)........... (34,632) (31,277) (29,886)
General and administrative expenses paid
(including $2,215 in 1998 and $1,914 in 1997
to affiliates)............................................ (9,769) (4,441) (2,134)
Advisory fee paid to affiliate............................... -- (1,154) (1,452)
Organizational costs paid.................................... -- (286) --
Litigation settlement........................................ (350) -- --
Deferred borrowing costs paid................................ (1,016) (2,982) (2,915)
------------ ------------ -------------
Net cash provided by operating activities.................. 9,184 2,533 3,261
------------ ------------ -------------
Cash Flows from Investing Activities
Acquisition of real estate .................................. (2,244) (5,495) (14,656)
Proceeds from sale of real estate............................ 9,353 2,099 6,378
Earnest money deposits refunded (paid)....................... 132 (307) (245)
Real estate improvements..................................... (22,899) (17,343) (27,349)
Collections of notes receivable.............................. 136 352 187
Investments in marketable equity securities.................. (372) (81) (2,462)
Proceeds from sale of marketable equity securities........... -- 580 2,606
Distributions from partnership's investing activities........ 2,688 -- --
Proceeds from sale of partnership interest................... -- -- 1,600
Cash and cash equivalents acquired in connection
with merger of Tarragon and NIRT
and acquisition of TRA..................................... -- 658 --
Net contributions and advances to partnerships............... (16,187) (24,291) (9,872)
------------ ------------ -------------
Net cash (used in) investing activities.................... (29,393) (43,828) (43,813)
------------ ------------ -------------
The accompanying notes are an integral part of these
Consolidated Financial Statements.
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33
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(dollars in thousands)
Cash Flows from Financing Activities
Proceeds from borrowings ...................................... $ 48,763 $ 79,586 $ 79,477
Payments on notes payable ..................................... (18,861) (41,977) (36,034)
Repair escrow deposits, net ................................... (1,255) (784) (847)
Dividends to stockholders ..................................... (3,517) (3,388) (2,105)
Distributions from partnerships' financing activities ......... 5,057 3,758 --
Repurchase of common stock .................................... (5,697) (5,893) (748)
Proceeds from the exercise of stock options ................... 122 28 --
Margin account borrowings (repayments), net ................... (1,696) 2,254 1,209
Advances (repayment of advances) from affiliates, net ......... (1,198) 5,891 --
-------- -------- --------
Net cash provided by financing activities ........................ 21,718 39,475 40,952
-------- -------- --------
Net increase (decrease) in cash and cash equivalents ............. 1,509 (1,820) 400
Cash and cash equivalents, beginning of year ..................... 2,442 4,262 3,862
-------- -------- --------
Cash and cash equivalents, end of year ........................... $ 3,951 $ 2,442 $ 4,262
======== ======== ========
Reconciliation of net income (loss) to net cash
provided by operating activities
Net income (loss) ........................................... $ 5,257 $ (1,395) $ 5,592
Net gain on sale of real estate ............................. (11,969) (2,108) (4,350)
Gain on sale of investments ................................. -- (123) (913)
Gain on insurance settlement ................................ (231) -- --
Write-off of deferred borrowing costs in connection
with refinancings ........................................ 444 431 299
Extraordinary gain on debt forgiveness ...................... -- -- (431)
Depreciation and amortization ............................... 13,380 8,587 7,938
Equity in (income) loss of partnerships ..................... 716 889 (643)
Interest on advances to partnerships ........................ (798) (566) --
Non-cash compensation related to stock options exercised .... 37 107 --
Changes in other assets and other liabilities, net of
effects of noncash investing and financing activities:
Decrease in interest receivable .......................... 364 3 5
Decrease (increase) in other assets ...................... 639 (4,802) (6,608)
Increase in other liabilities ............................ 806 1,673 1,962
Increase (decrease) in interest payable .................. 539 (163) 410
-------- -------- --------
Net cash provided by operating activities ........................ $ 9,184 $ 2,533 $ 3,261
======== ======== ========
The accompanying notes are an integral part of these
Consolidated Financial Statements.
33
34
TARRAGON REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended December 31,
--------------------------------
1999 1998 1997
-------- -------- --------
(dollars in thousands)
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Changes in assets and liabilities in connection with the
purchase of real estate:
Real estate ......................................... $ 11,961 $ 13,751 $ 30,762
Other assets ........................................ 366 1,157 416
Notes and interest payable .......................... (9,950) (9,030) (15,756)
Other liabilities ................................... (133) (383) (766)
-------- -------- --------
Cash paid ......................................... $ 2,244 $ 5,495 $ 14,656
======== ======== ========
Assets disposed of and liabilities released in
connection with the sale of real estate:
Real estate ......................................... $ 15,642 $ 2,283 $ 9,572
Other assets ........................................ 412 111 29
Notes and interest payable .......................... (15,062) (2,356) (7,493)
Other liabilities ................................... (385) (47) (134)
Net gain on sale .................................... 8,746 2,108 4,404
-------- -------- --------
Cash received ..................................... $ 9,353 $ 2,099 $ 6,378
======== ======== ========
Assets acquired and liabilities assumed in connection
with the merger of Tarragon and NIRT and the
acquisition of TRA:
Real estate ......................................... $ -- $ 38,988 $ --
Cash ................................................ -- 658 --
Other assets ........................................ -- 9,598 --
Notes, debentures, and interest payable ............. -- (29,260) --
Other liabilities ................................... -- (3,807) --
-------- -------- --------
Purchase consideration ............................ $ -- $ 16,177 $ --
======== ======== ========
Real estate written off pursuant to condemnation ....... $ -- $ -- $ 2,210
Note payable written off pursuant to the
condemnation of the collateral property ............. $ -- $ -- $ 1,725
Allowance for estimated losses charged off
in connection with the write-off of real estate ..... $ -- $ -- $ 485
The accompanying notes are an integral part of these
Consolidated Financial Statements.
34
35
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements of Tarragon Realty Investors,
Inc., its subsidiaries, and consolidated partnerships have been prepared in
conformity with generally accepted accounting principles ("GAAP"), the most
significant of which are described in NOTE 1. "SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES." The preparation of financial statements in accordance with GAAP
requires us to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates. 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
years then ended unless otherwise indicated. Dollar amounts in tables are in
thousands, except per share amounts. Certain balances for 1998 and 1997 have
been reclassified to conform to the 1999 presentation.
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Company business. Tarragon Realty Investors, Inc., is a Nevada
corporation incorporated April 2, 1997, and the successor in interest to
National Income Realty Trust ("NIRT") and Vinland Property Trust ("Vinland").
NIRT, a California business trust, was organized on October 31, 1978, and
commenced operations on March 27, 1979, investing in income-producing real
estate through acquisitions, leases, and partnerships. Vinland was a California
business trust established July 18, 1973, and commenced operations April 2,
1974. Vinland was formed to invest in commercial and multifamily real estate. In
July 1997, Vinland merged with Tarragon, its wholly-owned subsidiary.
Effective November 23, 1998, NIRT incorporated as a California corporation and
on November 24, 1998, merged with and into Tarragon, with Tarragon as the
survivor. Pursuant to the terms of the merger, each share of beneficial interest
of NIRT was converted into 1.97 shares of Tarragon common stock.
FOR ACCOUNTING PURPOSES, THE MERGER WAS TREATED AS A REVERSE ACQUISITION OF
TARRAGON BY NIRT USING THE PURCHASE METHOD OF ACCOUNTING, AND HISTORICAL
BALANCES AND OPERATING DATA OF TARRAGON FOR PERIODS PRIOR TO THE MERGER FOUND IN
THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES ARE THOSE OF NIRT. SHARE AND PER
SHARE INFORMATION HAS BEEN RESTATED RETROACTIVELY TO GIVE EFFECT TO THE 1.97 TO
1 EXCHANGE RATIO IN THE MERGER. REFERENCES TO TARRAGON IN RELATION TO DATES
PRIOR TO NOVEMBER 24, 1998, ARE INTENDED TO INCLUDE ITS PREDECESSORS, NIRT AND
VINLAND.
Immediately following the merger, Tarragon acquired Tarragon Realty Advisors,
Inc., our advisor since March 1, 1994, and NIRT's advisor since April 1, 1994,
from William S. Friedman and his wife, Lucy N. Friedman, for 100,000 shares of
Tarragon common stock and options to acquire 350,000 additional shares of our
common stock at prices ranging between $13 and $16 per share. William S.
Friedman is the President, Chief Executive Officer, and a Director of Tarragon
and also served as President, Chief Executive Officer, and a Trustee of NIRT and
as Director and Chief Executive Officer of Tarragon Realty Advisors. The
Friedman family owns approximately 34% of the outstanding shares of our common
stock. In addition to the options to acquire 350,000 additional shares received
in connection with the purchase of Tarragon Realty Advisors discussed above, Mr.
Friedman also holds options to acquire 450,000 additional shares of our common
stock at prices ranging between $12 and $15 per share.
35
36
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basis of consolidation. The Consolidated Financial Statements include the
accounts of Tarragon, its subsidiaries, and partnerships it controls. All
significant intercompany transactions and balances have been eliminated.
Real estate and depreciation. Real estate held for sale is carried at the lower
of cost or estimated fair value less estimated costs to sell. Real estate held
for investment is carried at cost unless an impairment is determined to exist,
as discussed below. Impaired properties are written down to their estimated fair
values. Foreclosed real estate is initially recorded at new cost, defined as the
lower of the note receivable carrying amount or the fair value of the collateral
property less estimated costs of sale. We capitalize property improvements and
major rehabilitation projects that increase the value of the respective property
and have useful lives greater than one year, except for individual expenditures
less than $10,000 that are not part of a planned renovation project. Under this
policy, during 1999, expenditures of $25.5 million were capitalized, including
$16.9 million related to development properties, and property replacements of
$2.3 million were expensed. Property replacements include, but are not limited
to, such items as landscaping, exterior painting, and parking lot improvements.
Depreciation is provided against real estate held for investment by the
straight-line method over the estimated useful lives of the assets, ranging from
three to 40 years.
We capitalize interest on funds used in constructing property from the date of
initiation of construction activities through the time the property is ready for
leasing. We also capitalize property taxes and insurance costs during the
construction period. Interest, property taxes, and insurance expenditures of
$509,000, $662,000, and $945,000 were capitalized during 1999, 1998, and 1997,
respectively.
We periodically evaluate whether events or changes in circumstances indicate
that the carrying value of any of our properties held for investment may not be
recoverable. This evaluation generally consists of a review of the property's
cash flow and current and projected market conditions, as well as any changes in
general and local economic conditions. If an impairment loss exists based on the
results of this review, a loss is recognized by a charge against current
earnings and a corresponding reduction in the respective asset's carrying value.
The amount of this impairment loss is equal to the amount by which the carrying
value of the property exceeds the estimated fair value.
At least annually, we review all properties held for sale, and we determine
whether the held for sale classification remains appropriate. The factors we
consider in determining whether a change in classification to held for
investment is appropriate include: (i) the property has been held for at least
one year; (ii) we have no intent to dispose of the property within the next
twelve months; (iii) the property is a "qualifying asset" as defined in the
Internal Revenue Code of 1986; (iv) property improvements have been funded; and
(v) our financial resources are such that the property can be held long-term.
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 our estimate of fair value less
estimated selling costs of the collateral securing the notes or the properties.
The provisions for losses are based on estimates, and actual losses may vary
from current estimates. The estimates are reviewed periodically. Any additional
provision we determine to be necessary or the reversal of any existing allowance
no longer required is recorded by a charge or credit to current earnings.
36
37
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Cash equivalents. We consider all highly liquid debt instruments purchased with
maturities of three months or less to be cash equivalents.
Restricted cash. Restricted cash represents escrow accounts, generally held by
the lenders of certain of our mortgage notes payable, for taxes, insurance, and
property repairs and replacements.
Other assets. Other assets consist primarily of notes and interest receivable,
marketable equity securities, tenant accounts receivable, deferred borrowing
costs, prepaid leasing commissions, and goodwill. Marketable equity securities
are considered to be available-for-sale and are carried at fair value, defined
as year end closing market value. Net unrealized holding gains and losses are
included in other comprehensive income (loss). Deferred borrowing costs are
amortized on the straight-line method (which approximates the effective interest
method) over the related loan terms, and such amortization is included in
interest expense. Prepaid leasing commissions are amortized to leasing
commission expense, included in property operating expenses, on the
straight-line method over the related lease terms. Goodwill was recorded in
connection with the acquisition of TRA and is being amortized on the
straight-line method over five years.
Revenue recognition on the sale of real estate. Gains on sales of real estate
are recognized when and to the extent permitted by Statement of Financial
Accounting Standards ("SFAS") No. 66. - "Accounting for Sales of Real Estate."
Until the requirements of SFAS No. 66 for full profit recognition have been met,
transactions are accounted for using the deposit, installment, cost recovery, or
financing method, whichever is appropriate.
Investments in noncontrolled partnerships. We use the equity method to account
for investments in partnerships we do not control. Under the equity method, our
initial investments are increased by our proportionate share of the
partnerships' operating income and additional advances and decreased by our
proportionate share of the partnerships' operating losses and distributions
received.
Earnings per share. Net income (loss) per share of common stock is computed
based upon the weighted average number of shares outstanding during each year.
All share and per share data have been restated to give effect to the merger of
Tarragon with NIRT on the basis of 1.97 shares of Tarragon common stock for each
share of beneficial interest of NIRT.
On December 31, 1997, we adopted SFAS No. 128 - "Reporting Earnings Per Share,"
which superseded the Accounting Principles Board's Opinion No. 15 ("APB No. 15")
- - "Earnings Per Share." This statement requires business enterprises with other
than simple capital structures to report both basic and diluted earnings per
share for each period for which a statement of operations is presented. There
was neither a cumulative effect nor any impact on our financial position as a
result of the adoption.
37
38
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair value of financial instruments. SFAS No. 107 - "Disclosures About Fair
Value of Financial Instruments" requires us to disclose the estimated fair
values of our financial instrument assets and liabilities.
Disclosure about fair value of financial instruments is based on pertinent
information available to us as of December 31, 1999 and 1998. Considerable
judgment is necessary to interpret market data and develop estimated fair
values. The use of different market assumptions and/or estimation methodologies
may have a material effect on the estimated fair values. For these reasons, the
estimated fair values presented may differ significantly from the actual amounts
we may realize or pay.
As of December 31, 1999 and 1998, we estimate that the carrying amounts for cash
and cash equivalents and restricted cash approximate fair value because of the
short maturities of those instruments. In addition, the carrying amounts of
notes receivable and other liabilities approximate fair value. The fair values
of notes payable are estimated by discounting future expected cash flows using
current rates for loans with similar terms and maturities. See NOTE 6. "NOTES,
DEBENTURES, AND INTEREST PAYABLE" for the disclosure of fair values of notes
payable.
Stock option plans. We measure any compensation costs associated with the issue
of stock options using the guidance provided by APB No. 25. Under APB No. 25,
compensation costs related to stock options issued pursuant to compensatory
plans are measured based on the difference between the quoted market price of
the stock at the measurement date (ordinarily the date of grant) and the
exercise price and should be charged to expense over the periods during which
the grantee performs the related services. All stock options issued to date have
exercise prices equal to the market price of the stock at the dates of grant.
See NOTE 9. "STOCK OPTIONS."
Recent Accounting Pronouncements. On January 1, 1998, we adopted SFAS No. 130 -
"Reporting Comprehensive Income." SFAS No. 130 requires the reporting of
comprehensive income in addition to net income from operations. Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of certain financial information that historically has not been
recognized in the calculation of net income. Accumulated other comprehensive
income (loss) presented in the accompanying Consolidated Balance Sheets and
Consolidated Statements of Stockholders' Equity represents unrealized holding
gains and losses on marketable equity securities.
On December 31, 1998, we adopted SFAS No. 131 - " Disclosures about Segments of
an Enterprise and Related Information." The provisions of this pronouncement had
no effect on our financial statements as we consider rental real estate to be
our only operating segment and manage our business accordingly.
38
39
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2. ALLOWANCE FOR ESTIMATED LOSSES AND PROVISIONS FOR LOSSES
Activity in the allowance for estimated losses was as follows:
1999 1998
--------- -------
Balance January 1................ $ 1,194 $ 1,194
Amounts charged off.............. (38) -
--------- -------
Balance December 31.............. $ 1,156 $ 1,194
========= =======
Amounts charged off in 1999 relate to the sale of a tract of land in Orangeburg,
South Carolina.
NOTE 3. REAL ESTATE AND DEPRECIATION
Thirteen properties (comprised of nine apartment complexes with 1,293 units and
four commercial properties with 234,407 square feet) were added to our portfolio
in connection with the November 1998 merger of Tarragon and NIRT. The bases of
the properties were determined by allocating the purchase consideration based on
the properties' relative fair values. The following table depicts the 13
properties consolidated effective with the merger. In 1999, the two properties
classified as held for sale below were sold. See discussion below.
Acquisition Costs
Square -----------------
Property Location Units Footage Basis Debt
- ------------------- --------------- ------- ---------- ------- -------
PROPERTIES HELD FOR INVESTMENT
Apartments
Aspentree Dallas, TX 296 212,864 $ 4,382 $ 3,839
The Brooks Addison, TX 104 94,176 2,788 1,282
Collegewood Tallahassee, FL 162 83,700 2,779 2,020
French Villa Tulsa, OK 101 104,720 2,233 1,882
Holly House North Miami, FL 57 45,417 1,987 1,760
Mission Trace Tallahassee, FL 96 104,400 2,815 2,060
Riverside Austin, TX 145 110,868 3,950 4,163
Southern Elms Tulsa, OK 78 65,159 1,520 1,311
------- ---------- ------- -------
1,039 821,304 22,454 18,317
------- ---------- ------- -------
Commercial
Briarwest Houston, TX -- 25,323 1,874 1,679
Park 20 West Tallahassee, FL -- 69,065 3,442 1,884
Tarzana Towne Plaza Tarzana, CA -- 37,208 3,355 2,924
------- ---------- ------- -------
-- 131,596 8,671 6,487
------- ---------- ------- -------
PROPERTIES HELD FOR SALE
Apartments
Phoenix Tulsa, OK 254 208,726 1,966 --
Commercial
One Turtle Creek Dallas, TX -- 102,811 5,897 1,820
------- ---------- ------- -------
254 311,537 7,863 1,820
------- ---------- ------- -------
1,293 1,264,437 $38,988 $26,624
======= ========== ======= =======
39
40
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. REAL ESTATE AND DEPRECIATION (Continued)
During 1999, 1998 (prior to the merger), and 1997, we purchased eight
multifamily properties with an aggregate 1,149 units and three commercial
properties with 253,796 square feet, as presented below. In connection with
these acquisitions, we paid Tarragon Realty Advisors real estate acquisition
fees totaling $393,000 and a financing fee of $20,000 prior to the acquisition
of Tarragon Realty Advisors. These properties are located in the same geographic
areas where we currently operate and were acquired in separate transactions from
unaffiliated sellers.
Cost of Acquisition
Date Square -------------------
Property Location Acquired Units Footage Cash Debt
- -------------------- ---------------- --------- ------- --------- -------- --------
1999 Acquisition:
Orlando Central Park Orlando, FL May-99 -- 138,574 $ 1,701 $ 8,000
1998 Acquisitions:
Desert Winds Jacksonville, FL Jun-98 152 121,056 603 1,375
Palm Grove Orlando, FL Jun-98 142 99,684 447 1,333
Silver Creek Jacksonville, FL Jun-98 152 144,240 490 1,312
1505 Hwy 6 Houston, TX Oct-98 -- 62,934 1,695 2,000
------- --------- ------- -------
446 427,914 3,235 6,020
------- --------- ------- -------
1997 Acquisitions:
Morningside Jacksonville, FL Feb-97 112 89,200 521 1,641
Newport Plantation, FL Jun-97 152 139,364 1,526 5,058
Fountainhead Kissimmee, FL Jun-97 184 172,578 7,690 --
Courtyard at the Park Miami, FL Jul-97 127 117,250 728 2,973
Mariner Plaza Tallahassee, FL Aug-97 -- 52,288 1,458 --
Landmark Tallahassee, FL Oct-97 128 113,720 1,822 --
------- --------- ------- -------
703 684,400 13,745 9,672
------- --------- ------- -------
1,149 1,250,888 $18,681 $23,692
======= ========= ======= =======
In October 1999, we purchased a 115-acre tract of land in Fort Worth, Texas, for
$2.7 million, $2 million of which was financed with a mortgage. The 43-acre
tract of land in Fort Worth, Texas, purchased in 1998, was pledged as additional
collateral on this mortgage.
In March 1998, we completed reconstruction and expansion of The Vistas at Lake
Worth in Fort Worth, Texas, to 265 apartment units at a cost of $16.5 million.
Initial operations at the property began in December 1997.
In April 1998, we purchased a 43-acre tract of land adjacent to The Vistas at
Lake Worth in Fort Worth, Texas, for $707,000, including an acquisition fee to
Tarragon Realty Advisors of $7,000. We plan to build a luxury apartment
community known as The Observatory on a portion of this tract and develop the
balance for sale as single family home lots. In May 1998, we purchased a 33-acre
tract of land in Frisco, Texas, for $4.5 million, paying $1.6 million in cash
and financing the remainder with a short-term mortgage. In connection with this
transaction, we paid Tarragon Realty Advisors an acquisition fee of $45,000 and
a financing fee of $30,000. Construction is presently underway on a portion of
the site for a 320-unit luxury apartment community known as The Vintage at
Legacy.
We added 300 units to our multifamily portfolio in July 1997 when we acquired an
additional 40% interest in English Village Partners, L.P., for $1 million. As we
now hold a 90% interest in the partnership, the operations of English Village
Apartments, located in Memphis, Tennessee, and subject to a mortgage with a
December 31, 1999, balance of $5.8 million, have been consolidated since July
1997.
40
41
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. REAL ESTATE AND DEPRECIATION (Continued)
In January 1999, we sold part of the University Center parking lot for $575,000
receiving cash of $557,000 and recognizing a gain of $338,000.
In April 1999, we sold the K-Mart Shopping Center in Thomasville, Georgia, for
$1.6 million and the Phoenix Apartments for $2.7 million, recognizing gains
totalling $418,000. We received cash of $2.9 million after paying closing costs
and the mortgage on K-Mart.
In May 1999, we sold One Turtle Creek Office Complex for $9.7 million,
recognizing a gain of $3.2 million based on a post-merger carrying value of $5.9
million. This property had been purchased in March 1992 by Vinland. The carrying
value of the property was $4.1 million before the November 1998 merger of
Tarragon with NIRT. We received cash of $3.2 million after paying closing costs
and the mortgage.
Also in May 1999, we sold about 40% of our K-Mart Shopping Center in Charlotte,
North Carolina, for $1.1 million, recognizing a gain of $326,000. As part of
this sale, the $1.2 million mortgage on the entire property was paid off, which
required $156,000 in addition to the proceeds of the sale.
In August 1999, we sold Woodcreek Apartments in Denver, Colorado, for $7
million, receiving cash of $2 million and recognizing a gain of $4.3 million.
In September 1999, we sold a parcel of land in Orangeburg, South Carolina, for
$93,000, receiving cash of $85,000. In connection with this sale, no loss was
recognized in excess of amounts previously recognized.
In October 1999, we sold Woodbrier Apartments for $3 million, recognizing a gain
of $200,000. We received net cash proceeds of $778,000 after the mortgage payoff
and closing costs.
We sold Mountain View Shopping Center in Las Vegas, Nevada, and Spring Pines
Apartments in Houston, Texas, during 1998 for an aggregate sale price of $4.7
million, receiving net cash proceeds of $2.1 million and recognizing gains on
the sales totaling $2.1 million.
We sold Plaza Hills Apartments in Kansas City, Missouri, Huntington Green
Apartments in Philadelphia, Pennsylvania, and Pheasant Pointe Apartments in
Sacramento, California, during 1997 for an aggregate sale price of $14 million,
receiving net cash proceeds of $6.4 million and recognizing gains on the sales
totaling $4.4 million.
In November 1995, the city of Indianapolis, Indiana, initiated condemnation
proceedings against our K-Mart Shopping Center acquired through a deed in lieu
of foreclosure in December 1994. The shopping center was vacant at the time we
acquired it, although leased to K-Mart under a net lease expiring in 1999. The
lease was assigned by K-Mart to the city of Indianapolis in September 1995. In
March 1996, we ceased payments on the $1.7 million non-recourse mortgage loan
secured by the shopping center. In March 1997, we wrote off the property and
related debt. No loss was recognized in excess of amounts previously provided.
41
42
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 3. REAL ESTATE AND DEPRECIATION (Continued)
Properties we believe have peaked in value or can no longer operate efficiently
within our portfolio have been placed on the market for sale. The following
table summarizes properties reclassified from held for investment to held for
sale since the beginning of 1997. We ceased depreciating the properties in the
month following their reclassification.
Date
Reclassified Number of Commercial Net Carrying
To Held Number of Apartment Square Value at
For Sale Properties Units Footage Reclassification
-------------- ---------- ---------- ---------- ----------------
(in millions)
Mar-98 12 3,406 -- $ 56.8
Sep-98 1 136 -- 1.6
Sep-98 3 -- 216,777 7.7
Dec-98 2 360 -- 5.1
Dec-98 1 -- 39,600 1.6
Jun-99 2 -- 253,336 13.4
Sep-99 1 128 -- 2.6
Conversely, Tarragon has identified certain properties previously classified as
held for sale and reclassified them to held for investment. Tarragon made the
decision not to pursue selling these properties due to the availability of
favorable long term fixed rate financing. The following table summarizes
properties reclassified from held for sale to held for investment since the
beginning of 1997. We resumed depreciating these properties in the month
following their reclassification, and depreciation expense was adjusted to
record depreciation for the period of time the properties were classified as
held for sale.
Date Date
Reclassified Reclassified Number of Commercial Net Carrying
To Held for To Held Number of Apartment Square Value at
Investment For Sale Properties Units Footage Reclassification
-------------- -------------- ---------- --------- ----------- ----------------
(in millions)
Sep-98 Mar-98 2 320 - $ 5.7
Mar-99 Mar-98/Dec-98 4 740 - 13.3
Jun-99 Mar-98 3 424 - 7.3
Jun-99 Sep-98 1 - 72,065 3.0
Sep-99 Mar-98 1 299 - 4.5
Dec-99 Mar-98 1 224 - 2.2
The estimated fair values of the properties summarized above exceeded their
carrying values at the time of determination to reclassify, so no losses were
recognized upon their reclassification. At December 31, 1999, we have 13
properties with an aggregate net carrying value of $52.9 million classified as
held for sale. Results of operations for the years ended December 31, 1999,
1998, and 1997, for properties held for sale as of December 31, 1999, were $1.8
million, $2.4 million, and $1.5 million, respectively. Operations for these
properties include rental revenue, property operating expenses, interest
expense, and depreciation expense (prior to their reclassification to held for
sale). For a listing of properties held for sale at December 31, 1999, see
Schedule III.
42
43
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS
Investments in and advances to partnerships consisted of the following at
December 31:
1999 1998
--------- --------
801 Pennsylvania Avenue.......................... $ 23 $ 10
Ansonia Apartments, L.P.......................... 20,752 13,383
Antelope Pines Estates, L.P...................... 415 109
Calistoga Ranch Owners, L.L.C.................... 400 --
Danforth National Apartments, Ltd................ 818 2,695
Lake Lotta Apartments, L.L.C..................... 850 --
Larchmont Associates, L.P........................ 1,929 1,837
Merritt 8 Acquisitions, L.L.C.................... 2,582 --
National Omni Associates, L.P.................... 5,874 5,902
Orange National Partners, Ltd.................... 4,009 4,203
RI Panama City, Ltd.............................. 754 1,460
RI Windsor, Ltd.................................. 384 2,898
Sacramento Nine.................................. 1,094 555
Stone Creek Associates I, L.L.C.................. -- --
Tarragon Huntsville Apartments, L.L.C............ 765 677
Tarragon Savannah I, L.P......................... 195 2,511
Tarragon Savannah II, L.P........................ 990 --
Tarragon Stoneybrook Apartments, L.L.C........... 5,918 209
Woodcreek Garden Apartments, L.P................. 1,082 907
-------- -------
$ 48,834 $37,356
======== =======
We hold noncontrolling interests in each of the above partnerships as the
outside partners participate in the decision-making activities of the
partnerships. Therefore, we account for our investments in these partnerships
using the equity method.
Partnerships with affiliates of Robert C. Rohdie
In 1997, 1998 and 1999, we formed nine partnerships with affiliates of Robert C.
Rohdie. These partnerships include Danforth National Apartments, Ltd., Lake
Lotta Apartments, L.L.C., Orange National Partners, Ltd., RI Panama City, Ltd.,
RI Windsor, Ltd., Tarragon Huntsville Apartments, L.L.C., Tarragon Savannah I,
L.P., Tarragon Savannah II, L.P., and Tarragon Stoneybrook Apartments, L.L.C.
Except for Danforth, we hold 50% interests in each of these partnerships. We
hold an 80% interest in Danforth. Each of these partnerships was formed to
construct, own, and operate a luxury apartment community in Florida, Georgia, or
Alabama. These properties, with an aggregate 2,273 units, are in various stages
of construction and/or lease-up. Generally, the partnerships obtained
construction loans (guaranteed by Mr. Rohdie) to finance the construction. The
remaining costs were primarily funded by interest-bearing priority loans from
Tarragon. We have made capital contributions to these partnerships of $827,000,
and the aggregate balance of unpaid interest-bearing priority loans at December
31, 1999, is $17.3 million. In 1997, in connection with the acquisition of the
land on which The Club at Danforth was constructed, Danforth paid an acquisition
fee of $30,000 to Tarragon Realty Advisors.
43
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TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS (Continued)
In February 2000, we effectively acquired Mr. Rhodie's interests in these
partnerships. See NOTE 19. "SUBSEQUENT ACQUISITION OF JOINT VENTURE INTERESTS."
Ansonia Apartments, L.P.
In December 1997, we formed Ansonia Apartments, L.P., with two unrelated
entities to invest in the renovation and repositioning of older, suburban
apartment properties in central and eastern Connecticut. We formed this
partnership to take advantage of the acquisition and management skills of Robert
Rothenberg, Saul Spitz, Richard Frary, and Joel Mael, the principals of our
outside partners. Tarragon has a 70% interest in this partnership. The outside
partners have a 30% interest in the partnership, subject to their obligation to
pay Tarragon 30% of the amounts it contributed to the partnership plus interest.
Between December 1997 and November 1999, Ansonia purchased sixteen operating
properties with 2,580 apartment units at an aggregate cost of $84 million, $67.5
million of which was financed through mortgages on each property. The remainder
of the aggregate purchase price was paid with funds Tarragon contributed to
Ansonia. Our contributions, with a balance of $16.7 million at December 31,
1999, earn a preferred return and will be repaid through preferential returns
from operation, refinancing, sale, or other disposition of the properties. In
connection with the acquisition and financing of these properties, Ansonia paid
Tarragon Realty Advisors fees of $38,000 in 1997 and $54,000 in 1998.
Antelope Pines Estates, L.P., and Woodcreek Garden Apartments, L.P.
In December 1998, we purchased a 49% general partner interest in Antelope Pines
Estates, L.P., which owns a 314-unit operating apartment property and in
Woodcreek Garden Apartments, L.P., which owns a 416-unit operating apartment
property, both located in Lancaster, California. We have made investments in and
advances to the partnerships of $1.5 million, which are expected to be repaid
from operations, refinancing, sale, or other disposition of the properties,
subject to preferential returns to the other partners.
Calistoga Ranch Owners, L.L.C.
In October 1999, Tarragon contributed $400,000 to the partnership and acquired a
4% interest. The partnership will acquire Calistoga Ranch Resort, a luxury
residential development with resort-type amenities on approximately 167 acres in
Napa County, California. Tarragon has agreed to lend up to $2 million to
Calistoga to consummate the closing of the purchase. For each $100,000 of the
loan amount, Tarragon will receive an additional 1% interest in the partnership.
801 Pennsylvania Avenue
In June 1995, we acquired a 50% economic interest in an office building located
at 801 Pennsylvania Avenue, Washington, D.C. This interest was acquired through
purchase of a first lien mortgage note with a face value of $8.5 million for $3
million. In accordance with the terms of the note, our $3 million investment, as
well as any additional advances made to the property, were to be repaid from
property cash flow after operating expenses, with interest at a rate of 11% per
annum. The $5.5 million remaining balance of the note plus accrued interest was
to be satisfied by payment of 50% of all funds available after property
operating expenses plus 50% of the proceeds from any sale or refinancing. In
June 1998, new first mortgage financing in the amount of $4.2 million secured by
the property was obtained. We received $3.8 million of the financing proceeds,
$2.9 million of which represented the balance of our original investment,
$606,000 of which was accrued interest, and $267,000 was our 50% participation
in excess financing proceeds.
44
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TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS (Continued)
Larchmont Associates, L.P.
We hold a 57% interest in Larchmont Associates, L.P., which owns a 504-unit
apartment complex in Toledo, Ohio. The Larchmont interest was initially acquired
by Vinland in December 1995 in return for a cash investment of $418,000. Since
then, additional advances have been made to Larchmont, largely to fund capital
improvements. The $1.9 million aggregate balance is expected to be repaid with
interest at 18% from the operation, refinancing, sale, or other disposition of
the property.
Merritt 8 Acquisitions, L.L.C.
In August 1999, Tarragon acquired an 80% interest in Merrit 8 with an investment
of $2.6 million. The partnership purchased Merritt 8 Corporate Park, a 160,000
square foot office building in Stratford, Connecticut, at a cost of $20 million
of which $18 million was paid from a mortgage on the property. The members of
Merritt 8 had a contract to acquire for $500,000 an adjacent 19 acre parcel for
future development. In January 2000, the members formed Merritt Stratford,
L.L.C., and purchased the land.
National Omni Associates, L.P.
In December 1997, we formed Omni in which we held a 55% interest. Omni purchased
5600 Collins Avenue, a 289-unit high rise waterfront apartment building in Miami
Beach, Florida, in February 1998 and paid Tarragon Realty Advisors a $150,000
acquisition fee. The purchase price of $32 million was partially funded through
$26 million of first and second lien loans. The remainder of the purchase price
was paid with funds Tarragon contributed. In connection with the merger, our
interest increased to 70%. Our investment balance of $5.9 million at December
31, 1999, is to be repaid with interest at rates between 10% and 18% through
preferential returns from operation, refinancing, sale, or other disposition of
the property. In February 2000, we acquired our partner's interest in Omni. See
Note 18. "SUBSEQUENT EVENTS."
Sacramento Nine ("SAC 9")
Tarragon and Transcontinental Realty Investors, Inc., (successor by merger to
Continental Mortgage and Equity Trust) are partners in SAC 9, a
tenancy-in-common that owned two office buildings in the vicinity of Sacramento,
California. Tarragon has a 70% undivided interest in SAC 9. In December 1999,
SAC 9 sold one of its two properties. Tarragon recognized a gain on sale of $3.2
million and received $2.7 million in cash.
Stone Creek Associates I, L.L.C.
In December 1999, Tarragon acquired a 72% interest in Stone Creek. The
partnership will own and operate an apartment complex in Sacramento, California.
Tarragon is obligated to contribute about $1.5 million to the partnership, and
about $1 million was contributed in January 2000 when the partnership acquired
the property. Tarragon's interest will decline to 56% after receiving
distributions that repay its contribution with a preferred return of 15%.
Other partnerships
Until July 1997, we held a 50% interest in English Village Partners, L.P., at
which time we acquired an additional 40% interest in English Village, increasing
our total interest to 90%, in exchange for a capital contribution of $1 million.
As we now hold a controlling interest, the operations of English Village, have
been consolidated since July 1997. See NOTE 3. "REAL ESTATE AND DEPRECIATION."
45
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TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS (Continued)
Until November 1997, we had a 40% interest in Indcon, L.P., which owned
industrial warehouses. In August 1997, Indcon sold a warehouse for $60,000
receiving net cash proceeds of $54,000 of which our proportionate share was
$22,000. In connection with the sale, Indcon recorded a loss on the sale
totaling $134,000, and we recorded a $54,000 loss representing our proportionate
share of the loss on sale. In November 1997, we sold our interest in the
partnership for $1.6 million cash. In connection with this sale, we recognized a
gain of $215,000.
Below are summarized financial data for the partnerships accounted for using the
equity method as of and for the periods indicated (unaudited):
Other
December 31, 1999 Other Construction/
Ansonia Danforth Omni Windsor Operating Lease-Up Other Total
-------- -------- -------- -------- --------- ------------- -------- ---------
Real estate ................... $ 96,429 $ 16,200 $ 33,355 $ 18,794 $ 70,299 $ 65,231 $ 844 $ 301,152
Accumulated depreciation ...... (2,543) (792) (1,379) (1,159) (2,972) (1,517) -- (10,362)
Other assets .................. 2,492 305 748 420 3,116 1,139 -- 8,220
Notes and interest payable .... (73,739) (15,028) (26,050) (18,830) (53,806) (52,011) -- (239,464)
Other liabilities ............. (5,343) (2,992) (1,595) (1,727) (3,864) (15,097) (844) (31,462)
-------- -------- -------- -------- -------- -------- -------- ---------
Partners' capital (deficit) ... $ 17,296 $ (2,307) $ 5,079 $ (2,502) $ 12,773 $ (2,255) $ -- $ 28,084
======== ======== ======== ======== ======== ======== ======== =========
Our proportionate share of
capital (deficit) .......... $ 17,296 $ (1,845) $ 5,079 $ (1,194) $ 4,357 $ (814) $ -- $ 22,879
Advances ...................... 3,456 2,663 795 1,578 2,768 13,930 765 25,955
-------- -------- -------- -------- -------- -------- -------- ---------
Investments in and advances to
partnerships ............... $ 20,752 $ 818 $ 5,874 $ 384 $ 7,125 $ 13,116 $ 765 $ 48,834
======== ======== ======== ======== ======== ======== ======== =========
Year ended December 31, 1999
Rental revenue ................ $ 12,863 $ 1,889 $ 4,466 $ 2,487 $ 10,408 $ 4,405 $ -- $ 36,518
Property operating expenses ... (6,381) (941) (2,236) (1,090) (4,784) (2,167) -- (17,599)
Interest expense .............. (4,221) (1,078) (2,049) (1,365) (3,167) (2,333) -- (14,213)
Depreciation expense .......... (1,869) (596) (765) (773) (1,584) (1,288) -- (6,875)
-------- -------- -------- -------- -------- -------- -------- ---------
Income (loss) before gain
on sale of real estate ..... 392 (726) (584) (741) 873 (1,383) -- (2,169)
Gain on sale of real estate ... -- -- -- -- 4,608 -- -- 4,608
-------- -------- -------- -------- -------- -------- -------- ---------
Net income (loss) ............. $ 392 $ (726) $ (584) $ (741) $ 5,481 $ (1,383) $ -- $ 2,439
======== ======== ======== ======== ======== ======== ======== =========
Equity in income (loss) of
partnerships ............... $ 386 $ (282) $ (584) $ (342) $ 677 $ (571) $ -- $ (716)
======== ======== ======== ======== ======== ======== ======== =========
Our proportionate share of gain
on sale of real estate ..... $ -- $ -- $ -- $ -- $ 3,226 $ -- $ -- $ 3,226
======== ======== ======== ======== ======== ======== ======== =========
December 31, 1998
Real estate ................... $ 69,271 $ 15,949 $ 32,576 $ 18,688 $ 18,420 $ 35,280 $ 35,874 $ 226,058
Accumulated depreciation ...... (675) (196) (614) (387) (3,721) (227) -- (5,820)
Other assets .................. 1,472 430 853 205 864 698 833 5,355
Notes and interest payable .... (54,530) (13,295) (26,050) (15,962) (13,102) (27,030) (26,500) (176,469)
Other liabilities ............. (2,163) (3,809) (935) (3,765) (2,597) (8,676) (2,099) (24,044)
-------- -------- -------- -------- -------- -------- -------- ---------
Partners' capital (deficit) ... $ 13,375 $ (921) $ 5,830 $ (1,221) $ (136) $ 45 $ 8,108 $ 25,080
======== ======== ======== ======== ======== ======== ======== =========
Our proportionate share of
capital (deficit) .......... $ 13,375 $ (744) $ 5,830 $ (611) $ 945 $ 221 $ 119 $ 19,135
Advances ...................... 8 3,439 72 3,509 1,457 7,953 1,783 18,221
-------- -------- -------- -------- -------- -------- -------- ---------
Investments in and advances to
partnerships ............... $ 13,383 $ 2,695 $ 5,902 $ 2,898 $ 2,402 $ 8,174 $ 1,902 $ 37,356
======== ======== ======== ======== ======== ======== ======== =========
46
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TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 4. INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS (Continued)
Other
Year ended December 31, 1998 Other Construction/
Ansonia Danforth Omni Windsor Operating Lease-Up Other Total
-------- -------- -------- -------- --------- ------------- -------- ---------
Rental revenue ................ $ 5,558 $ 419 $ 3,945 $ 1,338 $ 2,496 $ 1,088 $ -- $ 14,844
Property operating expenses ... (2,762) (384) (2,163) (1,071) (751) (621) -- (7,752)
Interest expense .............. (1,788) (776) (1,931) (1,496) (562) (898) -- (7,451)
Depreciation expense .......... (668) (196) (614) (348) (449) (228) -- (2,503)
------- ----- ------- ------- ------- ------- ---- --------
Net income (loss) ............. $ 340 $(937) $ (763) $(1,577) $ 734 $ (659) $ -- $ (2,862)
======= ===== ======= ======= ======= ======= ==== ========
Equity in income (loss) of
partnerships ............... $ 340 $(750) $ (648) $ (789) $ 1,362 $ (404) $ -- $ (889)
======= ===== ======= ======= ======= ======= ==== ========
Year ended December 31, 1997 Other
Windsor Operating Total
------- --------- -------
Rental revenue ...................... $ 225 $ 3,598 $ 3,823
Property operating expenses ......... (79) (1,340) (1,419)
Interest expense .................... (180) (649) (829)
Depreciation expense ................ (38) (481) (519)
----- ------- -------
Income (loss) before loss on sale
of real estate ................... (72) 1,128 1,056
Loss on sale of real estate ......... -- (134) (134)
----- ------- -------
Net income (loss) ................... $ (72) $ 994 $ 922
===== ======= =======
Equity in income (loss) of
partnerships ..................... $ (36) $ 679 $ 643
===== ======= =======
Our proportionate share of loss
on sale of real estate ........... $ -- $ (54) $ (54)
===== ======= =======
"Other Operating" partnerships include those with fully operational properties.
"Construction/lease-up" partnerships include those with properties under
construction or recently completed. "Other" in 1999 and 1998 includes one
property held for future development, and in 1998 also includes one partnership
that began construction of its property in 1999, and two partnerships with one
property each that began operations in 1999. Equity in income of "Other
Operating" partnerships for the year ended December 31, 1998, includes $873,000
received from the refinancing of 801 Pennsylvania Avenue, as described above,
representing accrued interest on our original investment and additional advances
plus a 50% participation in the excess financing proceeds. Interest, property
taxes, and insurance expenditures of $2.2 million, $1.7 million and $631,000 in
1999, 1998, and 1997, respectively, were capitalized on properties constructed
by partnerships we account for using the equity method.
47
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TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5. INVESTMENTS IN MARKETABLE EQUITY SECURITIES
Investments in marketable equity securities consist of securities of
unaffiliated real estate companies and are available for sale. The investments
are carried at fair value and are included in "Other assets" in the accompanying
Consolidated Balance Sheets. Unrealized holding gains and losses are included in
other comprehensive income (loss).
Carrying value and cost basis of investments in marketable equity securities
were as follows:
December 31,
---------------
1999 1998
----- -----
Carrying value......................... $510 $88
Cost basis............................. 550 178
Unrealized holding gains and losses, securities sold, and realized gains on the
sale of marketable equity securities were as follows:
For the Years Ended December 31,
--------------------------------
1999 1998 1997
------ ------ -------
Unrealized holding gains .............................. $50 $ -- $ 831
Unrealized holding losses ............................. -- (100) --
Marketable equity securities sold ..................... -- 580 2,606
Cost basis of marketable equity securities sold ....... -- 457 1,908
Realized gains on sale marketable equity securities ... -- 123 698
NOTE 6. NOTES, DEBENTURES, AND INTEREST PAYABLE
Notes, debentures, and interest payable consisted of the following at December
31:
1999 1998
-------------------------- -------------------------
Estimated Estimated
Fair Book Fair Book
Value Value Value Value
------------- --------- ----------- -----------
Mortgage notes payable ........................... $ 270,961 $ 273,857 $ 249,381 $ 251,141
Other notes payable............................... 10,950 10,950 9,399 9,590
Debentures payable................................ 892 928 873 928
Accrued interest ................................. -- 2,032 -- 1,702
------------ --------- ----------- -----------
$ 282,803 $ 287,767 $ 259,653 $ 263,361
============ ========= =========== ===========
Notes payable at December 31, 1999, bear interest at fixed rates from 5.99% to
9.81% per annum and variable rates currently ranging from 5.69% to 10.5% and
mature from 2000 through 2031. The mortgage notes are generally nonrecourse and
are collateralized by deeds of trust on real estate with an aggregate carrying
value of $292.8 million.
48
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TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6. NOTES, DEBENTURES, AND INTEREST PAYABLE (Continued)
Debentures are unsecured, bear interest at 9% per annum, mature June 30, 2003,
and are redeemable at any time at 100% of the principal amount together with
accrued but unpaid interest. Interest is payable semiannually in June and
December. Debentures were issued in 1993 by Vinland in connection with a
dividend to stockholders.
Other notes payable at December 31, 1999, include $5.1 million due to affiliates
of Mr. Friedman. See NOTE 12. "RELATED PARTY TRANSACTIONS." Other notes payable
also include $6.7 million obtained through line of credit facilities closed in
1999 as discussed below.
At December 31, 1999, scheduled principal payments on notes and debentures
payable are due as follows:
2000.................. $ 81,311
2001.................. 40,595
2002.................. 7,138
2003.................. 5,898
2004.................. 11,853
Thereafter............ 138,940
---------
$ 285,735
=========
We intend to either pay off the loans as they come due or extend the due dates
while seeking to obtain long term refinancing. Of the principal payments due in
2000, $39.8 million represents amounts due under the $50 million revolving
credit facility, which has two six-month extension options. We have extended a
$1.1 million loan, scheduled to mature in 2000, to May 2001 and a $6.9 million
loan, included in 2000 scheduled principal payments, to February 2003. We paid
off a $2.4 million loan, scheduled to mature in 2000, in connection with the
sale of a portion of Rancho Sorrento Office Building in January 2000. We believe
we can arrange new financing as needed but cannot assure that we will be
successful in our efforts or that the timing of new financing will coincide with
the due dates of maturing loans.
During 1999, 1998, and 1997, we obtained permanent mortgage financing on 31
properties totaling $115.8 million, receiving net cash proceeds of $44.4 million
after the payoff of $61.5 million in existing debt. The remainder of the
financing proceeds was used to fund escrows for replacements and repairs and to
pay the associated closing costs. In connection with these financings, we paid
fees of $708,000 to Tarragon Realty Advisors.
During 1999, 1998, and 1997, we obtained interim financing secured by three
properties totaling $11.6 million (excluding fundings under the $50 million and
$35 million revolving credit facilities discussed below), receiving net cash
proceeds of $11.1 million. In connection with these financings, we paid fees of
$89,000 to Tarragon Realty Advisors. One of these properties was refinanced in
1998 with a funding under the $35 million revolving credit facility discussed
below.
In April 1999, Tarragon obtained a $6 million line of credit, secured by
treasury shares of Tarragon common stock valued at no less than two times the
outstanding balance of the line of credit. Some of the shares of common stock
were pledged by the family of Mr. Friedman as an accommodation to Tarragon, and
the remaining were treasury shares. As of December 31, 1999, we have replaced
the shares pledged by the Friedman family with treasury shares purchased under
our stock repurchase program. Advances under the line of credit bear interest at
the 30-day LIBOR plus 1.75% per annum. Terms of the line of credit require
monthly payments of interest only, with the principal due in April 2001. We
received $2.2 million in cash from this transaction, after paying off two loans
with the same lender which were also secured by shares of our common stock.
These loans included a $1.5 million note due in July 1999 and a $2.2 million
note due in January 2000.
In May 1999, Tarragon obtained a $650,000 line of credit facility secured by
2.474 acres of land in Dallas, Texas, know as Lake Highlands land and treasury
stock valued at no less than $650,000. Advances under the line of credit bear
interest at prime. Terms of the line of credit require monthly payments of
interest only, with the principal due in May 2000. Tarragon received $614,000
cash from this transaction. The line of credit is guaranteed by Mr. Friedman.
49
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TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6. NOTES, DEBENTURES, AND INTEREST PAYABLE (Continued)
In June 1996, Tarragon purchased the $3.1 million Fannie Mae mortgage backed
security ("Fannie Mae MBS") issued by the lender in connection with the
financing of Forest Oaks Apartments at a 1/2% discount and simultaneously
entered into a reverse repurchase agreement with an investment bank. The
investment bank purchased the Fannie Mae MBS from Tarragon for 92% of its value,
and Tarragon agreed to repurchase the MBS from the investment bank one month
later at the same price plus interest at LIBOR plus 1/2% per annum. In July
1996, Tarragon purchased the $16.8 million Government National Mortgage
Association mortgage backed security ("GNMA MBS") issued by the lender in
connection with the financing of Heather Hills Apartments at a 2.7% discount and
added this MBS to the reverse repurchase transaction with the investment bank.
As provided for in the agreement, Tarragon and the investment bank extended the
repurchase date monthly, and the repurchase price fluctuated with changes in the
values of the MBSs. In January 1997, we entered into a similar repurchase
transaction with a government sponsored enterprise which purchased the MBSs for
97% of their aggregate value, and we agreed to repurchase them one month later
at the same price plus interest at 5.4% per annum. Tarragon and the government
sponsored enterprise extended the repurchase date monthly, establishing a new
repurchase price each month. In November 1997, we purchased the $2.7 million
Fannie Mae MBS issued by the lender in connection with the financing of Cross
Creek Apartments at face value and added this MBS to the reverse repurchase
transaction. In July 1998, we renewed the reverse repurchase agreement with the
investment bank. Currently, the repurchase date is March 2000, the repurchase
price is $21.2 million, and the interest rate is 5.88%. The reverse repurchase
transaction has resulted in effective interest rates as of December 31, 1999, on
the Forest Oaks, Heather Hills, and Cross Creek financings of 6.74%, 5.96%, and
6.44%, respectively.
We are exposed to a demand for additional collateral or, in the alternative,
credit loss in the event the interest rate associated with the repurchase
transaction fluctuates in a manner that is unfavorable to our interest in the
MBSs. However, we intend to either pay off the mortgages or modify the mortgages
to increase the interest rate prior to any significant credit loss.
In connection with its acquisition of Tarragon Realty Advisors, Tarragon assumed
a $1.5 million note payable to a bank. This loan was secured by Tarragon common
stock and was paid off in April 1999 in connection with the closing of the $6
million line of credit.
During 1997, we obtained a $2.2 million loan secured initially by treasury
shares of stock. The proceeds of this loan were advanced to RI Windsor, Ltd., a
partnership in which we hold a 50% interest. See NOTE 4. "INVESTMENTS IN AND
ADVANCES TO PARTNERSHIPS." This loan was paid off in connection with the closing
of the $6 million line of credit in April 1999.
In May 1997, we accepted a commitment from GMAC Commercial Mortgage Corporation
("GMAC") for a $50 million revolving credit facility. Advances under the
facility are available to finance properties currently owned as well as new
acquisitions. The outstanding balance is limited to the lesser of 75% of the
value of the collateral properties or an amount supported by a debt service
coverage ratio of 1.25. The borrowing base may be increased by adding new or
existing properties to the collateral pool. Advances are limited to the lesser
of 75% of the appraised value of the property as stabilized or 80% of total
acquisition costs which include the purchase price of a newly acquired property
and the cost of improvements incurred between the date of
50
51
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 6. NOTES, DEBENTURES, AND INTEREST PAYABLE (Continued)
acquisition and the date that any mortgage secured by that property is recorded.
A newly acquired property is defined as a property owned for less than one year.
The outstanding balance under the facility bears interest at the 30 day LIBOR
plus a variable spread of between 2% and 2.5% which is determined based on the
loan-to-value and debt service coverage maintained. Payment terms include
interest only monthly with the outstanding balance due at maturity, which is 36
months from the date of the first advance. We may extend the maturity by two
six-month terms, but no new fundings may occur under the facility during any
extension period. Fundings under this revolving credit facility total $47.5
million, $42 million of which were obtained in 1997, secured by first mortgages
against nine properties. We received net cash proceeds of $31.7 million ($26.3
million in 1997) from these fundings after the payoff of existing mortgages of
$13.5 million in 1997, establishing escrows for taxes, insurance, and repairs,
and paying the associated closing costs. In connection with these fundings, we
paid Tarragon Realty Advisors financing fees totaling $475,425 ($420,000 in
1997). The December 31, 1999, outstanding balance of advances under this
revolving credit facility is $39.8 million.
In June 1998, we obtained a $35 million revolving credit facility from GMAC with
substantially the same terms as the $50 million revolving credit facility
obtained in 1997. The outstanding balance under the facility bears interest at
the 30-day LIBOR plus 2%. Payment terms include interest only monthly with the
outstanding balance due at maturity, which is June 2001. Similar to the $50
million facility, the maturity of the $35 million facility may be extended by
two six-month terms, but no new fundings may occur under the facility during any
extension period. In June 1998, we obtained fundings under this revolving credit
facility of $9.5 million, which represents the December 31, 1999, outstanding
balance of advances under this revolving credit facility, secured by first
mortgages on two properties. We received net cash proceeds of $4 million from
these fundings after the payoff of existing mortgages totaling $5.1 million,
establishing escrows for taxes, insurance, and repairs, and paying the
associated closing costs. In connection with these fundings, we paid Tarragon
Realty Advisors financing fees totaling $95,000.
During 1999, we recognized extraordinary expenses related to early
extinguishment of debt of $444,000 from prepayment penalties and deferred
financing expenses written off in connection with the 1999 refinancings. Of this
amount, $196,000 represents our share of such expenses of unconsolidated
partnerships.
During 1998, we recognized $1.2 million of extraordinary expenses resulting from
prepayment penalties and the write-off of deferred financing expenses associated
with certain refinancings.
In 1997, we recognized a $431,000 extraordinary gain on early extinguishment of
debt resulting from a discounted payoff of the mortgage secured by University
Center. We also recognized extraordinary expenses of $370,000 in 1997 resulting
from prepayment penalties and the write-off of deferred financing expenses in
connection with certain refinancings.
NOTE 7. DIVIDENDS TO STOCKHOLDERS
We paid cash dividends in 1999, 1998, and 1997 of $3.4 million, $3.2 million,
and $2.9 million, respectively. The dividends paid in 1999 were reported to the
Internal Revenue Service as 42% taxable to stockholders as ordinary income and
58% return of capital. The dividends paid in 1998 and 1997 were reported to the
Internal Revenue Service as return of capital. Additionally, in September 1997,
we paid a 10% stock dividend, resulting in the issuance of 807,116 shares.
51
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TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 8. EARNINGS PER SHARE
Following is a reconciliation of the weighted average shares of common stock
outstanding used in the computation of earnings per share and earnings per share
- - assuming dilution. The effect of stock options on weighted average shares of
common stock outstanding - assuming dilution for the year ended December 31,
1998, is not reflected below because their effect is anti-dilutive due to the
net loss in 1998.
For the Years Ended December 31,
------------------------------------
1999 1998 1997
--------- ---------- ---------
Weighted average shares of
common stock outstanding....... 8,220,280 7,619,604 7,693,031
Stock options..................... 106,840 -- 76,265
--------- --------- ---------
Weighted average shares of
common stock outstanding -
assuming dilution.............. 8,327,120 7,619,604 7,769,296
========= ========= =========
NOTE 9. STOCK OPTIONS
With the approval of its stockholders, Tarragon adopted an Independent Director
Stock Option Plan and a Stock Option and Incentive Plan (collectively, the
"Option Plans") in November 1995. Our predecessor, NIRT, also adopted similar
Independent Trustee Share Option and Stock Option and Incentive Plans
(collectively the "NIRT Plans") in November 1995.
Pursuant to the terms of the Merger Agreement by and between Tarragon and NIRT,
the NIRT Plans were consolidated with and into the Option Plans, with the shares
of common stock available under the consolidated plans for option awards being
increased by the number of NIRT shares of beneficial interest available under
the NIRT Plans multiplied by the exchange ratio of 1.97 to 1, and the option
awards authorized by Tarragon's Independent Director Stock Option Plan (the
"Director Plan") increased by the option awards authorized by the NIRT
Independent Trustee Share Option Plan multiplied by the exchange ratio.
Under Tarragon's consolidated Director Plan, Independent Directors receive
annual awards of options to purchase up to 2,000 shares of Tarragon common stock
on January 1 of each year. The options are immediately exercisable and expire on
the earlier of the first anniversary of the date on which the director ceases to
serve as a director or ten years from the date of grant.
Under Tarragon's consolidated Stock Option and Incentive Plan, incentive stock
options have been awarded to officers and employees of Tarragon and its
subsidiaries. These stock options vest between one and five years from the date
of grant and expire between five and ten years thereafter, unless the optionee's
relationship with Tarragon terminates earlier. Incentive stock options are
awarded by the Option Committee of the Board of Directors, which is currently
comprised of Michael E. Smith, Carl B. Weisbrod, and Lawrence G. Schafran.
A total of 187,022 shares of common stock are currently available for grant
under the Director Plan, and a total of 815,110 shares of common stock are
currently available for grant under the Stock Option and Incentive Plan.
52
53
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9. STOCK OPTIONS (Continued)
Tarragon granted options to purchase 350,000 shares of Tarragon common stock
over a period of ten years at prices ranging between $13 and $16 per share to
William S. Friedman and Lucy N. Friedman in connection with the acquisition of
Tarragon Realty Advisors. Additionally, Tarragon granted Mr. Friedman options to
purchase 450,000 shares of Tarragon common stock over a period of ten years at
prices ranging between $12 and $15 per share in connection with a three year
employment contract entered into with Mr. Friedman. The $942,000 fair value of
these options was estimated using the Black Scholes pricing model and
represented a portion of the purchase consideration in the acquisition of
Tarragon Realty Advisors.
The following table summarizes stock option activity:
For the Years Ended December 31,
-----------------------------------------------------------------------
1999 1998 1997
------------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Options Prices Options Prices Options Prices
------------ ------------ ----------- -------- --------- --------
Outstanding at January 1 1,150,878 $11.71 327,000 $ 5.51 219,300 $ 5.49
Options granted 16,000 11.00 66,740 10.22 108,488 6.59
Options consolidated in merger -- -- 74,172 8.37 -- --
Options granted in acquisition of TRA -- -- 800,000 13.81 -- --
Options exercised (20,505) 4.92 (40,785) 5.27 -- --
Options forfeited (45,478) 5.69 (76,249) 6.39 (788) $ 7.74
---------- ------ ---------- ------ -------- ------
Outstanding at December 31 1,100,895 $12.07 1,150,878 $11.71 327,000 5.51
========== ====== ========== ====== ======== ======
Exercisable at December 31 1,043,881 $12.14 1,073,911 $11.77 322,272 $ 4.99
========== ====== ========== ====== ======== ======
Weighted average grant-date fair
value of options granted:
To employees and directors $ 1.41 $ 1.53 $ 1.53
====== ====== ======
In connection with acquisition of TRA $ -- $ 1.18 $ --
====== ====== ======
The following table summarizes information about the options outstanding at
December 31, 1999:
Outstanding Exercisable
--------------------------------------------- ----------------------------
Range of Weighted Average Weighted Average Weighted Average
Exercise Prices Options Contractual Life Exercise Price Options Exercise Price
---------------- --------- ---------------- ---------------- --------- ----------------
$ 4.61 - 5.87 144,916 3.80 years $ 5.01 144,916 $ 5.01
7.00 - 10.00 81,879 4.54 years 8.45 71,345 8.24
10.80 - 15.00 774,100 8.90 years 13.27 727,620 13.41
16.00 100,000 8.90 years 16.00 100,000 16.00
--------------- --------- ------------ ------ --------- -------
$ 4.61 - 16.00 1,100,895 7.91 years $12.07 1,043,881 $ 12.14
=============== ========= ============ ====== ========= =======
Subsequent to year end, in January 2000, we granted options covering 16,000
shares, all of which were immediately exercisable, pursuant to the Director
Plan. Also, 6,521 of the options outstanding at December 31, 1999, were
exercised in the first quarter of 2000.
53
54
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9. STOCK OPTIONS (Continued)
We apply APB No. 25 and related Interpretations in accounting for our option
plans. All stock options issued to date have exercise prices equal to the market
price at the dates of grant. Accordingly, no compensation cost has been
recognized for our stock option plans. Had compensation cost for our stock
option plans been determined based on the fair value at the grant dates for
awards under those plans consistent with the method of SFAS No. 123, our net
income and earnings per share would have been reduced to the pro forma amounts
indicated below:
For the Years Ended December 31,
------------------------------------------------------------------------
1999 1998 1997
---------------------- ----------------------- ----------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
----------- --------- ----------- ---------- ----------- ---------
Net income (loss)........... $ 5,257 $ 5,219 $ (1,395) $ (1,458) $ 5,592 $ 5,554
Earnings per share
Net income (loss)........... $ 0.64 $ 0.63 $ (0.18) $ (0.19) $ 0.73 $ 0.72
Earnings per share -
assuming dilution
Net income (loss)........... $ 0.63 $ 0.63 $ (0.18) $ (0.19) $ 0.72 $ 0.71
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
For the Years Ended December 31,
----------------------------------------------------------------------
1999 1998 1998 1997
-------------- ------------- ------------------ -------------
Granted to Granted to Granted in Granted to
Employees Employees connection with Employees
and Directors and Directors acquisition of TRA and Directors
-------------- ------------- ------------------ -------------
Dividend yield.................. 4% 4% 4% 6%
Expected volatility............. 15% 14% 13% 20%
Risk-free interest rate......... 4.84% 5.60% 5.60% 6.21%
Expected lives (in years)....... 8 8 8 3
Forfeitures..................... 5% 10% -- 10%
NOTE 10. ADVISORY AGREEMENT
Prior to the acquisition of Tarragon Realty Advisors, the day-to-day operations
of Tarragon were performed by Tarragon Realty Advisors, operating under the
supervision of the Board pursuant to a written advisory agreement approved by
stockholders. Effective with the merger and the acquisition of Tarragon Realty
Advisors in November 1998, the advisory agreement was terminated.
Prior to the merger, the duties of the advisor included, among other things,
locating, investigating, evaluating, and recommending real estate investment and
sale opportunities and financing and refinancing sources. The advisor also
served as a consultant in connection with the business plan and investment
policy decisions made by the Board.
Under the advisory agreement, Tarragon paid an incentive advisory fee equal to
16% of adjusted funds from operations before deduction of the advisory fee.
Adjusted funds from operations was defined as funds from operations ("FFO"), as
defined by the National Association of Real Estate Investment Trusts, plus any
loss due to the write-down or sale of any real property or mortgage loan
acquired prior to January 1, 1989. FFO represents net income (loss), computed in
accordance with GAAP, excluding gains (or losses) from debt restructuring and
sales of property, plus depreciation and amortization of real estate assets, and
after
54
55
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 10. ADVISORY AGREEMENT (Continued)
adjustments for unconsolidated partnerships and joint ventures. Additionally,
Tarragon Realty Advisors received commissions of 1% based upon (i) acquisition
cost of real estate and (ii) mortgage loans obtained or refinanced.
Prior to the acquisition of Tarragon Realty Advisors, Tarragon had no employees.
Employees of Tarragon Realty Advisors rendered services to Tarragon, and, in
accordance with the terms of the advisory agreements, Tarragon reimbursed
Tarragon Realty Advisors for certain of those services, including, but not
limited to, accounting, legal, investor relations, data processing, and the
related departmental overhead.
For additional information regarding compensation paid to the advisor, see NOTE
12. "RELATED PARTY TRANSACTIONS."
Since the acquisition of Tarragon Realty Advisors, we no longer pay advisory,
acquisition, or refinancing fees. Instead, we pay directly the overhead costs
previously borne by Tarragon Realty Advisors. These expenses are included in
corporate general and administrative expenses in the accompanying Consolidated
Statements of Operations.
NOTE 11. PROPERTY MANAGEMENT
From April 1994 through November 1998, Tarragon paid property management fees of
4.5% of the monthly gross rents collected on multifamily properties and 1.5% to
5% of the monthly gross rents collected on commercial properties to Tarragon
Realty Advisors and/or Tarragon Management, Inc., a wholly-owned subsidiary of
Tarragon Realty Advisors. Tarragon Realty Advisors subcontracted with third
parties to provide property level management services to most of the retail and
office properties and the apartment properties located in California,
Connecticut, and Colorado. Since Tarragon acquired Tarragon Realty Advisors in
November 1998, Tarragon is no longer required to pay management fees on the
properties managed in-house, although it continues to pay management fees on
those properties under contract with outside management companies. We now pay
the overhead costs previously borne by Tarragon Management. These expenses are
included in property general and administrative expenses in the accompanying
Consolidated Statements of Operations.
Since the acquisition of Tarragon Realty Advisors, Tarragon earns management fee
income from properties owned through partnerships that are managed in-house and
from seven multifamily projects and one shopping center owned by entities
affiliated with Mr. Friedman. Fees for these services are comparable to the fees
charged by Tarragon Realty Advisors.
NOTE 12. RELATED PARTY TRANSACTIONS
Fees and expense reimbursements to Tarragon Realty Advisors and affiliates for
1998 (prior to the acquisition of Tarragon Realty Advisors) and 1997 were as
follows:
1998 1997
------- -------
Fees
Advisory $ 1,048 $ 1,438
Real estate acquisition 105 234
Equity refinancing 643 773
Property management* 1,884 1,610
Commercial lease commissions 12 39
------- -------
$ 3,692 $ 4,094
======= =======
Expense reimbursements $ 2,215 $ 1,914
======= =======
- ----------
* Net of property management fees paid to subcontractors.
55
56
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12. RELATED PARTY TRANSACTIONS (Continued)
Notes payable at December 31, 1999, included $5.1 million advanced by affiliates
of Mr. Friedman under a two year $6 million line of credit arrangement approved
by the Board of Directors. The funds were used to facilitate investments by
Tarragon and the partnerships in which it holds interests. Advances under the
line of credit bear interest at LIBOR plus 1% per annum and are payable in
January 2001.
Tarragon received property management fees of $279,000 from properties owned by
affiliates of Mr. Friedman during 1999.
NOTE 13. INCOME TAXES
For the 1997 through 1999 tax years, Tarragon has elected and qualified to be
treated as a Real Estate Investment Trust ("REIT"), as defined in Sections 856
through 860 of the Internal Revenue Code of 1986, and, as such, has not been
taxed for federal income tax purposes on that portion of its taxable income that
was distributed to stockholders, provided that at least 95% of its REIT taxable
income, plus 95% of its taxable income from foreclosure property as defined in
Section 857 of the Internal Revenue Code, was distributed. See NOTE 7.
"DIVIDENDS TO STOCKHOLDERS." As a result of our election to be treated as a REIT
for federal income tax purposes, no deferred tax asset or liability or related
valuation allowance was recorded. No provision has been made for federal income
taxes because we believe we qualified as a REIT in the tax years through 1999.
As discussed in Note 18. "SUBSEQUENT EVENTS," in February 2000, we filed a
revocation of REIT election with the Internal Revenue Service, terminating our
status as a REIT effective December 1, 1999 (the beginning of the 2000 tax
year). Beginning December 1, 1999, the results of our operations will be subject
to income taxes. No current or deferred income tax expense was recognized in
1999 resulting from the change in tax status due to the application of net
operating loss carryforwards. A reconciliation of computed income taxes to
actual income taxes follows:
Month Ended
Dec. 31, 1999
-------------
Income from continuing operations $ 1,214
Statutory federal income tax rate 34%
--------
Income tax expense at statutory rate 413
Net operating loss benefit recognized (413)
--------
Income taxes $ --
========
The following table discloses the components of the deferred tax amounts at
December 31, 1999:
Deferred tax assets - temporary differences
Equity in earnings of partnerships $ 124
Other 4
--------
Total deferred tax assets - temporary differences 128
Net operating loss carryforwards 15,959
--------
Total deferred tax assets 16,087
Deferred tax liability - temporary difference for basis in and
depreciation of real estate (151)
--------
Net deferred tax assets 15,936
Less valuation allowance (15,936)
--------
Net deferred tax amount $ --
========
At December 31, 1999, Tarragon had federal net operating loss carryforwards
(NOLs) of approximately $46.9 million. If not utilized, the NOLs will expire
between years 2003 and 2019. The future availability of the NOLs may be limited
if Tarragon experiences an ownership change of more than 50 percent, as defined
by IRS regulations. Tarragon's stock is publicly traded, and we cannot assure
that future trading will not result in an ownership change, as defined by IRS
regulations, which would limit availability of the NOLs. Due to these
uncertainties regarding possible utilization of the NOLs, as well as Tarragon's
history of operating losses, a valuation allowance was recorded to fully reserve
the computed net deferred tax assets.
NOTE 14. RENTALS UNDER OPERATING LEASES
Tarragon's rental operations include the leasing of office buildings and
shopping centers subject to leases with terms greater than one year. The leases
thereon expire at various dates through 2009. The following is a schedule of
future minimum rentals on non-cancelable operating leases as of December 31,
1999:
2000.......................... $ 7,805
2001.......................... 6,411
2002.......................... 4,582
2003.......................... 2,694
2004.......................... 1,993
Thereafter.................... 664
--------
$ 24,149
========
56
57
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15. COMMITMENTS AND CONTINGENCIES
Tarragon is a party to various claims and routine litigation arising in the
ordinary course of business. We do not believe that the results of such claims
and litigation, individually or in the aggregate, will have a material adverse
effect on our business, financial position, or results of operations.
NOTE 16. GAIN ON INSURANCE SETTLEMENT
In December 1998, fire destroyed one building with eight units at Lake Point
Apartments, a 540-unit property in Memphis, Tennessee. Tarragon reached a
settlement with the insurance company for $458,000 and decided not to rebuild
the eight-unit building. After demolition costs, adjuster fees, and other costs,
as well as writing off a portion of the property's carrying value, Tarragon
recognized a gain of $231,000 on the insurance settlement.
NOTE 17. LITIGATION SETTLEMENT
In July 1999, after reversal of a favorable lower court decision, Tarragon
settled an uninsured liability claim for $350,000.
NOTE 18. SUBSEQUENT EVENTS
In January 2000, we sold three of the four buildings (representing approximately
two-thirds of the net carrying value) of Rancho Sorrento Office Park for $6.5
million, receiving $3.8 million of net cash proceeds after the payoff of the
mortgage and other closing costs.
57
58
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 18. SUBSEQUENT EVENTS (Continued)
In February 2000, we purchased our partner's interest in National Omni
Associates, L.P., for $850,000. Effective with this transaction, the operations
of 5600 Collins Avenue, the partnership's sole property, will be consolidated.
Also in February 2000, we filed a revocation of REIT election with the Internal
Revenue Service, terminating our status as a REIT effective December 1, 1999
(the beginning of the 2000 tax year).
In February 2000, the mortgage secured by liens on both the retail and office
portions of Emerson Center was modified and extended. The mortgage was increased
from $6.9 million to $7.9 million, and maturity date was extended to February
2003. At closing of this transaction, Tarragon received net cash proceeds of
$900,000 after closing costs.
In March 2000, we obtained new financing of $1.7 million secured by Southern
Elms Apartments, receiving net cash proceeds of $402,000 after the payoff of the
$1.3 million existing mortgage.
Also in March 2000, we obtained a $4 million loan that bears interest at prime
plus 1% and matures in October 2000. The loan is secured by liens on two
properties and assignment of certain stock and partnership interests. We intend
to repay the loan with proceeds to be obtained from permanent mortgage financing
prior to its maturity.
NOTE 19. SUBSEQUENT ACQUISITION OF JOINT VENTURE INTERESTS
In February 2000, Tarragon acquired the interests of Robert C. Rohdie and his
affiliates in ten apartment communities recently completed or currently under
construction, as well as in all joint venture development projects still in the
planning stages, for a total value of up to $10,000,000. Mr. Rohdie, Tarragon's
joint venture partner in the development of these projects, contributed his
equity interests to an operating partnership formed by Tarragon, in exchange for
a preferred interest in the operating partnership and a guaranteed fixed return
of $200,000 for the first two years, increasing by $40,000 per year for the next
five years, plus an annual amount equal to the dividends payable on 96,385
shares of Tarragon common stock. In addition, upon completion and lease up of
each of the five identified apartment communities presently under construction
or in advanced stages of development planning, Mr. Rohdie will receive an
increase in his guaranteed fixed return based on the previously agreed value of
his equity in the completed property. After one year, Mr. Rohdie has the right
to convert his preferred interest in the operating partnership into 96,385
shares of our common stock and preferred stock with a face value of up to $8
million and a like dividend to his guaranteed fixed return from the operating
partnership. If we do not have available an issue of preferred stock outstanding
at the time of the conversion, or at our discretion, we may pay the cash value
of Mr. Rohdie's preferred interest over three years. Because Tarragon controls
the new operating partnership, its operations will be consolidated.
Mr. Rohdie's preferred interest in the operating partnership has been initially
valued at $5 million (based on the value of five of the ten properties that have
been completed). Once the remaining five properties are completed and leased up,
Mr. Rohdie will receive an additional preferred interest in the operating
partnership to be valued at up to $5 million. Mr. Rohdie's interest in the
operating partnership will be presented as a minority interest.
This transaction will be recorded using purchase method accounting. The value of
Mr. Rohdie's preferred interest in the operating partnership will be
allocated to the completed assets of the operating partnership based on relative
fair values. The initial guaranteed fixed return payable to Mr. Rohdie will be
recorded based on an annual effective yield of 8.67%.
In connection with this transaction, Tarragon formed a new development
subsidiary to expand our real estate development and renovation program. Mr.
Rohdie joined Tarragon as President and Chief Executive Officer of Tarragon
Development Corporation and as a member of our Board of Directors effective
February 7, 2000.
Pro forma results of operations for 1999 and 1998 are presented as if the
transaction had occurred as of January 1, 1998. For purposes of the pro forma
presentation, depreciation and amortization have been adjusted to their
accounting bases to be recognized in recording the transaction.
For the Years Ended December 31,
--------------------------------
1999 1998
------- -------
(Unaudited)
Revenue........................................ $83,041 $63,052
Income (loss) from continuing operations....... 3,375 (1,631)
Net income (loss).............................. 2,846 (2,862)
Earnings per share
Income (loss) from continuing operations....... $ 0.41 $ (0.21)
Net income (loss).............................. 0.35 (0.37)
Earnings per share - assuming dilution
Income (loss) from continuing operations....... $ 0.40 $ (0.21)
Net income (loss).............................. 0.34 (0.37)
NOTE 20. EXCHANGE OFFER
On March 22, 2000, Tarragon announced an offer to exchange one share of 10%
Cumulative Preferred Stock for each share of common stock held by its
stockholders, up to a maximum of 2,000,000 shares. This exchange offer is
scheduled to expire at 5:00 p.m., New York City time, on May 3, 2000, unless
extended.
The exchange offer is directed to those holders of Tarragon common stock who
would prefer to hold a security with a fixed dividend yield and a fixed
liquidation preference in the event of redemption or other disposition of the
security. The exchange offer is not part of any plan to "go private" and not
the first in any series of transactions designed to have a resulting effect upon
the outstanding common stock. However, to the extent shares of common stock are
exchanged for shares of 10% Cumulative Preferred Stock pursuant to the exchange
offer, the number of shares of common stock outstanding in the hands of the
public stockholders will initially decrease. Assuming the maximum of 2,000,000
shares of common stock are tendered pursuant to the exchange offer, a minimum of
3,009,118 shares of common stock will continue to remain in the hands of public
stockholders. The exchange offer should not have an adverse effect upon the
listing of our common stock on the NASDAQ National Market.
The class of 10% Cumulative Preferred Stock will be designated to consist of
2,500,000 shares. The number of shares which may be issued pursuant to the
Exchange Offer is limited to 2,000,000 shares (subject to increase in certain
events), which would result in 500,000 shares being available in the event that
we elect to accept more than the maximum for exchange, for future distribution
in connection with the acquisition of assets, or for other uses, at the
discretion of our Board of Directors.
The 10% Cumulative Preferred Stock will pay a fixed dividend of $1.20 per year,
and has a liquidation value of $12 per share. It is a class of equity and is
junior in ranking in right of payment to our outstanding indebtedness, but is
senior to common stock. It ranks on a parity as to dividends and liquidation
with all other shares of special or preferred stock which we might issue.
Shares of 10% Cumulative Preferred Stock may be redeemed at Tarragon's option at
any time after June 30, 2003, at the liquidation value plus a premium of $0.50
per share reducing by $0.10 per share each year thereafter. No mandatory
redemption or "sinking fund" is required. The 10% Cumulative Preferred Stock
has only the voting rights specifically required by law under the Nevada General
Corporation Law, and is not convertible into any other securities of Tarragon.
[This space intentionally left blank.]
58
59
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 21. QUARTERLY RESULTS OF OPERATIONS
The following is a tabulation of the quarterly results of operations for the
years ended December 31, 1999 and 1998:
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
1999
Revenue ....................................... $ 17,872 $ 18,708 $ 18,798 $ 18,378
Expenses ...................................... (19,329) (19,489) (20,484) (20,603)
----------- ----------- ----------- -----------
(Loss) before net gain on sale of real estate,
gain on insurance settlement, litigation
settlement, and extraordinary items ........ (1,457) (781) (1,686) (2,225)
Net gain on sale of real estate ............... 338 3,923 4,310 3,398
Gain on insurance settlement .................. -- 231 -- --
Litigation settlement ......................... -- (350) -- --
----------- ----------- ----------- -----------
Income (loss) from continuing operations ...... (1,119) 3,023 2,624 1,173
Extraordinary items ........................... (4) (244) -- (196)
----------- ----------- ----------- -----------
Net income (loss) ............................. $ (1,123) $ 2,779 $ 2,624 $ 977
=========== =========== =========== ===========
Earnings per share
Income (loss) from continuing operations ...... $ (.13) $ .37 $ .32 $ .14
Extraordinary items ........................... -- (.03) -- (.02)
----------- ----------- ----------- -----------
Net income (loss) ............................. $ (.13) $ .34 $ .32 $ .12
=========== =========== =========== ===========
Weighted average shares (1) ................... 8,420,740 8,287,186 8,124,346 8,053,931
=========== =========== =========== ===========
Earnings per share - assuming dilution
Income (loss) from continuing operations ...... $ (.13) $ .36 $ .32 $ .14
Extraordinary items ........................... -- (.03) -- (.02)
----------- ----------- ----------- -----------
Net income (loss) ............................. $ (.13) $ .33 $ .32 $ .12
=========== =========== =========== ===========
Weighted average shares - assuming dilution (2) 8,420,740 8,394,791 8,217,969 8,164,885
=========== =========== =========== ===========
- --------------------------
(1) Represents weighted average shares of common stock used in computing
earnings per share.
(2) Represents weighted average shares of common stock used in computing
earnings per share - assuming dilution.
59
60
TARRAGON REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 21. QUARTERLY RESULTS OF OPERATIONS (Continued)
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
1998
Revenue .......................................... $ 14,256 $ 14,340 $ 14,459 $ 15,645
Expenses ......................................... (14,242) (14,123) (15,075) (17,655)
----------- ----------- ----------- -----------
Income (loss) before net gain on sale
of real estate, gain on sale of investments,
and extraordinary items ........................ 14 217 (616) (2,010)
Net gain on sale of real estate .................. -- 1,275 -- 833
Gain on sale of investments ...................... 117 -- 6 --
----------- ----------- ----------- -----------
Income (loss) from continuing operations ......... 131 1,492 (610) (1,177)
Extraordinary items .............................. (262) (68) (589) (312)
----------- ----------- ----------- -----------
Net income (loss) ................................ $ (131) $ 1,424 $ (1,199) $ (1,489)
=========== =========== =========== ===========
Earnings per share
Income (loss) from continuing operations ......... $ .02 $ .20 $ (.08) $ (.15)
Extraordinary items .............................. (.04) (.01) (.08) (.04)
----------- ----------- ----------- -----------
Net income (loss) ................................ $ (.02) $ .19 $ (.16) $ (.19)
=========== =========== =========== ===========
Weighted average shares (1) ...................... 7,651,094 7,584,878 7,493,565 7,749,200
=========== =========== =========== ===========
Earnings per share - assuming dilution
Income (loss) from continuing operations ......... $ .02 $ .19 $ (.08) $ (.15)
Extraordinary items .............................. (.04) (.01) (.08) (.04)
----------- ----------- ----------- -----------
Net income (loss) ................................ $ (.02) $ .18 $ (.16) $ (.19)
=========== =========== =========== ===========
Weighted average shares -
assuming dilution (2) .......................... 7,651,094 7,710,905 7,493,565 7,749,200
=========== =========== =========== ===========
- ----------
(1) Represents weighted average shares of common stock used in computing
earnings per share and has been restated to give effect to the merger of
Tarragon and NIRT on the basis of 1.97 shares of Tarragon's common stock
for each share of beneficial interest of NIRT.
(2) Represents weighted average share of common stock used in computing
earnings per share - assuming dilution and has been restated to give effect
to the merger of Tarragon and NIRT on the basis of 1.97 shares of
Tarragon's common stock for each share of beneficial interest of NIRT.
60
61
SCHEDULE III
TARRAGON REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
COSTS (A)
CAPITALIZED GROSS CARRYING AMOUNTS
INITIAL COST TO COMPANY SUBSEQUENT AT END OF YEAR
----------------------- TO ACQUISITION ------------------------------
BUILDINGS AND -------------- BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ---------------- ------------ ------ ------------- -------------- ------ ------------- ------
PROPERTIES HELD FOR INVESTMENT
Apartments
Acadian Place ............. $3,217 $ 897 $2,608 $2,094 $ 897 $4,702 $5,599
Baton Rouge, LA
Aspentree ................. 3,784 876 3,506 245 876 3,751 4,627
Dallas, TX
Bay West .................. 4,669 891 3,566 1,168 891 4,734 5,625
Bradenton, FL
Bayfront .................. 4,242 457 2,052 2,087 457 4,139 4,596
Houston, TX
Bryan Hills ............... 4,212 447 1,803 660 496 2,414 2,910
Bethany , OK
The Brooks ................ 3,137 558 2,230 126 558 2,356 2,914
Addison, TX
Carlyle Towers ............ 5,399 559 5,939 2,106 559 8,045 8,604
Southfield, MI
Collegewood ............... 1,993 556 2,223 61 556 2,284 2,840
Tallahassee, FL
Cornell ................... 2,369 822 1,183 184 822 1,367 2,189
Los Angeles, CA
Courtyard at the Park ..... 4,250 771 3,086 1,528 768 4,617 5,385
Miami, FL
Creekwood North ........... 2,949 532 2,127 1,149 532 3,276 3,808
Altamonte Springs, FL
Cross Creek ............... 2,528 221 883 448 225 1,327 1,552
Lexington, KY
Desert Winds .............. 1,290 351 1,399 524 354 1,920 2,274
Jacksonville, FL
Diamond Loch .............. 3,445 380 2,791 1,328 380 4,119 4,499
Fort Worth, TX
English Village ........... 5,809 1,382 5,525 2,593 1,372 8,128 9,500
Memphis, TN
Fenway Hall ............... 1,266 461 1,460 43 461 1,503 1,964
Los Angeles, CA
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OPERATIONS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------- ------------ ------------ -------- -------------
PROPERTIES HELD FOR INVESTMENT
Apartments
Acadian Place ............. $1,612 1922 Mar-84 3 - 40 years
Baton Rouge, LA
Aspentree ................. 159 1974 Nov-98 3 - 40 years
Dallas, TX
Bay West .................. 1,163 1974 Nov-92 3 - 40 years
Bradenton, FL
Bayfront .................. 1,332 1971 Feb-87 3 - 40 years
Houston, TX
Bryan Hills ............... 474 1970 Nov-94 3 - 40 years
Bethany , OK
The Brooks ................ 73 1969 Nov-98 3 - 40 years
Addison, TX
Carlyle Towers ............ 2,240 1970 Nov-88 3 - 40 years
Southfield, MI
Collegewood ............... 68 1967 Nov-98 3 - 40 years
Tallahassee, FL
Cornell ................... 354 1929 Apr-90 3 - 40 years
Los Angeles, CA
Courtyard at the Park ..... 511 1972 Jul-97 3 - 40 years
Miami, FL
Creekwood North ........... 634 1973 Nov-92 3 - 40 years
Altamonte Springs, FL
Cross Creek ............... 317 1966 Nov-92 3 - 40 years
Lexington, KY
Desert Winds .............. 97 1972 Jun-98 3 - 40 years
Jacksonville, FL
Diamond Loch .............. 1,546 1978 Oct-85 3 - 40 years
Fort Worth, TX
English Village ........... 691 1973 Jul-97 3 - 40 years
Memphis, TN
Fenway Hall ............... 368 1929 Apr-90 3 - 40 years
Los Angeles, CA
61
62
SCHEDULE III
TARRAGON REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
COSTS (A)
CAPITALIZED GROSS CARRYING AMOUNTS
INITIAL COST TO COMPANY SUBSEQUENT AT END OF YEAR
----------------------- TO ACQUISITION ------------------------------
BUILDINGS AND -------------- BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ---------------- ------------ ------ ------------- -------------- ------ ------------- ------
PROPERTIES HELD FOR INVESTMENT
Apartments (Continued)
Forest Oaks .......... $2,868 $ 691 $2,685 $ 722 $ 691 $3,407 $4,098
Lexington, KY
Fountainhead ......... (D) 5,650 1,573 6,291 435 1,572 6,727 8,299
Kissimmee, FL
French Villa ......... 1,906 447 1,786 79 447 1,865 2,312
Tulsa, OK
Holly House .......... 1,739 397 1,590 50 397 1,640 2,037
North Miami, FL
Kirklevington ........ 3,003 490 1,961 746 490 2,707 3,197
Lexington, KY
Landmark ............. (D) 2,500 376 1,504 474 373 1,981 2,354
Tallahassee, FL
Marina Park .......... 3,691 657 2,625 1,288 671 3,899 4,570
Miami, FL
Mariposa Manor ....... 736 225 901 (292) 225 609 834
Los Angeles, CA
Martin's Landing ..... 6,532 1,038 4,201 878 1,041 5,076 6,117
Lakeland, FL
Meadowbrook .......... 3,663 307 1,230 306 306 1,537 1,843
Baton Rouge, LA
Mission Trace ........ 1,833 563 2,252 72 563 2,324 2,887
Tallahassee, FL
Morningside .......... 1,574 420 1,678 479 426 2,151 2,577
Jacksonville, FL
Mustang Creek ........ (E) 5,405 718 2,872 2,112 720 4,982 5,702
Arlington, TX
Newport .............. 4,931 1,334 5,338 1,266 1,335 6,603 7,938
Plantation, FL
Palm Court ........... 2,816 599 2,393 976 598 3,370 3,968
Miami, FL
Palm Grove ........... 1,251 322 1,316 40 322 1,356 1,678
Orlando, FL
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OPERATIONS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------- ------------ ------------ -------- -------------
PROPERTIES HELD FOR INVESTMENT
Apartments (Continued)
Forest Oaks .......... $ 500 1971 Nov-94 3 - 40 years
Lexington, KY
Fountainhead ......... (D) 513 1988 Jun-97 3 - 40 years
Kissimmee, FL
French Villa ......... 72 1971 Nov-98 3 - 40 years
Tulsa, OK
Holly House .......... 49 1968 Nov-98 3 - 40 years
North Miami, FL
Kirklevington ........ 685 1975 Nov-92 3 - 40 years
Lexington, KY
Landmark ............. (D) 159 1967 Oct-97 3 - 40 years
Tallahassee, FL
Marina Park .......... 687 1974 Apr-95 3 - 40 years
Miami, FL
Mariposa Manor ....... 105 1924 Sep-94 3 - 40 years
Los Angeles, CA
Martin's Landing ..... 803 1973 Nov-94 3 - 40 years
Lakeland, FL
Meadowbrook .......... 188 1968 Oct-95 3 - 40 years
Baton Rouge, LA
Mission Trace ........ 72 1989 Nov-98 3 - 40 years
Tallahassee, FL
Morningside .......... 254 1973 Feb-97 3 - 40 years
Jacksonville, FL
Mustang Creek ........ (E) 839 1974 May-95 3 - 40 years
Arlington, TX
Newport .............. 584 1973 Jun-97 3 - 40 years
Plantation, FL
Palm Court ........... 1,036 1971 Oct-89 3 - 40 years
Miami, FL
Palm Grove ........... 55 1971 Jun-98 3 - 40 years
Orlando, FL
62
63
SCHEDULE III
TARRAGON REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
COSTS (A)
CAPITALIZED GROSS CARRYING AMOUNTS
INITIAL COST TO COMPANY SUBSEQUENT AT END OF YEAR
----------------------- TO ACQUISITION ------------------------------
BUILDINGS AND -------------- BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ---------------- ------------ ------ ------------- -------------- ------ ------------- ------
PROPERTIES HELD FOR INVESTMENT
Apartments (Continued)
Park Dale Gardens ......... $ 2,808 $ 354 $1,416 $ 1,013 $ 531 $ 2,252 $ 2,783
Dallas, TX
Park Norton ............... 527 144 576 461 142 1,039 1,181
Los Angeles, CA
Park Place ................ -- 76 304 152 82 450 532
Los Angeles, CA
Pinecrest ................. 17,347 3,612 8,427 6,073 3,612 14,500 18,112
Ft. Lauderdale, FL
Prado Bay ................. 4,704 614 3,482 1,477 614 4,959 5,573
North Bay Village, FL
The Regent ................ (B) 4,900 303 1,212 5,033 303 6,245 6,548
Jacksonville, FL
River City Landing ........ (D) 7,743 1,236 5,602 6,787 1,237 12,388 13,625
Jacksonville, FL
Riverside ................. 4,991 790 3,160 92 790 3,252 4,042
Austin, TX
Silver Creek .............. 1,220 301 1,206 412 304 1,615 1,919
Jacksonville, FL
Southern Elms ............. 1,290 304 1,216 106 304 1,322 1,626
Tulsa, OK
Summit on the Lake ........ 4,666 895 3,582 770 907 4,340 5,247
Fort Worth, TX
Vintage at Legacy ......... 14,456 4,545 -- 17,970 4,986 17,529 22,515
Frisco, TX
Vistas at Lake Worth ...... 9,500 752 92 15,764 752 15,856 16,608
Fort Worth, TX
Woodcreek ................. 6,986 472 4,977 1,763 451 6,761 7,212
Jacksonville, FL
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OPERATIONS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------- ------------ ------------ -------- -------------
PROPERTIES HELD FOR INVESTMENT
Apartments (Continued)
Park Dale Gardens ......... $ 598 1975 Dec-91 3 - 40 years
Dallas, TX
Park Norton ............... 79 1924 Jun-95 3 - 40 years
Los Angeles, CA
Park Place ................ 46 1929 Sep-95 3 - 40 years
Los Angeles, CA
Pinecrest ................. 3,471 1965 Jul-90 3 - 40 years
Ft. Lauderdale, FL
Prado Bay ................. 1,380 1966 Oct-90 3 - 40 years
North Bay Village, FL
The Regent ................ (B) 666 1972 Sep-95 3 - 40 years
Jacksonville, FL
River City Landing ........ (D) 1,016 1965 Jun-96 3 - 40 years
Jacksonville, FL
Riverside ................. 101 1991 Nov-98 3 - 40 years
Austin, TX
Silver Creek .............. 77 1972 Jun-98 3 - 40 years
Jacksonville, FL
Southern Elms ............. 48 1968 Nov-98 3 - 40 years
Tulsa, OK
Summit on the Lake ........ 741 1986 Mar-94 3 - 40 years
Fort Worth, TX
Vintage at Legacy ......... -- 1999 May-98 3 - 40 years
Frisco, TX
Vistas at Lake Worth ...... 807 1970 Dec-94 3 - 40 years
Fort Worth, TX
Woodcreek ................. 2,838 1975 Nov-86 3 - 40 years
Jacksonville, FL
63
64
SCHEDULE III
TARRAGON REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
COSTS (A)
CAPITALIZED GROSS CARRYING AMOUNTS
INITIAL COST TO COMPANY SUBSEQUENT AT END OF YEAR
----------------------- TO ACQUISITION ------------------------------
BUILDINGS AND -------------- BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ---------------- ------------ ------ ------------- -------------- ------ ------------- ------
PROPERTIES HELD FOR INVESTMENT
Office Buildings
1505 Highway 6 .......... $2,000 $ 719 $2,877 $ 124 $ 719 $3,001 $3,720
Houston, TX
Orlando Central Park .... 8,000 1,888 7,605 208 1,888 7,813 9,701
Orlando, FL
Park 20 West ............ 1,831 688 2,754 61 688 2,815 3,503
Tallahassee, FL
Tarzana Towne Plaza ..... 2,897 671 2,684 24 671 2,708 3,379
Tarzana, CA
Shopping Centers
Briarwest ............... 1,653 375 1,499 -- 375 1,499 1,874
Houston, TX
Jackson Square .......... -- 1,115 4,451 47 1,113 4,500 5,613
Jackson, MS
K-Mart Plaza, ........... 760 689 1,608 (1) 689 1,607 2,296
Temple Terrace, FL
Lakeview Mall ........... -- 513 2,050 615 341 2,837 3,178
Manitowoc, WI
Mariner Plaza ........... 1,709 295 1,180 87 295 1,267 1,562
Panama City, FL
Midland Plaza ........... -- 321 748 59 321 807 1,128
Midland, MI
Midway Mills Crossing ... 3,979 588 2,365 1,496 1,227 3,222 4,449
Carrollton, TX
Northside Center ........ 1,383 1,591 3,712 244 1,611 3,936 5,547
Gainesville, FL
University Center ....... 1,100 578 2,430 712 525 3,195 3,720
Waco, TX
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OPERATIONS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------- ------------ ------------ -------- -------------
PROPERTIES HELD FOR INVESTMENT
Office Buildings
1505 Highway 6 .......... $ 120 1983 Oct-98 3 - 40 years
Houston, TX
Orlando Central Park .... 132 1966 May-99 3 - 40 years
Orlando, FL
Park 20 West ............ 84 1972 Nov-98 3 - 40 years
Tallahassee, FL
Tarzana Towne Plaza ..... 79 1985 Nov-98 3 - 40 years
Tarzana, CA
Shopping Centers
Briarwest ............... 51 1971 Nov-98 3 - 40 years
Houston, TX
Jackson Square .......... 349 1970 Jan-96 3 - 40 years
Jackson, MS
K-Mart Plaza, ........... 323 1979 Dec-91 3 - 40 years
Temple Terrace, FL
Lakeview Mall ........... 1,471 1968 Apr-87 3 - 40 years
Manitowoc, WI
Mariner Plaza ........... 86 1968 Aug-97 3 - 40 years
Panama City, FL
Midland Plaza ........... 174 1976 Dec-91 3 - 40 years
Midland, MI
Midway Mills Crossing ... 1,457 1986 Oct-91 3 - 40 years
Carrollton, TX
Northside Center ........ 917 1977 Dec-91 3 - 40 years
Gainesville, FL
University Center ....... 792 1959 Jul-91 3 - 40 years
Waco, TX
64
65
SCHEDULE III
TARRAGON REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 19999
(DOLLARS IN THOUSANDS)
COSTS (A)
CAPITALIZED GROSS CARRYING AMOUNTS
INITIAL COST TO COMPANY SUBSEQUENT AT END OF YEAR
------------------------ TO ACQUISITION ------------------------------
BUILDINGS AND -------------- BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ---------------- ------------ ------ ------------- -------------- ------- ------------- ------
PROPERTIES HELD FOR INVESTMENT
Land
Ft. Worth, TX .................... $ 1,950 $ 2,468 $ -- $ 1 $ 2,469 $ -- $ 2,469
Vistas Observatory ............... (F) -- 707 -- 72 734 45 779
--------- -------- -------- -------- -------- -------- --------
213,057 47,922 154,219 87,597 49,062 240,676 289,738
PROPERTIES HELD FOR SALE
Apartments
Devonshire ....................... (D) 19,400 1,048 3,162 3,457 827 6,840 7,667
Denver, CO
Heather Hills .................... 16,472 643 14,562 7,287 766 21,726 22,492
Temple Hills, MD
Lake Point ....................... (D) 9,000 2,075 6,225 2,708 2,074 8,934 11,008
Memphis, TN
Office Buildings
Emerson Center ................... 6,085 131 8,781 (30) 1,048 7,834 8,882
Atlanta, GA
NW O'Hare ........................ 1,850 1,990 7,965 (2,009) 1,104 6,842 7,946
Des Plaines, IL
Rancho Sorrento .................. 4,975 1,251 12,901 882 2,231 12,803 15,034
San Diego, CA
Shopping Centers
Emerson Center ................... 830 -- 363 18 -- 381 381
Atlanta, GA
K-Mart Plaza ..................... -- 571 1,333 (754) 341 809 1,150
Charlotte, NC
Stewart Square ................... 2,188 294 1,460 716 294 2,176 2,470
Las Vegas, NV
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OPERATIONS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------- ------------ ------------ -------- -------------
PROPERTIES HELD FOR INVESTMENT
Land
Ft. Worth, TX .................... $ -- -- Oct-99 --
Vistas Observatory ............... (F) -- -- Apr-98 3 - 40 years
-------
36,143
PROPERTIES HELD FOR SALE
Apartments
Devonshire ....................... (D) 1,440 1969 Mar-89 3 - 40 years
Denver, CO
Heather Hills .................... 7,700 1976 May-86 3 - 40 years
Temple Hills, MD
Lake Point ....................... (D) 1,146 1974 May-93 3 - 40 years
Memphis, TN
Office Buildings
Emerson Center ................... 4,469 1974 Jul-86 3 - 40 years
Atlanta, GA
NW O'Hare ........................ 3,722 1972 Apr-86 3 - 40 years
Des Plaines, IL
Rancho Sorrento .................. 5,758 1980 May-86 3 - 40 years
San Diego, CA
Shopping Centers
Emerson Center ................... 34 1974 Jul-86 3 - 40 years
Atlanta, GA
K-Mart Plaza ..................... 81 1977 Dec-91 3 - 40 years
Charlotte, NC
Stewart Square ................... 839 1971 Oct-87 3 - 40 years
Las Vegas, NV
65
66
SCHEDULE III
TARRAGON REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
(DOLLARS IN THOUSANDS)
COSTS (A)
CAPITALIZED GROSS CARRYING AMOUNTS
INITIAL COST TO COMPANY SUBSEQUENT AT END OF YEAR
------------------------ TO ACQUISITION --------------------------------
BUILDINGS AND -------------- BUILDINGS AND
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS LAND IMPROVEMENTS TOTAL
- ---------------- ------------ -------- ------------- -------------- ------- ------------- --------
PROPERTIES HELD FOR SALE
Shopping Centers
Times Square ..................... $ -- $ 125 $ 499 $ 58 $ 125 $ 557 $ 682
Lubbock, TX
Other
Snyder Residence ................. -- -- 39 -- 12 27 39
Gilbert, AZ
Land
Dallas, TX ....................... -- 737 3,782 (4,412)(C) 107 -- 107
Kansas City, MO .................. -- 802 1,871 (2,364) 309 -- 309
--------- -------- -------- ------- ------- -------- --------
60,800 9,667 62,943 5,557 9,238 68,929 78,167
--------- -------- -------- ------- ------- -------- --------
$ 273,857 $ 57,589 $217,162 $93,154 $58,300 $309,605 $367,905
========= ======== ======== ======= ======= ========
Allowance for Estimated Losses (1,156)
--------
$366,749
========
LIFE ON WHICH
DEPRECIATION
IN LATEST
STATEMENT
ACCUMULATED DATE OF DATE OPERATIONS
DESCRIPTION DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
- ---------------- ------------ ------------ -------- -------------
PROPERTIES HELD FOR SALE
Shopping Centers
Times Square ..................... $ 92 1985 Jul-89 3 - 40 years
Lubbock, TX
Other
Snyder Residence ................. 1 -- -- --
Gilbert, AZ
Land
Dallas, TX ....................... -- -- Jun-86 --
Kansas City, MO .................. -- -- Dec-91 --
Allowance for Estimated Losses --------
25,282
--------
$ 61,425
========
(A) Represents property improvements and write-down of properties due to
permanent impairment.
(B) Represents an advance under the $35 million revolving credit facility with
GMAC Commercial Mortgage.
(C) Basis charged against allowance previously provided.
(D) Represents an advance under the $50 million revolving credit facility with
GMAC Commercial Mortgage.
(E) $4.6 million of this balance represents an advance under the $35 million
revolving credit facility with GMAC Commercial Mortgage.
(F) This property has been pledged as additional collateral on the $1.95
million loan which financed the acquisition of the Fort Worth land.
66
67
SCHEDULE III
(Continued)
TARRAGON REALTY INVESTORS, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
1999 1998 1997
--------- --------- ---------
(dollars in thousands)
Reconciliation of real estate
Balance at January 1, ............................ $ 347,771 $ 281,163 $ 237,502
Additions
Acquired through merger ..................... -- 46,312 --
Acquisitions and improvements ............... 37,580 23,349 58,683
Deductions
Sales ....................................... (17,446) (3,053) (12,762)
Write-offs .................................. -- -- (2,260)
--------- --------- ---------
Balance at December 31, .......................... $ 367,905 $ 347,771 $ 281,163
========= ========= =========
Reconciliation of accumulated depreciation
Balance at January 1, ............................ $ 52,602 $ 46,033 $ 42,251
Additions
Depreciation ................................ 10,645 7,339 7,022
Deductions
Sale of real estate ......................... (1,804) (770) (3,190)
Write-offs .................................. (18) -- (50)
--------- --------- ---------
Balance at December 31, .......................... $ 61,425 $ 52,602 $ 46,033
========= ========= =========
67
68
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Board of Directors
Tarragon's Board of Directors currently consists of ten members, eight of whom
are independent. With the exception of Robert C. Rohdie, each of the current
members of the Board was elected at the last annual meeting of stockholders held
on August 18, 1999, to serve until the next annual meeting of stockholders or
until a successor has been elected or approved. Mr. Rohdie was appointed to the
Board effective February 7, 2000, following Tarragon's acquisition of his
interests in Tarragon's joint venture projects with him. Tarragon's directors
are listed below, together with their ages, terms of service, all positions held
with Tarragon and its predecessors, their principal occupations, business
experience, and all other directorships they have held with other companies over
the last five years or more. There are no family relationships between any
directors and executive officers.
CARL B. WEISBROD (55) (Independent) has served as Chairman of the Board of
Directors since December 1998. He also served as Chairman of the Board of
Trustees of NIRT from February 1994 to November 1998. He was a member of the
Board of Trustees of Vinland Property Trust from February 1994 to May 1995. He
has served as a trustee (since 1996) of the Ford Foundation, is President (since
1994) of Alliance for Downtown New York, Inc., and was President and Chief
Executive Officer (April 1990 to 1994) of the New York City Economic Development
Corporation.
WILLIAM S. FRIEDMAN (56) (Affiliated) has served as President, Chief Executive
Officer, and a Director of Tarragon since April 1997 and as a Trustee (from
March 1988), Chief Executive Officer (from December 1993), President (from
December 1988), acting Chief Financial Officer (May 1990 to February 1991),
Treasurer (August to September 1989), and acting Principal Financial and
Accounting Officer (December 1988 to August 1989) of Vinland Property Trust
(until July 1997) and NIRT (until November 1998). He has been an attorney at law
since 1971.
CHESTER BECK (70) (Independent) has been a Director of Tarragon since April
1997. He was a Trustee of Vinland Property Trust from May 1995 to July 1997.
Since March 1995, Mr. Beck has been President of Highland Funding Corp., a
mortgage brokerage firm. Prior thereto, from January 1994 to March 1995, he was
National Sales Manager of Columbia Equities Limited, a real estate financing
entity. From April 1992 to January 1994, he was Senior Vice President of
Peregine Mortgage Company, Inc., a FHA approved mortgagee specializing in
multi-family and health care project financing.
WILLIE K. DAVIS (68) (Independent) has been a Director of Tarragon since April
1997. Mr. Davis was a Trustee of Vinland Property Trust from October 1988 to
July 1997 and a Trustee of NIRT from October 1988 to March 1995. Since 1985, Mr.
Davis has been Chairman and 50% stockholder of Mid-South Financial Corporation,
a holding company for Mid-South Mortgage Company and Gibbs Mortgage Company. Mr.
Davis has been Chairman and sole stockholder of FMS, Inc., a property management
and real estate development firm, since December 1995 and served as President of
FMS from 1978 to 1995. Mr. Davis has been a Director of SouthTrust Bank of
Middle Tennessee since 1987 and a Trustee and Treasurer of Baptist Hospital,
Inc., a Tennessee general welfare not-for-profit corporation, since 1986. He was
also a Trustee or a Director (October
68
69
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Board of Directors (Continued)
1988 to March 1995) of Continental Mortgage and Equity Trust, Income Opportunity
Realty Trust, and Transcontinental Realty Investors, Inc., each of which were
publicly-held real estate investment trusts.
SALLY HERNANDEZ-PINERO (46) (Independent) has been a Director of Tarragon since
December 1998. She served as a Trustee of NIRT from May 1994 to November 1998.
Since April 1999, she has been Senior Vice President of The Related Companies.
From July 1998 to April 1999, she served as Managing Director of Fannie Mae
American Communities Fund. From October 1994 to June 1998, she was Of Counsel at
Kalkines, Arky, Zall and Bernstein, New York, New York. She was Chairwoman of
the New York City Housing Authority from February 1992 to April 1994. She has
been a Director of Consolidated Edison and of Dime Savings Bank since April
1994, and she has been an attorney at law since 1978.
LANCE LIEBMAN (58) (Independent) has been a Director of Tarragon since December
1998. He also served as a Trustee of NIRT from March 1995 to November 1998. Mr.
Liebman is the William S. Beinecke Professor of Law at Columbia Law School and
the Director of Parker School of Foreign and Comparative Law. He also serves as
a Director Designate, American Law Institute. He was the Dean of Columbia Law
School from 1991 to 1996. From 1970 to 1991, he was Assistant Professor,
Professor, and Associate Dean of Harvard Law School. He has been a Director of
the Greater New York Insurance Co. (both mutual and stock companies) since 1991,
a Director of M&F Worldwide since 1995, and a Director of Brookfield Financial
Properties, Inc., since 1996. He has been an attorney at law since 1968.
ROBERT C. ROHDIE (59) (Affiliated) was appointed to the Board of Tarragon and
began serving as President and Chief Executive Officer of Tarragon Development
Corporation, a wholly owned subsidiary of Tarragon responsible for real estate
development and renovation projects, in February 2000. From 1988 through
February 2000, Mr. Rohdie was the President of Rohdhouse Investments, Inc., his
wholly owned real estate development company, which acted as Tarragon's joint
venture partner in new construction and development projects since 1997. Mr.
Rohdie has been an attorney at law since 1965.
LAWRENCE G. SCHAFRAN (61) (Independent) has been a Director of Tarragon since
December 1998. He was a Trustee of NIRT from March 1995 to November 1998. Mr.
Schafran has been Managing General Partner of L.G. Schafran & Associates, a real
estate investment and development firm in New York City, since 1984. He has been
a Director of Publicards, an Old Greenwich, Connecticut, NYSE listed holding
company that operates through subsidiaries in manufacturing services, since
1986. From 1986 to December 1997, Mr. Schafran was a Director of Capsure
Holdings Corp., a Chicago, Illinois, NYSE listed property and casualty insurer.
From March 1993 to 1996, he was a Director of Oxigene, Inc., a U.S. and Swedish
pharmaceutical developer. From January 1995 to July 1997, he was a Director of
Glasstech, Inc., a Perrysberg, Ohio, manufacturer of glass bending and tempering
equipment. From December 1993 to October 1997, he was a Director, Member (from
September 1994 to October 1997), and Chairman (from December 1994 to October
1997) of the Executive Committee of The Dart Group Corporation, a Landover,
Maryland, NASDAQ listed holding company engaged with other publicly-traded
subsidiaries in discount automotive parts and accessories (Trak Auto
Corporation), discount book stores (Crown Books Corporation), discount
supermarkets, beverages, and real estate. Since January 1996, Mr. Schafran has
been Chairman of the Board of Delta-Omega Technologies, Inc., a Broussard,
Louisiana, manufacturer and distributor of environmentally safe fire foams,
industrial cleaners, and degreasers. He has been a Director of Discovery Zone,
Inc., since December 1997, a Director of Kasper A.S.L., Ltd., since 1997, and a
Director of Comsat Corporation since 1997.
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Board of Directors (Continued)
RAYMOND V.J. SCHRAG (54) (Independent) has been a Director of Tarragon since
December 1998. He was a Trustee of Vinland Property Trust from October 1988 to
May 1995 and of NIRT from October 1988 to November 1998. Mr. Schrag has been an
attorney with the Law Offices of Raymond V.J. Schrag in New York, New York,
since January 1995. He has been an attorney at law since 1973.
MICHAEL E. SMITH (57) (Independent) has been a Director of Tarragon since April
1997. Mr. Smith was a Trustee of Vinland Property Trust from October 1988 to
August 1991 and from May 1995 to July 1997. He has been Assistant Professor of
Law since August 1995 at the University of Wisconsin in Madison, Wisconsin. He
has also served as Research Director of the Remington Center at the University
of Wisconsin Law School since 1997. He served as President (1988 to 1995) and a
Director (from 1978 to 1994) of the Vera Institute of Justice, a New York
not-for-profit corporation concerned with the administration of justice. From
1987 to 1995, he was a Trustee of Prosecuting Attorneys Research Counsel, Inc.
From 1986 to 1990, he was a Trustee of New York Lawyers for the Public Interest.
From 1986 to 1993, he was a Trustee of Housing Services, Inc. From 1978 to 1995,
he was a Trustee of Manhattan Bowrey Corporation, Inc. From 1978 to 1995, he was
a Director of the Center for Alternative Sentencing and Employment Services,
Inc., formerly Court Employment Project, Inc. Mr. Smith has been a Trustee of
New York City Criminal Justice Agency, Inc., since 1978 and an attorney at law
since 1971.
Involvement in Certain Legal Proceedings
In November 1994, William S. Friedman consented to an order prohibiting him from
participating in an insured depository institution without the prior written
approval of the Director of the Office of Thrift Supervision. Mr. Friedman has
been released from any liability arising from his association with the former
San Jacinto Savings Association, a savings institution placed under
conservatorship of the Resolution Trust Corporation on November 30, 1990.
Executive Officers
Mr. Friedman, Mr. Rohdie, and the individuals listed below currently serve as
the executive officers of Tarragon. Their positions with Tarragon are not
subject to a vote of stockholders. Tarragon's employment of Mr. Friedman and Mr.
Rohdie is subject to the terms of employment agreements more fully described in
ITEM 11. "EXECUTIVE COMPENSATION." All other executive officers serve until the
first meeting of the Board of Directors following the next succeeding annual
meeting of stockholders or until their successors have been duly chosen and
qualified.
PENNY D. BARBER (35) was appointed the Chief Operating Officer of Tarragon and
the President of Tarragon Management, Inc., a wholly owned subsidiary of
Tarragon, in December 1999. Ms. Barber served as Senior Vice President and
Director of Property Management for Tarragon from December 1998 to December
1999, as well as Executive Vice President of Tarragon Management from November
1998 to December 1999. She was previously Vice President and Director of
Marketing of Tarragon Realty Advisors, Inc., from May 1998 to November 1998. She
was the National Director of Marketing & Education for Galesi Management
Corporation from October 1996 to May 1998, National Marketing Director for Anne
Sadovsky & Co. from February 1995 to September 1996, and Regional Marketing and
Training Director for Lincoln Property Company from February 1990 to January
1995.
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Executive Officers (Continued)
CHRIS CLINTON (53) has been Senior Vice President - Commercial Asset Management
of Tarragon since March 1994. He also served as Senior Vice President -
Commercial Asset Management for Vinland Property Trust from March 1994 to July
1997 and for NIRT and Tarragon Realty Advisors from March 1994 to November 1998.
He was Vice President of Vinland Property Trust and of NIRT from October 1988 to
March 1994.
ERIN D. DAVIS (38) has been Executive Vice President and Chief Financial Officer
of Tarragon since December 1998. She previously served as Vice President and
Chief Accounting Officer for Tarragon from April 1997 to November 1998, of
Vinland Property Trust from September 1996 to July 1997, and of NIRT from
September 1996 to November 1998. She served as Accounting Manager of Vinland,
NIRT, and Tarragon Realty Advisors, Inc., from June 1995 to August 1996. She was
a Senior Associate at the national public accounting firm of BDO Seidman from
January 1993 to June 1995 and has been a Certified Public Accountant since 1990.
PETER LARSEN (58) has served as Senior Vice President - Acquisitions of Tarragon
since July 1997. From July 1997 to November 1998, he was Senior Vice President,
and, from April 1996 through June 1997, he was Vice President of NIRT and
Tarragon Realty Advisors. He previously worked as an Independent Consultant from
January 1995 to June 1996.
KATHRYN MANSFIELD (39) has been Executive Vice President of Tarragon since
December 1998 and Secretary and Corporate Counsel of Tarragon since May 1998.
She previously served as Vice President for Tarragon, NIRT, and Tarragon Realty
Advisors from May 1998 to December 1998. Prior to joining Tarragon, she was Vice
President and Senior Counsel for C.B. Richard Ellis, Inc., formerly CB
Commercial Real Estate Group, Inc., from October 1994 through May 1998. She has
been an attorney at law since 1984.
LORI D. MEYER (39) has served as Senior Vice President - Deputy Director of
Property Management of Tarragon since December 1998. She is also Senior Vice
President (since November 1998) and Controller (since February 1996) of Tarragon
Management, Inc., a wholly owned subsidiary of Tarragon. From February 1996 to
November 1998, she served as Vice President of Tarragon Management. From
February 1990 to January 1995, she was the Assistant Controller of South West
Property Trust, Inc., in Dallas, Texas. She has been a Certified Public
Accountant since 1996.
TODD C. MINOR (41) has been Senior Vice President (since December 1998) and
Treasurer (since April 1997) of Tarragon. Mr. Minor was also the Treasurer of
Vinland Property Trust from December 1996 through July 1997 and of NIRT from
December 1996 through November 1998. He served as Senior Vice President -
Mortgage Servicing and Financing from May 1995 to November 1996, Senior Vice
President - Finance from March 1994 to April 1995, and Vice President from April
1991 to July 1993 of Vinland Property Trust and NIRT and Senior Vice President
of Tarragon Realty Advisors from March 1994 through November 1998.
CHARLES RUBENSTEIN (41) has been Executive Vice President of Tarragon since
December 1998 and General Counsel since September 1998. He was also Senior Vice
President for Tarragon, NIRT, and Tarragon Realty Advisors from September 1998
to December 1998. Prior to joining Tarragon, he was employed as General Counsel
for Simpson Housing Limited Partnership in Denver, Colorado, from January 1996
to February 1998 and as a Real Estate Associate with the law firm of Andrews &
Kurth, L.L.P., in New York, New York, from October 1987 to November 1995. He has
been an attorney at law since 1984.
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ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTINUED)
Executive Officers (Continued)
JOHN C. STRICKLIN (53) has served as Managing Director - Real Estate
Transactions for Tarragon since November 1998. He previously served as Executive
Vice President from May 1995 to April 1996 and as Senior Vice President - Real
Estate from May 1994 to April 1995 of NIRT and as Vice President - Real Estate
from February 1994 to April 1995 of Vinland Property Trust. Mr. Stricklin acted
as Special Assistant to the President of Basic Capital Management, Inc., from
April 1996 to November 1998.
ITEM 11. EXECUTIVE COMPENSATION
Independent Director Compensation.
Our independent Directors receive annual compensation of $15,000 per year plus
reimbursement of expenses for their service on the Board. Mr. Weisbrod, as
Chairman of the Board, receives an additional $25,000 per year as compensation
for his services as Chairman. Except for the Chairman of the Board, independent
Directors also receive $2,000 per year for each committee of the Board on which
they serve, $1,000 per year for each committee that they chair, and $1,000 per
day for any special services rendered on Tarragon's behalf, plus reimbursement
of expenses. Directors who are also officers of Tarragon receive no separate
compensation for their services as director.
Tarragon's Independent Director Stock Option Plan (the "Director Plan") provides
for automatic annual grants of options to independent Directors serving on the
Board on the first day of each new fiscal year. The exercise price of all
options granted under the Director Plan is equal to the market price on the
grant date. The options are immediately exercisable and expire on the earlier of
the first anniversary of the date on which a director ceases to be a director or
ten years from the date of grant.
Pursuant to the terms of the Director Plan, each of our incumbent independent
Directors received an option to purchase 2,000 shares of Tarragon common stock
on January 1, 1999, and an option to purchase an additional 2,000 shares on
January 1, 2000. A total of 187,022 shares of common stock are currently
available for grant under the Director Plan.
Summary Compensation Table
We did not have any employees or pay any compensation to executive officers
prior to our acquisition of Tarragon Realty Advisors on November 24, 1998. Our
executive officers were compensated solely by Tarragon Realty Advisors until
that date. They performed a variety of services for Tarragon Realty Advisors,
and the amount of their compensation was determined solely by it. Following our
acquisition of Tarragon Realty Advisors, we began paying compensation to
executive officers and employees. However, none of our executive officers earned
or received compensation in excess of $100,000 from Tarragon in fiscal year
1998.
The following table reflects the compensation paid to our Chief Executive
Officer in fiscal years 1998 and 1999 and paid to each of our four most highly
compensated executive officers (the "named executive officers") in 1999 for
services rendered to Tarragon and its subsidiaries.
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ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
SUMMARY COMPENSATION TABLE
Long Term Compensation
Awards
Annual Securities Underlying
Name Principal Position Compensation Options/SARs
(Number of Shares)
Year Salary Bonus
- -----------------------------------------------------------------------------------------------------------------------------------
President 1998 $ 28,846 450,000 (1)
William S. Friedman Chief Executive Officer --
Director 1999 $300,000 --
--
Charles Rubenstein Executive Vice President
General Counsel 1999 $153,000 $ 50,000 --
Todd C. Minor Senior Vice President
Treasurer 1999 $128,000 $ 25,000 --
John Stricklin Managing Director -
Real Estate Transactions 1999 $130,000 $ 15,000 --
Executive Vice President
Kathryn Mansfield Secretary
Corporate Counsel 1999 $103,000 $ 30,000 --
(1) Mr. Friedman received options for 175,000 shares of common stock as part of
the consideration in the acquisition of Tarragon Realty Advisors.
Aggregated Option / SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
The following table shows the stock options exercised during 1999 by each of our
named executive officers and the fiscal year-end value of their unexercised
options on an aggregated basis.
AGGREGATED OPTION / SAR EXERCISES IN FISCAL YEAR 1999
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of securities Value of unexercised
Shares acquired on Value Realized underlying in-the-money
Name exercise ($) unexercised options/SARs at
(#) options/SARs at fiscal year end
fiscal year end ($)
(#)
-------------------- --------------------
Exercisable/ Exercisable/
Unexercisable Unexercisable
- --------------------------------------------------------------------------------------------------------------------
William S. Friedman -- -- 625,000/-0- -0-/-0-
Charles Rubenstein -- -- 3,000/12,000 -0-/-0-
Todd C. Minor 5,000 $ 17,166 10,498/-0- $49,629/-0-
John Stricklin -- -- 4,000/16,000 -0-/-0-
Kathryn Mansfield -- -- 7,266/5,734 $4,167/$2,083
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ITEM 11. EXECUTIVE COMPENSATION (CONTINUED)
Employment Contracts
Tarragon entered into an employment agreement with William S. Friedman in
November 1998 in connection with our acquisition of Tarragon Realty Advisors
from Mr. Friedman and his wife, Lucy N. Friedman. Mr. Friedman's employment
agreement is for a term of four years at an annual salary of $300,000, includes
a broad covenant not to compete with Tarragon during the term of the agreement
and for a period of three years following termination, and includes a right of
first refusal in favor of Tarragon with regard to any real estate investment
opportunity that comes to his attention. Mr. Friedman also received immediately
exercisable stock options to purchase 250,000 shares of Tarragon common stock at
an exercise price of $12 per share and 200,000 shares of Tarragon common stock
at an exercise price of $15 per share in connection with his employment
agreement.
Mr. Friedman's employment with Tarragon may be terminated at any time by mutual
agreement of the parties on terms to be negotiated and reduced to writing at the
time of termination. In the event that Mr. Friedman dies during the initial or
any renewal term of his employment agreement, his estate is entitled to the
greater of the compensation which would have been payable to him over the
remainder of the initial term of the agreement or through the end of the then
current calendar year if in a renewal term or the value of any other benefits
available to them under any benefit plan Tarragon then has in effect. In the
event that Mr. Friedman's employment is terminated during the initial or any
renewal term of his employment agreement for any reason other than the mutual
agreement of the parties or his death, Tarragon is obligated to continue to pay
him $25,000 per month for the greater of the balance of the initial term of the
agreement or through the end of the then current calendar year if in a renewal
term and the number of months he observes the restrictive covenants and
agreement not to compete contained in his employment agreement, but in any event
not more than 36 months from the date of termination.
Tarragon entered into an employment agreement with Robert C. Rohdie effective
February 1, 2000, following Tarragon's acquisition of Mr. Rohdie's interests in
our joint venture projects with him. Mr. Rohdie's employment agreement is for a
term of three years at an annual salary of $200,000. It also includes a broad
covenant not to compete with Tarragon during the term of the agreement and for a
period of one year following termination and a right of first refusal in favor
of Tarragon with regard to any real estate investment opportunity that comes to
his attention. Mr. Rohdie's employment with Tarragon may be terminated at any
time by mutual agreement of the parties on terms to be negotiated and reduced to
writing at the time of termination. In the event that Mr. Rohdie's employment
with Tarragon is terminated by the Board without cause during the initial or any
renewal term of his agreement, Tarragon is obligated to continue to pay him
$16,666 per month for the lesser of the remaining number of months in the
initial term of the agreement or the then annual renewal term of the agreement
and the number of months he observes the restrictive covenants and agreement not
to compete contained in his employment agreement, but in any event not more than
12 months from the date of termination.
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee consists of Lance Liebman, Carl B.
Weisbrod, and Raymond V.J. Schrag, who are all independent members of our Board
of Directors. None of the members of the committee are current or former
employees of Tarragon.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth information concerning the holdings of each
person known to Tarragon to be the beneficial owner of more than five percent of
our common stock, of each director and named executive officer, and of all of
Tarragon's directors and executive officers as a group as of the close of
business on March 20, 2000. All information with respect to beneficial ownership
was furnished to Tarragon by the respective director, officer, or stockholder.
Security Ownership of Certain Beneficial Owners
Amount and Nature
Name and Address of of Beneficial Percent of
Beneficial Owner Ownership Class (1)
- ------------------------------------ ----------------------------- --------------
Lucy N. Friedman 3,054,732 (2)(3)(4) 37.5%
280 Park Avenue (5)(6)
East Building, 20th Floor
New York, New York 10017
(1) Percentage is based upon 7,970,801 shares of common stock outstanding at
March 20, 2000.
(2) Includes 1,889,068 shares owned by Mrs. Friedman directly and 175,000
shares covered by a presently exercisable option.
(3) Includes 116,676 shares owned by Lucy N. Friedman's spouse, William S.
Friedman.
(4) Includes 74,299 shares owned by Mrs. Friedman's minor sons, Gideon and
Samuel Friedman. Mrs. Friedman disclaims beneficial ownership of such
shares.
(5) Includes 124,738 shares owned by Tarragon Capital Corporation, of which
Mrs. Friedman and Mr. Friedman are executive officers and directors;
131,344 shares owned by Tarragon Partners, Ltd., of which Mrs. Friedman and
Mr. Friedman are limited partners and Tarragon Capital is the general
partner; and 543,607 shares owned by Beachwold Partners, L.P., in which
Mrs. Friedman and Mr. Friedman are the general partners and their four
children are the limited partners.
(6) Does not include 90,504 shares owned by Mrs. Friedman's adult son, Ezra
Friedman, and 66,343 shares owned by Mrs. Friedman's adult daughter, Tanya
Friedman. Mrs. Friedman disclaims beneficial ownership of such shares.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(CONTINUED)
Security Ownership of Management
Amount and Nature Percent of
of Beneficial Class (1)
Name of Beneficial Owner Ownership
- ---------------------------- ----------------------------- ----------
William S. Friedman 3,504,732(2)(3)(4)(5)(6) 40.8%
Sally Hernandez-Pinero 17,672(7) *
Lance Liebman 19,848(8) *
L. G. Schafran 17,672(9) *
Raymond V.J. Schrag 68,420(10) *
Carl B. Weisbrod 19,777(11) *
Chester Beck 15,007(12) *
Willie K. Davis 8,200(13) *
Michael E. Smith 6,500(14) *
Robert C. Rohdie 45,323(15) *
Kathryn Mansfield 8,266(16) *
Todd C. Minor 15,498(17) *
Charles D. Rubenstein 3,000(18) *
John Stricklin 10,794(19) *
All Directors and Executive 3,807,963(2)(3)(4)(5)(6) 43.5%
Officers as a group (7)(8)(9)(10)(11)
(19 individuals) (12)(13)(14)(15)
(16)(17)(18)(19)
* Less than 1%.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(CONTINUED)
Security Ownership of Management (Continued)
(1) Percentages are based upon 7,970,801 shares of common stock outstanding at
March 20, 2000.
(2) Includes 116,676 shares owned by Mr. Friedman directly and 625,000 shares
covered by two separate presently exercisable options.
(3) Includes 1,889,068 shares owned by Mr. Friedman's spouse, Lucy N. Friedman.
Mr. Friedman disclaims beneficial ownership of all such shares.
(4) Includes 124,738 shares owned by Tarragon Capital Corporation, 131,344
shares owned by Tarragon Partners, Ltd., and 543,607 shares owned by
Beachwold Partners, L.P.
(5) Includes 74,299 shares owned by Mr. Friedman's minor sons, Gideon and
Samuel Friedman. Mr. Friedman disclaims beneficial ownership of such
shares.
(6) Does not include 90,504 shares owned by Mr. Friedman's adult son, Ezra
Friedman, and 66,343 shares owned by Mr. Friedman's adult daughter, Tanya
Friedman. Mr. Friedman disclaims beneficial ownership of such shares.
(7) Includes 17,672 shares covered by six separate presently exercisable
options.
(8) Includes 2,176 shares owned by Mr. Liebman directly and 17,672 shares
covered by six separate presently exercisable options.
(9) Includes 17,672 shares covered by six separate presently exercisable
options.
(10) Includes 44,338 shares owned by Mr. Schrag directly and 17,672 shares
covered by six separate presently exercisable options. Also includes 6,410
shares owned by Mr. Schrag's wife individually and as custodian for his
minor son, Ben. It does not include 1,410 shares owned by Mr. Schrag's
adult daughter, Rebecca, as to which shares Mr. Schrag disclaims any
beneficial ownership.
(11) Includes a total of 5,105 shares owned by Mr. Weisbrod directly (3,000 of
such shares acquired by virtue of a stock option exercise on January 1,
1999) and 14,672 shares covered by six separate presently exercisable
options.
(12) Includes 9,507 shares owned by Mr. Beck directly and 5,500 shares covered
by six separate presently exercisable options.
(13) Includes a total of 4,200 shares owned by Mr. Davis directly (1,500 of such
shares acquired by virtue of a stock option exercise on May 11, 1999) and
4,000 shares covered by two separate presently exercisable options.
(14) Includes 1,000 shares owned by Mr. Smith directly and 5,500 shares covered
by six separate presently exercisable options.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(CONTINUED)
Security Ownership of Management (Continued)
(15) Includes 44,673 shares owned by Rohdhouse Investments, Inc., a Florida
corporation owned by Mr. Rohdie, and 650 shares owned by his spouse. See
also ITEM 13. "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" for a
discussion of Mr. Rohdie's interest in an operating partnership with
Tarragon.
(16) Includes 1,000 shares owned by Ms. Mansfield and her spouse as custodian
for their minor children, Colin and Ashlyn. Also includes 7,266 shares
covered by two presently exercisable options.
(17) Includes 5,000 shares acquired by Mr. Minor by virtue of a stock option
exercise on January 28, 1999, and 10,498 shares covered by five separate
presently exercisable options.
(18) Includes 3,000 shares covered by a presently exercisable option.
(19) Includes 6,794 shares owned by Mr. Stricklin directly and 4,000 shares
covered by a presently exercisable option.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Exchange Act requires that our directors, executive
officers, and persons holding more than ten percent of our common stock file
initial reports of ownership of the common stock and reports of any changes in
that ownership to the SEC. Specific due dates for these reports have been
established, and Tarragon is required to report any failure to file by these
dates during fiscal 1999.
To our knowledge, based solely upon the written representations of our incumbent
directors, executive officers, and ten percent stockholders and copies of the
reports that they have filed with the SEC, these filing requirements were
satisfied during 1999 except that a report on Form 4 for Mr. Rohdie, reflecting
two transactions in the month of December 1999 (before he became an officer or
director of Tarragon) was filed late.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1999, affiliates of William S. Friedman and his wife, Lucy N. Friedman, made
advances to Tarragon pursuant to the terms of a $6 million unsecured line of
credit. Advances under the line of credit bear interest at the lower of LIBOR
plus 1% per annum or the lowest rate at which credit is offered to Tarragon by
any third party. The outstanding balance of the advances as of December 31,
1999, was $5.1 million, including interest accrued during the year of $360,000.
In 1999, Tarragon managed seven apartment properties and one commercial
property owned by affiliates of Mr. Friedman and received management fees
totalling $279,000 for these services.
During 1999, as an accommodation to Tarragon, the family of Mr. Friedman
pledged Tarragon common stock as collateral for a $6 million line of credit
facility obtained by Tarragon. As of December 31, 1999, the shares pledged by
the Friedman family have been replaced with treasury shares purchased under our
stock repurchase program.
On February 7, 2000, Tarragon acquired the interests of Robert C. Rohdie and his
affiliates in ten apartment communities recently completed or currently under
construction, as well as in all joint venture development projects still in the
planning stages, for a total value of up to $10,000,000. Mr. Rohdie, who was
Tarragon's joint venture partner in the development of these projects,
contributed his equity interests to an operating partnership formed by Tarragon
in exchange for a preferred interest in the operating partnership and a
guaranteed fixed return of $200,000 for the first two years, increasing by
$40,000 per year for the next five years, plus an annual amount equal to the
dividends payable on 96,385 shares of Tarragon common stock. In addition, upon
completion and lease up of each of the five identified apartment communities
presently under construction or in advanced stages of development planning, Mr.
Rohdie will receive an increase in his guaranteed fixed return based on the
agreed value of his equity in the completed property. After one year, Mr. Rohdie
has the right to convert his preferred interest in the operating partnership
into 96,385 shares of our common stock and preferred stock with a face value of
up to $8 million and a like dividend to his guaranteed fixed return from the
operating partnership. If we do not have available an issue of preferred stock
outstanding at the time of the conversion, or at our discretion, we may pay Mr.
Rohdie the cash value of his preferred interest over three years. In connection
with this acquisition transaction, Tarragon formed a new development subsidiary
to expand our real estate development and renovation program, and Mr. Rohdie
joined Tarragon as President and Chief Executive Officer of Tarragon Development
Corporation and as a member of our Board of Directors effective February 7,
2000.
We believe that the foregoing transactions were at least as advantageous to us
as we could have obtained from unrelated third parties.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT 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 Public Accountants - Arthur Andersen LLP
Consolidated Balance Sheets - December 31, 1999 and 1998
Consolidated Statements of Operations -
Years Ended December 31, 1999, 1998, and 1997
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 1999, 1998, and 1997
Consolidated Statements of Cash Flows -
Years Ended December 31, 1999, 1998, and 1997
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation
All other schedules are omitted because they are not applicable or because the
required information is shown in the Consolidated Financial Statements or the
notes thereto.
3. Exhibits
The following documents are filed as Exhibits to this report:
Exhibit
Number Description
2.1 Agreement and Plan of Merger dated June 5, 1998, by and
between Tarragon Realty Investors, Inc., and National Income
Realty Trust (incorporated by reference to Exhibit 3.6 to
Registration Statement No. 333-60527 on Form S-4).
2.2 Stock Purchase Agreement dated June 5, 1998, among Tarragon
Realty Investors, Inc., Tarragon Realty Advisors, Inc.,
William S. Friedman, and Lucy N. Friedman (incorporated by
reference to Exhibit 3.7 to Registration Statement No.
333-60527 on Form S-4).
3.1 Articles of Incorporation of Tarragon Realty Investors, Inc.
(incorporated by reference to Exhibit 3.2 to Form 8-K dated
July 10, 1997).
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ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Exhibit
Number Description
3.2 Bylaws of Tarragon Realty Investors, Inc. (incorporated by
reference to Exhibit 3.3 to Form 8-K dated July 10, 1997).
4.1 Indenture Agreement dated September 15, 1993, between Vinland
Property Trust and American Stock Transfer and Trust Company
(incorporated by reference to Exhibit 4.7 to Registration
Statement No. 33-66294 on Form S-11).
10.1* Limited Liability Company Agreement of Tarragon Development
LLC dated February 7, 2000, between Tarragon Realty
Investors, Inc., and The Rhodie Family LLC.
10.2* Employment Agreement dated February 7, 2000, between Tarragon
Realty Investors, Inc., and Robert C. Rhodie.
21.1* Subsidiaries of the Registrant.
27.1* Financial Data Schedule.
* Filed herewith
(b) No reports on Form 8-K were filed during the fourth quarter covered
by this report or with respect to events occurring after the period
covered by this report but prior to the filing of this report.
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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.
TARRAGON REALTY INVESTORS, INC.
Dated: March 30, 2000 By: /s/ William S. Friedman
-------------------- -----------------------------------
William S. Friedman
President, Chief Executive Officer,
and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated.
Signature Capacities In Which Signed Date
/s/ Carl B. Weisbrod Director and Chairman of the Board March 30, 2000
- ------------------------------- --------------
Carl B. Weisbrod
/s/ William S. Friedman President, Chief Executive Officer, March 30, 2000
- ------------------------------- and Director --------------
William S. Friedman (Principal Executive Officer)
/s/ Erin D. Davis Executive Vice President and March 30, 2000
- ------------------------------- Chief Financial Officer --------------
Erin D. Davis (Principal Financial and
Accounting Officer)
/s/ Chester Beck Director March 30, 2000
- ------------------------------- --------------
Chester Beck
/s/ Willie K. Davis Director March 30, 2000
- ------------------------------- --------------
Willie K. Davis
/s/ Sally Hernandez-Pinero Director March 30, 2000
- ------------------------------- --------------
Sally Hernandez-Pinero
/s/ Lance Liebman Director March 30, 2000
- ------------------------------- --------------
Lance Liebman
/s/ Robert C. Rohdie Director March 30, 2000
- ------------------------------- --------------
Robert C. Rohdie
/s/ Lawrence G. Schafran Director March 30, 2000
- ------------------------------- --------------
Lawrence G. Schafran
/s/ Raymond V.J. Schrag Director March 30, 2000
- ------------------------------- --------------
Raymond V. J. Schrag
/s/ Michael E. Smith Director March 30, 2000
- ------------------------------- --------------
Michael E. Smith
82
83
TARRAGON REALTY INVESTORS, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
2.1 Agreement and Plan of Merger dated June 5, 1998, by and
between Tarragon Realty Investors, Inc., and National Income
Realty Trust (incorporated by reference to Exhibit 3.6 to
Registration Statement No. 333-60527 on Form S-4).
2.2 Stock Purchase Agreement dated June 5, 1998, among Tarragon
Realty Investors, Inc., Tarragon Realty Advisors, Inc.,
William S. Friedman, and Lucy N. Friedman (incorporated by
reference to Exhibit 3.7 to Registration Statement No.
333-60527 on Form S-4).
3.1 Articles of Incorporation of Tarragon Realty Investors, Inc.
(incorporated by reference to Exhibit 3.2 to Form 8-K dated
July 10, 1997).
3.2 Bylaws of Tarragon Realty Investors, Inc. (incorporated by
reference to Exhibit 3.3 to Form 8-K dated July 10, 1997).
4.1 Indenture Agreement dated September 15, 1993, between Vinland
Property Trust and American Stock Transfer and Trust Company
(incorporated by reference to Exhibit 4.7 to Registration
Statement No. 33-66294 on Form S-11).
10.1* Limited Liability Company Agreement of Tarragon Development
LLC dated February 7, 2000, between Tarragon Realty
Investors, Inc., and The Rhodie Family LLC.
10.2* Employment Agreement dated February 7, 2000, between Tarragon
Realty Investors, Inc., and Robert C. Rhodie.
21.1* Subsidiaries of the Registrant.
27.1* Financial Data Schedule.
* Filed herewith
83