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: March 31, 1997 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
------------------------------------
(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 9, 1997 were 4,437,419
shares.
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Balance Sheets
March 31, 1997 and December 31, 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(Unaudited)
<S> <C> <C>
Assets
Real estate investments
Apartments, net of depreciation $ 74,855 $ 70,506
Investments in joint ventures 2,788 2,811
Construction in progress 18,528 14,694
Land held for development 925 925
Other real estate 1,617 1,022
--------- ---------
Total real estate investments 98,713 89,958
Mortgage assets 3,270 5,039
Cash 10,781 2,403
Other assets 1,269 396
--------- ---------
Total assets $ 114,033 $ 97,796
========= =========
Liabilities
Real estate notes payable $ 52,477 $ 48,855
Construction loan payable 10,224 255
Short-term borrowing 500 2,014
Construction costs payable 1,070 1,581
Other liabilities 4,665 4,989
--------- ---------
Total liabilities 68,936 57,694
--------- ---------
Committments and Contingencies
Stockholders' Equity
Common Stock, par value $.01 per share, 40,000,000 shares
authorized; 3,394,392 and 3,307,892 shares issued 34 33
Additional paid in capital 157,496 155,875
Deficit (109,502) (112,875)
Stock notes receivable (385) (385)
Treasury stock - 160,742 shares (2,546) (2,546)
--------- ---------
Total stockholders' equity 45,097 40,102
--------- ---------
Total liabilities and stockholders' equity $ 114,033 $ 97,796
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statements of Operations
For the Quarters Ended March 31, 1997 and 1996
(In thousands except per share amounts)
(Unaudited)
1997 1996
------- -------
Real Estate Operations
Rental and other income $ 3,702 $ 3,642
------- -------
Operating and maintenance expenses 1,343 1,254
Real estate taxes and insurance 341 360
Interest expense on real estate mortgages 1,123 1,082
Depreciation and amortization 680 680
------- -------
Total operating expenses 3,487 3,376
------- -------
Income from real estate 215 266
------- -------
Mortgage Assets
Prospective yield income 330 770
Income from redemptions and sales 5,338 1,977
Interest expense (17) (75)
------- -------
Income from mortgage assets 5,651 2,672
------- -------
Income Before Administrative Expenses
and Other Income (Expense) 5,866 2,938
Administrative expenses (1,107) (638)
Other income (expense), net 187 40
------- -------
Net Income $ 4,946 $ 2,340
======= =======
Net Income Per Share of Common
Stock and Common Stock Equivalents $ 1.52 $ 0.74
======= =======
Average Shares of Common Stock and
Common Stock Equivalents 3,159 3,154
======= =======
Dividends Declared Per Share $ 0.50 $ 0.50
======= =======
See Notes to Consolidated Financial Statements.
3
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statements of Cash Flows - Unaudited
For the Quarters Ended March 31, 1997 and 1996
(In Thousands)
1997 1996
-------- --------
OPERATING ACTIVITIES
Net income $ 4,946 $ 2,340
Principal noncash charges (credits)
Depreciation and amortization 785 783
Increase in accrual 513
-------- --------
Cash Provided By Operations 6,244 3,123
-------- --------
INVESTING ACTIVITIES
Investment in apartments (4,984) (427)
Investment in joint ventures (49) 50
Construction expenditures (3,834) (1,024)
Purchase of land for development (60)
Other real estate assets (595) 80
Reduction in mortgage assets 1,769 1,095
Increase in other assets (873) (240)
-------- --------
Cash Used In Investing Activities (8,566) (526)
-------- --------
FINANCING ACTIVITIES
Issuance of real estate notes payable 3,700
Payment of loan costs (78)
Proceeds from construction loan 9,969 221
Repayment of real estate notes (78) (137)
Short-term borrowing (1,514) 92
Construction cost payable (511)
Stock issuance 1,622
Payment of dividends (1,573) (1,577)
(Decrease) increase in other liabilities (837) 442
-------- --------
Cash Provided By (Used In) Financing Activities 10,700 (959)
-------- --------
Cash
Increase during the period 8,378 1,638
Balance - beginning of period 2,403 2,421
-------- --------
Balance - end of period $ 10,781 $ 4,059
======== ========
Supplemental Disclosure of Cash Flow Information
Interest Paid $ 1,181 $ 1,160
======== ========
Interest Captalized $ 205 $ 82
======== ========
See Notes to Consolidated Financial Statements.
4
<PAGE>
ASR INVESTMENTS CORPORATION
Consolidated Statement of Stockholders' Equity
For the Three Months Ended March 31, 1997
(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, 1996 3,308 $33 $155,875 ($112,875) ($385) ($2,546) $40,102
Net income 4,946 4,946
Dividends declared (1,573) (1,573)
Stock issuance 86 1 1,621 1,622
-------- -------- -------- --------- -------- -------- --------
Balance, March 31, 1997 3,394 $34 $157,496 ($114,448) ($385) ($2,546) $40,151
======== ======== ======== ========= ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 1997 and 1996
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, 1996 audited consolidated financial statements and notes thereto.
Reclassification - Certain reclassifications have been made to conform
the prior year with the current year presentation.
New Accounting Standard - In February 1997, the Financial Accounting
Standards Board issued FASB No. 128, "Earnings Per Share", which establishes new
standards for computing and presenting earnings per share (EPS). It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. The new statement is effective
for financial statements for both interim and annual periods ending after
December 15, 1997. The Company has not determined the effect of application of
SFAS No. 128 on the financial statements at this time.
2. REAL ESTATE INVESTMENTS
At December 31, 1996, the Company owned directly nineteen apartment
communities (3,093 units) located in Arizona, Texas, and New Mexico. In March
1997, the Company acquired a 266-unit apartment community in northwest Houston,
Texas. The purchase price was approximately $4,450,000 and the Company expects
to invest $700,000 in capital improvements. The Company obtained a new mortgage
loan of $3,700,000 with a fixed rate of 8.39%. The Company issued 86,500 shares
of common
6
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 1997 and 1996
stock for net proceeds of $1,622,000 to provide for the cash used in the
acquisition. As of March 31, 1997 and December 31, 1996, the Company's directly
owned apartment communities consisted of the following (in thousands):
1997 1996
-------- -------
Land $15,514 $15,514
Building and improvements 63,294 58,476
Accumulated depreciation (8,184) (7,504)
Restricted cash and
deferred loan fees 4,231 4,020
------- --------
Apartments, net $74,855 $70,506
======= ========
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 $21,000,000. As of March 31, 1997 and December 31, 1996, the
Company had invested $18,528,000 and $14,694,000 in construction in progress.
The Company has obtained a $15,350,000 construction loan of which $10,224,000
and $255,000 were outstanding at March 31, 1997 and December 31, 1996. The
Company has begun the lease-up phase and anticipates construction to be
substantially completed at the end of the third quarter.
In addition, at March 31, 1997, 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. On May 1, 1997, the
Company acquired the remaining interest in one joint venture and sold its
interests in the other five joint ventures. See Note 3 for additional
information.
3. SUBSEQUENT REAL ESTATE ACQUISITIONS
On April 30, 1997, the Company completed the acquisition of 13
apartment communities containing 2,260 units located in Houston and Dallas,
Texas and Pullman, Washington, and one office building located in Seattle,
Washington (the "Winton Properties"). The acquisitions are pursuant to a Master
Combination and Contribution Agreement dated November 8, 1996. The sellers were
14 separate limited partnerships in which Don W. Winton was the general partner.
The total purchase price of the properties
7
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 1997 and 1996
is approximately $83,223,000. The Company (i) assumed or refinanced first
mortgage loans totalling $49,396,000, (ii) issued 683,626 shares of common
stock, (iii) issued operating partnership units convertible to 942,184 shares of
common stock of the Company after one year, and (iv) paid the sellers $1,250,000
for transaction costs. As a part of the acquisition, the Company issued 70,284
shares of common stock to acquire the entire interests in Winton & Associates,
the property management company for the Winton Properties.
In April 1997, the Company acquired a 257-unit community in Houston,
Texas, for $6,000,000 and obtained a first mortgage loan for $4,400,000 with an
interest rate of 8.57%. On May 9, 1997, the Company acquired a 176-unit
apartment community in Seattle, Washington, for $4,059,000 and obtained a first
mortgage loan of $2,900,000 with an interest rate of 8.67%. The Company expects
to invest $1,000,000 in capital improvements in these two communities. The
Company issued 187,850 shares of common stock for total net proceeds of
$3,394,000 to pay for the two purchases.
On May 1, 1997, the Company acquired the remaining interest in La
Privada Apartments L.L.C. for $8,233,000. The La Privada Apartments is a
350-unit community in Scottsdale, Arizona. The Company also sold to its partner
the Company's entire interests in the other five joint ventures for total net
proceeds of $2,062,000. The Company obtained a $3,000,000 loan to pay for the
acquisition. As a result of these transactions, the Company owns all of its
apartment communities directly. The purchase increased the Company's investment
in apartments by approximately $25,500,000 and real estate notes payable by
$19,000,000. The sale of the interests in the joint ventures will not have a
significant impact on the operating results of the Company.
As of May 9, 1997, the Company owns 36 apartment communities containing
6,346 units with a total book value of approximately $217,000,000, and the total
real estate borrowing is approximately $139,000,000.
4. 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 financings that they secure. The Company also has the right
to cause the early redemption of the structured financings under specified
conditions; in such event, the mortgage
8
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 1997 and 1996
instruments are sold and the net proceeds after the redemption of the structured
financings are remitted to the Company. In some cases, the Company sells a
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 first quarter of 1997, the Company redeemed three mortgage
assets for proceeds of $6,815,000 and realized redemption income of $5,338,000.
During the first quarter of 1996, the Company sold a 40% interest in a mortgage
asset that was later redeemed in the second quarter of 1996. The Company
received proceeds of $2,400,000 and redemption income of $1,977,000 from the
sale. In April 1997, the Company redeemed two additional assets for proceeds of
$710,000 and estimated income of $330,000. At March 31, 1997 and December 31,
1996, the prospective yield on mortgage assets (excluding the mortgage assets
redeemed in April) was 40% and 38%.
5. NOTES PAYABLE
In March 1997, the Company obtained a $3,700,000 new mortgage loan with
a fixed rate of 8.39% and a 10 year term in connection with the purchase of an
apartment community.
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
(8.5%). At March 31, 1997 and December 31, 1996, the amount outstanding on the
loan was $10,224,000 and $255,000, respectively.
At March 31, 1997 and December 31, 1996, the Company's short-term
borrowing was secured by mortgage assets with a total carrying value of
$2,029,000 and $3,084,000, respectively.
6. RELATED PARTY TRANSACTIONS
From the inception of the Company through April 30, 1997, Pima Mortgage
L.P. (the "Manager"), managed the operations of the Company pursuant to a
management
9
<PAGE>
ASR INVESTMENTS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Quarters Ended March 31, 1997 and 1996
agreement. The management fee and administrative fee were $95,000 and $40,000
for the quarter ended March 31, 1997 and $97,000 and $52,000 for the 1996
quarter.
Prior to May 1, 1997, the Company had 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 provided 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 were 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, 1997 and 1996 were $145,000 and $109,000, respectively,
which were equal to approximately 3.9% and 3.0%, respectively, of rental and
other income.
As a part of the acquisitions described in Note 3, the Company also
acquired the entire ownership interests of the Manager and the Property Manager
for 262,008 shares of common stock. As a result, the Company has become a
self-administered and self-managed REIT. The owners of the Manager continue to
be executive officers and members of the Board of Directors of the Company. The
cost of the acquisition of $5,250,000 is assigned to the contracts between the
Company and the Pima entities. As the contracts are effectively terminated, the
cost is charged to contract termination expense in the second quarter of 1997.
10
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the Quarters Ended March 31, 1997 and 1996
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. At March 31, 1997, the Company
owned 20 apartment communities (3,359 units) located in Tucson and Phoenix,
Arizona, Houston, Texas, and Albuquerque, New Mexico. The Company also owned
through joint ventures six apartment communities (1,441 units) in Phoenix and
Tucson, Arizona.
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
financings which they secure. The Company also has the option to cause the early
redemption of the structured financings 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.
Results of Operations
Real Estate Operations - Rental and other income for the 1997 quarter
increased by $60,000 primarily as a result of (i) $40,000 from rental rate
increases (attributable primarily to the Houston Communities), (ii) $81,000 from
higher occupancy rates (attributable primarily to the Houston and Tucson
communities), (iii) $13,000 from prior rental increases becoming effective as
leases are renewed or the apartment is re-leased, (iv) $6,000 from an increase
in income from the joint ventures and (v) $23,000 from an increase in
laundry/vending and other miscellaneous income. The increases were mitigated by
an increase in rental concessions of $103,000 (attributable primarily to the
Albuquerque and Tucson communities). Operating and maintenance expenses
increased $89,000 (7.10%) as a result of an increase in turnover costs and other
expenses related to the increased occupancy in the Houston communities. Real
estate taxes and insurance and depreciation and amortization expenses remained
flat as there were no significant changes in rates and no acquisitions in 1996
or early in the 1997 quarter. Interest expense on real
11
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the Quarters Ended March 31, 1997 and 1996
estate mortgages increased $41,000 as a result of "catch up" costs for loan fees
amortized on a loan that is due at the end of 1997.
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 $3,761,000 for the 1997
quarter compared with $11,672,000 for the 1996 quarter. The average prospective
yield for the quarter was 38% in 1997 compared to 35% in 1996. Income from
redemptions and sales increased by $3,361,000 as a result of the redemption of
three mortgage assets in the quarter 1997 for income of $5,338,000 compared to
the sale of a 40% interest in a mortgage asset in the quarter 1996 for income of
$1,977,000. Interest expense on mortgage assets decreased due to lower
short-term borrowing in 1997 ($500,000 at March 31, 1997 compared with
$4,587,000 at March 31, 1996).
Administrative Expenses and Other Income - Administrative expenses
increased in the 1997 primarily as a result of an increase in expense accruals
for stock appreciation rights of $513,000 as a result of price increases in the
Company's common stock. Other income increased due to interest earned on the
Company's average cash balance which was higher during the 1997 quarter compared
with the 1996 quarter.
Income from Mortgage Redemption and Sales - As discussed above, the
Company has, from time to time, redeemed or sold mortgage assets. Redemption and
sale transactions occur 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. The income recognized in
the past periods is not indicative of future operating results or financial
condition because (i) the Company has a finite number of mortgage assets and is
not purchasing any additional mortgage assets, and (ii) the income is highly
dependent on future levels of mortgage prepayment rates, interest rates and
mortgage prices. As mortgage asset redemptions and sales have the effect of
accelerating future cash flows, they reduce the cash flows and income in future
periods.
Liquidity, Capital Resources and Commitments
Comparison of Quarters Ended March 31, 1997 and 1996 - Cash provided by
12
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the Quarters Ended March 31, 1997 and 1996
operations for the three months ended March 31, 1997 was $6,244,000 compared
with $3,123,000 for the same period in 1996. The increase was primarily a result
of a $3,361,000 increase in income from redemptions and sales of mortgage assets
($5,338,000 for the three months ended March 31, 1997 compared to $1,977,000 for
the same period in 1996) offset by a $440,000 decrease in prospective yield
income on the mortgage assets.
Cash used in investing activities for the three months ended March 31,
1997 was $8,566,000 compared with $526,000 for the same period in 1996. The
increase in cash usage of $8,040,000 primarily reflects (i) an increase of
$4,557,000 in investments in apartments primarily as a result of the Company
purchasing an apartment community in March 1997, while making no purchases in
1996, (ii) an increase of $2,810,000 of construction expenditures for the
Company's Finisterra apartment community, (iii) an increase of $615,000 in other
real estate and land held for development primarily related to the capitalized
costs of the 14 properties acquired in April 1997 (iv) an increase of $633,000
in other assets primarily due to funding a deferred compensation plan and (v) an
increase of $99,000 in the investment in joint ventures. The increase in cash
usage was mitigated by an increase of $674,000 in the reduction in mortgage
assets.
Cash provided by financing activities for the three months ended March
31, 1997 was $10,700,000 compared with cash used in financing activities of
$959,000 for the same period in 1996. The increase of $11,659,000 was primarily
as a result of (i) an increase in the issuance of real estate notes payable of
$3,700,000 related to the apartment acquisition made in March 1997, with no
similar purchases in 1996, (ii) an increase of $9,748,000 in proceeds from the
Finisterra Apartment's construction loan and (iii) an increase of $1,622,000
from stock issuance related to the apartment acquisition in March 1997. The
increase was mitigated by (i) an increase of short-term borrowing repayments of
$1,606,000 (ii) a decrease in the accrued construction cost payable of $551,000
for the Finisterra Apartment community and (iii) a decrease in other liabilities
and other financing activities of $1,254,000 primarily as a result of $487,000
paid to employees for stock appreciation rights exercised and to an increase in
the apartment's property tax accrual at March 31, 1996 from the accrual at
December 31, 1995.
Subsequent Acquisitions - On April 30, 1997, the Company completed the
acquisition of 13 apartment communities containing 2,260 units located in
Houston and Dallas, Texas and Pullman, Washington, and one office building
located in Seattle,
13
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the Quarters Ended March 31, 1997 and 1996
Washington (the "Winton Properties"). The sellers were 14 separate limited
partnerships in which Don W. Winton was the general partner. The total purchase
price of the properties is approximately $83,223,000. The Company (i) assumed or
refinanced first mortgage loans totalling $49,396,000, (ii) issued 683,626
shares of common stock, (iii) issued operating partnership units convertible to
942,184 shares of common stock of the Company after one year, and (iv) paid the
sellers $1,250,000 for transaction costs. As a part of the acquisition, the
Company issued 70,284 shares of common stock to acquire the entire interests in
Winton & Associates, the property management company for the Winton Properties.
In April 1997, the Company acquired an apartment community for
$6,000,000 and obtained a first mortgage loan for $4,400,000 with a fixed rate
of 8.57%. On May 9, 1997, the Company acquired an apartment community for
$4,059,000 and obtained a first mortgage loan of $2,900,000 with a fixed rate of
8.67%. The Company expects to invest $1,000,000 in capital improvements in these
two communities. The Company issued 187,850 shares of common stock for total net
proceeds of $3,394,000 to pay for the two purchases.
On May 1, 1997, the Company acquired the remaining interest in La
Privada Apartments L.L.C. for $8,233,000. The La Privada Apartments is a
350-unit community in Scottsdale, Arizona. The Company also sold to its partner
the Company's entire interests in the other five joint ventures for total net
proceeds of $2,062,000. The Company obtained a $3,000,000 loan that bears
interest at LIBOR plus 3%.
With the above acquisitions, the total monthly principal and interest
payments on the real estate mortgage loans are approximately $985,000, and the
monthly deposits to loan escrow accounts for property taxes, insurance and
capital replacements are approximately $425,000. The Company estimates that it
would spend approximately $1,300,000 during the remainder of 1997 in capital
replacement expenditures.
Concurrent with the acquisition of the Winton Properties, the Company
acquired the entire interests in Pima Mortgage and Pima Realty (collectively the
"Pima Entities") in exchange for 262,008 shares of its common stock. The cost of
the acquisition of $5,250,000 is assigned to the contracts between the Company
and the Pima Entities. As the contracts are effectively terminated, the cost is
charged to contract termination expense in the second quarter of 1997.
14
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the Quarters Ended March 31, 1997 and 1996
The Company anticipates that the above acquisitions will result in (i)
significant increases in the Company's gross income and operating expenses, (ii)
an increase in interest expenses on real estate mortgages, (iii) a decrease in
administrative expenses resulting from the replacement of management fees
previously paid to the Pima Entities by Company with salaries to be paid to the
owners of the managers who will become employees of the Company. The net income
for 1997, however, will be reduced by the $5,250,000 charge to income for the
cost of the acquisition of the Pima entities. As this is a non-cash charge, it
will not have any effect on the cash provided by operations.
Mortgage Assets Cash Flows - The Company continues to realize
substantial cash flows from its mortgage assets, a majority of which is
generated from redemptions or sales. The redemptions or sales accelerate the
mortgage asset cash flows and increase the present value. During the first
quarter of 1997, the mortgage assets generated total cash flow of $7,420,000,
including $6,815,000 from the redemption of three mortgage assets. The Company
used a portion of the proceeds to reduce short-term borrowing by $1,514,000. In
April, the Company redeemed two additional mortgage assets for proceeds of
approximately $710,000.
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 assets in April 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 March 31, 1997. 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, 1997 prices (average
price of 106% of par). (Dollars in thousands.)
Case 1 Case 2 Case 3 Case 4
-------- -------- -------- -------
Assumed one month LIBOR 3.7% 5.7% 7.7% 5.7%
Assumed annual mortgage
prepayments 19.14% 11.85% 7.62% 11.85%
Estimated cash flows
1997 $ 2,295 $ 2,165 $ 1,914 $ 4,767
1998 1,587 1,579 1,298 1,763
15
<PAGE>
ASR INVESTMENTS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
For the Quarters Ended March 31, 1997 and 1996
1999 1,085 1,218 1,061 427
2000 738 917 900 16,744
2001 458 693 762 721
2002-2020 2,886 6,804 12,390 64
-------- ------- ------- --------
Total $ 9,049 $13,339 $18,325 $ 24,486
======== ======= ======= ========
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%), the estimated total cash flow in
Case 4 would decline by $8,811,000 of which $1,283,000 would relate to 1997.
Cash Balances - At March 31, 1997, the Company had cash of $10,781,000.
In April, the Company received funding of $2,046,000 from the Finisterra
apartments construction loan and $710,000 from the redemption of two mortgage
assets. The Company intends to use such funds to pay for the acquisitions made
in April, capital improvements on existing apartment communities, to acquire
additional 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 March 31, 1997
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,
May 14, 1997 Chief Operating Officer,
Chief Financial and
Accounting Officer
May 14, 1997
17
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<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 10,781
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,781
<PP&E> 83,039
<DEPRECIATION> 8,184
<TOTAL-ASSETS> 114,033
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 45,097
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 114,033
<SALES> 0
<TOTAL-REVENUES> 9,557
<CGS> 0
<TOTAL-COSTS> 3,471
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,140
<INCOME-PRETAX> 4,946
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,946
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,946
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.52
</TABLE>
