FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: March 31, 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 May 1, 1996 were 3,154,495
shares.
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Balance Sheets
March 31, 1996 and December 31, 1995
(Dollars in Thousands)
1996 1995
--------- ---------
Unaudited
Assets
Real estate investments
Apartments, net of depreciation $71,053 $71,338
Investments in joint ventures 2,922 3,043
Construction in progress 3,965
Land held for development 1,047 3,928
Other real estate 1,121 1,201
------- -------
Total real estate investments 80,108 79,510
Mortgage assets 10,782 11,877
Cash 4,059 2,421
Other assets 601 361
------- -------
Total assets $95,550 $94,169
======= =======
Liabilities
Real estate notes payable $49,717 $49,633
Short-term borrowing 4,587 4,495
Other liabilities 2,999 2,646
------- -------
Total liabilities 57,303 56,774
Stockholders' Equity
40,000,000 shares of $.01 Common Stock authorized;
3,303,226 shares issued with 148,731 held
in Treasury 38,247 37,395
------- -------
Total liabilities and stockholders' equity $95,550 $94,169
======= =======
See Notes to Consolidated Financial Statements.
2
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statements of Operations
For the Quarters Ended March 31, 1996 and 1995
(In Thousands)
(Unaudited)
1996 1995
------- --------
Real Estate Operations
Rental and other income $3,642 $3,523
------ ------
Operating and maintenance expenses 1,254 1,178
Real estate taxes and insurance 360 350
Depreciation and amortization 680 507
------ ------
Total operating expenses 2,294 2,035
------ ------
Income from real estate 1,348 1,488
------ ------
Mortgage Assets
Prospective yield income 770 1,143
Income from redemptions 1,977 3,158
------ ------
Income from mortgage assets 2,747 4,301
------ ------
Operating and Administrative Expenses (638) (1,350)
------ ------
Total Operating Income 3,457 4,439
Interest Expense and Other Income
Interest and other income 40 159
Interest expense on real estate mortgages (1,082) (1,070)
Other interest expense (75) (169)
------ ------
Net Income $2,340 $3,359
====== ======
Net Income Per Share of Common
Stock and Common Stock Equivalents $0.74 $1.08
====== ======
Average Shares of Common Stock and
Common Stock Equivalents 3,154 3,109
====== ======
Dividends Declared Per Share $0.50 $0.50
====== ======
See Notes to Consolidated Financial Statements.
3
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statements of Cash Flows
For the Quarters Ended March 31, 1996 and 1995
(In Thousands)
(Unaudited)
1996 1995
---- ----
OPERATING ACTIVITIES
Net income $2,340 $3,359
Principal noncash charges (credits)
Depreciation and amortization 783 568
Reversal of yield maintenance accrual (2,420)
Increase in accrual 705
------ ------
Cash Provided By Operations 3,123 2,212
------ ------
INVESTING ACTIVITIES
Investment in apartments (427) (6,471)
Investment in joint ventures 50 (413)
Construction expenditures (1,024)
Purchase of land for development (60) (3,181)
Other real estate assets 80 1,542
Reduction in mortgage assets 1,095 3,208
Decrease in other assets (240) (170)
------ ------
Cash Used in Investing Activities (526) (5,485)
------ ------
FINANCING ACTIVITIES
Issuance of real estate notes payable 6,440
Proceeds from construction loan 221
Repayment of notes payable
Real estate notes (137) (444)
Notes secured by mortgage assets (4,002)
Short-term borrowing 92
Exercise of stock options 23
Payment of dividends (1,577) (1,575)
Increase (Decrease) in other liabilities 442 (322)
------ ------
Cash (Used in) Provided By Financing Activities (959) 120
------ ------
Cash
Increase (Decrease) during the period 1,638 (3,153)
Balance - beginning of period 2,421 4,129
------ ------
Balance - end of period $4,059 $976
====== ====
Supplemental Disclosure of Cash Flow Information
Interest Paid $1,160 $1,383
====== ======
See Notes to Consolidated Financial Statements.
4
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statement of Stockholders' Equity
For the Three Months Ended March 31, 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 2,340 2,340
Dividends declared (1,577) (1,577)
Other 89 89
----- --- -------- --------- ----- ------- -------
Balance, March 31, 1996 3,303 $33 $155,911 ($114,734) ($652) ($2,311) $38,247
===== === ======== ========= ===== ======= =======
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 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 March 31, 1996, the Company owned directly eighteen apartment
communities (2,683 units) located in Arizona, Texas, and New Mexico. 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.
Apartment communities owned directly by the Company as of March 31,
1996 and December 31, 1995 consisted of the following (in thousands):
1996 1995
Land $15,514 $15,514
Building and Improvements 57,419 57,214
Accumulated Depreciation (5,367) (4,687)
Restricted Cash and
Deferred Loan Fees 3,487 3,297
------- --------
Apartments, net $71,053 $71,338
======= ========
6
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 1996 and 1995
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 $20,000,000. The Company has obtained a $15,350,000 construction loan of
which $221,000 was outstanding at March 31, 1996. As of March 31, 1996, the
Company had invested $3,965,000 in construction in progress including $2,670,000
in land aquisition cost.
The condensed combined financial statements of the joint ventures are
as follows (in thousands):
Condensed Combined Balance Sheets
As of March 31, 1996 and December 31, 1995
1996 1995
Real estate, at cost net
of depreciation $54,333 $54,489
Cash and other assets 2,032 2,133
------- -------
Total Assets $56,365 $56,622
======= =======
Notes payable $36,146 $35,754
Other liabilities 727 575
------- -------
Total Liabilities 36,873 36,329
Equity
The Company 2,922 3,043
Joint venture partner 16,570 17,250
------- -------
Total Equity 19,492 20,293
------- -------
Total Liabilities and Equity $56,365 $56,622
======= =======
Condensed Combined Statement of Operations
For the Quarters Ended March 31,
1996 1995
Rental and other income $2,292 $1,251
Operating expenses (955) (539)
Depreciation (476) (222)
Interest expense (713) (364)
------ -----
Net Income $ 148 $ 126
====== =====
7
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 1996 and 1995
1996 1995
Allocation of Net Income
The Company $ 22 $ 19
Joint Venture Partner $ 126 $ 107
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 which 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. Redemption 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 March 31, 1996 and December 31, 1995, the prospective yield on
mortgage assets was 35% and 29%.
During the first quarter of 1996, the Company sold a 40% interest in a
mortgage assets that is being redeemed during the second quarter of 1996. The
Company received $2,400,000 and realized income of $1,977,000 from the sale. The
redemption will provide additional cash flow of $3,600,000 and income of
$3,000,000 in the second quarter.
4. NOTES PAYABLE
At March 31, 1996 and December 31, 1995, the Company had borrowing
under reverse repurchase agreements of $2,262,000 and $2,170,000 secured by five
mortgage assets with a total carrying value of $2,483,074 and $2,645,000,
respectively. The Company also had short-term borrowing of $2,325,000 at March
31, 1996 and December 31, 1995, secured by two mortgage assets with a total
carrying value of $4,658,345 and $4,994,000, respectively. In April 1996, the
Company paid down $527,000 on the reverse repurchase agreements and $1,825,000
on the short-term borrowing.
8
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 1996 and 1995
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 one percent per annum above the bank's
prime rate. At March 31, 1996, the amount outstanding on the loan was $221,000.
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 which has a current term through December 31,
1996. For the quarters ended March 31, 1996 and 1995, the management fees were
$96,000 and $94,000 and the mortgage asset administrative fees were $72,000 and
$56,000, respectively.
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 quarters ended
March 31, 1996 and 1995 were $109,000 and $112,000, respectively, which were
equal to approximately 3% and 3.2% of the real estate operating income.
9
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters Ended March 31, 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 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 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 which
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 financings are remitted to the Company.
Mortgage asset redemptions have the effect of accelerating the cash flows and
increasing the value. Redemption 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 transactions fluctuate significantly
between periods. Mortgage asset redemptions reduce the cash flows and income in
future periods.
10
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters Ended March 31, 1996 and 1995
Results of Operations
Real Estate Operations - Rental income and expenses increased during
the first quarter of 1996 compared to the first quarter of 1995 due to the
acquisition of an apartment community in February, 1995. On a same store basis,
for the same periods, rental and other income decreased by (1) $18,000 due to a
decrease in the average occupancy rates from 95% for the 1995 quarter to 92% for
the 1996 quarter and (2) an increase in rental concessions by $94,000 for the
quarter 1996 compared the quarter 1995. This was mitigated by a 3.8% increase in
rental rates for the first quarter 1996 compared to the first quarter 1995. The
decrease in vacancy rates and increase in concession cost were primarily
attributable to the Tucson communities. The Company's Tucson communities had an
overall 91.6% occupancy rate in the first quarter of 1996 compared with 96.3% in
the same period in 1995. Operating expenses for the first quarter of 1996
compared to the first quarter of 1995 increased by 2.6% primarily due to
increases in marketing and payroll expenses.
Mortgage Assets - Prospective yield income for first quarter 1996
compared to the first quarter 1995 decreased due to a decrease in the average
balance of mortgage assets to $11,672,000 in the first quarter of 1996 from
$17,167,000 in the first quarter of 1995 as a result of amortization and
redemptions. Income from redemptions was lower in the 1996 quarter because the
1995 first quarter amount included a $2,420,000 reversal of an excess accrued
yield maintenance payment on notes payable secured by mortgage assets. In the
first quarter of 1996, the Company realized income of $1,977,000 from the sale
of a 40% interest in a mortgage asset that is being redeemed in the second
quarter; the redemption will provide additional income of $3,000,000 in the
second quarter. In the first quarter of 1995, the Company redeemed a mortgage
asset for income of $738,000.
Operating and Interest Expenses - Operating expenses decreased in 1996
because the 1995 amount included an accrual of stock appreciation rights
expenses of $705,000. Other interest expense decreased due to the payoff of the
notes payable secured by mortgage assets in February 1995.
Liquidity, Capital Resources and Commitments
Cash provided by operations for the first quarter of 1996 was higher
than 1995 as (l) $2,420,000 of the 1995 income from redemption related to the
reversal of the yield
11
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters Ended March 31, 1996 and 1995
maintenance payment and did not provide cash and (2) $705,000 of the 1995 stock
appreciation rights expenses were noncash charges.
Operating cash flow (net of interest expense) from apartments was
$1,017,000 for the first quarter of 1996 compared to $958,000 for the same
period of 1995. Cash flow generated from mortgage assets was $3,842,000 during
the first quarter of 1996 compared to $5,089,000 during for the same period of
1995. The lower mortgage asset cash flow in 1996 results from the nature of the
mortgage assets; the cash flows generally decline over time as the mortgage
assets are amortized or redeemed.
The Company invested $3,212,000 and borrowed $6,440,000 to acquire an
apartment community and the land for the Finisterra Apartments in the first
quarter of 1995. The Company did not make any acquisitions in the first quarter
of 1996. The Company incurred $1,024,000 of construction costs in the Finisterra
Apartments community in the first quarter 1996. The total costs of the
Finisterra Apartments are estimated to be $20,000,000 and the Company has
obtained a $15,350,000 construction loan. As of March 31, 1996, the Company has
invested $3,965,000, of which $221,000 was funded under the related construction
loan.
The Company continues to rely on the cash flows from the mortgage
assets to fund its apartment acquisitions and development. A majority of the
mortgage cash flows is from redemptions and sales which in effect accelerate the
cash flows and thus, increase the present value. In March 1996, the Company sold
a 40% interest in a mortgage asset for $,2,400,000. The mortgage asset is being
redeemed in the second quarter and will provide additional cash flow of
$3,600,000.
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
redemption of the mortgage asset in the second quarter as described in the
preceding paragraph, there would be no further 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 March 31, 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 March 31, 1996 prices. Mortgage
prepayment rates represent the average annual prepayment rate assumed for the
underlying mortgage instruments.
12
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters Ended March 31, 1996 and 1995
(Dollars in thousands)
Case 1 Case 2 Case 3 Case 4
Assumed one month LIBOR 3.38% 5.38% 7.38% 5.38%
Assumed mortgage prepayments 21.8% 14.5% 14.5% 14.5%
Average sale price of
mortgages (% of par) 107.16%
Estimated cash flows
1996 $8,802 $8,293 $7,778 $14,193
1997 4,811 4,258 3,622 12,130
1998 3 ,364 3,310 3,030 1,932
1999 2,409 2,543 2,533 8,567
2000 1,703 1,989 2,144 10,900
2001-2018 5 ,815 12,106 21,877 1,310
------- ------- ------- -------
Total $26,904 $32,499 $40,984 $49,032
======= ======= ======= =======
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 103.58%), the estimated total cash flow in
Case 4 would decline by $15,400,000 of which $2,882,000 would relate to 1996.
At March 31, 1996, the Company had unrestricted cash of $4,059,000. The
Company intends to use such funds, together with the proceeds from the mortgage
redemption in the second quarter to reduce short-term borrowing, 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.
13
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT 'S DISCUSSION AND ANALYSIS
For the Quarters Ended March 31, 1996 and 1995
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.
14
<PAGE>
ASR INVESTMENTS CORPORATION
QUARTERLY REPORT ON FORM 10-Q
For the Quarter Ended March 31, 1996
PART II
OTHER INFORMATION
Item 1. Legal Proceedings - None
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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,
May 3, 1996 Chief Operating Officer,
Chief Financial and
Accounting Officer
May 3, 1996
15
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<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 4,059
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,059
<PP&E> 76,420
<DEPRECIATION> 5,367
<TOTAL-ASSETS> 95,550
<CURRENT-LIABILITIES> 0
<BONDS> 0
38,247
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 95,550
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<TOTAL-REVENUES> 6,429
<CGS> 0
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