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Dated: March 10, 2005 HEALTHCARE SERVICES GROUP, INC. (Registrant) By: /s/ Daniel P.McCartney --------------------------- Daniel P. McCartney Chief Executive Officer and Chairman of the Board Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons and in the capacities and on the date indicated: Signature Title Date - ----------------------- -------------------- ------------- /s/ Daniel P. McCartney Chief Executive March 10, 2005 - ----------------------- Officer and Chairman Daniel P. McCartney /s/ Joseph F.McCartney Director and Vice March 10, 2005 - ----------------------- President Joseph F. McCartney /s/ Barton D. Weisman Director March 10, 2005 - ----------------------- Barton D. Weisman /s/ Robert L. Frome Director March 10, 2005 - ----------------------- Robert L. Frome /s/ Thomas A. Cook Director, President March 10, 2005 - ----------------------- and Chief Operating Thomas A. Cook Officer /s/ John M. Briggs Director March 10, 2005 - ----------------------- John M. Briggs /s/ Robert J. Moss Director March 10, 2005 - ----------------------- Robert J. Moss /s/ James L. DiStefano Chief Financial March 10, 2005 - ----------------------- Officer and James L. DiStefano Treasurer /s/ Richard W. Hudson Vice President- March 10, 2005 - ----------------------- Finance, Secretary Richard W. Hudson and Chief Accounting Officer |
Significant components of the Company's federal and state deferred tax assets and liabilities are as follows: Year Ended December 31, -------------------------------- 2003 2002 ----------- ----------- Net current deferred assets: Allowance for doubtful accounts $ 1,382,670 $ 3,002,430 Accrued insurance claims- current 1,206,484 800,811 Expensing of housekeeping supplies (1,921,508) Deferred compensation 1,341,362 869,951 Other 7,790 16,054 ----------- ----------- $ 2,016,798 $ 3,021,724 =========== =========== Net noncurrent deferred tax assets: Deferred profit on laundry installation sales $ -- $ 4,825 Non-deductible reserves 296,094 202,101 Depreciation of property and equipment (869,297) (683,664) Accrued insurance claims- noncurrent 3,619,453 2,402,433 Other 88,441 29,670 ----------- ----------- $ 3,134,691 $ 1,955,365 =========== =========== A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate (34%) to income before income taxes is as follows: Income taxes paid were approximately $4,728,000, $7,308,000 and $4,530,000 during 2003, 2002 and 2001, respectively. |
Note 8--Earnings Per Common Share A reconciliation of the numerators and denominators of basic and diluted earnings per common share is as follows: Year Ended December 31, 2003 ---------------------------------------- Income Shares Per-share (Numerator) (Denominator) Amount ----------- ------------- --------- Net Income $10,859,728 =========== Basic earnings per common share 10,859,728 11,365,796 $.96 Effect of dilutive securities: Options 493,072 (.04) ----------- ---------- ---- Diluted earnings per common share $10,859,728 11,858,868 $.92 =========== ========== ==== Year Ended December 31, 2002 ---------------------------------------- Income Shares Per-share (Numerator) (Denominator) Amount ----------- ------------- --------- Net Income $8,630,698 =========== Basic earnings per common share 8,630,698 11,263,466 $.77 Effect of dilutive securities: Options 426,032 (.03) ----------- ---------- ---- Diluted earnings per common share $8,630,698 11,689,498 $.74 =========== ========== ==== Year Ended December 31, 2001 ---------------------------------------- Income Shares Per-share (Numerator) (Denominator) Amount ----------- ------------- --------- Net Income $7,035,361 =========== Basic earnings per common share 7,035,361 10,928,281 $.64 Effect of dilutive securities: Options 149,665 ----------- ---------- ---- Diluted earnings per common share $7,035,361 11,077,946 $.64 =========== ========== ==== No outstanding options were excluded from the computation of diluted earnings per common share for the year ended December 31, 2003 as none have an exercise price in excess of the average market value of the Company's commons stock during such period. |
Significant components of the Company's federal and state deferred tax assets and liabilities are as follows: Year Ended December 31, ------------------------- 2001 2000 -------- -------- Net current deferred assets: Allowance for doubtful accounts $2,737,985 $1,960,686 Accrued insurance claims-current 471,507 361,773 Expensing of housekeeping supplies (1,516,141) (1,496,333) Deferred compensation 453,518 180,475 Other 15,976 12,977 ---------- ---------- $2,162,845 $1,019,578 ========== ========== Net noncurrent deferred tax assets: Deferred profit on laundry installation sales $ 15,352 $ 27,273 Non-deductible reserves 259,057 426,306 Depreciation of property and equipment (549,301) (646,639) Accrued insurance claims- noncurrent 1,773,765 1,360,955 Other 24,271 17,816 ---------- ---------- $1,523,144 $1,185,711 ========== ========== A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate (34%) to income before income taxes is as follows: In June, 1999, the Internal Revenue Service concluded its examination of the tax years ended December 31, 1997 and 1996. |
Dated: March 21, 2002 HEALTHCARE SERVICES GROUP, INC. (Registrant) By: /s/ Daniel P. McCartney ----------------------- Daniel P. McCartney Chief Executive Officer and Chairman of the Board Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons and in the capacities and on the date indicated: Signature Title Date --------- ----- ---- /s/ Daniel P. McCartney Chief Executive Officer and March 21, 2002 - ----------------------- Chairman Daniel P. McCartney /s/ Joseph F. McCartney Director and Vice President March 21, 2002 - ----------------------- Joseph F. McCartney /s/ W.Thacher Longstreth Director March 21, 2002 - ------------------------ W. Thacher Longstreth /s/ Barton D. Weisman Director March 21, 2002 - --------------------- Barton D. Weisman /s/ Robert L. Frome Director March 21, 2002 - ------------------- Robert L. Frome /s/ Thomas A. Cook Director, President and March 21, 2002 - ------------------ Chief Operating Officer Thomas A. Cook /s/ John M. Briggs Director March 21, 2002 - ------------------ John M. Briggs /s/ Robert J. Moss Director March 21, 2002 - ------------------ Robert J. Moss /s/ James L. DiStefano Chief Financial Officer and March 21, 2002 - ---------------------- Treasurer James L. DiStefano /s/ Richard W. Hudson Vice President-Finance, March 21, 2002 - --------------------- Secretary and Chief Richard W. Hudson Accounting Officer |
Significant components of the Company's federal and state deferred tax assets and liabilities are as follows: Year Ended December 31, ----------------------- 2000 1999 ---------- ---------- Net current deferred tax assets: Allowance for doubtful accounts ................... $1,960,686 $2,903,922 Accrued insurance claims - current ................ 361,773 315,188 Expensing of housekeeping supplies ................ (1,496,333) (1,449,280) Other ............................................. 12,977 7,706 ---------- ---------- $ 839,103 $1,777,536 ========== ========== Net noncurrent deferred tax assets: Deferred profit on laundry installation sales ..... $ 27,273 $ 76,803 Non-deductible reserves ........................... 426,306 95,600 Depreciation of property and equipment ............ (646,639) (742,268) Accrued insurance claims- noncurrent .............. 1,360,955 1,185,707 Deferred compensation ............................. 180,475 -- Other ............................................. 17,816 12,711 ---------- ---------- $1,366,186 $ 628,553 ========== ========== A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate (34%) to income before income taxes is as follows: Year Ended December 31, ----------------------------------- 2000 1999 1998 ---------- ---------- ---------- Tax expense computed at statutory rate $3,107,200 $2,965,800 $4,892,900 Increases (decreases) resulting from: State income taxes, net of federal tax benefit 586,000 486,300 900,100 Settlement of prior years' income tax examination -- (328,100) -- Tax exempt interest (97,500) (91,900) (400) Amortization of costs in excess of fair value of net assets acquired 36,600 36,600 36,600 Other, net (81,300) 118,300 (307,200) ---------- ---------- ---------- $3,551,000 $3,187,000 $5,522,000 ========== ========== ========== In June, 1999, the Internal Revenue Service concluded its examination of the tax years ended December 31, 1997 and 1996. |
The Company earned revenue in the following service business categories: Year Ended December 31, ------------------------------------------ 2000 1999 1998 ------------ ------------ ------------ Housekeeping services $161,840,927 $150,343,572 $134,727,421 Laundry & linen services 68,285,181 67,013,585 53,065,926 Food services 21,602,962 12,113,838 13,373,320 Maintenance services & other 2,939,143 2,960,893 3,702,356 ------------ ------------ ------------ $254,668,213 $232,431,888 $204,869,023 ============ ============ ============ Note 7--Earnings Per Common Share A reconciliation of the numerator and denominators of basic and diluted earnings per common share is as follows: Options to purchase 1,176,288, 151,284 and 27,215 shares of common stock at an average exercise price of $7.57, $9.38 and $9.78 for the years ended December 31, 2000, 1999 and 1998, respectively were outstanding during such years but not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market value of the common shares. |
Dated: March 19, 2001 HEALTHCARE SERVICES GROUP, INC. (Registrant) By: /s/ Daniel P. McCartney ----------------------- Daniel P. McCartney Chief Executive Officer and Chairman of the Board Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons and in the capacities and on the date indicated: Signature Title Date --------- ----- ---- /s/ Daniel P. McCartney Chief Executive Officer and March 19, 2001 - ----------------------- Chairman Daniel P. McCartney /s/ Joseph F. McCartney Director and Vice President March 19, 2001 - ----------------------- Joseph F. McCartney /s/ W.Thacher Longstreth Director March 19, 2001 - ------------------------ W. Thacher Longstreth /s/ Barton D. Weisman Director March 19, 2001 - ------------------------ Barton D. Weisman /s/ Robert L. Frome Director March 19, 2001 - ------------------------ Robert L. Frome /s/ Thomas A. Cook Director, President and March 19, 2001 - ------------------------ Chief Operating Officer Thomas A. Cook /s/ John M. Briggs Director March 19, 2001 - ------------------------ John M. Briggs /s/ Robert J. Moss Director March 19, 2001 - ------------------------ Robert J. Moss /s/ James L. DiStefano Chief Financial Officer and March 19, 2001 - ------------------------ Treasurer James L. DiStefano /s/ Richard W. Hudson Vice President-Finance, March 19, 2001 - ------------------------ Secretary and Chief Richard W. Hudson Accounting Officer |
Consolidated Balance Sheets Assets December 31, -------------------------- Current Assets: 1999 1998 ----------- ----------- Cash and cash equivalents $17,198,687 $17,201,408 Accounts and notes receivable, less allowance for doubtful accounts of $7,278,000 in 1999 and $3,449,000 in 1998 48,612,738 45,066,828 Prepaid income taxes 843,889 - Inventories and supplies 8,580,181 7,803,437 Deferred income taxes 1,777,536 324,054 Prepaid expenses and other 1,869,091 2,318,285 ----------- ----------- Total current assets 78,882,122 72,714,012 Property and Equipment: Laundry and linen equipment installations 7,824,038 8,985,945 Housekeeping and office equipment 9,012,178 8,482,207 Autos and trucks 51,110 51,110 ----------- ----------- 16,887,326 17,519,262 Less accumulated depreciation 10,990,792 11,416,214 ----------- ----------- 5,896,534 6,103,048 COSTS IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED less accumulated amortization of $1,527,908 in 1999 and $1,420,284 in 1998 1,827,569 1,935,193 DEFERRED INCOME TAXES 628,553 2,131,535 OTHER NONCURRENT ASSETS 10,795,104 10,225,439 ----------- ----------- $98,029,882 $93,109,227 =========== =========== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 2,472,021 $ 4,366,015 Accrued payroll, accrued and withheld payroll taxes 5,417,367 5,147,634 Other accrued expenses 417,966 319,333 Income taxes payable - 283,980 Accrued insurance claims 789,945 588,040 ----------- ----------- Total current liabilities 9,097,299 10,705,002 ACCRUED INSURANCE CLAIMS 2,971,697 2,212,151 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Common stock, $.01 par value: 15,000,000 shares authorized, 11,064,107 shares issued in 1999 and 11,034,207 in 1998 110,641 110,342 Additional paid in capital 25,297,284 25,064,832 Retained earnings 60,552,961 55,016,900 ----------- ----------- Total stockholders' equity 85,960,886 80,192,074 ----------- ----------- $98,029,882 $93,109,227 =========== =========== See accompanying notes. |
Significant components of the Company's federal and state deferred tax assets and liabilities are as follows: Year Ended December 31, ------------------------- 1999 1998 ---------- ----------- Net current deferred assets: Allowance for doubtful accounts ..................... $2,903,922 $1,431,335 Accrued insurance claims- current ................... 315,188 244,037 Expensing of housekeeping supplies .................. (1,449,280) (1,351,318) Other ............................................... 7,706 - ---------- ---------- $1,777,536 $ 324,054 ========== ========== Net noncurrent deferred tax assets: Deferred profit on laundry installation sales ....... $ 76,803 $ 188,063 Non-deductible reserves ............................. 95,600 1,722,076 Depreciation of property and equipment .............. (742,268) (715,594) Accrued insurance claims- noncurrent ................ 1,185,707 918,043 Other ............................................... 12,711 18,947 ---------- ---------- $628,553 $2,131,535 ========== ========== A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate (34%) to income before income taxes is as follows: Year Ended December 31, ------------------------------------------ 1999 1998 1997 ---------- ---------- ---------- Tax expense computed at statutory rate $2,965,800 $4,892,900 $3,636,100 Increases (decreases) resulting from: State income taxes, net of federal tax benefit 486,300 900,100 820,700 Settlement of prior years' income tax examination (328,100) - - Tax exempt interest (91,900) (400) (268,800) Nondeductible reserves 416,500 Amortization of costs in excess of fair value of net assets acquired 36,600 36,600 37,100 Other, net 118,300 (307,200) 158,400 ---------- ---------- ---------- $3,187,000 $5,522,000 $4,800,000 ========== ========== ========== In June, 1999, the Internal Revenue Service concluded its examination of the tax years ended December 31, 1997 and 1996. |
The Company earned revenue in the following service business categories: Year Ended December 31, ------------------------------------------------ 1999 1998 1997 ------------ ------------ ------------ Housekeeping services $150,344,000 $134,727,000 $127,255,000 Laundry & linen services 67,014,000 53,066,000 43,372,000 Food services 12,114,000 13,374,000 8,085,000 Maintenance services & other 2,960,000 3,702,000 2,647,000 ------------ ------------ ------------ $232,432,000 $204,869,000 $181,359,000 ============ ============ ============ Note 7--Earnings Per Common Share A reconciliation of the numerator and denominators of basic and diluted earnings per common share is as follows: Year Ended December 31, 1999 ---------------------------------------- Income Shares Per-share (Numerator) (Denominator) Amount ----------- ------------- --------- Net Income $5,536,061 Basic earnings per common share 5,536,061 11,052,728 $ .50 Effect of dilutive securities: Options 232,864 ---------- ---------- -------- Diluted earnings per common share $5,536,061 11,285,592 $ .49 ========== ========== ======== Year Ended December 31, 1999 ---------------------------------------- Income Shares Per-share (Numerator) (Denominator) Amount ----------- ------------- --------- Net Income $8,868,853 Basic earnings per common share 8,868,853 11,187,615 $ .79 Effect of dilutive securities: Options 324,582 ---------- ----------- -------- Diluted earnings per common share $8,868,853 11,512,197 $ .77 ========== ========== ======== Year Ended December 31, 1999 ---------------------------------------- Income Shares Per-share (Numerator) (Denominator) Amount ----------- ------------- --------- Net Income $5,894,334 Basic earnings per common share 5,894,334 11,353,602 $ .52 Effect of dilutive securities: Options 224,538 ---------- ----------- -------- Diluted earnings per common share $5,894,334 11,578,140 $ .51 ========== ========== ======== Options to purchase 151,284; 27,215 and 321,450 shares of common stock at an average exercise price of $9.38, $9.78 and $8.39 for the years ended December 31, 1999, 1998 and 1997, respectively were outstanding during such years but not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market value of the common shares. |
................................................ 9 7/8 8 3/8 Transfer Agent American Stock Transfer & Trust Co. 99 Wall St. New York, NY 10005 Corporate Counsel Olshan Grundman Frome Rosenzweig LLP 505 Park Ave. New York, NY 10022 Stock Listing Listed on the NASDAQ National Market System Symbol - "HCSG" Auditors Grant Thornton LLP 399 Thornall Street Edison, NJ 08837 Corporate Offices Healthcare Services Group, Inc. 3220 Tillman Drive, Suite 300 Bensalem, PA 19020 215-639-4274 Annual Stockholders' Meeting Date - May 30, 2000 Time - 10:00 A.M. Place - The Radisson Hotel of Bucks County 2400 Old Lincoln Highway Trevose, PA 19047 Officers and Corporate Management Daniel P. McCartney Chief Executive Officer Thomas A. Cook President & Chief Operating Officer Alan L. Crowell Vice President - Food Service Division James L. DiStefano Chief Financial Officer and Treasurer Michael Harder Vice President - Credit Administration Richard W. Hudson Vice President - Finance and Secretary John D. Kelly Western Divisional Vice President Nicholas R. Marino Human Resources Director Michael E. McBryan Mid-Atlantic Divisional Vice President - Sales Bryan D. McCartney Mid-Atlantic Divisional Vice President Joseph F. McCartney Northeastern Divisional Vice President James P. O'Toole Mid-Atlantic Regional Vice President Brian M. Waters Vice President - Operations Michael L. Wyse Western Divisional Vice President - Sales Directors Daniel P. McCartney Chairman & Chief Executive Officer Thomas A. Cook President & Chief Operating Officer Joseph F. McCartney Northeastern Divisional Vice President Barton D. Weisman President & CEO-H.B.A. |
Consolidated Balance Sheets Assets December 31, ------------------------- Current Assets: 1998 1997 - --------------- ---- ---- Cash and cash equivalents $17,201,408 $17,774,219 Accounts and notes receivable, less allowance for doubtful accounts of $3,449,000 in 1998 and $3,663,000 in 1997 45,066,828 36,560,661 Prepaid income taxes - 366,712 Inventories and supplies 7,803,437 7,339,928 Deferred income taxes (Note 4) 324,054 567,119 Prepaid expenses and other 2,318,285 2,859,133 ----------- ----------- Total current assets 72,714,012 65,467,772 Property and Equipment: Laundry and linen equipment installations 8,985,945 10,993,558 Housekeeping and office equipment 8,482,207 8,731,042 Autos and trucks 51,110 157,611 ----------- ----------- 17,519,262 19,882,211 Less accumulated depreciation 11,416,214 14,245,071 ----------- ----------- 6,103,048 5,637,140 COSTS IN EXCESS OF FAIR VALUE OF NET ASSETS ACQUIRED less accumulated amortization of $1,420,284 in 1998 and $1,312,660 in 1997 (Note 1) 1,935,193 2,042,817 DEFERRED INCOME TAXES (Note 4) 2,131,535 1,067,670 OTHER NONCURRENT ASSETS (Note 1) 10,225,439 10,674,340 ----------- ----------- $93,109,227 $84,889,739 =========== =========== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 4,366,015 $4,275,902 Accrued payroll, accrued and withheld payroll taxes 5,147,634 3,770,310 Other accrued expenses (Note 9) 319,333 944,501 Income taxes payable (Note 4) 283,980 - Accrued insurance claims (Notes 1 and 10) 588,040 771,142 ----------- ----------- Total current liabilities 10,705,002 9,761,855 ACCRUED INSURANCE CLAIMS (Notes 1 and 10) 2,212,151 2,900,964 COMMITMENTS AND CONTINGENCIES (Notes 2 and 8) STOCKHOLDERS' EQUITY: (Note 3) Common stock, $.01 par value: 15,000,000 shares authorized, 11,034,207 shares issued in 1998 and 7,386,863 in 1997 110,342 73,869 Additional paid in capital 25,064,832 26,005,004 Retained earnings 55,016,900 46,148,047 ----------- ----------- Total stockholders' equity 80,192,074 72,226,920 ----------- ----------- $93,109,227 $84,889,739 =========== =========== See accompanying notes. |
123, net income and earnings per share would have been reduced as follows: (in thousands) Year Ended December 31, -------------------------------- 1998 1997 1996 ---- ---- ---- Net Income As reported $8,869 $5,894 $6,889 Pro forma $8,682 $5,174 $6,516 Basic Earnings Per Common Share As reported $ .79 $ .52 $ .57 Pro forma $ .78 $ .46 $ .54 Diluted Earnings Per Common Share As reported $ .77 $ .51 $ .56 Pro forma $ .75 $ .45 $ .53 Note 4--Income Taxes The provision for income taxes consists of: Year Ended December 31, ------------------------------------- 1998 1997 1996 ---- ---- ---- Current: Federal $4,789,900 $3,361,900 $2,923,800 State 1,552,900 1,180,100 1,005,400 ---------- ---------- ---------- 6,342,800 4,542,000 3,929,200 ---------- ---------- ---------- Deferred: Federal (631,700) 194,500 498,000 State (189,100) 63,500 162,800 ---------- ---------- ---------- (820,800) 258,000 660,800 ---------- ---------- ---------- Tax Provision $5,522,000 $4,800,000 $4,590,000 ========== ========== ========== Under FAS 109, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. |
Significant components of the Company's federal and state deferred tax assets and liabilities are as follows: Year Ended December 31, ----------------------- 1998 1997 ---- ---- Net current deferred assets: Allowance for doubtful accounts $1,431,335 $1,487,424 Accrued insurance claims- current 244,037 313,084 Expensing of housekeeping supplies (1,351,318) (1,233,389) ---------- ---------- $ 324,054 $ 567,119 ========== ========== Net noncurrent deferred tax assets: Deferred profit on laundry installation sales $ 188,063 $ 182,719 Non-deductible reserves 1,722,076 479,126 Depreciation of property and equipment (715,594) (901,975) Accrued insurance claims- noncurrent 918,043 1,177,791 Other 18,947 130,009 ---------- ---------- $2,131,535 $1,067,670 ========== ========== A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate (34%) to income before income taxes is as follows: Year Ended December 31, ----------------------------------- 1998 1997 1996 ---- ---- ---- Tax expense computed at statutory rate $4,892,900 $3,636,100 $3,902,900 Increases (decreases) resulting from: State income taxes, net of federal tax benefit 900,100 820,700 771,000 Tax exempt interest (400) (268,800) (222,100) Nondeductible reserves 416,500 Amortization of costs in excess of fair value of net assets acquired 36,600 37,100 36,600 Other, net (307,200) 158,400 101,600 -------- ------- ------- $5,522,000 $4,800,000 $4,590,000 ========== ========== ========== Note 5--Related Party Transactions The Company leases its corporate offices from a partnership in which the chief executive officer of the Company is a general partner. |
The Company earned revenue in the following service business categories: Year Ended December 31, ---------------------------------------- 1998 1997 1996 ---- ---- ---- Housekeeping services $134,727,000 $127,255,000 $120,687,000 Laundry & linen services 53,066,000 43,372,000 39,955,000 Food services 13,374,000 8,085,000 - Maintenance services & other 3,702,000 2,647,000 1,840,000 ------------ ------------ ------------ $204,869,000 $181,359,000 $162,482,000 ============ ============ ============ Note 7--Earnings Per Common Share A reconciliation of the numerator and denominators of basic and diluted earnings per common share (after giving effect to the August 27, 1998 three-for-two stock split) is as follows: Year Ended December 31, 1998 ------------------------------------ Income Shares Per-share (Numerator) (Denominator) Amount ----------- ------------- --------- Net Income $8,868,853 Basic earnings per common share 8,868,853 11,187,615 $ .79 Effect of dilutive securities: Options 324,582 ---------- ---------- ------ Diluted earnings per common share $8,868,853 11,512,197 $ .77 ========== ========== ====== Year Ended December 31, 1997 ------------------------------------ Income Shares Per-share (Numerator) (Denominator) Amount ----------- ------------- --------- Net Income $5,894,334 Basic earnings per common share 5,894,334 11,353,602 $ .52 Effect of dilutive securities: Options 224,538 ---------- ---------- ------ Diluted earnings per common share $5,894,334 11,578,140 $ .51 ========== ========== ====== Year Ended December 31, 1996 ------------------------------------ Income Shares Per-share (Numerator) (Denominator) Amount ----------- ------------- --------- Net Income $6,889,072 Basic earnings per common share 6,889,072 12,155,572 $ .57 Effect of dilutive securities: Options 47,678 ---------- ---------- ------ Diluted earnings per common share $6,889,072 12,203,250 $ .56 ========== ========== ====== Options to purchase 27,215, 321,450 and 659,700 shares of common stock at an average exercise price of $9.78, $8.39 and $7.72 for the years ended December 31, 1998, 1997 and 1996, respectively were outstanding during such years but not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market value of the common shares. |
================================================================================ A SUMMARY OF INCENTIVE STOCK OPTION ACTIVITY IS AS FOLLOWS: INCENTIVE STOCK OPTIONS --------------------------------------------------------- 1997 1996 1995 --------------------------------------------------------- NUMBER NUMBER NUMBER AVERAGE OF AVERAGE OF AVERAGE OF PRICE SHARES PRICE SHARES PRICE SHARES ------- ------ ------- ------ ------- ------ Beginning of period $10.17 619,207 $10.63 511,872 $10.86 473,385 Granted 11.58 116,695 9.38 158,410 8.61 90,039 Cancelled 10.02 (15,825) 13.50 (36,100) 12.20 (6,016) Exercised 9.30 (125,800) 8.47 (4,600) 8.81 (45,536) ------ -------- ------ ------- ------ ------- End of period $10.64 594,277 $10.17 629,582 $10.63 511,872 ====== ======== ====== ======= ====== ======= Exercisable at end of Period 477,582 498,937 421,833 ======== ======= ======= - -------------------------------------------------------------------------------- The Company has granted non-qualified stock options primarily to employees and directors under either the Company's 1995 Incentive and Non-Qualified Stock Option Plan for key employees of the Company's 1996 Non-Employee Director's Stock Option Plan. |
================================================================================ HEALTHCARE SERVICES GROUP INC. ================================================================================ A SUMMARY OF NON-QUALIFIED STOCK OPTION ACTIVITY IS AS FOLLOWS: NON QUALIFIED STOCK OPTIONS ---------------------------------------------------------- 1997 1996 1995 ---------------------------------------------------------- NUMBER NUMBER NUMBER AVERAGE OF AVERAGE OF AVERAGE OF PRICE SHARES PRICE SHARES PRICE SHARES ------- ------- ------- ------ ------- ------ Beginning of period $ 9.73 387,593 $9.77 337,453 $9.87 297,717 Granted 11.84 58,350 9.45 78,140 8.95 53,236 Cancelled -- -- -- -- 8.83 (4,500) Exercised 9.19 (116,900) 8.38 8,000 8.83 (9,000) ------- ------- ----- ------- ----- ------- End of period $10.26 329,043 $9.73 407,593 $9.77 337,453 ======= ======= ===== ======= ===== ======= Exercisable at end of period 270,693 347,688 284,217 ======= ======= ======= - -------------------------------------------------------------------------------- The Company applies APB Opinion 25 in measuring stock compensation. |
123, net income and earnings per share would have been reduced as follows: (in thousands) YEAR ENDED YEAR ENDED YEAR ENDED DECEMBER 31, DECEMBER 31, DECEMBER 31, 1997 1996 1995 ------------------------------------------ Net Income As reported $5,894 $6,889 $3,941 Pro forma $5,174 $6,516 $3,896 Basic Earnings Per Share As reported $ .78 $ .85 $ .48 Pro forma $ .68 $ .80 $ .48 Diluted Earnings Per Share As reported $ .76 $ .85 $ .48 Pro forma $ .67 $ .80 $ .47 NOTE 4 - INCOME TAXES - -------------------------------------------------------------------------------- The provision for income taxes consists of: YEAR ENDED DECEMBER 31, ----------------------------------------- 1997 1996 1995 ---------- ---------- ---------- Current: Federal $3,361,900 $2,923,800 $1,695,400 State 1,180,100 1,005,400 564,600 ---------- ---------- ---------- 4,542,000 3,929,200 2,260,000 ---------- ---------- ---------- Deferred: Federal 194,500 498,000 805,000 State 63,500 162,800 284,000 ---------- ---------- ---------- 258,000 660,800 1,089,000 ---------- ---------- ---------- Tax Provision 4,800,000 $4,590,000 $3,349,000 ========== ========== ========== Under FAS 109, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amount used for income tax purposes. |
Significant components of the Company's federal and state deferred tax assets and liabilities are as follows: YEAR ENDED DECEMBER 31, ------------------------------ 1997 1996 ---------- ---------- Net current deferred tax assets: Allowance for doubtful accounts $1,487,424 $1,547,517 Accrued insurance claims-current 313,084 305,495 Expensing of housekeeping supplies (1,233,389) (1,232,988) ---------- ---------- $567,119 $620,024 ========== ========== Net noncurrent deferred tax assets: Deferred profit on laundry installation sales $ 182,719 $200,585 Non-deductible reserves 479,126 762,464 Depreciation of property and equipment (901,975) (869,765) Accrued insurance claims-noncurrent 1,177,791 1,149,241 Other 130,009 30,240 ---------- ---------- $1,067,670 $1,272,765 ========== ========== A reconciliation of the provision for income taxes and the amount computed by applying the statutory federal income tax rate (34%) to income before income taxes is as follows: YEAR ENDED DECEMBER 31, -------------------------------------------------- 1997 1996 1995 -------------------------------------------------- Computed "expected" tax expense $3,636,100 $3,902,900 $2,478,500 Increases (decreases) in taxes resulting from: State income taxes, net of federal tax benefit 820,700 771,000 560,100 Tax exempt interest (268,800) (222,100) (111,000) Reserves recorded on the books not deductible for tax purposes 416,500 408,000 Amortization of costs in excess of fair value of net assets acquired 37,100 36,600 37,000 Other, net 158,400 101,600 (23,600) ---------- ---------- ---------- $4,800,000 $4,590,000 $3,349,000 ---------- ---------- ---------- NOTE 5 -- RELATED PARTY TRANSACTIONS - -------------------------------------------------------------------------------- The company leases its corporate offices from a partnership in which the chief executive officer of the Company is a general partner. |
NOTE 7 -- EARNINGS PER COMMON SHARE - -------------------------------------------------------------------------------- A reconcilation of the numerator and denominators of basic and diluted earnings per common share is as follows: YEAR ENDED DECEMBER 31, 1997 ------------------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ------------------------------------------------- Net Income 5,894,334 Basic earnings per common share 5,894,334 7,569,068 .78 Effect of dilutive securities: Options 149,692 --------- --------- --- Diluted earnings per common share 5,894,334 7,718,760 .76 ========= ========= === YEAR ENDED DECEMBER 31, 1996 ------------------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ------------------------------------------------- Net Income 6,889,072 Basic earnings per common share 6,889,072 8,103,715 .85 Effect of dilutive securities: Options 31,785 --------- --------- --- Diluted earnings per common share 6,889,072 8,135,500 .85 ========= ========= === YEAR ENDED DECEMBER 31, 1995 ------------------------------------------------- INCOME SHARES PER-SHARE (NUMERATOR) (DENOMINATOR) AMOUNT ------------------------------------------------- Net Income 3,940,558 Basic earnings per common share 3,940,558 8,140,293 .48 Effect of dilutive securities: Options 83,148 --------- --------- --- Diluted earnings per common share 3,940,558 8,223,441 .48 ========= ========= === Options to purchase 214,300, 439,800 and 310,144 shares of common stock at an average exercise price of $12.59, $11.58, and $11.86 for the years ended December 31, 1997, 1996 and 1995, respectively were outstanding during such years but not included in the computation of diluted earnings per share because the options' exercise prices were greater than the average market value of the common shares. |
/s/ Grant Thornton LLP - -------------------------- Grant Thornton LLP Parsippany, New Jersey February 18, 1998 HEALTHCARE SERVICES GROUP INC. - -------------------------------------------------------------------------------- Transfer Agent - -------------------------------------------------------------------------------- American Stock Transfer & Trust Co. 99 Wall St. New York, NY 10005 Auditors - -------------------------------------------------------------------------------- Grant Thornton LLP 9 Campus Drive Parsippany, NJ 07054 Corporate Counsel Olshan Grundman Frome & Rosenzweig LLP 505 Park Ave. New York, NY 10022 STOCK LISTING - -------------------------------------------------------------------------------- Listed on the NASDAQ National Market System Symbol - "HCSG" Annual Stockholders' Meeting - -------------------------------------------------------------------------------- Date - May 19, 1998 Time - 10:00 A.M. Place - The Radisson Hotel of Bucks County 2400 Old Lincoln Highway Trevose, PA Corporate Offices - -------------------------------------------------------------------------------- Healthcare Services Group, Inc. 2643 Huntingdon Pike Huntingdon Valley, PA 19006 215-938-1661 Officers And Corporate Management - -------------------------------------------------------------------------------- Daniel P McCartney Chief Executive Officer Thomas A. Cook President & Chief Operating Officer James L. DiStefano Chief Financial Officer and Treasurer Michael Harder Vice President - Credit Administration Richard W. Hudson Vice President - Finance And Secretary John D. Kelly Western Divisional Vice President Nicholas R. Marino Payroll & Benefits Manager Michael E. McBryan Mid-Atlantic Divisional Vice President - Sales Bryan D. McCartney Mid-Atlantic Divisional Vice President Joseph F. McCartney Northeastern Regional Vice President James P. O'Toole Mid-Atlantic Regional Vice President Brian M. Waters Vice President - Operations Michael L. Wyse Western Divisional Vice President - Sales Directors - -------------------------------------------------------------------------------- Daniel P. McCartney Chairman & Chief Executive Officer Thomas A. Cook President & Chief Operating Officer Joseph F. McCartney Northeastern Regional Vice President Barton D. Weisman President & Ceo-H.B.A. |
Additionally, general construction and development activities include the following risks: •construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property; •construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs; •some developments may fail to achieve expectations, possibly making them less profitable; •we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project; •we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. |
The following factors, among others, may adversely affect the income generated by our properties: •downturns in the national, regional and local economic conditions (particularly increases in unemployment); •competition from other office, apartment and commercial buildings; •local real estate market conditions, such as oversupply or reduction in demand for office, apartments or other commercial space; •changes in interest rates and availability of financing; •vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; •increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs; •civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses; •significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property; •declines in the financial condition of our tenants and our ability to collect rents from our tenants; and •decreases in the underlying value of our real estate. |
These current conditions, or similar conditions existing in the future, may adversely affect our results of operations, and financial condition as a result of the following, among other potential consequences: •the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons; •significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted; •our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense; •reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and •one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all. |
Income from the communities may be further adversely affected by, among other things, the following factors: •changes in the general or local economic climate, including layoffs, plant closings, industry slowdowns, relocations of significant local employers, and other events negatively impacting local employment rates and wages and the local economy; •local economic conditions in which the communities are located, such as oversupply of housing or a reduction in demand for rental housing; •adverse economic or market conditions due to COVID - 19 pandemic leading to a temporary or permanent move by tenants and/or prospective tenants from locations in which our communities are located; •the attractiveness and desirability of our communities to tenants, including, without limitation, the size and amenity offerings of our units, our technology offerings and our ability to identify and cost effectively implement new, relevant technologies and to keep up with constantly changing consumer demand for the latest innovations, including any increased requirements due to the significant increase in the number of people who continue to “work from home”; •inflationary environments in which the cost to operate and maintain communities increases at a rate greater than our ability to increase rents or deflationary environments where we may be exposed to declining rents more quickly under our short-term leases; •competition from other available housing alternatives; •changes in rent control or stabilization laws or other laws regulating housing and other increasing regulation on people and business in locations where our communities are located; •our ability to provide for adequate maintenance and insurance; •declines in the financial condition of our tenants, which may make it more difficult for us to collect rents from some tenants; •any decline in or tenants’ perceptions of the safety, convenience and attractiveness of our communities and the neighborhoods where they are located; and •changes in interest rates and availability of financing. |
In addition to base compensation, Pillar receives the following forms of additional compensation: (1)an annual net income fee equal to 7.5% of our net income as an incentive for successful investment and management of our assets; (2)an annual incentive sales fee to encourage periodic sales of appreciated real property at optimum value equal to 10.0% of the amount, if any, by which the aggregate sales consideration for all real estate sold by us during such fiscal year exceeds the sum of: (a)the cost of each such property as originally recorded in our books for tax purposes (without deduction for depreciation, amortization or reserve for losses); (b)capital improvements made to such assets during the period owned; and (c)all closing costs (including real estate commissions) incurred in the sale of such real estate; provided however, no incentive fee shall be paid unless (a) such real estate sold in such fiscal year, in the aggregate, has produced an 8.0% simple annual return on the net investment including capital improvements, calculated over the holding period before depreciation and inclusive of operating income and sales consideration, and (b) the aggregate net operating income from all real estate owned for each of the prior and current fiscal years shall be at least 5.0% higher in the current fiscal year than in the prior fiscal year; (3)an acquisition commission, from an unaffiliated party of any existing mortgage or loan, for supervising the acquisition, purchase or long-term lease of real estate equal to the lesser of: (a)up to 1.0% of the cost of acquisition, inclusive of commissions, if any, paid to non-affiliated brokers; or (b)the compensation customarily charged in arm’s-length transactions by others rendering similar property acquisition services as an ongoing public activity in the same geographical location and for comparable property, provided that the aggregate purchase price of each property (including acquisition fees and real estate brokerage commissions) may not exceed such property’s appraised value at acquisition; (4)a construction fee equal to 6.0% of the so-called “hard costs” only of any costs of construction on a completed basis, based upon amounts set forth as approved on any architect’s certificate issued in connection with such construction, which fee is payable at such time as the applicable architect certifies other costs for payment to third parties. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Policies with Respect to Certain Activities Article 14 of our Articles of Incorporation provides that we shall not, directly or indirectly, contract or engage in any transaction with (1) any director, officer or employee of the Company, (2) any director, officer or employee of the advisor, (3) the advisor, or (4) any affiliate or associate (as such terms are defined in Rule 12b-2 under the Exchange Act of any of the aforementioned persons, unless (a) the material facts as to the relationship among or financial interest of the relevant individuals or persons and as to the contract or transaction are disclosed to or are known by our Board of Directors or the appropriate committee thereof and (b)our Board of Directors or committee thereof determines that such contract or transaction is fair to the Company and simultaneously authorizes or ratifies such contract or transaction by the affirmative vote of a majority of our independent directors entitled to vote thereon. |
Additionally, general construction and development activities include the following risks: ● construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property; ● construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs; ● some developments may fail to achieve expectations, possibly making them less profitable; ● we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project; ● we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. |
The following factors, among others, may adversely affect the income generated by our properties: ● downturns in the national, regional and local economic conditions (particularly increases in unemployment); ● competition from other office and commercial buildings; ● local real estate market conditions, such as oversupply or reduction in demand for office or other commercial space; ● changes in interest rates and availability of financing; ● vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; ● increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs; ● civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses; ● significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property; ● declines in the financial condition of our tenants and our ability to collect rents from our tenants; and ● decreases in the underlying value of our real estate. |
These current conditions, or similar conditions existing in the future, may adversely affect our results of operations, and financial condition as a result of the following, among other potential consequences: ● the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons; ● significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted; ● our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense; ● reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and ● one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all. |
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: ● general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); ● risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; ● failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; ● risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities); ● risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; ● costs of compliance with the Americans with Disabilities Act and other similar laws and regulations; ● potential liability for uninsured losses and environmental contamination; ● risks associated with our dependence on key personnel whose continued service is not guaranteed; and ● the other risk factors identified in this Form 10-K, including those described under the caption “Risk Factors.” The risks included here are not exhaustive. |
In addition to base compensation, Pillar receives the following forms of additional compensation: (1) an annual net income fee equal to 7.5% of TCI’s net income as an incentive for successful investment and management of the Company’s assets; (2) an annual incentive sales fee to encourage periodic sales of appreciated real property at optimum value equal to 10.0% of the amount, if any, by which the aggregate sales consideration for all real estate sold by TCI during such fiscal year exceeds the sum of: (a) the cost of each such property as originally recorded in TCI’s books for tax purposes (without deduction for depreciation, amortization or reserve for losses); (b) capital improvements made to such assets during the period owned; and (c) all closing costs (including real estate commissions) incurred in the sale of such real estate; provided however, no incentive fee shall be paid unless (a) such real estate sold in such fiscal year, in the aggregate, has produced an 8.0% simple annual return on the net investment including capital improvements, calculated over the holding period before depreciation and inclusive of operating income and sales consideration, and (b) the aggregate net operating income from all real estate owned for each of the prior and current fiscal years shall be at least 5.0% higher in the current fiscal year than in the prior fiscal year; (3) an acquisition commission, from an unaffiliated party of any existing mortgage or loan, for supervising the acquisition, purchase or long-term lease of real estate equal to the lesser of: (a) up to 1.0% of the cost of acquisition, inclusive of commissions, if any, paid to non-affiliated brokers; or (b) the compensation customarily charged in arm’s-length transactions by others rendering similar property acquisition services as an ongoing public activity in the same geographical location and for comparable property, provided that the aggregate purchase price of each property (including acquisition fees and real estate brokerage commissions) may not exceed such property’s appraised value at acquisition; (4) a construction fee equal to 6.0% of the so-called “hard costs” only of any costs of construction on a completed basis, based upon amounts set forth as approved on any architect’s certificate issued in connection with such construction, which fee is payable at such time as the applicable architect certifies other costs for payment to third parties. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Policies with Respect to Certain Activities Article 14 of TCI’s Articles of Incorporation provides that TCI shall not, directly or indirectly, contract or engage in any transaction with (1) any director, officer or employee of TCI, (2) any director, officer or employee of the advisor, (3) the advisor, or (4) any affiliate or associate (as such terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of any of the aforementioned persons, unless (a) the material facts as to the relationship among or financial interest of the relevant individuals or persons and as to the contract or transaction are disclosed to or are known by TCI’s Board of Directors or the appropriate committee thereof and (b) TCI’s Board of Directors or committee thereof determines that such contract or transaction is fair to TCI and simultaneously authorizes or ratifies such contract or transaction by the affirmative vote of a majority of independent directors of TCI entitled to vote thereon. |
Additionally, general construction and development activities include the following risks: ● construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property; ● construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs; ● some developments may fail to achieve expectations, possibly making them less profitable; ● we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project; ● we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. |
The following factors, among others, may adversely affect the income generated by our properties: ● downturns in the national, regional and local economic conditions (particularly increases in unemployment); ● competition from other office and commercial buildings; ● local real estate market conditions, such as oversupply or reduction in demand for office or other commercial space; ● changes in interest rates and availability of financing; ● vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; ● increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs; ● civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses; ● significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property; ● declines in the financial condition of our tenants and our ability to collect rents from our tenants; and ● decreases in the underlying value of our real estate. |
These current conditions, or similar conditions existing in the future, may adversely affect our results of operations, and financial condition as a result of the following, among other potential consequences: ● the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons; ● significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted; ● our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense; ● reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and ● one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all. |
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: ● general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); ● risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; ● failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; ● risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities); ● risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; ● costs of compliance with the Americans with Disabilities Act and other similar laws and regulations; ● potential liability for uninsured losses and environmental contamination; ● risks associated with our dependence on key personnel whose continued service is not guaranteed; and ● the other risk factors identified in this Form 10-K, including those described under the caption “Risk Factors.” The risks included here are not exhaustive. |
In addition to base compensation, Pillar receives the following forms of additional compensation: (1) an annual net income fee equal to 7.5% of TCI’s net income as an incentive for successful investment and management of the Company’s assets; (2) an annual incentive sales fee to encourage periodic sales of appreciated real property at optimum value equal to 10.0% of the amount, if any, by which the aggregate sales consideration for all real estate sold by TCI during such fiscal year exceeds the sum of: (a) the cost of each such property as originally recorded in TCI’s books for tax purposes (without deduction for depreciation, amortization or reserve for losses); (b) capital improvements made to such assets during the period owned; and (c) all closing costs (including real estate commissions) incurred in the sale of such real estate; provided however, no incentive fee shall be paid unless (a) such real estate sold in such fiscal year, in the aggregate, has produced an 8.0% simple annual return on the net investment including capital improvements, calculated over the holding period before depreciation and inclusive of operating income and sales consideration, and (b) the aggregate net operating income from all real estate owned for each of the prior and current fiscal years shall be at least 5.0% higher in the current fiscal year than in the prior fiscal year; (3) an acquisition commission, from an unaffiliated party of any existing mortgage or loan, for supervising the acquisition, purchase or long-term lease of real estate equal to the lesser of: (a) up to 1.0% of the cost of acquisition, inclusive of commissions, if any, paid to non-affiliated brokers; or (b) the compensation customarily charged in arm’s-length transactions by others rendering similar property acquisition services as an ongoing public activity in the same geographical location and for comparable property, provided that the aggregate purchase price of each property (including acquisition fees and real estate brokerage commissions) may not exceed such property’s appraised value at acquisition; (4) a construction fee equal to 6.0% of the so-called “hard costs” only of any costs of construction on a completed basis, based upon amounts set forth as approved on any architect’s certificate issued in connection with such construction, which fee is payable at such time as the applicable architect certifies other costs for payment to third parties. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Policies with Respect to Certain Activities Article 14 of TCI’s Articles of Incorporation provides that TCI shall not, directly or indirectly, contract or engage in any transaction with (1) any director, officer or employee of TCI, (2) any director, officer or employee of the advisor, (3) the advisor, or (4) any affiliate or associate (as such terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of any of the aforementioned persons, unless (a) the material facts as to the relationship among or financial interest of the relevant individuals or persons and as to the contract or transaction are disclosed to or are known by TCI’s Board of Directors or the appropriate committee thereof and (b) TCI’s Board of Directors or committee thereof determines that such contract or transaction is fair to TCI and simultaneously authorizes or ratifies such contract or transaction by the affirmative vote of a majority of independent directors of TCI entitled to vote thereon. |
Additionally, general construction and development activities include the following risks: • construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property; • construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs; • some developments may fail to achieve expectations, possibly making them less profitable; • we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project; • we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. |
The following factors, among others, may adversely affect the income generated by our properties: • downturns in the national, regional and local economic conditions (particularly increases in unemployment); • competition from other office and commercial buildings; • local real estate market conditions, such as oversupply or reduction in demand for office or other commercial space; • changes in interest rates and availability of financing; • vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; • increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs; • civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses; • significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property; • declines in the financial condition of our tenants and our ability to collect rents from our tenants; and • decreases in the underlying value of our real estate. |
These current conditions, or similar conditions existing in the future, may adversely affect our results of operations, and financial condition as a result of the following, among other potential consequences: • the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons; • significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted; • our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense; • reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and • one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all. |
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: ● general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); ● risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; ● failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; ● risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities); ● risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; ● costs of compliance with the Americans with Disabilities Act and other similar laws and regulations; ● potential liability for uninsured losses and environmental contamination; ● risks associated with our dependence on key personnel whose continued service is not guaranteed; and ● the other risk factors identified in this Form 10-K, including those described under the caption “Risk Factors.” The risks included here are not exhaustive. |
In addition to base compensation, Pillar receives the following forms of additional compensation: (1) an annual net income fee equal to 7.5% of TCI’s net income as an incentive for successful investment and management of the Company’s assets; (2) an annual incentive sales fee to encourage periodic sales of appreciated real property at optimum value equal to 10.0% of the amount, if any, by which the aggregate sales consideration for all real estate sold by TCI during such fiscal year exceeds the sum of: (a) the cost of each such property as originally recorded in TCI’s books for tax purposes (without deduction for depreciation, amortization or reserve for losses); (b) capital improvements made to such assets during the period owned; and (c) all closing costs (including real estate commissions) incurred in the sale of such real estate; provided however, no incentive fee shall be paid unless (a) such real estate sold in such fiscal year, in the aggregate, has produced an 8.0% simple annual return on the net investment including capital improvements, calculated over the holding period before depreciation and inclusive of operating income and sales consideration, and (b) the aggregate net operating income from all real estate owned for each of the prior and current fiscal years shall be at least 5.0% higher in the current fiscal year than in the prior fiscal year; (3) an acquisition commission, from an unaffiliated party of any existing mortgage or loan, for supervising the acquisition, purchase or long-term lease of real estate equal to the lesser of: (a) up to 1.0% of the cost of acquisition, inclusive of commissions, if any, paid to non-affiliated brokers; or (b) the compensation customarily charged in arm’s-length transactions by others rendering similar property acquisition services as an ongoing public activity in the same geographical location and for comparable property, provided that the aggregate purchase price of each property (including acquisition fees and real estate brokerage commissions) may not exceed such property’s appraised value at acquisition; (4) a construction fee equal to 6.0% of the so-called “hard costs” only of any costs of construction on a completed basis, based upon amounts set forth as approved on any architect’s certificate issued in connection with such construction, which fee is payable at such time as the applicable architect certifies other costs for payment to third parties. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Policies with Respect to Certain Activities Article 14 of TCI’s Articles of Incorporation provides that TCI shall not, directly or indirectly, contract or engage in any transaction with (1) any director, officer or employee of TCI, (2) any director, officer or employee of the advisor, (3) the advisor, or (4) any affiliate or associate (as such terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of any of the aforementioned persons, unless (a) the material facts as to the relationship among or financial interest of the relevant individuals or persons and as to the contract or transaction are disclosed to or are known by TCI’s Board of Directors or the appropriate committee thereof and (b) TCI’s Board of Directors or committee thereof determines that such contract or transaction is fair to TCI and simultaneously authorizes or ratifies such contract or transaction by the affirmative vote of a majority of independent directors of TCI entitled to vote thereon. |
Additionally, general construction and development activities include the following risks: ● construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property; ● construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs; ● some developments may fail to achieve expectations, possibly making them less profitable; ● we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project; ● we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. |
The following factors, among others, may adversely affect the income generated by our properties: ● downturns in the national, regional and local economic conditions (particularly increases in unemployment); ● competition from other office and commercial buildings; ● local real estate market conditions, such as oversupply or reduction in demand for office or other commercial space; ● changes in interest rates and availability of financing; ● vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; ● increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs; ● civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses; ● significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property; ● declines in the financial condition of our tenants and our ability to collect rents from our tenants; and ● decreases in the underlying value of our real estate. |
These current conditions, or similar conditions existing in the future, may adversely affect our results of operations, and financial condition as a result of the following, among other potential consequences: ● the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons; ● significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted; ● our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense; ● reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and ● one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all. |
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: ● general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); ● risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; ● failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; ● risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities); ● risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; ● costs of compliance with the Americans with Disabilities Act and other similar laws and regulations; ● potential liability for uninsured losses and environmental contamination; ● risks associated with our dependence on key personnel whose continued service is not guaranteed; and ● the other risk factors identified in this Form 10-K, including those described under the caption “Risk Factors.” The risks included here are not exhaustive. |
In addition to base compensation, Pillar receives the following forms of additional compensation: (1) an annual net income fee equal to 7.5% of TCI’s net income as an incentive for successful investment and management of the Company’s assets; (2) an annual incentive sales fee to encourage periodic sales of appreciated real property at optimum value equal to 10.0% of the amount, if any, by which the aggregate sales consideration for all real estate sold by TCI during such fiscal year exceeds the sum of: (a) the cost of each such property as originally recorded in TCI’s books for tax purposes (without deduction for depreciation, amortization or reserve for losses); (b) capital improvements made to such assets during the period owned; and (c) all closing costs (including real estate commissions) incurred in the sale of such real estate; provided however, no incentive fee shall be paid unless (a) such real estate sold in such fiscal year, in the aggregate, has produced an 8.0% simple annual return on the net investment including capital improvements, calculated over the holding period before depreciation and inclusive of operating income and sales consideration, and (b) the aggregate net operating income from all real estate owned for each of the prior and current fiscal years shall be at least 5.0% higher in the current fiscal year than in the prior fiscal year; (3) an acquisition commission, from an unaffiliated party of any existing mortgage or loan, for supervising the acquisition, purchase or long-term lease of real estate equal to the lesser of: (a) up to 1.0% of the cost of acquisition, inclusive of commissions, if any, paid to non-affiliated brokers; or (b) the compensation customarily charged in arm’s-length transactions by others rendering similar property acquisition services as an ongoing public activity in the same geographical location and for comparable property, provided that the aggregate purchase price of each property (including acquisition fees and real estate brokerage commissions) may not exceed such property’s appraised value at acquisition; (4) a construction fee equal to 6.0% of the so-called “hard costs” only of any costs of construction on a completed basis, based upon amounts set forth as approved on any architect’s certificate issued in connection with such construction, which fee is payable at such time as the applicable architect certifies other costs for payment to third parties. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Policies with Respect to Certain Activities Article 14 of TCI’s Articles of Incorporation provides that TCI shall not, directly or indirectly, contract or engage in any transaction with (1) any director, officer or employee of TCI, (2) any director, officer or employee of the advisor, (3) the advisor, or (4) any affiliate or associate (as such terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of any of the aforementioned persons, unless (a) the material facts as to the relationship among or financial interest of the relevant individuals or persons and as to the contract or transaction are disclosed to or are known by TCI’s Board of Directors or the appropriate committee thereof and (b) TCI’s Board of Directors or committee thereof determines that such contract or transaction is fair to TCI and simultaneously authorizes or ratifies such contract or transaction by the affirmative vote of a majority of independent directors of TCI entitled to vote thereon. |
Additionally, general construction and development activities include the following risks: · construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property; · construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs; · some developments may fail to achieve expectations, possibly making them less profitable; · we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project; · we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. |
The following factors, among others, may adversely affect the income generated by our properties: · downturns in the national, regional and local economic conditions (particularly increases in unemployment); · competition from other office and commercial buildings; · local real estate market conditions, such as oversupply or reduction in demand for office or other commercial space; · changes in interest rates and availability of financing; · vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; · increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs; · civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses; · significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property; · declines in the financial condition of our tenants and our ability to collect rents from our tenants; and · decreases in the underlying value of our real estate. |
These current conditions, or similar conditions existing in the future, may adversely affect our results of operations, and financial condition as a result of the following, among other potential consequences: · the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons; · significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted; · our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense; · reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and · one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all. |
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: · general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); · risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; · failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; · risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities); · risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; · costs of compliance with the Americans with Disabilities Act and other similar laws and regulations; · potential liability for uninsured losses and environmental contamination; · risks associated with our dependence on key personnel whose continued service is not guaranteed; and · the other risk factors identified in this Form 10-K, including those described under the caption “Risk Factors.” The risks included here are not exhaustive. |
In addition to base compensation, Pillar receives the following forms of additional compensation: (1) an annual net income fee equal to 7.5% of TCI’s net income as an incentive for successful investment and management of the Company’s assets; (2) an annual incentive sales fee to encourage periodic sales of appreciated real property at optimum value equal to 10.0% of the amount, if any, by which the aggregate sales consideration for all real estate sold by TCI during such fiscal year exceeds the sum of: (a) the cost of each such property as originally recorded in TCI’s books for tax purposes (without deduction for depreciation, amortization or reserve for losses); (b) capital improvements made to such assets during the period owned; and (c) all closing costs (including real estate commissions) incurred in the sale of such real estate; provided however, no incentive fee shall be paid unless (a) such real estate sold in such fiscal year, in the aggregate, has produced an 8.0% simple annual return on the net investment including capital improvements, calculated over the holding period before depreciation and inclusive of operating income and sales consideration, and (b) the aggregate net operating income from all real estate owned for each of the prior and current fiscal years shall be at least 5.0% higher in the current fiscal year than in the prior fiscal year; (3) an acquisition commission, from an unaffiliated party of any existing mortgage or loan, for supervising the acquisition, purchase or long-term lease of real estate equal to the lesser of: (a) up to 1.0% of the cost of acquisition, inclusive of commissions, if any, paid to non-affiliated brokers; or (b) the compensation customarily charged in arm’s-length transactions by others rendering similar property acquisition services as an ongoing public activity in the same geographical location and for comparable property, provided that the aggregate purchase price of each property (including acquisition fees and real estate brokerage commissions) may not exceed such property’s appraised value at acquisition; (4) a construction fee equal to 6.0% of the so-called “hard costs” only of any costs of construction on a completed basis, based upon amounts set forth as approved on any architect’s certificate issued in connection with such construction, which fee is payable at such time as the applicable architect certifies other costs for payment to third parties. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Policies with Respect to Certain Activities Article 14 of TCI’s Articles of Incorporation provides that TCI shall not, directly or indirectly, contract or engage in any transaction with (1) any director, officer or employee of TCI, (2) any director, officer or employee of the advisor, (3) the advisor, or (4) any affiliate or associate (as such terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of any of the aforementioned persons, unless (a) the material facts as to the relationship among or financial interest of the relevant individuals or persons and as to the contract or transaction are disclosed to or are known by TCI’s Board of Directors or the appropriate committee thereof and (b) TCI’s Board of Directors or committee thereof determines that such contract or transaction is fair to TCI and simultaneously authorizes or ratifies such contract or transaction by the affirmative vote of a majority of independent directors of TCI entitled to vote thereon. |
Additionally, general construction and development activities include the following risks: • construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property; • construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs; • some developments may fail to achieve expectations, possibly making them less profitable; • we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project; • we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. |
The following factors, among others, may adversely affect the income generated by our properties: • downturns in the national, regional and local economic conditions (particularly increases in unemployment); • competition from other office and commercial buildings; • local real estate market conditions, such as oversupply or reduction in demand for office or other commercial space; • changes in interest rates and availability of financing; • vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; • increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs; • civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses; • significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property; • declines in the financial condition of our tenants and our ability to collect rents from our tenants; and • decreases in the underlying value of our real estate. |
These current conditions, or similar conditions existing in the future, may adversely affect our results of operations, and financial condition as a result of the following, among other potential consequences: • the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons; • significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted; • our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense; • reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and • one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all. |
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: • general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); • risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; • failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; • risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities); • risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; • costs of compliance with the Americans with Disabilities Act and other similar laws and regulations; • potential liability for uninsured losses and environmental contamination; • risks associated with our dependence on key personnel whose continued service is not guaranteed; and • the other risk factors identified in this Form 10-K, including those described under the caption “Risk Factors.” The risks included here are not exhaustive. |
In addition to base compensation, Pillar receives the following forms of additional compensation: (1) an annual net income fee equal to 7.5% of TCI’s net income as an incentive for successful investment and management of the Company’s assets; (2) an annual incentive sales fee to encourage periodic sales of appreciated real property at optimum value equal to 10.0% of the amount, if any, by which the aggregate sales consideration for all real estate sold by TCI during such fiscal year exceeds the sum of: (a) the cost of each such property as originally recorded in TCI’s books for tax purposes (without deduction for depreciation, amortization or reserve for losses); (b) capital improvements made to such assets during the period owned; and (c) all closing costs (including real estate commissions) incurred in the sale of such real estate; provided however, no incentive fee shall be paid unless (a) such real estate sold in such fiscal year, in the aggregate, has produced an 8.0% simple annual return on the net investment including capital improvements, calculated over the holding period before depreciation and inclusive of operating income and sales consideration, and (b) the aggregate net operating income from all real estate owned for each of the prior and current fiscal years shall be at least 5.0% higher in the current fiscal year than in the prior fiscal year; (3) an acquisition commission, from an unaffiliated party of any existing mortgage or loan, for supervising the acquisition, purchase or long-term lease of real estate equal to the lesser of: (a) up to 1.0% of the cost of acquisition, inclusive of commissions, if any, paid to non-affiliated brokers; or (b) the compensation customarily charged in arm’s-length transactions by others rendering similar property acquisition services as an ongoing public activity in the same geographical location and for comparable property, provided that the aggregate purchase price of each property (including acquisition fees and real estate brokerage commissions) may not exceed such property’s appraised value at acquisition; (4) a construction fee equal to 6.0% of the so-called “hard costs” only of any costs of construction on a completed basis, based upon amounts set forth as approved on any architect’s certificate issued in connection with such construction, which fee is payable at such time as the applicable architect certifies other costs for payment to third parties. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Policies with Respect to Certain Activities Article 14 of TCI’s Articles of Incorporation provides that TCI shall not, directly or indirectly, contract or engage in any transaction with (1) any director, officer or employee of TCI, (2) any director, officer or employee of the advisor, (3) the advisor, or (4) any affiliate or associate (as such terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of any of the aforementioned persons, unless (a) the material facts as to the relationship among or financial interest of the relevant individuals or persons and as to the contract or transaction are disclosed to or are known by TCI’s Board of Directors or the appropriate committee thereof and (b) TCI’s Board of Directors or committee thereof determines that such contract or transaction is fair to TCI and simultaneously authorizes or ratifies such contract or transaction by the affirmative vote of a majority of independent directors of TCI entitled to vote thereon. |
Additionally, general construction and development activities include the following risks: • construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property; • construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs; • some developments may fail to achieve expectations, possibly making them less profitable; • we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project; • we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. |
The following factors, among others, may adversely affect the income generated by our properties: • downturns in the national, regional and local economic conditions (particularly increases in unemployment); • competition from other office and commercial buildings; • local real estate market conditions, such as oversupply or reduction in demand for office or other commercial space; • changes in interest rates and availability of financing; • vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; • increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs; • civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses; • significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property; • declines in the financial condition of our tenants and our ability to collect rents from our tenants; and • decreases in the underlying value of our real estate. |
These current conditions, or similar conditions existing in the future, may adversely affect our results of operations, and financial condition as a result of the following, among other potential consequences: • the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons; • significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted; • our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense; • reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and • one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all. |
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: • general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); • risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; • failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; • risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities); • risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; • costs of compliance with the Americans with Disabilities Act and other similar laws and regulations; • potential liability for uninsured losses and environmental contamination; • risks associated with our dependence on key personnel whose continued service is not guaranteed; and • the other risk factors identified in this Form 10-K, including those described under the caption “Risk Factors.” The risks included here are not exhaustive. |
DANIEL J. MOOS, 63 President (since April 2007) and Chief Executive Officer (effective March 2010) of ARL, TCI, IOT and (effective March 2007) of Prime, and (effective April 30, 2011) of Pillar; Senior Vice President and Business Line Manager for U.S. Bancorp (NYSE:USB) working out of their offices in Houston, Texas from 2003 to April 2007: Executive Vice President and Chief Financial Officer, Fleetcor Technologies a privately held transaction processing company that was headquartered in New Orleans, Louisiana from 1998 to 2003; Senior Vice President and Chief Financial Officer, ICSA a privately held internet security and information company headquartered in Carlisle, Pennsylvania from 1996 to 1998; and for more than five years prior thereto was employed in various financial and operating roles for PhoneTel Technologies, Inc. which was a publicly traded telecommunication company on the American Stock Exchange headquartered in Cleveland, Ohio (1992-1996) and LDI Corporation which was a publicly traded computer equipment sales/service and asset leasing company listed on the NASDAQ and headquartered in Cleveland, Ohio. |
In addition to base compensation, Pillar receives the following forms of additional compensation: (1) an annual net income fee equal to 7.5% of TCI’s net income as an incentive for successful investment and management of the Company’s assets; (2) an annual incentive sales fee to encourage periodic sales of appreciated real property at optimum value equal to 10.0% of the amount, if any, by which the aggregate sales consideration for all real estate sold by TCI during such fiscal year exceeds the sum of: (a) the cost of each such property as originally recorded in TCI’s books for tax purposes (without deduction for depreciation, amortization or reserve for losses); (b) capital improvements made to such assets during the period owned; and (c) all closing costs (including real estate commissions) incurred in the sale of such real estate; provided however, no incentive fee shall be paid unless (a) such real estate sold in such fiscal year, in the aggregate, has produced an 8.0% simple annual return on the net investment including capital improvements, calculated over the holding period before depreciation and inclusive of operating income and sales consideration, and (b) the aggregate net operating income from all real estate owned for each of the prior and current fiscal years shall be at least 5.0% higher in the current fiscal year than in the prior fiscal year; (3) an acquisition commission, from an unaffiliated party of any existing mortgage or loan, for supervising the acquisition, purchase or long-term lease of real estate equal to the lesser of: (a) up to 1.0% of the cost of acquisition, inclusive of commissions, if any, paid to non-affiliated brokers; or (b) the compensation customarily charged in arm’s-length transactions by others rendering similar property acquisition services as an ongoing public activity in the same geographical location and for comparable property, provided that the aggregate purchase price of each property (including acquisition fees and real estate brokerage commissions) may not exceed such property’s appraised value at acquisition; (4) a construction fee equal to 6.0% of the so-called “hard costs” only of any costs of construction on a completed basis, based upon amounts set forth as approved on any architect’s certificate issued in connection with such construction, which fee is payable at such time as the applicable architect certifies other costs for payment to third parties. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Policies with Respect to Certain Activities Article 14 of TCI’s Articles of Incorporation provides that TCI shall not, directly or indirectly, contract or engage in any transaction with (1) any director, officer or employee of TCI, (2) any director, officer or employee of the advisor, (3) the advisor, or (4) any affiliate or associate (as such terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of any of the aforementioned persons, unless (a) the material facts as to the relationship among or financial interest of the relevant individuals or persons and as to the contract or transaction are disclosed to or are known by TCI’s Board of Directors or the appropriate committee thereof and (b) TCI’s Board of Directors or committee thereof determines that such contract or transaction is fair to TCI and simultaneously authorizes or ratifies such contract or transaction by the affirmative vote of a majority of independent directors of TCI entitled to vote thereon. |
Additionally, general construction and development activities include the following risks: • construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property; • construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs; • some developments may fail to achieve expectations, possibly making them less profitable; • we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project; • we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. |
The following factors, among others, may adversely affect the income generated by our properties: • downturns in the national, regional and local economic conditions (particularly increases in unemployment); • competition from other office and commercial buildings; • local real estate market conditions, such as oversupply or reduction in demand for office or other commercial space; • changes in interest rates and availability of financing; • vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; • increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs; • civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses; • significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property; • declines in the financial condition of our tenants and our ability to collect rents from our tenants; and • decreases in the underlying value of our real estate. |
These current conditions, or similar conditions existing in the future, may adversely affect our results of operations, and financial condition as a result of the following, among other potential consequences: • the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons; • significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted; • our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense; • reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and • one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all. |
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: • general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); • risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; • failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; • risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities); • risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; • costs of compliance with the Americans with Disabilities Act and other similar laws and regulations; • potential liability for uninsured losses and environmental contamination; • risks associated with our dependence on key personnel whose continued service is not guaranteed; and • the other risk factors identified in this Form 10-K, including those described under the caption “Risk Factors.” The risks included here are not exhaustive. |
DANIEL J. MOOS, 62 President (since April 2007) and Chief Executive Officer (effective March 2010) of ARL, TCI, IOT and (effective March 2007) of Prime, and (effective April 30, 2011) of Pillar; Senior Vice President and Business Line Manager for U.S. Bancorp (NYSE:USB) working out of their offices in Houston, Texas from 2003 to April 2007: Executive Vice President and Chief Financial Officer, Fleetcor Technologies a privately held transaction processing company that was headquartered in New Orleans, Louisiana from 1998 to 2003; Senior Vice President and Chief Financial Officer, ICSA a privately held internet security and information company headquartered in Carlisle, Pennsylvania from 1996 to 1998; and for more than five years prior thereto was employed in various financial and operating roles for PhoneTel Technologies, Inc. which was a publicly traded telecommunication company on the American Stock Exchange headquartered in Cleveland, Ohio (1992-1996) and LDI Corporation which was a publicly traded computer equipment sales/service and asset leasing company listed on the NASDAQ and headquartered in Cleveland, Ohio. |
In addition to base compensation, Pillar receives the following forms of additional compensation: (1) an annual net income fee equal to 7.5% of TCI’s net income as an incentive for successful investment and management of the Company’s assets; (2) an annual incentive sales fee to encourage periodic sales of appreciated real property at optimum value equal to 10.0% of the amount, if any, by which the aggregate sales consideration for all real estate sold by TCI during such fiscal year exceeds the sum of: (a) the cost of each such property as originally recorded in TCI’s books for tax purposes (without deduction for depreciation, amortization or reserve for losses); (b) capital improvements made to such assets during the period owned; and (c) all closing costs (including real estate commissions) incurred in the sale of such real estate; provided however, no incentive fee shall be paid unless (a) such real estate sold in such fiscal year, in the aggregate, has produced an 8.0% simple annual return on the net investment including capital improvements, calculated over the holding period before depreciation and inclusive of operating income and sales consideration, and (b) the aggregate net operating income from all real estate owned for each of the prior and current fiscal years shall be at least 5.0% higher in the current fiscal year than in the prior fiscal year; (3) an acquisition commission, from an unaffiliated party of any existing mortgage or loan, for supervising the acquisition, purchase or long-term lease of real estate equal to the lesser of: (a) up to 1.0% of the cost of acquisition, inclusive of commissions, if any, paid to non-affiliated brokers; or (b) the compensation customarily charged in arm’s-length transactions by others rendering similar property acquisition services as an ongoing public activity in the same geographical location and for comparable property, provided that the aggregate purchase price of each property (including acquisition fees and real estate brokerage commissions) may not exceed such property’s appraised value at acquisition; (4) a construction fee equal to 6.0% of the so-called “hard costs” only of any costs of construction on a completed basis, based upon amounts set forth as approved on any architect’s certificate issued in connection with such construction, which fee is payable at such time as the applicable architect certifies other costs for payment to third parties. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Policies with Respect to Certain Activities Article 14 of TCI’s Articles of Incorporation provides that TCI shall not, directly or indirectly, contract or engage in any transaction with (1) any director, officer or employee of TCI, (2) any director, officer or employee of the advisor, (3) the advisor, or (4) any affiliate or associate (as such terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of any of the aforementioned persons, unless (a) the material facts as to the relationship among or financial interest of the relevant individuals or persons and as to the contract or transaction are disclosed to or are known by TCI’s Board of Directors or the appropriate committee thereof and (b) TCI’s Board of Directors or committee thereof determines that such contract or transaction is fair to TCI and simultaneously authorizes or ratifies such contract or transaction by the affirmative vote of a majority of independent directors of TCI entitled to vote thereon. |
Additionally, general construction and development activities include the following risks: • construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property; • construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs; • some developments may fail to achieve expectations, possibly making them less profitable; • we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project; • we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. |
The following factors, among others, may adversely affect the income generated by our properties: • downturns in the national, regional and local economic conditions (particularly increases in unemployment); • competition from other office and commercial buildings; • local real estate market conditions, such as oversupply or reduction in demand for office or other commercial space; • changes in interest rates and availability of financing; • vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; • increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs; • civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses; • significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property; • declines in the financial condition of our tenants and our ability to collect rents from our tenants; and • decreases in the underlying value of our real estate. |
These current conditions, or similar conditions existing in the future, may adversely affect our results of operations, and financial condition as a result of the following, among other potential consequences: • the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons; • significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted; • our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense; • reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and • one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all. |
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: • general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); • risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; • failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; • risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities); • risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; • costs of compliance with the Americans with Disabilities Act and other similar laws and regulations; • potential liability for uninsured losses and environmental contamination; • risks associated with our dependence on key personnel whose continued service is not guaranteed; and • the other risk factors identified in this Form 10-K, including those described under the caption “Risk Factors.” The risks included here are not exhaustive. |
Schedule III TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2011 Schedule III TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2011 Schedule III TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2011 Schedule III TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2011 Schedule III TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2011 Schedule III TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2011 Schedule III TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2011 Schedule III TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2011 Schedule III TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2011 TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION As of December 31, SCHEDULE III (Continued) SCHEDULE IV TRANSCONTINENTAL REALTY INVESTORS, INC. MORTGAGE LOANS ON REAL ESTATE December 31, 2011 SCHEDULE IV (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. MORTGAGE LOANS ON REAL ESTATE December 31, 2011 (1) This note is fully reserved. |
DANIEL J. MOOS, 62 President (since April 2007) and Chief Executive Officer (effective March 2010) of ARL, TCI, IOT and (effective March 2007) of Prime; and (effective April 30, 2011) of Pillar; Senior Vice President and Business Line Manager for U.S. Bancorp (NYSE:USB) working out of their offices in Houston, Texas from 2003 to April 2007: Executive Vice President and Chief Financial Officer, Fleetcor Technologies a privately held transaction processing company that was headquartered in New Orleans, Louisiana from 1998 to 2003; Senior Vice President and Chief Financial Officer, ICSA a privately held internet security and information company headquartered in Carlisle, Pennsylvania from 1996 to 1998; and for more than five years prior thereto was employed in various financial and operating roles for PhoneTel Technologies, Inc. which was a publicly traded telecommunication company on the American Stock Exchange headquartered in Cleveland, Ohio (1992-1996) and LDI Corporation which was a publicly traded computer equipment sales/service and asset leasing company listed on the NASDAQ and headquartered in Cleveland, Ohio. |
In addition to base compensation, Pillar receives the following forms of additional compensation: (1) an annual net income fee equal to 7.5% of TCI’s net income as an incentive for successful investment and management of the Company’s assets; (2) an annual incentive sales fee to encourage periodic sales of appreciated real property at optimum value equal to 10.0% of the amount, if any, by which the aggregate sales consideration for all real estate sold by TCI during such fiscal year exceeds the sum of: (a) the cost of each such property as originally recorded in TCI’s books for tax purposes (without deduction for depreciation, amortization or reserve for losses); (b) capital improvements made to such assets during the period owned; and (c) all closing costs (including real estate commissions) incurred in the sale of such real estate; provided however, no incentive fee shall be paid unless (a) such real estate sold in such fiscal year, in the aggregate, has produced an 8.0% simple annual return on the net investment including capital improvements, calculated over the holding period before depreciation and inclusive of operating income and sales consideration, and (b) the aggregate net operating income from all real estate owned for each of the prior and current fiscal years shall be at least 5.0% higher in the current fiscal year than in the prior fiscal year; (3) an acquisition commission, from an unaffiliated party of any existing mortgage or loan, for supervising the acquisition, purchase or long-term lease of real estate equal to the lesser of: (a) up to 1.0% of the cost of acquisition, inclusive of commissions, if any, paid to non-affiliated brokers; or (b) the compensation customarily charged in arm’s-length transactions by others rendering similar property acquisition services as an ongoing public activity in the same geographical location and for comparable property, provided that the aggregate purchase price of each property (including acquisition fees and real estate brokerage commissions) may not exceed such property’s appraised value at acquisition; (4) a construction fee equal to 6.0% of the so-called “hard costs” only of any costs of construction on a completed basis, based upon amounts set forth as approved on any architect’s certificate issued in connection with such construction, which fee is payable at such time as the applicable architect certifies other costs for payment to third parties. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Policies with Respect to Certain Activities Article 14 of TCI’s Articles of Incorporation provides that TCI shall not, directly or indirectly, contract or engage in any transaction with (1) any director, officer or employee of TCI, (2) any director, officer or employee of the advisor, (3) the advisor, or (4) any affiliate or associate (as such terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of any of the aforementioned persons, unless (a) the material facts as to the relationship among or financial interest of the relevant individuals or persons and as to the contract or transaction are disclosed to or are known by TCI’s Board of Directors or the appropriate committee thereof and (b) TCI’s Board of Directors or committee thereof determines that such contract or transaction is fair to TCI and simultaneously authorizes or ratifies such contract or transaction by the affirmative vote of a majority of independent directors of TCI entitled to vote thereon. |
Additionally, general construction and development activities include the following risks: • construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property; • construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs; • some developments may fail to achieve expectations, possibly making them less profitable; • we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project; • we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. |
The following factors, among others, may adversely affect the income generated by our properties: • downturns in the national, regional and local economic conditions (particularly increases in unemployment); • competition from other office and commercial buildings; • local real estate market conditions, such as oversupply or reduction in demand for office or other commercial space; • changes in interest rates and availability of financing; • vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; • increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs; • civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses; • significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property; • declines in the financial condition of our tenants and our ability to collect rents from our tenants; and • decreases in the underlying value of our real estate. |
These current conditions, or similar conditions existing in the future, may adversely affect our results of operations, and financial condition as a result of the following, among other potential consequences: • the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons; • significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted; • our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense; • reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and • one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all. |
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: • general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); • risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; • failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; • risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities); • risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; • costs of compliance with the Americans with Disabilities Act and other similar laws and regulations; • potential liability for uninsured losses and environmental contamination; • risks associated with our dependence on key personnel whose continued service is not guaranteed; and • the other risk factors identified in this Form 10-K, including those described under the caption “Risk Factors.” The risks included here are not exhaustive. |
Schedule III TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2010 Schedule III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2010 Schedule III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2010 Schedule III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2010 Schedule III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2010 Schedule III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2010 Schedule III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2010 Schedule III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2010 Schedule III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2010 Schedule III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2010 TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2010 SCHEDULE III (Continued) SCHEDULE IV TRANSCONTINENTAL REALTY INVESTORS, INC. MORTGAGE LOANS ON REAL ESTATE December 31, 2010 SCHEDULE IV (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. MORTGAGE LOANS ON REAL ESTATE December 31, 2010 SCHEDULE IV (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. MORTGAGE LOANS ON REAL ESTATE December 31, 2010 ITEM 9. |
Mr. Butler is Chairman of the Board (since May 2009) and a Director (since December 2001) of the Company and Chairman of the Board (since May 2009) and a Director (since July 2003) of American Realty Investors, Inc., a Nevada corporation (“ARL”) which has its Common Stock listed and traded on the New York Stock Exchange (“NYSE”) and a Director (December 2001 to July 2003) and again (since February 2011) of Income Opportunity Realty Investors, Inc., a Nevada corporation (“IOT”) which has its Common Stock listed and traded on the American Stock Exchange (“AMEX”) and Owner/Operator (1989 to 1991) of Butler Interests, Inc. ROBERT A. JAKUSZEWSKI: Age 48, Director (Independent) (since November 2005) Mr. Jakuszewski was Vice President of Sales and Marketing (since September 1998) of New Horizons Communications, Inc. Mr. Jakuszewski was a Consultant (January 1998 - September 1998) for New Horizon Communications, Inc.; Regional Sales Manager (1996-1998) of Continental Funding; Territory Manager (1992-1996) of Sigvaris, Inc.; Senior Sales Representative (1988-1992) of Mead Johnson Nutritional Division, USPNG; Sales Representative (1986-1987) of Muro Pharmaceutical, Inc. Mr. Jakuszewski has been a director of IOT since March 16, 2004 and a director of ARL since November 22, 2005; and Director of IOT (since March 16, 2004) and a director of ARL (since November 22, 2005). |
DANIEL J. MOOS, 60 President (since April 2007) and Chief Executive Officer (effective March 2010) of ARL, TCI, IOT and (effective March 2007) of Prime; Senior Vice President and Business Line Manager for U.S. Bancorp (NYSE:USB) working out of their offices in Houston, Texas from 2003 to April 2007: Executive Vice President and Chief Financial Officer, Fleetcor Technologies a privately held transaction processing company that was headquartered in New Orleans, Louisiana from 1998 to 2003; Senior Vice President and Chief Financial Officer, ICSA a privately held internet security and information company headquartered in Carlisle, Pennsylvania from 1996 to 1998; and for more than five years prior thereto was employed in various financial and operating roles for PhoneTel Technologies, Inc. which was a publicly traded telecommunication company on the American Stock Exchange headquartered in Cleveland, Ohio (1992-1996) and LDI Corporation which was a publicly traded computer equipment sales/service and asset leasing company listed on the NASDAQ and headquartered in Cleveland, Ohio. |
In addition to base compensation, Prime receives the following forms of additional compensation: (1) an annual net income fee equal to 7.5% of TCI’s net income as an incentive for successful investment and management of the Company’s assets; (2) an annual incentive sales fee to encourage periodic sales of appreciated real property at optimum value equal to 10.0% of the amount, if any, by which the aggregate sales consideration for all real estate sold by TCI during such fiscal year exceeds the sum of: (a) the cost of each such property as originally recorded in TCI’s books for tax purposes (without deduction for depreciation, amortization or reserve for losses); (b) capital improvements made to such assets during the period owned; and (c) all closing costs (including real estate commissions) incurred in the sale of such real estate; provided however, no incentive fee shall be paid unless (a) such real estate sold in such fiscal year, in the aggregate, has produced an 8.0% simple annual return on the net investment including capital improvements, calculated over the holding period before depreciation and inclusive of operating income and sales consideration, and (b) the aggregate net operating income from all real estate owned for each of the prior and current fiscal years shall be at least 5.0% higher in the current fiscal year than in the prior fiscal year; (3) an acquisition commission, from an unaffiliated party of any existing mortgage or loan, for supervising the acquisition, purchase or long-term lease of real estate equal to the lesser of: (a) up to 1.0% of the cost of acquisition, inclusive of commissions, if any, paid to non-affiliated brokers; or (b) the compensation customarily charged in arm’s-length transactions by others rendering similar property acquisition services as an ongoing public activity in the same geographical location and for comparable property, provided that the aggregate purchase price of each property (including acquisition fees and real estate brokerage commissions) may not exceed such property’s appraised value at acquisition; (4) a construction fee equal to 6.0% of the so-called “hard costs” only of any costs of construction on a completed basis, based upon amounts set forth as approved on any architect’s certificate issued in connection with such construction, which fee is payable at such time as the applicable architect certifies other costs for payment to third parties. |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Policies with Respect to Certain Activities Article 14 of TCI’s Articles of Incorporation provides that TCI shall not, directly or indirectly, contract or engage in any transaction with (1) any director, officer or employee of TCI, (2) any director, officer or employee of the advisor, (3) the advisor, or (4) any affiliate or associate (as such terms are defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended) of any of the aforementioned persons, unless (a) the material facts as to the relationship among or financial interest of the relevant individuals or persons and as to the contract or transaction are disclosed to or are known by TCI’s Board of Directors or the appropriate committee thereof and (b) TCI’s Board of Directors or committee thereof determines that such contract or transaction is fair to TCI and simultaneously authorizes or ratifies such contract or transaction by the affirmative vote of a majority of independent directors of TCI entitled to vote thereon. |
Additionally, general construction and development activities include the following risks: • construction and leasing of a property may not be completed on schedule, which could result in increased expenses and construction costs, and would result in reduced profitability for that property; • construction costs may exceed original estimates due to increases in interest rates and increased cost of materials, labor or other costs, possibly making the property less profitable because of inability to increase rents to compensate for the increase in construction costs; • some developments may fail to achieve expectations, possibly making them less profitable; • we may be unable to obtain, or face delays in obtaining, required zoning, land-use, building, occupancy, and other governmental permits and authorizations, which could result in increased costs and could require us to abandon our activities entirely with respect to a project; • we may abandon development opportunities after the initial exploration, which may result in failure to recover costs already incurred. |
The following factors, among others, may adversely affect the income generated by our properties: • downturns in the national, regional and local economic conditions (particularly increases in unemployment); • competition from other office and commercial buildings; • local real estate market conditions, such as oversupply or reduction in demand for office or other commercial space; • changes in interest rates and availability of financing; • vacancies, changes in market rental rates and the need to periodically repair, renovate and re-let space; • increased operating costs, including insurance expense, utilities, real estate taxes, state and local taxes and heightened security costs; • civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses; • significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property; • declines in the financial condition of our tenants and our ability to collect rents from our tenants; and • decreases in the underlying value of our real estate. |
These current conditions, or similar conditions existing in the future, may adversely affect our results of operations, and financial condition as a result of the following, among other potential consequences: • the financial condition of our tenants may be adversely affected which may result in tenant defaults under leases due to bankruptcy, lack of liquidity, operational failures or for other reasons; • significant job losses within our tenants may occur, which may decrease demand for our office space, causing market rental rates and property values to be negatively impacted; • our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could reduce our ability to pursue acquisition and development opportunities and refinance existing debt, reduce our returns from our acquisition and development activities and increase our future interest expense; • reduced values of our properties may limit our ability to dispose of assets at attractive prices or to obtain debt financing secured by our properties and may reduce the availability of unsecured loans; and • one or more lenders could refuse to fund their financing commitment to us or could fail and we may not be able to replace the financing commitment of any such lenders on favorable terms, or at all. |
Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: • general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); • risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments; • failure to manage effectively our growth and expansion into new markets or to integrate acquisitions successfully; • risks and uncertainties affecting property development and construction (including, without limitation, construction delays, cost overruns, inability to obtain necessary permits and public opposition to such activities); • risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; • costs of compliance with the Americans with Disabilities Act and other similar laws and regulations; • potential liability for uninsured losses and environmental contamination; • risks associated with our dependence on key personnel whose continued service is not guaranteed; and • the other risk factors identified in this Form 10-K, including those described under the caption “Risk Factors.” The risks included here are not exhaustive. |
SCHEDULE III TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2009 SCHEDULE III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2009 SCHEDULE III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2009 SCHEDULE III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2009 SCHEDULE III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2009 SCHEDULE III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2009 SCHEDULE III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2009 SCHEDULE III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2009 SCHEDULE III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2009 SCHEDULE III (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 2009 SCHEDULE IV TRANSCONTINENTAL REALTY INVESTORS, INC. MORTGAGE LOANS ON REAL ESTATE December 31, 2009 SCHEDULE IV (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. MORTGAGE LOANS ON REAL ESTATE December 31, 2009 SCHEDULE IV (Continued) TRANSCONTINENTAL REALTY INVESTORS, INC. MORTGAGE LOANS ON REAL ESTATE December 31, 2009 ITEM 9. |
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