American Residential Investment Trust, Inc. Reports Third Quarter Results; Company Forms Mortgage Origination Subsidiary.Business Editors DEL MAR Del Mar is the name of several places in the United States of America:
American Residential Investment Trust, Inc. (NYSE NYSE See: New York Stock Exchange :INV INV abbr. in vitro fertilization ): -- Reports Q3 net loss of $4.1 million, or $0.52 per diluted share. -- Accelerates premium amortization expense and increases credit allowances. -- Forms American Mortgage Network, a mortgage origination subsidiary. -- Signs letter of intent to purchase the portfolio management contract of Home Asset Management Corporation. American Residential Investment Trust, Inc. (NYSE:INV) today announced that for the third quarter ended September 30, 2001, its net operating loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. was $4.1 million, or $0.52 per diluted share, compared to a net loss of $7.4 million, or $0.92 per diluted share, for the third quarter of 2000. The loss was due primarily to the decline in the size of the portfolio, higher premium amortization and credit provision. It was partially offset by improved interest rate spreads. In addition, the Company wrote down $2.2 million in loan premiums, or $0.28 a share. Year-to-date, inclusive of inclusive of prep. Taking into consideration or account; including. a charge of $1.1 million resulting from an accounting change, American Residential has lost $5.0 million, or $0.63 per diluted share, compared to a loss of $5.6 million, or $0.70 per diluted share, for the first nine months of 2000. The Company's total mortgage assets were $535 million at September 30, 2001 compared to $926 million at September 30, 2000. The book value per share was $9.00 at September 30, 2001. Current period operating losses are being reported as the Company undergoes a fundamental change in operating strategy to concentrate on building an origination and mortgage banking capability targeted at mortgage brokers. American Mortgage Network (AmNet), a newly formed taxable REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). subsidiary, will capitalize on Cap´i`tal`ize on` v. t. 1. To turn (an opportunity) to one's advantage; to take advantage of (a situation); to profit from; as, to capitalize on an opponent's mistakes s>. the mortgage banking expertise of American Residential's management team and tap the $1.7 trillion home finance market at a time of historically low interest rates. AmNet will offer a unique combination of a broad product menu, high levels of service to its broker client base and Internet-enabled software. The product emphasis will be on high-credit borrowers typically referred to as "A paper." AmNet is approved to do business with Fannie Mae Fannie Mae: see Federal National Mortgage Association. and other large secondary market participants The term market participant is used in United States constitutional law to describe a U.S. State which is acting as a producer or supplier of a marketable good or service. When a state is acting in such a role, it may permissibly discriminate against non-residents. and is approved with HUD/FHA HUD/FHA Housing and Urban Development / Federal Housing Administration . It is licensed or approved to do business in California, Oregon, Washington, Colorado, Ohio, Michigan, Missouri and Massachusetts. AmNet expects to finalize fi·nal·ize tr.v. fi·nal·ized, fi·nal·iz·ing, fi·nal·iz·es To put into final form; complete or conclude: "They have jointly agreed ... an initial one-year committed warehouse loan facility from JP Morgan/Chase. AmNet expects to be fully operational by December 2001. Production managers have been hired for both the Western and Eastern United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. . John M. Robbins, Jr., Chief Executive Officer, said, "While our cost of funds Cost of Funds The interest rate paid on an outstanding loan. Notes: Money isn't free! Cost of funds is the cost of borrowing money. See also: Interest Rate Cost of funds Interest rate associated with borrowing money. is lower, earnings of the REIT continue to suffer from an anticipated decline in portfolio size and associated reduction in spread income. As a result of normal seasoning, we are experiencing generally higher premium amortization and credit provision expense. Due to recent economic events and lower interest rates, the potential exists for worsening wors·en tr. & intr.v. wors·ened, wors·en·ing, wors·ens To make or become worse. Noun 1. worsening - process of changing to an inferior state decline in quality, deterioration, declension credit and continuing high prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. . We responded to these conditions by writing down loan premiums and increasing our credit allowances." He added, "The Company built its cash reserves Cash reserves See: Cash investments cash reserves Investment funds that are held in short-term assets such as Treasury bills and certificates of deposit until more permanent investment opportunities are available. and de-levered to earmark earmark taking a piece out of the edge or center of the ear with a punch as an identification mark. The shape of the mark may be registerable under local legislation. capital for deployment into different investment strategies. Over the last year, we carefully analyzed the mortgage portfolio business and multiple strategic options. We concluded that forming an A paper mortgage origination subsidiary targeted at the broker community was in the best long-term interests of stockholders. Our continuing emphasis will be on diversifying and rebuilding revenue streams, returning to profitability and increasing our stock price. This business has excellent long-term growth prospects with profitability expected by the last quarter of 2002." As part of the evolution to an origination strategy, the Company has signed a letter of intent to purchase the portfolio management contract of Home Asset Management Corporation (HAMCO), the external REIT manager, and to terminate the Securities Purchase Agreement. The closing of the transaction contemplated by the letter of intent will remove some significant operating restrictions that had been placed on the REIT in its forthcoming origination business, such as the creation of operating subsidiaries An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. and the deployment of capital. The purchase of the contract is valued at $10 million and should be finalized See finalization. before the end of 2001. In connection with the buyout of the management agreement, the Company intends to obtain a $5 million subordinated credit facility with TCW/Crescent Mezzanine mez·za·nine n. 1. A partial story between two main stories of a building. 2. The lowest balcony in a theater or the first few rows of that balcony. , L.L.C., the senior lender to HAMCO. These transactions are subject to further negotiations and the execution of definitive documents. As previously stated, the Company does not anticipate paying dividends for the remainder of 2001, consistent with its policy to pay dividends based on taxable earnings. American Residential is also considering the termination of its REIT status. The Company's policy has been to pay 95% of taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. in the form of dividends. In light of American Residential's decision to enter the mortgage banking marketplace and the need to reinvest re·in·vest tr.v. re·in·vest·ed, re·in·vest·ing, re·in·vests To invest (capital or earnings) again, especially to invest (income from securities or funds) in additional shares. earnings and retain capital, continued dividend payments may not fit with the Company's new growth strategy. Any definitive decision to terminate the Company's REIT status will be subject to stockholder approval. American Residential Investment Trust, Inc. is a real estate investment trust (REIT) that has traditionally invested primarily in non-conforming, residential mortgage assets. For more information on American Residential, please visit the Company's web site at www.amerreit.com. Certain matters discussed in this press release may constitute forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of federal securities laws. Forward-looking statements include statements regarding the anticipated lack of dividends in 2001, the ability to finalize warehouse loan facilities, repurchasing the Management Contract, the termination of our REIT status, the creation of operational capabilities to originate and sell A paper loans, diversifying and re-building our revenue streams, growth and profit potential from AmNet, returning to profitability and stock price increases. Actual results and the timing of certain events could differ materially from those projected in or contemplated by these forward-looking statements due to a number of factors, including, but not limited to, general economic conditions, overall interest rates, the shape of the yield curve, the Company's ability to successfully launch its origination subsidiary, completion of the buyout of its management contract, termination of the Securities Purchase Agreement, the Company's ability to obtain the financing necessary to fund its origination business, and other risk factors outlined in the Company's SEC reports.
AMERICAN RESIDENTIAL INVESTMENT TRUST, INC.
Three Months Three Months Nine Months Nine Months
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Ended Ended Ended Ended
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09/30/2001 09/30/2000 09/30/2001 09/30/2000
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Income Statement
Interest income $ 12,590 $ 19,780 $ 44,648 $ 67,103
Interest expense (7,079) (16,925) (30,318) (53,704)
Gross interest spread
on mortgage
portfolio 6,803 2,855 19,001 13,399
Other interest
income 188 226 544 647
Premium
amortization (4,734) (2,500) (10,171) (8,436)
Premium
write-down (2,200) -- (2,200) --
Hedging expense,
net -- (131) -- (473)
Net interest income
before provision for
loan losses 57 450 7,174 5,137
Provision for loan
losses and net
(loss) / gain on
sale-REO (2,287) (2,736) (4,860) (4,999)
Net loss on sale of
mortgage assets -- (167) -- (167)
Impairment loss on
retained interest
in securitization -- (4,702) -- (4,702)
Prepayment
penalty income 635 929 2,309 2,800
Other operating
income 117 77 371 580
Management fees (553) (919) (1,992) (3,017)
Loan, general &
administrative
expenses (649) (365) (1,563) (1,264)
Write-off of
acquisition
costs (149) -- (664) --
Adoption of SFAS
133 accounting
change -- -- (1,115) --
Net Loss $ (4,121) $ (7,433) $ (5,011) $ (5,632)
Per Share Data
Weighted average
common and common
equivalent shares
outstanding 7,959,900 8,055,500 7,963,274 8,055,500
Loss per share -
basic and
diluted $ (0.52) $ (0.92) $ (0.63) $ (0.70)
Common dividend
declared for
the period $ -- $ 0.20 $ -- $ 0.60
Balance Sheet Data
Total mortgage
assets 534,588 925,680
Total assets 565,224 951,149
Short-term debt 938 5,337
Long-term debt,
net 490,029 863,666
Total stockholders'
equity $ 71,646 $ 80,500
Asset to equity
ratio 7.9:1 11.8:1
Total mortgage assets
purchased in
period $ -- $ -- $ -- $ --
($ in thousands, except per share data)
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