SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-9360
ASSET INVESTORS CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 84-1038736
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3600 South Yosemite Street, Suite 900 80237
Denver, Colorado (Zip Code)
(Address of Principal Executive Offices)
(303) 793-2703
(Registrant's telephone number, including area code)
Not Applicable
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __.
As of August 1, 1995, 24,293,912 shares of Asset Investors Corporation
Common Stock were outstanding.
<PAGE>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Consolidated Financial Statements:
Balance Sheets as of June 30, 1995
(unaudited) and December 31, 1994................... 1
Statements of Operations for the three
and six months ended June 30, 1995 and 1994
(unaudited)......................................... 2
Statements of Ongoing and Liquidating
Operations for the three and six months
ended June 30, 1995 and 1994 (unaudited)............ 3
Statements of Cash Flows for the six
months ended June 30, 1995 and 1994 (unaudited)..... 4
Notes to Financial Statements
(unaudited)......................................... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations....... 11
Summary of Definitions.............................. 22
PART II. OTHER INFORMATION:
Item 4. Submission of Matters to a Vote of Security Holders. 26
Item 6. Exhibits and Reports on Form 8-K.................... 26
(i)
<PAGE>
<TABLE>
<CAPTION>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollar amounts in thousands)
June 30, December 31,
1995 1994
----------- -------------
(Unaudited)
<S> <C> <C>
Assets
Cash and cash equivalents $ 4,051 $ 14,961
Restricted cash for secured notes payable -- 15,862
Non-agency MBS Bonds 47,634 32,544
Investment in Commercial Assets 20,902 21,068
CMO Ownership Interests ($253,446 and $1,064,462, respectively, of CMO assets
less $250,076 and $1,041,972, respectively, of CMO liabilities and
minority interest at June 30, 1995 and December 31,
1994) 3,370 22,490
Other assets, net 2,422 2,614
---------- -------------
Total Assets $ 78,379 $ 109,539
========== =============
Liabilities
Accounts payable and accrued liabilities $ 2,355 $ 2,698
Management fees payable 380 526
Short-term borrowings 577 2,758
Secured notes payable -- 30,592
---------- -------------
Total Liabilities 3,312 36,574
---------- -------------
Stockholders' Equity
Common Stock, par value $.01 per share, 50,000,000 shares authorized
24,258,672 and 24,212,002 shares issued and
outstanding 243 242
Additional paid-in capital 227,285 227,182
Cumulative dividends (224,863) (220,984)
Cumulative net income 72,402 66,525
---------- -------------
Dividends in excess of net income (152,461) (154,459)
---------- -------------
Total Stockholders' Equity 75,067 72,965
---------- -------------
Total Liabilities and Stockholders' Equity $ 78,379 $ 109,539
========== =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements
- 1 -
<PAGE>
<TABLE>
<CAPTION>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- -----------------
1995 1994 1995 1994
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Ongoing Operations
Non-agency MBS bonds $ 1,889 $ 230 $ 3,222 $ 230
Equity in earnings of Commercial Assets
435 379 855 503
Interest income 105 151 254 246
-------- ------- ------- -------
2,429 760 4,331 979
-------- ------- ------- -------
Liquidating Operations
CMO Ownership Interests 145 778 1,619 2,207
Interest income -- 172 225 318
Net (loss) gain on sale of assets (9) 1,373 2,022 7,637
-------- ------- ------- -------
136 2,323 3,866 10,162
-------- ------- ------- -------
Total Revenues 2,565 3,083 8,197 11,141
-------- ------- ------- -------
Expenses:
Management fees 289 146 526 281
General and administrative 383 393 1,174 1,010
Interest expense 23 714 620 1,505
-------- ------- ------- -------
Total Expenses 695 1,253 2,320 2,796
-------- ------- ------- -------
Net income $ 1,870 $ 1,830 $ 5,877 $ 8,345
======== ======= ======= =======
Net income per share $ .07 $ .13 $ .24 $ .59
======== ======= ======= =======
Weighted-average shares outstanding 24,259 14,100 24,243 14,090
Dividends per share $ .08 $ .07 $ .16 $ .12
======== ======= ======= =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements
- 2 -
<PAGE>
<TABLE>
<CAPTION>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
ONGOING AND LIQUIDATING OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ----------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Ongoing Operations:
Revenues
Non-agency MBS bonds $ 1,889 $ 230 $ 3,222 $ 230
Equity in earnings of Commercial Assets 435 379 855 503
Interest income 105 151 254 246
--------- ---------- ---------- ----------
Total Revenues 2,429 760 4,331 979
--------- ---------- ---------- ----------
Expenses
Management fees 216 21 364 22
General and administrative 376 354 1,152 822
Interest expense 23 24 56 54
-- -- -- --
Total Expenses 615 399 1,572 898
--------- ---------- ---------- ----------
Earnings from ongoing operations 1,814 361 2,759 81
--------- ---------- ---------- ----------
Liquidating Operations:
Revenues
CMO Ownership Interests 145 778 1,619 2,207
Interest income -- 172 225 318
Net (loss) gain on sale of assets (9 1,373 2,022 7,637
--------- ---------- ---------- ----------
Total Revenues 136 2,323 3,866 10,162
--------- ---------- ---------- ----------
Expenses
Management fees 73 125 162 259
General and administrative 7 39 22 188
Interest expense -- 690 564 1,451
--------- ---------- ---------- ----------
Total Expenses 80 854 748 1,898
--------- ---------- ---------- ----------
Earnings from liquidating operations 56 1,469 3,118 8,264
--------- ---------- ---------- ----------
Net income $ 1,870 $ 1,830 $ 5,877 $ 8,345
========= ========== ========== ==========
Net income per share $ .07 $ .13 $ .24 $ .59
========= ========== ========== ===========
Weighted-average shares outstanding 24,259 14,100 24,243 14,090
Dividends per share $ .08 $ .07 $ .16 $ .12
========= ========== ========== ===========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
- 3 -
<PAGE>
<TABLE>
<CAPTION>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
--------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Cash Flows From Operating Activities
Net income $ 5,877 $ 8,345
Adjustments to reconcile net income to net cash flows from operating
activities
Amortization of discounts on non-agency MBS bonds 758 190
Write-down of CMO Ownership Interests -- 866
Net gain on sale of assets (2,022) (7,637)
Equity in earnings of Commercial Assets (855) (503)
Amortization of discount, net of premium, on Mortgage Collateral, discount
on CMO bonds and CMO issuance costs 749 5,624
Increase in other assets (516) (822)
(Decrease) increase in accounts payable and accrued liabilities (1,494) 367
---------- -----------
Net Cash Provided By Operating Activities 2,497 6,430
---------- ----------
Cash Flows From Investing Activities
Acquisition of non-agency MBS bonds (17,088) (13,185)
Principal collections on CMO Ownership Interests 4,111 5,311
Principal collections on non-agency MBS bonds 1,262 27
Dividends from Commercial Assets 1,021 193
Proceeds from the sale of assets 16,862 11,057
Decrease in restricted cash for secured notes payable 15,862 35
---------- ----------
Net Cash Provided By Investing Activities 22,030 3,438
---------- ----------
Cash Flows From Financing Activities
Decrease in short-term borrowings, net (2,181) (943)
Decrease in secured notes payable (30,592) (7,121)
Dividends paid (2,664) (704)
---------- ----------
Net Cash Used By Financing Activities (35,437) (8,768)
---------- ----------
Cash and Cash Equivalents
(Decrease) increase (10,910) 1,100
Beginning of year 14,961 7,540
---------- ----------
End of year $ 4,051 $ 8,640
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements
- 4 -
<PAGE>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Capitalized terms not otherwise defined in the narrative below shall
have the meaning indicated in the "Summary of Definitions" following
"Management`s Discussion and Analysis of Financial Condition and
Results of Operations".
A. The Company
Asset Investors Corporation was incorporated under Maryland law on
October 14, 1986 by MDC. The Common Stock is listed on the NYSE under the symbol
"AIC". The company's assets primarily are non-agency MBS bonds (which it began
acquiring in the second quarter of 1994) and the ownership of shares of common
stock of Commercial Assets and, to a lesser extent, CMO Ownership Interests.
B. Presentation of Financial Statements
The Condensed Consolidated Financial Statements of the company
presented herein have been prepared by the company, without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. These
financial statements reflect all adjustments, consisting of only normal
recurring accruals, which, in the opinion of management, are necessary to
present fairly the financial position, results of operations and cash flows of
the company as of June 30, 1995 and for the period then ended and for all prior
periods presented. These statements are condensed and do not include all the
information required by GAAP in a full set of financial statements. These
statements should be read in conjunction with the company's Consolidated
Financial Statements and notes thereto included in the company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994.
Certain reclassifications have been made in the 1994 Condensed
Consolidated Financial Statements to conform to the classifications used in the
current year.
C. Summary of Significant Accounting Policies
Principles of Consolidation - The Condensed Consolidated Financial
Statements include the accounts of the company and its wholly owned corporate
subsidiaries. The company's investment in Commercial Assets is recorded under
the equity method. All significant intercompany balances and transactions have
been eliminated in consolidation.
Income Taxes - The company currently operates in a manner intended to
permit it to qualify for the income tax treatment accorded to a REIT. If it so
qualifies, the company's REIT income, with certain limited exceptions, will not
be subject to federal income tax at the corporate level. Accordingly, no
provision for taxes has been made in the Condensed Consolidated Financial
Statements.
In order to maintain its status as a REIT, the company is required,
among other things, to distribute annually to its shareowners at least 95% of
the greater of its: (i) REIT income less NOL carryover; or (ii) Excess Inclusion
income. The company also is required to meet certain asset, income and stock
ownership tests.
- 5 -
<PAGE>
Statements of Ongoing and Liquidating Operations - In 1993, the company
began a program of liquidating its CMO Ownership Interests and acquiring
credit-sensitive assets (non-agency MBS bonds and shares of Commercial Assets)
that should benefit from an improving economy. Accordingly, the company has
classified as liquidating operations its revenues from CMO Ownership Interests
along with expenses directly allocable to the CMO Ownership Interests. All other
revenues and expenses of the company, including corporate general and
administrative expenses, are classified as ongoing operations. The Statements of
Ongoing and Liquidating Operations present separately the company's earnings
from ongoing and liquidating operations.
Statements of Cash Flows - The company paid interest in cash of
$894,000 and $1,572,000, respectively, for the six months ended June 30, 1995
and 1994. Non-cash financing activities of the company during the six months
ended June 30, 1995 and 1994 were $1,941,000 and $987,000, respectively, from
dividends payable and $104,000 and $42,000, respectively, from distributions of
Common Stock pursuant to DERs.
D. Non-agency MBS Bonds
Through June 30, 1995, the company acquired 133 non-agency MBS bonds,
with an aggregate outstanding principal balance on the date of acquisition of
$159,029,000 and an aggregate total cost of $50,712,000. The net carrying value
of the company's non-agency MBS bonds was as follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
Outstanding Balance
----------------------------
June 30, December 31,
Price1 Coupon2 1995 1994
------ ------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
Non-agency MBS bonds collateralized by:
30-year fixed-rate mortgage loans 34.7% 7.0% $ 92,244 $ 56,955
15-year fixed-rate mortgage loans 38.7 6.5 15,474 12,364
Adjustable-rate mortgage loans 27.2 6.6 4,194 4,219
B and C mortgage loans3 56.7 6.6 16,823 14,473
Other subordinate non-agency MBS bonds4 26.9 7.3 27,372 --
---- --- -------- ----------
37.3% 6.9% 156,107 88,011
==== ===
Less:
Allowance for credit losses (49,556) (22,075)
Unamortized discount (58,917) (33,392)
-------- ----------
$ 47,634 $ 32,544
======== ==========
---------------------------------
1 Weighted-average price as a percentage of the principal balance of the
non-agency MBS bonds acquired.
2 Weighted-average coupon of non-agency MBS bonds at June 30, 1995.
3 The B and C mortgages are all adjustable-rate mortgages and include
$8,133,000 and $8,165,000, respectively,
of "B" rated non-agency MBS bonds at June 30, 1995 and December 31, 1994.
4 Referred to as re-REMICs.
</TABLE>
The allowance for credit losses is adjusted as follows: (i) increased
or decreased for changes to the company's expectations of future credit losses;
(ii) increased for allowances established when non-agency MBS bonds are
- 6 -
<PAGE>
acquired; and (iii) reduced by actual credit losses allocated to the company's
non-agency MBS bonds. The activity in the allowance for credit losses during the
six months ended June 30, 1995 was as follows (in thousands):
Balance at December 31, 1994 $22,075
Allowance related to non-agency MBS bonds
acquired during the period 28,210
Credit losses (principal reductions net of
indemnifications) (729)
-------
Balance at June 30, 1995 $49,556
=======
As of June 30, 1995, there were 117 mortgage loans (out of
approximately 110,000) that collateralized the company's non-agency MBS bonds,
with an outstanding principal balance of $28,760,000 and an amortized cost of
$9,662,000. The company's exposure to credit losses, if any, from the mortgage
loans in foreclosure is dependent upon: (i) the net amount recovered from the
foreclosure sale of the defaulted mortgage loans, less related foreclosure costs
and servicing advances; (ii) the acquisition cost of the related non-agency MBS
bonds; and (iii) the proceeds, if any, the company may receive from
indemnifications of credit losses resulting from representations and agreements
made with respect to the company's non-agency MBS bonds.
The principal amount of the credit support classes of non-agency MBS
bonds acquired by the company represents a small percentage of the principal
amount of the total non-agency MBS bonds issued to securitize a pool of
residential mortgage loans. At June 30, 1995, the weighted-average percentage of
the principal amount of the credit support non-agency MBS bonds owned by the
company represented .52% of the principal amount of the total non-agency MBS
bonds issued in the related securitizations. The outstanding principal balance
of the mortgage loan collateral for the company's subordinate non-agency MBS
bonds and the outstanding principal balance of the non-agency MBS bonds senior
to the company's subordinate non-agency MBS bonds was $29,874,975,000 and
$29,718,868,000, respectively, at June 30, 1995.
E. Investment in Commercial Assets
On June 30, 1995 and December 31, 1994, the company owned 2,761,126
shares (approximately 27%) of the common stock of Commercial Assets. Presented
below is the summarized financial information of Commercial Assets as reported
by Commercial Assets (in thousands):
<TABLE>
<CAPTION>
Balance Sheets June 30, December 31,
1995 1994
-------- -----------
(Unaudited)
<S> <C> <C>
CMBS bonds $73,825 $ 74,046
Cash and cash equivalents 1,734 12,367
Other assets 1,347 1,191
-------- ----------
Total Assets 76,906 87,604
-------- ----------
Short-term borrowings -- 10,295
Other liabilities 2,244 2,637
-------- ----------
Total Liabilities 2,244 12,932
-------- ----------
Stockholders' Equity $ 74,662 $ 74,672
======== ==========
</TABLE>
- 7 -
<PAGE>
<TABLE>
<CAPTION>
Statements of Income Three Months Ended Six Months Ended
June 30, June 30,
------------------------ -----------------------
1995 1994 1995 1994
-------- ------ ------ ------
(Unaudited)
<S> <C> <C> <C> <C>
CMBS bonds $ 2,209 $1,674 $4,419 $2,031
Other revenues 31 207 170 719
-------- ------ ------ ------
Total Revenues 2,240 1,881 4,589 2,750
Total Expenses 591 504 1,407 920
-------- ------ ------ ------
Net Income $ 1,649 $1,377 $3,182 $1,830
======== ====== ====== ======
</TABLE>
F. CMO Ownership Interests
In prior periods, certain of the company's CMO Ownership Interests that
were considered equity ownership interests in a CMO issuance, in accordance with
the EITF Issue 89-4 consensus, were presented on a gross basis on the balance
sheets and statements of operations. Accordingly, the book values of the
Mortgage Collateral and CMO Bonds were presented separately as assets and
liabilities, respectively, on the balance sheets, and interest income on
Mortgage Collateral and interest expense on CMO Bonds were presented separately
as income and expenses, respectively, on the statements of operations.
Due to significant sales of CMO Ownership Interests and a change in the
type of assets the company has been acquiring since 1993, CMO Ownership
Interests represented only four percent of the company's total assets at June
30, 1995, and contributed only six percent of total revenues for the three
months ended June 30, 1995. Substantially all of the remaining CMO Ownership
Interests of the company are at, or are nearing, the ends of their economic
lives. Accordingly, the company does not anticipate that these assets will
generate significant amounts of income or cash flow in the future. Also, the
company does not presently intend to acquire any additional CMO Ownership
Interests.
The company, beginning in the second quarter of 1995, presented all of
its CMO Ownership Interests under the Prospective Method. The company's balance
sheets reflect all the CMO Ownership Interests at their net carrying amount and
the statements of operations reflect earnings from CMO Ownership Interests on a
net basis. Below is certain information relating to the company's CMO Ownership
Interests (in thousands):
- 8 -
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
---------- -------------
(Unaudited)
<S> <C> <C>
CMO Subsidiaries:
Restricted cash $ 6,252 $ 109,830
Accrued interest receivable 2,966 11,250
CMO issuance costs, net 339 586
Mortgage Collateral 240,279 934,975
Unamortized premium, net of discount, on Mortgage Collateral 1,729 (2,013)
---------- -------------
CMO Subsidiaries - assets 251,565 1,054,628
---------- -------------
Accrued interest payable (4,152) (17,781)
CMO Bonds (242,535) (1,027,641)
Unamortized discount on CMO Bonds 15,528 60,390
Reserve (18,634) (53,937)
---------- -------------
CMO Subsidiaries - liabilities (249,793) (1,038,969)
---------- -------------
Minority interest (283) (3,003)
---------- -------------
Total CMO Subsidiaries 1,489 12,656
CMO Residuals and Acquired CMO Classes 1,881 9,834
---------- -------------
Total CMO Ownership Interests, net $ 3,370 $ 22,490
========== =============
</TABLE>
During the six months ended June 30, 1995, the company exercised the
Call Rights with respect to certain CMO Ownership Interests, recognizing net
gains of $2,008,000. The exercise of Call Rights resulted in the sale of
$45,698,000 principal amount of Mortgage Collateral from CMO Subsidiaries during
the six months ended June 30, 1995 and the early redemption of the related CMO
Bonds. During the three and six months ended June 30, 1994, the company
exercised Call Rights with respect to certain CMO Ownership Interests,
recognizing net gains of $1,373,000 and $7,637,000, respectively. The exercise
of Call Rights resulted in the sale of $29,993,000 and $65,996,000,
respectively, of Mortgage Collateral from CMO Subsidiaries during the three and
six months ended June 30, 1994 and the early redemption of the related CMO
Bonds.
At December 31, 1994, $79,658,000 in restricted cash was held by a
trustee representing proceeds from the sale of Mortgage Collateral related to
the exercise of Call Rights pending the redemption of the related CMO Bonds. The
restricted cash was used primarily to redeem CMO Bonds with an outstanding
principal balance of $76,019,000 at December 31, 1994 at par on January 1 and
February 1, 1995.
On March 30, 1995, Asset Securitization sold 28 CMO Ownership Interests
classified as available-for-sale for $14,927,000. No gain or loss was recognized
at the time of the sale; however, the company recognized $1,205,000 of net
holding losses related to the assets sold as of December 31, 1994. The proceeds
from the sale and $15,569,000 of restricted cash for secured notes payable were
used to repay the $28,437,000 outstanding principal balance of the secured notes
and $355,000 of accrued interest, and to provide $1,704,000 of cash to the
company.
- 9 -
<PAGE>
The unaudited proforma net income of the company for the three and six
months ended June 30, 1995 was $2,020,000 and $5,144,000, respectively. The
proforma amounts are presented as if the March 30, 1995 sale of the CMO
Ownership Interests that collateralized the secured notes payable and retirement
of the secured notes payable had occurred at the beginning of these periods. The
unaudited proforma net income of the company for the same periods in 1994 was
$1,161,000 and $2,891,000, respectively.
G. Short-Term Borrowings
The company has several Repurchase Agreement facilities collateralized
by certain non-agency MBS bonds. The collateral value and interest rate related
to the Repurchase Agreements are subject to periodic adjustment. At June 30,
1995, the company was able to borrow $8,480,000 under five Repurchase
Agreements, based on the value of the pledged collateral. As of June 30, 1995
and December 31, 1994, borrowings under these Repurchase Agreements had an
original maturity of 30 days, effective interest rates of 7.31% and 7.38%,
respectively, and an aggregate outstanding principal balance of $577,000 and
$658,000, respectively.
On December 23, 1994, the company entered into a one-year credit
facility with a bank secured by certain non-agency MBS bonds. At June 30, 1995,
the company was able to borrow $9,877,000 under the credit facility, based on
the value of the pledged collateral. The credit facility is also subject to
certain financial covenants, with which the company is in compliance, and bears
interest, payable monthly, based on one-month LIBOR. At June 30, 1995, there
were no borrowings under the credit facility. At December 31, 1994, $2,100,000
was borrowed under the credit facility at an effective interest rate of 7.49%.
On July 19, 1995, the company obtained a one-year, $1,000,000 unsecured
line of credit. Advances under this line bear interest at prime rate.
H. Other Matters
The company has entered into a series of Management Agreements with the
Manager through December 31, 1995. Pursuant to the Management Agreement, the
Manager advises the company on its business and oversees its day-to-day
operations subject to the supervision of the company's Board of Directors, the
majority of whom are Independent Directors. During the three and six months
ended June 30, 1995, the company incurred management fees of $165,000 and
$291,000, respectively, compared with $58,000 and $114,000, respectively, for
the same periods of 1994. The company also incurred Administrative Fees pursuant
to the Management Agreements referred to above and certain administration
agreements entered into with the Manager in connection with certain of the
company's CMO Ownership Interests and non-agency MBS bonds. Administrative Fees
incurred for the three and six months ended June 30, 1995 were $220,000 and
$547,000, respectively, compared with $357,000 and $718,000, respectively, for
the same periods of 1994.
The company has an NOL carryover of approximately $100,000,000 at June
30, 1995 which can be used to reduce the company's requirement under the Code to
distribute at least 95% of REIT income but does not reduce the requirement to
distribute 95% of Excess Inclusion income. As of June 30, 1995, the company also
has a capital loss carryover of approximately $28,000,000 which expires
beginning in 1998.
- 10 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Capitalized terms not otherwise defined in the narrative below shall
have the meaning indicated in the "Summary of Definitions" which may be
found at the end of this report.
General - Asset Investors Corporation is a real estate investment trust
(REIT) that was incorporated by MDC under Maryland law in 1986. The Common Stock
of Asset Investors Corporation is listed on the NYSE under the symbol "AIC."
Asset Investors owns and manages ownership interests in residential mortgage
loan securitizations (non-agency MBS bonds and, to a lesser extent, CMO
Ownership Interests) and owns approximately 27% of the common stock of
Commercial Assets, Inc. (AMEX: CAX).
The company currently operates in a manner intended to permit it to
qualify for the income tax treatment accorded to a REIT under the Code. If it so
qualifies, the company's REIT income and Excess Inclusion income, with certain
limited exceptions, will not be subject to federal income tax at the corporate
level. In order to maintain its REIT status, the company will be required, among
other things, to distribute annually (as determined under the Code) to its
shareowners at least 95% of the greater of its: (i) REIT income reduced by the
NOL carryover; or (ii) Excess Inclusion income. The company must also meet
certain asset, income and stock ownership tests.
The company's acquisition and other policies are determined by its
Board of Directors. The company's By-laws require that a majority of the Board
of Directors and each committee thereof be comprised of Independent Directors.
The company's day-to-day operations are performed by the Manager, a
subsidiary of MDC, pursuant to a Management Agreement which is subject to the
approval of a majority of the Independent Directors. The Manager is subject to
the supervision of the Board of Directors. As part of its duties, the Manager
presents the company with asset acquisition opportunities consistent with the
policies and objectives of the company and furnishes the Board of Directors with
information concerning the acquisition, holding and disposition of assets. The
company has no employees.
During the first half of 1995, the company, continuing its strategy of
acquiring credit-sensitive assets that the company believes should benefit from
an improving economy, acquired 49 non-agency MBS bonds with an aggregate
outstanding balance on the date of acquisition of $70,087,000. These non-agency
MBS bonds were acquired at a total cost of $17,088,000, a weighted-average
acquisition price of 27.5% and with a weighted-average pass-through coupon
interest rate of 7.2%. The company acquired six additional non-agency MBS bonds
during July 1995 at a total cost of $1,573,000, bringing the total cost of the
139 non-agency MBS bonds acquired by the company from April 1994 through the end
of July 1995 to $52,285,000. The 1995 acquisitions were made using the remaining
proceeds of the December 16, 1994 Rights Offering and operating cash flow not
needed to pay expenses or make dividend distributions. The company's non-agency
MBS bonds acquired through July 31, 1995 have a weighted average pass-through
coupon interest rate of 6.8% and were acquired at a weighted-average acquisition
price of 36.8%.
- 11 -
<PAGE>
On March 30, 1995 Asset Securitization sold 28 CMO Ownership Interests
for $14,927,000. The proceeds from the sale plus $15,569,000 of restricted cash
were used to repay $28,437,000 principal amount of secured notes and $355,000 of
accrued interest and to provide $1,704,000 of cash to the company. The 28 CMO
Ownership Interests were classified as "available for sale" for accounting
purposes as of December 31, 1994 and, accordingly, the company recognized, as of
such date, $1,205,000 of net holding losses for Book income purposes related to
the 28 CMO Ownership Interests sold. No gain or loss was recorded at the time of
the sale of the CMO Ownership Interests and repayment of the secured notes in
1995. Asset Securitization was liquidated in May 1995.
The acquisition of non-agency MBS bonds and the sale of CMO Ownership
Interests significantly changed the assets of the company at June 30, 1995
compared to December 31, 1994 and 1993. Nearly 88% of the company's assets at
June 30, 1995 consisted of non-agency MBS bonds and the company's ownership
interest in Commercial Assets, compared with 49% and 22% at December 31, 1994
and 1993, respectively. The company's CMO Ownership Interests represented 4% of
the company's assets at June 30, 1995, compared with 21% and 50% at December 31,
1994 and 1993, respectively. The company does not plan to acquire additional CMO
Ownership Interests. Accordingly, the percentage of the company's assets that
consist of CMO Ownership Interests should continue to decrease.
The company's earnings from ongoing operations has increased
significantly during the first six months of 1995 compared with the same period
of 1994 due to the company's acquisition of non-agency MBS bonds and the
acquisition of CMBS bonds by Commercial Assets over the past 18 months. The
company's earnings from ongoing operations is expected to continue to increase
in future periods, subject to, among other things, stable levels of expenses and
credit losses. The expected increase is due to additional acquisitions of
non-agency MBS bonds from available cash flow and the anticipated benefits of an
improving economy.
Unlike the agency-guaranteed mortgage certificates which are pledged to
secure the CMO Bonds related to the company's CMO Ownership Interests, the
company's subordinate non-agency MBS bonds and the CMBS bonds of Commercial
Assets have credit risk. Non-agency MBS bonds are collateralized by
non-conforming mortgage loans that do not meet GNMA, FNMA or FHLMC guarantee
standards, generally because the mortgage loans exceed agency size limits (e.g.,
the current FNMA limit is $203,150) or because the borrower does not meet other
agency credit underwriting criteria. The company generally acquires the class of
the non-agency MBS bond which bears the first losses from the related Mortgage
Collateral. If a borrower defaults on a non-conforming mortgage loan which is
pledged as collateral for a residential mortgage loan securitization and the
proceeds of the foreclosure sale of the property securing the mortgage loan are
less than the unpaid balance of the mortgage, foreclosure costs and servicer
advances, the company, as the holder of the first-loss class, would suffer a
loss up to the then outstanding principal balance of such class. The loss would
equal the unpaid principal balance plus foreclosure costs and servicer advances,
net of proceeds from the foreclosure sale. Conversely, the holder of an
agency-guaranteed mortgage loan virtually is assured of full payment of
principal and interest due to the agency guarantee.
The company intends to use its available funds to acquire additional
non-agency MBS bonds. Although the company's primary emphasis will be on the
acquisition of subordinate unrated non-agency MBS bonds, future acquisitions may
include, among other things, rated classes of residential mortgage loan
securitizations and participations in residential real estate. The company also
may acquire or originate agency-guaranteed and non-conforming mortgage loans
which, among other things, may be used for future securitizations.
- 12 -
<PAGE>
RESULTS OF OPERATIONS FOR THE
THREE AND SIX MONTHS ENDED JUNE 30, 1995 AND 1994
The company had Book income (computed in accordance with GAAP) of
$1,870,000 ($.07 per share) and $5,877,000 ($.24 per share), respectively, for
the three and six months ended June 30, 1995 compared with $1,830,000 ($.13 per
share) and $8,345,000 ($.59 per share), respectively, for the three and six
months ended June 30, 1994. Book income during the three and six months ended
June 30, 1995 consisted of $1,814,000 ($.07 per share) and $2,759,000 ($.11 per
share), respectively, of earnings from ongoing operations and $56,000 ($.00 per
share) and $3,118,000 ($.13 per share), respectively, of earnings from
liquidating operations compared with $361,000 ($.03 per share) and $81,000 ($.01
per share), respectively, of earnings from ongoing operations and $1,469,000
($.10 per share) and $8,264,000 ($.59 per share), respectively, from liquidating
operations for the three and six months ended June 30, 1994. Liquidating
operations consists of the revenues from CMO Ownership Interests along with
expenses directly allocable to the CMO Ownership Interests. All other revenues
and expenses of the company, including corporate general and administrative
expenses, are included in ongoing operations. Earnings from ongoing operations
is increasing because of the company's acquisition of non-agency MBS bonds and
as a result of the acquisition of CMBS bonds by Commercial Assets during 1994.
Earnings from liquidating operations is decreasing, and is expected to continue
to decrease in the future, due primarily to the exercise of Call Rights and sale
of CMO Ownership Interests over the past two years.
On December 16, 1994, the company completed a Rights Offering that
resulted in net proceeds of $17,208,000 and increased the company's outstanding
Common Stock by 71%, from 14,158,208 shares to 24,212,002 shares. The proceeds
of the Rights Offering principally were used to acquire additional non-agency
MBS bonds.
The table below summarizes the company's results of operations during
the three and six months ended June 30, 1995 and 1994 and compares the results
of the periods presented (in thousands, except per share data).
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ -------------------------------------
Increase Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
-------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ongoing Operations:
Revenues
Non-agency MBS bonds $ 1,889 $ 230 $ 1,659 $ 3,222 $ 230 $ 2,992
Equity in earnings of
Commercial Assets 435 379 56 855 503 352
Interest income 105 151 (46) 254 246 8
-------- ---------- -------- ---------- ---------- ----------
2,429 760 1,669 4,331 979 3,352
Expenses
Management fees 216 21 195 364 22 342
General and administrative
376 354 22 1,152 822 330
Interest expense 23 24 (1) 56 54 2
-- -- -- -- -- -
615 399 216 1,572 898 674
-------- ---------- -------- ---------- ---------- ----------
Earnings from ongoing
operations 1,814 361 1,453 2,759 81 2,678
-------- ---------- -------- ---------- ---------- -----------
</TABLE>
- 13 -
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ -------------------------------------
Increase Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
-------- ---------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Liquidating Operations:
Revenues
CMO Ownership Interests
$ 145 $ 778 $ (633) $ 1,619 $ 2,207 $ (588)
Interest income -- 172 (172) 225 318 (93)
Net (loss) gain on the sale
of assets (9) 1,373 (1,382) 2,022 7,637 (5,615)
-------- ---------- -------- ---------- ---------- -----------
136 2,323 (2,187) 3,866 10,162 (6,296)
Expenses
Management fees 73 125 (52) 162 259 (97)
General and administrative
7 39 (32) 22 188 (166)
Interest expense -- 690 (690) 564 1,451 (887)
-------- ---------- -------- ---------- ---------- -----------
80 854 (774) 748 1,898 (1,150)
-------- ---------- -------- ---------- ---------- -----------
Earnings from liquidating
operations 56 1,469 (1,413) 3,118 8,264 (5,146)
-------- ---------- -------- ---------- ---------- -----------
Book income $ 1,870 $ 1,830 $ 40 $ 5,877 $ 8,345 $ (2,468)
======== ========== ======== ========== ========== ===========
Book income per share $ .07 $ .13 $ (.06) $ .24 $ .59 $ (.35)
======== ========== ======== ========== ========== ===========
Estimated REIT Income (Loss):
Ongoing operations $ 3,300 $ (500) $ 3,800 $ 4,900 $ (900) $ 5,800
Liquidating operations (3,500) (8,400) 4,900 (5,600) (19,700) 14,100
-------- ---------- -------- ---------- ---------- -----------
Estimated REIT loss $ (200) $ (8,900) $ 8,700 $ (700) $ (20,600) $ 19,900
======== ========== ======== ========== ========== ===========
Estimated REIT loss per share $ (.01) $ (.63) $ .62 $ (.03) $ (1.46) $ 1.43
======== ========== ======== ========== ========== ===========
Excess Inclusion income $ 100 $ 800 $ (700) $ 700 $ 1,800 $ (1,100)
======== ========== ======== ========== ========== ===========
Excess Inclusion income per share
$ .01 $ .06 $ (.05) $ .03 $ .13 $ (.10)
======== ========== ======== ========== ========== ===========
Dividends $ 1,941 $ 987 $ 954 $ 3,879 $ 1,691 $ 2,188
======== ========== ======== ========== ========== ===========
Dividends per share $ .08 $ .07 $ .01 $ .16 $ .12 $ .04
======== ========== ======== ========== ========== ===========
Weighted-average shares
outstanding 24,259 14,100 10,159 24,243 14,090 10,153
</TABLE>
- 14 -
<PAGE>
Book Income
Non-Agency MBS Bonds - From April 1994 through June 1995, the company
acquired 133 non-agency MBS bonds with an outstanding principal balance of
$159,029,000 and a weighted-average coupon of 6.85% at acquisition. The
company's accounting policies require the company to record an allowance for
credit losses at the time a non-agency MBS bond is acquired. At June 30, 1995,
the allowance for credit losses related to the company's non-agency MBS bonds
was $49,556,000. The allowance reduces the amount of Book income the company
records from these assets. The company's effective yield on its non-agency MBS
bonds at June 30, 1995 and December 31, 1994 for Book income purposes, based on
an estimate of the timing and amount of future credit losses, was 16.0% and
15.0%, respectively. As the company acquires additional non-agency MBS bonds and
if anticipated future credit losses do not require the allowance for credit
losses to be increased income from the non-agency MBS bonds is expected to
increase in future periods.
As of June 30, 1995, there were 117 mortgage loans (out of approximately
110,000) in foreclosure that collateralized the company's non-agency MBS bonds,
with an outstanding principal balance of $28,760,000 and an amortized cost of
$9,662,000. The company's exposure to credit losses, if any, from the mortgage
loans in foreclosure is dependent upon: (i) the net amount recovered from the
foreclosure sale of the defaulted mortgage loans, less related foreclosure costs
and servicing advances; (ii) the acquisition cost of the related non-agency MBS
bonds; and (iii) the proceeds, if any, the company may receive from
indemnifications of credit losses resulting from representations and agreements
made with respect to the company's non-agency MBS bonds.
Commercial Assets - Commercial Assets commenced operations on October 12,
1993 and had only limited operations in 1993 and the first quarter of 1994.
Commercial Assets has reported that it has acquired, since its inception, 11
CMBS bonds from six securitizations at a cost of $74,433,000. At June 30, 1995
and 1994, these CMBS bonds had an outstanding balance of $100,851,000 and
$85,179,000, respectively, and weighted-average yields-to-maturity before credit
losses of 13.4% and 11.4%, respectively. Income from the company's shares of
Commercial Assets (which, for Book income purposes, is based on the company's
pro rata share of Commercial Assets' Book income) for the three and six months
ended June 30, 1995 increased by $56,000 and $352,000, respectively, compared
with the same periods of 1994, due to the acquisition of $91,971,000 of CMBS
bonds during 1994. Commercial Assets completed the investment of its original
$75,000,000 of capital in 1994 and, accordingly, has not acquired any CMBS bonds
in 1995. Commercial Assets has reported that its earnings and dividends of
Commercial Assets will remain relatively stable subject to, among other things,
expense levels, credit losses and principal prepayments on the CMBS bonds.
CMO Ownership Interests - The company's Book income from CMO Ownership
Interests decreased during the three and six months ended June 30, 1995 compared
with the same periods of 1994 primarily due to gains from the exercise of Call
Rights and sale of CMO Ownership Interests in 1994 and the first half of 1995.
The Book income from CMO Ownership Interests is expected to continue to decrease
because these assets are at, or are nearing, the end of their economic lives.
Accordingly, the company does not anticipate that these assets will generate
significant amounts of income or cash flow in the future.
The aggregate proportionate principal balance (including notional
principal amounts) of the LIBOR Classes underlying the company's Variable-Rate
CMO Ownership Interests were $11,169,000 and $188,742,000, respectively, at June
30, 1995 and 1994. The LIBOR Classes decreased by $113,157,000 due to the March
- 15 -
<PAGE>
30, 1995 sale of 28 CMO Ownership Interests. As a result, increases and
decreases in LIBOR should not have a significant impact on the company's
interest expense from Variable-Rate CMO Ownership Interests in the future.
Net Gain on Sale of Assets - During the six months ended June 30, 1995
and 1994, the company exercised Call Rights on its CMO Ownership Interests
resulting in gains of $2,008,000 and $7,637,000, respectively. The exercise of
these Call Rights during the three and six months ended June 30, 1995 and 1994
reduced the outstanding principal amount of the company's Mortgage Collateral by
$45,698,000 and $65,996,000, respectively.
On March 30, 1995, Asset Securitization sold 28 CMO Ownership Interests
and repaid the secured notes payable, as discussed above. As of December 31,
1994, the company recognized $1,205,000 of net holding losses for Book income
purposes related to the 28 CMO Ownership Interests sold. As a result, no gain or
loss was recorded on the sale of the CMO Ownership Interests and repayment of
the secured notes in 1995. During the six months ended June 30, 1995 and 1994,
the company earned Book income from Asset Securitization of $733,000 and
$5,454,000 (including a $4,664,000 gain from the exercise of a Call Right in
1994), respectively. Asset Securitization was liquidated in May 1995.
Interest Income - Interest income from ongoing operations decreased during
the three months ended June 30, 1995 compared with the same periods in 1994
because the company has used a portion of its available cash to acquire
non-agency MBS bonds. Interest income from liquidating operations has decreased
during the three and six months ended June 30, 1995 compared with the same
periods in 1994 because the interest income was earned primarily from restricted
cash for the secured notes payable. The restricted cash was used to repay the
secured notes on March 30, 1995.
General and Administrative Expenses - General and administrative
expenses from ongoing operations increased during the three and six months ended
June 30, 1995 compared with the same periods in 1994. The increase resulted
from, among other things, the increase in the accrual of DERs of $140,000,
higher legal, accounting and consulting fees of $125,000 and higher printing
costs of $92,000. General and administrative expenses from liquidating
operations decreased during the three and six months ended June 30, 1995
compared with 1994 primarily due to a decrease in the amortization of debt
issuance costs from the secured notes that were repaid March 30, 1995.
Management Fees - Management fees are comprised of an Incentive Fee
(determined from dividends paid), a Base Fee (determined from invested assets)
and an Administrative Fee (charged for each non-agency MBS bond and CMO
Ownership Interest owned by the company). Included in management fees
attributable to ongoing operations are Incentive Fees incurred by the company
along with Base Fees and Administrative Fees applicable to the non-agency MBS
bonds. The management fees included in ongoing operations increased during the
three and six months ended June 30, 1995 compared with the same periods in 1994
due to: (i) Base Fees and Administrative Fees from non-agency MBS bonds acquired
during 1994 and the first half of 1995; and (ii) the Incentive Fees of $180,000
during the six months ended June 30, 1995 compared with no Incentive Fees during
the same period in 1994 due to higher dividend levels. Management Fees included
in liquidating operations decreased during the three and six months ended June
30, 1995 compared with the same periods in 1994 due to lower Base Fees and
Administrative Fees from the reduction of CMO Ownership Interests through the
exercise of Call Rights and sale of CMO Ownership Interests during 1994 and the
first half of 1995. During the three and six months ended June 30, 1995, the
company incurred total fees to the Manager pursuant to the Management Agreement
of $385,000 and $852,000, respectively, compared with $429,000 and $860,000,
respectively, for the same periods in 1994.
- 16 -
<PAGE>
Interest Expense - Interest expense on the company's borrowing facilities,
primarily included in liquidating operations, decreased during the three and six
months ended June 30, 1995, compared with the same periods in 1994, principally
due to the repayment of $11,408,000 and $30,592,000, respectively, of the
secured notes payable in 1994 and in the first quarter of 1995.
The company's debt-to-equity ratio at June 30, 1995 and 1994 was .01 to
1 and .71 to 1, respectively. The debt-to-equity ratio at June 30, 1994 without
the effect of the non-recourse secured notes payable (and related equity) was
.07 to 1.
REIT Income
The company's estimated REIT income (loss) from ongoing operations
during the three and six months ended June 30, 1995 improved over the same
periods in 1994 due to $5,500,000 of higher REIT earnings from non-agency MBS
bonds and $276,000 of increased dividends from Commercial Assets.
The company's estimated REIT losses from liquidating operations for the
three and six months ended June 30, 1995 were significantly less than the same
periods in 1994 primarily due to low mortgage interest rates during the first
half of 1994 which resulted in high levels of prepayments of the Mortgage
Collateral underlying the company's CMO Ownership Interests. The high levels of
prepayments in 1994 resulted in significant amounts of non-cash interest expense
from amortization of the discounts on the company's CMO Bonds.
The estimated REIT losses from liquidating operations during the three
and six months ended June 30, 1995 included $2,500,000 and $4,500,000,
respectively, of interest expense related to the write off of unamortized
discount from CMO Bonds redeemed during the periods from the exercise of Call
Rights, compared with $900,000 and $1,200,000, respectively, for the same
periods in 1994. Exclusive of the interest expense related to the exercise of
Call Rights, the company earned estimated REIT income of $2,300,000 and
$3,800,000, respectively, during the three and six months ended June 30, 1995,
compared with REIT losses of $8,000,000 and $19,400,000, respectively, for the
same periods in 1994.
The company recognized approximately $9,000,000 and $17,000,000,
respectively, of net capital losses during the three and six months ended June
30, 1995. Such capital losses are not included in REIT income, but increased the
company's capital loss carryover to approximately $28,000,000 at June 30, 1995.
Under the Code, capital losses do not offset REIT income. For the three and six
months ended June 30, 1994, the company recognized $2,300,000 and $7,600,000,
respectively, of net capital gains from the exercise of Call Rights, which were
reduced to zero, as required by the Code, by the company's capital loss
carryovers from prior years.
Assuming that current operating expense levels are maintained and that
losses on the company's non-agency MBS bonds do not exceed anticipated levels,
the company believes REIT income for the remainder of 1995 and future years
should improve from 1994 levels as the interest income from non-agency MBS bonds
increases and REIT losses from the company's CMO Ownership Interests decline as
a result of sales, exercises of Call Rights and principal paydowns.
Excess Inclusion Income
The company's Excess Inclusion income for the three and six months
ended June 30, 1995 was significantly less than the same periods in 1994. The
March 30, 1995 sale of CMO Ownership Interests included most of the REMIC
- 17 -
<PAGE>
residual interests owned by the company that generated Excess Inclusion income.
As a result, the company believes that its Excess Inclusion income for the
remainder of 1995 and future periods will continue to be significantly less than
in previous periods.
Excess Inclusion income is attributable to the company's residual
interests in REMICs. During the six months ended June 30, 1995 and 1994, Excess
Inclusion income exceeded REIT income. Excess Inclusion income may not be
reduced by any expenses or deductions, including normal operating expenses,
losses from the company's CMO Ownership Interests and NOLs. Dividends paid to
shareowners of the company will be characterized as Excess Inclusion income to
the extent that such dividends are attributable to Excess Inclusion income
realized by the company.
NOL Carryover
The company's NOL carryover was approximately $100,000,000 as of June
30, 1995. The NOL can be used to reduce the company's requirement to distribute
at least 95% of its REIT income but does not reduce its requirement to
distribute 95% of Excess Inclusion income.
Reconciliation of REIT Income, Excess Inclusion Income and Book Income
The company computes its income in accordance with the Code (REIT
income and Excess Inclusion income) and in accordance with GAAP (Book income).
As a REIT, the company's REIT income and Excess Inclusion income are extremely
important because they are the basis upon which the Code requires the company to
make distributions to shareowners. However, the Commission requires all public
companies to report their income in accordance with GAAP. The differences
between REIT income, Excess Inclusion income and Book income are discussed
below.
During the three and six months ended June 30, 1995, Excess Inclusion
income exceeded REIT losses by $300,000 and $1,400,000, respectively, and by
$9,700,000 and $22,400,000, respectively, during the three and six months ended
June 30, 1994. These differences resulted from normal operating expenses and
losses from the company's CMO Ownership Interests, which reduce REIT income but
do not reduce Excess Inclusion income.
During the three and six months ended June 30, 1995, Book income
exceeded REIT income by $2,070,000 and $6,577,000, respectively, and during the
three and six months ended June 30, 1994, Book income exceeded REIT income by
$10,730,000 and $28,945,000, respectively. Substantially all of the difference
between REIT income and Book income is due to: (i) gains on the sales of assets
recorded for Book income purposes that are reduced to zero for REIT income
purposes by the company's capital loss carryover; and (ii) differences in the
calculation of discount and premium amortization for REIT income compared to
Book income attributable to non-agency MBS bonds and CMO Ownership Interests.
Dividend Distributions
In June 1995, the company declared a regular dividend of $1,941,000 ($.08
per share). Based on the company's improved earnings from ongoing operations and
cash flow, it is anticipated that dividends for the remainder of 1995 will be at
or slightly above the current level. Since its inception, the company has
distributed dividends to its shareowners totaling $224,863,000 ($17.11 per
share). The distributions included cash dividends of $172,265,000 ($13.37 per
share) and the value ($7.47 per share) of 7,040,043 shares of common stock of
Commercial Assets (one-half share of common stock of
- 18 -
<PAGE>
Commercial Assets for every share of Common Stock owned) distributed to the
company's shareowners on October 12, 1993. For the second quarter of 1994, the
company paid dividends of $987,000 ($.07 per share). Because of the company's
significant restructuring during 1993 and 1994, prior dividend distributions may
not be indicative of future dividends.
LIQUIDITY AND CAPITAL RESOURCES
The company uses its cash flow from operating activities and other
capital resources to provide working capital to support its operations, for the
payment of dividends to its shareowners, for the acquisition of assets and for
the repayment of borrowings.
The table below summarizes the company's operating cash flows and uses
of those cash flows for the six months ended June 30, 1995 and 1994 and a
comparison of the periods (in thousands).
<TABLE>
<CAPTION>
Six Months Ended June 30,
Increase
1995 1994 (Decrease)
--------- ---------- ----------
<S> <C> <C> <C>
Cash Flow from Ongoing Operations:
Non-agency MBS bonds $ 5,021 $ 229 $ 4,792
Ownership Interest in Commercial Assets 1,021 193 828
Cash Flow from Liquidating Operations:
CMO Ownership Interests 4,111 5,311 (1,200)
Sale of assets 16,862 11,057 5,805
Total Expenses (1,209) (826) (383)
--------- ---------- ----------
Cash Flow From Operations $ 25,806 $ 15,964 $ 9,842
========= ========== ===========
Dividends Paid $ 2,664 $ 704 $ 1,960
========= ========== ===========
Acquisition of Non-agency MBS Bonds $ 17,088 $ 13,185 $ 3,903
========= ========== ===========
Repayment of Debt $ 32,773 $ 8,064 $ 24,709
========= ========== ===========
</TABLE>
The company's cash flows from ongoing operations continues to increase due
to acquisitions of non-agency MBS bonds and increased dividends from Commercial
Assets. From April 1, 1994 through June 30, 1995, the company has acquired 133
non-agency MBS bonds with an outstanding principal balance of $156,107,000 and
weighted-average coupon of 6.9% at June 30, 1995, at a cost of $50,712,000.
Dividends from Commercial Assets increased due to acquisitions of CMBS bonds by
Commercial Assets in 1994. Cash flow from CMO Ownership Interests is declining
because of the sales and exercise of Calls Rights of CMO Ownership Interests in
1994 and the first half of 1995.
The company has available sources of liquidity from several Repurchase
Agreements and a one-year credit facility, in each case collateralized by
certain non-agency MBS bonds. The collateral value and interest rate related to
these borrowing agreements are subject to periodic adjustment. At June 30, 1995,
the company was able to borrow $18,357,000 under these agreements, based on the
value of the pledged collateral. As of June 30, 1995, borrowings under these
agreements had an effective interest rate of 7.31% and an aggregate outstanding
principal balance of $577,000. At the current time, the company does not plan to
use significant amounts of short-term leverage to acquire non-agency MBS bonds.
- 19 -
<PAGE>
On July 19, 1995, the company obtained a one-year, $1,000,000 unsecured
line of credit. Advances under this line bear interest at prime rate.
To further expand the company's operations and increase shareowners'
returns, the company plans to acquire additional non-agency MBS bonds with its
available cash flow. Assuming current levels of cash flows from ongoing
operations, the company anticipates that it will have approximately $3,000,000
in available cash flow to acquire additional non-agency MBS bonds during the
balance of 1995. The amount of available cash flow is after dividend
distributions, operating costs and debt repayments.
The dividend of shares of common stock of Commercial Assets to the
company's shareowners in 1993 and sales of assets in 1994 and 1995 have reduced
substantially the size of the company and has reduced, and is expected to
continue to reduce in the future, its income from historical levels. The
company's purchase of additional assets may depend on, among other things: (i)
the amount of cash flow used for dividend distributions; and (ii) the ability to
raise additional funds, to the extent permitted by its operating policies and
By-laws, through additional borrowings including, without limitation,
intermediate and long-term borrowings, issuing commercial paper and entering
into Repurchase Agreements with banks and securities dealers. The company's
ability to obtain funds from such sources will be affected adversely by high
interest rates. In addition, the company may increase the amount available for
asset acquisitions through the issuance of additional equity securities
depending on conditions in the equity market for REIT stocks and other factors
over which the company has no control.
The amount of defaults and resulting credit losses on the company's
non-agency MBS bonds may be impacted adversely by natural disasters not
generally insured against by a standard homeowners insurance policy (e.g.,
floods, earthquakes, etc.) in geographic areas in which residential properties
that collateralize the company's non-agency MBS bonds are located. The company
is unable to predict the impact natural disasters may have on the company's
income. The company has provided $49,556,000 of allowances for credit losses at
June 30, 1995 to absorb future credit losses.
- 20 -
<PAGE>
SUMMARY OF DEFINITIONS
The following terms used in the text are understood to have the meanings
indicated below.
Acquired CMO Class - A CMO Class acquired by the company which does not
constitute a CMO Subsidiary or CMO Residual.
Administrative Fee - A fee, of up to $35,000 per annum per CMO Ownership
Interest, and up to $2,500 per annum per non-agency MBS bond, for bond
administration and other services related to the company's CMO Ownership
Interests and non-agency MBS bonds paid pursuant to the Management Agreement,
consulting agreements and other management agreements.
agencies - GNMA, FNMA or FHLMC.
AMEX - American Stock Exchange, Inc.
Asset Securitization - Asset Investors Securitization Corporation, a wholly
owned subsidiary of the company incorporated under Delaware law, liquidated
effective May 2, 1995.
B and C mortgage loans - Mortgage loans made to borrowers who have credit
histories of a lower overall quality than most borrowers generally resulting
from previous repayment difficulties, brief job histories, previous bankruptcies
or other causes.
Base Fee - An annual management fee equal to 3/8 of one percent of the company's
consolidated Average Invested Assets (as defined in the Management Agreement)
which is payable quarterly to the Manager pursuant to the Management Agreement.
Book income - Income computed in accordance with GAAP.
By-laws - The By-laws of the company, as amended from time to time.
Call Rights - The rights provided in the Indenture of a CMO Bond that allow the
issuer of the CMO Bond to sell the Mortgage Collateral and redeem the bonds at
par at a predetermined date or if the outstanding bond balance falls below a
predetermined amount (for example, 10% of the original bond balance). Any excess
proceeds from the sale of the Mortgage Collateral over the funds required to
redeem the bonds is passed on to the residual interest holder.
CMBS bond - Commercial mortgage-backed security is a debt instrument which is
secured by mortgage loans on commercial real property.
CMOs - Collateralized mortgage obligations. CMOs are multi-class issuances of
bonds which are secured and funded as to the payment of interest and repayment
of principal by the Collateral.
CMO Class or CMO Bond - A debt obligation resulting from the issuance of a CMO.
A CMO Class may represent the right to receive interest only, principal only, a
proportionate amount of interest and principal (each, respectively, an "IO
Class," "PO Class" and "Regular Class") or a disproportionate amount of interest
and principal.
CMO Ownership Interest - A CMO Residual, Acquired CMO Class and/or CMO
Subsidiary.
CMO Residual - A non-equity ownership interest in a CMO issuance.
CMO Subsidiary - An equity ownership interest in a CMO issuance.
Code - The Internal Revenue Code of 1986, as amended.
Collateral - A specific group of mortgage loans or mortgage-backed certificates
and other collateral pledged to secure an issuance of CMOs.
- 21 -
<PAGE>
Commercial Assets - Commercial Assets, Inc., a publicly traded REIT formed by
the company in August 1993, incorporated under Maryland law. AMEX: CAX)
Commission - The Securities and Exchange Commission.
Common Stock - Asset Investors Corporation common stock, par value $.01 per
share, listed on the New York Stock Exchange, Inc. under the symbol "AIC."
company - Asset Investors Corporation, a Maryland corporation.
DERs - Dividend equivalent rights as defined in the 1986 Stock Option Plan, as
amended.
Distribution - The company's distribution of approximately 70% of the common
stock of Commercial Assets to the company's shareowners on October 12, 1993.
EITF - Emerging Issues Task Force, a task force of the FASB.
Excess Inclusion income - Excess Inclusion income is attributable to residual
interests of a REMIC. Excess Inclusion income is the amount of income from a
residual interest in a REMIC which exceeds a specified return as provided in the
Code. Excess Inclusion income cannot be reduced by any expenses or reductions,
including normal operating expenses, losses from the company's CMO Ownership
Interests and NOLs.
FHLMC - Federal Home Loan Mortgage Corporation.
FNMA - Federal National Mortgage Association.
GAAP - Generally accepted accounting principles.
GNMA - Government National Mortgage Association.
Incentive Fee - An annual management fee equal to 20% of the dollar amount by
which cash distributions to shareowners (as defined in the Management Agreement)
of the company exceeds an amount equal to the Average Net Worth (as defined in
the Management Agreement) of the company multiplied by the Ten-Year U.S.
Treasury Rate (as defined in the Management Agreement) plus one percent payable
quarterly to the Manager pursuant to the Management Agreement.
Independent Director - Pursuant to the company's By-laws, an Independent
Director is a person "who is not affiliated, directly or indirectly, with the
person or entity responsible for directing or performing the day-to-day business
affairs of the corporation (the "advisor"), including a person or entity to
which the advisor subcontracts substantially all of such functions, whether by
ownership of, ownership interest in, employment by, any material business or
professional relationship with, or by serving as an officer of the advisor or an
affiliated business entity of the advisor."
Issue 89-4 - The consensus reached by the EITF on Issue No. 89-4, Accounting for
a Purchased Investment in a Collateralized Mortgage Obligation Instrument or in
a Mortgage-Backed Interest-Only Certificate.
LIBOR - The London Interbank Offered Rate on Eurodollar deposits.
LIBOR Class - A variable-rate CMO Class on which the interest rate is adjusted
quarterly or monthly based on specified margins in relation to LIBOR.
- 22 -
<PAGE>
Management Agreement - The one-year management agreement entered into between
the company and the Manager.
Manager - Financial Asset Management Corporation, a Delaware corporation and
indirect subsidiary of MDC.
MDC - M.D.C. Holdings, Inc., a Delaware corporation and the indirect parent of
the Manager.
Mortgage Certificates - FNMA mortgage certificates, FHLMC mortgage certificates,
fully-modified pass-through mortgage-backed certificates guaranteed by GNMA and
private certificates owned by the company representing undivided beneficial
interests in pools of mortgage loans.
Mortgage Collateral - Mortgage Certificates and Mortgage Loans which secure CMO
bonds and non-agency MBS bonds.
Mortgage Loans - Mortgage loans, owned by the company, which are secured by
single-family, residential (one-to four-unit) properties.
NYSE - New York Stock Exchange, Inc.
NOL - Net operating loss.
non-agency MBS bonds - Debt interests in residential mortgage loan
securitizations collateralized by pools of non-conforming (non-agency
guaranteed) single-family (one-to-four unit) mortgage loans.
Prospective Method - The accounting method used by the company for CMO Ownership
Interests.
Qualifying Interests - Mortgages and other liens on and interests in real
estate.
REIT - A real estate investment trust as defined in the Code.
REIT income/loss - Taxable income/loss computed as prescribed for REITs prior to
consideration of any NOL carryovers and prior to the "dividends paid deduction"
(including the dividends paid deduction for dividends related to capital gains).
REMIC - A pass-through tax entity known as a "real estate mortgage investment
conduit" created by the Tax Reform Act of 1986 to facilitate the structuring of
mortgage-asset transactions.
Repurchase Agreements - Financial transactions involving the sale and subsequent
repurchase of an identical security on a specified date at two different,
pre-negotiated prices. Because Repurchase Agreements require the same security
to be returned when the transaction is completed, these agreements are perceived
as and accounted for as collateralized borrowing/lending arrangements.
Rights - Transferable subscription rights issued in the Rights Offering.
Rights Offering - On December 16, 1994, the company completed a one-for-one
Rights Offering of its Common Stock. Subscriptions for 10,053,794 shares of
Common Stock were received at a price of $1.90 per share.
Stock Option Plan - The company's 1986 Stock Option Plan, as restated November
15, 1990, as amended.
Variable-Rate CMO Ownership Interest - A CMO Ownership Interest related to a CMO
issuance that includes one or more LIBOR Classes unless such CMO Ownership
Interest has the characteristics of a Fixed-Rate CMO Ownership Interest (e.g., a
Variable-Rate CMO Ownership Interest with one or more inverse LIBOR Classes
which offset the effect of the LIBOR Classes).
- 23 -
<PAGE>
PART II
OTHER INFORMATION
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The company's 1995 Annual Meeting of Stockholders was held on
June 1, 1995. At the meeting Spencer I. Browne and Elliot H.
Kline were elected as Class III directors to terms expiring in
1998. 21,540,853 votes and 21,542,903 votes were cast "for"
the election of Messrs. Browne and Kline as Class III
directors, respectively. 357,190 votes and 355,140 votes were
"withheld" in the election of Messrs. Browne and Kline as
Class III directors, respectively. Following the meeting, in
addition to Messrs. Browne and Kline, Messrs. Mizel, Schultz
and Robinson continued their terms in office as Directors.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. Description
4 Form of certificate representing Common Stock of the
Registrant (incorporated herein by reference to Exhibit 10.15
to the Annual Report on Form 10-K of the Registrant for the
fiscal year ended December 31, 1988, Commission File No.
1-9360, filed on April 5, 1989).
4.1(a) Indenture, dated as of January 1, 1986, between Asset
Investors Mortgage Funding Corporation ("Asset Mortgage
Funding") and Bankers Trust Company ("BTC"), as trustee
(incorporated herein by reference to Exhibit 2 to the Current
Report on Form 8-K of Asset Mortgage Funding, Commission File
No. 0-13955, filed on February 7, 1986).
4.1(b) First Supplemental Indenture, dated as of January 1, 1988,
between Asset Mortgage Funding and BTC, as trustee
(incorporated herein by reference to Exhibit 4 to the Current
Report on Form 8-K of Asset Mortgage Funding, Commission File
No. 0-13955, filed on February 3, 1988).
4.1(c) Form of Residual Interest Agreement entered into in connection
with issuances of collateralized mortgage obligations ("CMOs")
of Asset Mortgage Funding (incorporated herein by reference to
Exhibit 4.1(t) to the Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31, 1988,
Commission File No. 1-9360, filed on April 5, 1989).
4.2(a) Indenture, dated as of August 1, 1987, between Asset Investors
Funding Corporation ("Asset Funding") and BTC, as trustee
(incorporated herein by reference to Exhibit 4(a) to the
Quarterly Report on Form 10-Q of Asset Funding for the quarter
ended September 30, 1987, Commission File No. 0-14967, filed
on November 16, 1987).
4.2(b) Form of Residual Interest Agreement entered into in connection
with CMO issuances (w/o funding notes) of Asset Funding
- 24 -
<PAGE>
(incorporated herein by reference to Exhibit 4.2(i) to the
Annual Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1988, Commission File No. 1-9360,
filed on April 5, 1989).
4.2(c) Form of Residual Interest Agreement entered into in connection
with CMO issuances (w/ funding notes) of Asset Funding
(incorporated herein by reference to Exhibit 4.2(j) to the
Annual Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1988, Commission File No. 1-9360,
filed on April 5, 1989).
4.3(a) Indenture, dated as of August 1, 1986, between Asset Investors
Finance Corporation ("Asset Finance") and The First National
Bank of Chicago ("First Chicago"), as trustee (incorporated
herein by reference to Exhibit 4(a) to the Registration
Statement on Form S-11 of Asset Finance, Registration No.
33-9718).
4.3(b) Form of Residual Interest Agreement entered into in connection
with CMO issuances of Asset Finance (incorporated herein by
reference to Exhibit 4.3(e) to the Annual Report on Form 10-K
of the Registrant for the fiscal year ended December 31, 1988,
Commission File No. 1-9360, filed on April 5, 1989).
4.4 Indenture, dated as of December 1, 1992, between Asset
Investors Securitization Corporation and State Street Bank and
Trust Company, as Note Trustee. *
10.1 Management Agreement dated as of January 1, 1995, between the
Registrant and Asset Management (incorporated herein by
reference to Exhibit 10.1 (b) to the Quarterly Report on Form
10-Q of the Registrant for the quarter ended March 31, 1995,
Commission File No. 1-9360, filed on May 15, 1995).
10.2 CMO Participation Agreement, dated as of December 15, 1986,
among the Registrant, Holdings and Yosemite Financial, Inc.
(incorporated herein by reference to Exhibit 10.10 to the
Quarterly Report on Form 10-Q of the Registrant for the
quarter ended June 30, 1988, Commission File No.
1-9360, filed on August 15, 1988).
10.3 Form of Repurchase Agreement (incorporated herein by reference
to Exhibit 10.9 to the Quarterly Report on Form 10-Q of the
Registrant for the quarter ended June 30, 1988, Commission
File No. 1-9360, filed on August 15, 1988).
10.4 Form of Indemnification Agreement between the Registrant and
each Director of the Registrant (incorporated herein by
reference to Appendix A to the Proxy Statement of the
Registrant, Commission File No. 1-9360, dated May 18, 1987).
10.5(a) 1986 Stock Option Plan of the Registrant as restated November
15, 1990 (incorporated herein by reference to Exhibit A to the
Proxy Statement of the Registrant, Commission File No. 1-9360,
dated April 22, 1991).
10.5(b) First Amendment to the Registrant's 1986 Stock Option Plan as
restated November 15, 1990 (incorporated herein by reference
- 25 -
<PAGE>
to Exhibit 10.9(b) to the Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31, 1992,
Commission File No. 1-9360, filed on April 5, 1993).
10.5(c) Second Amendment to the Registrant's 1986 Stock Option Plan as
restated November 15, 1990, as amended (incorporated herein by
reference to Exhibit 10.9(c) to the Annual Report on Form 10-K
of the Registrant for the fiscal year ended December 31, 1992,
Commission File No. 1-9360, filed on April 5, 1993).
10.5(d) Form of Non-Qualified Stock Option Agreement pursuant to the
1986 Stock Option Plan of the Registrant as amended and
restated through November 15, 1990 (incorporated here-in by
reference to Exhibit 10.9(b) to the Annual Report on Form 10-K
of the Registrant for the fiscal year ended December 31, 1991,
Commission File No. 1-9360, filed on March 30, 1992).
10.5(e) Third Amendment to the Registrant's 1986 Stock Option Plan as
restated November 15, 1990, as amended (incorporated herein by
reference to Exhibit 10.9(e) to the Quarterly Report on Form
10-Q of the Registrant for the quarter ended September 30,
1993, Commission File No. 1-9360, filed on November 15, 1993).
10.6 Forms of Investment Agreement entered into in connection with
CMO issuances (incorporated herein by reference to Exhibit
10.26 to the Quarterly Report on Form 10-Q of the Registrant
for the quarter ended June 30, 1988, Commission File No.
1-9360, filed on August 15, 1988).
10.7 Forms of Consulting Agreement entered into in connection with
CMO issuances of Asset Investors Trusts (incorporated herein
by reference to Exhibit 10.31 to the Quarterly Report on Form
10-Q of the Registrant for the quarter ended June 30, 1988,
Commission File No. 1-9360, filed on August 15, 1988).
10.8 Form of Management Agreement entered into in connection with
CMO issuances of Asset Mortgage Funding (incorporated herein
by reference to Exhibit 10.28 to the Annual Report on Form
10-K of the Registrant for the fiscal year ended December 31,
1988, Commission File No. 1-9360, filed on April 5, 1989).
10.9 Form of Management Agreement entered into in connection with
CMO issuances (w/o funding notes) of Asset Funding
(incorporated herein by reference to Exhibit 10.29 to the
Annual Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1988, Commission File No.
1-9360, filed on April 5, 1989).
10.10 Form of Management Agreement entered into in connection with
CMO issuances (w/ funding notes) of Asset Funding
(incorporated herein by reference to Exhibit 10.30 to the
Annual Report on Form 10-K of the Registrant for the fiscal
year ended December 31, 1988, Commission File No.
1-9360, filed on April 5, 1989).
10.11 Form of Management Agreement entered into in connection with
CMO issuances of Asset Finance (incorporated herein by
reference to Exhibit 10.31 to the Annual Report on Form 10-K
of the Registrant for the fiscal year ended December 31, 1988,
Commission File No. 1-9360, filed on April 5, 1989).
10.12 Management Agreement, dated as of July 10, 1987, between Sears
Mortgage Securities Corporation ("SMSC") and Wilmington Trust
Company ("WTC"), as owner trustee, and relating to Trust
- 26 -
<PAGE>
1987-1 (incorporated herein by reference to Exhibit C to the
Current Report on Form 8-K of Trust 1987-1, Commission File
No. 33-5466, filed on August 7, 1987).
10.13 Administrative Services Agreement, dated as of January 29,
1990, between WTC, as owner trustee, and Asset Management and
relating to Mortgage Capital Trust III (incorporated herein by
reference to Exhibit 10.17 to the Annual Report on Form 10-K
of the Registrant for the fiscal year ended December 31, 1991,
Commission File No. 1-9360, filed on March 30, 1992).
10.14 Management Agreement, dated as of June 17, 1991, between WTC,
as owner trustee, and Asset Management and relating to Dean
Witter CMO Trust 1 (incorporated herein by reference to
Exhibit 10.18 to the Annual Report on Form 10-K of the
Registrant for the fiscal year ended December 31, 1991,
Commission File No. 1-9360, filed on March 30, 1992).
10.15 Contribution Agreement, dated as of August 20, 1993, by and
between the Registrant and Commercial Assets, Inc.
(incorporated herein by reference to Exhibit 10.19 to the
Quarterly Report on Form 10-Q of the Registrant for the
quarter ended September 30, 1993, Commission File No. 1-9360,
filed on November 15, 1993).
27 Financial Data Schedule.
28 Automatic Dividend Reinvestment Plan relating to the Common
Stock of the Registrant, as amended (incorporated herein by
reference to Exhibit 28 to the Annual Report on Form 10-K of
the Registrant for the fiscal year ended December 31, 1991,
Commission File No. 1-9360, filed on March 30, 1992).
* The securities issued pursuant to the indenture do not exceed 10% of
the total assets of the Registrant and its subsidiaries on a
consolidated basis and will be filed upon request of the Commission.
(b) Reports on Form 8-K:
On April 14, 1995, a Form 8-K was filed for an Item 2 event.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
ASSET INVESTORS CORPORATION
(Registrant)
Date: August 11, 1995 By /s/ Paris G. Reece III
-----------------------
Paris G. Reece III
Chief Financial Officer
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<S> <C> <C>
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<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995
<PERIOD-END> JUN-30-1995 JUN-30-1995
<CASH> 4051 4051
<SECURITIES> 0 0
<RECEIVABLES> 0 0
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4051 4051
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 78379 78379
<CURRENT-LIABILITIES> 3312 3312
<BONDS> 0 0
<COMMON> 243 243
0 0
0 0
<OTHER-SE> 227285 227285
<TOTAL-LIABILITY-AND-EQUITY> 78379 78379
<SALES> 0 0
<TOTAL-REVENUES> 2565 8197
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 772 1700
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 23 620
<INCOME-PRETAX> 1870 5877
<INCOME-TAX> 0 0
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<NET-INCOME> 1870 5877
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