<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
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 0-23089
Imperial Credit Commercial Mortgage Investment Corp.
(Exact name of registrant as specified in its charter)
Maryland
(State or other jurisdiction of incorporation or organization)
95-4648345
(I.R.S. Employer Identification No.)
11601 Wilshire Blvd., Suite 2080
Los Angeles, CA 90025
(Address of principal executive offices) (Zip Code)
(310) 231-1280
(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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, $0.0001 par value - 28,500,000 shares as of July 31, 1999
<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION Page
----
<S> <C>
Item 1. Interim Financial Statements
Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998 3
Consolidated Statements of Earnings for the three and six months ended June 30, 1999 and June 30, 1998 4
Consolidated Statements of Cash Flows for the six months ended June 30, 1999 and June 30, 1998 5
Consolidated Statement of Changes in Stockholders' Equity and Comprehensive Income for the six months 6
ended June 30, 1999
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 23
Item 2. Changes in Securities and Use of Proceeds 23
Item 3. Defaults Upon Senior Securities 23
Item 4. Submission of Matters to a Vote of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 25
</TABLE>
2
<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
Consolidated Balance Sheets
June 30, 1999 and December 31, 1998
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- --------
<S> <C> <C>
Assets
Cash and interest bearing deposits $ 48,426 $ 23,398
Repurchase agreements 68,190 -
Mortgage loans collateralizing debt obligations, net of allowance for loan losses of 286,407 -
$4,833
Mortgage loans, net of allowance for loan losses of $5,117 and $8,027, respectively 134,389 556,648
Real property, net of accumulated depreciation of $3,337 and $1,755, respectively 104,282 107,663
Securities available-for-sale, at estimated fair value 54,553 57,671
Accrued interest receivable 3,245 6,410
Other assets 4,378 5,384
Total Assets $ 703,870 $ 757,174
===============================
Liabilities and Stockholders' Equity
Liabilities:
Dividends payable $ 8,550 $ 9,405
Borrowings under collateralized mortgage obligations 238,559 -
Borrowings under secured warehouse facility - 279,000
Borrowings under secured bank loan - 3,557
Mortgage loans secured by real property 46,773 48,575
Accrued expenses, payables and other liabilities, including amounts due to
affiliates of $2,308 and $2,082, respectively 6,886 7,828
-------------------------------
Total Liabilities 300,768 348,365
-------------------------------
Stockholders' Equity:
Common stock, par value $0.0001 per share. Authorized 500,000,000 shares, 28,500,000
shares issued and outstanding 3 3
Additional paid-in capital 425,615 425,615
Accumulated other comprehensive income (loss) (2,470) 221
Accrued dividends in excess of earnings (20,046) (17,030)
-------------------------------
Total Stockholders' Equity 403,102 408,809
-------------------------------
Total Liabilities and Stockholders' Equity $ 703,870 $ 757,174
===============================
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
Consolidated Statements of Earnings
For the three and six months ended June 30, 1999 and June 30, 1998
(Dollars in thousands, except share and earnings per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
1999 1998 1999 1998
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Income
Mortgage loans $ 14,937 $ 10,158 $ 27,049 $ 16,131
Securities available-for-sale 1,494 1,611 3,051 3,065
Repurchase agreements and interest bearing deposits 531 67 893 2,186
-------------------------------------------------------
Total Interest Income 16,962 11,836 30,993 21,382
Real property rental income 3,451 993 6,994 993
-------------------------------------------------------
Total Income 20,413 12,829 37,987 22,375
-------------------------------------------------------
Operating Expenses
Management fees 1,837 1,365 3,704 2,565
Interest expense 4,653 1,034 9,753 1,034
Provision for loan losses 1,533 100 4,633 100
Depreciation of real property 791 242 1,582 242
Real property operating expenses 834 214 1,601 214
Due diligence expenses and professional fees 1,205 375 1,957 524
Other 271 321 673 670
-------------------------------------------------------
Total Expenses 11,124 3,651 23,903 5,349
-------------------------------------------------------
Net Earnings 9,289 9,178 14,084 17,026
Dividends ($0.30, $0.28, $0.60, and $0.52 per share,
respectively) 8,550 9,660 17,100 17,940
-------------------------------------------------------
Net earnings in excess of accrued dividends
(Accrued dividends in excess of net earnings) $ 739 $ ( 482) $ (3,016) $ ( 914)
=======================================================
Earnings per share
Basic $0.33 $0.27 $0.49 $0.49
Diluted 0.32 0.27 0.49 0.49
Weighted average common shares outstanding
Basic 28,500,000 34,500,000 28,500,000 34,500,000
Effect of dilutive stock options 86,333 - 59,439 35,084
-------------------------------------------------------
Diluted 28,586,333 34,500,000 28,559,439 34,535,084
=======================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
Consolidated Statements of Cash Flows
For the six months ended June 30, 1999 and June 30, 1998
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------------------------
1999 1998
---------------- -----------------
<S> <C> <C>
Cash Flows from Operating Activities
Net earnings $ 14,084 $ 17,026
Adjustments to reconcile net earnings to net cash provided by operating
activities:
Depreciation and amortization 1,642 280
Amortization of premium (net of unearned fees) on mortgage loans 458 554
Amortization of discount on securities available-for-sale (3,051) (3,065)
Provision for loan losses, net of charge-offs related to sales 1,923 100
Net change in:
Accrued interest receivable 3,165 (3,664)
Other assets 878 (446)
Other liabilities (912) (5,771)
-----------------------------------
Total Cash Provided by Operating Activities 18,187 5,014
-----------------------------------
Cash Flows from Investing Activities
Purchases of securities available-for-sale - (6,096)
Payments received on securities available-for-sale 3,982 4,044
Purchases and originations of mortgage loans, net of fees (2,794) (300,651)
Principal reductions on and sales of mortgage loans 136,265 38,125
Purchase of real property and improvements, net of mortgage loans assumed (249) (50,115)
-----------------------------------
Total Cash Provided by (Used for) Investing Activities 137,204 (314,693)
-----------------------------------
Cash Flows from Financing Activities
Dividends paid (17,955) (12,765)
Cash borrowings under collateralized mortgage obligations 249,085 -
Repayment of collateralized mortgage obligations (10,526) -
Borrowings under (repayment of) secured warehouse facility (279,000) 167,000
Repayment of secured bank loan (3,557) -
Principal repayments on mortgage loans secured by real property (220) -
-----------------------------------
Total Cash Provided by (Used for) Financing Activities (62,173) 154,235
-----------------------------------
Net increase (decrease) in cash and cash equivalents 93,218 (155,444)
Cash and cash equivalents at beginning of period 23,398 160,613
-----------------------------------
Cash and cash equivalents at end of period $ 116,616 $ 5,169
===================================
Supplemental Disclosure of Cash Flow Activities
Mortgage loans assumed upon real property purchases $ - $ 34,580
====================================
Cash paid for interest $ 9,480 $ 733
====================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
Consolidated Statement of Changes in Stockholders'
Equity and Comprehensive Income
For the six months ended June 30, 1999
(Dollars in thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Total
Number of Accumulated Accrued Stockholders'
Common Additional Other Dividends Equity and
Shares Common Paid-In Comprehensive In Excess Comprehensive
Oustanding Stock Capital Income (Loss) Of Earnings Income
---------- ------ ---------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of period 28,500,000 $ 3 $ 425,615 $ 221 $ (17,030) $ 408,809
-----------
14,084 14,084
Net earnings
(2,188) (2,188)
Change in unrealized loss on
securities available-for-sale
(503) (503)
Foreign exchange loss
----------
Comprehensive income 11,393
----------
Dividends declared ($0.60 per
share) (17,100) (17,100)
---------------------------------------------------------------------------------------
Balance at end of period 28,500,000 $ 3 $ 425,615 $(2,470) $ (20,046) $ 403,102
=======================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
Imperial Credit Commercial Mortgage Investment Corp.
Notes to Consolidated Financial Statements
(Dollars in thousands, except share and per share amounts)
1. Organization
Imperial Credit Commercial Mortgage Investment Corp. (the "Company") was
incorporated in Maryland on July 31, 1997 and was initially capitalized on that
date through the sale of 100 shares of its Common Stock, par value $0.0001 per
share (the "Common Stock"), for $2. On October 22, 1997, the Company commenced
its operations upon consummation of an initial public offering of 34,500,000
shares of its Common Stock, with gross proceeds of $513,857 and net proceeds to
the Company of $479,309 after discounts and costs. The Company invests primarily
in mortgage loans, real property and interests in commercial mortgage-backed
securities ("CMBS"). The majority of the Company's mortgage loans and all of the
Company's interests in CMBS were acquired from Imperial Credit Industries, Inc.
("Imperial Credit") and its affiliates. The Company operates so as to qualify as
a real estate investment trust ("REIT") under the requirements of the Internal
Revenue Code of 1986, as amended (the "Code").
The Company has entered into a management agreement (the "Management Agreement")
with Imperial Credit Commercial Asset Management Corp. (the "Manager"), a
wholly-owned subsidiary of Imperial Credit, under which the Manager advises the
Company on various aspects of its business and manages its day-to-day
operations, subject to the supervision of the Board of Directors of the Company.
Imperial Credit currently owns 2,570,000 shares (9.0%) of the Company's
outstanding common stock (2,790,053 shares or 9.8% including certain affiliates
of Imperial Credit). Pursuant to the Management Agreement, the Manager is
entitled to receive a base management fee of 1% per annum of the first $1
billion of average invested assets, 0.75% of the next $250 million of average
invested assets, and 0.5% of average invested assets above $1.25 billion,
payable quarterly. In addition, the Manager is entitled to a quarterly incentive
fee generally based on 25% of Funds From Operations, as adjusted, in excess of
certain defined levels of return, as fully set forth in the Management
Agreement. Only base management fees had been earned prior to the quarter ended
June 30, 1999. Management fees earned during the quarter ended June 30, 1999
included $41 of incentive management fees and $1,796 of base management fees.
As explained in Note 8, Imperial Credit and the Company have entered into a
definitive merger agreement for Imperial Credit to acquire the Company for cash.
2. Basis of Presentation
The consolidated financial statements of the Company and its subsidiaries are
prepared in accordance with generally accepted accounting principles. All
material intercompany transactions have been eliminated in consolidation.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities as of the
date of the balance sheet and revenues and expenses for the period. Actual
results could differ from those estimates and assumptions.
In management's opinion, the accompanying unaudited consolidated financial
statements of the Company and its subsidiaries contain all adjustments
(consisting of normal recurring adjustments) necessary to present fairly the
consolidated financial position of the Company and subsidiaries at June 30, 1999
and their results of operations and cash flows for the three and six month
periods ended June 30, 1999 and June 30, 1998. These unaudited financial
statements have been prepared in accordance with the rules and regulations of
the Securities and Exchange Commission ("SEC") for interim financial statements
and accordingly are not as comprehensive as annual financial statements prepared
in accordance with generally accepted accounting principles. Various information
and note disclosure normally included in such annual financial statements have
been condensed or omitted. While management believes that the disclosures
presented herein are adequate to make the information not misleading, users are
advised to read the accompanying unaudited interim financial statements in
conjunction with the audited consolidated financial statements and notes
included in the Company's 1998 annual report on Form 10-K filed with the SEC, as
amended. Operating results for the period ended June 30, 1999 are not
necessarily indicative of the results that may be expected for any other interim
periods or the entire year ending December 31, 1999.
7
<PAGE>
3. Comprehensive Income
The change in unrealized gain (loss) on securities available-for-sale and
foreign exchange gain (loss) has been included in comprehensive income and
disclosed in the Consolidated Statement of Changes in Stockholders' Equity and
Comprehensive Income for the six months ended June 30, 1999. Comprehensive
income for the six months ended June 30, 1998 aggregated $17,505 and was
comprised of net income of $17,026 and unrealized gain on securities available-
for-sale of $479. Comprehensive income for the three months ended June 30, 1999
and 1998 aggregated $8,176 and $9,352 and was comprised of net income of $9,289
and $9,178, unrealized gain (loss) on securities available-for-sale of $(958)
and $174 and foreign exchange gain (loss) of $(155) and $0, respectively.
4. Securities Available-For-Sale
At June 30, 1999, the Company's securities available-for-sale consisted of
certain CMBS interests including subordinated securities and interest only
securities collateralized by commercial mortgages, certain subordinated asset-
backed notes issued by Franchise Mortgage Acceptance Company ("FMAC"), an
affiliate of Imperial Credit, and shares of a private equity REIT. In general,
subordinated classes and interest only securities of a particular series of
securities bear all losses prior to the related senior classes. Such securities
or investments may subject the Company to credit, interest rate and/or
prepayment risks.
The amortized cost and estimated fair value of securities available-for-sale are
summarized as follows:
<TABLE>
<CAPTION>
Balance at June 30, 1999
------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Security Description Cost Gain Loss Value
- -------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
CMBS interests:
Non-investment grade rated subordinated interests $35,084 $ - $1,984 $33,100
Investment grade rated senior interest only interests 2,835 173 - 3,008
Non-investment grade rated subordinated interest only interests 2,274 431 - 2,705
Non-rated subordinated interest only interests 1,340 - 167 1,173
Other non-rated subordinated interests 4,076 29 - 4,105
-----------------------------------------------
Total CMBS interests 45,609 633 2,151 44,091
Non-investment grade rated subordinated notes 6,172 - 710 5,462
Private equity REIT 5,000 - - 5,000
-----------------------------------------------
Total $56,781 $633 $2,861 $54,553
===============================================
</TABLE>
<TABLE>
<CAPTION>
Balance at December 31, 1998
----------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Security Description Cost Gain Loss Value
- -------------------- --------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
CMBS interests:
Non-investment grade rated subordinated interests $34,763 $ 90 $ - $34,853
Investment grade rated senior interest only interests 3,361 - 64 3,297
Non-investment grade rated subordinated interest only interests 2,959 - - 2,959
Non-rated subordinated interest only interests 1,386 - - 1,386
Other non-rated subordinated interests 4,050 133 - 4,183
-----------------------------------------------
Total CMBS interests 46,519 223 64 46,678
Non-investment grade rated subordinated notes 6,192 - 199 5,993
Private equity REIT 5,000 - - 5,000
-----------------------------------------------
Total $57,711 $223 $263 $57,671
===============================================
</TABLE>
The Company's CMBS interests are secured by adjustable and fixed rate commercial
and multifamily mortgage loans. The yield to maturity on each security depends
on, among other things, the rate and timing of principal payments (including
prepayments, repurchases, defaults and liquidations), the pass-through rate and
interest rate fluctuations. Some of the Company's CMBS interests are
subordinated so that, in the event of a loss, payments to senior certificate
holders will be made before the Company receives its payments. All of the
Company's CMBS interests were acquired from Imperial Credit and its wholly-owned
subsidiary, Southern Pacific Bank ("SPB"), the originator or purchaser of the
underlying mortgage loans.
8
<PAGE>
The unamortized discount on investment securities available-for-sale was $28,988
and $29,317 at June 30, 1999 and December 31, 1998, respectively. There were no
sales of securities available-for-sale during the six-month period ended June
30, 1999.
5. Mortgage Loans
Mortgage loans held for investment include various types of adjustable-rate and
fixed-rate loans secured by mortgages on commercial and multifamily real
properties.
As of June 30, 1999 and December 31, 1998, the Company's mortgage loan portfolio
consisted of the following:
<TABLE>
<CAPTION>
As of June 30, 1999 As of December 31, 1998
-------------------------------- --------------------------------
Number Amount Number Amount
------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Multifamily loans 769 $213,908 968 $270,170
Commercial loans 274 189,403 374 264,732
Construction loan participation 1 18,000 1 18,000
-----------------------------------------------------------------
Total principal 1,044 421,311 1,343 552,902
===== =====
Unamortized premium 11,242 14,344
Unearned loan fees (1,807) (2,571)
Allowance for loan losses (9,950) (8,027)
-------- --------
Net carrying amount $420,796 $556,648
======== ========
</TABLE>
The Company has acquired mortgage loan pools from affiliated entities, including
SPB and FMAC. During the three months ended June 30, 1999, SPB reacquired
$41,866 of mortgage loans that the Company previously acquired from SPB without
any gain or loss to the Company. As of June 30, 1999 and December 31, 1998, the
Company's mortgage loan portfolio acquired from affiliates consisted of the
following:
<TABLE>
<CAPTION>
As of June 30, 1999 As of December 31, 1998
-------------------------------- ------------------------------
Number Amount Number Amount
------------- ---------------- ------------ --------------
<S> <C> <C> <C> <C>
Principal balance of SPB loans 820 $288,257 985 $353,477
Principal balance of FMAC loans 2 3,900 55 54,501
--------------------------------------------------------------
Total principal balance of loans
acquired from affiliates of Manager 822 $292,157 1,040 $407,978
==============================================================
</TABLE>
Mortgage loans held for investment includes loans held as security for
collateralized mortgage obligations. The total principal balance of mortgage
loans held as security for collateralized mortgage obligations was $281,629 and
consisted of 795 mortgage loans. All mortgage loans held as security for
collateralized mortgage obligations were acquired from SPB.
6. Collateralized Mortgage Obligations
On March 10, 1999, the Company closed a securitization transaction in which the
Company's wholly-owned business trust, ICCMAC Multifamily and Commercial Trust
1999-1 (the "ICCMAC Trust"), sold approximately $250,000 face amount of
collateralized mortgage obligation ("CMO") bonds. The bonds are primarily
floating interest rate bonds and carry a cost of funds which approximates the
cost on the Company's then existing warehouse line of credit with Morgan
Guaranty Trust Company of New York ("Morgan"). The bonds are collateralized by
approximately $282,000 of first mortgage loans which the Company had previously
acquired from SPB. At the closing of this transaction, the Company repaid in
full and terminated its warehouse line of credit with Morgan. At June 30, 1999,
the outstanding CMO bonds are summarized as follows:
<TABLE>
<CAPTION>
Unamortized
Principal Discount Net Interest Rate
--------------- --------------- --------------- ---------------------
<S> <C> <C> <C> <C>
Class A $ 90,835 $ - $ 90,835 Libor + 0.28%
Class A-2 94,831 - 94,831 Libor + 0.42%
Class S 10,550 1,253 9,297 N/A
Class A-3 17,447 - 17,447 Libor + 0.60%
Class B 11,631 - 11,631 Libor + 0.88%
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Class C 14,539 21 14,518 Libor + 1.55%
-------- ------ --------
Total $239,833 $1,274 $238,559
======== ====== ========
</TABLE>
The Class S bonds do not accrue interest but have been discounted to yield
approximately 7.11%. The Class S bonds are entitled to receive monthly payments
as set forth in the prospectus of the ICCMAC Trust.
7. Segment Information
The Company operates in four principal business segments; small balance mortgage
loan pools acquired ("mortgage loan pools"), individual large balance mortgage
loans originated or acquired ("large mortgage loans"), real property and
securities available-for-sale ("securities"). These segments are managed
separately because each requires different levels of resources and involves
assets having different risk profiles. Segment performance is measured based on
net earnings. The "other" category reflects cash and interest bearing deposits,
repurchase agreements and the income derived therefrom as well as other assets
and liabilities and all due diligence expenses, professional fees and other
expenses.
The following table sets forth the revenues and related net earnings and assets
by business segment for the three and six months ended June 30, 1999 and 1998,
respectively:
<TABLE>
<CAPTION>
Revenues Net Earnings Assets
Three Months Ended ------------------- ------------------- ---------------------
June 30, 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loan Pools $ 9,128 $ 9,477 $ 3,640 $7,610 $340,009 $508,470
Large Mortgage Loans 5,809 681 4,675 488 84,032 31,160
Real Property 3,451 993 725 272 104,282 84,453
Securities 1,494 1,611 1,338 1,451 54,553 64,916
Other 531 67 (1,089) (643) 120,994 6,686
------- ------- ------- ------ -------- --------
Total $20,413 $12,829 $ 9,289 $9,178 $703,870 $695,685
======= ======= ======= ====== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Revenues Net Earnings Assets
Six Months Ended ------------------- ------------------- ---------------------
June 30, 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loan Pools $18,771 $15,386 $ 6,789 $12,848 $340,009 $508,470
Large Mortgage Loans 8,278 745 4,922 545 84,032 31,160
Real Property 6,994 993 1,598 272 104,282 84,453
Securities 3,051 3,065 2,741 2,758 54,553 64,916
Other 893 2,186 (1,966) 603 120,994 6,686
------- ------- ------- ------ -------- --------
Total $37,987 $22,375 $14,084 $17,026 $703,870 $695,685
======= ======= ======= ====== ======== ========
</TABLE>
8. Subsequent Events
On July 22, 1999, the Company and Imperial Credit entered into a definitive
merger agreement (the "Merger Agreement") under which Imperial Credit
effectively will acquire all of the outstanding shares of the Company (other
than shares already owned by Imperial Credit and certain of its affiliates and
subsidiaries) for a cash purchase price of $11.50 per share, subject to increase
under certain circumstances. The purchase price reflects a 16.5% premium to the
Company's closing price of $9.875 on May 12, 1999, the day before Imperial
Credit publicly announced its initial proposal to acquire the Company.
Completion of the merger is conditioned on, among other things, the approval of
the holders of at least a majority of the outstanding shares of the Company's
common stock held by holders other than Imperial Credit and certain of its
subsidiaries and affiliates.
Imperial Credit and certain of its subsidiaries and affiliates currently own
approximately 2,790,053 shares of the Company's common stock, constituting
approximately 9.8% of the outstanding shares. The Manager is a wholly owned
subsidiary of Imperial Credit.
The Merger Agreement provides for the prompt appraisal of the termination amount
payable by the Company under the Management Agreement with the Manager. If the
appraised value of the termination amount is less than $35 million, Imperial
Credit has agreed to increase the merger consideration payable to holders of
Company shares (other than Imperial Credit and its subsidiaries) by the amount
by which $35 million exceeds the appraised value. Imperial
10
<PAGE>
Credit will not receive any payment from the Company as a result of the
termination of the Management Agreement upon the closing of the merger
transaction between the Company and Imperial Credit. In addition, in the event
the Merger Agreement is terminated (other than as a result of a default by the
Company), the Management Agreement will terminate no later than October 22, 1999
and the Manager will accept the lesser of $35 million and the appraised value of
the termination amount as payment in full of the termination amount.
The Merger Agreement contemplates that the Company will, during the 60 days
following the appointment of the appraisal firm(s) to be engaged to appraise the
Management Agreement, solicit and explore alternative transactions which would
provide its stockholders with a more favorable alternative to the Imperial
Credit merger. During this 60-day period, the Company may terminate the Merger
Agreement in favor of a superior proposal. In the event of such a termination,
the Company will be obligated to reimburse Imperial Credit for certain of its
expenses incurred in connection with the proposed merger, not to exceed $2
million.
The Merger Agreement also provides that Imperial Credit will purchase certain
mortgage loans previously acquired by the Company from SPB and not previously
repurchased by SPB. On July 23, 1999, the Company received $5,427 from the sale
of 22 loans to SPB without any gain or loss to the Company. Separately, Imperial
Credit's affiliate, FMAC, repurchased in July $3,900 of mortgage loans
previously acquired by the Company from FMAC without any gain or loss to the
Company.
Unless the Merger Agreement is terminated for a superior proposal, the
transaction is expected to be completed during the fourth quarter of 1999.
Prudential Securities Incorporated is serving as financial advisor to the
special committee of the Board of Directors of the Company initially formed to
evaluate Imperial Credit's unsolicited offer.
The Company, its directors and Imperial Credit have been named as defendants in
a putative class action lawsuit filed on July 22, 1999, by Riviera-Enid, a
Florida limited partnership, in the Superior Court of the State of California
for Los Angeles County, California, docket No. BC213902. The complaint alleges
that the proposed merger of the Company and Imperial Credit constitutes a breach
of fiduciary duty by the defendants, that the merger price is unfair to
stockholders, that the merger price is less than the liquidation value of the
Company's assets and that the termination fee to the Manager is excessive. The
complaint also alleges that certain of the directors have conflicts of interest
because of their affiliation with Imperial Credit and that the merger will
benefit Imperial Credit at the expense of the Company's other stockholders. The
complaint seeks certification of a class of all stockholders of the Company
whose stock will be acquired in connection with the merger and seeks injunctive
relief that would, if granted, prevent the completion of the proposed merger.
The complaint also seeks damages in an unspecified amount and other relief. The
Company believes the material allegations of the complaint are without merit.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
General
Dollar amounts herein are expressed in thousands, other than share data.
The Company was incorporated in Maryland on July 31, 1997 for the purpose of
investing primarily in mortgage loans, real property and CMBS interests. The
Company expects to generate income for distribution to its stockholders
primarily from the net earnings derived from its investments in real estate
related assets. The Company operates in a manner designed to maintain its status
as a REIT for federal income tax purposes.
On October 22, 1997, the Company completed its initial public offering of
34,500,000 common shares, with gross proceeds of $513,857 and net proceeds to
the Company of $479,309. As of June 30, 1999, the Company had repurchased
6,000,000 shares of its common stock at a cost of $56,338, had real estate
related invested assets of $579,631 and had outstanding borrowings of $285,332.
On September 18, 1998, the Board of Directors of the Company declared a dividend
of one preferred share purchase right (a "Right") for each outstanding share of
common stock, par value $0.0001 per share, of the Company. The Rights dividend
was payable on September 21, 1998 to stockholders of record at the close of
business on that date. The description and
11
<PAGE>
terms of the Rights are set forth in an agreement (the "Rights Agreement")
between the Company and U.S. Stock Transfer Corporation, a copy of which was
included as an exhibit to the Company's Current Report on Form 8-K, filed with
the SEC on September 22, 1998. The Rights dividend was in response to an
unsolicited merger proposal from Wilshire Real Estate Investment Trust Inc. and
to enable the Company to induce potentially hostile suitors to negotiate terms
with the Company's Board of Directors before initiating takeover attempts. The
Rights Agreement was amended on July 22, 1999 to permit consummation of the
merger contemplated by the Merger Agreement between the Company and Imperial
Credit and a copy of the amendment was included as an exhibit to the Company's
Amendment No. 1 on Form 8-A/A filed with the SEC on July 29, 1999.
Results of Operations
Total income of $20,413 for the quarter ended June 30, 1999 resulted in net
earnings of $9,289 or $0.33 basic and $0.32 diluted net earnings per share as
compared to total income of $12,829 and net earnings of $9,178 or $0.27 basic
and diluted net earnings per share for the same period of last year. Total
income of $37,987 for the six months ended June 30, 1999 resulted in net
earnings of $14,084 or $0.49 basic and diluted net earnings per share as
compared to total income of $22,375 and net earnings of $17,026 or $0.49 basic
and diluted net earnings per share for the same period of last year.
Dividends Declared and Dividends In Excess Of Earnings. The Company declared
dividends on June 22, 1999 and June 25, 1998 of $8,550 ($0.30 per share) and
$9,660 ($0.28 per share), respectively, to stockholders of record on June 30,
1999 and July 9, 1998, respectively. The dividends declared on June 22, 1999 and
June 25, 1998 covered the three-month periods of operations ended June 30, 1999
and 1998, respectively. As a result of these dividends, the Company accumulated
earnings in excess of dividends of $739 for the three months ended June 30, 1999
and incurred dividends in excess of earnings of $482 for the three months ended
June 30, 1998. The Company declared dividends on March 23, 1999 and March 24,
1998 of $8,550 ($0.30 per share) and $8,280 ($0.24 per share), respectively, to
stockholders of record on March 31, 1999 and 1998, respectively. These dividends
declared in March of each year covered the prior year's remaining undistributed
taxable income and the first quarter's results of operations for each year,
respectively. As a result of these dividends, the Company incurred dividends in
excess of earnings of $3,016 and $914 for the six months ended June 30, 1999 and
1998, respectively.
Net Interest Income. The following table sets forth information regarding the
total amount of income from interest-earning assets and the resultant average
yields for the three and six months ended June 30, 1999 and 1998. Information is
based on daily average balances during the reported periods.
<TABLE>
<CAPTION>
Three months ended Three months ended
June 30, 1999 June 30, 1998
---------------------------------- ----------------------------------
Interest Average Annualized Interest Average Annualized
Income Balance Yield Income Balance Yield
-------- --------- ----------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans $10,486 $497,310 8.43% $ 9,340 $444,161 8.41%
Securities available-for-sale 1,494 56,546 10.57% 1,611 59,631 10.81%
Repurchase agreements and interest
bearing deposits 531 48,689 4.36% 67 5,726 4.68%
------- -------- ------- --------
Total 12,511 $602,545 8.31% 11,018 $509,518 8.65%
======== ========
Mortgage loans -- non-recurring income 4,451 818
------- -------
Total Interest Income 16,962 11,836
Less interest expense* 3,826 $240,768 6.36% 843 $ 48,737 6.92%
------- ======== ------- ========
Net Interest Income $13,136 $10,993
======= =======
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Six months ended Six months ended
June 30, 1999 June 30, 1998
---------------------------------- ----------------------------------
Interest Average Annualized Interest Average Annualized
Income Balance Yield Income Balance Yield
-------- --------- ----------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans $22,319 $520,983 8.57% $15,313 $358,771 8.54%
Securities available-for-sale 3,051 56,799 10.74% 3,065 57,162 10.72%
Repurchase agreements and interest
bearing deposits 893 39,910 4.48% 2,186 79,138 5.52%
------- -------- ------- --------
Total 26,263 $617,692 8.50% 20,564 $495,071 8.31%
======== ========
Mortgage loans - non-recurring income 4,730 818
------- -------
Total Interest Income 30,993 21,382
Less interest expense* 8,086 $275,056 5.88% 843 $ 24,369 6.92%
------- ======== ------- ========
Net Interest Income $22,907 $20,539
======= =======
</TABLE>
* Excludes interest expense attributable to real property.
Non-recurring income for 1999 consists of certain fees from FMAC of $368 and
$647 for the three and six month periods, respectively, plus a $4,083
termination fee received by the Company in May in connection with the
termination of a commitment to fund a loan in London, England. Non-recurring
income for 1998 was due to a premium received from FMAC in connection with
FMAC's call of certain loans.
The increase in interest income, interest expense and net interest income for
the three and six months ended June 30, 1999 from the comparable periods for the
prior year is due primarily to the Company's growth subsequent to its initial
public offering and the London loan termination fee. The decrease in interest
income and yield on securities during the three months ended June 30, 1999 as
compared to the prior year is due to the reduction in interest income on certain
high-yield interest-only securities as a result of decreases in the underlying
notional balances due to principal prepayments. The decrease in interest income
from repurchase agreements and interest bearing deposits is due to lower
interest rates and reduced investments in repurchase agreements.
Real Estate. The table presented below sets forth the Company's real property
operating results and yields (expressed as a percentage per annum) for the three
and six months ended June 30, 1999 and 1998, respectively. The yields are based
on the average amount of real property assets for rental income after operating
expenses and average debt outstanding for interest expense.
<TABLE>
<CAPTION>
Three Months ended Three Months ended
June 30, 1999 June 30, 1998
------------------------------ ------------------------------
Amount Yield Amount Yield
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Real Property Income
Rental income $3,451 $993
Less operating expenses 834 214
------ ----
Rental income after operating expenses 2,617 9.68% 779 10.14%
Less interest expense 827 7.06% 191 7.31%
------ ----
Real property FFO 1,790 588
Less depreciation 791 242
------ ----
Real property income $ 999 $346
====== ====
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Six months ended Six Months ended
June 30, 1999 June 30, 1998
------------------------------ ------------------------------
Amount Yield Amount Yield
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Real Property Income
Rental income $6,994 $993
Less operating expenses 1,601 214
------ ----
Rental income after operating expenses 5,393 9.91% 779 10.14%
Less interest expense 1,667 7.08% 191 7.31%
------ ----
Real property FFO 3,726 588
Less depreciation 1,582 242
------ ----
Real property income $2,144 $346
====== ====
</TABLE>
The decrease in income yield from 1998 to 1999 is due primarily to foreign
currency fluctuations relating to a real property investment in France.
Operating Expenses. Management fees were $1,837 and $3,704 for the three and six
months ended June 30, 1999 and $1,365 and $2,565 for the three and six months
ended June 30, 1998, respectively. Management fees for the three and six month
ended June 30, 1999 included $41 of incentive management fees. The balance of
management fees for all periods is comprised solely of the 1% per annum base
management fee payable to the Manager for the respective periods (as provided in
the Management Agreement). The Company incurred due diligence expenses and
professional fees of $1,205 and $1,957 for the three and six months ended June
30, 1999, respectively, compared to $375 and $524 during the respective periods
of 1998. The increase in due diligence expenses and professional fees was due to
accounting, legal, and investment banking expenses relating to the Company's
exploration of various strategic alternatives. Other expenses are comprised of
insurance premiums, directors fees, occupancy costs, investor relations expenses
and other miscellaneous expenses. The average outstanding borrowings for the
three and six months ended June 30, 1999 aggregated $287,606 and $322,176,
respectively, with interest expense of $4,653 and $9,753, respectively, and a
resulting average interest rate of 6.47% and 6.05%, respectively. The average
outstanding borrowings for the three months ended June 30, 1998 aggregated
$59,139 with interest expense of $1,034 and a resulting average interest rate of
6.99%. There were no borrowings during the first quarter of 1998.
During the three and six months ended June 30, 1999, operating expenses included
a non-cash charge of $1,533 ($0.05 per share) and $4,633 ($0.16 per share),
respectively, to increase the allowance for loan losses on mortgage loans
primarily to address the increased principal amounts of loans maintained on non-
accrual status. Similar charges in the same periods last year were negligible.
Segment Reporting
The Company operates in four principal business segments: small balance mortgage
loan pools acquired ("mortgage loan pools"), individual large balance mortgage
loans originated or acquired ("large mortgage loans"), real property and
securities available-for-sale ("securities"). These segments are managed
separately because each requires different levels of resources and involves
assets having different risk profiles. Segment performance is measured based on
net earnings. The "other" category reflects cash and interest bearing deposits,
repurchase agreements and the income derived therefrom as well as other assets
and liabilities and all due diligence expenses, professional fees and other
expenses.
The following table sets forth the revenues and related net earnings and assets
by business segment for the three and six months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Revenues Net Earnings Assets
Three Months Ended ------------------- ------------------- ---------------------
June 30, 1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loan Pools $ 9,128 $ 9,477 $ 3,640 $7,610 $340,009 $508,470
Large Mortgage Loans 5,809 681 4,675 488 84,032 31,160
Real Property 3,451 993 725 272 104,282 84,453
Securities 1,494 1,611 1,338 1,451 54,553 64,916
Other 531 67 (1,089) (643) 120,994 6,686
------- ------- ------- ------ -------- --------
Total $20,413 $12,829 $ 9,289 $9,178 $703,870 $695,685
======= ======= ======= ====== ======== ========
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Revenues Net Earnings Assets
Six Months Ended --------------------------- ---------------------------- ---------------------------
June 30, 1999 1998 1999 1998 1999 1998
------------ ------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Mortgage Loan Pools $18,771 $15,386 $ 6,789 $12,848 $340,009 $508,470
Large Mortgage Loans 8,278 745 4,922 545 84,032 31,160
Real Property 6,994 993 1,598 272 104,282 84,453
Securities 3,051 3,065 2,741 2,758 54,553 64,916
Other 893 2,186 (1,966) 603 120,994 6,686
------- ------- ------- ------- -------- --------
Total $37,987 $22,375 $14,084 $17,026 $703,870 $695,685
======= ======= ======= ======= ======== ========
</TABLE>
Revenues by segment are comprised of interest income for all segments other than
real property, which is comprised of lease rental revenues. There are no
intersegment revenues or expenses.
The mortgage loan pools segment is represented by several pools of small balance
multifamily and commercial loans that the Company acquired from SPB, FMAC and
unrelated third parties. Most of these loans are from pools which average
approximately $150 to $350 per loan. The loans are concentrated in California
and the western and eastern coasts of the United States. These loans are
generally serviced by others, previously including SPB and FMAC, and are
monitored by the Manager on an oversight basis.
The large mortgage loans segment is primarily comprised of loans originated and
serviced by the Manager. These loans are concentrated in five states and each
represents a unique investment and risk profile. These loans require much more
active involvement and direct monitoring by the Manager than do the loans
included in the mortgage loan pools segment.
The real property segment is comprised of two shopping centers and two office
buildings managed by outside professional property managers in California, Las
Vegas and France, as well as a group of seventeen properties located in three
states that are leased to the Ugly Duckling Corporation for use in connection
with that company's used car sales and finance business. These real property
investments are monitored by asset management personnel employed by the Manager.
The securities segment is comprised of the Company's CMBS securities obtained
from SPB and Imperial Credit as well as subordinated notes acquired from FMAC
and a common stock investment in a private equity REIT. The CMBS and
subordinated note investments are administered by servicers and trustees that
were put in place at the time of the applicable securitization transaction.
Personnel employed by the Manager and its affiliates actively monitor these
securities on a quarterly basis and update the Company's analytic models for
valuing the securities. The private equity REIT investment is monitored by
periodic financial reviews and communications with employees of the REIT's
advisor.
Revenues and net earnings related to mortgage loan pools for the three months
ended June 30 decreased from 1998 to 1999 by $349 and $3,970, respectively. The
decrease in revenues was primarily due to a non-recurring fee received from FMAC
that was recognized during the prior year. The decrease in net earnings is due
to increased loan loss provision of $523, interest expense of $3,094 and
management fees of $4 and decreased interest income of $349.
Revenues related to mortgage loan pools for the six months ended June 30, 1999
increased from 1998 by $3,385. The increase in revenues was due to the Company's
investment in mortgage loan pools during 1998. The average balance of mortgage
loans increased from 1998 to 1999 by approximately $90,000. Net earnings related
to mortgage loan pools for the six months ended June 30 decreased from 1998 to
1999 by $6,059. The decrease in net earnings is due to increased loan loss
provision of $1,618, interest expense of $7,346 and management fees of $480
offset by increased interest income of $3,385.
Revenues and net earnings related to large mortgage loans for the three months
ended June 30 increased from 1998 to 1999 by $5,128 and $4,187, respectively.
Revenues and net earnings related to large mortgage loans for the six months
ended June 30 increased from 1998 to 1999 by $7,533 and $4,350, respectively.
The change was due to the recognition of $4,000 in fees from the termination of
a loan commitment during the three months ended June 30, 1999 and the Company's
investment in additional loans. Large mortgage loans increased from 1998 to
1999 by $52,218.
Revenues and net earnings related to real property for the three months ended
June 30 increased from 1998 to 1999 by $2,458 and $453, respectively. Revenues
and net earnings related to real property for the six months ended June 30
increased from 1998 to 1999 by $6,001 and $1,326, respectively. The change was
due to the Company making it's initial investment in real property during the
three months ended June 30, 1998. The Company did not have any such investments
during the three months ended March 31, 1998.
15
<PAGE>
Revenues related to other assets for the three months ended June 30 increased
from 1998 to 1999 by $464 as a result of higher average cash balances during the
three months ended June 30, 1999. The decrease in net earnings of $445 for the
comparable period is primarily due to increased diligence expenses and
professional fees of $843.
Revenues and net earnings related to other assets for the six months ended June
30 decreased from 1998 to 1999 by $1,293 and $2,568, respectively. The decrease
in revenues is primarily due to high cash and interest bearing deposit balances
during the six months ended June 30, 1998 prior to the investment of the
Company's cash in mortgage loans and real estate. The average balance of cash
and interest bearing deposits for the six months ended June 30, 1999 and June
30, 1998 was $39,910 and $79,139, respectively. The decrease in net earnings is
primarily due to decreased revenues as well as an increase in diligence expenses
and professional fees of $1,433.
Balance Sheet Changes
General. During the six months ended June 30, 1999, total assets decreased by
$53,304. The decrease for the six months ended June 30, 1999 was comprised of
$139,017 of mortgage loans and accrued interest, $3,118 of securities available-
for-sale, $3,381 of real property, and $1,006 of other assets offset by an
increase in cash and interest bearing deposits of $25,028 and repurchase
agreements of $68,190. The decline in mortgage loans was due primarily to sales
and principal reductions.
Total liabilities decreased by $47,597 during the six months ended June 30,
1999. The decrease for the six months ended June 30, 1999 was comprised of (i)
payoff of the secured warehouse facility of $279,000 (ii) payoff of the secured
bank loan of $3,557, (iii) paydown of borrowings under collateralized mortgage
obligations of $10,526, (iv) paydown of and unrealized exchange gains related to
mortgage loans secured by real property of $1,582 and (v) decreases in declared
but unpaid dividends of $855, interest payable of $912, and various other
payables of $250, offset by (vi) new borrowings under collateralized mortgage
obligations of $249,085.
The Company's mortgage loan investment additions during the six months ended
June 30, 1999 consisted of a partial funding of a large mortgage loan to an
unrelated party of $2,955. The loan was secured by property located in London,
England. During the three months ended June 30, 1999, this loan was repaid and
the Company received a $4 million termination fee ($1.5 million of which is in
the form of a note) which was recognized as income.
The Board of Directors of the Company authorized the repurchase of up to
12,000,000 shares of the Company's common stock pursuant to three separate
authorizations during 1998. As of June 30, 1999, the Company had repurchased
6,000,000 shares at a total cost of $56,338.
On March 10, 1999, the Company closed a securitization transaction in which the
ICCMAC Trust sold approximately $250,000 face amount of CMO bonds. The bonds are
primarily floating interest rate bonds and are collateralized by approximately
$282,000 of first mortgage loans which the Company had previously acquired from
SPB. At the closing of this transaction, the Company repaid in full and
terminated its warehouse line of credit with Morgan. On April 27, 1999, the
Company entered into a new $300 million warehouse line of credit agreement with
an affiliate of Prudential Securities Incorporated. On June 30, 1999, this new
warehouse line of credit agreement was terminated by the Company. The Company
believes that it has adequate sources of liquidity to maintain its current
business.
At June 30, 1999, the Company had outstanding borrowings of $285,332 and
stockholders' equity of $403,102 resulting in a 0.71 to 1.0 debt to equity ratio
and a 41.4% debt to total capitalization ratio.
Cash and interest bearing deposits. At June 30, 1999, the Company's total cash
and interest bearing deposits aggregated $48,426, an increase of $25,028 from
December 31, 1998.
Repurchase agreements. The Company held repurchase agreements of $68,190 at
June 30, 1999. There were no such balances at December 31, 1998. The Company
earned interest income of $531 and $893 respectively, during the three and six
months ended June 30, 1999 from its investments in interest bearing deposits and
repurchase agreements. Of such income, $419 and $490, respectively, was derived
from investments in repurchase agreements.
16
<PAGE>
Securities available-for-sale. The decrease in securities available-for-sale of
$3,118 during the six months ended June 30, 1999 is due to unrealized losses
(included in comprehensive income) of $2,188 and interest payments of $3,981
offset by discount amortization of $3,051. The Company acquired all of its CMBS
interests from Imperial Credit or its affiliates and the subordinated notes were
obtained from an FMAC asset-backed securitization.
The following table sets forth delinquency, loss and prepayment data for the
mortgage loans underlying the Company's CMBS investments as of and for the
periods ended June 30, 1999 and December 31, 1998:
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
-------- --------
<S> <C> <C>
CMBS investments $ 44,091 $ 46,678
Mortgage Loans:
Original principal balance 480,023 480,023
Principal balance 302,447 349,447
Delinquent principal balance 7,828 10,722
Delinquent balance percent 3% 3%
Prepayments year to date 45,012 81,511
Prepayments for quarter 25,666 22,132
Losses year to date 292 845
</TABLE>
Mortgage loans. At June 30, 1999, 10 loans in the aggregate principal amount of
$14,878 were maintained on non-accrual status and considered impaired as
compared to 38 loans in the amount of $5,745 at December 31, 1998. The increase
in mortgage loans maintained on non-accrual status is primarily due to a loan
facility comprised of six loans to one borrower which recently became over 90
days past due and is in default. Approximately $262 and $587 of previously
accrued interest income was reversed for the three and six months ended June 30,
1999. Additions to the allowance for loan losses aggregated $1,533 and $4,633
for the three and six months ended June 30, 1999, respectively. The ratio of the
allowance for loan losses to non-accrual loans was 0.66 to 1 at June 30, 1999 as
compared to 1.38 to 1 at December 31, 1998. The allowance for loan losses
represented 2.36% and 1.45% of the total principal balance of the Company's
mortgage loans at June 30, 1999 and December 31, 1998, respectively.
The Company's mortgage loans were primarily acquired from entities affiliated
with the Manager, a wholly-owned subsidiary of Imperial Credit. The principal
balance of mortgage loans at June 30, 1999 included $292,157 acquired from SPB
and FMAC and $129,154 acquired from unrelated third parties or originated by the
Company. At December 31, 1998, $407,978 principal balance of mortgage loans had
been acquired from SPB and FMAC and $144,924 principal balance had been acquired
from unrelated third parties.
The decrease in mortgage loans during the six months ended June 30, 1999 is
attributable to sales and principal repayments of $136,265, amortization of
premium and deferred loan fees of $458, increase in deferred loan fees of $360,
and provision for loan losses of $4,633, offset by new mortgage loans of $3,155
and charge offs of $2,710.
Borrowings under collateralized mortgage obligations On March 10, 1999, the
Company closed a securitization transaction in which the ICCMAC Trust sold
approximately $250 million of CMO bonds. The bonds are primarily floating
interest rate bonds and carry a cost of funds which approximates the cost on the
Company's then existing warehouse line of credit with Morgan. The bonds are
collateralized by approximately $282 million of first mortgage loans which the
Company had previously acquired from SPB. At the closing of this transaction,
the Company repaid in full and terminated its warehouse line of credit with
Morgan. At June 30, 1999, the balance due, net of discounts, under the CMO bonds
was $238,559.
Mortgage loans secured by real property. As of June 30, 1999, mortgage loans
secured by real property were $46,773. These loans are secured by the Company's
shopping centers in Oceanside, CA and Palos Verdes, CA and an office building in
a suburb of Paris, France with an aggregate cost of $66,509, bear interest at
effective rates ranging from 4.5% to 7.85% and have final maturity dates ranging
from 2012 to 2027.
Stockholders' equity. Stockholders' equity decreased by $5,707 during the six
months ended June 30, 1999 to $403,102. The decrease was attributable to
dividends in excess of earnings of $3,016 and a decrease in unrealized gains on
securities available-for-sale of $2,188 and foreign exchange loss of $503 (both
included in accumulated other comprehensive income).
17
<PAGE>
Capital Resources and Liquidity
Liquidity is a measurement of the Company's ability to meet potential cash
requirements, including cash required to pay dividends, repay borrowings and
meet other general business needs. The Company's primary sources of funds for
liquidity consist of cash on hand and principal payments and repayments at
maturity on loans and securities. Management believes these sources of liquidity
are sufficient to enable the Company to meet its obligations during 1999.
The Company's operating activities provided cash of $18,187 during the six
months ended June 30, 1999. During the six month period, cash resources from
operating activities were provided primarily by net earnings.
The Company's investing activities provided cash totaling $137,204 during the
six months ended June 30, 1999. During this period, cash flows from investing
activities were primarily provided by sales of and principal reductions on
mortgage loans.
The Company's financing activities used $62,173 in cash during the six months
ended June 30, 1999 after payment of dividends related to 1998 and repayment of
the Company's warehouse line of credit with Morgan.
On March 10, 1999, the Company closed a securitization transaction in which the
ICCMAC Trust sold approximately $250,000 face amount of CMO bonds. At the
closing of this transaction, the Company repaid in full and terminated its
warehouse line of credit with Morgan.
The Company had a reverse repurchase line of credit for $25,000 with Merrill
Lynch Mortgage Capital Inc. that matured on March 31, 1999. The Company had no
outstanding balance thereunder at maturity and the line of credit has not been
renewed.
The Company has no available borrowing facilities and has no outstanding
commitments to fund acquisitions or investments other than a $2.2 million
unfunded portion of a loan arrangement to an existing borrower.
The Company entered into a forward interest rate swap effective May 15, 1998
covering an amortizing notional balance of $77,467 over a ten-year period. Under
the swap, the Company receives monthly payments of interest based on one-month
LIBOR and remits monthly payments based on a fixed interest rate of 5.99%.
During the three months ended June 30, 1999, the Company paid monthly interest
on the notional balance at the fixed rate of 5.99%, which ranged from
approximately $295 to $348 per month, and collected monthly interest at annual
rates ranging from 4.90% to 4.94%, or about $244 to $291 per month. The net cost
of the swap ranged from $50 to $57 per month and is included in interest expense
in the Company's operating results. Such net expense was $157 and $305 for the
three and six months ended June 30, 1999, respectively. As of June 30, 1999, the
approximate net present asset value of this swap was $451 and the notional
balance was $61,855. There can be no assurance that this swap can adequately
limit the Company's exposure to interest rate risk.
Funds From Operations ("FFO")
In general, FFO adjusts net earnings by adding back non-cash charges such as
depreciation, certain amortization expenses and most non-recurring gains and
losses. The Company generally considers FFO an appropriate supplementary measure
of operating performance of a REIT because that measure does not recognize as an
operating expense (i) compensation expense related to stock options issued to
the Manager and its employees and (ii) depreciation of real property, which
management believes is not meaningful in the evaluation of income-producing real
property, that historically has not declined in value. While operating charges
for depreciation and amortization, stock option compensation expense and non-
recurring gains and losses are valid and significant components for determining
operating results in accordance with generally accepted accounting principles
("GAAP") and while the Company's financial condition, results of operations and
cash flows determined under GAAP are the primary measurement tools for
understanding and assessing the Company's financial performance, the
consideration of FFO as a supplement to these primary tools provides investors
with an additional means to assess the ability of a REIT to meet dividend
requirements, fund commitments, fund capital expenditure needs and meet debt
service requirements. However, the Company's computation of FFO may not be
comparable to other similarly titled measures of other companies and FFO should
not be construed as an alternative to
18
<PAGE>
operating results or cash flows determined pursuant to GAAP. The Company's
increase or decrease in FFO should be considered in conjunction with trends in
the Company's primary measurement tools as well as dividends, debt incurred, new
investments or acquisitions, capital expenditures and other factors.
In 1995, the National Association of Real Estate Investment Trusts ("NAREIT")
established new guidelines clarifying its definition of FFO and requested that
REITs adopt this new definition beginning in 1996. The Company computes FFO in
accordance with the definition recommended by NAREIT.
For the three and six months ended June 30, 1999, the Company's FFO was $10,080
($0.35 per share) and $15,666 ($0.55 per share), respectively. FFO was $9,420
($0.27 per share) and $17,268 ($0.50 per share) for the comparable periods of
the prior year. The following table provides the calculation of the Company's
FFO.
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings $ 9,289 $9,178 $14,084 $17,026
Add: Depreciation of real property 791 242 1,582 242
------- ------ ------- -------
FFO $10,080 $9,420 $15,666 $17,268
======= ====== ======= =======
</TABLE>
Market Conditions
Current conditions in the capital markets and equity markets for mortgage REITs
has made permanent financing transactions more difficult and more expensive than
during the first part of 1998. Consequently, there can be no assurance that the
Company will be able to effectively fund future growth.
The Company has not acquired any mortgage loans from SPB since June 30, 1998 and
may not be able to acquire mortgage loans from SPB or other parties in the
future at volume and yield levels consistent with previous acquisitions.
Year 2000
The Company is aware of the issues associated with the Year 2000 ("Y2K") problem
concerning existing computer systems. Y2K affects every computer and subsystem
the Company operates, both in-house and from independent servicers and vendors.
The Y2K issue is whether the Company's computer systems will properly recognize
the "00" and the prefix "20" dates when the year changes to 2000. Many existing
computer programs use only two digits to identify a calendar year field with the
assumption that the first two digits are always "19". Such computer systems will
not properly recognize the new prefix century date of "20" and year date "00"
and could generate erroneous data or cause a computer system to fail. Systems
that calculate, compare or sort using the incorrect date may cause erroneous
results, ranging from system malfunction to incorrect or incomplete processing.
The Company believes that the Y2K compliance of the Company's information
technology needs, such as computer hardware, software and subsystems is
primarily dependent upon the Y2K compliance efforts and results of third party
vendors and service providers.
19
<PAGE>
State of Readiness
Since the Company's computer systems are new and are based on networked personal
computers, management does not believe that Y2K compliance will present any
material problems for the Company's internal computer systems. The Company is,
however, currently evaluating the risks of Y2K issues for companies which are
now servicing the Company's mortgage loan portfolios, companies that provide
property management services for the Company's real property and companies
involved in trust, administration and servicing activities in connection with
the Company's CMBS interests. The Company is in the process of contacting all of
its major service providers and third party vendors regarding the state of their
Y2K readiness. The Company believes that its present mortgage loan servicers and
property managers are Y2K compliant. The Company is also in the process of
identifying and evaluating individual borrowers or tenants whose Y2K compliance
failure could materially impact the Company. The Company plans to complete this
process before year end.
Costs to Address Y2K
The Company has not incurred any costs to date regarding Y2K compliance.
Management does not believe that the Company will likely incur material Y2K
compliance costs because the Manager and the Company's service providers are
believed to be responsible for such costs. No assurance can be given that all
service providers will adequately achieve Y2K compliance or that replacements
for deficient service providers can be obtained in a timely manner and without
additional expense to the Company.
Risk of Y2K
The Company is a REIT which invests primarily in mortgage loans, real property
and CMBS securities. The risk to the Company of Y2K is that any significant
investment(s) could be negatively impacted by the failure of borrowers, tenants
or service providers to achieve Y2K compliance in a manner that impedes their
ability to meet contractual obligations and normal business needs related to
real property and financial instruments underlying the Company's investments.
Since the Company has a diverse portfolio of investments, the failure of any
single borrower or tenant to achieve Y2K compliance generally is unlikely to
have a material adverse effect on the Company's financial position and results
of operations. However, a substantial loan or loans to a single borrower or a
substantial property or properties leased to a single tenant could result in a
Y2K problem with adverse consequences to the Company. Also, the failure of any
of the Company's mortgage loan servicers, property managers or CMBS service
providers to achieve Y2K compliance could necessitate that the Company find a
suitable replacement. While the Company believes that suitable replacements
could be obtained, there is no assurance that this could be done in a timely and
cost effective manner.
Various systems at the real property level do not relate to information
technology but could impact the underlying real property operations. These
systems include telecommunications, security, HVAC, fire and safety systems,
lighting and electrical systems, elevator systems and systems for power supply.
The Company does not expect to be in a position to adequately evaluate these
kinds of risks other than through inquiries of its service providers and third
party vendors.
The worst case Y2K scenario would be one in which various real property systems
adversely impact real property operators throughout the United States in a
manner that prevents such operators from meeting their debt service and other
cash requirements. This in turn would limit the Company's collections of
payments on mortgage loans and mortgage backed securities, as well as receipts
from real property owned which, in turn, would hinder the Company's ability to
meet its own debt service, dividend and other cash requirements. While the
Company is not in a position to assess the likelihood of this scenario, if such
a scenario were to take place, the Company would expect it to impact similarly
many other real property owners, investors and mortgage holders.
Contingency Plans
The Company currently does not have a contingency plan in place. Once the
Company completes evaluation of responses from its major service providers and
third party vendors, it will consider development of contingency plans. The
Company plans to have contingency plans in place prior to year end.
There can be no assurance that the impact of any failure of the Company or its
borrowers, tenants, service providers or any third party vendors to be Y2K
compliant will not have a material adverse effect on the Company's business,
financial condition or results of operations.
20
<PAGE>
FORWARD-LOOKING STATEMENTS
CERTAIN STATEMENTS CONTAINED HEREIN ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, SECTION 27A OF
THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES ACT OF
1934, AS AMENDED. THESE FORWARD-LOOKING STATEMENTS MAY BE IDENTIFIED BY
REFERENCE TO A FUTURE PERIOD(S) OR BY THE USE OF FORWARD-LOOKING TERMINOLOGY,
SUCH AS "MAY," "WILL," "INTEND," "SHOULD," "EXPECT," "ANTICIPATE," "ESTIMATE" OR
"CONTINUE" OR THE NEGATIVES THEREOF OR OTHER COMPARABLE TERMINOLOGY. THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH
FORWARD-LOOKING STATEMENTS DUE TO A VARIETY OF FACTORS, INCLUDING, BUT NOT
LIMITED TO, THE AVAILABLILITY OF AND COSTS ASSOCIATED WITH SOURCES OF FINANCING
AND LIQUIDITY, CHANGES IN NATIONAL, REGIONAL OR LOCAL ECONOMIC ENVIRONMENTS,
COMPETITIVE PRODUCTS AND PRICING, GOVERNMENT FISCAL AND MONETARY POLICIES,
CHANGES IN PREVAILING INTEREST RATES, THE COURSE OF NEGOTIATIONS, THE
FULFILLMENT OF CONTRACTUAL CONDITIONS, FACTORS INHERENT TO THE VALUATION AND
PRICING OF INTERESTS IN COMMERCIAL MORTGAGE-BACKED SECURITIES, OTHER FACTORS
GENERALLY UNDERSTOOD TO AFFECT THE REAL ESTATE ACQUISITION, MORTGAGE AND LEASING
MARKETS AND SECURITY INVESTMENTS, AND THE OTHER RISKS DETAILED IN THE COMPANY'S
REGISTRATION STATEMENT ON FORM S-11, AS AMENDED, FILED WITH THE SEC, PERIODIC
REPORTS ON FORMS 10-Q, 8-K AND 10-K AND ANY AMENDMENTS WITH RESPECT THERETO
FILED WITH THE SEC AND OTHER FILINGS MADE BY THE COMPANY WITH THE SEC. THE
COMPANY DOES NOT UNDERTAKE, AND SPECIFICALLY DISCLAIMS ANY OBLIGATION, TO
PUBLICLY RELEASE THE RESULTS OF ANY REVISIONS WHICH MAY BE MADE TO ANY FORWARD-
LOOKING STATEMENTS TO REFLECT THE OCCURRENCE OF ANTICIPATED OR UNANTICIPATED
EVENTS OR CIRCUMSTANCES AFTER THE DATE OF SUCH STATEMENTS.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
On March 10, 1999, the Company closed a securitization transaction in which the
ICCMAC Trust sold approximately $250,000 face amount of CMO bonds. At the
closing of this transaction, the Company repaid in full and terminated its
warehouse line of credit with Morgan.
Almost all of the CMO bonds issued by the Company as well as borrowings under
the former warehouse line of credit have or had variable rates of interest tied
to the LIBOR index (generally one-month LIBOR). CMO bonds are a permanent source
of funds with set maturities over several years while warehouse lines of credit
are temporary sources of funds with maturities generally set at less than one
year.
The Company is subject to exposure from fluctuations in interest rates on the
collateralized mortgage obligations. In addition, adverse changes in interest
rates could negatively impact (a) the value of the Company's portfolio of
mortgage loans and investments in CMBS securities, (b) the levels of interest
income to be derived from these assets and (c) the cost of borrowing under
permanent (i.e., borrowings obtained through a securitization) or interim (i.e.,
borrowings obtained under warehouse lines or other short-term facilities)
financing that may be obtained in the future. Adverse changes in interest rates
in this context refers to (a) decreases in indices that are a basis for
calculating interest on the Company's mortgage loans without corresponding
decreases in indices that are a basis for calculating interest on the Company's
borrowings as well as (b) increases in indices that are a basis for calculating
interest on the Company's borrowings without corresponding increases in indices
that are a basis for calculating interest on the Company's mortgage loans.
As noted above, the Company is subject to interest rate risk. The Company's
mortgage loans that have been pledged as security for the collateralized
mortgage obligations include adjustable rate and fixed rate loans. The
adjustable rate loans generally are subject to semi-annual interest rate
adjustment based on changes in the underlying indices. While most of the
adjustable rate loans are based on the six-month LIBOR index, others are based
on the one-year constant maturity treasury and prime rates. The Company's
adjustable rate CMO borrowings are based on the one-month LIBOR index and are
subject to monthly interest rate adjustment. Thus, most of the Company's pledged
assets and all of the Company's adjustable rate CMO bond borrowings are subject
to interest rate adjustment based on LIBOR indices. The primary lack of interest
rate correlation between the Company's pledged assets and related borrowings is
due to the amount of fixed rate
21
<PAGE>
mortgage loans pledged as security for the CMO bonds. In order to manage this
exposure, the Company has entered into an interest rate swap agreement described
below.
The Company's interest rate swap provides for the collection of interest based
on one-month LIBOR and the payment of interest based on a fixed interest rate of
approximately 5.99%. The interest payments are computed on a notional balance of
$61,855 at June 30, 1999, which declines thereafter over a period of less than
nine years. There can be no assurance that the swap can adequately limit the
Company's exposure to interest rate risk on borrowings.
The Company's CMBS interests are secured by adjustable and fixed interest rate
commercial and multifamily mortgage loans. The yield to maturity on each
security depends on, among other things, the price at which such security is
purchased, the rate and timing of principal payments (including prepayments,
repurchases, defaults and liquidations), the pass-through rate and interest rate
fluctuations. The Company's interest in some of these securities is subordinated
so that, in the event of a loss, payments to senior securities holders will be
made before the Company receives its payments. Changes in interest rates could
impact prepayment rates as well as default rates, which in turn would impact the
value and yield to maturity of the Company's CMBS interests. Yield to maturity
on the Company's CMBS interests in this context refers to the ultimate rate of
return on the original investment based on the timing and amount of payments
collected by the Company over the actual life of the applicable CMBS interest.
The Company's CMBS interests primarily are either discount bonds or interest
only certificates. Changes in interest rates generally impact the mortgage loans
that serve as collateral for the CMBS interests. Increases in interest rates
generally result in lower levels of borrower prepayments, which in turn
generally would increase the yield to maturity on interest only certificates
while decreasing the yield to maturity on discount bonds. Increases in interest
rates also may result in higher levels of borrower delinquencies, which could
lead to increased loan losses and which, depending on the severity of such
losses, could reduce the yield to maturity on interest only certificates and on
discount bonds. Decreases in interest rates generally result in higher levels of
borrower prepayments, which in turn generally would reduce the yield to maturity
on interest only certificates while increasing the yield to maturity on discount
bonds. Decreases in interest rates also may result in lower levels of borrower
delinquencies, which could lead to reduced loan losses and which, depending on
the magnitude of the loss reduction, could enhance the yield to maturity on both
types of CMBS interests. While the Company has invested in various classes of
CMBS interests, including interest only securities, in order to diversify its
exposure to such uncertainties, there can be no assurance that the Company's
strategy will be successful.
The Company's mortgage loan portfolio includes fixed and variable interest rate
commercial and multifamily mortgage loans. Fluctuations in interest rates may
affect prepayment rates and default rates, notwithstanding any existing
prepayment penalty or yield maintenance provisions, and such rate changes would
in turn impact the value and yield to maturity of the Company's portfolio of
mortgage loans. While the Company has attempted to mitigate such exposures by
diversifying its loan portfolio, there can be no assurance that this strategy
will enable the Company to avoid adverse consequences in the future.
Interest rates during the first quarter of 1999 have generally been relatively
stable, and generally have increased during the second quarter of 1999. While
significant swings in interest rates are not expected over the near term, it is
impossible to predict with certainty what interest rate levels will be in the
future.
The Company's financial instruments as of June 30, 1999 are comprised of
mortgage loans, securities available-for-sale, all outstanding borrowings and an
interest rate swap arrangement. The Company believes that the carrying amount of
its mortgage loans, securities available-for-sale and outstanding borrowings are
a reasonable approximation of the estimated fair value of such financial
instruments as of June 30, 1999. Management believes that the estimated net
present asset value of the swap arrangement was $451 as of June 30, 1999. The
estimates presented herein are not necessarily indicative of the amounts the
Company could realize in a current market exchange. Furthermore, the estimates
were made as of June 30, 1999 and, therefore, current estimates of fair value
may differ significantly from the estimates noted above.
22
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company, its directors and Imperial Credit have been named as defendants in
a putative class action lawsuit filed on July 22, 1999, by Riviera-Enid, a
Florida limited partnership, in the Superior Court of the State of California
for Los Angeles County, California, docket No. BC213902. The complaint alleges
that the proposed merger of the Company and Imperial Credit constitutes a breach
of fiduciary duty by the defendants, that the merger price is unfair to
stockholders, that the merger price is less than the liquidation value of the
Company's assets and that the termination fee to the Manager is excessive. The
complaint also alleges that certain of the directors have conflicts of interest
because of their affiliation with Imperial Credit and that the merger will
benefit Imperial Credit at the expense of the Company's other stockholders.
The complaint seeks certification of a class of all stockholders of the Company
whose stock will be acquired in connection with the merger and seeks injunctive
relief that would, if granted, prevent the completion of the proposed merger.
The complaint also seeks damages in an unspecified amount and other relief. The
Company believes the material allegations of the complaint are without merit.
Item 2. Changes in Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
On June 18, 1999, the Company held its Annual Meeting of Stockholders at which
the members of the Board of Directors were elected to serve for the ensuing year
and the appointment of KPMG LLP as the independent accountants of the Company
for 1999 was ratified. The members of the Board of Directors so elected were H.
Wayne Snavely, Chairman, Kevin E. Villani, Vice Chairman, Mark S. Karlan,
President and Chief Executive Officer, Patric H. Hendershott, Joseph A. Jaconi,
Jr., Louis H. Masotti and Kenneth A. Munkacy. Over 97% of the votes cast at the
meeting were voted in favor of each of the directors and KPMG LLP. Over 88% of
the outstanding shares were voted at the meeting and constituted a quorum.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1* - Merger Agreement, dated as of July 22, 1999, by and among
Imperial Credit, ICCMIC Acquisition Corp., a wholly-owned
subsidiary of Imperial Credit, and the Company.
Exhibit 10.2** - Amendment, dated as of July 22, 1999, to the Rights Agreement,
dated as of September 21, 1998, between the Company and U.S.
Stock Transfer Corporation, as Rights Agent.
Exhibit 27 - Financial Data Schedule
- -----------------------------
* Incorporated by reference to the Company's Current Report on Form 8-K filed
on July 23, 1999.
** Incorporated by reference to the Company's Form 8-A/A filed on July 29,
1999.
23
<PAGE>
(b) Reports on Form 8-K
A Form 8-K was filed with the Commission on April 30, 1999 with the Company's
press release announcing a new $300 million warehouse line of credit agreement.
A Form 8-K was filed with the Commission on May 13, 1999 with the Company's
press release covering earnings for the period ended March 31, 1999.
A Form 8-K was filed with the Commission on June 22, 1999 with the Company's
press release covering the dividend declared for the quarter ended June 30,
1999.
A Form 8-K was filed with the Commission on July 7, 1999 announcing that the
Company terminated its new $300 million warehouse line and resold certain
mortgage loans to affiliates.
A Form 8-K was filed with the Commission on July 23, 1999 announcing that the
Company and Imperial Credit entered into a definitive merger agreement.
24
<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.
Imperial Credit Commercial Mortgage Investment Corp.
Date: August 16, 1999
/s/ Mark S. Karlan
- ------------------
Mark S. Karlan, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Michael Meltzer
- -------------------
Michael Meltzer, Chief Financial Officer and Treasurer
(Principal Financial and Accounting Officer)
25
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------------------
<C> <S>
27 Financial Data Schedule
--------------------------------------------------------------------------
</TABLE>
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> APR-01-1999 APR-01-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 48,426 5,169
<SECURITIES> 122,743 64,916
<RECEIVABLES> 424,041 539,630
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 4,378 1,517
<PP&E> 104,282 84,453
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 703,870 695,685
<CURRENT-LIABILITIES> 15,436 14,838
<BONDS> 238,559 0
0 0
0 0
<COMMON> 403,102 479,267
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 703,870 695,685
<SALES> 0 0
<TOTAL-REVENUES> 20,413 12,829
<CGS> 0 0
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 11,124 3,651
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> 9,289 9,178
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 9,289 9,178
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 9,289 9,178
<EPS-BASIC> 0.33 0.27
<EPS-DILUTED> 0.32 0.27
</TABLE>
