<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
--------------
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________________ to _______________________
Commission file number 1-12514
-------
American Real Estate Investment Corporation
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Maryland 84-1246585
----------------------------------- ---------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1670 Broadway, Suite 3350, Denver, Colorado 80202
--------------------------------------------------
(Address of principal executive offices)
----------------------------------------
(303) 869-4700
------------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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. Yes X No ___
---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes ______ No ______
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 1,100,839
-----------------
Transitional Small Business Disclosure Format (check one):
Yes ___ No X
---
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
FORM 10-QSB
INDEX
Page
Number
------
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Item 1. Financial Statements
<S> <C> <C>
Consolidated Condensed Balance Sheet
(unaudited) as of
March 31, 1996 3
Consolidated Condensed Statements of
Operations (unaudited)
for the three months ended March 31, 1996 and 4
March 31, 1995
Consolidated Condensed Statements of Cash
Flows (unaudited)
for the three months ended March 31, 1996 and 5
March 31, 1995
Notes to Consolidated Condensed Financial 6
Statements (unaudited)
Item 2. Management's Discussion and Analysis or Plan 8
of Operation
PART II. OTHER INFORMATION 13
SIGNATURES 13
</TABLE>
2
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
March 31,
ASSETS 1996
- ------ -------------------
<S> <C>
Investment in real estate:
Land $ 8,624,135
Buildings and improvements 38,753,585
------------------
47,377,720
Less: Accumulated depreciation (3,343,113)
------------------
44,034,607
Investment in partnership 1,328,842
------------------
Total investment in real estate 45,363,449
Cash & cash equivalents 675,939
Restricted cash 883,017
Accounts receivable 209,978
Other assets, net 454,170
------------------
Total assets $ 47,586,553
===================
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Mortgage notes payable $ 33,278,228
Other notes payable 6,372,328
Accrued interest 185,680
Accrued property taxes 426,802
Accrued expenses and other liabilities 549,225
Security deposits 275,332
------------------
Total liabilities 41,087,595
===================
Commitments and contingencies
Minority interest 2,284,786
Shareholders' equity:
Preferred stock, $.01 par value; 5,000,000 shares authorized;
no preferred shares issued and outstanding 0
Common stock, $.001 par value; 30,000,000 shares authorized;
1,100,839 common shares issued and outstanding 1,101
Additional paid-in capital 5,199,940
Cumulative net income 921,740
Cumulative dividends (1,908,609)
------------------
Total shareholders' equity 4,214,172
------------------
Total liabilities and shareholders' equity $ 47,586,553
===================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this balance sheet.
3
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, 1996 March 31, 1995
------------------ ------------------
<S> <C> <C>
Revenues:
Rents and fees $ 2,503,281 $ 2,360,644
Other income 70,415 74,421
------------------ ------------------
Total revenues 2,573,696 2,435,065
------------------ ------------------
Operating expenses:
Repairs and maintenance 132,078 149,097
Property taxes 103,217 113,043
Property management fees 88,953 83,860
Utilities 288,576 257,883
Payroll 232,761 192,242
Other property operations 238,080 227,994
General and administrative 176,591 145,119
Depreciation and amortization 324,889 320,130
------------------ ------------------
Total operating expenses 1,585,145 1,489,368
------------------ ------------------
Financing expenses:
Non-related party interest expense 982,131 914,226
Related party interest expense 0 133,562
------------------ ------------------
Total financing expenses 982,131 1,047,788
------------------ ------------------
Equity in earnings from investment
in partnership 160,604 123,470
------------------ ------------------
Net income before minority interest 167,024 21,379
Minority interest 0 0
------------------ ------------------
Net income $ 167,024 $ 21,379
================== ==================
Primary earnings per share $ 0.15 $ 0.02
================== ==================
Fully diluted earnings per share $ 0.10 $ 0.01
================== ==================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months Three months
ended ended
March 31, March 31,
1996 1995
------------------ ------------------
<S> <C> <C>
Operating Activities:
Net income $ 167,024 $ 21,379
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation & amortization 339,728 338,393
Common stock compensation 40,500 40,500
Cash used in operating assets (77,770) (52,578)
Cash provided by (used in) operating liabilities 125,554 (165,341)
------------------ ------------------
Net cash provided by operating activities 595,036 182,353
------------------ ------------------
Investing Activities:
Cash provided by (used in) investment in real estate (67,521) 23,132
------------------ ------------------
Net cash provided by (used in) investing activities (67,521) 23,132
------------------ ------------------
Financing activities:
Dividends paid (231,531) (221,719)
Minority interest distributions (167,311) (163,351)
Repayment of notes payable (88,692) (87,114)
------------------ ------------------
Net cash used in financing activities (487,534) (472,184)
------------------ ------------------
Net increase (decrease) in cash and cash equivalents 39,981 (266,699)
Cash and cash equivalents, beginning of period 635,958 1,263,280
------------------ ------------------
Cash and cash equivalents, end of period $675,939 $996,581
================== ==================
Supplemental Disclosure of Cash
Flow Information:
Cash paid for interest $818,827 $714,515
================== ==================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
<PAGE>
AMERICAN REAL ESTATE INVESTMENT CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements include the account balances as
of March 31, 1996 and the activity for the three months ended March 31, 1996 and
March 31, 1995 for the Company on a consolidated basis. Certain prior year
balances may have been reclassified to conform with the current year
presentation.
The unaudited interim financial statements prepared by management
include all normal recurring adjustments which are, in the opinion of
management, necessary for a fair presentation.
Allocations of Income and Distributions of Cash
All income of the Operating Partnership for the three months ended
March 31, 1996 and March 31, 1995 was allocated to the Company, therefore there
were no allocations to the minority interest for such periods. All such
allocations of net income and net loss will be made subject to compliance with
the provisions of Section 704(b) and 704(c) of the Internal Revenue Code and the
Treasury Regulations promulgated thereunder.
The Company has the right to cause the Operating Partnership to
distribute all or any portion of its "net operating cash flow" (as defined) to
the partners as determined from time to time. The Company, in its capacity as
general partner, will make this determination. The Company is required to use
its best efforts to cause the Operating Partnership to distribute sufficient
amounts to enable the Company to pay shareholders dividends that will satisfy
the REIT requirements and avoid any Federal income tax or excise tax liabilities
for the Company.
Revenue Recognition
Revenues, consisting primarily of rentals for apartments, are
recognized on the accrual basis of accounting.
6
<PAGE>
Earnings per Share
Primary earnings per share were calculated based on weighted average
shares outstanding of 1,096,057 and 1,080,684 for the periods ended March 31,
1996 and March 31, 1995, respectively. Fully diluted earnings per share were
calculated based on weighted average shares outstanding upon conversion of the
limited partner interests, or a total of 1,732,242 and 1,792,008 shares for the
three months ended March 31, 1996 and March 31, 1995, respectively.
2. Company Strategy and Operations
The Company continues to explore various corporate strategies and
opportunities, including a possible sale, merger, recapitalization or
restructuring of the Company. At present the Company has not entered into any
specific agreements with respect to any transaction.
The Company received its cash distributions relating to cash flow from
Emerald Pointe apartments for the period from June 1, 1995 to December 31, 1995
which had been deposited into a special reserve account in relation to a dispute
between the Company and the managing general partner. The Company is continuing
its attempt to resolve the matter relating to the lawsuit commenced during 1995
by the Company's co-general partner in the partnership that owns Emerald Pointe
apartments.
3. Subsequent Events
The Company announced on May 10, 1996 that it had declared a cash
dividend of $.2125 per share for operations relating to the quarter ended March
31, 1996 payable on June 4, 1996 to shareholders of record on May 24, 1996.
7
<PAGE>
Management's Discussion and Analysis or Plan of Operation
Overview
The following discussion should be read in conjunction with the
consolidated financial statements of American Real Estate Investment Corporation
(the "Company"), including Notes to Consolidated Condensed Financial Statements.
The Company presently owns either a full or partial interest in multifamily
residential properties which comprise an aggregate of 2,142 units, or almost
triple the 726 wholly owned units at inception in November, 1993.
Results of Operations
The following discussion of results of operations relates to the
consolidated operations of the Company for the three months ended March 31, 1996
and March 31, 1995. Certain items for the three months ended March 31, 1995
were reclassified for comparability to the current reporting classifications for
the same period in 1996.
Three months ended March 31, 1996 compared to three months ended March 31, 1995
The following discussion relates to 1996 and 1995 amounts which
represent the three months ended March 31, 1996 and March 31, 1995,
respectively, on a consolidated basis for the Company.
Rents and fees revenues increased to $2,503,281 for the three months
ended March 31, 1996 from $2,360,644 for the three months ended March 31, 1995,
primarily as a result of an increase in rental rates, especially at Timberleaf
and Quadrangles.
Other income decreased for the three months ended March 31 from
$74,421 in 1995 to $70,415 in 1996. A cable television and telephone agreement
relating to the properties, excluding Emerald, was executed during the three
months ended March 31, 1995, generating additional one time revenues in the form
of other income in 1995, resulting in a decrease in other income in 1996.
Quadrangles experienced slightly higher other income in 1996, partially
offsetting the decrease resulting from the cable television and telephone fees
recognized in 1995.
Repairs and maintenance decreased from $149,097 to $132,078 for the
three months ended March 31, 1995 and March 31, 1996, respectively.
Substantially all of this decrease relates to lower repairs and maintenance
expenses for Timberleaf and Quadrangles in 1996 after certain capital
improvements were completed at the properties following their acquisition.
8
<PAGE>
Property taxes were $103,217 and $113,043 for the three months ended
March 31, 1996 and March 31, 1995, respectively. The decrease resulted from an
adjustment relating to slightly lower property taxes on the Denver properties by
the various taxing authorities.
Property management fees increased from $83,860 for the three months
ended March 31, 1995 to $88,953 for the three months ended March 31, 1996 due to
the higher rents and fees revenues, primarily for Timberleaf and Quadrangles.
Utilities increased from $257,883 to $288,576, respectively, for the
three months ended March 31, 1995 and 1996 as a result of higher utility costs
for all properties. In addition, the months of January and February of 1995
were unseasonably mild in Denver, resulting in lower utility expenses in 1995.
Other property operations for the three months ended March 31,
increased from $227,994 in 1995 to $238,080 in 1996, primarily as a result of an
increase in payroll costs for all properties.
General and administrative expenses increased from $145,119 to
$176,591 for the three months ended March 31, 1995 and March 31, 1996,
respectively, as a result of several factors. The Company's insurance policy
for directors' and officers' liability coverage was in place for the full
quarter during 1996, whereas in 1995 the policy was in effect for only one
month. There was also an increase in salaries and wages in 1996 which
contributed to the higher general and administrative expenses.
Depreciation and amortization expenses for the three months ended
March 31 increased from $320,130 in 1995 to $324,889 in 1996 primarily as a
result of the additional depreciation relating to the capital improvements
completed on the properties during the past twelve calendar months, primarily at
Timberleaf and Quadrangles.
Total financing expenses decreased from $1,047,788 to $982,131 for the
three months ended March 31, 1995 and March 31, 1996, respectively. The
decrease in financing expenses resulted primarily from lower interest rates on
the Company's bank loan facilities. The Company also refinanced the mortgage
note payable collateralized by Americana on April 27, 1995 with a loan from
General Electric Capital Corporation ("GECC"). Proceeds from the GECC loan were
used to repay the previously existing first mortgage loan collateralized by
Americana and the bridge loan which was originally obtained from a related party
to provide a portion of the financing to acquire Quadrangles. This also
explains the increase in non-related party interest expense from $914,226 for
the three months ended March 31, 1995 to $982,131 for the three months ended
March 31, 1996 and the decrease in related party interest expense from $133,562
to zero, respectively, for the same two periods.
For the three months ended March 31 net income increased to $167,024
in 1996 from $21,379 in 1995, which was a consequence of the higher revenues and
lower interest expense in 1996.
9
<PAGE>
Liquidity and Capital Resources
The primary source of cash during the three months ended March 31,
1996 was the Company's cash from operations. Principal cash outflows for the
same three month period were dividends paid to holders of common stock,
distributions to limited partners (i.e. minority interest distributions) and
interest payments.
The Company expects to meet its short term liquidity requirements
generally through its cash flow provided by operations. The Company believes
that its cash from operations will be sufficient to meet operating requirements
and to make dividend payments to stockholders in accordance with REIT
qualification requirements.
The Company had outstanding indebtedness of approximately $39,651,000
as of March 31, 1996, representing three non-recourse mortgage notes payable
aggregating $33,278,000, a bank installment loan with a balance of approximately
$5,873,000 and a bank line of credit with a balance of $500,000.
One mortgage note payable, collateralized by Americana, bears interest
at GECC's composite commercial paper rate plus 3.75%, adjusted on a monthly
basis, and matures on April 30, 2000. The mortgage note payable requires
monthly interest payments, in addition to quarterly principal payments based on
a stipulated percentage of the excess cash flow, as defined, from Americana.
The note contains a 1% prepayment penalty from April 27, 1996 to April 26, 1997
and no prepayment penalty from April 27, 1997 to maturity. The note requires a
balloon payment in the amount of the outstanding principal balance on April 30,
2000, the maturity date. Proceeds from the GECC loan were used to repay the
previously existing first mortgage loan collateralized by Americana and the
bridge loan which was originally obtained from a related party to provide a
portion of the financing to acquire Quadrangles. The GECC loan proceeds were
also used to pay the prepayment penalty of $242,605 relating to this first
mortgage refinancing.
A non-recourse mortgage note payable, collateralized by Timberleaf,
bears interest at 9.0% per annum payable monthly and matures in 2004. Through
March 20, 2003, such note may only be prepaid upon payment of all principal and
accrued interest and a prepayment penalty calculated in accordance with a
formula based on the yield rate of a certain U.S. Treasury security. Thereafter
there is a 1% prepayment penalty through maturity. At maturity on April 1,
2004, a balloon payment of approximately $5,822,000 will be payable.
A non-recourse mortgage note payable, collateralized by Quadrangles,
which is a financing by the Department of Housing and Urban Development, bears
interest at 6.35% per annum payable monthly and matures in 2026. The note
cannot be prepaid prior to June, 2003 and thereafter contains a prepayment
penalty as follows: 2% from June, 2003 to May, 2004; 1% from June, 2004 to May,
2005; 0% thereafter. At maturity on May 1, 2026, the note will be fully
amortized.
10
<PAGE>
The Company refinanced the bank line of credit collateralized by
Sedona and International in the form of two separate loan facilities on August
31, 1995. The two new loans bear interest at the bank's prime rate plus 0.50%,
which is 50 basis points lower than the original line of credit. The first loan
facility is a $500,000 bank line of credit which bears interest at the bank's
prime rate plus 0.50%, adjusted on a daily basis, and matures on August 31,
1996. Monthly interest payments are required during the term of this loan, and,
in addition, the line of credit must be reduced to a zero balance on any date
prior to maturity. The second loan facility is a bank loan in the amount of
$5,904,143 which bears interest at the bank's prime rate plus 0.50%, adjusted on
a daily basis. This loan requires monthly principal and interest payments based
on a 25 year amortization period. The note can be prepaid at any time without
penalty and matures on August 31, 1998.
The Company may continue to seek additional multifamily investment
opportunities. To finance such potential acquisitions the Company may seek to
enter into secured borrowings or to sell additional equity interests in the
Company. There can be no assurance such arrangements can be entered into or
that additional capital will be available. In addition, the Company may offer
in exchange for such properties its shares of Common Stock or additional limited
partnership interests in the Operating Partnership which may be exchangeable for
Common Stock of the Company under the terms of the Operating Partnership
agreement. The Company may also use other sources of capital to finance such
acquisitions, including non-distributed funds from operations or the issuance of
debt securities. There can be no assurance such financing can be obtained. The
Company has no material commitments for additional capital improvements to the
Properties.
See the accompanying Statements of Cash Flows included in the
financial statements for a reconciliation of cash for the periods described
therein.
Funds From Operations
Funds From Operations ("FFO"), which is a commonly used measurement of
the performance of an equity real estate investment trust ("REIT"), as defined
by the National Association of Real Estate Investment Trusts, Inc. ("NAREIT"),
is net income (computed in accordance with generally accepted accounting
principles), excluding gains (or losses) from debt restructuring and sales of
property, plus depreciation and amortization, and after adjustments for
unconsolidated partnerships and joint ventures. Adjustments for unconsolidated
partnerships and joint ventures will be calculated to reflect funds from
operations on the same basis. FFO does not represent cash generated from
operating activities in accordance with generally accepted accounting principles
and is not necessarily indicative of cash available to fund cash needs. The
Company's FFO was $535,751 for the three months ended March 31, 1996 as compared
to $489,416 for the three months ended March 31, 1995. FFO for the three months
ended March 31, 1996 was calculated by deducting the Company's equity in
earnings from investment in partnership (i.e. the Company's unconsolidated
investment in Emerald Vista Associates, L.P.) of $160,604 from net income before
minority interest of $167,024, and then adding depreciation and amortization of
$324,889, and adding the Company's FFO allocation from Emerald Vista
11
<PAGE>
Associates, L.P. of $204,442. FFO for the three months ended March 31, 1995 was
calculated by deducting the Company's equity in earnings from investment in
partnership (i.e. the Company's unconsolidated investment in Emerald Vista
Associates, L.P.) of $123,470 from net income before minority interest of
$21,379, and then adding depreciation and amortization of $320,130, adding
amortization of loan costs aggregating $75,453, and adding the Company's FFO
allocation from Emerald Vista Associates, L.P. of $195,924. NAREIT recently
clarified the application of its FFO definition and as a result of this new
application the loan cost amortization of $75,453 would not be added back to FFO
for the three months ended March 31, 1995. The Company has implemented the new
application of its FFO definition, effective with the three months ended March
31, 1996 as is evidenced by the FFO calculation described above for the 1996
period wherein amortization of loan costs aggregating $16,984 has not been
included in FFO for such period.
Inflation
Substantially all of the leases at the Properties are for a term of
one year or less which may enable the Company to seek increased rents upon
renewal or reletting of apartment units. Such short-term leases generally
minimize the risk to the Company of the adverse effects of inflation.
12
<PAGE>
PART II. Other Information
Item 6: Exhibits and Reports on Form 8-K
(a) Exhibits filed with this Form 10-QSB - None
(b) No report on Form 8-K was filed by the registrant during
the fiscal quarter ended March 31, 1996
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.
AMERICAN REAL ESTATE INVESTMENT CORPORATION
By: /s/ Evan Zucker
----------------------------------------
Evan Zucker
President
By: /s/ Rick A. Burger
________________________________________
Rick A. Burger
Treasurer
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AS OF MARCH 31, 1996 AND CONSOLIDATED STATEMENT OF OPERATIONS FOR
THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 676
<SECURITIES> 0
<RECEIVABLES> 210
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,223
<PP&E> 47,378
<DEPRECIATION> 3,343
<TOTAL-ASSETS> 47,587
<CURRENT-LIABILITIES> 1,437
<BONDS> 39,651
0
0
<COMMON> 1
<OTHER-SE> 4,213
<TOTAL-LIABILITY-AND-EQUITY> 47,587
<SALES> 0 <F1>
<TOTAL-REVENUES> 2,574
<CGS> 0
<TOTAL-COSTS> 1,408
<OTHER-EXPENSES> 177 <F2>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 982
<INCOME-PRETAX> 167
<INCOME-TAX> 0
<INCOME-CONTINUING> 167
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.10
<FN>
<F1> THE COMPANY'S REVENUES RELATE PRIMARILY TO INCOME FROM RENTAL PROPERTY.
<F2> OTHER EXPENSES REFLECTS THE COMPANY'S GENERAL AND ADMINISTRATIVE EXPENSES.
</FN>
</TABLE>
