Rule 424 (b) (3)
File No. 0-28378
AMERICAN ASSET ADVISERS TRUST, INC.
SUPPLEMENT NO. 1 DATED FEBRUARY 6, 1997
TO PROSPECTUS DATED JUNE 18, 1996
ATTENTION PROSPECTIVE INVESTORS
The following information should be read carefully and considered
in connection with your review of the Prospectus, the receipt of
which must precede or accompany this Supplement.
STATUS OF THE OFFERING
The Company commenced its offering of Shares of Common Stock on
June 18, 1996. As of February 4, 1997, the Company had received
contributions aggregating $2,411,276 in Gross
Proceeds (235,246 Shares).
1. SUITABILITY
ATTENTION OHIO RESIDENTS: By executing the Order Form you are
representing to the Company that you are not and will not in the
future invest more than ten percent (10%) of your total net worth
in the Company's common stock.
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations follows for the three and nine months ended
September 30, 1996:
American Asset Advisers Trust, Inc. ("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 to
tenants having a minimum net worth of $40 million on a net-lease
basis, to hold the properties with the expectation of equity
appreciation producing a steadily rising income stream for its
shareholders.
LIQUIDITY AND CAPITAL RESOURCES
The Company was organized August 17, 1993 with the intention to
qualify and to operate as a real estate investment trust under
federal tax laws. Commencing March 17, 1994, the Company offered
up to 2,000,000 additional shares of common stock together with
1,000,000 warrants. The offering period terminated on March 15,
1996 with subscriptions having been received for 1,028,253
shares. On June 18, 1996 the Company began a new offering of
2,853,659 shares of its common stock. The offering will
terminate on June 17, 1998. As of September 30, 1996,
subscriptions had been received for 95,532 shares in this second
offering bringing the total shares issued and outstanding to
1,123,785 shares.
On August 22, 1995, the Board of Directors approved a special
compensation payment for Mr. Taylor in the amount of $150,000.
Mr. Taylor 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 payable
at the earlier of July 15, 1996 or the receipt of $10,000,000
from the Company's 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
Directors prior to August 22, 1995, because in their judgment,
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, the Company had sold in excess of
$10,000,000. Although Mr. Taylor 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 Mr. Taylor demands payment. In
consideration that no payment has been demanded by Mr. Taylor for
the special compensation payment, the Board of Directors approved
at its August 1, 1996 meeting the payment of interest to Mr.
Taylor at an annual rate of 8%. This interest payment will be
paid at the end of six months in cash or in stock. Should the
note and interest be paid in cash, such payment would reduce the
funds from operations available for distribution and, therefore,
would decrease distributions to shareholders.
On September 23, 1996, the Company entered into a joint venture
with AAA Net Realty XI, Ltd., an affiliated entity, for the
purpose of acquiring property in The Woodlands, Texas upon which
a branch bank building will be constructed. The Company's
interest in the joint venture is 51% and the Company's share of
the purchase price for the property was $260,587 plus $9,713 in
acquisition fees paid to affiliates.
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 purpose of acquiring a property
which is being operated as a Just For Feet retail store in
Tucson, Arizona. The Company's interest in the joint venture is
51.9% and the Company's share of the purchase price for the
property was $1,815,329 plus $102,860 in acquisition fees paid to
affiliates.
RESULTS OF OPERATIONS
Revenues for the three months ended September 30, 1996 were
comprised of $218,385 from the Company's real estate operations
and $40,034 from interest income. This represented an increase
of $109,515 in rental income over the three months ended
September 30, 1995 and a decrease of $6,715 in interest income.
The Company owned five properties for the entire third quarter of
1996 and the sixth and seventh properties were acquired in
September of 1996 while four properties were owned for the entire
third quarter of 1995 and the fifth property was acquired in
September of 1995. The Company's operating expenses decreased
from $206,134 for the third quarter of 1995 to $74,283 for the
third quarter of 1996 primarily from executive compensation of
$150,000 for the period from August 1993 through August 1995.
See Note 2 for additional information. The Company recorded net
income of $138,397 for the three months ended September 30, 1996
as compared to a net loss of $70,420 for the three months ended
September 30, 1995.
For the nine months ended September 30, 1996, the Company's total
revenues of $721,268 were comprised of $608,705 from real estate
operations and $112,563 from interest income. The Company owned
five properties for the entire first nine months of 1996 and the
sixth and seventh properties were acquired in September of 1996
while three properties were owned for the entire first nine
months of 1995 and the fourth and fifth properties were acquired
in the third quarter of 1995. The Company's operating expenses
decreased from $297,614 for the first nine months of 1995 to
$209,634 for the first nine months of 1996 primarily from
executive compensation of $150,000 discussed above partially
offset by an increase in administrative expenses and depreciation
which resulted from the overall increase in the activity of the
Company. The Company recorded net income of $391,212 for the
nine months ended September 30, 1996 as compared to $56,766 for
the nine months ended September 30, 1995.
Revenues increased from $55,067 to $155,619 for the third quarter
of 1995 as compared to the third quarter of 1994. The Company's
real estate operations generated income of $108,870 from three
properties owned for the entire third quarter of 1995 and two
additional properties were acquired in September 1995 while
$44,799 was earned during the same period in 1994 from one
property which was acquired in June of 1994 and a second property
which was acquired in August of 1994. Interest income also
increased from $10,268 to $46,749 primarily because the Company
received interest on a construction loan for most of the quarter
in addition to the interest earned on invested funds. The
Company's operating expenses for the third quarter increased
$180,643 over those of the third quarter of 1994 primarily from
executive compensation of $150,000 discussed above and from an
increase in other administrative expenses and depreciation which
resulted from the overall increase in the activity of the
Company.
For the nine months ended September 30, 1995, the Company's real
estate income was $292,735 compared to $49,639 for the nine
months ended September 30, 1994. The Company received rental
income throughout 1995 from three properties and part of
September from two additional properties while the Company's
first two properties were acquired in June and August of 1994.
Interest income for the nine months ended September 30, 1995
totaled $113,456 compared to $20,154 for the nine months ended
September 30, 1994. Proceeds from the Company's common stock
offering were not disbursed from the escrow account until May 9,
1994. Consequently, no significant interest income was earned by
the Company until that time. The Company's operating expenses,
excluding depreciation and amortization, increased approximately
$201,000 primarily from $150,000 of executive compensation
discussed above and from an increase in professional fees. The
Company recorded net income of $56,766 and $30,161 for the nine
months ended September 30, 1995 and September 30, 1994,
respectively.
3. PROPERTIES
The Company has completed the purchase of three additional
properties which are summarized as follows:
Name Of
Property Purchase Total Actual Capital-
and Price Of Leasable Annual Percent ization
Location Property(1) Sq. Ft. Rent(2) Vacant Rate(4)
Just for
Feet (3)
Tucson,
Arizona $1,809,612 19,550 $197,719 0% 10.9%
Bank
United(3)
The
Woodlands,
Texas 255,000 3,685 27,569 0% 10.75%
Bank
United
Houston,
Texas 827,580 3,685 88,965 0% 10.75%
(1) Purchase price represents the pro rata sale price of the
Properties and does not include other Acquisition Fees and
Acquisition Expenses.
(2) The figures set forth in this column represent current
actual rent on the Properties (or, in those cases in which
the Company holds interests in the Properties through joint
ventures, the Company's share, as a joint venture partner,
of current actual rent on such Properties). Actual rent is
subject to successive increases over the original and
renewal terms of the leases on the Properties.
(3) The Company owns an interest in this Property through a
joint-venture with Affiliates.
(4) Capitalization rate is determined by dividing annual rent by
the purchase price of the Property.
Just for Feet, Inc., Tucson, Arizona
Final terms of the acquisition of the Just for Feet property
after completion of the property are as follows:
Description. On January 19, 1996, the Company entered into a
contract to purchase fee simple title to real estate and
improvements located at 4775 Oracle Road, Tucson, Arizona. The
closing of the purchase of the Property was completed on
September 11, 1996 by the Joint Venture (the "Joint Venture")
comprised of affiliates AAA Net Realty Fund XI, Ltd. and AAA Net
Realty Fund X, Ltd. and the Company. The Property is located on
a tract of land consisting of 2.936 acres. The improvements
consist of a free-standing masonry building containing
approximately 15,349 square feet on the first floor and
approximately 4,200 square feet on the mezzanine level.
The Property was acquired subject to a net lease with Just For
Feet, Inc., an Alabama corporation ("JFFI"), which will operate a
retail store on the Property which sells athletic footwear and
apparel and related items. With respect to JFFI, as reported by
its management, consolidated revenues totaled $119,819,000 and
$56,363,000 for the years ended January 31, 1996 and January 31,
1995, respectively. JFFI recorded consolidated net earnings of
$9,722,000 and $3,218,100 for the years ended January 31, 1996
and January 31, 1995, respectively. Current assets of JFFI at
January 31, 1996 exceeded current liabilities by $108,303,500,
and total assets at such date exceeded total liabilities by
$149,269,800.
Lease Information. The original term of the lease, which began
on September 11, 1996, is for twenty years. The tenant has the
option to renew the lease for two additional terms of five years
each.
The Company's share of the base annual minimum rent during the
first five years of the original term of the lease is $197,719
(Based upon the current base annual rent, the initial
capitalization rate is 10.9%). The Company's share of the base
annual minimum rent is $217,475 during the second five years of
the original term of the lease, $239,223 during the third five
years of the original term of the lease, and $263,200 during the
last five years of the original term of the lease. During the
two renewal terms of the lease, the Company's share of the base
annual rent will be $289,489 and $318,486, respectively. In
addition to the base annual rent, the tenant pays all real estate
taxes and utility charges on the Property and is required, at its
sole expense, to keep and maintain the improvements in good
repair and appearance, except for ordinary wear and tear, and
make all structural and nonstructural repairs of every kind which
may be required to keep the improvements in good condition,
repair and appearance.
Terms of Acquisition. The Joint Venture acquired the Property
for $3,486,728 which was paid in cash. The Company owns a 51.9%
interest in the Joint Venture, AAA Net Realty Fund XI, Ltd. owns
a 29.85% interest and AAA Net Realty Fund X, Ltd. owns an 18.25%
interest.
Competitive Conditions. The Property is located within
approximately 150 yards of the entrance of the Oracle Mall, a
regional shopping mall in Tucson, Arizona, and near a Home Depot.
A substantial number of national retailers, including Payless
Shoes and Converse, fast food restaurants and department stores
operate stores in the Oracle Mall.
Bank United, The Woodlands, Texas
Description. On September 23, 1996 the Joint Venture (the "Joint
Venture") comprised of affiliate AAA Net Realty Fund XI, Ltd. and
the Company acquired fee simple title to real estate located at
Grogan's Mill Road and Buckthorne Place, The Woodlands, Texas.
The Property consists of undeveloped land of approximately 1.7223
acres on which the tenant will construct a branch bank containing
approximately 3,685 square feet.
The Property was acquired subject to a ground lease with Bank
United, a Federal Savings Bank. With respect to Bank United, as
reported by its management, consolidated net income totaled $62.7
million for the year ended September 30, 1995 and $135.3 million
for the nine months ended June 30, 1996. Bank United reported
consolidated total assets of $12 billion and consolidated
stockholders' equity of $794.7 million as of September 30, 1995
and $11 billion of assets and $805 million of stockholders'
equity as of June 30, 1996.
Lease Information. The primary term of the lease is fifteen
years. The lease began on September 23, 1996 and expires on
September 30, 2011. The tenant has the option to renew the lease
for one additional term of five years. The Company's share of
the base annual rent during the first five years of the original
term of the lease is $27,569, during the second five years is
$30,326 and during the final five year term is $33,358. The
Company's share of the rent during the renewal term is $36,694.
In addition to the base rent, the tenant pays all real estate
taxes and utilities on the Property. The tenant is also
required, at its sole expense, to keep and maintain the
improvements in good repair and appearance, except for ordinary
wear and tear and make all structural and nonstructural repairs
of every kind which may be required to keep the improvements in
good condition, repair and appearance.
Terms of Acquisition. The Joint Venture acquired the Property
for a price of $500,000 which was paid in cash. The Company owns
a 51% interest in the Joint Venture and AAA Net Realty Fund XI,
Ltd. owns a 49% interest.
Competitive Conditions. There are no branch banks in the
immediate vicinity of the Property.
Bank United, Houston, Texas
Description. On December 11, 1996, the Company purchased fee
simple title to real estate located at Westheimer and Rogerdale,
Houston, Texas. The Property is a tract of undeveloped land
containing approximately 42,440 square feet on which the tenant
will construct a branch bank containing approximately 3,685
square feet.
The Property was acquired subject to a ground lease with Bank
United, a Federal Savings Bank. Financial information with
respect to Bank United is discussed with the preceding Property.
Lease Information. The primary term of the lease is fifteen
years. The lease began on December 11, 1996 and expires on
December 30, 2011. The tenant has the option to renew the lease
for one additional term of five years. The base annual rent
during the first five years of the original term of the lease is
$88,965, during the second five years is $97,861 and during the
final five year term is $107,647. The rent during the renewal
term is $118,412. In addition to the base rent, the tenant pays
all real estate taxes and utilities on the Property. The tenant
is also required, at its sole expense, to keep and maintain the
improvements in good repair and appearance, except for ordinary
wear and tear and make all structural and nonstructural repairs
of every kind which may be required to keep the improvements in
good condition, repair and appearance.
Terms of Acquisition. The Company acquired its interest in the
Property for $827,580 which was paid in cash.
Competitive Conditions. There are no branch banks in the
immediate vicinity of the Property.
PRO-FORMA FINANCIAL INFORMATION
The following table presents unaudited pro-forma consolidated
balance sheet for the Company giving effect to the acquisition of
the Bank United, Houston, Texas property as of September 30,
1996. Pro-forma consolidated results of operations are not
included as of September 30, 1996 as the initial lease on this
property did not commence until December 11, 1996.
PRO-FORMA CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
(Unaudited)
Historical Pro-Forma
Costs Adjustments (1) Total
Cash $ 1,761,033 ($798,836) $ 962,197
Property 11,208,931 849,874 (2) 12,058,805
Other Assets 533,103 (23,014) 510,089
Total Assets 13,503,067 28,024 13,531,091
Liabilities 228,910 28,024 256,934
Minority
Interest 3,597,249 -- 3,597,249
Shareholders'
Equity 9,676,908 -- 9,676,908
Total
Liabilities
and
Shareholders'
Equity $ 13,503,067 $ 28,024 $ 13,531,091
(1) Adjustments are reflected as if the Bank United property
discussed in (2)below was completed on September 30, 1996.
(2) Includes property acquisition costs of $794,477, acquisition
fees paid to third parties of $4,359 and acquisition fees paid to
affiliates of $51,038 of which $28,024 was unpaid.
4. MANAGEMENT
Directors and Executive Officers of the Company
The Company has appointed a new officer, L. Larry Mangum as of
September 19, 1996. Mr. Mangum assumes the offices of Vice
President and Treasurer.
Background and Experience
L. Larry Mangum. L. Larry Mangum, 31, will serve as Vice
President and Treasurer of the Company. Mr. Mangum is the Vice
President of Finance of AAA. Mr. Mangum is responsible for the
financial accounting and reporting relating to the AAA-sponsored
partnerships and their properties. He previously worked for
American General Corporation, a national insurance company, from
1991-1996 as part of a team responsible for supervising their
reporting activities. Mr. Mangum received a B.B.A. degree in
accounting from Stephen F. Austin State University and
subsequently earned the CPA designation.
5. FINANCIAL STATEMENTS
The financial statements for the Company as of September 30, 1996 follow.
AMERICAN ASSET ADVISERS TRUST, INC.
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
AMERICAN ASSET ADVISERS TRUST, INC.
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996 AND DECEMBER 31, 1995
<CAPTION>
September 30, December 31,
1996 1995
(UNAUDITED)
ASSETS
<S> <C> <C>
CASH & CASH EQUIVALENTS $ 1,761,033 $ 1,564,961
PROPERTY:
Land 3,785,097 2,152,103
Buildings 4,435,713 4,436,074
8,220,810 6,588,177
Accumulated Depreciation (166,878) (81,512)
TOTAL PROPERTY 8,053,932 6,506,665
NET INVESTMENT IN DIRECT FINANCING LEASE 3,154,999 582,753
OTHER ASSETS:
Acquisition costs 94,998 77,761
Accrued rental income 58,164 23,845
Organization costs, net of accumulated
amortization of $146,705 and $99,130,
respectively 379,941 214,638
TOTAL OTHER ASSETS 533,103 316,244
TOTAL ASSETS 13,503,067 8,970,623
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Accounts payable 63,860 67,481
Compensation payable 150,000 150,000
Security deposit 15,050 15,050
TOTAL LIABILITIES 228,910 232,531
MINORITY INTEREST 3,597,249 1,596,169
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 25,000,000
shares authorized, 1,123,785 and 827,876
shares issued and outstanding, respectively 11,238 8,279
Additional paid-in capital 10,109,280 7,438,368
Accumulated distributions in excess of earnings (443,610) (304,724)
TOTAL SHAREHOLDERS' EQUITY 9,676,908 7,141,923
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 13,503,067 $ 8,970,623
See Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
AMERICAN ASSET ADVISERS TRUST, INC.
STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(Unaudited)
<CAPTION>
Quarter Year to Date
1996 1995 1996 1995
REVENUES
<S>
Rental income from operating <C> <C> <C> <C>
leases $ 185,242 $ 90,280 $ 547,704 $ 246,057
Earned income from direct
financing leases 33,143 18,590 61,001 46,678
Interest income 40,034 46,749 112,563 113,456
TOTAL REVENUES 258,419 155,619 721,268 406,191
EXPENSES
Administrative 8,544 0 25,632 0
Amortization 16,681 15,447 47,575 46,023
Compensation 0 150,000 0 150,000
Depreciation 28,459 14,313 85,366 38,528
Directors' fees 3,000 4,500 10,500 13,500
Filing fees 0 200 375 1,260
Interest 2,000 0 2,000 0
Legal & professional fees 12,514 19,148 27,289 38,259
Printing 47 2,140 4,051 6,397
Travel 0 0 885 1,330
Other 3,038 386 5,961 2,317
TOTAL EXPENSES 74,283 206,134 209,634 297,614
INCOME BEFORE MINORITY INTEREST IN
NET INCOME OF CONSOLIDATED
JOINT VENTURE 184,136 (50,515) 511,634 108,577
MINORITY INTEREST IN NET INCOME OF
CONSOLIDATED JOINT VENTURE (45,739) (19,905) (120,422) (51,811)
NET INCOME (LOSS) $ 138,397 $ (70,420)$ 391,212 $ 56,766
NET INCOME (LOSS) PER SHARE:
Primary $ 0.13 $ (0.10)$ 0.38 $ 0.09
Fully Diluted $ 0.12 $ 0.37
WEIGHTED AVERAGE COMMON AND
COMMON EQUIVALENT SHARES
OUTSTANDING:
Primary 1,081,306 706,417 1,028,815 632,763
Fully Diluted 1,383,782 1,331,291
See Notes to Consolidated
Financial Statements.
</TABLE>
<TABLE>
AMERICAN ASSET ADVISERS TRUST, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(Unaudited)
<CAPTION>
Accumulated
Additional Distributions
Common Paid in in Excess of
Stock Capital Earnings Total
<S> <C> <C> <C> <C>
Balance at December 31, 1995 $ 8,279 $ 7,438,368 $ (304,724) $ 7,141,923
Issuance of common stock 2,004 2,001,764 2,003,768
Issuance costs (202,498) (202,498)
Distributions (162,724) (162,724)
Net income 117,436 117,436
Balance at March 31, 1996 10,283 9,237,634 (350,012) 8,897,905
Issuance costs (3,891) (3,891)
Distributions (180,921) (180,921)
Net income 135,379 135,379
Balance at June 30, 1996 10,283 9,233,743 (395,554) 8,848,472
Issuance of common stock 955 978,254 979,209
Issuance costs (102,717) (102,717)
Distributions (186,453) (186,453)
Net income 138,397 138,397
Balance at September 30, 1996 $ 11,238 $ 10,109,280 $ (443,610) $ 9,676,908
See Notes to Consolidated
Financial Statements.
</TABLE>
<TABLE>
AMERICAN ASSET ADVISERS TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995
(Unaudited)
<CAPTION>
Quarter Year to Date
1996 1995 1996 1995
CASH FLOWS FROM OPERATING
ACTIVITIES
<S> <C> <C> <C> <C>
Net income (loss) $ 138,397 $ (70,420) $ 391,212 $ 56,766
Adjustments to reconcile
net income to net cash flows
from operating activities:
Amortization 16,681 15,447 47,575 46,023
Depreciation 28,459 14,313 85,366 38,528
Decrease in accounts
receivable 3,700 10,103 0 69
Increase (decrease)in
accounts payable 45,557 10,836 (3,621) 13,634
Increase in compensation
payable 0 150,000 0 150,000
Increase in security deposit 0 15,050 0 15,050
Cash receipts from direct
financing leases
in excess of (less than)
income recognized (3,661) 966 (2,185) 2,212
Decrease in escrow deposits,
net of minority
interest partners 51,900 75,000 0 0
Increase in accrued rental
income (11,916) (5,294) (34,319) (5,294)
Increase in organization costs (31,033) 0 (212,878) (15,530)
Increase in minority interest 45,739 19,905 120,422 51,811
NET CASH FLOWS FROM
OPERATING ACTIVITIES 283,823 235,906 391,572 353,269
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of real estate:
Accounted for under the
operating method (845,272) (2,699,820) (845,272) (2,716,767)
Accounted for under the
direct financiang method (1,342,805) 0 (1,342,805) 0
Acquisition costs 67,151 110,363 (17,237) (37,275)
NET CASH FLOWS FROM INVESTING
ACTIVITIES (2,120,926) (2,589,457) (2,205,314) (2,754,042)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from issuance of
stock, net of issuance costs 876,492 835,346 2,673,871 2,259,773
Decrease in short-term notes
receivable 0 793,456 0 0
Distributions paid to
shareholders (186,453) (107,803) (530,098) (289,609)
Distributions to minority
interest partners 49,403 (23,857) (133,959) (62,361)
NET CASH FLOWS FROM FINANCING
ACTIVITIES 640,636 1,497,142 2,009,814 1,907,803
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,196,467) (856,409) 196,072 (492,970)
CASH and CASH EQUIVALENTS at
beginning of period 2,957,500 1,649,026 1,564,961 1,285,587
CASH and CASH EQUIVALENTS at
end of period $ 1,761,033 $ 792,617 $ 1,761,033 $ 792,617
See Notes to Consolidated
Financial Statements.
</TABLE>
<TABLE>
AMERICAN ASSET ADVISERS TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
(Unaudited)
<CAPTION>
Quarter Year to Date
1996 1995 1996 1995
SUPPLEMENTAL SCHEDULE OF NON-
CASH FINANCING ACTIVITIES:
<S>
Real estate contributed by
partners of the consolidated <C> <C> <C> <C>
joint ventures $ 2,014,617 $ 0 $ 2,014,617 $ 0
See Notes to Consolidated
Financial Statements.
</TABLE>
AMERICAN ASSET ADVISERS TRUST, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30,1996 AND SEPTEMBER 30,1995
(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. Commencing March 17,1994, the Company
offered up to 2,000,000 additional shares of common stock
together with 1,000,000 warrants. The warrants are
exercisable at $9 per share between April 1997 and April
1998. The offering period terminated on March 15, 1996 with
subscriptions having been received for 1,028,253 shares. On
June 18, 1996 the Company offered up to 2,853,659 additional
shares of its common stock. The offering will terminate
June 17, 1998. As of September 30,1996, subscriptions had
been received for 95,532 shares in this second offering
bringing the total shares issued and outstanding to
1,123,785 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 American Asset Advisers Realty
Corporation, ("AAA"), a related party.
The consolidated financial statements include the accounts
of American Asset Advisers Trust, Inc. and its majority
interest in three 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.
Rental income is recorded ratably over the life of the
lease.
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 1996 or 1995.
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 method, the properties are recorded at
cost. Rental income is recognized ratably over the life of
the lease and depreciation is charged as incurred.
Under the direct financing 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-Q
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 and nine
month periods ended September 30, 1996 and September 30,
1995.
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, 1995.
2. RELATED PARTY TRANSACTIONS
20,001 shares of the Company's stock are owned by American
Asset Advisers Realty Corporation ("AAA"). The common stock
of AAA is wholly owned by H. Kerr Taylor, President and
Director of the Company. In addition, the Company has
entered into an Omnibus Services Agreement with AAA whereby
AAA provides acquisition, leasing, administrative and
management services for the Company. For the three and nine
months ended September 30, 1996, $8,544 and $25,632 were
paid to AAA for administrative services. No such fees were
paid to AAA during the nine months ended September 30, 1995
for administrative services.
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.
$23,390 and $78,050 of costs were incurred by AAA for the
three and nine months ended September 30, 1996 in connection
with the issuance and marketing of the Company's stock.
$16,181 and $41,405 of costs were incurred by AAA for the
three and nine months ended September 30, 1995 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. $47,064 and $129,748 of acquisition fees were
incurred and paid to AAA for the three and nine months ended
September 30, 1996. $73,446 and $195,865 of acquisition fees
were incurred and paid to AAA for the three and nine months
ended September 30, 1995.
On August 22, 1995, the Board of Directors approved a
special compensation payment plan for H. Kerr Taylor 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 subscriptions of $10,000,000 from the
Company's 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 22,
1995 Board meeting. As of the termination of the initial
public offering, the Company had sold in excess of
$10,000,000. Although Mr. Taylor 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 Mr. Taylor
demands payment. In consideration that no payment has
been demanded by Mr. Taylor for the special compensation
payment, the Board of Directors approved at its August 1,
1996 meeting the payment of interest to Mr. Taylor at an
annual rate of 8%. This interest payment will be paid at the
end of six months in cash or in stock. As of September 30,
1996, $2,000 of interest has been accrued related to this note.
No decisions as yet have been made with respect to any
additional compensation for any period after August 1995.
The Board of Directors commissioned an external study with
respect to the amount and type of compensation which could
be paid in the future to officers and/or directors, as well
as the contingencies and performance standards on which
compensation will be determined. The compensation portion
of the study has been completed and will be considered at
such time as the Board determines in the future to consider
a new compensation arrangement. Accordingly, the financial
statements do not include any accruals for compensation
subsequent to August 1995.
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, will
construct 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 Company's interest in the
joint venture is 51.9%. The property was purchased on
September 11, 1996 after the construction was completed.
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%.
3. MAJOR TENANTS
The following schedule summarizes total rental income by
lessee for the three and nine months ended September 30,
1996 and September 30, 1995:
Quarter Year to Date
1996 1995 1996 1995
Tandy Corporation $ 27,225 $ 27,306 $ 81,675 $ 81,756
America's Favorite
Chicken Co. 23,027 27,027 68,929 71,180
Blockbuster Music
Retail, Inc. 94,575 52,029 283,725 137,291
One Care Health
Industries, Inc. 50,409 2,508 151,227 2,508
Just For Feet,Inc. 22,536 - 22,536 -
Bank United 613 - 613 -
4. EARNINGS PER SHARE
The number of shares used in the calculation of primary
earnings per share for the three and nine months
ended September 30, 1996 and September 30, 1995 are based on
the weighted average number of shares of common stock
outstanding and, if dilutive, common stock equivalents
(stock warrants) of the Company using the modified treasury
stock method.
The number of shares used in the calculation of fully diluted
earnings per share for the three and nine months ended
September 30, 1996 and September 30, 1995 are based on the
weighted average number of shares of common stock outstanding
and the number of shares of common stock issued through the
exercise of the Company's stock warrants using the modified
treasury stock method.
The calculation of fully diluted earnings per share for the
three and nine months ended September 30,1995 proved to be
anti-dilutive. Consequently, fully diluted earnings per
share is not presented for these periods.
