UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
AMENDMENT NO. 1
TO
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): August 13, 1999
COMMERCIAL ASSETS, INC.
(Exact name of Company as specified in its charter)
Delaware 1-2262 84-1501789
(State or other jurisdiction of (Commission File (IRS Employer
incorporation or organization) Number) Identification No.)
3410 South Galena Street, Suite 210 80231
Denver, Colorado (Zip Code)
(Address of principal executive offices)
(303) 614-9410
(Company's telephone number, including area code)
Not Applicable
(Former name or former address,
if changed since last report)
<PAGE>
Item 2. Acquisition or Disposition of Assets
On August 13, 1999, Commercial Assets, Inc. (the "Company") acquired three
manufactured home communities and adjoining land located near Phoenix, Arizona
from The Norman Andrus Irrevocable Trust u/a/d 7/29/97. The communities and land
consist of 334 developed homesites and 206 sites available for future
development. The developed homesites are 97% occupied.
The consideration for the communities was determined through arms-length
negotiations with the seller. Total consideration for the communities was
$12,167,000, paid as follows:
o $8,977,000 in cancellation of participating mortgages which were
previously held by the Company and secured by the properties,
o $2,960,000 in the assumption of a note payable which is secured by
one of the communities, and
o $230,000 in cash.
The Company generally intends to continue to utilize the assets acquired in the
transaction as rental properties which is the same manner as they were employed
prior to the acquisition.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements in certain circumstances. Certain information
included in this Report, the Company's Annual Report to Stockholders and other
Company filings (collectively "SEC Filings") under the Securities Act of 1933,
as amended, and the Securities Exchange Act of 1934, as amended (as well as
information communicated orally or in writing between the dates of such SEC
Filings) contains or may contain information that is forward looking, including,
without limitation, statements regarding projections of the Company's future
financial performance, cash flow, dividends and anticipated returns on real
estate investments. 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: general economic and business
conditions; interest rate changes; financing and refinancing risks; risks
inherent in owning real estate or debt secured by real estate; future
development rate of homesites; competition; the availability of real estate
assets at prices which meet the Company's investment criteria; the Company's
ability to reduce expense levels, implement rent increases and use leverage; and
other risks set forth in the Company's Securities and Exchange Commission
filings. Readers should carefully review the Company's financial statements and
the notes thereto, as well as the risk factors described in the SEC Filings.
<PAGE>
Item 7. Financial Statements and Exhibits
(a) Financial Statements
Statement of Excess of Revenues Over Specific Operating Expenses of the
Fiesta Village Manufactured Home Communities for the Year Ended
December 31, 1998 (audited) and the period from January 1, 1999 to June
30, 1999 (unaudited).
(b) Pro Forma Financial Information
Pro Forma Condensed Consolidated Balance Sheet of Commercial Assets,
Inc. and Subsidiaries as of June 30, 1999.
Pro Forma Condensed Consolidated Statement of Income of Commercial
Assets, Inc. and Subsidiaries for the Six Months Ended June 30, 1999.
Pro Forma Condensed Consolidated Statement of Income of Commercial
Assets, Inc. and Subsidiaries for the Year Ended December 31, 1998.
(c) Exhibits
Exhibit No. Description
- ----------- -----------
10.11 Form of Amended and Restated Promissory Note entered into in
connection with investments in mortgages on three manufactured
home communities and adjoining land. (incorporated herein by
reference to Exhibit 10.11 to the Registrant's Annual Report on
Form 10-K dated December 31, 1998, Commission File No. 1-2262,
filed on March 24, 1999).
10.11(a) Form of Amended and Restated Combination Deed of Trust, Assignment
of Rents, Security Agreement and Fixture Financing Statement
entered into in connection with investments in mortgages on three
manufactured home communities and adjoining land. (incorporated
herein by reference to Exhibit 10.11(a) to the Registrant's Annual
Report on Form 10-K dated December 31, 1998, Commission File No.
1-2262, filed on March 24, 1999).
10.11(b) Receipt, Release and Settlement Agreement, dated as of August 13,
1999, between the Registrant, Casa Encanta Commercial, L.L.C.,
Fiesta/Encanta MHP, L.L.C., Fiesta MHP Investors, L.L.C., Fiesta
SPE, L.L.C., Southern Palms MHP, L.L.C., Norman Andrus, and The
Norman Andrus Irrevocable Trust (incorporated herein by reference
to Exhibit 10.11(b) to the Registrant's Current Report on Form 8-K
dated August 13, 1999, Commission File No. 1-2262, filed on August
30, 1999).
10.11(c) Form of Assignment and Assumption of Membership Interest
(incorporated herein by reference to Exhibit 10.11(c) to the
Registrant's Current Report on Form 8-K dated August 13, 1999,
Commission File No. 1-2262, filed on August 30, 1999).
23 Consent of Independent Auditors - Ernst & Young LLP
<PAGE>
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 hereunto duly authorized.
COMMERCIAL ASSETS, INC.
Date: October 20, 1999
By: /s/David M. Becker
----------------------------
David M. Becker
Chief Financial Officer
<PAGE>
Report of Independent Auditors
Board of Directors and Stockholders
Commercial Assets, Inc.
We have audited the accompanying combined statement of excess of revenues over
specific operating expenses of the Fiesta Village Manufactured Home Communities
(Note 1) for the year ended December 31, 1998. This combined statement is the
responsibility of the management of the Fiesta Village Manufactured Home
Communities. Our responsibility is to express an opinion on this combined
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the combined statement of excess of revenues over
specific operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As described in Note 1, the combined statement of excess of revenues over
specific operating expenses excludes certain expenses that would not be
comparable to the operations of the communities after acquisition by Commercial
Assets, Inc.. The accompanying combined statement was prepared for the purpose
of complying with the rules and regulations of the Securities and Exchange
Commission and is not intended to be a complete presentation of the communities'
revenues and expenses.
In our opinion, the combined statement referred to above presents fairly, in all
material respects, the excess of revenues over specific operating expenses
(exclusive of expenses described in Note 1) of the Fiesta Village Manufactured
Home Communities for the year ended December 31, 1998 in conformity with
generally accepted accounting principles.
September 27, 1999 ERNST & YOUNG LLP
1
<PAGE>
<TABLE>
<CAPTION>
Fiesta Village Manufactured Home Communities
Combined Statement of Excess of Revenues
Over Specific Operating Expenses
Year ended Period from
December 31, January 1, 1999 to
1998 June 30, 1999
----------------------------------------
(Unaudited)
Revenues
<S> <C> <C>
Rental $ 1,122,522 $ 639,281
Specific operating expenses
Property operations and maintenance 561,248 231,513
Real estate taxes 75,071 36,000
----------------------------------------
636,319 267,513
----------------------------------------
Excess of revenues over specific operating expenses $ 486,203 $ 371,768
========================================
</TABLE>
2
See accompanying notes.
<PAGE>
Fiesta Village Manufactured Home Communities
Notes to Combined Statement of Excess of Revenues
Over Specific Operating Expenses
1. Organization and Significant Accounting Policies
Description of Properties
The Fiesta Village Manufactured Home Communities are comprised of three
manufactured home communities located in Mesa, Arizona which contain 334
developed homesites and 206 sites available for development. In August 1999,
Commercial Assets, Inc. acquired the communities from the Norman Andrus
Irrevocable Trust.
Basis of Accounting
The accompanying combined statement of excess of revenues over specific
operating expenses is presented on the accrual basis. This combined statement
has been prepared in accordance with the applicable rules and regulations of the
Securities and Exchange Commission for real estate properties. Accordingly, the
combined statement excludes certain historical expenses not comparable to the
operations of the communities after acquisition, such as professional fees,
management fees, depreciation, amortization and interest.
Revenue Recognition
Rental income attributable to manufactured home lots is recorded when due from
residents.
Use of Estimates
The preparation of the combined statement of excess of revenues over specific
operating expenses in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the amounts
reported in the combined statement and accompanying notes. Actual results could
differ from those estimates.
Interim Unaudited Financial Information
The accompanying interim unaudited combined statement of excess of revenues over
specific operating expenses has been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission and was prepared on the
same basis as the combined statement of excess of revenues over specific
operating expenses for the year ended December 31, 1998. In the opinion of
management of the Communities, all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information for
this interim period have been made. The combined excess of revenues over
specific operating expenses for such interim period is not necessarily
indicative of the combined excess of revenues over specific operating expenses
for the full year.
3
<PAGE>
Item 7(b).
<TABLE>
<CAPTION>
COMMERCIAL ASSETS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 1999
(In thousands)
(Unaudited)
As Previously Pro Forma Pro Forma
Reported Adjustments Results
------------------ ------------------ -------------------
ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $ 1,092 $ (230) (a) $ 862
Short-term investments 15,078 -- 15,078
Real estate, net 51,323 12,167 (a) 63,490
Investment in participating mortgages 10,381 (8,977) (a) 1,404
Investment in real estate joint venture 1,304 -- 1,304
Investment in Asset Investors 1,435 -- 1,435
Investment in and notes receivable from Westrec 4,011 -- 4,011
CMBS bonds 1,676 -- 1,676
Other assets, net 1,903 -- 1,903
---------- ---------- ----------
Total Assets $ 88,203 $ 2,960 $ 91,163
========== ========== ==========
LIABILITIES
Secured long-term notes payable $ 9,619 $ 2,960 (a) $ 12,579
Secured short-term financing 214 -- 214
Accounts payable and accrued liabilities 1,475 -- 1,475
Management fees payable to related parties 123 -- 123
---------- ---------- ----------
11,431 2,960 14,391
---------- ---------- ----------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES
615 -- 615
STOCKHOLDERS' EQUITY
Preferred stock -- -- --
Common stock 104 -- 104
Additional paid-in capital 77,018 -- 77,018
Dividends in excess of accumulated earnings (707) -- (707)
Treasury stock (258) -- (258)
---------- ---------- ----------
76,157 -- 76,157
---------- ---------- ----------
Total Liabilities and Stockholders' Equity $ 88,203 $ 2,960 $ 91,163
========== ========== ==========
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL ASSETS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(In thousands, except per share data)
(Unaudited)
As Previously Pro Forma Pro Forma
Reported Adjustments Results
-------------------------------------------------------
RENTAL PROPERTY OPERATIONS
<S> <C> <C> <C>
Rental and other property revenues $ 437 $ 1,456 (b) $ 1,893
Income from participating mortgages and leases 1,190 (608) (h) 582
Property operating expenses (174) (658) (b) (832)
-------- -------- --------
Income from property operations before depreciation 1,453 190 1,643
Depreciation (321) (622) (c) (943)
-------- -------- --------
Income from property operations 1,132 (432) 700
-------- -------- --------
Interest and other income 1,221 (544) (d) 677
CMBS bonds revenue 77 -- 77
General and administrative expenses (273) -- (273)
Management fees paid to manager (194) (150) (e) (344)
Equity in earnings of Asset Investors 5 -- 5
Interest expense (58) -- (f) (58)
-------- -------- --------
Income from operations 1,910 (1,126) 784
Acquisition fees paid to manager (194) 171 (g) (23)
-------- -------- --------
NET INCOME $ 1,716 $ (955) $ 761
======== ======== ========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.16 $ (0.09) $ 0.07
======== ======== ========
Weighted-Average Common Shares Outstanding 10,363 10,363 10,363
Weighted-Average Common Shares and Common Share Equivalents
Outstanding 10,363 10,363 10,363
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
COMMERCIAL ASSETS, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(In thousands, except per share data)
(Unaudited)
As Previously Pro Forma Pro Forma
Reported Adjustments Results
-------------------------------------------------------
RENTAL PROPERTY OPERATIONS
<S> <C> <C> <C>
Rental and other property revenues $ -- $ 3,283 (b) $ 3,283
Income from participating mortgages and leases 587 319 (b)(h) 906
Property operating expenses -- (1,723) (b) (1,723)
--------- --------- ---------
Income from property operations before depreciation 587 1,879 2,466
Depreciation (50) (1,775) (c) (1,825)
--------- --------- ---------
Income from property operations 537 104 641
--------- --------- ---------
Interest and other income 3,874 (2,506) (d) 1,368
CMBS bonds revenue 161 -- 161
General and administrative expenses (420) -- (420)
Management fees paid to manager (87) (533) (e) (620)
Interest expense -- -- (f) --
--------- --------- ---------
OPERATING INCOME 4,065 (2,935) 1,130
Acquisition fees paid to manager (124) (171) (g) (295)
Costs related to potential marina investments (500) -- (500)
--------- --------- ---------
NET INCOME $ 3,441 $ (3,106) $ 335
========= ========= =========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.33 $ (0.30) $ 0.03
========= ========= =========
Weighted-Average Common Shares Outstanding 10,357 10,357 10,357
Weighted-Average Common Shares and Common Share
Equivalents Outstanding 10,372 10,372 10,372
</TABLE>
See Notes to Pro Forma Condensed Consolidated Financial Statements.
<PAGE>
COMMERCIAL ASSETS, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The pro forma condensed consolidated balance sheet of the Company as of June 30,
1999, is presented as if all reportable acquisitions of manufactured home
communities subsequent to June 30, 1999 had occurred on June 30, 1999. The pro
forma condensed consolidated statements of income are presented assuming all
reportable 1998 and 1999 acquisitions had been completed on January 1, 1998. In
management's opinion, all adjustments necessary to reflect the acquisitions have
been made. The unaudited pro forma condensed consolidated financial statements
should be read in conjunction with the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, the Quarterly Reports on Form 10-Q for the
quarterly periods ended March 31, 1999 and June 30, 1999 and Current Reports on
Form 8-K dated April 13, 1999, April 21, 1999, April 30, 1999, May 19, 1999,
June 10, 1999, July 14, 1999 and September 3, 1999.
The unaudited pro forma condensed consolidated financial statements are not
necessarily indicative of what the actual financial position or results of
operations would have been assuming the transactions had been completed as of
the dates indicated, nor does it purport to represent the future financial
position or results of operations of the Company.
(a) Reflects the purchase of three manufactured home communities and
adjoining land for $12,167,000, paid as follows:
o $8,977,000 in cancellation of participating mortgages which were
previously held by the Company and secured by the properties,
o $2,960,000 in the assumption of a note payable which is secured by
one of the communities, and
o $230,000 in cash.
(b) Reflects adjustment for the revenues and property expenses of the
acquisitions of eight manufactured home communities during 1998 and
1999.
(c) Reflects depreciation of acquired assets on the straight-line basis
over an estimated useful life of 25 years for land improvements and
buildings.
(d) Eliminates the interest income at (i) 4.8% per annum for the six months
ended June 30, 1999; and (ii) 5.5% per annum for the year ended
December 31, 1998; on the short-term investments used to acquire the
manufactured home communities.
(e) Reflects management fees payable to the Company's manager based upon 1%
per annum of the average amount invested.
(f) Interest expense of $272,000 for the six months ended June 30, 1999 and
$544,000 for the year ended December 31, 1998 based on: (i) 7% on the
present value of the deferred payments of the acquisition price for one
community; and (ii) 7.7% on the note payable assumed with the
acquisition of one community was capitalized.
(g) Reflects acquisition fees paid to the Company's manager based upon 0.5%
of the cost of the acquired communities as of January 1, 1998 when the
acquisitions were assumed to be completed and elimination of such fees
recorded in 1999.
<PAGE>
(h) Eliminates income from the cancellation of participating mortgages
previously held by the Company.
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-74689) of Commercial Assets, Inc. of our report dated September 27,
1999, with respect to the Combined Statement of Excess of Revenues Over Specific
Operating Expenses of the Fiesta Village Manufactured Home Communities for the
year ended December 31, 1998 which is included in Amendment No. 1 to the Current
Report (Form 8-K) dated August 13, 1999.
ERNST & YOUNG LLP
Denver, Colorado
October 13, 1999
