================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-22262
COMMERCIAL ASSETS, INC.
(Exact name of registrant as specified in its charter)
Maryland 84-1240911
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3600 South Yosemite Street, Suite 900 80237
Denver, Colorado (Zip Code)
(Address of Principal Executive Offices)
(303) 773-1221
(Registrant's telephone number, including area code)
Not Applicable
(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. Yes X No ___.
As of October 31, 1996, 10,315,809 shares of Commercial Assets, Inc.
Common Stock were outstanding.
================================================================================
<PAGE>
COMMERCIAL ASSETS, INC.
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
TABLE OF CONTENTS
PAGE
PART I. FINANCIAL INFORMATION:
Item 1. Condensed Financial Statements:
Balance Sheets as of September 30, 1996
(Unaudited) and December 31, 1995..................... 1
Statements of Income for the three and nine months
ended September 30, 1996 and 1995 (Unaudited)......... 2
Statements of Cash Flows for the nine months ended
September 30, 1996 and 1995 (Unaudited)............... 3
Notes to Financial Statements (Unaudited)............... 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........ 7
Definitions.............................................15
PART II. OTHER INFORMATION:
Item 6. Exhibits and Reports on Form 8-K........................17
(i)
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL ASSETS, INC.
CONDENSED BALANCE SHEETS
(Dollar amounts in thousands)
September 30, December 31,
1996 1995
---- ----
Assets (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 10,407 $ 598
Accrued interest receivable 597 675
Restricted cash 1,872 768
CMBS bonds 61,468 69,503
Other assets, net 43 46
---------- ----------
Total Assets $ 74,387 $ 71,590
========== ==========
Liabilities
Accounts payable and accrued liabilities $ 54 $ 133
Management fees payable 2 292
Dividends payable 2,166 --
Short-term notes payable -- 700
---------- ----------
Total Liabilities 2,222 1,125
---------- ----------
Stockholders' Equity
Preferred Stock, par value $.01 per share, 25,000,000 shares authorized; no
shares issued or outstanding -- --
Common Stock, par value $.01 per share, 75,000,000 shares authorized;
10,315,809 and 10,142,034 shares issued and outstanding, respectively 103 102
Additional paid-in capital 76,559 75,523
Cumulative dividends declared (18,541) (12,897)
Cumulative net income 17,346 11,982
---------- ----------
Dividends in excess of net income (1,195) (915)
---------- ----------
Net unrealized holding losses on CMBS bonds (3,302) (4,245)
---------- ----------
Total Stockholders' Equity 72,165 70,465
---------- ----------
Total Liabilities and Stockholders' Equity $ 74,387 $ 71,590
========== ==========
</TABLE>
See Notes to Condensed Financial Statements.
- 1 -
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL ASSETS, INC.
CONDENSED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
Revenues
<S> <C> <C> <C> <C>
CMBS bonds $ 2,038 $ 2,243 $ 7,811 $ 6,662
Interest 129 12 200 182
-------- -------- -------- -------
Total Revenues 2,167 2,255 8,011 6,844
-------- -------- -------- -------
Expenses
Management fees 297 343 1,127 859
General and administrative 105 212 549 878
Elimination of DERs -- -- 966 --
Interest -- 14 5 239
-------- -------- -------- -------
Total Expenses 402 569 2,647 1,976
-------- -------- -------- --------
Net Income $ 1,765 $ 1,686 $ 5,364 $ 4,868
======== ======== ======== ========
Net income per share $ .17 $ .17 $ .52 $ .48
Weighted-average shares outstanding 10,316 10,114 10,224 10,095
Dividends per share:
Regular dividends $ .17 $ .17 $ .51 $ .51
Special dividends .04 -- .04 --
-------- -------- -------- --------
$ .21 $ .17 $ .55 $ .51
======== ======== ======== ========
</TABLE>
See Notes to Condensed Financial Statements.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL ASSETS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
September 30,
1996 1995
---- ----
Cash Flows From Operating Activities
<S> <C> <C>
Net income $ 5,364 $ 4,868
Adjustments to reconcile net income to net cash flows from operating
activities:
Amortization of discount on CMBS bonds and other assets (1,970) (398)
Issuance of Common Stock for elimination of DERs 941 --
Decrease in accrued interest receivable 78 4
Increase in other assets (9) (132)
(Decrease) increase in accounts payable and accrued liabilities (274) 213
------- ---------
Net Cash Provided By Operating Activities 4,130 4,555
------- ---------
Cash Flows From Investing Activities
Principal collections from CMBS bonds 9,857 413
------- ---------
Cash Flows From Financing Activities
Dividends paid (3,478) (7,158)
Repayments of short-term notes payable (700) (9,895)
-------- ---------
Net Cash Used In Financing Activities (4,178) (17,053)
-------- ---------
Cash and Cash Equivalents
Increase (decrease) 9,809 (12,085)
Beginning of period 598 12,367
------- ---------
End of period $ 10,407 $ 282
======== =========
</TABLE>
See Notes to Condensed Financial Statements.
- 3 -
<PAGE>
COMMERCIAL ASSETS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
Capitalized terms not otherwise defined in the narrative below
shall have the meaning indicated in the "Definitions" which may be found at the
end of this report.
A. Organization
Commercial Assets, Inc. was incorporated under Maryland law on
August 11, 1993 by Asset Investors. The Company commenced operations on October
12, 1993. Asset Investors contributed $75,000,000 to the capital of the Company
and distributed approximately 70% of the shares of Common Stock of Commercial
Assets, Inc. to Asset Investors' shareowners. The Company's Common Stock is
listed on the American Stock Exchange under the symbol "CAX."
B. Presentation of Financial Statements
The Condensed Financial Statements of the Company have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. These Condensed Financial Statements
reflect all adjustments, consisting of only normal recurring accruals, which, in
the opinion of management, are necessary to present fairly the financial
position and results of operations of the Company as of September 30, 1996 and
for the three and nine months then ended and for all prior periods presented.
These statements are condensed and do not include all the information required
by GAAP in a full set of financial statements. These statements should be read
in conjunction with the Company's Financial Statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
C. Statements of Cash Flows
For purposes of reporting cash flows, cash maintained in bank
accounts, money market funds and overnight cash investments are considered to be
cash and cash equivalents. The Company paid interest expense in cash of $5,000
and $280,000 for the nine months ended September 30, 1996 and 1995,
respectively.
For the nine months ended September 30, 1996 and 1995, the Company
had non-cash investing activities of: (i) $1,104,000 and $294,000, respectively,
from principal collections on CMBS bonds transferred to restricted cash; and
(ii) $943,000 and $0, respectively, from the change in unrealized losses on the
CMBS bonds. During the nine months ended September 30, 1996 and 1995, the
Company had non-cash financing activities of: (i) $96,000 and $432,000,
respectively, from distributions of Common Stock pursuant to DERs; (ii) $941,000
and $0, respectively, from the issuance of Common Stock for the elimination of
the DERs; and (iii) $2,166,000 and $0, respectively, from the declaration of
dividends not paid until subsequent periods.
D. CMBS Bonds
As of September 30, 1996 and December 31, 1995, the outstanding
balance of the Company's CMBS bonds was $89,407,000 and $100,368,000,
respectively, while unamortized purchase discounts, acquisition costs and
allowance for credit losses totaled $24,637,000 and $26,620,000, respectively.
Additionally, unrealized holding losses on the CMBS bonds as of September 30,
1996 and December 31, 1995 were $3,302,000 and $4,245,000, respectively.
- 4 -
<PAGE>
In May 1996, two CMBS bonds (Aspen MHC, Series 1994-1 Classes C and
D-1) with an outstanding principal balance of $9,664,000 and net carrying value
of $8,723,000 were redeemed eight years earlier than anticipated. The bonds were
acquired on March 8, 1994, for $9,088,000, or 84.3% of their outstanding
principal balance. Since the bonds were redeemed at par, $1,426,000 of discount
amortization was included in earnings during the nine months ended September 30,
1996.
At September 30, 1996, the outstanding principal balance of the
mortgage loans collateralizing the CMBS bonds was $976,804,000 and the
outstanding principal balance of the CMBS bonds that are senior to the Company's
CMBS bonds was $882,106,000. The Company's aggregate allowance for credit losses
on its CMBS bonds was $12,720,000 at both September 30, 1996 and December 31,
1995. At September 30, 1996, a mortgage loan with an outstanding balance of
$788,000, which collateralizes the Company's CMBS bonds, was in foreclosure.
There have been no credit losses charged to operations or write-downs charged
against the allowance for credit losses.
Pursuant to the provisions of certain of the Company's CMBS bonds,
principal payments attributable to the Company's interests are required to be
set aside in reserve accounts for credit support of the more senior classes of
CMBS bonds. At September 30, 1996 and December 31, 1995, $1,872,000 and
$768,000, respectively, were set aside in reserve accounts and are shown as
restricted cash on the balance sheet.
E. Short-Term Notes Payable
The Company has a loan and security agreement which is currently
collateralized by four CMBS bonds (FNMA 94-M2C, FNMA 94-M2D, Kidder 94-M1C and
Kidder 94-M1D), pursuant to which the Company can borrow amounts based upon the
value of the collateral pledged. Advances bear interest based upon a spread over
the LIBOR with a term that most closely approximates the term of the advance.
The loan and security agreement contains certain covenants with which the
Company was in compliance at December 31, 1995 and September 30, 1996. At
December 31, 1995 and September 30, 1996, no borrowings were outstanding.
On July 19, 1996, the Company renewed a one-year, unsecured line of
credit with a bank for $1,000,000. Advances under this line bear interest at
prime. Two of the Company's Independent Directors are members of the Board of
Directors of the bank. At September 30, 1996, no borrowings were outstanding on
this line of credit. At December 31, 1995, $700,000 was outstanding on this line
of credit, which was repaid in January 1996.
F. Management Fees
Prior to April 1, 1996, the Company was managed by an indirect,
wholly owned subsidiary of MDC. Effective April 1, 1996, Financial Asset
Management LLC assumed the obligations of the Manager under the Management
Agreement. From April 1, 1996, through September 30, 1996, Financial Asset
Management LLC was 80% owned by two wholly owned subsidiaries of MDC and 20%
owned by Spencer I. Browne who was the President and a Director of the Company.
On September 30, 1996, MDC acquired Mr. Browne's 20% interest in Financial Asset
Management LLC and then sold 100% of the Manager to an investor group led by
Terry Considine and Thomas L. Rhodes. In connection with the sale, Larry A.
Mizel resigned as Chairman of the Board of Directors and Spencer I. Browne
resigned as President, Chief Executive Officer and a Director of the Company.
Terry Considine was elected as Chairman of the Board of Directors and Co-Chief
Executive Officer, Thomas L. Rhodes as Vice Chairman of the Board and Co-Chief
Executive Officer and Leslie B. Fox as President of the Company. No change has
been made to the Management Agreement, and Financial Asset Management LLC will
continue its obligations under the Management Agreement.
During the nine months ended September 30, 1996 and 1995, the
Company's total management fees pursuant to the Management Agreement were
$1,127,000 and $859,000, respectively. Management fees during the nine months
- 5 -
<PAGE>
ended September 30, 1996 and 1995 included: (i) Base Fees of $494,000 and
$563,000, respectively; (ii) Administrative Fees of $45,000 and $49,000,
respectively; and (iii) Incentive Fees of $588,000 and $247,000, respectively.
No Acquisition Fees were incurred during the nine months ended September 30,
1996 or 1995.
G. Stock Option Plan
On May 30, 1996, the Company's shareowners approved an amendment to
the Stock Option Plan which provided for the issuance of Common Stock in
exchange for the elimination of the accrual of DERs for options granted under
the Stock Option Plan. Pursuant to the amendment, the Company incurred a
$966,000 charge (a $941,000 non-cash charge from the issuance of 157,413 shares
of Common Stock plus $25,000 of transaction costs) during the three months ended
June 30, 1996. Additionally, during the three months ended March 31, 1996 and
the nine months ended September 30, 1995, the grant of Common Stock pursuant to
DERs resulted in non-cash charges to general and administrative expense of
$96,000 and $278,000, respectively, covering 16,362 and 46,230 shares,
respectively, of Common Stock which were subject to issuance pursuant to options
granted under the Stock Option Plan.
- 6 -
<PAGE>
Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Commercial Assets, Inc. was incorporated under Maryland law on
August 11, 1993 by Asset Investors. The Company commenced operations on October
12, 1993, the date on which Asset Investors contributed $75,000,000 to the
capital of the Company and distributed approximately 70% of the shares of Common
Stock of Commercial Assets, Inc. to Asset Investors' shareowners. The Company's
Common Stock is listed on the American Stock Exchange under the symbol "CAX."
The Company's day-to-day operations are performed by the Manager,
pursuant to the Management Agreement, which is subject to the annual approval of
a majority of the Independent Directors. Prior to April 1, 1996, the Company was
managed by an indirect, wholly owned subsidiary of MDC. Effective April 1, 1996,
Financial Asset Management LLC assumed the obligations of the Manager under the
Management Agreement. From April 1, 1996, through September 30, 1996, Financial
Asset Management LLC was 80% owned by two wholly owned subsidiaries of MDC and
20% owned by Spencer I. Browne who was the President and a Director of the
Company. On September 30, 1996, MDC acquired Mr. Browne's 20% interest in
Financial Asset Management LLC and then sold 100% of the Manager to an investor
group led by Terry Considine and Thomas L. Rhodes. In connection with the sale,
Larry A. Mizel resigned as Chairman of the Board of Directors and Spencer I.
Browne resigned as President, Chief Executive Officer and a Director of the
Company. Terry Considine was elected as Chairman of the Board of Directors and
Co-Chief Executive Officer, Thomas L. Rhodes as Vice Chairman of the Board and
Co-Chief Executive Officer and Leslie B. Fox as President of the Company. No
change has been made to the Management Agreement, and Financial Asset Management
LLC will continue its obligations under the Management Agreement.
The Manager is subject to the supervision of the Board of Directors
of the Company. As part of its duties, the Manager presents the Company with
asset acquisition opportunities and furnishes the Board of Directors with
information concerning the acquisition, performance and disposition of assets.
The Company has no employees. Certain employees of the Manager have been
designated officers of the Company.
With the proceeds of its initial capitalization, the Company
acquired, and the Manager administers on the Company's behalf, subordinate debt
interests in CMBS bonds issued in securitizations of mortgage loans on
multi-family properties. The Company owns nine CMBS bonds from five commercial
mortgage loan securitizations acquired at a cost of $65,345,000. The CMBS bonds
had an outstanding principal balance of $89,407,000 at September 30, 1996 and an
estimated weighted-average yield-to-maturity before credit losses of 13.6%.
Approximately 75% of the Company's CMBS bonds are unrated, and the remaining 25%
are rated "BB" or "B" by national credit rating agencies. Geographic diversity
of the collateral which secures a CMBS bond is an important component of the
Company's acquisition criteria. The mortgages which comprise the collateral for
the Company's CMBS bonds are secured by apartment communities in 36 states,
including 26%, 12% and 8% in Texas, Arizona and Florida, respectively.
The multi-family mortgage loans that collateralize the Company's
CMBS bonds were primarily originated during 1993 and 1994. Capital for mortgage
financing during 1993 and 1994 was generally less available than in 1995 and
1996 because of, among other things, the reduced funding of such loans by
traditional real estate lenders (e.g. banks, thrifts, pension funds, etc.) in
response to significant losses which resulted from falling real estate values in
the late 1980s and early 1990s. Accordingly, the Company believes the mortgage
loan underwriting procedures applied to mortgage loans originated in 1993 and
1994 were more stringent than underwriting procedures applied to multi-family
mortgage loans originated in 1995 and 1996. The Company may benefit from the
more stringent underwriting procedures on the mortgage loans that collateralize
its CMBS bonds through reduced credit losses in the future. See "FORWARD LOOKING
INFORMATION" below.
Presented below is a schedule of the CMBS bonds owned by the
Company as of September 30, 1996 and December 31, 1995 (dollar amounts in
thousands).
- 7 -
<PAGE>
<TABLE>
<CAPTION>
Weighted- Senior Outstanding
Average Date CMBS Bonds(4) Balance at
Description Coupon Maturity Life(5) Acquired Rating 9/30/96 9/30/96 12/31/95
----------- ------ -------- ------- -------- ------ ------- ------- --------
Kidder, Peabody Acceptance Corporation I, Series
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993-M2, Class E(1) 8.88% 8/2021 3.9 yrs 11/16/93 BB $ 93,035 $10,000 $ 10,000
Lehman Capital Corporation Trust Certificate,
Series 1994-2(2) 6.50 10/2003 7.1 2/24/94 Unrated 126,293 2,143 2,143
Lehman Capital Corporation Trust Certificate,
Series 1994-3 6.50 10/2003 7.1 2/24/94 Unrated 4,162 4,162
Aspen MHC, Series 1994-1, Class C(3) -- 6,261
Aspen MHC, Series 1994-1, Class D-1(3) -- 3,596
Fannie Mae Multi-Family REMIC Trust 1994-M2,
Class C(6) 7.99 1/2001 4.1 3/30/94 Unrated 340,806 10,728 11,587
Fannie Mae Multi-Family REMIC Trust 1994-M2,
Class D(6) 8.18 1/2004 6.9 3/30/94 Unrated 38,470 38,715
DLJ Mortgage Acceptance Corporation, Series
1994-MF4, Class B-3 8.50 4/2001 4.5 6/15/94 B 91,866 3,136 3,136
DLJ Mortgage Acceptance Corporation, Series
1994-MF4, Class C 8.50 4/2001 4.5 6/15/94 Unrated 4,183 4,183
Kidder, Peabody Acceptance Corporation I, Series
1994-M1, Class C 8.25 11/2002 4.8 11/29/94 B 230,106 8,930 8,930
Kidder, Peabody Acceptance Corporation I, Series
1994-M1, Class D 8.25 11/2002 5.1 11/29/94 Unrated 7,655 7,655
---- --- --------- ------- -------
Total outstanding balance 8.15% 5.7 yrs $ 882,106 89,407 100,368
==== === =========
Unamortized discount (12,283) (14,393)
Allowance for credit losses (12,720) (12,720)
Unamortized acquisition costs 366 493
-------- -------
Amortized cost 64,770 73,748
Net unrealized holding losses (3,302) (4,245)
-------- -------
Total net book value $ 61,468 $69,503
======== =======
<FN>
- ---------------------------------------------------------------
1 The Company has a 75.2% ownership interest in this CMBS bond.
2 The Company has a 51.7% ownership interest in this CMBS bond.
3 These bonds were redeemed in May 1996.
4 The amount of CMBS bonds senior to the Company's subordinate
CMBS bond classes. The amount is aggregated for classes of a single
issuance.
5 Remaining weighted-average life at September 30, 1996.
6 Payment of principal and interest is not guaranteed by FNMA.
</FN>
</TABLE>
- 8 -
<PAGE>
RESULTS OF OPERATIONS FOR THE THREE
AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
REIT Income
The Company's REIT income for the three and nine months ended
September 30, 1996 was $1,986,000 ($.19 per share) and $6,591,000 ($.64 per
share), respectively, compared with $1,887,000 ($.19 per share) and $5,377,000
($.54 per share), respectively, for the same periods in 1995.
REIT income from CMBS bonds for the three and nine months ended
September 30, 1996 was $2,259,000 ($.22 per share) and $9,106,000 ($.89 per
share), respectively, compared with $2,421,000 ($.24 per share) and $7,225,000
($.72 per share), respectively, for the same periods in 1995. The increase in
REIT income from CMBS bonds during the nine months ended September 30, 1996,
compared to the same period in 1995, resulted from an increase in the
amortization into income of the pricing discount due to: (i) the May 1996
redemption of two CMBS bonds acquired for $9,088,000 on March 8, 1994; and (ii)
prepayments on one other CMBS bond during the first half of 1996. The proceeds
from the redemption have been invested in short-term cash instruments until a
long-term strategy is determined. The redemption of two CMBS bonds in May 1996
caused the decline in REIT income from CMBS bonds during the three months ended
September 30, 1996, compared to the same period in 1995.
In May 1996, two CMBS bonds (Aspen MHC, Series 1994-1 Class C and
D-1), with an outstanding principal balance of $9,664,000, were redeemed eight
years earlier than anticipated. As a result, the yield on the bonds increased to
18.1% from an expected yield of 11.8%. The early redemption of these two bonds
resulted in $1,455,000 of REIT income from acceleration of discount amortization
on the CMBS bonds.
Additionally, during the first half of 1996, the Company received
principal prepayments on one of its CMBS bonds. For this particular bond, the
Company previously had elected, under the Code, to limit the amount of
amortization of the market discount to the lesser of principal received or
computed amortization. During the nine months ended September 30, 1996, there
were $755,000 of principal prepayments from a mortgage collateralizing this
bond. As a result of the election, amortization during the first nine months of
1996 was $627,000 higher than the same period in 1995 due to prepayments.
The CMBS bonds have coupon interest rates ranging from 6.5% to 8.9%
and a weighted-average yield-to-maturity before credit losses for REIT purposes
of 13.6%. The yield from CMBS bonds exceeds the coupon interest rate because the
subordinate CMBS bonds were acquired by the Company with original issue discount
or market discount (i.e., the acquisition prices of the CMBS bonds were less
than their par values).
Through September 30, 1996, one mortgage loan with a balance of
$788,000 collateralizing the Company's CMBS bonds was in foreclosure. Otherwise,
there have been no delinquencies. To date, no credit losses have been realized.
The Company expects that the loss from the mortgage loan in foreclosure may
range from $0 to $200,000. See "FORWARD LOOKING INFORMATION" below.
Interest income during the three and nine months ended September
30, 1996 was $129,000 ($.01 per share) and $200,000 ($.02 per share),
respectively, compared with $12,000 ($.00 per share) and $182,000 ($.02 per
share), respectively, for the same periods in 1995. The three and nine months
ended September 30, 1996, reflect earnings on the proceeds from the redemption
which have been invested in short-term cash instruments while the three and nine
months ended September 30, 1995, reflect earnings on the $12,367,000 of cash on
hand at December 31, 1994, the majority of which was used to pay down notes
payable during the first half of 1995.
- 9 -
<PAGE>
General and administrative expenses of the Company during the three
and nine months ended September 30, 1996, were $105,000 ($.01 per share) and
$617,000 ($.06 per share), respectively, compared with $189,000 ($.02 per share)
and $932,000 ($.09 per share), respectively, for the same periods in 1995.
General and administrative expenses decreased during the three and nine months
ended September 30, 1996 compared with the same periods of 1995 primarily due to
discontinuing the DERs in May 1996, lower costs for shareholder relations and
reduced accounting expenses.
On May 30, 1996, the Company's shareowners approved an amendment to
the Stock Option Plan at its annual meeting permitting the Company to issue
shares of Common Stock in the second quarter of 1996 to the holders of stock
options who voluntarily gave up their DERs. The amendment also eliminated
provisions in the Stock Option Plan that would have permitted the issuance of
DERs in connection with stock options granted in the future. The effect of the
amendment will be to reduce general and administrative expenses from the accrual
of DERs from options granted under the Stock Option Plan by approximately
$300,000 for 1996 and approximately $400,000 per year in subsequent years. The
issuance of Common Stock in exchange for the right to receive DERs resulted in a
one-time charge to income of $966,000 ($941,000 non-cash charge for the issuance
of 157,413 shares of Common Stock plus $25,000 of transaction costs) during the
second quarter of 1996.
The Manager receives fees pursuant to the Management Agreement. The
Base Fee is payable quarterly in an amount equal to 1% per annum of the "average
invested assets" of the Company. The Manager also is entitled to an Incentive
Fee only after the Company's shareowners first have received a return on the
Company's "average net worth" equal to the "Ten-Year United States Treasury
Rate" plus 1%. Twenty percent of the Company's "net income" in excess of this
amount is paid to the Manager as the Incentive Fee. The Manager receives an
Acquisition Fee of 1/2 of 1% of the initial cost of each asset which the Manager
assists the Company in acquiring. The Acquisition Fee compensates the Manager
for performing due diligence procedures on CMBS bonds reviewed for acquisition
by the Company. The Manager also performs certain bond administration and other
related services for the Company pursuant to the Management Agreement and
receives an Administrative Fee for such services.
The Company's management fees were $297,000 ($.03 per share) and
$1,127,000 ($.11 per share), respectively, for the three and nine months ended
September 30, 1996, compared with $343,000 ($.03 per share) and $859,000 ($.08
per share), respectively, for the same periods in 1995. The increase in
management fees during the first nine months of 1996 compared with 1995 was due
to an increase of $341,000 of Incentive Fees, offset by decreases of $69,000 in
Base Fees and $4,000 in Administrative Fees. The increase in Incentive Fees was
due to a $1,214,000 increase in REIT income and a 33 basis point decrease in the
average Ten-Year U.S. Treasury Rate between the first nine months of 1995 and
the first nine months of 1996. The $966,000 charge for the elimination of DERs
described above reduced the second quarter 1996 Incentive Fee by $193,000 ($.02
per share). The decrease in Base Fees was due primarily to a reduction of
invested assets because of $4,245,000 of unrealized holding losses on the CMBS
bonds recorded at December 31, 1995 and the early redemption of two CMBS bonds
(Aspen MHC, Series 1994-1, Class C and D-1) in the second quarter of 1996. The
decrease in Administrative Fees was due to the May 1, 1996, redemption of two
CMBS bonds (Aspen MHC, Series 1994-1 Class C-1 and D-1).
During the three and nine months ended September 30, 1996, interest
expense on the Company's short-term notes payable was $0 and $5,000,
respectively, compared with $14,000 and $239,000, respectively, for the same
periods in 1995. The decrease primarily was the result of paydowns of the notes
payable during the first half of 1995.
- 10 -
<PAGE>
Dividend Distributions
In September 1996, the Company declared a regular third quarter
dividend of $.17 per share and a special dividend of $.04 which were paid on
October 10, 1996 to shareowners of record on September 30, 1996. This was the
eighth consecutive regular quarterly dividend of $.17 per share.
Book Income
For the three and nine months ended September 30, 1996, the Company
earned book income computed in accordance with GAAP of $1,765,000 ($.17 per
share) and $5,364,000 ($.52 per share), respectively, compared with $1,686,000
($.17 per share) and $4,868,000 ($.48 per share), respectively, for the same
periods in 1995. The $496,000 ($.05 per share) increase in book income for the
nine months was due primarily to the same factors which resulted in the changes
in REIT income previously discussed.
Reconciliation of REIT Income and Book Income
The Company computes its income in accordance with the Code (REIT
income) and in accordance with GAAP (book income). As a REIT, the Company's REIT
income is extremely important as it is the basis upon which the Code requires
the Company to make distributions to its shareowners. However, because the
Company's Common Stock is registered with the Securities and Exchange
Commission, the Company also is required to report its financial position and
income in accordance with GAAP.
During the three and nine months ended September 30, 1996, REIT
income exceeded book income by $221,000 ($.02 per share) and $1,227,000 ($.12
per share), respectively. Substantially all of this difference is due to: (i)
the method of recording credit losses, which for REIT income purposes are not
deducted until they occur (to date, no credit losses have been realized) and
which for book income purposes are estimated and reflected as a reduction of
revenues in the form of lower discount amortization included in interest income
from CMBS bonds; (ii) the method of amortizing purchase price discounts, which
for REIT income purposes is subject to certain limitations not applicable for
book income purposes; and (iii) the timing of the deduction of DER expense,
which for book income purposes is on the record date of the dividend and for
REIT income purposes may be subject to tax elections made by the recipient.
LIQUIDITY AND CAPITAL RESOURCES
The Company has used its cash flows from operating activities and
other capital resources: (i) to provide working capital to support the Company's
operations; (ii) for making distributions to its shareowners; and (iii) for the
repayment of short-term borrowings. For the nine months ended September 30, 1996
and 1995, cash flows provided by operating activities were $4,130,000 and
$4,555,000, respectively. As of September 30, 1996, the Company had $10,407,000
in cash and cash equivalents.
The Company has a loan and security agreement which is currently
collateralized by four CMBS bonds (FNMA 94-M2C, FNMA 94-M2D, Kidder 94-M1C and
Kidder 94-M1D), pursuant to which the Company can borrow amounts based upon the
value of the collateral pledged. No borrowings were outstanding on this line at
September 30, 1996. Advances bear interest based upon a spread over the LIBOR
with a term that most closely approximates the term of the advance. The loan and
security agreement contains certain covenants with which the Company was in
compliance at September 30, 1996.
On July 19, 1995, the Company entered into a one-year, unsecured
line of credit with a bank for $1,000,000. The line of credit was renewed for an
additional year on July 19, 1996. Advances bear interest at prime. Two of the
Company's Independent Directors are members of the Board of Directors of the
bank. At September 30, 1996, no borrowings were outstanding on this line of
credit.
Two of the Company's CMBS bonds (Aspen MHC, Series 1994-1, Classes
C and D-1) with an outstanding balance of $9,664,000 were redeemed in May 1996.
- 11 -
<PAGE>
The redemption of the CMBS bonds occurred eight years earlier than anticipated.
The proceeds from the bond redemption have been invested in short-term cash
instruments until a long-term strategy is determined.
The indentures of the commercial securitizations in which the
Company has acquired CMBS bonds generally provide for substantial penalties if
the mortgage loans underlying the commercial securitization are prepaid, and the
prepayments generally are allocated to the senior bond classes before the
subordinate bond classes the Company generally owns. Significant principal
distributions to subordinate CMBS bonds generally are not anticipated until the
scheduled principal distributions are made.
The Company's ability to acquire additional assets will depend on,
among other things, unanticipated principal prepayments such as the $9,664,000
of CMBS bonds redeemed in May 1996, or obtaining new debt or equity capital.
There is no assurance the Company will be able to identify new CMBS bond
acquisition opportunities that meet the Company's acquisition criteria or that
the Company will be able to raise additional funds, whether from principal
prepayments, borrowings, issuances of debt securities, Common Stock or Preferred
Stock or other sources. See "FORWARD LOOKING INFORMATION" below.
As a REIT, the Company is required, among other things, to
distribute annually to its shareowners at least 95% of its REIT income. By
qualifying for the favorable tax treatment accorded to a REIT and by
distributing to its shareowners 100% of the Company's REIT income, the Company
generally will not be required to pay income tax at the corporate level.
Undistributed REIT income through the third quarter of 1996
(cumulative REIT income in excess of cumulative distributions to shareowners)
was $1,121,000 ($.11 per share). The Company, in general, is required to
distribute: (i) at least 85% of its annual REIT income by January of the
following year (as long as the dividend is declared during the year); and (ii)
the balance of its REIT income (at least 95%) before the Company's tax return is
filed.
Under the Code, the Company has elected an income recognition
methodology for certain of its CMBS bonds that determines REIT income
attributable to the amortization of market discount as the lesser of: (i) the
amount of principal received from the CMBS bond; or (ii) the computed discount
amortization. The effect of this election is to defer a portion of the amount of
the Company's REIT income from non-cash discount amortization from the early
years in the life of the applicable bonds to later years when significant
repayments of principal are expected to be received. The Company was able to
make this election on four CMBS bonds which had an outstanding principal balance
of $55,503,000 at September 30, 1996.
Subordinate CMBS bonds acquired by the Company are relatively
non-liquid and, as a result, the Company's ability to change its portfolio
quickly in response to changes in economic and other conditions may be limited.
In addition, REIT rules applicable to the Company may restrict the Company's
ability to sell assets within four years of their acquisition. Under the Code, a
redemption or prepayment does not constitute a "sale."
As the holder of subordinate CMBS bonds (which generally are
allocated the first losses on the underlying mortgage loans), the Company has
significant credit risk. These bonds are subject to a greater risk of loss of
principal and non-payment of interest than the more senior bonds secured by the
same assets. If a borrower defaults on a commercial mortgage loan that is
pledged as collateral for a commercial mortgage loan securitization and the
- 12 -
<PAGE>
proceeds of the foreclosure of the property are less than the unpaid balance of
the mortgage plus foreclosure costs (principal and interest advances through
foreclosure sale, repair and maintenance costs during the foreclosure, brokerage
fees, legal fees, taxes, insurance, etc.), the Company, as the holder in most
cases of the subordinate class, will suffer a loss.
The Company believes that cash generated by current and future
operations and additional capital-raising activities, including borrowings, will
enable the Company to meet its current and anticipated future liquidity
requirements, including the payment of dividends to its shareowners in an amount
equal to at least 95% of the Company's REIT income. See "FORWARD LOOKING
INFORMATION" below.
In the next few months, the management and the Board of Directors
of the Company will evaluate its existing structure and strategy and consider
whether changes are warranted. The goal of management and the Board of Directors
is to invest in assets with the greatest risk-adjusted rates of return. A change
in the Company's existing portfolio may impact the future REIT income and
resulting dividends of the Company. See "FORWARD LOOKING INFORMATION" below.
CMBS BOND YIELD CONSIDERATIONS
Defaults
The yields on the CMBS bonds acquired by the Company are extremely
sensitive to the amount and timing of defaults and the severity of losses
resulting from the defaults on the mortgage loans collateralizing such CMBS
bonds. The Company's right, as a holder of subordinate CMBS bonds, to
distributions of principal and interest is subordinate to the more senior
classes of CMBS bonds. Actual losses on the loans (after default, where the
proceeds from the foreclosure sale of the real estate are less than the unpaid
balance of the mortgage loan plus disposition costs) will be allocated first to
the subordinate first-loss CMBS bonds prior to being allocated to the more
senior CMBS bond classes. One of the mortgages with an outstanding balance of
$788,000 that collateralizes one of the Company's CMBS bonds was in foreclosure
at September 30, 1996. Otherwise, there have been no delinquencies. The CMBS
bonds the Company owns and may acquire in the future are speculative and may be
subject to special risks, including a substantially greater risk of loss of
principal and non-payment of interest than the more senior rated bonds secured
by the same assets. See "FORWARD LOOKING INFORMATION" below.
If the Company acquires a CMBS bond with an anticipated yield based
on a projected rate of default and severity of loss on the mortgage loans that
is lower than the actual default rate and severity of loss, the yield on the
CMBS bond will be lower than the Company initially anticipated and, in the event
of substantial losses, the Company may not recover a significant portion, or
any, of its acquisition cost. The timing of actual losses also will affect the
Company's yield on CMBS bonds, even if the rate of default and severity of loss
are consistent with the Company's projections. In general, the earlier a loss
occurs, the greater the adverse effect on the Company's yield.
The Company's CMBS bonds also will be affected by prevailing
interest rate levels during the periods that the mortgage loans collateralizing
the CMBS bonds mature. For example, if at the maturity date of a mortgage loan,
the prevailing mortgage interest rates are much higher than the original
interest rate on the mortgage loan, the operating cash flows from the commercial
property may not be sufficient to meet the higher debt service costs of
replacement financing, and the owner of the commercial property, unable to
obtain replacement financing, may go into default on the mortgage. If the
property is not sold for more than the amount of the mortgage plus foreclosure
costs, the Company may incur credit losses. Similar losses may occur if
refinancing of the commercial properties cannot be arranged at the maturity of
the current outstanding mortgage due to higher interest costs or poor property
performance.
- 13 -
<PAGE>
There can be no assurance as to the rate of delinquency or timing
and severity of losses on the mortgage loans collateralizing the CMBS bonds and,
thus, no assurance as to the actual yield received by the Company.
Prepayments
The aggregate amount of distributions on the Company's CMBS bonds
and their yields also will be affected by the amount and timing of principal
prepayments on the mortgage loans. Generally, all payments of principal,
including prepayments, on the mortgage loans will be used to reduce the
outstanding principal balance of the more senior classes before principal
payments are paid to the subordinate bond classes held by the Company. Because
the Company is acquiring the CMBS bonds at a significant discount from their
outstanding principal balance, if the Company receives prepayments of principal
on the CMBS bonds the Company owns, the Company's yield on its CMBS bonds
generally would increase.
Because the rate and timing of principal payments on mortgage loans
will depend on future events and on a variety of factors over which the Company
has no control, no assurances can be given as to the rate or timing of principal
payments, if any, on the CMBS bonds the Company owns. See "FORWARD LOOKING
INFORMATION" below.
Loss Severity
While the rate of default and the rate and timing of prepayments on
the Mortgage Collateral are important in determining the anticipated yield on
subordinate CMBS bonds, the anticipated severity of the loss (i.e., the total
loss on any foreclosure sale as a percentage of the remaining outstanding
principal balance of a mortgage loan) is significantly more important in
determining the anticipated yield on a subordinate CMBS bond. The severity of
the losses on defaulted Mortgage Collateral through foreclosure sales of the
properties, which are the primary security for the Mortgage Collateral, is
extremely important because such losses generally will be allocated first to,
and will reduce the remaining principal balance of, the Company's subordinate
CMBS bonds. The severity of loss takes into account the anticipated decline in
market value of the commercial property, accrued and unpaid interest through the
foreclosure and maintenance and disposition expenses, which include, among other
things, necessary repair and maintenance costs during the foreclosure, brokerage
fees, legal fees, interest charges on servicing advances, insurance and taxes.
In addition, the higher the coupon rate of the mortgage loan, the higher are the
costs of foreclosure which reflect accrued and unpaid interest from default
through foreclosure sale.
INFLATION, INTEREST RATES, MORTGAGE PREPAYMENTS AND OTHER FACTORS
The Company and the Common Stock of the Company will be affected by
prevailing market interest rates, including: (i) the effects of interest rates
on the values of long-term, fixed-rate debt securities; (ii) the possibility
that, in periods of high interest rates, the Common Stock may be less attractive
than alternative investments of equal or lower risk; (iii) possible mismatches
between the Company's borrowing costs and the Company's cash flow requirements
which could have a negative effect on the Company's income; (iv) the negative
effect of high interest rates on the properties underlying the CMBS bonds
(including a negative impact on the owner's ability to refinance debt secured by
such properties) which the Company has acquired and may acquire in the future;
and (v) the effects of interest rates on the Company's borrowing costs. Interest
rates are determined in large part by market conditions and government policies
which are beyond the control of the Company and which are difficult to predict.
- 14 -
<PAGE>
FORWARD LOOKING INFORMATION
Certain statements in this Form 10-Q Quarterly Report, as well as
statements made by the Company in periodic press releases, oral statements made
by the Company's officials to analysts and shareowners in the course of
presentations about the Company and conference calls following quarterly
earnings releases, constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by the forward-looking statements. Such
factors include the following: general economic and business conditions;
investment opportunities; interest rate changes; competition; the availability
of financing with terms and prices acceptable to the Company; the Company's
ability to maintain or reduce expense levels and the assumption that losses on
CMBS bonds do not exceed the Company's estimates.
DEFINITIONS
The following terms used in the text are understood to have the
meanings indicated below.
Acquisition Fee - a fee paid to the Manager pursuant to the Management Agreement
for performing due diligence procedures in connection with the acquisition by
the Company of each asset equal to 0.5% of the cost of such acquisition.
Administrative Fee - a fee of up to $10,000 per annum which is paid to the
Manager pursuant to the Management Agreement for administration and other
services related to each of the Company's CMBS bonds. If the Company owns more
than one class of a commercial securitization the Manager is entitled to receive
an additional fee of $2,500 per annum for each additional class.
Asset Investors - Asset Investors Corporation, a Maryland corporation.
Base Fee - management fee equal to 1% per annum of the Company's consolidated
Average Invested Assets as defined in the Management Agreement which is payable
quarterly to the Manager pursuant to the Management Agreement.
CMBS bond - commercial mortgage-backed security, which is a debt instrument
secured by mortgage loans on commercial real property.
Code - the Internal Revenue Code of 1986, as amended.
commercial mortgage loan securitizations - multi-class issuances of bonds which
are secured and funded as to the payments of principal and interest by a
specific group of mortgage loans on multi-family or other commercial real
estate, accounts and other collateral.
Company - Commercial Assets, Inc., a Maryland corporation.
DERs - Dividend equivalent rights, as defined in the Company's Stock Option
Plan. Prior to adoption of an amendment to the Stock Option Plan that eliminated
DERs in May 1996, option holders earned shares of Common Stock equal to the
value of dividends received as if the options were outstanding shares of Common
Stock.
- 15 -
<PAGE>
first-loss - a first-loss security is the most subordinate class of a security
having multiple classes and which is the first to bear the risk of losses
related to defaults on the underlying collateral.
GAAP - generally accepted accounting principles.
Incentive Fee - management fee equal to 20% of the dollar amount by which the
annual net income (in general, REIT income before incentive fees) of the Company
exceeds an amount equal to the average net worth of the Company multiplied by
the ten-year U.S. Treasury rate plus 1% per annum, payable quarterly to the
Manager pursuant to the Management Agreement.
Independent Director - pursuant to the Company's by-laws, an Independent
Director is a person "who is not affiliated, directly or indirectly, with the
person or entity responsible for directing or performing the day-to-day business
affairs of the corporation (the "advisor"), including a person or entity to
which the advisor subcontracts substantially all of such functions, whether by
ownership of, ownership interest in, employment by, any material business or
professional relationship with, or by serving as an officer of the advisor or an
affiliated business entity of the advisor."
LIBOR - the London Interbank Offered Rate on Eurodollar deposits.
Management Agreement - the one-year management agreement entered into between
the Company and the Manager.
Manager - Financial Asset Management LLC, effective April 1, 1996. Prior to
April 1, 1996, the Manager was Financial Asset Management Corporation, a wholly
owned subsidiary of MDC.
MDC - M.D.C. Holdings, Inc., a Delaware corporation; as of September 30, 1996,
no longer affiliated with the management of the Company or the Manager.
REIT - a real estate investment trust, as defined in the Code.
REIT income - taxable income computed as prescribed for REITs prior to the
"dividends paid deduction" (including the dividends paid deduction for dividends
related to capital gains).
Stock Option Plan - the Commercial Assets, Inc. 1993 Stock Option Plan.
- 16 -
<PAGE>
PART II
OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit No. Description
- ----------- -----------
4.2 Form of certificate representing common stock of the
Registrant (incorporated herein by reference to Exhibit 4.2 to
the Form 10-Q for the period ended September 30, 1994, of the
Registrant, Commission File No. 1-22262 filed on May 16,
1995).
4.3 Automatic Dividend Reinvestment Plan relating to the common
stock of the Registrant (incorporated herein by reference to
Exhibit 4.2 to Amendment No. 1 to the Form 10 of the
Registrant, Commission File No. 1-22262, filed on August 31,
1993).
10.2 Registration Rights Agreement, dated as of August 20, 1993,
between the Registrant and Asset Investors (incorporated
herein by reference to Exhibit 10.2 to Amendment No. 2 to the
Form 10 of the Registrant, Commission File No. 1-22262, filed
on September 15, 1993).
10.3 Management Agreement, dated as of January 1, 1995, between the
Registrant and Financial Asset Management Corporation
(incorporated herein by reference to Exhibit 10.3(b) to the
Registrants Quarterly Report on Form 10-Q for the period ended
March 31, 1995, Commission File No.
1-22262, filed on May 12, 1995).
10.3(a) Amendment to the Management Agreement dated as of January 1,
1996 between the Registrant and Financial Asset Management
Corporation (incorporated herein by reference to Exhibit
10.3(a) to the Registrants Quarterly Report on Form 10-Q for
the period ended March 31, 1996, Commission File No. 1-22262,
filed on May 15, 1996).
10.3(b) Assignment of the Management Agreement dated as of April 1,
1996 between Financial Asset Management Corporation and
Financial Asset Management LLC (incorporated herein by
reference to Exhibit 10.3(b) to the Registrants Quarterly
Report on Form 10-Q, Commission File No.
1-22262, filed on May 15, 1996).
10.4 Commercial Assets, Inc. 1993 Stock Option Plan (incorporated
herein by reference to Exhibit 10.4 to Amendment No. 2 to the
Form 10 of the Registrant, Commission File No. 1-22262, filed
on September 15, 1993).
10.4(a) First Amendment to Commercial Assets, Inc. 1993 Stock Option
Plan (incorporated herein by reference to Exhibit 10.4(a) to
the Registrants Quarterly Report on Form 10-Q for the period
ended June 30, 1996, Commission File No. 1-22262, filed on
August 13, 1996).
10.5 Form of Non-Officer Directors Stock Option Agreement
(incorporated herein by reference to Exhibit 99.2 to the
Registration Statement on Form S-8, Registration No. 33-7467B,
filed on February 1, 1994).
- 17 -
<PAGE>
10.6 Form of Officers Stock Option Agreement (incorporated herein
by reference to Exhibit 99.3 to the Registration Statement on
Form S-8, Registration No. 33-7467B, filed on February 1,
1994).
10.7 Form of Indemnification Agreement between the Registrant and
each Director of the Registrant (incorporated herein by
reference to Exhibit 10.5 to Amendment No. 1 to the Form 10 of
the Registrant, Commission File No. 1-22262, filed on August
31, 1993).
10.8 Loan and Security Agreement, dated as of November 29, 1994,
between the Registrant and PaineWebber Real Estate Securities,
Inc. (incorporated herein by reference to Exhibit 10.8 to the
Registrants Annual Report on Form 10-K, Commission File No.
1-22262, filed on March 29, 1995).
10.8(a) Amendment to the Loan and Security Agreement, dated as of
November 29, 1994, between the Registrant and PaineWebber Real
Estate Securities, Inc. (incorporated herein by reference to
exhibit 10.8a to the Registrants Annual Report on Form 10-K,
commission File No. 1-22262, filed on March 28, 1996).
27 Financial Data Schedule.
(b) Reports on Form 8-K:
No Current Reports on Form 8-K were filed by the Registrant
during the period covered by this Quarterly Report on Form 10-Q.
SIGNATURE
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.
COMMERCIAL ASSETS, INC.
(Registrant)
Date: November 12, 1996 By /s/Kevin J. Nystrom
---------------------
Kevin J. Nystrom
Chief Financial Officer
- 18 -
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000910675
<NAME> COMMERCIAL ASSETS, INC.
<S> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 10,407
<SECURITIES> 0
<RECEIVABLES> 597
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 11,004
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 74,387
<CURRENT-LIABILITIES> 2,222
<BONDS> 0
0
0
<COMMON> 103
<OTHER-SE> 72,062
<TOTAL-LIABILITY-AND-EQUITY> 74,387
<SALES> 0
<TOTAL-REVENUES> 8,011
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,647
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5
<INCOME-PRETAX> 5,364
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,364
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,364
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.52
</TABLE>
