-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WKkya1arNERapZea5fnJGVlu+wWufe8H7Os2C8LgNynWK/BlE+L5P0gzYnStY/GU KNooqzySWjHG+wZ9DyNcHQ== 0000950134-95-003401.txt : 19951221 0000950134-95-003401.hdr.sgml : 19951221 ACCESSION NUMBER: 0000950134-95-003401 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19941230 FILED AS OF DATE: 19951220 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: INCOME OPPORTUNITY REALTY TRUST CENTRAL INDEX KEY: 0000760730 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 946578120 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-09525 FILM NUMBER: 95603127 BUSINESS ADDRESS: STREET 1: 10670 N CENTRAL EXPRSWY STE 300 CITY: DALLAS STATE: TX ZIP: 75231 BUSINESS PHONE: 2146924700 MAIL ADDRESS: STREET 1: 10670 NORTH CENTRAL EXPRESSWAY STREET 2: SUITE 600 CITY: DALLAS STATE: TX ZIP: 75231 FORMER COMPANY: FORMER CONFORMED NAME: INCOME OPPORTUNITY REALTY INVESTORS INC DATE OF NAME CHANGE: 19911003 FORMER COMPANY: FORMER CONFORMED NAME: CONSOLIDATED CAPITAL INCOME OPPORTUNITY TRUST 2 DATE OF NAME CHANGE: 19900815 10-K/A 1 AMENDMENT NO. 2 TO FORM 10-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K/A-2 [X] ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED DECEMBER 31, 1994 Commission File Number 1-9525 INCOME OPPORTUNITY REALTY TRUST ------------------------------------------------------ (Exact Name of Registrant as Specified in Its Charter) California 94-6578120 - ------------------------------- -------------------- (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 10670 North Central Expressway, Suite 300, Dallas, Texas 75231 - -------------------------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) (214) 692-4700 ---------------------------------------------------- (Registrant's Telephone Number, Including Area Code) Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange on Title of each class which registered - ------------------------------ ---------------------------- Shares of Beneficial Interest, no par value American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act: NONE 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 at least the past 90 days. Yes X No --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 3, 1995, the Registrant had 791,444 shares of beneficial interest outstanding. Of the total shares outstanding 444,718 were held by other than those who may be deemed to be affiliates, for an aggregate value of $8,728,000 based on the last trade as reported on the American Stock Exchange on March 3, 1995. The basis of this calculation does not constitute a determination by the Registrant that all of such persons or entities are affiliates of the Registrant as defined in Rule 405 of the Securities Act of 1933, as amended. Documents Incorporated by Reference: NONE 1 2 ITEM 6. SELECTED FINANCIAL DATA
For the Years Ended December 31, ------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- (dollars in thousands, except per share) EARNINGS DATA Income................... $ 6,852 $ 7,113 $ 6,593 $ 6,750 $ 8,922 Expense.................. 7,139 7,044 7,063 15,803 18,011 ----------- ------------ ------------ ------------- ------------- Income (loss) before (loss) on sale of real estate and extraordinary gain...... (287) 69 (470) (9,053) (9,089) (Loss) on sale of real estate.................. - - (81) - - Extraordinary gain....... - 806 - 4,765 - ----------- ------------ ------------ ------------- ------------- Net income (loss)........ $ (287) $ 875 $ (551) $ (4,288) $ (9,089) =========== ============ ============ ============= ============= PER SHARE DATA Income (loss) before extraordinary gain...... $ (.36) $ .09 $ (.64) $ (9.97) $ (9.79) Extraordinary gain....... - 1.00 - 5.25 - ----------- ------------ ------------ ------------- ------------- Net income (loss)........ $ (.36) $ 1.09 $ (.64) $ (4.72) $ (9.79) =========== ============ ============ ============= ============= Distributions per share.. $ .60 $ .50 $ - $ 1.44 $ .88 Weighted average shares outstanding...... 791,444 804,716 864,321 907,665 928,606
December 31, ------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- (dollars in thousands, except per share) BALANCE SHEET DATA Notes and interest receivable............ $ 1,974 $ 2,983 $ 2,922 $ 2,583 $ 28,850 Foreclosed real estate held for sale......... 15,878 15,121 15,387 16,946 9,428 Real estate held for sale.................. 25,157 25,710 26,259 26,833 24,903 Total assets........... 49,035 50,127 51,275 52,401 75,631 Notes and interest payable............... 20,717 21,354 22,447 22,651 40,798 Redeemable shares of beneficial interest... - - - 6,062 6,062 Shareholders' equity... 25,572 26,334 26,380 20,904 25,574 Book value per share... $ 32.31 $ 33.27 $ 30.52 $ 30.14 $ 34.00
Shares and per share data have been restated to give effect to the one-for-four reverse share split effected September 9, 1991. 16 3 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction Income Opportunity Realty Trust (the "Trust") was formed to invest in mortgage loans on real estate, including first, wraparound and junior mortgage loans, and in equity interests in real estate through acquisitions, leases and partnerships. The Trust was organized on December 14, 1984 and commenced operations on April 10, 1985. Under its Declaration of Trust, the Trust is a self-liquidating trust and is scheduled, unless and until the Trust's shareholders decide on a contrary course of action, to begin liquidation of its assets prior to October 24, 1996. The Trust's Declaration of Trust also requires the distribution to the Trust's shareholders of (i) the net cash proceeds from sale or refinancing of equity investments received by the Trust, and (ii) the net cash proceeds from the satisfaction of mortgage notes receivable received after October 24, 1996. However, the Trust's Board of Trustees has discretionary authority to hold any investment past October 24, 1996, should circumstances so dictate. The Trust's management does not believe that the Trust's status as a liquidating Trust has impaired the carrying value of the Trust's assets because liquidation is expected to be carried out in an orderly fashion. Liquidity and Capital Resources Cash and cash equivalents at December 31, 1994 aggregated $232,000 compared with $582,000 at December 31, 1993. The Trust's principal sources of cash have been and will continue to be property operations, proceeds from property sales, collection of mortgage notes receivable and partnership distributions. The Trust anticipates that it will have sufficient cash in 1995 to meet its various cash requirements including the payment of distributions, debt service obligations and property renovation and/or improvement costs. Unless the Trust's Trustees make the determination to sell properties during the remainder of 1995, or in early 1996, then it is anticipated one or more of the Trust's properties would have to be refinanced in late 1995 or early 1996 for the Trust's continued payment of dividends, property maintenance and required operating cash reserves. In 1994, the Trust received $254,000 in distributions from the Tri-City Limited Partnership ("Tri-City"). The Trust owns a 36.3% general partner interest and Transcontinental Realty Investors, Inc. ("TCI") owns a 63.7% combined general and limited partner interest in Tri-City. In 1994, the Trust also received $154,000 in distributions from and made $145,000 in contributions to Nakash Income Associates ("NIA"). The Trust owns a 40% general partner interest and TCI owns a 60% general partner interest in NIA. The Trust's distribution policy had provided for an annual determination of distributions after the Trust's year end until such time as property operations stabilized at a level producing cash flow from property operations in excess of anticipated needs. In January 1993, the Trust's 17 4 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Liquidity and Capital Resources (Continued) Board of Trustees approved the resumption of quarterly distributions. In 1994 and 1993, the Trust paid distributions to shareholders totaling $475,000 ($.60 per share) and $406,000 ($.50 per share), respectively. The Trust paid no distributions to shareholders in 1992. On a quarterly basis, the Trust's management reviews the carrying values of the Trust's mortgage notes receivable and properties. Generally accepted accounting principles require that the carrying value of an investment cannot exceed the lower of its cost or its estimated net realizable value. In those instances in which estimates of net realizable value of the Trust's properties or notes are less than the carrying value thereof, at the time of evaluation, a provision for loss is recorded by a charge against earnings. Estimated net realizable value of mortgage notes receivable is based on management's review and evaluation of the collateral properties securing such notes. The property review generally includes selective property inspections, a review of the property's current rents compared to market rents, a review of the property's expenses, a review of maintenance requirements, discussions with the manager of the property and a review of properties in the surrounding area. Results of Operations 1994 COMPARED TO 1993. For the year 1994, the Trust had a net loss of $287,000, as compared with net income of $875,000 in 1993. The Trust's 1993 net income included an extraordinary gain of $806,000 on the early payoff of mortgage debt. The primary factors contributing to the Trust's 1994 net loss are discussed in the following paragraphs. Rental income for the year ended December 31, 1994 was $6.6 million, as compared to $6.8 million in 1993. Of this decrease, $137,000 is due to reduced common area maintenance recovery at the Saratoga Office Center due to a decrease in occupancy from an average of 87% in 1993 to an average of 84% in 1994. Property operations expense for the year ended December 31, 1994 was $3.4 million, comparable to the $3.4 million for 1993. Increases of $192,000 attributable to increased personnel, cleaning and replacement expenses at two of the Trust's apartment complexes, were offset by a decrease of $133,000 at the Trust's office buildings due to decreases in real estate taxes, cleaning and leasing expenses. Rental income and property operations are expected to increase in 1995 due to anticipated increases in rental and occupancy rates and from obtaining the Cedars Apartments, the collateral securing a note receivable. The property was recorded as an insubstance foreclosure as of December 31, 1994 with title to the property being received on March 2, 1995. Equity in income of partnerships was $86,000 in 1994, as compared to $203,000 in 1993. The decrease is attributable to an increase in repair expenses representing the deductible portion of a fire loss at one of the Tri-City apartment complexes. Interest income of $294,000 for 1994 approximated the $308,000 in 1993. Interest income in 1995 is expected to decrease due to the insubstance foreclosure as of December 31, 1994, of the Cedars Apartments, the collateral securing one of the Trust's mortgage notes receivable. See NOTE 2. "NOTES AND INTEREST RECEIVABLE." Interest expense of $1.9 million in 1994 approximated the $1.8 million in 1993. 18 5 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued) Results of Operations (Continued) Depreciation expense was $967,000 in 1994 compared to $949,000 in 1993. The increase is attributable to an increase in tenant improvements at one of the Trust's commercial properties. The advisory fee was $367,000 in 1994 as compared to $447,000 in 1993. The decrease is due to the Trust having paid a net income incentive fee in 1993, while no such fee was paid in 1994. General and administrative expenses were $555,000 in 1994 as compared to $700,000 in 1993. The decrease is due to a decrease in legal fees associated with the Olive litigation which was settled in 1994. See NOTE 15. "COMMITMENTS AND CONTINGENCIES." In 1993, the Trust recognized an extraordinary gain of $806,000 on the early payoff of the mortgage secured by the Porticos Apartments. The Trust reported no such gain in 1994. See NOTE 6. "NOTES AND INTEREST PAYABLE." 1993 COMPARED TO 1992. For the year 1993, the Trust had net income of $875,000, as compared with a net loss of $551,000 in 1992. The primary factor contributing to the Trust's 1993 net income was an extraordinary gain of $806,000 recognized on the early payoff of mortgage debt. This and the other factors contributing to the Trust's 1993 net income are discussed in the following paragraphs. Rental income for the year ended December 31, 1993 was $6.8 million, as compared to $6.3 million in 1992. The increase is primarily attributable to an increase of $525,000 due to obtaining the Saratoga Office Center through foreclosure, which was completed in April 1992. Property operations expense for the year ended December 31, 1993 was $3.4 million, as compared to $3.3 million in 1992. The increase is primarily attributable to an increase of $135,000 due to obtaining the Saratoga Office Center through foreclosure, which was completed in April 1992. Equity in income of partnerships was $203,000 for 1993, as compared to $26,000 for 1992. The increase is primarily due to decreased administrative expenses in Tri-City in which the Trust has a 36.3% general partner interest. Interest income of $308,000 for 1993 approximated the $296,000 in 1992. See NOTE 2. "NOTES AND INTEREST RECEIVABLE." Interest expense for 1993 was $1.8 million, which approximated the $1.9 million in 1992. Depreciation expense for 1993 was $949,000 compared with $910,000 in 1992. The increase is attributable to depreciation of improvements made on the Trust's commercial properties. The advisory fee for 1993 was $447,000 as compared to $327,000 in 1992. The increase is due to the Trust's 1993 net income which required the payment of a net income incentive fee to the Trust's advisor. See NOTE 9. "ADVISORY AGREEMENT." 19 6 INCOME OPPORTUNITY REALTY TRUST CONSOLIDATED BALANCE SHEETS
December 31, ----------------------------------- 1994 1993 ------------- ------------ (dollars in thousands) Assets ------ Notes and interest receivable, performing......................................... $ 1,974 $ 1,962 Nonperforming, nonaccruing.......................... - 1,021 -------------- -------------- 1,974 2,983 Foreclosed real estate held for sale, net of accumulated depreciation ($1,128 in 1994 and $738 in 1993)........................................... 15,999 15,242 Real estate held for sale, net of accumulated depreciation ($3,927 in 1994 and $3,350 in 1993)... 25,157 25,710 Less - allowance for estimated losses............... (121) (121) -------------- -------------- 43,009 43,814 Investment in partnerships.......................... 3,980 4,157 Cash and cash equivalents........................... 232 582 Other assets (including $44 in 1994 and $58 in 1993 due from affiliates).......................... 1,814 1,574 -------------- -------------- $ 49,035 $ 50,127 ============== ============== Liabilities and Shareholders' Equity ------------------------------------ Liabilities Notes and interest payable.......................... $ 20,717 $ 21,354 Other liabilities (including $407 in 1994 and $242 in 1993 due to affiliates)......................... 2,746 2,439 -------------- -------------- 23,463 23,793 Commitments and contingencies Shareholders' equity Shares of beneficial interest, no par value; authorized shares, unlimited; issued and outstanding 791,444 shares in 1994 and 1993........ 3,347 3,347 Paid-in capital..................................... 62,093 62,093 Accumulated distributions in excess of accumulated earnings........................................... (39,868) (39,106) -------------- -------------- 25,572 26,334 -------------- -------------- $ 49,035 $ 50,127 ============== ==============
The accompanying notes are an integral part of these Consolidated Financial Statements. 24 7 INCOME OPPORTUNITY REALTY TRUST CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, ---------------------------------------------------------- 1994 1993 1992 ------------- ------------- ------------- (dollars in thousands, except per share) Income Rentals.............................. $ 6,558 $ 6,805 $ 6,297 Interest (including $11 in 1992 from affiliates).................. 294 308 296 --------------- --------------- -------------- 6,852 7,113 6,593 Expenses Property operations (including $146 in 1994, $133 in 1993 and $64 in 1992 to affiliates)............... 3,425 3,382 3,284 Equity in income of partnerships..... (86) (203) (26) Interest............................. 1,911 1,769 1,900 Depreciation......................... 967 949 910 Advisory fee to affiliate............ 367 447 327 General and administrative (including $158 in 1994, $160 in 1993 and $145 in 1992 to affiliate)........................ 555 700 668 --------------- --------------- -------------- 7,139 7,044 7,063 --------------- --------------- -------------- Income (loss) before (loss) on sale of real estate and extraordinary gain... (287) 69 (470) (Loss) on sale of real estate......... - - (81) Extraordinary gain.................... - 806 - --------------- --------------- -------------- Net income (loss)..................... $ (287) $ 875 $ (551) =============== =============== ============== Earnings per share Income (loss) before extraordinary gain................................. $ (.36) $ .09 $ (.64) Extraordinary gain.................... - 1.00 - --------------- --------------- -------------- Net income (loss)..................... $ (.36) $ 1.09 $ (.64) =============== =============== ============== Weighted average shares of beneficial interest used in computing earnings per share......... 791,444 804,716 864,321 =============== =============== ==============
The accompanying notes are an integral part of these Consolidated Financial Statements. 25 8 INCOME OPPORTUNITY REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 5. INVESTMENT IN EQUITY METHOD PARTNERSHIPS (Continued) The Trust uses the equity method to account for its investment in Tri-City, a 36.3% owned limited partnership, and in NIA, a 40% owned partnership. In June 1989, the Trust issued to F. C. MacArthur, Inc. ("MacArthur"), a wholly-owned subsidiary of Collecting Bank, N.A. (a national bank in liquidation), 170,750 of its shares of beneficial interest with a market value at the date of issuance of $6.1 million, in exchange for a 36.3% general partner interest in Tri-City, which owns and operates five properties in Texas. Transcontinental Realty Investors, Inc. ("TCI") with a 23.6% general partner interest is the other general partner in Tri-City. In November 1992, TCI purchased MacArthur's 40.1% limited partner interest in Tri-City increasing its ownership interest to 63.7%. Also in November 1992, TCI acquired all of the shares of beneficial interest of the Trust owned by MacArthur. As of March 3, 1995, TCI owned approximately 22% of the Trust's outstanding shares of beneficial interest. In September 1989, the Trust acquired a 40% interest in the NIA partnership from Nakash Brothers Realty in exchange for 50,000 of its shares of beneficial interest with a market value at the date of issuance of $1.3 million, cash of $800,000 and a contribution of property and notes with a carrying value of $462,000. In addition, 12,500 of the Trust's shares of beneficial interest were issued to consultants for services provided in connection with the acquisition of the partnership interest. In February 1993, the Trust purchased the 62,500 shares of beneficial interest for a total purchase price of $375,000. TCI owns the remaining 60% interest in NIA. Set forth below are summarized financial data for the partnerships the Trust accounts for using the equity method :
1994 1993 ------------- ------------- Notes receivable............................ $ 4,099 $ 4,099 Real estate, net of accumulated depreciation ($2,586 in 1994 and $1,982 in 1993)................................... 10,757 11,132 Other assets................................ 1,016 307 Notes payable............................... (2,634) (2,699) Other liabilities........................... (520) (423) -------------- -------------- Partners' capital........................... $ 12,718 $ 12,416 ============== ==============
1994 1993 1992 -------------- -------------- ------------- Rental income................ $ 2,380 $ 2,409 $ 2,369 Interest income.............. 349 397 988 Interest expense............. (283) (317) (904) Property operations.......... (1,656) (1,528) (1,666) Depreciation expense......... (605) (583) (516) Provision for losses......... - - (263) -------------- -------------- -------------- Net income................... $ 185 $ 378 $ 8 ============== ============== ==============
33 9 INCOME OPPORTUNITY REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 5. INVESTMENT IN EQUITY METHOD PARTNERSHIPS (Continued) The Trust's equity share of the above net income for 1994, 1993 and 1992 was $102,000, $219,000 and $42,000, respectively, before amortization of property acquisition costs discussed below. The Trust's share of the above partnership's capital was $3.6 million in 1994 and $3.8 million in 1993. The excess of the Trust's investment over its respective share of the equity in the underlying net assets of the partnerships relates principally to the remaining unamortized property acquisition costs of $373,000 in 1994 and $389,000 in 1993. These amounts are being amortized over the remaining estimated useful lives of the properties. NOTE 6. NOTES AND INTEREST PAYABLE Notes and interest payable consisted of the following:
1994 1993 -------------------------------- ------------------------------- Estimated Estimated Fair Book Fair Book Value Value Value Value ------------ ----------- ------------- ----------- Notes payable................... $ 19,408 $ 20,580 $ 21,746 $ 21,214 ============= Interest payable................ 137 140 ------------ ------------ $ 20,717 $ 21,354 ============ ============
Scheduled notes payable principal payments are due as follows: 1995.................................... $ 511 1996.................................... 339 1997.................................... 370 1998.................................... 5,865 1999.................................... 316 Thereafter.............................. 13,179 ------- $20,580 =======
Mortgage notes payable at December 31, 1994, bear interest at rates ranging from 7.75% to 10.0% and mature between 1995 and 2025. These notes are collateralized by deeds of trust on real estate with a net carrying value of $25.2 million. In November 1993, the Trust refinanced the Porticos Apartments, an apartment complex in Milwaukee, Wisconsin for $10.0 million. The Trust used cash of $10.1 million with the lender accepting a second lien mortgage of $500,000, to pay the existing mortgage of $11.5 million. In accordance with the terms of the extinguished first mortgage, the Trust received a discount of $806,000 and recognized an extraordinary gain of a like amount. The second lien mortgage bears interest at 8.5% per annum, requires monthly principal payments of $25,000 plus interest and matures August 1, 1995. As a condition of accepting the second lien mortgage, the lender required that the Trust's advisor pledge to it 166,667 shares of American Realty Trust, Inc. ("ART") common stock owned by the advisor as additional collateral for the second lien mortgage. As of March 3, 1995, ART owned approximately 22% of the Trust's outstanding shares of beneficial interest. 34 10 INCOME OPPORTUNITY REALTY TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) NOTE 15. COMMITMENTS AND CONTINGENCIES (Continued) total of $1.2 million to the Trust, CMET, NIRT and TCI, of which the Trust's share is $150,000. The Trust received $12,300 in May 1994. The remaining $137,700 is to be paid in 18 monthly installments which began February 1, 1995. Under the Modification, the Trust, CMET, NIRT, TCI and their shareholders released the defendants from any claims relating to the plaintiffs' allegations. The Trust, CMET, NIRT and TCI also agreed to waive any demand requirement for the plaintiffs to pursue claims on behalf of each of them against certain persons or entities. The Modification also requires that any shares of the Trust held by Messrs. Phillips, Friedman or their affiliates shall be (i) voted in favor of the reelection of all current members of the Trust's Board of Trustees that stand for reelection during the two calendar years following the effective date of the Modification and (ii) voted in favor of all new members of the Trust's Board of Trustees appointed pursuant to the terms of the Modification that stand for reelection during the three calendar years following the effective date of the Modification. Pursuant to the terms of the Modification, any related party transaction which the Trust may enter into prior to April 27, 1999, will require the unanimous approval of the Trust's Board of Trustees. In addition, related party transactions may only be entered into in exceptional circumstances and after a determination by the Trust's Board of Trustees that the transaction is in the best interests of the Trust and that no other opportunity exists that is as good as the opportunity presented by such transaction. For purposes of the Modification requirements, the term "related party transaction" means and includes "(i) any transaction between or among the Trust or CMET, NIRT or TCI or any of their affiliates or subsidiaries; (ii) any transaction between or among the Trust, its affiliates or subsidiaries and the Advisor, Mr. Phillips, Mr. Friedman or any of their affiliates; and (iii) any transaction between or among the Trust or any of its affiliates or subsidiaries and a third party with whom the Advisor, Mr. Phillips, Mr. Friedman or any of their affiliates has an ongoing or contemplated business or financial transaction or relationship of any kind, whether direct or indirect, or has had such a transaction or relationship in the preceding one year." The Modification requirements for related party transactions do not apply to direct contractual agreements for services between the Trust and the Advisor or one of its affiliates (i.e. the Advisory Agreement, Property Management Contracts, etc.). These agreements require the prior approval by two-thirds of the Trustees of the Trust, and if required, approval by a majority of the shareholders. The Modification requirements for related party transactions also do not apply to joint ventures between or among the Trust and CMET, NIRT or TCI or any of their affiliates or subsidiaries and a third party having no prior or intended future business or financial relationship with Mr. Phillips, Mr. Friedman, the Advisor, or any affiliate of such parties. Such joint ventures may be entered into on the affirmative vote of a majority of the Trustees of the Trust. The Modification also terminated a number of the provisions of the settlement, including the requirement that the Trust, CMET, NIRT and TCI maintain a Related Party Transaction Committee and a Litigation Committee of their respective Boards. The court retained jurisdiction to enforce the Modification. Other Litigation. The Trust is also involved in various other lawsuits arising in the ordinary course of business. The Trust's management is of the opinion that the outcome of these lawsuits will have no material impact on the Trust's financial condition, results of operations or liquidity. 40 -----END PRIVACY-ENHANCED MESSAGE-----