<PAGE> 1
FORM 10 - Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
--------- ---------
Commission File Number 1-13610
-------
PMC COMMERCIAL TRUST
--------------------
(Exact name of registrant as specified in its charter)
TEXAS 75-6446078
- --------------------------------- ------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
18111 Preston Road, Suite 600, Dallas, TX 75252 (972) 349-3200
- ----------------------------------------------- --------------
(Address of principal executive offices) (Registrant's telephone number)
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
--- ---
As of August 1, 1999, Registrant had outstanding 6,528,983 Common Shares of
Beneficial Interest, par value $.01 per share.
<PAGE> 2
PMC COMMERCIAL TRUST AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1999 (Unaudited) and December 31, 1998 2
Consolidated Statements of Income (Unaudited) -
Six Months Ended June 30, 1999 and 1998 3
Three Months Ended June 30, 1999 and 1998 4
Consolidated Statements of Cash Flows (Unaudited) -
Six Months Ended June 30, 1999 and 1998 5
Notes to Consolidated Financial Statements (Unaudited) 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures About Market Risk 23
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. Exhibits and Reports on Form 8-K 24
</TABLE>
<PAGE> 3
PART I
Financial Information
ITEM 1.
Financial Statements
<PAGE> 4
PMC COMMERCIAL TRUST AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
INVESTMENTS:
Loans receivable, net.............................................. $ 120,748 $ 119,712
Real estate investments, net....................................... 71,733 61,774
Restricted investments............................................. 9,201 13,290
Cash equivalents................................................... . 161 202
------------- -------------
TOTAL INVESTMENTS.................................................... 201,843 194,978
------------- -------------
Other assets:
Cash............................................................... 170 23
Interest receivable................................................ 647 786
Deferred borrowing costs, net...................................... 484 637
Other assets, net.................................................. 340 266
------------- -------------
TOTAL OTHER ASSETS................................................... 1,641 1,712
------------- -------------
TOTAL ASSETS......................................................... $ 203,484 $ 196,690
============= =============
LIABILITIES AND BENEFICIARIES' EQUITY
LIABILITIES:
Notes payable...................................................... $ 65,893 $ 66,852
Revolving credit facility.......................................... 37,944 28,535
Dividends payable.................................................. 3,003 2,967
Due to affiliates.................................................. 564 1,232
Borrower advances.................................................. 432 788
Unearned commitment fees........................................... 423 558
Interest payable................................................... 410 494
Other liabilities.................................................. 2,089 1,827
------------- -------------
TOTAL LIABILITIES.................................................... 110,758 103,253
------------- -------------
Commitments and contingencies
BENEFICIARIES' EQUITY:
Common shares of beneficial interest; authorized
100,000,000 shares of $0.01 par value; 6,528,983 and
6,520,037 shares issued and outstanding at June 30, 1999
and December 31, 1998, respectively............................ 65 65
Additional paid-in capital.......................................... 94,241 94,102
Cumulative net income............................................... 42,202 37,048
Cumulative dividends................................................ (43,782) (37,778)
------------- -------------
Total beneficiaries' equity........................................... 92,726 93,437
------------- -------------
TOTAL LIABILITIES AND BENEFICIARIES' EQUITY........................... $ 203,484 $ 196,690
============= =============
Net asset value per share............................................. $ 14.20 $ 14.33
============= =============
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
2
<PAGE> 5
PMC COMMERCIAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
--------------------------
1999 1998
------- -------
(Unaudited)
<S> <C> <C>
REVENUES:
Interest income - loans ..................... $ 6,685 $ 6,443
Lease income ................................ 3,629 17
Interest and dividends - other investments .. 152 139
Other income ................................ 469 578
------- -------
TOTAL REVENUES ................................ 10,935 7,177
------- -------
EXPENSES:
Interest .................................... 3,443 899
Advisory and servicing fees to affiliate, net 1,079 750
Depreciation ................................ 1,061 --
General and administrative .................. 115 101
Legal and accounting fees ................... 83 44
Provision for loan losses ................... -- 20
------- -------
TOTAL EXPENSES ................................ 5,781 1,814
------- -------
NET INCOME .................................... $ 5,154 $ 5,363
======= =======
Basic weighted average shares outstanding ..... 6,525 6,482
======= =======
Diluted weighted average shares outstanding ... 6,526 6,487
======= =======
Basic and diluted earnings per share .......... $ 0.79 $ 0.83
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
3
<PAGE> 6
PMC COMMERCIAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
-------------------------------------
1999 1998
----------------- ----------------
(Unaudited)
<S> <C> <C>
REVENUES:
Interest income - loans............................. $ 3,420 $ 3,360
Lease income........................................ 1,944 17
Interest and dividends - other investments.......... 75 74
Other income........................................ 207 221
----------------- ----------------
TOTAL REVENUES........................................ 5,646 3,672
----------------- ----------------
EXPENSES:
Interest............................................ 1,850 494
Advisory and servicing fees to affiliate, net....... 548 368
Depreciation........................................ 573 --
General and administrative.......................... 76 69
Legal and accounting fees........................... 36 24
Provision for loan losses........................... -- 10
----------------- ----------------
TOTAL EXPENSES........................................ 3,083 965
----------------- ----------------
NET INCOME............................................ $ 2,563 $ 2,707
================= ================
Basic weighted average shares outstanding............. 6,527 6,509
================= ================
Diluted weighted average shares outstanding........... 6,528 6,514
================= ================
Basic and diluted earnings per share.................. $ 0.39 $ 0.42
================= ================
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE> 7
PMC COMMERCIAL TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
----------------------------
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 5,154 $ 5,363
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation................................................ 1,061 --
Accretion of discount and fees.............................. (366) (157)
Amortization of organization and borrowing costs............ 153 102
Provision for loan losses................................... -- 20
Commitment fees collected, net.............................. 74 156
Construction monitoring fees collected, net................. 24 18
Changes in operating assets and liabilities:
Accrued interest receivable............................. 139 (62)
Other assets............................................ (74) (258)
Interest payable........................................ (84) 55
Borrower advances....................................... (356) 89
Due to affiliates....................................... (668) 1,117
Other liabilities....................................... 262 1,152
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES......................... 5,319 7,595
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Loans funded.................................................... (10,636) (25,679)
Principal collected............................................. 9,733 10,088
Purchase of real estate......................................... (4,094) (62,731)
Release of restricted investments, net.......................... 4,089 (2,138)
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES............................. (908) (80,460)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common shares........................ 139 2,072
Proceeds from issuance of notes payable........................ 4,475 66,100
Proceeds from revolving credit facility, net................... 9,409 10,849
Payment of principal on notes payable.......................... (12,360) --
Payment of issuance costs...................................... -- (630)
Payment of dividends........................................... (5,968) (5,399)
------------ -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES............... (4,305) 72,992
------------ -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS......................... 106 127
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR...................... 225 36
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......................... $ 331 $ 163
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Dividends reinvested........................................... $ 107 $ 181
=========== ===========
Dividends declared, not paid................................... $ 3,003 $ 2,864
=========== ===========
Interest paid.................................................. $ 3,527 $ 746
=========== ===========
Assets purchased with assumed debt............................. $ 6,926 $ --
=========== ===========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.
5
<PAGE> 8
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
The accompanying consolidated balance sheet of PMC Commercial Trust
("PMC Commercial") and its subsidiaries (collectively, with PMC Commercial, the
"Company") as of June 30, 1999 and the consolidated statements of income for the
three and six months ended June 30, 1999 and 1998 and cash flows for the six
months ended June 30, 1999 and 1998 have not been audited by independent
accountants. In the opinion of the Company's management, the financial
statements reflect all adjustments necessary to present fairly the Company's
financial position at June 30, 1999, the results of operations for the three and
six months ended June 30, 1999 and 1998, and the cash flows for the six months
ended June 30, 1999 and 1998. These adjustments are of a normal recurring
nature.
Certain notes and other information have been omitted from the interim
financial statements presented in this Quarterly Report on Form 10-Q. Therefore,
these financial statements should be read in conjunction with the financial
statements and notes thereto included in the Company's 1998 Annual Report on
Form 10-K.
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 assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
The results for the three and six months ended June 30, 1999 are not
necessarily indicative of future financial results.
NOTE 2. RECLASSIFICATION
Certain prior period amounts have been reclassified to conform to
current year presentation.
NOTE 3. BASIS FOR CONSOLIDATION
During 1996, PMC Commercial Receivable Limited Partnership, a Delaware
limited partnership (the "1996 Partnership"), and PMC Commercial Corp., a
Delaware corporation, were formed. PMC Commercial Corp. is the general partner
for the 1996 Partnership. During 1998, PMC Commercial Trust, Ltd. 1998-1 (the
"1998 Partnership"), and PMCT Corp. 1998-1, a Delaware corporation were formed.
PMCT Corp. 1998-1 is the general partner for the 1998 Partnership. In addition,
during March 1999, four separate Delaware limited partnerships and related
corporate general partners were formed to own each of the four acquired
Amerihost Properties (the "Special Purpose Entities"). PMC Commercial directly
or indirectly owns 100% of PMC Commercial Corp., the 1996 Partnership, PMCT
Corp. 1998-1, the 1998 Partnership and the Special Purpose Entities.
Accordingly, the consolidated financial statements include the accounts of PMC
Commercial, PMC Commercial Corp., the 1996 Partnership, PMCT Corp. 1998-1, the
1998 Partnership and the Special Purpose Entities (See Note 7).
NOTE 4. REAL ESTATE INVESTMENTS
Real estate investments are recorded at cost. Depreciation is provided
on the straight-line method based upon the estimated useful lives of the assets
and estimated residual values. The buildings and improvements are being
depreciated utilizing a 35-year useful life and the furniture, fixtures and
equipment are being depreciated over a seven-year useful life. Maintenance and
repairs are the responsibility of the lessee and are charged to the lessee's
operations as incurred; major replacements, renewals and improvements are
capitalized.
The Company periodically reviews the carrying value of each hotel
property in accordance with Statement of Financial Accounting Standards ("SFAS")
No. 121 to determine if circumstances exist indicating impairment in the
carrying value of the investment in the hotel property or that depreciation
periods should be modified. If facts or
6
<PAGE> 9
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. REAL ESTATE INVESTMENTS (CONTINUED)
circumstances support the possibility of impairment, the Company will prepare a
projection of the undiscounted future cash flows of the specific hotel property
and determine if the investment in the hotel property is recoverable based on
the undiscounted future cash flows. If impairment is indicated, an adjustment
will be made to the carrying value of the hotel property based on the discounted
cash flows. The Company does not believe that there are any current facts or
circumstances indicating impairment of any of its real estate investments. Real
estate investments consist of the following:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1999 1998
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land............................................. $ 7,944 $ 6,900
Buildings and improvements....................... 60,322 51,126
Furniture, fixtures and equipment................ 5,504 4,724
------------ ---------
73,770 62,750
Accumulated Depreciation ........................ (2,037) (976)
------------ ---------
Real estate investments, net .................... $ 71,733 $ 61,774
============ =========
</TABLE>
NOTE 5. DIVIDENDS TO BENEFICIARIES
During January 1999, the Company paid $0.455 per share in dividends to
common shareholders of record on December 31, 1998. During April 1999, the
Company paid $0.46 per share in dividends to common shareholders of record on
March 31, 1999. The Company declared a $0.46 per share dividend to common
shareholders of record on June 30, 1999, which was paid on July 12, 1999.
NOTE 6. RELATED PARTY TRANSACTIONS
The loans of the Company are managed by PMC Advisers, Ltd. and it
subsidiary (together, "PMC Advisers") pursuant to an Investment Management
Agreement (the "IMA"). Property acquisitions are supervised pursuant to a
separate agreement with PMC Advisers entered into in June 1998 (the "Lease
Supervision Agreement" and together with the IMA the "IMAs").
Pursuant to the IMA, fees between 0.40% and 1.67%, annually, are
charged to the Company based upon the average principal outstanding of the
Company's loans. In addition, PMC Advisers earns fees for its assistance in the
issuance of the Company's debt and equity securities. During 1998, the Lease
Supervision Agreement was entered into which provides an annual fee to be paid
to PMC Advisers for providing services relating to leases on properties acquired
by the Company. In addition, the Lease Supervision Agreement provides for a fee
relating to the acquisition of properties by the Company of 0.75% of the
acquisition cost. The Lease Supervision Fee is 0.70% per annum of the cost of
the properties.
7
<PAGE> 10
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. RELATED PARTY TRANSACTIONS (CONTINUED)
Fees associated with the IMAs consist of the following:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, THREE MONTHS ENDED JUNE 30,
-------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------- --------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Total fees incurred................................... $ 1,188 $ 1,507 $ 547 $ 1,085
Less: Capitalized as cost of originating
loans........................................ (28) (126) -- (86)
Capitalized as cost of property acquisitions
and structured financing..................... (81) (631) -- (631)
------------ ---------- ---------- -----------
Investment management fee expense..................... $ 1,079 $ 750 $ 547 $ $368
============ ========== ========== ===========
</TABLE>
NOTE 7. NOTES PAYABLE
Revolving Credit Facility
The Company has a revolving credit facility which provides funds to
originate loans collateralized by commercial real estate up to the lesser of $45
million or an amount equal to the sum of (i) 50% of the value of the underlying
property collateralizing the borrowings up to 100% of the loan principal amount
outstanding. At June 30, 1999, the Company had $37.9 million in debt outstanding
under the credit facility with availability of an additional $7.1 million. At
June 30, 1998, the Company had $16.9 million outstanding under the credit
facility with availability of an additional $13.1 million. The Company is
charged interest on the balance outstanding under the credit facility, at the
option of the Company, at either the prime rate of the lender less 50 basis
points or 175 basis points over the 30, 60 or 90 day LIBOR. At June 30, 1999,
the weighted average interest rate on short-term borrowings under the revolving
credit facility was approximately 7.1%. The credit facility requires the Company
to meet certain covenants, the most restrictive of which provides that the ratio
of senior debt to net worth (as defined in the credit facility) will not exceed
2.0 times. At June 30, 1999 the Company was in compliance with all covenants of
this facility. The facility matures on March 31, 2000 except for $15 million
borrowed under the Extension and Modification Agreement which matures January
31, 2000.
Structured Financings
In March 1996, PMC Commercial Receivable Limited Partnership, a Delaware
limited partnership (the "1996 Partnership"), completed a private placement (the
"1996 Private Placement") of its $29,500,000 of Fixed Rate Loan Backed Notes,
Series 1996-1 (the "1996 Notes"). In connection with the 1996 Private Placement,
the 1996 Notes were given a rating of "AA" by Duff & Phelps Credit Rating Co.
The Company owns, directly or indirectly, all of the interests of the 1996
Partnership. The 1996 Notes, issued at par, have a stated maturity in 2016, bear
interest at the rate of 6.72% per annum, and were collateralized by an initial
amount of approximately $39.7 million of loans contributed by the Company to the
1996 Partnership. At June 30, 1999, approximately $10.8 million of those loans
remained outstanding. On July 1, 1999, the Company redeemed all of its remaining
outstanding 1996 Notes (aggregating $628,000) under the cleanup call provisions
of the private placement agreement.
In June 1998, PMC Commercial Trust, Ltd. 1998-1, a Delaware limited
partnership (the "1998 Partnership") completed a private placement (the "1998
Private Placement") of its $66,100,000 of Fixed Rate Loan Backed Notes, Series
1998-1 (the "1998 Notes"). In connection with this transaction, the 1998 Notes
were given a rating of "Aaa" by
8
<PAGE> 11
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7. NOTES PAYABLE (CONTINUED)
Moody's Investors Service, Inc. PMC Commercial owns, directly or indirectly, all
of the interests in the 1998 Partnership. The 1998 Notes, issued at par, have a
stated maturity of May 1, 2019, bear interest at the rate of 6.37% per annum,
and were collateralized by an initial amount of approximately $71.9 million of
loans contributed by PMC Commercial to the 1998 Partnership. At June 30, 1999,
approximately $57.4 million of those loans remained outstanding. PMC Commercial
through PMC Advisers, services the loans sold to the 1998 Partnership. PMC
Commercial has no obligation to pay the 1998 Notes nor do the holders of the
1998 Notes have any recourse against the assets of PMC Commercial. Accordingly,
if the 1998 Partnership fails to pay the 1998 Notes, the sole recourse of the
holders of the 1998 Notes is against the assets of the 1998 Partnership. The net
proceeds from the issuance of the 1998 Notes (approximately $46.5 million after
giving effect to costs of approximately $400,000, repayment of certain
indebtedness related to the contributed loans of approximately $14.6 million, a
$2.2 million initial reserve deposit held by the trustee as collateral and a
deposit of $2.4 million representing collections or prepayments on the
underlying loans due to the holders of the 1998 Notes) were distributed to PMC
Commercial in accordance with its interest in the 1998 Partnership. PMC
Commercial utilized these proceeds to help fund the acquisition of the Amerihost
properties. The 1998 Partnership's assets consist solely of the loans acquired
from PMC Commercial, and funds held in collateral accounts related to
collections on the loans and a required cash reserve account. The 1998
Partnership conducts no business activity other than to make periodic principal
and interest payments on the outstanding 1998 Notes. The aggregate principal
amount of the 1998 Notes outstanding at June 30, 1999 was $54.0 million. All
principal collected on the underlying loans during the monthly period (as
defined in the related Trust Indenture) are used to make the required principal
payment on the first business day of the following month.
PMC Commercial receives distributions from the 1996 Partnership and
1998 Partnership. Pursuant to charter, distributions of the net assets of PMC
Commercial's wholly-owned subsidiaries are limited. As of June 30, 1999, the
dividends available for distribution from the 1996 Partnership and the 1998
Partnership were approximately $153,000 and $330,000, respectively, which were
distributed to PMC Commercial in July 1999.
Recourse Mortgages Payable
In May 1999 PMC Commercial completed mortgages on three of its Amerihost
Properties. The related notes each have a term of 5 years, amortization period
of 20 years, and rates ranging from 7.44% to 7.75%. The proceeds from the
mortgages of approximately $4.5 million were used to pay down the Company's
revolving credit facility.
Non-recourse Mortgages Payable
The Company has assumed mortgages payable related to the four properties
acquired in March 1999 that aggregated $6.9 million at the time of assumption,
with a weighted average interest rate of approximately 8.0%. These mortgages are
amortized over a 20-year period, have remaining maturities of between 15 and 20
years and have restrictive provisions which provide substantial penalties if
paid prior to maturity. These mortgages payable are obligations of the Special
Purpose Entities and are not guaranteed by PMC Commercial.
NOTE 8. NET INCOME PER SHARE
The weighted average number of common shares of beneficial interest
outstanding were 6,523,671 and 6,481,794 for the six months ended June 30, 1999
and 1998, respectively, and 6,524,280 and 6,508,942 for the three months ended
June 30, 1999 and 1998, respectively. For purposes of calculating diluted
earnings per share, the weighted average shares outstanding were increased by
approximately 865 shares and 4,800 shares for the effect of stock options during
the six months ended June 30, 1999 and 1998, respectively, and approximately 763
shares and 4,744 shares for the three months ended June 30, 1999 and 1998,
respectively.
9
<PAGE> 12
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. PROPERTY ACQUISITION
During March 1999, the Company acquired four hospitality properties
(the "Four Amerihost Properties") for an aggregate purchase price of $10.8
million. Pursuant to the sale/leaseback agreement, the Company leases the Four
Amerihost Properties to Amerihost Inns, a wholly-owned subsidiary of Amerihost
Properties, Inc. ("Amerihost"), for an initial 10 year period, with two renewal
options of five years each, and with consumer price index ("CPI") increases up
to a maximum of two percent per year beginning after the third year. The
aggregate amount of the guaranteed lease payments to be received by the Company
for the Four Amerihost Properties is approximately $1.1 million per year,
subject to CPI increases described above. Accordingly, the aggregate Base Rent
payment for the 30 acquired Amerihost properties has increased to $7.3 million
per year subject to the CPI increases as described above, plus 2% of the gross
room revenues as defined in the master lease agreement.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Commitments to extend credit are agreements to lend to a customer provided
the terms established in the contract are met. The Company had approximately
$11.1 million of total loan commitments and approvals outstanding to 11 small
business concerns predominantly in the lodging industry. Of the total loan
commitments and approvals outstanding, the Company had approximately $3.7
million of loan commitments outstanding pertaining to five partially funded
construction loans and $2.4 million of commitments under the SBA 504 takeout
program at June 30, 1999. The weighted average interest rate on loan commitments
at June 30, 1999 was 9.5%. The above commitments are made in the ordinary course
of business and in management's opinion, are generally on the same terms as
those to existing borrowers. Commitments generally have fixed expiration dates
and require payment of a fee. Since some commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Pursuant to the IMA, should the Company not
have funds available for commitments, such commitments will be referred to
affiliated entities.
In the normal course of business, the Company is subject to various
proceedings and claims, the resolution of which will not, in management's
opinion, have a material adverse effect on the Company's financial position or
results of operations.
At June 30, 1999, the Company has approximately $7.1 million available
under the $45.0 million revolving credit facility which matures March 31, 2000;
$15 million of the facility presently matures on January 31, 2000. As described
above, to the extent the Company does not have available funds for commitments,
such commitments will be referred to affiliated entities. The Company has
entered into mortgage commitments with two banks to provide $2.5 million in
mortgages related to two Amerihost properties and, in addition, expects to
receive approximately $1.9 million on SBA Section 504 loan principal takeouts.
Principal collections including prepayments of PMC Commercial's loans would also
provide an available source of funds. The Company has commenced discussions with
the bank to increase the revolving credit facility to $60 million. The Company
has also commenced evaluation of between 12-15 of its Amerihost properties for
inclusion in a debt security and is developing a loan pool of approximately $40
million to $50 million for a securitization transaction. The Company expects to
increase the availability under its revolving credit facility. However there can
be no assurances that the Company will be able to do so. If the bank is
unwilling to extend the maturity date of the Revolver and the other sources of
capital described above are not available at acceptable advance rates and/or
interest rates, the Company may have to refer commitments to PMC Advisers, issue
debt at decreased loan-to-value ratios or increased interest rates and/or sell
assets in order to cause the revolving credit facility to be reduced to $30
million at January 31, 2000.
NOTE 11. BUSINESS SEGMENTS
Operating results and other financial data are presented for the principal
business segments of the Company for the three and six months ended June 30,
1999. These segments are categorized by line of business which also corresponds
to how they are operated. The segments include (i) the Lending Division, which
primarily originates loans to small business
10
<PAGE> 13
PMC COMMERCIAL TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11. BUSINESS SEGMENTS (CONTINUED)
enterprises, primarily in the lodging industry and (ii) the Property Division
which owns commercial properties in the lodging industry. Prior to June 30,
1998, the Company's business activities consisted solely of the Lending
Division. Due to the allocation of interest based on the relative total assets
of each division, the net income of the lending division for periods in the
current year are not comparable to prior periods. The Company's business segment
data for the three and six months ended June 30, 1999 is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1999
------------------------------------------------
PROPERTY
TOTAL LENDING DIVISION DIVISION
---------- ---------------- ----------
<S> <C> <C> <C>
Revenue:
Interest income - loans and other............ $ 3,702 $ 3,702 $ --
Lease income................................. 1,944 -- 1,944
---------- ----------- ----------
Total....................................... 5,646 3,702 1,944
---------- ----------- ----------
Expenses:
Interest(1).................................. 1,850 1,175 675
Advisory and servicing fees.................. 548 420 128
Depreciation................................. 573 -- 573
Other........................................ 112 112 --
---------- ----------- ----------
Total....................................... 3,083 1,707 1,376
---------- ----------- ----------
Net income..................................... $ 2,563 $ 1,995 $ 568
========== =========== ==========
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
-------------------------------------------------
PROPERTY
TOTAL LENDING DIVISION DIVISION
----------- ---------------- ----------
<S> <C> <C> <C>
Revenue:
Interest income - loans and other.............. $ 7,306 $ 7,306 $ --
Lease income................................... 3,629 -- 3,629
----------- ----------- ----------
Total........................................ 10,935 7,306 3,629
----------- ----------- ----------
Expenses:
Interest(1).................................... 3,443 2,200 1,243
Advisory and servicing fees.................... 1,079 843 236
Depreciation................................... 1,061 -- 1,061
Other.......................................... 198 198 --
----------- ----------- ----------
Total........................................ 5,781 3,241 2,540
----------- ----------- ----------
Net income...................................... $ 5,154 $ 4,065 $ 1,089
=========== =========== ==========
Total assets by division........................ $ 203,484 $ 130,033 $ 73,451
=========== =========== ==========
</TABLE>
(1) The Company allocates interest expense based on the relative total assets of
each division.
11
<PAGE> 14
PART I
FINANCIAL INFORMATION
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The Company is primarily a commercial lender that originates loans to
small business enterprises, primarily collateralized by first liens on the real
estate of the related business. The Company's lending function consists
primarily of making loans to borrowers who operate in the lodging industry.
During the six months ended June 30, 1999 and the years ended December 31, 1998
and 1997, the Company originated and funded $10.6 million, $43.0 million and
$43.1 million of loans. A substantial portion of these loan originations was to
corporations and individuals in the lodging industry. The Company anticipates
the dollar amount of loans to be originated in 1999 will be less than
originations during each of the previous two years. See "Competition" and
"Liquidity and Capital Resources" below. During March 1999, the Company
completed the acquisition of four motel properties (the "Four Amerihost
Properties" and, collectively with the Amerihost properties previously acquired,
the "Amerihost Properties") from Amerihost Properties, Inc. or its subsidiaries
("Amerihost") for $10.8 million. This acquisition completes the purchase of the
Amerihost Properties under the agreement with Amerihost, dated May 21, 1998,
pursuant to which the Company agreed to acquire the 30 Amerihost Properties in a
sale/leaseback transaction. Amerihost Properties, Inc. is a public entity that
files periodic reports with the Securities and Exchange Commission ("SEC").
Additional information about Amerihost can be obtained from the SEC's website at
http://www.sec.gov.
As of June 30, 1999, the Company's total loan portfolio outstanding was
$122.5 million ($120.7 million after reductions for loans purchased at a
discount, deferred commitment fees and loan loss reserves) with a weighted
average contractual interest rate of approximately 10.2%. The weighted average
contractual interest rate does not include the effects of the amortization of
discount on purchased loans, commitment fees on funded loans or prepayment fees
earned. The annualized average yields on loans, including all loan fees and
prepayment fees earned, for the six months ended June 30, 1999 and the years
ended December 31, 1998 and 1997 were approximately 11.6%, 13.1% and 12.4%,
respectively.
As of June 30, 1999, the Company had one loan that was greater than 31
days delinquent. In addition, the Company has established a reserve in the
amount of $100,000 against a loan that management has determined to be a
potential "problem loan" since the borrower has lost his franchise affiliation.
The aggregate principal balance outstanding of the "problem loan" at June 30,
1999 was approximately $1,006,000 and the borrower was current on all loan
payments as of June 30, 1999. In the event such loan is required to be
liquidated, management estimates the collateral will equal or exceed the
principal balance outstanding less the related reserve.
PROPERTY ACQUISITION
The following tables show statistical data regarding all 30 Amerihost
Properties owned by the Company and leased to Amerihost Inns:
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, % INCREASE
----------------------------
1999 (1) 1998 (1)
-------- --------- ----------
<S> <C> <C> <C>
Occupancy 56.80% 55.72% 1.9%
ADR (2) $54.80 $52.62 4.1%
RevPAR (3) $31.13 $29.32 6.2%
</TABLE>
12
<PAGE> 15
(1) The tables show financial and statistical data of the properties
for the periods presented which includes periods prior to the date
the Company acquired the properties. Room revenue was $10,317,000
and $9,562,000 for the six months ended June 30, 1999 and 1998,
respectively (a 7.9% increase). The increase in revenue for the six
months ended June 30, 1999, when compared to the six months ended
June 30, 1998, is due partially to a property which opened in April
1998. Total available rooms increased from 326,105 during the six
months ended June 30, 1998 to 331,510 during the six months ended
June 30, 1999 (a 1.7% increase). All data has been provided by
Amerihost.
(2) "ADR" is defined as the average daily room rate.
(3) "RevPAR" is defined as room revenue per available room and is
determined by dividing room revenue by available rooms for the
applicable period.
LOAN PREPAYMENT CONSIDERATIONS
The terms of the loans originated by the Company generally provide
that voluntary prepayments of principal of the loans (each, a "Principal
Prepayment") are permitted, subject to a yield maintenance charge (a "Yield
Maintenance Charge"). The Yield Maintenance Charge will generally be equal to
the greater of either 95 days of interest at the stated interest rate applied to
the amount of principal being prepaid, or a yield maintenance premium (the
"Yield Maintenance Premium"). For the majority of the Company's loans, the Yield
Maintenance Premium is calculated by multiplying the amount of principal being
prepaid by the product of the number of years remaining to maturity of the loan
and the Reinvestment Rate (as defined hereafter). For the majority of the loans,
the "Reinvestment Rate" is the difference between the U.S. Treasury Rate nearest
to the loan's original maturity at the time of origination of the loan and the
5-year U.S. Treasury Rate at the time of prepayment. Generally, as prevailing
interest rates decline, the amount of the Yield Maintenance Premium increases.
Some of the loans permit the prepayment of up to 10% of the original loan
principal balance per year without penalty.
COMPETITION
The Company's primary competition comes from banks, financial
institutions and other lending companies. Additionally, there are lending
programs which have been established by national franchisors in the lodging
industry. Some of these competitors have greater financial and larger managerial
resources than the Company. Competition has increased as the financial strength
of the banking and thrift industries improved. In management's opinion, there
continues to be increased competitive lending activity at advance rates and
interest rates which are considerably more aggressive than those offered by the
Company. In order to maintain a quality portfolio, the Company has and will
continue to adhere to its historical underwriting criteria, and as a result,
certain loan origination opportunities will not be funded by the Company. The
Company believes that it competes effectively with such entities on the basis of
the lending programs offered, the interest rates, maturities and payment
schedules, the quality of its service, its reputation as a lender, the timely
credit analysis and decision making processes, and the renewal options available
to borrowers.
INTEREST RATE AND PREPAYMENT RISK
The ability of the Company to achieve certain of its investment
objectives will depend in part on its ability to borrow funds or issue preferred
shares of beneficial interest ("Preferred Shares") on favorable terms, and there
can be no assurance that such borrowings or issuances can be achieved. The
Company's net income is materially dependent upon the "spread" between the rate
at which it borrows funds (typically either short-term at variable rates or
long-term at fixed rates) and the rate at which it loans these funds (typically
long-term at fixed rates) and the lease revenues on owned properties. During
periods of changing interest rates, interest rate mismatches could negatively
impact the Company's net income, dividend yield, and the market price of the
Company's Common Shares. As interest rates have declined, the Company has
experienced loan prepayments, and such prepayments, as well as scheduled
repayments, have generally been reloaned at lower rates. A high volume of loan
prepayments could have an adverse effect on the Company's business, financial
condition and results of operations and on its ability to maintain distributions
at current levels. The loans originated by the Company have prepayment fees
charged as described above which the Company believes helps mitigate the
likelihood and effect of principal prepayments.
13
<PAGE> 16
CERTAIN ACCOUNTING CONSIDERATIONS
The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Company follows the accounting practices prescribed by the American
Institute of Certified Public Accountants - Accounting Standards Division in
Statement of Position 75-2 "Accounting Practices of Real Estate Investment
Trusts" ("SOP 75-2"), as modified by SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan". In accordance with SFAS No. 114, a loan loss reserve is
established based on a determination, through an evaluation of the
recoverability of individual loans, by the Company's Board of Trust Managers
when significant doubt exists as to the ultimate realization of the loan. As of
June 30, 1999, a $100,000 loan loss reserve had been established. The
determination of whether significant doubt exists and whether a loan loss
provision is necessary for each loan requires judgement and considers the facts
and circumstances existing at the evaluation date. Changes to the facts and
circumstances of the borrower, the lodging industry and the economy may require
the establishment of significant additional loan loss reserves. If a
determination is made that there exists significant doubt as to the ultimate
collection of a loan, the effect to operating results may be material.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999 COMPARED TO THE SIX MONTHS ENDED
JUNE 30, 1998
The net income of the Company during the six months ended June 30, 1999
and 1998, was $5,154,000 and $5,363,000, or $0.79 and $0.83 per share,
respectively. The basic weighted average shares outstanding increased by
approximately 1% from 6,482,000 for the six months ended June 30, 1998 to
6,525,000 for the six months ended June 30, 1999 as a result of shares issued
pursuant to the dividend reinvestment and cash purchase plan and the exercise of
stock options. Revenues of the Company increased by $3,758,000, or 52%, from
$7,177,000 during the six months ended June 30, 1998 to $10,935,000 during the
six months ended June 30, 1999 due primarily to the lease revenue on owned
properties commencing June 1998. Equity ownership in properties, while causing
increased revenues also causes increased expenses (primarily depreciation,
interest costs and advisory fees). While there was a decrease in net income, the
funds from operations increased as a result of depreciation. Depreciation
expense was $1,061,000 during the six months ended June 30, 1999, while no
depreciation expense was incurred during the six months ended June 30, 1998
since the Company owned no properties prior to June 30, 1998.
INTEREST INCOME - LOANS increased by $242,000 (4%), from $6,443,000
during the six months ended June 30, 1998, to $6,685,000 during the six months
ended June 30, 1999. Interest income-loans represents income to the Company
generated primarily by interest earned on the Company's outstanding loans and
the accretion of deferred commitment fees. This $242,000 increase in interest
income-loans was primarily attributable to increases in the Company's
outstanding loan portfolio. The average invested assets in loans to small
businesses increased by $8.4 million (7%), from $114.5 million during the six
months ended June 30, 1998, to $122.9 million during the six months ended June
30, 1999. Offsetting the increase in interest income - loans was the impact of a
continued decrease in the weighted average contractual interest rate for loans
outstanding. The weighted average contractual interest rate was 10.7% at June
30, 1998 compared to 10.2% at June 30, 1999.
LEASE INCOME was $3.6 million during the six months ended June 30,
1999. The Company had negligible lease income in the first half of 1998 because
the Company did not purchase the Amerihost Properties until June 30, 1998. This
amount is attributable to the lease payments received on the 26 Amerihost
Properties acquired by the Company primarily during June 1998 and the Four
Amerihost Properties acquired in March 1999 pursuant to the sale/leaseback
agreements.
INTEREST AND DIVIDENDS - OTHER INVESTMENTS increased by $13,000 (9%)
from $139,000 during the six months ended June 30, 1998, to $152,000 during the
six months ended June 30, 1999. The average short-term investments of the
Company increased by $1.2 million, from $5.6 million during the six months ended
June 30, 1998, to $6.8 million
14
<PAGE> 17
during the six months ended June 30, 1999. This increase in average short-term
investments is attributable to the restricted investments related to the secured
financing completed in June 1998. There were no related investments during the
six months ended June 30, 1998. The average yields on short-term investments
during the six months ended June 30, 1999 and 1998 were approximately 4.2% and
4.8%, respectively.
OTHER INCOME decreased by $109,000 (19%), from $578,000 during the six
months ended June 30, 1998, to $469,000 during the six months ended June 30,
1999. Other income consists of: (i) prepayment fees, (ii) amortization of
construction monitoring fees, (iii) late and other loan fees and (iv)
miscellaneous collections. Since the components of other income are primarily
attributable to lending activities, other income will generally fluctuate with
the Company's lending activities. The decrease was principally attributable to
the reduced amount of prepayment fees collected during the six months ended June
30, 1999 of $362,000 compared to $408,000 during the six months ended June 30,
1998. During the six months ended June 30, 1999 and 1998, 10 and 9 loans in the
amount of approximately $7.8 million and $8.4 million, respectively, paid in
full. Prepayment fee income as a percentage of loans which paid in full was less
during the six months ended June 30, 1999 than during the six months ended June
30, 1998 because four loans, paid in full during the six months ended June 30,
1999, did not have Yield Maintenance Premiums since these loans had bullet
payment requirements at maturity. Prepayment fees result in one-time increases
in the Company's other income, but will result in a long-term reduction in
income if the Company is unable to generate new loans with the proceeds of such
prepayments with interest rates equal to or greater than the rates of loans
which were prepaid. Prepayments generally increase during times of declining
interest rates. The Company believes that while prepayments continued at
accelerated levels during the second quarter of 1999, as a result of changes in
the credit markets, the pace of prepayment activity may decrease later in the
current fiscal year. The borrower's decision to prepay will depend on factors
such as prepayment penalties and the availability of alternative lending
sources. As interest rates remained at low levels, borrowers appeared more
willing to pay the prepayment penalties in order to obtain the lower interest
rate. This apparent willingness, coupled with the increased lending competition,
could result in higher than anticipated prepayments. See "Loan Prepayment
Considerations" and "Interest Rate and Prepayment Risk." In addition, the
decrease was partially due to decreases in other loan-related fees, such as
assumption, modification, construction, extension and other fees, decreasing by
$62,000 from $169,000 during the six months ended June 30, 1998, to $107,000
during the six months ended June 30, 1999.
INTEREST EXPENSE increased by $2,544,000 (283%) from $899,000 during
the six months ended June 30, 1998 to $3,443,000 during the six months ended
June 30, 1999. The increase was primarily a result of the issuance of the 1998
Notes used to purchase the Amerihost Properties, the assumption of notes on the
Four Amerihost Properties, and borrowings pursuant to the Company's revolving
credit facility used to originate loans. Interest expense during the six months
ended June 30, 1999 consisted primarily of interest incurred on the 1996 Notes
issued pursuant to the 1996 Private Placement (approximately $108,000), the 1998
Notes issued pursuant to the 1998 Private Placement (approximately $1,779,000),
the revolving credit facility (approximately $1,251,000), and debt assumed on
the Four Amerihost Properties ($179,000). During the six months ended June 30,
1998, interest expense consisted of interest incurred on the 1996 Notes issued
pursuant to the 1996 Private Placement (approximately $474,000), interest
incurred on the 1998 Notes issued pursuant to the 1998 Private Placement
(approximately $94,000) interest on the revolving credit facility (approximately
$215,000) and interest incurred on borrower advances ($20,000).
EXPENSES, OTHER THAN INTEREST EXPENSE, consist primarily of the
servicing and advisory fees paid to PMC Advisers pursuant to an investment
management agreement ("IMA") and depreciation related to the Amerihost
Properties. Pursuant to the IMA, fees between 0.40% and 1.67% annually are
charged to the Company based upon the average principal outstanding of the
Company's loans. While PMC Advisers bears substantially all of the costs
associated with the Company's operations, the Company does pay certain expenses,
including, direct transaction costs incident to the acquisition and disposition
of investments, legal and auditing fees and expenses, the fees and expenses of
trust managers who are not officers of the Company ("Independent Trust
Managers"), the costs of printing and mailing proxies and reports to
shareholders and the fees and expenses of the Company's custodian and transfer
agent. The Company, rather than PMC Advisers, is also required to pay expenses
associated with any litigation and other extraordinary or nonrecurring expenses.
15
<PAGE> 18
In addition, the Company and PMC Advisers entered into a separate
agreement relating to the supervision of the sale leaseback agreements between
the Company and Amerihost (the "Lease Supervision Agreement" and together with
the IMA, the "IMAs"). The Company is required to pay an annual fee (the "Lease
Supervision Fee") of 0.70% of the cost of the Amerihost Properties ($73.0
million). As of April 1, 1999, the Lease Supervision Fee will be $511,000 per
annum. In the event the Lease Supervision Agreement with PMC Advisers is
terminated or not renewed by PMC Commercial (other than as a result of a
material breach by PMC Advisers) or by PMC Advisers (as a result of a material
breach by PMC Commercial), PMC Advisers would be entitled to receive the Lease
Supervision Fee for a period of five years from the termination date.
Pursuant to the IMAs, the Company incurred an aggregate of
approximately $1,188,000 in management fees for the six months ended June 30,
1999 including approximately $237,000 for the Lease Supervision Fee. Of the
total management fees paid or payable to PMC Advisers during the six months
ended June 30, 1999, $28,000 has been offset against commitment fees as a direct
cost of originating loans and $81,000 of fees charged related to the acquisition
of the Four Amerihost Properties were capitalized as a cost of the properties.
Investment management fees were approximately $1,507,000 for the six months
ended June 30, 1998. Of the total management fees paid or payable to PMC
Advisers during the six months ended June 30, 1998, $126,000 was offset against
commitment fees as a direct cost of originating loans, $165,000 was capitalized
as part of the structured financing completed in June 1998, and a $466,000 fee
charged for the acquisition of the Amerihost Properties was capitalized as a
cost of the properties. The decrease in investment management fees (based on the
loans receivable outstanding) from $876,000 during the six months ended June 30,
1998 to $870,000 during the six months ended June 30, 1999, a decrease of
$6,000, or 1%, (prior to offsetting direct costs related to the origination of
loans), is primarily due to the lower fees charged on a portion of the
outstanding portfolio. This decrease was partially offset by increases in the
Company's loans. The average outstanding loans as defined by the IMA increased
by $4.4 million (4%), from $115.6 million during the six months ended June 30,
1998, to $120.0 million during the six months ended June 30, 1999. The average
common equity capital as defined in the IMA increased by $1.0 million (1%), from
$93.2 million during the six months ended June 30, 1998, to $94.2 million during
the six months ended June 30, 1999.
DEPRECIATION EXPENSE was $1,061,000 during the six months ended June
30, 1999. This amount is attributable to depreciation of the Amerihost
Properties acquired by the Company on June 30, 1998 and during March 1999,
pursuant to the sale/leaseback agreement.
GENERAL AND ADMINISTRATIVE EXPENSES increased by $14,000 (14%), from
$101,000 during the six months ended June 30, 1998, to $115,000 during the six
months ended June 30, 1999. The general and administrative expenses remained at
low levels and stable since the majority of the expenses are payable by PMC
Advisers pursuant to the IMA.
LEGAL AND ACCOUNTING FEES increased by $39,000 (89%), from $44,000
during the six months ended June 30, 1998, to $83,000 during the six months
ended June 30, 1998. This increase is attributable to an increase in corporate
activity when comparing the six months ended June 30, 1999 to the six months
ended June 30, 1998.
FEDERAL INCOME TAXES. As the Company is currently qualified as a real
estate investment trust under the applicable provisions of the Internal Revenue
Code of 1986, as amended, there are no provisions in the financial statements
for Federal income taxes.
THREE MONTHS ENDED JUNE 30, 1999 COMPARED TO THE THREE MONTHS ENDED
JUNE 30, 1998
The net income of the Company during the three months ended June 30,
1999 and 1998, was $2,563,000 and $2,707,000, or $0.39 and $0.42 per share,
respectively. The basic weighted average shares outstanding increased from
6,509,000 for the three months ended June 30, 1998 to 6,527,000 for the three
months ended June 30, 1999 as a result of shares issued pursuant to the dividend
reinvestment and cash purchase plan and the exercise of stock options. Revenues
of the Company increased by $1,974,000, or 54%, from $3,672,000 during the three
months ended June 30, 1998 to $5,646,000 during the three months ended June 30,
1999 due primarily to the lease revenue on owned properties commencing June
1998. Equity ownership in properties, while causing increased revenues also
causes increased expenses (primarily depreciation, interest costs and advisory
fees). While there was a decrease in net income, the funds from operations
increased as a result of depreciation. Depreciation expense was $573,000 during
the three months ended June 30, 1999, while no depreciation expense was incurred
during the three months ended June 30, 1998
16
<PAGE> 19
since the Company owned no properties prior to June 30, 1998.
INTEREST INCOME - LOANS increased by $60,000 (2%), from $3,360,000
during the three months ended June 30, 1998, to $3,420,000 during the three
months ended June 30, 1999. Interest income-loans represents income to the
Company generated primarily by interest earned on the Company's outstanding
loans and the accretion of deferred commitment fees. This $60,000 increase in
interest income-loans was primarily attributable to increases in average
invested assets in loans to small businesses which increased by $4.8 million
(4%), from $118.1 million during the three months ended June 30, 1998, to $122.9
million during the three months ended June 30, 1999. This increase was partially
offset by the decrease in the weighted average interest rate of the Company's
outstanding loan portfolio. The weighted average interest rate at June 30, 1999
was 10.2% compared to 10.7% at June 30, 1998.
LEASE INCOME was $1.9 million during the three months ended June 30,
1999. The Company had negligible lease income in the second quarter of 1998.
This amount is attributable to the lease payments received on the Amerihost
Properties acquired by the Company during June 1998 and March 1999, pursuant to
the sale/leaseback agreements.
INTEREST AND DIVIDENDS - OTHER INVESTMENTS increased by $1,000 (1%),
from $74,000 during the three months ended June 30, 1998, to $75,000 during the
three months ended June 30, 1999. The average short-term investments of the
Company increased by $1.2 million, from $5.6 million during the three months
ended June 30, 1998, to $6.8 million during the three months ended June 30,
1999. The average yields on short-term investments during the three months ended
June 30, 1999 and 1998 were approximately 4.3% and 4.9%, respectively.
OTHER INCOME decreased by $14,000 (6%), from $221,000 during the three
months ended June 30, 1998, to $207,000 during the three months ended June 30,
1999. Other income consists of: (i) prepayment fees, (ii) amortization of
construction monitoring fees, (iii) late and other loan fees and (iv)
miscellaneous collections. Fees other than prepayment fees decreased by
approximately $26,000. Since the components of other income are primarily
attributable to lending activities, other income will generally fluctuate with
the Company's lending activities. The decrease in fees other than prepayment
fees was partially offset by an increase of $12,000 in prepayment fees which
increased from $156,000 during the three months ended June 30, 1998, to $168,000
for the three months ended June 30, 1999. During the three months ended June 30,
1999 and 1998, four and seven loans in the amount of approximately $2.4 million
and $5.7 million, respectively, paid in full. Although prepayments on loans
which paid in full declined during the three months ended June 30, 1999, two
loans had significant paydowns with significant related prepayment penalties.
There were no such paydowns during the three months ended June 30, 1998.
Prepayment fees result in one-time increases in the Company's other income, but
will result in a long-term reduction in income if the Company is unable to
generate new loans with the proceeds of such prepayments with interest rates
equal to or greater than the rates of loans which were prepaid. Prepayments
generally increase during times of declining interest rates. While the Company
anticipates loan prepayments for the remainder of 1999 will be in amounts less
than the last six months of 1998, it is difficult to predict the amount of
prepayments with any accuracy. The borrower's decision to prepay will depend on
factors such as prepayment penalties and the availability of alternative lending
sources. As interest rates remained at low levels, borrowers appeared more
willing to pay the prepayment penalties in order to obtain the lower interest
rate. This apparent willingness, coupled with the increased lending competition,
could result in higher than anticipated prepayments. See -"Loan Prepayment
Considerations" and -"Interest Rate and Prepayment Risk."
INTEREST EXPENSE increased by $1,356,000 (274%) from $494,000 during
the three months ended June 30, 1998 to $1,850,000 during the three months ended
June 30, 1999. The increase was primarily a result of the issuance of the 1998
Notes used to purchase the Amerihost Properties and borrowings pursuant to the
Company's revolving credit facility used to originate loans. Interest expense
during the three months ended June 30, 1999 consisted primarily of interest
incurred on the 1996 Notes issued pursuant to the 1996 Private Placement
(approximately $32,000), the 1998 Notes issued pursuant to the 1998 Private
Placement (approximately $899,000), notes assumed in the purchase of the Four
Amerihost Properties (approximately $179,000) and the revolving credit facility
(approximately $664,000). During the three months ended June 30, 1998, interest
expense consisted of interest incurred on the 1996 Notes issued pursuant to the
1996 Private Placement (approximately $214,000), the 1998 Notes issued pursuant
to the 1998 Private Placement (approximately $94,000), and interest on the
revolving credit facility (approximately $153,000).
EXPENSES, OTHER THAN INTEREST EXPENSE, consist primarily of the
servicing and advisory fees paid to PMC
17
<PAGE> 20
Advisers pursuant to the IMA and depreciation related to the Amerihost
Properties. Pursuant to the IMA, fees between 0.40% and 1.67% annually are
charged to the Company based upon the average principal outstanding of the
Company's loans. While PMC Advisers bears substantially all of the costs
associated with the Company's operations, the Company does pay certain expenses,
including, direct transaction costs incident to the acquisition and disposition
of investments, legal and auditing fees and expenses, the fees and expenses of
the Independent Trust Managers, the costs of printing and mailing proxies and
reports to shareholders and the fees and expenses of the Company's custodian and
transfer agent. The Company, rather than PMC Advisers, is also required to pay
expenses associated with any litigation and other extraordinary or nonrecurring
expenses.
In addition, the Company and PMC Advisers entered into a separate
agreement relating to the Lease Supervision Agreement. The Company is required
to pay the Lease Supervision Fee of 0.70% of the cost of the Amerihost
Properties ($73.0 million). As of April 1, 1999, the Lease Supervision Fee will
be approximately $511,000 per annum. In the event the Lease Supervision
Agreement with PMC Advisers is terminated or not renewed by PMC Commercial
(other than as a result of a material breach by PMC Advisers) or by PMC Advisers
(as a result of a material breach by PMC Commercial), PMC Advisers would be
entitled to receive the Lease Supervision Fee for a period of five years from
the termination date.
Pursuant to the IMAs, the Company incurred an aggregate of
approximately $548,000 in management fees for the three months ended June 30,
1999 including approximately $129,000 for the Lease Supervision Fee. Investment
management fees were approximately $1,085,000 for the three months ended June
30, 1998. Of the total management fees paid or payable to PMC Advisers during
the three months ended June 30, 1998, $86,000 was offset against commitment fees
as a direct cost of originating loans $165,000 was capitalized as part of the
structured financing completed in June 1998 and a $466,000 fee charged for the
acquisition of the Amerihost properties was capitalized as a cost of the
properties. The decrease in investment management fees (based on the loans
receivable outstanding) from $453,000 during the three months ended June 30,
1998 to $419,000 during the three months ended June 30, 1999, a decrease of
$34,000, or 8%, (prior to offsetting direct costs related to the origination of
loans), is primarily due to the lower fees charged on a portion of the
outstanding portfolio. This decrease was partially offset by increases in the
Company's loans and increases in common equity capital, including additional
paid-in capital. The average outstanding loans as defined by the IMA increased
by $1.0 million (1%), from $119.0 million during the three months ended June 30,
1998, to $120.0 million during the three months ended June 30, 1999. The average
common equity capital as defined in the IMA increased by $0.2 million (-%), from
$94.0 million during the three months ended June 30, 1998, to $94.2 million
during the three months ended June 30, 1999.
DEPRECIATION EXPENSE was $573,000 during the three months ended June
30, 1999. This amount is attributable to depreciation of the Amerihost
Properties acquired by the Company on June 30, 1998 and during March 1999,
pursuant to the sale/leaseback agreement.
GENERAL AND ADMINISTRATIVE EXPENSES increased by $7,000 (10%), from
$69,000 during the three months ended June 30, 1998, to $76,000 during the three
months ended June 30, 1999. The general and administrative expenses remained at
low levels and stable since the majority of the expenses are payable by PMC
Advisers pursuant to the IMA.
LEGAL AND ACCOUNTING FEES increased by $12,000 (50%), from $24,000
during the three months ended June 30, 1998, to $36,000 during the three months
ended June 30, 1999. This increase is attributable to an increase in corporate
activity when comparing the three months ended June 30, 1999 to the three months
ended June 30, 1998.
FEDERAL INCOME TAXES. As the Company is currently qualified as a real
estate investment trust under the applicable provisions of the Internal Revenue
Code of 1986, as amended, there are no provisions in the financial statements
for Federal income taxes.
CASH FLOW ANALYSIS
The Company generated $5,319,000 and $7,595,000 from operating
activities during the six months ended June 30, 1999 and 1998, respectively. The
primary source of funds is the net income of the Company. The decrease of
$2,276,000 (30%) was primarily due to several factors including (i) the change
related to "Due to affiliates" which
18
<PAGE> 21
decreased by $1,785,000 from a source of funds of $1,117,000 during the six
months ended June 30,1998, to a use of funds of $668,000 during the six months
ended June 30, 1999, (ii) fluctuations in borrower advances which decreased by
$445,000 from a source of funds of $89,000 during the six months ended June 30,
1998, to a use of funds of $356,000 during the six months ended June 30, 1999,
(iii) the change related to "other liabilities" which decreased by $890,000 from
$1,152,000 during the six months ended June 30,1998, to $262,000 during the six
months ended June 30, 1999 and (iv) the decrease in net income of $209,000 from
$5,363,000 during the six months ended June 30, 1998 to $5,154,000 during the
six months ended June 30, 1999.
The Company had a net use of funds of $908,000 and $80,460,000 in cash
flows from investing activities during the six months ended June 30, 1999 and
1998, respectively. The decreased use of funds of $79,552,000 was due to; (i)
the purchase of the Amerihost Properties in June 1988 for $62,731,000, and (ii)
a decrease in use of funds of $15,043,000 in the loans funded during the six
months ended June 30, 1999 compared to the six months ended June 30, 1998.
The Company had a net use of funds of $4,305,000 and a net source of
funds of $72,992,000 from financing activities during the six months ended June
30, 1999 and 1998, respectively. During the six months ended June 30, 1998 the
Company issued $66,100,000 of loan backed fixed rate notes under the 1998
Partnership private placement and increased its revolving credit facility in
order to purchase the 26 Amerihost Properties. The Company had no such large
issuance during the six months ended June 30, 1999. The Company did obtain
proceeds from its credit facility in order acquire the remaining Four Amerihost
Properties in March 1999 and to fund increases in the loan portfolio. The
Company's main use of funds from financing activities are the payment of
dividends as part of its requirements to maintain REIT status and the payment of
principal on notes payable. Dividends paid increased $569,000 from $5,399,000
during the six months ended June 30, 1998, to $5,968,000 during the six months
ended June 30, 1999. These dividend increases correspond to the increases in the
Company's funds from operations.
LIQUIDITY AND CAPITAL RESOURCES
The primary use of the Company's funds is to originate loans and to
acquire commercial real estate. The Company also uses funds for payment of
dividends to shareholders, management and advisory fees (in lieu of salaries and
other administrative overhead), general corporate overhead and interest and
principal payments on borrowed funds.
As a REIT, the Company must distribute to its shareholders at least 95%
of its taxable income to maintain its tax status under the Code. As a result,
the Company's earnings will not be available to fund investments. In order to
maintain and increase the investment portfolio, the Company has a continuing
need for capital. The Company has historically met its capital needs through
borrowings under its credit facility, structured sales/financings of its loan
portfolio and the issuance of common stock. A reduction in the availability of
these sources of funds could have a material adverse effect on the financial
condition and results of the Company. The Company expects to obtain capital to
fund loans through borrowings as detailed below.
At June 30, 1999, the Company had $0.3 million of cash and cash
equivalents and approximately $11.1 million of total loan commitments and
approvals outstanding to 11 small business concerns predominantly in the lodging
industry. Of the total loan commitments and approvals outstanding, the Company
had approximately $3.7 million of loan commitments outstanding pertaining to
five partially funded construction loans and $2.4 million of commitments under
the SBA 504 takeout program at June 30, 1999. The weighted average interest rate
on loan commitments at June 30, 1999 was 9.5%. These commitments are made in the
ordinary course of business and, in management's opinion, are generally on the
same terms as those to existing borrowers. These commitments to extend credit
are conditioned upon compliance with the terms of the applicable commitment
letter. Commitments have fixed expiration dates and require payment of a fee.
Since some commitments expire without the proposed loan closing, the total
committed amounts do not necessarily represent future cash requirements.
Pursuant to the IMA, if the Company does not have available capital to fund
outstanding commitments, PMC Advisers will refer such commitments to affiliates
of the Company for which the Company will receive no income.
In general, to meet its liquidity requirements, including expansion of
its outstanding loan portfolio and/or acquisition of properties, the Company
intends to use: (i) its revolving credit facility as described below, (ii)
borrowings
19
<PAGE> 22
collateralized by the properties, (iii) issuance of debt securities including
securitizations of loans or properties, (iv) placement of corporate long-term
borrowings, and/or (v) offering of additional equity securities, including
Preferred Shares. The Company believes that these financing sources will enable
the Company to generate funds sufficient to meet both its short-term and
long-term capital needs. The ability of the Company to continue its historical
growth, however, will depend on its ability to borrow funds and/or issue equity
on acceptable terms. The Company has a revolving credit facility (the
"Revolver") which provides the Company funds to originate loans and, on a
limited basis, to purchase commercial real estate. The Revolver, as amended in
March 1999, provides the Company with credit availability up to the lesser of
$45 million or an amount equal to the sum of 50% of the value of the underlying
loans collateralizing the borrowings up to 100% of the amount of the loans
outstanding. At June 30, 1999, the Company had $37.9 million of outstanding
borrowings under the Revolver and $7.1 million available thereunder, as amended.
The Company is charged interest on the balance outstanding under the credit
facility at the Company's election of either the prime rate of the lender less
50 basis points or 175 basis points over the 30, 60 or 90 day LIBOR. The
facility matures on March 31, 2000 except for $15 million which matures January
31, 2000. The Company is presently negotiating with the bank to increase the
Revolver to $60 million. Additional funds may also become available to the
Company from the proceeds of SBA 504 Program loan takeouts. With regards to its
Amerihost Properties, the Company is currently pursuing financing sources
including both mortgages on individual properties owned by the Company and a
combination of smaller pools of properties identified for inclusion in
commercial mortgage backed securities ("CMBS"). The Amerihost Properties are
relatively new and have not achieved their optimal cash flow. Thus, the amount
of leverage currently available through CMBS transactions is lower than that
which management believes is appropriate and/or the cost of the related leverage
is higher than management believes is warranted. When the CMBS markets value the
properties as management anticipates, the Company may utilize them in order to
issue debt in a securitization. Currently, the Company has mortgaged three of
the Amerihost Properties for $4.2 million and has entered into commitments to
mortgage two of the Amerihost Properties for additional aggregate proceeds of
$2.5 million at a weighted average interest rate of 7.5% for all five mortgages.
Mortgages and commitments have five-year maturities and 20-year amortization
periods. With regard to its loans, the Company anticipates that during the
latter part of 1999 or in the first quarter of 2000, it may offer an additional
structured sale or securitization of loans for proceeds of approximately $40 to
$45 million. Management anticipates these sources of funds, (i) its revolving
credit facility, (ii) borrowings collateralized by the properties, (iii)
issuance of debt securities including securitizations of loans or properties,
(iv) placement of corporate long-term borrowings, and/or (v) offering of
additional equity securities, including Preferred Shares will be adequate to
meet its existing obligations. There can be no assurance the Company will be
able to raise funds through these financing sources. If these sources are not
available, the Company may have to continue originating loans at the present
slow rate. If the bank is unwilling to extend the maturity date of the Revolver
and the other sources of capital described above are not available at acceptable
advance rates and/or interest rates, the Company may have to refer commitments
to PMC Advisers, issue debt at decreased loan-to-value ratios or increased
interest rates and/or sell assets in order to cause the revolving credit
facility to be reduced to $30 million.
LEVERAGE
In general, if the returns on loans originated by the Company combined
with lease payments on properties purchased with funds obtained from any
borrowing or the issuance of any Preferred Shares fail to cover the cost of such
funds, the net cash flow on such loans will be negative. Additionally, any
increase in the interest rate earned by the Company on investments in excess of
the interest rate or dividend rate incurred on the funds obtained from either
borrowings or the issuance of Preferred Shares would cause its net income to
increase more than it would without the leverage. Conversely, any decrease in
the interest rate earned by the Company on investments would cause net income to
decline by a greater amount than it would if the funds had not been obtained
from either borrowings or the issuance of Preferred Shares. Leverage is thus
generally considered a speculative investment technique. See "Loan Prepayment
Considerations" and "Interest Rate and Prepayment Risks".
FLUCTUATIONS IN QUARTERLY RESULTS
The Company's quarterly operating results will fluctuate based on a
number of factors. These include, among others, the completion of a leverage or
securitization transaction in a particular calendar quarter, the interest rates
on the securities issued in connection with its leverage or securitization
transactions, the volume of loans originated by the Company, the timing of
prepayment of loans, changes in and the timing of the recognition of realized
and unrealized
20
<PAGE> 23
gains or losses on investments, the degree to which the Company encounters
competition in its markets and general economic conditions. As a result of these
factors, results for any one quarter should not be relied upon as being
indicative of performance in future quarters.
IMPACT OF INFLATION
The Company does not believe that inflation materially affects its
business other than the impact that it may have on the securities markets, the
valuation of collateral underlying the loans and the relationship of the
valuations to underlying earnings. Those could all influence the value of the
Company's investments.
YEAR 2000 COMPLIANCE UPDATE
The Year 2000 issue concerns the potential impact of historic computer
software code that only utilized two digits to represent the calendar year
(e.g., "98" for "1998"). Software so developed, and not corrected, could produce
inaccurate or unpredictable results commencing upon January 1, 2000, when
current and future dates present a lower two digit year number than dates in the
prior century. The Company, similar to most financial services providers, is
subject to the potential impact of the Year 2000 issue due to the nature of
financial information. Potential impacts to the Company may arise from software,
computer hardware, and other equipment both within the Company's direct control
and outside of the Company's ownership, yet with which the Company
electronically or operationally interfaces. Regulators have intensively focused
upon Year 2000 exposures, issuing guidance concerning the responsibilities of
senior management and directors. Year 2000 testing and certification is being
addressed as a key safety and soundness issue in conjunction with these
regulatory concerns.
During 1998, the Company, through PMC Advisers, formed an internal
review team to address, identify and resolve any Year 2000 issues that
encompasses operating and administrative areas of the Company. In addition,
executive management monitors the status of the Company's Year 2000 remediation
plans, where necessary, as they relate to internally used software, computer
hardware and use of computer applications in the Company's servicing processes.
In addition, PMC Advisers is engaged in assessing the Year 2000 issue with
significant suppliers.
The assessment process relating to PMC Advisers's loan receivable
servicing operations has been substantially completed. In addition, PMC Advisers
has initiated and substantially completed formal communications with its
significant suppliers to determine the extent to which PMC Advisers is
vulnerable to those third parties' failure to remediate their own Year 2000
issues.
The Company, through PMC Advisers, used internal resources to test the
software for Year 2000 compliance. The Company has substantially completed its
Year 2000 assessment and remediation as of the end of the second quarter of
1999. The Company will not incur any direct costs as a result of the advisory
relationship with PMC Advisers. The Costs of the project and the date on which
the Company plans to complete its Year 2000 assessment and remediation are based
on management's estimates, which were derived utilizing assumptions of future
events including the continued availability of certain resources, third party
modification plans and other factors. However, there can be no guarantee that
these estimates will be achieved and actual results could differ significantly
from those plans. Specific factors that might cause differences from
management's estimates include, but are not limited to, completion by third
parties (primarily the Company's bank) of their Year 2000 evaluations and their
required modifications. Management believes that PMC Advisers is devoting the
necessary resources to identify and resolve significant Year 2000 issues related
to the Company in a timely manner.
FUNDS FROM OPERATIONS
The Company considers Funds From Operations ("FFO") a widely accepted
and appropriate measure of performance for an equity or hybrid REIT that
provides a relevant basis for comparison among REITs. FFO, as defined by the
National Association of Real Estate Investment Trusts (NAREIT), means income
(loss) before minority interest (determined in accordance with GAAP), excluding
gains (losses) from debt restructuring and sales of property, plus real estate
depreciation and after adjustments for unconsolidated partnerships and joint
ventures. FFO is presented to assist investors in analyzing the performance of
the Company. The Company's method of calculating FFO may be different
21
<PAGE> 24
from the methods used by other REITs and, accordingly, may be not be directly
comparable to such other REITs. The formulation of FFO below is consistent with
the NAREIT White Paper Definition of FFO. FFO (i) does not represent cash flows
from operations as defined by GAAP, (ii) is not indicative of cash available to
fund all cash flow needs and liquidity, including its ability to make
distributions, and (iii) should not be considered as an alternative to net
income (as determined in accordance with GAAP) for purposes of evaluating the
Company's operating performance. For a completed discussion of the Company's
cash flows from operations, see "Cash Flow Analysis".
The Company's FFO for the three and six months ended June 30, 1999 and 1998 was
computed as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------- --------------------------
1999 1998 1999 1998
------------ ----------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net income................................ $ 5,154 $ 5,363 $ 2,563 $ 2,707
Add depreciation.......................... 1,061 -- 573 --
------------ ----------- ----------- ----------
FFO....................................... $ 6,215 $ 5,363 $ 3,136 $ 2,707
============ =========== =========== ==========
Basic weighted average shares
outstanding............................ 6,526 6,482 6,528 6,509
============ =========== =========== ==========
</TABLE>
RISKS ASSOCIATED WITH FORWARD-LOOKING STATEMENTS INCLUDED IN THIS FORM 10-Q
This Form 10-Q contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934, which are intended to be covered by the safe
harbors created thereby. These statements include the plans and objectives of
management for future operations, including plans and objectives relating to
future property acquisitions and the growth of the loan portfolio and
availability of funds. The forward-looking statements included herein are based
on current expectations that involve numerous risks and uncertainties and, in
most instances, are identified through the use of words such as "anticipates,"
"expects" and "should." Assumptions relating to the foregoing involve judgments
with respect to, among other things, future economic, competitive and market
conditions and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the control of the
Company. Although the Company believes that the assumptions underlying the
forward-looking statements are reasonable, any of the assumptions could be
inaccurate and, therefore, there can be no assurance that the forward-looking
statements included in this Form 10-Q will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
22
<PAGE> 25
PART I
FINANCIAL INFORMATION
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to market risk associated with changes in
interest rates.
The Company's balance sheet consists of two items subject to interest
rate risk. The majority of the Company's investment portfolio consists of fixed
interest rate loans. Given that the loans are priced at a fixed rate of
interest, changes in interest rates should not have a direct impact on interest
income. Significant reductions in interest rates, however, can prompt increased
prepayments of the Company's loans, resulting in possible decreases in long-term
revenues due to the relending of the prepayment proceeds at lower interest
rates. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Interest Rate and Prepayment Risk." The Company's
liabilities consist primarily of the 1998 Notes, of approximately $57.4 million
at June 30, 1999 and amounts outstanding under the Company's Revolver of
approximately $37.9 million. The Company's 1998 Notes are payable at fixed rates
of interest, so changes in interest rates do not affect the related interest
expense. However, the Company's Revolver is subject to adverse changes in market
interest rates. Assuming interest rates increased by 200 basis points (2%) above
the present Revolver interest rate of 7.25%, on an annualized basis, interest
expense would increase by approximately $758,000 on the amount outstanding of
$37.9 million at June 30, 1999.
23
<PAGE> 26
PART II
OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on May 12,
1999, the following members were elected to the Board of Trust
Managers:
Andrew S. Rosemore
Lance B. Rosemore
Nathan Cohen
Martha Greenberg
Roy H. Greenberg
Irving Munn
Ira Silver
The following proposal was approved at the Company's Annual
Meeting:
<TABLE>
<CAPTION>
Abstentions
Affirmation Negative and Broker
Votes Votes Non-Votes
----------- -------- -----------
<S> <C> <C> <C>
To ratify the appointment of PricewaterhouseCoopers 5,998,817 22,089 46,564
LLP as the independent public accountants of the
Company
</TABLE>
ITEM 6. Exhibits and Reports on Form 8-K
A. Exhibits
27 Financial Data Schedule
B. Form 8-K
None
24
<PAGE> 27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PMC Commercial Trust
Date: 8/16/99 /s/ Lance B. Rosemore
------- ------------------------------
Lance B. Rosemore
President
Date: 8/16/99 /s/ Barry N. Berlin
------- ------------------------------
Barry N. Berlin
Chief Financial Officer
(Principal Accounting Officer)
25
<PAGE> 28
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1999 FORM 10-Q OF THE PMC COMMERCIAL TRUST AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 170
<SECURITIES> 161
<RECEIVABLES> 121,495<F1>
<ALLOWANCES> (100)
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 73,770
<DEPRECIATION> (2,037)
<TOTAL-ASSETS> 203,484<F2>
<CURRENT-LIABILITIES> 6,921<F3>
<BONDS> 103,837
0
0
<COMMON> 94,306
<OTHER-SE> (1,580)
<TOTAL-LIABILITY-AND-EQUITY> 203,484
<SALES> 10,935
<TOTAL-REVENUES> 10,935
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,338
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,443
<INCOME-PRETAX> 5,154
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,154
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,154
<EPS-BASIC> 0.79
<EPS-DILUTED> 0.79
<FN>
<F1>INCLUDES CURRENT AND LONG-TERM PORTION OF ALL LOANS RECEIVALBE - BEFORE RESERVE
AND RELATED INTEREST RECEIVABLES.
<F2>INCLUDES THE FOLLOWING ITEMS NOT INCLUDED ABOVE:
(i) OTHER ASSETS, NET 340
(ii) DEFERRED BORROWING COSTS 484
(iii) RESTRICTED INVESTMENTS 9,201
------
10,025
======
<F3>INCLUDES THE FOLLOWING ITEMS:
(i) DIVIDENDS PAYABLE 3,003
(ii) OTHER LIABILITIES 2,089
(iii) INTEREST PAYABLE 410
(iv) BORROWER ADVANCES 432
(v) UNEARNED COMMITMENT FEES 423
(vi) DUE TO AFFILIATES 564
-----
6,921
=====
</FN>
</TABLE>
