-----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, UGCRcOv3ME+WNsXQnPWzmuWQg0dRMn58UCjU7ZXO4mgPw7YQsa5sap37ixcBLwdA 1eCbIQpTwoRZFyDwa94gRQ== 0000950159-96-000051.txt : 19960416 0000950159-96-000051.hdr.sgml : 19960416 ACCESSION NUMBER: 0000950159-96-000051 CONFORMED SUBMISSION TYPE: 10KSB40 PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960412 SROS: BSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANSCO REALTY TRUST CENTRAL INDEX KEY: 0000099235 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 046071814 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB40 SEC ACT: 1934 Act SEC FILE NUMBER: 001-05570 FILM NUMBER: 96546781 BUSINESS ADDRESS: STREET 1: 2701 S BAYSHORE DR STREET 2: PENTHOUSE STE CITY: COCONUT GROVE STATE: FL ZIP: 33133 BUSINESS PHONE: 3058546803 MAIL ADDRESS: STREET 1: 2701 S BAYSHORE DRIVE STREET 2: PENTHOUSE SUITE CITY: COCONUT GROVE STATE: FL ZIP: 33133 FORMER COMPANY: FORMER CONFORMED NAME: MORTON B C REALTY TRUST DATE OF NAME CHANGE: 19711209 10KSB40 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-KSB (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 OR /_/ TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 1-5570 TRANSCO REALTY TRUST (Name of small business issuer in its charter) MASSACHUSETTS 04607-1814 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 2701 S. Bayshore Drive, Coconut Grove, Florida 33133 (Address of principal executive offices) (Zip Code) Issuer's telephone number, including area code: (305) 854-6803 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Share of Beneficial Interest, Boston Stock Exchange No par value Securities registered pursuant to Section 12(g) of the Act: None Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form and no disclosure will 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-KSB or any amendment to this form 10-KSB. [ x ] DOCUMENTS INCORPORATED BY REFERENCE: NONE Total Number of Pages: 53 Exhibit Index: None State the issuer's revenues for the most recent fiscal year: $ 0 The aggregate market value of the shares of beneficial interest held by non-affiliates of the registrant based on the closing price of the shares as traded on the Boston Stock Exchange on April 3, 1995, was $457,728. (Excludes shares of voting stock held by directors, executive officers and beneficial owners of more than 10% of the registrant's voting stock; however, this does not constitute an admission that any such holder is an "affiliate" of the registrant for any purpose). Shares of beneficial interest outstanding as of April 3, 1996: 560,508 PART I Item 1. Business. Transco Realty Trust (the "Trust") is an unincorporated business trust created under the laws of the Commonwealth of Massachusetts pursuant to a Declaration of Trust dated June 5, 1963, as amended. The primary objective of the Trust is to acquire or invest in real estate properties. Such investments are made by the Trust both directly and indirectly through other real estate investment companies, principally HMG/Courtland Properties, Inc. ("HMG") and various partnerships. The Trust may also acquire real estate interests as co-owner with others and invest in mortgages on, and other types of interests in, real property of any type. The Trust competes with a wide variety of investors for suitable real estate investment opportunities, many of which competitors are substantially larger than the Trust. Although the Trust is a minor factor in the real estate investment industry, management believes that its operations have not been materially adversely affected because of its size. In July 1992, the Trust sold 80,000 shares of $1.00 Cumulative Preferred stock (the "Preferred Stock"), representing an 8% annual return, to Courtland Group, Inc., a 21% shareholder of the Trust. Dividends are payable annually in arrears on each July 30th commencing July 30, 1993. The Preferred stock can be redeemed at the option of the Trust at any time, and holders of the Preferred stock have no voting rights. The aggregate amount of consideration received by the Trust for the Preferred stock consisted of cancellation of indebtedness owed by the Trust to Courtland Group, Inc. in the amount of $1,000,000. At the time of the exchange of the indebtedness for the Preferred stock such indebtedness was payable on demand with interest at prime plus 1%. The liquidation value of each share of Preferred stock is $12.50 plus the additional sum representing accrued and accumulated but unpaid dividends, if any. There were no underwriters involved in the sale of the Preferred stock and all of the stock was issued to Courtland Group, Inc. Investment in HMG/Courtland Properties. Inc.(HMG) During 1995, the Trust continued to hold its equity investment in HMG a publicly held real estate investment trust whose shares are listed on the American Stock Exchange. As of April 3, 1996, the Trust held 477,300 shares of common stock (41% of such shares outstanding on such date) of HMG. Mr. Wiener, Executive Trustee and Assistant Secretary of the Trust, is the Chairman of the Board, Chief Executive Officer and a Director of HMG, and the Chairman, a Director and a 36% shareholder of Courtland Group, Inc., the advisor to HMG. Mr. Gray, a Trustee and Secretary-Treasurer of the Trust, is a Director and President of HMG and the President, a Director and 36% shareholder of Courtland Group, Inc. (1) The following table summarizes the HMG's portfolio of real estate investments as of December 31, 1995: Percent of Geographic Distribution Investments (1) Florida 58% Texas 35% Northeastern United States (2) 7% Type of Property (3) Undeveloped land 37% Hotel and club facility 41% Individual retail stores 7% Yacht slips 8% Restaurants 2% Real Estate development in progress 5% ------------------ (1) For each category, the aggregate of cost less accumulated depreciation divided by the aggregate of such investments in all real estate owned directly by the Company or by joint ventures in which the Company has a majority interest. The Company's minority interests in joint ventures are not included in the above. (2) New England, New York and Pennsylvania (3) Based on predominant present or intended use. Summary of HMG's consolidated entities: Courtland Investments, Inc. (CII). HMG owns a 95% equity interest in CII (all non-voting). The other 5% equity interest (which is 100% of the voting interest) is held by Masscap Investment Company, Inc. (MICI), a wholly-owned subsidiary of the Trust. CII owns equity interests in certain corporations and partnerships that are passive (non-operating) in nature. In September 1993, CII acquired controlling interests in certain operating entities. These entities are a partnership owning a 49 room hotel and private club (GIA), a corporation which operates the hotel and club (GICI), a joint venture owning a marina (GIYCA), and a joint venture which operates marina activities (GIYC). The acquired properties are located in Coconut Grove, Florida, and a more detailed description of each follows: Grove Isle Associates, Ltd. (GIA). This limited partnership (owned 60% by CII and 40% by HMG) owns a 49 room 63,530 square foot hotel and private club facility (the "facility") located on 7 acres of a private island in Coconut Grove, Florida, known as "Grove Isle". In addition to the 49 hotel rooms, the facility includes 22,330 square feet of public space (banquet room, dining area, lounge, administrative area, etc.), 12 lighted clay tennis courts, 5,000 square feet (2) of net rentable space, and pool and pool deck of approximately 18,000 square feet. GIA leases the facilities to Grove Isle Club, Inc. on a year to year basis for an annual base rent of $480,000. During 1995 and 1994 renovations were made to modernize the facility's restaurants, hotel rooms and recreational amenities. Costs capitalized relating to these renovations were approximately $974,000 and $ 4 million for the years ended December 31, 1995 and 1994, respectively. In December 1994, the debt which encumbered the facility and the unsold marina slips at Grove Isle was refinanced with a $4.5 million bank loan. This loan bears interest at 2% over the lender's prime rate with principal amortized over 20 years and a balloon payment due at maturity on September 8, 2000. The outstanding loan balance as of December 31, 1995 was $4.4 million. Grove Isle Club, Inc.(GICI). This corporation operates the aforementioned hotel and club. Its primary sources of revenue are from room rentals, food and beverage sales and from members dues. The hotel and most common areas were closed for renovations from June to December 1994. This resulted in a substantial decrease in revenues for 1994. In conjunction with the renovations of the facility, GICI purchased approximately $485,000 and $1.3 million in furniture, fixtures and equipment in 1995 and in 1994, respectively. Grove Isle Yacht Club Associates (GIYCA). This partnership was the original developer of the 85 boat slips located at Grove Isle. As of December 31, 1995 forty-three slips remain unsold and are encumbered by the aforementioned $4.5 million mortgage note payable. GIYCA (through a 100% owned subsidiary), operates and maintains all aspects of the marina at Grove Isle in exchange for an annual maintenance fee from the slip owners to cover operational expenses. In 1986, CII acquired from HMG the rights to develop the marina at Grove Isle for a promissory note of $620,000 payable in 10 years at an annual interest rate equal to the prime rate. The principal was due on January 2, 1996, and the maturity was extended to January 2, 2001. Interest payments are due each January 2. HMG-Fieber Associates (Fieber). HMG-Fieber Associates, a joint venture in which HMG and N.A.F. Associates (a partnership controlled by Mr. Fieber, a director of HMG) hold 65% and 35% interests, respectively, owns 24 retail stores. The stores are leased to Grossman's, Inc., a chain of home improvements stores, under net leases most of which provide for minimum and percentage rental payments. As of December 31, 1995 the percentage of leases expiring in 1996, 1997 and after 1997 was 10%, 35% and 55%, respectively. Approximately half of these leases contain renewal options of at least five years. The stores are located in Connecticut, Maine, Massachusetts, New Hampshire, New York, Pennsylvania, and Vermont. In January 1995, Fieber sold its store located in Buzzards Bay, Massachusetts recognizing a gain to the venture of approximately $68,000. (4) In March 1995, Fieber sold its store located in Norristown, Pennsylvania recognizing a gain to the venture of approximately $620,000. In December 1995, Fieber sold its store located in Hartford, Connecticut recognizing a gain to the venture of approximately $122,000. Four Sugar Grove Associates (FSGA). FSGA was a Texas limited partnership in which HMG was the sole general partner and had a 96.6% interest. FSGA was dissolved in 1995 after the sale of its sole asset, a 128,000 square foot office building and a three-story parking garage with 480 spaces on 3.5 acres in Stafford, Texas. In April, 1995 FSGA sold the office building for approximately $4.5 million recognizing a loss of approximately $18,000 after giving effect to the $1.3 million valuation adjustment reported in 1994. The Grove Towne Center - Texas, Ltd (TGTC). Effective July 1, 1994, HMG and Grovpar, Ltd. (Grovpar) formed TGTC (a Texas limited partnership), for the purposes of development, construction, and leasing of the Grove Towne Center project, (the "Project") a 41-acre site planned for the development of an entertainment/value oriented retail center located in suburban Houston. Under the Limited Partnership Agreement governing TGTC ("Partnership Agreement"), HMG Houston Grove, Inc. (a wholly-owned subsidiary of HMG) is TGTC's sole general partner holding a 1% ownership interest, Grovpar and HMG being the initial limited partners, and holding 10% and 89% ownership interests, respectively. Upon formation of TGTC, HMG contributed approximately 41 acres of undeveloped land with an agreed upon value of $7.6 million less related debt of $3 million. Grovpar contributed expenses incurred for services performed for the Project valued at approximately $523,000. On October 1, 1994 the Partnership Agreement was amended and restated to reflect the admittance of a new partner, Sunbelt Shopping Development, Ltd. ("Sunbelt"). In consideration for a 25% interest in TGTC Sunbelt agreed to contribute $3.5 million. This reduced HMG's interest from 89% to 64%. In October 1994, TGTC received $1.5 million of Sunbelt's initial contribution. In accordance with the Amended and Restated Partnership Agreement, the remainder of Sunbelt's contribution along with additional contributions from HMG and Grovpar of $1.3 million and $404,000, respectively, are required upon reaching certain thresholds stated in the Partnership Agreement. Concurrently with the execution of the Partnership Agreement, and in accordance with a separate agreement between HMG and Grovpar, HMG has agreed to loan Grovpar an amount equal to its initial capital contribution plus all future capital contributions as required under the Partnership Agreement. The loan made to Grovpar is evidenced by a promissory note dated July 1, 1994. The outstanding principal amount of this note, bears a per annum interest rate of 2% over the Prime Interest Rate (as defined) and is secured by Grovpar's partnership interest. Principal and interest are payable solely from distributions to Grovpar by the Partnership of net cash flow and capital proceeds, as defined. Interest income from this note will be recognized when collected. (4) During the fourth quarter of 1995, the partnership decided not to go forward with the project as designed due to various factors including a dispute with a major tenant. Accordingly, the partnership has written-off approximately $4.2 million of pre-development costs. The partnership is presently exploring various options for the land. South Bayshore Associates (SBA). SBA is a joint venture in which the Trust and HMG hold interests of 25% and 75%, respectively. The major asset of SBA is a demand note bearing interest at the prime rate from Transco with an outstanding balance as of December 31, 1995 and 1994 of approximately $420,000 and $424,000, respectively, in principal and accrued interest. HMG holds a demand note from SBA bearing interest at the prime rate plus 1% with an outstanding balance including accrued interest as of December 31, 1995 and 1994 of approximately $848,000 and $807,000, respectively, in principal and accrued interest. T.E.H.H. Corp. This wholly-owned subsidiary of HMG has a 99% limited partnership interest in CourTrust Palm Bay, Ltd. which owns 1.5 acres of undeveloped land in Palm Bay, Florida. This land was sold in the first quarter of 1996 at a loss of $60,000. HMG of Key Largo, Inc. (HMGKL). As of December 31, 1994, this wholly-owned subsidiary of HMG had a 50.5% interest in Key Largo Lodge, Ltd., a limited partnership in which HMGKL was the sole general partner. In February 1994, the partnership sold a 20.5 acre parcel of land to the State of Florida under the Conservation and Recreation Lands Programs for approximately $5.8 million and recognized a gain of approximately $893,000. As previously reported, HMGKL had pending a civil action in the Circuit Court of Dade County, Florida. In July 1995, the parties settled the litigation and on August 2, 1995 an order of dismissal with prejudice was entered by the court. Pursuant to the term of the settlement, the partnership was liquidated in 1995 and upon liquidation, HMG recognized a gain of approximately $620,000. HMG Orange Park North, Inc. This wholly-owned subsidiary of HMG has a 90% partnership interest in Orange Park North Partnership, which owns a 6,000 square foot commercial building located in Jacksonville, Florida. This building was constructed during 1992 and was leased beginning in June 1992 to a tenant which operated a restaurant. In August, 1995, the Partnership sold its property for approximately $1.3 million and recognized a gain of approximately $670,000. HMG Fashion Square, Inc. This wholly-owned subsidiary of HMG has a 90% partnership interest in Fashion Square partnership which owns approximately 11.5 acres of land currently under development in Jacksonville, Florida. In March 1994, the partnership entered into a ground lease with a tenant which is an operator of a restaurant. In September 1994, this tenant completed construction of a 7,000 square foot restaurant on the one acre parcel covered by the ground lease. The partnership agreed to (5) contribute approximately $100,000 in improvements to the leased site. The initial term of the lease is ten years and calls for base rent of $60,000 per year with 10% increases each subsequent year. This property is encumbered by a mortgage loan of $300,000 which bears interest at 9.75% and matures in November 1996. In November, 1994, the partnership entered into a ground lease with a tenant which is an operator of a restaurant. In 1995, this tenant completed construction of a restaurant on the 3/4 acres of land covered by the ground lease. The initial term of the lease is twenty years and calls for base rent of $60,000 per year with 12.5% increase every five years. HMG Sugargrove, Inc. This wholly-owned subsidiary of HMG owns eight acres of land held for development located in Houston, Texas and is encumbered by a non-recourse mortgage loan which matures in 1997 and bears interest at 10.5% payable quarterly with principal payments of $15,867 due each February. The remaining principal balances as of December 31, 1995 and 1994 were $181,000 and $206,000, respectively. In June 1994, this subsidiary of HMG purchased a 16 acre tract of land in Houston, Texas for $3 million which was financed by a bank loan of $1.5 million. This land was part of the 41 acres contributed to The Grove Towne Center - Texas, Ltd. Other Investments of HMG. Other Unconsolidated Investments of CII. T.G.I.F. Texas, Inc. (T.G.I.F.). CII owns 2,798,232 shares of common stock of T.G.I.F. Texas, Inc. a Texas corporation (T.G.I.F.), (representing 49.31% of the equity) at a cost of approximately $1.4 million. Mr. Wiener is a director and stockholder of T.G.I.F. T.G.I.F. is engaged in the business of net leasing properties in the Southern and Southwestern United States In May 1992, CII purchased 345,000 shares of non-voting, redeemable 8% preferred stock of T.G.I.F. for $345,000. This purchase was paid for by the cancellation of $280,000 of notes receivable from T.G.I.F. plus cash of $65,000. As of December 31, 1995 all shares of the preferred stock held by CII have been redeemed. Jack Baker 5th Avenue, Inc. In 1992, CII and certain directors and officers of the Trust and HMG, acquired a 27% interest in Jack Baker 5th Avenue, Inc. and its affiliates. In 1993, that 27% interest was increased to 85% in which CII has a 59% interest and certain directors and officers of HMG have a 41% interest. This company is a manufacturer's representative and CII's investments in and loans to Jack Baker 5th Avenue, Inc. including accrued and unpaid interest were approximately $315,000 and $277,000 as of December 31, 1995 and 1994, respectively. CII also owns certain parcels of undeveloped land in the northeastern United States and has investments primarily in the form of limited partnership interests in companies whose primary purpose is to make equity investments in growth oriented enterprises. Other Transactions and Investments of Transco Courtland Group, Inc. (CGI) serves as investment advisor to HMG and, under the supervision of the HMG Directors, administers the day-to-day operations of HMG. Fees paid to CGI are (6) determined in accordance with an advisory agreement, which provides for payment of regular compensation and incentive compensation. For the year ended December 31, 1995, HMG and its subsidiaries paid CGI the amount of $1,063,181 ($875,004 as regular compensation and $188,177 as incentive compensation). CGI is also the manager for certain of the properties of HMG and is compensated for its services. For its services in 1995 CGI received fees aggregating to $20,000 from properties owned by HMG. Messrs. Wiener and Gray are each 36% shareholders of CGI. HMG does not employ any persons other than its advisors, property managers and certain independent contractors. Officers of HMG are not compensated for their services as such. HMG Investments, Inc. (HMGI) and CourTrust Associates, Ltd. (CTAL) As of December 31, 1995, HMGI's major asset consisted of a note receivable secured solely by certain land located in Beech Mountain, North Carolina. The carrying value of this note receivable as of December 31, 1995, was approximately $105,000, net of deferred gain. This note bears interest at 10% and is non-recourse. Interest is recognized as collected. The note matured on August 9, 1995 and was extended to August 9, 1997. During 1995, the outstanding principal of the note was paid down by approximately $86,000. The Trust's management estimates that the remaining carrying value of this note is equal to its net realizable value. In the mid 1980's HMGI sponsored certain real estate investment programs known as the CourTrust companies ("CourTrust"), and HMGI held a 50% interest as the general partner of CourTrust Associates, Ltd. one of the CourTrust Companies. CTAL continues to own its 1% interest as a general partner in CourtTrust Fourth Street Partners, Ltd. (a syndication of a shopping center in St. Petersburg, Florida) and as a general partner in CourTrust Palm Bay, Ltd. (a limited partnership owning a 1.5 acre parcel of land held for development in Palm Bay, Florida). The investment in CTAL is immaterial to the Trust's consolidated financial statements. Messrs. Wiener, Gray and Rothstein, trustees and/or officers of the Trust, serve as officers and/or directors of HMGI and its subsidiaries. Mr. Wiener serves as a Director and Mr. Rothstein as a Director and Vice President of the CourTrust companies. Employees and Advisors The day-to-day operations of the Trust and its subsidiaries are handled by Messrs. Maurice Wiener and Lee Gray, and by independent contractors. (See Item 10. of this report on Form 10-KSB for a description of executive compensation). Item 2. Description of Property. The Trust's executive offices are located at 2701 South Bayshore Drive, Coconut Grove, Florida, in premises rented by Courtland Group, Inc. and shared with certain affiliates under a lease expiring in 1999. The principal executive offices of HMG and of CGI are located in that same building. (7) Further information relating to the Trust's and HMG's real estate investments is set forth in Item 1. Business, in the Consolidated Financial Statements of the Trust and Schedules thereto, and in HMG's Consolidated Financial Statements and Schedules thereto to which reference is made. Item 3. Legal Proceedings. There is no pending litigation involving the Trust. Reference is made to Item 1 of this report and to Item 3. of HMG's Form 10-KSB for the year ended December 31, 1995 for information concerning completed and pending litigation involving HMG. HMG Litigation Out Island Properties, Inc. ("Out Island") had pending a civil action in the Circuit Court of Dade County, Florida against HMG of Key Largo, Inc., a wholly-owned subsidiary of the Company. Out Island is the sole limited partner of Key Largo Lodge, Ltd., a Florida limited partnership of which HMG of Key Largo, Inc. is the sole general partner. Out Island filed its lawsuit in February, 1994. In July 1995, the parties settled this litigation and on August 2, 1995, an order of dismissal with prejudice was entered by the court. The partnership was liquidated in 1995. See Item 1. Business. Item 4. Submission of Matters to a Vote of Security Holders. No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended December 31, 1995. (8) PART II Item 5. Market for Common Equity and Related Stockholders Matters. The Trust's Shares of Beneficial Interest (the "Shares") are listed on the Boston Stock Exchange, which is the principal market for the Shares. The high and low sales prices for the shares as reported by the Boston Stock Exchange for each quarterly period during the past two years and the dividends paid by the Trust during the past two years with respect to the Shares are set forth below. The Trust did not declare or pay dividends on the shares in either 1995 or 1994. Quarter Ended High Low March 31, 1994 3 2 1/2 June 30, 1994 Not Traded September 30, 1994 3 1/2 2 1/2 December 31, 1994 3 3/4 2 7/8 March 31, 1995 2 7/8 2 7/8 June 30, 1995 2 1/2 2 1/2 September 30, 1995 2 2 December 31, 1995 3 1 1/2 As of April 3, 1996, there were 245 holders of record of the Trust's Shares. Item 6. Management's Discussion and Analysis or Plan of Operation. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto. DISCUSSION OF EARNINGS Overview For the year ended December 31, 1995, the Trust reported a net loss of approximately $1.5 million or $2.90 per share, compared to a net loss of $1.3 million in 1994 or $2.55 per share. The loss in 1995 is principally attributable to the losses of its affiliates, primarily HMG. Equity in losses of affiliates For the year ended December 31, 1995, the Trust recognized approximately $1.6 million as its share of equity in the losses of its unconsolidated affiliates. This is compared to losses of $1.4 million in 1994. The primary reason for the increase in losses in 1995 versus 1994 relate to increased losses of HMG and CII, as discussed below. (9) In 1995, the Trust's share of HMG's losses increased by approximately $204,000 as compared with that in 1994. The increase in HMG's losses, were primarily the result of the abandonment of pre-development costs of a real estate development in Houston, Texas and operating losses of the hotel and club in Miami, Florida. For further information regarding the earnings of HMG refer to HMG's audited financial statements for the two years ended December 31, 1995 which are included as an exhibit to this Form 10-KSB. (Item 13. Exhibits, Financial Statements, Schedules and reports on Form 8-K - "The Consolidated Financial Statements of HMG/Courtland Properties, Inc.".) In 1995, the Trust's share (5%) of CII's losses increased by approximately $12,000 as compared with that in 1994. This decrease was not significant. Gains from partnerships and other investments In 1995, the Trust's gains from partnerships and other investments increased by approximately $16,000 as compared to 1994. This increase was primarily due to a gain from an investment in a partnership which sold its major asset in 1992 and made final distributions to its partners in 1995. Interest, dividend and other income In 1995, interest, dividend and other income remained consistent with that in 1994. Interest expense Interest expense increased by $10,000 in 1995 as compared to 1994 primarily as the result of an increase in amounts due to affiliates. Property and other operating expenses In 1995, property and other operating expenses remained consistant with that in 1994. LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1995, the consolidated financial statements of the Trust reflected cash balances of approximately $24,000. The Trust's ability to maintain liquidity and obtain capital resources largely depends on the results of its affiliate HMG and on HMG's ability to generate sufficient operating income to allow for the payment of dividends. Until such dividends are paid, the Trust's current obligations will be met by financing provided through traditional sources and by affiliates. (10) Item 7. Consolidated Financial Statements Independent Auditors' Report.......................................12 Consolidated balance sheets, December 31, 1995 and 1994............13 Consolidated statements of operations for the years ended December 31, 1995 and 1994.............................14 Consolidated statements of stockholders' equity for the years ended December 31, 1995 and 1994.........................15 Consolidated statements of cash flows for the years ended December 31, 1995, and 1994............................16 Notes to consolidated financial statements......................17-24 (11) INDEPENDENT AUDITORS' REPORT To The Board of Trustees and Shareholders Transco Realty Trust and Subsidiaries We have audited the consolidated balance sheets of Transco Realty Trust and Subsidiaries (The "Trust") as of December 31, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years then ended. The financial statements are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of an affiliate, HMG/Courtland Properties, Inc. which is carried at equity in the Trust's financial statements. The Trust's investments in HMG/Courtland Properties, Inc. at December 31, 1995 and 1994, were $1,699,314 and $3,151,277 respectively, and it's equity in the losses of HMG/Courtland Properties, Inc. for the years ended December 31, 1995, and 1994 were $1,451,963 and $1,248,291, respectively. The financial statements of HMG/Courtland Properties, Inc. were audited by other auditors, whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for HMG/Courtland Properties, Inc. is based solely upon the reports of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Transco Realty Trust and Subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the years then ended, in conformity with generally accepted accounting principles. Puritz and Weintraub Certified Public Accountants Plantation, Florida April 8, 1996 (12) Transco Realty Trust and Subsidiaries (A Massachusetts Business Trust) Consolidated Balance Sheets
December 31, December 31, 1995 1994 Notes ASSETS Cash $23,639 $2,899 Land held for sale 2 17,676 17,676 Investments in and receivables from affiliates 3 1,440,705 3,019,621 Notes, mortgage loans and accrued interest receivable 2 & 4 87,189 177,086 Investments in partnerships, other securities and other 17,567 20,515 Deferred income taxes 8 419,000 201,000 ---------- ---------- TOTAL ASSETS $2,005,776 $3,438,797 ========== ========== LIABILITIES & SHAREHOLDERS' EQUITY Loans and notes payable 5 $65,000 $65,000 Notes and accrued interest payable to affiliates 6 1,091,231 977,910 Dividends payable 7 280,000 200,000 Accounts payable, accrued expenses and other liabilities 25,238 27,792 ---------- ---------- TOTAL LIABILITIES 1,461,469 1,270,702 ---------- ---------- SHAREHOLDERS' EQUITY Shares of beneficial interest, no par value; unlimited number authorized; 581,508 issued 4,147,196 4,147,196 $1.00 cummulative preferred stock, no par value, non-voting - 80,000 shares authorized, issued and outstanding at redemption value of $12.50 per share 7 1,000,000 1,000,000 Accumulated deficit (4,377,889) (2,754,101) Treasury stock (21,000 shares at cost) (225,000) (225,000) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY 544,307 2,168,095 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,005,776 $3,438,797 ========== ==========
See notes to consolidated financial statements (13) Transco Realty Trust and Subsidiaries (A Massachusetts Business Trust) Consolidated Statements of Operations
For the years ended December 31, 1995 1994 INCOME Notes Equity in losses of affiliates 3 ($1,601,156) ($1,372,193) Gains from partnerships and other investments 18,230 2,192 Interest, dividends and other income 19,023 19,682 ----------- ----------- (1,563,903) (1,350,319) ----------- ----------- EXPENSES Interest 37,972 27,463 Property and other operating expenses 51,713 49,157 Fees and salaries to trustees, officers and related parties 108,200 108,200 ----------- ----------- 197,885 184,820 ----------- ----------- LOSS BEFORE INCOME TAX BENEFIT (1,761,788) (1,535,139) Income tax benefit 8 218,000 187,400 ----------- ----------- NET LOSS ($1,543,788) ($1,347,739) =========== =========== Net loss per share of beneficial interest: Net loss ($1,543,788) ($1,347,739) Less: preferred stock dividends (80,000) (80,000) ----------- ----------- Net loss of beneficial interest ($1,623,788) ($1,427,739) =========== =========== Weighted average number of common shares of Beneficial Interest outstanding during the year 560,508 560,508 =========== =========== Net loss per share of Beneficial Interest ($2.90) ($2.55) =========== ===========
See notes to consolidated financial statements (14) Transco Realty Trust and Subsidiaries (A Massachusetts Business Trust) Consolidated Statements of Shareholders' Equity
For the years ended December 31, 1995 1994 Shares of beneficial interest - no par value $4,147,196 $4,147,196 =========== =========== Shares of preferred stock - no par value: 80,000 shares of $1.00 cumulative preferred stock at redemption value of $12.50 $1,000,000 $1,000,000 =========== =========== Treasury stock ($225,000) ($225,000) =========== =========== Accumulated deficit: Balance at the beginning of the year ($2,754,101) ($1,326,362) Net loss for the year (1,543,788) (1,347,739) Preferred stock dividends (80,000) (80,000) =========== =========== Balance at the end of the year ($4,377,889) ($2,754,101) =========== =========== Total shareholders' equity $544,307 $2,168,095 =========== ===========
See notes to consolidated financial statements (15) Transco Realty Trust and Subsidiaries (A Massachusetts Business Trust) Consolidated Statements of Cash Flows
For the years ended December 31, 1995 1994 Cash Flows from Operating Activities: Net loss ($1,543,788) ($1,347,739) ----------- ----------- Adjustments to reconcile net loss to net cash used in operating activities: Equity in losses of affiliates and partnerships 1,582,926 1,370,001 Changes in assets and liabilities: Increase in other assets (11,943) (19,228) Increase in deferred income taxes (218,000) (187,400) (Decrease) increase in accrued expenses and other liabilities (2,554) 17,118 Increase in accrued interest payable 211 6,477 ----------- ----------- Total adjustments 1,350,640 1,186,968 ----------- ----------- Net cash used in operating activities (193,148) (160,771) ----------- ----------- Cash Flows from Investing Activities: Payments received on notes and mortgages receivable 89,897 34,569 Distributions from partnerships and affiliates, net of investments 17,821 6,388 Advances from (to) affiliates 106,170 (5,762) ----------- ----------- Net cash provided by investing activities 213,888 35,195 ----------- ----------- Cash Flows from Financing Activities: Repayment note payable (65,000) Additions to margin payable 65,000 ----------- ----------- Net cash provided by financing activities ----------- ----------- Net increase (decrease) in cash 20,740 (125,576) Cash at the beginning of the year 2,899 128,475 ----------- ----------- Cash at the end of the year $23,639 $2,899 ======= ======= Supplemental Disclosure of Cash Flow Information: Cash paid during the year for interest $38,000 $18,000 ======= =======
See notes to consolidated financial statements (16) TRANSCO REALTY TRUST AND SUBSIDIARIES (A MASSACHUSETTS BUSINESS TRUST) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Organization The Trust was organized under the laws of the Commonwealth of Massachusetts as a business trust pursuant to a Declaration of Trust dated June 5, 1963, as amended. (b) Consolidation The consolidated financial statements include the accounts of the Trust and its wholly-owned subsidiaries. In addition, the Trust consolidates those subsidiaries, in which it has effective control. The corporate structure of the Trust for the years ended December 31, 1995 and 1994 are as follows: Percentage of Ownership HMG Investment Inc. (HMGI) 100% MassCap Investment Co. (MICI) 100% HMGI is consolidated with its wholly-owned subsidiaries for each of the years listed above: - Beech Mountain Development Corp. - Beech Mountain Properties, Inc. - Beech Mountain Construction, Inc. - HMG Capital Corp. HMGI also owns a 49% equity interest in CourTrust Associates, Ltd. which is reported on the equity method. MICI owns 5% of the outstanding common stock of Courtland Investments, Inc. (CII) for the years listed above. The 5% equity interest represents 100% of CII's voting securities. The other 95% equity interest (which is all non-voting) is owned by the Trust's 41%-owned affiliate HMG/Courtland Properties, Inc. (HMG). CII's business over the years has been solely in passive investments, including its 40% limited partnership interests in Grove Isle Yacht Club (GIYC) and Grove Isle Yacht Club Associates (GIYA). In September 1993, CII acquired the other 60% partnership interest of GIYC and GIYCA and 100% of Grove Isle Club, Inc. (GICI) and 60% of Grove Isle Associates, Ltd. (GIA). (17) TRANSCO REALTY TRUST AND SUBSIDIARIES (A MASSACHUSETTS BUSINESS TRUST) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1994 Effective September 30, 1993 MICI changed its reporting of CII from consolidating (with a 95% minority interest) to the equity method of accounting. Investments at Equity The Trust recognizes its interest in the profits and losses of certain 50% or less owned investments (where it is deemed that the Trust has the ability to exercise significant influence over operating and financial policies) under the equity method of accounting. As such, the Trust's investment reflect its original investment and advances, adjusted for its equity participation in earnings or losses of these investments and reduced by any distributions. The following schedule reflects the percentage of ownership for those equity investments for the years ended December 31,1995 and 1994: HMG/Courtland Properties, Inc.(HMG) 41% Courtland Investments, Inc (CII) 5% South Bayshore Associates (SBA) 25% Courtrust Associates, Ltd. (CTAL) 49% (c) Operations The Trust engages primarily in the acquisition of, or investments in, real property and the acquisition of shares of real estate investment companies. Such investments are made both directly by the Trust and indirectly through its affiliate, HMG. The Trust has no other material lines of operations. (d) Earnings per Share of Beneficial Interest Earnings per share are computed based upon net income less preferred stock dividends divided by the weighted average number of common shares outstanding during the period. As of December 31, 1995 and 1994 the weighted average shares outstanding was 560,508. For the years ended December 31, 1995 and 1994, Preferred stock dividends were $80,000 and $80,000, respectively. (e) Reclassification Certain amounts on prior year's financial's have been reclassified to conform to the current year's presentation. (18) TRANSCO REALTY TRUST AND SUBSIDIARIES (A MASSACHUSETTS BUSINESS TRUST) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1994 (f) Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principle requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. (g) Future Accounting Changes The Company is required to adopt the provision of FASB No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of," in 1996. Management does not expect that the adoption of FASB No. 121 will have a material effect on the carrying value of the Company's long-lived assets. The Company does not presently intend in 1996 to adopt the fair value based method as encouraged by FASB No.123 "Accounting for Stock-Based Compensation". Accordingly, there will be no effect to the financial statements. 2. LAND HELD FOR RESALE The Trust continues to own approximately 30 lots in Beech Mountain, North Carolina. The carrying value of this land is equal its net realizable value as of December 31, 1995. (Also See Note 4 for discussions of note receivable collateralized by land in Beech Mountain, North Carolina. (19) TRANSCO REALTY TRUST AND SUBSIDIARIES (A MASSACHUSETTS BUSINESS TRUST) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1994 3. INVESTMENT IN AND RECEIVABLES FROM AFFILIATES - AT EQUITY
Carrying Value as of December 31, 1995 1994 HMG (a) $1,699,314 $3,151,277 CII (b) (175,486) (57,332) SBA (c) (83,123) (74,324) CTAL (d) - 0 - - 0 - ------------------- ----------------- $1,440,705 $3,019,621 =================== =================
Equity in Earnings (Losses) of Affiliates 1995 1994 HMG (a) ($1,451,963) ($1,248,291) CII (b) (137,394) (124,905) SBA (c) (8,799) (6,601) CTAL (d) (3,000) 7,604 ------------------- ----------------- ($1,601,156) ($1,372,193) =================== =================
(a) At December 31, 1995 the Trust held an approximate 41% interest in a publicly-held real estate investment trust (HMG/Courtland Properties, Inc., "HMG"). The Trust's investment in this entity was acquired in stages commencing with initial purchases in July, 1974. The Trust accounts for this investment on the equity method of accounting. At December 31, 1995 the Trust's share of HMG's net book value was approximately $6,418,000 and the carrying value of the investment at equity was approximately $1,699,000. (20) TRANSCO REALTY TRUST AND SUBSIDIARIES (A MASSACHUSETTS BUSINESS TRUST) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1994 Summarized financial information of HMG is presented below:
Years Ended December 31, 1995 1994 Total assets $28,882,000 $41,684,000 ----------- ----------- Total liabilities $12,580,000 $17,629,000 ----------- ----------- Minority interest $613,000 $4,817,000 ----------- ----------- Stockholders' equity $15,688,000 $19,238,000 ----------- ----------- Revenues $7,434,000 $6,513,000 ----------- ----------- Gain on sales of real estate, net $2,256,000 $1,678,000 ----------- ----------- Net loss ($3,549,000) ($3,051,000) ----------- ----------- Net loss per share ($3.04) ($2.62) ----------- -----------
The market value of the Trust's investment in HMG was approximately $3,818,000 at December 31, 1995. (b) Summarized financial information of Courtland Investments, Inc. is as follows:
Years Ended December 31, 1995 1994 Total assets $15,554,000 $14,954,000 ----------- ----------- Total liabilities & minority interest $16,038,000 $12,690,000 ----------- ----------- Total stockholders' (deficit) equity ($484,000) $2,264,000 ----------- ----------- Gross revenues $5,242,000 $3,515,000 ----------- ----------- Net loss ($2,748,000) ($2,498,000) =========== ===========
(21) TRANSCO REALTY TRUST AND SUBSIDIARIES (A MASSACHUSETTS BUSINESS TRUST) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1994 (c) The Trust and HMG are participating in this venture (South Bayshore Associates, "SBA",) on a 25%/75% basis, respectively. SBA's major asset consists of a receivable from the Trust of approximately $420,000 and $424,000 (including accrued interest) as of December 31, 1995 and 1994, respectively. (d) CTAL is a 49% owned partnership of one of the Trust's subsidiaries (HMG Investment Corp.). The purpose of this partnership was the sponsoring of real estate investment programs of which CTAL is a general partner. CTAL's balance sheet and results of operations are immaterial to the consolidated financial statements of the Trust. 4. NOTES, MORTGAGE LOANS AND ACCRUED INTEREST RECEIVABLE. The following is a schedule of notes receivable as of December 31, 1995 1994 From sale of land in North Carolina described below (net of deferred gain of $167,920) $87,189 $173,232 Mortgage auction notes receivable - 0 - 3,854 -------- -------- $87,189 $177,086 ======= ======== On August 9, 1990 HMGI sold certain land located in Beech Mountain, North Carolina for a promissory note in the amount of $550,000. This sale resulted in a deferred gain of $167,920 which is netted against the promissory note. The promissory note is non-recourse, and bears interest at 10% per annum. Interest is recognized as collected. On August 9, 1995 this note matured and the maturity date was extended to August 9, 1997. As of December 31, 1995 repayments of the promissory note amounted to $294,891. As of December 31, 1995 and 1994, no reserve has been established for the balance of the promissory note since the market value of the land held in collateral is in excess of its carrying value. 5. LOANS AND NOTES PAYABLE The outstanding debt at December 31, 1995 and 1994 consisted of a demand loan of $65,000. This note bears interest at the prime rate plus 1% and is secured by 24,350 shares of the Trust's affiliate, (HMG). The weighted average interest rates on outstanding bank debt in 1995 and 1994 were 8.5% and 8%, respectively. (22) TRANSCO REALTY TRUST AND SUBSIDIARIES (A MASSACHUSETTS BUSINESS TRUST) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1994 6. NOTES PAYABLE - AFFILIATES HMG Investments, Inc., a wholly-owned subsidiary of the Trust (HMGI), borrowed $233,500 and $320,769 from HMG/Courtland Properties, Inc. These notes are both demand notes with interest rates at Citibank's prime rate plus 2% and 8%, respectively. Interest is being recognized when paid. This is in accordance with the terms agreed to by HMG and HMGI. The note payable to South Bayshore Associates (SBA is a 25% owned affiliate) in the amount of $300,000 represents an unsecured demand note with interest payable quarterly at the Bank of Boston's prime rate. Accrued and unpaid interest as of December 31, 1995 and 1994 was approximately $120,000 and $124,000, respectively. As at December 31,1995, all notes payable are current. A summary of the Trust's obligations to affiliates follows:
As of December 31, 1995 Accrued Note Payable Interest Total Payable Year- Due to: Outstanding Payable to Affiliates End Rate HMG $233,500 - 0 - $233,500 12% HMG 320,769 - 0 - 320,769 8% SBA 300,000 123,852 423,852 8% Courtland Group (21% Shareholder) 113,110 - 0 - 113,110 7.25% -------- -------- ---------- $967,379 $123,852 $1,091,231 ======== ======== ==========
As of December 31, 1994 Accrued Note Payable Interest Total Payable Year- Due to: Outstanding Payable to Affiliates End Rate HMG $233,500 - 0 - $233,500 12% HMG 320,769 - 0 - 320,769 8% SBA 300,000 123,641 423,641 8% -------- -------- -------- $854,269 $123,641 $977,910 ======== ======== ========
(23) TRANSCO REALTY TRUST AND SUBSIDIARIES (A MASSACHUSETTS BUSINESS TRUST) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 AND 1994 7. CONVERSION OF DEBT TO PREFERRED STOCK In July 1992, the Trust converted $1,000,000 in debt due to Courtland Group, Inc. (a 21% shareholder which is controlled by two of the Trust's trustees) into 80,000 shares of newly-issued preferred stock. The preferred stock (redeemable by the Trust at any time) is designated at $1.00 cumulative preferred stock issued at a redemption of $12.50 per share, and is non-voting. As at December 31, 1995 and 1994, dividends payable amounted to $280,000 and $200,000, respectively. 8. INCOME TAXES The Trust benefit's from income tax for the year ended December 31, 1995 is approximately $218,000. This is primarily attributable to the tax effect of net losses of affiliates not deductible for tax purposes. The deferred tax asset of approximately $419,000 as of December 31, 1995 consists of the cumulative tax effect of the non-deductible losses of affiliates, primarily those of HMG. As of December 31, 1995 the Trust has approximately $400,000 in tax net operating loss carryforwards (NOL's) which can be utilized to offset future taxable income. These NOL's expire in 2005, 2006 and 2007. In the event the Trust utilizes its NOL's to offset future taxable income it expects to do so at the corporate minimum rate enacted at the time the NOL is utilized. However, since the utilization of the NOL's prior to their expiration is not predictable a valuation allowance has been established to provide for the expiration of NOL's prior to their utilization. 9. RELATED PARTY TRANSACTIONS (a) Two of the Trustees of the Trust are officers of, and have substantial stock holdings in Courtland Group, Inc., the investment advisor to the Trust's affiliate HMG/Courtland Properties, Inc. and a 21% shareholder. (b) One of the Trustees of the Trust owns, directly and indirectly, approximately 18% of the outstanding shares of T.G.I.F. Texas, Inc., a company in which CII owns a 49.31% investment. (24) Item 8. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. There has not been any disagreement with the Trust's accountants within the 24 months prior to the date of the most recent financial statements concerning any matter of accounting principles or practice or financial statement disclosure. PART III Item 9. Trustees, Executive Officers and Control Persons Listed below is certain information relating to the Trustees and Executive Officers of the Trust. Name and Age Business Experience Maurice Wiener, (54) Executive Trustee and Assistant Secretary of the Trust; Chairman of the Board and Chief Executive Officer and Director of HMG/Courtland Properties, Inc., the Trust's subsidiary which is a public real estate investment trust, and Director and Chairman of the Board of its advisor, Courtland Group, Inc.; Director of T.G.I.F. Texas, Inc.; Trustee, PRA Real Estate Securities Fund. Lee Gray, (66) Trustee and Secretary-Treasurer of the Trust; Director and President of HMG/Courtland Properties, Inc; President and Director of Courtland Group, Inc.; President and Director of Chartcraft, Inc. an investment publications service. Director LCS Industries, Inc. Lawrence I. Rothstein (43) Vice President of the Trust; Senior Vice President and Secretary of HMG/Courtland Properties, Inc.; Senior Vice President and Secretary of Courtland Group, Inc. Franklin Knobel, (69) Trustee of the Trust; real estate developer Harvey Comita, (66) Trustee of the Trust; President and Director of Pan-Optics, Inc. (1971-1991); Director of MEDIQ, Incorporated (1981-1991); Director of HMG/Courtland Properties, Inc. C-T Advisors, Inc. Corporate Trustee of the Trust. (25) Mr. Wiener, the Executive Trustee and the Assistant Secretary of the Trust, Mr. Rothstein, Vice President of the Trust, and Mr. Gray, the Secretary-Treasurer of the Trust, are the Trust' s only executive officers. Mr. Wiener has served as Executive Trustee since 1972, Mr. Rothstein has served as Vice President since April 1984, and Mr. Gray has served as Secretary-Treasurer since 1975. All executive officers were elected to serve until the next annual meeting of shareholders and until their successors are elected or appointed and qualified. No family relationships exist between any of the Trustees nor are there any arrangements or understandings between or among any of such persons and any other person(s) pursuant to which any Trustee was selected. For a description of the relationship between C-T Advisors, Inc. and Messrs. Wiener and Gray, see Item 11. Security Ownership of Certain Beneficial Owners and Management. Item 10. Executive Compensation. Set forth below is certain information regarding cash compensation paid to each of the Trust's executive officers whose cash compensation exceeds $60,000 and to all executive officers as a group for services rendered in all capacities to the Trust and its subsidiaries during 1995. CASH COMPENSATION TABLE Name of Individual Capacities in Cash or number in group which served (1) Compensation ll executive officers Trustee and/or Director $151,300 and/or officer of the Trust and/or its subsidiaries (1) For purposes of the foregoing computation, all cash compensation paid to Messrs. Wiener, Gray and Rothstein by the Trust, HMG, HMG Investment Corp. and its subsidiaries, MassCap Investment Company, Inc., Courtland Investments, Inc., and T.G.I.F. Texas, Inc. has been considered. Messrs. Wiener, Gray and Rothstein also receive compensation from the company which renders services to the Trust and its subsidiaries and affiliates, Courtland Group, Inc. (the advisor to HMG). Compensation from Courtland Group, Inc. has been excluded from the foregoing computation. See the discussion hereafter under Item 13. Certain Relationships and Related Transactions and references therein for a further description. 1. Pension Plan The Trust participates in a pension plan and profit sharing plan, in which other companies affiliated with the Trust also participate. Each plan covers all salaried employees who have been employed at least one year within the affiliated group. The pension plan is a defined contribution plan with contributions made equal to 12% of a covered employee's salary. Employees are vested in benefits over a period of years, with 100% vesting occurring after 6 years of service within the affiliated group. Employees may receive vested benefits upon retirement at age 65 or upon termination of employment. For the year 1995 an aggregate of $3,600 was accrued pursuant to the pension plan by the Trust for the (26) benefit of the Trust's executive officers, the distribution or unconditional vesting of which is not subject to future events. Contributions to the profit sharing plan are determined annually by the participating company 's board of directors or trustees, with contributions ranging from zero to a maximum of 13% of employees' salaries. The same percentage of salary is contributed for all employees within a company. Employees are immediately vested with respect to profit sharing contributions made on their behalf and may receive such benefits upon retirement or termination of employment. The other subsidiaries of the Trust do not maintain pension, profit sharing or similar plans. 2. HMG's Stock Option Plan In July 1991, the shareholders of HMG approved the 1990 Stock Option Plan (the "Plan"). The Plan, which is non-qualified and expires in 2001, is intended to provide incentives to the directors and employees ("the employees") of the Company as well as to enable the Company to obtain and retain the services of such employees. The Plan is administered by a Stock Option Committee (the "Committee") appointed by the Board of Directors of HMG. The Committee selects those key officers and employees of the Company to whom options for shares of common stock of the Company shall be granted. The Committee determines the purchase price of shares deliverable upon exercise of an option; such price may not, however, be less than 100% of the fair market value of a share on the date the option is granted. Payment of the purchase price may be made in cash, Company stock, or by delivery of a promissory note, except that the par value of the stock must be paid in cash or Company stock. Shares purchased by delivery of a note must be pledged to the Company. Shares subject to an option may be purchased by the optionee within ten years from the date of the grant of the option. However, options automatically terminate if the optionee's employment with the Company terminates other than by reason of death, disability or retirement. Further, if, within one year following exercise of any option, an optionee terminates his employment other than by reason of death, disability or retirement, the shares acquired upon exercise of such option must be sold to the Company at a price equal to the lesser of the purchase price of the shares or their fair market value. As of December 31, 1995, 105,000 options have been granted of which none have been exercised and 15,000 options are reserved for issuance under the Plan of which none have been granted. Compensation of Trustees. The two members of the Board of Trustees who are neither executive officers nor affiliated with Messrs. Wiener or Gray each receive an annual fee of $2,000 plus reimbursement of direct expenses in attending Board meetings. The Trust does not have any committees of Trustees. (27) Item 11. Security Ownership of Certain Beneficial Owners and Management. To the knowledge of the Trust, as of April 3, 1996 the only persons who were beneficial owners of more than five percent of the Shares of Beneficial Interest, the Trust's only issued and outstanding voting security, were as follows:
Shares Owned by Additional Shares in Which Named Persons & the named Person Has, or Total Shares Members of His Participates in, the Voting or & Percent of Name Family(1) Investment Power(2) Class Lee Gray 132,867 115,191 248,058 44% 2701 Bayshore Drive Coconut Grove, FL 33133 Maurice Wiener 129,559 115,191 244,750 44% 2701 Bayshore Drive Coconut Grove, FL 33133 Courtland Group, Inc.(2) 115,191 -- 115,191 21% 2701 Bayshore Drive Coconut Grove, FL 33133 (1) Shares as to which the named person has sole investment power and sole voting power. (2) Includes for each of Mr. Gray and Mr. Wiener their indirect ownership of 115,191 shares owned by Courtland Group, Inc. Mr. Gray is an officer, director and 36% shareholder of Courtland Group, Inc. and Mr. Wiener is an officer, director and 36% shareholder of Courtland Group, Inc. Messrs. Gray and Wiener, by virtue of their share ownership, are considered control persons of the Trust.
In addition, South Bayshore Management, Inc. owns a 35.9% (formerly 15.9%) limited partnership interest in CourTrust Associates, Ltd. , which is considered a subsidiary of the Trust. South Bayshore Management, Inc. is a company of which Messrs. Wiener and Gray are each 36% shareholders. The Trust, through HMG Capital Corp., is a general partner in CourTrust Associates, Ltd. with a 49% interest in profits and losses. To the knowledge of the Trust, there are no arrangements the operation of which may, at a subsequent date, result in a change in control of the Trust. Set forth below is certain information as of April 3, 1995 relating to equity securities of the Trust, HMG and T.G.I.F. which are beneficially owned by Trustees of the Trust and by Trustees and officers as a group. (28) Shares of Beneficial Interest of the Trust
Additional Shares in Shares Owned Directly Which the Trustee by Trustee or Has, or Participates Members of His in, the Voting or Total Shares & Name Family (1) Investment Power(2) Percent of Class Maurice Wiener 132,867 115,191 244,058 44% Lee Gray 129,559 115,191 244,750 44% Harvey Comita 31,000 None 31,000 5% Franklin Knobel None None C-T Advisors, Inc.(2) None (2) None (2) All Trustees and 264,133 115,191 371,281 68% Officers as a group (8 persons) (1) See Notes 1 and 2 above for an explanation as to the shares included in each of these categories. (2) Messrs. Wiener and Gray each own 36% of C-T Advisors, Inc.
Shares of Common Stock of HMG/Courtland Properties, Inc.
Additional Shares in Shares Owned Which the Trustee Directly by Trustee Has, or Participates or Members of His in, the Voting or Total Shares & Shares Name of Trustee Family(1) Investment Power(2) Percent of Class Maurice Wiener 30,100 (3) 531,830 (2) 244,930 44% (3) Lee Gray 53,000 (3) 531,830 (2) 584,830 46% (3) Harvey Comita 5,000 5,000 5,000 (3)* Franklin Knobel None None C-T Advisors, Inc.(2) None None All Trustees and Officers 103,100 (3) 531,830 (2) 634,930 50% (3) as a group (8 persons) * Less than 1%.
(29) (1) Shares as to which the named person has sole voting power and sole investment power. (2) Includes the shares of HMG owned by the Trust (477,300 shares) and by Courtland Group, Inc. (54,530 shares). See Note (2) above for a description of the relationship between Courtland Group, Inc. and Messrs. Wiener and Gray. 24,350 of the shares owned by the Trust have been pledged to a bank pursuant to a loan agreement. (3) This number includes options granted under the HMG 1990 Stock Option Plan, none of which have been exercised. These options have been granted to Mr. Wiener, 30,000; Mr. Gray, 25,000; Mr. Comita, 5,000; and 15,000 to an officer of the Trust who is not a Trustee. Item 12. Certain Relationships and Related Transactions. The day-to-day operations of the Trust are handled by its officers, trustees and independent contractors. The day-to-day operations of HMG are handled by Courtland Group, Inc. (its advisor), pursuant to an advisory agreement, and other independent contractors. Reference is made to Item 1. Business "Employees and Advisors", and Item 11. Security Ownership of Certain Beneficial Owners and Management for a complete discussion of such arrangements and the affiliations of Trustees, officers and principal shareholders of the Trust with such advisors and contractors. A wholly-owned subsidiary of the Trust (HMG Investments, Inc.) has two outstanding loans payable to HMG in the total amount of $554,270 due on demand and in 1996, and bearing interest at Prime plus 2%. Interest expense on these loans is being recorded as payments are made. No interest payments were made in 1995 and 1994. CII owns 2,798,232 shares of common stock of T.G.I.F. Texas, Inc. a Texas corporation (T.G.I.F.), (representing 49.31% of the equity) at a cost of approximately $1.4 million. Mr. Wiener is a director and stockholder of T.G.I.F. T.G.I.F. is engaged in the business of net leasing properties in the Southern and Southwestern United States In May 1992, CII purchased 345,000 shares of non-voting, redeemable 8% preferred stock of T.G.I.F. for $345,000. This purchase was paid for by the cancellation of $280,000 of notes receivable from T.G.I.F. plus cash of $65,000. As of December 31, 1995 all shares of the preferred stock held by CII have been redeemed. As of December 31, 1995 and 1996, CII has amounts due to T.G.I.F. of approximately $611,000 and $225,000, respectively. These notes are due on demand and bear interest at prime plus 1%. Messrs. Wiener and Gray are officers and/or directors of certain other companies in which the Trust has invested or which have certain affiliations with the Trust and its subsidiaries. Preference is made to Item 1. Business for a complete description of such companies, affiliations, investments and transactions. (30) PART IV Item 13. Exhibits. Financial Statement Schedules and Reports on Form 8-K (a) Financial Statements of the Trust See item 7. Index to Consolidated Financial Statements and Supplemental Data (b) The Consolidated Financial Statements of HMG/Courtland Properties, Inc. Independent Auditors' Reports. Consolidated Balance Sheets, December 31, 1995 and 1994. Consolidated Statements of Operations for each of the two years in the period ending December 31 1995. Consolidated Statements of Stockholders' Equity for each of the two years in the period ended December 31, 1995. Consolidated Statements of Cash Flows for each of the two years in the period ended December 31, 1995. Notes to Consolidated Financial Statements. (31) 3. Exhibits Exhibit Number (3) (a) Fourth Amended and Restated Declaration of Trust incorporated by reference to Exhibit 3 (a) of the Trust's 1985 10-K. (b) Trustee's Regulations incorporated by reference to Exhibit 3(b) of the Trust's 1985 10-K. (4) (a) Relating to the Trust: (I) Certificate of Amendment to Certificate of Incorporation's of Courtland Investments, Inc. (CII) and the Written Consent of Board of Directors and Shareholders in regard to the issuance of equity in exchange for $3,779,534 in debt owed by CII to HMG. Incorporated by reference to Exhibit 4(a)(V11) of the Trust's 1989 10-K. (ii) Certificate of Resolution dated July 17, 1992 whereby the Trust authorized the issuance of 80,000 share of no-par value preferred stock. Incorporated by reference to Exhibit 4(a)ii of the Trust's 1992 10-KSB. (iii) Statement of Resolution Establishing Series of Preferred Stock of T.G.I.F. Texas, Inc. dated March 27, 1992. Incorporated by reference to Exhibit 4(a)iii of the Trust's 1992 10-KSB. (b) Relating to HMG/Courtland Properties , Inc. (I) Amended and Restated Advisory Agreement between HMG and Courtland Group, Inc., dated July 17, 1992, effective January 1, 1993. Incorporated by reference to Exhibit 4(b)I of the Trust's 1992 10-KSB. (c) Copies of instruments defining the rights of holders of other long term debt of the Trust and its consolidated subsidiaries and HMG will be furnished to the Commission upon request. (32) (10) Material contracts (a) Joint Venture Agreement with Hospital Mortgage Group, Inc. as amended. Incorporated by reference to Exhibit 10 (a) of the Trust's 1985 10-K. (b) Assumption Agreement relating to the liquidation of Grossman Industrial Properties, Inc. Incorporated by reference to Exhibit 10 (b) of the Trust's 1985 10-K. (c) Indemnification Agreement with HMG Property Investors, Inc. dated June 17, 1985. Incorporated by reference to Exhibit 10 (t) of the Trust's 1985 10-K. (d) Warrants and debentures issued by HMG Investment Corp. to HMG Property Investors, Inc. Incorporated by reference to Exhibit 10 (w) of the Trust's 1986 10-K. (e) Purchase agreement and promissory note dated June 30, 1986, regarding sale of the Trust's interest in retail stores owned by South Bayshore Associates. Incorporated by reference to Exhibit 10 (x) of the Trust's 1986 10-K. (f) Agreement of purchase and sale, dated January 1, 1986, between Courtland Investments, Inc. (formerly MICI Properties, Inc.) and HMG/Courtland Properties, Inc.) of marina rights. Incorporated by reference to Exhibit 10 (y) of the Trust's 1986 10-K. (g) Agreement for purchase and sale, dated September 17, 1987, and promissory note, dated September 21, 1987, regarding acquisition of property in Palm bay, Florida. Each incorporated by reference to Exhibit 10 (w) of the Trust's 1987 10-K. (h) Settlement Agreement between TGI Friday's, Inc. and T.G.I.F. Texas, Inc. regarding settlement of litigation dated June 19, 1987. Incorporated by reference to Exhibit 10 (z) of the Trust's 1988 10-K. (I) Amendment to Settlement Agreement between TGI Friday's, Inc. and T.G.I.F. Texas, Inc. regarding settlement of litigation dated June 30, 1987. Incorporated by reference to Exhibit (10)(aa) of the Trust's 1988 10-K. (j) $1,724,000 Promissory Note of T.G.I.F. Texas, Inc. to Texas American Bank/Fort Worth, N.A. dated June 30, 1987. Incorporated by reference to Exhibit (10)(bb) of the Trust's 1988 10-K. (33) (k) Agreement between NAF Associates and HMG/Courtland Properties, Inc. dated June 30, 1986. Incorporated by reference to Exhibit 10 (f) of HMG/Courtland Properties, Inc. annual report on Form 10-K for the year ended December 31, 1987. (l) Amended and Restated Advisory Agreement between HMG/Courtland Properties, Inc. and Courtland Group, Inc. dated June 15, 1988. Incorporated by reference to Exhibit 10(a) of HMG/Courtland Properties, Inc. annual report on Form 10-K for the year ended December 31, 1988. (m) $550,000 Promissory Note of Bonbern, Inc. to HMG Capital Corporation dated August 9, 1990. Incorporated by reference to Exhibit 10(nn) to the HMG 1990 10-K. (n) Sale Agreement between HMG Capital Corp., Beech Mountain Development, Beech Mountain Properties, and Bonbern, Inc. dated August 8, 1990. Incorporated by reference to Exhibit 10(oo) to the HMG 1990 10- K. (o) $2,000,000 Promissory Note of Four Sugar Grove Associates to Government Personnel Mutual Life Insurance Company dated May 6, 1991. Incorporated by reference to Exhibit (I) to the HMG 199110-K. (p) 1990 Incentive Stock Option Plan of HMG/Courtland Properties, Inc. Incorporated by reference to Exhibit (j) to the HMG 1991 10-K. (q) Amendment to Promissory Notes in the amount of $300,000 dated 1986 between Transco Realty Trust (Maker) and South Bayshore Associates. Incorporated by reference to Exhibit (k) to the HMG 1991 10-K. (22) Subsidiaries: HMG Investment Corp., a Florida corporation Masscap Investment Company, Inc., a Massachusetts corporation HMG/Courtland Properties, Inc., a Delaware corporation The names of certain other subsidiaries have been omitted because considered in the aggregate it would not constitute a significant subsidiary. (28) Reports on Form 8-K: None (34) SIGNATURE Pursuant to the requirements of Section 13 or 15(d) or the Securities Exchange Act of 1934, the Trust has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TRANSCO REALTY TRUST Maurice Wiener Executive Trustee Date: April 3, 1996 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Trust and in the capacities and on the dates indicated. /s/ Maurice Wiener - --------------------------------------- Maurice Wiener, Executive Trustee (Principal Executive Officer) and a Trustee Date: April 3, 1996 /s/ Lee Gray - --------------------------------------- Lee Gray, Treasurer (Principal Financial and Accounting Officer) and a Trustee Date: April 3, 1996 C-T Advisors, Inc.: a Trustee By: /s/ Maurice Wiener - --------------------------------------- Maurice Wiener, President Date: April 3, 1996 /s/ Harvey Comita - --------------------------------------- Harvey Comita, Trustee Date: April 3, 1996 /s/ Franklin Knobel - --------------------------------------- Franklin Knobel, a Trustee Date: April 3, 1996 (35) INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of HMG/Courtland Properties, Inc.: We have audited the accompanying consolidated balance sheet of HMG/Courtland Properties, Inc. and its subsidiaries (the "Company") as of December 31, 1995, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1995, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. BDO SEIDMAN, LLP Certified Public Accountants Miami, Florida March 20, 1996 F-1(a) INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of HMG/Courtland Properties, Inc.: We have audited the accompanying consolidated balance sheet of HMG/Courtland Properties, Inc. and its subsidiaries (the "Company") as of December 31, 1994, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 1994, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. DELOITTE & TOUCHE, LLP Certified Public Accountants Miami, Florida March 24, 1995 F-2(a) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1995 AND 1994
December 31, December 31, 1995 1994 ASSETS NOTES Investment Properties, net of accumulated depreciation: Commercial and industrial 2 $1,969,318 $8,775,714 Hotel and club facility 8,971,370 8,297,760 Yacht Slips 1,689,283 1,767,421 Land held for development 8,103,304 2,608,776 Real estate development in progress 9 1,204,390 8,927,198 ----------- ----------- Total investment properties, net 21,937,665 30,376,869 Investments in and receivables from unconsolidated entities 3 2,439,010 2,686,545 Notes and Advances Due From Related Parties 4 1,168,788 865,355 Cash and Cash Equivalents 1,094,999 5,382,501 Other Assets 2,241,610 2,372,618 ----------- ----------- TOTAL ASSETS $28,882,072 $41,683,888 =========== =========== LIABILITIES & STOCKHOLDERS' EQUITY Accounts Payable and Accrued Expenses $2,222,972 $2,393,488 Mortgages and Notes payable 5 8,325,567 13,512,250 Other Liabilities 2,031,782 1,723,519 ----------- ----------- TOTAL LIABILITIES 12,580,321 17,629,257 ----------- ----------- Commitments and Contingencies 1, 7 Minority interests 1 613,643 4,817,360 ----------- ----------- STOCKHOLDERS' EQUITY 8 Preferred Stock, no par value; 2,000,000 shares authorized; none issued Common Stock, $1 par value; 1,500,000 shares authorized; 1,245,635 shares issued and outstanding in 1995 and 1994 1,245,635 1,245,635 Additional Paid-in Capital 26,283,222 26,283,222 Undistributed gains from sales of real estate, net of losses 31,637,177 29,381,281 Undistributed losses from operations (42,481,464) (36,676,405) ----------- ----------- 16,684,570 20,233,733 Less: Treasury Stock, at cost (78,800 shares) in 1995 and 1994 (996,462) (996,462) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 15,688,108 19,237,271 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $28,882,072 $41,683,888 =========== ===========
See notes to consolidated financial statements F-3(a) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995 AND 1994
Notes 1995 1994 REVENUES Rentals and related revenue $1,863,539 $3,303,987 Hotel, club and marina revenues 4,256,194 2,666,826 Gain from sale of marketable securities 626,452 190,573 Interest from invested cash, dividends and other 688,253 351,773 ---------- ---------- Total revenues 7,434,438 6,513,159 ---------- ---------- EXPENSES Operating expenses: Rental Properties and other 1,195,532 1,770,147 Hotel, club and marina expenses: Payroll and related expenses 2,438,844 2,400,716 Cost of food and beverage 697,967 518,800 Administrative and general expenses 2,467,839 1,895,836 Depreciation and amortization 2 1,348,401 1,259,166 ---------- ---------- Total operating expenses 8,148,583 7,844,665 Interest 825,078 825,733 Advisor's fee 4 875,004 875,004 General and administrative 481,369 1,138,800 Directors' fees and expenses 71,863 75,998 Abandonment of pre-development costs 9 4,224,531 Minority partners' interests in operating (losses) gains of consolidated entities (1,421,070) 88,068 Losses (gains) from unconsolidated entities 34,139 (453,477) ---------- ---------- Total expenses 13,239,497 10,394,791 ---------- ---------- Loss before gain on sales of real estate, valuation adjustment and income tax benefit (5,805,059) (3,881,632) Gain on sales of real estate, net 2,255,896 1,678,251 Valuation adjustment of commercial property (1,300,000) ---------- ---------- Loss before income tax benefit (3,549,163) (3,503,381) Income tax benefit 6 (452,070) ---------- ---------- Net Loss ($3,549,163) ($3,051,311) =========== =========== Earnings (Loss) Per Common Share (Based on 1,166,835 weighted average shares outstanding) ($3.04) ($2.62) =========== ===========
See notes to consolidated financial statements F-4(a) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1995 AND 1994
Undistributed Gains from Sales Undistributed Total Common Stock Additional of Real Estate, Losses from Treasury Stock Stockholders' Shares Amount Paid-In Capital Net of Losses Operations Shares Cost Equity Balance as of January 1, 1994 1,245,635 $1,245,635 $26,283,222 $27,703,030 ($31,946,843) 78,800 ($996,462) $22,288,582 Net Income (Loss) 1,678,251 (4,729,562) (3,051,311) --------- ---------- ----------- ----------- ------------ ------ --------- ----------- Balance as of December 31, 1994 1,245,635 1,245,635 26,283,222 29,381,281 (36,676,405) 78,800 (996,462) 19,237,271 Net Income (Loss) 2,255,896 (5,805,059) (3,549,163) --------- ---------- ----------- ----------- ------------ ------ --------- ----------- Balance as of December 31, 1995 1,245,635 $1,245,635 $26,283,222 $31,637,177 ($42,481,464) 78,800 ($996,462) $15,688,108 ========= ========== =========== =========== ============ ====== ========= ===========
See notes to consolidated financial statements F-5(a) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ($ 3,549,163) ($ 3,051,311) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,348,401 1,259,166 Loss (gain) from unconsolidated entities 34,139 (453,477) Gain on sales of real estate, net (2,255,896) (1,678,251) Valuation adjustment of commercial property 1,300,000 Abandonment of pre-development costs of prior year 1,902,914 Net gain from sales of marketable securities (626,452) (190,573) Minority partners' interest in operating gains (1,421,070) 88,068 Changes in assets and liabilities: Increase in other assets (301,265) (1,216,278) (Increase) decrease in due from affiliates (303,433) 53,862 (Decrease) increase in accounts payable and accrued expenses (170,516) 1,192,727 Increase in other liabilities 308,263 (455,842) ------------ ------------ Total adjustments (1,484,915) (100,598) ------------ ------------ Net cash used in operating activities (5,034,078) (3,151,909) ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Aquisitions and improvements of properties (1,643,646) (10,471,078) Net proceeds from disposals of properties 9,923,385 13,636,803 Net distributions from unconsolidated entities 213,396 1,175,365 Net proceeds from sales and redemptions of securities 795,028 1,023,147 Purchases of investments in securities (32,211) (111,457) ------------ ------------ Net cash provided by investing activities 9,255,952 5,252,780 ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Additions to mortgages and notes payable 700,000 12,031,104 Repayment of mortgages and notes payables (5,886,683) (13,377,883) Net (distributions to) contributions from minority partners (3,322,693) 622,979 ------------ ------------ Net cash used in financing activities (8,509,376) (723,800) ------------ ------------ Net (decrease) increase in cash and cash equivalents (4,287,502) 1,377,071 Cash and cash equivalents at beginning of the period 5,382,501 4,005,430 ------------ ------------ Cash and cash equivalents at end of the period $ 1,094,999 $ 5,382,501 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for interest (net of amounts capitalized of $-0- and $143,000 for the years ended December 31, 1995 and 1994, respectively) $ 1,112,000 $ 820,000 ============ ============ Cash paid during the year for income taxes $ 450,000 ============
See notes to consolidated financial statements F-6(a) HMG/COURTLAND PROPERTIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1995 and 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Consolidation - The consolidated financial statements include the accounts of HMG/Courtland Properties, Inc. (the "Company") and entities in which the Company owns a majority voting interest or controlling financial interest. Investments in which the Company does not have a majority voting or financial controlling interest, even though it may have a majority interest in profits and losses, are accounted for under the equity method of accounting. All material transactions with consolidated and unconsolidated entities have been eliminated in consolidation or as required under the equity method. The Company's consolidated subsidiaries are described below: Courtland Investments, Inc. (CII) - A 95% owned corporation which owns 100% of Grove Isle Club, Inc. (through its wholly owned subsidiary), 60% general partnership interests in Grove Isle Associates, Ltd., and a 100% interest in Grove Isle Yacht Club Associates. These entities are described below. CII's other assets primarily consist of investments recorded under the equity method of accounting (See Note 3.) Grove Isle Associates, Ltd. (GIA) This limited partnership owns a 49 room, hotel and private club facility located on approximately 7 acres of a private island in Coconut Grove, Florida known as Grove Isle. Grove Isle Club, Inc.(GICI) This corporation operates the hotel and club of GIA. Its primary sources of revenue are from room rentals, food and beverage sales and from membership dues. Grove Isle Yacht Club Associates (GIYCA). This partnership was the original developer of the 85 boat slips located at Grove Isle of which 43 remain unsold. GIYCA operates all aspects of the Grove Isle marina. The Grove Towne Center - Texas, Ltd. - A 65% owned limited partnership having a wholly owned subsidiary of the Company as its sole general partner. This partnership was formed in 1994. During the fourth quarter of 1995, the partnership decided not to go forward with the project as designed due to various factors including a dispute with a major tenant. Accordingly, the partnership has written-off approximately $4.2 F - 7 (a) million of pre-development costs. The partnership is presently exploring various options for the lands. South Bayshore Associates - A 75% owned venture of which the major asset is a receivable from the Company's venture partner. HMG - Fieber Associates - A 65% owned venture of which the major assets are commercial properties located in the northeastern United States. HMG Sugargrove, Inc. - A wholly owned Texas corporation of which the major asset is an 8 acre parcel of land in Houston, Texas, held for development. T.E.H.H. Corp.- A wholly owned Texas corporation of which the major asset is a 99% limited partnership interest in CourTrust Palm Bay, Ltd. which owns 1.5 acres of undeveloped land in Palm Bay, Florida. In the first quarter of 1996, the land was sold and the Company recognized a loss of approximately $60,000. HMG of Key Largo, Inc. - In January 1994, HMG of Key Largo, Inc.'s (a wholly-owned subsidiary of the Company) partnership interest in Key Largo Lodge, Ltd. (KLL) increased from 46.5% to 50.5%. Accordingly, the Company has changed its method of accounting for KLL from the equity method of accounting to consolidation. KLL owned property in Monroe, County Florida. In February 1994, KLL sold its major asset, a 20.5 acre parcel of land located in Monroe, County Florida. Out Island Properties, Inc. ("Out Island") had pending a civil action in the Circuit Court of Dade County, Florida against HMG of Key Largo, Inc. Out Island is the sole limited partner of Key Largo Lodge, Ltd., a Florida limited partnership of which HMG of Key Largo, Inc. is the sole general partner. Out Island filed its lawsuit in February, 1994. In July 1995, the parties settled the litigation and on August 2, 1995 an order of dismissal with prejudice was entered by the court. Pursuant to the terms of the settlement, the partnership was liquidated in 1995 and upon liquidation the Company recognized a gain of approximately $620,000. HMG Orange Park North, Inc. - A wholly owned Florida corporation of which the major asset is a 90% partnership interest in Orange Park North Partnership. This partnership sold its sole asset in 1995. HMG Fashion Square, Inc. - A wholly owned Florida corporation of which the major asset is a 90% partnership interest in Fashion Square Partnership which owns approximately 11.5 acres of land currently under development, in Jacksonville, Florida. In 1994, the partnership leased an approximate 2 acre parcel to a tenant which constructed and is operating a restaurant. Additionally, in November, 1994, the partnership entered into a ground lease with a tenant which is an operator of a F - 8 (a) restaurant. In 1995, this tenant completed construction of a restaurant on the 3/4 acres covered by the ground lease. Unconsolidated entities are discussed in Note 3. Preparation of Financial Statements. The preparation of financial statements in conformity with generally accepted accounting principle requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Income Taxes - The Company qualifies as a real estate investment trust and distributes its taxable operating income to stockholders in conformity with requirements of the Internal Revenue Code. In addition, net operating losses can be carried forward to reduce future taxable income but cannot be carried back. The Company intends to distribute any of its future taxable operating income and is not taxed on the amounts distributed. Distributed capital gains on sales of real estate are not subject to taxes; however, undistributed capital gains are taxed as capital gains. State income taxes are not significant. Any benefit from or provisions for income taxes relates solely to taxable losses or income of CII which is not consolidated with the Company for income tax purposes and accordingly files a separate tax return. Refer to Note 6 for further disclosure on income taxes. Depreciation and Amortization - Depreciation of properties held for investment is computed using the straight-line method over the estimated useful lives of the properties, which range up to 39.5 years. Deferred mortgage and leasing costs are amortized over the shorter of the respective term of the related indebtedness or life of the asset. Depreciation expense for the years ended December 31, 1995, and 1994 was approximately $1,052,000, and $1,112,000, respectively. Amortization expense for the years ended December 31, 1995 and 1994 was $296,000 and $147,000 respectively. Marketable Securities - The Company has adopted Financial Accounting Standards Board Statement of Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt and Equity Securities, effective January 1, 1994, with no material effect on the Company's financial position or results of operations. Marketable debt and equity securities are classified as available for sale with unrealized gains and losses, net of tax, reported as a net amount in a separate component of stockholders' F - 9 (a) equity. Unrealized gains and losses as of December 31, 1995 and 1994 were not material. Investment Properties - The Company carries investment properties at historical cost less accumulated depreciation unless there has been an other than temporary impairment in the value of the investment or the property is held for sale, in which case the carrying value is adjusted to net realizable value. Earnings (Loss) Per Common Share - Earnings (loss) per share are computed based upon the weighted-average number of shares outstanding during the period. Stock options outstanding did not have a dilutive effect or were immaterial in all years presented. The weighted average number of common shares outstanding for all of the years presented was 1,166,835. Gain on Sales of Real Estate - Gain on sales of real estate has been reduced, where applicable, by minority partners' interest in the gain of $540,000 and $1,641,000 and advisor's incentive fees of $106,000 and $186,000 for the years ended December 31, 1995 and 1994, respectively. Cash and Cash Equivalents - For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalent . Reclassifications - Certain amounts in prior year's consolidated financial statements have been reclassified to conform to the current year's presentation. Minority Interest - Minority interest represents the minority partners' proportionate share of the equity of the Company's majority owned subsidiaries.
1995 1994 Minority interest balance at beginning of year $4,817,000 $785,000 Change in method of accounting for KLL -- 2,308,000 Reduction of minority interest due to dissolution of (621,000) -- KLL Formation of new partnership (TGTC) -- 2,067,000 Minority partners' interest in operating gains of (1,421,000) 88,000 consolidated subsidiaries Minority partners' interest in net gain on sales of real 540,000 1,641,000 estate of consolidated subsidiaries
F - 10 (a) Distributions to minority partners, net of contributions (2,714,000) (2,083,000) and note receivable from minority partner Other 13,000 11,000 ---------- ------------- Minority interest balance at end of year $614,000 $4,817,000 ======== ==========
Future Accounting Changes - The Company is required to adopt the provision of FASB No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to be Disposed of," in 1996. Management does not expect that the adoption of FASB No. 121 will have a material effect on the carrying value of the Company's long-lived assets. The Company does not presently intend in 1996 to adopt the fair value based method as encouraged by FASB No.123 "Accounting for Stock-Based Compensation". Accordingly, there will be no effect to the financial statements. F - 11 (a) 2. INVESTMENT PROPERTIES The components of the Company's properties and the related depreciation information follow:
December 31, 1995 Accumulated Cost Depreciation Net Commercial and Industrial Properties Land $1,092,868 $1,092,868 Buildings and improvements 2,840,421 $ 1,963,971 876,450 ----------- ---------- ----------- 3,933,289 1,963,971 1,969,318 Hotel and Club Facility Land 1,338,518 1,338,518 Hotel/ club facility and improvements 6,930,547 702,823 6,227,724 Furniture, fixtures & equipment 2,077,087 671,959 1,405,128 ----------- ---------- ----------- 10,346,152 1,374,782 8,971,370 Yacht Slips 1,689,283 1,689,283 ----------- ---------- ----------- Land Held for Development 8,103,304 8,103,304 ----------- ---------- ----------- Real Estate Development in Progress Shopping center(Jacksonville, FL) 1,204,390 1,204,390 ----------- ---------- ----------- Total $25,276,418 $3,338,753 $21,937,665 =========== ========== ===========
December 31, 1994 Accumulated Cost Depreciation Net Commercial and Industrial Properties Land $ 2,382,769 $ 2,382,769 Buildings and improvements 13,466,662 $ 7,073,717 6,392,945 ----------- ---------- ----------- 15,849,431 7,073,717 8,775,714 Hotel and Club Facility Land 1,338,518 1,338,518 Hotel/club facility and improvements 5,956,847 291,107 5,665,740 Furniture, fixtures and equipment 1,591,716 298,214 1,293,502 ----------- ---------- ----------- 8,887,081 589,321 8,297,760 Yacht Slips 1,767,421 1,767,421 ----------- ---------- ----------- Land Held for Development 2,608,776 2,608,776 ----------- ---------- ----------- Real Estate Development in Progress Entertainment value/oriented retail center 7,721,561 7,721,561 Shopping center (Jacksonville, FL) 1,205,637 1,205,637 ----------- ---------- ----------- 8,927,198 8,927,198 ----------- ---------- ----------- Total $38,039,907 $7,663,038 $30,376,869 =========== ========== ===========
F - 12 (a) 3. INVESTMENTS IN AND RECEIVABLES FROM UNCONSOLIDATED ENTITIES As of December 31, 1995, the Company's investments in and receivables from unconsolidated entities primarily consisted of CII's 49% equity interest in T.G.I.F. Texas, Inc. (T.G.I.F.). T.G.I.F. is engaged in the business of leasing net lease properties in Texas and Louisiana. CII owns 49% of the outstanding common stock of T.G.I.F. The carrying values of all unconsolidated investments are summarized below: Description 1995 1994 T.G.I.F. Texas, Inc. $1,656,131 $1,739,816 Various Others (a) 782,879 946,729 $2,439,010 $2,686,545 (a) Primarily investments in companies whose primary purpose is to make equity investments in growth oriented enterprises. 4. NOTES AND ADVANCES DUE FROM AND TRANSACTIONS WITH RELATED PARTIES The Company has an agreement (the "Agreement") with Courtland Group, Inc. (the "Advisor") for its services as investment advisor and administrator of the Company's affairs. All officers of the Company who are officers of the Advisor are compensated solely by the Advisor for their services. The Agreement is renewable annually upon the approval of a majority of the directors of the Company who are not affiliated with the Advisor and a majority of the Company's shareholders. The contract may be terminated at any time on 120 days written notice by the Advisor or upon 60 days written notice by a majority of the unaffiliated directors of the Company or the holders of a majority of the Company's outstanding shares. Under the Agreement, as amended at the Company's 1992 Annual Meeting of Shareholders, the Advisor is entitled to receive a monthly fee of $72,917. The Advisor is entitled to a monthly fee of 20% of the amount of any unrefunded commitment fees received by the Company with respect to mortgage loans and other commitments which the Company was not required to fund and which expired within the next preceding calendar month. The Advisor is also entitled to an annual incentive compensation equal to the sum of 10% of net realized capital gains and extraordinary items of income for that year and 10% of the amount, if any, by which net profits of the Company for such fiscal year exceeded 8% per annum of the Average Net Worth of the Company, as defined. F - 13 (a) During 1995 and 1994, $1,063,000 and $1,130,000, respectively, was earned by the Advisor as advisory fees of which $188,000 and $255,000, respectively, were for incentive compensation. The Advisor is also the manager for certain of the Company's properties for which it received management fees of approximately $27,000 and $76,000 in 1995 and 1994, respectively. At December 31, 1995 the Company had amounts due from the Advisor of $194,000, and as of December 31, 1994 the Company had amounts due to the Advisor of $112,000. These amounts bear interest at prime plus 1% and are due on demand. During 1988, the Company sold its interest in a 49% owned real estate investment company to a 41% shareholder of the Company. The Company has notes receivable and convertible debentures due from this real estate investment company. The notes totaling $236,235 bear interest at prime plus 2% and are due on demand, and the debentures totaling $318,035 bear interest at 8% and mature in 1996. In 1991, the Company began recognizing interest income on these notes as payments are received. No payments were received in 1995 and 1994. The Company has a note receivable from a 41% shareholder of $300,000 plus accrued interest of $120,000 and $124,000 as of December 1995 and 1994, respectively. This note bears interest at the prime rate and is due on demand. Mr. Wiener, Chairman of the Company, is an 18% shareholder and an officer and director of T.G.I.F. Texas, Inc., a 49% owned affiliate of CII (See Note 3). As of December 31, 1995, T.G.I.F. has amounts due from Mr. Wiener in the amount of $56,000. These amounts are due on demand and bear interest at the prime rate. Furthermore, Courtland Group receives a management fee of $18,000 per year from T.G.I.F. In 1992, CII and certain directors and officers of HMG, acquired a 27% interest in Jack Baker 5th Avenue, Inc. and its affiliates. In 1993, that 27% interest was increased to 85% in which CII has a 59% interest and certain directors and officers of HMG have a 41% interest. This Company is a manufacturers' representative and CII's investments in and loans to (including accrued interest) Jack Baker 5th Avenue, Inc. were approximately $315,000 and $277,000 as of December 31, 1995 and 1994, respectively. In 1995 and 1994 CII recognized its portion of losses from Jack Baker 5th Avenue, Inc. of $80,000 and $86,000, respectively. F - 14 (a) 5. NOTES, MORTGAGES AND OTHER PAYABLES
December 31, 1995 1994 Collateralized by Investment Properties (Note 2) Land Held for Development: Mortgage loan payable, interest at 9% payable quarterly with quarterly principal payments of $12,776 matures 7/1/98. $1,385,453 $1,443,229 Mortgage loan payable, interest at 1% over prime (9.5% at December 31, 1995) payable monthly. Principal payment of $750,000 due 7/1/96 with balance due at maturity on 7/1/97. 1,040,000 1,340,000 Mortgage loan payable, interest at prime plus 1% (9.5% at December 31, 1995) payable monthly with all principal due June 1996. 431,104 431,104 Mortgage loan payable, interest fixed at 10.5% payable quarterly with principal payments of $15,867 due each February 1st and a balloon payment due 2/4/97. 180,900 206,267 Mortgage loan payable, interest at prime plus 1.75% (10.25 at December 31, 1995) payable monthly with principal due as of June 30, 1996. 500,000 -- Limited partnership owning ground lease: Mortgage loan payable interest fixed at 9.75% payable monthly with principal due at maturity on 11/28/96. 300,000 300,000 Limited partnerships owning restaurants: Mortgage loan payable, interest fixed at 10.75% payable monthly with 20 year amortization of principal. The properties which collateralized this debt were sold and the debt was repaid during 1995. -- 1,798,388 ---------- ---------- Balance brought forward: $3,837,457 $5,518,988 ---------- ----------
F - 15 (a) 5. NOTES, MORTGAGES AND OTHER PAYABLES (continued)
December 31, 1995 1994 Balance brought forward: $3,837,457 $5,518,988 ---------- ---------- Partnership owning an office building: Mortgage loan payable, interest fixed at 10.125% payable monthly, with 25 year principal amortization. The property which collateralized this debt was sold in 1995 and the purchaser of the property assumed the debt. -- $2,895,655 Joint Venture owning retail centers: Mortgage loan payable requiring monthly payments of principal and interest of $2,895 at 10% interest rate. Note matured in 1984 (1). 89,790 114,189 Partnerships owning hotel and club facility and Yacht Slips: Mortgage loan payable with interest at prime plus 2% (10.5%) at December 31, 1995. Payments of interest only through June 1995, thereafter, 20 year amortization of principal with all outstanding principal due September, 2000. 4,398,320 4,500,000 Partnership owning rental property: Mortgage loan payable, interest fixed at 7% payable monthly with 5 year principal amortization. The property collateralizing this debt was sold in 1995. -- 172,759 Other: Unsecured bank line of credit, interest at prime plus 1% (9.5% at December 31, 1995) payable monthly. -- 300,000 Various lease obligations collateralized by office equipment, interest of 10% and 12%. -- 10,659 ----------- ----------- $8,325,567 $13,512,250 ---------- ----------- (1) The Company has continued to make principal and interest payments on this mortgage. No request for full payment has been made by the lender.
F - 16 (a) A summary of scheduled principal repayments or reductions for all types of notes and mortgages payable is as follows: Year ending December 31, Amount 1996 $2,515,501 1997 317,583 1998 1,350,117 1999 103,778 2000 4,038,588 --------- Total $8,325,567 ========== 6. INCOME TAXES The Company's income tax benefit or provision is solely attributable to CII which files a separate tax return. As of December 31, 1995 and 1994, CII has a net deferred tax asset of approximately $1.5 million and $700,000, respectively. As of December 31, 1995 and 1994, this asset was primarily due to a net operating loss carryforward of approximately $3.7 million and $1.3 million, respectively. The Company has established a valuation allowance for the balance of the net deferred tax asset. Deferred tax liabilities at December 31, 1995 and 1994 were not material. 7. COMMITMENTS AND CONTINGENCIES Minimum lease payments receivable. The Company leases its commercial and industrial properties to lessees under agreements for which substantially all of the leases specify a base rent and a rent based on tenant sales exceeding a specified percentage. Such percentage rent approximated $431,000 and $609,000, in 1995, and 1994, respectively. F - 17 (a) These leases are classified as operating leases and generally require the tenant to pay all costs associated with the property. Minimum annual rentals on noncancelable leases in effect at December 31, 1995, are as follows: Years ended: Amount 1996 $533,000 1997 491,000 1998 346,000 1999 247,000 2000 242,000 Subsequent years 1,392,000 ---------- Total $3,251,000 ========== 8. STOCKHOLDERS' EQUITY In July 1991, the shareholders approved the 1990 Stock Option Plan which expires in 2001. Under the 1990 Plan, options were authorized to be granted to purchase 120,000 common shares at no less than 100% of the fair market value at the date of grant. Options may be exercised at any time within ten years from the date of grant and are not transferable. Options expire upon termination of employment, except to a limited extent in the event of retirement, disability or death of the optionee. As of December 31, 1995 105,000 options have been granted and none exercised. The exercise price of these options ranges from $3.75 to $5.50 per share. 9. ABANDONMENT OF PRE-DEVELOPMENT COSTS During the fourth quarter of 1995 the Grove Towne Center-Texas, Ltd. decided not to go forward with the project as designed due to various factors including a dispute with a major tenant. Accordingly, the partnership has written-off approximately $4.2 million of pre-development costs and has reclassified land cost of $5.8 million from real estate development in progress to land held for development. F - 18 (a) EX-27 2
5 0000099235 TRANSCO REALTY TRUST 12-MOS DEC-31-1995 JAN-01-1995 DEC-31-1995 23,639 0 87,189 0 0 0 0 0 2,005,776 1,461,469 0 0 1,000,000 4,147,196 (4,602,889) 2,005,776 (1,563,903) (1,563,903) 0 197,885 0 0 37,972 0 (218,000) 0 0 0 0 (1,543,788) (2.90) 0 Total liabilities
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