<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 September 30, 2000
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 1900, 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:
10,039,974 shares of common stock, $.01 par value per share,
as of November 13, 2000.
<PAGE> 2
AMRESCO CAPITAL TRUST
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Statement of Net Assets in Liquidation as of September 30, 2000 and
Consolidated Balance Sheet as of December 31, 1999 (Going Concern Basis) ............................ 3
Consolidated Statement of Changes in Net Assets in Liquidation -
For the Period from September 26, 2000 through September 30, 2000.................................... 4
Consolidated Statements of Income (Going Concern Basis) - For the Period from July 1, 2000
through September 25, 2000, the Period from January 1, 2000 through September 25, 2000
and the Three and Nine Months Ended September 30, 1999............................................... 5
Consolidated Statement of Changes in Shareholders' Equity (Going Concern Basis) - For the
Period from January 1, 2000 through September 25, 2000................................................ 6
Consolidated Statement of Cash Flows in Liquidation - For the Period from
September 26, 2000 through September 30, 2000........................................................ 7
Consolidated Statements of Cash Flows (Going Concern Basis) - For the Period from January 1, 2000
through September 25, 2000 and the Nine Months Ended September 30, 1999............................... 8
Notes to Consolidated Financial Statements.............................................................. 9
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 18
Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 31
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders.............................................. 31
Item 6. Exhibits and Reports on Form 8-K................................................................. 32
SIGNATURE ................................................................................................ 33
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMRESCO CAPITAL TRUST
CONSOLIDATED STATEMENT OF NET ASSETS IN LIQUIDATION AS OF SEPTEMBER 30, 2000 AND
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999 (GOING CONCERN BASIS)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
September 30,
2000 December 31,
(unaudited) 1999
--------------- ---------------
<S> <C> <C>
ASSETS
Mortgage loans ........................................................................ $ 118,698 $ 96,032
Acquisition, development and construction loan arrangements accounted for as real
estate or investments in joint ventures ............................................ -- 44,097
--------------- ---------------
Total loan investments ................................................................ 118,698 140,129
Allowance for loan losses ............................................................. -- (4,190)
--------------- ---------------
Total loan investments, net of allowance for losses ................................... 118,698 135,939
Commercial mortgage-backed securities - available for sale ............................ 16,304 24,569
Real estate, net of accumulated depreciation of $0 and $866, respectively ............. -- 50,376
Investments in unconsolidated partnerships and subsidiary ............................. 5,114 11,765
Receivables and other assets .......................................................... 2,785 3,991
Cash and cash equivalents ............................................................. 5,339 4,604
--------------- ---------------
TOTAL ASSETS ....................................................................... 148,240 $ 231,244
--------------- ===============
LIABILITIES:
Accounts payable and other liabilities ................................................. 619 $ 2,697
Amounts due to manager ................................................................. 2,108 566
Repurchase agreement ................................................................... -- 9,856
Line of credit ......................................................................... 22,000 60,641
Non-recourse debt on real estate ....................................................... -- 34,600
Dividends payable ...................................................................... -- 4,407
--------------- ---------------
TOTAL LIABILITIES .................................................................. 24,727 112,767
--------------- ---------------
Minority interests ..................................................................... -- 526
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (NOTE 4)
NET ASSETS IN LIQUIDATION (10,039,974 shares issued and outstanding) ..................... $ 123,513
===============
SHAREHOLDERS' EQUITY (AS OF DECEMBER 31, 1999):
Preferred stock, $.01 par value, 49,650,000 shares authorized, no shares issued ........ --
Series A junior participating preferred stock, $.01 par value, 350,000 shares
authorized, no shares issued ....................................................... --
Common stock, $.01 par value, 200,000,000 shares authorized, 10,015,111 shares
issued and outstanding ............................................................. 100
Additional paid-in capital ............................................................. 140,998
Unearned stock compensation ............................................................ (282)
Accumulated other comprehensive income (loss) .......................................... (10,812)
Distributions in excess of accumulated earnings ........................................ (12,053)
---------------
TOTAL SHAREHOLDERS' EQUITY ......................................................... 117,951
---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ......................................... $ 231,244
===============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
AMRESCO CAPITAL TRUST
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
FOR THE PERIOD FROM SEPTEMBER 26, 2000 THROUGH SEPTEMBER 30, 2000
(UNAUDITED; IN THOUSANDS)
<TABLE>
<S> <C>
REVENUES:
Interest income on mortgage loans .................................... $ 153
Income from commercial mortgage-backed securities .................... 28
Interest income from short-term investments .......................... 3
---------------
TOTAL REVENUES ..................................................... 184
---------------
EXPENSES:
Interest expense ..................................................... 24
Management fees ...................................................... 1,705
General and administrative ........................................... 5
---------------
TOTAL EXPENSES ..................................................... 1,734
---------------
Gain (loss) on disposition of assets ................................... --
Changes in estimated net realizable value of certain assets ............ --
---------------
DECREASE IN NET ASSETS IN LIQUIDATION FROM OPERATING ACTIVITIES......... (1,550)
Cash received from exercise of stock options ........................... 32
Liquidating distributions to shareholders .............................. --
---------------
DECREASE IN NET ASSETS IN LIQUIDATION DURING THE PERIOD................. (1,518)
NET ASSETS IN LIQUIDATION, BEGINNING OF PERIOD ......................... 125,031
---------------
NET ASSETS IN LIQUIDATION, END OF PERIOD ............................... $ 123,513
===============
SHAREHOLDERS' EQUITY, END OF GOING CONCERN PERIOD ...................... $ 124,004
Net increase in carrying value of certain assets upon adoption
of liquidation basis accounting ..................................... 817
Net decrease in carrying value of certain liabilities and minority
interests upon adoption of liquidation basis accounting ............. 210
---------------
NET ASSETS IN LIQUIDATION, BEGINNING OF LIQUIDATION PERIOD ............. $ 125,031
===============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
AMRESCO CAPITAL TRUST
CONSOLIDATED STATEMENTS OF INCOME (GOING CONCERN BASIS)
(UNAUDITED; IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Period from Period from
July 1, Three January 1,
2000 Months 2000 Nine Months
through Ended through Ended
Sept 25, Sept 30, Sept 25, Sept 30,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Interest income on mortgage loans ........................... $ 2,930 $ 3,841 $ 8,937 $ 10,776
Income from commercial mortgage-backed securities ........... 706 905 2,405 2,753
Operating income from real estate ........................... 882 1,416 5,240 2,593
Equity in earnings (losses) of unconsolidated subsidiary,
partnerships and other real estate venture ............... (228) 63 (1,091) 197
Interest income from short-term investments ................. 78 76 217 198
------------ ------------ ------------ ------------
TOTAL REVENUES ............................................ 4,368 6,301 15,708 16,517
------------ ------------ ------------ ------------
EXPENSES:
Interest expense ............................................ 723 1,769 4,396 3,427
Management fees ............................................. 403 610 1,140 1,613
General and administrative .................................. 176 338 1,018 1,120
Depreciation ................................................ 213 408 1,188 705
Participating interest in mortgage loans .................... . - 190 -- 1,019
Provision for loan losses ................................... -- 642 1,788 1,822
------------ ------------ ------------ ------------
TOTAL EXPENSES ............................................ 1,515 3,957 9,530 9,706
------------ ------------ ------------ ------------
INCOME BEFORE GAINS (LOSSES) AND MINORITY INTERESTS ........... 2,853 2,344 6,178 6,811
Loss on sale of commercial mortgage-backed securities ....... (4,137) -- (4,267) --
Gain associated with repayment of ADC loan arrangements ..... 1,293 -- 1,930 584
Gain on sale of real estate ................................. -- -- 1,485 --
Gain on sale of unconsolidated partnership investments ...... -- -- 674 --
------------ ------------ ------------ ------------
INCOME BEFORE MINORITY INTERESTS .............................. 9 2,344 6,000 7,395
Minority interests .......................................... -- -- 52 --
------------ ------------ ------------ ------------
NET INCOME .................................................... $ 9 $ 2,344 $ 5,948 $ 7,395
============ ============ ============ ============
EARNINGS PER COMMON SHARE:
Basic ....................................................... $ -- $ 0.24 $ 0.59 $ 0.74
============ ============ ============ ============
Diluted ..................................................... $ -- $ 0.24 $ 0.59 $ 0.74
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:
Basic ....................................................... 10,000 10,000 10,000 10,000
============ ============ ============ ============
Diluted ..................................................... 10,038 10,016 10,029 10,011
============ ============ ============ ============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
AMRESCO CAPITAL TRUST
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (GOING CONCERN BASIS)
FOR THE PERIOD FROM JANUARY 1, 2000 THROUGH SEPTEMBER 25, 2000
(UNAUDITED; IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Common Stock
$.01 Par Value Accumulated Distributions in
----------------------------- Additional Unearned Other Excess of
Number of Paid-in Stock Comprehensive Accumulated
Shares Amount Capital Compensation Income (Loss) Earnings
------------- -------------- ---------- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of period ...... 10,015,111 $ 100 $140,998 $ (282) $ (10,812) $ (12,053)
Issuance of common shares upon
exercise of warrants ............ 20,863 -- --
Decrease in fair value of
compensatory options ............ (517) 517
Total nonowner changes in equity:
Net income.................... 5,948
Unrealized losses on securities
available for sale:
Unrealized holding losses..... (643)
Reclassification adjustment
for losses included in net
income....................... 4,407
Comprehensive income...............
Amortization of unearned trust
manager compensation ............ 34
Amortization of compensatory
options.......................... (288)
Dividends declared ($0.34 per
common share).................... (3,405)
---------- ----- -------- ---------- ------------ -------------
Balance, end of period............. 10,035,974 $ 100 $140,481 $ (19) $ (7,048) $ (9,510)
========== ===== ======== ========== ============ =============
<CAPTION>
Total
Nonowner Total
Changes Shareholders'
in Equity Equity
-------------- -------------
<S> <C> <C>
Balance, beginning of period ...... $ 117,951
Issuance of common shares upon
exercise of warrants ............
Decrease in fair value of
compensatory options ............
Total nonowner changes in equity:
Net income.................... $ 5,948 5,948
Unrealized losses on securities
available for sale:
Unrealized holding losses..... (643) (643)
Reclassification adjustment
for losses included in net
income...................... 4,407 4,407
------------
Comprehensive income............... $ 9,712
============
Amortization of unearned trust
manager compensation ............ 34
Amortization of compensatory
options.......................... (288)
Dividends declared ($0.34 per
common share).................... (3,405)
-------------
Balance, end of period............. $ 124,004
=============
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
AMRESCO CAPITAL TRUST
CONSOLIDATED STATEMENT OF CASH FLOWS IN LIQUIDATION
FOR THE PERIOD FROM SEPTEMBER 26, 2000 THROUGH SEPTEMBER 30, 2000
(UNAUDITED, IN THOUSANDS)
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Decrease in net assets in liquidation from operating activities ...................... $ (1,550)
Adjustments to reconcile to net cash provided by operating activities:
Increase in receivables and other assets .......................................... (156)
Decrease in interest receivable related to commercial mortgage-backed securities .. 142
Decrease in accounts payable and other liabilities ................................ (33)
Increase in amounts due to manager ................................................ 1,705
Amortization of prepaid insurance ................................................. 4
------------
NET CASH PROVIDED BY OPERATING ACTIVITIES .................................... 112
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in mortgage loans ........................................................ (531)
------------
NET CASH USED IN INVESTING ACTIVITIES ........................................ (531)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of common stock ........................................... 32
------------
NET CASH PROVIDED BY FINANCING ACTIVITIES .................................... 32
------------
NET DECREASE IN CASH AND CASH EQUIVALENTS ............................................... (387)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD .......................................... 5,726
------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ................................................ $ 5,339
============
SUPPLEMENTAL INFORMATION:
Interest paid ........................................................................ $ --
============
</TABLE>
See notes to consolidated financial statements.
7
<PAGE> 8
AMRESCO CAPITAL TRUST
CONSOLIDATED STATEMENTS OF CASH FLOWS (GOING CONCERN BASIS)
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
Period from January 1, 2000 Nine Months Ended
through September 25, 2000 September 30, 1999
--------------------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................................. $ 5,948 $ 7,395
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses ........................................................... 1,788 1,822
Depreciation ........................................................................ 1,188 705
Gain associated with repayment of ADC loan arrangements ............................. (1,930) (584)
Loss on sale of commercial mortgage-backed securities ............................... 4,267 --
Gain on sale of unconsolidated partnership investments .............................. (674) --
Gain on sale of real estate ......................................................... (1,485) --
Loss (gain) on sale of interest rate caps ........................................... (19) 5
Amortization of prepaid insurance ................................................... 172 176
Discount amortization on commercial mortgage-backed securities ...................... (282) (231)
Amortization of compensatory stock options and unearned trust manager compensation .. (254) 146
Amortization of loan commitment and extension fees .................................. (592) (555)
Receipt of loan commitment and extension fees ....................................... 460 428
Increase in receivables and other assets ............................................ (219) (1,020)
Increase in interest receivable related to commercial mortgage-backed securities .... (40) --
Increase (decrease) in accounts payable and other liabilities ....................... (1,428) 1,755
Decrease in minority interests ...................................................... (26) --
Increase (decrease) in amounts due to manager and affiliates ........................ (163) 1,217
Equity in losses (earnings) of unconsolidated subsidiary, partnerships and other
real estate venture............................................................... 1,091 (197)
Distributions from unconsolidated subsidiary, partnership and other real estate
venture .......................................................................... 23 294
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES ...................................... 7,825 11,356
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in mortgage loans .......................................................... (8,480) (41,676)
Investments in ADC loan arrangements ................................................... (1,034) (22,482)
Sale of mortgage loan to affiliate ..................................................... -- 4,585
Principal collected on mortgage loans .................................................. 10,398 8,385
Principal and interest collected on ADC loan arrangements .............................. 17,953 11,513
Proceeds from sale of real estate, net of cash on hand ................................. 17,938 --
Proceeds from sale of unconsolidated partnership investments ........................... 2,126 --
Proceeds from sale of commercial mortgage-backed securities ............................ 7,814 --
Investments in real estate ............................................................. (350) (40,894)
Investments in unconsolidated partnerships and subsidiary .............................. (282) (2,374)
Distributions from unconsolidated subsidiary and partnerships .......................... 3,493 26
------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES ............................ 49,576 (82,917)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings under line of credit .......................................... -- 39,162
Proceeds from borrowings under repurchase agreement .................................... -- 12,103
Repayment of borrowings under repurchase agreement...................................... (9,856) (1,402)
Repayment of borrowings under line of credit............................................ (38,641) --
Proceeds from financing provided by affiliate .......................................... -- 907
Proceeds from non-recourse debt on real estate ......................................... -- 27,100
Purchase of interest rate cap .......................................................... -- (110)
Proceeds from sale of interest rate caps ............................................... 30 30
Deferred financing costs associated with line of credit ................................ -- (120)
Deferred financing costs associated with non-recourse debt on real estate .............. -- (594)
Dividends paid to common shareholders .................................................. (7,812) (11,510)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES ............................ (56,279) 65,566
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ...................................... 1,122 (5,995)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................................ 4,604 9,789
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .................................................. $ 5,726 $ 3,794
============ ============
SUPPLEMENTAL INFORMATION:
Interest paid, net of amount capitalized ............................................... $ 4,438 $ 2,783
============ ============
Income taxes paid ...................................................................... $ -- $ 25
============ ============
Minority interest distributions associated with ADC loan arrangements .................. $ 350 $ 2,111
============ ============
Debt and other liabilities assumed by buyer in connection with sale of real estate ..... $ 35,156 $ --
============ ============
Receivables and other assets transferred to buyer in connection with sale of real
estate................................................................................ $ 1,380 $ --
============ ============
Receivables transferred in satisfaction of amounts due to affiliate .................... $ -- $ 280
============ ============
Amounts due to affiliate discharged in connection with sale of mortgage loan ........... $ -- $ 1,729
============ ============
Issuance of warrants in connection with line of credit ................................. $ -- $ 400
============ ============
</TABLE>
See notes to consolidated financial statements.
8
<PAGE> 9
AMRESCO CAPITAL TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(UNAUDITED)
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, acquisition loans, construction loans, rehabilitation loans and
bridge loans), commercial mortgage-backed securities, commercial real estate,
equity investments in joint ventures and/or partnerships, and certain other real
estate related assets. The Company was initially capitalized on February 2, 1998
and 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. On September 26, 2000, shareholders approved the
liquidation and dissolution of the Company under the terms and conditions of a
Plan of Liquidation and Dissolution which was approved by the Company's Board of
Trust Managers on March 29, 2000.
Pursuant to the terms of a Management Agreement dated as of May 12, 1998, as
amended, 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. (together with its
affiliated entities, the "AMRESCO Group"). For its services during the period
from May 12, 1998 (the Company's inception of operations) through March 31,
2000, the Manager was 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 was entitled to
receive incentive compensation for each fiscal quarter 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, exceeded a certain
threshold. In addition to the fees described above, the Manager was also
entitled to receive reimbursement for its costs of providing certain due
diligence and professional services to the Company. On March 29, 2000, the
Company's Board of Trust Managers approved certain modifications to the
Manager's compensation effective as of April 1, 2000. In addition to its base
management fee, the Manager is entitled to receive reimbursements for its
quarterly operating deficits, if any, beginning April 1, 2000. These
reimbursements are equal to the excess, if any, of the Manager's operating costs
(including principally personnel and general and administrative expenses) over
the sum of its base management fees and any other fees earned by the Manager
from sources other than the Company. Pursuant to the First Amendment to
Management Agreement, the Manager is no longer entitled to receive incentive
compensation and/or a termination fee in the event that the Management Agreement
is terminated. The base management fee and reimbursements, if any, are payable
quarterly in arrears.
During the three and nine months ended September 30, 2000, base management fees
charged to the Company totaled $426,000 and $1,424,000, respectively.
Reimbursable expenses charged to the Company during these periods totaled $0 and
$20,000, respectively. No operating deficit reimbursements were charged to the
Company during the six months ended September 30, 2000. Base management fees
incurred during the period from July 1, 2000 through September 25, 2000 and the
period from September 26, 2000 through September 30, 2000 totaled $403,000 and
$23,000, respectively. During the period from January 1, 2000 through September
25, 2000, base management fees totaled $1,401,000. During the period from
September 26, 2000 through September 30, 2000, management fees included a charge
equal to the aggregate amount of termination benefits expected to be payable to
certain employees of the Manager. These costs, totaling $1,682,000, are expected
to be borne by the Company through future operating deficit reimbursements.
During the three and nine months ended September 30, 1999, base management fees
charged to the Company totaled $563,000 and $1,521,000, respectively;
reimbursable expenses charged to the Company during these periods totaled
$66,000 and $170,000, respectively. During the period from its inception through
March 31, 2000, no incentive fees were charged to the Company.
Immediately after the closing of the IPO, the Manager was granted 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. During the period from July
1, 2000 through September 25, 2000 and the period from January 1, 2000 through
September 25, 2000, management fees included compensatory option charges
(credits) totaling $0 and $(261,000), respectively. During the three and nine
months ended September 30, 1999, management fees included compensatory option
charges totaling $47,000 and $92,000, respectively.
9
<PAGE> 10
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.
As described in Note 1, shareholders approved the liquidation and dissolution of
the Company on September 26, 2000. As a result, the Company adopted liquidation
basis accounting on that date. Prior to September 26, 2000, the Company's
operating results were presented in accordance with the historical cost (or
going concern) basis of accounting. Under liquidation basis accounting, the
Company's revenues and expenses are reported as changes in net assets in
liquidation. Additionally, under liquidation basis accounting, the Company's
assets are carried at their estimated net realizable values and the Company's
liabilities are reported at their expected settlement amounts in a consolidated
statement of net assets in liquidation. The adjustments to the Company's assets
and liabilities resulting from the adoption of liquidation basis accounting are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
Increase
(Decrease)
in Carrying
Value
---------------
<S> <C>
Mortgage loans ................................................. $ 574
ADC loan arrangements .......................................... 1,257
Investments in unconsolidated partnerships and subsidiary ...... (1,000)
Receivables and other assets ................................... (14)
---------------
Net increase in carrying value of assets upon
adoption of liquidation basis accounting .................... $ 817
===============
</TABLE>
<TABLE>
<CAPTION>
Decrease
in Carrying
Value
---------------
<S> <C>
Accounts payable and other liabilities ......................... $ 60
Minority interests ............................................. 150
---------------
Net decrease in carrying value of liabilities and
minority interests upon adoption of liquidation
basis accounting ............................................ $ 210
===============
</TABLE>
Under the liquidation basis of accounting, statements of income, earnings per
share data and an amount representing total comprehensive income are not
presented.
The consolidated financial statements include the accounts of the Company, its
wholly-owned subsidiaries and, prior to June 14, 2000, a majority-owned
partnership. Prior to September 26, 2000, the Company accounted for its
investment in AMREIT II, Inc., a taxable subsidiary, using the equity method of
accounting, and thus reported its share of income or loss based on its ownership
interest. The Company used the equity method of accounting due to the non-voting
nature of its ownership interest and because the Company is entitled to
substantially all of the economic benefits of ownership of AMREIT II, Inc. Under
liquidation basis accounting, the Company's investment in AMREIT II, Inc. is
carried at its estimated net realizable value. From and after September 26,
2000, the Company accounts for its investment in AMREIT II, Inc. using the cost
method of accounting and thus reports income only when cash is received. As more
fully described in Note 6, the Company sold its non-controlling interests in two
partnerships during the three months ended June 30, 2000; prior to their
disposition, the Company accounted for these investments using the equity method
of accounting and thus reported its share of income or loss based on its
ownership interests.
The accompanying financial statements should be read in conjunction with the
Company's consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999, as
amended (the "10-K"). The notes to the financial statements included herein
highlight significant changes to the notes included in the 10-K, including those
resulting from the adoption of liquidation basis accounting.
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
10
<PAGE> 11
periods presented 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 valuations of the Company's loan investments,
its commercial mortgage-backed securities and its investment in AMREIT II, Inc.
Actual results may differ from those estimates.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICY CHANGES UPON ADOPTION OF LIQUIDATION
BASIS ACCOUNTING
MORTGAGE LOANS
Mortgage loans are stated at estimated net realizable value as determined by
management. Loan extension fees, if any, are recognized when they are received.
Consistent with the historical cost (or going concern) basis of accounting,
interest income on mortgage loans is recognized on an accrual basis at the
contractual accrual rate. Interest income on impaired loans is recognized using
a cash-basis method. Loans are deemed to be impaired when it is probable that a
borrower will not be able to fulfill the contractual terms of its loan
agreement. Under liquidation basis accounting, an allowance for loan losses is
no longer separately reported as the Company's loans are carried at their
estimated net realizable values. Changes in the estimated net realizable values
of mortgage loans, if any, are reported in the consolidated statement of changes
in net assets in liquidation.
ACQUISITION, DEVELOPMENT AND CONSTRUCTION (ADC) LOAN ARRANGEMENTS
Under the historical cost (or going concern) basis of accounting, the Company
accounted for certain real estate loan arrangements as either real estate or
joint venture investments for financial reporting purposes. On September 26,
2000, the carrying values of these loan arrangements were adjusted to their
estimated net realizable values as determined by management; concurrently, such
investments were reclassified to mortgage loans. Under the liquidation basis of
accounting, the Company accounts for these investments in the same manner as it
accounts for its other mortgage loans. As these loan arrangements are carried at
their estimated net realizable values, the Company no longer provides for
systematic depreciation of these investments.
COMMERCIAL MORTGAGE-BACKED SECURITIES
The Company's investments in commercial mortgage-backed securities ("CMBS") are
carried at estimated net realizable value as determined by third party market
rates quoted to the Company. Any unrealized gains or losses (changes in
estimated net realizable value) are reported in the consolidated statement of
changes in net assets in liquidation. Income from CMBS is recognized at the
fixed coupon rate.
STOCK-BASED COMPENSATION
Under liquidation basis accounting, the Company no longer records compensation
expense associated with the options that are held by the Manager and certain
other members of the AMRESCO Group. In liquidation, the assumptions underlying
the fair value based method of accounting for stock options are no longer
appropriate.
11
<PAGE> 12
4. LOAN INVESTMENTS
As of September 30, 2000, the Company's loan investments are summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Estimated
Net Interest Interest
Date of Initial Scheduled Commitment Amount Realizable Pay Accrual
Investment Maturity Location Property Type Amount Outstanding Value Rate Rate
------------------ ----------------- -------------- -------------- ----------- ------------- ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
May 12, 1998 March 31, 2001 Richardson, TX Office $ 14,700 $ 14,700 $ 14,700 10.0% 12.0%
June 1, 1998 June 1, 2001 Houston, TX Office 11,800 11,635 11,635 12.0% 12.0%
June 22, 1998 June 19, 2001 Wayland, MA Office 45,000 40,877 40,877 10.5% 10.5%
July 10, 1998 November 1, 2000 Pasadena, TX Apartment 3,350 3,004 3,004 10.0% 14.0%
May 18, 1999 May 19, 2001 Irvine, CA Office 15,558 15,092 15,092 10.0% 12.0%
July 29, 1999 July 28, 2001 Lexington, MA R&D/Bio-Tech 5,213 4,443 4,443 11.6% 14.6%
August 19, 1999 October 26, 2000 San Diego, CA Medical Office 5,745 5,600 5,600 11.6% 11.6%
June 19, 1998 November 10, 2000 Houston, TX Office 24,000 22,924 22,347 12.0% 12.0%
July 1, 1998 October 31, 2000 Dallas, TX Office 10,068 8,569 1,000 10.0% 15.0%
-------- ---------- ----------
Total loan investments $135,434 $126,844 $118,698
======== ========== ==========
</TABLE>
At September 30, 2000, amounts outstanding under acquisition/rehabilitation
loans, construction loans and acquisition loans totaled $53,924,000, $37,624,000
and $35,296,000, respectively. The estimated net realizable values of
acquisition/rehabilitation loans, construction loans and acquisition loans
totaled $53,924,000, $37,047,000 and $27,727,000, respectively, at September 30,
2000.
As of September 30, 2000, the Company had outstanding commitments to fund
approximately $8,590,000 under nine loans. 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. A portion of the
commitments could expire without being drawn upon and therefore the total
commitment amounts do not necessarily represent future cash requirements.
Immediately prior to the adoption of liquidation basis accounting, the Company's
loan investments were classified as follows (in thousands):
<TABLE>
<CAPTION>
Loan Amount Balance Sheet
Outstanding at Amount at
September 25, 2000 September 25, 2000
------------------ ------------------
<S> <C> <C>
Mortgage loans held for investment, net ............. $ 94,819 $ 94,246
Real estate, net .................................... 22,924 21,090
Investment in real estate venture ................... 8,569 6,978
------------ ------------
Total ADC loan arrangements ...................... 31,493 28,068
------------ ------------
Total loan investments .............................. $ 126,312 122,314
============
Allowance for loan losses ......................................... (5,978)
------------
Total loan investments, net of allowance for losses ............... $ 116,336
============
</TABLE>
The differences between the outstanding loan amounts and the balance sheet
amounts at September 25, 2000 were due primarily to loan commitment fees,
interest fundings, minority interests, capitalized interest and accumulated
depreciation.
ADC loan arrangements accounted for as real estate consisted of the following at
September 25, 2000 (in thousands):
<TABLE>
<S> <C>
Land .............................. $ 2,490
Buildings and improvements ........ 19,093
---------------
Total .......................... 21,583
Less: Accumulated depreciation .... (493)
---------------
$ 21,090
===============
</TABLE>
12
<PAGE> 13
A summary of activity for mortgage loans and ADC loan arrangements accounted for
as real estate or investments in joint ventures for the period from January 1,
2000 through September 25, 2000 is as follows (in thousands):
<TABLE>
<CAPTION>
Mortgage ADC Loan
Loans Arrangements Total
-------------- -------------- --------------
<S> <C> <C> <C>
Balance, beginning of period .. $ 96,737 $ 46,907 $ 143,644
Investments in loans .......... 8,480 1,662 10,142
Collections of principal ...... (10,398) (17,076) (27,474)
-------------- -------------- --------------
Balance, end of period ........ $ 94,819 $ 31,493 $ 126,312
============== ============== ==============
</TABLE>
During the period from January 1, 2000 through September 25, 2000, the activity
in the allowance for loan losses was as follows (in thousands):
<TABLE>
<S> <C>
Balance, beginning of period.................... $ 4,190
Provision for losses ........................... 1,788
Charge-offs .................................... --
Recoveries ..................................... --
-------
Balance, end of period...........................$ 5,978
=======
</TABLE>
A summary of the adjustments to the Company's loan investments (and the
reclassifications thereof) resulting from the adoption of liquidation basis
accounting is as follows (in thousands):
<TABLE>
<CAPTION>
Investments
During the
Period from Estimated
Balance Adjustments Sept 26, Net
Sheet to 2000 Realizable
Amount at Net through Value at
Sept 25, Realizable Sept 30, Sept 30,
2000 Value Reclassifications 2000 2000
------------ ------------ ----------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Mortgage loans ...................... $ 94,246 $ 574 $ 23,347 $ 531 $ 118,698
Real estate, net .................... 21,090 1,257 (22,347) -- --
Investment in real estate venture ... 6,978 (5,978) (1,000) -- --
------------ ------------ ------------ ------------ ------------
Total ADC loan arrangements ...... 28,068 (4,721) (23,347) -- --
------------ ------------ ------------ ------------ ------------
Total loan investments .............. 122,314 (4,147) -- 531 118,698
Allowance for loan losses ........... (5,978) 5,978 -- -- --
------------ ------------ ------------ ------------ ------------
Total loan investments, net of
allowance for loan losses ........ $ 116,336 $ 1,831 $ -- $ 531 $ 118,698
============ ============ ============ ============ ============
</TABLE>
5. COMMERCIAL MORTGAGE-BACKED SECURITIES
As of September 30, 2000, the Company held three commercial mortgage-backed
securities which were acquired at an aggregate purchase price of $22,598,000.
The Company's CMBS available for sale are carried at estimated net realizable
value which approximates estimated fair value. At September 30, 2000, the
aggregate amortized cost and estimated net realizable value of CMBS, by
underlying credit rating, were as follows (in thousands):
<TABLE>
<CAPTION>
Estimated
Security Amortized Unrealized Unrealized Net Realizable
Rating Cost Gains Losses Value
------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
BB- $ 4,305 $ -- $ (1,190) $ 3,115
B 15,880 -- (5,016) 10,864
B- 3,167 -- (842) 2,325
------------ ------------ ------------ ------------
$ 23,352 $ -- $ (7,048) $ 16,304
============ ============ ============ ============
</TABLE>
13
<PAGE> 14
6. ASSET DISPOSITIONS
During the nine months ended September 30, 2000, the Company sold two of its
CMBS holdings (the "B-2A" and "G-2" securities). Additionally, on March 21,
2000, the Company's unconsolidated taxable subsidiary sold its only CMBS (the
"B-3A" security). The total disposition proceeds and the gross realized loss for
each bond were as follows (in thousands):
<TABLE>
<CAPTION>
Total
Disposition Amortized Gross Realized
Security Sale Date Proceeds Cost Loss
-------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
B-2A January 11, 2000 $ 3,784 $ 3,914 $ (130)
B-3A March 21, 2000 $ 3,341 $ 3,481 $ (140)
G-2 August 23, 2000 $ 4,030 $ 8,167 $ (4,137)
</TABLE>
In computing the gross realized loss for each security, the amortized cost was
determined using a specific identification method. The Company's share of the
gross realized loss from the sale of the B-3A security is included in equity in
losses from unconsolidated subsidiary, partnerships and other real estate
venture.
On April 3, 2000, the Company sold its 49% limited partner interest in a
suburban office building for $1,800,000. In connection with this sale, the
Company realized a gain of $662,000.
On June 14, 2000, the Company sold its 99.5% ownership interest in five
grocery-anchored shopping centers in the Dallas/Fort Worth area for $18,327,000.
The sale generated a gain of $1,485,000. In connection with the sale, the buyer
assumed five non-recourse loans and other partnership liabilities aggregating
$34,600,000 and $556,000, respectively. Additionally, partnership receivables
and other assets totaling $1,380,000 were transferred to the buyer.
On June 30, 2000, the Company sold its 5% ownership interest in a partnership
that owns several classes of subordinated CMBS for $326,000. The Company
realized a gain of $12,000 in connection with this sale.
7. FINANCING FACILITY
Effective as of November 3, 2000, the Company (and certain of its subsidiaries)
entered into a First Amendment to Amended and Restated Interim Warehouse and
Security Agreement (the "First Amendment") with Prudential Securities Credit
Corporation, LLC (PSCC), successor in interest to Prudential Securities Credit
Corporation. Under the terms of the First Amendment, the committed amount of the
credit facility was reduced from $300 million to $35 million (subject to certain
limitations) and the maturity date was extended from November 3, 2000 to April
30, 2001. On and after November 3, 2000, the Company may request advances under
the line of credit only for purposes of funding its unfunded loan commitments
and its dividend payments to shareholders to the extent such dividends are
necessary in order for the Company to maintain its qualification as a REIT. As
compensation for entering into the First Amendment, the Company paid PSCC an
extension fee equal to 0.5% of the committed amount. Under the First Amendment,
borrowings bear interest at LIBOR plus 1.25% per annum. At September 30, 2000,
$22,000,000 was outstanding under the line of credit; the weighted average
interest rate under this facility was 7.88% per annum.
During the period from January 1, 2000 through August 3, 2000, the Company was a
party to a $59 million (notional) interest rate cap agreement. On August 4,
2000, the Company terminated a portion of this interest rate cap agreement at a
gain of $19,000. The revised agreement, which more closely matched the
borrowings then outstanding under the Company's line of credit, had a notional
amount of $30 million. The interest rate cap agreements entitled the Company to
receive from the counterparty the amounts, if any, by which one-month LIBOR
exceeded 6.25%. During the three and nine months ended September 30, 2000,
amounts due from the counterparty under the terms of the Company's interest rate
cap agreements totaled $39,000 and $61,000, respectively. The revised agreement
expired on November 1, 2000.
14
<PAGE> 15
8. STOCK-BASED COMPENSATION
Under the historical cost (or going concern) basis of accounting, the estimated
fair value of the options granted to the Manager and certain employees of the
AMRESCO Group approximated $0.07 per share as of June 30, 2000. The fair value
of the options was estimated using the Cox-Ross-Rubinstein option pricing model
with the following assumptions: risk free interest rate of 6.35%; expected life
of three years; expected volatility of 20%; and dividend yield of 12%. During
the three months ended June 30, 2000, compensation cost associated with those
options that had not previously vested was adjusted to reflect the decline in
fair value (from December 31, 1999) of approximately $0.64 per share. During the
period from July 1, 2000 through September 25, 2000, the period from January 1,
2000 through September 25, 2000 and the three and nine months ended September
30, 1999, compensatory option charges (credits) included in management fees and
general and administrative expenses were as follows (in thousands):
<TABLE>
<CAPTION>
Period from Three Period from Nine
July 1, 2000 Months January 1, 2000 Months
through Ended through Ended
September 25, September 30, September 25, September 30,
2000 1999 2000 1999
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Management fees ....................... $ -- $ 47 $ (261) $ 92
General and administrative expenses ... -- 6 (27) (14)
--------------- --------------- --------------- ---------------
$ -- $ 53 $ (288) $ 78
=============== =============== =============== ===============
</TABLE>
9. COMMON STOCK
On July 5, 2000, AMRESCO, INC. and AMREIT Holdings, Inc. (a wholly-owned
subsidiary of AMRESCO, INC.) sold 1,500,111 shares of the Company's outstanding
common stock to affiliates of Farallon Capital Management, L.L.C. for
$12,521,000, net of an illiquidity discount of $230,000. As additional
consideration for these shares, the sellers are entitled to receive 90% of
future distributions paid on or with respect to these shares, but only after the
purchasers have received $12,751,000 and a return on this amount, as adjusted,
equal to 16% per annum. As a result of this sale, AMRESCO, INC. and AMREIT
Holdings, Inc. no longer own any of the Company's outstanding common shares.
On September 25, 2000, Prudential Securities Incorporated, an affiliate of PSCC,
purchased 20,863 of the Company's common shares by tendering 250,002 warrants
with an exercise price of $9.83 per share. No cash was received by the Company
in connection with this issuance of common shares. The Company has no other
warrants outstanding.
On September 26, 2000, an executive officer of the Company exercised options to
purchase 4,000 shares of common stock at $7.88 per share. At September 30, 2000,
options to purchase 1,411,261 common shares were outstanding; 1,111,258 options
have an exercise price of $15.00 and 300,003 options have an exercise price of
$18.75.
15
<PAGE> 16
10. EARNINGS PER SHARE
A reconciliation of the numerator and denominator used in computing basic
earnings per share and diluted earnings per share is as follows (in thousands,
except per share data):
<TABLE>
<CAPTION>
Period from Three Period from Nine
July 1, 2000 Months January 1, 2000 Months
through Ended through Ended
September 25, September 30, September 25, September 30,
2000 1999 2000 1999
------------ ------------ --------------- ------------
<S> <C> <C> <C> <C>
Net income available to common shareholders ........... $ 9 $ 2,344 $ 5,948 $ 7,395
============ ============ ============ ============
Weighted average common shares outstanding ............ 10,000 10,000 10,000 10,000
============ ============ ============ ============
Basic earnings per common share ....................... $ -- $ 0.24 $ 0.59 $ 0.74
============ ============ ============ ============
Weighted average common shares outstanding ............ 10,000 10,000 10,000 10,000
Effect of dilutive securities:
Restricted shares .................................. 15 15 15 11
Net effect of assumed exercise of warrants ......... 22 -- 13 --
Net effect of assumed exercise of stock options .... 1 1 1 --
------------ ------------ ------------ ------------
Adjusted weighted average shares outstanding .......... 10,038 10,016 10,029 10,011
============ ============ ============ ============
Diluted earnings per common share ..................... $ -- $ 0.24 $ 0.59 $ 0.74
============ ============ ============ ============
</TABLE>
At September 25, 2000, options to purchase 1,415,261 common shares were
outstanding. During the period from January 1, 2000 through September 24, 2000,
warrants to purchase 250,002 common shares were outstanding; these warrants were
exercised on September 25, 2000 (Note 9). For the period from July 1, 2000
through September 25, 2000 and the period from January 1, 2000 through September
25, 2000, options related to 1,411,261 shares were not included in the
computations of diluted earnings per share because the exercise prices related
thereto were greater than the average market price of the Company's common
shares. Options and warrants to purchase 1,466,011 and 250,002 shares,
respectively, of common stock were outstanding at September 30, 1999. For the
three and nine months ended September 30, 1999, options related to 1,460,011
shares and the warrants were not included in the computations of diluted
earnings per share because the exercise prices related thereto were greater than
the average market price of the Company's common shares.
11. COMPREHENSIVE INCOME
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. Other
comprehensive income includes unrealized gains and losses on marketable
securities classified as available-for-sale. Comprehensive income during the
period from July 1, 2000 through September 25, 2000, the period from January 1,
2000 through September 25, 2000, and the three and nine months ended September
30, 1999, was as follows (in thousands):
<TABLE>
<CAPTION>
Period from Three Period from Nine
July 1, 2000 Months January 1, 2000 Months
through Ended through Ended
September 25, September 30, September 25, September 30,
2000 1999 2000 1999
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income ............................................ $ 9 $ 2,344 $ 5,948 $ 7,395
Unrealized losses on securities available for sale:
Unrealized holding losses .......................... (93) (45) (643) (2,866)
Reclassification adjustment for
losses included in net income ................... 4,137 -- 4,407 --
------------ ------------ ------------ ------------
Comprehensive income .................................. $ 4,053 $ 2,299 $ 9,712 $ 4,529
============ ============ ============ ============
</TABLE>
16
<PAGE> 17
12. SEGMENT INFORMATION
The Company, as an investor in real estate related assets, operates in only one
reportable segment. Historically, the Company made asset allocation decisions
within this segment based upon its diversification strategies and changes in
market conditions. The Company does not have, nor does it rely upon, any major
customers. All of the Company's investments are secured directly or indirectly
by real estate properties located in the United States; accordingly, all of its
revenues were derived from U.S. operations.
13. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") 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. In June 1999, the FASB issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activities - Deferral of the
Effective Date of FASB Statement No. 133" ("SFAS No. 137"). SFAS No. 137
deferred the effective date of SFAS No. 133 such that it is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000, although
earlier application is encouraged. The Company does not believe that the
provisions of SFAS No. 133 will have a material impact on its financial
condition or operating results.
14. SUBSEQUENT EVENTS
On October 19, 2000, the Company made its first liquidating distribution
pursuant to the Plan of Liquidation and Dissolution. This dividend, totaling
$0.30 per share, was declared on September 27, 2000 and was payable to
shareholders of record on October 6, 2000.
On October 31, 2000, the Company declared its second liquidating distribution
pursuant to the Plan of Liquidation and Dissolution; the dividend, totaling
$0.35 per share, is payable on November 21, 2000 to shareholders of record on
November 9, 2000.
On October 26, 2000 and November 1, 2000, two of the Company's loan investments
were fully repaid. At September 30, 2000, the amounts outstanding under these
loans totaled $5,600,000 and $3,004,000, respectively. On October 31, 2000 and
November 10, 2000, the Company received $1,000,000 and $22,347,000,
respectively, in complete satisfaction of two other loan investments. These
dispositions produced no gain or loss as all four investments were disposed of
at their estimated net realizable values.
On November 14, 2000, the Company repaid $22,000,000 of outstanding borrowings
under its line of credit facility.
17
<PAGE> 18
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 in early 1998 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, acquisition loans, construction loans,
rehabilitation loans and bridge loans), commercial mortgage-backed securities
("CMBS"), 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 of 9,000,000 common shares and private placement
of 1,000,011 common shares with AMREIT Holdings, Inc., a wholly-owned subsidiary
of AMRESCO, INC. From inception through July 5, 2000, AMRESCO, INC. and AMREIT
Holdings, Inc. collectively owned 1,500,111 shares, or approximately 15%, of the
Company's outstanding common stock. On July 5, 2000, all of these common shares
were sold to affiliates of Farallon Capital Management, L.L.C. To date, the
Company's investment activities have been focused in three primary areas: loan
investments, CMBS and equity investments in real estate.
In early 2000, the Board of Trust Managers approved a course of action to market
and sell the Company's non-core assets, including its CMBS holdings and its
equity investments in real estate. To date, the Company has sold two of its CMBS
investments, its 49% limited partner interest in a suburban office building, its
majority ownership interest in five grocery-anchored shopping centers and its
minority ownership interest in a partnership that owns CMBS. Additionally, in
March 2000, the Company's unconsolidated taxable subsidiary sold its only CMBS
investment. Currently, the Company's non-core asset portfolio is comprised of
three commercial mortgage-backed securities which management is marketing for
sale.
On September 26, 2000, shareholders approved the liquidation and dissolution of
the Company under the terms and conditions of a Plan of Liquidation and
Dissolution which was approved by the Company's Board of Trust Managers on March
29, 2000. As a result, the Company adopted liquidation basis accounting on
September 26, 2000. Prior to that date, the Company's operating results were
presented in accordance with the historical cost (or going concern) basis of
accounting. Under liquidation basis accounting, the Company's assets are carried
at their estimated net realizable values and the Company's liabilities are
reported at their expected settlement amounts in a consolidated statement of net
assets in liquidation. Additionally, under liquidation basis accounting, the
Company's revenues and expenses are reported as changes in net assets in
liquidation. Statements of income, earnings per share data and an amount
representing total comprehensive income are not presented. For a discussion of
the liquidation basis of accounting and a summary of the adjustments to the
Company's assets and liabilities resulting from the adoption thereof, reference
is made to the Company's consolidated financial statements and notes thereto
included in Item 1 of this report.
A majority of the Company's loans are expected to be fully repaid at or prior to
their scheduled maturities (including extension options) in accordance with the
terms of the underlying loan agreements. Through September 30, 2000, the Company
has used the proceeds from four loan repayments and the asset sales described
above to repay a portion of its credit facilities. During the nine months ended
September 30, 2000, the Company reduced the outstanding borrowings under its
line of credit by $38.6 million, from $60.6 million to $22.0 million, and it
fully repaid its repurchase agreement indebtedness of $9.8 million. On November
14, 2000, the Company fully repaid its line of credit indebtedness of $22.0
million with proceeds from asset dispositions that occurred in late October and
early November. Now that the line of credit has been fully repaid, the Board of
Trust Managers intends to distribute the Company's remaining assets to its
shareholders as, and when, additional loans are repaid and assets are sold,
provided that the Trust Managers believe that adequate reserves are available
for the payment of the Company's liabilities, expenses and unfunded loan
commitments. At a minimum, the Company intends to make distributions in amounts
sufficient to allow it to continue to qualify as a REIT under the Internal
Revenue Code of 1986, as amended (the "Code"). Given the short duration of the
Company's loans and the quality of most of its assets, the Company believes that
the liquidation process will be completed within 18 to 24 months from September
26, 2000, the date that shareholders approved the liquidation, although there
can be no assurances that this time table will be met or that the anticipated
proceeds from the liquidation will be achieved.
18
<PAGE> 19
RESULTS OF OPERATIONS
The following discussion of results of operations should be read in conjunction
with the consolidated financial statements and notes thereto included in "Item
1. Financial Statements".
Under the historical cost (or going concern) basis of accounting, net income for
the period from July 1, 2000 through September 25, 2000 and the period from
January 1, 2000 through September 25, 2000 was $9,000 and $5,948,000,
respectively, or $0 and $0.59 per common share, respectively. The Company's
primary sources of revenue for the period from July 1, 2000 through September
25, 2000 and the period from January 1, 2000 through September 25, 2000,
totaling $4,368,000 and $15,708,000, respectively, were as follows:
o $3,812,000 and $11,790,000, respectively, from loan investments. As some of
the Company's loan investments were accounted for as either real estate or
joint venture investments for financial reporting purposes, these revenues
were included in the consolidated statements of income for the period from
July 1, 2000 through September 25, 2000 and the period from January 1, 2000
through September 25, 2000 as follows: interest income on mortgage loans of
$2,930,000 and $8,937,000, respectively; and operating income from real
estate of $882,000 and $2,853,000, respectively.
o $706,000 and $2,405,000, respectively, from investments in CMBS.
o $0 and $2,387,000, respectively, of operating income from real estate
previously owned by the Company (through a majority-owned partnership).
o $(228,000) and $(1,091,000), respectively, of equity in losses from its
unconsolidated subsidiary, partnerships and other real estate venture,
including the Company's share of the loss realized in connection with the
sale of the subsidiary's CMBS investment in March 2000.
o $78,000 and $217,000, respectively, of interest income from short-term
investments.
Additionally, the Company realized gains of $1,293,000 and $1,930,000 during the
period from July 1, 2000 through September 25, 2000 and the period from January
1, 2000 through September 25, 2000, respectively, in connection with the
repayments of two ADC loan arrangements. The repayments occurred on March 24,
2000 and September 14, 2000 resulting in gains totaling $637,000 and $1,293,000,
respectively. The gains were comprised principally of the incremental interest
income earned on the loan investments, the recapture of previously recorded
depreciation and the recognition (in earnings) of the loan commitment fees which
had been received by the Company at the time the loans were originated.
Additionally, the gain associated with the repayment in September 2000 included
a profit participation of $261,000. During the period from January 1, 2000
through September 25, 2000, the Company realized gains of $1,485,000 and
$674,000 in connection with the sale of real estate and two unconsolidated
partnership investments, respectively; these sales were completed during the
three months ended June 30, 2000. The real estate disposition was effected by a
sale of the Company's 99.5% interest in a master partnership that, through
individual subsidiary partnerships, owns five grocery-anchored shopping centers.
The Company incurred expenses of $1,515,000 and $9,530,000, respectively, during
the period from July 1, 2000 through September 25, 2000 and the period from
January 1, 2000 through September 25, 2000. These expenses are set forth below.
o $723,000 and $4,396,000, respectively, of interest expense associated with
the Company's credit facilities and five non-recourse loans secured by real
estate.
o $403,000 and $1,140,000, respectively, of management fees, including
$403,000 and $1,401,000, respectively, of base management fees payable to
the Manager pursuant to the Management Agreement, as amended, and $0 and
$(261,000), respectively, of credits associated with compensatory options
granted to the Manager. No incentive fees or operating deficit
reimbursements were incurred during either period.
19
<PAGE> 20
o $176,000 and $1,018,000, respectively, of general and administrative costs,
including $72,000 and $705,000, respectively, for professional services
(including a financial advisor's fee during the period from January 1, 2000
through September 25, 2000), $55,000 and $172,000, respectively, for
directors and officers' insurance, $0 and $20,000, respectively, of
reimbursable costs pursuant to the amended Management Agreement, $0 and
$(27,000), respectively, related to compensatory options granted to certain
members of the AMRESCO Group, $30,000 and $37,000, respectively, of fees
paid to the Company's Independent Trust Managers for their services to the
Company, $14,000 and $29,000, respectively, of fees paid to the Company's
Chairman of the Board of Trust Managers and Chief Executive Officer for his
services to the Company, $0 and $34,000, respectively, related to
restricted stock awards to the Company's Independent Trust Managers, and
$3,000 and $17,000, respectively, of travel costs. These categories do not
represent all general and administrative expenses.
o $213,000 and $1,188,000 of depreciation expense, including $0 and $499,000,
respectively, related to five grocery-anchored shopping centers and
$213,000 and $689,000, respectively, related to loan investments that were
accounted for as real estate.
o $0 and $1,788,000, respectively, of provision for loan losses.
Additionally, the Company realized losses of $4,137,000 and $4,267,000 during
the period from July 1, 2000 through September 25, 2000 and the period from
January 1, 2000 through September 25, 2000, respectively, in connection with the
sales of two of its CMBS holdings. The sales occurred in January 2000 and August
2000 resulting in losses totaling $130,000 and $4,137,000, respectively.
During the period from July 1, 2000 through September 25, 2000 and the period
from January 1, 2000 through September 25, 2000, minority interest in a
subsidiary partnership's net income totaled $0 and $52,000, respectively.
Period From July 1, 2000 Through September 25, 2000 Compared to Three Months
Ended September 30, 1999
The Company's revenues decreased by $1,933,000 (or 31%), from $6,301,000 to
$4,368,000, due to declines in interest income on mortgage loans of $911,000,
income from commercial mortgage-backed securities of $199,000, operating income
from real estate of $534,000 and equity in earnings/losses of unconsolidated
subsidiary, partnerships and other real estate venture of $291,000. Interest
income on mortgage loans declined as a result of the fact that the Company had
lower average outstanding balances during the current period as compared to the
prior period. The decline in income from commercial mortgage-backed securities
(from the prior period) was attributable to the sales (in January 2000 and
August 2000) of two of the Company's CMBS holdings. Operating income from real
estate declined as a result of the real estate disposition that occurred on June
14, 2000. This loss of revenue was partially offset by higher revenues from
properties underlying two of the Company's ADC loan arrangements that were
accounted for as real estate; these properties were substantially completed on
July 1, 1999 and October 1, 1999, respectively, and began producing operating
income thereafter. Equity in earnings/losses of unconsolidated subsidiary,
partnerships and other real estate venture declined as a result of the sale of
the subsidiary's CMBS investment in March 2000 and less favorable operating
results from the partnership that the Company assumed control of on February 25,
1999.
The Company's aggregate expenses decreased by $2,442,000 (or 62%), from
$3,957,000 to $1,515,000. The component expenses decreased as follows (in
thousands):
<TABLE>
<S> <C>
Interest expense ........................... $ 1,046
Management fees ............................ 207
General and administrative ................. 162
Depreciation ............................... 195
Participating interest in mortgage loans ... 190
Provision for loan losses .................. 642
--------
Total decrease in expenses .............. $ 2,442
========
</TABLE>
20
<PAGE> 21
Interest expense decreased primarily as a result of lower average debt balances
under the Company's two credit facilities (the average debt outstanding under
these facilities was approximately $47.2 million lower during the period from
July 1, 2000 through September 25, 2000 as compared to the three months ended
September 30, 1999). Additionally, the Company's non-recourse debt on real
estate was assumed by the buyer in connection with the sale of real estate on
June 14, 2000 and therefore was not outstanding during the period from July 1,
2000 through September 25, 2000; during the three months ended September 30,
2000, the average outstanding balance of non-recourse debt on real estate
approximated $30.8 million.
The Company's base management fees decreased by $160,000, from $563,000 to
$403,000, as a result of the fact that the Company's average asset base (upon
which the fee is calculated) was smaller in the current period (as compared to
the prior period) while compensatory option charges (included in management
fees) declined by $47,000, from $47,000 to $0, as a result of a decrease in the
value of the options.
The decrease in general and administrative expenses was due primarily to the
fact that the Company incurred dividend equivalent costs of $87,000 and
reimbursable costs under the Management Agreement of $66,000 during the prior
period. No such costs were incurred by the Company during the period from July
1, 2000 through September 25, 2000. The decrease in depreciation expense was
attributable primarily to the real estate disposition described above. The
Company incurred no participating interest in mortgage loans during the period
from July 1, 2000 through September 25, 2000 as the financing arrangement giving
rise to such costs was fully extinguished on November 1, 1999. The decrease in
the Company's provision for loan losses was attributable to the fact that the
Company's allowance for loan losses at September 25, 2000 was deemed to be
adequate.
For the reasons cited above, income before gains (losses) and minority interests
increased by $509,000 (or 22%), from $2,344,000 to $2,853,000. Net income
declined by $2,335,000, from $2,344,000 to $9,000 primarily as a result of
disposition-related gains and losses aggregating $(2,844,000). The loss of
$4,137,000 realized in connection with the sale of one of the Company's CMBS
holdings was partially offset by a gain of $1,293,000 realized in connection
with the repayment of an ADC loan arrangement.
Period From January 1, 2000 Through September 25, 2000 Compared to Nine Months
Ended September 30, 1999
The Company's revenues decreased by $809,000 (or 5%), from $16,517,000 to
$15,708,000, and its expenses decreased by $176,000 (or 2%), from $9,706,000 to
$9,530,000. The changes in the component revenues and expenses were as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Increase /
(Decrease)
------------
<S> <C>
Interest income on mortgage loans ............................. $ (1,839)
Income from commercial mortgage-backed securities ............. (348)
Operating income from real estate ............................. 2,647
Equity in earnings (losses) of unconsolidated subsidiary,
partnerships and other real estate venture ................ (1,288)
Interest income from short-term investments ................... 19
------------
Total net decrease in revenues ............................ $ (809)
============
Interest expense ............................................. $ 969
Management fees .............................................. (473)
General and administrative ................................... (102)
Depreciation ................................................. 483
Participating interest in mortgage loans ..................... (1,019)
Provision for loan losses .................................... (34)
------------
Total net decrease in expenses ............................ $ (176)
============
</TABLE>
21
<PAGE> 22
For the most part, the changes in the component revenues were attributable to
the same factors cited above under the sub-heading "Period From July 1, 2000
Through September 25, 2000 Compared to Three Months Ended September 30, 1999."
The increase in operating income from real estate was attributable to the
acquisitions of real estate that occurred on April 30, 1999 and August 25, 1999.
Additionally, the properties underlying two of the Company's ADC loan
arrangements that were accounted for as real estate were substantially completed
on July 1, 1999 and October 1, 1999, respectively, and began producing operating
income thereafter. The decrease in equity in earnings/losses of unconsolidated
subsidiary, partnerships and other real estate venture was due, in part, to the
loss of revenue resulting from the sale of the unconsolidated subsidiary's CMBS
investment in March 2000 and the Company's share of the loss realized in
connection with such sale; furthermore, in addition to less favorable operating
results from the partnership that the Company assumed control of on February 25,
1999, the current period results included $346,000 of costs associated with a
settlement of alleged defaults under the partnership's first lien mortgage.
Interest expense increased primarily as a result of the fact that $593,000 of
interest costs were capitalized during the nine months ended September 30, 1999;
in contrast, no interest costs were capitalized during the period from January
1, 2000 through September 25, 2000. Higher interest rates (related to the
Company's two credit facilities) also contributed to the increase in interest
expense. The Company's base management fees decreased by $120,000, from
$1,521,000 to $1,401,000, as a result of the fact that the Company's average
asset base (upon which the fee is calculated) was smaller during the current
period (as compared to the prior period) while compensatory option charges
(included in management fees) declined by $353,000, from $92,000 to $(261,000),
as a result of a decrease in the value of the options. The increase in
depreciation expense was attributable to the real estate acquisitions and ADC
loan arrangements described above. The decrease in participating interest in
mortgage loans was attributable to the same factor cited above under the
sub-heading "Period From July 1, 2000 Through September 25, 2000 Compared to
Three Months Ended September 30, 1999."
For the reasons cited above, income before gains (losses) and minority interests
decreased by $633,000 (or 9%), from $6,811,000 to $6,178,000. Net income
decreased by $1,447,000 (or 20%), from $7,395,000 to $5,948,000. In addition to
the factors cited above, minority interest in a subsidiary partnership's net
income, dissimilar gains from repayments of ADC loan arrangements (in 1999 and
2000), losses associated with sales of CMBS (in 2000) and gains from the sales
of real estate and two unconsolidated partnership investments (in 2000)
contributed to the net income variance from period to period.
Changes in Net Assets in Liquidation
Under the liquidation basis of accounting, net assets in liquidation decreased
by $1,518,000 during the period from September 26, 2000 through September 30,
2000. During this period, revenues and expenses totaled $184,000 and $1,734,000,
respectively. The Company's expenses were comprised primarily of management fees
totaling $1,705,000. Included in this amount was a charge equal to the aggregate
amount of termination benefits expected to be payable to certain employees of
the Manager. These costs, totaling $1,682,000, are expected to be borne by the
Company through future operating deficit reimbursements under the terms of the
amended Management Agreement. Additionally, during the period, the Company
received $32,000 from the exercise of 4,000 stock options.
Distributions
Historically, the Company's policy has been to distribute at least 95% of its
REIT taxable income to shareholders each year; to that end, dividends were paid
quarterly through the first quarter of 2000. The Company's first quarter
dividend, totaling $0.34 per share, was declared on April 25, 2000; the dividend
was paid on May 15, 2000 to shareholders of record on May 4, 2000. For federal
income tax purposes, this dividend will likely be treated as ordinary income to
the Company's shareholders.
Tax basis income differs from the operating results reported for financial
reporting purposes under the historical cost (or going concern) basis of
accounting and the liquidation basis of accounting due to differences in methods
of accounting for revenues, expenses, gains and losses. As a result of these
accounting differences, net income (under the historical cost [or going concern]
basis of accounting) and the increase/decrease in net assets from operating
activities (under the liquidation basis of accounting) are not necessarily
indicative of the distributions which must be made by the Company in order for
it to continue to qualify as a REIT under the Code.
22
<PAGE> 23
On September 26, 2000, shareholders approved the liquidation and dissolution of
the Company. As a result, the Company's dividend policy was modified to provide
for the distribution of the Company's assets to its shareholders. To date, the
Company has declared two liquidating distributions pursuant to the plan of
liquidation and dissolution. The following table sets forth information
regarding the declaration, record and payment dates for these liquidating
distributions.
<TABLE>
<CAPTION>
Dividend
per
Declaration Record Payment Common
Date Date Date Share
------------------ ---------------- ----------------- ---------
<S> <C> <C> <C> <C>
First Liquidating Distribution September 27, 2000 October 6, 2000 October 19, 2000 $ 0.30
Second Liquidating Distribution October 31, 2000 November 9, 2000 November 21, 2000 $ 0.35
</TABLE>
The timing and amount of future liquidating distributions will be at the
discretion of the Board of Trust Managers and will be dependent upon the
Company's financial condition, tax basis income, capital requirements, the
timing of asset dispositions, reserve requirements, the annual distribution
requirements under the REIT provisions of the Code and such other factors as the
Board of Trust Managers deems relevant. At a minimum, the Company intends to
make distributions which will allow it to continue to qualify as a REIT under
the Code.
The Company believes that distributions made to shareholders pursuant to the
plan of liquidation and dissolution will be treated for federal income tax
purposes as distributions in a complete liquidation. In this case, in general,
shareholders will realize, for federal income tax purposes, gain or loss equal
to the difference between the cash distributed to them from the liquidating
distributions and their adjusted tax basis in their shares. Tax consequences to
shareholders may differ depending upon their circumstances. Shareholders are
encouraged to consult with their own tax advisors.
Loan Investments
During the three months ended September 30, 2000, two of the Company's loans
were fully repaid, one of which was an ADC loan arrangement. During the nine
months ended September 30, 2000, four of the Company's loans were fully repaid,
two of which were ADC loan arrangements. Collections of principal totaled
approximately $19.1 million and $27.5 million during the three and nine months
ended September 30, 2000, respectively. During the three and nine months ended
September 30, 2000, the Company advanced a total of approximately $4.4 million
and $10.7 million, respectively, under its loan commitments.
Based upon the amounts outstanding, the Company's portfolio of commercial
mortgage loans had a weighted average interest pay rate of 10.9% and a weighted
average interest accrual rate of 11.6% as of September 30, 2000. These weighted
average interest rates exclude the loan which was deemed to be impaired as of
December 31, 1999 (see note [d] accompanying the table below). As of September
30, 2000, the Company's loan investments are summarized as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Estimated
Net Interest Interest
Date of Initial Scheduled Commitment Amount Realizable Pay Accrual
Investment Maturity Location Property Type Amount Outstanding Value Rate Rate
--------------- ----------------- -------------- -------------- ---------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
May 12, 1998 March 31, 2001 Richardson, TX Office $ 14,700 $ 14,700 $ 14,700 10.0% 12.0%
June 1, 1998 June 1, 2001 Houston, TX Office 11,800 11,635 11,635 12.0% 12.0%
June 22, 1998 June 19, 2001 Wayland, MA Office 45,000 40,877 40,877 10.5% 10.5%
July 10, 1998 November 1, 2000 Pasadena, TX Apartment 3,350 3,004(a) 3,004 10.0% 14.0%
May 18, 1999 May 19, 2001 Irvine, CA Office 15,558 15,092 15,092 10.0% 12.0%
July 29, 1999 July 28, 2001 Lexington, MA R&D/Bio-Tech 5,213 4,443 4,443 11.6% 14.6%
August 19, 1999 October 26, 2000 San Diego, CA Medical Office 5,745 5,600(b) 5,600 11.6% 11.6%
June 19, 1998 November 10, 2000 Houston, TX Office 24,000 22,924 22,347(c) 12.0% 12.0%
July 1, 1998 October 31, 2000 Dallas, TX Office 10,068 8,569 1,000(d) 10.0% 15.0%
---------- ----------- ----------
Total loan investments $ 135,434(e) $ 126,844(e) $ 118,698(e)
========= =========== ==========
</TABLE>
(a) Loan was fully repaid on November 1, 2000.
(b) Loan was fully repaid on October 26, 2000.
(c) Amount was collected on November 10, 2000.
(d) Loan was deemed to be impaired as of December 31, 1999. Amount was
collected on October 31, 2000.
(e) Amounts exclude the loan which was reclassified to investment in
unconsolidated subsidiary during the three months ended March 31, 1999.
23
<PAGE> 24
During the period from October 1, 2000 through the date of this report, the
Company received approximately $32 million in connection with the disposition of
four of its loan investments (see notes [a] through [d] accompanying the table
above). Inclusive of these transactions, the Company's mortgage loan portfolio
is now comprised of five investments (excluding the loan which was reclassified
to investment in unconsolidated subsidiary during the three months ended March
31, 1999). The aggregate commitment amount, amount outstanding and estimated net
realizable value of these five investments totals $92.271 million, $86.747
million and $86.747 million, respectively. The Company is obligated to fund the
balance of these commitments, or $5.524 million, to the extent that the
borrowers are not in violation of any of the conditions established in the loan
agreements. Conversely, a portion of the commitments may expire without being
drawn upon and therefore the total commitment amounts do not necessarily
represent future cash requirements. One of the five loans provides the Company
with the opportunity for profit participation above the contractual accrual
rate. Four of the five loans are secured by first liens; the other investment,
the Company's $14.7 million Richardson office loan, is secured by a second lien.
The Company provided financing through certain real estate loan arrangements
that, because of their nature, qualified (under the historical cost [or going
concern] basis of accounting) either as real estate or joint venture investments
for financial reporting purposes. For a discussion of these loan arrangements
and the changes thereto resulting from the adoption of liquidation basis
accounting, see the Company's consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999, as amended, and the Company's consolidated financial
statements and notes thereto included in Item 1 of this report, respectively.
Pursuant to the terms of the underlying loan agreements, extension options are
available to three of the Company's remaining borrowers provided that such
borrowers are not in violation of any of the conditions established in the loan
agreements. The loans provide for an extension fee to be paid to the Company at
the time the extension option is exercised by the borrower. The extension fees
range from 0.5% to 1% of the loan commitment amount, depending upon the length
of the extension option. The following table summarizes the extension options
currently available to the Company's borrowers under the terms of their
respective loan agreements (dollars in thousands):
<TABLE>
<CAPTION>
Amount
Outstanding at
Scheduled Commitment September 30, Extension Options
Maturity Amount 2000 Available to Borrower
------------------------ --------------- ----------------- ----------------------------------
<S> <C> <C> <C>
March 31, 2001 $ 14,700 $ 14,700 Two 1-Year Options
May 19, 2001 15,558 15,092 One 6-Month Option
July 28, 2001 5,213 4,443 One 6-Month Option
------------- --------------
$ 35,471 $ 34,235
============= ==============
</TABLE>
During the three months ended June 30, 2000, the maturity date of the Company's
$45 million Wayland office loan was extended to June 19, 2001 under a 1-year
extension option that the borrower elected to exercise. At September 30, 2000,
$40.877 million was outstanding under this facility.
24
<PAGE> 25
A mezzanine loan with an outstanding balance of $8,569,000 and an estimated net
realizable value (at September 30, 2000) of $1,000,000 was impaired as of
December 31, 1999. Immediately prior to the adoption of liquidation basis
accounting, this loan had a recorded investment of $6,978,000; the allowance for
loan losses related to this investment, which was secured by partnership
interests in the borrower, totaled $5,978,000 at September 25, 2000. In addition
to the Company's mortgage, the property was encumbered by a $45.5 million first
lien mortgage provided by an unaffiliated third party, of which $44 million was
outstanding at October 31, 2000. Through March 2000, all interest payments were
made in accordance with the terms of the first lien mortgage and the Company's
loan. On February 15, 2000, the Company entered into a Conditional Agreement
with the borrower. Under the terms of the Conditional Agreement, which was
subject to approval by the first lien lender, the Company agreed to accept
$3,000,000 in complete satisfaction of all amounts owed to it by the borrower
provided that such payment was received by the Company on or before May 15,
2000. On May 10, 2000, the borrower notified the Company that it would be unable
to make the $3,000,000 payment called for under the terms of the Conditional
Agreement. At this time, the borrower also informed the Company that it would
not make the April 2000 interest payment to the first lien lender before the
grace period for such payment expired. After the grace period elapsed, the first
lien lender served a default notice to the borrower for its failure to make this
interest payment. Concurrently, the Company served a default notice to the
borrower for its failure to pay interest due under the terms of the mezzanine
loan. Effective as of May 15, 2000, the Company entered into an Agreement for
DPO (or discounted payoff) with the borrower (the "DPO Agreement"). Under the
terms of the DPO Agreement, the Company agreed to accept $1,250,000 (the "DPO
Amount") in complete satisfaction of all amounts owed to it by the borrower
provided that certain conditions were met. On or before May 31, 2000, the
borrower was required to pay $250,000 of the DPO Amount to the Company. The
recorded investment of this loan was reduced by $250,000 upon receipt of this
payment on May 31, 2000. On May 16, 2000, the borrower cured the default on the
first lien mortgage by making the April 2000 interest payment. The borrower's
ability to fully satisfy the loan pursuant to the DPO Agreement was further
conditioned upon there being no subsequent defaults under the first lien
mortgage. Through October 2000, all debt service payments were made in
accordance with the terms of the first lien mortgage. As a result of the events
described above, the Company recorded an additional loan loss provision of
$1,788,000 during the three months ended March 31, 2000. On October 31, 2000,
the Company received the balance of the DPO Amount ($1,000,000).
On February 25, 1999, an unconsolidated taxable subsidiary of the Company
assumed control of a borrower (a partnership) through foreclosure of the
partnership interests. In addition to the second lien mortgage, the 909,000
square foot mixed-use property is encumbered by a $17 million first lien
mortgage provided by an unaffiliated third party. The first lien mortgage, which
matures on March 1, 2001, requires interest only payments throughout its term.
On March 11, 1999, the first lien lender notified the Company that it considered
the first lien loan to be in default because of defaults under the Company's
mezzanine loan; however, it did not give notice of an intention to accelerate
the balance of the first lien loan at that time. On September 21, 1999, a
subsidiary of the Company entered into a non-binding letter agreement with a
prospective investor who intends to make a substantial equity commitment to the
project. Under the terms of the agreement, the Company would continue to have an
interest in the project as an equity owner. On March 16, 2000, the first lien
lender gave notice to the partnership of its intention to accelerate the first
lien loan in the event that certain alleged non-monetary events of default were
not cured. In addition to the alleged default described above, the first lien
lender asserted that the borrower permitted a transfer of a beneficial interest
in the partnership in violation of the loan agreement and that it had failed to
perform certain obligations under the Intercreditor Agreement. The notice also
specified that, as a result of the alleged defaults, interest had accrued at the
default rate from the date of the earliest event of default. To date, all
interest payments at the stated rate have been made in accordance with the terms
of the first lien mortgage. Under the terms of a negotiated settlement, the
borrower paid $250,000 of default interest to the first lien lender.
Additionally, the borrower reimbursed the first lien lender for its legal fees
and other costs incurred in connection with the negotiation and closing of the
settlement. These fees and other costs totaled approximately $96,000. Following
the payment of these amounts on May 19, 2000, all of the alleged defaults under
the first lien mortgage were cured. Initially, the first lien lender indicated a
willingness to permit the to-be-formed investment partnership to assume the
first lien mortgage; however, the parties ultimately could not agree on the
terms of an assumption agreement. The Company has been informed that the
prospective investor is currently negotiating with two lenders in an effort to
secure take-out financing for the first lien mortgage. At the date of this
report, the Company believes that the prospective investor should be able to
secure this financing by December 31, 2000 at which time the Company would then
expect to close the proposed transaction with the investor; however, there can
be no assurances that such financing will be obtained or that the proposed
transaction will be consummated. Concurrent with its adoption of liquidation
basis accounting, the Company reduced the carrying value of this investment by
$1,000,000. During the first quarter of 1999, the Company charged-off $500,000
against the allowance for losses related to this investment which amount
represented management's estimate at that time of the amount of the expected
loss which could result upon a disposition of the collateral.
25
<PAGE> 26
At September 30, 2000, the Company's commercial mortgage loan commitments were
geographically dispersed as follows (dollars in thousands):
<TABLE>
<CAPTION>
Percentage
of Total
Estimated Estimated
Committed Loan Amount Net Realizable Net Realizable
Amount Outstanding Value Value
--------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Texas $ 63,918 $ 60,832 $ 52,686 44%
Massachusetts 50,213 45,320 45,320 38
California 21,303 20,692 20,692 18
--------- ----------- --------- -----
$ 135,434 $ 126,844 $ 118,698 100%
========= =========== ========= =====
</TABLE>
At September 30, 2000, the Company's loan investments were collateralized by the
following product types (dollars in thousands):
<TABLE>
<CAPTION>
Percentage
of Total
Estimated Estimated
Committed Loan Amount Net Realizable Net Realizable
Amount Outstanding Value Value
--------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Office $ 121,126 $ 113,797 $ 105,651 89%
Multifamily 3,350 3,004 3,004 2
Medical Office 5,745 5,600 5,600 5
R&D/Bio-Tech 5,213 4,443 4,443 4
--------- ----------- --------- -----
$ 135,434 $ 126,844 $ 118,698 100%
========= =========== ========= =====
</TABLE>
At September 30, 2000, the Company's loan investments were collateralized by the
following loan types (dollars in thousands):
<TABLE>
<CAPTION>
Percentage
of Total
Estimated Estimated
Committed Loan Amount Net Realizable Net Realizable
Amount Outstanding Value Value
--------- ----------- -------------- --------------
<S> <C> <C> <C> <C>
Acquisition/Rehabilitation $ 59,308 $ 53,924 $ 53,924 46%
Construction 38,700 37,624 37,047 31
Acquisition 37,426 35,296 27,727 23
--------- ----------- --------- -----
$ 135,434 $ 126,844 $ 118,698 100%
========= =========== ========= =====
</TABLE>
The two properties underlying the Company's construction loans were
substantially completed during 1999. As of September 30, 2000, these properties
were 99% and 94% leased, respectively.
At September 30, 2000, 87% of the portfolio was comprised of first lien loans
while the balance of the portfolio (13%) was secured by second liens and/or
partnership interests (based on estimated net realizable value). The percentages
reflected above exclude the loan that was reclassified to investment in
unconsolidated subsidiary during the first quarter of 1999.
As the loan investment portfolio is expected to contract as a result of
repayments, geographic and product type concentrations will persist. The Company
believes that 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.
26
<PAGE> 27
Commercial Mortgage-backed Securities
On January 11, 2000 and August 23, 2000, the Company sold two of its CMBS
holdings (the "B-2A" security and the "G-2" security, respectively).
Additionally, on March 21, 2000, the Company's unconsolidated taxable subsidiary
sold its only CMBS (the "B-3A" security). The total disposition proceeds and the
gross realized loss for each bond were as follows (in thousands):
<TABLE>
<CAPTION>
Total Gross
Disposition Amortized Realized
Security Proceeds Cost Loss
-------- ----------- --------- -------
<S> <C> <C> <C> <C>
B-2A $ 3,784 $ 3,914 $ (130)
B-3A $ 3,341 $ 3,481 $ (140)
G-2 $ 4,030 $ 8,167 $(4,137)
</TABLE>
The Company's share of the gross realized loss from the sale of the B-3A
security is included in equity in losses from unconsolidated subsidiary,
partnerships and other real estate venture.
As of September 30, 2000, the Company held three commercial mortgage-backed
securities which were acquired at an aggregate purchase price of $22.6 million.
During the period from January 1, 2000 through September 25, 2000, the value of
these securities declined by $573,000 due primarily to the widening of spreads
in the CMBS market. The value of these securities was unchanged during the
period from September 26, 2000 through September 30, 2000. As these securities
were classified as available for sale under the historical cost (or going
concern) basis of accounting, the unrealized loss was reported as a component of
accumulated other comprehensive income (loss) in shareholders' equity for
financial reporting purposes. During the period from July 1, 2000 through
September 25, 2000 and the period from January 1, 2000 through September 25,
2000, the changes in accumulated other comprehensive income (loss) were as
follows:
<TABLE>
<CAPTION>
Period from Period from
July 1, 2000 January 1, 2000
through through
September 25, September 25,
2000 2000
------------- ---------------
<S> <C> <C>
Balance, beginning of period ................. $ (11,092) $ (10,812)
Unrealized losses associated with
securities sold during the period.......... (265) (70)
Reclassification adjustment for
realized losses included in net income..... 4,137 4,407
Unrealized gains (losses) associated
with retained securities................... 172 (573)
------------- ---------------
Balance, end of period ....................... $ (7,048) $ (7,048)
============= ===============
</TABLE>
As of September 30, 2000, the Company's CMBS investments are summarized as
follows (dollars in thousands):
<TABLE>
<CAPTION>
Percentage of
Total Based on
Estimated Estimated
Security Amortized Unrealized Net Realizable Net Realizable
Rating Cost Losses Value Value
-------- --------- ---------- -------------- --------------
<S> <C> <C> <C> <C>
BB- $ 4,305 $ (1,190) $ 3,115 19%
B 15,880 (5,016) 10,864 67%
B- 3,167 (842) 2,325 14%
--------- ---------- -------- ----
$ 23,352 $ (7,048) $ 16,304 100%
========= ========== ======== ====
</TABLE>
27
<PAGE> 28
While management believes that the fundamental value of the real estate
mortgages underlying its bonds has been largely unaffected to date, the
combination of increasing spreads and comparable-term U.S. Treasury rates during
1998, 1999 and the year-to-date period have caused the current value of these
securities to decline.
From and after September 26, 2000, any unrealized gains or losses will be
reported as a change in estimated net realizable value in the Company's
consolidated statement of changes in net assets in accordance with the
liquidation basis of accounting. Currently, management is marketing its
remaining CMBS for sale. Should a sale occur, the realized gain or loss, if any,
will be computed based upon the carrying value (or estimated net realizable
value) of the securities at the date of sale.
On June 30, 2000, the Company sold its 5% ownership interest in a partnership
that owns several classes of subordinated CMBS for $326,000. The gain associated
with this transaction totaled $12,000.
Equity Investments in Real Estate
On April 3, 2000, the Company sold its 49% limited partner interest in a
suburban office building for $1.8 million. The gain associated with this
transaction totaled $662,000.
On June 14, 2000, the Company sold its 99.5% ownership interest in five
grocery-anchored shopping centers in the Dallas/Fort Worth area for $18.327
million. The gain associated with this transaction totaled $1,485,000.
The Company's unconsolidated taxable subsidiary holds interests (indirectly) in
a partnership which owns a 909,000 square foot mixed-use property in Columbus,
Ohio. This investment is described above under the sub-heading "Loan
Investments".
LIQUIDITY AND CAPITAL RESOURCES
The following discussion of liquidity and capital resources should be read in
conjunction with the consolidated financial statements and notes thereto
included in "Item 1. Financial Statements".
The Company's principal demands for liquidity are cash for operations, including
funds which are required to satisfy its obligations under existing loan
commitments, management fees, general and administrative expenses and
distributions to its shareholders (in amounts that are sufficient to allow it to
continue to qualify as a REIT). Distributions in excess of the amounts required
to maintain the Company's REIT qualification will be funded with the proceeds
from loan repayments and asset sales. In the near term, the Company's principal
sources of liquidity are the funds available to it under its line of credit, its
cash flow from operations and the proceeds from loan repayments and asset sales.
At September 30, 2000, amounts outstanding under the line of credit totaled
$22.0 million. During the three and nine months ended September 30, 2000, the
Company reduced the outstanding borrowings under this facility by $20.6 million
and $38.6 million, respectively. At September 30, 2000, the weighted average
interest rate under the line of credit was 7.88%.
Effective as of November 3, 2000, the Company (and certain of its subsidiaries)
entered into a First Amendment to Amended and Restated Interim Warehouse and
Security Agreement (the "First Amendment") with Prudential Securities Credit
Corporation, LLC (PSCC), successor in interest to Prudential Securities Credit
Corporation. Under the terms of the First Amendment, the committed amount of the
line of credit was reduced from $300 million to $35 million (subject to certain
limitations) and the maturity date was extended from November 3, 2000 to April
30, 2001. On and after November 3, 2000, the Company may request advances under
the line of credit only for purposes of funding its unfunded loan commitments
and its dividend payments to shareholders to the extent such dividends are
necessary in order for the Company to maintain its qualification as a REIT. As
compensation for entering into the First Amendment, the Company paid PSCC an
extension fee equal to 0.5% of the committed amount. Borrowings under the line
of credit bear interest at LIBOR plus 1.25% per annum. On November 14, 2000, the
Company repaid $22 million of outstanding borrowings under the line of credit.
Following this repayment, there are no outstanding borrowings under this
facility; however, the Company has the right (subject to the limitations
described above) to re-borrow amounts under the line of credit through April 30,
2001.
28
<PAGE> 29
During the period from January 1, 2000 through August 3, 2000, the Company was a
party to a $59 million (notional) interest rate cap agreement. On August 4,
2000, the Company terminated a portion of this interest rate cap agreement at a
gain of $19,000. The revised agreement, which more closely matched the
borrowings then outstanding under the Company's line of credit, had a notional
amount of $30 million. The interest rate cap agreements entitled the Company to
receive from the counterparty the amounts, if any, by which one-month LIBOR
exceeded 6.25%. During the three and nine months ended September 30, 2000,
amounts due from the counterparty under the terms of the Company's interest rate
cap agreements totaled $39,000 and $61,000, respectively. The revised agreement
expired on November 1, 2000.
In June 2000, the Company fully repaid its Repurchase Agreement indebtedness of
$9.8 million. This borrowing facility matured on June 30, 2000.
Beyond the extended maturity date of the line of credit, the Company believes
that its cash flow from operations and the proceeds from loan repayments and
asset sales should be sufficient to meet the Company's currently expected
liquidity and capital requirements.
REIT STATUS
Management expects the Company to continue to qualify as a REIT for federal
income tax purposes throughout the period during which the Company's assets are
being liquidated. 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 specified 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. Given the changes in the
nature of the Company's assets and in the Company's sources of income that could
result from dispositions of assets in the liquidation process and the need to
retain assets to meet liabilities, there can be no assurance that the Company
will continue to meet the REIT qualification tests. If the Company ceases to
qualify as a REIT for any taxable year, it would not be entitled to deduct
dividends paid to shareholders from its taxable income. In this case, the
Company would be liable for federal income taxes with respect to its gains from
sales of assets and the Company's income from operations for that year and for
subsequent taxable years.
YEAR 2000 ISSUE
All of the Company's information technology infrastructure is provided by the
Manager, and the Manager's systems are supplied by AMRESCO, INC. To date,
AMRESCO, INC. has not experienced any material difficulties with respect to its
internal business-critical systems used in connection with the operations of the
Manager or the Company, nor does it anticipate any material difficulties in the
future. Additionally, the Company has not experienced any adverse effects or had
any material difficulties relating to the Year 2000 issue as a result of any
failures or interruptions in the business or operations of any borrower or other
third party having a material contract with the Company. Under the terms of the
Company's Management Agreement, as amended, all of the costs associated with
addressing the Company's Year 2000 issue are to be borne by the Manager. As a
result, the Company did not incur, nor would it expect to incur, any
expenditures in connection with modifications associated with the Year 2000
issue.
29
<PAGE> 30
FORWARD-LOOKING STATEMENTS
Certain statements contained in this Form 10-Q are not based on historical facts
and are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Company intends that
forward-looking statements be subject to such Act and any similar state or
federal laws. Forward-looking statements, which are based on various
assumptions, include statements regarding the intent, belief or current
expectations of the Company, its Manager, and their respective Trustees or
directors and officers, and 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
risks, uncertainties and changes with respect to a variety of factors,
including, but not limited to, changes in international, national, regional or
local economic environments, changes in prevailing interest rates, credit and
prepayment risks, basis and asset/liability risks, spread risk, event risk,
conditions which may affect public securities and debt markets generally or the
markets in which the Company operates, the Year 2000 issue, the availability of
and costs associated with obtaining adequate and timely sources of liquidity,
dependence on existing sources of funding, the size and liquidity of the
secondary market for commercial mortgage-backed securities, geographic or
product type concentrations of assets (temporary or otherwise), other factors
generally understood to affect the real estate acquisition, mortgage and leasing
markets and securities investments, changes in federal income tax laws and
regulations, and other risks described from time to time in the Company's SEC
reports and filings, including its registration statement on Form S-11 and
periodic reports on Form 10-Q, Form 8-K and Form 10-K.
30
<PAGE> 31
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is a party to various financial instruments which are subject to
market risk. These instruments include mortgage loan investments, investments in
commercial mortgage-backed securities ("CMBS") and the Company's borrowing
facility. Until its expiration on November 1, 2000, the Company was also a party
to an interest rate cap agreement which it entered into in order to mitigate the
market risk exposure associated with its credit facility. The Company's
financial instruments involve, to varying degrees, elements of interest rate
risk. Additionally, the Company's investment portfolio, which is comprised of
both financial instruments (mortgage loans and CMBS) and equity investments in
real estate (indirectly, through its unconsolidated taxable subsidiary), is
subject to real estate market risk. The Company is a party to certain other
financial instruments, including trade receivables and payables and amounts due
to its manager which, due to their short-term nature, are not subject to market
risk. For a discussion of market risk exposures, reference is made to Item 7A.
"Quantitative and Qualitative Disclosures About Market Risk" in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999, as amended. The
market risk exposures described therein have not materially changed since
December 31, 1999; accordingly, no additional discussion or analysis is provided
in this Form 10-Q.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 2000 Annual Meeting of Shareholders was held on September 26, 2000. There
were 9,655,576 shares present in person or by proxy, which constituted 96.4% of
the shares entitled to vote at the meeting. The matters voted upon and the
results of such votes were as follows:
(i) Approval of the liquidation and dissolution of the Company
under the terms and conditions of a plan of liquidation and
dissolution which had previously been approved by the
Company's Board of Trust Managers with 7,865,784 shares voted
in favor, 25,726 shares voted against and 14,550 shares
abstained.
(ii) Election of Bruce W. Duncan (9,617,536 shares voted in favor
and 38,040 shares withheld) and Robert H. Lutz, Jr. (9,417,184
shares voted in favor and 238,392 shares withheld) as Trust
Managers for a three-year term or until the Company files
articles of dissolution.
(iii) Approval and ratification of the appointment by the Board of
Trust Managers of Deloitte & Touche LLP as the Company's
independent public accountants for the 2000 fiscal year with
9,633,676 shares voted in favor, 6,250 shares voted against
and 15,650 shares abstained.
31
<PAGE> 32
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits and Exhibit Index
Exhibit No.
10.1 First Amendment to Management Agreement dated as of
April 1, 2000, by and between AMRESCO Capital Trust
and AMREIT Managers, L.P. (filed as Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 2000, which
exhibit is incorporated herein by reference).
10.2 First Amendment to Amended and Restated Interim
Warehouse and Security Agreement dated as of November
3, 2000 by and among Prudential Securities Credit
Corporation, LLC and AMRESCO Capital Trust, AMREIT I,
Inc., AMREIT II, Inc., ACT Equities, Inc. and ACT
Holdings, Inc.
27 Financial Data Schedule.
99.1 Termination Agreement, dated January 4, 2000, between
AMRESCO Capital Trust and Impac Commercial Holdings,
Inc. (filed as Exhibit 99.1 to the Registrant's
Current Report on Form 8-K dated January 4, 2000 and
filed with the Commission on January 6, 2000, which
exhibit is incorporated herein by reference).
99.2 Form of REIT Agreement, dated as of July 5, 2000,
among AMRESCO Capital Trust and Farallon Capital
Partners, L.P., Farallon Capital Institutional
Partners, L.P., Farallon Capital Institutional
Partners II, L.P., Farallon Capital Institutional
Partners III, L.P. and RR Capital Partners, L.P.
(filed as Exhibit 99.1 to the Registrant's Current
Report on Form 8-K dated July 5, 2000 and filed with
the Commission on July 6, 2000, which exhibit is
incorporated herein by reference).
99.3 Form of Amendment No. 1 to Rights Agreement, dated as
of June 29, 2000, between AMRESCO Capital Trust and
The Bank of New York (filed as Exhibit 99.2 to the
Registrant's Current Report on Form 8-K dated July 5,
2000 and filed with the Commission on July 6, 2000,
which exhibit is incorporated herein by reference).
(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:
(i) Form 8-K dated September 26, 2000 and filed with the
Commission on October 5, 2000, reporting the
announcement that the shareholders of AMRESCO Capital
Trust had approved the liquidation and dissolution of
the Company under the terms and conditions of a plan
of liquidation and dissolution which had previously
been approved by the Company's Board of Trust
Managers, under Item 5 of such form.
32
<PAGE> 33
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: November 14, 2000 By: /s/ Thomas R. Lewis II
----------------------
Thomas R. Lewis II
Senior Vice President, Chief Financial
and Accounting Officer & Controller
(Principal Financial and Accounting Officer)
33
<PAGE> 34
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.1 First Amendment to Management Agreement dated as of April 1, 2000, by
and between AMRESCO Capital Trust and AMREIT Managers, L.P. (filed as
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000, which exhibit is incorporated
herein by reference).
10.2 First Amendment to Amended and Restated Interim Warehouse and Security
Agreement dated as of November 3, 2000 by and among Prudential
Securities Credit Corporation, LLC and AMRESCO Capital Trust, AMREIT I,
Inc., AMREIT II, Inc., ACT Equities, Inc. and ACT Holdings, Inc.
27 Financial Data Schedule.
99.1 Termination Agreement, dated January 4, 2000, between AMRESCO Capital
Trust and Impac Commercial Holdings, Inc. (filed as Exhibit 99.1 to the
Registrant's Current Report on Form 8-K dated January 4, 2000 and filed
with the Commission on January 6, 2000, which exhibit is incorporated
herein by reference).
99.2 Form of REIT Agreement, dated as of July 5, 2000, among AMRESCO Capital
Trust and Farallon Capital Partners, L.P., Farallon Capital
Institutional Partners, L.P., Farallon Capital Institutional Partners
II, L.P., Farallon Capital Institutional Partners III, L.P. and RR
Capital Partners, L.P. (filed as Exhibit 99.1 to the Registrant's
Current Report on Form 8-K dated July 5, 2000 and filed with the
Commission on July 6, 2000, which exhibit is incorporated herein by
reference).
99.3 Form of Amendment No. 1 to Rights Agreement, dated as of June 29, 2000,
between AMRESCO Capital Trust and The Bank of New York (filed as
Exhibit 99.2 to the Registrant's Current Report on Form 8-K dated July
5, 2000 and filed with the Commission on July 6, 2000, which exhibit is
incorporated herein by reference).
</TABLE>
