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 March 31, 1999
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 (IRS Employer
incorporation or organization) Identification No.)
3410 South Galena Street, Suite 210 80231
Denver, Colorado (Zip Code)
(Address of Principal Executive Offices)
(303) 614-9400
(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 April 30, 1999, 5,585,697 shares of common stock were outstanding.
<PAGE>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Consolidated Financial Statements:
Balance Sheets as of March 31, 1999 (unaudited)
and December 31, 1998.......................................... 1
Statements of Income for the three months ended
March 31, 1999 and 1998 (unaudited)............................ 2
Statements of Cash Flows for the three months ended
March 31, 1999 and 1998 (unaudited)............................ 3
Notes to Financial Statements (unaudited)...................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................ 11
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K............................... 22
(i)
<PAGE>
<TABLE>
<CAPTION>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
March 31, December 31,
1999 1998
---- ----
(unaudited)
ASSETS
<S> <C> <C>
Real estate, net of accumulated depreciation of $4,298 and $3,378 $ 97,682 $ 98,563
Investments in participating mortgages 29,888 27,604
Cash and cash equivalents 2,140 1,426
Investment in Commercial Assets 20,609 20,706
Other assets, net 8,913 9,927
---------- ----------
Total Assets $ 159,232 $ 158,226
========== ==========
LIABILITIES
Secured long-term notes payable $ 46,431 $ 40,506
Secured short-term financing 7,700 10,500
Accounts payable and accrued liabilities 2,873 2,935
---------- ----------
57,004 53,941
---------- ----------
MINORITY INTEREST IN OPERATING PARTNERSHIP 15,794 25,649
STOCKHOLDERS' EQUITY
Common Stock, par value $.01 per share, 50,000 shares authorized 5,567 and 5,016
shares issued and outstanding, respectively
56 50
Additional paid-in capital 238,588 229,948
Dividends in excess of accumulated earnings (152,210) (151,362)
---------- ----------
86,434 78,636
---------- ----------
Total Liabilities and Stockholders' Equity $ 159,232 $ 158,226
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 1 -
<PAGE>
<TABLE>
<CAPTION>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months
Ended March 31,
---------------
1999 1998
---- ----
RENTAL PROPERTY OPERATIONS
<S> <C> <C>
Rental and other property revenues $ 3,558 $ 1,744
Interest on participating mortgages 778 783
Property operating expenses (1,287) (793)
--------- ----------
Income from property operations before depreciation 3,049 1,734
Depreciation (920) (393)
--------- ---------
Income from rental property operations 2,129 1,341
--------- ---------
SERVICE OPERATIONS
Property management income, net 54 50
Commercial Assets management fees 89 3
Amortization of management contracts (689) (827)
--------- ---------
Loss from service operations (546) (774)
--------- ---------
Equity in earnings of Commercial Assets 295 268
General and administrative expenses (338) (322)
Interest and other income 53 383
Interest expense (941) (208)
--------- ---------
INCOME BEFORE MINORITY INTEREST 652 688
Minority interest in Operating Partnership (110) (143)
--------- ---------
NET INCOME $ 542 $ 545
========= =========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.10 $ 0.11
========= =========
DIVIDENDS DECLARED PER SHARE $ 0.25 $ --
========= =========
Weighted-Average Common Shares Outstanding 5,453 5,109
Weighted-Average Common Shares And Common Share Equivalents Outstanding 5,464 5,143
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months
Ended March 31,
---------------
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 542 $ 545
Adjustments to reconcile net income to net cash flows from operating activities:
Depreciation and amortization 1,664 1,220
Minority interest in Operating Partnership 110 143
Equity in earnings of Commercial Assets (262) (268)
Accrued interest on participating mortgages (377) (144)
Decrease (increase) in other assets (372) 120
Decrease in accounts payable and accrued liabilities (261) (783)
--------- --------
Net cash provided by operating activities 1,044 833
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of real estate -- (2,936)
Investments in participating mortgages, net (1,907) (180)
Capital replacements (55) (8)
Dividends from Commercial Assets 359 --
--------- --------
Net cash used in investing activities (1,603) (3,124)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of Common Stock dividends (1,390) --
Payment of distributions to minority interest in Operating Partnership (250) --
Paydowns on secured short-term financing (2,800) --
Proceeds from secured long-term notes payable 6,225 --
Principal paydowns on secured long-term notes payable (300) (110)
Payment of loan costs (255) --
Proceeds from the issuance of Common Stock, net 43 16
--------- --------
Net cash provided by (used in) financing activities 1,273 (94)
--------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 714 (2,385)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,426 21,802
--------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,140 $ 19,417
========= ========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
- 3 -
<PAGE>
ASSET INVESTORS CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. The Company
Asset Investors Corporation ("AIC" and, together with its subsidiaries, the
"Company") is a Maryland corporation that owns and operates manufactured home
communities and has elected to be taxed as a real estate investment trust
("REIT"). AIC's Common Stock, par value $.01 per share ("Common Stock"), is
listed on the New York Stock Exchange under the symbol "AIC." In May 1997, AIC
contributed its net assets to Asset Investors Operating Partnership, L.P. (the
"Operating Partnership") in exchange for the sole general partner interest in
the Operating Partnership and substantially all of the Operating Partnership's
initial capital. AIC owns 85% of the Operating Partnership as of March 31, 1999.
The Company also owns 27% of the common stock of Commercial Assets, Inc. ("CAX")
and substantially all of the common stock of both AIC Manufactured Housing Corp.
("AICMHC") and Asset Investors Equity, Inc. ("AIE"). CAX is a publicly-traded
REIT (American Stock Exchange, Inc.: CAX) formed by the Company in August 1993.
AICMHC owns interests in manufactured home community management contracts and
AIE manages CAX.
Prior to 1997, the Company owned debt interests in residential mortgage loan
securitizations collateralized by pools of non-conforming (non-agency
guaranteed) single-family mortgage loans ("non-agency MBS bonds"). In February
1997, the Company decided to restructure the Company's asset base and redeploy
its assets in an attempt to both reduce risks associated with the Company's
non-agency MBS bonds and maximize long-term, risk-adjusted returns to
stockholders. In March 1997, under the first step of such plan, the Company
contributed its portfolio of non-agency MBS bonds into an owner trust in a
structured transaction in which the Company received $67,671,000 cash proceeds
and retained a small equity interest. Subsequently, the Company has acquired
interests in 23 manufactured home communities and two recreational vehicle parks
with 4,640 developed homesites, 890 sites ready for homes, 1,960 sites available
for future development and 180 recreational vehicle sites.
Prior to November 1997, the Company and CAX were managed by Financial Asset
Management LLC ("FAM"). An investor group led by Terry Considine, Thomas L.
Rhodes and Bruce D. Benson acquired FAM in September 1996. Mr. Considine is the
Chairman and Chief Executive Officer of both the Company and CAX. Mr. Rhodes is
Vice Chairman and Mr. Benson is a director of both the Company and CAX. In
November 1997, the Company's stockholders approved the acquisition of the assets
and operations of FAM in order to become a self-managed and self-administered
REIT. The $11,692,000 purchase price was paid by issuing 676,700 limited
partnership units of the Operating Partnership ("OP Units") plus up to 240,000
additional OP Units if certain performance goals, including investment and share
price targets, are achieved by the Company within a specified time period.
During the third quarter of 1998, the Company achieved the first set of
performance goals by realizing annualized returns before depreciation in excess
of 9% on its real estate investments for a period of six months. As a result of
achieving these goals, the Company issued 120,000 OP Units and expensed
$2,092,000 as additional cost of acquiring the management contract. The issuance
of the remaining 120,000 OP Units is contingent upon the Company having a 90-day
average per share price in excess of $20.00 by June 1999.
- 4 -
<PAGE>
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 March 31, 1999, 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 generally accepted accounting principles ("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 year ended December 31, 1998.
Certain reclassifications have been made in the 1998 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, the Operating Partnership and all controlled subsidiaries. The minority
interest in the Operating Partnership represents the OP Units which are
convertible, at the option of the holder. When a holder elects to convert OP
Units, the Company determines whether such OP Units will be converted into cash
or shares of Common Stock. The holders of OP Units receive the same amount per
OP Unit in distributions as the holders of Common Stock at the time of dividend
distributions. As of March 31, 1999, 1,000,000 OP Units were outstanding. All
significant intercompany balances and transactions have been eliminated in
consolidation. The Company's investment in CAX is recorded under the equity
method.
Rental Properties and Depreciation
Rental properties are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight line method over an estimated useful
life of 25 years for land improvements and buildings and five years for
furniture and other equipment. Significant renovations and improvements, which
improve and/or extend the useful life of the asset, are capitalized and
depreciated over the remaining estimated life. In addition, the Company
capitalizes direct and indirect costs (including interest, taxes and other
costs) in connection with the development of additional homesites within its
manufactured home communities. Maintenance, repairs and minor improvements are
expensed as incurred.
When conditions exist which indicate that the carrying amount of a property may
be impaired, the Company will evaluate the recoverability of its net investment
in the property by assessing current and future levels of income and cash flows.
As of March 31, 1999, there has been no impairment of the Company's investment
in rental properties.
Amortization
Included in other assets is the cost related to the acquisition of management
contracts, which is being amortized over a period of three years.
- 5 -
<PAGE>
Revenue Recognition
The Company derives its income from the rental of homesites. The leases entered
into by residents for the rental of the site are generally for terms not longer
than one year and the rental revenues associated with the leases are recognized
when earned and due from residents. Property management income for services
provided to communities not owned by the Company are also recognized when
earned.
Interest on participating mortgages is recorded based upon outstanding balances
and interest rates per the terms of the mortgages. In addition, the Company
evaluates the collectibility of any unpaid interest and provides reserves as
necessary. As of March 31, 1999, there is a $149,000 reserve for uncollected
interest on the participating mortgages.
Deferred Financing Costs
Fees and costs incurred in obtaining financing are capitalized. Such costs are
amortized over the terms of the related loan agreements and are charged to
interest expense.
Interest Rate Lock Agreements
Interest rate lock agreements related to planned refinancings of identified
variable rate indebtedness are accounted for as anticipatory hedges. Upon the
refinancing of such indebtedness, any gain or loss associated with the
termination of the interest rate lock agreement is deferred and recognized over
the life of the refinanced indebtedness.
Income Taxes
AIC has elected to be taxed as a REIT as defined under the Internal Revenue Code
of 1986, as amended (the "Code"). In order for AIC to qualify as a REIT, at
least 95% of its gross income in any year must be derived from qualifying
sources. The activities of AICMHC and AIE are not qualifying sources.
As a REIT, AIC generally will not be subject to federal income taxes at the
corporate level if it distributes at least 95% of its REIT taxable income to its
stockholders. REITs are also subject to a number of other organizational and
operational requirements. If AIC fails to qualify as a REIT in any taxable year,
its taxable income will be subject to federal income tax at regular corporate
rates (including any applicable alternative minimum tax). Even if AIC qualifies
as a REIT, it may be subject to certain state and local income taxes and to
federal income and excise taxes on its undistributed income.
At March 31, 1999, AIC's net operating loss ("NOL") carryover was approximately
$95,000,000 and its capital loss carryover was approximately $20,000,000. The
NOL carryover may be used to offset all or a portion of AIC's REIT income, and
as a result, to reduce the amount that AIC must distribute to stockholders to
maintain its status as a REIT. The NOL carryover is scheduled to expire between
2007 and 2009, and the capital loss carryover is scheduled to expire in 2000 and
2001.
Earnings Per Share
Basic earnings per share for the three months ended March 31, 1999 and 1998 are
based upon the weighted-average number of shares of Common Stock outstanding
during each such period. Diluted earnings per share reflect the effect of any
dilutive, unexercised stock options in each such period.
- 6 -
<PAGE>
Statements of Cash Flows
For purposes of reporting cash flows, cash maintained in bank accounts, money
market funds and highly-liquid investments with an initial maturity of three
months or less are considered to be cash and cash equivalents. The Company made
interest payments of $815,000 and $210,000 for the three months ended March 31,
1999 and 1998, respectively.
Non-cash investing and financing activities for the three months ended March 31,
1999 and 1998 were (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------- ------
Issuance of OP Units for:
<S> <C> <C>
Real estate acquisitions $ -- $ 2,145
Participating mortgages -- 17
Real estate acquired under earn-out agreements -- 52
Receivables from minority interest in controlled subsidiaries 179 319
Conversion of OP Units into Common Stock 9,536 --
Transfer of stock issue costs to additional paid in capital 933 --
</TABLE>
D. Real Estate
Real estate at March 31, 1999 and December 31, 1998, was (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Land $ 11,226 $ 11,226
Land improvements and buildings 90,320 90,268
Furniture and other equipment 434 447
--------- ---------
101,980 101,941
Less accumulated depreciation (4,298) (3,378)
--------- ---------
Real estate, net $ 97,682 $ 98,563
========= =========
</TABLE>
Land improvements and buildings consist primarily of infrastructure, roads,
landscaping, clubhouses, maintenance buildings and common amenities.
E. Investments in Participating Mortgages
As of March 31, 1999, the Company has an $18.3 million participating mortgage
which bears 10% interest, matures in 2018 and is secured by a number of
manufactured home communities. In addition, the Company receives additional
interest up to 50% of the borrower's profit from such communities.
In addition, the Company has mortgage loans secured by two contiguous
manufactured home communities and one recreational vehicle park in Arizona. The
$5.4 million first mortgage loan bears 10% interest. The $4.6 million second
mortgage loan accrues 15% interest and paid 9% interest through July 1998, with
the pay rate increasing 1% annually for three years to a maximum of 12% per
annum. The $0.6 million third mortgage loan accrues 15% interest and is payable
from any cash flows in excess of the above amounts. These loans mature in April
- 7 -
<PAGE>
2001. The Company receives additional interest of 3% of gross revenues,
increasing to 11% of gross revenues in the event of a refinancing of the debt on
the communities, and 50% of net proceeds from a sale or refinancing of the
communities.
As of March 31, 1999, the Company had investments in participating mortgages of
$29,888,000. During the three months ended March 31, 1999 and 1998, the Company
had earnings of $778,000 and $783,000, respectively, from these mortgages.
F. Investment in Commercial Assets
On March 31, 1999 and December 31, 1998, the Company owned 2,761,126 shares
(approximately 27%) of the common stock of CAX. In November 1997, CAX sold or
resecuritized its entire portfolio of commercial mortgage loan securitizations
of multi-family real estate ("CMBS bonds") and temporarily invested the proceeds
until it determined which type of real estate assets to invest in. During the
third quarter of 1998, CAX announced that it plans to acquire manufactured home
communities, and from August 1998 to March 1999, it has invested approximately
$32,000,000 for interests in seven communities.
Summarized financial information of CAX as reported by CAX is (in thousands):
<TABLE>
<CAPTION>
Balance Sheets March 31, December 31,
1999 1998
---- ----
(unaudited)
<S> <C> <C>
Cash and cash equivalents $ 956 $ 3,292
Short-term investments 37,836 45,066
Real estate 22,510 13,908
Investments in participating mortgages 9,993 9,328
Other assets 6,941 6,640
----------- -----------
Total assets 78,236 78,234
Total liabilities 1,347 980
----------- -----------
Stockholders' equity $ 76,889 $ 77,254
=========== ===========
</TABLE>
<TABLE>
<CAPTION>
Statements of Income (unaudited) Three Months Ended March 31,
- -------------------------------- ----------------------------
1999 1998
---- ----
<S> <C> <C>
Income from property operations $ 498 $ --
Interest and other income 739 1,093
General and administrative (133) (86)
Management fees (80) (5)
----------- -----------
Operating income 1,024 1,002
Acquisition fees (42) --
----------- -----------
Net income $ 982 $ 1,002
=========== ===========
</TABLE>
- 8 -
<PAGE>
G. Secured Long-Term Notes Payable
The following table summarizes the Company's secured long-term notes payable,
all of which are non-recourse to the Company (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
--------------- -------------
(unaudited)
<S> <C> <C>
8.25% fixed rate notes maturing in October 2000 $ 4,443 $ 4,519
7.50% fixed rate notes maturing in October 2000 5,679 5,707
7.37% fixed rate note maturing in April 2009 2,550 --
6.50% fixed rate notes maturing in December 2018 30,554 30,280
6.86% fixed rate notes maturing in March 2019 3,205 --
----------- -----------
$ 46,431 $ 40,506
=========== ===========
</TABLE>
In 1998, the Company entered into an interest rate lock agreement which was
settled in September 1998. The Company realized a loss on the hedge of $802,000
which was deferred and is being amortized over the terms of the related notes
payable as a charge to interest expense.
Real estate assets which secure the long-term notes payable had a net book value
of $84,711,000 at March 31, 1999. The Company has $106,000 in escrow for real
estate taxes on the secured long-term notes payable at March 31, 1999.
H. Secured Short-Term Financing
In September 1998, the Company executed a revolving line of credit with a bank
that bears interest at the London Interbank Offered Rate ("LIBOR") plus 1.75%
per annum (6.69% at March 31, 1999). The line of credit is secured by 1,015,674
shares of the common stock of CAX held by the Company and matures in September
2000. The line of credit is limited to the lesser of (1) $5,000,000, (2) 65% of
the product of the trading price of Commercial Assets common stock times
1,015,674 or (3) 65% of the purchase price of certain unpledged real estate. As
of March 31, 1999, the limit was $3,260,000 and $1,500,000 was outstanding on
this line of credit.
In December 1998, the Company borrowed $8,500,000 in short-term financing from a
bank. The loan is secured by the Company's $10,000,000 of participating
mortgages involving two communities and one recreational vehicle park in
Arizona. The loan bears interest at LIBOR plus 2.5% (7.44% at March 31, 1999)
and matures in June 1999. The Company repaid $2,300,000 in March 1999 with
proceeds from secured long-term notes payable.
I. Commitments and Contingencies
In connection with a participating mortgage on a manufactured home community,
the Company entered into an earn-out agreement with respect to unoccupied
homesites. The Company advances an additional $17,000 pursuant to the
participating mortgage for each newly occupied homesite either in the form of
cash or 946 OP Units, as determined by the borrower. During the three months
ended March 31, 1999 and 1998, the Company advanced $83,000 in cash and $17,000
in OP Units, respectively.
In connection with the acquisition of the assets and operations of its former
manager in November 1997, the Company entered in an agreement to issue
additional OP Units upon the achievement of certain performance goals by the
- 9 -
<PAGE>
Company. Under the terms of the agreement, the Company will be required to issue
an additional 120,000 OP Units if the Company's average stock price exceeds
$20.00 per share for any 90-day period prior to June 17, 1999.
At March 31, 1999, there were 890 sites ready for homes and 1,960 sites
available for future development in properties which the Company has an interest
in. In connection with efforts to lease such sites, a sales corporation markets
an inventory of homes located in the various properties to potential tenants.
The Company's President owns 50% of the sales corporation. A portion of the cost
of this home inventory was financed by the sales corporation with a line of
credit guaranteed by the Company. As of March 31, 1999, $5,854,000 was
outstanding under the line of credit. The terms of the line of credit require
monthly payments of interest and payment of principal upon sale of the
inventory. If the inventory is not sold within one year, monthly payments of
principal are also required.
J. Operating Segments
Investments in adult communities constitute substantially all of the Company's
portfolio of manufactured home communities, and as such, management of the
Company assesses the performance of the Company as one operating segment.
K. Common Stock and Dividends
During the three months ended March 31, 1999, the Company paid a $0.25 per share
dividend on Common Stock and OP Units totaling $1,640,000. No dividends or
distributions were declared during the same period in 1998.
L. Other Matters
Prior to November 1997, FAM (the former manager) provided all personnel and
related overhead necessary to conduct the Company's activities in exchange for
various fees provided for in a management agreement (the "AIC Management
Agreement"). In November 1997, the Company's stockholders approved the purchase
of FAM's assets and operations for $11,692,000 in connection with the Company
becoming a self-managed and self-administered REIT. The initial purchase price
and related costs were allocated $6,553,000 to the AIC Management Agreement and
$5,936,000 to a management agreement pursuant to which the Company manages CAX
(the "CAX Management Agreement"). The Company expensed the amount allocated to
the AIC Management Agreement in 1997 and is amortizing the cost of the CAX
Management Agreement over three years. In addition to the initial purchase
price, FAM received 120,000 additional OP Units in August 1998 because the
Company had annualized returns before depreciation in excess of 9% on certain of
its real estate investments. These OP Units were valued at $2,073,000 and
expensed in August 1998.
The CAX Management Agreement has been extended through December 31, 1999. During
the three months ended March 31, 1999 and 1998, the Company earned management
fees of $89,000 and $3,000, respectively, under the CAX Management Agreement
(net of elimination for the Company's 27% ownership of CAX). As of March 31,
1999, the net book value of the CAX Management Agreement was $3,248,000 and is
included in other assets.
- 10 -
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Introduction
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. Certain information
included in this report, our Quarterly Report to Stockholders and our filings
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, and the Securities Exchange Act of 1934, as amended, as well as
information communicated orally or in writing between the dates of such SEC
filings, constitute "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements may include
projections of our cash flow, dividends and anticipated returns on real estate
investments. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance
or achievements to be materially different from any future results, performance
or achievements expressed or implied by the forward-looking statements. Such
factors include: general economic and business conditions; interest rate
changes; financing and refinancing risks; risks inherent in owning real estate
or debt secured by real estate; future development rate of homesites;
competition; the availability of real estate assets at prices which meet our
investment criteria; our ability to reduce expense levels, implement rent
increases, use leverage and other risks set forth in our SEC filings.
In this report, the words "the Company," "we," "our" and "us" refer to Asset
Investors Corporation, a Maryland corporation and, where appropriate, our
subsidiaries.
Business
Company Background
We are a Maryland corporation formed in 1986, and we have elected to be treated
for United States federal income tax purposes as a real estate investment trust
or "REIT." We are a self-administered and self-managed company in the business
of owning, acquiring, developing and managing manufactured home communities. As
of March 31, 1999, we held interests as owner, ground lessee or mortgage lender
(including participating mortgages) in 23 manufactured home communities and two
recreational vehicle parks with a total of 4,640 developed homesites (sites with
homes in place), 890 sites ready for homes, 1,960 sites available for future
development and 180 recreational vehicle sites. In addition, we managed twelve
communities for affiliates and third-party owners. Our shares of common stock
are listed on the New York Stock Exchange ("NYSE") under the symbol "AIC."
We primarily conduct our business through our subsidiary Asset Investors
Operating Partnership and where appropriate, its other subsidiary companies
(which we collectively refer to as the Operating Partnership). As of March 31,
1999, we owned 85% of the Operating Partnership. The Operating Partnership also
owns 27% of the common stock of Commercial Assets, Inc., a publicly-traded REIT
that is listed on the American Stock Exchange under the symbol "CAX." Commercial
Assets is also engaged in the ownership, acquisition and development of
manufactured home communities. In addition to acquiring and managing
manufactured homes for our own account, we also perform these services for
Commercial Assets, for which Commercial Assets pays us a management fee.
- 11 -
<PAGE>
Industry Background
A manufactured home community is a residential subdivision designed and improved
with sites for the placement of manufactured homes and related improvements and
amenities. Manufactured homes are detached, single-family homes which are
produced off-site by manufacturers and installed on sites within the community.
Manufactured homes are available in a variety of designs and floor plans,
offering many amenities and custom options.
Modern manufactured home communities are similar to typical residential
subdivisions containing centralized entrances, paved streets, curbs and gutters
and parkways. The communities frequently provide a clubhouse for social
activities and recreation and other amenities, which may include golf courses,
swimming pools, shuffleboard courts and laundry facilities. Utilities are
provided by or arranged for by the owner of the community. Community lifestyles,
primarily promoted by resident managers, include a wide variety of social
activities that promote a sense of neighborhood. The communities provide an
attractive and affordable housing alternative for retirees, empty nesters and
start-up or single-parent families. Manufactured home communities are primarily
characterized as "all age" communities and "adult" communities. Adult
communities typically require that at least 80% of the tenants be at least 55
years old, and in all age communities there is no age restriction on tenants.
The owner of a home in our communities leases from us the site on which the home
is located. Typically, the leases are on a month-to-month or year-to-year basis,
renewable upon the consent of both parties or, in some instances, as provided by
statute. In some circumstances, we offer a 99-year lease to tenants in order to
enable the tenant to have some benefits of an owner of real property, including
creditor protection laws in some states. These leases can be cancelled,
depending on state law, for non-payment of rent, violation of community rules
and regulations or other specified defaults. Generally, rental rate increases
are made on an annual basis. The size of these rental rate increases depends
upon the policies that are in place at each community. Rental increases may be
based on fixed dollar amounts, percentage amounts, inflation indexes, or they
may depend entirely on local market conditions. We own interests in the
underlying land, utility connections, streets, lighting, driveways, common area
amenities and other capital improvements and are responsible for enforcement of
community guidelines and maintenance. Each homeowner within the manufactured
home communities is responsible for the maintenance of his or her home and
leased site, including lawn care in some communities.
The ownership of manufactured home communities, once fully occupied, tends to be
a stable, predictable asset class. The cost and effort involved in relocating a
home to another manufactured home community generally encourages the owner of
the home to resell it within the community.
Growth and Operating Strategies
We measure our economic profitability based on Funds From Operations ("FFO"),
less an annual capital replacement reserve of at least $50 per developed
homesite. We believe that FFO, less a reserve, provides investors with an
understanding of our ability to incur and service debt and to make capital
expenditures. The Board of Governors of the National Association of Real Estate
Investment Trusts (also known as NAREIT) defines FFO as net income (loss),
computed in accordance with generally accepted accounting principles, excluding
gains and losses from debt restructuring and sales of property, plus real estate
related depreciation and amortization (excluding amortization of financing
costs), and after adjustments for unconsolidated partnerships and joint
ventures. We calculate FFO in a manner consistent with NAREIT's definition. In
our calculation we include adjustments for:
- 12 -
<PAGE>
o the minority interest in the Operating Partnership owned by persons
other than us,
o costs we incurred in order to become self-managed, and
o amortization of management contracts.
FFO should not be considered an alternative to net income or net cash flows from
operating activities, as calculated in accordance with generally accepted
accounting principles, as an indication of our performance or as a measure of
liquidity. FFO is not necessarily indicative of cash available to fund future
cash needs.
Our primary objective is to maximize stockholder value by increasing the amount
and predictability of FFO on a per share basis, less a reserve for capital
replacements. We seek to achieve this objective primarily by:
o improving net operating income from our existing portfolio of
manufactured home communities;
o acquiring additional communities at values that are accretive on a per
share basis;
o earning increased management fees as Commercial Assets invests in more
manufactured home communities; and
o as Commercial Assets' FFO increases, our share of their FFO similarly
increases.
Company Policies
Management has adopted specific policies to accomplish our objective of
increasing the amount and predictability of our FFO on a per share basis, less a
reserve for capital replacements. These policies include:
o seeking to reduce our exposure to downturns in regional real estate
markets by obtaining a geographically diverse portfolio of communities;
o ensuring the continued maintenance of our communities by providing a
minimum $50 per homesite per year for capital replacements;
o using debt leverage to increase our financial returns;
o reducing our exposure to interest rate fluctuations by utilizing
long-term, fixed-rate, fully-amortizing debt to pay off higher cost,
short term debt;
o selectively acquiring manufactured home communities that have potential
long-term appreciation of value through, among other things, rent
increases, expense efficiencies and in-park homesite development;
o improving the profitability of our communities through aggressive
management of occupancy, community development and maintenance and
expense controls;
o developing and maintaining resident satisfaction and a reputation for
quality communities through maintenance of the physical condition of our
communities and providing activities that improve the community
lifestyle; and
o recruiting and retaining capable community management personnel.
Future Acquisitions
In 1997, when we decided to enter the manufactured home community business, we
began to implement a business plan which called for the investment of our
capital in the acquisition of manufactured home communities. Since the second
half of 1997, we have focused on identifying acquisition opportunities that we
believe provide returns that are accretive to our stockholders.
- 13 -
<PAGE>
Our acquisition of interests in manufactured home communities takes many forms.
In many cases we acquire fee title to the community. When a community has a
significant number of unleased homesites, we seek a stable return from the
community during the development and lease-up phase while also seeking to
participate in future increased earnings after development is completed and the
sites are leased. We seek to accomplish this goal by making loans to development
companies in return for participating mortgages that are non-recourse to the
borrowers and secured by the property. In general, our participating mortgages
earn interest at fixed rates and, in addition, participate in profits or
revenues from the community. This profit participation right generally entitles
us to 50% of the net income and cash flow generated by the community.
We believe that acquisition opportunities for manufactured home communities are
attractive at this time because of the increasing acceptability of and demand
for manufactured homes and the continued constraints on development of new
manufactured home communities. We are actively seeking to acquire additional
communities on our own behalf and on behalf of Commercial Assets, and we are
currently engaged in various stages of negotiations relating to the possible
acquisition of a number of communities. The acquisition of interests in
additional communities could also result in our becoming increasingly leveraged
as we incur debt in connection with these transactions.
When evaluating potential acquisitions, we consider such factors as:
o the location and type of property;
o the value of the homes located on the leased land;
o the improvements, such as golf courses and swimming pools, at the
property;
o the current and projected cash flow of the property and our ability to
increase cash flow;
o the potential for capital appreciation of the property;
o the terms of tenant leases, including the potential for rent increases;
o the tax and regulatory environment of the community in which the
property is located;
o the potential for expansion of the physical layout of the property and
the number of sites;
o the occupancy and demand by residents for properties of a similar type
in the vicinity;
o the credit of the residents in a community;
o the prospects for liquidity through sale, financing or refinancing of
the property;
o the competition from existing manufactured home communities;
o the potential for the construction of new communities in the area; and
o the replacement cost of the property.
In order to allocate investments between us and Commercial Assets, the companies
have agreed that Commercial Assets will invest at least $50 million of its cash
resources in the acquisition of communities before we invest any further cash in
the acquisition of communities. Thereafter, the companies will coordinate their
investments. As of March 31, 1999, Commercial Assets had invested $32 million in
communities. Notwithstanding the above, we may acquire communities if a material
portion of the purchase price is paid for in units of limited partnership
interests in the Operating Partnership ("OP Units") or our common stock.
Fees and Earnings from Commercial Assets
We manage Commercial Assets and own 27% of Commercial Assets' common stock.
Under the terms of our management agreement with Commercial Assets, we receive
the following fees:
- 14 -
<PAGE>
o Acquisition Fees equal to 0.5% of the cost of each real estate-related
asset acquired by Commercial Assets;
o Base Fees equal to 1% per year of the net book value of Commercial
Assets' real estate-related assets;
o Incentive Fees equal to 20% of the amount by which Commercial Assets'
FFO, less an annual capital replacement reserve of at least $50 per
developed homesite, exceeds (a) its average net worth, multiplied by (b)
1% over the ten year United States Treasury rate.
In the third quarter of 1998, Commercial Assets entered the manufactured home
community business and began acquiring interests in manufactured home
communities identified by us. As of March 31, 1999, Commercial Assets had
acquired interests in seven communities at a cost of $32 million. Commercial
Assets paid us Base Fees, Acquisition Fees and Incentive Fees totaling $75,000,
$42,000 and $5,000, respectively, during the three months ended March 31, 1999
primarily due to Commercial Assets' investment in communities. During the same
period in 1998, we received $5,000 in Base Fees and no Acquisition Fees or
Incentive Fees as Commercial Assets had not yet begun to invest in manufactured
home communities.
The management agreement expires December 31, 1999 and is subject to annual
renewal. During 1998, Incentive Fees were based upon Commercial Assets' REIT
income instead of its FFO, less an annual capital replacement reserve. It was
changed for 1999 in order to cause our Incentive Fees to be tied more closely to
Commercial Assets' measure of economic profitability of its manufactured home
community business.
Although there can be no assurance of such, we expect Commercial Assets to
continue to acquire interests in communities during 1999.
Expansion of Existing Communities
We will seek to increase the number of homesites and the amount of earnings
generated from our existing portfolio of manufactured home communities through
marketing campaigns aimed at increasing occupancy. We will also seek expansion
through future acquisitions and expansion of the number of sites available to be
leased to residents if justified by local market conditions and permitted by
zoning and other applicable laws. As of March 31, 1999, we held interests in
twelve communities with 890 sites ready for homes and 1,960 sites available for
future development.
- 15 -
<PAGE>
Properties
The manufactured home communities in which we have interests are primarily
located in Florida and Arizona and are concentrated in or around four
metropolitan areas. We hold interests in these communities as owner, ground
lessee or mortgage lender (including participating mortgages). The following
table sets forth the states in which the communities in which we held an
interest on March 31, 1999 are located:
<TABLE>
<CAPTION>
Number of Sites
--------------------------------------------------------------------------
Available for
Number of Ready for Future Recreational
Communities Developed Homes Development Vehicles
---------------- --------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Florida 18 3,724 782 1,960 --
Arizona 4 798 109 -- 120
New Jersey 1 90 -- -- --
Pennsylvania 1 28 -- -- --
California 1 -- -- -- 65
--- ----- ---- ------ ----
Total 25 4,640 891 1,960 185
=== ===== ==== ====== ====
</TABLE>
The following table sets forth information regarding each manufactured home
community in which we held an interest and those manufactured home communities
which we manage for others:
<TABLE>
<CAPTION>
Average
Developed Monthly Sites Ready Sites Available
Community Location Homesites Occupancy(1) Rent RV Sites for Homes for Development
- ---------------------------------------------------------------------------------------------------------------------
Owned Communities
<S> <C> <C> <C> <C> <C> <C>
Brentwood West Mesa, AZ 350 100% $310 -- -- --
Cardinal Court Largo, FL 138 96 262 -- -- --
Caribbean Cove Orlando, FL 255 100 267 -- 31 --
Forest View Homosassa, FL 187 99 238 -- 124 (3) --
Gulfstream Harbor Orlando, FL 379 99 317 -- 3 171
Gulfstream Harbor II Orlando, FL 286 99 298 -- 22 --
Marina Dunes Marina, CA -- -- -- 65 -- --
Mullica Woods Egg Harbor City, NJ 90 100 445 -- -- --
Park Royale Pinellas Park, FL 258 95 345 -- 51 (3) --
Pinewood St. Petersburg, FL 220 98 289 -- -- --
Pleasant Living Riverview, FL 245 100 266 -- -- --
Salem Farm Bensalem, PA 28 100 405 -- -- --
Serendipity Ft. Myers, FL 338 99 277 -- -- --
Stonebrook Homosassa, FL 121 99 237 -- 97 (3) --
Sun Valley Tarpon Springs, FL 261 100 344 -- -- --
Westwind I (2) Dunedin, FL 195 99 336 -- -- --
Westwind II (2) Dunedin, FL 189 100 341 -- -- --
----------------------------------------------------------------------------
Subtotal 3,540 99 298 65 328 171
----------------------------------------------------------------------------
Participating Mortgage Communities (3)
Blue Heron Pines Punta Gorda, FL 116 98 242 -- 131 212
Blue Star Apache Junction, AZ 30 100 216 120 -- --
Brentwood Hudson, FL 69 90 187 -- 74 74
Lost Dutchman Apache Junction, AZ 150 100 237 -- 109 --
Royal Palm Haines City, FL 222 98 214 -- 64 175
Savanna Club Port St. Lucie, FL 7 100 198 -- -- 1,328
Sun Lake Grand Island, FL 238 97 238 -- 185 --
Sun Valley Apache Junction, AZ 268 100 237 -- -- --
----------------------------------------------------------------------------
Subtotal 1,100 98 228 120 563 1,789
----------------------------------------------------------------------------
Total Communities 4,640 99% $280 185 891 1,960
============================================================================
- 16 -
<PAGE>
Average
Developed Monthly Sites Ready Sites Available
Community Location Homesites Occupancy(1) Rent RV Sites for Homes for Development
- -------------------------------------------------------------------------------------------------------------------
Communities Managed for Commercial Assets
Cannery Village Newport Beach, CA -- --% $ -- -- -- 30
Casa Encanta Mesa, AZ 111 87 350 -- -- --
Cypress Greens Lakeland, FL 85 100 192 -- 22 --
Fiesta Village Mesa, AZ 175 98 273 -- -- 206
Lakeshore Villas Tampa, FL 290 96 324 -- -- --
Riverside Ruskin, FL 220 99 403 -- 24 942
Southern Palms Mesa, AZ 51 100 203 -- -- --
----------------------------------------------------------------------------
Subtotal 932 97 317 -- 46 1,178
----------------------------------------------------------------------------
Communities Managed for Others 907 99 255 -- 140 --
----------------------------------------------------------------------------
Total Managed Communities 1,839 98% $286 -- 186 1,178
============================================================================
<FN>
1 Excludes recreational vehicle sites, which are leased on a seasonal basis.
2 We are the ground lessee of these communities.
3 We hold notes receivable secured by mortgages on these sites. The notes
earn interest and participate in profits or revenues from the sites.
</FN>
</TABLE>
Taxation of the Company
We have elected to be taxed as a REIT under the Internal Revenue Code of 1986,
as amended (the "Code"), and we intend to operate in a manner which will allow
us to avail ourselves of the beneficial tax provisions applicable to REIT's. Our
qualification as a REIT depends on our ability to meet the various requirements
imposed by the Code, such as specifications relating to actual operating
results, distribution levels and diversity of stock ownership. In addition, our
ability to qualify as a REIT depends in part upon the actions of third parties
over which we have no control, or only limited influence. For instance, our
qualification depends upon the conduct of certain entities with which we have a
direct or indirect relationship, in our capacity as a lender, lessor, or holder
of non-controlling equity interests. Our qualification also depends upon
Commercial Assets' continued qualification as a REIT.
If we qualify for taxation as a REIT, we will generally not be subject to
Federal corporate income tax on our net income that is currently distributed to
stockholders. This treatment substantially eliminates the "double taxation" (at
the corporate and stockholder levels) that generally results from investment in
a corporation. If we fail to qualify as a REIT in any taxable year, we will be
subject to Federal income tax at regular corporate rates on our taxable income
(including any applicable alternative minimum tax). We have a net operating loss
("NOL") carryover of approximately $95 million which may, subject to some
restrictions and limitations, be used to offset taxable income in the event that
we fail to qualify as a REIT. Additionally, even if we qualify as a REIT, we may
be subject to certain state and local income and other taxes, and to Federal
income and excise taxes on our undistributed income.
- 17 -
<PAGE>
RESULTS OF OPERATIONS FOR THE
THREE MONTHS ENDED MARCH 31, 1999
Comparison of Three Months Ended March 31, 1999 to Three Months Ended March 31,
1998
Rental Property
Income from rental properties totaled $2,129,000 for the first quarter of 1999
compared to $1,341,000 for the same period in 1998. The increase was due to our
acquisition of communities during 1998 and increases in net operating income
from our communities.
Service Operations
During the first three months of 1999 and 1998, we earned $54,000 and $50,000 in
property management income, respectively. Property management income increased
because of an increase in the number of properties we manage for Commercial
Assets and others. Amortization of management contracts decreased from $827,000
for the first quarter of 1998 to $689,000 for the first quarter of 1999 due to
our acquisition in February 1998 of two communities which we previously managed.
Fee revenue from managing Commercial Assets was $89,000 for the first quarter of
1999 compared to $3,000 for the same period in 1998 due to Commercial Assets'
investments in communities beginning in August 1998.
Equity in Earnings of Commercial Assets
Income from our 27% interest in Commercial Assets for the three months ended
March 31, 1999 was $295,000 compared to $268,000 for the same period in 1998.
Commercial Assets reported to us that the increase from 1998 is due to its
redeployment of a portion of its cash resources into manufactured home
communities beginning in August 1998.
General and Administrative Expenses
Our general and administrative expenses were $338,000 for the first three months
of 1999 and were comparable to the same period in 1998.
Interest and Other Income
Interest and other income for the first quarter of 1999 was $53,000 compared to
$383,000 for the same period in 1998. The decrease occurred because by June
1998, we had invested substantially all of our cash resources in manufactured
home communities.
Interest Expense
Interest expense during the first quarter of 1999 was $941,000 as compared to
$208,000 during the same period in 1998 due to borrowings during 1998 used to
acquire manufactured home communities.
NOL and Capital Loss Carryovers
At March 31, 1999, our NOL carryover was approximately $95,000,000 and our
capital loss carryover was approximately $20,000,000. Subject to some
limitations, the NOL carryover may be used to offset all or a portion of our
REIT income, and as a result, to reduce the amount of income that we must
distribute to stockholders to maintain our status as a REIT. The NOL carryover
- 18 -
<PAGE>
is scheduled to expire between 2007 and 2009 and the capital loss carryover is
scheduled to expire in 2000 and 2001.
Dividend Distributions
During the first quarter of 1999, we distributed $1,640,000 ($0.25 per share) to
holders of common stock and OP Units. No distributions were made during the
first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1999, we had cash and cash equivalents of $2,140,000. Our
principal activities that demand liquidity include our normal operating
activities, payments of principal and interest on outstanding debt, acquisitions
of or additional investments in properties, payments of dividends to
stockholders and distributions made to limited partners in the Operating
Partnership.
Our net cash provided by operating activities was $1,044,000 during the first
quarter of 1999 compared to $833,000 during the same period in 1998. The
increase was primarily a result of increased earnings before depreciation from
the ownership and management of manufactured home communities due to
acquisitions in 1998 and increases in net operating income from communities
acquired in 1997.
During the first quarter of 1999, the net cash used by investing activities was
$1,603,000, compared with the same period in 1998 in which $3,124,000 of net
cash was used by investing activities. Investing activities in the first quarter
of 1998 were primarily related to the acquisition of manufactured home
communities, whereas investing activities in the first quarter of 1999 primarily
consisted of additional investments in participating mortgages.
Net cash provided by financing activities was $1,273,000 during the first three
months of 1999, compared with net cash used by financing activities of $94,000
for the same period in 1998. This difference is primarily due to long-term
borrowings during the 1999 quarter.
We have a line of credit with a bank which matures in September 2000. The line
of credit is secured by 1,015,674 shares of our Commercial Assets common stock.
Advances under this line of credit bear interest at the 30-day LIBOR rate plus
1.75%. The line of credit is limited to the lesser of (1) $5,000,000, (2) 65% of
the product of the trading price of Commercial Assets common stock times
1,015,674 or (3) 65% of the purchase price of certain unpledged real estate. As
of March 31, 1999, the limit was $3,260,000 and $1,500,000 was outstanding on
this line of credit.
We expect to meet our long-term liquidity requirements through long-term,
secured borrowings, the issuance of OP Units and other equity securities and
cash generated by operations.
FUNDS FROM OPERATIONS
We measure our economic profitability based on FFO, less an annual capital
replacement reserve of at least $50 per developed homesite. We believe that FFO,
less a reserve, provides investors with an understanding of our ability to incur
and service debt and to make capital expenditures. The Board of Governors of
NAREIT defines FFO as net income (loss), computed in accordance with generally
accepted accounting principles, excluding gains and losses from debt
restructuring and sales of property, plus real estate related depreciation and
amortization (excluding amortization of financing costs), and after adjustments
- 19 -
<PAGE>
for unconsolidated partnerships and joint ventures. We calculate FFO in a manner
consistent with NAREIT's definition. In our calculation we include adjustments
for:
o the minority interest in the Operating Partnership owned by persons
other than us,
o costs we incurred in order to become self-managed, and
o amortization of management contracts.
FFO should not be considered an alternative to net income or net cash flows from
operating activities, as calculated in accordance with generally accepted
accounting principles, as an indication of our performance or as a measure of
liquidity. FFO is not necessarily indicative of cash available to fund future
cash needs.
For the three months ended March 31, 1999 and 1998, our FFO was (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Income before minority interest in Operating Partnership $ 652 $ 688
Real estate depreciation 920 393
Amortization of management contracts 689 827
Equity in Commercial Assets' adjustments for FFO 40 --
-------- --------
Funds From Operations (FFO) $ 2,301 $ 1,908
======== ========
Weighted average common shares and OP Units outstanding 6,562 6,455
======== ========
</TABLE>
YEAR 2000 COMPLIANCE
Year 2000 issues have arisen because many existing computer programs and
chip-based embedded technology systems use only the last two digits to refer to
a year, and therefore do not properly recognize a year that begins with "20"
instead of the familiar "19". If not corrected, many computer applications could
fail or create erroneous results. The following disclosure provides information
regarding the current status of our Year 2000 compliance program.
Our critical hardware and software systems are currently Year 2000 compliant.
Upon failure of any system, data included in critical software (such as
rent-rolls and certain record-keeping systems) could be transferred to
alternative commercially available software at a reasonable cost and within a
reasonable time period. Consequently, we would be able to continue our business
operations without any material interruption or material effect on our business,
results of operations or financial condition. In addition, we anticipate that
any hardware or software that we acquire (including upgrades to existing
systems) between now and December 31, 1999 will be Year 2000 compliant.
Disruptions in the economy generally resulting from Year 2000 issues could also
materially adversely affect us. Moreover, because a large number of our tenants
may be dependent on social security payments to pay their rents, a failure of
the Social Security Administration to cause their systems to be Year 2000
compliant may result in a material adverse effect on our operations. The Social
Security Administration has announced that they will have their systems Year
2000 compliant before January 1, 2000.
We believe that the cost of modification or replacement of our less essential
accounting and reporting software and hardware that is not currently compliant
with Year 2000 requirements, if any, will not be material to our financial
position or results of operations.
- 20 -
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our principal exposure to market risk is through our various debt instruments
and borrowings. The following is a list of these debt instruments and borrowing
arrangements.
We have $33.8 million of fixed rate, non-recourse, secured long-term notes
payable that mature in 2018 and 2019. The rates on these notes range from 6.5%
to 6.86%. We do not have significant exposure to changing interest rates on
these notes as the rates are fixed and the notes are fully amortizing.
We have a $2.55 million, 7.37%, non-recourse, partially amortizing, secured
long-term note payable that matures in 2009. We do not have significant exposure
to changing interest rates on this note as the rate is fixed and the balance due
at maturity is only $2 million.
We have $10.1 million of non-recourse, secured long-term notes payable that
mature in October 2000 with a principal payment at maturity of $9.4 million. The
rates on these notes range from 7.5% to 8.25% and are fixed. We intend to
refinance these notes during 1999 or 2000 with long-term, fully amortizing,
fixed rate debt. While changes in interest rates would affect the cost of funds
borrowed in the future to refinance the existing debt, we believe that the
effect, if any, of near-term changes in interest rates on our financial
position, results of operations or cash flows would not be material as the
existing debt is fixed rate until October 2000.
We have $6.2 million of recourse, secured short-term financing that bears
interest at the London Interbank Offered Rate ("LIBOR") plus 2.5%. We expect to
refinance this debt with non-recourse, secured, fixed rate, long-term debt in
1999. We have loan commitments from a lender for amounts in excess of the
existing loan amount for 20 year, fully amortized debt with a fixed rate of
6.75%. If such expected refinancing occurs, we would not have significant
exposure to changing interest rates. If the loan is not refinanced with fixed
rate, fully amortized debt, then changes in LIBOR would affect the cost of funds
borrowed in the future.
We have a recourse, secured line of credit that bears interest at LIBOR plus
1.75%. As of March 31, 1999, the outstanding balance was $1.5 million.
Accordingly, changes in LIBOR would affect the cost of funds borrowed in the
future; however, its affect would not be material to our financial position,
results of operations or cash flows.
- 21 -
<PAGE>
PART II
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. Description
3.1 Certificate of Incorporation of Asset Investors Corporation (the
"Registrant"), as amended (incorporated herein by reference to
Exhibit 3.1(b) to the Quarterly Report on Form 10-Q of the
Registrant for the quarter ended June 30, 1989, Commission File
No. 1-9360, filed on August 14, 1989).
3.2 By-laws of the Registrant, as amended and restated (incorporated
herein by reference to Exhibit 3.3 to the Annual Report on Form
10-K of the Registrant for the fiscal year ended December 31,
1993, Commission File No. 1-9360 filed March 31, 1994).
3.2(a) June 21, 1994 Amendment to the By-laws of the Registrant
(incorporated herein by reference to Exhibit 3.3(b) to the
Annual Report on Form 10-K of the Registrant for the fiscal year
ended December 31, 1994, Commission File No. 1-9360 filed March
30, 1995).
3.2(b) March 15, 1995 Amendment to the By-laws of the Registrant
(incorporated herein by reference to Exhibit 3.3(c) to the
Annual Report on Form 10-K of the Registrant for the fiscal year
ended December 31, 1994, Commission File No. 1-9360 filed March
30, 1995).
3.2(c) January 14, 1997, Amendment to the By-laws of the Registrant
(incorporated herein by reference to Exhibit 3.2(c) to the
Annual Report on Form 10-K of the Registrant for the fiscal year
ended December 31, 1996, Commission File No. 1-9360, filed on
March 24, 1997).
27 Financial Data Schedule
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed by the Registrant
during the period covered by this Quarterly Report on Form 10-Q.
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: May 7, 1999 By /s/David M. Becker
-------------------------
David M. Becker
Chief Financial Officer
- 22 -
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 2140
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 3110
<PP&E> 101980
<DEPRECIATION> (4298)
<TOTAL-ASSETS> 159232
<CURRENT-LIABILITIES> 2873
<BONDS> 54131
0
0
<COMMON> 56
<OTHER-SE> 86378
<TOTAL-LIABILITY-AND-EQUITY> 159232
<SALES> 0
<TOTAL-REVENUES> 4479
<CGS> 0
<TOTAL-COSTS> 2896
<OTHER-EXPENSES> 100
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 941
<INCOME-PRETAX> 542
<INCOME-TAX> 0
<INCOME-CONTINUING> 542
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 542
<EPS-PRIMARY> 0.10
<EPS-DILUTED> 0.10
</TABLE>
