FORM 10-Q: -QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[ X ] Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended June 30, 1998
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Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________ to _________________________
Commission file Number 1-14760
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RESOURCE ASSET INVESTMENT TRUST
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(Exact name of registrant as specified in its charter)
MARYLAND 23-2919819
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1845 WALNUT STREET, 10TH FLOOR, PHILADELPHIA, PA 19103
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (215) 861-7900
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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
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As of July 31, 1998, 6,165,334 common shares of beneficial interest, with a
par value of $0.01, were outstanding.
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RESOURCE ASSET INVESTMENT TRUST
and Subsidiaries
Consolidated Balance Sheet
June 30, 1998 December 31, 1997
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(Unaudited)
ASSETS:
Cash and cash equivalents $ 51,877,925 0
Accrued interest receivable 431,299 0
Investments in real estate loans 60,504,945 0
Investment in real estate, net 1,637,725 0
Furniture, fixtures and equipment, net 115,259 8,766
Prepaid expenses and other assets 362,519 2,183,698
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Total assets $114,929,672 2,192,464
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LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 336,072 657,751
Accrued interest payable 108,797 0
Deferred income 345,032 0
Borrower's escrows 300,000 0
Due to affiliate 0 1,579,330
Senior indebtedness 28,291,794 0
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Total liabilities 29,381,695 2,237,081
Preferred Shares, $.01 par value; 25,000,000
Authorized shares 0 0
Common Shares, $.01 par value; 200,000,000
Authorized shares, issued and outstanding,
6,133,434 and 100 shares, respectively 61,334 1
Additional paid-in-capital 85,611,771 999
Accumulated deficit (125,128) (45,617)
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Total shareholders' equity (deficiency) 85,547,977 (44,617)
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$114,929,672 $2,192,464
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The accompanying notes are an integral part
of these consolidated financial statements.
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RESOURCE ASSET INVESTMENT TRUST
and Subsidiaries
Consolidated Income Statement
(Unaudited)
For the three For the six
months ended months ended
June 30, 1998 June 30, 1998
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REVENUES
Mortgage interest income $2,349,423 $3,475,849
Fee income and other 42,311 99,135
Investment income 113,325 362,330
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Total revenues 2,505,059 3,937,314
COSTS AND EXPENSES
Interest 575,751 895,539
General and administrative 325,210 488,773
Depreciation and amortization 30,437 37,829
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Total costs and expenses 931,398 1,422,141
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Net Income $1,573,661 $2,515,173
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Net Income per common share-basic $ .46 $ .80
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Weighted average common shares outstanding 3,394,972 3,124,955
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Net income per common share-diluted $ .45 $ .79
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Weighted average common shares outstanding 3,465,589 3,185,011
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The accompanying notes are an integral part
of these consolidated financial statements.
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RESOURCE ASSET INVESTMENT TRUST
and Subsidiaries
Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 1998
(Unaudited)
Cash flows from operating activities
Net Income $ 2,515,173
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 37,829
Amortization of original issue discount (5,001)
Accretion of loan discount (101,409)
Accretion of interest (401,968)
Increase in accrued interest receivable (431,299)
Increase in prepaid expenses and other assets (314,539)
Decrease in accounts payable and accrued liabilities (321,679)
Increase in accrued interest payable 108,797
Increase in deferred income 747,000
Increase in borrower's escrows 300,000
Decrease in due to affiliate (1,579,330)
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Net cash provided by operating activities 553,574
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Cash flows from investing activities
Purchase of furniture, fixtures and equipment (116,057)
Purchase of real estate loans (20,646,388)
Real estate loans originated (15,150,000)
Principal repayments from real estate loans 3,785,073
Principal repayments on senior indebtedness (75,086)
Purchase of real estate (1,655,170)
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Net cash used by investing activities (33,857,628)
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Cash flows from financing activities
Issuance of common stock, net 87,682,055
Payment of dividends (2,500,076)
Net cash provided by financing activities 85,181,979
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Net change in cash and cash equivalents 51,877,925
Cash and cash equivalents, beginning of period $ 0
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Cash and cash equivalents, end of period $ 51,877,925
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The accompanying notes are an integral part
of these consolidated financial statements.
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RESOURCE ASSET INVESTMENT TRUS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
UNAUDITED
NOTE 1 - BASIS OF PRESENTAION
In the opinion of management, these unaudited financial statements
contain all disclosures which are necessary to present fairly the Company's
consolidated financial position at June 30, 1998, the results of operations
for the three and six months ended June 30, 1998, and the cash flows for the
six months ended June 30, 1998. The financial statements include all
adjustments (consisting only of normal recurring adjustments) which in the
opinion of management are necessary in order to present fairly the financial
position and results of operation for the interim periods. Certain information
and footnote disclosures normally included in financial statements under
generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange
Commission. These financial statements should be read in conjunction with the
quarterly financial statements and notes thereto included in Form 10-Q for the
period ended March 31, 1998.
NOTE 2-INVESTMENTS IN REAL ESTATE LOANS
The Company's loan portfolio consisted of the following at June 30,1998:
Multi-family residential $ 26,899,573
Commercial real estate 33,605,372
Less: Allowance for loan losses 0
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Investments in real estate loans $ 60,504,945
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As of June 30, 1998, eleven of the loans currently in RAIT's portfolio
are in default under their terms as underwritten by the original lender,
although they are subject to forbearance agreements or other contractual
restructurings, and are performing in accordance with the terms of such
agreements. The remaining three loans are in compliance with their terms as
originally underwritten.
NOTE 3-INVESTMENT IN REAL ESTATE
Investment in real estate is comprised of the following at June 30,1998:
Land $ 159,710
Office building and improvements 1,512,905
Less: Accumulated depreciation (17,445)
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Investment in real estate, net $ 1,637,725
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NOTE 4 - SHAREHOLDERS' EQUITY
RAIT filed a registration statement with respect to a public offering
and sale of 2,800,000 Common Shares that became effective June 23,1998. The
public offering closed on June 29, 1998 (the Closing Date). Approximately
336,000 of the Common Shares sold in the public offering were purchased by
Resource America, Inc. ("RAI"), the sponsor of RAIT, and approximately 49,000
Common Shares sold in the public offering were purchased by officers,
directors and trustees of RAIT, and related persons. These shares, along with
the RAI shares, are subject to restrictions on
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RESOURCE ASSET INVESTMENT TRUS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998
UNAUDITED
sale or disposal without the consent of the underwriters for a period of 180
days following the Closing Date. The remaining Common Shares were purchased
separately and were freely tradable immediately upon issuance. The public
offering price of the Common Shares was $15.75 per share. The 385,000 shares
purchased by RAI and related persons were purchased at $14.88 per share (a
price equal to the public offering price net of underwriting discounts and
commissions). The net proceeds received by RAIT in connection with the public
offering were approximately $41,490,000. Total offering costs approximated
$2,300,000, including underwriting discounts.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
In addition to historical information, this discussion and analysis
contains forward-looking statements. The forward-looking statements contained
herein are subject to certain risks and uncertainties that could cause actual
results to differ materially from those projected in the forward-looking
statements. Readers are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's analysis only as of the
date hereof. The Company undertakes no obligation to publicly revise or update
these forward-looking statements to reflect events or circumstances that arise
after the date hereof.
Overview
The Company's principal business objective is to generate income for
distribution to its shareholders from a combination of interest, rents and
distributions in respect of rents from financings funded, loans or property
interests acquired and other investments. During the second quarter of 1998,
the Company continued the process of building its investment portfolio through
investment of the proceeds from its initial public offering. On June 29, 1998,
the Company concluded its second public offering, which resulted in net
proceeds for the Company of $41.5 million.
Liquidity and Capital Resources
The Company's primary liquidity need is for the continued expansion of
its portfolio of real estate loans and property interests. The Company will
add to its portfolio as economically attractive opportunities become
available. The Company has also utilized available funds to pay dividends to
its shareholders, currently on a quarterly basis, to the extent of not less
than 95% of its annual net taxable income. The Company has heretofore been
able to fund these liquidity needs from internally generated funds and from
two public offerings of its Common Shares.
During the second quarter of 1998, the Company entered into one
additional loan transaction, providing funding of approximately $4 million,
and restructured two loans resulting in a partial repayment of approximately
$3.8 million. On June 30, 1998, the Company paid dividends to its shareholders
aggregating approximately $1.6 million. At June 30, 1998, the Company had
approximately $51.9 million in funds available for investment. All of such
funds were temporarily invested in a money-market account that the Company
believed had a high degree of liquidity and safety.
Results of Operations
The Company had average earning assets for the three months ended June
30, 1998 of $63.8 million ($70.1 million for the six months ended June 30,
1998), including $13.7 million ($8.6 million for the six months ended June 30,
1998) of average earning assets invested in a money-market account. The money
market account generally has an interest rate that is substantially below
interest rates the Company seeks in providing financing, and the rates of
return the Company seeks in acquiring property interests.
The Company's primary source of income for the three months ended June 30,
1998 was interest income from its earning assets, of which $2.3 million was
derived from financings and $113,000 from the money market account. The yield
on average earning financing assets was 15.3% for the period, while the yield
on average earning money market account assets was 5.3%. The Company also
derived $42,000 of rental income from its one property interest. Included in
interest income is approximately $292,000 of income recognized on $747,000 of
additional interest received in advance
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with respect to three financings, and $50,000 of accretion of loan discount
relating to the seven loans the Company acquired at a discount to the
appraised value of the underlying properties.
The Company's primary source of income for the six months ended June 30,
1998 was interest income from its earning assets, of which $3.5 million was
derived from financings and $362,000 from the money market account. The yield
on average earning financing assets was 14.0% for the period, while the yield
on average earning money market account assets was 5.3%. The Company also
derived $50,000 of income from a subordination fee, which resulted from the
restructuring of one of its financings and $49,000 from rents from its one
property interest. Included in interest income is approximately $402,000 of
income recognized on $747,000 of additional interest received in advance with
respect to three financings, $5,000 of amortization of original issue discount
with respect to one financing, and $102,000 of accretion of loan discount with
relating to the seven loans the Company acquired at a discount to the
appraised value of the underlying properties.
Nine of the company's purchased real estate loans and two of the loans in
which the Company has purchased a participation are in default with respect to
their terms as underwritten by the original lender; however, each of these
loans is subject to a forbearance or other contractual restructuring
agreement. During the period ending June 30,1998, all payments under the
agreements were timely made and all borrowers were otherwise in full
compliance with the terms of the agreements. The remaining three loans in the
Company's portfolio are performing in accordance with their terms as
originally underwritten by the Company and were current as to payments as of
June 30, 1998.
During the three months ended June 30, 1998, the Company incurred
expenses of $931,000 ($1,422,141 for the six months ended June 30, 1998),
consisting primarily of $275,000 ($412,000 for the six months ended June 30,
1998) in compensation expense and $576,000 ($896,000 for the six months ended
June 30, 1998) in interest expense. Interest expense relates to interest
payments made on senior indebtedness encumbering properties underlying the
Company's investments in real estate loans. The Company anticipates that
compensation expense in the third quarter will approximate the amount incurred
in the second quarter and that interest expense will increase in the third
quarter to reflect increases in the Company's loan portfolio.
In July 1998, the Company acquired the general partnership interest (89%)
in OSEB Associates, L.P. ("OSEB"), a limited partnership that owns an office
building in Philadelphia, Pennsylvania. The interest was acquired in
consideration of a capital contribution to OSEB by the Company of $750,000.
Brandywine Construction and Management, Inc., an affiliate of Resource
America, Inc. ("RAI"), the sponsor of the Company, owns the limited
partnership interest (11%) in OSEB. RAI provided mortgage financing to OSEB in
June 1998. The loan, funded at a cost of $58.5 million, bears interest at the
rate of 10% per year on a stated principal amount of $65.0 million. RAI
received a fee of $840,000 for services performed prior to the Company's
acquisition of its interest in OSEB. The effect of the Company's acquisition
of the general partnership interest in OSEB will be to increase materially the
gross amount of its assets and liabilities (although RAI's loan is without
recourse to OSEB and the Company, subject to customary exceptions for fraud
and similar matters) and to significantly increase the amount of the Company's
depreciation expense.
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PART II OTHER INFORMATION
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ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(f) Use of Proceeds
From April 1, 1998 through June 30, 1998, the Company applied $4,000,000
of the net proceeds from its first public offering toward additional
investments in real estate loans.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Financial Data Schedule
(b) Reports on Form 8-K
(1) No reports were filed on Form 8-K during the quarter ended June 30, 1998.
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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.
August 12, 1998 /s/ Ellen J. DiStefano
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DATE Ellen J. DiStefano
Chief Financial Officer
(On behalf of the Registrant and as its
principal financial officer)
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