-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ADe7ntpjBFdwkSJaicU07x+kohwEKTQr7tA7BNrjFA2i977ONTKvt3xP4N+lzWmy AF/xLdxbKAal2b+JuDP3OQ== 0000950147-98-000290.txt : 19980416 0000950147-98-000290.hdr.sgml : 19980416 ACCESSION NUMBER: 0000950147-98-000290 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980415 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASR INVESTMENTS CORP CENTRAL INDEX KEY: 0000817383 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 860587826 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-09646 FILM NUMBER: 98594360 BUSINESS ADDRESS: STREET 1: 335 NORTH WILMOT STE 250 CITY: TUCSON STATE: AZ ZIP: 85711 BUSINESS PHONE: 6027482111 MAIL ADDRESS: STREET 1: 355 N WILMONT STREET 2: STE 250 CITY: TUCSON STATE: AZ ZIP: 85711 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN SOUTHWEST MORTGAGE INVESTMENTS CORP DATE OF NAME CHANGE: 19920703 10-K 1 ANNUAL REPORT ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 Commission file number: 1-9646 ASR INVESTMENTS CORPORATION (Exact name of registrant as specified in its charter) Maryland 86-0587826 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 335 North Wilmot, Suite 250, Tucson, Arizona 85711 (Address of principal executive offices) (Zip Code) (520) 748-2111 (Registrant's telephone number, including area code) ---------------- Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ---------------- Common stock, par value $.01 per share American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] As of March 27, 1998, 4,916,199 shares of ASR Investments Corporation common stock were outstanding, and the aggregate market value of the 4,555,307 shares held by non-affiliates (based upon the closing price of the shares on the American Stock Exchange) was approximately $102,494,000. Shares of Common Stock held by each officer and director of the Company have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily conclusive. DOCUMENTS INCORPORATED BY REFERENCE None ================================================================================ TABLE OF CONTENTS
Page ---- PART I Item 1. Business .................................................................... 3 Item 2. Property .................................................................... 10 Item 3. Legal Proceedings ........................................................... 10 Item 4. Submission of Matters to a Vote of Security Holders ......................... 10 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ... 11 Item 6. Selected Financial Data ..................................................... 12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................................... 13 Item 8. Financial Statements and Supplementary Data ................................. 17 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .................................................................... 17 PART III Item 10. Directors and Executive Officers of the Registrant ......................... 18 Item 11. Executive Compensation ..................................................... 21 Item 12. Security Ownership of Certain Beneficial Owners and Management ............. 24 Item 13. Certain Relationships and Related Transactions ............................. 24 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K ............ 26 SIGNATURES ............................................................................. 28 FINANCIAL STATEMENTS ................................................................... F-1
2 PART I ITEM 1. BUSINESS Introduction In December 1997, the Company entered into an Agreement and Plan of Merger dated as of December 19, 1997 (the "Merger Agreement") among the Company, United Dominion Realty Trust, Inc. ("United Dominion"), and ASR Acquisition Sub, Inc. (a wholly owned subsidiary of United Dominion) providing for the Company to become a wholly owned subsidiary of United Dominion (the "Merger"). Under the Merger Agreement, each share of ASR common stock was convertible into 1.575 shares United Dominion common stock. The Merger Agreement was approved by the Company's stockholders on March 25, 1998, and the Merger was consummated as of the close of business on March 27, 1998. As a result, ASR became a wholly subsidiary of United Dominion and trading of ASR common stock ceased after March 27, 1998. For further information relative to the Merger and the Company, reference is made to the Company's Proxy Statement dated February 17, 1998. The Company Immediately prior to the Merger, the Company owned and operated 39 apartment communities, containing 7,550 apartment units, and one office building, located in Phoenix and Tucson, Arizona; Houston and Dallas, Texas; Albuquerque, New Mexico; and Seattle and Pullman, Washington. The apartment communities are "garden apartments," typically consisting of two- and three-story buildings in landscaped settings with ground level parking. The communities are well maintained and targeted to provide attractive lifestyles at low to moderate rates. The apartment communities were built between 1967 and 1997 and have a weighted average age by number of apartment units of approximately 14 years. The number of units per apartment community ranges from 60 to 356 and averages 182 units. Average size per unit approximates 804 square feet. Average rent at June 30, 1997 was $552 per month, with community averages ranging from $375 to $997 per month. The communities had an average occupancy rate of approximately 89%. The apartment communities typically provide residents with attractive amenities, including a clubhouse, swimming pool, other recreational facilities, laundry facilities, cable television access, patios or balconies, and mini-blinds. Certain communities offer additional amenities, such as fireplaces, storage or walk-in closets, microwave ovens, alarms, and limited access gates. The Company acquired 23 of its apartment communities since January 1, 1997. The Company's pursued business objectives designed to increase the cash flow and value of its existing portfolio of apartment communities and to continue to expand its portfolio of apartment communities through the acquisition and development of additional communities. Key elements of the Company's strategy to achieve its objectives included (i) enhancing the performance and value of its existing properties by maintaining high occupancy and favorable rental rates, managing operating expenses, and emphasizing regular programs of repairs and capital improvements, (ii) acquiring and developing additional apartment communities that have strong cash flows and capital appreciation potential, (iii) focusing on middle income properties located in geographical areas that the Company believes will experience higher growth rates in population, household formation, and employment that the national average, and (iv) disposing of investments that no longer satisfy the Company's objectives. The Company elected to be taxed as a REIT under sections 856 through 860 of the Internal Revenue Code. A REIT generally will not be subject to tax on its income to the extent that it distributes its taxable income to its stockholders and maintains its qualification as a REIT. The Company owned the apartment communities through wholly owned subsidiaries or through Heritage Communities L.P., a Delaware limited partnership ("Heritage LP" or the "Operating Partnership"), or its subsidiaries. The Company and a wholly owned subsidiary are the sole general partners of Heritage LP and at December 31, 1997, owned approximately 66% of the limited partnership interests therein. 3 The Company was incorporated in the state of Maryland on June 18, 1987. The principal executive offices of the Company were located at 335 North Wilmot, Suite 250, Tucson, Arizona 85711. Unless the context otherwise requires, the terms "Company" and "ASR" mean ASR Investments Corporation, its subsidiaries, and the Operating Partnership. Developments in 1997 In March 1997, the Company acquired a 266-unit apartment community in Houston, Texas for $4,450,000 and expected to invest $700,000 in capital improvements. The Company obtained a first mortgage loan of $3,700,000. The Company issued 86,500 shares of Common Stock for net proceeds of $1,622,000 to pay for the purchase. In April 1997, the Company acquired (i) the assets and properties of 15 separate limited partnerships owning 13 apartment communities, located in Dallas and Houston, Texas and Pullman, Washington, containing a total of 2,260 apartment units, and an office building located in Seattle, Washington (the "Winton Properties") in which Don W. Winton was the general partner (the "Winton Partnerships") and (ii) the stock of Winton & Associates, Inc. ("Winton & Associates"), the property manager of the Winton Properties (together the "Winton Acquisition"). In connection with the acquisition of the Winton Properties, the Company (a) issued approximately 682,098 shares of its Common Stock, (b) issued limited partnership interests ("LP Units") in the Operating Partnership, which were convertible into 943,701 shares of the Company's Common Stock after April 30, 1998, (c) assumed or refinanced existing first mortgage loans of $49,396,000, and (d) paid $1,250,000 of the transaction costs for the Winton Partnerships. The Company issued 70,284 shares of its Common Stock in connection with the acquisition of Winton & Associates. In April 1997, the Company acquired a 257-unit apartment community in Houston, Texas, for $6,000,000 and obtained a first mortgage loan for $4,400,000. The Company expected to invest $600,000 in capital improvements. In May 1997, the Company acquired a 175-unit apartment community in Seattle, Washington, for $4,059,000 and obtained a first mortgage loan of $2,900,000. The Company invested $400,000 in capital improvements. The Company issued 187,847 shares of Common Stock for total net proceeds of $3,394,000 to pay for these two purchases. In May 1997, the Company acquired for $8,233,000 its joint venture partner's 85% interest in La Privada Apartments, a 350-unit apartment community in Scottsdale, Arizona. The Company obtained a $3,000,000 loan to pay for the aquisition. The Company also sold to its partner the Company's 15% interest in five other joint ventures for total net proceeds of $2,062,000. As a result of these transactions, the Company owns all of its apartment communities through the Operating Partnership or subsidiaries. In connection with the acquisition of the Winton Properties, the Company also acquired Pima Mortgage Limited Partnership and Pima Realty Advisors, Inc., which were affiliates of officers of the Company and served as the manager and property manager, respectively, of the Company's day-to-day operations and apartment communities, in exchange for 262,008 shares of its Common Stock (the "Pima Mergers"). As a result, the Company became a self-administered and self-managed REIT. In September 1997, the Company acquired a portfolio of three apartment communities in Dallas, Texas for approximately $29,346,000. The Company (i) obtained or assumed first mortgage loans of approximately $18,511,000, (ii) issued 374,581 shares of common stock and 27,721 LP Units to the sellers, and (iii) paid $2,400,000 in cash to the sellers. The Company planned to spend $1,900,000 on numerous substantive improvements to the communities. In September 1997, the Company acquired a 202-unit apartment community in Kennewick, Washington, for $10,650,000. The Company assumed the existing first mortgage loan of $7,900,000, issued 91,678 shares of common stock, and paid $650,000 in cash to the seller. In October 1997, the Company acquired a 276-unit apartment community in Kitsap County, Washington, for $13,249,000. The Company obtained or assumed first mortgage loans of $7,825,000, issued 86,184 shares of common stock and paid $3,100,000 in cash to the seller. Prior to 1993, the Company invested in mortgage assets ("Mortgage Assets") entitling it to receive the excess cash flows from a pool of mortgage instruments over the required payments on the related 4 structured financing. In early 1993, the Company determined to shift its focus to the acquisition, development, and operation of apartment communities. In June, 1997, the Company sold its Mortgage Assets for approximately $13,350,000 with a gain of $10,970,000. Together with earlier redemptions, the Company received total cash flows of $14,850,000 during the second quarter of 1997 and a total of $22,350,000 for all of 1997. As a result of the sale, the Company no longer owns any Mortgage Assets. Operating Policies and Strategies The following discussion in this Item 1 relates to the strategies and operations of the Company prior to the Merger. Real Estate Activities Introduction The Company pursued various business objectives and operating, acquisition, financing and investment strategies and policies relative to its real estate activities. These policies and strategies were determined by the directors of the Company and could be amended or revised from time to time at the discretion of the directors without a vote of the stockholders of the Company. Business Objectives The Company's current business objectives were to increase the cash flow and value of its portfolio of apartment communities and to seek continued growth through the acquisition or development of additional apartment communities. Investment Policies The Company's portfolio consisted of apartment communities in the southwestern region of the United States. However, future investments were not limited (as to percentage of assets or otherwise) to any geographic area or any specific type of property. In this regard, the Company could expand its current geographic focus and could acquire other types of income-producing properties, including hotels, motels, shopping centers and office buildings. Acquisitions In evaluating acquisitions, the Company considered such factors as (i) the geographic location and type of property; (ii) the age, construction quality, condition and design of the property; (iii) the current and projected cash flow of the property and the potential to increase cash flow through lower debt service requirements, enhanced management and other factors; (iv) the potential for capital appreciation of the property; (v) the terms of tenant leases, including the potential for rent increases; (vi) the potential for economic growth and the tax and regulatory environment of the community in which the property is located; (vii) the occupancy and demand by tenants for properties of similar type in the vicinity; and (viii) the prospects for liquidity through sale, financing or refinancing of the property. In acquiring apartment properties, the Company generally sought properties that (a) were available at prices below estimated replacement cost after initial renovations and improvements, or could be developed at a cost below the estimated value upon completion, (b) were well-located in their markets, and (c) were capable of enhanced performance through intensive asset management and cosmetic improvements. Operating Strategies The Company pursued operating strategies designed to (i) achieve and maintain high occupancy and increase rental rates through effective leasing, reducing turnover rates and providing quality maintenance and services to maximize tenant satisfaction; (ii) manage operating expenses and achieve cost reductions through operating efficiencies and economies of scale generally inherent in the management of a large property portfolio in a specific region; and (iii) emphasize regular programs of repairs and capital improvements to enhance the properties' competitive advantages in their respective markets. 5 Financing Policies The Company sought to finance acquisitions with the most appropriate sources of capital, which could include undistributed funds from operations, the issuance of equity securities, the sale of assets, bank and other institutional borrowings and the issuance of debt securities. Borrowings by the Company for acquisitions could be either on a secured or unsecured basis. Property Management The Company developed computer, accounting, management, reporting and control systems to monitor property operations. Detailed annual budgets were prepared for each property. Monthly, quarterly and annual reports were prepared addressing occupancy rates, turnover ratios, budget variances, delinquencies and other operating information. Weekly reports were provided for each property detailing leasing and occupancy activities. The Company also maintained and analyzed demographic resident data. Prior to entering into a lease, the Company generally reviewed the credit of the prospective tenant to attempt to minimize bad credit risks and identify tenants having a poor rental history. This information was intended to enable the Company to identify and act quickly on specific conditions affecting individual properties. Each property was operated by a staff, including a resident manager and a maintenance and apartment preparation staff. Policies and procedures utilized at the property sites followed established federal and state laws and regulations, including lease contracts, on-site marketing procedures, credit collection and eviction standards. As a result of active onsite management and strict prospective tenant qualification standards, the Company sought to experience low rent loss to delinquencies or early lease terminations. Individual property lease programs were structured to respond to local market conditions. The Company attempted to balance rent increases with high occupancy and stabilized turnover costs. None of the properties were subject to rent control or rent stabilization regulations. Standard lease terms stipulated due dates for rent payments, late charges, no offset or withholding provisions, security deposits and damage reimbursement clauses and other provisions considered favorable to the Company. Development of Properties In July 1997, the Company completed the development of a luxury apartment community located in Tempe, Arizona. The community is built on 20 acres and consists of 356 units with an average size of 919 square feet. The total cost of the community was approximately $21.0 million. 6 Properties The following table sets forth certain information regarding the Company's apartment communities as of December 31, 1997.
Number Percentage Carrying Value of of -------------------- Apartment Apartment Amount Homes Homes (000) Per Home ----------- ------------ --------- ---------- Tucson, Arizona Acacia Hills ............... 64 0.8% $ 1,221 $19,078 Casa Del Norte ............. 84 1.1% 1,700 20,238 Desert Springs ............. 248 3.2% 5,448 21,968 Landmark ................... 176 2.3% 4,275 24,290 Park Terrace ............... 176 2.3% 3,212 18,250 Park Village ............... 60 0.8% 720 12,000 Posado Del Rio ............. 160 2.1% 3,168 19,800 South Point ................ 144 1.9% 2,191 15,215 --- ---- ------- ------- Total Tucson ............... 1,112 14.4% 21,935 19,726 ----- ---- ------- ------- Phoenix, Arizona Contempo Heights ........... 222 2.9% 6,066 27,324 La Privada (5) ............. 350 4.5% 24,751 70,717 Finisterra (1) (5) ......... 356 4.6% 20,417 57,351 ----- ---- ------- ------- Total Phoenix .............. 928 12.0% 51,234 55,209 ----- ---- ------- ------- Houston, Texas Clear Lake Falls ........... 90 1.2% 3,895 43,278 The Gallery ................ 101 1.3% 2,431 24,069 Memorial Bend .............. 124 1.6% 2,657 21,427 Nantucket Square ........... 106 1.4% 3,416 32,226 Prestonwood ................ 156 2.0% 3,371 21,609 Riviera Pines .............. 224 2.9% 4,345 19,397 Briar Park (2) ............. 80 1.0% 2,255 28,188 Country Club Place (2) ..... 169 2.2% 5,473 32,385 Chelsea Park (2) ........... 204 2.6% 5,848 28,667 Marymont (2) ............... 128 1.7% 4,496 35,125 Riverway (2) ............... 152 2.0% 2,005 13,191 Timbercreek Landing (2) .... 204 2.6% 5,688 27,882 Ivystone/Woodsedge (5) ..... 266 3.4% 5,119 19,244 London Park (5) ............ 257 3.3% 6,378 24,817 ----- ---- ------- ------- Total Houston .............. 2,261 29.3% 57,377 25,377 ----- ---- ------- ------- Dallas, Texas Aspen Court (2) ............ 140 1.8% 4,554 32,529 Greenwood Creek (2) (4) .... 328 4.2% 7,868 23,988 Highlands of Preston (2) ... 220 2.8% 8,977 40,805 Montfort Townhomes (2) ..... 83 1.1% 5,675 68,373 Springfield (2) ............ 218 2.8% 8,588 39,394 Gentry Place (5) ........... 360 4.7% 11,738 32,606 Park on Preston (5) ........ 286 3.7% 9,317 32,577 Smith Summit (5) ........... 254 3.3% 8,946 35,220 ----- ---- ------- ------- Total Dallas ............... 1,889 24.5% 65,663 34,761 ----- ---- ------- ------- Albuquerque, New Mexico Dorado Terrace ............. 216 2.8% 6,704 31,037 Villa Serena ............... 104 1.3% 3,299 31,721 Whispering Sands ........... 228 3.0% 6,928 30,386 ----- ---- ------- ------- Total Albuquerque .......... 548 7.1% 16,931 30,896 ----- ---- ------- ------- Pullman, Washington Campus Commons-North (2)(4) .................... 234 3.0% 11,095 47,415 Campus Commons-South (2)(4) 100 1.3% 4,157 41,570 ----- ---- ------- ------- Total Pullman .............. 334 4.3% 15,252 45,665 ----- ---- ------- ------- Average Economic Average Average Monthly Encumbrances Occupancy Monthly Unit Rental Rates (000) 1997 Rental Rates Size Per Sq. Ft. -------------- ----------- -------------- --------- ------------- Tucson, Arizona Acacia Hills ............... $ 1,008 93% $437 540 0.81 Casa Del Norte ............. 1,350 92% 433 525 0.83 Desert Springs ............. 4,523 94% 435 590 0.74 Landmark ................... 2,986 84% 428 641 0.67 Park Terrace ............... 2,648 85% 433 579 0.75 Park Village ............... 577 89% 393 540 0.73 Posado Del Rio ............. -- 94% 457 621 0.74 South Point ................ 1,826 87% 375 526 0.71 ------- -- ---- --- ---- Total Tucson ............... 14,918 90% 427 582 0.73 ------- -- ---- --- ---- Phoenix, Arizona Contempo Heights ........... 3,754 96% 463 595 0.78 La Privada (5) ............. 18,951 93% 890 1,195 0.75 Finisterra (1) (5) ......... 12,837 93% 830 919 0.90 ------- -- ---- ----- ---- Total Phoenix .............. 35,542 94% 765 946 0.81 ------- -- ---- ----- ---- Houston, Texas Clear Lake Falls ........... 3,068 94% 851 1,169 0.73 The Gallery ................ 1,611 95% 558 763 0.73 Memorial Bend .............. 1,887 90% 601 939 0.64 Nantucket Square ........... 2,703 94% 769 1,428 0.54 Prestonwood ................ 2,423 96% 529 957 0.55 Riviera Pines .............. 3,207 95% 502 717 0.70 Briar Park (2) ............. 1,387 97% 565 915 0.62 Country Club Place (2) ..... 3,543 92% 558 814 0.69 Chelsea Park (2) ........... 3,399 97% 548 829 0.66 Marymont (2) ............... 2,518 97% 578 876 0.66 Riverway (2) ............... 1,175 84% 362 740 0.49 Timbercreek Landing (2) .... 3,360 96% 512 775 0.66 Ivystone/Woodsedge (5) ..... 3,696 91% 475 771 0.62 London Park (5) ............ 4,401 95% 523 814 0.64 ------- -- ---- ----- ---- Total Houston .............. 38,378 94% 544 856 0.64 ------- -- ---- ----- ---- Dallas, Texas Aspen Court (2) ............ 2,016 96% 574 742 0.77 Greenwood Creek (2) (4) .... 4,987 95% 454 720 0.63 Highlands of Preston (2) ... 4,815 91% 630 786 0.80 Montfort Townhomes (2) ..... 3,999 91% 997 1,112 0.90 Springfield (2) ............ 5,439 92% 631 844 0.75 Gentry Place (5) ........... 7,443 95% 591 911 0.65 Park on Preston (5) ........ 5,595 96% 565 633 0.89 Smith Summit (5) ........... 5,536 95% 624 955 0.65 ------- -- ---- ----- ---- Total Dallas ............... 39,830 94% 593 816 0.73 ------- -- ---- ----- ---- Albuquerque, New Mexico 591 Dorado Terrace ............. 5,114 92% 528 608 0.87 Villa Serena ............... 2,630 89% 561 681 0.82 Whispering Sands ........... 5,478 91% 539 808 0.67 ------- -- ---- ----- ---- Total Albuquerque .......... 13,222 91% 539 705 0.76 ------- -- ---- ----- ---- Pullman, Washington Campus Commons-North (2)(4) .................... 6,602 72% 611 868 0.70 Campus Commons-South (2)(4) 2,732 90% 584 1,086 0.54 ------- -- ---- ----- ---- Total Pullman .............. 9,334 77% 603 933 0.65 ------- -- ---- ----- ----
7
Number Percentage Carrying Value of of ---------------------- Apartment Apartment Amount Homes Homes (000) Per Home ----------- ------------ ----------- ---------- Seattle, Washington Pacific South Center (2) (3) n/a 5,437 n/a The Court (5) ................... 175 2.3% 4,338 24,789 Arbor Terrace (5) ............... 276 3.6% 13,764 49,870 On The Boulevard (5) ............ 202 2.6% 10,705 52,995 --- ----- ------ ------ Total Seattle ................... 653 8.5% 34,244 52,441 --- ----- ------ ------ Total ............................ 7,725 100.0% $262,636 33,998 ===== ===== ======== ====== Average Economic Average Average Monthly Encumbrances Occupancy Monthly Unit Rental Rates (000) 1997 Rental Rates Size Per Sq. Ft. -------------- ----------- -------------- --------- ------------- Seattle, Washington Pacific South Center (2) (3) 3,205 n/a n/a n\a n\a The Court (5) ................... 2,904 93% 490 590 0.83 Arbor Terrace (5) ............... 7,868 83% 634 880 0.72 On The Boulevard (5) ............ 7,952 77% 732 938 0.78 ----- --- --- --- ---------- Total Seattle ................... 21,929 89% 626 635 0.98 ------ --- --- --- ---------- Total ............................ $173,153 92% 574 791 0.73 ======== === === === ==========
Notes (1) The Company completed construction in June 1997. (2) Property acquired April 30, 1997. Averages for monthly rental rates are for eight months. All other properties are for the 1997 year, unless otherwise noted. (3) Pacific South Center, an office building, has been excluded in the calculation for average rent per unit, occupancy percentage, and rent per foot. (4) The two Campus Commons properties are occupied approximately 90-95% by students for ten months and approximately 50% occupied at much lower rent for the other two months. Rent in the two summer months is approximately $150 a month per unit, while rent at December 97 is approximately $765 and $729 for Campus Commons North and South, respectively. (5) Average monthly rental rate is rate for December 1997. 8 Capital Resources Subject to the terms of the Company's Bylaws, the availability and cost of borrowings, various market conditions and restrictions that may be contained in the Company's financing arrangements from time to time and other factors as described herein, the Company could increase the amount of funds available for its activities with the proceeds of borrowings including mortgage loans, short-term borrowing and other credit arrangements. A substantial portion of the assets of the Company from time to time was pledged to secure indebtedness incurred by the Company. Accordingly, such assets were not be available for distribution to the stockholders of the Company in the event of the Company's liquidation except to the extent that the value of such assets exceeds the amount of such indebtedness. The Company obtained a first mortgage loan for each of its properties. At December 31, 1997, the mortgage loans totalled $173,153 million, which bore interest rates that averaged 8.1%. The mortgage loans generally are non-recourse to the Company and are not cross-collateralized. The Company's Bylaws prohibited it from incurring indebtedness if, after giving effect to the incurrence thereof, aggregate indebtedness, secured and unsecured, would exceed 300% of the Company's net assets, on a consolidated basis, unless approved by a majority of the Unaffiliated Directors. For this purpose, the term "net assets" means the total assets (less intangibles) of the Company at cost, before deducting depreciation or other non-cash reserves, less total liabilities, as calculated at the end of each quarter in accordance with generally accepted accounting principles. The Company could increase its capital resources by making additional offerings of its Common Stock or securities convertible into the Company's Common Stock. The actual or perceived effect of such offerings could result in the dilution of the book value or earnings per share which may result in the reduction of the market price of shares of the Company's Common Stock. Operating Restrictions The Company could not purchase commodities or commodity futures contracts (other than interest rate futures when used solely for hedging). The Company could not invest in unimproved real property or underwrite securities of other issuers. The foregoing restrictions could not be changed without the approval of the holders of a majority of the outstanding shares of the Company's Common Stock. Except as otherwise restricted, the operating policy of the Company was controlled by its Board of Directors, which had the power to modify or alter such policy without the consent of the stockholders. HERITAGE COMMUNITIES L.P. Heritage Communities L.P. (the "Heritage LP") is a Delaware limited partnership in which the Company and a wholly owned subsidiary of the Company are the general partners and at December 31, 1997, owned approximately 66% of the limited partnership interest. Heritage LP acquired substantially all of the assets and properties of the Winton Partnerships through a capital contribution by the Winton Partnerships to Heritage LP of such assets and properties in exchange for cash and LP Units. 9 Competition Numerous real estate companies, insurance companies, financial institutions, pension funds and other property owners competed with the Company in seeking properties for acquisition and in attracting and retaining tenants. Employees The Company had 248 full-time salaried employees as of March 27, 1998. Management Prior to April 30, 1997, the Company had management agreements with Pima Mortgage L.P. and Pima Realty Advisors, Inc. (the "Pima Entitites") for the management of the Company and its properties. The Pima Entities were owned by Jon A. Grove, Joseph C. Chan, and Frank S. Parise, Jr. who were executive officers of the Company. On April 30, 1997, the Company acquired the entire interests in the Pima Entities and thus became a self-administered and self-management REIT. ITEM 2. PROPERTY See "Business -- Operating Policies and Strategies -- Real Estate Activities -- Properties." The principal executive offices of the Company were located at 335 North Wilmot, Suite 250, Tucson, Arizona 85711. ITEM 3. LEGAL PROCEEDINGS Not applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 10 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock was listed and principally traded on the Amex under the symbol the "ASR." The following table sets forth for the periods indicated the high and low sales prices of the Company's Common Stock as reported by the Amex and the cash dividends paid per share of the Company's Common Stock for the periods indicated. As a result of the Merger, trading of ASR Common Stock ceased after March 27, 1998.
Dividend High Low per share ---- --- --------- 1995 First quarter .......... $20 $10 15/16 $ 0.50 Second quarter ......... 19 3/8 16 1/4 0.50 Third quarter .......... 20 1/2 17 3/4 0.50 Fourth quarter ......... 18 3/8 15 0.50 1996 First quarter .......... 17 3/4 15 3/8 0.50 Second quarter ......... 18 3/8 16 7/8 0.50 Third quarter .......... 19 3/4 17 1/2 0.50 Fourth quarter ......... 22 3/8 18 7/8 0.50 1997 First quarter .......... 24 3/4 20 1/4 0.50 Second quarter ......... 23 3/4 18 5/8 0.50 Third quarter .......... 24 21 7/8 0.50 Fourth quarter ......... 23 11/16 20 5/8 0.50
On March 27, 1998, the closing sales price for shares of the Company's Common Stock on the Amex Composite Tape was $221|M/2 per share and the approximate number of holders of record of Common Stock was 2,000. 11 ITEM 6. SELECTED FINANCIAL DATA (In thousands) The selected consolidated financial data presented below were derived from the audited Consolidated Financial Statements of the Company.
Years ended December 31, ------------------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Consolidated Statements of Operations Data Income from real estate Rental and other income ................................. $ 33,034 $ 14,581 $ 14,034 $ 12,528 Operating and maintenance expenses, real estate taxes and insurance .................................... (15,077) (6,855) (6,719) (5,497) Interest expense ........................................ (10,054) (4,348) (4,387) (3,941) Depreciation and amortization ........................... (6,335) (2,819) (2,692) (1,995) --------- -------- -------- -------- Income from real estate ................................ 1,568 559 236 1,095 --------- -------- -------- -------- Gain from sale of real estate .......................... 474 --------- -------- -------- -------- Income from mortgage assets Prospective yield income ................................ 588 2,630 3,884 6,433 $ 7,264 Income from redemptions and sales ....................... 16,650 9,461 5,302 4,263 Interest expense ........................................ (25) (181) (347) (2,596) (4,794) Provision for reserves .................................. (20,286) --------- Income from mortgage assets ............................ 17,213 11,910 8,839 8,100 (17,816) --------- -------- -------- -------- --------- Income before administrative expenses, acquisition related expenses, other income (expense) and allocation to minority unit holders ..................... 19,255 12,469 9,075 9,195 (17,816) Acquisition related expenses ............................. (6,684) (381) Administrative expenses .................................. (3,114) (3,203) (2,983) (2,216) (1,949) Other income (expense) net ............................... 732 (44) 462 723 286 --------- -------- -------- -------- --------- Income before allocation of minority unit holders ........ 10,189 8,841 6,554 7,702 40,570 Allocation of income to minority holders ................. (355) --------- -------- -------- -------- --------- Income (loss) before cumulative effect of accounting change .................................... 9,834 8,841 6,554 7,702 (19,479) Cumulative effect of accounting change ................... (21,091) --------- Net Income ............................................... $ 9,834 $ 8,841 $ 6,554 $ 7,702 $ (40,570) ========= ======== ======== ======== =========
December 31, ------------------------------------------------------------- 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Consolidated Balance Sheet Data Apartment and other real estate assets ......... 264,332 $85,938 $79,510 $73,056 $ 3,855 Mortgage assets ................................ -- 5,039 11,877 18,965 37,881 Total assets ................................... 280,743 97,796 94,169 96,745 54,068 Real estate notes payable ...................... 173,153 49,110 49,212 50,693 Mortgage assets borrowing, net ................. -- 2,014 4,495 6,422 22,062 Stockholders' Equity ........................... 78,535 40,102 37,395 37,100 30,948
- ------------ * Prior to December 1993, the Company followed the practice of writing down the carrying value of a mortgage asset (including an allocated portion of the deferred hedging cost) to its estimated future cash flows. In December 1993, the Company adopted SFAS No. 115, which requires that the carrying value of a mortgage asset be written down to its estimated fair value when its estimated yield is less than a "risk-free yield." As a result, the Company wrote down substantially all its mortgage assets in 1993 to their estimated fair value and recorded a charge of $21,091,000, which was reported as a cumulative effect of accounting change. 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General ASR Investments Corporation (the "Company") is a real estate investment trust that engaged primarily in the acquisition and operation of apartment communities in the southwestern United States. Prior to 1994, the Company invested in mortgage assets. In early 1993, the Company determined to shift its focus to the acquisition, development and operation of apartment communities. At December 31, 1996, the Company owned directly 18 apartment communities (2,683 units) in operation and one community (Finisterra Apartments) under construction. These communities are located in Arizona, Texas, and New Mexico. The Company completed the construction of the Finisterra Apartments (356 units) in July 1997 and made substantial amounts of acquisitions in 1997. See Note 2 to consolidated financial statements for certain detailed information on the acquisitions. Below is a summary of the 1997 acquisitions (dollars in thousands):
First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ----- Number of communities acquired ..... 1 17 4 1 23 Number of units acquired ........... 266 3,042 1,102 276 4,686 Total purchase price ............... $ 4,450 $118,782 $ 39,996 $13,249 $ 176,477 Total mortgage loans ............... $ 3,700 $ 75,696 $ 26,411 $ 7,825 $ 113,632 Number of common stock issued ...... 86,500 869,945 466,259 86,184 1,508,888 Number of convertible LP Units issued ................... -- 943,701 27,721 -- 971,422
In May 1997, the Company sold to its partner the Company's entire interests in five joint ventures for total net proceeds of $2,062,000. The Company was a 15% equity partner and managing member of the joint ventures. The Company received between 15% and 51% of the net profits and cash flow depending on the performance of the joint ventures. At December 31, 1997, the Company owned 41 apartment communities with a total of 7,725 units and an office building. In 1997, the Company received $20,880,000 from the sale or redemption of all its remaining mortgage assets and realized total redemption income of $16,650,000. As a result of the sale of all of its mortgage assets, the Company will not realize any mortgage asset cash flows or income in future periods. The operating income from apartments is affected primarily by rental rates, occupancy rates, and operating expenses. Rental rates and occupancy rates are affected by the strength of the local economy, the local housing market, and the supply of and demand for new apartment communities. As discussed above, the Company owned mortgage assets (all acquired prior to 1993). These mortgage assets entitled the Company to receive the excess of the cash flow on pools of mortgage instruments over the required payments on a series of structured financings which they secured. Income and cash flows from mortgage assets were affected primarily by mortgage prepayment rates and short-term interest rates. Higher mortgage prepayment rates or higher short-term rates reduce the income and total cash flows over the life of the mortgage assets. Prepayment rates are affected primarily by mortgage interest rates. Mortgage assets are amortizing assets, and the cash flows decline over time. The Company also had the option to cause the early redemption of the structured financings at par after specified conditions were met (generally when the structured financing is below a specified balance or after a specified date). In such event, the mortgage instruments were sold and the net proceeds after the redemption of the structured financing were remitted to the Company. Mortgage asset redemptions had the effect of accelerating the cash flows and increasing the value. Redemption and sales transactions occurred from time to time as specified conditions were met rather than on a monthly or quarterly basis, and the net proceeds were affected by the market price of the mortgage instruments. Thus, the cash flows 13 and income from redemption transactions fluctuated significantly between periods. Mortgage asset redemptions and sales reduced the cash flows and income in future periods. The Company's income included income from redemption and sales of mortgage assets of $16,650,000, $9,461,000, and $5,302,000 for the years ended December 31, 1997, 1996, and 1995, respectively. Results of Operations 1997 Compared to 1996 Real Estate Operations. Real estate operating income and expenses increased substantially primarily due to acquisitions made in 1997. Below are the operating results of the new communities for the period owned by the Company during 1997 (in thousands): Rental and other income ........................ $ 18,455 -------- Operating & maintenance expenses ............... 5,985 Property management expenses ................... 107 Real estate taxes & insurance expenses ......... 2,058 Interest expense ............................... 5,481 Depreciation expense ........................... 3,505 -------- Total real estate operating expenses ........... 17,136 -------- Income from real estate ........................ $ 1,319 ======== On a "same store" basis (i.e., for properties owned by the Company during 1996), the Company realized a 0.28% decrease in net operating income ("NOI"). Below are the rates of increase or decrease in the components of the NOI: Oper. & Taxes Rental Maint. Insurance Income Expense Expense NOI ------ ------- ------- --- Total ............... 0.4% 2.5% (4.2)% ( 0.3)% Tucson .............. (4.1)% (0.4)% (2.1)% ( 7.3)% Phoenix ............. 7.2% 4.5% 2.5% 9.2% Houston ............. 6.4% 3.7% (9.0)% 14.4% Albuquerque ......... (4.3)% 6.0% 9.6% (10.2)% The gain on sale of real estate of $474,000 resulted from the sale of the Company's interest in the joint ventures in May of 1997. Income from the joint ventures for the 1996 year was $89,000. Mortgage Assets. Decreases in income from mortgage assets and related interest expense were due to the sale of the entire mortgage asset portfolio in June 1997. Administrative Expenses, Acquisition Related Expenses and Other Income, Administrative expenses decreased by $89,000 for 1997 primarily as a result of a decrease in payments on dividend equivalents rights as the number of dividend equivalent rights outstanding was lower in 1997 compared to 1996. Acquisition related expenses increased by $6,303,000 as a result of the acquisition of the Company's Manager and Property Manager and the payment of certain bonuses in connection with the acquisition of the Winton properties (see Note 9 to the consolidated financial statements). Other income increased by $776,000 due to interest earned on the proceeds from the sale of the mortgage assets in 1997 and as the 1996 amount included writeoff of certain real estate investments. Minority interests of Unitholders In Operating Partnership. The minority interest for 1997 represents the allocation of income related to unitholder in Heritage Communities L.P. See Note 4. The Company had no minority unitholders in 1996 1996 Compared to 1995 Real Estate Operations. Rental and other income increased $547,000 in 1996 primarily as a result of (i) $346,000 from rental rate increases (attributable primarily to a 3% increase in the Houston communities), (ii) $201,000 from higher occupancy rates (attributable primarily to the Tucson communities), (iii) 14 $242,000 from prior rental increases becoming effective as leases are renewed or the apartment is re-leased, and (iv) $69,000 from communities acquired through joint ventures. The increases were mitigated by $238,000 from rental concessions (attributable primarily to the Albuquerque communities). Operating and maintenance expense increased $145,000 (2.8%) as a result of to the community acquired in February 1995 and to increased payroll expense (attributable primarily to the Tucson communities). Real estate taxes and insurance remained flat as there were no increases or decreases in rates. Depreciation and amortization increased by $127,000 (4.7%) primarily as a result of the community acquired in February 1995 and to capital improvements on the apartment communities. Interest expense on real estate mortgages decreased due to lower principal balances resulting from monthly payments. Mortgage Assets. As a result of amortization of the investment in and redemption and sales of mortgage assets in 1995 and 1996, the 1996 prospective yield income decreased by $1,254,000. The average balance of mortgage assets decreased from $14,827,000 for 1995 to $8,118,000 for 1996. The decrease in income was mitigated by an increase in the average prospective yield from 28% for 1995 to 35% for 1996. Redemptions and sales of nine mortgage assets in 1996 generated total income of $9,461,000. In 1995, redemptions and sales of five mortgage assets generated total income of $2,882,000. In addition, the Company recorded income of $2,420,000 in 1995 from the reversal of the excess yield maintenance payment accrued in 1993 on notes payable secured by mortgage assets which were paid off in February 1995. Interest expense related to the mortgage assets decreased due to lower short-term borrowing and the payoff of a note in April 1995. Operating Expenses and Other Income. Administrative expenses increased in 1996 primarily as a result of an increase in expense accruals for stock appreciation rights of $151,000 as a result of price increases in the Company's common stock. Acquisition related expenses increased in 1996 as a result of $381,000 in expenses related to future acquisitions. Other income decreased due primarily to $380,000 in write offs of cancelled real estate projects. The income in 1995 included a gain of $311,000 from the early payoff of a note payable and a $180,000 gain from the sale of an asset. The 1995 income was offset by a $350,000 reserve on a real estate investment. Funds From Operations Funds from operations ("FFO") is one of the common measures of performance in the equity REIT industry. FFO is generally defined as net income plus certain non-cash charges (primarily depreciation and amortization), less gains from sales of assets and after adjustments for unconsolidated partnerships and joint ventures. The Company has made the following adjustments in calculating its FFO, as modified: (i) income from redemptions and sales of mortgage assets is excluded as the Company considers such income to be similar in nature to gains from sales of real estate; (ii) certain non-recurring charges are added back as the charges relate to a defined and limited period; and (iii) while the stock options that carry dividend equivalent rights ("DERs") are anti-dilutive, they are included in the FFO per share calculation as the Company believes the options are likely to be exercised by their expiration date of December 16, 1998 because the exercise price is substantially below the current stock price. As not all REITs and financial analysts calculate FFO in the same manner, FFO as reported herein may not be comparable to similarly titled measures as reported by other REITs. FFO, as modified, should not be considered as an alternative to net income (determined in accordance with generally accepted accounting principles) as an indication of Company's financial performance. FFO also should not be considered as an alternative to cash flow from operating activities determined in accordance with generally accepted accounting principles because (i) FFO excludes income from sales and redemptions of mortgage assets that are included in cash flow through operating activities, (ii) FFO is adjusted to exclude certain non-recurring charges, and (iii) FFO is not adjusted for changes in accrual as is cash flow from operating activities. FFO is not necessarily indicative of available cash flow to fund all of the Company's needs. The Company believes that in order to facilitate a clear understanding of the consolidated historical operating results of the Company, FFO should be considered in conjunction with net income as presented in the consolidated financial statements. As described in Note 2 to the consolidated financial statements, the Company has made numerous acquisitions in 1997. The Company has also presented the proforma FFO data assuming that all of the 15 acquisitions were completed as of the beginning of the period. The proforma data are provided for information purposes only and are not indicative of the results that would have occurred or which may occur in the future. Actual and proforma FFO data, as modified, for the year ended December 31, 1997, are as follows (in thousands): Actual Pro Forma ------ --------- Net Income ................................ $ 9,834 $ 10,523 Depreciation and amortization ............. 6,905 9,634 Certain non-recurring charges(*) .......... 7,513 7,513 Dividend equivalent rights ................ 680 680 Income from redemptions and sales of mortgage assets .......................... (16,650) (16,650) Gain on sale of real estate ............... (474) (474) Funds from operations ..................... $ 7,808 $ 11,226 - ------------ (*) Non-recurring charges relate to stock appreciation rights for certain employees, acquisition-related expenses and contract termination expense. The Company expects its FFO to increase as (i) the Finisterra Apartments achieved stabilization (90% occupancy rate) in August, and (ii) it completes substantial capital improvements to certain communities acquired in 1997. The above FFO data are not necessarily indicative of the FFO amounts for future periods as they will depend on the performance of the existing apartment communities and as well as new communities. Liquidity, Capital Resources and Commitments Cash provided by operations for 1997 was $26,864,000 compared with $14,061,000 in 1996. The increase was primarily a result of (i) higher net income due primarily to a $7,189,000 increase in income from redemptions and sales of mortgage assets as the Company sold its remaining mortgage asset portfolio in June 1997, (ii) higher non-cash charges relating to depreciation (an increase of $3,634,000) and acquisition related expense ($5,250,000), and (iii) higher expense accruals. Cash provided by operations for 1996 was higher than 1995 as a result of an increase in income from redemptions and sales of mortgage assets ($9,461,000 for 1996 compared to $5,302,000 for 1995, which included a non-cash credit of $2,420,000 for the reversal of accrued excess yield maintenance payment on notes payable). Cash used in investing activities totaled $40,660,000 in 1997 compared to $6,872,000 and $2,394,000 in 1996 and 1995, respectively. The increase in cash usage of $33,788,000 in 1997 compared to 1996 primarily reflects (i) an increase of $35,771,000 in investments in apartments and an increase of $5,087,000 in restricted cash as a result of the acquisitions made in 1997, while making no acquisitions in 1996 and (ii) a decrease of $1,799,000 from the reduction in mortgage assets as the Company sold its remaining portfolio in June 1997. The increase in cash usage was mitigated by (i) $3,253,000 from joint venture distributions and proceeds resulting from the sale of the Company's interest in such joint ventures, (ii) a decrease of $5,544,000 in construction expenditures for the Finisterra Apartments community, and (iii) an increase of $72,000 in cash provided by other real estate assets. Cash used in investing activities in 1996 was higher by $4,478,000 compared to 1995 due primarily to the Company's construction of its Finisterra Apartment community offset partially by a decrease in investments in apartments as the Company did not make any apartment purchases in 1996 while acquiring one apartment community in 1995. Cash provided by financing activities was $14,380,000 in 1997 compared to cash used in financing activities of $7,207,000 in 1996. The increase of $21,587,000 reflects (i) an increase in the issuance of real estate notes payable of $13,540,000 related to the acquisitions made in 1997, with no similar purchases in 1996, (ii) an increase of $12,340,000 in proceeds from the Finisterra Apartment's construction loan, (iii) a decrease of $467,000 in repayments of short-term borrowing, (iv) an increase in stock issuance of $4,948,000 and (v) an increase of $305,000 from other financing activities. The increase was mitigated by (i) an increase of repayment of real estate note of $2,503,000, (ii) an increase in payment of dividends of $2,198,000, (iii) payment of distributions to minority unit holders of $1,428,000 as there were no minority 16 interest holders in 1996, (iv) a decrease of $3,162,000 in construction cost payable as construction of the Finisterra Apartment community was completed in July 1997, and (v) an increase of $722,000 in loan costs related to the financing of the 1997 apartment acquisitions. Cash used in financing activities was $7,207,000 in 1996 compared with cash used in financing activities of $6,826,000 in 1995. The increase of $381,000 in cash used in financing activities resulted primarily from (i) a decrease of $6,895,000 in real estate borrowing related to the acquisition of apartment communities in 1995 and (ii) a decrease of $6,976,000 in short-term borrowing, The increase in cash used by financing activities was mitigated by (i) a decrease of $7,598,000 and $4,002,000 in the repayment of real estate notes and notes secured by mortgage assets, respectively, (ii) an increase of $1,581,000 in construction costs payable related to the construction of the Finisterra Apartment community, and (iii) a net increase of $309,000 in other financing activities. During 1997, the Company obtained new mortgage loans or assumed existing mortgage loans totalling $113,632,000 in connection with its apartment acquisitions. In addition, as discussed in Note 2 to the consolidated financial statements, the Company had obtained a $15,350,000 construction loan to finance the construction of its Finisterra apartment community. The loan bore interest at 1% per annum above the bank's prime rate. In September 1997, the Company converted the construction loan ($12,748,000 at December 31, 1997) into a mini-perm loan that bears interest at 2.5% over the one-month LIBOR. The loan matures at the end of March 1998 at which time the Company may extend the loan or refinance it to a permanent loan at a lower interest rate. Excluding the construction loan, all the Company's mortgage loans are nonrecourse and non-cross collateralized. They generally have terms from seven to fifteen years. At December, 31, 1997, the mortgage loans consisted of $145,364,000 of fixed rate loans and $27,789,000 of variable rate loans which includes the construction loan. The fixed interest rates range from 7.1% to 10.1%, with a weighted average rate for all the Company's loans of 8.1% at December 31, 1997. The principal and interest payments on these loans are approximately $1,330,000 per month. In addition, the Company is required to deposit $530,000 per month with the lender to be used for specified capital replacement expenditures, property taxes and insurance premiums. At December 31, 1997, $8,825,000 was held by lenders. Capital expenditures for the apartment communities were $4,457,000 in 1997. On February, 27, 1998, the Company obtained a $2,500,000 short-term loan secured by one its apartment communities. The apartment community's first mortgage loan had been paid off in December 1997. The loan bears interest at one-month LIBOR plus 2.75% and matures on August 27, 1998. The loan proceeds, in addition to the unrestricted cash of $2,987,000 at December 31, 1997, were used to fund the Company's operating expenses and costs associated with the merger described in the following paragraph. Other Information Apartment leases generally are for terms of six to 12 months. Such short-term leases lessen the impact of inflation as a result of the ability to adjust rental rates to market levels as leases expire. To the extent that the inflation rate influences federal monetary policy and results in rising short-term interest rates or declines in mortgage interest rates, the income and cash flows from the mortgage assets would be affected. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the financial statements, the report thereon, the notes thereto and the supplementary data commencing at page F-1 of this report, which financial statements, report, notes and data are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 17 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Directors and Executive Officers of the Company The following table sets forth certain information regarding the Company's directors and executive officers immediatly prior to the merger.
Name Age Position(s) With The Company ---- --- ---------------------------- Jon A. Grove 54 Chairman of the Board, President, Chief Executive Officer and Director Frank S. Parise, Jr. 46 Vice Chairman, Executive Vice President, Chief Administrative Officer, and Director Joseph C. Chan 46 Executive Vice President, Chief Operating Officer, Secretary, Treasurer and Director Dale A. Webber 37 Vice President Roger A. Karber 43 Vice President, Property Development Thomas A. Heeringa 44 Vice President Mary C. Clements 31 Controller Earl M. Baldwin 54 Director Steven G. Davis 47 Director John J. Gisi 52 Director Raymond L. Horn 68 Director Frederick C. Moor 66 Director
Jon A. Grove served as Chairman of the Board of Directors, President, Chief Executive Officer and a director of the Company since its organization in June 1987. Mr. Grove also served as the President of one of the general partners of the Manager and was a director and principal stockholder of Pima Realty Advisors, Inc. (the "Property Manager") from their respective organizations until their acquisition by the Company in April 1997. From 1974 to 1989, Mr. Grove was employed with The Estes Co. (now called GWS), a company which founded the Company and which develops, constructs, and sells residential, multi-family, commercial and industrial real estate, most recently as executive vice president and chief operating officer. Mr. Grove also has been Chairman of the Board and a Director of American Southwest Holdings, Inc. and its affiliates since their organization; these companies are Arizona-based corporations involved in the issuance and administration of mortgage-collateralized bonds. Frank S. Parise, Jr. served as Vice Chairman of the Board of Directors, Executive Vice President, and Chief Administrative Officer of the Company since December 1988 and a director of the Company since its organization. Mr. Parise also has served as the President of one of the general partners of the Manager and was the President, a director and principal stockholder of the Property Manager from their respective organizations until their acquisition by the Company in April 1997 since its organization in November 1993. From 1985 to 1989, Mr. Parise was employed by The Estes Co., most recently as President of its Financial Services Division and Multifamily Development Division. From 1982 to 1985, Mr. Parise was the President of E. Allen Development Corporation, a company that acquired and managed apartments. Joseph C. Chan served as a director of the Company since February 1989, Executive Vice President and Chief Operating Officer since December 1988, Treasurer since April 1994, and Secretary since March 1996. Mr. Chan served as the Vice President and Treasurer of the Company from its organization until December 1988. Mr. Chan also served as the President of one of the general partners of the Manager since its organization and was a director and principal stockholder of the Property Manager from their respective organizations until their acquisition by the Company in April 1997. From 1986 to 1987, Mr. Chan served as an officer of The Estes Co. Dale A. Webber served as a Vice President of the Company since September 1987. Roger A. Karber served as Vice President, Property Development of the Company since January 1995. From 1989 to 1994, Mr. Karber was president of Festival Markets, Inc., a company that developed 18 specialty retail centers. From 1979 to 1989, Mr. Karber was employed by The Estes Co., where he was instrumental in establishing its apartment operations, which included developing over 1,500 apartment units. Thomas A. Heeringa served as a Vice President of the Company since March 1996. He has been employed by the Company since December 1988. Mary C. Clements served as Controller of the Company since May 1994. Ms. Clements was employed by Deloitte & Touche LLP, an international accounting firm, from her graduation in May 1990 until she joined the Company in May 1994. Earl M. Baldwin served as a director of the Company since its organization. Since 1985, Mr. Baldwin has been president of Baldwin Financial Corp., a risk management consulting service company for mortgage lenders specializing in hedging and secondary market strategy. From 1973 to 1985, Mr. Baldwin was employed by Security Pacific Mortgage Corporation ("SPMC"), a mortgage banking company, serving most recently as its executive vice president. Steven G. Davis served as a director of the Company since May 1997. He currently serves as a director of ROC Communities, Inc., a public REIT that owns and operates manufactured home communities. Mr. Davis was a founding shareholder of ROC and served as its Executive Vice President, Chief Financial Officer, Secretary and Treasurer from 1993-1997. From 1990-1993, Mr. Davis was President and a director of The Windsor Corporation which was merged with ROC. From 1985-1990, Mr. Davis was responsible for the real estate investment banking division of LPL Financial Services. John J. Gisi served as a director for the Company since February 1989. Mr. Gisi has served as the President and Chief Executive Officer of National Bancorp of Arizona, Inc., a wholly owned subsidiary of Zions Bancorporation, and as the Chairman of the Board, President and Chief Executive Officer of National Bank of Arizona since September 1984. Mr. Gisi also serves as a director of several subsidiaries of Zions Bancorporation. Raymond L. Horn served as a director of the Company since its organization. Mr. Horn serves as tax advisor to several Phoenix-based real estate companies. Mr. Horn, a certified public accountant and lawyer, presently is in private practice after retiring from Deloitte Haskins & Sells (now Deloitte & Touche LLP) as the partner-in-charge of that firm's Arizona tax practice. Mr. Horn is a member of numerous professional and business associations including the American Institute of Certified Public Accountants and the American Bar Association. Frederick C. Moor served as a director of the Company since February 1989. Mr. Moor presently is retired after 33 years of employment with The Valley National Bank of Arizona (now Bank One, Arizona), most recently as Vice President and Banking Services Manager for the Eastern Division. All directors were elected at each annual meeting of the Company's stockholders and held office until their successors are elected and qualified. All officers served at the discretion of the Board of Directors. Meetings and Committees During the year ended December 31, 1997, the Board of Directors of the Company held a total of five regular meetings and two special meetings in connection with deliberation of the Merger. No director attended fewer than 75% of the meetings of the Board of Directors. The Company's Bylaws authorized Board of Directors to appoint among its members an executive committee, an audit committee and other committees. A majority of the members of any committee so appointed were required to be Unaffiliated Directors. For 1997, the Board of Directors appointed an Audit Committee and a Compensation Committee. Messrs. Gisi and Horn served as the members of the Company's Audit Committee and Compensation Committee. The Audit Committee reviewed the annual financial statements, any significant accounting issues and the scope of the audit with the Company's independent auditors and was available to discuss with the auditors any other accounting and audit related matters which may arise during the year. The Audit Committee met separately at one formal meeting during 1997, which was attended by all of the members of the Committee. The Compensation 19 Committee reviewed the compensation of the executive officers and all transactions involving executive officers and their affiliates. The Compensation Committee did not meet during 1997. Compliance with Section (16a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than 10% of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC") and the American Stock Exchange. Officers, directors and greater than 10% stockholders are required by SEC regulation to furnish the Company with copies of all Section (16a) reports they file. Based solely on the Company's review of such reports received by it during the fiscal year ended December 31, 1997, and written representations that no other reports were required, the Company believes that each person who, at any time during such fiscal year. was a director, officer or beneficial owner of more than 10% of the Company's Common Stock complied with all Section 16(a) filing requirements during such year or prior fiscal years. 20 ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the cash compensation paid to the Company's executive officers whose total cash and cash equivalent remuneration exceed $100,000 for the year ended December 31, 1996. Summary Compensation Table
Long Term Compensation ------------------------------------ Awards Payouts Annual Compensation ------------------------- -------- Name and Principal ------------------------------------- Restricted Options/ LTIP All Other Position Year Salary Bonus (2) Other Stock SARs Payout Compensation - -------- ---- ------ --------- ----- ----- ---- ------ ------------ Jon A. Grove (1)(2) 1997 $ 66,667 $267,000 $ 69,913 -- -- Chairman, President, 1996 -- -- 179,431 -- -- and Chief Executive 1995 -- -- 180,431 -- -- Officer Frank S. Parise, Jr. (1)(2) 1997 $ 66,667 $267,000 $ 69,913 -- -- Vice Chairman, 1996 -- -- 179,114 -- -- Executive Vice 1995 -- -- 180,431 -- -- President, and Chief Administrative Officer Joseph C. Chan (1)(2) 1997 $ 66,667 $267,000 $ 69,913 -- -- Director, Executive 1996 -- -- 179,114 -- -- Vice President, 1995 -- -- 180,431 -- -- Secretary, and Chief Operating Officer Dale A. Webber 1997 $100,000 -- $194,035 -- -- Vice President 1996 -- -- 141,729 70,000 -- 1995 108,447 -- -- -- -- Roger A. Karber 1997 $ 75,000 -- $296,364 -- -- Vice President 1996 -- -- 117,835 50,000 -- 1995 100,000 $ 15,000 -- -- -- --
- ------------ (1) Messrs. Grove, Parise, and Chan became salaried employees of the Company on May 1, 1997 upon the Company's acquisition of the Pima Entities. Prior to that date, Messrs. Grove, Parise, and Chan did not receive any cash or cash equivalent compensation directly from the Company. They received their compensation from the Manager, the partners of which were corporations owned by these individuals. See "Certain Relationships and Related Transactions." The amounts listed under Other Compensation represent the total cash payments received or receivable from the Manager by these individuals and the corporations owned by them. (2) The bonuses for Messers. Grove, Parise and Chan relate to the acquisition of the Winton Properties. See "Executive Compensation -- Employment Agreements." 21 The following tables set forth certain stock option information concerning the officers included in the above table. Option/SAR Grants in Last Fiscal Year
% Of Total Potential Realizable Value Options/ Options/SARs at Assumed Annual Rates SARs Granted To Exercise Of Stock Price Appreciation Granted Employees In Or Base Expiration For Option Term (#) Fiscal Year Price Date 5% 10% --- ----------- ----- ---- -- --- Jon A. Grove None N/A N/A N/A N/A N/A Frank S. Parise, Jr. None N/A N/A N/A N/A N/A Joseph C. Chan None N/A N/A N/A N/A N/A Dale A. Webber None N/A N/A N/A N/A N/A Roger A. Karber None N/A N/A N/A N/A N/A
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR Values
Value of Number of Unexercised Unexercised In-the-Money Options/SARs Options/SARs Shares at FY-End (#) at FY-End ($) Acquired Value Exercisable/ Exercisable/ Name On Exercise Realized Unexercisable Unexercisable ---- ----------- -------- ------------- ------------- Jon A. Grove -- -- 138,581 $1,710,505 -- -- Frank S. Parise, Jr. (1) -- $440,447 110,221 1,359,534 -- -- Joseph C. Chan (1) -- 440,447 108,515 1,326,412 -- -- Dale A. Webber -- 160,414 47,930 191,194 -- -- Roger A. Karber -- 306,460 -- --
- ------------ (1) These officers exchanged the value of the SARs into option agreements granted under Key Executive Share Option Plan (the "KEYSOP") adopted by the Company on January 31, 1997. Under the KEYSOP, a participant can elect to defer the receipt of future compensation and exchange the value of such deferred compensation into options to purchase designated property from the Company. The Company is required to purchase the designated property for options granted. The obligations of the Company to the participants are unsecured general obligations and the designated properties purchased by the Company are general assets of the Company. Compensation Committee Interlocks and Insider Participation The Compensation Committee of the Board of Directors performed the functions of making recommendations to the Board concerning the Company's compensation policies applicable to its executive officers. Messrs. Grove, Parise and Chan served both directors and the principal executive officers of the Company. All compensation matters relating to the Company's principal executive officers, however, were decided by the Unaffiliated Directors, consisting of Messrs. Baldwin, Davis, Gisi, Horn, and Moor. The principal executive officers made recommendation to the Board concerning the compensation of other executive officers of the Company. None of the Unaffiliated Directors have ever been officers or employees of the Company or any of its subsidiaries. Messrs. Grove, Parise, and Chan abstained from participating in the deliberations of the Board of Directors concerning the approval of the Management Agreement, the Property Management Agreements, the acquisition of the Manager and the Property Manager by the Company, or any other matters relating to their compensation. In addition, during 1997 none of the executive officers, including Messrs. Grove, Parise, and Chan, served on the board of directors or the compensation committee of the entities that employed any of the Unaffiliated Directors. 22 Compensation of Directors During the fiscal year ended December 31, 1997, the Company paid an annual director's fee to each Unaffiliated Director equal to $24,000 and a fee of $500 for each meeting of the Board of Directors attended by each Unaffiliated Director and reimbursement of costs and expenses of all directors for attending such meetings. Additionally, each member of the Audit Committee and the Compensation Committee received a fee of $300 for each meeting attended by the member. Affiliated Directors do not receive any fees for serving on the Board of Directors. Employment Agreements Each of Messrs, Grove, Parise, and Chan was a party to an employment agreement (collectively, the "Employment Agreements") with the Company. Under the Employment Agreements, each of Messrs. Grove, Parise, and Chan received compensation of $100,000 per annum and was eligible to receive an annual bonus in such amount, if any, as may be determined by the non-management directors of the Company and fringe benefits generally made available from time to time to employees of the Company. Each of Messrs. Grove, Parise, and Chan was employed under the Employment Agreements for a term of five years commencing May 1, 1997 and from year-to-year thereafter until terminated by either party. The Company could terminate the Employment Agreements during the initial five-year term without penalty only for cause as defined in the agreements. The Employment Agreements also contained provisions that (i) prohibit Messrs. Grove, Parise, and Chan from competing with the business of the Company while employed by the Company and for 12 months after the termination of employment, and (ii) prohibit Messrs. Grove, Parise, and Chan during the term of employment and for a period of 12 months after termination of employment, from directly or indirectly, for themselves or on behalf of any other person, seeking to hire or hiring any of the Company's personnel or employees. The Employment Agreements also required Messrs. Grove, Parise, and Chan to take all necessary precautions to prevent any unauthorized disclosure of any "Confidential Information" of the Company, as that term is defined in the Employment Agreements. In connection with the acquisition of the Winton Properties, the Company paid each of Messrs. Grove, Chan, and Parise a bonus of approximately $267,000. Winton & Associates received commissions from the sellers of approximately $927,000, of which approximately $268,000 was paid to employees of Winton & Associates and $659,000 was paid to Mr. Winton. The bonuses paid to Messrs. Grove, Chan, and Parise were approved by the Unaffiliated Directors. As a result of the Merger, the employment agreements were terminated and the Company paid the compensation amounts for the remaining term of the employments agreements. 23 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of March 27, 1998, there were outstanding 4,916,199 shares of Common Stock. The following table sets forth the beneficial ownership of Common Stock of the Company as of such date, by each person known by the Company to own more than 5% of the outstanding shares of Common Stock of the Company, by each director of the Company, and by all directors and executive officers of the Company as a group, which information as to beneficial ownership is based upon statements furnished to the Company by such persons. The number of shares also includes (1) any shares of Common Stock owned of record by such person's minor children and spouse and by other related individuals and entities over whose shares of Common Stock such person has custody, voting control or the power of disposition and (2) shares of Common Stock that such persons had the right to acquire within 60 days by the exercise of stock options (excluding the SARs) (see "Stock Option Plans").
Name and Number of Percent of Beneficial Owner Shares Total(1) - ---------------- ------ -------- Jon A. Grove ......................................................... 233,527 4.7% Joseph C. Chan ....................................................... 231,308 4.6 Frank S. Parise, Jr. ................................................. 206,631 4.1 Earl M. Baldwin ...................................................... 3,477 (2) Steven G. Davis ...................................................... -- (2) John J. Gisi ......................................................... 2,625 (2) Raymond L. Horn ...................................................... 5,988 (2) Frederick C. Moor .................................................... 3,378 (2) All directors and executive officers as a group (11 persons) ......... 700,586 13.3%
- ------------ (1) In calculating the percentage of ownership, the number of shares of Common Stock that the identified person or group had the right to acquire within 60 days upon the exercise of stock options is deemed to be outstanding for the purpose of computing the percentage of the shares of Common Stock owned by such person, but such shares are not deemed to be outstanding for the purpose of computing the percentage of the shares of Common Stock owned by any other person. (2) Less than 1% of the outstanding shares of Common Stock. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS On April 30, 1997, pursuant to the approval of the stockholders of the Company, the Company acquired the entire interests in Pima Mortgage Limited Partnership (the "Manager") and Pima Realty Advisors, Inc. (the "Property Manager"). The owners of the Manager remain as Directors and executive officers of the Company. The following description relates to the arrangement prior to May 1, 1997. The Company was a party to a management agreement (the "Management Agreement") with the Manager to manage the day-to-day operations of the Company, subject to the supervision of the Company's Board of Directors. Jon A. Grove, Frank S. Parise, Jr., and Joseph C. Chan served as directors or officers of general partners of the Manager since its organization. See "Management -- Directors and Executive Officers of the Company." The duties of the Manager under the Management Agreement included formulating operating strategies; arranging for the acquisition of assets for the Company; monitoring the performance of the Company's assets; and providing certain administrative and overall managerial services necessary for the operation of the Company. For performing these services, the Manager received an annual base management fee in an amount equal to 3|M/8 of 1% per annum of the Average Invested Assets of the Company (as defined in the Management Agreement), which was paid monthly with adjustments made quarterly. The Manager also performed certain analysis and other services in connection with the administration of mortgage securities with respect to which the Company acquired mortgage interests. For such services, the Company reimbursed the Manager for the fees paid under the Subcontract Agreement described 24 below and paid the Manager an annual administration fee of $10,000 for each series of mortgage interests acquired prior to 1991, $20,000 for the aggregate mortgage interests acquired in 1991 and $20,000 for the aggregate mortgage interests acquired in 1992. In 1997, the Company paid the Manager management fees and administration fees of approximately $219,000. The payment of such fees was unanimously approved by the Unaffiliated Directors. In the event that the Management Agreement was terminated by the Company or was not renewed by the Company on terms at least as favorable to the Manager as the current Management Agreement other than as a result of a termination by the Company for cause (as specified in the Management Agreement), the Manager would be entitled to receive from the Company the management fee that would have been payable by the Company to the Manager pursuant to such Management Agreement based on the investments made by the Company prior to the date of such termination (or failure to renew) for the 12 full fiscal quarters beginning on the date of such termination (or failure to renew) as more fully described in the Management Agreement. The Manager granted the Company a right of first refusal, for as long as the Manager or an affiliate of the Manager acted as the Company's manager pursuant to the Management Agreement or any extension thereof, to purchase any assets held by the Manager or its affiliates prior to any sale, conveyance or other transfer, voluntarily or involuntarily, of such assets by the Manager or its affiliates. The Company was a party to a property management agreement (collectively the "Property Management Agreements") with the Property Manager for each of the apartments acquired by the Company. The Property Manager was an affiliate of the Manager. Each Property Management Agreement, which had a current term through December 31, 1997, was approved by the Unaffiliated Directors. Under the agreement, the Property Manager provided the customary property management services at its cost without profit or distribution to its owners, subject to the limitation of the prevailing management fee rates for similar properties in the market. In 1997, the Company paid the Property Manager $190,000. Prior to June 1997, the Company owned certain mortgage interests with respect to structured financing issued by American Southwest Holdings, Inc. ("ASH"). An affiliate of ASH performed the customary administration services and received fees for such services of $12,500 per year for each series of structured financing. The Company believed that the fees charged by ASH were comparable to those charged by other companies performing similar services. Jon A. Grove, Chairman of the Board, President and Chief Executive Officer of the Company, is Chairman of the Board of Directors of ASH and its affiliates and owns 12.5% of the voting stock of ASH. The Company has agreed to indemnify and hold harmless ASH and certain affiliates from any action or claim brought or asserted by any party by reason of any allegation that ASH or such affiliates is an affiliate or is otherwise accountable or liable for the debts or obligations of the Company or its affiliates. 25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements and Financial Statement Schedules filed as part of this report: 1. Financial Statements of the Company -- as listed in the "Index to Financial Statements and Financial Statement Schedule" on page F-1 of this Annual Report Form 10-K. 2. Financial Statement Schedules -- Schedule III on page F-19. No other schedules are required because of the absense of conditions under which they are required or because the information is given in the financial statements and notes beginning on page F-1 of this Annual Report on Form 10-K. (b) Exhibits
Exhibit Number Exhibit - ------ ------- 2 Agreement and Plan of Merger dated as of December 19, 1997 between the Registrant and a wholly owned subsidiary of United Dominion Realty Trust, Inc.(8) 3(a) First Amended and Restated Articles of Incorporation of the Registrant(1) 3(b) Articles of Amendment to the First Amended and Restated Articles of Incorporation of the Registrant(3) 3(c) Bylaws of the Registrant(1) 4 Specimen Certificate representing $.01 par value Common Stock(1) 10(a) Management Agreement between the Registrant and ASMA Mortgage Advisors Limited Partnership(5) 10(b) Subcontract Agreement between ASMA Mortgage Advisors Limited Partnership and American Southwest Financial Services, Inc.(3) 10(c) Right of First Refusal between the Company and the Manager(3) 10(d) Limited Partnership Agreement of Southwest Capital Mortgage Funding Limited Partnership(2) 10(e) Amended and Restated Stock Option Plans(4) 10(f) Indemnification and Use of Name Agreement Between the Company and American Southwest(4) 10(g) Dividend Reinvestment and Stock Purchase Plan(3) 10(h) Agreement for Purchase and Sale of Apartments ("Purchase Agreement") dated July 15, 1993 by and between Buyer and Seller.(6) 10(i) First Amendment to Purchase Agreement dated August 18, 1993, by and between Buyer and Seller.(6) 10(j) Second Amendment to Purchase Agreement dated September 21, 1993 by and between Buyer and Seller.(6) 10(k) Third Amendment to Purchase Agreement dated October 27, 1993 by and between Buyer and Seller.(6) 10(l) Master Property Management Agreement with Pima Realty Advisors, Inc. for the year ending December 31, 1994 and the signature page for each of the properties.(6) 10(m) Second Articles of Amendment to the First Amended and Restated Articles of Incorpo- ration of the Registrant.(7) 10(n) Third Articles of Amendment to the First Amended and Restated Articles of Incorporation of the Registrant.(7) 10(o) First Amendment to the Bylaws of the Registrant.(7) 10(p) Deed of Trust, Security Agreement, Financing Statement and Assignment of Leases and Rents dated as of January 11, 1994 made by the following entities for the benefit of Lexington Mortgage Company(6): ASV-I Properties, Inc. ASV-III Properties, Inc. ASV-IV Properties, Inc. ASV-V Properties, Inc. ASV-VI Properties, Inc.
26
Exhibit Number Exhibit - ------ ------- ASV-VII Properties, Inc. ASV-VIII Properties, Inc. ASV-IX Properties, Inc. ASV-X Properties, Inc. ASV-XI Properties, Inc. ASV-XII Properties, Inc. ASV-XIII Properties, Inc. ASV-XIV Properties, Inc. ASV-XV Properties, Inc. ASV-XVI Properties, Inc. 22 Subsidiaries of the Registrant
- ------------ (1) Incorporated herein by reference to Registrant's Registration Statement on Form S-11 (No. 33-15232) filed August 19, 1987 and declared effective on August 19, 1987. (2) Incorporated herein by reference to Registrant's Registration Statement on Form S-11 (No. 33-20429) filed March 16, 1988 and declared effective on March 17, 1988. (3) Incorporated herein by reference to Registrant's Form 10-K for the year ended December 31, 1988 as filed with the Commission on or about March 30, 1989. (4) Incorporated herein by reference to Registrant's Registration Statement on Form S-3 (33-42923) filed on September 30, 1991 and declared effective on October 1, 1991. (5) Incorporated herein by reference to Registrant's Form 10-K for the year ended December 31, 1992. (6) Incorporated herein by reference to Registrant's Report on Form 8-K filed with the Commission on or about March 29, 1994. (7) Incorporated herein by reference to Registrant's Form 10-K for the year ended December 31, 1995 as filed with the Commission on or about April 1, 1996. (8) Incorporated herein by reference to Registrant's and United Dominion Realty Trust Inc.'s Proxy Statement and Registration Statement on Form S-4 (No. 333-45305) filed February 13, 1998 and declared effective on February 17, 1998 (c) Reports on Form 8-K: A Report on Form 8-K dated October 27, 1997, was filed on November 6, 1997, announcing the acquisition of a 276 unit apartment community located in Port Orchard, Washington. A Report on Form 8-K/A dated October 27, 1997, was filed on January 6, 1998 amending the Form 8-K filed on November 6, 1997 to include (i) historical summary of revenues and certain expenses for the year ended December 31, 1996 and the nine months ended September 30, 1997, (ii) Proforma combined fiancial statements for the year ended December 31, 1996 and the nine months ended September 30, 1997, and (iii) other financial information and exhibits for the acquisitions described in the 8-K. 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. ASR INVESTMENTS CORPORATION By: /s/ JON A. GROVE ------------------------------------ Jon A. Grove Date: March 27, 1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ JON A. GROVE Director, Chairman of the Board, March 27, 1998 - --------------------------- President and Chief Executive Officer Jon A. Grove (Principal Executive Officer) /s/ FRANK S. PARISE, JR. Director, Vice Chairman, Chief March 27, 1998 - --------------------------- Administrative Officer Frank S. Parise, Jr. /s/ JOSEPH C. CHAN Director, Executive Vice President, March 27, 1998 - --------------------------- Chief Operating Officer (Principal Joseph C. Chan Financial and Accounting Officer) and Secretary /s/ EARL M. BALDWIN Director March 27, 1998 - --------------------------- Earl M. Baldwin /s/ JOHN J. GISI Director March 27, 1998 - --------------------------- John J. Gisi /s/ RAYMOND L. HORN Director March 27, 1998 - --------------------------- Raymond L. Horn /s/ FREDERICK C. MOOR Director March 27, 1998 - --------------------------- Frederick C. Moor /s/ STEVEN G. DAVIS Director March 27, 1998 - --------------------------- Steven G. Davis
28 ASR INVESTMENTS CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Page ----- Independent Auditors' Report ......................................................... F-2 Consolidated Balance Sheets as of December 31, 1997 and 1996 ......................... F-3 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995 ....................................................................... F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995 ....................................................................... F-5 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995 ....................................................................... F-6 Notes to Consolidated Financial Statements ........................................... F-7 Schedule III--Real Estate and Accumulated Depreciation ............................... F-18
F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of ASR Investments Corporation. We have audited the accompanying consolidated balance sheets of ASR Investments Corporation as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1997. Our audit also included the financial statement schedule listed in the Index at Item 14. The financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 1997 and 1996, and the results of its operations and cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. DELOITTE & TOUCHE LLP Tucson, Arizona February 27, 1998 (March 27, 1998 as to Note 12) F-2 ASR INVESTMENTS CORPORATION Consolidated Balance Sheets December 31, 1997 and 1996 (Dollars in Thousands)
1997 1996 ---- ---- Assets Real estate investments: Land ........................................................... $ 50,855 $ 15,514 Buildings and improvements ..................................... 225,624 58,476 Construction in progress ....................................... 14,694 Land held for development ...................................... 925 925 Investments in joint ventures .................................. 2,811 Other real estate .............................................. 771 1,022 ---------- ---------- Total real estate investments ............................... 278,175 93,442 Accumulated depreciation ....................................... (13,843) (7,504) ---------- ---------- Real estate investments, net of depreciation ................ 264,332 85,938 Cash and cash equivalents ........................................ 2,987 2,403 Mortgage assets .................................................. 5,039 Restricted cash .................................................. 8,825 2,930 Deferred loan fees ............................................... 1,461 1,090 Goodwill ......................................................... 1,356 Other assets ..................................................... 1,782 396 ---------- ---------- Total assets ................................................ $ 280,743 $ 97,796 ========== ========== Liabilities Real estate notes payable ........................................ $ 173,153 $ 48,855 Construction loan payable ........................................ 255 Short-term borrowing ............................................. 2,014 Construction costs payable ....................................... 1,581 Security deposits and deferred rental income ..................... 2,271 644 Other liabilities ................................................ 8,330 4,345 ---------- ---------- Total liabilities ........................................... 183,754 57,694 ---------- ---------- Commitments and Contingencies (Note 2, 3 and 4) Minority Interest of Unitholders in Operating Partnership ......... 18,454 ---------- Stockholders' Equity Common Stock, par value $.01 per share, 40,000,000 shares authorized; 5,174,799 and 3,307,892 shares issued .............. 51 33 Additional paid in capital ....................................... 193,415 155,964 Deficit .......................................................... (111,636) (112,964) Stock note receivable ............................................ (267) (385) Treasury stock -- 184,742 and 160,742 shares ..................... (3,028) (2,546) ---------- ---------- Total stockholders' equity .................................. 78,535 40,102 ---------- ---------- Total liabilities and stockholders' equity ..................... $ 280,743 $ 97,796 ========== ==========
See Notes to Consolidated Financial Statements. F-3 ASR INVESTMENTS CORPORATION Consolidated Statements of Operations For the Years Ended December 31, 1997, 1996 and 1995 (In thousands)
1997 1996 1995 ---- ---- ---- Real Estate Operations Rental and other income ............................................ $ 33,034 $ 14,581 $ 14,034 -------- -------- -------- Operating and maintenance expenses ................................. 11,629 5,404 5,259 Real estate taxes and insurance .................................... 3,448 1,451 1,460 Interest expense on real estate mortgages .......................... 10,054 4,348 4,387 Depreciation and amortization ...................................... 6,335 2,819 2,692 -------- -------- -------- Total operating expenses ...................................... 31,466 14,022 13,798 -------- -------- -------- Income from real estate ............................................ 1,568 559 236 -------- -------- -------- Gain on sale of real estate ........................................ 474 -------- Mortgage Assets Prospective yield income ........................................... 588 2,630 3,884 Income from redemptions and sales .................................. 16,650 9,461 5,302 Interest expense ................................................... (25) {181) (347) -------- -------- -------- Income from mortgage assets ........................................ 17,213 11,910 8,839 -------- -------- -------- Income Before Administrative Expenses, Aquisition Related Expenses, Other Income (Expense) And Minority Interests Of Unitholders In Operating Partnership ............................... 19,255 12,469 9,075 Administrative expenses ............................................ (3,114) (3,203) (2,983) Aquisition related expenses ........................................ (6,684) (381) Other income (expense), net ........................................ 732 (44) 462 -------- -------- -------- Income Before Minority Interests Of Unitholders In Operating Partnership ........................................................ $ 10,189 $ 8,841 6,554 Minority interests of unitholders in operating partnership ......... (355) -------- Net Income .......................................................... $ 9,834 $ 8,841 $ 6,554 ======== ======== ========
See Notes to Consolidated Financial Statements. F-4 ASR INVESTMENTS CORPORATION Consolidated Statements of Cash Flows For the Years Ended December 31, 1997, 1996 and 1995 (In Thousands)
1997 1996 1995 ---- ---- ---- OPERATING ACTIVITIES Net income ................................................... $ 9,834 $ 8,841 $ 6,554 Principal noncash charges Depreciation and amortization ............................... 6,905 3,271 3,028 Minority interests of unitholders in operating partnership .. 355 Aquisition related expenses ................................. 5,250 Gain on sale of real estate ................................. (474) Reversal of yield maintenance accrual ....................... (2,420) Increase in deferred compensation ........................... 1,439 Increase in stock appreciation rights ....................... 642 856 705 (Increase) decrease in other assets ......................... (1,386) 27 234 Increase (decrease) in other liabilities .................... 4,299 1,066 (589) --------- --------- -------- Cash Provided By Operations .................................. 26,864 14,061 7,512 --------- --------- -------- INVESTING ACTIVITIES Investment in apartments ..................................... (37,034) (1,263) (8,505) Construction expenditures .................................... (6,209) (11,753) Proceeds from sale of real estate ............................ 2,830 Investment in joint ventures ................................. 358 (65) (1,895) Purchase of land for development ............................. (3,928) Other real estate assets ..................................... 251 179 3,985 Restricted cash .............................................. (5,895) (808) 861 Reduction in mortgage assets ................................. 5,039 6,838 7,088 --------- --------- -------- Cash Used In Investing Activities ............................ (40,660) (6,872) (2,394) --------- --------- -------- FINANCING ACTIVITIES Issuance of real estate notes payable ........................ 13,540 6,895 Payment of loan costs ........................................ (793) (71) Proceeds from construction loan .............................. 12,595 255 Repayment of notes payable Real estate notes ........................................... (2,860) (357) (7,955) Notes secured by mortgage assets ............................ (4,002) Short-term borrowing ......................................... (2,014) (2,481) 4,495 Construction costs payable ................................... (1,581) 1,581 Stock issuance ............................................... 5,033 85 45 Payment of dividends ......................................... (8,506) (6,308) (6,304) Distributions to Minority Interests .......................... (1,428) Other ........................................................ 394 89 --------- --------- -------- Cash Provided By (Used In) Financing Activities .............. 14,380 (7,207) (6,826) --------- --------- -------- CASH AND CASH EQUIVALENTS Increase (decrease) during the period ....................... 584 (18) (1,708) Balance -- beginning of period .............................. 2,403 2,421 4,129 --------- --------- -------- Balance -- end of period .................................... $ 2,987 $ 2,403 $ 2,421 ========= ========= ======== Supplemental Disclosure of Cash Flow Information Interest paid ................................................ $ 10,847 $ 4,525 $ 5,033 Interest capitalized ......................................... 575 99 Stock issued for contract termination ........................ 5,250 Non-cash transactions associated with acquisitions: Issuance of common stock .................................... 26,909 Issuance of convertible LP Units ............................ 19,527 Notes payable assumed ....................................... 100,092
F-5 ASR INVESTMENTS CORPORATION Consolidated Statement of Stockholders' Equity For the Years Ended December 31, 1997, 1996 and 1995 (In Thousands)
Common Additional Stock in Number of Par Paid-In Notes Treasury -- Shares Value Capital Deficit Receivable at Cost Total ------ ----- ------- ------- ---------- ------- ----- Balance, December 31, 1994 .......... 3,249 $32 $ 155,126 $ (115,747) $ (2,311) $ 37,100 Net income .......................... 6,554 6,554 Dividends ........................... (6,304) (6,304) Stock issuance (repurchase) ......... 54 1 696 $ (652) 45 ----- --- --------- ---------- ------ -------- -------- Balance, December 31, 1995 .......... 3,303 33 155,822 (115,497) (652) (2,311) 37,395 Net income .......................... 8,841 8,841 Dividends ........................... (6,308) (6,308) Stock issuance (repurchase) ......... 5 53 267 (235) 85 Other ............................... 89 89 ----- --- --------- ---------- ------ -------- -------- Balance, December 31, 1996 .......... 3,308 33 155,964 (112,964) (385) (2,546) 40,102 Net income .......................... 9,834 9,834 Dividends ........................... (8,506) (8,506) Stock issuance (repurchase) (Note 2 & 10) ...................... 1,867 18 37,451 118 (482) 37,105 ----- --- --------- ---------- ------ -------- -------- Balance, December 31, 1997 .......... 5,175 $51 $ 193,415 $ (111,636) $ (267) $ (3,028) $ 78,535 ===== === ========= ========== ====== ======== ========
See Notes to Consolidated Financial Statements. F-6 ASR INVESTMENTS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 and 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Business -- ASR Investments Corporation (the Company) is a real estate investment trust engaged in the acquisition and operation of apartment communities in the Southwestern United States. At December 31, 1997, the Company owned 41 apartment communities and one office building located in Arizona, Texas, New Mexico and Washington. Prior to 1994, the Company invested in mortgage assets. In early 1993, the Company determined to shift its focus to the acquisition, development and operation of apartment communities. Principles of Consolidation -- The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. Investments in joint ventures are accounted for on the equity method as the Company does not own a controlling interest. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. Common Stock -- On July 7, 1995, the Company effected a reverse stock split under which one new share of common stock was issued in exchange for five shares of outstanding stock. Accordingly, the consolidated financial statements reflect the reverse stock split and the number of common stock issued and the per share amounts have been adjusted for the reverse stock split for all years. Real Estate Investments and Depreciation -- Real estate is recorded at cost. Depreciation is computed on a declining balance basis over the estimated remaining useful lives of the assets, which are 271|M/2 years for buildings and improvements and 7 years for furniture, fixture and equipment. Expenditures for ordinary maintenance and repairs are charged to operations as incurred and significant renovations and improvements that improve or extend the useful life of the asset are capitalized. Revenue Recognition -- Rental income is recorded when due from tenants and is recognized monthly as it is earned, which is generally on a straight line basis. Deferred Loan Costs -- Deferred loan costs are amortized using the interest method over the terms of the related debt. Mortgage Assets -- The Company's mortgage interests entitled it to receive the excess of the cash flows on pools of mortgage instruments over the required payments on a series of structured financings which were secured. The Company also had the right to cause the early redemption of the structured financings under specified limited conditions; in such event, the mortgage instruments were sold and the net proceeds after the redemption of the structured financing were remitted to the Company. Redemption transactions occurred from time to time as specified conditions were met rather than on a monthly or quarterly basis; therefore, the amount of net proceeds and the income from the redemption transactions fluctuated significantly between periods. Presentation and Income Recognition. Mortgage assets are stated at their net investment amounts. Income was recognized using the prospective yield method. Under this method, an effective yield is calculated at the beginning of an accounting period using the then net carrying value of the asset and the estimated future net cash flow assuming no early redemption. The estimated future net cash flow is calculated using variable interest rates and current projected mortgage prepayment rates for the underlying mortgages. The calculated yield is used to accrue income for the accounting period. Actual cash flow received is first applied to the accrued income and any remaining amount is used to reduce the carrying value of the asset. Income from early redemption was recognized when the transaction was completed. Income Taxes -- The Company has elected to be taxed as a real estate investment trust (REIT) under the Internal Revenue Code of 1986, as amended. As a REIT, the Company must distribute to its stockholders at least 95% of the higher of (i) its annual taxable income after the use of net operating loss carryforward or (ii) its annual excess inclusion income. Accordingly, no provision has been made for income taxes in the accompanying consolidated financial statements. F-7 ASR INVESTMENTS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued) Minority Interests -- Net income is allocated to Minority Interests based on their respective ownership percentages in Heritage Communities L.P. LP units held by non-affiliates are considered common stock equivalents in the determination of earnings per share. See Note 4 for additional description of the Partnership. Gain on Sale of Real Estate -- Gains on sales of properties are recognized by the Company when the recognition criteria set forth by generally accounting principles have been met. Use of Estimates -- The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect some of the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Stock Compensation -- In October 1995, the Financial Accounting Standards Board issued FASB No. 123, "Accounting for Stock-Based Compensation." This statement encourages, but does not require, companies to adopt a new accounting method for stock-based compensation awards. Companies that do not adopt the new accounting method are required to provide the disclosures required by the Statement for any awards made in 1995 and after. After December 15, 1994, the Company has not made any awards that would have been treated differently in the determination of net income under FASB No. 123 and accordingly, pro forma presentation is not required. Accounting for the Impairment of Long-Lived Assets -- Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If the sum of the expected future cash flows (undiscounted and without interest charges) from an asset to be held and used is less than the carrying amount of the asset, an impairment loss must be recorded for the difference between the carrying amount of the asset and the fair value. Earnings Per Share -- No earnings per share information has been presented as the Company was acquired by United Dominion Realty (see Note 3). Reclassification -- Certain reclassifications have been made to conform the prior years with the current year presentation. F-8 ASR INVESTMENTS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued) 2. REAL ESTATE ACQUISITIONS AND DEVELOPMENT At December 31, 1996, the Company owned directly 18 apartment communities (2,683 units) in operation and one community (Finisterra Apartments) under construction. These communities are located in Arizona, Texas, and New Mexico. The Company completed the construction of the Finisterra Apartments (356 units) in June 1997. The Company made the following acquisitions during 1997 (dollars in thousands):
First Second Third Fourth Quarter Quarter Quarter Quarter Total ------- ------- ------- ------- ----- Number of communities acquired ......... 1 17 4 1 23 Number of units acquired ............... 266 3,042 1,102 276 4,686 Total purchase price ................... $4,450 $118,782 $39,996 $13,249 $176,477 Total mortgage loans ................... $3,700 $ 75,696 $26,411 $ 7,825 $113,632
Winton Acquisition. On April 30, 1997, the Company completed the acquisition of 13 apartment communities containing 2,260 units located in Houston and Dallas, Texas and Pullman, Washington, and one office building located in Seattle, Washington (the "Winton Properties"). The acquisitions were made pursuant to a Master Combination and Contribution Agreement dated November 8, 1996. The sellers were 15 separate limited partnerships. The total purchase price of the properties was approximately $83,223,000. The Company (i) assumed or refinanced first mortgage loans totalling $49,396,000, (ii) issued 682,098 shares of common stock, (iii) issued limited partnership units ("LP Units") convertible to 943,701 shares of common stock of the Company after April 30, 1998; and (iv) paid the sellers $1,250,000 for transaction costs. As a part of the acquisition, the Company issued 70,284 shares of common stock to acquire the entire interests in Winton & Associates, the property management company for the Winton Properties. The acquisitions of the Winton Properties and Winton & Associates have been accounted for under the purchase method. The common stock and the LP Units are recorded at $20.038 per share, the average closing price of the Company's common stock for the ten days preceding the announcement of the acquisitions on November 19, 1996. The excess of the cost of the purchase price of Winton & Associates over the net tangible assets acquired is recorded as goodwill and is being amortized over 20 years. Merit Acquisition On September 18, 1997, the Company acquired a portfolio of three apartment communities (totaling 900 units) in Dallas, Texas, for approximately $29,346,000. The Company (i) obtained or assumed mortgage loans of approximately $18,511,000 with an average fixed interest rate of 7.57%, (ii) issued 374,581 shares of common stock and 27,721 of convertible LP Units, and (iii) paid $2,400,000 in cash to the sellers. The Company plans to spend $1,900,000 on numerous substantive improvements to the communities. Individual Acquisitions In March 1997, the Company acquired a 266-unit apartment community in northwest Houston, Texas for $4,450,000. The Company plans to spend $700,000 on numerous substantive improvements to the community. The Company obtained a first mortgage loan of $3,700,000 with a fixed rate of 8.39%. The Company issued 86,500 shares of common stock for net proceeds of $1,622,000 to provide for the cash used in the acquisition. In April 1997, the Company acquired a 257-unit community in Houston, Texas, for $6,000,000 and obtained a first mortgage loan for $4,400,000 with a fixed interest rate of 8.57%. The Company plans to spend $600,000 on numerous substantive improvements to the community. On May 9, 1997, the Company acquired a 175-unit apartment community in Seattle, Washington, for $4,059,000 and obtained a first mortgage loan of $2,900,000 with a fixed interest rate of 8.67%. The Company plans to spend $400,000 on numerous substantive improvements to the community. The Company issued 187,847 shares of common stock for total net proceeds of $3,394,000 to pay for the two purchases. On September 30, 1997, the Company acquired a 202-unit apartment community located in Kennewick, Washington, for $10,650,000. The Company (i) assumed mortgage debt of $7,900,000 with an F-9 ASR INVESTMENTS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued) interest rate of 7.87%, (ii) issued 91,678 shares of the Company's common stock and (iii) paid $650,000 in cash to the seller. As the community is relatively new, the Company does not plan to incur major capital improvement expenditures. On October 27, 1997, the Company acquired a 276-unit apartment community in Kitsap County, Washington, for $13,249,000. The Company (i) obtained or assumed mortgage loans of approximately $7,825,000 with an average fixed interest rate of 8.47%, (ii) issued 86,184 shares of common stock and (iii) paid $3,100,000 in cash to the seller. As the community is relatively new, the Company does not plan to incur major capital improvement expenditures. Development/Construction In Progress In March 1996, the Company began construction of a 356-unit apartment community, Finisterra Apartments, in Tempe, Arizona. At December 31, 1996, the Company had invested $14,694,000 of its own cash and began the lease up phase in December 1996. In June 1997, the construction was substantially completed at a total cost of approximately $21,000,000. The Company obtained a $15,350,000 construction loan of which $255,000 was outstanding at December 31, 1996. The construction loan was converted to a mini-perm loan that bears interest at 2.5% over the one-month LIBOR. The loan becomes due on March 26, 1998 at which time the Company may renew the loan. Joint Ventures Prior to May 1997, the Company owned six apartment communities (1,441 units) through joint ventures in which the Company was a 15% equity partner and the managing partner. On May 1, 1997, the Company acquired the remaining interest in one joint venture, La Privada Apartments L.L.C., for $8,233,000 and sold to its partner the Company's entire interests in the other five joint ventures for total net proceeds of $2,062,000. The Company recorded a gain of $474,000 on the sale. The La Privada Apartments is a 350-unit community in Scottsdale, Arizona. The Company obtained a $3,000,000 loan to pay for the acquisition. The loan bears interest at 3% over LIBOR. The purchase increased the Company's investment in apartments by approximately $25,500,000 and real estate notes payable by $19,000,000. With the above transactions, the Company, at December 31, 1997, owned 41 apartment communities containing 7,725 units and an office building. Proforma Data The following selected unaudited pro forma results of operations data for the years ended December 31, 1997 and 1996 have been prepared as if the above transactions (excluding the sale described below) had occurred at January 1, 1996. The proforma data are provided for information purposes only and are not indicative of the results that would have occurred or which may occur in the future (in thousands).
1997 1996 ---- ---- Real and other income ..................... $ 46,822 $ 44,759 Real estate operating expenses: Operating .............................. (21,306) (20,642) Depreciation and amortization .......... (9,634) (9,839) Interest expense or real estate mortgages .......................... (13,694) (13,429) --------- --------- Income from real estate ................... 2,188 849 Gain on sale of real estate ............... 474 -- Income from mortgage assets ............... 17,265 12,103 Acquisition related expenses .............. (6,685) (381) Administrative expenses ................... (3,059) (2,777) Other income (expenses), net .............. 340 (438) --------- --------- Proforma Net Income ....................... $ 10,523 $ 9,356 ========= =========
F-10 ASR INVESTMENTS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued) Sale of Property On February, 20, 1998, the Company sold the 175-unit apartment community that it had acquired in May of 1997, for a sale price of $4,450,000. The Company received 73,858 shares of its Common Stock (valued at $1,616,000) from the buyer who also assumed the first mortgage loan. The Company did not realize a material gain or loss from the sale. Operating income from apartments is affected primarily by rental rates, occupancy rates and operating expenses. Rental rates and occupancy rates are affected by the strength of the local economy, the local housing market and the supply of and demand for new apartment communities. 3. UNITED DOMINION REALTY MERGER In December 1997, the Company announced the execution of a definitive agreement to which ASR will merge with and into a wholly-owned subsidiary of United Dominion Realty Trust ("UDR"). The merger has been structured as a tax-free transaction for ASR's shareholders and is expected to be effective March 27, 1998 pending shareholder approval at a special meeting of stockholders to be held on March 25, 1998. The merger provides that each share of common stock of ASR will be converted into the right to receive 1.575 shares of UDR's common stock and cash in lieu of the issuance of any fractional shares. The merger also provides that ASR will pay a closing dividend in an amount that will vary depending on the effective date of the merger. Assuming consummation of the merger on March 27, 1998, the closing dividend will be $.15 per share. 4. HERITAGE COMMUNITIES L.P. The Company formed Heritage Communities L.P. ("Heritage LP"), an operating partnership, in 1997 for the purpose of acquiring the Winton Properties and other apartment communities. Heritage is a Delaware limited partnership in which the Company and a wholly owned subsidiary of the Company, Heritage SGP, are the sole general partners. To the extent that Heritage LP has sufficient operating cash flows, holders of limited partnership units ("LP Units") will receive quarterly distributions per unit equal to the per share dividend on the Company's common stock. To the extent that Heritage LP has insufficient cash to pay the distributions, the holders of LP units will be credited for the unpaid distribution and interest on the unpaid distribution; such unpaid balances will be given priority for future distributions. Heritage LP's items of income, gain, loss and deduction are allocated among its partners, subject to certain special allocations, in a similar manner for purposes of both book gain or loss and tax gain or loss. Net income is allocated (i) first, to each limited partner to the extent that, on a cumulative basis, net losses previously allocated to the limited partners exceed net income previously allocated to limited partners, (ii) second, to each limited partner to the extent that such limited partner has been allocated on a cumulative basis, net income equal to the sum of the distributions paid to such limited partner and the unreturned balances in the accrual accounts and the unpaid distribution accounts maintained with respect to the LP Units held by such limited partner, and (iii) the general partners on a pro rata basis. Notwithstanding the allocations in (i) and (ii) above, at least one percent of each item of gain, loss, income and deduction for each year is allocated to the general partners. Net losses are allocated to the partners in accordance with their respective percentage interests in Heritage LP, except that net losses are not allocated to any limited partner to the extent that such allocation would cause the limited partner to have an adjusted capital account deficit at the end of the taxable year. All net losses in excess of such limitations will be allocated to the general partners on a pro rata basis The LP Units are convertible to one share of the Company's Common Stock after one year from the date of issuance. If an LP Unit is converted prior to April 30, 2007, the holder will also be paid any unpaid balances in the holder's distribution account. An LP Unit holder who exercises the conversion after April F-11 ASR INVESTMENTS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued) 30, 2007 will not be paid any unpaid balance in the holder's distribution account if the market value of the Company's common stock is equal to at least 110% of the sum of the initial contribution and the unpaid balance. Holders of LP Units do not have the right to take part in the management or control of the business or affairs of Heritage L.P. Amendment of the partnership agreement would require the consent of the general partners and more than 50% of the LP Units. Heritage L.P. will be dissolved upon the occurrence of certain specified and limited events or December 31, 2086. Heritage LP issued 943,701 LP Units to the sellers of the Winton Properties and 27,721 LP Units to the sellers of the three Dallas apartment communities acquired in September 1997. In 1997, Heritage LP issued 1,887,415 LP Units to the Company in connection with the 1997 acquisitions discussed in Note 2. As of December 31, 1997, Heritage LP had 2,858,837 LP Units outstanding. Heritage LP declared a distribution of $0.50 per Unit for each of the quarters ended June 30, 1997, September 30, 1997 and December 31, 1997. 5. MORTGAGE ASSETS In 1997, the Company received a total of $20,880,000 from the sale or redemption of all remaining mortgage assets and realized total redemption income of $16,650,000. During 1996, the Company sold or exercised its redemption rights on nine mortgage assets for net proceeds of $13,625,000 and redemption income of $9,461,000. During 1995, the Company exercised its redemption rights on five mortgage assets for net proceeds of $6,348,000 and redemption income of $2,882,000. Using proceeds from one of the redemptions, in 1995, the Company prepaid its notes payable secured by mortgage assets and recorded income of $2,420,000 for the reversal of the excess yield maintenance accrual on such notes payable. The income was included in the 1995 income from redemptions and sales of mortgage assets. For 1996 and 1995, the average carrying value of the mortgage assets was $8,118,000 and $14,827,000, respectively, and the average prospective yield was 35% and 28%, respectively. At December 31, 1996 and 1995, the prospective yield was 38% and 29%. The cash flows and prospective yield income were affected primarily by mortgage prepayment rates and short-term interest rates. Higher mortgage prepayment rates or higher short-term rates reduced the income and total cash flows over the life of the mortgage assets. Income from mortgage asset redemptions was affected by the timing of meeting the specified conditions for redemptions and the value of the underlying mortgage instruments. As a result, mortgage asset redemptions did not occur on a regular basis and the income fluctuated significantly between periods. In addition, redemption of mortgage assets reduced the prospective yield income in future periods. 6. NOTES PAYABLE Real estate notes payable During 1997, the Company obtained new mortgage loans or assumed existing mortgage loans totalling $113,632,000 in connection with its apartment acquisitions. In addition, as discussed in Note 2, the Company had obtained a $15,350,000 construction loan to finance the construction of its Finisterra apartment community. The loan bore interest at 1% per annum above the bank's prime rate. The interest rate at December 31, 1996 was 9.25%. At December 31, 1997 and 1996, the amount outstanding was $12,748,000 and $255,000. In September 1997, the Company converted the construction loan into a miniperm loan that bears interest at 2.5% over the one-month LIBOR. The loan matures at the end of March 1998 at which time the Company may extend the loan or refinance it to a permanent loan at a lower interest rate. Excluding the construction loan, all the Company's mortgage loans are nonrecourse and non-cross collateralized. They generally have terms from seven to fifteen years. At December, 31, 1997, the mortgage loans consisted of $145,364,000 of fixed rate loans and $27,789,000 of variable rate loans which F-12 ASR INVESTMENTS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued) includes the construction loan. All of the Company's mortgage loans were fixed rate at December 31, 1996. The fixed interest rates range from 7.1% to 10.1%, with a weighted average rate for all the Company's loans of 8.1% and 8.6% at December 31, 1997 and 1996. Amortization of deferred loan costs were $412,000, $155,000 and $120,000 for 1997, 1996 and 1995. The scheduled maturities of the real estate notes payable are as follows (in thousands): 1998 .............. $ 15,863 1999 .............. 2,262 2000 .............. 17,426 2001 .............. 26,390 2002 .............. 2,143 2003-2017 ......... 109,069 -------- Total ........ $173,153 ======== On February, 27, 1998, the Company obtained a $2,500,000 short-term loan secured by one its apartment communities. The apartment community's first mortgage loan had been paid off in December 1997. The loan bears interest at one-month LIBOR plus 2.75% and matures on August 27, 1998. Short-term Borrowing (Secured By Mortgage Assets) -- At December 31, 1996, the Company had short-term borrowing of $2,014,000. These borrowings were secured by mortgage assets with a total carrying value of $3,084,000, respectively. The interest rate averaged 6.55% during 1996 and was 6.88% at December 31, 1996. During 1997, the Company paid off all of the short-term borrowing in connection with the sale of its mortgage asset portfolio. 7. STOCK OPTIONS The Company has two stock option plans which are administered by the Board of Directors. The purpose of the plans is to provide a means of performance-based compensation to attract and retain directors and key personnel. Under the plans, options to acquire a maximum of 140,000 shares of the Company's common stock may be granted at an exercise price not less than the fair market value of the stock. The options expire ten years after the date of grant. Upon exercise of the options, the Company can elect to distribute cash in lieu of shares. In addition, in connection with the renewal of the management agreement for 1994, the Company and Pima Mortgage L.P., (the "Manager" of the Company's operations), agreed to eliminate the incentive management fee provision and the Company granted to the partners of the Manager non-qualified options to purchase 309,800 shares of common stock and 90,200 shares of stock appreciation rights ("SARs") with an exercise price of $8.60 per share. The exercise price was 10% above the closing market price of the common stock on the grant date. The holders will also receive payments equal to the product of the per share dividend amount times the number of options and SARs outstanding. Upon exercise of the options, the Company can elect to distribute cash in lieu of shares. The options and SARs will expire in December 1998. In February 1997, two holders exchanged the value of 60.134 shares of SARs for options granted under the Company's KEPSOP (see Note 8). As of December 31, 1997, 30,067 SARs and 309,800 options were remaining and exercisable. In 1995, certain holders exercised options to purchase 50,496 shares by giving full recourse notes totaling $652,000 to the Company. In 1996, one holder exercised additional options of 2,667 shares by giving a full recourse note totaling $30,000 to the Company. The notes are secured by the shares of common stock issued and bear interest at the prime rate plus 1%. The notes are due on December 31, 1998 and can be repaid by giving the Company shares of common stock owned by the optionholders based on F-13 ASR INVESTMENTS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued) the then market price on the common stock. During 1996, two optionholders paid off their notes of $297,000 using 12,011 of common stock and cash of $61,842. During 1997, one optionholder paid off his note with cash of $118,000. Notes outstanding at December 31, 1997 totaled $267,000. During 1996, the Company granted to three employees 165,000 SARs that expire December 16, 1998, in lieu of a salary or bonus compensation plan. The employees received payments equal to the product of the per share dividend amount times the number of SARs outstanding. At the beginning of 1997, the Company eliminated the dividend payment on one third of the employees' SARs and resumed a salary compensation plan for the three employees. At December 31, 1997, 61,667 of the stock appreciation rights for these employees were outstanding. During 1997 and 1996, as a result of the increase in the Company's common stock price, the Company recorded an accrual for the SARs of approximately $642,000 and $750,000, respectively, which is included in administrative expenses. Information on all stock options and stock appreciation rights granted is summarized below:
Weighted Number of Option Price Average Shares Per Share Exercise Price ------ --------- -------------- Stock Options: Outstanding at December 31, 1995 ........... 357,744 $ 8.13-$20.90 $ 9.60 Options exercised .......................... (4,666) $ 11.25 $ 11.25 ------- Outstanding at December 31, 1996 ........... 353,078 $ 8.13-$20.90 $ 9.60 ------- Options exercised .......................... (1,725) $ 8.13-$11.19 $ 10.04 ------- Outstanding and exercisable at December 31, 1997 .................................. 351,353 $ 8.13-$20.90 $ 9.60 ======= Options at December 31, 1997 consisted of the following: 1991 options granted .................... 24,420 $ 20.00-$20.90 $ 20.07 1990, 1992-1994 options granted ......... 326,933 $ 8.13-$13.13 $ 8.80 ------- Outstanding at December, 31 1997 ........... 351,353 $ 8.13-$20.90 $ 9.60 ======= Stock Appreciation Rights: Outstanding at December 31, 1995 ........... 90,200 $ 8.60 $ 8.60 SARs granted ............................... 165,000 $ 16.50-$16.63 $ 16.55 ------- Outstanding at December 31, 1996 ........... 255,200 $ 8.60-$16.63 $ 13.74 SARs exercised ............................. (163,466) $ 8.60-$16.63 $ 12.47 -------- Outstanding and exercisable at December 31, 1997 .................................. 91,734 $ 8.60-$16.63 $ 13.97 ========
At December 31, 1997, the weighted average contractual life of the above stock options and stock appreciation rights was 1.4 and 1 years, respectively. 8. DEFERRED COMPENSATION ARRANGEMENTS In January 1997, the Company adopted a Key Executive Share Option Plan (the "KEYSOP") whereby participants could elect to defer the receipt of future compensation and exchange the value of such deferred compensation into options to purchase designated property from the Company. The Company is required to purchase the designated property for options granted. The obligations of the Company to the participants are unsecured general obligations and the designated properties purchased by the Company are general assets of the Company. At December 31, 1997, the amounts deferred under the KEYSOP amounted $1,113,000 and the designated properties and the related liabilities are included in Other Assets and Other Liabilities, respectively, in the accompanying Consolidated Balance Sheet. F-14 ASR INVESTMENTS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued) In addition, the Company approved deferred compensation agreements in 1997 whereby participants could elect to defer the receipt of future compensation until a future date. The obligations of the Company to the participants are unsecured general obligations. At December 31, 1997, such deferred compensation totalled $1,438,964 which is included in Other Liabilities in the accompanying Consolidated Balance Sheet. 9. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company's financial instruments at December 31, 1997 and 1996 consisted of real estate notes payable. Although management uses its best judgement in estimating the fair value of financial instruments, there are inherent limitations in any estimation technique and the estimates are thus not necessarily indicative of the amounts which the Company could realize on a current transaction. The Company has used the carrying value of real estate notes payable as their fair value. At December 31, 1997, the interest rates on the Company's notes payable approximated the market rates for debt instruments with similar terms and maturities. 10. RELATED PARTY TRANSACTIONS From the inception of the Company through April 30, 1997, Pima Mortgage L.P. (the "Manager"), managed the operations of the Company pursuant to a management agreement. The Company also had a property management agreement with Pima Realty Advisors, Inc. (the "Property Manager") for each of its apartment communities. The Manager and the Property Manager were owned by three principal executive officers of the Company. On April 30, 1997, pursuant to the approval of the Company's stockholders, the Company acquired the entire interests in the Manager and the Property Manager as well as 24,000 shares of ASR common stock owned by the Manager, for 262,008 shares of common stock and terminated the management agreements. The common stock issued was recorded at $20.038 per share which was the average closing price of the common stock for the ten days preceding the public announcement of the acquisition. In addition, the Company paid the three principal executive officers $802,700 in connection with the acquisition of the Winton Properties. As the contracts with the Pima entities were effectively terminated, the cost of the Pima entities and the amounts paid to the executive officers were recorded as an acquisition related expense in the accompanying statements of income. Furthermore, as a result of the acquisition, the Company has become a self-administered and self-managed REIT and the owners of the previous Manager continue to be executive officers and members of the Board of Directors of the Company. Pursuant to the agreement which was terminated April 30, 1997, the Manager received a base management fee of 3|M/8 of 1% per annum of the Company's average invested assets before deduction for reserves and depreciation. The management fees for 1997, 1996 and 1995 were $167,000, $386,000 and $374,000, respectively. Under the agreement, the Manager was required to reimburse the Company for any management fees received for the year to the extent that the operating expenses (as defined) for the year exceed the greater of 2% of the Company's average invested assets or 25% of its net income (as defined), unless the unaffiliated directors determine that a higher level of expenses is justified for such year. There were no such excess operating expenses in 1997 (prior to April 30, 1997), 1996 and 1995. Additionally, if the agreement was terminated without cause (as defined) or not renewed on terms as favorable to the Manager, the Manager was entitled to receive the management fees relating to the invested assets purchased prior to the termination date, for a three-year period as if the agreement had remained in effect. Under the agreement, the Manager had also performed certain analyses and other services in connection with the administration of structured financing related to the Company's mortgage assets. For such services, the Company paid the Manager $52,000 for 1997, $193,000 for 1996 and $216,000 for 1995. F-15 ASR INVESTMENTS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued) As discussed in Note 7, the Company and the Manager agreed to eliminate the incentive fee provision in the management agreement beginning with 1994. The Company granted to the owners of the Manager options and stock appreciation rights ("SARs") that provide for dividend equivalent payments based on the per share amounts of dividends paid on the common stock. In 1997, 1996 and 1995, the dividend equivalent payments were $680,000, $800,000 and $800,000 which are included in administrative expenses. As a result of the increase in the common stock price, the Company recorded an accrual for the SARs of $214,000 in 1997, $101,000 in 1996 and $705,000 in 1995, which amounts are included in administrative expenses. As discussed above, the Company had a property management agreement with Pima Realty Advisors, Inc. (the "Property Manager"), an affiliate of the Manager, for each of its apartment properties. Under the property management agreements, the Property Manager provided the customary property management services at its cost without profit or distributions to its owners, subject to the limitation of the prevailing management fee rates for similar properties in the market. The costs were allocated to the Company monthly based on the ratio of the number of units owned by the Company relative to the total apartment units managed by the Property Manager. The costs allocated to the Company for 1997 (through April 30, 1997), 1996 and 1995 were $190,000, $466,000 and $417,000 respectively. 11. TAXABLE INCOME (LOSS) As of December 31, 1997, the Company had an estimated net operating loss ("NOL") carryforward of $75,904,000 which can be used to offset taxable income other than excess inclusion income through 2009 (1999 for state taxes). The 1997, 1996 and 1995 dividends consist of the following: 1997 1996 1995 ---- ---- ---- Ordinary Income ........................ 33.6% 8.5% 14.5% Long Term Capital Gain -- 20% .......... 14.7% -- -- Long Term Capital Gain -- 28% .......... 10.0% 69.0% -- Return of Capital ...................... 41.7% 22.5% 85.5% In 1997, 1996, and 1995, the Company had excess inclusion income from the residual interest in certain real estate mortgage investment conduits ("REMICs") which cannot be used to offset operating losses (including NOL carryforward) and deductions from other sources. Under the current tax law for REITs, excess inclusion income is required to be distributed as dividends. Substantially, all of the ordinary income for the 1996 and 1995 years is excess inclusion income. Approximately 88% of the ordinary income for 1997 is excess inclusion income. Net income reported in the accompanying consolidated financial statements is different than the taxable income due to the reporting of some income and expense items in different periods for income tax purposes. The difference consists primarily of (1) reserves taken on mortgage assets in prior years which were not allowed for income taxes, (2) differences in income recognition methods on mortgage assets and (3) excess inclusion income for tax purposes. These timing differences will reverse in future years. Taxable income for 1997 is subject to change when the Company prepares and files its income tax returns. The taxable income amounts also are subject to adjustments, if any, resulting from audits of the Company's tax returns by the Internal Revenue Service. 12. SUBSEQUENT EVENT On March 27, 1998, following the approval by the shareholders on March 25, 1998, the acquisition by UDR, which is described in Note 3, was consummated. In connection with the acquisition of ASR by UDR the following also occurred: (i) a closing dividend of $737,000 or $.15 per share was declared and F-16 ASR INVESTMENTS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 1997, 1996 and 1995 -- (Continued) paid, (ii) a distribution of $146,000 or $.15 per LP Unit was declared and paid by Heritage Communities L.P. to minority unitholders of LP Units, (iii) severance payments to employees of $1,071,000 were paid, (iv) employment agreement termination payments to executive officers of $1,225,000 were paid, and (v) all SARs outstanding, 91,734 shares, were exercised. In addition, on March 26, 1998, holders of options to purchase 309,801 shares of the Company's common stock exchanged the value of the stock options for options agreements granted under the Company's KEYSOP. The exchange resulted in a charge to income for financial accounting purposes of $4,256,000. On March 26, 1998, options to purchase 30,372 shares of the Company's common stock were exercised for which the Company elected to pay cash of $174,000. All of the above transactions were accounted for as 1998 transactions and are not reflected in the accompanying statements of operations for the year ended December 31, 1997. 13. QUARTERLY FINANCIAL DATA (unaudited) (Dollars in Thousands Except Per Share Amounts) Total Dividend Income Net Income Per share ------ ---------- --------- 1997 ---- First ................. $ 9,557 $ 4,946 $ 0.50 Second ................ 19,348 5,194 0.50 Third ................. 10,232 (106) 0.50 Fourth ................ 12,341 (200) 0.50 1996 ---- First ................. $ 6,429 $ 2,340 $ 0.50 Second ................ 7,529 3,326 0.50 Third ................. 7,129 2,092 0.50 Fourth ................ 5,585 1,083 0.50 1995 ---- First ................. $ 7,983 $ 3,359 $ 0.50 Second ................ 6,410 2,015 0.50 Third ................. 4,798 570 0.50 Fourth ................ 4,491 610 0.50 The amount of net income for the second and third quarter have been restated to reflect the limited partnership units discussed in Note 4 as income allocated to minority interest is deducted in arriving at net income. This change reduced the amount of net income previously reported by $33,000 and $82,000 for the second and third quarters, respectively. F-17 ASR INVESTMENTS CORPORATION SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION December 31, 1997 (dollars in thousands)
Initial Cost to Company ---------------------------------------------------- Cost Building Capitalized Year Year and Subsequent to Apartment Property Built Acquired Encumbrances Land Improvements Acquisition ------------------ ----- -------- ------------ ---- ------------ ----------- TUCSON, ARIZONA Acacia Hills ................. 1986 1994 1,008 255 1,089 88 Casa Del Norte ............... 1984 1994 1,350 386 1,453 157 Desert Springs ............... 1985 1994 4,523 1,115 4,754 481 Landmark ..................... 1986 1994 2,986 409 4,138 519 Park Terrace ................. 1986 1994 2,648 316 3,191 336 Park Village ................. 1985 1994 577 92 672 110 Posada Del Rio ............... 1980 1994 0 534 3,022 190 South Point .................. 1984 1994 1,826 291 2,135 206 PHOENIX, ARIZONA Contempo Heights ............. 1978 1995 3,754 1,833 4,523 320 La Privada ................... 1987 1997 18,951 8,505 16,479 180 Finisterra ................... 1996-1997 (b) 12,837 2,699 18,137 23 HOUSTON, TEXAS Clear Lake Falls ............. 1980 1994 3,068 867 3,261 384 The Gallery .................. 1968 1994 1,611 732 1,196 865 Memorial Bend ................ 1967 1994 1,887 1,187 1,287 543 Nantucket Square II .......... 1983 1994 2,703 686 2,925 375 Prestonwood .................. 1978 1994 2,423 761 2,696 532 Riviera Pines ................ 1979 1994 3,207 1,025 3,073 928 Briar Park ................... 1983 1997 1,387 229 2,051 27 Country Club Park ............ 1985 1997 3,543 378 5,147 79 Chelsea Park ................. 1983 1997 3,399 1,255 4,624 88 Marymont ..................... 1983 1997 2,518 925 3,570 93 Riverway ..................... 1985 1997 1,175 248 1,702 102 Timbercreek Landing .......... 1984 1997 3,360 1,055 4,612 139 Ivystone ..................... 1983 1997 3,696 1,254 3,314 692 London Park .................. 1983 1997 4,401 1,379 4,757 392 DALLAS, TEXAS Aspen Court .................. 1986 1997 2,016 588 4,028 38 Greenwood Creek .............. 1984 1997 4,987 1,172 6,796 71 Highlands of Preston ......... 1985 1997 4,815 1,693 7,398 71 Monfort Townhomes ............ 1986 1997 3,999 1,467 4,291 25 Gross Amount at Which Carried at December 31, 1997(a) ------------------------------------------------- Building Depreciable and Accumulated Lives Net Apartment Property Land Improvements Depreciation Years(c) ------------------ ---- ------------ ------------ -------- TUCSON, ARIZONA Acacia Hills ................. 255 1,177 211 27.5 Casa Del Norte ............... 386 1,610 296 27.5 Desert Springs ............... 1,115 5,235 902 27.5 Landmark ..................... 409 4,657 791 27.5 Park Terrace ................. 316 3,527 632 27.5 Park Village ................. 92 782 154 27.5 Posada Del Rio ............... 534 3,212 578 27.5 South Point .................. 291 2,341 441 27.5 PHOENIX, ARIZONA Contempo Heights ............. 1,833 4,843 609 27.5 La Privada ................... 8,505 16,659 412 27.5 Finisterra ................... 2,699 18,160 441 27.5 HOUSTON, TEXAS Clear Lake Falls ............. 867 3,645 617 27.5 The Gallery .................. 732 2,061 362 27.5 Memorial Bend ................ 1,187 1,830 360 27.5 Nantucket Square II .......... 686 3,300 570 27.5 Prestonwood .................. 761 3,228 617 27.5 Riviera Pines ................ 1,025 4,001 681 27.5 Briar Park ................... 229 2,078 52 27.5 Country Club Park ............ 378 5,226 131 27.5 Chelsea Park ................. 1,255 4,712 119 27.5 Marymont ..................... 925 3,663 92 27.5 Riverway ..................... 248 1,804 47 27.5 Timbercreek Landing .......... 1,055 4,751 118 27.5 Ivystone ..................... 1,254 4,006 141 27.5 London Park .................. 1,379 5,149 150 27.5 DALLAS, TEXAS Aspen Court .................. 588 4,066 100 27.5 Greenwood Creek .............. 1,172 6,867 171 27.5 Highlands of Preston ......... 1,693 7,469 186 27.5 Monfort Townhomes ............ 1,467 4,316 108 27
F-18
Initial Cost to Company ---------------------------------------------------- Cost Building Capitalized Year Year and Subsequent to Apartment Property Built Acquired Encumbrances Land Improvements Acquisition ------------------ ----- -------- ------------ ---- ------------ ----------- Springfield .................. 1985 1997 5,439 1,877 6,832 51 Gentry Place ................. 1984 1997 7,443 2,151 9,402 298 Park on Preston .............. 1983 1997 5,595 1,463 7,899 48 Smith Summit ................. 1983 1997 5,536 1,408 7,581 46 SEATTLE/KENNEWICK, WASHINGTON Pacific South Center ......... 1975 1997 3,205 1,707 3,802 15 Court ........................ 1980 1997 2,904 1,168 2,949 308 Arbor Terrace ................ 1995-1996 1997 7,868 1,163 12,703 3 On the Boulevard ............. 1995 1997 7,952 1,060 9,742 14 PULLMAN, WASHINGTON Campus Common North .......... 1985 1997 6,602 332 10,865 175 Campus Common South .......... 1972 1997 2,732 165 4,014 82 ALBUQUERQUE, NEW MEXICO Dorado Heights ............... 1986 1994 5,114 2,700 4,224 571 Villa Serena ................. 1986 1994 2,630 883 2,647 288 Whispering Sands ............. 1986 1994 5,478 1,442 6,149 541 ------- ------ ------- ------ TOTAL ........................ 173,153 50,855 215,130 10,494 ======= ====== ======= ====== Gross Amount at Which Carried at December 31, 1997(a) ------------------------------------------------- Building Depreciable and Accumulated Lives Net Apartment Property Land Improvements Depreciation Years(c) ------------------ ---- ------------ ------------ -------- Springfield .................. 1,877 6,883 172 27.5 Gentry Place ................. 2,151 9,700 113 27.5 Park on Preston .............. 1,463 7,947 93 27.5 Smith Summit ................. 1,408 7,627 89 27.5 SEATTLE/KENNEWICK, WASHINGTON Pacific South Center ......... 1,707 3,817 87 27.5 Court ........................ 1,168 3,257 88 27.5 Arbor Terrace ................ 1,163 12,706 106 27.5 On the Boulevard ............. 1,060 9,756 111 27.5 PULLMAN, WASHINGTON Campus Common North .......... 332 11,040 277 27.5 Campus Common South .......... 165 4,096 104 27.5 ALBUQUERQUE, NEW MEXICO Dorado Heights ............... 2,700 4,795 791 27.5 Villa Serena ................. 883 2,935 519 27.5 Whispering Sands ............. 1,442 6,690 1,204 27.5 ----- ------ ----- TOTAL ........................ 50,855 225,624 13,843 ====== ======= ======
- --------- (a) The aggregate cost of real estate investments for federal income tax puposes is approximately $262,636 at December 31, 1997. (b) Built by the Company. (c) Building and Improvements are depreciated using 27.5 years while furniture and fixtures are depreciated using 7 years. F-19 ASR INVESTMENTS CORPORATION SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION (in thousands) A summary of activity for real estate investments and accumulated depreciation is as follows:
1997 1996 1995 ---- ---- ---- Real Estate Investments: Balance, beginning of year ......... $ 73,990 $ 72,728 $ 64,264 Acquisitions .............................. 198,032 0 6,358 Improvements .............................. 4,457 1,269 2,106 Dispositions and other .................... 0 (7) 0 -------- -------- -------- Balance, end of year ............... 276,479 $ 73,990 $ 72,728 ======== ======== ======== Accumulated Depreciation: Balance, beginning of year ......... $ 7,504 $ 4,687 $ 1,995 Depreciation .............................. 6,335 2,819 2,692 Dispositions and other .................... 4 (2) 0 -------- -------- -------- Balance, end of year ............... 13,843 $ 7,504 $ 4,687 ======== ======== ========
F-20 EX-22 2 SUBSIDIARIES OF THE REGISTRANT EXHIBIT 22 SUBSIDIARIES OF THE REGISTRANT Name of subsidiary State of incorporation - ------------------ ---------------------- CIMSA Financial Corporation .................... Arizona ASR Finance Corporation ........................ Arizona ASR Mortgage Acceptance, Inc. .................. Arizona Residential Mortgage Acceptance, Inc. .......... Delaware ASR Properties, Inc. ........................... Arizona ASV -- II Properties, Inc. ..................... Arizona ASV -- XVII Properties, Inc. ................... Arizona RMA Investments Holding, Inc. .................. Arizona ASC -- I Properties, Inc. ...................... Arizona ASC -- II Properties, Inc. ..................... Arizona ASC -- III Properties, Inc. .................... Arizona ASC -- IV Properties, Inc. ..................... Arizona ASC -- V Properties, Inc. ...................... Arizona ASC Properties, Inc. ........................... Arizona Heritage Residential Group, Inc. ............... Arizona Heritage SGP Corporation ....................... Arizona EX-27 3 FINANCIAL DATA SCHEDULE
5 1,000 U.S. Dollars 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 1 2,987 0 0 0 0 2,987 278,175 13,843 280,743 0 0 0 0 51 78,535 280,743 0 51,478 0 31,590 0 0 10,054 10,150 0 10,150 0 0 0 9,834 2.11 2.11
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