FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO 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 September 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 (IRS 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)
(215) 861-7900
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Registrant's telephone number, including area code
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 October 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 Sheets
September 30, 1998
(Unaudited) December 31,1997
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ASSETS:
Cash and cash equivalents $ 877,516 $ --
Accrued interest receivable 1,124,167 --
Investments in real estate loans 108,887,901 --
Investments in real estate, net 67,048,475 --
Furniture, fixtures and equipment, net 114,054 8,766
Prepaid expenses and other assets 979,529 2,183,698
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Total Assets $ 179,031,642 $ 2,192,464
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LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities $ 256,986 $ 657,751
Accrued interest payable 830,553 --
Deferred income 36,000 --
Tenant security deposits 100,000 --
Borrowers' escrows 1,032,700 --
Reimbursements due to affiliate -- 1,579,330
Senior indebtedness secured by real estate underlying
the Company's wraparound loans 25,001,752 --
Long term debt secured by real estate owned 66,069,937 --
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Total Liabilities 93,327,928 2,237,081
Preferred Shares, $.01 par value; 25,000,000
authorized shares -- --
Common Shares, $.01 par value; 200,000,000
authorized shares: issued and outstanding,
6,165,334 and 100 shares, respectively 61,653 1
Additional paid-in-capital 85,868,004 999
Accumulated deficit (226,893) (45,617)
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Total Shareholders' Equity (Deficiency) 85,702,764 (44,617)
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Total Liabilities and Shareholders" Equity $ 179,031,642 $ 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 nine
months ended months ended
September 30, 1998 September 30, 1998
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REVENUES
Mortgage interest income $ 4,377,340 $ 7,853,189
Rental income 1,670,761 1,719,896
Fee income and other 97,625 147,625
Investment income 468,416 830,746
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Total Revenues 6,614,142 10,551,456
COSTS AND EXPENSES
Interest 2,246,764 3,142,303
Property operating expenses 749,378 749,378
General and administrative 267,263 756,036
Depreciation and amortization 403,941 441,770
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Total Costs and Expenses 3,667,346 5,089,487
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Net Income $ 2,946,796 $ 5,461,969
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Net Income per common share-basic $ .48 $ 1.32
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Weighted average common shares outstanding 6,157,359 4,146,869
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Net income per common share-diluted $ .48 $ 1.30
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Weighted average common shares outstanding 6,182,877 4,191,747
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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 Nine Months Ended September 30, 1998
(Unaudited)
Cash flows from operating activities
Net Income $ 5,461,969
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 441,770
Amortization of original issue discount (5,001)
Accretion of loan discount (191,604)
Interest received in advance (36,000)
Increase in accrued interest receivable (1,124,167)
Increase in prepaid expenses and other assets (943,050)
Decrease in accounts payable and accrued liabilities (400,764)
Increase in accrued interest payable 830,553
Increase in deferred income 72,000
Increase in tenant security deposits 100,950
Increase in borrowers' escrows 1,032,700
Decrease in due to affiliate (1,579,330)
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Net cash provided by operating activities 3,660,026
Cash flows from investing activities
Purchase of furniture, fixtures and equipment (116,876)
Real estate loans purchased (20,646,388)
Real estate loans originated (76,640,580)
Principal repayments from real estate loans 13,801,878
Principal repayments on senior indebtedness (214,177)
Purchase of real estate (2,456,336)
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Net cash used by investing activities (86,272,479)
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Cash flows from financing activities
Issuance of common stock, net 88,034,366
Proceeds of long-term debt 1,100,000
Payment of dividends (5,644,396)
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Net cash provided by financing activities 83,489,970
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Net change in cash and cash equivalents 877,516
Cash and cash equivalents, beginning of period $ 0
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Cash and cash equivalents, end of period $ 877,516
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The accompanying notes are an integral part of these
consolidated financial statements.
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RESOURCE ASSET INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
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 September 30, 1998, the results of operations for the
three and nine months ended September 30, 1998, and the cash flows for the nine
months ended September 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 September
30, 1998:
Long-term first mortgages $ 35,343,381
Mezzanine and wraparound loans 52,960,239
Short term bridge loans 20,584,280
Less: Allowance for loan losses --
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Investments in real estate loans 108,877,901
Less: Senior indebtedness secured by real estate
underlying the Company's wraparound loans (25,001,752)
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Net Investments in Real Estate Loans $ 83,886,149
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The following is a summary description of the assets contained in the Company's
loan portfolio:
Average
Number of Loan-to- Yield
Type of Loan Loans Value Range Range of Maturities
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Long-term first mortgages 8 52% 12-17% 9/2/99-10/31/03
Mezzanine and wraparound loans 8 78% 13-39% 1/1/02-10/31/08
Short term bridge loans 10 69% 13-48% 11/30/98-3/1/99
Approximately $36 million of the loans are secured by multi-family
residential properties and $72.8 million are secured by commercial properties.
As of September 30, 1998, fourteen of the loans, or interests therein,
currently in RAIT's portfolio are subject to forbearance agreements or other
contractual restructurings, and are performing in accordance with the terms of
such agreements. These agreements were entered into by the previous holders of
the loans prior to RAIT's acquisition because the loans were in default under
their terms as underwritten by the original lender. The remaining twelve loans
are in compliance with their terms as originally underwritten.
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RESOURCE ASSET INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited)
Senior indebtedness secured by real estate underlying the Company's wraparound
loans consists of the following as of September 30, 1998:
Loan payable, secured by real estate, monthly
installments of $118,964, including interest at
9%, due March 1, 2003 $12,871,926
Loan payable, secured by real estate, monthly
installments of $80,427, including interest at
6.95%, due July 1, 2008 12,129,826
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Total $25,001,752
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As of September 30, 1998 the senior indebtedness secured by real estate
underlying the Company's wraparound loans maturing over the next five years, and
the aggregate indebtedness maturing thereafter is as follows:
1998 $ 109,244
1999 363,080
2000 381,445
2001 414,991
2002 451,545
Thereafter 23,281,447
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$ 25,001,752
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NOTE 3 - INVESTMENTS IN REAL ESTATE
Investments in real estate are comprised of the following at September
30, 1998:
Land $ 5,159,710
Office buildings and improvements 62,363,263
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Subtotal 67,522,973
Less: Accumulated depreciation (474,498)
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Investments in Real Estate, net $ 67,048,475
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NOTE 4 - RECENT ACCOUNTING DEVELOPMENTS
The American Institute of Certified Public Accountants' Accounting
Standards Executive Committee issued Statement of Position (SOP) 98-5,
"Reporting on Costs of Start-up Activities." SOP 98-5 requires that costs of
start-up activities, as defined, including organization costs, be expensed as
incurred. This statement is effective for fiscal years beginning after December
15, 1998. Upon adoption, the application of this statement is reported as the
cumulative effect of a change in accounting principle.
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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 third quarter of 1998, the
Company continued the process of building its investment portfolio through
investment of the proceeds from its public offerings.
Liquidity and Capital Resources
Since commencement of investment operations in January 1998, the principal
source of the Company's capital resources has been the two offerings of its
common shares which, net of offering costs and underwriting discounts and
commissions, resulted in net proceeds to the Company of $88 million.
Secondarily, the company has obtained capital resources from the repayment or
refinancing of loans in its portfolio (or principal payments on those loans),
aggregating $13.8 million through September 30, 1998. The principal use of these
funds has been the origination and acquisition of real estate loans ($97.3
million, of which $61.5 million was utilized in the third quarter of 1998) and
interests in real property ($2.5 million, of which $750,000 was invested in the
third quarter of 1998.)
The Company also receives funds from interest payments on its loans and
operating income from its real property interests. As required by the Internal
Revenue Code of 1986, the Company utilized these funds (to the extent of not
less than 95% of its taxable income) to pay dividends to its shareholders. For
the nine months ended September 30, 1998, the Company had paid dividends of $5.6
million, of which dividends of $3.1 million were paid in the three months ended
September 30, 1998.
Recent events in the capital markets have resulted in a reduction in the
ability of many companies to obtain debt financing. In response to these events,
and to enhance both its ability to expand its loan portfolio and to generate
income from that portfolio, the Company has sought to (i) provide shorter-term
financing to its borrowers (generally in the form of bridge financing) to
increase the turnover of its investments, and (ii) to pursue borrower
refinancing of the Company's loans through senior lenders, with the Company
retaining junior interests. The Company has not experienced material
difficulties to date in originating shorter-term financings or obtaining senior
lien refinancings on acceptable terms. However, there can be no assurance that
difficulties will not be encountered in the future, depending upon the
development of conditions in the credit markets. In addition, these capital
market events may have affected the Company's ability to obtain Company-level
debt and equity capital. To the extent that the Company would have utilized such
resources to expand its portfolio, the Company's growth may be limited. The
Company cannot now predict when these capital market conditions will improve.
During the third quarter of 1998, the Company entered into thirteen
additional loan transactions,
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
funding approximately $61.5 million, and acquired a property interest for a cash
outlay of $750,000. Also during the third quarter, the Company received proceeds
of $1.1 million from a mortgage placed on one of its property interests. At
September 30, 1998, the Company had approximately $878,000 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.
In October and November 1998, several of the Company's short-term bridge loans
matured and the Company was repaid approximately $11 million. It is expected
that additional short-term bridge loans will be repaid within the next 120 days,
which will provide additional funds available for investment to RAIT in the
approximate amount of $10 million.
Results of Operations
The Company had average earning assets for the three months ended September
30, 1998 of $85.7 million ($64.8 million for the nine months ended September 30,
1998), including $26.4 million ($26.9 million for the nine months ended
September 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 September
30, 1998 was interest income from its earning assets, of which $4.4 million was
derived from financings and $468,000 from the money market account. The yield on
average earning financing assets was 20.3% for the period, while the yield on
average earning money market account assets was 5.3%. The Company also derived
$1.7 million of rental income from its property interests. Included in interest
income is approximately $1.3 million of income recognized on $1.6 million of
additional interest received in advance with respect to twelve financings, and
$90,000 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 nine months ended September
30, 1998 was interest income from its earning assets, of which $7.9 million was
derived from financings and $831,000 from the money market account. The yield on
average earning financing assets was 20.0% for the period, while the yield on
average earning money market account assets was 5.3%. The Company also derived
$1.7 million from rents from its property interests and approximately $98,000 of
miscellaneous income from seven transactions. Included in interest income is
approximately $1.7 of income recognized on $1.8 million of additional interest
received in advance with respect to thirteen financings, $5,000 of amortization
of original issue discount with respect to one financing, and $192,000 of
accretion of loan discount relating to the seven loans the Company acquired at a
discount to the appraised value of the underlying properties.
Ten of the Company's purchased real estate loans and four of the loans in which
the Company has purchased a participation are subject to forbearance agreements
or other contractual restructurings. These agreements were entered into by
previous holders of the loans prior to RAIT's acquisition, because the loans
were in default under their terms as underwritten by the original lender. During
the period ending September 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 twelve 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 September 30, 1998.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (continued)
During the three months ended September 30, 1998, the Company incurred
expenses of $3.7 million ($5.1 million for the nine months ended September 30,
1998), consisting primarily of $2.2 million of interest expense ($3.1 million
for the nine months ended September 30, 1998), $749,000 in operating expense
relating to its property interests ($749,000 for the nine months ended September
30, 1998), $267,000 of general and administrative expense ($756,000 for the nine
months ended September 30, 1998) and $404,000 of depreciation and amortization
($442,000 for the nine months ended September 30, 1998). Interest expense
relates to interest payments made on senior indebtedness encumbering properties
underlying the Company's investments in wraparound loans and properties owned by
the Company. The Company anticipates that general and administrative expense in
the fourth quarter will approximate the amount incurred in the third quarter and
that interest expense will increase in the fourth quarter to reflect increases
in the size of the Company's wraparound loan portfolio.
Year 2000 Issues
The Year 2000 ("Y2K") issue is the result of computer programs using a two-digit
format, as opposed to four digits, to indicate the year. Such computer systems
will be unable to interpret dates beyond the year 1999, which could cause a
system failure or other computer errors. The Company has identified two areas
determined to be critical for successful Y2K compliance: (1) internal financial
and informational system applications and (2) third-party relationships. The
Company's internal systems have all been identified as Y2K compliant, therefore
there will be no additional cost associated with the Y2K issue. In the
third-party area, the Company is in the process of contacting its major third
parties. Most parties that have been contacted state that they intend to be Y2K
compliant by 2000. The company has yet to determine what costs, if any, will be
incurred in connection with the third party area.
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PART II OTHER INFORMATION
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 September 30,
1998.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
November , 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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