<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1999
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 1-14760
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RESOURCE ASSET INVESTMENT TRUST
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MARYLAND 23-2919819
- --------------------------------------- ------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1845 WALNUT STREET, 10TH FLOOR, PHILADELPHIA, PA 19103
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(215) 861-7900
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
As of April 30, 1999, 6,165,334 common shares of beneficial interest, with a
par value of $0.01, were outstanding.
<PAGE>
RESOURCE ASSET INVESTMENT TRUST
and Subsidiaries
Index to Quarterly Report
on Form 10-Q
PART I. FINANCIAL INFORMATION Page
----
Item 1. Financial Statements
Consolidated Balance Sheets at March 31, 1999 (unaudited)
and December 31, 1998 3
Consolidated Statements of Income (unaudited) for the quarters ended
March 31,1999 and 1998 4
Consolidated Statements of Cash Flows (unaudited) for the quarters ended
March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements-March 31, 1999 (unaudited) 6-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 6. Exhibits 15
-2-
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RESOURCE ASSET INVESTMENT TRUST
and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, 1999
(unaudited) December 31, 1998
-------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 5,006,271 $ 5,011,666
Accrued interest receivable 1,258,863 1,057,919
Investments in real estate loans, net 149,363,444 126,273,069
Investments in real estate, net 66,935,350 68,244,109
Furniture, fixtures and equipment, net 104,698 108,885
Prepaid expenses and other assets 973,164 563,443
-------------- --------------
Total Assets $ 223,641,790 $ 201,259,091
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities 127,791 142,067
Accrued interest payable 976,260 674,047
Deferred interest payable 279,142 115,568
Tenant security deposits 136,781 144,830
Borrowers' escrows 17,184 418,402
Dividends payable 3,144,320 -
Deferred income 474,977 24,000
Senior indebtedness secured by real estate underlying
the Company's wraparound loans 66,023,065 46,936,032
Long term debt secured by real estate owned 67,149,730 67,267,925
-------------- --------------
Total Liabilities 138,329,250 115,722,871
Minority interest - 17,761
Shareholders' Equity
Preferred Shares, $.01 par value; 25,000,000
authorized shares - -
Common Shares, $.01 par value; 200,000,000
authorized shares; 6,165,334 issued and outstanding 61,654 61,654
Additional paid-in-capital 85,815,436 85,817,332
Accumulated deficit (564,550) (360,527)
-------------- --------------
Total Shareholders' Equity 85,312,540 85,518,459
-------------- --------------
Total Liabilities and Shareholders' Equity $ 223,641,790 $ 201,259,091
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-3-
<PAGE>
RESOURCE ASSET INVESTMENT TRUST
and Subsidiaries
Consolidated Statements of Income
(Unaudited)
For the three months ended March 31,
1999 1998
---- ----
REVENUES
Mortgage interest income $4,554,817 $1,126,426
Rental income 2,705,626 6,824
Fee income and other 272,500 50,000
Investment income 62,854 249,005
---------- ----------
Total Revenues 7,595,797 1,432,255
COSTS AND EXPENSES
Interest 2,624,885 319,788
Property operating expenses 1,211,478 -
General and administrative 392,331 163,563
Depreciation and amortization 444,567 7,392
---------- ----------
Total Costs and Expenses 4,673,261 490,743
---------- ----------
Net Income before minority interest 2,922,536 941,512
----------
Minority interest 17,761 -
---------- ----------
Net Income $2,940,297 $ 941,512
========== ==========
Net Income per common share-basic $ .48 $ .33
========== =========
Weighted average common shares outstanding 6,165,334 2,852,212
========== =========
Net income per common share-diluted $ .48 $ .33
========== =========
Weighted average common shares outstanding 6,177,882 2,892,620
========== =========
The accompanying notes are an integral part of these consolidated
financial statements.
-4-
<PAGE>
RESOURCE ASSET INVESTMENT TRUST
and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended March 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities
Net Income $ 2,940,297 $ 941,512
Adjustments to reconcile net income to net
cash provided by (used in) operating activities
Minority interest (17,761) -
Depreciation and amortization 444,567 7,128
Amortization of original issue discount - (5,001)
Accretion of loan discount (165,987) (51,704)
Increase in accrued interest receivable (200,944) (298,827)
Increase in prepaid expenses and other assets (261,050) (245,206)
Decrease in accounts payable and accrued liabilities (14,276) (486,853)
Increase in accrued interest payable 302,213 115,720
Increase in deferred interest payable 163,574 -
Decrease in tenant security deposits (8,049) -
Increase in deferred income 450,977 476,667
Decrease (increase) in borrowers' escrows (401,218) 300,000
Decrease in due to affiliate - (1,579,330)
------------ --------------
Net cash provided by (used in) operating activities 3,232,343 (825,894)
------------ --------------
Cash flows from investing activities
Purchase of furniture, fixtures and equipment (2,211) (4,241)
Real estate loans purchased (5,000,000) (20,646,388)
Real estate loans originated (8,901,576) (11,150,000)
Principal repayments of loans 10,169,543 -
Purchase of real estate - (1,654,928)
Utilization of reserves held by mortgagee to pay taxes 893,272 -
------------ -------------
Net cash used in investing activities (2,840,972) (33,455,557)
------------ --------------
Cash flows from financing activities
Issuance of common stock, net - 46,219,471
Payment of dividends - (900,027)
Principal repayments on senior indebtedness (276,675) -
Principal repayments on long-term debt (118,195) (8,198)
Other (1,896) -
------------ -------------
Net cash (used in) provided by financing activities (396,766) 45,311,246
------------ --------------
Net change in cash and cash equivalents (5,395) 11,029,795
------------ --------------
Cash and cash equivalents, beginning of period 5,011,666 -
------------ -------------
Cash and cash equivalents, end of period $ 5,006,271 $ 11,029,795
============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
-5-
<PAGE>
RESOURCE ASSET INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, these unaudited financial statements contain
all disclosures which are necessary to present fairly the Company's consolidated
financial position at March 31, 1999 and the results of operations and the cash
flows for the three months ended March 31, 1999 and 1998. The financial
statements include all adjustments (consisting only of normal recurring
adjustments) which in the opinion of management are necessary in order to
present fairly the financial position and results of operation for the interim
periods. Certain information and footnote disclosures normally included in
financial statements under generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations of the Securities and
Exchange Commission. These financial statements should be read in conjunction
with the financial statements and notes thereto included in Form 10-K for the
period ended December 31, 1998.
NOTE 2-INVESTMENTS IN REAL ESTATE LOANS
The Company's portfolio of investments in real estate loans consisted of
the following at March 31, 1999:
Long-term first mortgages and senior loan participations $ 35,309,974
Mezzanine (including wraparound) loans 96,702,915
Short-term bridge loans 17,576,712
Less: Provision for loan losses (226,157)
------------
Investments in real estate loans 149,363,444
Less: Senior indebtedness secured by real estate
underlying the Company's wraparound loans (66,023,065)
------------
Net Investments in real estate loans $ 83,340,379
============
The following is a summary description of the assets contained in the Company's
portfolio of investments in real estate loans:
<TABLE>
<CAPTION>
Number Average
of Loan-to- Yield Range of
Type of Loan Loans Value Range Maturities
------------ ----- -------- ----- ----------
<S> <C> <C> <C> <C>
Long-term first mortgages and senior loan
participations 9 50% 9-16% 9/2/99-7/31/21
Mezzanine (including wraparound) loans 13 84% 11-21% 1/1/02-1/31/09
Short-term bridge loans 1 90% 17% 11/30/99
</TABLE>
Approximately $86.6 million of the loans are secured by multi-family
residential properties and $63.0 million are secured by commercial properties.
As of March 31, 1999, thirteen of the loans were subject to pre-existing
forbearance agreements or other contractual restructurings. These agreements
were in place prior to the Company's acquisition of the loans. During the
quarter ending March 31, 1999, all payments under the agreements were timely
made and all borrowers (except one, see Part II, Item 1. Legal Proceedings) were
otherwise in full compliance with the terms of the agreements. The remaining ten
loans in the Company's portfolio are performing in accordance with their terms
as originally underwritten by the Company and were current as to payments as of
March 31, 1999.
-6-
<PAGE>
RESOURCE ASSET INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(Unaudited)
As of March 31, 1999, senior indebtedness secured by real estate
underlying the Company's wraparound loans consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Loan payable, secured by real estate, monthly
installments of $13,789, including interest at
7.08%, remaining principal due
December 1, 2008 $ 1,929,883
Loan payable, secured by real estate, monthly
installments of $17,051, including interest at
6.83%, remaining principal due
December 1, 2008 2,440,636
Loan payable, secured by real estate, monthly
installments of $10,070, including interest at
6.83%, remaining principal due
December 1, 2008 1,536,067
Loan payable, secured by real estate, monthly
installments of $116,964, including interest at 9%,
remaining principal due March 1, 2003 12,750,991
Loan payable, secured by real estate, monthly
installments of $64,974, including interest at 9%,
remaining principal due March 1, 2000 7,249,009
Loan payable, secured by real estate, monthly
installments of $80,427, including interest at 6.95%,
remaining principal due July 1, 2008 12,067,887
Loan payable, secured by real estate, monthly
installments of $28,090, including interest at 6.82%,
remaining principal due November 1, 2008 4,285,289
Loan payable, secured by real estate, monthly
installments of $72,005, including interest at
7.55%, remaining principal due
December 1, 2008 9,963,303
Loan payable, secured by Company's interest in
short-term bridge loan of $17,576,712, interest
at 8.25% due monthly, balance due December 1,
1999
12,000,000
Loan payable, secured by real estate, monthly
installments of interest only at 10% until July 1999
at which time amortization on a 20-year schedule,
including interest at 10% begins, remaining
balance due June 30, 2003 1,800,000
-------------
$ 66,023,065
=============
</TABLE>
-7-
<PAGE>
As of March 31, 1999 the senior indebtedness secured by real estate
underlying the Company's wraparound loans maturing over the next five years, and
the aggregate indebtedness maturing thereafter is as follows:
1999 $ 12,543,566
2000 7,826,364
2001 718,098
2002 777,139
2003 13,947,328
2004 127,482
Thereafter 30,083,088
------------
$ 66,023,065
============
NOTE 3-INVESTMENTS IN REAL ESTATE
Investments in real estate are comprised of the following at March 31,1999:
Land $ 5,159,710
Office buildings and improvements 62,933,220
-------------
Subtotal 68,092,930
Less: Accumulated depreciation (1,157,580)
-------------
Investments in real estate, net $ 66,935,350
=============
As of March 31, 1999, long term debt secured by the Company's real estate
investments consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Loan payable, secured by real estate, monthly
installments of $8,008, including interest at 7.33%,
remaining principal due August 1, 2008 $ 1,090,814
Loan payable, secured by real estate, monthly
installments of $288,314, including interest at 6.85%,
remaining principal due August 1, 2008 43,752,848
Loan payable, secured by real estate, monthly
payments of interest only at 10%, principal due
August 1, 2008 4,430,910
Loan payable, secured by partnership interests,
monthly payments of interest only at 8.19%,
additional interest of 3.81% is deferred and
payable from net cash flow, principal due
September 1, 2008 17,875,158
-------------
$ 67,149,730
=============
</TABLE>
-8-
<PAGE>
As of March 31, 1999 the amount of long-term debt secured by the
Company's above-referenced real estate investments which matures over the next
five years, and the aggregate indebtedness maturing thereafter, is as follows:
1999 $ 324,889
2000 474,922
2001 509,049
2002 545,628
2003 584,836
2004 162,358
Thereafter 64,548,048
------------
$ 67,149,730
============
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In addition to historical information, this discussion and analysis
contains forward-looking statements. The forward-looking statements contained
herein are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly revise or update
these forward-looking statements to reflect events or circumstances that arise
after the date hereof.
Overview
The Company commenced investment operations in January 1998. Its
principal business objective is to generate income for distribution to its
shareholders from a combination of interest, rents and distributions in respect
of loans that the Company originates and funds, loans or property interests
acquired and other investments. The Company completed two public offerings of
its Common Shares during 1998 and utilized these proceeds to build its
investment portfolio.
Liquidity and Capital Resources
Since commencement of investment operations in January 1998, the
principal source of the Company's capital resources has been the two offerings
of its Common Shares which, after offering costs and underwriting discounts and
commissions, resulted in net proceeds to the Company of $86.0 million.
Secondarily, the Company has obtained capital resources from the repayment or
refinancing of loans in its portfolio (or principal payments on those loans),
aggregating $10.2 million for the quarter ended March 31, 1999. The principal
use of these funds in the first quarter of 1999 has been the origination and
acquisition of loans ($13.9 million).
The Company also receives funds from interest payments on its loans and
operating income from its property interests. As required by the Internal
Revenue Code of 1986, the Company utilized these funds (to the extent of not
less than 95% of its taxable income) to pay dividends to its shareholders. For
the quarter ended March 31, 1999, the Company declared dividends of $3.1
million, which were paid on April 13, 1999.
During the last half of 1998, capital market conditions resulted in a
reduction in the ability of many companies, and particularly specialized finance
companies such as the Company, to obtain financing. These capital market
conditions may have affected the Company's ability to obtain Company-level debt
and equity capital, which, in turn, may have adversely affected the Company's
near-term growth. In the first quarter of 1999, capital market conditions eased
and the Company was able to secure debt financing. In April 1999, the Company
established a $20.0 million senior secured lending facility with interest at the
Wall Street Journal Prime Rate. The facility has a two-year term and a one-year
extension, with an 11-month non-renewal notice requirement. This facility will
be used to enhance the Company's ability to expand its loan portfolio and to
generate income from that portfolio. In addition, to provide the Company with a
greater degree of liquidity, the Company is pursuing a strategy of (i) providing
shorter-term financing to its borrowers (generally in the form of bridge
financing) to increase the turnover of its investments, and (ii) pursuing
borrower refinancing of the Company's loans through senior lenders, with the
Company retaining junior interests. In February 1999, the Company borrowed $12.0
million from a related-party, using its senior lien interest in a $17.6 million
short-term bridge loan as collateral. The loan bears interest at 8.25% and is
due December 1, 1999. The Company is not currently experiencing material
difficulties to date in originating shorter-term financings or obtaining senior
lien refinancings on acceptable terms. However, there can be no assurance that
difficulties will not be encountered in the future, depending upon the
development of conditions in the credit markets.
-10-
<PAGE>
At March 31, 1999, the Company had approximately $5.0 million in funds
available for investment. All of such funds were temporarily invested in a
money-market account that the Company believed had a high degree of liquidity
and safety.
Results of Operations
The Company had average earning assets for the quarter ended March 31,
1999 of $92.4 million ($31.6 million at March 31, 1998), including $5.0 million
($23.2 million at March 31, 1998) of average earning assets invested in a
money-market account. The increase in total average earning assets and the
decrease in average earning assets invested in a money-market account was due to
the origination of loans and the acquisition of loans and property interests, in
part utilizing non-recourse debt financing.
For the quarter ended March 31, 1999 interest income derived from
financings was $4.6 million compared to $1.1 million for the same period in 1998
and interest income from the money market account was $63,000 compared to
$249,000 for the same period in 1998. The increase in interest income derived
from financings and the decrease in interest income from the money market
account were due to the completion of the Company's investment of the proceeds
of its two public offerings in 1998. The yield on average earning assets for the
quarters ending March 31, 1999 and 1998 was 15.8% and 14.0%, respectively, while
the yield on average earning money market account assets for the quarters ending
March 31, 1999 and 1998 was 5.0% and $5.3%, respectively. The Company derived
$2.7 million from rents from its property interests for the quarter ended March
31, 1999 compared to $7,000 for the same period in 1998. The increase in rents
from the Company's property interests from the first quarter of 1998 to the same
period in 1999 was due to the acquisition of two property interests during the
first and third quarters of 1998.
13 of the Company's loans were subject to pre-existing forbearance
agreements or other contractual restructurings. These agreements were in place
prior to the Company's acquisition. During the quarter ending March 31, 1999,
all payments under the agreements were timely made and all borrowers (except
one, see Part II, Item 1. Legal Proceedings) were otherwise in full compliance
with the terms of the agreements. The remaining ten loans in the Company's
portfolio are performing in accordance with their terms as originally
underwritten by the Company and were current as to payments as of March 31,
1999.
-11-
<PAGE>
During the quarter ended March 31, 1999, the Company incurred expenses
of $4.7 million (compared to $491,000 for the same period in 1998), consisting
primarily of $2.6 million of interest expense (320,000 for the quarter ended
March 31, 1998), $1.2 million in operating expenses relating to its property
interests ($0 for the quarter ended March 31, 1998), $392,000 of general and
administrative expenses ($164,000 for the quarter ended March 31, 1998), and
$445,000 of depreciation and amortization ($7,000 for the quarter ended March
31, 1998). Interest expense relates to interest payments made on senior
indebtedness encumbering properties underlying the Company's investments in
wraparound loans and properties owned by the Company. The increases in interest
expense, property operating expenses, and depreciation and amortization from the
first quarter of 1998 to the first quarter of 1999 was due to the completion of
the Company's investment of the proceeds of its two public offerings in 1998.
General and administrative expenses increased because the first quarter of 1998
amounts did not reflect a full quarter of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in the Company's assessment of its
sensitivity to market risk since its presentation in the 1998 Annual Report on
Form 10-K.
-12-
<PAGE>
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Pursuant to a loan restructuring agreement entered into prior to the Company's
acquisition of one of the loans, the borrower was required to make payments on
the loan in a minimum monthly amount plus certain excess cash flow. The borrower
was current on minimum payments, but the Company determined that the borrower
had not made all required excess cash flow payments. Accordingly, the Company
moved to exercise its remedies, which included the right to replace the current
manager of the property, an affiliate of the borrower. In November 1998, the
borrower sought protection under Chapter 11 of the United States Bankruptcy Code
in order to prevent the Company's exercise of this remedy. The borrower has
continued to make all minimum monthly payments throughout the term of the
bankruptcy proceedings. In March 1999, the Company and the borrower entered into
a settlement agreement whereby the borrower and the Company filed a joint plan
of reorganization pursuant to which the borrower will relinquish ownership
management control of the property. The settlement agreement was approved by the
United States Bankruptcy Court ("the Court") in April 1999 and the Amended
Disclosure Statement was approved in May 1999. It is expected that the Amended
Plan of Reorganization will be approved before the end of the second quarter of
1999. The Company believes that the property has not been managed to its full
potential and that this change in management control will increase the Company's
return on this investment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Financial Data Schedule
(b) Reports on Form 8-K
(1) No reports were filed on Form 8-K during the quarter ended March 31, 1999.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
May 17, 1999 /s/ Ellen J. DiStefano
- ----------------------- ----------------------
DATE Ellen J. DiStefano
Vice President and
Chief Financial Officer
(On behalf of the registrant and as its
principal financial officer)
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 5,006,271
<SECURITIES> 0
<RECEIVABLES> 1,258,863
<ALLOWANCES> 226,157
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 128,689
<DEPRECIATION> 23,991
<TOTAL-ASSETS> 223,641,790
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 61,654
<OTHER-SE> 85,250,886
<TOTAL-LIABILITY-AND-EQUITY> 223,641,790
<SALES> 0
<TOTAL-REVENUES> 7,595,797
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,048,376
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,624,885
<INCOME-PRETAX> 2,940,297
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,940,297
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,940,297
<EPS-PRIMARY> .48
<EPS-DILUTED> .48
</TABLE>
