UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
(RULE 13D-101)
INFORMATION TO BE INCLUDED IN STATEMENTS
FILED PURSUANT TO RULE 13D-L(A) AND AMENDMENTS
THERETO FILED PURSUANT TO RULE 13D-2(A)
(AMENDMENT NO. 1)
WILSHIRE REAL ESTATE INVESTMENT INC
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(Name of Issuer)
COMMON STOCK
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(Title and Class of Securities)
9718921045
------------------------------------------------
(CUSIP Number)
Jeffrey S. Lambert
Strome Investment Management, L.P.
100 Wilshire Blvd., 15th Floor,
Santa Monica, CA 90401
(310) 917-6600
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
January 26, 2000
-------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-l(e), Rule 13d-l(f) or Rule 13d-l(g), check the
following box [ ]
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 13d-7(b) for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided on a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
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CUSIP NO. 971821045 PAGE 2 OF 17 PAGES
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1 NAMES OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Strome Investment Management, L.P., #95-4450882
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2 CHECK THE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK THE BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7 SOLE VOTING POWER
0
--------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES 992,000
BENEFICIALLY
OWNED BY --------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0
PERSON WITH
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
992,000
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11
992,000
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12 CHECK THE BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [_]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.6%
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14 TYPE OF REPORTING PERSON*
PN, IA
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*SEE INSTRUCTIONS BEFORE FILLING OUT
<PAGE>
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CUSIP NO. 971821045 PAGE 3 OF 17 PAGES
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1 NAMES OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
SSCO, Inc., 95-4450883
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2 CHECK THE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK THE BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7 SOLE VOTING POWER
0
--------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES 992,000
BENEFICIALLY
OWNED BY --------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0
PERSON WITH
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
992,000
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11
992,000
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12 CHECK THE BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [_]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.6%
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14 TYPE OF REPORTING PERSON*
CO, HC
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*SEE INSTRUCTIONS BEFORE FILLING OUT
<PAGE>
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CUSIP NO. 971821045 PAGE 4 OF 17 PAGES
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1 NAMES OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Mark E. Strome
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2 CHECK THE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK THE BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
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7 SOLE VOTING POWER
0
--------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES 992,000
BENEFICIALLY
OWNED BY --------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0
PERSON WITH
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
992,000
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11
992,000
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12 CHECK THE BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [_]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
8.6%
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14 TYPE OF REPORTING PERSON*
IN, HC
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*SEE INSTRUCTIONS BEFORE FILLING OUT
<PAGE>
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CUSIP NO. 971821045 PAGE 5 OF 17 PAGES
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1 NAMES OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Strome Partners, L.P., #95-4372590
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2 CHECK THE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK THE BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7 SOLE VOTING POWER
0
--------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES 160,720
BENEFICIALLY
OWNED BY --------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0
PERSON WITH
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
160,720
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11
160,720
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12 CHECK THE BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [_]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.4%
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14 TYPE OF REPORTING PERSON*
PN
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*SEE INSTRUCTIONS BEFORE FILLING OUT
<PAGE>
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CUSIP NO. 971821045 PAGE 6 OF 17 PAGES
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1 NAMES OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Strome Offshore Limited
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2 CHECK THE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK THE BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands
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7 SOLE VOTING POWER
0
--------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES 632,880
BENEFICIALLY
OWNED BY --------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0
PERSON WITH
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
632,880
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11
632,880
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12 CHECK THE BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [_]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.5%
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14 TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTIONS BEFORE FILLING OUT
<PAGE>
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CUSIP NO. 971821045 PAGE 7 OF 17 PAGES
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1 NAMES OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Strome Hedgecap Fund, L.P., #95-4385662
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2 CHECK THE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK THE BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7 SOLE VOTING POWER
0
--------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES 168,640
BENEFICIALLY
OWNED BY --------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0
PERSON WITH
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
168,640
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11
168,640
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12 CHECK THE BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [_]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.5%
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14 TYPE OF REPORTING PERSON*
PN
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*SEE INSTRUCTIONS BEFORE FILLING OUT
<PAGE>
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CUSIP NO. 971821045 PAGE 8 OF 17 PAGES
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1 NAMES OF REPORTING PERSON I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Strome Hedgecap Limited
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2 CHECK THE BOX IF A MEMBER OF A GROUP* (a) [X] (b) [_]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS*
WC
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5 CHECK THE BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(d) OR 2(e) [_]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Cayman Islands
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7 SOLE VOTING POWER
0
--------------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES 29,760
BENEFICIALLY
OWNED BY --------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING 0
PERSON WITH
--------------------------------------------------------
10 SHARED DISPOSITIVE POWER
29,760
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 11
29,760
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12 CHECK THE BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [_]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.3%
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14 TYPE OF REPORTING PERSON*
CO
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*SEE INSTRUCTIONS BEFORE FILLING OUT
<PAGE>
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CUSIP NO. 971821045 PAGE 9 OF 17 PAGES
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INTRODUCTION
This Amendment No. 1 relates to the Schedule 13D filed on December 10,
1999 by (i) Strome Partners, L.P. ("SP") with respect to shares of Stock held or
beneficially owned by the partnership; (ii) Strome Offshore Limited ("SOFF")
with respect to shares of Stock held or beneficially owned by the corporation;
(iii) Strome Hedgecap Fund, L.P. ("SHCF") with respect to shares of Stock held
or beneficially owned by the partnership; (iv) Strome Hedgecap Limited ("SHCL")
with respect to shares of Stock held or beneficially owned by the corporation;
(v) Strome Investment Management, L.P. ("SIM"), a registered investment adviser,
as general partner and discretionary investment adviser of SP and SHCF, and as
discretionary investment adviser of SOFF and SHCL; (vi) SSCO, Inc. ("SSCO") as
sole general partner of SIM; and (vii) Mark E. Strome ("Strome"), a settlor and
trustee of The Mark E. Strome Living Trust, dated 1/16/97, as the controlling
shareholder of SSCO. SP, SOFF, SHCF and SHCL may each be referred to
individually as a "Fund" and collectively as the "Funds" and the Funds together
with SIM, SSCO and Strome are collectively referred to hereinafter as the
"Reporting Persons."
Items 3, 4, 5 and 7 of the Schedule 13D are amended and supplemented as
follows:
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
The net investment cost (including commissions, if any) of the shares
of Stock beneficially owned by SP is $554,000.00. The source of funds
for this consideration was working capital.
The net investment cost (including commissions, if any) of the shares
of Stock beneficially owned by SOFF is $2,185,930.00. The source of
funds for this consideration was working capital.
The net investment cost (including commissions, if any) of the shares
of Stock beneficially owned by SHCF is $582,696.25. The source of
funds for this consideration was working capital.
The net investment cost (including commissions, if any) of the shares
of Stock beneficially owned by SHCL is $102,828.75. The source of
funds for this consideration was working capital.
ITEM 4. PURPOSE OF TRANSACTION.
On January 26, 2000, SIM sent two letters to the Board of
Directors of Wilshire Real Estate Investment, Inc., copies of which are attached
as Exhibits E and F to this Schedule 13D and are incorporated herein by
reference.
<PAGE>
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CUSIP NO. 971821045 PAGE 10 OF 17 PAGES
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ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) As of the date hereof, each member of the Group has the
following interest in the securities of the Issuer:
(i) SP beneficially owns 160,720 shares of Stock and is the
beneficial owner of 1.4% of the Stock.
(ii) SOFF beneficially owns 632,880 shares of Stock and is
the beneficial owner of 5.5% of the Stock.
(iii) SHCF beneficially owns 168,640 shares of Stock and is
the beneficial owner of 1.5% of the Stock.
(iv) SHCL beneficially owns 29,760 shares of Stock and is the
beneficial owner of 0.3% of the Stock.
(v) SIM, (y) as general partner of and discretionary
investment adviser to SP and SHCF and (z) discretionary
investment adviser to SOFF and SHCL, beneficially owns
992,000 shares of Stock and is the beneficial owner of
8.6% of the Stock.
(vi) SSCO, as the general partner of SIM, beneficially owns
992,000 shares of the Stock and is the beneficial owner
of 8.6% of the Stock.
(vii) Strome, as a settlor and trustee of The Mark S. Strome
Living Trust dated 1/16/97, which trust is the
controlling shareholder of SSCO, beneficially owns
992,000 shares of the Stock, and is the beneficial owner
of 8.6% of the Stock.
The Reporting Persons in the aggregate may be deemed to own an
aggregate of 8.6% of the Stock.
(b) SIM, a registered investment adviser, SSCO, its general
partner and Strome, a trustee of SSCO's controlling
shareholder, have the right or the power to direct the receipt
of dividends from the Stock, to direct the receipt of proceeds
from the sale of Stock to SIMs investment
<TABLE>
<CAPTION>
NO. OF SHARES
BENEFICIALLY PERCENTAGE SOLE POWER SHARED POWER TO SOLE POWER SHARED POWER TO
OWNED OF CLASS TO VOTE VOTE TO DISPOSE DISPOSE
------------- ---------- ---------- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
SP 160,720 1.4% 0 160,720 0 160,720
SOFF 632,880 5.5% 0 632,880 0 632,880
SHCF 168,640 1.5% 0 168,640 0 168,640
SHCL 29,760 0.3% 0 29,760 0 29,760
SIM 992,000 8.6% 0 992,000 0 992,000
SSCO 992,000 8.6% 0 992,000 0 992,000
Strome 992,000 8.6% 0 992,000 0 992,000
</TABLE>
<PAGE>
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CUSIP NO. 971821045 PAGE 11 OF 17 PAGES
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(c) The trading dates, number of shares purchased or sold and
price paid per share for all transactions by the Reporting
Persons since December 1, 1999 are set forth below. All such
transactions were open market transactions and were effected
on the NASDAQ National Market. No other transactions were
effected by the Reporting Persons during such period.
PARTY TRADE DATE BOUGHT (SOLD) NET AMOUNT PER SHARE
----- ---------- ------------- ---------- ---------
SP 12/27/99 (5,600) $ 12,450.61 $2.2232
SP 12/28/99 (1,600) $ 3,535.88 $2.2099
SP 12/29/99 (4,000) $ 8,639.70 $2.1599
SP 12/30/99 (6,880) $ 14,574.09 $2.1183
SOFF 12/27/99 (22,400) $ 49,802.46 $2.2232
SOFF 12/28/99 (6,400) $ 14,143.52 $2.2099
SOFF 12/29/99 (16,000) $ 34,558.82 $2.1599
SOFF 12/30/99 (27,520) $ 58,296.39 $2.1183
SHCF 12/27/99 (5,950) $ 13,228.78 $2.2232
SHCF 12/28/99 (1,700) $ 3,756.87 $2.2099
SHCF 12/29/99 (4,250) $ 9,179.68 $2.1599
SHCF 12/30/99 (7,310) $ 15,484.97 $2.1183
SHCL 12/27/99 (1,050) $ 2,334.49 $2.2232
SHCL 12/28/99 (300) $ 662.97 $2.2099
SHCL 12/29/99 (750) $ 1,619.94 $2.1599
SHCL 12/30/99 (1,290) $ 2,732.64 $2.1183
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
EXHIBIT A Identification and Classification of Members of the
Group
EXHIBIT B Statement With Respect to Joint Filing of Schedule 13D
EXHIBIT C Disclaimer of Beneficial Ownership
EXHIBIT D Power of Attorney Forms for Schedule 13D and 13G and
Forms 13F
EXHIBIT E Letter dated January 26, 2000 from Strome Investment
Management, L.P. to the Board of Directors of Wilshire
Real Estate Investment, Inc.
EXHIBIT F Letter dated January 26, 2000 from Strome Investment
Management, L.P. to the Board of Directors of Wilshire
Real Estate Investment, Inc.
<PAGE>
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CUSIP NO. 971821045 PAGE 12 OF 17 PAGES
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: January 28, 2000
STROME PARTNERS, L.P.
By: Strome Investment Management, L.P., general
partner by its general partner, SSCO, Inc.
By: /s/ Jeffrey S. Lambert
---------------------------------------
Jeffrey S. Lambert
Chief Operating Officer
STROME OFFSHORE LIMITED
By: /s/ Jeffrey S. Lambert
---------------------------------------
Jeffrey S. Lambert
Director
STROME HEDGECAP FUND, L.P.
By: Strome Investment Management, L.P., general
partner by its general partner, SSCO, Inc.
By: /s/ Jeffrey S. Lambert
---------------------------------------
Jeffrey S. Lambert
Chief Operating Officer
STROME HEDGECAP LIMITED
By: /s/ Jeffrey S. Lambert
---------------------------------------
Jeffrey S. Lambert
Director
<PAGE>
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CUSIP NO. 971821045 PAGE 13 OF 17 PAGES
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STROME INVESTMENT MANAGEMENT, L.P.
By: SSCO, Inc., general partner
By: /s/ Jeffrey S. Lambert
---------------------------------------
Jeffrey S. Lambert
Chief Operating Officer
SSCO, INC.
By: /s/ Jeffrey S. Lambert
---------------------------------------
Jeffrey S. Lambert
Chief Operating Officer
MARK E. STROME
By: /s/ Mark E. Strome
---------------------------------------
Mark E. Strome
<PAGE>
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CUSIP NO. 971821045 PAGE 14 OF 17 PAGES
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EXHIBIT E
[STROME INVESTMENT MANAGEMENT L.P. LETTERHEAD]
January 26, 2000
VIA CERTIFIED MAIL-
RETURN RECEIPT REQUESTED
Z 331 100 422
Board of Directors
Wilshire Real Estate Investment, Inc.
P.O. Box 2665
Portland, Oregon 97208
Ladies and Gentlemen:
I am in receipt of the letter, dated January 3, 2000, from Andrew A.
Wiederhorn, Chairman and Chief Executive Officer, and Lawrence A. Mendelsohn,
President and Director, of Wilshire Real Estate Investment Inc. (the "Company").
In the letter, Messrs. Wiederhorn and Mendelsohn state their concerns that the
investment by Strome Investment Management, L.P. and its affiliates
(collectively, the "Strome Entities") in 1,105,000 shares of the common stock of
the Company may be in violation of Article IX of the Company's Articles of
Incorporation. Article IX contains a restriction on ownership of more than 9.8%
of the Company's outstanding common stock. Based solely on the Company's recent
repurchase of approximately 992,587 shares (approximately 8.6%) of the Company's
outstanding common stock, and as a result of no affirmative action by the Strome
Entities, you have advised us that the Strome Entities' original investment in
the Company, which represented 9.6% of the outstanding common stock at the time
of investment and was well below the Company's ownership limit, was increased by
0.716%. You have asked us to deliver any shares we hold in excess of the
ownership limit to a trustee who will dispose of the excess shares we hold. We
strongly object to the Board's efforts to enforce this draconian provision in
the Company's Articles of Incorporation.
We understand that Article IX of the Company's Articles of
Incorporation is to designed to permit the Company to qualify as a real estate
investment trust ("REIT") under the Internal Revenue Code. We also know that the
Company has elected not to be treated as a REIT and that the only current
justification for Article IX is to permit the Company to requalify quickly as a
REIT at some unspecified time in the future. As you undoubtedly know, Article IX
permits the Board to exempt a person from the ownership restrictions if such
person's ownership will not cause the Company to fail to qualify as a REIT. We
believe we are entitled to a complete explanation of why the Board has opted not
to exempt our ownership in these circumstances where our percentage ownership
has exceeded the ownership limit through the Board's action and through no
action on our part. We also request your confirmation that any other shareholder
<PAGE>
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CUSIP NO. 971821045 PAGE 15 OF 17 PAGES
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of the Company whose holdings currently exceed the ownership limit has received
the same notice as we have received.
Absent a reasonable explanation from the Board, we can only conclude
that the Board's efforts to enforce the ownership restriction is a drastically
unreasonable response to our Schedule 13D filing in which we expressed our
disappointment with the performance of management and disclosed that we are
considering making a shareholder proposal calling for the sale or liquidation of
the Company. We believe the Board's decision to ask one of its major
shareholders to dispose of a significant portion of its investment in the
Company in these circumstances is totally unwarranted.
If the Board pursues this course of action, we will demand full and
fair compensation for the value of any shares we are required to transfer.
Very truly yours,
/s/ Mark Strome
---------------
Mark Strome
<PAGE>
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CUSIP NO. 971821045 PAGE 16 OF 17 PAGES
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EXHIBIT F
[STROME INVESTMENT MANAGEMENT L.P. LETTERHEAD]
January 26, 2000
VIA CERTIFIED MAIL-
RETURN RECEIPT REQUESTED
Z 331 100 406
Board of Directors
Wilshire Real Estate Investment, Inc.
P.O. Box 2665
Portland, Oregon 97208
Dear Sirs:
We are writing to express our dissatisfaction with the governance of
Wilshire Real Estate Investment, Inc. ("WREI"). We believe the company's current
investment strategy will diminish the equity value of the enterprise unless
immediate board action is taken. In order to prevent further deterioration of
the equity value of this company, we call on the board of directors to either
(i) sell the company or (ii) replace the current management team.
Current Investment Strategy
We agree with management's stated intention to sell its remaining
property holdings because the real estate market may have peaked and future
returns are likely to be modest. However, we cannot endorse management's
strategy to reinvest any sale proceeds in real estate mezzanine loans or
subordinated mortgage backed securities. We strongly disagree with this strategy
based on our belief that a decline in the real estate market will result in
severe losses in the chosen asset categories. Any capital generated by the sale
of WREI's properties should be used to either repurchase common stock or pay
down debt.
In addition, in order to maintain control of the company, management
has recently implemented certain defensive mechanisms, including the adoption of
a poison pill. Management has claimed that the poison pill is necessary protect
the company's ability to take advantage of the tax implications of certain net
operating losses. However, we believe that current management is using the tax
advantages of the net operating losses, which were created under the current
management's operating strategy, to maintain its control of the company to the
detriment of shareholders. As a result, we believe that the company's current
management is no longer capable of acting in the best interests of shareholders
and, in order to protect the company's equity value, the board should
immediately evaluate whether to sell the company or replace the current
management.
<PAGE>
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CUSIP NO. 971821045 PAGE 17 OF 17 PAGES
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Sell the Company
We believe that the most efficient solution to the current situation is
the sale of the company. A sale of the company is the best way to ensure the
preservation of the diminished value of the company before the current
management inflicts further damage. If the company continues to operate in its
current form, it is likely that the equity base of the firm will continue to
deteriorate to the financial detriment of shareholders.
In continuing the company's current operations, the company faces many
disadvantages relative to its competitors, including (i) a prohibitively high
cost of capital, (ii) a modest asset base and high cost structure, including
overly generous compensation packages for the current management, which have
resulted in a low return on investment and (iii) a weak current management team.
Current management has indicated that the company's operating expenses will
exceed $5 million this year. In an industry where operating expenses are
generally below 5% of book value, we believe that a cost structure which equals
10% of the company's book value and 20% of the company's current market value
will continue to produce disappointing operating results and erode the company's
equity value.
We believe that these disadvantages will result in a further
deterioration of the company's equity value unless the board takes immediate
action. Commencing a competitive auction to sell the company is one possible
avenue to ensure that full market value is obtained for shareholders.
Replace Current Management
If the board is not willing to sell the company, we believe that the
current management should be replaced because of (i) management's demonstrated
inability to responsibly manage the company's capital and (ii) management's
flawed plan for future deployment of the company's capital which will likely
result in substantial losses. In addition, management has failed to mitigate the
risk of past investments and has provided no evidence that future investments
will not have the same imprudent level of risk. We believe that the current
management is responsible for the loss of over more than $100 million in the
company's capital because of a combination of a flawed investment strategy and a
lack of adequate risk controls. Consequently, we believe that the current
management is not the solution to the current misdirection of the company's
operations.
Conclusion
We believe that the board should take immediate steps to protect the
company's equity value and the interests of the company's shareholders. As the
largest shareholder of WREI, we believe that these goals will be efficiently
accomplished by either selling the company or replacing the current management.
If the board members reject these options, we will be forced to explore all
options available to us to protect the value of our investment.
Sincerely,
/s/ Mark Strome
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Mark Strome
