FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: March 31, 1995 Commission File Number: 1-9646
ASR Investments Corporation
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(Exact name of Registrant as specified in its Charter)
Maryland
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(State or other jurisdiction of incorporation or organization)
86-0587826
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(I.R.S. Employer Identification No.)
335 N. Wilmot, Suite 250, Tucson, AZ 85711
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(Address of principal executive offices)
(520) 748-2111
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(Registrant's telephone number, including area code)
(Not applicable)
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(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.
X Yes No
-------- ------
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock (par value $.01) outstanding as of March 31, 1995:
15,749,138 shares.
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Balance Sheets
March 31, 1995 and December 31. 1994
(Dollars in Thousands)
1995 1994
--------- -------
Assets (Unaudited)
Real estate investments
Apartments, net of depreciation ....................... $72,442 $66,506
Investments in joint ventures ......................... 1,744 1,364
Land for future development ........................... 3,181
Other real estate ..................................... 3,644 5,186
------- -------
Total real estate investments ...................... 81,011 73,056
Mortgage assets .......................................... 15,757 18,965
Cash ..................................................... 976 4,129
Other assets ............................................. 765 595
------- -------
Total assets ...................................... $98,509 $96,745
======= =======
Liabilities
Real estate notes
Secured ............................................... $52,343 $45,825
Unsecured ............................................. 4,346 4,868
------- -------
Total real estate notes ............................. 56,689 50,693
Notes payable secured by mortgage assets, net of
funds held by trustee of $21,583 ....................... 6,422
Other liabilities ........................................ 2,913 2,530
------- -------
Total liabilities ................................ 59,602 59,645
Stockholders' Equity
40,000,000 shares of $.01 Common Stock authorized;
16,542,952 and 16,243,649 shares issued with 743,656
held in Treasury ......................................... 38,907 37,100
------- -------
Total liabilities and stockholders' equity ........ $98,509 $96,745
======= =======
See Notes to Consolidated Financial Statements.
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statements of Net Income
For the Quarters Ended March 31, 1995 and 1994
(In Thousands Except Per Share Amounts)
(Unaudited)
1995 1994
-------- --------
Real Estate Operations
Rental income and other income .................. $ 3,523 $ 2,807
-------- --------
Operating and maintenance expenses .............. 1,178 826
Real estate taxes and insurance ................. 350 309
Depreciation and amortization ................... 507 462
-------- --------
Total operating expenses ................... 2,035 1,597
-------- --------
Income from real estate ...................... 1,488 1,210
-------- --------
Mortgage Assets
Interest income from mortgage assets ............ 1,143 2,192
Gain on redemption of mortgage assets ........... 3,158
-------- --------
Income from mortgage assets ..................... 4,301 2,192
-------- --------
Operating and administrative expenses .............. (1,350) (610)
-------- --------
Total Operating Income ............................. 4,439 2,792
Interest expense and other income
Interest and other income ....................... 159 264
Interest on real estate notes ................... (1,154) (1,011)
Interest on notes secured by mortgage assets .... (85) (827)
-------- --------
Net Income ......................................... $ 3,359 $ 1,218
======== ========
Net Income Per Common Share .................... $ 0.22 $ 0.08
======== ========
Average Shares of Common Stock Outstanding ....... 15,547 15,500
======== ========
Dividends Declared Per Share .................... $ 0.10 --
======== ========
See Notes to Consolidated Financial Statements.
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statements of Cash Flows
For the Quarters Ended March 31, 1995 and 1994
(In Thousands Except Per Share Amounts)
(Unaudited)
1995 1994
------- -------
OPERATING ACTIVITIES
Net income .......................................... $ 3,359 $ 1,218
Principal noncash charges (credits)
Gain on redemption of mortgage assets ........... (2,420)
Depreciation and amortization ................... 535 474
Increase in accrual ............................. 705
------- -------
Cash Provided By Operations ......................... 2,179 1,692
------- -------
INVESTING ACTIVITIES
Investment in apartments ............................ (6,471) (61,092)
Investment in joint ventures ........................ (380)
Purchase of land for future development ............. (3,181)
Other real estate assets ............................ 1,542
Reduction in mortgage assets ........................ 3,208 5,019
(Increase) decrease in other assets ................. (170) 917
------- -------
Cash (Used in) Investing Activities .............. (5,452) (55,156)
------- -------
FINANCING ACTIVITIES
Issuance of real estate notes payable ............... 6,440 50,363
Payment of loan costs ............................... (1,199)
Repayment of notes payable
Real estate notes ................................. (444) (276)
Notes secured by mortgage assets .................. (4,002) (1,395)
Exercise of stock options ........................... 23
Payment of dividends ................................ (1,575)
Increase (decrease) in other liabilities ............ (322) 999
------- -------
Cash Provided By Financing Activities ............ 120 48,492
------- -------
Cash
Decrease during the period ...................... (3,153) (4,972)
Balance - beginning of period ................... 4,129 10,407
------- -------
Balance - end of period ......................... $ 976 $ 5,435
======= =======
Supplemental Disclosure of Cash Flow Information
Cash paid for Company's interest expense ............ $ 1,383 $ 2,288
======= =======
See Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
ASR INVESTMENTS CORPORATION
Consolidated Statement of Stockholders' Equity
For the Three Months Ended March 31, 1995
(In Thousands)
(Unaudited)
Common
Additional Stock in
Number of Par Paid-In Notes Treasury -
Shares Value Capital Deficit Receivable at Cost Total
--------- ------ ---------- ---------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, 1/1/95 .................... 16,244 $162 $154,996 ($115,747) ($2,311) $37,100
Exercise of stock .................. 249 2 643 ($622) 23
Net income ......................... 3,359 3,359
Dividends declared ................. (1,575) (1,575)
------ ---- -------- --------- ----- ------- -------
Balance, 3/31/95.................... 16,493 $164 $155,639 ($113,963) ($622) ($2,311) $38,907
====== ==== ======== ======== ==== ====== =======
</TABLE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 1995 and 1994
NOTE 1 - BASIS OF PRESENTATION
The accompanying interim consolidated financial statements do not
include all of the information and disclosures generally required for annual
financial statements. They include the accounts of the Company and its wholly
owned subsidiaries (collectively the "Company"). Investments in joint ventures
in which the Company does not own a controlling interest are accounted for under
the equity method. All significant inter-company balances and transactions have
been eliminated. In the opinion of management, all adjustments (consisting of
normal recurring adjustments) considered necessary for a fair presentation have
been included. These interim operating results are not necessarily indicative of
the results that may be expected for the entire year. These interim consolidated
financial statements should be read in conjunction with the December 31, 1994
audited consolidated financial statements and notes thereto.
Certain reclassification has been made to conform the prior years with
the current year presentation.
NOTE 2 - REAL ESTATE INVESTMENTS
At December 31, 1994, the Company owned directly seventeen apartment
communities (2,461 units) located in Arizona, Texas, and New Mexico. In
addition, the Company owned four apartment communities (928 units) located in
Arizona through joint ventures with a pension plan affiliate of Citicorp.
In February 1995, the Company purchased a 222-unit community in Mesa,
Arizona for $6,356,000 ($28,631 per unit). The purchase was financed by a
$3,770,000 loan bearing a variable interest rate at 225 basis points over
three-month LIBOR.
In February 1995, the Company also acquired a 163-unit community
through a joint venture with a pension plan affiliate of Citicorp. The property
was purchased for $6,858,000 ($42,074 per unit) using a $4,445,000 loan bearing
a variable interest rate at 225 basis points over three-month LIBOR. As with all
its other joint ventures, the Company is a 15% equity partner and the managing
member of the joint ventures. The Company will receive between 15% and 51% of
the total profits and cash flows depending on the ultimate financial performance
of the property.
Apartment communities owned directly by the Company as of March 31, 1995
and December 31, 1994 consisted of the following (in thousands):
1995 1994
--------- ---------
Land ......................... $ 15,514 $ 13,681
Building and Improvements .... 55,636 50,583
Accumulated Depreciation ..... (2,502) (1,995)
Restricted Cash and
Deferred Loan fees .... 3,794 4,237
--------- ---------
Apartments, net .............. $ 72,442 $ 66,506
========= =========
The condensed combined financial statements for the Company's various
joint ventures are as follows (in thousands):
Condensed Combined Balance Sheet
As of March 31, 1995 and December 31, 1994
1995 1994
--------- --------
Real estate, at cost net
of depreciation .............................. $30,605 $23,778
Cash and other assets .......................... 1,611 1,424
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Total Assets ............................... $32,216 $25,202
======= =======
Notes payable .................................. $20,038 $15,644
Other liabilities .............................. 539 424
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Total Liabilities ........................... 20,577 16,068
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Equity
The Company ................................. 1,744 1,364
Joint venture partner ....................... 9,895 7,770
------- -------
Total Equity ................................ 11,639 9,134
------- -------
Total Liabilities and Equity ................ $32,216 $25,202
======= =======
Condensed Combined Statement of Operations
For the Quarter Ended March 31, 1995
Revenues ................................................ $ 1,251
Operating expenses ...................................... (539)
Depreciation ............................................ (222)
Interest expenses ....................................... (364)
--------
Net Income .............................................. $ 126
========
Allocation of Net Income
The Company .......................................... $ 19
Joint Venture Partner ................................ $ 107
NOTE 3 - MORTGAGE ASSETS
The mortgage interests entitle the Company to receive the excess of the
cash flow on pools of mortgage instruments over the required payments on a
series of structured financing which they secure. The Company also has the right
to cause the early redemption of the structured financing under specified
limited conditions. In such event, the mortgage instruments would be sold and
the net proceeds, if any, after the redemption of the structured financing would
be remitted to the Company. At March 31, 1995 and December 31, 1994, the
effective prospective yield, based on the estimated future cash flows and the
net carrying value, on the net mortgage assets was approximately 29%.
During the first quarter of 1995, the Company exercised the redemption
rights associated with one mortgage asset and sold the underlying mortgage
collateral at a gain of $783,000 and received net proceeds of approximately $2.8
million.
NOTE 4 - NOTES PAYABLE
In February 1995, as provided for by the terms of the loan agreement,
the Company prepaid the entire balance of the notes payable secured by mortgage
assets. The Company recorded a credit to income for the excess accrued
prepayment premium of $2,420,000; such credit has been included in the gain on
redemption of mortgage assets.
In April 1995, the Company prepaid the unsecured notes payable as
provided for by the terms of the note agreement at a discount of $311,000 which
will be recorded as a credit to income in the quarter ending June 30, 1995.
In April 1995, the Company acquired the other 50% interest in a joint
venture to develop a 356-unit apartment community in Tempe, Arizona. The Company
issued a $2,186,000 note secured by the land which is due on September 15, 1995.
NOTE 5 - RELATED PARTY TRANSACTIONS
Subject to the supervision of the Company's Board of Directors, Pima
Mortgage Limited Partnership (the "Manager") manages the day-to-day operations
of the Company pursuant to a management agreement which has a current term
through December 31, 1995. The Management fees paid to the Manager for the
quarters ended March 31, 1995 and 1994 were $94,000 and $145,000 for the base
management fee amd $56,000 and $65,000 for administrative service.
The Company has a property management agreement with Pima Realty
Advisors, Inc. (the "Property Manager"), an affiliate of the Manager, for each
of its apartment properties. Under the property management agreements, the
Property Manager provides the customary property management services at its cost
without profit or distributions to its owners, subject to the limitation of the
prevailing management fee rates for similar properties in the market. The costs
are allocated to the Company monthly based on the ratio of the number of units
owned by the Company relative to the total apartment units managed by the
Property Manager. For the quarters ended March 31, 1995 and 1994, the costs
allocated to the Company were $112,000 and $49,000 (net of an allocated credit
of $54,000 applicable only in 1994). The costs approximate 3.2% and 1.8% of
rental income for the quarters ended March 31, 1995 and 1994.
ASR INVESTMENTS CORPORATION
MANAGEMENT DISCUSSIONS AND ANALYSIS
FOR THE QUARTERS ENDED MARCH 31, 1995 AND 1994
General
ASR Investments Corporation (the Company) is a real estate investment
trust engaged primarily in the acquisition and operation of apartment
communities in the Southwestern United States. In January 1994, the Company
acquired its initial portfolio of seventeen apartment communities (2,461 units
located in Arizona, Texas and New Mexico. In the second half of 1994, the
Company acquired four communities (928 units) in Arizona through joint ventures
with a pension plan affiliate of Citicorp. In February 1995, the Company
acquired a 222-unit community in Arizona directly and a 163-unit community in
Arizona through a joint venture with a pension plan affiliate of Citicorp. The
Company is a 15% equity partner and the managing member of the joint ventures.
The Company will receive between 15% and 51% of the net profits and cash flow
depending on the ultimate performance of the joint ventures.
In addition to the apartment communities, the Company continues to own
mortgage assets. The Company uses cash flows from the mortgage assets for
apartment acquisition and other corporate purposes.
Results of Operations
The Company had net income of $3,359,000 for the first quarter of 1995
compared to $1,218,000 for the first quarter of 1994. The income in 1995 results
from increases in income from both the apartments and mortgage assets.
In the first quarter 1995, operating income (before debt service and
depreciation) from the apartments was $1,995,000 which, after deducting related
interest expense, is a 10% increase from the first quarter 1994. As a result of
high demand, rental rates in the Company's apartment communities were 4.3%
higher in the first quarter of 1995 compared to the same period in 1994.
Income from mortgage assets for the first quarter of 1995 decreased
from the first quarter of 1994 due to lower balances as a result of amortization
of the assets. The effect is mitigated by a higher yield in 1995 due to lower
mortgage prepayment rates. The Company realized gains in the first quarter of
1995 of $3,158,000, which consisted of $738,000 from the redemption of one
mortgage asset and the sale of the underlying mortgage instruments and
$2,420,000 from the reversal of the excess prepayment penalty accrued in 1993.
Operating expenses for the first quarter 1995 increased due to the
accrual of expenses relating to the stock appreciation rights ($705,000) and
dividend equivalent payments on the options and stock appreciation rights
($200,000). These increases were partially offset by lower management fees
($51,000) and the Company's efforts to reduce operating expenses.
Interest and other income decreased in 1995 due to lower cash balances.
Real estate interest expense increased because of the borrowing incurred in the
first quarter 1995 in connection with the acquisition of the 222-unit community
located in Mesa, Arizona. Interest expense related to mortgage assets decreased
due to the payoff of the notes in February 1995.
Liquidity, Capital Resources and Commitments
Cash provided by operations for the first quarter of 1995 were higher
due to the redemption of one mortgage asset and the sale of the underlying
mortgage instruments. Cash used in investing activities was much lower for the
1995 quarter as the company purchased its initial apartment portfolio in the
first quarter of 1994. Additionally, cash provided by financing activities was
lower in the first quarter of 1995 due to the payoff of the note secured by
mortgage assets in 1995, the payment of dividends in first quarter of 1995 and
the issuance of notes related to the initial apartment portfolio acquired in the
first quarter of 1994.
The Company currently depends primarily on the cash flows generated
from its existing mortgage assets to fund its acquisition of apartment
communities. During the quarter ended March 31, 1995, the mortgage assets
generated cash flows of $5,089,000. Below are estimates of future cash flows
from the mortgage assets beginning with April 1995 using three interest rate
assumptions. Case 2 represents approximate interest rates and forecasts of
prepayments rates made by market participants at March 31, 1995. The percentage
shown for assumed mortgage prepayments represents the average of annual
prepayments assumed for the underlying mortgages (dollars are in thousands:)
Case 1 Case 2 Case 3
------ ------ ------
Assumed one month LIBOR ........... 4% 6% 8%
Assumed prepayments ............... 27.4% 12.5% 7.2%
Estimated cash flows
1995...................... $ 6,290 $ 5,526 $ 4,762
1996...................... 6,712 6,050 5,090
1997...................... 4,478 4,876 4,492
1998...................... 2,990 3,939 3,959
1999...................... 2,048 3,171 3,494
2000-2018 ................ 14,624 34,382 54,690
-------- -------- --------
Total .................... $ 37,142 $ 57,944 $ 76,487
======== ======== ========
At March 31, 1995, the Company had cash of $976,000 and short-term real
estate notes receivable of $1,012,000. The Company intends to use such funds for
acquisition of apartments, capital improvements on existing properties and
working capital.
In February 1995, the Company prepaid the entire balance of the notes
payable secured by mortgage assets. As a result, the mortgage assets are no
longer encumbered. These mortgage assets can be used as collateral for financing
for the Company.
In April 1995, the Company prepaid the unsecured notes payable. The
Company borrowed $3,000,000 under a reverse repurchase agreement that is secured
by certain mortgage assets with an aggregate book value of $4,163,000 at March
31, 1995.
Inflation
The apartment leases generally are for terms of six to twelve months.
Management believes that such short-term leases lessen the impact of inflation
as a result of the ability to adjust rental rates to market levels as leases
expire. To the extent that the inflation rate influences federal monetary policy
and results in rising short-term interest rates or declines in mortgage interest
rates, the income and cash flows from the mortgage assets would be adversely
affected.
ASR INVESTMENTS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1995
PART II
OTHER INFORMATION
Item 1. Legal Proceedings - None
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Item 2. Changes in Securities - Not applicable
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Item 3. Defaults Upon Senior Securities - Not applicable
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders - Not applicable
---------------------------------------------------
Item 5. Other Information - Not applicable
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Item 6. Exhibits and Reports on Form 8-K - None
--------------------------------
********************
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASR INVESTMENTS CORPORATION
Mary C. Swanton Joseph C. Chan
- ---------------------------- -------------------------------
Mary C. Swanton Joseph C. Chan
Controller Executive Vice President,
May 12, 1995 Chief Operating Officer,
Chief Financial and
Accounting Officer
May 12, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<EXCHANGE-RATE> 1
<CASH> 976
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 976
<PP&E> 74,944
<DEPRECIATION> 2,502
<TOTAL-ASSETS> 98,509
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 38,907
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 98,509
<SALES> 0
<TOTAL-REVENUES> 7,983
<CGS> 0
<TOTAL-COSTS> 3,385
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,239
<INCOME-PRETAX> 3,359
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<CHANGES> 0
<NET-INCOME> 3,359
<EPS-PRIMARY> .22
<EPS-DILUTED> .22
</TABLE>
