Third Quarter Operating Income, Reserve for Litigation With Former Management Company, MBS Impairment
PORTLAND, Ore.--(BUSINESS WIRE)--Nov. 22, 1999--
Wilshire Real Estate Investments Now Internally Managed and
Positioned to Move Forward with Growth Plans
Wilshire Real Estate Investment Inc. (Nasdaq:WREI), an
opportunistic investment group specializing in mortgage and real
estate related assets, today reported net income, excluding market
valuation adjustments and impairments and reserves related to its
litigation with its former management company, of $1.0 million, or
$0.09 per share, for its third quarter ended September 30, 1999.
As reported, net loss for the third quarter was $9.4 million, or
$0.82 per diluted share. This compares with a net loss of $48.9
million, or $4.25 per share, for the third quarter a year ago, which
included market valuation losses and impairments as a result of the
market turmoil which occurred in the second half of 1998.
Without admission, the Company set aside a reserve of $4.1
million for potential resolution of disputes with Wilshire Financial
Services Group (WFSG) and several of its subsidiaries, including
Wilshire Realty Services Corporation (WRSC), the former manager of the
Company's affairs. The Company has terminated and/or given notice of
non-renewal of its management agreement with WRSC and is now
internally managed.
The reported third quarter results reflect market valuation
adjustments and impairments to the Company's portfolio of
mortgage-backed securities ("MBS") of approximately $6 million.
Approximately $4.9 million of impairment in Cityscape 97A, 97B, and
97C is being recognized as a result of continued rapid prepayments
despite an increase in overall mortgage rates as well as greater than
expected loss severities on defaulted loans.
An additional $1.4 million of impairment is due to flooding at a
commercial property that secures two loans in one of the Company's
MBS. The Company only recently regained visibility on the performance
of the loans that underlie the affected MBS as a result of the
disputes with WFSG, which services the loans through a subsidiary.
Andrew Wiederhorn, chairman and CEO, said, "We are continuing to
reposition our assets and liabilities so as to further reduce
high-cost debt and pay our previously declared dividend. We are
pleased to now be internally managing our affairs. This is
significant, as the senior management, staff and infrastructure we
have established are largely fixed costs that should grow at a much
slower rate than assets and income, unlike the management fees to
WRSC, which grew with our asset base.
"Subsequent to the end of the quarter, we also executed
agreements for more than $80 million of financing with CS First
Boston, which significantly reduces our financing risk."
Net Operating Loss Carryforwards
As of Sept. 30, 1999, the Company had, for U.S. Federal tax
purposes, a net operating loss carryforward (NOL) in excess of $65
million, which expires in 2018. U.S. tax laws impose limitations on
the use of NOLs following certain changes in ownership. If such a
change were to occur with respect to the Company, the limitation could
reduce the amount of benefit that would be available to offset future
taxable income. The Company has not recorded any tax asset reflecting
the future benefits of the NOLs and doesn't currently anticipate any
limitations of use of the NOLs.
Agreement with CS First Boston
The Company also announced today that it has executed agreements
with CS First Boston for financing of more than $80 million of its
assets. The agreements, which are retroactive to Aug. 1, 1999, are in
the form of longer-term repurchase agreements and replace 30-day
repurchase agreements that had previously financed assets. As a
result, and assuming the Company continues to meet other standard
requirements of the agreements, the Company is assured of continued
financing of the assets at least through July 2000 for MBS and until
borrower repayment for a $25 million commercial mortgage.
Additional Senior Management
Chris Tassos, age 42, has been named Executive Vice President and
Chief Financial Officer of the Company. Tassos was Executive Vice
President and Chief Financial Officer of WFSG until October 1999. From
March 1992 until February 1995 he was the Chief Financial Officer
and/or Senior Vice President of Finance of Long Beach Mortgage Company
(formerly Long Beach Bank). From 1979 to 1992 Tassos was an auditor at
Deloitte and Touche LLP.
Richard Brennan, age 43, has been named Executive Vice President
and Chief Investment Officer of the Company. Brennan held the same
position at WFSG from April 1999 until joining the Company. Brennan
previously was with Donaldson Lufkin & Jenrette, where he was most
recently a Managing Director and Co-Head of European High Yield.
Prior to that time, Brennan was the Managing Director responsible
for Merrill Lynch's European Leveraged Loan, Real Estate and
Proprietary Trading activities. Before going to London, Brennan was
Head of the loan trading desk at Salomon Brothers and was also a
highly rated thrift and mortgage securities analyst. He received his
BBA in Business Administration from St. Bonaventure and his M.B.A. in
Finance from New York University.
Robert G. Rosen, age 32, has been named Executive Vice President,
Capital Markets of the Company. Rosen was Senior Vice President of
Capital Markets at WFSG from November 1997 until October 1999. Rosen
was the Vice President of Securitization at BTM Capital Corp., a
wholly owned subsidiary of the Bank of Tokyo-Mitsubishi, Ltd. from
March 1997 until October 1997.
From January 1995 until March 1997 Rosen was a Director of Black
Diamond Advisors, Inc., a firm specializing in securitization and
capital markets needs of finance companies. From January 1994 to
January 1995 Rosen was with Kidder Peabody and Co. in the Asset-Backed
Securitization Group. He also was the Assistant Vice President and
Manager of Securitization and Commercial Paper within the Corporate
Trust Department at Bankers Trust Company.
Transaction Activity
In July 1999, the Company sold a commercial warehouse in Salem,
Ore., for net proceeds of approximately $7.4 million, and in August
1999, the Company sold a commercial warehouse in Eugene, Ore., for net
proceeds of approximately $2.3 million. The gains on these sales were
$0.2 million and $0.5 million, respectively. Proceeds were used to
repay short-term and other borrowings.
During the quarter ended September 30, 1999, the Company sold
mortgage-backed securities with a carrying value of $5.5 million. The
cumulative gain on these sales was $0.2 million and proceeds of $5.7
million were used to repay short-term borrowings.
Liquidity and Capital Resources
At September 30, 1999, the Company had total consolidated secured
indebtedness of $170.6 million, a reserve relating to the provision
for potential resolution of disputes with WFSG of $4.1 million,
accrued interest payable of $1.0 million, accrued management fee of
$0.7 million, a dividend payable of $4.6 million, as well as $1.4
million of other liabilities. The consolidated secured indebtedness
consisted of (i) $82.4 million of repurchase agreements, (ii) lines of
credit aggregating $39.2 million, which are secured by loans and
securities and (iii) $49.0 million outstanding of other borrowings
maturing between 2000 and 2008, which are secured by real estate.
The Company believes that the new, longer-term financing
agreement with Credit Suisse First Boston significantly reduces its
reliance on short-term borrowings and eliminates all remaining
outstanding collateral calls. Nontheless, the Company continues to
maintain a relatively high cash balance in anticipation of paying its
previously announced dividend, to address relative lack of market
liquidity for below-investment-grade assets and to prepare for
possible market illiquidity related to the Year 2000.
Based on monthly interest and other expenses, monthly cash
receipts and collateral calls through October 31, 1999, the Company
believes that existing sources of funds will be adequate for purposes
of meeting short-term liquidity needs. |
