UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
__________ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from________________ to _____________________
Commission File Number: 0-28378
AMERICAN ASSET ADVISERS TRUST, INC.
MARYLAND CORPORATION IRS IDENTIFICATION NO.
76-0410050
8 GREENWAY PLAZA, SUITE 824 HOUSTON, TX 77046
(713) 850-1400
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X Yes No
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN ASSET ADVISERS TRUST, INC.
CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(Unaudited)
ASSETS
CASH & CASH EQUIVALENTS $ 2,891,190
PROPERTY:
Escrow deposits 75,000
Land 4,636,940
Buildings 4,435,713
9,147,653
Accumulated depreciation (223,693)
TOTAL PROPERTY 8,923,960
NET INVESTMENT IN DIRECT FINANCING LEASE 3,154,081
OTHER ASSETS:
Prepaid acquisition costs 154,780
Prepaid issuance costs 27,548
Accrued rental income 94,098
Organization costs, net of accumulated
amortization of $176,607 137,161
TOTAL OTHER ASSETS 413,587
TOTAL ASSETS 15,382,818
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable 39,644
Compensation payable 150,000
Security deposit 15,050
TOTAL LIABILITIES 204,694
MINORITY INTEREST 3,630,585
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 25,000,000 shares authorized,
1,356,489 shares issued and outstanding 13,565
Additional paid-in capital 12,079,387
Accumulated distributions in excess of earnings (545,413)
TOTAL SHAREHOLDERS' EQUITY 11,547,539
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 15,382,818
See Notes to Consolidated Financial Statements.
2
AMERICAN ASSET ADVISERS TRUST, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
(Unaudited)
Year to Date
1997 1996
REVENUES
Rental income from operating leases $ 252,610 $ 181,331
Earned income from direct financing leases 84,841 13,938
Interest income 29,528 32,303
TOTAL REVENUES 366,979 227,572
EXPENSES
Administrative 13,692 8,544
Amortization 15,688 15,447
Depreciation 28,437 28,446
Directors' fees 4,500 4,500
Interest 3,000 -
Legal & professional fees 19,469 10,912
Other 7,575 4,946
TOTAL EXPENSES 92,361 72,795
INCOME BEFORE MINORITY INTEREST IN
NET INCOME OF CONSOLIDATED JOINT VENTURE 274,618 154,777
MINORITY INTEREST IN NET INCOME OF
CONSOLIDATED JOINT VENTURE (93,451) (37,341)
NET INCOME $ 181,167 $ 117,436
NET INCOME PER SHARE:
Primary $ 0.14 $ 0.12
Fully Diluted $ 0.13 $ 0.12
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Primary 1,305,192 976,309
Fully Diluted 1,538,020 1,262,813
See Notes to Consolidated Financial Statements.
3
AMERICAN ASSET ADVISERS TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
(Unaudited)
Year to Date
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 181,167 $ 117,436
Adjustments to reconcile net income
to net cash flows from operating activities:
Amortization 15,688 15,447
Depreciation 28,437 28,446
Decrease (increase) in accounts receivable 5,119 (107,483)
Increase (decrease) in accounts payable 3,409 (16,095)
Cash receipts from direct financing leases
in excess of (less than) income recognized (2,284) 729
Increase in escrow deposits, net of minority
interest partners - (100,000)
Increase in accrued rental income (19,473) (11,302)
Increase in minority interest 93,451 37,341
NET CASH FLOWS PROVIDED BY (USED IN)
OPERATING ACTIVITIES 305,514 (35,481)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of real estate:
Accounted for under the operating
lease method (1,999) -
Change in prepaid acquisition costs (80,444) (74,006)
NET CASH FLOWS USED IN INVESTING ACTIVITIES (82,443) (74,006)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of stock, net 1,373,907 1,709,931
Distributions paid to shareholders (227,386) (162,724)
Distributions to minority interest partners (94,713) (42,278)
NET CASH FLOWS PROVIDED BY
FINANCING ACTIVITIES 1,051,808 1,504,929
NET INCREASE IN CASH AND
CASH EQUIVALENTS 1,274,879 1,395,442
CASH and CASH EQUIVALENTS at beginning
of period 1,616,311 1,564,961
CASH and CASH EQUIVALENTS at end of
period $ 2,891,190 $ 2,960,403
See Notes to Consolidated Financial Statements.
4
AMERICAN ASSET ADVISERS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
American Asset Advisers Trust, Inc. ("the Company") was
incorporated on August 17, 1993 as a Maryland corporation. The
initial issuance of 20,001 shares of stock for $200,010 was to
American Asset Advisers Realty Corporation ("AAA"). Commencing
March 17, 1994, the Company offered up to 2,000,000 additional
shares of common stock together with 1,000,000 warrants. The
Company is in the process of registering shares of common stock
for issuance upon the exercise of the outstanding warrants. The
warrants are exercisable at $9 per share between March 17, 1997
and March 16, 1998. As of March 31, 1997, 504,126 warrants were
outstanding. The offering period of the initial public offering
terminated on March 15, 1996 with 1,008,252 shares being issued.
On June 18, 1996, the Company commenced a follow-on offering of
up to 2,853,659 additional shares of its common stock. The
offering will terminate June 17, 1998, unless terminated earlier.
As of March 31, 1997, 328,236 shares in this second offering were
issued, bringing the total shares issued and outstanding to
1,356,489 shares.
The Company was formed with the intention to qualify and to
operate as a real estate investment trust under federal tax laws.
The Company will acquire commercial and industrial properties
using invested and borrowed funds. The selection, acquisition
and supervision of the operation of properties is managed by AAA,
a related party.
The consolidated financial statements include the accounts of
American Asset Advisers Trust, Inc. and its majority interest in
four joint ventures.
The financial records of the Company are maintained on the
accrual basis of accounting whereby revenues are recognized when
earned and expenses are reflected when incurred.
For purposes of the statement of cash flows the Company considers
all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents. There has been no
cash paid for income taxes or interest during 1997 or 1996.
Real estate is leased to others on a net lease basis whereby all
operating expenses related to the properties including property
taxes, insurance and common area maintenance are the
responsibility of the tenant. The leases are accounted for under
the operating method or the direct financing method.
Under the operating lease method, the properties are recorded at
cost. Rental income is recognized ratably over the life of the
lease and depreciation is charged based upon the estimated useful
life of the property.
5
Under the direct financing lease method, properties are recorded
at their net investment. Unearned income is deferred and
amortized to income over the life of the lease so as to produce a
constant periodic rate of return.
Buildings are depreciated using the straight-line method over an
estimated useful life of 39 years.
Organization costs incurred in the formation of the Company are
amortized on a straight-line basis over five years.
Syndication costs incurred in the raising of capital through the
sale of common stock is treated as a reduction of shareholders'
equity.
The Company is qualified as a real estate investment trust
("REIT") under the Internal Revenue Code of 1986, and is,
therefore, not subject to Federal income taxes provided it meets
all conditions specified by the Internal Revenue Code for
retaining its REIT status, including the requirement that at
least 95% of its real estate investment trust taxable income is
distributed by March 15 of the following year.
The accompanying unaudited financial statements have been
prepared in accordance with the instructions to Form 10-QSB and
do not include all of the disclosures required by generally
accepted accounting principles. The financial statements reflect
all normal and recurring adjustments which are, in the opinion of
management, necessary to present a fair statement of results for
the three month periods ended March 31, 1997 and March 31, 1996.
The financial statements of American Asset Advisers Trust, Inc.
contained herein should be read in conjunction with the financial
statements included in the Company's annual report on Form
10-K for the year ended December 31, 1996.
2. RELATED PARTY TRANSACTIONS
20,001 shares of the Company's stock are owned by AAA. The
common stock of AAA is wholly owned by the president and director
of the Company. In addition, the Company has entered into an
Omnibus Services Agreement with AAA whereby AAA provides property
acquisition, leasing, administrative and management services for
the Company. Administrative fees of $13,692 and $8,544 were
incurred and paid to AAA for the first quarter of 1997 and 1996,
respectively.
Certain costs have been incurred by AAA in connection with the
organization and syndication of the Company. Reimbursement of
these costs become obligations of the Company in accordance with
the terms of the offering. $37,992 and $51,541 of costs were
incurred by AAA for the first quarter of 1997 and 1996,
respectively, in connection with the issuance and marketing of
the Company's stock. These costs are reflected as syndication
costs.
Acquisition fees, including real estate commissions, finders
fees, consulting fees and any other non-recurring fees incurred
in connection with locating, evaluating and selecting properties
and structuring and negotiating the acquisition of properties are
included in the basis of the properties. Acquisition fees of
$80,063 and $74,006 were incurred and paid to AAA for the first
quarter of 1997 and 1996, respectively.
6
On August 22, 1995, the Board of Directors approved a special
compensation payment for the president in the amount of $150,000
for services provided from August 1993 through August 1995. In
connection therewith, the Company executed a demand note payable
at the earlier of July 15, 1996 or the receipt of $10,000,000
from the Company's initial stock offering. The note shall be
payable in cash or stock depending on the availability of cash
for such payment. No compensation arrangements were considered
by the Board prior to this time because the Company had not
raised sufficient funds through its stock offering, as determined
by the judgment of the Board, considered necessary for any
compensation to be granted. The compensation had not been
accrued prior to August 22, 1995 because its payment was
uncertain and the level of compensation had not been determined
until the August 1995 Board meeting. As of the termination of
the initial public offering in March 1996, the Company had sold
in excess of $10,000,000. Although the president can demand
payment on the note, such demand has not been made. The decision
regarding the nature of the payment, whether in stock or cash,
will be made by the Board of Directors at the time the president
demands payment. In consideration that no payment has been
demanded by the president for the special compensation payment,
the Board of Directors approved at its August 1, 1996 meeting the
payment of interest to the president at an annual rate of 8%.
This interest payment will be paid in cash or in stock. As of
March 31, 1997, $8,000 of interest has been accrued related to
this note.
In accordance with the terms of the Company's public offering, up
to 15% of the gross offering proceeds will be used to pay
aggregate selling commissions and other issuance costs incurred
by the Company. Any excess costs incurred by the Company are the
obligation of AAA. At March 31, 1997, $27,548 of such costs had
been incurred by the Company in excess of the amount allowed from
the offering proceeds. AAA's obligation to fund such costs is
dependent upon future proceeds from the public offering.
On February 11, 1997, the Company entered into a joint venture
with AAA Net Realty XI, Ltd., an affiliated entity. The joint
venture was formed for the purchase of a property which will be
operated as a Just For Feet retail store in Baton Rouge,
Louisiana. The property will be purchased once construction is
completed. The Company's interest in the joint venture is 51%.
On September 23, 1996, the Company entered into a joint venture
with AAA Net Realty XI, Ltd., an affiliated entity. The joint
venture was formed for the purchase of a parcel of land in The
Woodlands, Texas upon which the tenant, Bank United, constructed
a branch bank building at its cost. At the termination of the
lease the improvements will be owned by the joint venture. The
Company's interest in the joint venture is 51%.
On April 5, 1996, the Company entered into a joint venture with
AAA Net Realty Fund XI, Ltd. and AAA Net Realty Fund X, Ltd.,
affiliated partnerships, for the purchase of a property which is
being operated as a Just For Feet retail store in Tucson,
Arizona. The property was purchased on September 11, 1996 after
the construction was completed. The Company's interest in the
joint venture is 51.9%.
On September 12, 1995, the Company entered into a joint venture
agreement with AAA Net Realty Fund XI, Ltd. for the purchase of a
property which is being operated as a Blockbuster Music Store in
Wichita, Kansas. The Company's interest in the joint venture is
51%.
7
3. MAJOR TENANTS
The following schedule summarizes rental income by lessee for the
three months ended March 31, 1997 and March 31, 1996:
Year to Date
1997 1996
Tandy Corporation $27,225 $27,225
America's Favorite Chicken Co. 24,482 23,159
Blockbuster Music Retail, Inc. 94,476 94,476
One Care Health Industries, Inc 50,409 50,409
Just For Feet, Inc. 101,410 -
Bank United 39,449 -
4. NET INCOME PER SHARE
The number of shares used in primary net income per share
calculations are based on the weighted average number of shares
of common stock outstanding. The number of shares used in the fully
diluted net income per share calculations are based on the
weighted average number of shares of common stock outstanding and the
assumption that the warrants were exercised using the treasury stock
method.
8
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The Company was organized on August 17, 1993 to acquire, either
directly or through joint venture arrangements, undeveloped,
newly constructed and existing net-lease real estate that is
located primarily on corner or out-parcel locations in strong
commercial corridors, to lease on a net-lease basis to tenants
having a minimum net worth of $40 million and to hold the
properties with the expectation of equity appreciation producing
a steadily rising income stream for its shareholders.
LIQUIDITY AND CAPITAL RESOURCES
The initial issuance of 20,001 shares of stock for $200,010 was
to AAA. On March 17, 1994, the Company commenced an offering of
2,000,000 Shares of Common Stock, together with 1,000,000
Warrants (collectively "Securities"). Until the completion of the
offering in March 1996, the Securities were offered on the basis
of two (2) Shares of Common Stock and one (1) Warrant for a total
purchase price of $20.00. The Shares and Warrants are separately
transferable by an investor. The Company is in the process of
registering shares of Common Stock for issuance upon the exercise
of the outstanding warrants. Each Warrant entitles the holder to
purchase one Share for $9.00 during the period which is between
March 17, 1997 and March 16, 1998. As of March 31, 1997, 504,126
warrants were outstanding. The offering period for the initial
public offering terminated on March 15, 1996 with gross proceeds
totaling $10,082,520 (1,008,252 shares). On June 18, 1996, the
Company commenced a follow-on offering of up to $29,250,000
(2,853,659 shares) of additional shares of its common stock. The
offering will terminate June 17, 1998 unless terminated earlier.
As of March 31, 1997, gross proceeds had been received for
$3,364,419 (328,236 shares) in this second offering bringing the
total gross proceeds to $13,646,949 (1,356,489 shares).
The Company has an investment strategy of acquiring properties
and leasing them under net-leases to corporations having a
minimum net worth of $40 million, which strategy minimizes the
Company's operating expenses. The Company believes that the
leases will continue to generate cash flow in excess of operating
expenses. Due to low operating expenses and ongoing cash flow,
the Company does not believe that large working capital reserves
are necessary at this time. In addition, because all leases of
the Company's Properties are and are intended to continue to be
on a net-lease basis, it is not anticipated that a large reserve
for maintenance and repairs will be necessary. The Company
intends to distribute a significant portion of its funds from
operations unless it becomes necessary to maintain additional
reserves.
9
On August 22, 1995, the Board of Directors approved a special
compensation payment for the president in the amount of $150,000
for services provided from August 1993 through August 1995. The
president has received no other compensation from the Company for
serving as its president. In connection with the special
compensation payment, the Company executed a demand note in the
amount of $150,000, the payment of which could not be demanded
prior to the earlier of July 15, 1996 or the receipt of
$10,000,000 from the Company's initial public offering. The note
is payable in cash or shares depending on the availability of
cash for such payment. No compensation arrangements were
considered by the Directors prior to August 22, 1995, because in
their judgement, the Company had not raised sufficient funds to
award such compensation. The compensation had not been accrued
prior to August 22, 1995 because its payment was uncertain and
the level of compensation had not been determined until the
August 1995 meeting of the Board of Directors. As of the
termination of the initial public offering in March 1996, the
Company had raised in excess of $10,000,000. Although the
president can demand payment on the note, such demand has not
been made. The decision regarding the nature of the payment,
whether in stock or cash, will be made by the Board of Directors
at the time the president demands payment. In consideration that
no payment has been demanded by the president for the special
compensation payment, the Board of Directors approved at its
August 1, 1996 meeting the payment of interest to the president
on the outstanding note at an annual rate of 8%. This interest
payment will be paid in cash or in stock. As of March 31, 1997,
$8,000 of interest has been accrued related to this note. Should
the note and interest be paid in cash, such payment would reduce
the funds from operations available for distribution and,
therefore, would decrease the distributions to shareholders.
As of March 31, 1997, the Company had acquired four Properties
directly and four Properties through joint ventures with related
parties and had invested $8,602,293, including certain
acquisition expenses related to the Company's investment in these
properties. These expenditures resulted in a corresponding
decrease in the Company's liquidity. On February 11, 1997, the
Company entered into an agreement for the purchase of a property
to be constructed in Baton Rouge, Louisiana. The purchase price
for the property totals approximately $2,670,000 and will be paid
with funds raised from the public offering and through a joint
venture with a related party. The Company's interest in the
joint venture is 51%.
Until Properties are acquired by the Company, proceeds are held
in short-term, highly liquid investments which the Company
believes to have appropriate safety of principal. This investment
strategy has allowed, and continues to allow, high liquidity to
facilitate the Company's use of these funds to acquire properties
at such time as properties suitable for acquisition are located.
At March 31, 1997, the Company's cash and cash equivalents
totaled $2,891,190.
Inflation has had very little effect on income from operations.
Management expects that increases in store sales volumes due to
inflation as well as increases in the Consumer Price Index
(C.P.I.), may contribute to capital appreciation of the Company
Properties. These factors, however, also may have an adverse
impact on the operating margins of the tenants of the Properties.
10
RESULTS OF OPERATIONS
Revenues for the three months ended March 31, 1997 were comprised
of $337,451 from the Company's real estate operations and $29,528
from interest income. This represents an increase of $142,182 in
rental income over the three months ended March 31, 1996 and an
decrease of $2,775 in interest income. The Company's rental
income was generated from eight properties during the first
quarter of 1997 compared to five properties during the first
quarter of 1996. The increase in activity also resulted in a
corresponding increase in expenses from $72,795 during the first
quarter of 1996 to $92,361 during the first quarter of 1997. The
Company recorded net income of $181,167 for the three months
ended March 31, 1997 as compared to $117,436 for the three months
ended March 31, 1996.
Revenues for the three months ended March 31, 1996 were comprised
of $195,269 from the Company's real estate operations and $32,303
from interest income. This represents an increase of $103,359 in
rental income over the three months ended March 31, 1995 and an
increase of $2,731 in interest income. The Company's rental
income was generated from five properties during the first
quarter of 1996 compared to three properties during the first
quarter of 1995. The increase in activity also resulted in a
corresponding increase in expenses from $45,478 during the first
quarter of 1995 to $72,795 during the first quarter of 1996. The
Company recorded net income of $117,436 for the three months
ended March 31, 1996 as compared to $60,051 for the three months
ended March 31, 1995.
11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
NONE
Item 4. Submission of Matters to a Vote of Security Holders
NONE
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
Exhibit 11 - Computation of Earnings Per Share
Exhibit 27 - Financial Data Schedule
Report on Form 8-K:
Form 8-K was filed on February 26, 1997 to report the creation of
a joint venture with an affiliate to acquire a property which
will be operated as a Just For Feet retail store upon completion
of construction of the property.
12
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 Asset Advisers Trust, Inc.
(Registrant)
May 15, 1997 /s/ H. Kerr Taylor
Date H. Kerr Taylor, President
May 15, 1997 /s/ L. Larry Mangum
Date L. Larry Mangum (Principal Accounting
Officer)
13
EXHIBIT 11
AMERICAN ASSET ADVISERS TRUST, INC.
COMPUTATION OF EARNINGS PER SHARE
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND MARCH 31, 1996
1997 1996
PRIMARY EARNINGS PER SHARE:
Weighted average number of shares of
common stock outstanding 1,305,192 976,309
Additional shares assuming exercise of
stock warrants (1) 0 0
Total weighted average common and
common equivalent shares outstanding 1,305,192 976,309
Net income $ 181,167 $ 117,436
Earnings per common and common
equivalent share $ 0.14 $ 0.12
FULLY DILUTED EARNINGS PER SHARE:
Weighted average number of shares of
common stock outstanding 1,305,192 976,309
Additional shares assuming exercise of
stock warrants 232,828 286,504
Total weighted average common and
common equivalent shares outstanding 1,538,020 1,262,813
Net income (2) $ 205,317 $ 153,670
Earnings per common and common
equivalent share $ 0.13 $ 0.12
(1) Not applicable in 1997 or 1996 as computations of primary earnings per
share exclude common stock equivalents for any period in which their
inclusion would increase the income per share amount otherwise computed.
(2) Includes adjustment for additional interest income from assumed net
proceeds from exercise of warrants using Modified Treasury Stock Method
as follows:
1997 1996
$ 24,150 $ 36,234
14
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<ARTICLE> 5
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,891,190
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,891,190
<PP&E> 9,147,653
<DEPRECIATION> 223,693
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<COMMON> 13,565
<OTHER-SE> 11,533,974
<TOTAL-LIABILITY-AND-EQUITY> 15,382,818
<SALES> 337,451
<TOTAL-REVENUES> 366,979
<CGS> 0
<TOTAL-COSTS> 92,361
<OTHER-EXPENSES> 93,451
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<INCOME-CONTINUING> 181,167
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