and here's why
Wilshire Real Estate Investment Trust Reports Return to Profitability for First Quarter of 1999; Company Positioned To Resume Business Plan
PORTLAND, Ore.--(BUSINESS WIRE)--May 13, 1999--Wilshire Real
Estate Investment Trust Inc. (Nasdaq:WREI) a hybrid REIT specializing
in diversified real estate investments, today reported net income of
$1.8 million, or $0.15 per share, for its first quarter ended March
31, 1999.
Funds from operations were $3.3 million, or $0.29 per share. The
results follow two quarters of net losses caused by the adverse market
conditions of 1998. The Company commenced operations in April 1998,
and did not report financial results for the comparable period last
year.
"We are pleased to report a return to profitability for the first
quarter, which reflects improvement in the market for mortgage-backed
securities as well as our intense activities during the past few
months to stabilize our balance sheet and position the Company for
this rebound," said Andrew Wiederhorn, chairman and chief executive
officer.
"As we resume acquisition activities, we plan to increase our
investments in loans and to de-emphasize new investments in commercial
operating properties. We believe that investments in loans provide
higher yields and allow us to more efficiently leverage existing
capital, thereby providing a higher return on equity. Consistent with
our strategy, we also see attractive opportunities for additional
investments in Europe, particularly in France. In addition to the
direct acquisition of loans and other investments, we may seek to
invest in other companies that invest in real estate related assets,
especially in cases where the market capitalizations of such companies
do not reflect the inherent values of the underlying assets or
franchises."
Transaction Activity
During the quarter, the Company recovered its carrying value in a
loan of approximately $38.6 million through a loan payoff. The loan
was secured by certain mortgage-backed securities and classified in
loans, net in the consolidated statements of financial condition.
On April 29, 1999, the Company sold a loan held for sale secured
by commercial properties in the United Kingdom with a carrying value
of approximately $47.9 million as of March 31, 1999. As a result of
this sale, the Company reversed $3.9 million of a valuation allowance
previously provided for in the provision for losses in the
accompanying interim consolidated statement of operations for the
quarter ended March 31, 1999. This valuation allowance had been
established in 1998 based upon management's estimate at that time of
the ultimate recoverability of the asset in a sale.
Interest income for the quarter was $7.1 million and net interest
income before provisions for losses was $3.4 million, generated
primarily from investments in mortgage-backed securities and mortgage
loans. Provision for losses was a net recovery of $1.1 million, which
reflects reversal of $3.9 million taken in prior periods for the
above-referenced loan held for sale. The reversal was partially offset
by a provision for losses on loans of $0.1 million and a net
write-down of $2.7 million in the carrying value of a $17.0 million
note receivable from Wilshire Financial Services Group (WFSG) to
reflect the estimated value of the common stock of WFSG to be received
in exchange for a portion of the note. Gross rental income from
operating properties totaled approximately $2.0 million for the
quarter.
Restructuring of WFSG
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 1998 and incurred significant losses.
WFSG filed a prepackaged plan of reorganization as part of a Chapter
11 Bankruptcy filing, which was subsequently approved by the
Bankruptcy Court. In connection with the restructuring, the Company
agreed to provide WFSG with debtor-in-possession financing of up to
$10 million as part of a settlement of a $17.0 million receivable from
WFSG.
To the extent the Company funds less than $10 million of this
facility, the unfunded prorated portion of the receivable is to be
treated pari passu with claims of WFSG's unsecured senior note
holders. The Company funded $5 million of the facility and has decided
not to fund the remaining $5 million. As a result, during the quarter,
a $2.7 million provision for loss was recorded to recognize the net
economic impact of converting the remaining 50% of the $17.0 million
receivable to new WFSG common stock.
In addition, during the quarter, the carrying value of the
Company's investment in WFSG's 13% Series B Notes due 2004 was further
reduced by $0.8 million to reflect further impairment in the value of
that asset. Without these charges related to WFSG's restructuring, the
Company's net income would have been $5.3 million.
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