FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: June 30, 1996 Commission File Number: 1-9646
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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 July 31, 1996 were 3,154,495
shares.
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Balance Sheets
June 30, 1996 and December 31, 1995
(Dollars in Thousands)
1996 1995
--------- ---------
Unaudited
Assets
Real estate investments
Apartments, net of depreciation $70,673 $71,338
Investments in joint ventures 2,889 3,043
Construction in progress 6,254
Land held for development 1,047 3,928
Other real estate 988 1,201
------- -------
Total real estate investments 81,851 79,510
Mortgage assets 8,863 11,877
Cash 5,447 2,421
Other assets 559 361
------- -------
Total assets $96,720 $94,169
======= =======
Liabilities
Real estate notes payable $49,669 $49,633
Short-term borrowing 2,366 4,495
Other liabilities 4,689 2,646
------- -------
Total liabilities 56,724 56,774
Stockholders' Equity
40,000,000 shares of $.01 Common Stock authorized;
3,303,226 shares issued with 148,731 held
in Treasury 39,996 37,395
------- -------
Total liabilities and stockholders' equity $96,720 $94,169
======= =======
See Notes to Consolidated Financial Statements.
2
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statements of Operations
For the Quarters and Six Months Ended June 30, 1996 and 1995
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarters Six Months
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Real Estate Operations
Rental and other income $ 3,639 $ 3,551 $ 7,281 $ 7,074
------- ------- ------- -------
Operating and maintenance expenses 1,301 1,235 2,555 2,413
Real estate taxes and insurance 359 400 719 750
Depreciation and amortization 688 767 1,368 1,274
------- ------- ------- -------
Total operating expenses 2,348 2,402 4,642 4,437
------- ------- ------- -------
Income from real estate 1,291 1,149 2,639 2,637
------- ------- ------- -------
Mortgage Assets
Prospective yield income 799 1,048 1,569 2,191
Income from redemptions and sales 3,010 1,296 4,987 4,454
------- ------- ------- -------
Income from mortgage assets 3,809 2,344 6,556 6,645
------- ------- ------- -------
Operating and Administrative Expenses (698) (840) (1,336) (2,190)
------- ------- ------- -------
Total Operating Income 4,402 2,653 7,859 7,092
Interest Expense and Other Income
Interest and other income 81 515 121 674
Interest expense on real estate mortgages (1,108) (1,094) (2,190) (2,166)
Other interest expense (49) (59) (124) (226)
------- ------- ------- -------
Net Income $ 3,326 $ 2,015 $ 5,666 $ 5,374
======= ======= ======= =======
Net Income Per Share of Common
Stock and Common Stock Equivalents $ 1.05 $ 0.65 $ 1.80 $ 1.72
======= ======= ======= =======
Average Shares of Common Stock and
Common Stock Equivalents 3,154 3,150 3,154 3,130
======= ======= ======= =======
Dividends Declared Per Share $ 0.50 $ 0.50 $ 1.00 $ 1.00
======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statements of Cash Flows
For the Quarters and Six Months Ended June 30, 1996 and 1995
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Quarters Six Months
------------------ ------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 3,326 $ 2,015 $ 5,666 $ 5,374
Principal noncash charges (credits)
Depreciation and amortization 821 841 1,604 1,409
Reversal of yield maintenance accrual (2,420)
Increase in accrual 705
------- ------- ------- -------
Cash Provided By Operations 4,147 2,856 7,270 5,068
------- ------- ------- -------
INVESTING ACTIVITIES
Investment in apartments (368) (532) (795) (7,003)
Investment in joint ventures (40) (1,467) 10 (1,880)
Construction expenditures (2,289) (3,313)
Purchase of land for development (174) (60) (3,355)
Other real estate assets 133 820 213 2,362
Reduction in mortgage assets 1,919 1,023 3,014 4,231
Decrease in other assets 42 251 (198) 81
------- ------- ------- -------
Cash Used In Investing Activities (603) (79) (1,129) (5,564)
------- ------- ------- -------
FINANCING ACTIVITIES
Issuance of real estate notes payable 6,440
Proceeds from construction loan 22 243
Repayment of notes payable
Real estate notes (70) (4,889) (207) (5,333)
Notes secured by mortgage assets (4,002)
Short-term borrowing (2,221) 3,008 (2,129) 3,008
Exercise of stock options 23
Payment of dividends (1,577) (1,575) (3,154) (3,150)
Increase in other liabilities 1,690 459 2,132 137
------- ------- ------- -------
Cash Used In Financing Activities (2,156) (2,997) (3,115) (2,877)
------- ------- ------- -------
Cash
Increase (Decrease) during the period 1,388 (220) 3,026 (3,373)
Balance - beginning of period 4,059 976 2,421 4,129
------- ------- ------- -------
Balance - end of period $ 5,447 $ 756 $ 5,447 $ 756
======= ======= ======= =======
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 1,160 $ 1,407 $ 2,342 $ 2,790
======= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statement of Stockholders' Equity
For the Six Months Ended June 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 5,666 5,666
Dividends declared (3,154) (3,154)
Other 89 89
------- ------- -------- --------- ------- ------- -------
Balance, June 30, 1996 3,303 $ 33 $155,911 ($112,985) ($ 652) ($2,311) $39,996
======= ======= ======== ========= ======= ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters and Six Months Ended June 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.
Reclassification - Certain reclassifications have been made to conform the prior
year with the current year presentation.
2. REAL ESTATE INVESTMENTS
As of June 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 57,633 57,214
Accumulated depreciation (6,054) (4,687)
Restricted cash and
deferred loan fees 3,580 3,297
-------- --------
Apartments, net $ 70,673 $ 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 $20,500,000. The Company has obtained a $15,350,000 construction
loan of which $243,000 was outstanding at June 30, 1996. As of June 30, 1996,
the Company had invested $6,254,000 in construction in progress including
$2,670,000 in land acquisition cost.
6
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters and Six Months Ended June 30, 1996 and 1995
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 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 June 30, 1996 and December 31, 1995
1996 1995
------- -------
Real estate, at cost net
of depreciation $54,022 $54,489
Cash and other assets 1,968 2,133
------- -------
Total Assets $55,990 $56,622
======= =======
Notes payable $36,044 $35,754
Other liabilities 678 575
------- -------
Total Liabilities 36,722 36,329
------- -------
Equity
The Company 2,889 3,043
Joint venture partner 16,379 17,250
------- -------
Total Equity 19,268 20,293
------- -------
Total Liabilities and Equity $55,990 $56,622
======= =======
Condensed Combined Statement of Operations
For the Quarters and Six Months Ended June 30,
Quarters Six Months
-------- ----------
1996 1995 1996 1995
------- ------- ------- -------
Rental and other income $ 2,272 $ 1,487 $ 4,564 $ 2,738
Operating expenses (910) (606) (1,865) (1,145)
Depreciation (484) (290) (960) (512)
Interest expense (723) (491) (1,436) (855)
------- ------- ------- -------
Net Income $ 155 $ 100 $ 303 $ 226
======= ======= ======= =======
7
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters and Six Months Ended June 30, 1996 and 1995
Quarters Six Months
-------- ----------
1996 1995 1996 1995
---- ---- ---- ----
Allocation of net income
The Company $ 23 $ 15 $ 45 $ 34
Joint venture partner 132 85 258 192
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.
At June 30, 1996, the prospective yield on mortgage assets
(excluding the mortgage assets sold in July) was 39%.
During the second quarter of 1996, the Company redeemed a mortgage
asset that in the first quarter of 1996 the Company had sold a 40% interest.
From this sale and redemption, the Company received cash flow of $3,600,000 in
the second quarter of 1996 and $6,000,000 in the first six months of 1996. The
Company also realized redemption income of $3,010,000 and $4,987,000 from the
sale and redemption for the three months and six months ended June 30, 1996,
respectively. In July 1996, the Company sold six mortgage assets for total
proceeds of $5,750,000 and estimated income of $2,700,000 which will be recorded
in the third quarter of 1996.
8
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters and Six Months Ended June 30, 1996 and 1995
4. NOTES PAYABLE
At June 30, 1996 and December 31, 1995, the Company's short-term
borrowing was secured by mortgage assets with a total carrying value of
$5,632,000 and $7,639,000, respectively. In July 1996, the Company paid down
$430,000 on the short-term borrowing.
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 June 30, 1996, the amount outstanding on the loan was $243,000.
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 six months ended June 30, 1996 and 1995, the
management fees were as follows (in thousands):
Quarter Six Months
------- ----------
1996 1995 1996 1995
---- ---- ---- ----
Base management fee $112 $ 92 $208 $186
Administrative fee $ 53 $ 58 $105 $114
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 six months ended
June 30, 1996 and 1995 were $208,000 and $202,000, respectively, which were both
equal to approximately 2.9% of the real estate operating income. For the
quarters ended June 30, 1996 and 1995, cost allocated to the Company were
$99,000 and $90,000, respectively.
9
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters and Six Months Ended June 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 its initial portfolio of 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
$20.5 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. The 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 have the effect of accelerating the cash flows and increasing the
present value. 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. Mortgage asset redemptions and sales reduce the
cash flows and income in future periods.
10
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters and Six Months Ended June 30, 1996 and 1995
Results of Operations
Comparison of Quarters Ended June 30, 1996 and 1995
Real Estate Operations - Rental income for the 1996 quarter
increased by 2.5% due primarily to (i) a 1% rental rate increase, (ii) a 2.4%
increase in rents resulting from prior rate increases becoming effective as
leases expire and are renewed or the apartment is released and (iii) an increase
in the occupancy rate from 90.8% in 1995 to 91.7% in 1996. The increase in
rental income was mitigated by an increase in rental concession expense of
$75,000. The Company experienced higher rental income in Phoenix, Tucson and
Houston but lower rental income in Albuquerque. Operating and maintenance
expenses increased by 5.3% due to increases in payroll expenses and marketing
expenses. Real estate taxes and insurance expenses decreased due to an
adjustment made in 1995 based on the actual property tax assessment.
Mortgage Assets - Prospective yield income decreased due to the
decrease in the mortgage asset balance as a result of amortization and
redemptions. The average balance was $9,730,000 for the 1996 quarter compared
with $15,450,000 for the 1995 quarter. The average prospective yield for the
quarter was 35% in 1996 compared to 29% in 1995. Income from redemptions and
sales increased by $1,714,000 as a result of the redemption of the remaining 60%
interest in one mortgage asset in 1996 with proceeds of $3,641,000 and income of
$3,010,000 compared to redemption of one mortgage asset in 1995 with proceeds of
$1,509,000 and income of $1,296,000.
Operating Expenses and Other Income - 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. Operating
expenses decreased as the 1995 amount included the cost of the reverse stock
split in July 1995. Other interest expense decrease in 1996 as the Company paid
off the unsecured real estate note payable in April 1995.
Comparison of Six Months Ended June 30, 1996 and 1995
Real Estate Operations - Rental income for the 1996 period increased
by 2.9% due primarily to (i) the purchase of an apartment community in February
1995, (ii) a 4% rental rate increase and (iii) a 2.2% increase in rents
resulting from prior rate increases becoming effective as leases expire and are
renewed or the apartment is released. The increase was
11
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters and Six Months Ended June 30, 1996 and 1995
mitigated by (i) a decrease in the occupancy rate from 92.7% in 1995 to 91.7% in
1996 and (ii) an increase in rental concession expense of $173,000. The Company
experienced higher rental income in 1996 in Phoenix, Tucson and Houston but
lower rental income in Albuquerque. Operating and maintenance expenses increased
by 5.9% due to the 1995 acquisition and increases in payroll expenses and
marketing expenses. Real estate taxes and insurance expenses decreased due to an
adjustment made in 1995 based on the actual property tax assessment.
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 balance was $10,701,000 for the 1996 period compared
with $16,309,000 for the 1995 period. The decrease was mitigated by an increase
in the average prospective yield from 29% in the 1995 period to 33% in the 1996
period. Income from redemptions and sales increased by $533,000 as a result of
the sale and redemption of one mortgage asset in 1996 with proceeds of
$6,000,000 and income of $4,987,000 compared to the redemptions and sales of two
mortgage assets in 1995 with proceeds of approximately $4,300,000 and income of
$4,454,000. Included in the 1995 income was $2,420,000 from the reversal of an
excess yield maintenance payment accrued in 1993 on borrowings secured by
mortgage assets.
Operating Expenses and Other Income - Operating expenses decreased
as the 1995 amount included (i) an accrual of stock appreciation rights expense
of $705,000 based on the increase in the stock price during the first quarter of
1995 and (ii) the cost of the reverse stock split in July 1995. 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.
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 six months ended June 30, 1996
was $7,270,000 compared with $5,068,000 for the same period in 1995. The
increase was due to (i) increase in net income of $292,000, (ii) increase in
non-cash charge for depreciation and amortization of $195,000 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 credit of $705,000.
12
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters and Six Months Ended June 30, 1996 and 1995
Cash used in investing activities for the six months ended June 30,
1996 was $1,129,000 compared with $5,564,000 for the same period in 1995. The
decrease was due to (i) a decrease of $6,208,000 in apartment acquisitions as
the Company purchased an apartment community in February 1995 and did not make
any purchases in 1996 and (ii) a decrease of $1,870,000 in investment in joint
ventures as the Company made investments in new joint ventures in 1995 to
acquire two apartment communities and did not make any investment in new joint
ventures in 1996. The decrease was mitigated by (i) an increase of $18,000 in
the development and construction costs of the Finisterra Apartments, (ii) a
decrease of $2,149,000 in the proceeds from dispositions of other real estate
assets, (iii) a decrease of $1,217,000 in the reduction in the carrying value of
mortgage assets and (iv) an increase in other assets of $279,000.
Cash used in financing activities for the six months ended June 30,
1996 was $3,115,000 compared with $2,877,000 for the same period in 1995. The
increase was principally due to (i) a decrease of $1,135,000 in notes payable
secured by mortgage assets and short-term borrowing and (ii) a decrease in the
issuance of real estate notes payable of $6,440,000 as the Company did not make
any purchases in 1996. The increase was mitigated by (i) an increase of $243,000
from proceeds from the Finisterra Apartments construction loan, (ii) an increase
of $5,126,000 in the repayment of real estate notes payable as the Company
prepaid the unsecured real estate notes in 1995, and (iii) an increase in other
liabilities of $1,995,000 primarily due to the accrual of construction costs of
the Finisterra Apartments for June 1996 which were paid in July.
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 six
months of 1996, the mortgage assets generated total cash flow of $9,570,000,
including $6,000,000 from the redemption of a mortgage asset. The Company used a
portion of the proceeds to reduce short-term borrowing by $2,221,000 during the
first six months of 1996 In addition, the Company sold six mortgage assets in
July for total proceeds of $5,570,000.
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 July as described in the
preceding paragraph, there would be no further
13
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters and Six Months Ended June 30, 1996 and 1995
early redemptions 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 June 30, 1996. 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 June 30, 1996 prices. Mortgage prepayment rates represent the average annual
prepayment rate assumed for the underlying mortgage instruments (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 19.13% 12.5% 8.34% 12.5%
Average sale price of
mortgages (% of par) 106.44%
Estimated cash flows
1996 (second half) $ 7,792 $ 7,567 $ 7,342 $ 9,200
1997 3,513 3,024 2,508 10,705
1998 2,461 2,358 2,073 644
1999 1,736 1,816 1,737 1,389
2000 1,221 1,427 1,484 15,734
2001-2018 5,140 10,725 18,604 714
------- ------- ------- -------
Total $21,863 $26,917 $33,748 $38,386
======= ======= ======= =======
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 103.22%), the estimated total cash flow in
Case 4 would decline by $11,269,000 of which $833,000 would relate to 1996.
14
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters and Six Months Ended June 30, 1996 and 1995
At June 30, 1996, the Company had cash of $5,447,000. The Company
intends to use such funds, together with the proceeds from the mortgage sales in
July to fund acquisitions of apartment communities, to fund the equity portion
of the construction costs of the Finisterra Apartments, to fund capital
improvements on existing 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.
15
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ASR INVESTMENTS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended June 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 -
---------------------------------------------------
(a) The Annual Meeting of Stockholders of the Company
was held on Wednesday, May 15, 1996 at 9:00 a.m., at the Viscount Suite Hotel,
4855 E. Broadway, Tucson, Arizona. There were 3,154,495 shares outstanding on
the date of record for the annual meeting.
(b) The Board of Directors as listed in the March 29,
1996 proxy statement were duly elected to serve until the next annual meeting or
until their successors are duly elected and ratified. The votes were as follows:
FOR WITHHELD
--------- --------
Earl Baldwin 2,909,619 42,551
Joseph C. Chan 2,907,603 44,567
John J. Gisi 2,909,839 42,331
Jon A. Grove 2,908,575 43,595
Raymond L. Horn 2,908,449 43,721
Frederick C. Moor 2,909,262 42,908
Frank S. Parise, Jr 2,907,960 44,210
(c) The appointment of Deloitte & Touche LLP as the
Company's independent accountants for the fiscal year ending December 31, 1996
was ratified. The votes were as follows:
FOR AGAINST ABSTAIN
--------- ------- -------
2,906,372 15,645 30,153
16
<PAGE>
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,
August 7, 1996 Chief Operating Officer,
Chief Financial and
Accounting Officer
August 7, 1996
17
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