Quarterly Report • Nov 18, 2005
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FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 2005
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
Commission File Number 001-15663
AMERICAN REALTY INVESTORS, INC.
(Exact Name of Registrant as Specified in Its Charter)
| Nevada | 75-2847135 |
|---|---|
| (State | |
| or Other Jurisdiction of Incorporation | |
| or Organization) | (I.R.S. |
| Employer Identification | |
| No.) | |
| 1800 | |
| Valley View Lane, Suite 300 Dallas, | |
| Texas | |
| (Address | |
| of principal executive offices) | |
| 75234 | |
| (Zip | |
| Code) | |
| (469) | |
| 522-4200 | |
| (Registrant’s | |
| telephone number, including area code) | |
| (Former | |
| name, former address and former fiscal year, if changed since 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 ¨ .
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ¨ . No x .
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange 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.
| Common
Stock, $.01 par value | 10,149,000 |
| --- | --- |
| (Class) | (Outstanding
at November 10, 2005)* |
*Does not include 746,972 shares issued to and owned by Transcontinental Realty Investors, Inc.
AMENDMENT NO. 1 TO
QUARTERLY REPORT ON FORM 10-Q FOR
AMERICAN REALTY INVESTORS, INC.
FOR THE QUARTER ENDED SEPTEMBER 30, 2005
The undersigned Registrant hereby amends the following items, exhibits, or other portions of its Quarterly Report on Form 10-Q for the quarter ended September 30, 2005 as set forth below and as reflected in the substituted page attached hereto which replaces the same numbered page in the original filing.
• Page 24 - First line in table “Segment operating income (loss)” was inadvertently omitted.
AMERICAN REALTY INVESTORS, INC.
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 American Realty Investors, Inc. (“ARI”), all adjustments (consisting of normal recurring accruals) necessary for a fair presentation of consolidated results of operations, consolidated balance sheets and consolidated cash flows at the dates and for the periods indicated, have been included.
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS
| | September
30, 2005 | | | |
| --- | --- | --- | --- | --- |
| | (dollars
in thousands) | | | |
| Assets | | | | |
| Real
estate held for investment | $ 940,969 | $ | 877,677 | |
| Less—accumulated
depreciation | (151,577 | ) | (157,138 | ) |
| | 789,392 | | 720,539 | |
| Real
estate held for sale, net of depreciation | 162,429 | | 192,533 | |
| Real
estate subject to sales contract | 69,141 | | 70,350 | |
| Notes
and interest receivable | | | | |
| Performing
($44,298 in 2005 and $43,605 in 2004 from affiliates) | 70,185 | | 67,894 | |
| Non-performing | 5,896 | | 6,632 | |
| | 76,081 | | 74,526 | |
| Less—allowance
for estimated losses | (1,000 | ) | (1,865 | ) |
| | 75,081 | | 72,661 | |
| Restaurant
equipment | 13,764 | | 13,747 | |
| Less—accumulated
depreciation | (7,233 | ) | (6,608 | ) |
| | 6,531 | | 7,139 | |
| Marketable
securities, at market value | 7,508 | | 6,670 | |
| Cash
and cash equivalents | 16,538 | | 22,401 | |
| Investments
in real estate entities | 9,289 | | 8,212 | |
| Goodwill,
net of accumulated amortization ($1,763 in 2005 and 2004) | 11,858 | | 11,858 | |
| Other
intangibles, net of accumulated amortization ($583 in 2005 and $871
in
2004) | 1,463 | | 1,480 | |
| Other
assets ($38,884 in 2005 and $27,704 in 2004 from
affiliate) | 107,791 | | 77,000 | |
| | $ 1,257,021 | $ | 1,190,843 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
2
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED BALANCE SHEETS - Continued
| | September
30, 2005 | | | |
| --- | --- | --- | --- | --- |
| | (dollars
in thousands) | | | |
| Liabilities
and Stockholders’ Equity | | | | |
| Liabilities | | | | |
| Notes
and interest payable ($45,555 in 2005 and $36,298 in 2004 to
affiliates) | $ 758,159 | $ | 722,985 | |
| Liabilities
related to assets held for sale | 146,121 | | 156,959 | |
| Liabilities
subject to sales contract | 59,488 | | 59,977 | |
| Margin
borrowings | 22,548 | | 18,663 | |
| Accounts
payable and other liabilities ($7,466 in 2005 and $2,557 in 2004
to
affiliates) | 76,787 | | 71,357 | |
| | 1,063,103 | | 1,029,941 | |
| Commitments
and contingencies | | | | |
| Minority
interest | 57,089 | | 57,893 | |
| Stockholders’
equity | | | | |
| Preferred
Stock, $2.00 par value, authorized 50,000,000 shares, issued and
outstanding | | | | |
| Series
A, 3,469,326 shares in 2005 and 3,469,350 shares in 2004 (liquidation
preference | 5,139 | | 5,139 | |
| $34,693),
including 900,000 shares in 2005 and 2004 held by
subsidiaries. | | | | |
| Series
E, 50,000 shares in 2005 and 2004 (liquidation preference
$500) | 100 | | 100 | |
| Common
Stock, $.01 par value, authorized 100,000,000 shares; issued 11,392,272
shares in 2005 and | 114 | | 114 | |
| 2004 | | | | |
| Treasury
stock, at cost, 1,243,272 shares in 2005 and 2004 | (15,146 | ) | (15,146 | ) |
| Paid-in
capital | 91,789 | | 91,789 | |
| Retained
earnings | 54,648 | | 22,561 | |
| Accumulated
other comprehensive income (loss) | 185 | | (1,548 | ) |
| | 136,829 | | 103,009 | |
| | $ 1,257,021 | $ | 1,190,843 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
3
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| | For
the Three Months Ended
September 30, — 2005 | 2004 | | | For
the Nine Months Ended
September 30, — 2005 | 2004 | | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | (dollars
in thousands) | | | | | | | |
| Property
revenue: | | | | | | | | |
| Rental
and other property revenues ($545 in nine months of 2005 and $933 in
nine months of 2004 from affiliates) | $ 44,704 | $ | 39,389 | | $ 124,050 | $ | 113,250 | |
| Restaurant
sales | 9,298 | | 8,667 | | 27,331 | | 25,659 | |
| Total
operating revenues | 54,002 | | 48,056 | | 151,381 | | 138,909 | |
| Expenses: | | | | | | | | |
| Property
operating expenses ($5,997 in nine months of 2005 and $3,895 in nine
months of 2004 to affiliates) | 29,950 | | 27,529 | | 85,451 | | 83,061 | |
| Restaurant
cost of sales | 7,014 | | 6,788 | | 20,908 | | 19,925 | |
| Depreciation
and amortization | 4,748 | | 5,843 | | 16,180 | | 17,237 | |
| General
and administrative ($3,326 in nine months of 2005 and $3,290 in nine
months of 2004 to affiliates) | 3,643 | | 2,613 | | 11,290 | | 11,474 | |
| Advisory
fee to affiliate | 3,206 | | 2,934 | | 8,844 | | 8,162 | |
| Total
operating expenses | 48,561 | | 45,707 | | 142,673 | | 139,859 | |
| Operating
income (loss) | 5,441 | | 2,349 | | 8,708 | | (950 | ) |
| Other
income (expense): | | | | | | | | |
| Interest
income from notes receivable ($2,493 in nine months of 2005 and $1,915
in nine months of 2004 from affiliates) | 1,188 | | 855 | | 4,025 | | 3,514 | |
| Gain
on foreign currency transaction | 37 | | 543 | | 265 | | 1,791 | |
| Gain
on settlement of debt | — | | 2,268 | | — | | 2,268 | |
| Other
income (expense) | 1,215 | | 72 | | 2,186 | | (136 | ) |
| Mortgage
and loan interest ($1,731 in nine months of 2005 and $1,845 in nine
months of 2004 to affiliates) | (16,336 | ) | (15,121 | ) | (46,712 | ) | (44,724 | ) |
| Discount
on sale of notes receivable | (15 | ) | 9 | | (15 | ) | (389 | ) |
| Net
income fee to affiliate | (2,136 | ) | — | | (2,950 | ) | — | |
| Incentive
fee to affiliate | (904 | ) | — | | (909 | ) | — | |
| Litigation
settlement | (130 | ) | (50 | ) | (130 | ) | (50 | ) |
| Total
other income (expense) | (17,081 | ) | (11,424 | ) | (44,240 | ) | (37,726 | ) |
| Loss
before gain on land sales, minority interest, and equity in earnings
of
investees | (11,640 | ) | (9,075 | ) | (35,532 | ) | (38,676 | ) |
| Gain
on land sales | 5,435 | | 827 | | 34,525 | | 4,579 | |
| Minority
interest | 336 | | 1,474 | | (408 | ) | (155 | ) |
| Equity
in income (loss) of investees | 71 | | 56 | | 283 | | (144 | ) |
| Loss
from continuing operations | (5,798 | ) | (6,718 | ) | (1,132 | ) | (34,396 | ) |
| Income
(loss) from discontinued operations | 21,872 | | (269 | ) | 35,168 | | 19,341 | |
| Net
income (loss) | 16,074 | | (6,987 | ) | 34,036 | | (15,055 | ) |
| Preferred
dividend requirement | (650 | ) | (651 | ) | (1,949 | ) | (1,951 | ) |
| Net
income (loss) applicable to Common shares | $ 15,424 | $ | (7,638 | ) | $ 32,087 | $ | (17,006 | ) |
The accompanying notes are an integral part of these Consolidated Financial Statements.
4
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS - Continued
| | For
the Three Months Ended
September 30, — 2005 | | 2004 | | For
the Nine Months Ended
September 30, — 2005 | | 2004 | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | (dollars
in thousands) | | | | | | | |
| Basic
and diluted earnings per share: | | | | | | | | |
| Loss
from continuing operations | $ (.64 | ) | $ (.70 | ) | $ (.30 | ) | $ (3.43 | ) |
| Income
(loss) from discontinued operations | 2.16 | | (.03 | ) | 3.46 | | 1.83 | |
| Net
income (loss) applicable to Common shares | $ 1.52 | | $ (.73 | ) | $ 3.16 | | $ (1.60 | ) |
| Weighted
average Common shares used in computing earnings per
share: | | | | | | | | |
| Basic
and diluted | 10,149,000 | | 10,532,796 | | 10,149,000 | | 10,596,902 | |
Convertible Preferred Stock (2,569,326 shares) and options to purchase 77,750 shares of ARI’s Common Stock were excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2005, because the effect of their inclusion would be antidilutive.
Convertible Preferred Stock (2,575,370 shares) and options to purchase 101,250 shares of ARI’s Common Stock were excluded from the computation of diluted earnings per share for the three and nine months ended September 30, 2004, because the effect of their inclusion would be antidilutive.
The accompanying notes are an integral part of these Consolidated Financial Statements.
5
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Nine Months Ended September 30, 2005
| | Series
A Preferred Stock | Series
E Preferred Stock | Common Stock | Treasury Stock | | Paid-in Capital | Retained Earnings | | | | Stockholders’ Equity | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| | (dollars
in thousands) | | | | | | | | | | | |
| Balance,
January 1, 2005 | $ 5,139 | $ 100 | $ 114 | $ (15,146 | ) | $ 91,789 | $ 22,561 | $ | (1,548 | ) | $ 103,009 | |
| Comprehensive
income | | | | | | | | | | | | |
| Unrealized
gain on foreign currency
translation | — | — | — | — | | — | — | | 805 | | 805 | |
| Unrealized
gain on marketable
securities | — | — | — | — | | — | — | | 928 | | 928 | |
| Net
income | — | — | — | — | | — | 34,036 | | — | | 34,036 | |
| | | | | | | | | | | | 35,769 | |
| Repurchase
of Preferred Stock | — | — | — | — | | — | — | | — | | — | |
| Preferred
dividends | | | | | | | | | | | | |
| Series
A Preferred Stock ($.75
per share) | — | — | — | — | | ¾ | (1,927 | ) | — | | (1,927 | ) |
| Series
E Preferred Stock ($.45
per share) | — | — | — | — | | ¾ | (22 | ) | — | | (22 | ) |
| Balance,
September 30, 2005 | $ 5,139 | $ 100 | $ 114 | $ (15,146 | ) | $ 91,789 | $ 54,648 | $ | 185 | | $ 136,829 | |
The accompanying notes are an integral part of these Consolidated Financial Statements
6
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | For
the Nine Months Ended
September 30, — 2005 | 2004 | | |
| --- | --- | --- | --- | --- |
| | (dollars
in thousands) | | | |
| Cash
Flows From Operating Activities: | | | | |
| Net
income | $ 34,036 | $ | (15,055 | ) |
| Adjustments
to reconcile net income to net cash used in operating
activities | | | | |
| Gain
on sale of land and real estate | (72,196 | ) | (31,360 | ) |
| Depreciation
and amortization | 16,893 | | 22,644 | |
| Amortization
of deferred borrowing costs | 5,198 | | 6,073 | |
| Discount
on sale of notes receivable | 15 | | 389 | |
| Gain
on settlement of debt | ¾ | | (2,268 | ) |
| Litigation
settlement | ¾ | | 50 | |
| Provision
for asset impairment | ¾ | | 3,444 | |
| Equity
in (income) loss of investees | (283 | ) | 144 | |
| Gain
on foreign currency transaction | (265 | ) | (1,791 | ) |
| Decrease
in accrued interest receivable | 999 | | 680 | |
| (Increase)
decrease in other assets | (7,472 | ) | 6,088 | |
| Increase
(decrease) in accrued interest payable | (1,514 | ) | 1,798 | |
| Increase
in accounts payable and other liabilities | 5,886 | | 3,481 | |
| Decrease
in minority interest | (792 | ) | (1,125 | ) |
| Net
cash used in operating activities | (19,495 | ) | (6,808 | ) |
| Cash
Flows From Investing Activities: | | | | |
| Collections
on notes receivable | 4,069 | | 2,361 | |
| Proceeds
from sale of notes receivable | 32,219 | | 6,227 | |
| Acquisition
of real estate (including $498 in 2004 from affiliates and related
parties) | (91,639 | ) | (26,084 | ) |
| Restaurant
equipment purchased | (627 | ) | (983 | ) |
| Proceeds
from sale of restaurant equipment | 278 | | ¾ | |
| Proceeds
from sale of real estate | 109,441 | | 108,637 | |
| Notes
receivable funded | (3,117 | ) | (90 | ) |
| Earnest
money/escrow deposits | (5,154 | ) | (3,344 | ) |
| Investment
in real estate entities | (475 | ) | (2,625 | ) |
| Real
estate improvements | (35,550 | ) | (137,501 | ) |
| Distribution
from equity investees | 318 | | 47 | |
| Proceeds
from sale of marketable securities | 84 | | — | |
| Net
cash provided by (used in) investing activities | 9,847 | | (53,355 | ) |
| Cash
Flows From Financing Activities: | | | | |
| Proceeds
from notes payable | 146,825 | | 314,612 | |
| Payments
on notes payable | (110,681 | ) | (237,042 | ) |
| Deferred
borrowing costs | (3,274 | ) | (6,354 | ) |
| Net
payments to affiliates | (32,397 | ) | (6,465 | ) |
| Repurchase
of Common Stock | — | | (1,443 | ) |
| Margin
borrowings (payments), net | 3,878 | | (623 | ) |
| Preferred
dividends paid | (566 | ) | (910 | ) |
| Net
cash provided by financing activities | 3,785 | | 61,775 | |
| Net
increase (decrease) in cash and cash equivalents | (5,863 | ) | 1,612 | |
| Cash
and cash equivalents, beginning of period | 22,401 | | 9,543 | |
| Cash
and cash equivalents, end of period | $ 16,538 | $ | 11,155 | |
The accompanying notes are an integral part of these Consolidated Financial Statements.
7
AMERICAN REALTY INVESTORS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
| | For
the Nine Months Ended
September 30, — 2005 | 2004 |
| --- | --- | --- |
| | (dollars
in thousands) | |
| Supplemental
Disclosures of Cash Flow Information: | | |
| Cash
paid for interest | $ 48,124 | $ 52,478 |
| Cash
paid for income taxes, net of refunds | 570 | — |
| Schedule
of non-cash investing and financing activities: | | |
| Notes
payable assumed by buyer on sale of real estate | $ 21,963 | $ 25,607 |
| Notes
receivable from sale of real estate | 34,404 | 10,448 |
| Acquisition
of property in exchange for note receivable | 5,497 | 2,585 |
| Issuance
of Preferred Stock | — | 2,500 |
| Note
payable paid by affiliate | 700 | 10,823 |
| Refinancing
proceeds received by affiliate | — | 20,037 |
| Notes
payable assumed on purchase of real estate | — | 5,027 |
| Purchase
of subsidiary from affiliate | 4,101 | ¾ |
The accompanying notes are an integral part of these Consolidated Financial Statements .
8
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited Consolidated Financial Statements have been prepared in conformity 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. Hereafter in this document, American Realty Investors, Inc. is referred to as ARI.
Operating results for the nine month period ended September 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 thereto included in ARI’s Annual Report on Form 10-K for the year ended December 31, 2004 (the “2004 Form 10-K”).
At December 31, 2004 and September 30, 2005, ARI subsidiaries owned 82.2% of the outstanding shares of Transcontinental Realty Investors, Inc. (“TCI”). At September 30, 2005, ARI and TCI have the same advisor and Board of Directors.
At December 31, 2004 and September 30, 2005, ARI subsidiaries owned 20.4% of Income Opportunity Realty Investors, Inc. (“IORI”) through TCI’s ownership of 24.9% of IORI shares. One director of ARI (Ted Stokely) also serves as a director of IORI.
Stock-based employee compensation. ARI provides stock options to certain directors. ARI 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, ARI 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 ARI had elected to recognize compensation cost for the issuance of options to directors of ARI based on the fair value at the grant dates for awards consistent with the fair value method prescribed by SFAS No. 123, net income and income per share would have been impacted as follows:
| | Three
Months Ended September
30, — 2005 | 2004 | | Nine
Months Ended September
30, — 2005 | 2004 | |
| --- | --- | --- | --- | --- | --- | --- |
| Net
income (loss) applicable to Common shares, as reported | $ 15,424 | $ (7,638 | ) | $ 32,087 | $ (17,006 | ) |
| Deduct:
Total stock-based employee compensation expense determined under
fair value based methods for all awards, net of related tax
effects | — | — | | 26 | 22 | |
| Pro
forma net income (loss) applicable to Common shares | $ 15,424 | $ (7,638 | ) | $ 32,061 | $ (17,028 | ) |
| Earnings
per share: | | | | | | |
| Basic
and diluted, as reported | $ 1.52 | $ (.73 | ) | $ 3.16 | $ (1.60 | ) |
| Basic
and diluted, pro forma | $ 1.52 | $ (.73 | ) | $ 3.16 | $ (1.60 | ) |
9
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. REAL ESTATE
In 2005, ARI purchased the following properties:
| Property | Location | Units
/ Sq.
Ft./Acres | Purchase Price | Net
Cash Paid/ (Received) | | Debt Incurred | | Interest Rate | | Maturity Date | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| First
Quarter | | | | | | | | | | | |
| Land | | | | | | | | | | | |
| Katrina (1) | Palm
Desert, CA | 23.0 Acres | $4,184 | $— | | $— | | — | | — | |
| Keenan
Bridge (2) | Farmers Branch, TX | 7.5
Acres | 510 | 14 | | — | | — | | — | |
| Mandahl
Bay | US
Virgin Islands | 50.8
Acres | 7,000 | 4,101 | | 3,500 | | 7.00 | % | 07/05 | (7) |
| Mandahl
Bay (Gilmore) | US
Virgin Islands | 1.0
Acres | 96 | 104 | | — | | — | | — | |
| Mandahl
Bay (Chung) | US
Virgin Islands | .7
Acres | 95 | 101 | | — | | ¾ | | — | |
| Second
Quarter | | | | | | | | | | | |
| Apartments | | | | | | | | | | | |
| Mission
Oaks (4) | San
Antonio, TX | 228
Units | 573 | 573 | | — | | 5.30 | | 09/46 | |
| Parc
at Metro Center (4) | Nashville,
TN | 144
Units | 817 | (378 | ) | 817 | | 5.65 | | 09/46 | |
| Land | | | | | | | | | | | |
| Alliance
Airport (formerly Centurion) | Tarrant
County, TX | 12.7
Acres | 850 | 892 | | — | | — | | — | |
| Mandahl
Bay (Marina) | US
Virgin Islands | 24.0
Acres | 2,000 | 2,101 | | — | | — | | — | |
| Mason
Goodrich (1) | Houston,
TX | 13.0
Acres | 1,360 | — | | — | | — | | — | |
| Southwood (5) | Tallahassee,
FL | 12.9
Acres | 525 | 555 | | — | | — | | — | |
| West
End (6) | Dallas,
TX | .2
Acres | 49 | 52 | | — | | — | | — | |
| Office
Buildings | | | | | | | | | | | |
| Park
West | Farmers
Branch, TX | 243,416
Sq. Ft. | 10,000 | 4,715 | | 6,500 | | 7.50 | (3) | 05/06 | |
| Third
Quarter | | | | | | | | | | | |
| Apartments | | | | | | | | | | | |
| Legends
of El Paso (4) | El
Paso, TX | 240
Units | 2,247 | 464 | | 1,774 | | 5.50 | | 01/47 | |
| Land | | | | | | | | | | | |
| Luna | Farmers
Branch, TX | 2.6
Acres | 250 | 257 | | — | | — | | — | |
| Mansfield | Mansfield,
TX | 21.9
Acres | 1,450 | 577 | | 943 | | 7.50 | (3) | 03/07 | |
| Senlac | Farmers
Branch, TX | 11.9
Acres | 625 | 643 | | — | | — | | — | |
| Whorton | Benton
County, AR | 79.7
Acres | 4,332 | 702 | | 3,828 | | 6.08 | | 01/07 | |
| Wilmer
88 | Dallas,
TX | 87.6
Acres | 638 | 668 | | — | | — | | — | |
| Office
Buildings | | | | | | | | | | | |
| 600
Las Colinas | Las
Colinas, TX | 509,829
Sq. Ft. | 56,000 | 17,663 | | 40,487 | (8) | 6.16 | | 01/13 | |
| Fourth
Quarter | | | | | | | | | | | |
| Land | | | | | | | | | | | |
| Alliance
8 | Tarrant
County, TX | 8
Acres | 657 | 332 | | 408 | | 7.75 | % | 05/06 | |
| Alliance
52 | Tarrant
County, TX | 51.9
Acres | 2,538 | 1,054 | | 1,610 | | 7.75 | | 05/06 | |
| Denton | Denton,
TX | 25.9
Acres | 2,100 | 862 | | 1,365 | | 7.75 | (3) | 04/07 | |
| Pantaze | Dallas,
TX | 6.0
Acres | 265 | 276 | | — | | — | | — | |
| Payne (9) | Las
Colinas, TX | 109.8
Acres | 1,000 | 1,066 | | — | | — | | — | |
| TuTu | US
Virgin Islands | 19.5
Acres | 1,350 | 1,401 | | — | | — | | — | |
| Woodmont-Bailey | Addison,
TX | 1.9
Acres | 1,475 | 381 | | 1,180 | | — | | — | |
| Woodmont-Town
Center | Addison,
TX | 1.2
Acres | 400 | 102 | | 320 | | — | | — | |
| Woodmont-Veladi | Addison,
TX | 2.1
Acres | 383 | 99 | | 306 | | — | | — | |
10
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Property | Location | Units
/ Sq.
Ft./Acres | Purchase Price | Net
Cash Paid/ (Received) | Debt Incurred | Interest Rate | Maturity Date |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Shopping
Centers | | | | | | | |
| Willowbrook | Coldwater,
MI | 117,689
Sq. Ft. | 8,200 | 2,223 | 6,495 | 7.28 | 02/13 |
(1) Exchanged for note receivable. See NOTE 3. “NOTES AND INTEREST RECEIVABLE.”
(2) Exchanged for the Bee Street and 2524 Valley View land parcels.
(3) Variable rate.
(4) Initial construction loan funding to purchase land and begin apartment construction. Does not represent actual units purchased.<?xml:namespace prefix = o />
(5) Purchased a 50% interest in this land tract.
(6) Purchased a 37.5% interest in this land tract.
(7) Extended to April 2006, with an increase in the interest rate to 8.0%.
(8) First lien of $35.3 million. Second lien of $5.1 million. Interest rate and maturity date identical for both.
(9) Dissolved 50% Tenant-in-Common interest in the Payne land, resulting in ARI’s ownership of 149.7 gross acres, plus purchasing an additional 30.4 acres for $1.0 million. Resulting total net average of 180.1 acres.
In 2004, ARI purchased the following properties:
| Property | Location | Units
/ Sq.
Ft./Acres | Purchase Price | Net
Cash Paid/ (Received) | | Debt Incurred | | Interest Rate | | Maturity Date |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| First
Quarter | | | | | | | | | | |
| Apartments | | | | | | | | | | |
| 288
City Park (1) | Houston,
TX | 240
Units | $3,056 | $612 | | $2,444 | | 5.95 | % | 04/45 |
| Blue
Lake Villas II (1) | Waxahachie,
TX | 70
Units | 729 | (164 | ) | 729 | | 5.80 | | 04/45 |
| Bridges
on Kinsey (1) | Tyler,
TX | 232
Units | 2,291 | 596 | | 1,687 | | 5.74 | | 08/45 |
| Dakota
Arms (1) | Lubbock,
TX | 208
Units | 2,472 | 681 | | 1,791 | | 5.85 | | 06/45 |
| Lake
Forest (1) | Houston,
TX | 240
Units | 2,316 | (470 | ) | 2,316 | | 5.60 | | 03/45 |
| Vistas
of Vance Jackson (1) | San
Antonio, TX | 240
Units | 3,550 | 771 | | 2,779 | | 5.78 | | 06/45 |
| Land | | | | | | | | | | |
| Lubbock
land | Lubbock,
TX | 2.9
Acres | 224 | 224 | | ¾ | | — | | — |
| Meloy
Road | Kent,
OH | 54.2
Acres | 4,900 | 343 | | 4,900 | | 5.00 | (2) | 01/06 |
| Railroad
land | Dallas,
TX | .3
Acres | 708 | 704 | | — | | — | | — |
| Second
Quarter | | | | | | | | | | |
| Apartments | | | | | | | | | | |
| Treehouse (3) | Irving,
TX | 160
Units | 8,017 | (498 | ) | 5,027 | (4) | 5.00 | | 08/13 |
| Wildflower
Villas (1) | Temple,
TX | 220
Units | 2,045 | 79 | | 1,966 | | 5.99 | | 10/45 |
| Land | | | | | | | | | | |
| Cooks
Lane (1) | Ft.
Worth, TX | 23.2
Acres | 1,000 | 1,034 | | — | | — | | — |
| Rogers (1) | Rogers,
AR | 20.1
Acres | 1,390 | 619 | | 1,130 | | 10.50 | | 04/05 |
| Third
Quarter | | | | | | | | | | |
| Land | | | | | | | | | | |
| Ladue | Farmers
Branch, TX | 8.0
Acres | 1,743 | 659 | | 1,207 | | 6.65 | (2) | 06/06 |
| Granbury
Station | Ft.
Worth, TX | 15.7
Acres | 923 | 236 | | 738 | | 7.00 | | 09/07 |
11
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Initial construction loan funding to purchase land and begin apartment construction. Does not represent actual units purchased.
(2) Variable interest rate.
(3) Purchased from IORI, a related party, for assumption of debt and a note receivable, less $498 in cash received.
(4) Assumed debt of seller.
In 2005, ARI sold the following properties:
| Property | Location | Units/Acres/ Sq.
Ft. | Sales Price | Net
Cash Received/ (Paid) | | Debt Discharged | | Gain on
Sale |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| First
Quarter | | | | | | | | |
| Apartments | | | | | | | | |
| Longwood | Long
Beach, MS | 200
Units | $6,456 | $9 | | $6,253 | | $56 |
| Land | | | | | | | | |
| Granbury
Station | Ft.
Worth, TX | 15.7
Acres | 1,003 | 265 | | 738 | | 10 |
| Katrina | Palm
Desert, CA | 9.9
Acres | 2,616 | 574 | | — | | 1,323 |
| Katrina | Palm
Desert, CA | 13.6
Acres | 3,703 | 591 | | — | | 1,706 |
| Katrina | Palm
Desert, CA | 5.5
Acres | 1,325 | 1,281 | | — | | 619 |
| Katrina | Palm
Desert, CA | 6.5
Acres | 1,695 | 340 | | — | | 818 |
| Katrina | Palm
Desert, CA | 7.4
Acres | 2,028 | 455 | | — | | 1,072 |
| Katrina | Palm
Desert, CA | 81.2
Acres | 19,878 | (814 | ) | 5,100 | | 9,387 |
| Katrina | Palm
Desert, CA | 24.8
Acres | 6,402 | 1,027 | | — | | 2,947 |
| Katy | Katy,
TX | 130.6
Acres | 12,400 | 4,981 | | 6,601 | | 5,630 |
| Nashville | Nashville,
TN | 1.2
Acres | 304 | 236 | | — | | 226 |
| Vista
Ridge | Lewisville,
TX | 4.4
Acres | 950 | (92 | ) | 914 | | 440 |
| Office
Buildings | | | | | | | | |
| Institute
Place | Chicago,
IL | 144,915
Sq. Ft. | 14,460 | 4,843 | | 7,792 | | 10,603 |
| Industrial
Warehouses | | | | | | | | |
| 5700
Tulane | Atlanta,
GA | 67,850
Sq. Ft. | 816 | 738 | | — | | 329 |
| Second
Quarter | | | | | | | | |
| Land | | | | | | | | |
| Lemmon
Carlisle/Alamo Springs | Dallas,
TX | 2.8
Acres | 7,674 | 5,627 | | 1,744 | | 2,729 |
| Vista
Ridge | Lewisville,
TX | 17.9
Acres | 4,291 | (129 | ) | 4,096 | | 2,185 |
| Office
Buildings | | | | | | | | |
| 9033
Wilshire | Los
Angeles, CA | 44,253
sq. ft. | 12,000 | 4,366 | | 6,506 | | 2,781 |
| Bay
Plaza | Tampa,
FL | 75,780
sq. ft. | 4,682 | 3,253 | | 961 | | 1,212 |
| Bay
Plaza II | Tampa,
FL | 78,882
sq. ft. | 4,719 | 1,114 | | 3,284 | | 132 |
| Third
Quarter | | | | | | | | |
| Apartments | | | | | | | | |
| Quail
Pointe | Huntsville,
AL | 184
Units | 6,200 | 2,157 | | 3,501 | | 5,265 |
| Waters
Edge III & IV | Gulfport,
MS | 318
Units | 16,350 | 6,201 | | 7,207 | | 7,724 |
| Windsor
Tower | Ocala,
FL | 64
Units | 2,845 | (85 | ) (2) | 1,937 | (1) | 785 |
| Woodhollow | San
Antonio, TX | 546
Units | 12,500 | 3,429 | | 7,900 | | 8,290 |
12
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Property | Location | Units/Acres/ Sq.
Ft. | Sales Price | Net
Cash Received/ (Paid) | | Debt Discharged | Gain on
Sale |
| --- | --- | --- | --- | --- | --- | --- | --- |
| Land | | | | | | | |
| Mason
Goodrich | Houston,
TX | 16.0
Acres | 2,091 | 935 | | — | 802 |
| Round
Mountain | Austin,
TX | 18.0
Acres | 1,500 | 251 | | — | 1,094 |
| Vineyards | Grapevine,
TX | 7.6
Acres | 4,323 | 874 | | — | 1,764 |
| Vineyards
and Vineyards II | Grapevine,
TX | 5.2
Acres | 2,332 | 160 | | 300 | 494 |
| West
End | Dallas,
TX | 0.8
Acres | 2,259 | 2,099 | | — | 1,259 |
| Fourth
Quarter | | | | | | | |
| Apartments | | | | | | | |
| Sun
Hollow | El
Paso, TX | 216
Units | 7,700 | 2,623 | | 4,327 | 5,811 |
| Terrace
Hills | El
Paso, TX | 310
Units | 12,300 | 5,467 | | 5,890 | 6,959 |
| Land | | | | | | | |
| Nashville | Nashville,
TN | 3.0
Acres | 441 | (13 | ) | 408 | 282 |
(1) Debt assumed by purchaser.
(2) Cash of $860 received by an affiliate, increasing ARI’s affiliate receivable.
In 2004, ARI sold the following properties:
| Property | Location | Units/ Acres/Sq.
Ft. | Sales Price | Net
Cash Received | | Debt Discharged | | Gain on
Sale | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| First
Quarter | | | | | | | | | |
| Apartments | | | | | | | | | |
| Tiberon
Trails | Merrillville,
IN | 376
Units | $10,325 | $2,618 | | $6,189 | (1) | $48 | |
| Industrial
Warehouses | | | | | | | | | |
| Kelly
(Pinewood) | Dallas,
TX | 100,000
Sq. Ft. | 1,650 | 65 | | 1,376 | | 153 | |
| Ogden
Industrial | Ogden,
UT | 107,112
Sq. Ft. | 2,600 | 668 | | 1,775 | | 1,474 | |
| Texstar
Warehouse | Arlington,
TX | 97,846
Sq. Ft. | 2,400 | — | | 1,148 | (1) | 1,157 | (3) |
| Land | | | | | | | | | |
| Allen | Collin
County, TX | 492.5
Acres | 19,962 | 7,956 | | 4,088 | | 7,915 | (2) |
| Marine
Creek | Ft.
Worth, TX | 10.7
Acres | 1,488 | 1,198 | | 991 | | 581 | (7) |
| Mason
Goodrich | Houston,
TX | 5.7
Acres | 686 | 45 | | 588 | | 379 | |
| Mason
Goodrich | Houston,
TX | 8.0
Acres | 1,045 | 248 | | 200 | | 617 | |
| Red
Cross | Dallas,
TX | 2.9
Acres | 8,500 | 2,842 | | 4,450 | | — | |
| Office
Buildings | | | | | | | | | |
| Brandeis (6) | Omaha,
NE | 319,234
Sq. Ft. | ¾ | ¾ | | ¾ | | (92 | ) |
| Countryside
Harmon | Sterling,
VA | 72,062
Sq. Ft. | 2,650 | 216 | | 2,200 | | 1,861 | |
| Countryside
Retail | Sterling,
VA | 133,422
Sq. Ft. | 27,100 | 3,407 | | 22,800 | | 6,807 | |
| Shopping
Centers | | | | | | | | | |
| K-Mart | Cary,
NC | 92,033
Sq. Ft. | 3,200 | — | | 1,677 | (1) | 521 | (3) |
| Plaza
on Bachman Creek | Dallas,
TX | 80,278
Sq. Ft. | 7,850 | 1,808 | | 5,358 | | 3,682 | |
| Second
Quarter | | | | | | | | | |
| Apartments | | | | | | | | | |
| Cliffs
of El Dorado (5) | McKinney,
TX | 208
Units | 13,442 | 10 | | 10,323 | (1) | 2,542 | |
| Park
Avenue | Tallahassee,
FL | 121
Units | 6,225 | 876 | | 4,320 | (1) | 3,922 | |
| Sandstone | Mesa,
AZ | 238
Units | 8,650 | 2,920 | (4) | 5,531 | | 1,688 | |
13
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| Property | Location | Units/ Acres/Sq.
Ft. | Sales Price | Net
Cash Received | Debt Discharged | | Gain on
Sale | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Office
Buildings | | | | | | | | |
| 4135
Beltline | Addison,
TX | 90,000
Sq. Ft. | 4,900 | 2,472 | 2,009 | | 337 | |
| Atrium | Palm
Beach, FL | 74,603
Sq. Ft. | 5,775 | 1,842 | 3,772 | | 708 | |
| Third
Quarter | | | | | | | | |
| Apartments | | | | | | | | |
| Falcon
House | Fort
Walton, FL | 82
Units | 3,330 | 1,178 | 1,950 | (1) | 1,209 | |
| Industrial
Warehouses | | | | | | | | |
| Kelly
(Cash Road) | Dallas,
TX | 97,150
Sq. Ft. | 1,500 | 1,077 | 422 | | 454 | |
| Land | | | | | | | | |
| Rasor | Plano,
TX | 24.5
Acres | 2,600 | 2,600 | ¾ | | 220 | (8) |
| Vista
Ridge | Lewisville,
TX | 1.3
Acres | 310 | 259 | ¾ | | 131 | |
| Shopping
Centers | | | | | | | | |
| Collection | Denver,
CO | 267,812
Sq. Ft. | 21,200 | 6,703 | 13,153 | | 3,314 | |
(1) Debt assumed by purchaser.
(2) Includes deferred gain of $4,412, which was recognized in the fourth quarter of 2004, upon collection of seller financing.
(3) Sold to Basic Capital Management, Inc. (“BCM”), a related party, for assumption of debt and a note receivable. Gain deferred until sale to unrelated party. Failure to notify and receive approval from the lender for this transaction may constitute an event of default under the terms of the debt.
(4) Includes a $1,971 deposit received in February 2004.
(5) Sold to Unified Housing Foundation, Inc. (“UHF”), a related party, in 2003. Gain deferred until sale to unrelated party.
(6) Returned to lender.
(7) Sold to UHF. Gain deferred until sale to unrelated party.
(8) Sold to BCM. Gain deferred until sale to unrelated party.
At September 30, 2005, ARI had the following apartment properties under construction:
| Property | Location | Units | Amount Expended | Additional Amount to
Expend | Construction Loan Funding |
| --- | --- | --- | --- | --- | --- |
| Laguna
Vista | Farmers
Branch, TX | 206
Units | $5,688 | $15,417 | $17,741 |
| Legends
of El Paso | El
Paso, TX | 240
Units | 2,723 | 15,361 | 16,040 |
| Mission
Oaks | San
Antonio, TX | 228
Units | 811 | 16,658 | 15,636 |
| Parc
at Maumelle | Maumelle,
AR | 240
Units | 6,543 | 12,156 | 16,829 |
| Parc
at Metro Center | Nashville,
TN | 144
Units | 2,522 | 10,093 | 11,141 |
For the nine months ended September 30, 2005, ARI 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, the 220 unit Wildflower Villas in Temple, Texas, the 398 unit Kingsland Ranch Apartments in Houston, Texas, the 240 Stonebridge at City Park Apartments in Houston, Texas, and the 240 unit Vistas of Vance Jackson in San Antonio, Texas.
14
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. NOTES AND INTEREST RECEIVABLE
In August 2001, ARI 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. ARI funded a total of $4.3 million. On January 22, 2003, ARI agreed to extend the maturity date until May 1, 2003. The collateral used to secure ARI’s second lien was seized by the first lien holder. On March 11, 2004, ARI agreed to accept an assignment of claims in litigation as additional security for the note. In December 2004, ARI agreed to a Modification Agreement 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. ARI 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. ARI reduced accrued interest and principal by $1.5 million from the receipt of notes receivable assigned to ARI by borrower and by $605,000 from cash received. ARI also received $1.4 million in January 2005 that was applied to accrued interest and principal effective December 30, 2004.
In February and March, 2005, ARI sold 148.9 acres of its Katrina land parcel in seven separate transactions for a total of $37.6 million, receiving $3.5 million after payment of debt and closing costs and providing purchase money financing of $27.2 million on six of the sales. The notes bore interest at 8.0% per annum, required quarterly payments of interest, and matured from February 2007 to February 2008. In March 2005, ARI sold the notes for $27.2 million, receiving $27.2 million in cash after payment of closing costs.
In December 2002, ARI sold a 238.0 acre tract of its Desert Wells land parcel for $23.8 million, receiving $321,000 after payment of closing costs and debt paydown and providing purchase money financing of $21.4 million. The first lien financing of $17.8 million was sold to an unrelated party in March 2003. The second lien financing of $3.6 million bore interest at 8.0% per annum and matured on March 31, 2003. All principal and interest were due at maturity. In February 2005, the note was exchanged for 23.0 acres of land in Palm Desert, California. See NOTE 2. “REAL ESTATE.”
In March 2005, ARI entered into an agreement to advance a third party $3.2 million for development costs relating to single-family residential 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 10.0%, requires semi-annual payments, and matures in March 2008. In September 2005, the total amount authorized under this advance was increased to $5.0 million. As of September 30, 2005, ARI had advanced $3.2 million to the borrower. ARI also guaranteed, with full recourse to ARI, an $18 million loan for the borrower, which loan is secured by a first lien on the undeveloped land. In June 2005, ARI purchased the subsidiary of a related party for $4.1 million that held two notes receivable from this third party for $3.0 and $1.0 million, respectively. These notes were secured by approximately 142 acres of undeveloped land and membership interest in the borrowers. These secured notes bore interest at 12.0%, had an interest reserve for payments that was added to the principal balance on a monthly basis, and matured in June 2005. Both notes were extended to September 2005. In September 2005, the notes were paid under the advance arrangement described above.
In August 2005, ARI sold a 7.6 acres tract of its Vineyards land parcel for $4.3 million, receiving $874,000 after payment of closing costs and providing purchase money financing of $3.2 million. The secured note bore interest at 8.0% per annum and matured in August 2006. In September 2005, ARI sold the note for $3.2 million plus accrued but unpaid interest, receiving $3.3 million in cash after payment of closing costs.
In September 2005, ARI sold a 5.2 acre tract of its Vineyards and Vineyards II land parcels for $2.3 million, receiving $160,000 after payment of closing costs and debt paydown, and providing purchase money financing of $1.7 million. The secured note bore interest at 8.0% per annum and matured in September 2006. In September 2005, ARI sold the note for $1.7 million plus accrued but unpaid interest, receiving $1.7 million in cash after payment of closing costs.
In September 2005, ARI sold 10 acres of undeveloped land to a third party for $1.5 million and provided $1.1 million of the purchase price as seller financing. The secured note bears interest at 10%, requires monthly interest payments and matures in September 2008.
In December 2004, ARI sold the Centura Tower office building to a partnership and retained a 1% non-controlling general partner interest and a 4% limited partner interest. ARI has certain obligations to fund the partnership for certain rent abatements, tenant improvements, leasing commissions and other cash shortfalls. Through September 30, 2005, ARI has funded $1.7 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.
15
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In October 2004, ARI 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 bore interest at 7.0% per annum, required 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 was also secured by membership rights in the purchaser’s entity. The second note was unsecured, bore interest at 8.5% per annum, required 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 April 2005, both loans were extended to October 2005 with the payment of a 2.0% extension fee. In October 2005, both loans were paid in full, including accrued but unpaid interest.
In November 2003, ARI purchased a note receivable from an unrelated party for $1.4 million, including accrued and unpaid interest. The note was secured by a first lien Deed of Trust on 13.0 acres of undeveloped land in Harris County, Texas, bore interest at the default rate of 18.0%, and matured in May 2003. In May 2005, ARI obtained title to the property via a Deed in Lieu of Foreclosure. See NOTE 2. “REAL ESTATE.”
In August 2005, ARI sold a 16.0 acre tract of its Mason Goodrich land parcel for $2.1 million, receiving $935,000 after payment of closing costs and providing purchase money financing of $1.0 million. The secured note bore interest at 8.0%, required monthly interest payments, and matured in November 2005. In November 2005, the note was collected in full, including accrued but unpaid interest.
In March 2002, ARI 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 matured in March 2007. As of September 2005, ARI has funded $896,000 of the additional line of credit. ARI determined during the third quarter to classify this note as non-performing due to the lack of cash received and the probability that no cash will be received in the future. Effective for the quarter ending September 30, 2005, ARI will no longer accrue interest income on this note. This loan is not considered impaired, as the fair value of the collateral is sufficient to cover the current loan balance and accrued interest at September 30, 2005.
In July 2002, ARI 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 in the second quarter of 2005 and was subsequently modified in the fourth quarter of 2005. This second modification extends the loan maturity to October 2007 and limits any advances under the line of credit to $25,000 per month. As of September 2005, the borrower had $211,000 of available credit under the credit limit.
In September 1999, in conjunction with the sale of two apartments in Austin, Texas, $2.1 million in purchase money financing was provided, secured by limited partnership interests in two limited partnerships owned by the buyer. In March 2000, the borrower made a $1.1 million payment. The borrower executed a replacement promissory note for the remaining note balance of $1.0 million, which was unsecured, non-interest bearing and matured in April 2003. In 2004, ARI initiated legal action to collect the note. In August 2005, a settlement agreement was reached. The note will be replaced with a new promissory note, also non-interest bearing, which is secured by a $1.5 million Agreed Judgment. The note calls for 36 monthly payments beginning in January 2006, with a balloon payment of $460,000 due in January 2009. ARI will continue to classify this note as non-performing.
Related Parties. In March 2004, ARI sold a K-Mart in Cary, North Carolina to BCM for $3.2 million, including the assumption of debt. ARI also provided $1.5 million of the purchase price as seller financing. The unsecured note bears interest at the prime rate plus 2.0%, currently 9.0%, and matured in April 2005. In April 2005, the note was extended to April 2008.
In March 2004, ARI sold the Texstar Warehouse in Arlington, Texas to BCM for $2.4 million, including the assumption of debt. ARI also provided $1.3 million of the purchase price as seller financing. The unsecured note bears interest at the prime rate plus 2.0%, currently 9.0%, and matured in April 2005. In April 2005, the note was extended to April 2008.
16
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. INVESTMENTS IN REAL ESTATE ENTITIES
ARI’s investment in real estate entities at September 30, 2005, was as follows:
| Investee | | Carrying
Value of Investment
at September
30, 2005 | Market
Value of
Investment at September
30, 2005 |
| --- | --- | --- | --- |
| IORI | 20.4 % | $ 6,048 | $ 7,520 |
| Garden
Centura, L.P. | 5.0 % | 1,925 | ¾ |
| Other | | 1,316 | |
| | | $ 9,289 | |
Set forth below are summarized results of operations of IORI for the nine months ended September 30, 2005:
| Revenues | 2005 — $ 7,767 | |
|---|---|---|
| Equity | ||
| in loss of partnership | (45 | ) |
| Property | ||
| operating expenses | (3,563 | ) |
| Depreciation | (539 | ) |
| Interest | (2,487 | ) |
| Income | ||
| before gain on sale of real estate | 1,133 | |
| Gain | ||
| on sale of real estate | — | |
| Net | ||
| income | $ 1,133 |
ARI’s share of equity investees’ income before gains on the sale of discontinued operations was $283,000 for the nine months ended September 30, 2005. ARI did not recognize any gain on equity investees’ sale of real estate for the nine months ended September 30, 2005.
ARI’s cash flow from IORI is dependent on IORI making distributions. In the fourth quarter of 2000, IORI suspended distributions.
NOTE 5. MARKETABLE EQUITY SECURITIES
Since 1994, ARI has been purchasing equity securities of entities other than those of IORI and TCI to diversify and increase the liquidity of its margin accounts. Trading and available-for-sale portfolio securities are carried at market value. In the three and nine months ended September 30, 2005, ARI sold $100,000 of trading portfolio securities, realizing a net loss of $16,000. In the first nine months of 2005, ARI did not purchase any marketable securities. At September 30, 2005, ARI recognized an unrealized increase in the market value of its trading portfolio securities of $10,000. Unrealized and realized gains and losses on trading portfolio securities are included in other income in the accompanying Consolidated Statements of Operations. Also at September 30, 2005, ARI recorded an unrealized increase in the market value of its available-for-sale portfolio securities of $928,000. Unrealized gains and losses on available-for-sale portfolio securities are included in accumulated other comprehensive income in the accompanying Consolidated Balance Sheets.
NOTE 6. NOTES PAYABLE
In February 2004, ARI obtained a line of credit facility with a financial institution. The maximum credit available is $10.0 million. The line of credit is secured by land properties in Dallas County and Austin, Texas. Advances made to ARI under this facility bear interest at 7.0% per annum, require monthly interest payments, and mature in February 2007. At September 30, 2005, $56,000 has been advanced to ARI, and letters of credit totaling $9.5 million have been issued under this facility. The available credit is $483,000.
In February 2005, ARI 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 ARI. Any time prior to 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.
17
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July 2005, ARI secured a revolving 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 1.0%, currently 8.0%, 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. At September 30, 2005, $7.5 million has been advanced to ARI. The current amount available for use under the line of credit is $2.5 million.
In 2005, ARI financed/refinanced or obtained second mortgage financing on the following:
| Property | Location | Sq.
Ft./Rooms/ Units/Acres | Debt Incurred | Debt Discharged | Net
Cash Received | Interest Rate | | Maturity Date |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| First
Quarter | | | | | | | | |
| Land | | | | | | | | |
| Nashville | Nashville,
TN | 109.6
Acres | $7,000 | $— | $6,341 | 7.50 | % | 02/07 |
| Shopping
Centers | | | | | | | | |
| Bridgeview
Plaza | LaCrosse,
WI | 116,008
Sq. Ft. | 7,197 | 6,304 | 649 | 7.25 | (1) | 03/10 |
| Dunes
Plaza | Michigan
City, IN | 223,869
Sq. Ft. | 3,750 | 2,685 | 658 | 7.50 | (1) | 01/10 |
| Second
Quarter | | | | | | | | |
| Apartments | | | | | | | | |
| Autumn
Chase | Midland,
TX | 64
Units | 1,166 | 797 | 317 | 5.88 | (1) | 05/35 |
| Courtyard | Midland,
TX | 133
Units | 1,342 | 966 | 266 | 5.88 | (1) | 05/35 |
| Southgate | Odessa,
TX | 180
Units | 1,879 | 1,712 | 61 | 5.88 | (1) | 05/35 |
| Hotels | | | | | | | | |
| The
Majestic | Chicago,
IL | 55
Rooms | 3,225 | ¾ | 3,066 | 6.40 | | 06/10 |
| Third
Quarter | | | | | | | | |
| Hotels | | | | | | | | |
| Williamsburg
Hospitality House | Williamsburg,
VA | 296
Rooms | 11,000 | 10,540 | 147 | 6.19 | (1) | 09/10 |
| Land | | | | | | | | |
| Alliance
Airport (2) | Tarrant
County, TX | 12.7
Acres | 553 | ¾ | 540 | 7.25 | (1) | 01/07 |
| Centura (3) | Farmers
Branch, TX | 8.8
Acres | 6,727 | ¾ | 6,727 | 8.50 | (1) | 08/07 |
| DeSoto
Ranch (2) | DeSoto,
TX | 21.9
Acres | 1,635 | 1,271 | 336 | 7.25 | (1) | 01/07 |
| Elm
Fork | Denton
County, TX | 105.4
Acres | 7,740 | ¾ | 7,540 | 7.00 | (1) | 07/06 |
| Sheffield
Village (2) | Grand
Prairie, TX | 13.9
Acres | 975 | 975 | 94 | 7.75 | | 03/07 |
| West
End (2) | Dallas,
TX | 6.3
Acres | 2,000 | ¾ | 1,951 | 7.25 | (1) | 01/07 |
(1) Variable rate.
(2) Drawn on the $10.0 million line of credit for land acquisitions and financing.
(3) IORI purchased the Centura Land for $13.0 million. See Note 8. “RELATED PARTIES.”
18
AMERICAN REALTY INVESTORS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In 2004, ARI financed/refinanced or obtained second mortgage financing on the following:
| Property | Location | Sq.
Ft./Rooms/ Units/Acres | Debt Incurred | | Debt Discharged | | Net
Cash Received/ (Paid) | | Interest Rate | | Maturity Date |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| First
Quarter | | | | | | | | | | | |
| Hotels | | | | | | | | | | | |
| Williamsburg Hospitality
House | Williamsburg,
VA | 296
Rooms | $11,500 | | $12,332 | | $(13,689 | ) (2) | 7.00 | % (1) | 03/05 |
| Land | | | | | | | | | | | |
| Centura | Farmers
Branch, TX | 8.8
Acres | 4,485 | | 4,000 | | (183 | ) | 7.00 | (1) | 02/05 |
| Dominion/Hollywood | Farmers
Branch, TX | 66.1
Acres | 6,985 | | 6,222 | | (67 | ) | 7.00 | (1) | 02/05 |
| Katy | Harris
County, TX | 130.6
Acres | 7,500 | | — | | (75 | ) (3) | 6.00 | | 02/07 |
| Marine
Creek | Ft.
Worth, TX | 54.0
Acres | 1,286 | | 991 | | 192 | | 5.75 | | 06/05 |
| Office
Buildings | | | | | | | | | | | |
| Centura
Tower | Farmers
Branch, TX | 410,901
Sq. Ft. | 34,000 | | 36,889 | | (4,588 | ) | 5.50 | (1) | 04/06 |
| Second
Quarter | | | | | | | | | | | |
| Apartments | | | | | | | | | | | |
| Paramount
Terrace | Amarillo,
TX | 181
Units | 3,176 | | 2,663 | | 323 | | 5.15 | | 06/37 |
| Treehouse | Irving,
TX | 160
Units | 5,780 | | 5,027 | | 138 | | 5.06 | | 07/34 |
| Land | | | | | | | | | | | |
| Lacy
Longhorn | Farmers
Branch, TX | 17.1
Acres | 1,965 | | 1,800 | | 78 | | 4.03 | (1) | 07/07 |
| Marine
Creek | Fort
Worth, TX | 28.4
Acres | 1,785 | | 0 | | 1,746 | | 4.03 | (1) | 07/07 |
| Mason/Goodrich | Houston,
TX | 39.4
Acres | 2,133 | | 714 | | 1,345 | | 6.00 | (1) | 08/05 |
| Office
Buildings | | | | | | | | | | | |
| 1010
Common | New
Orleans, LA | 494,579
Sq. Ft. | 16,250 | | 8,000 | | 7,829 | | 4.03 | (1) | 07/07 |
| Two
Hickory Centre | Farmers
Branch, TX | 96,127
Sq. Ft. | 7,500 | | 7,500 | | (164 | ) | 3.60 | (1) | 05/06 |
| Third
Quarter | | | | | | | | | | | |
| Apartments | | | | | | | | | | | |
| Villager | Fort
Walton, FL | 33
Units | 804 | | 507 | | 129 | | 5.15 | | 06/34 |
| Waters
Edge III | Gulfport,
MS | 238
Units | 3,250 | | ¾ | | ¾ | (4) | 12.50 | | 12/04 |
| Hotels | | | | | | | | | | | |
| City
Suites | Chicago,
IL | 45
Rooms | 3,640 | | ¾ | | 3,548 | | 6.75 | (1) | 09/09 |
| Willows | Chicago,
IL | 52
Rooms | 3,500 | | ¾ | | 3,411 | | 6.75 | (1) | 09/09 |
| Land | | | | | | | | | | | |
| Bonneau | Dallas
County, TX | 8.4
Acres | 9,661 | (5) | 10,283 | (6) | 76 | | 6.75 | (1) | 09/05 |
| Chase
Oaks | Plano,
TX | 5.8
Acres | ¾ | (5) | ¾ | | ¾ | | ¾ | | ¾ |
| Dalho | Farmers
Branch, TX | 2.9
Acres | ¾ | (5) | ¾ | | ¾ | | ¾ | | ¾ |
| HSM | Farmers
Branch, TX | 6.2
Acres | ¾ | (5) | ¾ | | ¾ | | ¾ | | ¾ |
| JHL
Connell | Carrollton,
TX | 7.6
Acres | ¾ | (5) | ¾ | | ¾ | | ¾ | | ¾ |
| Las
Colinas | Las
Colinas, TX | 1.5
Acres | ¾ | (5) | ¾ | | ¾ | | ¾ | | ¾ |
| Stagliano | Farmers
Branch, TX | 3.2
Acres | ¾ | (5) | ¾ | | ¾ | | ¾ | | ¾ |
| Vista
Ridge | Lewisville,
TX | 64.9
Acres | ¾ | (5) | ¾ | | ¾ | | ¾ | | ¾ |
| Office
Buildings | | | | | | | | | | | |
| Centura
Tower | Farmers
Branch, TX | 410,901
Sq. Ft. | 50,000 | | 37,594 | | 2,989 | | 4.94 | | 10/09 |
| Cooley | Farmers
Branch, TX | 27,000
Sq. Ft. | 2,600 | | 1,726 | | 811 | | 5.50 | (1) | 09/06 |
| Warehouses | | | | | | | | | | | |
| Addison
Hangers I & II | Addison,
TX | 52,650
Sq. Ft. | 4,500 | | 2,592 | | 1,635 | | 10.00 | | 09/14 |
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