Wilshire Real Estate Investment Trust Announces Fourth Quarter and 1998 Results
PORTLAND, Ore.--(BUSINESS WIRE)--March 31, 1999--Wilshire Real
Estate Investment Trust Inc. (Nasdaq:WREI) a hybrid REIT specializing
in diversified real estate investments, today reported a net loss of
$10.5 million or $0.92 per share, for its fourth quarter ended
December 31, 1998.
The loss was primarily due to adverse market conditions, which
resulted in write-downs of $5.3 million to securities and $8.8 million
of provision for loan losses during the quarter. Excluding these items
and excluding gains on sales of certain other securities and loans,
net income for the quarter would have been $2.3 million, or $0.20 per
share.
For the year ended December 31, 1998 the company reported a net
loss of $56.4 million, or $4.94 per share. The loss was primarily
attributable to a total of $54.8 million of market valuation
adjustments and $11.8 million of provisions for loan losses, as
discussed further below. Excluding these significant items and gains
on the sale of certain other loans and securities totaling $2.3
million, net income for the year would have been $8.0 million or $0.70
per share.
Interest income for the quarter was $11.0 million and net
interest income before provisions for loan losses was $4.9 million,
generated primarily from investments in mortgage-backed securities and
mortgage loans. Gross rental income from operating properties totaled
approximately $2.0 million for the quarter.
"As we discussed in late November, at the time of our third
quarter earnings release, the unprecedented market conditions of late
summer and early fall had a severe impact on the liquidity position of
many financial companies, including Wilshire REIT," said Andrew
Wiederhorn, chairman and chief executive officer.
"While the financial impact was primarily felt during the
beginning of the fourth quarter, our third quarter financial
statements reflected write-downs related to assets subsequently sold
early in the fourth quarter, as well as on certain retained securities
that were deemed to be impaired.
"The distortions in the spreads of mortgage-backed securities
that arose from that financial market turmoil abated somewhat during
the fourth quarter, but there was some residual impact on our results
of operations during the quarter. As such, we focused on stabilizing
our asset base and improving our overall liquidity position. We
therefore did not pursue significant new asset purchases or the
funding of additional loans."
Wiederhorn continued, "However, the improvement in external
market conditions that we have seen over the past several months
should allow us to resume activity in all areas of our business and we
are confident that this pace of activity will accelerate as we move
further into 1999."
Restructuring of Wilshire Financial Services Group Inc.
Wilshire Financial Services Group Inc. ("WFSG"), through its
subsidiary, Wilshire Realty Services Corporation, manages the
company's investment affairs and advises it pursuant to a management
agreement. WFSG was negatively impacted by adverse market conditions
in the third and fourth quarters of 1998 and incurred significant
losses.
Following negotiations with an unofficial committee of holders of
WFSG's 13% and 13% Series B Notes due 2004 ("the Notes"), WFSG agreed
to a restructuring plan, which calls for the Notes to be converted to
new common stock of WFSG. The plan, in the form of a prepackaged
Chapter 11 bankruptcy filing, was subsequently approved by a vote of
the note holders and was filed in the U.S. Bankruptcy Court for the
District of Columbia on March 3, 1999. The confirmation hearing is
scheduled for April 12, 1999.
As a result of WFSG's financial difficulties, certain of the
company's assets have been impaired. The company holds $20 million
principal amount of WFSG's 13% Series B Notes due 2004. The company
has reduced the carrying value of these notes based on the pro rata
apportionment of the projected equity of the newly issued WFSG stock
for which the Notes will be exchanged, resulting in a loss of $11.3
million, as shown in the table below.
In addition, the company had an $18.4 million unsecured note
receivable from WFSG which, in connection with the restructuring of
WFSG, has been modified. The repayment terms have been extended to
seven years and the interest rate has been reduced from 13% to 6%. The
restructuring of the terms of this note has resulted in a loss
provision of $5.9 million in the fourth quarter of 1998, as discussed
below, and is contingent upon the company providing $10 million
debtor-in-possession ("DIP") financing to WFSG.
At March 31, 1999 the company had provided $5 million of DIP
financing. To the extent the remaining $5 million of DIP financing is
not funded, a pro-rata share of the company's $18.4 million receivable
from WFSG will be treated pari passu with WFSG's Notes and converted
to new equity of WFSG. This would cause an additional loss provision.
The company's independent directors represented it in
negotiations with WFSG's other creditors and obtained a result that
was generally more favorable to the company than that received by
other WFSG creditors.
Significant Transactions
During the fourth quarter the company sold a significant amount
of assets to meet collateral calls and reduce outstanding debt. The
company sold loans for proceeds of approximately $471 million and
mortgage-backed securities for proceeds of approximately $116 million.
In addition, the company sold a mezzanine loan secured by a
partnership interest in commercial real estate for approximately $62
million in proceeds. The company has classified losses on sales of
loans and securities, attributable to the above mentioned market
conditions, as "Market Valuation Adjustments" in its Statement of
Operations. $49.5 million of this loss was recorded in the third
quarter and an additional $5.3 million was recognized in the fourth
quarter.
Market Valuation Adjustments
-0-
*T
In millions
Loss on Mortgage-Backed Securities Sold $15.9
Loss on Loans Sold 16.5
Impairment on WFSG 13% Series B Notes due 2004 11.3
Impairment on Mortgage-Backed Securities Held 11.1
Total Market Valuation Adjustments $54.8
*T
-0-
Provision for Losses
In addition to the market valuation adjustments above, the
company has also recognized loan loss provisions of $8.8 million for
the fourth quarter and $11.8 million for the year ended December 31,
1998. $5.9 million relates to a valuation discount recorded on a note
receivable from WFSG, which was modified as a result of WFSG's
financial restructuring discussed above.
An additional $5.9 million provision relates to an approximately
$50 million mezzanine loan held for sale, which adjusts the carrying
value to current market value. While the company anticipates that this
loan is not permanently impaired, it has reduced the carrying value
through this provision should the company sell such loan for
additional liquidity. In addition to the sold assets discussed above,
the company sold approximately $43.0 million of loans in the fourth
quarter at a gain of $1.3 million.
Liquidity and Financial Condition
As of December 31, 1998, the company had total assets of $381.1
million, down 63% from September 30, as a result of the above
mentioned asset sales effectuated to meet collateral calls and improve
liquidity.
At December 31, outstanding collateral calls had been
substantially reduced, to approximately $4 million, as a result of a
more stabilized market environment and cumulative positive cash flows
from the company's mortgage-backed securities and loans underlying its
repurchase agreement borrowings, which have been used to reduce such
collateral calls.
While the company is seeking to finance its mortgage-backed
securities and loan assets on a longer term basis, currently its
financing is primarily through short-term repurchase and loan
warehouse facilities, which are uncommitted and entered into on a
transaction-by-transaction basis.
Investments in real properties are generally financed by long
term mortgages, secured by the underlying collateral. The company
believes that its existing sources of funds will be adequate for
purposes of meeting its short-term and long-term liquidity needs.
There can be no assurance that this will be the case, however |
