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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.
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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.]
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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.
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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
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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.
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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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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
========== ======== ========= ===