Business Week slams Angeles Corp. REIT but ... some investors may have profited despite stock's drop.

Business Week has named Los Angeles-based Angeles Participating Mortgage Trust, a mortgage real estate investment trust, the worst performing stock on the American Stock Exchange in 1993.

At year-end, the stock closed at $1 a share after trading between 62.5 cents and $17.75 per share during the year. Its 2.55 million share initial public offering had sold for $20 a share in 1988.

But the raw numbers don't tell the whole story.

Investors who bought in at the 1993 high and held out would have lost about 15.5 percent of their investment; if they sold out in late November-early December, the loss would have been cut to about 10.5 percent.

However, other investors entering and leaving the market in 1993 could have almost doubled their money.

The reason for the discrepancies stems from dividend payouts and trading opportunities.

After an initial sell-off in the first quarter that took it down to $8 a share, the stock recovered and actually held up pretty well until Dec. 6, when it plunged from $15.25 to less than 88 cents following a Dec. 3 dividend payout funded by liquidation of the REIT's assets.

Jim Armstrong, an accountant and part-time employee for the REIT, noted that the stock paid a $2 annual dividend through the first quarter of 1993, then, on Dec. 3, paid $14.50 per share to the 2.5 million stockholders on record through Nov. 18 (the stock traded on a "due bill" basis, ceding the dividend to buyers, through Dec. 3).

According to Armstrong's calculations, longer-term shareholders that bought the IPO at $20 and continued to hold their shares actually made a 4 percent return (over the five years) on an internal rate of return basis due to the REIT's dividend payout.

December's $37.5 million dividend payout came from $40 million in proceeds obtained by the REIT when it sold all of its mortgages to New Plan Realty, a New York-based REIT specializing in shopping mall properties and mortgages.

The remaining $2.5 million is being held in a money market account until a year-end audit is completed, probably by the second quarter of 1994. Armstrong said the REIT is looking to liquidate -- not invest in more assets -- but is waiting to do so at the right price.

"Many third parties have called about buying the REIT out for their own money-raising purposes," he said. "That could yield 20 to 40 cents a share more for shareholders."

Meanwhile, a group of private Westport, Conn.-based investors known as SAHI Inc. acquired about 8.9 percent of the Class A shares in November. "They are in the process of acquiring the Class B shares," said Ann Merguerian, secretary of the REIT, "which control about a third of the voting rights of the trust."

Although SAHI paid $14.87-$15 for its shares, its net cost was much less once the dividend payout was accounted for, and it ended the year with a small net profit.

As to why the REIT decided to liquidate, Armstrong said its properties were over-appraised and over-leveraged. "The auditors should have picked up on it earlier," he told the Business Journal. Auditing firm Deloitte & Touche had no comment.

He also conceded that "basically it failed because Angeles (Corp.) failed."

Angeles Corp. is the L.A.-based real estate investment concern that spawned the Angeles Participating Mortgage Trust REIT and was its general partner until last Nov. 3, when it sold out to New Plan. The company has been in Chapter 11 bankruptcy proceedings since last May 3, according to Bruce Nii, the firm's chief financial officer.

Angeles received The Wall Street Journal's 1993 Amex booby prize even though the stock dropped off the American Stock Exchange listing on June 3. Amex spokesman Tom Mariam said that, at that time, its per share price was less than 16 cents.

Quoted by five market makers, Angeles Corp. stock was "one penny bid, 5 pennies offered" seven months later, according to trader Mike Levine of investment bank Herzog, Heine, Geduld's Aventura, Fla, office.

At year-end 1993, said Levine, "it traded minimally -- primarily at one penny, its low for the year."

In addition to Angeles Participating Mortgage Trust, Angeles had launched a $56.6 million REIT on the Amex in 1987 called Angeles Mortgage Investment Trust. That stock ended the year at $2.75 a share vs. a 52-week trading range of $1.13-$16.88.

According to Nii, Angeles sold its general partnership interest and Class B stock in the Angeles Mortgage Investment Trust to Financial Group of Greenville, S.C., on Nov. 24, 1992.