Back to GetFilings.com
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
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO_____________________
COMMISSION FILE NUMBER 0-22999
-------
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.)
1775 BROADWAY, 23RD FLOOR, NEW YORK, NY 10019
- ---------------------------------------- ------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 949-5000
----------------
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
10% CUMULATIVE PREFERRED 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. [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes _X_ No ___
The aggregate market value of the shares of voting and non-voting common equity
held by non-affiliates of the Registrant, computed by reference to the price of
the last trade as reported by the National Association of Securities Dealers
Automated Quotation System as of June 30, 2003 (the last business day of
registrant's most recently completed second fiscal quarter) was an aggregate
value of $92,679,135 based upon a total of 6,369,700 shares held as of June 30,
2003, by persons believed to be non-affiliates of the Registrant. The basis of
this calculation does not constitute a determination by the Registrant that any
persons or entities are affiliates of the Registrant as defined in Rule 405 of
the Securities Act of 1933, as amended. As of March 4, 2004, there were
14,954,739 shares of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and Exchange
Commission for Registrant's 2003 Annual Meeting of Shareholders to be held in
June 2004 are incorporated by reference into Part III.
1
INDEX TO
ANNUAL REPORT ON FORM 10-K
Page
PART I
Item 1. Business.............................................................. 3
Item 2. Properties............................................................ 18
Item 3. Legal Proceedings..................................................... 28
Item 4. Submission of Matters to a Vote of Security Holders................... 28
PART II
Item 5. Market for Registrant's Common Equity
and Related Stockholder Matters.................................... 29
Item 6. Selected Financial Data............................................... 30
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.............................................. 31
Item 7A. Quantitative and Qualitative Disclosures About Market Risk............ 49
Item 8. Financial Statements and Supplementary Data........................... 50
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure............................................... 98
Item 9A. Controls and Procedures............................................... 98
PART III
Item 10. Directors and Executive Officers of the Registrant.................... 99
Item 11. Executive Compensation................................................ 99
Item 12. Security Ownership of Certain Beneficial Owners and Management........ 99
Item 13. Certain Relationships and Related Transactions........................ 99
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...... 100
Signature Page........................................................ 102
2
PART I
ITEM 1. BUSINESS
GENERAL
Tarragon Realty Investors, Inc., is a real estate owner, developer, and builder
of homes with over 30 years of experience developing, renovating, operating, and
selling properties. During 2003, we delivered 282 homes with an average price of
$187,000 per home and 29 single-family lots with an average price of $43,000 per
lot. At December 31, 2003, we had 18 residential communities with 2,257 homes or
home sites under development in four states and a backlog of signed contracts
for 774 homes valued in excess of $200 million. As of December 31, 2003, we also
had interests in 14,345 rental apartment units in 62 residential communities and
1.2 million square feet of office and retail space, located in 14 states,
primarily in Florida, Connecticut, and Texas. For more detailed information
about our rental and for-sale communities, please see ITEM 2. "PROPERTIES."
We operate through two business segments:
o Homebuilding Division develops, renovates, builds, and markets homes
in high-density, in-fill locations and in master planned communities
and develops and sells lots in single-family subdivisions.
o Investment Division owns, acquires, and operates residential and
commercial rental properties, including almost 5,000 garden apartment
homes in communities built by Tarragon.
Over the past seven years, we have substantially increased our investment in
homebuilding and development. Homebuilding is now the main focus of our business
in terms of financial investment and human capital. Over two-thirds of our
general overhead is now directly related to the homebuilding division. Because
of the long lead time for large projects in urban areas, we are just starting to
recognize revenues from some of our earliest projects, which began in 2000. In
2003, our for-sale homebuilding revenue reached $154 million (including
unconsolidated ventures) compared to $26 million in 2002. Beginning this year,
we report development of for-sale housing and development of rental communities
together because of their many similarities in terms of personnel, procedures
and skill sets.
Operationally, there is substantial beneficial overlap between the two
divisions, and each is stronger and more efficient because of the presence of
the other. Our asset and property managers who oversee the Investment Division
provide our developers with real time market data and participate actively in
decisions relating to the development of rental and, to a lesser extent,
for-sale properties. We believe that this close involvement of property managers
contributed to the success of Tarragon's most recent rental developments. The
Vintage Cottage Apartments in Orlando, Florida, which opened for rental in April
2003, achieved higher than forecast rents and a quicker lease-up, in part
because of suggested product improvements from the Investment Division. On the
other hand, the Homebuilding Division has contributed its expertise in
purchasing appliances, carpeting, hardware, and cabinets to lower costs for the
Investment Division. Furthermore, executives and engineers in the Homebuilding
Division have materially helped reduce capital expenditures in the Investment
Division through better planning and bidding renovation contracts.
A description of the two segments and financial and other related information
can be found in NOTE 14. "SEGMENT REPORTING" in the Notes to Consolidated
Financial Statements found at ITEM 8. "FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA."
3
OBJECTIVES AND INVESTMENT POLICIES
Our business objective is to increase stockholder value through the application
of management skill, experience, market knowledge, and strategic deployment of
capital. We describe below the strategies we employ in each of our business
segments to achieve this objective.
Homebuilding Division
Our homebuilding division concentrates on five distinct product types.
o Luxury mid- and high-rise condominiums. These properties are designed
from the ground up to offer a luxurious life-style to discriminating
purchasers. For example, homes at Las Olas River House, a 42 story,
1.2 million square foot tower in downtown Ft. Lauderdale, FL, feature
high ceilings, oversized rooms, opulent bathrooms, and prices ranging
from $300,000 to over $5,000,000. Development, construction, and sale
of these projects takes three to five years or more. Besides Las Olas
River House, with 287 apartments, Tarragon's projects in this category
include Alta Mar, with 131 units and a marina in Ft. Myers, Florida,
The Metropolitan in Sarasota, Florida, with 124 units all over 3,400
square feet, and several buildings in northwestern Hoboken and
Edgewater, New Jersey.
o Condominium conversions. For these properties, Tarragon acquires a
residential rental property either from the Investment Division or
from a third party and sells the individual apartments. Before
selling, Tarragon typically renovates or rebuilds the property to make
it attractive to homebuyers. Condominium conversions typically produce
revenue within twelve months. Prices in Tarragon's condominium
conversions range from $130,000 to $890,000, depending largely on
size, location, and view. Tarragon's active conversion projects
include Tuscany on the Intracostal in Boynton Beach, FL, which
Tarragon purchased in June 2003, 5600 Collins Avenue in Miami Beach,
Florida, which is sold out except for four penthouse apartments, and
Pine Crest in Ft. Lauderdale, Florida. The latter two projects were
previously in the Tarragon Investment Division. Tarragon expects to
acquire a fourth Florida condominium conversion property with 231
apartments in March 2004. Tarragon's property managers are helpful in
identifying and evaluating opportunities in this area. They also
manage conversion properties until a majority of the apartment homes
are sold.
o Townhomes, carriage houses, and low-rise condominiums. Tarragon's
projects in this area typically involve locations adjacent to fully
developed areas and include Venetian Bay in Orlando, Florida,
Cheekwood homes in Nashville, Tennessee, and Warwick Grove in Warwick,
New York. Prices range from $149,000 for a three bedroom, fully
furnished holiday villa at Venetian Bay near Disney World in Orlando,
Florida, to over $1,000,000 for a carriage house adjacent to Warner
Park in Nashville, Tennessee. We also include in this product type
age-restricted developments such as Warwick Grove, a 214 home,
traditional new development in Warwick, New York.
o Development of low- and mid-rise rental apartment communities.
Tarragon typically builds rental properties to add to the Investment
Division on completion and rent-up. These include luxury garden
apartments, such as the 296 unit Vintage Cottage Apartments in
Orlando, Florida, and the 390 unit Vintage at Abacoa in Jupiter,
Florida. Tarragon is also the developer for 1118 Adams, a 90 unit
affordable tax credit project in Hoboken, New Jersey.
4
o Renovation and repositioning of older, rental apartments. Tarragon and
its senior executives have specialized in these projects for several
decades. Tarragon's Connecticut apartment portfolio is an example of
this type of activity. Tarragon and its partners acquired eleven
apartment communities between 1997 and 1999, all of which suffered
from neglect, poor management, and physical obsolescence. Through
well-coordinated physical improvements, sensitive management, and
aggressive marketing, these older properties generated sustained
increases in net operating income of 16% annually from their
acquisition through December 31, 2003. Tarragon continues to look for
promising "turn around" properties for acquisition in Connecticut,
Florida, and Texas.
Leveraging Experience and Relationships
Our homebuilding activities have grown out of the experience of Tarragon
executives in commercial and residential development, real estate finance, and
property management. For example, our top three executives, William S. Friedman,
Robert Rohdie, and Robert Rothenberg, have a collective 80 years' experience
developing and repositioning residential and commercial properties. The
expertise and industry contacts developed through these activities is
particularly relevant to the development of high density, in-fill residential
communities which often requires a complex blend of political, design,
construction, finance, and marketing skills. Many of Tarragon's developments are
part of governmental redevelopment plans. Our high-density projects in Hoboken,
New Jersey, Ft. Lauderdale and Sarasota, Florida and Warwick, New York, for
example, all involved extensive interaction with local officials whose approval
was required for many different aspects of these developments. Such projects
also involve substantial community input and review by many different
governmental agencies. We believe that the complexity and cost of the planning
and approval process gives an advantage to well-financed and experienced
developers such as Tarragon. In addition, we believe local officials often
prefer to deal with developers who can demonstrate staying power, a history of
success, and the transparency of a publicly held company.
Target Marketing
Many of our communities are targeted at highly defined market segments. Our
Warwick, New York, community is designed for and exclusively marketed toward
adults, age 55 or older, presently residing in a single-family home within 15
miles of Warwick. Our luxury condominiums in Hoboken are marketed to young
professionals primarily under 30. Other communities in planning will be targeted
toward even more defined market segments in keeping with the more varied
lifestyles often associated with the urban areas in which most of our
homebuilding is concentrated.
We believe the urban in-fill segment of the homebuilding business will continue
to see rapid growth due to a number of factors. Scarcity of suburban land for
development and increased restrictions and controls on growth in many areas are
channeling a large share of new construction into urban areas. Demographic
trends of increased immigration, smaller households, and later marriages produce
increased demand in urban as opposed to suburban areas. At the same time, many
young people in urban areas such as Hoboken, New Jersey, who might ordinarily
have rented are eager prospects for ownership because of the recent investment
performance of residential real estate and the availability and low cost of
mortgage financing.
Tarragon has several competitive advantages in the urban in-fill markets in
which we have chosen to compete. First, Tarragon's executives are familiar with
the greater complexity of doing business in these markets, and
5
Tarragon can make the greater investment that such complexity requires with a
greater sense of certainty of success. Second, as a relatively small public
company, Tarragon's senior executives are able to be personally involved in
prospective projects from the outset, which is especially effective when dealing
with sellers and local political decision makers.
Finally, the fact that Tarragon is active in many different property types is
often an advantage. In Hoboken, for example, the city council wanted to include
affordable housing in the northwest Hoboken redevelopment zone. Tarragon's
experience as owner of over 1,000 affordable apartment units gave us a decided
advantage over our competitors, who had no such experience. This was one factor
that led to the designation of Tarragon and its partners as sole redeveloper of
a portion of the northwest Hoboken redevelopment zone by the city. This
designation entitles us, for those properties we do not already control, to
request the city to exercise eminent domain on our behalf. Increasingly,
most large projects in urban areas involve a combination of uses. Our experience
owning and occasionally developing retail and office properties is valuable in
evaluating opportunities to develop mixed use projects and gives more
credibility to our proposals.
Site Selection, Design, and Construction
We generally contract to acquire land for development subject to or after
receiving zoning and other approvals to reduce development related risk and
preserve capital. Prior to closing the purchase, we will take our design through
the approval process, or we will assist the owner in doing so. For our projects
in less supply-constrained markets, we seek sites that have unique features and
amenities, such as golf courses, nature preserves, water views, and proximity to
employment and shopping, in markets where we have knowledge and management
expertise. For our projects in supply-constrained markets, like Hoboken or
Edgewater, New Jersey, we are more concerned with obtaining sites with a cost
which makes development economically attractive.
Our strategy is to use creativity and flexibility in design to produce the most
cost-efficient and profitable design for each location. We commence the design
and planning by conducting extensive research relating to the market, customer
base, product requirements, pricing, and absorption. Our research effort is
directed by a dedicated project manager specializing in mid- or high-rise
development in conjunction with our in-house marketing department. Based on the
results of this research, we organize an experienced team of architects,
engineers, and specialty consultants, including our in-house marketing and sales
professionals, under the leadership of the project manager to create the design
of the structure. We also contract for the services of an experienced third
party general contractor during the early stages of design to assist in design,
value engineering, and the estimation of construction costs. We design our
communities with amenity packages that meet the lifestyle needs of our targeted
market. These amenities encompass such diverse offerings as luxurious
clubhouses, state-of-the-art fitness centers, indoor basketball courts, resident
business centers, and exercise trails. We retain bonded general contractors and
assign full-time on-site project supervisors to monitor construction progress
and quality. Property management is involved in each rental project from its
planning stages to ensure a smooth transition into leasing and operations.
Marketing and Sale Strategy
We use a variety of techniques to attract prospective purchasers of our for-sale
homes. Targeting first-time, move-up, pre-retirement, and affluent second
homebuyers, we develop and execute multi-media marketing plans for our homes and
communities. We employ an experienced staff of marketing professionals who
supervise and coordinate third-party copywriters, creative art directors, and
graphic designers who are responsible for the design and development of most of
our marketing materials and advertising messages, including newspaper and
magazine print, direct mail, and billboards. Much of our traffic is generated
from our property-specific web sites which give future residents and sales
prospects a virtual tour of our property, as well as descriptions of the
amenities, floor plans, and area information. Brochures, scaled architectural
models, walk-in kitchen and bathroom models, and other marketing materials are
used to assist sales associates in explaining
6
and demonstrating the residences to be built. We use an in-house sales team or
an outside marketing and sales team as dictated by each market.
We commence our sales program prior to completion of the construction of our
communities. Purchasers enter into sales contracts for their respective homes
and are required to pay us a deposit of 10% to 20% of the purchase price.
Purchasers are entitled to cancel purchase agreements within specified periods
after execution in accordance with local statutory requirements. After the
expiration of the statutory rescission period, the deposit becomes
non-refundable. However, purchasers generally have no obligation beyond their
deposit in the event of default.
In certain instances, we take non-binding reservations for our homes prior to
state approval of our condominium documents. These reservations require a
deposit, which is refundable. Upon approval of our condominium documents, we
convert our reservations to sales contracts. We use the reservation system
strategically to monitor pent-up demand for our homes, fine-tune our asking
prices, and get an early read on the market preferences as to unit types and
upgraded decorative finishes.
The closing of a home usually occurs 60-90 days after the later of the contract
date or notification that the construction of the home is complete and has the
required local statutory occupancy approvals.
In 2003, we formed Tarragon Mortgage Company to provide our homebuyers
competitive financing. Tarragon Mortgage acts as a mortgage broker and agent of
various lenders but does not itself fund or hold any mortgages. We began closing
loans in 2004.
Financing
We generally finance our development activities through acquisition,
development, and construction loans, with the required equity from internally
generated funds. These loans generally require a payment guaranty from Tarragon
and may require a minimum number of executed sales contracts prior to funding.
Mortgage financing proceeds and proceeds from the sale of properties generated
by the Investment Division have also been significant sources of funding for our
homebuilding activities to date. See the discussion below in "Disposition
Strategy" and "Financing Strategy" for the Investment Division.
Investment Division
Our investment portfolio of stabilized apartment communities and commercial
properties is the largest segment in terms of assets. The Division has 12,805
stabilized apartments (4,374 owned through unconsolidated partnerships and
joint ventures) located primarily in Florida, Connecticut, and Texas. The
apartments range from one to thirty-eight years old, and the average age of the
portfolio is fourteen years. Over the past six years, Tarragon has developed
almost 5,000 new market-rate apartments for its own portfolio.
New rental communities are typically targeted to the upscale renter in suburban
locations. Amenities in these communities range from elegant clubhouses,
swimming pools, and indoor recreational courts, to state-of-the-art fitness
centers and community business centers.
We invest capital in the balance of our portfolio to maximize economic
performance of the properties. Many of the older properties have been upgraded
and repositioned over the past ten years to meet the needs of the middle-market
renters. Substantially all of our 2,549 Connecticut apartments, for example,
which average over 30 years old, have been upgraded and repositioned over the
last six years.
7
Our Investment Division also includes approximately 1.2 million square feet, of
which 267,000 square feet are owned through unconsolidated partnerships and
joint ventures, in seven office buildings and ten retail properties. We believe
our experience with commercial properties enables us to evaluate and undertake
mixed-use developments such as our proposed 240-unit condominium and 170,000
square foot shopping center in East Hanover, New Jersey.
Funds generated by the operation, sale, or refinancing of properties in the
investment portfolio support our overhead and finance our development
activities. Our goal is to increase revenue and enhance the value of our
investment portfolio through intensive management and consistent capital
improvements.
Acquisition Strategy
We seek to improve the quality of our overall investment portfolio through
selective and opportunistic acquisitions. We expect the number of acquisitions
to vary greatly depending on market conditions. We generally target investment
opportunities in markets where we already have a presence both for the
anticipated return from the asset and to enhance the efficiency of our existing
portfolio. Such opportunities include under-managed and under-performing
apartment communities for which our capital investment and management attention
are expected to result in higher occupancy and rents. In evaluating potential
acquisitions, we place the greatest weight on our subjective forecast of the
future return on investment, adjusted for risk. We adjust our investment focus
from time to time to adapt to changes in markets and phases of the real estate
cycle and to take advantage of market inefficiencies. The actual number and mix
of types of income-producing real estate and real estate interests we acquire
will therefore depend on market conditions and other circumstances existing at
the time of acquisition, as well as the availability of capital. See "Financing
Strategy" below. During the past three years, we have purchased only two
investment apartment communities. However, we continue to seek out and evaluate
Investment Division opportunities.
Management Strategy
We manage our apartment communities with a focus on adding asset value rather
than maximizing cash flow. Capital improvement decisions are based on the
expected return on investment. Engineers in our Homebuilding Division regularly
plan and supervise capital projects at our rental properties.
We have implemented programs to optimize revenue generated by our properties. We
utilize daily value pricing and lease inventory management in order to optimize
rental revenue. We have also developed programs to enhance ancillary income from
cable television, telephone service, high-speed internet services, upgraded
laundry facilities, and vending machines.
We utilize purchasing scale by taking advantage of our homebuilding pricing and
negotiating skills, in addition to utilizing national and/or regional accounts
for bulk purchasing to benefit from favorable pricing offered by such programs.
Disposition Strategy
Selective dispositions have been a part of our strategy to create an efficient
investment portfolio and to provide another source of capital for homebuilding
activities. We seek to sell properties that are not strategically located and
for which alternate investment of the sale proceeds will produce higher returns
than those we would capture by continuing to hold the property. Please see the
discussion under "Liquidity and Capital Resources" in Management's Discussion
and Analysis of Financial Condition and Results of Operations for information
about sales of properties during the past three years.
8
Financing Strategy
We finance acquisitions and capital improvements largely through non-recourse
mortgages, internally generated funds, and, to a lesser extent, property sales.
We expect these sources to provide the bulk of funds for future investments.
Nevertheless, the availability and cost of credit are key factors in our ability
to continue to make new investments.
We may acquire properties which are subject to existing indebtedness and assume
such indebtedness. More often, however, we finance our acquisitions through new
mortgage loans. If we cannot obtain financing on acceptable terms or such
financing is otherwise unavailable, we may purchase a property for cash with the
intent of obtaining a mortgage loan for a portion of the purchase price at a
later time, or we may borrow on our existing lines of credit to fund short-term
liquidity needs. Please see the discussion under "Liquidity and Capital
Resources" in Management's Discussion and Analysis of Financial Condition and
Results of Operations for information about our borrowing activities during the
past three years. Also, please see NOTE 4. "NOTES, DEBENTURES, AND INTEREST
PAYABLE" in the Notes to Consolidated Financial Statements for information about
our mortgages and other notes payable.
We regularly refinance assets in our investment portfolio in order to monetize
the increased property value created through consistent capital improvements and
aggressive management. In the past few years, the proceeds of such financings
have been used in homebuilding activities. For apartment communities which may
be future candidates for conversion to condominium homes for sale, we use
floating rate financing to allow for flexibility in repayment.
CAPITAL MARKET TRANSACTIONS
We may offer debt or shares of our common or preferred stock to the public to
raise capital for general corporate purposes, including, without limitation,
repayment of debt, the acquisition of additional properties, and the development
of currently planned or future projects, or in private transactions in exchange
for property. In January 2001, Tarragon issued 25,000 shares of 10% Cumulative
Preferred Stock in connection with our acquisition of Accord Properties
Associates, LLC. See NOTE 15. "ACQUISITION OF ACCORD PROPERTIES ASSOCIATES, LLC"
in the Notes to Consolidated Financial Statements. In July 2003, Tarragon issued
195,815 shares of 10% Cumulative Preferred Stock in connection with the purchase
of homebuilding inventory. See NOTE 6. "10% CUMULATIVE PREFERRED STOCK" in the
Notes to Consolidated Financial Statements for more information about the
preferred stock.
COMPETITION
The homebuilding industry and real estate development is highly competitive. We
compete against numerous developers and others in the real estate business in
and near the markets where our communities are located. Therefore, we may be
competing for investment opportunities, financing, available land, and potential
buyers with entities that may possess greater financial, marketing, or other
resources. Nevertheless, our size permits our most senior, most experienced
executives to participate directly in acquisition negotiations and decisions.
Contact with ultimate decision makers is particularly important in convincing
sellers that their acceptance of an offer from us will result in a completed
transaction. Moreover, the speed with which we are able to act is often a factor
in closing a purchase.
Ownership of rental properties in which we invest is highly fragmented among
individuals, partnerships, and public and private entities. No single entity or
person dominates the market for such opportunities. We believe
9
that there is and will continue to be a strong demand for housing in the markets
where we seek additional investments and that attractive investment
opportunities will continue to be available.
RISKS RELATED TO TARRAGON
WE ARE HIGHLY LEVERAGED AND MAY NOT BE ABLE TO MEET OUR DEBT SERVICE
OBLIGATIONS.
We had total indebtedness at December 31, 2003, of approximately $469 million
plus $394 million of debt in unconsolidated partnerships and joint ventures.
Substantially all of our assets have been pledged to secure debt. These
borrowings increase our risk of loss because they represent a prior claim on our
assets and require fixed payments regardless of profitability. To service this
debt, we will have to use cash flow from operations. Our highly leveraged
position makes us vulnerable to changes in economic conditions and may limit our
ability to capitalize on significant business opportunities in the future.
OUR NET INCOME HAS FLUCTUATED IN THE PAST AND MAY CONTINUE TO DO SO IN THE
FUTURE.
Although our total annual revenues have increased between 1999 and 2003, we have
periodically experienced significant increases in our interest and depreciation
expenses resulting from increases in mortgage indebtedness and property
acquisitions. As a result and as reflected in our historical financial
statements, unless such increased expenses are offset by gains from sales of
real estate, our net income has tended to fluctuate from year to year during
such five-year period. There can be no assurance that our future net income will
continue to increase on a steady basis over current levels, especially as we
expect to continue to actively engage in property development and mortgage
refinancing activities.
As of December 31, 2003, we had approximately $275 million of variable rate debt
plus $201 million of variable rate debt in unconsolidated partnerships and joint
ventures. We may incur additional variable rate indebtedness in the future.
Accordingly, increases in interest rates could materially increase our interest
expense, which could adversely affect our results of operations and financial
condition.
WE MAY REQUIRE SIGNIFICANT ADDITIONAL FINANCING WHICH MAY NOT BE AVAILABLE ON
COMMERCIALLY FAVORABLE TERMS, IF AT ALL.
We depend primarily on external financing to fund the growth of our business.
Although we currently have adequate cash resources and positive cash flow, we
intend to use substantial portions for:
o new construction and development;
o condominium conversions;
o property acquisitions; and
o working capital.
In addition, we require substantial cash flow to meet interest payment
obligations on indebtedness and other borrowings. If we are unable to generate
sufficient cash flow from operations to satisfy these obligations, or if we are
required to make any substantial principal repayments, we may have to refinance
some or all of our debt or sell assets. If we default on secured indebtedness,
the lender may foreclose and we could lose our entire investment in the asset
securing the loan.
We cannot predict whether additional sources of financing will be available in
the future or the cost of such financing. Our access to debt or equity financing
depends on banks' willingness to lend and on conditions in the capital markets,
and we may not be able to secure additional sources of financing on commercially
acceptable terms, if at all.
10
WE MAY NEED TO SELL PROPERTIES FROM TIME TO TIME FOR CASH FLOW PURPOSES.
Because of the lack of liquidity of real estate investments generally, our
ability to respond to changing circumstances may be impaired. Real estate
investments generally cannot be sold quickly. In the event that we must sell
assets to generate cash flow, we cannot predict whether there will be a market
for those assets in the time period we desire or need to sell them, or whether
we will be able to sell them at a price that will allow us to fully recoup our
investment. We may not be able to realize the full potential value of our
assets, and we may incur costs related to the early pay-off of the debt secured
by such assets.
WE ACQUIRE NEW PROPERTIES FROM TIME TO TIME.
We regularly consider acquiring additional properties. Acquisitions involve
several risks, including but not limited to the following:
o Acquired properties may not perform as well as we expected or ever
become profitable.
o Improvements to the properties may ultimately cost significantly more
than we had estimated.
o The costs of evaluating properties that are not acquired cannot be
recovered.
OUR HIGH DEBT LEVERAGE MAY PREVENT US FROM RESPONDING TO CHANGING BUSINESS AND
ECONOMIC CONDITIONS.
Our high degree of debt leverage could limit our ability to obtain additional
financing or adversely affect the market price of our common stock.
We have a relatively high ratio of debt, a majority of which is non-recourse
mortgage debt, to total market capitalization, which was approximately 1.37 at
December 31, 2003, based on the market value of our outstanding common and
preferred stock and outstanding mortgage and other debt at that date. Our high
leverage may adversely affect our ability to obtain additional financing for
working capital, capital expenditures, acquisitions, development, or other
general corporate purposes and may make us more vulnerable to a downturn in the
economy generally.
We do not expect to repay a substantial amount of the outstanding principal of
our debt prior to maturity or to have funds on hand sufficient to repay this
debt at maturity. As a result, it will be necessary for us to refinance our debt
through new debt financing or through additional equity offerings. If interest
rates are higher at the time of refinancing, our interest expense would
increase, which would adversely affect our results of operations and cash flow.
In addition, in the event we were unable to secure refinancing on acceptable
terms, we might be forced to sell properties on unfavorable terms, which could
result in the recognition of losses and could adversely affect our financial
position, results of operations, and cash flows. If we were unable to make the
required payments on, or refinance when due, any debt secured by a mortgage on
one of our properties, the mortgage lender could take that property through
foreclosure and, as a result, we could lose income and asset value.
We cannot assure you that we will be able to refinance this debt, obtain
renewals or replacement of credit enhancement devices, such as a letter of
credit, or otherwise obtain funds by selling assets or by raising equity. Our
inability to repay or refinance when the debt becomes due could cause the
mortgage lender to foreclose on those properties.
As of the date of this annual report on Form 10-K, we have no mortgages that are
past their stated maturity date. From time to time, a non-recourse mortgage may
become past due, and, if we are unsuccessful in negotiating an extension or
refinancing, the lender could commence foreclosure proceedings.
11
ANY RISE IN INTEREST RATES WOULD INCREASE OUR INTEREST COSTS.
An increase in interest rates will increase the interest expense associated with
our floating-rate debt and the refinancing of any fixed-rate debt originally
financed at a lower rate. At December 31, 2003, including properties accounted
for on the equity method, a 100 basis point increase in interest rates would
have increased the pre-tax interest cost of our variable-rate debt by
approximately $3.2 million (including both mortgage debt and corporate
borrowings) at our share.
THERE IS RISK IN USING DEBT TO FUND PROPERTY ACQUISITIONS.
We have used debt to acquire properties and expect to continue to do so in the
future. Although the use of debt (known as "leverage") is common in the real
estate industry, our use of debt to acquire properties exposes us to financial
risks. If the occupancy of the properties in our Investment Division drops
significantly, and we do not have sufficient cash to pay principal and interest
on our mortgage debt, we could default on our mortgage obligations. If for any
reason we fail to make our mortgage payments, lenders could declare us in
default and foreclose on our properties.
WE ARE DEVOTING INCREASING RESOURCES TO THE DEVELOPMENT OF NEW PROJECTS.
We plan to continue developing new projects as opportunities arise in the
future. Development and construction activities entail a number of risks,
including but not limited to the following:
o We may abandon a project after spending non-recoverable time and money
determining its feasibility.
o Construction costs may materially exceed our original estimates.
o The revenue from a new project may not be enough to make it profitable
or generate a positive cash flow.
o We may not be able to obtain financing on favorable terms for
development of a property, if at all.
o We may not complete construction and lease up on schedule, resulting
in increased development costs.
o We may not be able to obtain, or may be delayed in obtaining,
necessary governmental permits.
WE PLAN TO DEVOTE INCREASING AMOUNTS OF CAPITAL TO HOMEBUILDING AND CONDOMINIUM
CONVERSIONS.
Expansion into homebuilding and condominium conversion is a relatively new
segment of our operations. It involves risks associated with the sale of
property to individuals, in addition to all the other risks of construction and
development. Condominium conversions require substantial legal processes and
costs, which may not be recovered. Some units may be difficult to sell,
requiring a substantial discount from our asking price. We may be left with
unsold inventory that cannot be rented, and the expenses and carrying costs
associated with ownership of those units will continue.
PROPERTY OWNERSHIP THROUGH PARTNERSHIPS AND JOINT VENTURES GENERALLY LIMITS OUR
CONTROL OF THOSE INVESTMENTS.
We have investments in 24 unconsolidated partnerships or joint ventures. The
outside partners have significant participating rights, as defined by the
Financial Accounting Standards Board's Emerging Issues Task Force in its 96-16
Abstract, or important rights, as defined by the American Institute of Certified
Public Accountants'
12
Statement of Position 78-9. Partnership or joint venture investments involve
risks not otherwise present for investments made solely by us, including the
possibility that our partners might become bankrupt, might have or develop
different interests or goals than we do, or might take action contrary to our
instructions, requests, policies, or investment objectives. Another risk of
partnership investments is the possibility of an impasse on decisions, such as a
sale or refinance, or disputes with our partners over the appropriate pricing
and timing of any sale or refinance. There is no limitation under our
organizational documents as to the amount of funds that may be invested in
partnerships or joint ventures.
THE REGIONAL CONCENTRATION OF OUR ASSETS MAY INCREASE THE EFFECTS OF ADVERSE
TRENDS IN THOSE MARKETS.
A substantial number of our assets are located in Florida, Connecticut, New
Jersey, and Texas. Due to this geographic concentration, a deterioration in
economic conditions in these specific markets could have a materially adverse
effect on our business.
OUR PROPERTIES MAY HAVE ENVIRONMENTAL CONTAMINATION.
Various federal, state, and local environmental laws, ordinances, and
regulations subject property owners or operators to liability for the costs of
removal or remediation of hazardous or toxic substances on real property. These
laws often impose liability without regard to whether the owner or operator knew
of, or was responsible for, the presence of the hazardous or toxic substances.
The presence of, or the failure to properly remediate, such substances may
adversely affect the value of a property, as well as our ability to sell or rent
it or to borrow using that property as collateral.
RISKS RELATED TO OUR INDUSTRY
OUR BUSINESS OVERALL IS SUBJECT TO ALL OF THE RISKS ASSOCIATED WITH THE REAL
ESTATE INDUSTRY.
Tarragon is subject to all the risks incident to investment in real estate, many
of which relate to the general lack of liquidity of real estate investments,
including, but not limited to:
o changes in general or local economic conditions;
o changes in interest rates that may make our ability to satisfy our
debt service requirements materially more burdensome;
o lack of availability of financing that may render the purchase, sale,
or refinancing of a property more difficult or unattractive;
o changes in real estate and zoning laws, which may restrict, delay, or
prevent planned developments;
o increases in real estate taxes and insurance costs;
o federal or local economic or rent control; and
o floods, earthquakes, and other similar natural disasters.
OUR BUSINESS IS HIGHLY COMPETITIVE.
The real estate business is highly competitive, and we compete with numerous
entities engaged in real estate activities that have investment objectives
similar to ours, greater financial resources, and better name recognition than
we do. This competition may result in increased prices for suitable investments
and may impair our ability to make acquisitions or develop projects on favorable
terms in the future.
13
SOME OF OUR POTENTIAL LOSSES MAY NOT BE COVERED BY INSURANCE.
We believe that the real estate assets we own are adequately covered by
insurance. However, certain types of losses, generally of a catastrophic nature,
may be uninsurable or not economically insurable. These excluded risks generally
include war, earthquakes, floods, terrorism, environmental liabilities, and
punitive damage judgments. If any of these kinds of losses occur and are not
covered by insurance, our business could be materially adversely affected.
RISKS CONCERNING CONTROL BY SENIOR MANAGEMENT
OUR PRINCIPAL STOCKHOLDERS EFFECTIVELY CONTROL CORPORATE ACTIONS.
William S. Friedman, our Chairman of the Board, President, and Chief Executive
Officer, and his wife, Lucy N. Friedman, our principal stockholder, together
with members of their family, control approximately 44.5% of our outstanding
common stock. Accordingly, Mr. and Mrs. Friedman and their family are in a
position to elect a number of the members of our Board of Directors and have
substantial influence over our management and affairs. In addition, they
effectively have veto power over a broad range of corporate actions requiring
more than a simple majority vote presently contained in our Articles of
Incorporation, including, without limitation, mergers, business combinations,
change-in-control transactions, substantial asset sales, and other similar and
extraordinary corporate transactions that can affect the value of our company.
WE HAVE AND CONTINUE TO ENGAGE IN TRANSACTIONS WITH RELATED PARTIES.
We have engaged in the past, and continue to engage currently, in transactions
with related parties. These related party transactions include ongoing financial
arrangements with several members of our Board and senior management, including
a $20 million unsecured line of credit facility extended to us by affiliates of
Mr. and Mrs. Friedman, which was approved by our Board of Directors. Our
Articles of Incorporation generally permit related party transactions if
approved by a majority of our independent directors.
OUR GOVERNING DOCUMENTS CONTAIN ANTI-TAKEOVER PROVISIONS THAT MAY MAKE IT MORE
DIFFICULT FOR A THIRD PARTY TO ACQUIRE CONTROL OF TARRAGON.
Our Articles of Incorporation contain provisions designed to discourage attempts
to acquire control of Tarragon by merger, tender offer, proxy contest, or
removal of incumbent management without the approval of our Board of Directors.
As a result, a transaction which otherwise might appear to be in your best
interests as a stockholder could be delayed, deferred, or prevented altogether,
and you may be deprived of an opportunity to receive a premium for your shares
over prevailing market prices. The provisions contained in our Articles of
Incorporation include:
o the requirement of an 80% vote to make, adopt, alter, amend, change,
or repeal Tarragon's Bylaws or certain key provisions of Tarragon's
Articles of Incorporation that embody, among other things, the
aforementioned anti-takeover provisions;
o the requirement of a 66.66% super-majority vote for the removal of a
director from the Board of Directors and certain extraordinary
transactions; and
o the inability of stockholders to call a meeting of stockholders.
Our Board of Directors and management control approximately 47.5% of our
outstanding common stock. In light of this, these anti-takeover provisions could
help entrench the Board of Directors and may effectively give our management the
power to block any attempted change in control of Tarragon.
14
COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
In 2003, in connection with the condominium conversion of Pine Crest Village at
Victoria Park, we began and completed remediation of asbestos-containing
materials for a total cost of $800,000.
POLICY WITH RESPECT TO CERTAIN ACTIVITIES
In the past, we have held mortgages secured by real estate as investments,
although additions to mortgage notes receivable during the past three years have
been insignificant. Mortgage notes and interest receivable currently comprise
less than 1% of our assets. We have no present intention of investing in
additional real estate mortgages except to the extent that we may acquire a
mortgage for the purpose of foreclosing on the asset securing it and holding
that asset for investment. We also may make mortgage loans in connection with
the sale of our real estate.
We may invest in interests in other persons and securities of other issuers
engaged in real estate related activities. Although we do not currently have any
plans to invest in the securities of other issuers for the purpose of exercising
control, we may in the future acquire all or substantially all of the securities
or assets of other entities if that investment would be consistent with our
investment policies. We do not intend to underwrite securities of other issuers.
We do not intend that our investment activity require us to register as an
"investment company" under the Investment Company Act of 1940, and we would
divest securities before any such registration would be required.
We have in the past, and may in the future, repurchase or otherwise acquire our
own common stock on the open market or through private transactions. See NOTE 5.
"COMMON STOCK REPURCHASE PROGRAM" in the Notes to Consolidated Financial
Statement for a discussion of common stock repurchases during the past three
years and authorization for repurchases as of December 31, 2003.
We do not presently intend to make investments other than as described above,
although we may do so in the future. Our investment policies may be reviewed and
modified from time to time by our officers and directors without the vote of
stockholders. There are no limitations on the amounts we may invest in any
single property or development, or on the amounts we can borrow for such
purposes.
OTHER INFORMATION
We were incorporated in Nevada on April 2, 1997. We are the ultimate successor
in interest to Vinland Property Trust, a California business trust formed in
July 1973, and National Income Realty Trust, also a California business trust,
organized in October 1978.
Tarragon's common stock is traded on the NASDAQ National Market System under the
symbol "TARR." Our principal executive offices are located at 1775 Broadway,
23rd Floor, New York, New York 10019, and our telephone number is 212-949-5000.
Tarragon has approximately 430 employees, including 280 site-level property
employees (such as property managers and maintenance staff) and 150 corporate
employees.
Tarragon's web site address is www.tarragonrealty.com. Tarragon makes available,
free of charge, on its website its annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K, and all amendments to those
reports as soon as reasonably practicable after such material is electronically
filed with the Securities and Exchange Commission. Tarragon issues annual
reports containing audited financial statements to its common stockholders.
15
EXECUTIVE OFFICERS OF THE REGISTRANT
Part III of this 10-K is incorporated by reference to a proxy statement to be
filed with the SEC in connection with our annual meeting of stockholders to be
held in June 2004. Information required by Item 10. "DIRECTORS AND EXECUTIVE
OFFICERS OF THE REGISTRANT" with respect to Directors will be included in our
proxy statement. The following discussion sets for the information required by
Item 10. "DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT" with respect to
Tarragon's executive officers.
William S. Friedman (60) has served as President, Chief Executive Officer and a
director of Tarragon since April 1997. He has also been Chairman of the Board of
Directors since December 2000. He previously served as a Trustee (from March
1988), Chief Executive Officer (from December 1993), President (from December
1988), acting Chief Financial Officer (from May 1990 to February 1991),
Treasurer (from August to September 1989), and acting Principal Financial and
Accounting Officer (from December 1988 to August 1989) of Vinland Property Trust
(until July 1997) and National Income Realty Trust (until November 1998).
Robert C. Rohdie (63) has been director of Tarragon and President and Chief
Executive Officer of Tarragon Development Corporation, a wholly owned subsidiary
of Tarragon responsible for real estate development and renovation projects,
since February 2000. Since 1988, Mr. Rohdie has also served as 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 from 1997 through 2000. Mr. Rohdie has been an attorney at
law since 1965.
Robert P. Rothenberg (45) has been director and the Chief Operating Officer of
Tarragon since September 2000. Mr. Rothenberg has been the managing member of
APA Management LLC, a real estate investment and management company, since 1994.
He is also a Managing Member of Ansonia LLC, which together with Tarragon has
acquired over 2,600 apartments in the State of Connecticut since 1997. Mr.
Rothenberg was a co-managing member of Accord Properties Associates, LLC, which
managed the Ansonia portfolio in Connecticut and was acquired by Tarragon in
January 2001.
James M. Cauley, Jr. (41) joined Tarragon as President of Tarragon South
Development Corp., a wholly-owned subsidiary of Tarragon Realty Investors, Inc.,
responsible for the development of for-sale communities in Florida, in January
2004. Mr. Cauley previously served as President and Managing Partner of The
Altman Companies, a regional owner, developer, and manager of luxury apartment
communities, from December 2001 through February 2003, and as President of
Altman Management Company from September 1996 through December 2001.
Chris Clinton (57) has been Senior Vice President - Commercial Asset Management
of Tarragon and its predecessors, Vinland Property Trust and National Income
Realty Trust, since March 1994. He also served as Vice President of Vinland
Property Trust and National Income Realty Trust from October 1988 to March 1994.
Ron Leichtner (42) was appointed Vice President of Tarragon in March 2004. Mr.
Leichtner previously served as a Managing Director of Tarragon from September
2002 through March 2004. Mr. Leichtner served as the chief financial officer of
Batiz.com, a sales, marketing, and web design firm, and as the Managing Member
of WHB Tennis and Sport LLC from July 2001 through September 2002. He served as
Senior Vice President of Omni Development and its affiliate, Omni Funding
Corporation, a privately held finance and real estate development group, from
January 1985 through June 2001.
16
Kathryn Mansfield (43) has been Executive Vice President of Tarragon since
December 1998 and Secretary and Corporate Counsel of Tarragon since May 1998.
She also served as Vice President of Tarragon and its predecessor, National
Income Realty Trust, from May 1998 to December 1998. Ms. Mansfield has been an
attorney at law since 1984.
Todd C. Minor (45) has been Executive Vice President of Tarragon since November
2001 and Treasurer of Tarragon and its predecessors, Vinland Property Trust and
National Income Realty Trust, since December 1996. he also served as Senior Vice
President of Tarragon and its predecessors from March 1994 to December 1998 and
Vice President from April 1991 to July 1993.
Erin D. Pickens (42) 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 and its predecessors, Vinland Property
Trust and National Income Realty Trust, from September 1996 to November 1998.
She served as Accounting Manager of Vinland Property Trust and National Income
Realty Trust from June 1995 to August 1996. Ms. Pickens has been a Certified
Public Accountant since 1990.
Charles Rubenstein (45) has been Executive Vice President of Tarragon since
December 1998 and General Counsel since September 1998. He also served as Senior
Vice President for Tarragon and its predecessor, National Income Realty Trust,
from September 1998 to December 1998. Mr. Rubenstein has been an attorney at law
since 1984.
Todd M. Schefler (47) became Executive Vice President - Development for Tarragon
in January 2003. He also served as Senior Vice President - Development from May
2001 to December 2002, and as Vice President - Structured Transactions of
Tarragon from January 2000 through May 2001. Prior to joining Tarragon, Mr.
Schefler was employed by Burroughs Development Corporation of Paramus, New
Jersey as a Senior Vice President - Acquisitions and Finance from April 1998 to
December 1999, and as Vice President from April 1994 to August 1997.
Saul Spitz (52) joined Tarragon as Executive Vice President of Acquisitions in
September 2000. He has been a member of APA Management LLC, a real estate
investment and management company, since September 1994. he has also been a
member of Ansonia LLC, which together with Tarragon has acquired close to 2600
apartments in the state of Connecticut, since November 1997. Mr. Spitz was a
co-managing member of Accord Properties Associates, LLC, which managed the
Ansonia portfolio in Connecticut, from 1998 through January 2001, when it was
acquired by Tarragon.
Eileen A. Swenson (53) joined Tarragon as President of Tarragon Management, Inc.
in September 2000. Ms. Swenson founded and served as President of Accord
Properties Associates, LLC and its predecessor, Accord Ventures, Inc., from
August 1994 through January 2001, when it was acquired by Tarragon. Ms. Swenson
has been a Certified Property Manager since 1987.
William M. Thompson (44) became Executive Vice President - Operations in March
2003. He joined Tarragon as Executive Vice President and Chief Information
Officer in September 2000. He served as Chief Financial Officer of Accord
Properties Associates, LLC from August 1998 through January 2001, when it was
acquired by Tarragon. Mr. Thompson has been a Certified Public Accountant since
1982.
17
ITEM 2. PROPERTIES
At December 31, 2003, our real estate portfolio had 87 properties, including 62
apartment communities, eight office buildings, ten retail properties, and seven
tracts of land. Unconsolidated joint ventures owned 25 of the 87 properties. We
also had five consolidated and six unconsolidated active for-sale communities,
six consolidated single-family home site developments, and a consolidated
cabin-site development. Tarragon, or the consolidated or unconsolidated
subsidiaries, partnerships, or joint ventures that own the properties, generally
have fee simple title to these properties, and most of them are pledged to
secure mortgages. For a detailed listing of these mortgages, see the table below
entitled "Mortgage Loans Secured by Owned Properties." We believe our properties
are adequately covered by liability and casualty insurance, consistent with
industry standards.
The following tables summarize information about our rental apartment and
for-sale communities. Tarragon's ownership interest is presented for communities
owned through unconsolidated joint ventures. Dollar amounts are in thousands.
Tarragon Realty Investors, Inc.
Communities Summarized by Market
December 31, 2003
Rental Communities For-Sale Communities
-------------------------------------------- -----------------------------------------
Number Percentage of Number Number of Percentage of
of Number of Total of Homes or Total
Market Communities Apartments Communities Home Sites
----------------------------------------------------------------- -----------------------------------------
Florida 24 5,728 40% 14 1,576 70%
Connecticut 13 2,549 18%
(1)Texas 8 1,727 11%
New Jersey 2 277 12%
New York 1 214 10%
(1)Tennessee 2 802 6% 1 190 8%
California 2 730 5%
(1)Ohio 1 504 4%
Georgia 1 360 3%
Kentucky 3 424 3%
Maryland 1 459 3%
Louisiana 2 320 2%
(2)South Carolina 1 216 2%
Alabama 1 178 1%
Michigan 1 170 1%
Oklahoma 2 178 1%
-------------------------------------------- -----------------------------------------
62 14,345 100% 18 2,257 100%
============================================ =========================================
- ----------
(1) Includes one rental community currently under reposition and in the
Homebuilding Division.
(2) Represents one rental community currently in lease-up and in the
Homebuilding Division.
18
TARRAGON REALTY INVESTORS, INC.
Rental Apartment Communities
DECEMBER 31, 2003
Year Ended December 31,
-------------------------
2003 2002
Ownership ------------ ------------
Interest If Age Average Average
Joint Number of In Physical Physical
Community Location Venture Apartments Years Occupancy Occupancy
- ----------------------------- ---------------------- ------------ ----------- ------- ------------ ------------
SAME STORE STABILIZED INVESTMENT DIVISION APARTMENTS
Acadian Place Baton Rouge, LA 120 29 93.9% 87.5%
Antelope Pines Lancaster, CA (3) 314 18 96.1% 96.0%
Autumn Ridge East Haven, CT 70% 116 30 93.4% 93.9%
Bayfront Houston, TX 200 32 92.3% 93.9%
Brooks, The Addison, TX 104 34 93.3% 96.0%
Carlyle Towers Southfield, MI 170 33 89.7% 91.5%
Club at Danforth Jacksonville, FL 99% 288 6 95.1% 92.6%
Courtyard at the Park North Miami, FL 127 31 92.2% 94.0%
Creekwood North Altamonte Springs, FL 180 30 90.7% 94.0%
Cross Creek Lexington, KY 144 37 86.9% 86.4%
Desert Winds Jacksonville, FL 152 31 98.1% 98.1%
Dogwood Hills Hamden, CT 70% 46 31 96.9% 96.8%
Forest Oaks Lexington, KY 154 32 81.7% 86.5%
Forest Park Rocky Hill, CT 161 36 95.3% 94.3%
Fountainhead Kissimmee, FL 184 15 89.5% 90.4%
French Villa Tulsa, OK 100 32 93.6% 94.9%
Groton Towers Groton, CT 70% 114 30 94.3% 96.8%
Gull Harbor New London, CT 70% 65 29 93.8% 92.8%
Hamden Centre Hamden, CT 70% 65 33 92.6% 95.4%
Harbour Green Panama City Beach, FL 200 6 96.1% 94.3%
Heather Hill Temple Hills, MD 459 37 94.0% 95.6%
Kirklevington Lexington, KY 126 28 88.9% 87.9%
Lakeview Waterbury, CT 70% 88 15 93.0% 95.0%
Landmark Tallahassee, FL 128 36 91.8% 89.1%
Liberty Building New Haven, CT 90% 124 4 95.1% 96.0%
Links at Georgetown Savannah, GA 99% 360 4 88.2% 91.0%
Martins Landing Lakeland, FL 236 30 94.2% 89.1%
Mayfaire at Windsor Parke Jacksonville, FL 324 6 96.5% 91.7%
Meadowbrook Baton Rouge, LA 200 35 92.8% 96.5%
Mission Trace Tallahassee, FL 96 14 92.2% 90.2%
Morningside Jacksonville, FL 112 30 92.4% 91.9%
Mustang Creek Arlington, TX 120 29 91.1% 93.5%
Nutmeg Woods New London, CT 70% 382 33 95.2% 95.0%
Ocean Beach New London, CT 70% 455 31 93.0% 93.9%
As of December 31,
------------------------------------------
2003 2002 2003
------------ ------------ ----------
Average Average Net
Monthly Monthly Carrying
Community Location Rent/Unit(1) Rent/Unit(1) Value(2)
- ----------------------------- ---------------------- ------------ ------------ ----------
SAME STORE STABILIZED INVESTMENT DIVISION APARTMENTS
Acadian Place Baton Rouge, LA 559 $ 556 $ 3,147
Antelope Pines Lancaster, CA 784 710 15,665
Autumn Ridge East Haven, CT 618 599 1,859
Bayfront Houston, TX 648 645 2,499
Brooks, The Addison, TX 623 665 2,600
Carlyle Towers Southfield, MI 915 915 5,235
Club at Danforth Jacksonville, FL 852 821 14,516
Courtyard at the Park North Miami, FL 770 769 4,181
Creekwood North Altamonte Springs, FL 642 629 3,160
Cross Creek Lexington, KY 573 576 1,007
Desert Winds Jacksonville, FL 596 580 2,048
Dogwood Hills Hamden, CT 1,022 968 2,572
Forest Oaks Lexington, KY 584 616 3,158
Forest Park Rocky Hill, CT 922 860 8,869
Fountainhead Kissimmee, FL 742 739 7,082
French Villa Tulsa, OK 645 657 2,602
Groton Towers Groton, CT 908 860 4,542
Gull Harbor New London, CT 713 697 1,541
Hamden Centre Hamden, CT 892 865 2,796
Harbour Green Panama City Beach, FL 768 751 9,672
Heather Hill Temple Hills, MD 912 862 11,665
Kirklevington Lexington, KY 583 580 2,452
Lakeview Waterbury, CT 808 774 2,854
Landmark Tallahassee, FL 599 594 1,882
Liberty Building New Haven, CT 1,047 991 7,675
Links at Georgetown Savannah, GA 795 793 21,438
Martins Landing Lakeland, FL 590 570 5,468
Mayfaire at Windsor Parke Jacksonville, FL 874 841 19,204
Meadowbrook Baton Rouge, LA 504 497 1,550
Mission Trace Tallahassee, FL 655 641 2,637
Morningside Jacksonville, FL 573 559 2,197
Mustang Creek Arlington, TX 920 958 3,836
Nutmeg Woods New London, CT 815 776 16,278
Ocean Beach New London, CT 688 653 13,415
19
TARRAGON REALTY INVESTORS, INC.
Rental Apartment Communities
DECEMBER 31, 2003
Year Ended December 31,
-------------------------
Ownership 2003 2002
Interest ------------ ------------
If Age Average Average
Joint Number of In Physical Physical
Community Location Venture Apartments Years Occupancy Occupancy
- ------------------------------- ------------------ ----------- ------------ ------- ------------ ------------
SAME STORE STABILIZED INVESTMENT DIVISION APARTMENTS (CONTINUED)
Palm Court North Miami, FL 144 32 95.3% 92.3%
Park Dale Gardens Dallas, TX 224 28 93.5% 92.8%
Parkview Naugatuck, CT 70% 160 32 93.2% 93.9%
The Regents Jacksonville, FL 304 31 94.1% 91.5%
River City Landing Jacksonville, FL 352 38 95.9% 90.0%
Sagamore Hills Middletown, CT 70% 212 35 90.8% 93.9%
Silver Creek Jacksonville, FL 152 31 98.7% 98.3%
Southern Elms Tulsa, OK 78 35 91.3% 93.6%
Summit on the Lake Ft. Worth, TX 198 17 94.2% 93.0%
Vineyard at Eagle Harbor Orange Park, FL 99% 328 5 89.5% 89.3%
Vintage at Legacy Frisco, TX 320 4 94.8% 94.2%
Vintage on the Green Orlando, FL 396 3 89.6% 91.7%
Vistas at Lake Worth Ft. Worth, TX 265 5 92.2% 92.3%
Woodcliff Estates East Hartford, CT 70% 561 34 91.8% 91.3%
Woodcreek Jacksonville, FL 260 28 92.3% 90.7%
Woodcreek Garden Lancaster, CA (3) 416 15 96.4% 96.7%
------------ ------- ------------ ------------
Subtotals/Averages 10,584 19 93.0% 92.9%
------------ ------- ------------ ------------
INVESTMENT DIVISION APARTMENTS IN LEASE UP (4)
Villa Tuscany Orlando, FL 70% 342 2 70.0% 23.2%
Vintage at Abacoa Jupiter, FL 70% 390 .8 66.2% 7.3%
Vintage at Lake Lotta Ocoee, FL 199 2 91.8% 81.6%
Vintage at Madison Crossing Huntsville, AL 178 1 88.4% 41.6%
Vintage at Plantation Bay Jacksonville, FL 240 2 94.2% 84.9%
Vintage at Tampa Palms Tampa, FL 298 2 91.3% 78.6%
Vintage at the Parke Murfreesboro, TN 70% 278 2 92.9% 54.9%
Vintage Cottage Orlando, FL 296 .4 50.2% --
------------ ------- ------------ ------------
Subtotals/Averages (5) 2,221 1 78.5% 48.6%
------------ ------- ------------ ------------
SUBTOTALS/AVERAGES - ALL INVESTMENT DIVISION APARTMENTS 12,805 14 90.5% 86.1%
------------ ------- ------------ ------------
As of December 31,
----------------------------------------------
2003 2002 2003
------------ ------------ ------------
Average Average Net
Monthly Monthly Carrying
Community Location Rent/Unit(1) Rent/Unit(1) Value(2)
- ------------------------------- ------------------ ------------ ------------ ------------
SAME STORE STABILIZED INVESTMENT DIVISION APARTMENTS (CONTINUED)
Palm Court North Miami, FL $ 758 $ 745 $ 2,507
Park Dale Gardens Dallas, TX 617 625 1,951
Parkview Naugatuck, CT 940 940 6,425
The Regents Jacksonville, FL 560 530 5,306
River City Landing Jacksonville, FL 611 581 11,852
Sagamore Hills Middletown, CT 792 801 8,087
Silver Creek Jacksonville, FL 635 617 1,865
Southern Elms Tulsa, OK 573 578 1,428
Summit on the Lake Ft. Worth, TX 569 570 3,992
Vineyard at Eagle Harbor Orange Park, FL 873 874 17,875
Vintage at Legacy Frisco, TX 937 937 25,909
Vintage on the Green Orlando, FL 874 902 28,700
Vistas at Lake Worth Ft. Worth, TX 702 703 14,117
Woodcliff Estates East Hartford, CT 779 781 19,864
Woodcreek Jacksonville, FL 650 628 3,930
Woodcreek Garden Lancaster, CA 785 704 21,550
------------ ------------ ------------
Subtotals/Averages 747 730 386,660
------------ ------------ ------------
INVESTMENT DIVISION APARTMENTS IN LEASE UP (4)
Villa Tuscany Orlando, FL 804 889 22,303
Vintage at Abacoa Jupiter, FL 1,138 1,259 41,889
Vintage at Lake Lotta Ocoee, FL 904 918 17,635
Vintage at Madison Crossing Huntsville, AL 766 753 10,831
Vintage at Plantation Bay Jacksonville, FL 912 892 14,128
Vintage at Tampa Palms Tampa, FL 952 1,011 21,139
Vintage at the Parke Murfreesboro, TN 777 743 14,378
Vintage Cottage Orlando, FL 854 -- 20,114
------------ ------------ ------------
Subtotals/Averages (5) 903 953 162,417
------------ ------------ ------------
SUBTOTALS/AVERAGES - ALL INVESTMENT DIVISION APARTMENTS 774 764 549,077
------------ ------------ ------------
20
TARRAGON REALTY INVESTORS, INC.
Rental Apartment Communities
DECEMBER 31, 2003
Year Ended December 31,
-------------------------
Ownership 2003 2002
Interest ------------ ------------
If Age Average Average
Joint Number of In Physical Physical
Community Location Venture Apartments Years Occupancy Occupancy
- ------------------------------- ----------------- ----------- ------------ ------ ------------ ------------
HOMEBUILDING DIVISION RENTAL APARTMENTS
Arbor Glen Toledo, OH 57% 504 35 68.0% 88.9%
Aspentree Dallas, TX 296 29 83.7% 88.0%
Somerset Park Memphis. TN 524 29 81.0% 86.4%
Vintage at Fenwick Plantation Charleston, SC 70% 216 1 53.9% 23.6%
------------ ------ ------------ ------------
Subtotals/Averages 1,540 18 73.5% 78.7%
------------ ------ ------------ ------------
Total/Averages - All Rental Apartments 14,345 14 88.7% 85.3%
============ ====== ============ ============
As of December 31,
-----------------------------------------------
2003 2002 2003
------------ ------------ --------------
Average Average Net
Monthly Monthly Carrying
Community Location Rent/Unit(1) Rent/Unit(1) Value(2)
- ------------------------------- ----------------- ------------ ------------ --------------
HOMEBUILDING DIVISION RENTAL APARTMENTS
Arbor Glen Toledo, OH $ 399 $ 408 $ 6,773
Aspentree Dallas, TX 603 618 5,909
Somerset Park Memphis. TN 478 480 8,348
Vintage at Fenwick Plantation Charleston, SC 1,028 1,050 16,118
------------ ------------ --------------
Subtotals/Averages 553 563 37,148
------------ ------------ --------------
Total/Averages - All Rental Apartments $ 751 $ 742 $ 586,225
============ ============ ==============
- ----------
(1) Average monthly rent is defined as total possible rent (actual rent for
leased apartments and asking rent for vacant apartments) for the month of
December divided by number of units.
(2) For properties owned by unconsolidated joint ventures, this balance
represents the net carrying value on the books of the joint venture.
(3) Tarragon owns 49% of the partnerships that own these properties. Since
Tarragon has sole decision-making authority and the right to purchase the
balance of the interests for a fixed amount, these properties are
consolidated.
(4) All of these properties were transferred to the Investment Division from
the Homebuilding Division after January 1, 2002. Physical occupancy as of
December 31, 2003, for apartment communities in lease up during 2002 or
2003 was as follows:
Villa Tuscany 95%
Vintage at Abacoa 96%
Vintage at Lake Lotta 95%
Vintage at Madison Crossing 97%
Vintage at Plantation Bay 97%
Vintage at Tampa Palms 93%
Vintage at the Parke 99%
Vintage Cottage 97%
(5) Average physical occupancy for the year ended December 31, 2002, and
average monthly rent per unit as of December 31, 2002, for the Investment
Division Apartments in Lease Up exclude Vintage Cottage because it did not
begin operations until April 2003.
21
TARRAGON REALTY INVESTORS, INC.
PLANNED RENTAL APARTMENT COMMUNITIES
DECEMBER 31, 2003
Ownership
Interest if Expected
Joint Number of Construction
Community Venture Location Apartments Budgeted Cost Start
- ---------------------------------------------------------------------------------------------
1118 Adams Street 40% Hoboken, NJ 90 $ 20,000 Jun-04
Cason Estates Murfreesboro, TN 262 17,000 Feb-04
Pomeroy Ave Meriden, CT 180 25,000 May-04
------------ ---------------
532 $ 62,000
============ ===============
Tarragon's Development Program includes the construction of the rental
communities presented above. We purchased the land on which we will build Cason
Estates in the fourth quarter of 2003. We expect to purchase the land in
Hoboken, New Jersey, and Meriden, Connecticut, in the first quarter of 2004.
Tarragon plans to finance eighty to eighty-five percent of the cost of Cason
Estates and Pomeroy Avenue with construction loans. The 90-unit property in
Hoboken, New Jersey, will be an affordable apartment community, and Tarragon
will utilize tax credits under a federal program and capital grants and loans
from the New Jersey Housing Finance Agency to pay for the costs of this project.
The remaining costs of Cason Estates and Pomeroy Avenue will be paid out of
escrowed proceeds from the sales of Bay West Apartments and Marina Park
Apartments in 2003.
22
TARRAGON REALTY INVESTORS, INC.
ACTIVE FOR-SALE COMMUNITIES
DECEMBER 31, 2003
Ownership Number of
Interest If Remaining Costs to Construction
Joint Homes or Home Complete (2) Financing
Community Location Venture Sites (1) (in thousands) Available (3)
- --------------------------------------- -------------------- ------------- ---------------- --------------- ---------------
5600 Collins Miami Beach, FL 6 $ 600 $ 600(4)
Alexandria Place Apopka, FL 104 -- --
Alexandria Pointe Deland, FL 123 2,700 2,562
Alta Mar Ft. Myers, FL 131 20,500 20,500
Las Olas River House Ft. Lauderdale, FL 67.5% 287 42,000 40,736
Pine Crest Village I Ft. Lauderdale, FL 17 380 --
Pine Crest Village II Ft. Lauderdale, FL 116 7,200 7,200
Smoky Mountain Ridge Pigeon Forge, TN 190 10,000 --(5)
Tuscany on the Intracoastal Boynton Beach, FL 280 4,600 953
Venetian Bay Village I Kissimmee, FL 29 -- --
Venetian Bay Village II Kissimmee, FL 136 11,300 11,300(6)
Wekiva Crest Apopka, FL 28 -- --
Woods of Lake Helen Lake Helen, FL 105 200 --
XII Hundred Grand Hoboken, NJ 50% 159 31,700 31,000
XIII Hundred Grand Hoboken, NJ 50% 118 23,400 24,000
---------------- --------------- ---------------
1,829 $ 154,580 $ 138,851
================ =============== ===============
Projects without completed budgets (7):
100 East Las Olas Ft. Lauderdale, FL 70% 44
Metropolitan Sarasota, Fl 70% 124
Southridge Pointe Deland, FL 29
Warwick Grove Warwick NY 50% 214
Woods of Southridge Deland, FL 17
----------------
428
================
- ----------
(1) Number of remaining homes or home sites includes both backlog (homes or
home sites sold, not closed) and unsold inventory.
(2) Costs to Complete represent estimated construction costs to complete the
projects. In addition to these costs, we anticipate incurring marketing,
advertising, selling commissions and closing costs, and interest on
mezzanine debt.
(3) Construction financing available represents funds available from
construction loans. For the December 31, 2003, loan balances, please see
the table below entitled "Mortgage Loans Secured by Owned Properties."
(4) We may borrow up to $1 million if our estimated Costs to Complete increase.
(5) We are currently in the process of arranging financing to cover
substantially all of the costs to complete.
(6) We have a $9 million revolving construction loan. As we complete buildings
and close sales, we pay down the loan, which makes additional borrowings
available.
(7) We are in the process of developing our budgets for these projects.
Tarragon's Development Program includes construction or renovation of the above
for-sale communities. Costs to complete in excess of construction financing
available will be paid for with internally generated funds.
23
TARRAGON REALTY INVESTORS, INC.
MORTGAGE LOANS SECURED BY OWNED PROPERTIES
DECEMBER 31, 2003
(Dollars in thousands)
Balance Stated Interest Maturity Balance Due at
Name of Property Dec. 31, 2003 Rate (D) Date Maturity
- -----------------------------------------------------------------------------------------------------------------
Investment Division Consolidated Apartment
Communities
- ------------------------------------------
Acadian Place $ 3,049 6.56% (C) Jan-09 $ 2,765
Antelope Pines 11,700 1.04% (B) Nov-31 2,300
Antelope Pines - supplemental mortgage 1,544 5.93% (C) Mar-10 -
Antelope Pines - supplemental mortgage 3,100 5.93% (C) Mar-10 2,783
Bayfront 3,995 5.99% (C) Nov-08 3,605
Brooks, The 3,011 7.25% (C) Jun-09 2,770
Carlyle Towers 5,116 6.96% (C) Mar-08 4,724
Carlyle Towers - supplemental mortgage 1,747 7.90% (C) Jan-11 1,574
Courtyard at the Park 4,456 7.83% (C) Sep-10 4,083
Creekwood North 4,784 8.02% (C) Aug-10 4,400
Cross Creek 2,532 7.54% (C) Oct-07 2,367
Desert Winds/Silver Creek 7,011 5.03% (C) Jun-13 5,319
Forest Oaks 2,686 8.16% (C) Jun-06 2,501
Forest Park 9,998 5.22% (C) Oct-12 8,531
Fountainhead 7,044 8.06% (C) Jul-10 6,491
French Villa 1,811 6.82% (C) Jan-09 1,648
French Villa - supplemental mortgage 1,204 7.23% (C) Mar-11 1,086
Harbour Green 9,822 2.85% (A) May-06 9,821
Heather Hill 17,025 4.88% (C) Nov-10 14,757
Heather Hill - supplemental mortgage 2,771 5.62% (C) Nov-10 2,470
Heather Hill - supplemental mortgage 4,741 5.95% (C) Oct-12 4,031
Kirklevington 2,851 6.74% (C) Feb-09 2,589
Landmark (E) 1,680 2.92% (A) Jun-05 1,680
Martins Landing 6,956 2.85% (A) May-06 6,956
Mayfaire at Windsor Parke 18,145 7.56% (C) Oct-09 16,713
Meadowbrook 3,471 6.56% (C) Jan-09 3,148
Meadowbrook - supplemental mortgage 616 7.26% (C) Apr-11 556
Mission Trace 2,156 3.42% (A) Sep-07 2,027
Morningside 2,336 2.93% (B) Dec-12 1,661
Mustang Creek 5,724 8.06% (C) Jul-10 5,274
Palm Court 4,500 7.59% (C) Oct-10 4,103
Palm Court - supplemental mortgage 798 6.30% (C) Jan-13 699
Park Dale Gardens 5,410 8.11% (C) Jul-10 4,989
Regents, The 6,114 8.06% (C) Jul-10 5,634
Regents, The - supplemental mortgage 1,985 6.18% (C) Aug-12 1,739
River City Landing 10,307 2.85% (A) May-06 10,307
Southern Elms 1,652 4.67% (B) Apr-07 1,540
Summit on the Lake 4,383 6.35% (C) Aug-27 -
Vintage Cottage 20,800 3.03% (A) May-06 19,680
Vintage at Lake Lotta 13,715 3.42% (A) Nov-05 13,190
Vintage at Legacy 21,431 2.85% (A) May-06 21,431
24
TARRAGON REALTY INVESTORS, INC.
MORTGAGE LOANS SECURED BY OWNED PROPERTIES
DECEMBER 31, 2003
(Dollars in thousands)
Stated
Balance Interest Maturity Balance Due
Name of Property Dec. 31, 2003 Rate (D) Date at Maturity
- ----------------------------------------------------------------------------------------------------------------------------
Investment Division Consolidated Apartment
Communities (continued)
- ------------------------------------------
Vintage at Madison Crossing $ 9,550 3.17% (A) Jan-06 $ 9,176
Vintage at Plantation Bay 14,872 2.85% (A) May-06 14,872
Vintage at Tampa Palms 19,533 3.42% (A) May-05 19,002
Vintage on the Green 25,817 2.85% (A) May-06 25,817
Vistas at Lake Worth 9,149 6.61% (C) Oct-11 8,092
Woodcreek 6,624 6.79% (C) Sep-08 6,057
Woodcreek - supplemental mortgage 1,751 7.90% (C) Jan-11 1,578
Woodcreek Garden 13,330 1.04% (B) Dec-31 2,701
Woodcreek Garden - supplemental mortgage 4,383 6.26% (C) Jun-14 -
Woodcreek Garden - supplemental mortgage 3,050 6.69% (C) Jun-14 2,497
------------- ----------- -------------
352,236 4.63% (F) 301,734
------------- ----------- -------------
Homebuilding Division Rental Apartment
Community
- --------------------------------------
Aspentree 7,275 3.13% (A) Dec-05 7,274
------------- ----------- -------------
Commercial properties and land (G) 39,595 5.30% (F) Oct-04 to 37,850
------------- ----------- Nov-10 -------------
Consolidated Mortgages on Real Estate 399,106 4.67% (F) 346,858
------------- ----------- -------------
Homebuilding Inventory
- ----------------------
Alexandria Place 3,372 6.50% (A) Jun-05 3,372
Alexandria Pointe 390 6.50% (A) Mar-04 390
Forest Ridge 499 6.75% (C) Jul-04 499
Pine Crest Phase I 6,495 3.28% (A) Feb-06 6,495
Pine Crest Phase II 1,438 3.28% (A) Feb-06 1,438
Smoky Mountain Ridge 3,205 6.00% (B) Jan-05 3,205
Smoky Mountain Ridge - supplemental
mortgage 1,712 5.00% (A) Apr-04 1,712
Southridge Pointe 176 6.50% (A) Mar-04 176
Tuscany on the Intracoastal 35,353 3.42% (A) Jun-06 35,353
Venetian Bay 1,624 5.50% (A) Dec-05 1,624
Wekiva Crest 716 6.50% (A) Mar-04 716
Woods of Lake Helen 2,221 6.00% (A) Nov-05 2,221
25
TARRAGON REALTY INVESTORS, INC.
MORTGAGE LOANS SECURED BY OWNED PROPERTIES
DECEMBER 31, 2003
(Dollars in thousands)
Stated
Balance Interest Maturity Balance Due
Name of Property Dec. 31, 2003 Rate (D) Date at Maturity
- ----------------------------------------------------------------------------------------------------------------------
Homebuilding Inventory (continued)
- ----------------------------------
Woods of Lake Helen - supplemental mortgage $ 260 6.50% (C) Apr-05 $ 232
Woods of Southridge 85 6.50% (A) Mar-04 85
------------- ----------- ------------
57,546 4.05% (F) 57,518
------------- ----------- ------------
TOTAL CONSOLIDATED MORTGAGES 456,652 4.59% (F) 404,376
------------- ----------- ------------
Mortgage Debt of Unconsolidated Partnerships
and Joint Ventures
- --------------------------------------------
Investment Division Apartment Communities
- -----------------------------------------
Autumn Ridge 3,193 6.89% (C) Apr-11 2,856
Autumn Ridge - supplemental mortgage 1,031 6.01% (C) Apr-13 888
Club at Danforth 14,481 7.56% (C) Oct-09 13,338
Dogwood Hills 3,073 5.22% (C) Oct-12 2,622
Groton Towers 4,653 7.82% (C) Sep-10 4,263
Groton Towers - supplemental mortgage 1,077 5.96% (C) Oct-10 968
Groton Towers - supplemental mortgage 936 5.98% (C) Oct-12 815
Gull Harbor 1,794 3.67% (A) Apr-12 1,471
Hamden Centre 3,648 5.22% (C) Oct-12 3,113
Lakeview 2,841 8.00% (C) Jul-10 2,615
Liberty Building 9,679 5.19% (C) Oct-12 8,252
Links at Georgetown 13,459 7.31% (C) Jun-09 12,256
Links at Georgetown - supplemental mortgage 246 6.53% (C) Jun-09 228
Links at Georgetown - supplemental mortgage 5,369 6.43% (C) Jun-09 4,972
Nutmeg Woods 13,028 7.68% (C) Sep-10 11,904
Nutmeg Woods - supplemental mortgage 3,088 5.96% (C) Oct-10 2,775
Nutmeg Woods - supplemental mortgage 2,779 5.98% (C) Oct-12 2,419
Ocean Beach 18,376 5.22% (C) Oct-12 15,680
Parkview 6,354 7.86% (C) Aug-10 5,829
Parkview - supplemental mortgage 1,647 6.91% (C) Dec-12 1,464
Parkview - supplemental mortgage 1,099 6.27% (C) Dec-14 917
Sagamore Hills 7,543 7.85% (C) Jul-10 6,925
Villa Tuscany 22,000 3.20% (A) Jun-04 22,000
Villa Tuscany - mezzanine loan 1,227 12.00% (C) Jun-04 1,227
Villa Tuscany - other loans 750 3.20% (A) Dec-03 750
Vineyard at Eagle Harbor 17,892 7.61% (C) Nov-10 16,301
Vintage at Abacoa 40,000 3.03% (A) May-06 37,770
Vintage at the Parke 14,545 2.85% (A) May-06 14,545
26
TARRAGON REALTY INVESTORS, INC.
MORTGAGE LOANS SECURED BY OWNED PROPERTIES
DECEMBER 31, 2003
(Dollars in thousands)
Stated
Balance Interest Maturity Balance Due
Name of Property Dec. 31, 2003 Rate (D) Date at Maturity
- ------------------------------------------------------------------------------------------------------------------------
Mortgage Debt of Unconsolidated
Partnerships and Joint Ventures (continued)
- ----------------------------------------------
Investment Division Apartment Communities
(continued)
- -----------------------------------------
Woodcliff Estates $ 19,420 7.68% (C) Sep-10 $ 17,745
Woodcliff Estates - supplemental mortgage 3,489 7.61% (C) Jan-13 3,084
------------- ----------- -----------
238,717 5.68% (F) 219,992
Homebuilding Division Rental Apartment
Communities
- --------------------------------------
Arbor Glen 4,696 8.02% (C) Jan-06 4,417
Vintage at Fenwick Plantation 14,425 3.17% (A) Sep-04 14,425
------------- ----------- -----------
19,121 4.36% (F) 18,842
------------- ----------- -----------
Commercial properties (H) 23,721 4.96% (F) Jul-08 to 7,501
------------- ----------- Jul-23 -----------
Homebuilding Inventory
- ----------------------
Las Olas River House 68,264 3.97% (A) Apr-05 68,264
Las Olas River House - mezzanine loan 25,000 20.00% (C) Apr-07 25,000
100 East Las Olas 4,125 6.00% (A) Mar-04 4,125
Metropolitan 15,170 3.63% (A) Aug-04 15,170
------------- ----------- -----------
112,559 7.56% (F) 112,559
------------- ----------- -----------
Total unconsolidated mortgages 394,118 6.11% (F) 358,894
------------- ----------- -----------
TOTAL ALL MORTGAGES $ 850,770 5.30% (F) $ 763,270
============= =========== ===========
Summary by interest rate type:
Total variable rate mortgages $ 440,172 3.43% (F) $ 418,095
Total variable rate mortgages subject to cap 32,223 1.86% (F) 11,407
Total fixed rate mortgages 378,375 7.76% (F) 333,768
------------- ----------- -----------
$ 850,770 5.30% (F) $ 763,270
============= =========== ===========
- ---------
(A) Variable rate mortgage.
(B) Variable rate mortgage subject to cap or ceiling.
(C) Fixed rate mortgage.
(D) For loans with variable interest rates, the rate in effect as of December
31, 2003, is presented.
(E) This loan is an advance under the $16.8 million line of credit facility.
(F) Represents weighted average interest rate as of December 31, 2003, computed
based upon the December 31, 2003, balances.
(G) Includes mortgages secured by twelve commercial properties and three tracts
of land.
(H) Includes mortgages secured by two commercial properties.
27
ITEM 3. LEGAL PROCEEDINGS
In April 2003, in connection with the condominium conversion of Pine Crest
Village at Victoria Park, a contractor for Tarragon may have inadvertently
disturbed asbestos-containing materials. Such actions are currently under
investigation by the Environmental Protection Agency and may result in civil
and/or criminal proceedings under applicable law. The extent of the resulting
liability, if any, is unknown at this time. We have incurred legal and other
professional fees and costs of relocation of residents in connection with this
matter totaling $308,000 to date. Remediation has been completed at a total cost
of approximately $800,000.
Tarragon is also 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.
28
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." 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. The quotations have been restated to give effect to a 10% stock
dividend paid in April 2002, a three-for-two stock split effective February 14,
2003, and a five-for four stock split effective January 15, 2004.
2003 2002
---------------------- ----------------------
High Low High Low
---------- -------- --------- --------
First quarter $ 11.79 $ 8.05 $ 6.69 $ 6.25
Second quarter 13.07 10.47 8.29 6.62
Third quarter 13.24 11.18 8.26 7.65
Fourth quarter 13.27(a) 11.78 8.58 7.81
- ----------
(a) A bid of $21.56 was reported to NASDAQ by another market center during a
one-second period on October 23, 2003. The highest trade on October 23,
2003, was $12.12.
According to the transfer agent's records, at March 4, 2004, our common stock
was held by approximately 4,847 holders, including beneficial holders. On March
4, 2004, the closing price of our common stock was $14.69.
No cash dividends were paid to common stockholders in 2003 and 2002. In 2000,
the Board of Directors discontinued cash dividends on Tarragon's common stock.
In December 2001, the Board of Directors authorized a 10% common stock dividend
that was paid on April 26, 2002, to holders of record on April 15, 2002. In
January 2003, the Board of Directors approved a three-for-two stock split
effective February 14, 2003. In December 2003, the Board of Directors approved a
five-for-four stock split effective January 15, 2004.
[This space intentionally left blank.]
29
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 Op