<PAGE> 1
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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 1-14029
AMRESCO CAPITAL TRUST
(Exact name of Registrant as specified in its charter)
Texas 75-2744858
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
700 N. Pearl Street, Suite 2400, LB 342,
Dallas, Texas 75201-7424
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 953-7700
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:
10,006,111 shares of common stock, $.01 par value per share,
as of August 10, 1998.
<PAGE> 2
AMRESCO CAPITAL TRUST
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1998 and February 2, 1998 3
Consolidated Statements of Income - For the Three Months Ended June 30, 1998
and the Period from February 2, 1998 (Date of Initial Capitalization)
through June 30, 1998 4
Consolidated Statement of Shareholders' Equity - For the Period from February
2, 1998 (Date of Initial Capitalization) through June 30, 1998 5
Consolidated Statement of Cash Flows - For the Period from February 2, 1998
(Date of Initial Capitalization) through June 30, 1998 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 14
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 18
Item 6. Exhibits and Reports on Form 8-K 19
SIGNATURE 20
</TABLE>
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<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMRESCO CAPITAL TRUST
CONSOLIDATED BALANCE SHEETS
(UNAUDITED; DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
February 2,
June 30, 1998 1998
------------- -----------
<S> <C> <C>
ASSETS
Mortgage loans, net ................................................................. $ 21,445 $ --
Commercial mortgage-backed securities - available for sale (at fair value) .......... 11,978 --
Real estate, net of accumulated depreciation of $3 .................................. 8,893 --
Investments in unconsolidated subsidiary and other real estate venture .............. 9,296 --
Receivables and other assets ........................................................ 569 --
Cash and cash equivalents ........................................................... 90,245 1
--------- -------
TOTAL ASSETS ................................................................... $ 142,426 $ 1
========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable and other liabilities ............................................ $ 1,063 $ --
Deferred income ................................................................... 294 --
--------- -------
TOTAL LIABILITIES ............................................................... 1,357 --
--------- -------
Minority interests ................................................................ 500 --
--------- -------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 50,000,000 shares authorized, no shares
issued .......................................................................... -- --
Common stock, $.01 par value, 200,000,000 shares authorized, 10,006,111 and 100
shares issued and outstanding ................................................... 100 --
Additional paid-in capital ........................................................ 142,191 1
Unearned stock compensation ....................................................... (2,479) --
Accumulated other comprehensive income ............................................ -- --
Retained earnings ................................................................. 757 --
--------- -------
TOTAL SHAREHOLDERS' EQUITY ...................................................... 140,569 1
--------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ...................................... $ 142,426 $ 1
========= =======
</TABLE>
See notes to consolidated financial statements.
Page 3
<PAGE> 4
AMRESCO CAPITAL TRUST
CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND THE PERIOD FROM
FEBRUARY 2, 1998 (DATE OF INITIAL CAPITALIZATION)
THROUGH JUNE 30, 1998
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Period from
February 2,
Three Months 1998
Ended through
June 30, 1998 June 30, 1998
------------- -------------
<S> <C> <C>
REVENUES:
Interest income on mortgage loans ....................................... $ 140 $ 140
Income from commercial mortgage-backed securities ....................... 37 37
Net operating income from real estate ................................... 17 17
Equity in unconsolidated subsidiary and other real estate venture ....... 160 160
Interest income from short-term investments ............................. 907 907
------- -------
TOTAL REVENUES ........................................................ 1,261 1,261
------- -------
EXPENSES:
Management fees ......................................................... 193 193
General and administrative .............................................. 198 198
Depreciation ............................................................ 3 3
Provision for loan losses ............................................... 110 110
------- -------
TOTAL EXPENSES ........................................................ 504 504
------- -------
NET INCOME ................................................................ $ 757 $ 757
======= =======
EARNINGS PER COMMON SHARE:
Basic .................................................................. $ 0.14 $ 0.23
======= =======
Diluted ................................................................ $ 0.14 $ 0.23
======= =======
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic .................................................................. 5,495 3,356
======= =======
Diluted ................................................................ 5,498 3,358
======= =======
</TABLE>
See notes to consolidated financial statements.
Page 4
<PAGE> 5
AMRESCO CAPITAL TRUST
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM FEBRUARY 2, 1998 (DATE OF
INITIAL CAPITALIZATION) THROUGH JUNE 30, 1998
(UNAUDITED; DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock
$.01 Par Value Accumulated
--------------------- Additional Unearned Other Total
Number of Paid-in Stock Comprehensive Retained Shareholders'
Shares Amount Capital Compensation Income Earnings Equity
---------- -------- ----------- ------------ ------------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Initial capitalization,
February 2, 1998 ................ 100 -- $ 1 $ 1
Additional paid-in capital,
February 11, 1998 ............... -- -- 25 25
Issuance of common shares
through IPO, net of offering
expenses, May 12, 1998 .......... 9,000,000 90 124,601 124,691
Issuance of common shares
through Private Placement,
May 12, 1998 .................... 1,000,011 $ 10 14,990 15,000
Issuance of trust managers'
restricted shares ............... 6,000 -- 90 $ (90) --
Compensatory options granted....... 2,484 (2,484) --
Amortization of unearned trust
manager compensation ............ 11 11
Amortization of compensatory
options ......................... 84 84
Net income ........................ $ 757 757
---------- -------- ----------- ----------- ----- ----------- -----------
Balance at June 30, 1998 .......... 10,006,111 $ 100 $ 142,191 $ (2,479) - $ 757 $ 140,569
========== ======== =========== =========== ===== =========== ===========
</TABLE>
See notes to consolidated financial statements.
Page 5
<PAGE> 6
AMRESCO CAPITAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM FEBRUARY 2, 1998 (DATE OF INITIAL
CAPITALIZATION) THROUGH JUNE 30, 1998
(UNAUDITED; DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................................................. $ 757
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses ............................................................... 110
Depreciation ............................................................................ 3
Amortization of prepaid assets .......................................................... 46
Compensatory stock options .............................................................. 84
Amortization of unearned trust manager compensation ..................................... 11
Amortization of loan commitment fees .................................................... (10)
Receipt of loan commitment fees ......................................................... 568
Increase in receivables and other assets ................................................ (615)
Increase in accounts payable and other liabilities ...................................... 1,063
Increase in deferred income ............................................................. 294
Equity in undistributed earnings of unconsolidated subsidiary and other real
estate venture ....................................................................... (160)
Distributions from unconsolidated subsidiary and other real estate venture .............. 69
---------
NET CASH PROVIDED BY OPERATING ACTIVITIES .......................................... 2,220
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in mortgage loans .............................................................. (22,113)
Purchase of commercial mortgage-backed securities .......................................... (11,978)
Investments in real estate ................................................................. (8,396)
Investments in unconsolidated subsidiary and other real estate venture ..................... (9,205)
---------
NET CASH USED IN INVESTING ACTIVITIES .............................................. (51,692)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock ................................................. 139,717
---------
NET CASH PROVIDED BY FINANCING ACTIVITIES .......................................... 139,717
---------
NET INCREASE IN CASH AND CASH EQUIVALENTS ..................................................... 90,245
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ................................................ --
---------
CASH AND CASH EQUIVALENTS, END OF PERIOD ...................................................... $ 90,245
=========
SUPPLEMENTAL INFORMATION:
Minority interest contributions associated with ADC arrangements ........................... $ 500
=========
</TABLE>
See notes to consolidated financial statements.
Page 6
<PAGE> 7
AMRESCO CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
JUNE 30, 1998
1. ORGANIZATION AND RELATIONSHIPS
AMRESCO Capital Trust (the "Company"), a real estate investment trust ("REIT"),
was organized under the laws of the State of Texas. The Company was formed to
take advantage of certain mid- to high-yield lending and investment
opportunities in real estate related assets, including various types of
commercial mortgage loans (including, among others, participating loans,
mezzanine loans, construction loans, rehabilitation loans and bridge loans),
mortgage-backed securities ("MBS"), commercial real estate, equity investments
in joint ventures and/or partnerships, and certain other real estate related
assets. The Company commenced operations on May 12, 1998, concurrent with the
completion of its initial public offering ("IPO") of 9,000,000 common shares and
private placement of 1,000,011 common shares (the "Private Placement").
Pursuant to the terms of a Management Agreement dated as of May 12, 1998 and
subject to the direction and oversight of the Board of Trust Managers, the
Company's day-to-day operations are managed by AMREIT Managers, L.P. (the
"Manager"), an affiliate of AMRESCO, INC. ("AMRESCO") (together with its
affiliated entities, the "AMRESCO Group"). For its services, the Manager is
entitled to receive a base management fee equal to 1% per annum of the Company's
Average Invested Non-Investment Grade Assets, as defined, and 0.5% per annum of
the Company's Average Invested Investment Grade Assets, as defined. In addition
to the base management fee, the Manager is entitled to receive incentive
compensation in an amount equal to 25% of the dollar amount by which Funds From
Operations (as defined by the National Association of Real Estate Investment
Trusts), as adjusted, exceeds a certain threshold. The base management fee and
the incentive fee, if any, are payable quarterly in arrears. During the period
from May 12, 1998 (inception of operations) through June 30, 1998, base
management fees charged to the Company totaled $123,000; no incentive fees were
charged to the Company during its initial 50-day period of operations. The
Manager has options to purchase 1,000,011 common shares; 70% of the options are
exercisable at an option price of $15.00 per share and the remaining 30% of the
options are exercisable at an option price of $18.75 per share.
AMREIT Holdings, Inc. ("Holdings"), a member of the AMRESCO Group, currently
owns 1,500,011 shares, or approximately 15% of the Company's outstanding common
stock. Holdings acquired 1,000,011 shares at the IPO price of $15.00 per share
pursuant to the Private Placement; the remaining 500,000 shares were acquired
through the IPO. AMRESCO owns 100 shares of the Company's outstanding common
shares; these shares were acquired on February 2, 1998 in connection with the
initial capitalization of the Company.
Subject to certain limited exceptions, AMRESCO has granted to the Company a
right of first refusal with respect to the first $100 million of targeted
mortgage loan investments which are identified by or to any member of the
AMRESCO Group during any calendar quarter and all MBS (other than MBS issued in
securitizations sponsored in whole or in part by any member of the AMRESCO
Group). Additionally, the Company has entered into a Correspondent Agreement
with Holliday Fenoglio Fowler ("HFF"), a member of the AMRESCO Group, pursuant
to which HFF presents to the Company (on a non-exclusive basis) investment
opportunities identified by HFF which meet the investment criteria and
objectives of the Company.
2. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10,
Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and disclosures required by generally accepted accounting principles
for complete financial statements. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiaries. The Company
accounts for its investment in AMREIT II, Inc., a taxable subsidiary, using the
equity method of accounting, and thus reports its share of income or loss based
on its ownership interest. The Company uses the equity method of accounting
because a majority of the voting common stock of AMREIT II, Inc. is owned by the
Manager and because the Company is entitled to substantially all of the economic
benefits of ownership of AMREIT II, Inc. The accompanying financial statements
should be read in conjunction with the Company's February 2, 1998 audited
balance sheet and notes thereto included in the Company's prospectus dated May
6, 1998 (the
Page 7
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"Prospectus"). The notes to the financial statements included herein highlight
significant changes to the notes included in the Prospectus.
In the opinion of management, the accompanying consolidated financial statements
include all adjustments (consisting of normal and recurring accruals) necessary
for a fair presentation of the interim financial statements. Operating results
for the periods ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the entire fiscal year or any other interim
period.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of certain assets and liabilities at the date of the
financial statements and revenues and expenses for the reporting period.
Significant estimates include the valuation of commercial mortgage-backed
securities, the provision for loan losses and the determination of the fair
value of certain share option awards. Actual results may differ from those
estimates and assumptions.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ADC ARRANGEMENTS
The Company provides financing through certain real estate loan arrangements
that, because of their nature, qualify as either real estate or joint venture
investments for financial reporting purposes. Using the guidance set forth in
the Third Notice to Practitioners issued by the AICPA in February 1986 entitled
"ADC Arrangements" (the "Third Notice"), the Company evaluates each investment
to determine whether loan, joint venture or real estate accounting is
appropriate; such determination affects the Company's balance sheet
classification of these investments and the recognition of revenues derived
therefrom. The Third Notice was issued to address those real estate acquisition,
development and construction arrangements where a lender has virtually the same
risks and potential rewards as those of owners or joint venturers. EITF 86-21,
"Application of the AICPA Notice to Practitioners regarding Acquisition,
Development, and Construction Arrangements to Acquisition of an Operating
Property" expanded the applicability of the Third Notice to loans on operating
real estate.
The Company accounts for its loan investments classified as real estate in
accordance with the provisions of Statement Of Financial Accounting Standards
("SFAS") No. 67, "Accounting for Costs and Initial Rental Operations of Real
Estate Projects", SFAS No. 66, "Accounting for Sales of Real Estate" and SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". Accordingly, costs associated with the acquisition,
development and construction of a real estate project are capitalized as a cost
of that project during its construction period. When a real estate project is
substantially completed and held available for occupancy, rental revenues and
operating costs are recognized as they accrue. Depreciation on buildings and
improvements is provided under the straight-line method over an estimated useful
life of 39 years for office and industrial buildings and 27.5 years for
multi-family projects. Maintenance and repair costs are charged to operations as
incurred, while significant capital improvements and replacements are
capitalized. Leasing commissions and leasehold improvements are deferred and
amortized over the terms of the related leases. Other deferred charges are
amortized over terms applicable to the expenditure.
The Company accounts for its loan investments classified as joint ventures in
accordance with the provisions of Statement of Position 78-9, "Accounting for
Investments in Real Estate Ventures" and thus reports its share of income or
loss based on its preferential ownership interest.
MORTGAGE LOANS
Mortgage loans are stated at face value, net of deferred commitment fees and
associated direct costs, if any, and net of an allowance for loan losses. In
accordance with the provisions of SFAS No. 91, "Accounting for Nonrefundable
Fees and Costs Associated with Originating or Acquiring Loans and Initial Direct
Costs of Leases", loan commitment fees and incremental direct costs, if any, are
deferred and recognized over the life of the loan as an adjustment of yield
using the interest method.
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PROVISION FOR LOAN LOSSES
The Company provides for estimated loan losses by establishing an allowance for
losses through a charge to earnings. Management performs a periodic evaluation
of the allowance with consideration given to economic conditions and trends,
collateral values and other relevant factors.
COMMERCIAL MORTGAGE-BACKED SECURITIES
The Company's investments in commercial mortgage-backed securities ("CMBS") are
classified as available for sale and are carried at estimated fair value as
determined by quoted market rates when available, otherwise by discounting
estimated cash flows at current market rates. Any unrealized gains or losses are
excluded from earnings and reported as a separate component of shareholders'
equity in accordance with SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities". If a decline in fair value is deemed to be other
than temporary, it is charged to earnings during the period such determination
is made. During the period from May 12, 1998 (inception of operations) through
June 30, 1998, there were no unrealized gains or losses associated with the
Company's CMBS. Income from CMBS is recognized based on the effective interest
method using the anticipated yield over the expected life of the investments.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consists of cash on hand and highly liquid investments
with maturities of three months or less at the date of purchase.
STOCK-BASED COMPENSATION
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations in accounting for its stock option awards
to the extent an election is available. Accordingly, the Company will, in its
annual Form 10-K, make pro forma disclosures of net income and earnings per
common share as if the fair value based method of accounting defined in SFAS No.
123, "Accounting for Stock-Based Compensation" had been applied.
EARNINGS PER COMMON SHARE
Earnings per common share ("EPS") is computed using the guidance in SFAS No.
128, "Earnings Per Share". Under SFAS No. 128, the Company is required to
present both basic and diluted EPS on the face of its consolidated statement of
income. Basic EPS excludes dilution and is computed by dividing income available
to common shareholders by the weighted-average number of common shares
outstanding for the period. Diluted EPS gives effect to all dilutive potential
common shares that were outstanding during the period.
INCOME TAXES
The Company intends to qualify and will elect to be taxed as a REIT under
Sections 856 through 860 of the Internal Revenue Code of 1986, as amended,
commencing with its initial taxable year ended December 31, 1998. As a result,
the Company will generally not be subject to federal income tax on that portion
of its ordinary income or capital gain that is currently distributed to its
shareholders if it distributes at least 95% of its annual REIT taxable income
and it complies with a number of other organizational and operational
requirements. Accordingly, no provision for income taxes has been made in the
consolidated financial statements.
DISTRIBUTIONS
The Company intends to make quarterly distributions to its shareholders which
will be designed to allow the Company to qualify as a REIT under the Internal
Revenue Code. Earnings and profits, which will determine the taxability of
distributions to shareholders, differs from income reported for financial
reporting purposes due primarily to differences in methods of accounting for ADC
arrangements and stock-based compensation awards and the nondeductibility, for
tax purposes, of the Company's loan loss reserve. As a result, net income under
generally accepted accounting principles is not necessarily an indicator of
distributions to be made by the Company.
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4. INVESTMENT ACTIVITY
Concurrent with the commencement of its operations on May 12, 1998, the Company
acquired two loans from AMRESCO Funding Corporation, a member of the AMRESCO
Group. Additionally, the Company originated five loans during the period from
May 12, 1998 through June 30, 1998. These loan investments are summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Amount
Outstanding Interest Interest
Date of Initial Lien Commitment at June 30, Pay Accrual
Investment Location Position Amount 1998 Rate Rate
- ------------------ ------------------ --------------- --------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
May 12, 1998 Columbus, OH Second $ 7,000 $ 5,839 15.0% 15.0%
May 12, 1998 Richardson, TX Second 14,700 1 10.0% 12.0%
June 1, 1998 Houston, TX First 11,800 9,800 12.0% 12.0%
June 12, 1998 Pearland, TX First 12,827 1,456 10.0% 11.5%
June 17, 1998 San Diego, CA First 5,560 3,977 10.0% 13.5%
June 19, 1998 Houston, TX First 24,000 3,294 12.0% 12.0%
June 22, 1998 Wayland, MA First 45,000 12,312 10.5% 10.5%
----------- -----------
$120,887 $36,679
=========== ===========
</TABLE>
Two of the seven loans provide for profit participation above the contractual
accrual rate. The loan investments are classified as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Loan Amount Balance Sheet
Outstanding at Amount at
June 30, 1998 June 30, 1998
-------------- -------------
<S> <C> <C>
Mortgage loans, net $22,113 $21,445
Real estate, net 8,727 8,893
Investment in real
estate venture 5,839 5,777
------- -------
$36,679 $36,115
======= =======
</TABLE>
The differences between the outstanding loan amounts and the balance sheet
amounts are due primarily to loan commitment fees, the allowance for loan
losses, minority interests and accumulated depreciation. At June 30, 1998,
mortgage loans are presented net of an allowance for loan losses of $110,000.
Real estate, which is comprised entirely of amounts arising under ADC
arrangements, consisted of the following at June 30, 1998 (dollars in
thousands):
<TABLE>
<S> <C>
Land $4,648
Buildings and improvements 3,189
Construction in progress 1,059
------
Total 8,896
Less: Accumulated depreciation (3)
------
$8,893
======
</TABLE>
During the period from May 12, 1998 (inception of operations) through June 30,
1998, the Company, either directly or through its unconsolidated subsidiary,
acquired three commercial mortgage-backed securities at an aggregate purchase
price of $15.3 million.
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5. FINANCING FACILITIES
Effective as of July 1, 1998, the Company (and certain of its subsidiaries)
entered into a $400 million Interim Warehouse and Security Agreement (the
"Warehouse Line") with Prudential Securities Credit Corporation ("PSCC").
Borrowings under the facility will be used to finance the Company's structured
loan and equity real estate investments. Borrowings under the Warehouse Line
bear interest at rates ranging from LIBOR plus 1% per annum to LIBOR plus 2% per
annum depending upon the type of asset, its loan-to-value ratio and the advance
rate selected by the Company. Advance rates on eligible assets range from 50% to
95% depending upon the asset's characteristics. Borrowings under the facility
are secured by a first lien security interest on all assets funded with proceeds
from the Warehouse Line. The Warehouse Line contains several covenants; among
others, the more significant covenants include the maintenance of a $100 million
consolidated Tangible Net Worth, as defined and subject to adjustment in
connection with any subsequent equity offerings; maintenance of a Coverage
Ratio, as defined, of not less than 1.4 to 1; and limitation of Total
Indebtedness, as defined, to no more than 400% of shareholders' equity. The
Warehouse Line matures on July 1, 2000. At June 30, 1998, there had been no
borrowings under the Warehouse Line.
Effective as of July 1, 1998, the Company (and certain of its subsidiaries)
entered into a $100 million Master Repurchase Agreement (the "Repurchase
Agreement") with PSCC. Borrowings under the Repurchase Agreement will be used to
finance a portion of the Company's portfolio of mortgage-backed securities. The
Repurchase Agreement provides that the Company may borrow a varying percentage
of the market value of the purchased mortgage-backed securities, depending on
the credit quality of such securities. Borrowings under the Repurchase Agreement
bear interest at rates ranging from LIBOR plus 0.20% per annum to LIBOR plus
1.5% per annum depending upon the advance rate and the credit quality of the
securities being financed. Borrowings under the facility are secured by a first
lien security interest on all mortgage-backed securities funded with proceeds
from the Repurchase Agreement. The Repurchase Agreement matures on June 30,
2000. At June 30, 1998, there had been no borrowings under the Repurchase
Agreement.
Under both the Warehouse Line and the Repurchase Agreement, PSCC retains the
right to mark the underlying collateral to market value. A reduction in the
value of its pledged assets will require the Company to provide additional
collateral or fund margin calls. From time to time, the Company expects that it
will be required to provide such additional collateral or fund margin calls.
6. SHARE OPTION AWARDS
Under the Company's 1998 Share Option and Award Plan, the Company may grant
restricted common shares and options to purchase common shares in amounts up to
an aggregate of 15% of the Company's outstanding common shares (or 1,500,017
common shares).
On May 12, 1998, the Company granted to its trust managers and officers
non-qualified options to purchase 352,000 common shares at an exercise price of
$15.00 per share (the IPO price). The options vest ratably over a four-year
period beginning one year after the date of grant. The Company applies APB
Opinion No. 25, "Accounting for Stock Issued to Employees" and related
Interpretations in accounting for these awards. As the awards had no intrinsic
value at the grant date, no compensation cost has been recognized.
On May 12, 1998, the Company granted to the Manager and certain other members of
the AMRESCO Group non-qualified options to purchase 1,000,011 and 141,500 common
shares, respectively. Seventy percent of the Manager's options and those options
awarded to the other members of the AMRESCO Group are exercisable at $15.00 per
share (the IPO price); the remaining thirty percent of the Manager's options are
exercisable at an option price of $18.75 per share. The options vest in four
equal installments on May 12, 1999, May 12, 2000, May 12, 2001 and May 12, 2002.
The Company accounts for these options under SFAS No. 123, "Accounting for
Stock-Based Compensation"; accordingly, compensation cost, which was measured at
the grant date based upon the estimated fair value of the share options granted,
is being recognized over the four-year vesting period. The fair value of the
options granted was estimated using the Cox-Ross-Rubinstein option pricing
model with the following assumptions: risk-free interest rates ranging from
5.43% to 5.71%; expected lives ranging from one to ten years; expected
volatility of 25%; and dividend yield of 8%. During the period from May 12,
1998 (inception of operations) through June 30, 1998, management fees and
general and administrative expenses included compensatory option charges
totaling $70,000 and $14,000, respectively.
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<PAGE> 12
In lieu of cash compensation, the Company granted 6,000 restricted common shares
to its four independent trust managers on May 12, 1998. The associated
compensation cost is being recognized over the one-year service period.
7. COMMON STOCK
The Company was initially capitalized through the sale of 100 common shares to
AMRESCO on February 2, 1998. On May 12, 1998, the Company completed its IPO of
9,000,000 shares of common stock. Concurrently, the Private Placement of
1,000,011 common shares was completed with Holdings. The net proceeds from the
IPO and the Private Placement, after the underwriters' discount and offering
expenses, aggregated approximately $139.7 million. The price to the public and
to Holdings was $15.00 per share and the proceeds to the Company from the IPO
and the Private Placement were $14.00 per share (after the underwriter's
discount and advisory fee) and $15.00 per share, respectively.
8. EARNINGS PER SHARE
A reconciliation of the numerator and denominator used in computing basic
earnings per share and diluted earnings per share for the three months ended
June 30, 1998 and the period from February 2, 1998 (date of initial
capitalization) through June 30, 1998, is as follows (in thousands, except
per share data):
<TABLE>
<CAPTION>
Period from
Three Months February 2,
Ended 1998 through
June 30, 1998 June 30, 1998
------------- -------------
<S> <C> <C>
Net income available to common shareholders $ 757 $ 757
========= =========
Weighted average common shares outstanding 5,495 3,356
========= =========
Basic earnings per common share $ 0.14 $ 0.23
========= =========
Weighted average common shares outstanding 5,495 3,356
Effect of dilutive securities:
Restricted shares 3 2
Net effect of assumed exercise of stock
options -- --
--------- ---------
Adjusted weighted average shares outstanding 5,498 3,358
========= =========
Diluted earnings per common share $ 0.14 $ 0.23
========= =========
</TABLE>
Options to purchase 1,193,508 shares of common stock at $15.00 per share and
300,003 shares of common stock at $18.75 per share were outstanding during the
period from May 12, 1998 (inception of operations) through June 30, 1998 but
were not included in the computation of diluted earnings per share because the
options' exercise price was greater than the average market price of the
Company's common shares. The options, which expire on May 12, 2008, were still
outstanding as of June 30, 1998.
The Company had no earnings prior to the commencement of its operations on May
12, 1998. When calculated for the period from May 12, 1998 (inception of
operations) through June 30, 1998, the Company's basic and diluted earnings
were $0.08 per common share.
9. COMPREHENSIVE INCOME
At its inception, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances except those resulting from investments by, and
distributions to, its owners. SFAS No. 130 requires that all items recognized
under accounting standards as components of comprehensive income be reported in
a financial statement that is displayed with the same prominence as other
financial statements. SFAS No. 130 also requires that an entity classify items
of other comprehensive income by their nature in a financial statement. Other
comprehensive income includes unrealized gains and losses on marketable
securities classified as available-for-sale. There were no differences between
net income and comprehensive income during the periods ended June 30, 1998.
Page 12
<PAGE> 13
10. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS No. 133").
SFAS No. 133 requires that an entity recognize all derivatives as either assets
or liabilities in its balance sheet and that it measure those instruments at
fair value. The accounting for changes in the fair value of a derivative (that
is, gains and losses) is dependent upon the intended use of the derivative and
the resulting designation. SFAS No. 133 generally provides for matching the
timing of gain or loss recognition on the hedging instrument with the
recognition of (1) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (2) the earnings effect of
the hedged forecasted transaction. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999, although earlier
application is encouraged. The Company plans to comply with the provisions of
SFAS No. 133 upon its initial use of derivative instruments. As of June 30,
1998, no such instruments were being utilized by the Company.
11. SUBSEQUENT EVENTS
As further described in Note 5, the Company (together with certain of its
subsidiaries) entered into a $400 million Warehouse Facility and a $100 million
Repurchase Agreement with PSCC effective as of July 1, 1998.
On July 1, 1998, the Company originated a $10,068,000 mezzanine loan for the
acquisition of four office buildings in Dallas, Texas; the initial advance under
the loan totaled approximately $6,283,000.
On July 2, 1998, the Company originated a $7,000,000 first lien loan for the
acquisition of an office building in Washington, D.C.; the initial advance under
this loan totaled approximately $5,247,000.
On July 10, 1998, the Company originated a $3,350,000 first lien loan for the
acquisition and rehabilitation of an apartment complex in Pasadena, Texas. The
initial advance under this facility totaled approximately $1,887,000.
On July 23, 1998, the Company declared a dividend of $0.10 per share; the
dividend is payable on August 17, 1998 to shareholders of record on July 31,
1998.
12. LOAN COMMITMENTS
The Company has outstanding commitments to fund approximately $90 million under
ten loan agreements. The Company is obligated to fund these commitments to the
extent that the borrowers are not in violation of any of the conditions
established in the loan agreements. Commitments generally have fixed expiration
dates or other termination clauses and may require the payment of a fee if
amounts are repaid to the Company during certain prepayment lock-out periods. A
portion of the commitments could expire without being drawn upon and therefore
such commitments do not necessarily represent future cash requirements.
Page 13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
AMRESCO Capital Trust (the "Company") is a real estate investment trust ("REIT")
which was formed to take advantage of certain mid- to high-yield lending and
investment opportunities in real estate related assets, including various types
of commercial mortgage loans (including, among others, participating loans,
mezzanine loans, construction loans, rehabilitation loans and bridge loans),
mortgage-backed securities ("MBS"), commercial real estate, equity investments
in joint ventures and/or partnerships, and certain other real estate related
assets. Subject to the direction and oversight of the Board of Trust Managers,
the Company's day-to-day operations are managed by AMREIT Managers, L.P. (the
"Manager"), an affiliate of AMRESCO, INC. (together with its affiliated
entities, the "AMRESCO Group").
The Company commenced operations on May 12, 1998 concurrent with the completion
of its initial public offering ("IPO") of 9,000,000 common shares and private
placement of 1,000,011 common shares with AMREIT Holdings, Inc., a member of the
AMRESCO Group (the "Private Placement"). At June 30, 1998, $52.0 million of the
$139.7 million of net proceeds received from the issuance of its common shares
had been invested in structured finance arrangements and commercial
mortgage-backed securities. The Company is currently evaluating a variety of
potential investments.
The Company will elect to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), and as such, is required to distribute at least
95% of its REIT taxable income annually, subject to certain adjustments. It is
expected that the cash for such distributions will be generated from the
Company's day-to-day operations, although the Company may also borrow funds to
make distributions.
The Company may experience high volatility in net income from quarter to quarter
and year to year, primarily as a result of fluctuations in interest rates,
borrowing costs, reinvestment opportunities and prepayment rates. Because
changes in interest rates may significantly affect the Company's activities, the
operating results of the Company will depend, in large part, upon the ability of
the Company to manage its interest rate, prepayment and credit risks, while
maintaining its status as a REIT.
RESULTS OF OPERATIONS
The Company commenced operations on May 12, 1998. Net income for the period from
May 12, 1998 through June 30, 1998 was $757,000, or $0.08 per common share. The
Company's primary sources of revenue, totaling $1,261,000, were as follows:
o $140,000 of interest income on mortgage loans; the loans earn interest at
accrual rates ranging from 10.5% to 12% per annum
o $907,000 of interest income generated primarily from the temporary
investment of proceeds from the IPO and Private Placement
o $160,000 from equity in the earnings of its unconsolidated subsidiary and a
mortgage loan accounted for as a joint venture investment (for a discussion
of loans accounted for as joint venture investments, see the notes to the
consolidated financial statements included in Item 1 above).
The Company incurred expenses of $504,000 during the period from May 12, 1998
through June 30, 1998 consisting primarily of the following:
o $193,000 of management fees, including $123,000 of base management fees
payable to the Manager pursuant to the Management Agreement and $70,000 of
expense associated with compensatory options granted to the Manager. No
incentive fees were incurred during the period.
o $198,000 of general and administrative costs, including $75,000 for
professional services, $46,000 for directors and officers' insurance,
$16,000 of reimbursable costs pursuant to the Management Agreement, $14,000
related to compensatory options granted to certain members of the AMRESCO
Group and $13,000 of organizational expenses.
o $110,000 reserve for loan losses. No loan losses were incurred by the
Company during the period.
As of June 30, 1998, the Company had closed seven commercial mortgage loans
aggregating $120.9 million in commitments; $36.7 million had been advanced under
these facilities at June 30, 1998. Based upon the amounts
Page 14
<PAGE> 15
committed under these facilities, the Company's portfolio of commercial mortgage
loans made through June 30, 1998 had a weighted average interest pay rate of
11.1% and a weighted average interest accrual rate of 11.6%. In each case, the
borrowers paid a commitment fee that is in addition to interest payments due
under the terms of the loan agreements; commitment fees are deferred and
recognized over the life of the loan as an adjustment of yield. Additionally,
two of the seven loans provide for profit participation above the contractual
accrual rate. The loan investments are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Amount
Outstanding Interest Interest
Date of Initial Lien Commitment at June 30, Pay Accrual
Investment Location Position Amount 1998 Rate Rate
- ---------------- --------------- ------------ ------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
May 12, 1998 Columbus, OH Second $ 7,000 $ 5,839 15.0% 15.0%
May 12, 1998 Richardson, TX Second 14,700 1 10.0% 12.0%
June 1, 1998 Houston, TX First 11,800 9,800 12.0% 12.0%
June 12, 1998 Pearland, TX First 12,827 1,456 10.0% 11.5%
June 17, 1998 San Diego, CA First 5,560 3,977 10.0% 13.5%
June 19, 1998 Houston, TX First 24,000 3,294 12.0% 12.0%
June 22, 1998 Wayland, MA First 45,000 12,312 10.5% 10.5%
----------- ----------
$120,887 $36,679
=========== ==========
</TABLE>
The Company provides financing through certain real estate loan arrangements
that, because of their nature, qualify either as real estate or joint venture
investments for financial reporting purposes. As of June 30, 1998, loan
investments representing $49,387,000 in aggregate commitments are accounted for
as either real estate or joint venture interests; approximately $14,566,000 had
been advanced to borrowers under the related agreements. For a discussion of
these loan arrangements, see the notes to the consolidated financial statements
in Item 1 above.
At June 30, 1998, the Company's commercial mortgage loan commitments were
concentrated in four states: Texas (53%); Massachusetts (37%); Ohio (6%); and
California (4%). The underlying collateral for these loans was comprised of the
following property types (percentages are based upon commitment amounts): office
(79%); multifamily (11%); mixed use (6%); and R&D/Bio-Tech (4%). Based upon
committed loan amounts, construction loans, acquisition/rehabilitation loans and
acquisition loans comprised 43%, 42% and 15% of the portfolio, respectively.
Eighty-two percent of the portfolio (based upon committed amounts) is comprised
of first lien loans while the balance of the portfolio (18%) is secured by
second lien loans.
Until the investment portfolio becomes larger, geographic and product type
concentrations are to be expected. The Company expects to see more
diversification both geographically and by product type as the loan portfolio
grows. In building its investment portfolio, the Company will continue to pursue
investment opportunities which, in its opinion, offer the best risk-adjusted
returns. Geographic and product type concentrations present additional risks,
particularly if there is a deterioration in the general condition of the real
estate market or in the sub-market in which the loan collateral is located, or
if demand for a particular product type does not meet expectations due to
adverse market conditions that are different from those projected by the
Company. The Company is aware of these risks and intends to diversify its
investment portfolio over time.
During its initial 50-day period of operations, the Company, either directly or
through its unconsolidated subsidiary, acquired three commercial mortgage-backed
securities ("CMBS") at an aggregate purchase price of $15.3 million. Excluding
the potential tax effects associated with one of the securities held by the
Company's unconsolidated subsidiary, the weighted average unleveraged yield over
the expected life of these investments is expected to approximate 13%.
The Company's estimated returns on its CMBS investments are based upon a number
of assumptions that are subject to certain business and economic risks and
uncertainties. Examples include the timing and magnitude of prepayments,
extensions and credit losses on the mortgage loans underlying the CMBS that
result from general and/or localized real estate market factors. These risks and
uncertainties are in many ways similar to those affecting the Company's
commercial mortgage loans. These risks and uncertainties may cause the
anticipated yields to differ materially from those projected above.
On July 23, 1998, the Company declared its first dividend; the dividend,
totaling $0.10 per share, is payable on August 17, 1998 to shareholders of
record on July 31, 1998.
Page 15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
The Company's ability to execute its business strategy, particularly the growth
of its investment and loan portfolio, depends to a significant degree on its
ability to obtain additional capital. The Company's principal demands for
liquidity are cash for operations, including funds for its lending activities
and other investments, interest expense associated with its indebtedness, debt
repayments and distributions to its shareholders. In the near term, the
Company's principal sources of liquidity are the proceeds from the IPO and the
Private Placement as well as funds available under the Warehouse Line and
Repurchase Agreement described below.
Effective as of July 1, 1998, the Company (and certain of its subsidiaries)
entered into a $400 million warehouse facility (the "Warehouse Line") with
Prudential Securities Credit Corporation ("PSCC"). Borrowings under the facility
will be used to finance the Company's structured loan and equity real estate
investments. Borrowings under the Warehouse Line bear interest at rates ranging
from LIBOR plus 1% per annum to LIBOR plus 2% per annum and are secured by a
first lien security interest an all assets funded with proceeds from the
Warehouse Line. The Warehouse Line matures on July 1, 2000. At June 30, 1998,
there had been no borrowings under the Warehouse Line.
The Company (and certain of its subsidiaries) also entered into a $100 million
repurchase agreement (the "Repurchase Agreement") with PSCC effective as of July
1, 1998. Borrowings under the Repurchase Agreement will be used to finance a
portion of the Company's portfolio of mortgage-backed securities. The Repurchase
Agreement provides that the Company may borrow a varying percentage of the
market value of the purchased mortgage-backed securities, depending on the
credit quality of such securities. Borrowings under the Repurchase Agreement
bear interest at rates ranging from LIBOR plus 0.20% per annum to LIBOR plus
1.5% per annum depending upon the advance rate and the credit quality of the
securities being financed. The Repurchase Agreement matures on June 30, 2000. At
June 30, 1998, there had been no borrowings under the Repurchase Agreement.
The Company believes that the net proceeds from the IPO and Private Placement
and the funds available under its Warehouse Line and Repurchase Agreement will
be sufficient to meet the Company's liquidity and capital requirements into the
first quarter of 1999. To fund future growth, the Company will need to raise
additional funds for operations through future public or private equity and debt
offerings and/or by leveraging its investments, primarily through additional
secured and unsecured financings, and other borrowing arrangements.
REIT STATUS
Management believes that the Company is operated in a manner that will enable it
to qualify as a REIT for federal income tax purposes. As a REIT, the Company
will not pay income taxes at the trust level on any taxable income which is
distributed to its shareholders, although AMREIT II, Inc., its "Non-Qualified
REIT Subsidiary", may be subject to tax at the corporate level. Qualification
for treatment as a REIT requires the Company to meet certain criteria, including
certain requirements regarding the nature of its ownership, assets, income and
distributions of taxable income. The Company may, however, be subject to tax at
normal corporate rates on any ordinary income or capital gains not distributed.
YEAR 2000 COMPLIANCE
The Company is wholly dependent upon the Manager's information technology
infrastructure. Pursuant to the terms of the Management Agreement, the Manager
will bear the costs associated with determining whether its systems are Year
2000 compliant and the costs of any necessary modifications or replacements. The
Manager has advised the Company that the Manager has reviewed its computer
systems in order to evaluate necessary modifications for Year 2000 compliance.
The Manager does not anticipate any material difficulties in achieving Year 2000
compliance with respect to the Manager's computer systems. In addition, the
Manager has communicated with others with whom each of the Manager and the
Company do significant business to determine their Year 2000 compliance status
and the extent to which the Manager or the Company could be affected by any
third party Year 2000 compliance issues. However, the Company has not received
responses from all third parties and there can be no assurance that the systems
of other companies with whom the Company does business or on which the Manager's
systems rely will be timely converted, or that a failure to convert by another
company, or a conversion that is incompatible with the Manager's systems, would
not have a material adverse effect on the Company.
Page 16
<PAGE> 17
FORWARD-LOOKING STATEMENTS
Certain statements contained herein are not based on historical facts and are
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements, which are based on
various assumptions (some of which are beyond the Company's control), may be
identified by reference to a future period or periods or by use of
forward-looking terminology such as "intends," "may," "could," "will,"
"believe," "expect," "anticipate," "plan" or similar terms or variations of
those terms or the negative of those terms. Actual results could differ
materially from those set forth in forward-looking statements due to a variety
of factors, including, without limitation, the environment, changes in
prevailing interest rates, credit risk management, asset/liability management,
the financial and securities markets, and the availability and costs associated
with sources of liquidity.
Page 17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS.
SALE OF SECURITIES
The Company was initially capitalized through the sale of 100 of its common
shares of beneficial interest, par value $.01 per share (the "Common Shares"),
to AMRESCO on February 2, 1998 for $1,000. On February 11, 1998, AMRESCO
contributed additional capital of $25,000 to the Company; no additional shares
were issued to AMRESCO in connection with this contribution. On May 12, 1998,
concurrent with the completion of its IPO of 9,000,000 Common Shares, the
Company sold 1,000,011 Common Shares to Holdings, a member of the AMRESCO Group,
at the IPO price of $15.00 per share, or $15,000,165 in aggregate cash
consideration, pursuant to the Private Placement. The Common Shares sold in the
Private Placement and those sold in connection with the Company's initial
capitalization were sold without registration under the Securities Act in
reliance on the exemption provided by Section 4(2) thereof.
USE OF PROCEEDS
The Company's Registration Statement (File No. 333-45543) registering the
9,000,000 Common Shares sold in the IPO was declared effective by the Securities
and Exchange Commission on May 6, 1998. The IPO commenced on May 6, 1998 and
closed on May 12, 1998, with the sale of all of the Company's registered shares
at the offering price of $15.00 per share, or $135,000,000 in aggregate gross
proceeds. Prudential Securities Incorporated, Credit Suisse First Boston, ABN
AMRO Incorporated, J.C. Bradford & Co., NationsBanc Montgomery Securities LLC
and Piper Jaffray Inc. served as the principal underwriters for the public
offering. When combined with the aggregate proceeds received from the
unregistered sale of securities to AMRESCO and Holdings totaling $26,000 and
$15,000,165, respectively, the Company's aggregate gross proceeds from the sales
of its Common Shares totaled $150,026,165. From the effective date of the
Registration Statement through June 30, 1998, the Company incurred the following
expenses in connection with the IPO and other sales of securities:
<TABLE>
<S> <C>
Underwriting discounts and commissions $ 7,969,000
Finders' fees -
Expenses paid to or for underwriters (advisory fee) 1,012,000
Other expenses 1,328,000
-----------
Total expenses $10,309,000
===========
</TABLE>
After deducting these expenses, net proceeds to the Company totaled
approximately $139,717,000 (inclusive of the 100 shares sold to AMRESCO and the
1,000,011 shares sold to Holdings for aggregate consideration of $15,026,165).
From the effective date of the Registration Statement through June 30, 1998, the
Company invested these net proceeds as follows:
<TABLE>
<S> <C>
Investments in mortgage loans $ 22,113,000
Purchase of CMBS 11,978,000
Investments in real estate 8,396,000
Investments in unconsolidated subsidiary and other
real estate venture 9,205,000
Short-term investments (money market instruments) 88,025,000
------------
$139,717,000
============
</TABLE>
All such payments relating to these investments were direct or indirect payments
to others, except for $6,290,000 which was paid to AMRESCO Funding Corporation,
a member of the AMRESCO Group, on May 12, 1998 for the acquisition of two loans.
These loans are more fully described in the Company's Registration Statement
(such loans being referred to therein as "Loan One" and "Loan Four",
respectively).
Page 18
<PAGE> 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits and Exhibit Index
Exhibit No.
3.1 Amended and Restated Declaration of Trust of the Registrant
(filed as Exhibit 3.1 to the Registrant's Registration Statement
on Form S-11 (Registration No. 333-45543), which exhibit is
incorporated herein by reference).
3.2 First Amendment to Amended and Restated Declaration of Trust of
the Registrant (filed as Exhibit 3.1 to the Registrant's Current
Report on Form 8-K dated May 12, 1998, which exhibit is
incorporated herein by reference).
3.3 Second Amendment to Amended and Restated Declaration of Trust of
the Registrant (filed as Exhibit 3.2 to the Registrant's Current
Report on Form 8-K dated May 12, 1998, which exhibit is
incorporated herein by reference).
3.4 Form of Bylaws of the Registrant (filed as Exhibit 3.2 to the
Registrant's Registration Statement on Form S-11 (Registration
No. 333-45543), which exhibit is incorporated herein by
reference).
10.1 Sale and Assignment Agreement by and between AMRESCO Funding
Corporation, AMRESCO Capital Trust and AMREIT I, Inc. effective
as of May 12, 1998 (filed as Exhibit 10.1 to the Registrant's
Current Report on Form 8-K dated May 12, 1998, which exhibit is
incorporated herein by reference).
11 Computation of Per Share Earnings.
27 Financial Data Schedule.
(b) Reports on Form 8-K. The following reports on Form 8-K were filed with
respect to events occurring during the quarterly period for which this
report is filed:
(1) Form 8-K dated May 12, 1998 and filed May 27, 1998, as amended by
Amendment No.1 on Form 8-K/A dated May 12, 1998 and filed August
3, 1998, relating to the acquisition by the Registrant of: (i) a
$7.0 million non-recourse loan and (ii) a $14.7 million
non-recourse loan.
(2) Form 8-K dated June 19, 1998 and filed July 6, 1998, relating to
the origination by a wholly-owned subsidiary of the Company of
(i) a $24.0 million non-recourse construction loan, (ii) a $45.0
million non-recourse acquisition/rehabilitation loan, (iii) a
$11.8 million non-recourse loan, and (iv) a $12.8 million
non-recourse construction loan.
Page 19
<PAGE> 20
SIGNATURE
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.
AMRESCO CAPITAL TRUST
Registrant
Date: August 14, 1998 By: /s/ Thomas J. Andrus
----------------------------
Thomas J. Andrus
Executive Vice President
and Chief Financial Officer
Page 20
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------
<S> <C>
3.1 Amended and Restated Declaration of Trust of the Registrant (filed as Exhibit 3.1 to
the Registrant's Registration Statement on Form S-11 (Registration No. 333-45543),
which exhibit is incorporated herein by reference).
3.2 First Amendment to Amended and Restated Declaration of Trust of the Registrant (filed
as Exhibit 3.1 to the Registrant's Current Report on Form 8-K dated May 12, 1998,
which exhibit is incorporated herein by reference).
3.3 Second Amendment to Amended and Restated Declaration of Trust of the Registrant
(filed as Exhibit 3.2 to the Registrant's Current Report on Form 8-K dated May 12,
1998, which exhibit is incorporated herein by reference).
3.4 Form of Bylaws of the Registrant (filed as Exhibit 3.2 to the Registrant's
Registration Statement on Form S-11 (Registration No. 333-45543), which exhibit is
incorporated herein by reference).
10.1 Sale and Assignment Agreement by and between AMRESCO Funding Corporation, AMRESCO
Capital Trust and AMREIT I, Inc. effective as of May 12, 1998 (filed as Exhibit 10.1
to the Registrant's Current Report on Form 8-K dated May 12, 1998, which exhibit is
incorporated herein by reference).
11 Computation of Per Share Earnings.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
AMRESCO CAPITAL TRUST
EXHIBIT 11 - COMPUTATION OF PER SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Period from
Three Months February 2, 1998
Ended through
June 30, 1998 June 30, 1998
------------- ----------------
<S> <C> <C>
Basic:
Net income available to common shareholders $ 757 $ 757
======== ======
Weighted average common shares outstanding 5,495 3,356
======== ======
Basic earnings per common share $ 0.14 $ 0.23
======== ======
Diluted:
Net income available to common shareholders $ 757 $ 757
======== ======
Weighted average common shares outstanding 5,495 3,356
Effect of dilutive securities:
Restricted shares 3 2
Net effect of assumed exercise of
stock options -- --
-------- ------
Adjusted weighted average common shares
outstanding 5,498 3,358
======== ======
Diluted earnings per common share $ 0.14 $ 0.23
======== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 90,245
<SECURITIES> 11,978
<RECEIVABLES> 569
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,896
<DEPRECIATION> 3
<TOTAL-ASSETS> 142,426
<CURRENT-LIABILITIES> 1,357
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 140,469
<TOTAL-LIABILITY-AND-EQUITY> 142,426
<SALES> 0
<TOTAL-REVENUES> 1,261
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 394
<LOSS-PROVISION> 110
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 757
<INCOME-TAX> 0
<INCOME-CONTINUING> 757
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 757
<EPS-PRIMARY> 0.23
<EPS-DILUTED> 0.23
</TABLE>
