UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: September 30, 1996 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
------------------------------------
(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 October 31, 1996 were 3,159,161
shares.
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995
(Dollars in Thousands)
1996 1995
--------- -------
Unaudited
Assets
Real estate investments
Apartments, net of depreciation $70,857 $71,338
Investments in joint ventures 2,853 3,043
Construction in progress 9,968
Land held for development 1,047 3,928
Other real estate 932 1,201
------- -------
Total real estate investments 85,657 79,510
Mortgage assets 5,527 11,877
Cash 5,917 2,421
Other assets 543 361
------- -------
Total assets $97,644 $94,169
======= =======
Liabilities
Real estate notes payable $49,564 $49,633
Short-term borrowing 1,954 4,495
Other liabilities 5,595 2,646
------- -------
Total liabilities 57,113 56,774
Stockholders' Equity
40,000,000 shares of $.01 Common Stock authorized;
3,307,892 shares issued with 148,731 held
in Treasury 40,531 37,395
------- -------
Total liabilities and stockholders' equity $97,644 $94,169
======= =======
See Notes to Consolidated Financial Statements.
2
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statements of Operations
For the Quarters and Nine Months Ended September 30, 1996 and 1995
(In Thousands Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Quarters Nine Months
-------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Real Estate Operations
Rental and other income $ 3,660 $ 3,419 $ 10,941 $ 10,493
-------- -------- -------- --------
Operating and maintenance expenses 1,452 1,414 4,007 ,3827
Real estate taxes and insurance 350 366 1,069 1,116
Depreciation and amortization 706 685 2,074 1,959
-------- -------- -------- --------
Total operating expenses 2,508 2,465 7,150 6,902
-------- -------- -------- --------
Income from real estate 1,152 954 3,791 3,591
-------- -------- -------- --------
Mortgage Assets
Prospective yield income 604 873 2,174 3,063
Income from redemptions and sales 2,738 473 7,725 4,927
-------- -------- -------- --------
Income from mortgage assets 3,342 1,346 9,899 7,990
-------- -------- -------- --------
Operating and Administrative Expenses (1,422) (612) (2,759) (2,802)
-------- -------- -------- --------
Total Operating Income 3,072 1,688 10,931 8,779
Interest Expense and Other Income
Interest and other income 127 33 248 708
Interest expense on real estate mortgages (1,079) (1,104) (3,269) (3,373)
Other interest expense (28) (47) (152) (170)
-------- -------- -------- --------
Net Income $ 2,092 $ 570 $ 7,758 $ 5,944
======== ======== ======== ========
Net Income Per Share of Common
Stock and Common Stock Equivalents $ 0.66 $ 0.18 $ 2.46 $ 1.90
======== ======== ======== ========
Average Shares of Common Stock and
Common Stock Equivalents 3,155 3,151 3,155 3,137
======== ======== ======== ========
Dividends Declared Per Share $ 0.50 $ 0.50 $ 1.50 $ 1.50
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1996 and 1995
(In Thousands)
(Unaudited)
Nine Months
--------------------
1996 1995
-------- --------
OPERATING ACTIVITIES
Net income $ 7,758 $ 5,944
Principal noncash charges (credits)
Depreciation and amortization 2,415 2,048
Reversal of yield maintenance accrual (2,420)
Increase in accrual 507 705
-------- --------
Cash Provided By Operations 10,680 6,277
-------- --------
INVESTING ACTIVITIES
Investment in apartments (1,716) (7,858)
Investment in joint ventures (28) (1,751)
Construction expenditures (7,027)
Purchase of land for development (60) (3,879)
Sale of other real estate 1,252
Other real estate assets 269 2,343
Reduction in mortgage assets 6,350 6,161
(Increase) decrease in other assets (182) 140
-------- --------
Cash Used In Investing Activities (2,394) (3,592)
-------- --------
FINANCING ACTIVITIES
Issuance of real estate notes payable 6,895
Proceeds from construction loan 247
Repayment of notes payable
Real estate notes (316) (7,824)
Notes secured by mortgage assets (4,002)
Short-term borrowing (2,541) 4,495
Construction cost payable 1,384
Increase in other liabilities 1,147 594
Exercise of stock options 23 45
Payment of dividends (4,734) (4,727)
-------- --------
Cash Used In Financing Activities (4,790) (4,524)
-------- --------
Cash
Increase (decrease) during the period 3,496 (1,839)
Balance - beginning of period 2,421 4,129
-------- --------
Balance - end of period $ 5,917 $ 2,290
======== ========
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 3,424 $ 4,105
======== ========
See Notes to Consolidated Financial Statements
4
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statement of Stockholders' Equity
For the Nine Months Ended September 30, 1996
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
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, December 31, 1995 3,303 $33 $155,822 ($115,497) ($652) ($2,311) $37,395
Net income 7,758 7,758
Dividends declared (4,734) (4,734)
Stock issuance 5 53 (30) 23
Other 89 89
---------- ------- ------------ ----------- ----------- ------------ ---------
Balance, September 30, 1996 3,308 $33 $155,964 ($112,473) ($682) ($2,311) $40,531
========== ======= ============ =========== =========== ============ =========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters and Nine Months Ended September 30, 1996 and 1995
1. BASIS OF PRESENTATION
The accompanying interim consolidated financial statements 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. They do not
include all of the information and disclosures generally required for annual
financial statements. 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, 1995 audited consolidated financial statements and notes thereto.
2. REAL ESTATE INVESTMENTS
As of September 30, 1996 and December 31, 1995, the Company owned
directly eighteen apartment communities (2,683 units) located in Arizona, Texas,
and New Mexico which consisted of the following (in thousands):
1996 1995
------- -------
Land $15,514 $15,514
Building and improvements 58,067 57,214
Accumulated depreciation (6,759) (4,687)
Restricted cash and
deferred loan fees 4,035 3,297
------- --------
Apartments, net $70,857 $71,338
======= ========
In March 1996, the Company began construction of a 356-unit
apartment community, Finisterra Apartments, in Tempe, Arizona. The total cost is
estimated to be approximately $21 million. The Company has obtained a
$15,350,000 construction loan of which $247,000 was outstanding at September 30,
1996. As of September 30, 1996, the Company had invested $9,968,000 in
construction in progress.
In addition, the Company owned six apartment communities (1,441,
units) located in Arizona through joint ventures with a pension plan affiliate
of Citicorp. The Company is a 15% equity partner and the managing partner or
managing member of the joint ventures. The
6
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters and Nine Months Ended September 30, 1996 and 1995
Company is entitled to receive 15%-51% of the total profits and cash flows
depending on the financial performance of the joint ventures. The condensed
combined financial statements of the joint ventures are as follows (in
thousands):
Condensed Combined Balance Sheets
As of September 30, 1996 and December 31, 1995
1996 1995
---- ----
Real estate, at cost net
of depreciation $53,734 $54,489
Cash and other assets 2,019 2,133
------- -------
Total Assets $55,753 $56,622
======= =======
Notes payable $35,938 $35,754
Other liabilities 787 575
------- -------
Total Liabilities 36,725 36,329
------- -------
Equity
The Company 2,853 3,043
Joint venture partner 16,175 17,250
------- -------
Total Equity 19,028 20,293
------- -------
Total Liabilities and Equity $55,753 $56,622
======= =======
Condensed Combined Statement of Operations
For the Quarters and Nine Months Ended September 30,
Quarters Nine Months
-------- -----------
1996 1995 1996 1995
---- ----- ---- ----
Rental and other income $ 2,308 $ 2,060 $ 6,872 $ 4,798
Operating expenses (938) (1,007) (2,803) (2,152)
Depreciation (493) (463) (1,453) (975)
Interest expense (721) (692) (2,157) (1,547)
------- ------- ------- -------
Net Income (Loss) $ 156 $ (102) $ 459 $ 124
======= ======= ======= =======
7
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters and Nine Months Ended September 30, 1996 and 1995
Quarters Nine Months
----------- -----------
1996 1995 1996 1995
---- ---- ---- ----
Allocation of net income
The Company $ 23 $(15) $ 69 $ 19
Joint venture partner 133 (87) 390 105
3. MORTGAGE ASSETS
The mortgage assets entitle the Company to receive the excess of the
cash flows on pools of mortgage instruments over the required payments on a
series of structured financing that they secure. The Company also has the right
to cause the early redemption of the structured financing under specified
conditions; in such event, the mortgage instruments are sold and the net
proceeds after the redemption of the structured financing are remitted to the
Company. In some cases, the Company sells the mortgage asset that is redeemable
in the foreseeable future. Redemption and sale transactions occur from time to
time as specified conditions are met rather than on a monthly or quarterly
basis; therefore, the amount of net proceeds and the income from the redemption
transactions fluctuates significantly between periods.
During the third quarter of 1996, the Company sold six mortgage
assets and realized redemption income of $2,738,000 and total proceeds of
$5,750,000. For the nine months ended September 30, 1996, the Company realized
redemption income of $7,725,000 and received proceeds of $11,750,000 from the
sale and redemption of seven mortgage assets. In October 1996, the Company sold
or redeemed two mortgage assets for total proceeds of $1,825,000 and estimated
income of $1,700,000 which will be recorded in the fourth quarter of 1996. At
September 30, 1996 and December 31, 1995, the prospective yield on mortgage
assets (excluding the mortgage assets sold in October) was 38% and 29% .
8
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters and Nine Months Ended September 30, 1996 and 1995
4. NOTES PAYABLE
At September 30, 1996 and December 31, 1995, the Company's
short-term borrowing was secured by mortgage assets with a total carrying value
of $3,340,000 and $7,639,000, respectively.
As discussed in Note 2, the Company has obtained a $15,350,000
construction loan to finance the construction of its Finisterra apartment
community. The loan bears interest at 1% per annum above the bank's prime rate.
At September 30, 1996, the amount outstanding was $247,000.
5. RELATED PARTY TRANSACTIONS
Subject to the supervision of the Company's Board of Directors, Pima
Mortgage L.P. (the "Manager"), manages the day-to-day operations of the Company
pursuant to a management agreement that has a current term through December 31,
1996. For the quarters and nine months ended September 30, 1996 and 1995, the
management fees were as follows (in thousands):
Quarters Nine Months
-------- -----------
1996 1995 1996 1995
---- ---- ---- ----
Base management fee $ 71 $ 97 $279 $283
Administrative fee $ 46 $ 52 $151 $167
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 communities. 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. The costs allocated to the Company for the nine months ended
September 30, 1996 and 1995 were $329,800 and $304,200, respectively, which were
equal to approximately 3.0% and 2.9%, respectively, of rental and other income.
For the quarters ended September 30, 1996 and 1995, cost allocated to the
Company were $121,900 and $102,200, respectively.
9
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters and Nine Months Ended September 30, 1996 and 1995
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 seventeen apartment communities (2,461 units) located in Tucson,
Arizona, Houston, Texas, and Albuquerque, New Mexico. In February 1995, the
Company acquired a 222-unit apartment community in Mesa, Arizona. In March 1996,
the Company began construction of a 356-unit luxury apartment community in
Tempe, Arizona. Total project costs are estimated to be approximately $21
million and the Company has obtained a construction loan of $15.4 million.
In addition to wholly owned apartments communities, the Company has
acquired six apartment communities (1,441 units) in Phoenix and Tucson, Arizona
through joint ventures with a pension plan affiliate of Citicorp. The Company is
a 15% equity partner and managing member of the joint ventures and Company
receives 15%-51% of the net profits and cash flow depending on the performance
of the joint ventures.
The Company continues to own mortgage assets (all acquired prior to
1993) to generate cash flows for apartment acquisitions and development,
operations, payment of dividends and other corporate purposes. These mortgage
assets 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 that they secure. The Company also has the option to cause the early
redemption of the structured financing at par after specified conditions are met
(generally when the structured financing is below a specified balance or after a
specified date). In such event, the mortgage instruments are sold and the net
proceeds after the redemption of the structured financing are remitted to the
Company. In some cases, the Company decides to sell a mortgage asset that is
expected to be redeemable in the foreseeable future. Mortgage asset redemptions
and sales accelerate the cash flows and increase the present value but reduce
the cash flows and income in future periods. Redemption and sales transactions
occur from time to time as specified conditions are met rather than on a monthly
or quarterly basis and the net proceeds are affected by the market price of the
mortgage instruments. Thus, the cash flows and income from redemption and sale
transactions fluctuate significantly between periods.
10
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters and Nine Months Ended September 30, 1996 and 1995
Results of Operations
Comparison of Quarters Ended September 30, 1996 and 1995
Real Estate Operations - Rental and other income for the 1996
quarter increased by $241,000, or 7%. The increase is due to $203,000 from the
wholly owned properties and $38,000 from the joint venture properties both
increases resulting from improved occupancy rates. The average occupancy rate
for the 1996 quarter for the wholly owned properties increased from 88% in 1995
to 93% in 1996. This higher rate is attributable primarily to an increase in the
Tucson market from 82.3% to 93.7% and an increase in the Houston market from
90.6% to 93.7%. The Albuquerque and Phoenix communities maintained occupancy
rates between 90% and 91% in both years. The Company believes the improved
occupancy rates are due to improved economic conditions in the Company's markets
as well as aggressive marketing strategies used by the property management
company. Operating and maintenance expenses increased by 2.7% due to increases
in administration expenses and marketing expenses.
Mortgage Assets - Prospective yield income decreased due to the
decrease in the mortgage asset balance as a result of amortization and
redemptions. The average mortgage asset balance was $6,450,000 for the 1996
quarter compared with $14,060,000 for the 1995 quarter. The average prospective
yield for the quarter was 39% in 1996 compared to 26% in 1995. Income from
redemptions and sales increased by $2,265,000 as a result of the redemption of
six mortgage asset in the quarter 1996 for income of $2,738,000 compared to the
redemptions of two mortgage assets in the quarter 1995 for income of $473,000.
Operating Expenses and Other Income - Interest and other income
increased due to interest earned on the Company's average cash balance which was
higher during the 1996 quarter compared to the 1995 quarter. Operating expenses
increased in 1996 due to an accrual of employee stock appreciation rights
expenses of $507,000 as a result of increases in the price of the Company's
common stock and $400,000 for consulting and legal fees relating to future
acquisitions. The increases were mitigated by lower administrative expenses of
$95,000 due primarily to lower costs for officer and director's insurance.
Interest expense on real estate mortgages decreased in 1996 compared to 1995 due
to lower principal balances resulting from monthly payments.
11
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters and Nine Months Ended September 30, 1996 and 1995
Comparison of Nine Months Ended September 30, 1996 and 1995
Real Estate Operations - Rental and other income for the 1996 period
increased by $448,000, or 4.39%, due primarily to improved rental income from
the Company's wholly owned properties. Rental rate increases provided $335,000
of the additional rental income due primarily to the Houston communities which
had a 4% rental rate increase over the 1995 period. Improved occupancy
contributed $96,000 of the additional rental income, due primarily to an
increase in the Tucson communities's occupancy rate increasing from 89.8% in the
1995 period to 93.1% in the 1996 period. The Company believes the improved
occupancy rate is due to improved economic conditions in the Tucson market as
well as aggressive marketing strategies used by the property management company.
Rental revenue also increased due to approximately $200,000 from prior rate
increases becoming effective as leases are renewed or the apartment is
re-leased. These prior rent increases were experienced primarily in the Tucson
communities. The increases in rental income were mitigated by an increase in
rental concession expense of $183,000 primarily attributable to the Albuquerque
communities. The increased rental concessions result from competition from new
apartment communities in their rent up phase. Operating and maintenance expenses
increased by 4.7% due to the 1995 apartment acquired in February 1995 and
increases in payroll expenses and marketing expenses. Real estate taxes and
insurance expenses decreased 4.2% due to an adjustment made in 1995 based on the
actual property tax assessment. Depreciation expense in 1996 increased 5.9% due
to capital improvements on the apartment communities.
Mortgage Assets - Prospective yield income decreased in 1996 due to
the decrease in the mortgage asset balance as a result of amortization and
redemptions. The average mortgage asset balance was $9,284,000 for the 1996
period compared with $15,559,000 for the 1995 period. The decrease was mitigated
by an increase in the average prospective yield from 29% in the 1995 period to
34% in the 1996 period. Income from redemptions and sales increased by
$2,798,000 as a result of the sale and redemption of seven mortgage assets in
1996 for income of $7,725,000 compared to the redemptions and sales of four
mortgage assets in 1995 for income of $4,927,000. Included in the 1995 income
was $2,420,000 from the reversal of an excess yield maintenance payment accrued
in 1993 on borrowing secured by mortgage assets.
Operating Expenses and Other Income - Operating expenses were
$43,000 lower in 1996 than the comparable period in 1995. The 1996 amount
included an accrual of stock
12
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters and Nine Months Ended September 30, 1996 and 1995
appreciation rights expense of $507,000 and an accrual of $400,000 of expenses
related to future acquisition costs. The 1995 amount included an accrual of
stock appreciation expense of $705,000 and also included approximately $100,000
of costs related to the reverse stock split in July 1995. Administrative
expenses for 1996 were also lower by approximately $145,000 primarily due to
lower costs for officer and director's insurance. Interest and other income
decreased as the 1995 amount included a gain of $311,000 from the early payoff
of a note payable and a gain of $180,000 from the sale of an asset. Interest
expense on real estate mortgages decreased due to lower principal balances
resulting from monthly payments. Other interest expense decreased as the Company
paid off the unsecured real estate note payable in April 1995.
Liquidity, Capital Resources and Commitments
Cash provided by operations for the nine months ended September 30,
1996 was $10,680,000 compared with $6,277,000 for the same period in 1995. The
increase was due to (i) an increase in net income of $1,814,000, (ii) an
increase in non-cash charge for depreciation and amortization of $367,000 and
(iii) the 1995 net income included a non-cash credit of $2,420,000 for the
reversal of accrued excess yield maintenance payment on notes payable. The
increase was mitigated by a decrease in 1996 in non-cash accrual of $198,000.
Cash used in investing activities for the nine months ended
September 30, 1996 was $2,394,000 compared with $3,592,000 for the same period
in 1995. The decrease was due to (i) a decrease of $6,142,000 in investments in
apartments as the Company purchased an apartment community in February 1995 and
did not make any purchases in 1996, (ii) a decrease of $1,723,000 in investment
in joint ventures as the Company made investments in new joint ventures in 1995
to acquire two apartment communities and made no investment in new joint
ventures in 1996 and (iii) an increase of $189,000 in the amortization in the
carrying value of mortgage assets. The decrease was mitigated by (i) an increase
of $3,208,000 in expenditures for construction of the Finisterra Apartments and
other land development, (ii) a decrease of $3,326,000 in proceeds from
dispositions of other real estate assets and (iii) an increase in other assets
of $322,000.
Cash used in financing activities for the nine months ended
September 30, 1996 was $4,790,000 compared with $4,524,000 for the same period
in 1995. The increase was principally due to (i) a decrease in the issuance of
real estate notes payable of $6,895,000 as
13
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters and Nine Months Ended September 30, 1996 and 1995
the Company did not make any purchases in 1996, (ii) a decrease of $3,034,000 in
notes payable secured by mortgage assets and short-term borrowing and (iii) a
decrease of $22,000 in the exercise of stock options. The increase in cash used
in financing activities was mitigated by (i) an increase of $247,000 from
proceeds from the Finisterra Apartments construction loan, (ii) a decrease of
$7,508,000 in the repayment of real estate notes payable as the Company prepaid
the unsecured real estate notes in 1995, (iii) accrued construction cost payable
of $1,384,000 for the Finisterra Apartment community for September that was paid
in October and (iv) an increase in other liabilities of $546,000 primarily due
to accrued 1996 legal and consulting fees related to future acquisitions.
The Company continues to realize substantial cash flows from its
mortgage assets. A majority of the cash flows is generated from redemptions of
the mortgage assets. The Company may also sell a mortgage asset that is
redeemable in the foreseeable future. The redemptions or sales accelerate the
mortgage asset cash flows and increase the present value. During the first nine
months of 1996, the mortgage assets generated total cash flow of $16,229,000,
including $11,750,000 from the redemption of seven mortgage assets. The Company
used a portion of the proceeds to reduce short-term borrowing by $2,541,000. In
addition, the Company sold or redeemed two mortgage assets in October 1996 for
total proceeds of $1,825,000.
The Company has prepared the following estimates of future cash
flows from the mortgage assets. Cases 1, 2 and 3 assume that except for the
early redemptions or sales of the mortgage asset in October as described in the
preceding paragraph, there would be no further early redemptions or sales of
mortgage assets. The assumed interest rate and mortgage prepayment rates in Case
2 are the approximate interest rate and forecasts of prepayment rates made by
market participants as of September 30, 1996. Mortgage prepayment rates
represent the average annual prepayment rate assumed for the underlying mortgage
instruments The estimates in Case 4 have been prepared using the same interest
rate and mortgage prepayment rates as Case 2 except that each mortgage asset is
assumed to be redeemed at the first available date and the underlying mortgages
are sold at the September 30, 1996 prices.
14
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters and Nine Months Ended September 30, 1996 and 1995
(Dollars in thousands):
Case 1 Case 2 Case 3 Case 4
------- ------- ------- -------
Assumed one month LIBOR 3.5% 5.5% 7.5% 5.5%
Assumed annual mortgage
prepayments 19.63% 12.45% 8.45% 12.45%
Average sale price of
mortgages (% of par) 106.92%
Estimated cash flows
1996 (fourth quarter) $ 2,729 $ 2,660 $ 2,590 $ 2,660
1997 3,389 2,874 2,354 8,815
1998 2,440 2,240 1,914 868
1999 1,732 1,740 1,612 3,995
2000 1,232 1,386 1,388 17,847
2001-2020 5,378 10,865 18,353 967
------- ------- ------- -------
Total $16,900 $21,765 $28,211 $35,152
======= ======= ======= =======
There can be no assurance that the actual interest and prepayment
rates will be as assumed or that the prices of the mortgage instruments will
remain at the assumed levels. Proceeds from redemptions are highly dependent on
prices available upon sale of the mortgages as well as the timing of meeting the
conditions for redemption (generally reduction of the structured financing to a
specified balance or a specified date). As an example, if the assumed average
price above par for mortgage sales in Case 4 above were to decrease by half (the
average mortgage prices decreases to 103.46%), the estimated total cash flow in
Case 4 would decline by $12,227,000 of which $2,806,000 would relate to 1997.
At September 30, 1996, the Company had cash of $5,917,000. In
October, the Company received cash proceeds of $1,825,000 from the sale or
redemption of two mortgage assets. In addition, the Company will receive funding
from the Finisterra apartments construction loan for the costs paid by the
Company, which amount to approximately
15
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the Quarters and Nine Months Ended September 30, 1996 and 1995
$2,500,000. The Company intends to use such funds to pay for capital
improvements on existing apartment communities, to acquire apartment
communities, and to pay dividends and operating expenses.
Other Information
Apartment leases generally are for terms of six to 12 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 affected.
16
<PAGE>
ASR INVESTMENTS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended September 30, 1996
PART II
OTHER INFORMATION
Item 1. Legal Proceedings - None
-----------------
Item 2. Changes in Securities - Not applicable
---------------------
Item 3. Defaults Upon Senior Securities - Not applicable
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders - None
---------------------------------------------------
Item 5. Other Information - Not applicable
-----------------
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. Clements Joseph C. Chan
- ----------------------- ---------------------
Mary C. Clements Joseph C. Chan
Controller Executive Vice President,
November 8, 1996 Chief Operating Officer,
Chief Financial and
Accounting Officer
November 8, 1996
17
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