Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended June 30, 1997 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: 0-13091
IMH Commercial Holdings, Inc.
(Exact name of registrant as specified in its charter)
Maryland 33-0745075
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20371 Irvine Avenue
Santa Ana Heights, California 92614
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (714) 556-0122
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
- --------------------------------------- ----------------------------------
Common Stock $0.01 par value American Stock Exchange
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 [_] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of the Form 10-K or any amendment to this
Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of
the registrant based upon the closing sales price of its Common Stock on
November 7, 1997 on the American Stock Exchange was approximately $110.9
million.
The number of shares of Common Stock outstanding as of
November 7, 1997: 7,344,789
The number of shares of Class A Common Stock outstanding as of
November 7, 1997: 674,211
Documents incorporated by reference
None
<PAGE>
<TABLE>
IMH COMMERCIAL HOLDINGS, INC.
1997 FORM 10-Q QUARTERLY REPORT
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS - IMH COMMERCIAL HOLDINGS, INC. Page #
Balance Sheets, June 30, 1997 and March 31, 1997........................................... 3
Statements of Operations, Three-Months Ended June 30, 1997 and For the period
from January 15, 1997 (commencement of operations) through June 30, 1997................... 4
Statement of Cash Flows, For the period from January 15, 1997 (commencement of operations ) through
June 30, 1997.............................................................................. 5
Selected Notes to Financial Statements..................................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 10
PART II. OTHER INFORMATION
ITEM 1. - 5. NOT APPLICABLE 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IMH COMMERCIAL HOLDINGS, INC.
BALANCE SHEETS
(dollars in thousands, except per share data)
<CAPTION>
June 30, 1997 March 31, 1997
---------------------- ----------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 9,686 $ 4,400
Residual interest in securitization, held for trading 9,999 10,025
Loan receivables:
Finance receivables 31,169 -
Commercial Mortgages held for investment 17,380 17,535
Allowance for loan losses (33) (13)
---------------------- ----------------------
Net loan receivables 48,516 17,522
Due from affiliates 1,192 134
Other assets 652 41
Accrued interest receivable 249 128
---------------------- ----------------------
$ 70,294 $ 32,250
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
Warehouse facilities $ 37,863 $ -
Borrowings from Imperial Warehouse Lending Group 7,213 16,563
Due to affiliates 9,096 520
Other liabilities 649 -
Accrued interest expense 137 150
---------------------- ----------------------
Total Liabilities 54,958 17,233
---------------------- ----------------------
Stockholders' Equity:
Preferred Stock; $.01 par value; 10,000,000 shares authorized;
3,000,000 shares issued and outstanding at June 30, 1997 and
March 31, 1997 30 30
Common Stock; $.01 par value; 46,000,000 shares authorized;
599,000 shares issued and outstanding at June 30, 1997 and
March 31, 1997 6 6
Additional paid-in-capital 17,667 17,667
Accumulated deficit (2,367) (2,686)
---------------------- ----------------------
Total Stockholders' Equity 15,336 15,017
---------------------- ----------------------
$ 70,294 $ 32,250
====================== ======================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
IMH COMMERCIAL HOLDINGS, INC.
STATEMENTS OF OPERATIONS
(dollars in thousands, except earnings per share data)
<CAPTION>
For the period from
January 15, 1997
For the Three Months (commencement of operations)
Ended June 30, 1997 through June 30, 1997
----------------------- -----------------------------
<S> <C> <C>
Revenues
Interest income $ 986 $ 1,353
Expenses
Interest expense on warehouse facilities 297 371
Interest expense on affiliated borrowings 226 431
Professional services 119 179
Provision for Commercial Mortgage losses 20 33
Stock compensation expense - 2,697
General and administrative expense 5 9
---------------------- -------------------------------
667 3,720
---------------------- -------------------------------
Net earnings (loss) $ 319 $ (2,367)
====================== ===============================
Pro forma net earnings (loss) per common share $ 0.20 $ (1.48)
====================== ===============================
Pro forma weighted average number of shares outstanding
used in net earnings (loss) per share calculation 1,599,000 1,599,000
====================== ===============================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
IMH COMMERCIAL HOLDINGS, INC.
STATEMENT OF CASH FLOWS
(in thousands)
<CAPTION>
For the period from
January 15, 1997
(commencement of operations)
through June 30, 1997
--------------------------------------
<S> <C>
Cash flows from operating activities:
Net loss $ (2,367)
Adjustments to reconcile net loss to net cash
used in operating activities:
Provision for Commercial Mortgage losses 33
Stock compensation expense 2,697
Net change in accrued interest receivable (249)
Net change in accrued interest expense 137
Net change in other assets and liabilities (1,195)
--------------------------------------
Net cash used in operating activities (944)
Cash flows from investing activities:
Net change in Commercial Mortgages held for investment (17,380)
Net change in finance receivables (31,169)
Purchase of residual interest in securitization (10,098)
Principal reductions on residual interest in securitization 99
--------------------------------------
Net cash used in investing activities (58,548)
Cash flows from financing activities:
Net change in warehouse facilities 37,863
Net change in affiliated borrowings 16,309
Issuance of preferred stock 15,000
Issuance of common stock 6
--------------------------------------
Net cash provided by financing activities 69,178
Cash and cash equivalents at end of period $ 9,686
======================================
Supplementary information:
Interest paid $ 665
======================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
IMH COMMERCIAL HOLDINGS, INC.
Notes to Financial Statements
Unless the context otherwise requires, references herein to the "Company"'
refer to IMH Commercial Holdings, Inc. ("ICH") and Imperial Commercial
Capital Corporation ("ICCC"), collectively. References to ICH refer to IMH
Commercial Holdings, Inc. as a separate entity from ICCC.
1. Basis of Financial Statement Presentation
The accompanying consolidated financial statements have been prepared in
accordance with Generally Accepted Accounting Principles and with the
instructions to Form 10-Q. Accordingly, they do not include all of the
information and footnotes required by Generally Accepted Accounting
Principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring adjustments) considered
necessary for a fair presentation have been included. Operating results for
the period from January 15, 1997 (commencement of operations) through June
30, 1997 are not necessarily indicative of the results that may be expected
for the period from January 15, 1997 (commencement of operations) through
December 31, 1997.
References to financial information of ICH reflects the financial
results of the Long-Term Investment Operations ("Long-Term Investment
Operations") for the period from January 15, 1997 (commencement of
operations) through June 30, 1997, prior to the Contribution (as discussed
below) on August 8, 1997 and excludes the Company's equity interest in ICCC
which the Company obtained pursuant to the Contribution. See Item 2.
"Management's Discussion of Financial Analysis and Results of Operations"
for additional information on the Contribution.
2. Summary of Business and Significant Accounting Policies
ICH is a recently formed specialty commercial property finance company
which has elected to be taxed at the corporate level as a real estate
investment trust ("REIT") for federal income tax purposes, which generally
allows the Company to pass through income to stockholders without payment
of federal income tax at the corporate level. The Company was incorporated
in February 1997 for the purpose of originating, purchasing, securitizing
and selling commercial mortgages and investing in commercial mortgages and
commercial mortgage-backed securities. Imperial Credit Mortgage Holdings,
Inc. ("IMH") capitalized the Company with $15.0 million in cash in March
1997. Upon the closing of the Initial Public Offering ("IPO") on August 8,
1997, IMH owned 719,789, or 9.8%, of ICH Common Stock and 674,211 shares,
or 100%, of ICH non-voting Class A Stock (as defined hereinafter) and
contributed (the "Contribution") 100% of the outstanding shares of
non-voting preferred stock of ICCC in exchange for 95,000 shares of ICH
non-voting Class A Stock. See Item 2. "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Significant Transactions"
for additional information on the IPO.
ICH was formed to seek opportunities in the commercial mortgage
market. Commercial mortgage assets include mortgage loans on
condominium-conversions, mortgage loans on commercial properties, such as
industrial and warehouse space, office buildings, retail space and shopping
malls, hotels and motels, nursing homes, hospitals, multifamily, congregate
care facilities and senior living centers (collectively, "Commercial
Mortgages"). The Company operates the Long-Term Investment Operations,
which invests primarily in Commercial Mortgages and mortgage-backed
securities on commercial properties ("CMBS") and subsequent to the IPO,
engages in the Conduit Operations, which originates, purchases and sells or
securitizes Commercial Mortgages. In April 1997, ICH secured a $200.0
million warehouse line agreement to finance the origination and purchase of
Commercial Mortgages. The Company's Conduit Operations operates three
divisions: the Condominium Division, the Retail Division, and the
Correspondent and Bulk Purchase Division.
Long-Term Investment Operations
The Long-Term Investment Operations invests primarily in adjustable rate
Commercial Mortgages for long-term investment and CMBS backed by such
Commercial Mortgages. Income is earned principally from the net interest
income received by the Company on the Commercial Mortgages, finance
receivables, and CMBS purchased and held in its portfolio. At June 30,
1997, the Company's earning assets consisted of $17.4 million in Commercial
Mortgages, $31.2 million in finance receivables, and a $10.0 million CMBS.
<PAGE>
Conduit Operations
The Company's Conduit Operations operates three divisions, subsequent
to the IPO: the Condominium Division, the Retail Division, and the
Correspondent and Bulk Purchase Division.
Condominium Division. This Division offers on a retail basis adjustable
rate financing to developers and project owners who have completed the
development of a condominium complex or the conversion of an apartment
complex to a condominium complex on property with a typical loan amount of
$3.0 million to $10.0 million. All originations, underwriting, processing
and funding are performed at ICCC's executive offices. The Company
anticipates that the Condominium Division's Commercial Mortgages will be
offered on a nationwide basis and that Commercial Mortgages originated
through the Condominium Division will be financed through the utilization
of CMO borrowings by the Long-Term Investment Operations.
Retail Division. This Division originates Commercial Mortgages for
properties including general retail property such as shopping centers,
super markets and department stores, light industrial property, and office
buildings. The Retail Division offers smaller balance ($500,000 to $1.5
million) fixed and adjustable rate Commercial Mortgages to developers and
project owners for smaller properties and projects than those funded by the
Correspondent and Bulk Purchase Division. Although processing and funding
operations relating to these Commercial Mortgages are performed centrally
at ICCC's executive offices, the Company has targeted major metropolitan
areas for the opening of satellite offices for regional originations. A
portion of the adjustable rate Commercial Mortgages that are originated by
the Retail Division may be held in portfolio by the Long-Term Investment
Operations, while the balance thereof and a substantial portion of the
fixed rate Commercial Mortgages originated will be resold by the Conduit
Operations through bulk sale or REMIC securitizations.
Correspondent and Bulk Purchase Division. This Division both originates
Commercial Mortgages on a retail basis and purchases Commercial Mortgages
on a bulk and flow basis. This Division offers larger principal balance
($1.5 million to $10.0 million) Commercial Mortgages for commercial
projects than those funded by the Retail Division. The Correspondent and
Bulk Purchase Division offers adjustable rate and fixed rate Commercial
Mortgages offered through specified correspondents who may in the future be
provided with Company-sponsored warehouse facilities. In addition, the
Division will purchase Commercial Mortgages in bulk and flow from selected
financial institutions and mortgage bankers. A portion of the adjustable
rate Commercial Mortgages originated or purchased by this Division may be
held in portfolio by the Long-Term Investment Operations, while the balance
thereof and a substantial portion of the fixed rate Commercial Mortgages
originated or purchased will be resold through bulk sale or REMIC
securitizations.
In June 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125 (SFAS 125), "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities," which supersedes SFAS 122. SFAS 125 provides accounting and
reporting standards for transfers and servicing of financial assets and
extinguishments of liabilities. These standards are based on consistent
application of a financial components approach that focuses on control.
Under that approach, after a transfer of financial assets, an entity
recognizes the financial and servicing assets it controls and the
liabilities it has incurred, derecognizes financial assets when control has
been surrendered and derecognizes liabilities when extinguished. SFAS 125
provides consistent standards for distinguishing transfers of financial
assets that are sales from transfers that are secured borrowings. SFAS 125
requires that liabilities and derivatives incurred or obtained by
transferors as part of a transfer of financial assets be initially measured
at fair value, if practicable. It also requires that servicing assets and
other retained interests in the transferred assets be measured by
allocating the previous carrying amount between the assets sold, if any,
and retained interest, if any, based on their relative fair values at the
date of the transfers. SFAS 125 includes specific provisions to deal with
servicing assets or liabilities. SFAS 125 is effective for transactions
occurring after December 31, 1996 except for certain transactions which
according to Statement of Financial Accounting Standards No. 127, "Deferral
of the Effective Date of Certain Provisions of FASB 125," will be effective
if occurring after December 31, 1997. The Company adopted SFAS 125 on
January 1, 1997 with no significant impact on the Company's financial
position or results of operations.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share". SFAS 128 supersedes APB Opinion No. 15 ("APB 15"), "Earnings per
Share" and specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS) for entities with publicly held
common stock or potential common stock.
<PAGE>
SFAS 128 will replace the presentation of primary EPS with a
presentation of basic EPS, and replace fully diluted EPS with diluted
EPS. SFAS 128 will also require dual presentation of basic and diluted
EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and
denominator of the basic EPS computation and the numerator and denominator
of the diluted EPS computation. This statement is effective for financial
statements for both interim and annual periods ending after December 15,
1997. Earlier application is not permitted. The Company has determined
that this statement will have no significant impact on the financial
position or results of operations.
3. Residual Interest in Securitization
The accompanying 1997 balance sheet includes one residual interest in
securitization ("residual") of real estate mortgage investment conduits
("REMICS") which was recorded as a result of a 1995 securitization by
Imperial Credit Industries, Inc. ("ICII") of commercial loans through a
special purpose trust vehicle. ICII has one director who also serves on the
Board of ICH. ICH purchased the residual in March 1997 from ICI Funding
Corporation ("ICIFC"), the conduit operations for IMH, for $10.1 million.
ICIFC and ICH have estimated future cash flows from the residual utilizing
assumptions that they believe are commensurate with the risk inherent in
the investment and consistent with those that they believe would be
utilized by an unaffiliated third-party purchaser and discounted at a rate
commensurate with the risk involved. The Company has classified this
residual as a held-for trading security. Unrealized gains and losses, net
of related income taxes, will be recognized as a reduction to current
earnings. To the Company's knowledge, there is currently no active market
for the purchase or sale of this residual. At June 30, 1997, the Company
recorded $10.0 million in residual interest in securitization which
management estimates to approximate fair value.
The Company financed the purchase of the residual with borrowings from ICII
due December 2007 at a stated interest rate of 10%. At June 30, 1997, the
balance of the affiliated borrowings was $7.9 million, which was included
in due to affiliates on the balance sheet.
4. Warehouse Facilities
In April 1997, ICH as a stand-alone entity entered into a warehouse
line agreement to provide up to $200.0 million to finance the Company's
businesses. Terms of the warehouse line of credit require that the
Commercial Mortgages be held by an independent third party custodian, which
gives the Company the ability to borrow against the collateral as a
percentage of the fair market value of the Commercial Mortgages. The
borrowing rates are expressed in basis points over one-month LIBOR,
depending on the type of collateral provided by the Company. The margins on
the warehouse line agreement are based on the type of mortgage collateral
used and generally range from 85% to 88% of the fair market value of the
collateral. At June 30, 1997 ICH had $37.9 million outstanding in
borrowings under warehouse facilities.
5. Stockholders' Equity
The authorized stock of ICH consists of 46,000,000 shares of Common
Stock ("ICH Common Stock"), and 4,000,000 shares of Class A Non-Voting
Common Stock ("ICH Class A Stock"). On February 3, 1997, the Company issued
300,000 shares of ICH Common Stock to certain officers and directors of the
Company and 299,000 shares of ICH Common Stock to IMH for an aggregate of
$5,990. In April 1997, IMH exchanged the 299,000 shares of ICH Common Stock
for an equivalent number of shares of ICH Class A Stock
The authorized stock of ICH also consists of 6,000,000 shares of
Preferred Stock, $.01 par value per share ("Preferred Stock"), and
4,000,000 shares of Class A Convertible Preferred Stock, $.01 par value per
share ("ICH Preferred Stock"). In March 1997, IMH converted $15.0 million
principal amount promissory notes into an aggregate of 3,000,000 shares of
ICH Preferred Stock.
6. Subsequent Events
In August 1997, the Company raised $88.2 million, net of underwriting
expenses, from its IPO as stockholders purchased 6,325,000 shares of Common
Stock at a price of $15.00 per share. Upon the closing of the IPO, IMH
contributed to ICH 100% of the outstanding shares of non-voting preferred
stock of ICCC in exchange for 95,000 shares of ICH Class A Stock. As of
September 30, 1997, IMH owns 719,789 shares, or 9.8%, of ICH Common Stock
in addition to 674,211 shares, or 100%, of ICH Class A Stock.
<PAGE>
In August 1997, IMH/ICH Dove Street, LLC, a California limited
liability company, of which each of IMH and ICH own a 50% interest,
purchased an office building for $7.7 million plus related closing costs.
IMH and ICH intend to relocate their headquarters to the building over the
next two-year period.
In August 1997, the Company agreed to provide to IMH a $15.0 million
revolving line of credit expiring on August 8, 1998 at an interest rate
determined at the time of each advance with interest and principal paid
monthly. As of September 30, 1997, there was no balance outstanding on the
line of credit.
In October 1997, the Company agreed to provide to ICIFC a $15.0
million revolving line of credit expiring on December 31, 1997 at an
interest rate of Prime plus 1% with interest and principal paid monthly. As
of October 31, 1997, there was $2.0 million outstanding on the line of
credit.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations contains forward-looking statements
which involve risks and uncertainties. The Company's actual results could
differ materially from those anticipated in these forward-looking
statements as a result of certain factors.
References to financial information of ICH reflects the financial results
of the Long-Term Investment Operations for the period from January 15, 1997
(commencement of operations) through June 30, 1997, prior to the
Contribution, and excludes the Company's equity interest in ICCC which the
Company obtained pursuant to the Contribution.
Significant Transactions
In February 1997, certain officers and directors of the Company, as a
group, and IMH purchased 300,000 and 299,000 shares of the Common Stock of
ICH, respectively. In addition, IMH purchased all of the non-voting
preferred stock of ICCC, which represents 95% of the economic interest in
ICCC, for $500,000, and certain of the Company's officers purchased all of
the outstanding shares of common stock of ICCC, which represents 5% of the
economic interest in ICCC. In addition, ICCC brokered ICH's purchase of
$7.3 million and $10.2 million of condominium conversion loans which were
financed with $16.6 million in borrowings under a warehouse lending
facility provided by a subsidiary of IMH, and $900,000 in borrowings from
IMH.
In March 1997, IMH loaned ICH $15.0 million evidenced by a promissory
note convertible into shares of non-voting preferred stock of ICH at the
rate of one share of ICH Preferred Stock for each $5.00 principal amount of
said note. IMH converted the aforementioned $15.0 million principal amount
promissory note into an aggregate of 3,000,000 shares of ICH Preferred
Stock. All shares of ICH Preferred Stock were automatically converted upon
the closing of the IPO into shares of ICH Common Stock determined by
multiplying the number of shares of ICH Preferred Stock to be converted by
a fraction, the numerator of which was $5.00 and the denominator of which
was $15.00. Notwithstanding the foregoing, consistent with IMH's
classification as a REIT, IMH was not entitled to convert into ICH Common
Stock more than that number of shares of ICH Preferred Stock whereby IMH
would own, immediately after such conversion, greater than 9.8% of ICH's
outstanding Common Stock. Any shares of ICH Preferred Stock not converted
into ICH Common Stock upon the closing of the IPO were automatically
converted into shares of ICH non-voting Class A Stock at the same rate as
the ICH Preferred Stock converted into ICH Common Stock. Shares of ICH
Class A Stock convert into shares of Common Stock on a one-for-one basis
and each such class of Common Stock is entitled to cash dividends on a pro
rata basis. Upon any subsequent issuances of Common Stock by ICH or sale of
ICH Common Stock held by IMH, shares of ICH Class A Stock shall
automatically convert into additional shares of the Common Stock of ICH,
subject to a 9.8% limitation. In addition, ICH purchased $10.1 million in
mortgage-backed securities from ICIFC which was financed with a promissory
note. The promissory note was repaid to ICIFC with cash from IMH's
above-referenced $15.0 million investment. Concurrently, ICH repaid the
$900,000 owed to IMH in connection with its purchase of condominium
conversion loans. Subsequently, ICH entered a borrowing agreement with ICII
for $7.9 million secured by a $10.1
CMBS.
In April 1997, IMH exchanged the 299,000 shares of ICH Common Stock held
by it for an equivalent number of shares of ICH Class A Stock.
In August 1997, the Company raised $88.2 million, net of underwriting
expenses, from its IPO as shareholders purchased 6,325,000 shares of common
stock at a price of $15.00 per share. Upon the closing of the IPO, IMH
contributed to ICH 100% of the outstanding shares of non-voting preferred
stock of ICCC in exchange for 95,000 shares of ICH Class A Stock. As of
September 30, 1997, IMH owns 719,789 shares, or 9.8%, of ICH Common Stock
in addition to 674,211 shares, or 100%, of ICH Class A Stock.
In August 1997, IMH/ICH Dove Street, LLC, a California limited liability
company, of which each of IMH and ICH own a 50% interest, purchased an
office building for $7.7 million plus related closing costs. IMH and ICH
intend to relocate their headquarters to the building over the next
two-year period.
Other Matters
William D Endresen, the ICH's current Senior Vice President and
President and Director of ICCC, filed a petition for Chapter 7 bankruptcy
in July 1995 in federal court, Santa Ana. The bankruptcy was discharged in
November 1995
<PAGE>
Results of Operations
Three Months Ended June 30, 1997
Revenues for the three months ended June 30, 1997 were $986,000 due to
interest income earned on Commercial Mortgages, CMBS and finance
receivables. Revenues were comprised primarily of $362,000 of interest
income earned on Commercial Mortgages held for investment, $387,000 of
interest income from CMBS and $189,000 of interest income earned on finance
receivables with ICCC. Interest income for the three months ended June 30,
1997 was earned on total average Mortgage Assets of $36.2 million which was
comprised of $17.5 million of Commercial Mortgages held for investment,
$9.8 million of CMBS and $8.9 million of finance receivables. Commercial
Mortgages and CMBS resulted from the purchase of $17.5 million of
condominium conversion loans and purchase of a $10.1 million residual
interest in securitization from ICIFC in March 1997, respectively. Finance
receivables were the result of providing warehouse financing to ICCC for
the origination of Commercial Mortgages.
Expenses for the three months ended June 30, 1997 was $667,000,
comprised primarily of $523,000 of interest expense related to warehouse
financing, of which $297,000 was from non-affiliated borrowings and
$226,000 was the result of borrowings from Imperial Warehouse Lending
Group, Inc., a subsidiary of IMH ("IWLG") and other affiliates, and
professional expenses of $119,000. Interest expense for the three months
ended June 30, 1997 was the result of average borrowings under warehouse
facilities of $24.7 million. Professional services was primarily the result
of allocation of costs from ICIFC of $115,000 for services performed by
ICIFC management and staff for finance and accounting services, MIS,
marketing, asset/liability management and reporting. Additionally, the
Company recorded a provision for loan losses of $20,000 during the three
months ended June 30, 1997. At June 30, 1997, the Company's allowance for
loan losses expressed as a percentage of loan receivables which includes
Commercial Mortgages held for investment and finance receivables was 0.07%.
As the Company experiences increases in loan receivables and corresponding
increases in delinquencies, the Company expects to add to the allowance for
loan losses. The Company anticipates that expenses will increase in the
future as the Company builds its infrastructure, increases its borrowings
under warehouse lines of credit and reverse repurchase facilities and
relies more heavily on RAI Advisors, LLC ("RAI" or the "Manager") for its
day-to-day operations.
For the period from January 15, 1997 (commencement of operations) through
June 30, 1997.
Revenues for the period from January 15, 1997 (commencement of operations)
through June 30, 1997 were $1.4 million due to interest income earned on
Commercial Mortgages, CMBS and finance receivables. Revenues were comprised
primarily of $581,000 of interest income earned on Commercial Mortgages
held for investment, $518,000 of interest income from CMBS and $189,000 of
interest income earned on finance receivables with ICCC. Interest income
for the period from January 15, 1997 (commencement of operations) through
June 30, 1997 was earned on total average Mortgage Assets of $24.3 million
which was comprised of $13.8 million of Commercial Mortgages held for
investment, $6.0 million of CMBS and $4.5 million of finance receivables.
Commercial Mortgages and CMBS resulted from the purchase of $17.5 million
of condominium conversion loans and purchase of a $10.1 million residual
interest in securitization from ICIFC in March 1997, respectively. Finance
receivables were the result of providing warehouse financing to ICCC for
the origination of Commercial Mortgages.
Expenses for the period from January 15, 1997 (commencement of operations)
through June 30, 1997 were $3.7 million which was comprised primarily of
stock compensation expense of $2.7 million, interest expense related to
borrowings of $802,000, of which $371,000 was from non-affiliated
borrowings and $431,000 was the result of borrowings from IWLG and other
affiliates, and professional expenses of $179,000. Stock compensation
expense was due to the issuance of 300,000 shares of ICH Common Stock.
Stock compensation expense represents the difference between the price at
which ICH issued 300,000 shares of its Common Stock on February 3, 1997
($.01 per share) and the estimated fair value of such shares for financial
reporting purposes as determined by the Company's management, as of
February 3, 1997 ($9.00 per share). Fair value was based primarily on
management's projection of the Company's future cash flow and net earnings.
Interest expense for the period from January 15, 1997 (commencement of
operations) through June 30, 1997 was the result of average borrowings
under warehouse facilities of $17.2 million. Professional services was
primarily the result of allocation of costs from ICIFC of $178,000 for
services performed by ICIFC management and staff for finance and accounting
services, MIS, marketing, asset/liability management and reporting.
Additionally, the Company recorded a provision for loan losses of $33,000
during the period from January 15, 1997 (commencement of operations)
through June 30, 1997.
<PAGE>
Liquidity and Capital Resources
The Company's principal liquidity requirements result from the need to fund
the origination or purchase of Commercial Mortgages held for sale by ICCC
and investment in Commercial Mortgages and CMBS by ICH. Prior to the IPO
and the Contribution, ICCC was funded by intercompany borrowings and
$500,000 from the issuance of capital stock. ICH was funded by $15.0
million in investments by IMH, $900,000 in borrowings from IMH and a $200.0
million warehouse line agreement. Subsequent to the IPO and the
Contribution, the Long-Term Investment Operations and the Conduit
Operations were funded by warehouse line agreements with a major investment
banking firm, proceeds from the issuance of common stock and affiliated
borrowings.
For the period from January 15, 1997 (commencement of operations) through
June 30, 1997, net cash used in operating activities was $(944,000)
primarily due to $(1.2) million in advances to affiliates.
For the period from January 15, 1997 (commencement of operations) through
June 30, 1997, net cash used in investing activities was $(58.5) million.
Cash flows were negatively affected due to the acquisition of Commercial
Mortgages and CMBS and providing warehouse financing to ICCC.
For the period from January 15, 1997 (commencement of operations) through
June 30, 1997, net cash provided by financing activities was $69.2 million.
Cash flows were positively affected by borrowings under warehouse line
agreements, other affiliated borrowings to fund the purchase of CMBS and
the issuance of 3,000,000 shares of ICH Preferred Stock in March 1997 to
IMH.
In April 1997, as a stand-alone, ICH entity entered into a warehouse
line agreement which provides up to $200.0 million to finance the Company's
businesses. Terms of the warehouse line of credit require that the
Commercial Mortgages be held by an independent third party custodian, which
gives the Company the ability to borrow against the collateral as a
percentage of the fair market value of the Commercial Mortgages. The
borrowing rates are expressed in basis points over one-month LIBOR,
depending on the type of collateral provided by the Company. The margins on
the warehouse line agreement are based on the type of mortgage collateral
used and generally range from 85% to 88% of the fair market value of the
collateral. Management believes that the warehouse line agreement will be
sufficient to handle the Company's liquidity needs.
On August 4, 1997, the Company's Registration Statement (file number
333-25423) used in connection with the sale of its Common Stock for the IPO
was declared effective by the Securities and Exchange Commission. On August
8, 1997, the Company raised $88.2 million, net of underwriting expenses,
from its IPO as stockholders purchased 6,325,000 shares of common stock at
a price of $15.00 per share. Underwriting discount and commissions were
$6.6 million and the total expenses were approximately $1.1 million, which
the Company believes is a reasonable estimated of such expenses. The net
offering proceeds to the Company, after deducting the above expenses, were
$87.2 million of which $36.8 million was used to reduce borrowings under
warehouse facilities, $18.7 and $12.4 million was used to purchase
Commercial Mortgages and CMBS, respectively, $3.9 million was used to
purchase a 50% interest in a commercial office building, IMH/ICH Dove
Street, LLC ("Dove") and $15.4 million was used for general working capital
needs.
In August 1997, the Company agreed to provide to IMH a $15.0 million
revolving line of credit expiring on August 8, 1998 at an interest rate
determined at the time of each advance with interest and principal paid
monthly. As of September 30, 1997, there was no balance outstanding on the
line of credit.
In October 1997, the Company agreed to provide to ICIFC, a $15.0
million revolving line of credit expiring on December 31, 1997 at an
interest rate of Prime plus 1% with interest and principal paid monthly. As
of October 31, 1997, there was $2.0 million outstanding on the line of
credit.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1 - 5: NOT APPLICABLE.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
<PAGE>
Exhibit 11. Pro Forma Statement Regarding Computation of
Earnings per Share
<TABLE>
IMH COMMERCIAL HOLDINGS, INC.
Pro Forma Statement Regarding Computation of Earnings per share
(in thousands, except per share data)
<CAPTION>
For the period from
January 15, 1997
For the Three Months (commencement of operations)
Ended June 30, 1997 through June 30, 1997
--------------------------- -------------------------------
<S> <C> <C>
Net earnings $ 319 $ (2,367)
=========================== ===============================
Average number of pro forma shares outstanding 1,599 1,599
=========================== ===============================
Pro forma net earnings per share $ 0.20 $ (1.48)
=========================== ===============================
</TABLE>
<PAGE>
(a) 27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
<PAGE>
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.
IMH COMMERCIAL HOLDINGS, INC.
By: /s/ Richard J. Johnson
Richard J. Johnson
Senior Vice President
and Chief Financial Officer
Date: November 14, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-15-1997
<PERIOD-END> JUN-30-1997
<CASH> 9,686
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 9,999
<INVESTMENTS-HELD-FOR-SALE> 0
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<ALLOWANCE> (33)
<TOTAL-ASSETS> 70,294
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0
30
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<INCOME-PRE-EXTRAORDINARY> (2,367)
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</TABLE>
