<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(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, 2000
--------------
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
-----------------
Commission file number 1-14760
--------------------------
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, 2000, 6,218,459 common shares of beneficial interest,
with a par value of $0.01 per share, 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, 2000 (unaudited)
and December 31, 1999 3
Consolidated Statements of Income (unaudited) for the three
months ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows (unaudited) for the
three months ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements-March 31, 2000 (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 12
PART II. OTHER INFORMATION
Item 6. Exhibits 15
The accompanying notes are an integral part of these
consolidated financial statements.
-2-
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RESOURCE ASSET INVESTMENT TRUST
and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
March 31, 2000
(unaudited) December 31, 1999
--------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 16,817,407 $ 11,323,301
Restricted cash 4,820,265 5,283,886
Tenant escrows 153,992 164,378
Accrued interest receivable 1,934,660 1,544,984
Investments in real estate loans, net 116,544,534 160,485,767
Investments in real estate, net 107,850,117 89,936,339
Furniture, fixtures and equipment, net 83,538 88,243
Prepaid expenses and other assets 2,695,915 1,001,775
------------ ------------
Total Assets $250,900,428 $269,828,673
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued liabilities $ 463,143 $ 332,040
Accrued interest payable 1,315,151 1,033,484
Deferred interest payable 641,903 788,841
Tenant security deposits 436,295 270,908
Borrowers' escrows 3,865,379 5,308,136
Dividends payable 3,161,554 -
Deferred income 91,000 693,162
Senior indebtedness secured by real estate
underlying the Company's wraparound loans 43,850,653 78,478,730
Long term debt secured by real estate owned 94,310,036 82,685,074
Secured line of credit 14,000,000 14,000,000
------------ ------------
Total Liabilities 162,135,114 183,590,375
Minority interest 2,645,083 -
Shareholders' Equity
Preferred Shares, $.01 par value; 25,000,000
authorized shares - -
Common Shares, $.01 par value; 200,000,000
authorized shares; 6,199,127, issued and
outstanding 61,991 61,991
Additional paid-in-capital 86,159,238 86,159,238
(Accumulated deficit)/retained earnings (100,998) 17,069
------------ ------------
Total Shareholders' Equity 86,120,231 86,238,298
------------ ------------
Total Liabilities and Shareholders' Equity $250,900,428 $269,828,673
============ ============
</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)
<TABLE>
<CAPTION>
For the Three Months Ended
March 31,
2000 1999
---- ----
<S> <C> <C>
REVENUES
Mortgage interest income $4,660,726 $4,554,817
Rental income 3,850,010 2,705,626
Fee income and other 141,983 272,500
Investment income 172,189 62,854
---------- ----------
Total Revenues 8,824,908 7,595,797
COSTS AND EXPENSES
Interest 2,802,296 2,624,885
Property operating expenses 1,959,586 1,211,478
General and administrative 350,110 392,332
Depreciation and amortization 626,301 444,567
---------- ----------
Total Costs and Expenses 5,738,293 4,673,262
---------- ----------
Net Income before minority interest $3,086,615 $2,922,535
Minority interest - 17,761
---------- ----------
Net Income $3,086,615 $2,940,296
========== =========
Net Income per common share-basic $ .50 $ .48
========== ==========
Weighted average common shares outstanding-basic 6,199,127 6,165,334
========== ==========
Net income per common share-diluted $ .50 $ .48
========== ==========
Weighted average common shares outstanding-diluted 6,207,304 6,177,882
========== ==========
</TABLE>
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,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities
Net Income $ 3,086,615 2,940,297
Adjustments to reconcile net income to net cash provided by
operating activities
Minority interest - (17,761)
Depreciation and amortization 626,301 444,567
Accretion of loan discount - (165,987)
Decrease in security deposit escrows 10,386 -
Increase in accrued interest receivable (389,676) (200,944)
Increase in prepaid expenses and other assets (1,815,020) (261,050)
Increase (decrease) in accounts payable and accrued liabilities 87,977 (14,276)
Increase in accrued interest payable 281,667 302,213
(Decrease) increase in deferred interest payable (146,938) 163,574
Increase (decrease) in tenant security deposits 165,387 (8,049)
(Decrease) increase in deferred income (602,161) 450,977
Decrease in borrowers' escrows (851,364) (401,218)
----------- ----------
Net cash provided by operating activities 453,174 3,232,343
----------- ----------
Cash flows from investing activities
Purchase of furniture, fixtures and equipment (7,688) (2,211)
Real estate loans purchased - (5,000,000)
Real estate loans originated (270,000) (8,901,576)
Principal repayments of loans 9,800,911 10,169,543
Purchase of real estate (5,646,876) -
Utilization of reserves held by mortgagee to pay taxes 1,417,405 893,272
----------- ----------
Net cash provided by (used in) investing activities 5,293,752 (2,840,972)
----------- ----------
Cash flows from financing activities
Principal repayments on senior indebtedness (96,880) (276,675)
Principal repayments on long-term debt (155,940) (118,195)
Other - (1,896)
----------- ----------
Net cash used in financing activities (252,820) (396,766)
----------- ----------
Net change in cash and cash equivalents 5,494,106 (5,395)
----------- ----------
Cash and cash equivalents, beginning of period 11,323,301 5,011,666
----------- -----------
Cash and cash equivalents, end of period $16,817,407 $ 5,006,271
=========== ===========
</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, 2000
(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, 2000, and the results of operations
and the cash flows for the three months ended March 31, 2000 and 1999. 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 the Company's Annual
Report on Form 10-K for the year ended December 31, 1999.
NOTE 2 - RESTRICTED CASH AND BORROWERS' ESCROWS
Restricted cash and borrowers' escrows represents borrowers' funds held
by the Company to fund certain expenditures or to be released at the Company's
discretion upon the occurrence of certain pre-specified events, and to serve as
additional collateral for the loans.
NOTE 3-INVESTMENTS IN REAL ESTATE LOANS
The Company's portfolio of Investments in real estate loans consisted
of the following at March 31, 2000:
<TABLE>
<CAPTION>
<S> <C>
Long-term first mortgages and senior loan participations $ 11,008,480
Mezzanine (including wraparound) loans 71,722,645
Short-term bridge loans 33,860,161
Loan costs 179,405
Less: Provision for loan losses (226,157)
------------
Investments in real estate loans 116,544,534
Less: Senior indebtedness secured by real estate
underlying the Company's wraparound loans (43,850,653)
------------
Net Investments in real estate loans $ 72,693,881
============
</TABLE>
The following is a summary description of the assets contained in the
Company's portfolio of Investments in real estate loans:
<TABLE>
<CAPTION>
Number of Average 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
6 44% 10-15% 3/28/01-7/14/09
Mezzanine (including wraparound) loans 12 86% 11-18% 2/1/02-1/31/09
Short term bridge loans 5 78% 15-30% 5/31/00-7/29/00
</TABLE>
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<PAGE>
RESOURCE ASSET INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
Approximately $60.4 million of the loans are secured by multi-family
residential properties and $56.2 million of the loans are secured by commercial
properties.
As of March 31, 2000, twelve of the Company's purchased loans were
still subject to forbearance agreements or other contractual restructurings that
existed at the time the Company acquired the loans. During the quarter ended
March 31, 2000, all payments under the agreements were timely and all borrowers
were otherwise in full compliance with the terms of the agreements. The
remaining eleven loans in the Company's portfolio were performing in accordance
with their terms as originally underwritten by the Company and were current as
to payments as of March 31, 2000.
As of March 31, 2000, 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 $ 1,902,117
Loan payable, secured by real estate, monthly
installments of $17,051, including interest at
6.83%, remaining principal due
December 1, 2008 2,403,974
Loan payable, secured by real estate, monthly
installments of $10,070, including interest at
6.83%, remaining principal due
December 1, 2008 1,521,171
Loan payable, secured by real estate, monthly
installments of $80,427, including interest at
6.95%, remaining principal due July 1, 2008 11,937,380
Loan payable. secured by real estate, monthly
installments of $28,090, including interest at
6.82%, remaining principal due November 1, 2008 4,238,491
Loan payable, secured by real estate, monthly
installments of $72,005, including interest at
7.55%, remaining principal due
December 1 2008 9,847,520
Loan payable, secured by Company's interest in
short-term bridge loan of $17,576,712, interest
only at 8.25% due monthly, principal balance due
December 1, 1999 12,000,000
-----------
$43,850,653
===========
</TABLE>
-7-
<PAGE>
RESOURCE ASSET INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
As of March 31, 2000 the senior indebtedness secured by real estate
underlying the Company's wraparound loans maturing in the remainder of 2000,
over the next four years, and the aggregate indebtedness maturing thereafter is
as follows:
2000 $12,299,192
2001 420,498
2002 451,502
2003 484,796
2004 520,550
Thereafter 29,674,115
-----------
$43,850,653
===========
NOTE 4-INVESTMENTS IN REAL ESTATE
Investments in real estate are comprised of the following at March 31,
2000:
Land $ 12,262,187
Office buildings and improvements 63,761,110
Apartment buildings 34,908,741
------------
Subtotal 110,932,038
Less: Accumulated depreciation (3,081,921)
-----------
Investments in real estate, net $107,850,117
============
As of March 31, 2000, long-term debt secured by the Company's
Investments in real estate 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 $ 1,074,131
Loan payable, secured by real estate, monthly installments of
$288,314, including interest at 6.85%, remaining principal due
August 1, 2008 43,318,802(1)
Loan payable, secured by real estate, monthly payments of
interest only at 10%, principal due August 1, 2008 4,860,161(1)
Loan payable, secured by partnership interests in a real
estate partnership, monthly payments of interest only at
8.19%, additional interest of 3.81% is deferred and payable
from net cash flow, principal and deferred interest due
September 1, 2008 18,308,135(1)
</TABLE>
-8-
<PAGE>
RESOURCE ASSET INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
<S> <C>
Loan payable, secured by real estate, monthly installments of
$107,255, including interest at 7.73%, remaining principal due
December 1, 2009 14,967,905
----------
Loan payable, secured by real estate, monthly installments of
$87,960, including interest at 8.37%, remaining principal due
March 1, 2008 11,780,902
-----------
$94,310,036
===========
</TABLE>
(1) These loans all relate to a single investment in real estate.
As of March 31, 2000 the amount of long-term debt secured by the
Company's Investments in real estate maturing in the remainder of 2000, over the
next four years, and the aggregate indebtedness maturing thereafter, is as
follows:
2000 516,693
2001 749,710
2002 806,369
2003 867,337
2004 932,945
Thereafter 90,436,982
-----------
$94,310,036
===========
-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. These statements can be identified by the
use of forward-looking terminology including "may", "believe", "will", "expect",
"anticipate", "estimate", "continue" or similar words. These forward-looking
statements are subject to 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 of this report.
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 from 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, combined with repayment and
refinancing of its loans and property interests and its line of credit, 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,
refinancing, and sale of loans in its portfolio (or principal payments on those
loans), aggregating $9.8 million for the quarter ended March 31, 2000 ($10.2
million for the quarter ended March 31, 1999). The principal use of these funds
has been the origination, acquisition and purchase of loans in the amount of
$270,000 for the quarter ended March 31, 2000 ($13.9 million for the quarter
ended March 31, 1999), and the purchase of real estate and improvements in the
amount of $5.6 million for the quarter ended March 31, 2000 ($0 for the quarter
ended March 31, 1999).
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 utilizes 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, 2000, the Company declared dividends of $3.2
million, which were paid on April 12, 2000.
In order to maintain liquidity, the Company continues to pursue a
strategy of providing shorter-term financing to its borrowers (generally in the
form of bridge financing) to increase the turnover of its investments, and
pursuing borrower refinancing of the Company's loans through senior lenders,
with the Company retaining junior interests. The Company is not currently
experiencing material difficulties 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, 2000, the Company had approximately $13.6 million in funds
available for investment ($3.2 million of cash held at March 31, 2000 was
reserved to pay a cash dividend on April 12, 2000). All cash was temporarily
invested in a money-market account that the Company believes has a high degree
of liquidity and safety.
Results of Operations
The Company had average earning assets for the quarter ended March 31,
2000 of $100.6 million ($92.4 million for the quarter ended March 31, 1999),
including $14.1 million of average earning assets invested in a money-market
account for the quarter ended March 31, 2000 ($5.0 million for the quarter ended
March 31, 1999). The increases in total average earning assets and average
earning assets invested in a money-market account from the quarter ended March
31, 1999 to the corresponding period in 2000 were due the utilization of the
Company's credit line ($14.0 million and $0 outstanding at March 31, 2000 and
1999, respectively) to originate loans and to acquire loans and property
interests.
Interest income derived from loans was $4.7 million and $4.6 million
for the quarter ended March 31, 2000 and 1999, respectively. Interest income
from the money market account was $172,000 for the quarter ended March 31, 2000
compared to $63,000 for the corresponding period in 1999. The increase in
interest income from the money market account from the quarter ended March 31,
1999 to the quarter ended March 31, 2000 was due to a higher balance of assets
invested in a money-market account due to a loan repayment in the first quarter
of 2000. The yield on average earning non-money market assets was 18.0% and
15.8% for the quarters ended March 31, 2000 and 1999, respectively. The yield on
average earning money market account assets was 4.9% and 5.0% for the quarters
ended March 31, 2000 and 1999, respectively. The increase in yield on average
earning non-money market assets was due to increased yields obtained from loans
originated subsequent to March 31, 1999. The decrease in yield on average
earning money market account assets was due to a decrease in amounts paid by
banks on money market funds. The Company derived $3.9 million from rents from
its property interests for the quarter ended March 31, 2000 compared to $2.7
million for the quarter ended March 31, 1999. The increase in rents from the
Company's property interests from the quarter ended March 31, 1999 to the same
period in 2000 was due to the acquisition of a total of three property interests
during the second and fourth quarters of 1999 and the first quarter of 2000.
Twelve of the Company's purchased loans remained subject to forbearance
agreements or other contractual restructurings that existed at the time the
Company acquired the loans. During the quarter ended March 31, 2000, all
payments under the agreements were timely made and all borrowers were otherwise
in full compliance with the terms of the agreements. The remaining eleven 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, 2000.
During the quarter ended March 31, 2000, the Company incurred expenses
of $5.7 million compared to $4.7 million for the same period in 1999. The
expenses consist of interest expense, operating expenses relating to the
Company's property interests, general and administrative expenses and
-11-
<PAGE>
depreciation and amortization. Interest expense was $2.8 million for the quarter
ended March 31, 2000 as compared to $2.6 million for the corresponding period in
1999. 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 and interest payments made on the Company's
secured line of credit, all of which increased as a result of the increase in
the Company's loan portfolio. Property operating expenses were $2.0 million for
the quarter ended March 31, 2000 compared to $1.2 million for the quarter ended
March 31, 1999. Depreciation and amortization was $626,000 for the quarter ended
March 31, 2000 as compared to $445,000 for the corresponding period in 1999. The
increases in property operating expenses, depreciation and amortization from
quarter ended March 31, 1999 to the corresponding period in 2000, were due to
the Company's acquisition of a total of three property interests in the second
and fourth quarters of 1999 and the first quarter of 2000. General and
administrative expenses were $350,000 for the quarter ended March 31, 2000 as
compared to $392,000 for the corresponding period in 1999. The decrease in
general and administrative expenses from the first quarter of 1999 to the same
period in 2000 was due to a timing difference in the recognition of bonuses
paid.
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 Company's Annual Report
on Form 10-K for the year ended December 31, 1999.
-12-
<PAGE>
PART II OTHER INFORMATION
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, 2000.
-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 15, 2000 /s/ Ellen J. DiStefano
- ------------- -----------------------
DATE Ellen J. DiStefano
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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 16,817,407
<SECURITIES> 0
<RECEIVABLES> 1,934,660
<ALLOWANCES> 226,157
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 133,929
<DEPRECIATION> 50,391
<TOTAL-ASSETS> 250,900,428
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 61,991
<OTHER-SE> 86,058,240
<TOTAL-LIABILITY-AND-EQUITY> 250,900,428
<SALES> 0
<TOTAL-REVENUES> 8,824,908
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,935,497
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,802,296
<INCOME-PRETAX> 3,086,615
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,086,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,086,615
<EPS-BASIC> .50
<EPS-DILUTED> 50
</TABLE>
