SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 2000 ------------------ Commission File Number 1-9240 ------ TRANSCONTINENTAL REALTY INVESTORS, INC. -------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Nevada 94-6565852 - --------------------------------- --------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 1800 Valley View Lane, Suite 300, Dallas, Texas 75234 - -------------------------------------------------------------------------------- (Address of Principal Executive Office) (Zip Code) (469) 522-4200 -------------------------------- (Registrant's Telephone Number, Including Area Code) 10670 North Central Expressway, Suite 300, Dallas, Texas 75231 - -------------------------------------------------------------------------------- (Former Name, Former Address and Former Fiscal Year, If Changed from Last Report) 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 ___. --- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of the issuer's classes of Common Stock, as of the latest practicable date. Common Stock, $.01 par value 8,636,373 - ---------------------------- --------------------------------- (Class) (Outstanding at October 27, 2000) 1
PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS - ----------------------------- The accompanying Consolidated Financial Statements have not been audited by independent certified public accountants, but in the opinion of the management of Transcontinental Realty Investors, Inc. ("TCI"), all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of TCI's consolidated financial position, consolidated results of operations and consolidated cash flows at the dates and for the periods indicated, have been included. TRANSCONTINENTAL REALTY INVESTORS, INC. CONSOLIDATED BALANCE SHEETS September 30, December 31, 2000 1999 ------------- ------------ (dollars in thousands, except per share) Assets ------ Notes and interest receivable Performing (including $5,837 from affiliates in 2000) ....................................... $ 9,098 $ 11,691 Nonperforming ..................................... -- 382 -------- -------- 9,098 12,073 Less - allowance for estimated losses ................ (537) (543) -------- -------- 8,561 11,530 Foreclosed real estate held for sale ................. 1,790 1,790 Real estate held for investment, net of accumulated depreciation ($93,168 in 2000 and $84,986 in 1999) .................................. 650,755 599,746 Investment in real estate entities ................... 4,878 2,310 Investment in marketable equity securities of affiliate, at market .............................. 12,699 13,954 Cash and cash equivalents ............................ 16,999 41,266 Other assets (including $10,347 in 2000 and $14,945 from affiliates in 1999) .................. 40,390 43,599 -------- -------- $736,072 $714,195 ======== ======== The accompanying notes are an integral part of these Consolidated Financial Statements. 2
TRANSCONTINENTAL REALTY INVESTORS, INC. CONSOLIDATED BALANCE SHEETS - Continued September 30, December 31, 2000 1999 ------------- ------------ (dollars in thousands, except per share) Liabilities and Stockholders' Equity ------------------------------------ Liabilities Notes and interest payable ............................... $516,460 $503,406 Other liabilities (including $1,133 in 2000 and $2,356 in 1999 to affiliates) ..................... 29,327 31,677 -------- -------- 545,787 535,083 Stockholders' equity Preferred Stock Series A; $.01 par value; authorized, 6,000 shares; issued and outstanding 5,829 shares in 2000 and 1999 (liquidation preference $583).......... -- -- Common Stock, $.01 par value, authorized, 10,000,000 shares; issued and outstanding, 8,633,696 shares in 2000 and 8,626,611 in 1999 ........ 86 86 Paid-in capital .......................................... 278,209 278,119 Accumulated distributions in excess of accumulated earnings.................................... (87,472) (99,811) Unrealized gain/(loss) on marketable equity securities.............................................. (538) 718 -------- -------- 190,285 179,112 -------- -------- $736,072 $714,195 ======== ======== The accompanying notes are an integral part of these Consolidated Financial Statements. 3
TRANSCONTINENTAL REALTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS <TABLE> <CAPTION> For the Three Months For the Nine Months Ended September 30, Ended September 30, ----------------------------- -------------------------- 2000 1999 2000 1999 ---------- ---------- ---------- ---------- (dollars in thousands, except per share) <S> <C> <C> <C> <C> Property revenue Rents................................................ $ 35,121 $ 18,445 $ 103,722 $ 57,628 Property expense Property operations.................................. 19,872 9,676 56,589 30,154 ---------- ---------- ---------- ---------- Operating income................................ 15,249 8,769 47,133 27,474 Other income Interest and other................................... 936 174 1,928 297 Equity in income/(loss) of equity investees.......... (185) 1,631 (477) 2,135 Gain on sale of real estate.......................... 11,755 5,850 29,562 16,001 ---------- ---------- ---------- ---------- 12,506 7,655 31,013 18,433 Other expense Interest............................................. 12,232 6,289 35,338 18,722 Depreciation......................................... 5,387 2,891 14,839 8,737 Advisory fee to affiliates........................... 1,353 765 3,915 2,220 Net income fee to affiliate.......................... 567 396 1,319 1,055 General and administrative........................... 1,325 962 5,713 2,165 ---------- ---------- ---------- ---------- 20,864 11,303 61,124 32,899 Net income.............................................. 6,891 5,121 17,022 13,008 Preferred dividend requirement.......................... (7) (9) (22) (23) ---------- ---------- ---------- ---------- Net income applicable to Common shares.................. $ 6,884 $ 5,112 $ 17,000 $ 12,985 ========== ========== ========== ========== Earnings per share Net income applicable to Common shares.................. $ .80 $ 1.32 $ 1.97 $ 3.35 ========== ========== ========== ========== Weighted average Common shares used in computing earnings per share...................... 8,633,211 3,880,617 8,630,029 3,879,954 ========== ========== ========== ========== </TABLE> The accompanying notes are an integral part of these Consolidated Financial Statements. 4
TRANSCONTINENTAL REALTY INVESTORS, INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY <TABLE> <CAPTION> Accumulated Common Stock Distributions Accumulated ------------------------- in Excess of Other Paid-in Accumulated Comprehensive Stockholders' Shares Amount Capital Earnings Income Equity ---------- ---------- ---------- ------------ ------------- ------------ (dollars in thousands, except per share) <S> <C> <C> <C> <C> <C> <C> Balance, January 1, 2000... 8,626,611 $ 86 $ 278,119 $ (99,811) $ 718 $ 179,112 Comprehensive income Unrealized loss on marketable equity securities of affiliate............. -- -- -- -- (1,256) (1,256) Net income.............. -- -- -- 17,022 -- 17,022 ------------ 15,766 Sale of Common Stock under dividend reinvestment plan.................... 8,014 -- 90 -- -- 90 Fractional shares.......... (929) -- -- -- -- -- Common dividends ($.54 per share).................. -- -- -- (4,661) -- (4,661) Preferred dividends ($3.75 per share).............. -- -- -- (22) -- (22) ---------- ---------- ---------- ------------ ------------- ------------ Balance, September 30, 2000.................... 8,633,696 $ 86 $ 278,209 $ (87,472) $ (538) $ 190,285 ========== ========== =========== ============ ============= ============ </TABLE> The accompanying notes are an integral part of these Consolidated Financial Statements. 5
TRANSCONTINENTAL REALTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS <TABLE> <CAPTION> For the Nine Months Ended September 30, ---------------------------------- 2000 1999 ----------- ----------- (dollars in thousands) <S> <C> <C> Cash Flows from Operating Activities Rents collected................................................ $ 102,445 $ 56,724 Interest collected............................................. 594 289 Interest paid.................................................. (33,798) (28,686) Advisory and net income fee paid to affiliate.................. (5,741) (2,128) General and administrative expenses paid....................... (6,486) (2,257) Distributions from operating cash flow of equity investees..... 236 376 Other.......................................................... 1,917 (698) ----------- ----------- Net cash provided by operating activities................ 1,086 5,660 Cash Flows from Investing Activities Acquisition of real estate..................................... (30,531) (40,443) Real estate improvements....................................... (9,986) (15,360) Proceeds from sale of real estate.............................. 33,528 44,266 Refunds of deposits on pending purchases and financings........ 1,840 1,772 Deferred merger costs.......................................... -- (257) Collections on notes receivable ($6.5 million from............. 15,017 33 affiliates in 2000) Funding of notes receivable to affiliate....................... (12,000) -- Distributions of equity investees' investing cash flow, net.... 1,296 3,556 Contributions to equity investees.............................. -- (9) ----------- ----------- Net cash (used in) investing activities.................. (836) (6,442) Cash Flows from Financing Activities Payments on notes payable...................................... (89,156) (43,111) Proceeds from notes payable.................................... 67,981 62,070 Deferred borrowing costs....................................... (914) (1,028) Payments (to)/from advisor..................................... 5,465 (9,655) Advance to affiliate........................................... (3,300) -- Dividends to stockholders...................................... (4,683) (1,780) Sale of Common Stock under dividend reinvestment plan.......... 90 35 ----------- ----------- Net cash (used in) provided by financing activities...... (24,517) 6,531 Net (decrease) increase in cash and cash equivalents.............. (24,267) 5,749 Cash and cash equivalents, beginning of period.................... 41,266 10,505 ----------- ----------- Cash and cash equivalents, end of period.......................... $ 16,999 $ 16,254 =========== =========== </TABLE> The accompanying notes are an integral part of these Consolidated Financial Statements. 6
TRANSCONTINENTAL REALTY INVESTORS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued <TABLE> <CAPTION> For the Nine Months Ended September 30, ------------------------------- 2000 1999 ----------- ----------- (dollars in thousands) <S> <C> <C> Reconciliation of net income to net cash provided by operating activities Net income........................................................................... $ 17,022 $ 13,008 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization..................................................... 14,839 9,454 Gain on sale of real estate....................................................... (29,562) (16,001) Equity in (income)/loss of equity investees....................................... 477 (2,135) Distributions from operating cash flow of equity investees........................ 236 376 (Increase) in interest receivable................................................. (403) (8) (Increase) decrease in other assets............................................... 1,311 (4,019) Increase (decrease) in interest payable........................................... (482) 45 Increase (decrease) in other liabilities.......................................... (2,352) 4,940 ----------- ---------- Net cash provided by operating activities...................................... $ 1,086 $ 5,660 =========== ========== Schedule of noncash investing and financing activities Notes payable assumed on purchase of real estate..................................... $ 50,294 $ 7,348 Notes payable assumed by buyer on sale of real estate................................ (16,798) -- Unrealized loss on marketable equity securities of affiliate......................... (1,256) -- </TABLE> The accompanying notes are an integral part of these Consolidated Financial Statements. 7
TRANSCONTINENTAL REALTY INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. BASIS OF PRESENTATION - ------------------------------- TCI is a Nevada corporation and successor to a California business trust which was organized on September 6, 1983. TCI invests in real estate through direct ownership, leases and partnerships. TCI has also invested in mortgage loans on real estate. TCI elected to be treated as a Real Estate Investment Trust ("REIT") under sections 856 through 860 of the Internal Revenue Code ("Code") of 1986, as amended for the year ended December 31, 1984 through December 31, 1999. Performing routine third quarter testing of the Code requirements to qualify as a REIT for federal income tax purposes, TCI determined that it no longer met those requirements. Based on publicly disclosed information, acquisitions of the stock in June, July and August 2000 by entities not previously holding TCI shares caused a concentration of ownership in excess of that permitted by the Code. The Code prohibits five or fewer shareholders of owning more than 50 percent of an entity for it to continue to qualify as a REIT. Under the Code, TCI also cannot re-qualify as a REIT for at least five years. The accompanying Consolidated Financial Statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Dollar amounts in tables are in thousands, except per share amounts. Certain balances for 1999 have been reclassified to conform to the 2000 presentation. Operating results for the nine month period ended September 30, 2000, are not necessarily indicative of the results that may be expected for the year ending December 31, 2000. For further information, refer to the Consolidated Financial Statements and notes included in TCI's Annual Report on Form 10-K for the year ended December 31, 1999 (the "1999 Form 10-K"). NOTE 2. ACQUISITION OF CONTINENTAL MORTGAGE AND EQUITY TRUST - -------------------------------------------------------------- On September 25, 1998, TCI and Continental Mortgage and Equity Trust ("CMET") jointly announced the agreement of their respective Boards of Directors for TCI to acquire CMET through merger. At special meetings held on September 28, 1999, the stockholders of both companies approved the merger transaction. The merger was completed on November 30, 1999. Pursuant to the merger agreement, TCI acquired all of the outstanding CMET shares of beneficial interest in a tax free exchange of shares, issuing 1.181 shares of its Common Stock for each outstanding CMET share. TCI accounted for the merger as a purchase. The consolidation of TCI's accounts with those of CMET resulted in an increase in TCI's net real estate of $258.8 million. This amount was allocated to the individual real estate assets based on their relative individual fair market values. 8
TRANSCONTINENTAL REALTY INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 2. ACQUISITION OF CONTINENTAL MORTGAGE AND EQUITY TRUST - -------------------------------------------------------------- (Continued) Pro forma operating results for the first three quarters of 1999, as if TCI had acquired CMET on January 1, 1999, would have been: Revenues................................................ $ 108,005 Property operating expenses............................. (59,003) Interest................................................ (34,554) Depreciation............................................ (14,810) Advisory fee............................................ (4,046) Net income fee.......................................... (1,233) General and administrative expenses..................... (4,058) --------- (Loss) from operations.................................. (9,699) Equity in income of investees........................... 2,299 Gain on sale of real estate............................. 22,601 --------- Net income.............................................. $ 15,201 ========= NOTE 3. REAL ESTATE - --------------------- In 2000, TCI purchased the following properties: <TABLE> <CAPTION> Net Units/ Purchase Cash Debt Interest Maturity Property Location Acres/Sq.Ft. Price Paid Incurred Rate Date - ---------- ---------- ------------ -------- ------ -------- ------ ----- <S> <C> <C> <C> <C> <C> <C> <C> First Quarter Apartments Quail Creek Lawrence, KS 95 Units $ 3,250 $ 1,088 $ 2,254 7.44% 07/03 Apple Lane Lawrence, KS 75 Units 1,575 595 1,005 8.63 05/07 Land Netzer Collin County, TX 20 Acres 400 418 -- -- -- Lamar/Parmer Austin, TX 17.07 Acres 1,500 517 1,030 10.00 12/00 Manhattan Farmers Branch, TX 108.9 Acres 10,743 6,144 5,000 14.00 02/01 DF Fund Collin County, TX 79.5 Acres 2,545 1,047 1,545 10.00 03/01 Second Quarter Apartments Autumn Chase Midland, TX 64 Units 1,338 458 936 9.45 * 04/05 Primrose Bakersfield, CA 162 Units 4,100 1,189 3,000 9.25 * 03/07 Paramount Terrace Amarillo, TX 181 Units 3,250 561 2,865 9.38 09/01 Office Building 9033 Wilshire Blvd. Los Angeles, CA 44,253 Sq.Ft. 9,225 2,536 6,861 8.07 08/09 Bay Plaza II Tampa, FL 78,882 Sq.Ft. 4,825 4,786 -- -- -- Land Limestone Canyon II Austin, TX 9.96 Acres 504 424 -- -- -- Third Quarter Office Center and Retail Countryside Portfolio** Sterling, VA 265,718 Sq.Ft. 44,940 4,825 36,297 7.75 12/02 Fourth Quarter Land Folsom Dallas, TX 36.38 Acres 1,750 1,738 -- -- -- ________________________________ </TABLE> 9
TRANSCONTINENTAL REALTY INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 3. REAL ESTATE (Continued) - --------------------- * Variable interest rate. ** Countryside Portfolio consists of four commercial buildings: the 133,422 sq. ft. Countryside Retail Center, the 72,062 sq. ft. Harmon Office Building, the 35,127 sq. ft. Mimado Office Building and the 25,107 sq. ft. Ambulatory Surgical Center. In 2000, TCI sold the following properties: <TABLE> <CAPTION> Net Units/ Sales Cash Debt Gain on Property Location Rooms/Sq.Ft. Price Received Discharged Sale ---------- ---------- ------------- ------- ---------- ---------- ------- <S> <C> <C> <C> <C> <C> <C> First Quarter Apartments Hunters Bend San Antonio, TX 96 Units $ 1,683 $ 418 $ 1,127 * $ 572 Westgate of Laurel Laurel, MD 218 Units 11,290 2,599 7,525 * 3,575 Second Quarter Apartments Apple Creek Dallas, TX 216 Units 4,300 2,155 1,723 3,240 Villas at Fairpark Los Angeles, CA 49 Units 3,435 792 2,386 1,188 Hotel Chateau Charles Lake Charles, LA 245 Rooms 1,000 928 -- 633 Third Quarter Apartments Villas at Countryside Sterling, VA 102 Units $ 8,100 $ 2,686 5,334 * $ 1,520 Eagle Rock Los Angeles, CA 99 Units 5,600 1,967 3,246 1,021 Woodbridge Denver, CO 194 Units 6,856 3,328 2,845 3,796 Ashley Crest Houston, TX 168 Units 3,950 1,102 2,812 * 706 Office Building/ Warehouse Brookfield Corporate Center Chantilly, VA 63,504 Sq.Ft. 4,850 1,729 2,838 1,369 Shady Trail Dallas, TX 42,900 Sq.Ft. 900 340 521 206 Land McKinney ** McKinney, TX 255 Acres 8,783 5,035 4,423 2,091 Allen *** Allen, TX 5.49 Acres 370 86 281 184 </TABLE> _____________________ * Debt assumed by purchaser. ** The McKinney land sale included three parcels of land: the 20 acre Netzer land; the 79.54 acre DF Fund land; and the 156.19 acre OPUBCO land. *** The Allen land consisted of a partial sale of three parcels of land: a 2.62 acre tract of the Stacy Road land; a 2.23 acre tract of the Sandison land; and, a .64 acre tract of the Whisenant land. NOTE 4. NOTES AND INTEREST RECEIVABLE - --------------------------------------- In June 2000, a $3.0 million loan was funded to Basic Capital Management, Inc. ("BCM"), TCI's advisor. The loan was secured by 108,802 shares of common stock of Income Opportunity Realty Investors, 10
TRANSCONTINENTAL REALTY INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 4. NOTES AND INTEREST RECEIVABLE (Continued) - -------------------------------------- Inc. ("IORI"). IORI is also advised by BCM. The loan bore interest at 15.0% per annum and matured in October 2000. All principal and interest were due at maturity. The loan and all accrued but unpaid interest was paid off in August 2000. In June 2000, a $9.0 million loan was funded to American Realty Trust, Inc. ("ART"), an affiliate of BCM. The loan was secured by 409,934 shares of IORI. The loan bore interest at 15.0% per annum and matured in October 2000. All principal and interest were due at maturity. The loan and all accrued but unpaid interest was paid off in October 2000. At December 31, 1999, mortgage notes receivable with a combined principal balance of $4.6 million and a carrying value of $356,000, secured by first and second liens on a closed hotel in Lake Charles, Louisiana were in default. Title to the collateral property was obtained in February 2000 through foreclosure. No loss was incurred on foreclosure as the estimated fair value of the property, less estimated costs of sale, exceeded the carrying value of the mortgage notes receivable. The property was sold in June 2000, for a gain of $633,000. See NOTE 3. "REAL ESTATE." In December 1999, TCI provided $8.5 million of purchase money financing in conjunction with the sale of 253 acres of unimproved land in McKinney and Collin County, Texas. The note receivable bore interest at 8.5% per annum, required a $1.0 million principal paydown in February 2000, required payment of all accrued interest in June 2000, and required the payment of all principal and remaining accrued interest at maturity in September 2000. The loan was repaid in accordance with its terms. In conjunction with the loan payoff, TCI recognized a previously deferred gain on the sale of $4.8 million. NOTE 5. INVESTMENT IN EQUITY METHOD REAL ESTATE ENTITIES - --------------------------------------------------------- TCI owns a 63.7% general partner interest in Tri-City Limited Partnership ("Tri- City"), which owns the 70,275 sq.ft. Chelsea Square Shopping Center in Houston, Texas. In February 2000, Tri-City obtained mortgage financing of $2.1 million secured by the previously unencumbered shopping center. Tri-City received net cash of $2.0 million after the funding of required escrows and the payment of various closing costs. The mortgage bears interest at a fixed rate of 10.24% per annum until February 2001 and thereafter at a variable rate, requires monthly payments of principal and interest of $20,601 and matures in February 2005. TCI received a distribution of $1.3 million of the net financing proceeds. 11
TRANSCONTINENTAL REALTY INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 6. NOTES AND INTEREST PAYABLE - ----------------------------------- In 2000, TCI financed/refinanced the following properties: <TABLE> <CAPTION> Net Debt Debt Cash Interest Maturity Property Location Units/Sq.Ft. Incurred Discharged Received Rate Date -------- -------- -------------- -------- ---------- -------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> First Quarter Apartments Crescent Place Houston, TX 120 Units $ 2,165 $ 1,722 $ 370 7.04%* 03/30 Madison @ Bear Creek Houston, TX 180 Units 3,500 2,625 730 7.04 * 03/30 Office Buildings Westgrove Air Plaza Addison, TX 78,326 Sq.Ft. 2,087 1,180 742 9.02 * 01/05 Venture Center Atlanta, GA 38,772 Sq.Ft. 2,700 1,113 1,592 8.75 03/10 Second Quarter Apartments Country Crossing Tampa, FL 227 Units 3,825 2,645 985 9.65 * 06/03 Fontenelle Hills ** Bellevue, NE 338 Units 2,010 -- 1,967 8.51 06/10 Office Building Technology Trading Sterling, VA 197,659 Sq.Ft. 6,300 3,881 2,065 8.26 * 05/05 Warehouses 5360 Tulane Atlanta, GA 67,850 Sq.Ft. 375 208 134 9.65 * 04/03 Space Center San Antonio, TX 101,500 Sq.Ft. 1,125 691 402 9.65 * 04/03 Third Quarter Office Building Jefferson Washington, DC 71,876 Sq.Ft. 9,875 8,955 557 9.50 07/25 Fourth Quarter Warehouses Kelly Dallas, TX 330,406 Sq.Ft. 5,000 2,173 2,628 9.50 * 10/03 </TABLE> __________________ * Variable interest rate. ** Second lien on property. NOTE 7. ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC. - ------------------------------------------------------- Revenue, fees and cost reimbursements to BCM and its affiliates for the nine months ended: September 30, 2000 ------------- Fees Advisory................................................... $ 3,915 Net income................................................. 1,319 Property acquisition....................................... 1,800 Real estate brokerage...................................... 1,790 Mortgage brokerage and equity refinancing.................. 339 Property and construction management and leasing commissions*.................................. 2,896 --------- $ 12,059 ========= Cost reimbursements.......................................... $ 1,595 ========= Hotel lease revenue.......................................... $ 1,652 ========= 12
TRANSCONTINENTAL REALTY INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 7. ADVISORY FEES, PROPERTY MANAGEMENT FEES, ETC. (Continued) - ------------------------------------------------------- _______________________ * Net of property management fees paid to subcontractors, other than Regis Realty, Inc., which is owned by an affiliate of BCM. NOTE 8. OPERATING SEGMENTS - ---------------------------- Significant differences among the accounting policies of the operating segments as compared to the Consolidated Financial Statements principally involve the calculation and allocation of administrative expenses. Management evaluates the performance of each of the operating segments and allocates resources to them based on their net operating income and cash flow. Items of income that are not reflected in the segments are interest, equity in partnerships and gains on sales of real estate totaling $31.0 million and $18.4 million for the nine months ended September 30, 2000 and 1999, respectively. Expenses that are not reflected in the segments are general and administrative expenses, and advisory and net income fees totaling $10.9 million and $5.4 million for the nine months ended September 30, 2000 and 1999, respectively. Also excluded from segment assets are assets of $83.5 million at September 30, 2000, and $49.0 million at September 30, 1999, which are not identifiable with an operating segment. There are no intersegment revenues and expenses and all business is conducted in the United States. Presented below is the operating income of each operating segment for the nine months ended September 30, and each segment's assets at September 30. <TABLE> <CAPTION> Commercial Land Properties Apartments Hotels Total -------- ---------- ---------- -------- --------- <S> <C> <C> <C> <C> <C> 2000 Rents......................... $ 532 $ 44,401 $ 57,137 $ 1,652 $ 103,722 Property operating expenses... 468 22,620 33,356 145 56,589 -------- ---------- ---------- -------- --------- Segment operating income...... $ 64 $ 21,781 $ 23,781 $ 1,507 $ 47,133 ======== ========== ========== ======== ========= Depreciation.................. $ -- $ 7,869 $ 6,226 $ 744 $ 14,839 Interest...................... 2,812 15,343 16,012 1,171 35,338 Real estate improvements...... 84 7,768 1,270 864 9,986 Assets........................ 57,879 329,676 245,486 19,504 652,545 Property Sales <CAPTION> Commercial Land Properties Apartments Hotels Total -------- ---------- ---------- -------- --------- <S> <C> <C> <C> <C> <C> Sales price................... $ 9,155 $ 5,750 $ 45,214 $ 1,000 $ 61,119 Cost of sales................. (6,880) (4,089) (29,596) (367) (40,932) -------- --------- --------- -------- --------- Gain on sale.................. $ 2,275 $ 1,661 $ 15,618 $ 633 $ 20,187* ======== ========= ========= ======== ========= </TABLE> ___________________ * Excludes a $4.8 million gain previously deferred on the sale of land and TCI's share of gains recognized by an equity affiliate of $4.6 million. 13
TRANSCONTINENTAL REALTY INVESTORS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE 8. OPERATING SEGMENTS (Continued) - ------------------------------- <TABLE> <CAPTION> Commercial Land Properties Apartments Hotels Total -------- ---------- ---------- -------- ---------- <S> <C> <C> <C> <C> <C> 1999 Rents......................... $ 656 $ 23,472 $ 29,188 $ 4,312 $ 57,628 Property operating expenses... 543 9,501 17,553 2,557 30,154 -------- ---------- ---------- -------- ---------- Operating income.............. $ 113 $ 13,971 $ 11,635 $ 1,755 $ 27,474 ======== ========== ========== ======== ========== Depreciation.................. $ -- $ 4,603 $ 3,631 $ 503 $ 8,737 Interest on debt.............. 1,196 7,862 8,579 1,085 18,722 Real estate improvements...... -- 3,988 9,801 1,571 15,360 Assets........................ 30,705 161,767 164,065 18,944 375,481 Property Sales Commercial Land Properties Apartments Total -------- ---------- ---------- ---------- Sales price................... $ 1,800 $ 34,400 $ 6,700 $ 42,900 Cost of sales................. 1,125 20,942 4,832 26,899 -------- ---------- ---------- ---------- Gain on sale.................. $ 675 $ 13,458 $ 1,868 $ 16,001 ======== ========== ========== ========== </TABLE> NOTE 9. COMMITMENTS AND CONTINGENCIES - ------------------------------------------ TCI is involved in various lawsuits arising in the ordinary course of business. Management is of the opinion that the outcome of these lawsuits will have no material impact on TCI's financial condition, results of operations or liquidity. ____________________ ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ---------------------------------------------------------------------------- RESULTS OF OPERATIONS --------------------- Introduction - ------------ TCI invests in real estate through acquisitions, leases and partnerships. TCI has also invested in mortgage loans, including first, wraparound and junior mortgage loans. TCI is the successor to a business trust organized on September 6, 1983, and commenced operations on January 31, 1984. On September 25, 1998, TCI and CMET jointly announced the agreement of their respective Boards of Directors for TCI to acquire CMET through merger. At special meetings held on September 28, 1999, the stockholders of both companies approved the merger transactions. The merger was completed on November 30, 1999. Pursuant to the merger agreement, TCI acquired all of the outstanding CMET shares of beneficial interest in a tax-free exchange of shares, issuing 1.181 shares of its Common Stock for each outstanding CMET share. TCI accounted for the merger as a purchase. See NOTE 2. "ACQUISITION OF CONTINENTAL MORTGAGE AND EQUITY TRUST." 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ---------------------------------------------------------------------------- RESULTS OF OPERATIONS (Continued) --------------------- Liquidity and Capital Resources - ------------------------------- Cash and cash equivalents totaled $17.0 million at September 30, 2000, compared with $41.3 million at December 31, 1999. TCI's principal sources of cash have been and will continue to be from property operations, proceeds from property sales, the collection of mortgage notes receivable and borrowings. Management anticipates that TCI's cash on hand, as well as cash generated from property operations, the sale of properties and the refinancing of certain of TCI's mortgage debt will be sufficient to meet all of TCI's cash requirements, including debt service obligations and expenditures for property maintenance and improvements. Net cash from operating activities decreased to $1.1 million for the nine months ended September 30, 2000, from $5.7 million in the nine months ended September 30, 1999. The primary factors affecting TCI's cash from operations are discussed in the following paragraphs. Cash from property operations (rents collected less payments for expenses applicable to rental income) increased to $44.4 million in the nine months ended September 30, 2000, from $28.0 million in 1999. Of this increase, $2.9 million was due to the purchase of 16 income producing properties during 1999 and 2000 and $20.5 million was due to the properties obtained in the merger with CMET, and $969,000 was due to the completion of construction projects. These increases were partially offset by a decrease of $5.0 million due to the sale of 18 income producing properties during 1999 and the first nine months of 2000. Interest income increased to $594,000 in the nine months ended September 30, 2000, from $289,000 in 1999. The increase is due to loans of $9.0 million to ART and $3.0 million to BCM funded in June 2000. See NOTE 4. "NOTES AND INTEREST RECEIVABLE." Interest paid increased to $33.8 million in the nine months ended September 30, 2000, from $18.0 million in 1999. Of this increase, $13.3 million was due to the properties obtained in the merger with CMET, $3.0 million was due to the acquisition of 17 properties subject to debt during 1999 and 2000 and $1.4 million was due to refinancings of properties where the debt balance was increased. These increases were partially offset by a decrease of $2.6 million due to the sale of 15 properties subject to debt during 1999 and the first nine months of 2000. Advisory and net income fees paid increased to $5.7 million in the nine months ended September 30, 2000, from $2.1 million in the nine months ended September 30, 1999. The increase was primarily due to the increase in TCI's assets due to the merger with CMET, and not being entitled to a refund of any of its 1999 advisory fee. In the first quarter of 1999, TCI had received a $458,000 refund of advisory fees for 1998. Under its advisory agreement, all or a portion of the annual advisory fee must be refunded by the advisor if the operating expenses of TCI exceed certain limits specified in the advisory agreement. 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ---------------------------------------------------------------------------- RESULTS OF OPERATIONS (Continued) --------------------- Liquidity and Capital Resources (Continued) - ------------------------------- General and administrative expenses paid increased to $6.5 million in the nine months ended September 30, 2000, from $2.3 million in 1999. This increase was mainly due to an increase in legal fees, audit and other professional fees, franchise taxes and cost reimbursements to the advisor, primarily due to the merger with CMET. In the first nine months of 2000, TCI sold eight apartments, one office building, one warehouse, two parcels of land and one hotel for a total of $61.1 million, receiving net cash of $23.2 million, after the payoff of existing debt and the payment of various closing costs. The purchasers assumed $16.8 million in mortgage debt. Also in the first nine months of 2000, TCI purchased five apartments, three office buildings and five parcels of unimproved land for a total of $88.2 million, paying $24.6 million in cash, including various closing costs, and either obtaining new mortgage financing or assuming existing mortgage debt of $60.8 million. Further in the first nine months of 2000, TCI refinanced three apartments, four office buildings and two warehouses and obtained second lien financing on an apartment for a total of $34.0 million, receiving net cash of $9.5 million after paying off $23.0 million in mortgage debt and the payment of various closing costs. In the fourth quarter of 2000, TCI refinanced one warehouse for $5.0 million, receiving $2.6 million in cash after paying off $2.2 million in mortgage debt and the payment of various closing costs and purchased a 36.4 acre parcel of land in Dallas, Texas, for $1.7 million in cash, and payment of various closing costs. In the first nine months of 2000, TCI paid dividends to Common stockholders of $.54 per share, or a total of $4.7 million, and $3.75 per share or a total of $22,000 to Preferred stockholders. TCI sold 8,014 shares of Common Stock through its dividend reinvestment program, for a total of $90,000. The Board of Directors has approved the repurchase of a total of 1.4 million shares of TCI's Common Stock. Through September 30, 2000, a total of 409,765 shares had been repurchased at a total cost of $3.3 million. No shares have been repurchased under this program since May 1998. Management reviews the carrying values of TCI's properties and mortgage notes receivable at least annually and whenever events or a change in circumstances indicate that impairment may exist. Impairment is considered to exist if, in the case of a property, the future cash flow from the property (undiscounted and without interest) is less than the carrying amount of the property. For notes receivable impairment is considered to exist if it is probable that all amounts due under the terms of the note will not be collected. If impairment is found to exist, a provision for loss is recorded by a charge against earnings. The mortgage note receivable review includes an evaluation of the collateral property securing each note. The property review generally 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ---------------------------------------------------------------------------- RESULTS OF OPERATIONS (Continued) --------------------- Liquidity and Capital Resources (Continued) - ------------------------------- includes: (1) selective property inspections; (2) a review of the property's current rents compared to market rents; (3) a review of the property's expenses; (4) a review of maintenance requirements; (5) a review of the property's cash flow; (6) discussions with the manager of the property; and (7) a review of properties in the surrounding area. Results of Operations - --------------------- TCI had net income applicable to common shareholders of $6.9 million and $17.0 million in the three and nine months ended September 30, 2000, including gains on sale of real estate totaling $11.8 million and $29.6 million, compared to net income applicable to common shareholders of $5.1 million and $13.0 million in the corresponding periods in 1999, including gains on sale of real estate totaling $5.9 million and $16.0 million. Fluctuations in these and other components of revenues and expense between the 2000 and 1999 periods are discussed below. Rents in the three and nine months ended September 30, 2000, increased to $35.1 million and $103.7 million compared to $18.4 million and $57.6 million in 1999. Increases of $2.4 million and $6.0 million were due to the purchase of 16 income producing properties in 2000 and 1999, increases of $16.2 million and $48.4 million were due to the properties obtained in the merger with CMET and increases of $657,000 and $1.9 million were due to the completion of construction of Limestone Canyon Apartments. These increases were partially offset by decreases of $2.2 million and $8.5 million due to the sale of 18 income producing properties in 2000 and 1999. Property operations expense in the three and nine months ended September 30, 2000 increased to $19.9 million and $56.6 million from $9.7 million and $30.2 million in 1999. Of these increases, $1.0 million and $2.9 million were due to the purchase of 16 income producing properties in 2000 and 1999, $10.0 million and $27.9 million were due to the properties obtained in the merger with CMET and $367,000 and $917,000 were due to the completion of construction of Limestone Canyon Apartments. These increases were partially offset by decreases of $1.1 million and $3.5 million due to the sale of 18 income producing properties during 2000 and 1999. Rents and property operating expenses in the fourth quarter are both expected to approximate that of the third quarter of 2000. Interest and other income increased to $936,000 and $1.9 million in the three and nine months ended September 30, 2000, compared to $174,000 and $297,000 in 1999. Of these increases, $14,000 and $44,000 were due to the two mortgage notes receivable obtained in the merger with CMET, $345,000 and $390,000 is due to TCI funding two loans in the second quarter of 2000 and $102,000 and $523,000 were due to TCI having provided purchase money financing in conjunction with two property sales in 1999, $308,000 and $387,000 is due to the short-term investments and 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - --------------------------------------------------------------------------- RESULTS OF OPERATIONS (Continued) --------------------- Results of Operations (Continued) - --------------------- $87,000 and $434,000 is due to proceeds from the Olive Settlement. Interest income for the fourth quarter of 2000 is expected to approximate that of each of the first three quarters of 2000. In the three and nine months ended September 30, 2000, gains on sale of real estate totaling $11.8 million and $29.6 million were recognized, $572,000 on the sale of Hunters Bend Apartments, $3.6 million on the sale of Westgate of Laurel Apartments, $3.2 million on the sale of Apple Creek Apartments, $1.2 million on the sale of Villas at Fairpark Apartments, $633,000 on the sale of Chateau Charles Hotel, a $4.8 million previously deferred gain on the sale of McKinney land, TCI's share of gains recognized by an equity affiliate of $4.6 million, $1.4 million on the sale of Brookfield Corporate Center, $706,000 on the sale of Ashley Crest Apartments, $184,000 on the partial sale of Stacy Road land, $1.0 million on the sale of Eagle Rock Apartments, $206,000 on the sale of Shady Trail Warehouse, $2.1 million on the McKinney land, $3.8 million on Woodbridge Apartments and $1.5 million on the sale of Villas at Countryside Apartments. In the three and nine months ended September 30, 1999, gains on sale of real estate totaling $5.9 million and $16.0 million were recognized, $1.9 million on the sale of Mariner's Pointe Apartments, $8.3 million on the sale of 74 New Montgomery Office Building, $675,000 on the sale of Republic land parcel and $5.2 million on the sale of the Parke Long Office Building. Interest expense increased to $12.2 million and $35.3 million in the three and nine months ended September 30, 2000, from $6.3 million and $18.7 million in 1999. Of the increase, $5.0 million and $14.6 million were due to the properties obtained in the merger with CMET, $1.1 million and $3.1 million were due to the debt incurred or assumed on 17 properties acquired in 1999 and the first nine months of 2000, and $264,000 and $700,000 were due to refinancings where the debt balance was increased. These increases were partially offset by decreases of $852,000 and $2.6 million, due to the sale of 12 properties in 2000 and nine properties subject to debt in 1999. Interest expense for the fourth quarter of 2000 is expected to increase from the third quarter due to anticipated property refinancings and the properties purchased on a leveraged basis in the first nine months of 2000. Depreciation increased to $5.4 million and $14.8 million in the three and nine months ended September 30, 2000, from $2.9 million and $8.7 million in 1999. Of these increases, $394,000 and $1.0 million were due to the acquisition of 16 income producing properties in 1999 and the first nine months of 2000 and $2.0 million and $5.5 million were due to the properties obtained in the merger with CMET and $583,000 and $1.0 million were due to completed construction projects in 2000. These increases were partially offset by decreases of $437,000 and $1.5 million due to the sale of 18 income producing properties in 2000 and 1999. Depreciation is expected to continue to increase in the fourth 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ----------------------------------------------------------------------- RESULTS OF OPERATIONS (Continued) --------------------- Results of Operations (Continued) - --------------------- quarter of 2000 due to a full year of depreciation of properties acquired or completed in 1999 and the income producing properties purchased in the first nine months of 2000. Advisory fee increased to $1.4 million and $3.9 million in the three and nine months ended September 30, 2000, from $765,000 and $2.2 million in 1999. These increases were due to an increase in TCI's gross assets, the basis for such fee. Advisory fees are expected to continue to increase with increases in TCI's gross assets, including the assets obtained in the merger with CMET. Net income fee to affiliate was $567,000 and $1.3 million in the three and nine months ended September 30, 2000, as compared to $396,000 and $1.1 million in 1999. The net income fee is payable to TCI's advisor based on 7.5% of TCI's net income. General and administrative expenses increased to $1.3 million and $5.7 million in the three and nine months ended September 30, 2000, from $962,000 and $2.2 million in 1999. These increases were mainly due to an increase in legal fees, audit and other professional fees, franchise taxes and cost reimbursements to the advisor, primarily due to the merger with CMET. Tax Matters - ----------- As more fully discussed in TCI's 1999 Form 10-K, TCI elected and, in the opinion of management, qualified to be taxed as a Real Estate Investment Trust ("REIT"), as defined under Sections 856 through 860 of the Internal Revenue Code ("Code") of 1986, as amended, for the years ended December 31, 1994 through December 31, 1999. To qualify for federal taxation as a REIT, TCI was required to hold at least 75% of the value of its total assets in real estate assets, government securities, cash and cash equivalents at the close of each quarter of each taxable year. As a REIT, TCI also was required to distribute at least 95% of its REIT taxable income, plus 95% of its net income from foreclosure property on an annual basis to stockholders. Performing routine third quarter testing of the Code requirements to qualify as a REIT for federal income tax purposes, TCI determined that it no longer met those requirements. Based on publicly disclosed information, acquisitions of the stock in June, July and August 2000 by entities not previously holding TCI shares caused a concentration of ownership in excess of that permitted by the Code. The Code prohibits five or fewer shareholders of owning more than 50 percent of an entity for it to continue to qualify as a REIT. Under the Code, TCI also cannot re-qualify as a REIT for at least five years. In the opinion of management, TCI's loss of REIT status will have no material adverse impact on its operations, balance sheet or cash flow. 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND - ----------------------------------------------------------------------- RESULTS OF OPERATIONS (Continued) --------------------- Inflation - --------- The effects of inflation on TCI's operations are not quantifiable. Revenues from property operations tend to fluctuate proportionately with inflationary increases and decreases in housing costs. Fluctuations in the rate of inflation also affect sales values of properties and the ultimate gain to be realized from property sales. To the extent that inflation affects interest rates, TCI's earnings from short-term investments, the cost of new financings as well as the cost of variable interest rate debt will be affected. Environmental Matters - --------------------- Under various federal, state and local environmental laws, ordinances and regulations, TCI may be potentially liable for removal or remediation costs, as well as certain other potential costs, relating to hazardous or toxic substances (including governmental fines and injuries to persons and property) where property-level managers have arranged for the removal, disposal or treatment of hazardous or toxic substances. In addition, certain environmental laws impose liability for release of asbestos-containing materials into the air, and third parties may seek recovery for personal injury associated with such materials. Management is not aware of any environmental liability relating to the above matters that would have a material adverse effect on TCI's business, assets or results of operations. Year 2000 - --------- Even though January 1, 2000, has passed and no adverse impact from the transition to the year 2000 was experienced, no assurance can be provided that TCI's suppliers and tenants have not been affected in a manner that is not yet apparent. As a result, management will continue to monitor TCI's year 2000 compliance and the year 2000 compliance of TCI's suppliers and tenants. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS - ------------------------------------------------------------------- At September 30, 2000, TCI's exposure to a change in interest rates on its debt is as follows: <TABLE> <CAPTION> Weighted Effect of 1% Average Increase In Balance Interest Rate Base Rates --------- ------------- ----------- (Amounts in thousands, except per share) <S> <C> <C> <C> Notes payable: Variable rate............................ $ 134,583 9.34% $ 1,346 ========= ========= Total decrease in TCI's annual net income........................ $ 1,346 ========= Per share.................................. $ .16 ========= </TABLE> 20
PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS - ------------------------- Olive Litigation. In February 1990, TCI, together with CMET, IORI and National Income Realty Trust, three real estate entities with, at the time, the same officers, directors or trustees and advisor as TCI, entered into a settlement (the "Settlement") of a class and derivative action entitled Olive et al. v. National Income Realty Trust et al. relating to the operation and management of each of the entities (the "Olive Litigation"). On April 23, 1990, the Court granted final approval of the terms of the Settlement. The Settlement was modified in 1994 (the "Modification"). On January 27, 1997, the parties entered into an Amendment to the Modification effective January 9, 1997 (the "Olive Amendment"). The Olive Amendment provided for the settlement of additional matters raised by plaintiffs' counsel in 1996. The Court issued an order approving the Olive Amendment on July 3, 1997. The Olive Amendment provided that TCI's Board of Directors retain a management/compensation consultant or consultants to evaluate the fairness of TCI's advisory contract with Basic Capital Management, Inc. ("BCM") and any contract of its affiliates with TCI, CMET and IORI, including, but not limited to, the fairness to TCI, CMET and IORI of such contracts relative to other means of administration. In 1998, the Board engaged a management/compensation consultant to perform the evaluation which was completed in September 1998. In 1999, plaintiffs' counsel asserted that the Board did not comply with the provision requiring such engagement and requested that the Court exercise its retained jurisdiction to determine whether there was a breach of this provision of the Olive Amendment. In January 2000, after the merger of CMET with TCI, the Board engaged another management/compensation consultant to perform the required evaluation again. This evaluation was completed in April 2000 and was provided to plaintiffs' counsel. The Board believes that any alleged breach of the Olive Amendment has been fully remedied by the Board's engagement of the second consultant. Although several status conferences have been held on this matter, there has been no Court order resolving whether there was any breach of the Olive Amendment. In addition, plaintiffs' counsel has asserted that the loans made by TCI to BCM and American Realty Trust, Inc. in June 2000 breached the provisions of the Modification. These loans were repaid in August and October 2000, respectively. The Board believes that the provisions of the Settlement, the Modification and Olive Amendment terminated on April 28, 1999. However, plaintiffs' counsel has asserted that certain provisions continue to be effective after the termination date. This matter is pending before the Court. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ----------------------------------------------------------- The annual meeting was held on October 10, 2000, at which stockholders were asked to consider and vote upon (1) the election of directors; (2) the approval of the Director Stock Option Plan; (3) approval of the 2000 21
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS (Continued) - ----------------------------------------------------------- Stock Option Plan; and (4) approval to amend the Articles of Incorporation to increase the total number of authorized shares to 10,000,000 shares of Preferred Stock and 25,000,000 shares of Common Stock. At the meeting, stockholders elected the following individuals as Directors: <TABLE> <CAPTION> Shares Voting ------------------------------------------ Withheld Director For Authority --------------------------------- ------------------- -------------------- <S> <C> <C> R. Douglas Leonhard............. 7,142,215 103,591 Murray Shaw..................... 7,142,215 103,852 Ted P. Stokely.................. 7,142,786 103,281 Martin L. White................. 7,144,039 102,028 Edward G. Zampa................. 7,143,996 102,071 </TABLE> Also at the meeting, stockholders approved the following proposals: <TABLE> <CAPTION> Votes Votes Votes For Against Abstaining ----------- -------------- -------------- <S> <C> <C> <C> Director Stock Option Plan.................. 6,405,573 250,429 12,538 2000 Stock Option Plan...................... 6,446,564 206,534 114,926 Amendment to the Articles of Incorporation............................. 6,042,479 626,547 98,996 </TABLE> ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K - ----------------------------------------- (a) Exhibits: Exhibit Number Description - ------ ----------------------------------------------------------------- 3.0 Certificate of Amendment of Articles of Incorporation of Transcontinental Realty Investors, Inc., dated October 10, 2000. 3.1 Certificate of Designation of Transcontinental Realty Investors, Inc. setting forth the Voting Powers, Designations, Preference, Limitations, Restrictions and Relative Rights of Series B Cumulative Convertible Preferred Stock, dated October 23, 2000. 27.0 Financial Data Schedule, filed herewith. (b) Reports on Form 8-K as follows: A Current Report on Form 8-K, dated September 27, 2000, was filed October 12, 2000, with respect to ITEM 2. "ACQUISITION AND DISPOSITION OF ASSETS," and ITEM 7. "FINANCIAL STATEMENTS AND EXHIBITS," which reports the acquisition of Countryside Commercial and Professional Center and five apartments, two office buildings and five parcels of land. 22
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TRANSCONTINENTAL REALTY INVESTORS, INC. Date: November 13, 2000 By: /s/ Karl L. Blaha -------------------------- -------------------------------- Karl L. Blaha President Date: November 13, 2000 By: /s/ Mark W. Branigan -------------------------- -------------------------------- Mark W. Branigan Executive Vice President and Chief Financial Officer (Principal Financial Officer) 23
TRANSCONTINENTAL REALTY INVESTORS, INC. EXHIBITS TO QUARTERLY REPORT ON FORM 10-Q For the Quarter ended September 30, 2000 Exhibit Page Number Description Number - ------ -------------------------------------------------- ------ 3.0 Certificate of Amendment of Articles of Incorporation 25 of Transcontinental Realty Investors, Inc., dated October 10, 2000. 3.1 Certificate of Designation of Transcontinental Realty 26 Investors, Inc. setting forth the Voting Powers, Designations, Preference, Limitations, Restrictions and Relative Rights of Series B Cumulative Convertible Preferred Stock, dated October 23, 2000. 27.0 Financial Data Schedule 36