UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005
OR
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 001-09240
TRANSCONTINENTAL REALTY INVESTORS, INC.
(Exact Name of Registrant as Specified in Its Charter)
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
(469) 522-4200
(Registrant’s Telephone Number, Including Area Code)
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 whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨. No x.
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.
(Outstanding at
August 12, 2005)
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying Consolidated Financial Statements as of and for the six months ended June 30, 2005, 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.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share)
Real estate held for investment
Less—accumulated depreciation
Real estate held for sale
Real estate subject to sales contract
Notes and interest receivable
Performing (including $34,419 in 2005 and $20,925 in 2004 from affiliates and related parties)
Non-performing, non-accruing
Less—allowance for estimated losses
Investment in real estate entities
Marketable equity securities, at market value
Cash and cash equivalents
Other assets (including $2,686 in 2005 and $1,770 in 2004 from affiliates and related parties)
The accompanying notes are an integral part of these Consolidated Financial Statements.
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CONSOLIDATED BALANCE SHEETS-Continued
June 30,
2005
December 31,
2004
Liabilities:
Notes and interest payable
Liabilities related to assets held for sale
Liabilities related to assets subject to sales contract
Other liabilities (including $656 in 2005 and $4,999 in 2004 to affiliates and related parties)
Commitments and contingencies
Minority interest
Stockholders’ equity:
Preferred Stock
Series C; $.01 par value; authorized, issued and outstanding 30,000 shares; (liquidation preference $3,000)
Common Stock, $.01 par value; authorized, 10,000,000 shares; issued and outstanding 7,900,869 in 2005 and 8,113,669 shares in 2004
Paid-in capital
Treasury stock
Accumulated deficit
Accumulated other comprehensive loss
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CONSOLIDATED STATEMENTS OF OPERATIONS
For the Three Months
Ended June 30,
For the Six Months
Property revenue:
Rents
Property expense:
Property operations (including $2,524 for six months of 2005 and $2,288 for six months of 2004 to affiliates and related parties)
Operating income
Land Operations:
Sales
Cost of Sales
Deferred Gain on Sale
Gain on Sales
Other income (loss):
Interest (including $1,164 for six months of 2005 and $310 for six months of 2004 from affiliates and related parties)
Gain on foreign currency transaction
Dividends received
Equity in income/(loss) of equity investees
Other expense:
Interest
Depreciation
Advisory fee to affiliates
Net income fee to affiliate
General and administrative (including $1,276 for six months of 2005 and $1,269 for six months of 2004 to affiliates and related parties)
Net loss from continuing operations before taxes
Add: Income tax benefit
Net loss from continuing operations
Discontinued operations (See Note 10)
Less: Income tax expense
Net income/(loss) from discontinued operations
Net income (loss)
Preferred dividend requirement
Net income (loss) applicable to common shares
4
CONSOLIDATED STATEMENTS OF OPERATIONS-Continued
Basic earnings per share:
Discontinued operations
Diluted earnings per share:
Weighted average common shares used in computing earnings per share:
Basic
Diluted
Convertible Series C Preferred stock (153,398 shares) and options to purchase 40,000 shares of TCI’s common stock were excluded from the computation of diluted earnings per share for the three and six months ended June 30, 2005, because the effect of their inclusion would be antidilutive.
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CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
For the Six Months Ended June 30, 2005
(Dollars in thousands)
Balance, January 1, 2005
Comprehensive income
Unrealized gain on foreign currency translation
Unrealized gain on marketable securities
Net income
Series C Preferred Stock cash dividends ($7.00 per share)
Balance, June 30, 2005
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash Flows from Operating Activities
Reconciliation of net income (loss) to net cash provided by (used in) operating activities
Net income/(loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization
Amortization of deferred borrowing costs
Gain on sale of real estate
Equity in (income)/loss of equity investees
Provision for asset impairment
Loss allocated to minority interest
Decrease (increase) in interest receivable
Decrease in other assets
Decrease in interest payable
Increase/(decrease) in other liabilities
Net cash provided by (used in) operating activities
Cash Flows from Investing Activities
Collections on notes receivable
Funding of notes receivable
Acquisition of real estate (including $498 in 2004 from affiliates and related parties)
Real estate improvements
Real estate construction
Proceeds from sale of real estate
Distributions from equity investees, net
Deposits on pending purchases and financings
Net cash used in investing activities
Cash Flows from Financing Activities
Payments on notes payable
Proceeds from notes payable
Dividends paid to preferred shareholders
Payments from (to) advisor
Deferred financing costs
Net cash (used in)/provided by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
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CONSOLIDATED STATEMENTS OF CASH FLOWS-Continued
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest
Schedule of noncash investing and financing activities:
Notes payable assumed on purchase of real estate
Notes payable assumed by buyer on sale of real estate
Notes receivable provided on sale of real estate
Note payable proceeds used by affiliate for purchase of real estate
Note payable proceeds used by affiliate for payment of debt
Real estate purchased from affiliate decreasing affiliate receivable
Real estate received from affiliate as payment of debt
Subsidiary purchased from affiliate decreasing affiliate receivable
Acquisition of real estate to satisfy note receivable
Unrealized foreign currency translation gain
Unrealized foreign currency translation loss
Asset impairment write-down
Note payable paid by affiliate
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NOTES TO CONSOLIDATED STATEMENTS
NOTE 1. BASIS OF PRESENTATION
Transcontinental Realty Investors, Inc. (“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 also invests in mortgage loans on real estate.
The accompanying Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America for complete financial statements. Dollar amounts in tables are in thousands, except per share amounts. Certain balances for 2004 have been reclassified to conform to the 2005 presentation.
Operating results for the six month period ended June 30, 2005, are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. 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, 2004 (the “2004 Form 10-K”).
Effective March 31, 2003, TCI financial results have been consolidated in the American Realty Investors, Inc. (“ARI”) Form 10-Q and related consolidated financial statements. As of June 30, 2005, ARI owned 82.2% of the outstanding TCI common shares.
Stock-based employee compensation. TCI provides stock options to certain directors. TCI accounts for these stock options using the intrinsic method pursuant to the Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations. In December 2002, the Financial Accounting Standards Board issued SFAS No. 148, “Accounting for Stock-Based Compensation—Transition and Disclosure” (“SFAS 148”), which amended SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS No. 123”). The new standard provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. Additionally, the statement amends the disclosure requirements of SFAS 123 to require prominent disclosures in the annual and interim financial statements for fiscal years ending after December 15, 2002. In compliance with SFAS No. 148, TCI has elected to continue to follow the intrinsic value method in accounting for its stock-based employee compensation arrangement as defined by APB 25. If TCI had elected to recognize compensation cost for the issuance of options to directors of TCI based on the fair value at the grant dates for awards consistent with the fair value method prescribed by SFAS No. 123, net income (loss) and income (loss) per share would have been impacted as follows:
Net income (loss):
As reported
Proforma compensation expense, net of tax
Proforma
Basic earnings (loss) per share:
Diluted earnings (loss) per share:
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NOTES TO CONSOLIDATED STATEMENTS-Continued
NOTE 2. REAL ESTATE
In 2005, TCI purchased the following properties:
Property
Units/
Sq. Ft./Acres
Net Cash
Paid/
(Received)
Rate
Maturity
Date
First Quarter
Office Buildings
Two Hickory(3)
Land
Mandahl Bay
Mandahl Bay (Gilmore)
Mandahl Bay (Chung)
Second Quarter
Apartments
Foxwood(3)
Parc at Metro Center(4)
Mission Oaks(4)
Park West
Alliance Airport (formerly Centurion)
Mandahl Bay (Marina)
Southwood(5)
West End(6)
Third Quarter
Legends of El Paso(4)
Luna
Senlac
Whorton
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In 2004, TCI purchased the following properties:
Purchase
Price
Blue Lake Villas II(1)
Bridges on Kinsey(1)
Dakota Arms(1)
Lake Forest(1)
Stonebridge at City Park (formerly 288 City Park)(1)
Vistas of Vance Jackson(1)
Lubbock
Railroad
Vista Ridge(2)
Wildflower Villas(1)
Treehouse(3)
Rogers land
Cooks Lane land
Lacy Longhorn land(4)
In 2005, TCI sold the following properties:
Received
Gain
on Sale
Office Building
Institute Place
Industrial Warehouse
5700 Tulane
Granbury Station
9033 Wilshire
Bay Plaza I
Bay Plaza II
Alamo Springs/Lemmon Carlisle
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In 2004, TCI sold the following properties:
Debt
Extinguished
Brandeis
Countryside Harmon
Countryside Retail
Kelly (Pinewood)
Ogden Industrial
Texstar Warehouse(2)
Shopping Center
K-Mart(2)
Allen
Red Cross
Sandstone
Waters Edge IV(7)
Cliffs of El Dorado(9)
Atrium
4135 Beltline
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At June 30, 2005, TCI had the following properties under construction:
Amount
Expended
AdditionalAmount
to Expend
ConstructionLoan
Funding
Kingsland Ranch
Laguna Vista
Mission Oaks
Parc at Maumelle
Parc at Metro Center
Stonebridge at City Park (formerly 288 City Park)
Vistas of Vance Jackson
For the six months ended June 30, 2005, TCI completed the 70 unit Blue Lake Villas II in Waxahachie, Texas, the 272 unit Bluffs at Vista Ridge in Lewisville, Texas, the 232 unit Bridges on Kinsey in Tyler, Texas, the 208 unit Dakota Arms in Lubbock, Texas, the 240 unit Lake Forest in Houston, Texas and the 220 unit Wildflower Villas in Temple, Texas.
NOTE 3. NOTES AND INTEREST RECEIVABLE
Unless noted, all of TCI’s notes receivables are secured by real estate assets or ownership in or membership rights of the purchaser’s entity.
In March 2005, TCI entered into an agreement to advance a third party $3.2 million for development costs relating to land lots in Austin, Texas. These advances are secured by stock in the borrower and hold a second lien on the undeveloped land. The secured note bears interest at 10%, requires semi-annual payments, and matures in March 2008. As of June 30, 2005, TCI had advanced $656,000 to the borrower. TCI also guaranteed, with full recourse to TCI, an $18 million loan for the borrower which loan is secured by a first lien on the undeveloped land. In June 2005, TCI purchased the subsidiary of a related party for $4.1 million that holds two notes receivable from this third party for $3.0 and $1.0 million, respectively. These notes are secured by approximately 142 acres of undeveloped land and membership interest in the borrowers. These secured notes bear interest at 12.0%, have an interest reserve for payments that is added to the principal balance on a monthly basis, and matured in June 2005. Both loans are in the process of being extended.
In December 2004, TCI sold the Centura Tower office building to a partnership and retained a 1% non-controlling general partner interest and a 4% limited partner interest. TCI has certain obligations to fund the partnership for certain rent abatements, tenant improvements, leasing commissions and other cash shortfalls. Through June 30, 2005, TCI has funded $1.2 million of these obligations and has recorded a note receivable from the partnership. This note has no maturity date, requires no payments and bears interest at a fixed rate of 7.0% per annum. The note will be paid out of excess cash flow or from sales proceeds, but only after certain partner preferred returns are paid.
In October 2004, TCI sold the In The Pines apartments to a third party and provided $1.0 million of the purchase price as seller financing in the form of two notes. The first note bears interest at 7.0% per annum, requires monthly interest payments and matured in January 2005. The Purchaser extended this note to March 2005 by paying 1.0% of the outstanding principal balance as an extension fee and then extended the note an additional 30 days to April 2005 by paying an extension fee of 0.5% of the outstanding principal balance. In the event of a default, the note is also secured by membership rights in the purchaser’s entity. The second note is unsecured, bears interest at 8.5% per annum, requires monthly interest payments, and matured in January 2005. The Purchaser extended this note to March 2005 by paying 1.0% of the outstanding principal balance as an extension fee and extended the note an additional 30 days to April 2005 by paying an extension fee of 0.5% of the outstanding principal balance. Both loans were extended to October 2005 with the payment to TCI of a 2.0% extension fee.
In August 2001, TCI agreed to fund up to $5.6 million secured by a second lien on an office building in Dallas, Texas. The note receivable bore interest at a variable rate (then 9.0% per annum), required monthly interest only payments, and originally matured in January 2003. TCI funded a total of $4.3 million on this note. On January 22, 2003, TCI agreed to extend the maturity date until May 1, 2003. The collateral used to secure TCI’s second lien was seized by the first lien holder. On March 11, 2004, TCI agreed to accept an assignment of claims in litigation as additional security for the note. In December 2004, TCI agreed to a Modification Agreement
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with the borrower, which was effective November 1, 2003. As of the modified effective date, accrued interest of $582,000 was added to the principal balance of the note, the interest rate fixed at 9.0% per annum and all principal and interest is due November 2005. TCI also received Pledge and Security Agreements in various partnership interests belonging to the borrower and received various Assignments of Proceeds from sales in certain entities owned by the borrower. TCI reduced accrued interest and principal by $1.5 million from the receipt of notes receivable assigned to TCI by borrower and by $605,000 from cash received. TCI also received $1.4 million in January 2005 that was applied to accrued interest and principal effective December 30, 2004.
In March 2002, TCI sold the 174,513 Sq.Ft. Hartford Office Building in Dallas, Texas, for $4.0 million and provided the $4.0 million purchase price as seller financing and an additional $1.4 million line of credit for leasehold improvements in the form of a first lien mortgage note. The note bears interest at a variable interest rate, currently 7.5% per annum, requires monthly interest only payments and matures in March 2007. As of June 2005, TCI has funded $896,000 of the additional line of credit.
In July 2002, TCI entered into an agreement to fund up to $300,000 under a revolving line of credit secured by 100% interest in a partnership of the borrower. The line of credit bears interest at 12.0% per annum, requires monthly interest only payments, and matured in June 2005. This loan was extended to June 2006. As of June 2005, TCI has funded $300,000 of the line of credit.
Related Party. In March 2004, TCI sold a K-Mart in Cary, North Carolina to BCM for $3.2 million, including the assumption of debt. TCI also provided $1.5 million of the purchase price as seller financing. The unsecured note bears interest at the prime rate plus 2% (which is currently 8.5%), and matured in April 2005. This note was extended to April 2008.
In March 2004, TCI sold the Texstar Warehouse in Arlington, Texas to BCM for $2.4 million, including the assumption of debt. TCI also provided $1.3 million of the purchase price as seller financing. The unsecured note bears interest at the prime rate plus 2% (which is currently 8.5%), and matured in April 2005. This note was extended to April 2008.
In February 2004, TCI recorded the sale of a tract of Marine Creek land originally sold to a related party in December 2003. This transaction was not recorded as a sale for accounting purposes in December 2003 and was recorded as a TCI refinancing transaction in February 2004. TCI received $1.2 million in cash from the related party in February 2004 as payment on the land. TCI still had a note receivable balance of $270,000 that bore interest at 12.0% and matured in April 2009. This note was paid in full, including accrued interest, in August 2005. TCI recorded the sale of the Marine Creek land tract due to the payment received on the note receivable.
In January 2002, TCI purchased 100% of the outstanding common shares of ART Two Hickory Corporation (“Two Hickory”), a wholly-owned subsidiary of ARI for $4.4 million cash. Two Hickory owns the 96,217 sq. ft. Two Hickory Centre Office Building in Farmers Branch, Texas. ARI guaranteed that the asset shall produce at least a 12.0% annual return of the purchase price for a period of three years from the purchase date. If the asset fails to produce the 12.0% annual return, ARI shall pay TCI any shortfall. In addition, if the asset fails to produce the 12.0% return for a calendar year and ARI fails to pay the shortfall, TCI may require ARI to repurchase the shares of Two Hickory for the purchase price. Because ARI guaranteed the 12.0% return and TCI has the option of requiring ARI to repurchase the entities, management has classified this related party transaction as a note receivable from ARI. In June 2002, the asset was refinanced. TCI received $1.3 million of the proceeds as a principal reduction on its note receivable from ARI. In January 2005, TCI completed the purchase of Two Hickory by recording the asset and removing the note receivable from ARI.
In April 2002, TCI purchased 100% of the following entities: ART One Hickory Corporation (“One Hickory”), Garden Confederate Point, LP (“Confederate Point”), Garden Foxwood, LP (“Foxwood”), and Garden Woodsong, LP (“Woodsong”), all previously wholly-owned subsidiaries of ARI for $10.0 million. One Hickory owns the 120,615 sq. ft. One Hickory Centre Office Building in Farmers Branch, Texas. Confederate Point owns the 206 unit Confederate Apartments in Jacksonville, Florida. Foxwood owns the 220 unit Foxwood Apartments in Memphis, Tennessee. Woodsong owned the 190 unit Woodsong Apartments in Smyrna, Georgia. ARI guaranteed that these assets shall produce at least a 12.0% return annually of the purchase price for a period of three years from the purchase date. If the assets collectively fail to produce the 12.0% return, ARI shall pay TCI any shortfall. In addition, if the assets fail to produce the 12.0% return for a calendar year and ARI fails to pay the shortfall, TCI may require ARI to repurchase the entities for the purchase price. Because ARI guaranteed the 12.0% return and TCI has the option of requiring ARI to repurchase the entities, management has classified this related party transaction as a note receivable from ARI. In July 2002, the Woodsong Apartments were sold. TCI received $2.8 million from the proceeds as payment of principal and accrued but unpaid interest on the note receivable. In October 2003, TCI sold One Hickory to IORI for $12.2 million, less prorations, for a wraparound promissory note of $12.0 million. This note bears interest at 5.49% interest, requires monthly interest and principal payments, and matures in June 2006. This transaction effectively discharged the note receivable TCI had from ARI for the financing of One Hickory. Also, in November 2003, Confederate Point sold the Confederate Apartments and paid $2.1 million to TCI to pay off the loan and accrued but unpaid interest. In April 2005, TCI completed the purchase of the Foxwood Apartments by recording the asset and removing the note receivable from ARI.
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NOTE 4. INVESTMENT IN REAL ESTATE ENTITIES
Real estate entities. TCI’s investment in real estate entities at June 30, 2005 included equity securities of two publicly traded real estate entities, Income Opportunity Realty Investors, Inc. (“IORI”) and ARI, related parties, and interests in real estate joint venture partnerships. ARI is a related party that owns 82.2% of TCI’s common stock and consolidates TCI’s financial accounts and operations.
TCI accounts for its investment in IORI and ARI and the joint venture partnerships using the equity method. Garden Centura, L.P. is accounted for on the cost method.
TCI’s investment in real estate entities at June 30, 2005, was as follows:
Investee
Percentage
of TCI’sOwnership atJune 30, 2005
Carrying
Value ofInvestment atJune 30, 2005
Market Value
of Investment at
June 30, 2005
IORI
ARI
Garden Centura, L.P.
Other
Management continues to believe that the market value of ARI undervalues its assets and, therefore, TCI may continue to increase its ownership in this entity.
Set forth below is summarized results of operations of equity investees for the first six months of 2005 and 2004.
Revenues
Equity in gain/(loss) of equity investees
Property operating expenses
Interest expense
Income/(loss) before gains on sale of real estate
NOTE 5. MARKETABLE EQUITY SECURITIES
TCI owns equity securities of Realty Korea CR-REIT Co., Ltd. No. 1 representing approximately a 9.2% ownership interest. This investment is considered an available-for-sale security. TCI recognized an unrealized gain of $926,000 for the six month period ending June 30, 2005 due to an increase in market price.
NOTE 6. RELATED PARTIES
On September 19, 2002, TCI’s Board of Directors authorized the Chief Financial Officer of TCI to advance funds either to or from TCI, through the advisor, in an amount up to $15.0 million on the condition that such advances shall be repaid in cash or transfers of assets within 90 days. These advances are unsecured and bear no interest and generally have not had specific repayment terms and have been reflected in TCI’s financial statements as other assets and other liabilities.
In August 2005, TCI purchased a piece of land from a third party for $625,000. Funds of $590,000 used for this purchase were provided by an affiliate, which TCI will reimburse in full.
In June 2005, TCI purchased a subsidiary of a related party for $4.1 million, decreasing the affiliate receivable by $4.1 million.
In June 2004, TCI purchased 17.115 acres of land from an affiliate with a net purchase price of $4.5 million, decreasing the affiliate receivable balance by $4.5 million.
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In June 2004, TCI sold apartments to an affiliate with a net purchase price of $5.0 million, increasing the affiliate receivable balance by $5.0 million.
In June 2004, TCI refinanced an office building and two parcels of land. TCI paid-off an existing note payable for ARI for $1.9 million, increasing the affiliate receivable balance by $1.9 million.
In May 2004, TCI purchased the Treehouse Apartments from an affiliate with a net purchase price of $7.5 million for the assumption of debt and a note receivable, less cash received of $498,000. The note receivable was from the sale of the Cliffs of El Dorado Apartments to a related party in 2003. At that time, the sale of the Cliffs of El Dorado Apartments was not recorded as a sale for accounting purposes. TCI recorded the sale of the Cliffs of El Dorado in May 2004 due to payment received for the Cliffs of El Dorado note receivable.
In February 2004, TCI received a loan for $1.0 million used for the purchase of land by ARI, increasing the affiliate receivable balance by $1.0 million.
In January 2004, TCI purchased 14.216 acres of land from an affiliate with a net purchase price of $2.6 million, decreasing the affiliate receivable balance by $2.6 million.
The following table reconciles the beginning and ending affiliates receivable balances as of June 30, 2005.
Balance, December 31, 2004
Cash transfers
Cash repayments
Repayments through property transfers
Fees payable to affiliate
Payables clearing through Prime
At June 30, 2005, TCI’s other assets includes $1.2 million due from an affiliate for rent. In addition, at June 2005, TCI owed $656,000 to Regis Property Management for management fees and sales commissions.
Returns on Metra Properties. In April 2002, TCI sold 12 apartment properties to partnerships controlled by Metra Capital, LLC (“Metra”). Innovo Group, Inc. (“Innovo”) is a limited partner in the partnerships that purchased the properties. Joseph Mizrachi, then a Director of ARI, a related party, controlled approximately 11.67% of the outstanding common stock of Innovo. Management determined to treat the sales as financing transactions, and TCI continues to report the assets and the new debt incurred by Metra on its financial statements. The partnership agreements for each of these partnerships state that the Metra Partners, as defined, receive cash flow distributions at least quarterly in an amount sufficient to provide them with a 15% cumulative compounded annual rate of return on their invested capital, as well as a cumulative compounded annual amount of 0.50% of the average outstanding balance of the mortgage indebtedness secured by any of these properties. These distributions to the Metra Partners have priority over distributions to any other partners. At March 31, 2005, 12 of the properties remained on TCI’s balance sheet. During April 2005, resolution of the litigation occurred, settling all liabilities remaining from the original partnership arrangements which included a return of investor equity, a cessation of preferential returns, prospective asset management fees and miscellaneous fees and transactions costs from the Plaintiffs as a prepayment of a preferred return, along with a delegation of management and corresponding payment of management fees to Prime, and a motion to dismiss the action as a part of the resolution. Of the prepayment, the Company recognized expenses of $462,000 and a reduction in liabilities of $2.1 million during the second quarter of 2005.
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NOTE 7. NOTES AND INTEREST PAYABLE
In July 2005, TCI secured a line of credit for $10.0 million for the acquisition and financing of land tracts. The line of credit bears interest at the prime rate plus 1%, which is currently 7.5%, requires interest only payments and matures in three years. Each land tract funding has a $2.0 million limit on the loan amount, requires interest only payments at the line of credit’s variable rate, and has a maturity date of 18 months. The current amount available for use under the line of credit is $5.8 million.
In May 2005, TCI received a loan in the amount of $4.0 million. The note bears interest at the prime rate plus 2.0%, which is currently 8.5%, requires monthly interest only payments and matures in one year. The loan is collateralized by TCI’s equity holdings in Realty Korea CR-REIT Co., Ltd. No. 1 and by equity securities owned by an affiliate.
In February 2005, TCI received a loan in the amount of $5.0 million. The note bears interest at 8.0% per annum, requires semi-annual interest payments, and matures in July 2006. The loan is collateralized by certain partnership interests that hold apartments owned by TCI. Anytime before maturity, the lender has the option to convert the outstanding loan balance into general and limited partnership units in each of the partnerships, subject to HUD approval.
In February 2004, TCI received a loan for $1.0 million that is cross defaulted and cross collateralized with ARI’s purchase of land in Portage County, Ohio. The loan bears interest at the prime rate plus .5%, which is currently 7.0%, requires monthly principal and interest payments, and matured in February 2005. This loan was extended to August 2005.
In 2005, TCI refinanced or financed the following properties:
Sq.Ft./Units/
Rooms/Acres
Incurred
Discharged
Bridgeview Plaza
Shopping Centers
Dunes Plaza
Autumn Chase
Courtyard
Southgate
Hotel
The Majestic
Alliance Airport(2)
DeSoto Ranch(2)
West End(2)
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In 2004, TCI refinanced or financed the following properties:
Received/(Paid)
Centura Tower
Centura Land
Hollywood, Dominion & Mira Lago(2)
Paramount Terrace
Treehouse
1010 Common
Marine Creek
Lacy Longhorn
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 operating income and cash flow. Items of income that are not reflected in the segments are interest, gain on foreign currency transaction, dividends received, equity in income/(loss) of equity investees and equity in investees gains on sales of real estate which totaled $1.7 million and $3.5 million for the three and six months ended June 30, 2005, and $1.9 million and $2.8 million for the three and six months ended June 30, 2004, respectively. Expenses that are not reflected in the segments are general and administrative expenses, minority interest, advisory and net income fees which totaled $3.6 million and $7.0 million for the three and six months ended June 30, 2005, and $2.9 million and $7.9 million for the three and six months ended June 30, 2004, respectively. Also excluded from segment assets are assets of $132.1 million at June 30, 2005, and $98.7 million at June 30, 2004, which are not identifiable with an operating segment. There are no intersegment revenues and expenses.
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Presented below is the operating income of each operating segment for the three and six months ended June 30, 2005 and 2004, and each segment’s assets at June 30.
Three Months Ended June 30, 2005
Commercial
Properties
Operating income (loss)
Assets
Property Sales:
Sales price
Cost of sales
Gain on sale
Three Months Ended June 30, 2004
Deferred current gain
Six Months Ended June 30, 2005
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Six Months Ended June 30, 2004
NOTE 9. PROVISION FOR ASSET IMPAIRMENT
For the three and six months ending June 30, 2005, TCI recorded an asset impairment of $1.6 million representing the write down of certain operating properties to current estimated fair value. These assets include the following properties:
Bay Walk/Island Bay
The Bay Walk and Island Bay Apartments are under contract to sell together and the contractual sales price was used as fair value. The costs to sell are estimated closing costs and commission to be paid by TCI.
NOTE 10. DISCONTINUED OPERATIONS
Effective January 1, 2002, TCI adopted Statement of Financial Accounting Standard No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which established a single accounting model for the impairment or disposal of long-lived assets, including discontinued operations. This statement requires that the operations related to properties that have been sold or properties that are intended to be sold be presented as discontinued operations in the statement of operations for all periods presented, and properties intended to be sold are to be designated as “held-for-sale” on the balance sheet. In the event of a future sale, TCI is required to reclassify portions of previously reported operations to discontinued operations within the Statement of Operations.
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For the six months ended June 30, 2005 and 2004, income from discontinued operations relates to 11 properties TCI sold or are to be sold in 2005 and 35 properties TCI sold during 2004 and 2005 or are to be sold in 2005. The following table summarizes revenue and expense information for the properties sold and held-for-sale.
Revenue
Rental
Property operations
Expenses
Net income (loss) from discontinued operations before gains on sale of real estate
Gain on sale of operations
Write-down of assets held for sale
Equity in investees gain on sale of real estate
Net income from discontinued operations
Discontinued operations have not been segregated in the consolidated statements of cash flows. Therefore, amounts for certain captions will not agree with respective consolidated statements of operations.
NOTE 11. COMMITMENTS AND CONTINGENCIES
Partnership Obligations. TCI is the limited partner in 12 partnerships that are currently constructing residential properties. As permitted in the respective partnership agreements, TCI intends to purchase the interests of the general and any other limited partners in these partnerships subsequent to the completion of these projects. The amounts paid to buyout the non-affiliated partners are limited to development fees earned by the non-affiliated partners, and are set forth in the respective partnership agreements. The total amount of the expected buyouts remaining at June 30, 2005 is approximately $2.4 million. TCI is a non-controlling general and limited partner in a real estate partnership and is obligated to fund approximately $1.9 million through June 30, 2006, for certain partnership obligations.
Commitments. In June 2005, TCI deposited $1.8 million with a seller for the purchase of partnership and member interests in 14 separate apartments and apartment developments located in the Southeast. Each partnership or membership purchase will be closed separately, pending lender approval and other conditions. TCI’s total cash investment can be up to $3.6 million if all interests are purchased.
Liquidity. Although management anticipates that TCI will generate excess cash from operations in 2005, such excess, however, will not be sufficient to discharge all of TCI’s debt obligations as they mature. Management intends to selectively sell income producing real estate, refinance real estate, and incur additional borrowings against real estate to meet its cash requirements.
Litigation. 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.
Guarantees. In June 2005, TCI guaranteed a loan of $1.6 million for a related party. This loan is secured by a first lien on 22.3 acres of land held by the related party.
In February 2004, various subsidiaries of TCI guaranteed a $10 million line of credit for its parent, ARI. The subsidiaries of TCI also pledged and assigned assets, in the form of securities and partnership interests in construction properties, as additional collateral for this line of credit.
NOTE 12. SUBSEQUENT EVENTS
Events occurring after the date of these financial statements are included within each note, as appropriate.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
WARNING CONCERNING FORWARD LOOKING STATEMENTS
This quarterly report on Form 10-Q and TCI’s 2004 Form 10-K, referred to herein, contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and federal securities laws. These statements concern the intent, belief or expectations of TCI’s officers with respect to TCI’s ability to lease its properties, tenant’s ability to pay rents, purchase of additional properties, ability to pay interest and debt principal and make distributions, policies and plans regarding investments and financings, and other matters. Also, words such as “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate”, or similar expressions identify forward looking statements. Actual results may differ materially from those contained in or implied by the forward looking statements as a result of various factors. Such factors include, without limitation, the impact of changes in the economy and the capital markets on TCI and its tenants, competition within the real estate industry or those industries in which its tenants operate, and changes in federal, state, and local legislation. For example: Some of TCI’s tenants may not renew expiring leases and TCI may be unable to locate new tenants to maintain the historical occupancy rates of the properties; rents which TCI can achieve at its properties may decline; tenants may experience losses and become unable to pay rents; and TCI may be unable to identify or to negotiate acceptable purchase prices for new properties. These results could occur due to many different circumstances, some of which, such as changes in TCI’s tenants’ financial conditions or needs for leased space, or changes in the capital markets or the economy, generally, are beyond TCI’s control. Forward looking statements are only expressions of TCI’s present expectations and intentions. Forward looking statements are not guaranteed to occur, and they may not occur. You should not place undue reliance upon forward looking statements.
Introduction
TCI invests in real estate through acquisitions, leases, and partnerships. TCI may also invest in mortgage loans. TCI is the successor to a business trust organized on September 6, 1983, and commenced operations on January 31, 1984.
Critical Accounting Policies
Critical accounting policies are those that are both important to the presentation of TCI’s financial condition and results of operations and require management’s most difficult, complex or subjective judgments. TCI’s critical accounting policies relate to the evaluation of impairment of long-lived assets and the evaluation of the collectibility of accounts and notes receivable.
If events or changes in circumstances indicate that the carrying value of a rental property to be held and used or land held for development may be impaired, management performs a recoverability analysis based on estimated undiscounted cash flows to be generated from the property in the future. If the analysis indicates that the carrying value is not recoverable from future cash flows, the property is written down to estimated fair value and an impairment loss is recognized. If management decides to sell rental properties or land held for development, management evaluates the recoverability of the carrying amounts of the assets. If the evaluation indicates that the carrying value is not recoverable from estimated net sales proceeds, the property is written down to estimated fair value less costs to sell and an impairment loss is recognized within income from continuing operations. TCI’s estimates of cash flow and fair values of the properties are based on current market conditions and consider matters such as rental rates and occupancies for comparable properties, recent sales data for comparable properties and, where applicable, contracts or the results of negotiations with purchasers or prospective purchasers. TCI’s estimates are subject to revision as market conditions and TCI’s assessments of them change.
TCI’s allowance for doubtful accounts receivable and notes receivable is established based on analysis of the risk of loss on specific accounts. The analysis places particular emphasis on past due accounts. Management considers such information as the nature and age of the receivable, the payment history of the tenant or other debtor, the financial condition of the tenant or other debtor and TCI’s assessment of its ability to meet its lease or interest obligations. TCI’s estimate of the required allowance, which is reviewed on a quarterly basis, is subject to revision as these factors change and is sensitive to the effects of economic and market conditions.
TCI’s management periodically discusses criteria for estimates and disclosures of its estimates with the Audit Committee of its Board of Directors.
Liquidity and Capital Resources
TCI reported net income of $681,000 for the six months ended June 30, 2005, which included the following non-cash charges: depreciation and amortization of $10.2 million, equity income of equity investees of $1.1 million, gain on sale of real estate of $15.6 million, gain on foreign currency transaction of $228,000 and a provision for asset impairment of $1.6 million. For the six months ended June 30, 2004, TCI reported a net loss of $924,000, which included the following non-cash charges: depreciation and amortization of $12.4 million, equity loss of equity investees of $1.5 million and gain on sale of real estate of $14.2 million.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Continued)
For the six months ended June 30, 2005, net cash used in operating activities amounted to $95,000, due to a decrease in interest receivable of $1.9 million from interest payments made during 2005, a decrease in other assets of $554,000 and an increase in other liabilities of $2.2 million due to increases in payables and accrued expenses.
Also for the six months ended June 30, 2005, net cash used in investing activities was $9.9 million primarily due to real estate construction and improvements of $24.0 million, payments for real estate acquisitions of $23.6 million, deposits on pending purchases of $4.3 million and additional fundings on notes receivable of $2.0 million. These outflows for investing activities were offset by the collection of $3.7 million on notes receivable and proceeds from sale of real estate of $40.2 million.
Net cash used in financing activities of $2.0 million was due to proceeds received from the funding or refinancing of notes payable of $58.6 million; offset by cash payments of $50.4 million to paydown existing notes payable, $1.4 million for financing costs and $8.7 million in payments made to the advisor.
In the first six months of 2005, TCI sold four office buildings, one industrial warehouse, and three land parcels for a total of $45.4 million, receiving $19.9 million in cash and discharging debt of $21.0 million after the payment of various closing costs.
Also in the first six months of 2005, TCI financed or refinanced three apartments, one office building, one shopping center and a hotel for a total of $18.6 million, discharging $12.5 million in debt and receiving $5.0 million in cash.
Further in the first six months of 2005, TCI purchased one apartment, two apartment developments, two office buildings and seven parcels of unimproved land for $40.5 million. TCI paid $12.8 million in cash, including various closing costs and incurred or assumed $23.9 million in debt. TCI also incurred $21.8 million on property construction, of which $20.8 million was funded by debt. For the remainder of 2005 and the first half of 2006, TCI expects to spend an additional $61.2 million on property construction projects, of which $57.9 million will be funded by debt.
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 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.
Related Party Transactions
In April 2005, TCI completed the purchase of the Foxwood Apartments from ARI for the assumption of debt and satisfaction of a note receivable from ARI.
In January 2005, TCI completed the purchase of the Two Hickory office building from ARI for the assumption of debt and satisfaction of a note receivable from ARI.
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In March 2004, TCI sold the K-Mart in Cary, North Carolina and the Texstar Warehouse in Arlington, Texas to BCM for $3.2 million and $2.4 million, respectively. TCI also provided seller financing of $1.5 million and $1.3 million, respectively, to BCM.
In February 2004, TCI recorded the sale of a tract of Marine Creek land originally sold to a related party in December 2003. This transaction was not recorded as a sale for accounting purposes in December 2003 and was recorded as a TCI refinancing transaction in February 2004. TCI received $1.2 million in cash from the related party in February 2004 as payment on the land. TCI still has a note receivable balance of $270,000 remaining that bears interest at 12.0% and matures in April 2009. TCI recorded the sale of the Marine Creek land tract due to the payment received on the note receivable.
In April 2002, TCI sold 12 apartment properties to partnerships controlled by Metra Capital, LLC (“Metra”). Innovo Group, Inc. (“Innovo”) is a limited partner in the partnerships that purchased the properties. Joseph Mizrachi, then a Director of ARI, a related party, controlled approximately 11.67% of the outstanding common stock of Innovo. Management determined to treat the sales as financing transactions, and TCI continues to report the assets and the new debt incurred by Metra on its financial statements. The partnership agreements for each of these partnerships state that the Metra Partners, as defined, receive cash flow distributions at least quarterly in an amount sufficient to provide them with a 15% cumulative compounded annual rate of return on their invested capital, as well as a cumulative compounded annual amount of 0.50% of the average outstanding balance of the mortgage indebtedness secured by any of these properties. These distributions to the Metra Partners have priority over distributions to any other partners. At March 31, 2005, 12 of the properties remained on TCI’s balance sheet. During April 2005, resolution of the litigation occurred, settling all liabilities remaining from the original partnership arrangements which included a return of investor equity, a cessation of preferential returns, prospective asset management fees and miscellaneous fees and transactions costs from the Plaintiffs as a prepayment of a preferred return, along with a delegation of management and corresponding payment of management fees to Prime, and a motion to dismiss the action as a part of the resolution. Of the prepayment, the Company will recognize expenses of $462,000 and a reduction in liabilities of $2.1 million during the second quarter of 2005.
Commitments and Contingencies
TCI has contractual obligations and commitments primarily with regards to payment of mortgages.
In June 2005, TCI deposited $1.8 million with a seller for the purchase of partnership and member interests in 14 separate apartments and apartment developments located in the Southeast. Each partnership or membership purchase will be closed separately, pending lender approval and other conditions. TCI’s total cash investment can be up to $3.6 million if all interests are purchased.
Results of Operations
TCI had a net loss of $3.7 million and net income of $576,000 for the three and six months ended June 30, 2005, including gains on the sale of land totaling $2.4 million for both periods and income from discontinued operations of $179,000 and $10.0 million, respectively, compared to net losses of $3.0 million and $1.0 million in the corresponding periods of 2004, which included gains on sale of land for the six months ending June 30, 2004 totaling $2.1 million and income from discontinued operations of $1.5 million and $10.3 million, respectively. Fluctuations in this and other components of revenues and expense between the 2005 and 2004 periods are discussed below.
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Rents for the three months ended June 30, 2005 increased to $26.2 million as compared to $21.8 million in 2004. This increase is mainly due to additional rental income from the completion of new apartment construction projects and from increased occupancy and room revenues from TCI’s hotels. These gains were offset by a decrease in commercial revenues due to lower occupancies.
Rents for the six months ended June 30, 2005 increased to $50.0 million as compared to $42.7 million in 2004. This increase is mainly due to additional rental income from the completion of new apartment construction projects and from increased occupancy and room revenues from TCI’s hotels. These gains were offset by a decrease in commercial revenues due to lower occupancies.
Property operations expense increased to $16.4 million for the three months ended June 30, 2005, compared to $13.8 million in 2004. This increase is mainly due to the completion of new apartment construction projects, offset by lower commercial expenses due to lower occupancies. Property operations expenses for the remaining quarters of 2005 may continue to increase as TCI continues to finish construction of new apartment projects.
Property operations expense increased to $31.7 million for the six months ended June 30, 2005, compared to $27.2 million in 2004. This increase is mainly due to the completion of new apartment construction projects, offset by lower commercial expenses due to lower occupancies. Property operations expenses for the remaining quarters of 2005 may continue to increase as TCI continues to finish construction of new apartment projects.
Interest income decreased to $1.1 million for the three months ended June 30, 2005, compared to $1.2 million in 2004. The decrease is primarily due to the pay down or payoff of notes receivable in the first quarter of 2005.
Interest income increased to $1.9 million for the six months ended June 30, 2005, compared to $1.6 million in 2004. The increase is primarily due to additional interest from an increase in the outstanding notes receivable balances from June 2004 and from additional interest on variable rate notes due to increases in the prime rate during 2005.
Gain on foreign currency transaction was $228,000 for the three and six months ending June 30, 2005, compared to $1.2 million for both periods in 2004. Hotel Akademia’s long-term debt is denominated in Euros and the translation of Euros into Polish Zlotys prior to being translated into US Dollars is recorded as a gain or loss on TCI’s income statement.
Equity income of investees was $1.1 million for the six months ended June 30, 2005, compared to equity in loss of equity investees of $1.5 million in 2004. ARI and IORI both recognized income from continuing operations for the six months ending June 30, 2005 compared to losses from continuing operations for the six months ending June 30, 2004.
Interest expense increased to $9.9 million for the three months ended June 30, 2005, from $7.1 million in 2004. This increase is mainly due to new debt incurred from the completion of new apartment construction projects, plus additional interest from land loans due to new land purchases in 2004 and 2005.
Interest expense increased to $18.7 million for the six months ended June 30, 2005, from $14.5 million in 2004. This increase is mainly due to new debt incurred from the completion of new apartment construction projects, plus additional interest from land loans due to new land purchases in 2004 and 2005.
The Bay Walk and Island Bay Apartments are under contract to sell together and the contractual sales price was used as fair value. The costs to sell are estimated closing costs and commission paid by TCI.
Net income fee due to affiliate for the three months ended June 30, 2005 was a credit of $325,000, compared to a credit of $79,000 in 2004. The net income fee is payable to TCI’s advisor based on 7.5% of TCI’s net income. TCI did not have qualified net income for the six months ended June 30, 2005, therefore, no net income fee is due.
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General and administrative expenses increased to $1.9 million for the three months ended June 30, 2005, from $1.0 million in 2004. The increase was mainly due to higher spending on legal fees, higher state and franchise income tax expenses and higher cost reimbursements to Prime, which were offset by lower professional and consulting fees and rent expense.
General and administrative expenses decreased to $3.4 million for the six months ended June 30, 2005, from $3.9 million in 2004. The decrease was mainly due to lower state and franchise income tax expense, lower professional and consulting fees and lower rent expense. These lower costs were offset by higher spending on legal fees.
For the six months ending June 30, 2005, gains on sale of real estate totaling $15.6 million were recognized, including $10.1 million on the sale of Institute Place, $294,000 on the sale of the 5700 Tulane industrial warehouse, $10,000 on the sale of Granbury Station land, $2.4 million on the sale of the Lemmon Carlisle and Alamo Springs land, $2.2 million on the sale of the 9033 Wilshire Medical office building, $919,000 on the sale of Bay Plaza I and a loss of $199,000 on the sale of Bay Plaza II.
Tax Matters
Financial statement income varies from taxable income principally due to the accounting for income and losses of investees, gains and losses from asset sales, depreciation on owned properties, amortization of discounts on notes receivable and payable and the difference in the allowance for estimated losses. TCI had a loss for federal income tax purposes in the first six months of 2005 and a loss, after the use of net operating loss carryforwards, in the first six months of 2004; therefore, it recorded no provision for income taxes.
At June 30, 2005, TCI had a net deferred tax asset of $41.4 million due to tax deductions available to it in future years. However, as management cannot determine that it is more likely than not that TCI will realize the benefit of the deferred tax assets, a 100% valuation allowance has been established.
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 and 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.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
At June 30, 2005, TCI’s exposure to a change in interest rates on its debt is as follows:
Weighted
AverageInterest Rate
Effect of 1%Increase In
Base Rates
Notes payable:
Variable rate
Total decrease in TCI’s annual net income
Per share
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, TCI carried out an evaluation, under the supervision and with the participation of TCI’s Acting Principal Executive Officer and acting principal accounting officer, of TCI’s disclosure controls and procedures pursuant to Exchange Act Rules 13a-15 and 15d-15. Based upon that evaluation, TCI’s Acting Principal Executive Officer and acting principal accounting officer concluded that TCI’s disclosure controls and procedures are effective.
There have been no significant changes in TCI’s internal controls over financial reporting during the quarter ending June 30, 2005, that have materially affected, or are reasonably likely to materially affect, TCI’s internal control over financial reporting.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the period of time covered by the Report, Transcontinental Realty Investors, Inc. (the “Company”) did not repurchase any its equity securities. The following table sets forth a summary for the quarter indicating no repurchases were made, and that at the end of the period covered by this Report, a specified number of shares may yet be purchased under the programs specified below:
Period
Average Price
Paid per Share
Maximum Numberof Shares that May
Yet be Purchased
Under the Program(a)
Balance as of March 31, 2005
April 1-30, 2005
May 1-31, 2005
June 1-30, 2005
Total
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ITEM 6. EXHIBITS
Description
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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.
/s/ Ted P. Stokely
/s/ Samuel C. Perry
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EXHIBITS TO
QUARTERLY REPORT ON FORM 10-Q
For the Quarter ended June 30, 2005
Certificate of Amendment to the Articles of Incorporation of Transcontinental Realty Investors, Inc.,
(incorporated by reference to the Registrant’s Current Report on Form 8-K, dated June 3, 1996).
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