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June 3, 2020 WFP Income Fund Announces May 2020 Results

June 3, 2020, Newport Beach, California - The WFP Income Fund, managed by Wilshire Finance Partners, paid investors a net annualized non-compounded return through May 31, 2020 of 4.10%.  As more fully described below, the May 2020 earnings were used to establish a specific reserve within the Loan Loss Reserve in the Fund and as a result the Fund did not distribute earnings in May 2020.  The net annualized compounded return for the fund since its inception on September 23, 2013 through May 31, 2020 was 8.75%.

 

The WFP Income Fund (the “WFP Income Fund”) is a short term, fixed income alternative investment that seeks to protect the investor’s principal while also providing attractive risk-adjusted returns.  The WFP Income Fund is the sole holder of all common shares of WFP Income Fund REIT, LLC, a Delaware limited liability company (the “REIT” and collectively with the WFP Income Fund, the “Fund”).  The WFP Income Fund, directly and indirectly through the REIT, invests in business purpose loans secured by first trust deeds and mortgages within the United States.  The REIT was formed as a subsidiary of the WFP Income Fund in January 2019 to enable noncorporate investors to obtain up to a 20% tax deduction on REIT dividends received through the Fund under the Tax Cuts and Jobs Act of 2017.

 

The return obtained by the Fund was on an unlevered basis and was primarily the result of interest income received on the first trust deeds and mortgages in the Fund’s portfolio.

 

Performance by the Numbers

 

As of May 31, 2020:

Net Annualized Non-Compounded Return: 4.10%*
Monthly Return (stand-alone basis): 0.00%
(or 0.00%** annualized)
Net Annualized Compounded Return (since inception): 8.75%
Weighted Average Loan-to-Value: 60.90%
Weighted Average Maturity: 25 months
Average Loan Size: $1,762,802
Non-Performing Loans: 1
Repayment Percentage: 13.16%
Liquidity / Cash Position: 16.36%
(REIT liquidity percentage)

*Net of the increase in the Loan Loss Reserve.

** As addressed under Loan Servicing Update below, the Fund increased the Loan Loss Reserve and made a special allocation against a distressed loan in the Fund’s portfolio.

 

Loan Servicing Update

 

At month end, the Fund’s portfolio consisted of loans secured in first lien position against residential, office, retail, light industrial, warehouse and senior assisted living properties, predominantly in the State of California. Other states represented in the Fund’s loan portfolio at month end included Alabama, Colorado, Florida, Maryland, Michigan, North Carolina, Texas and Washington.

 

The impacts of the COVID-19 pandemic and the April 1, 2020 mortgage payment due date was a catalyst for a large influx of borrower conversations.  Although no new requests were made in May 2020, several of the requests for short relief that arose in April 2020 were addressed in May 2020 through the completion of modification and forbearance agreements. On May 29, 2020 through an Interperiod Release and on June 1, 2020 through a Correction to the Interperiod Release (collectively, the “May 2020 Interperiod Release”), Wilshire notified investors that it had identified a loan near the University of Texas at Tyler (UT Tyler) that is impaired and in foreclosure.  See “Foreclosures” below.  Until the economy starts to stabilize and property cash flows normalize, the 11th day of each calendar month (i.e. the end of the 10 day grace period following the mortgage payment due date on the 1st day of each month) will continue to be a significant bellwether for the loans in the Fund’s portfolio and the mortgage industry generally, as well as being a driver for borrower discussions and potential additional requests for payment relief. Therefore, while the information in this release is based on the facts and circumstances Wilshire believed to be true as of date of this release, because the environment continues to be extremely dynamic and fast-paced, there may be other factors which surface later that may impact the fund’s performance.

 

The information below is based on information available as of the date of this release.  Regardless of the existence of formal modification or forbearance agreements, the commencement of foreclosure actions, or the management of real estate owned (REO), changes in the facts and circumstances surrounding a borrower or a property may positively or negatively impact a loan or a property’s performance resulting in a change in the method or approach used by Wilshire, as the Fund's manager and the Fund’s results.

 

 

As of May 31, 2020, Wilshire was contacted by and engaged in discussions with approximately 43% of the borrowers in the REIT.  The outstanding principal balance of those borrowers represented approximately 56% of the loan portfolio.  Several of the borrowers who originally reached out to Wilshire in April 2020 again reached out to Wilshire in May 2020 to discuss their concerns about a potential future need for payment relief.  However, those borrowers also indicated they were not under severe financial strain requiring immediate action.

 

At month end, Wilshire completed a total of 6 modification and forbearance agreements representing approximately 20% of total loans and the outstanding principal balance of those borrowers represented approximately 30% of the loan portfolio.  Under several the modification agreements, the loan balances were increased to establish an interest reserve for each loan to make or subsidize the monthly mortgage payments in the near term.  Those changes resulted in an increase in the weighted average loan-to-value (Modified WALTV) to 63% from the original weighted average loan-to-value (Original WALTV) of approximately 64%.

 

At May 31, 2020, the Fund entered into 1 forbearance agreement.  Under the forbearance agreement, the Fund agreed to forbear (versus waive) the collection of mortgage payments for several months, resulting in an increase in the outstanding principal balance of the loans through the capitalization (or addition) of the uncollected payments to the principal balance of the loan.  Under the agreement the uncollected payments will be paid upon the payoff of the loan.  Those changes resulted in an increase in the weighted average loan-to-value (Modified WALTV) to 87% from the original weighted average loan-to-value (Original WALTV) of approximately 63%.  The increase in the Current WALTV over the Original WALTV reflects that the borrower has listed the property for sale at a price they believe is substantially below the market value to facilitate a quick sale.

 

As of May 31, 2020, one loan was in foreclosure and the Fund did not hold any real estate owned (REO) in its portfolio.  See Foreclosures below.

 

Through May 31, 2020, approximately 13% of loans repaid.

 

Foreclosures

 

Following the closing of the Fund’s books and reporting the April 2020 results, a loan secured by a retail property went into default.  The property is located near UT Tyler.  UT Tyler shut down its campus and required that all classes be taught remotely as of the end of the first quarter of 2020.  The owner of the property was attempting to turn-around the operations of the property and UT Tyler’s decision to shut down its campus in response to the COVID-19 pandemic caused additional negative impacts to the property.  The April 1, 2020 payment made by the borrower was returned for insufficient funds and the May 1, 2020 payment was not made. Wilshire commenced discussions with the borrower about potential payment relief and other loan workout solutions, however, those communications stalled.  Foreclosure action was commenced and the borrower subsequently defaulted repayment of the loan on its maturity date of May 24, 2020.

 

The REIT holds an A Note secured by the property. The structure of an A Note results from a participation in single note where the note is split into a senior tranche (or “A Note”) and a subordinate tranche (or “B Note”).  A Notes typically carry a lower rate of interest and are superior to the B Note, but with respect to the borrower, are secured by a deed of trust in first lien position. The structure and relative rights of the holder of the A Note and the holder of the B Note are governed by a Loan Sale and Intercreditor Agreement (the “Intercreditor Agreement”).

 

The split of the note was completed under the original loan structure in 2017.  In accordance with the Intercreditor Agreement, the A Note held by the REIT represented an 80% senior interest in the loan and the B Note held by the WFP Opportunity Fund, LLC, a California limited liability company (the “Opportunity Fund”) represented a 20% subordinate interest in the loan.

 

As a result of the defaults and upon consultation with Fund’s external legal counsel, accountants and other advisors, Wilshire commenced the following actions:

  • Workout Limited Liability Compan A single asset limited liability company (the “Workout LLC”) was formed to hold the note, commence foreclosure, and control the property if it reverts to the Workout LLC through foreclosure.
  • Contribution of A Note. The REIT contributed the A Note to the Workout LLC in exchange for an 80% membership interest in the Workout LLC. Concurrently, the Opportunity Fund contributed the B Note to the Workout LLC in exchange for a 20% membership interest.  Further, each of the REIT and the Opportunity Fund contributed cash representing their pro rata share of the estimated mandatory advances for the protection and preservation of the property during the foreclosure and collection process.  This resulted in the Workout LLC holding the entire single note secured in first lien position against the property.  To keep the original economics and exposure under the split note intact, the rights, preferences and privileges under the Intercreditor Agreement, including the allocation of gains and losses under the senior-subordinate structure, were retained in the Workout LLC operating agreement.
  • Foreclosure Preparation. In connection with the defaults and the preparation in connection with the foreclosure action, Wilshire conducted pre-foreclosure due diligence on the property and the guarantors; including, obtaining current market lease rates and sales comparisons from several in-market commercial Realtors, leasing agents and property managers.  As of the date of this communication, an updated appraisal on the property is still pending.
  • Foreclosure. The Workout LLC commenced foreclosure action.

 

Based on the information received on current lease rates and sales comparisons, the value of the property was significantly lower than the original appraised value obtained in 2017.  The result from the new appraisal on the property is pending.

 

Under the May 2020 Interperiod Release, Wilshire communicated to investors that the Fund will incur a loss of approximately 0.60%, net of an offset from the Loan Loss Reserve, and that such loss would impact the capital account balances of the Fund’s investors.  Subsequent to the May 2020 Interperiod Release, Wilshire entered into settlement discussions with and received a draft proposal from the borrowers on the UT Tyler loan.  While the proposal is not finalized and is subject to further negotiation, it contains provisions for the delay of the foreclosure sale in exchange for an initial interim payment and payoff sum that would reduce the anticipated loss to the Fund.  As a result, whether or not an agreement is ultimately reached, a delay will occur in the realization of any loss to the Fund and, if finalized and fully executed upon, a settlement agreement may result in a recovery of portion of the write down the Fund anticipated.

 

Based on further consultation with the Fund’s accountants, because of the change in information and the delay in the realization of any loss, the Fund has taken and will take the following actions in order to protect the principal balances in the capital accounts of the Fund’s investors:

 

  • Legal Action. Legal counsel in Texas has been engaged to negotiate the proposal and a potential settlement agreement.  If successful, the settlement agreement will establish both the timing and amount of the recovery to the Fund. If those negotiations are unsuccessful or if the borrower does not fulfill its obligations under any settlement agreement, legal counsel will continue with the foreclosure action and review and pursue various claims post-foreclosure; including, claims for deficiency against the guarantors under the loan and, potentially, other parties where a claim can be made.  To the extent there are any recoveries from those claims, they may act to offset the losses to the REIT and the Opportunity Fund.  Any such recoveries will first be paid to the REIT until it has recovered the unpaid principal amount and other sums due under the terms of the A Note, and, thereafter, any remaining recovery will be paid to the Opportunity Fund under the terms of the B Note.  While a settlement agreement will help to establish the amounts to be paid and the timing of a recovery for the REIT, counterparty risk under that agreement will be present.  e. The borrower’s ability to fulfill its obligations under the agreement.  Further, should the Fund ultimately proceed against the guarantors under a deficiency claim, there are no certainties in litigation. Therefore, Wilshire cannot provide any representations or guarantees about the amount and timing of a recovery of all or a portion of the anticipated losses, if any.
  • Loan Loss Reserves. To build a specific allocation within the Loan Loss Reserve in anticipation of a future loss under the UT Tyler loan, Wilshire is adjusting the accrual for the Loan Loss Reserve in the Fund and the REIT as follows: The monthly accrual for the loan loss reserve in the Fund and the REIT will be increased to 0.29% per month (or approximately 3.5% per annum).
  • Monthly Dividends. In addition to the increase in the Loan Loss Reserve, dividend distributions were suspended in May 2020 and will be suspended in June 2020 to add additional funds to the Loan Loss Reserve as a special allocation against the anticipated losses under UT Tyler loan.

 

As a result of the increase in the Loan Loss Reserve and not distributing a dividend in May 2020, the potential uncovered loss in the Fund was reduced from approximately 0.60% to 0.40% based on the current loss estimates.  The uncovered loss is the difference between the potential loss amount and the current amount in the Loan Loss Reserve.  Further, based on the current loss estimates, it is anticipated that by increasing the amount of the set aside in the Loan Loss Reserve the balance in the Loan Loss Reserve at the end of June 2020 will be sufficient address the current estimated loss on the UT Tyler loan.  The loss estimates used under this approach do not include any potential recovery under a settlement agreement, through deficiency claims, or otherwise.  Should any of those actions be successful, they will reduce the amount of the anticipated loss.

 

Effectively, the Fund will use its monthly cash flow to build capital which will be contributed to the Loan Loss Reserve to offset the anticipated loss to the Fund.  As a result, the current anticipated loss will not be allocated to or reduce the principal balance in the capital accounts of the Fund’s investors.  Further, it is anticipated the dividend distributions will recommence at month end July 2020.

 

Wilshire will continue to assess the market and the adequacy of the reserves and dividend distributions on a move forward basis and may make further adjustments, which may include specific reserves against particular problem assets.  That said, there can be no assurance that the present or future amount of the Loan Loss Reserves will be sufficient to cover any and all losses which the REIT and the Fund may experience.  After the current conditions have subsided and the real estate market has normalized, Wilshire may distribute excess reserves and loan recoveries, if any, to the then current investors in the Fund as a special dividend.

 

  • Redemptions. After careful consideration, while Wilshire believes the impact of the current environment on the Fund has not been fully realized, Wilshire also recognizes our investor’s need for liquidity.   Therefore, the moratorium on redemptions will be modified as follows:
    • Generally. Redemption requests will be subject to the following limitations and restrictions:
      • Redemptions will be subject to a twenty percent (20%) holdback of the total amount requested; and
      • All requests will also remain subject to the requirements and restrictions in the operating documents of the Fund and the REIT; including, without limitation, restrictions required to maintain regulatory compliance, ensure a sufficient level of capital in the funds, and strive for a level of stability in the funds for all investors with those investors.
    • Bona Fide Healthcare Emergencies. To the extent there is sufficient cash in the Fund and any such redemption will not cause the Fund to be out of compliance with the Fund's organizational documents, Wilshire will attempt to honor and accelerate requests for redemption arising from bona fide healthcare emergencies to the extent possible. Such investors will be required to provide a hardship letter together with documentation supporting their request.

 

The approach Wilshire is taking on redemptions is driven by the need to maintain compliance with a number of rules and regulations impacting the Fund, make prudent decisions within the portfolio of the Fund, and address the potential impact on all investors in the Fund.  Wilshire will continue to assess and, as necessary, adjust the redemption restrictions on a weekly basis.

 

“We continue to be in a very dynamic environment with many countervailing influences,” said Don Pelgrim, CEO of Wilshire Finance Partners. “While several states are loosening their restrictions to restart business, some of those same states have pending and proposed legislation which impacts lending and the real estate market.  As a result, our primary focus in this environment is on the protection and perseveration of our investor’s principal investments in the Fund.  Further, we believe the strategies and approaches we are employing will provide long term benefits to the investors in the Fund.”

 

COVID-19 Strategic Adjustments and Additional Information

 

Wilshire is taking and will continue to take proactive, protective measures to help the Fund weather the current market conditions, including, those described in this and prior releases.  Wilshire cannot provide any representations guarantees about how the current situation will impact the underlying investments in the Fund and therefore the Fund’s performance.  Wilshire recommends that investors consider the information contained in this release as well as information contained in prior communications when making investment decisions.  Prior communications from Wilshire about the potential impacts resulting from the COVID-19 fallout may be found at https://wfpfunds.com/coronavirus-covid-19-update/.

 

For more information on Wilshire Finance Partners or the WFP Income Fund please call (866) 575-5070 or visit www.WilshireFP.com.

 

The WFP Income Fund is approved for both retirement and non-retirement accounts on the following alternative investment platforms:

  • Charles Schwab; (SSID Number available through an Advisor)
  • Fidelity Investments (National Financial Services or NFS); CUSIP Number 94699K534
  • Pershing as WFP INCOME FUND LLC; CUSIP Number 929LP9220
  • TD Ameritrade as WFP INCOME FUND LLC NSA; CUSIP Number 93099B102
  • Wells Fargo Advisors; No CUSIP number required

The WFP Income Fund is also open to investors, wealth managers and individual investment advisors directly through Wilshire Finance Partners

Read More 

WFP Income Fund, LLC 
• Monthly Cash Flow
• Short Term Fixed Income
• Stable Nav
• No Loads or commissions
• Not correlated to the stock or bond markets
• Not interest-rate sensitive

WFP Opportunity Fund, LLC 
Higher Risk-Adjusted Returns
• Monthly Cash Flow
• Short Term Fixed Income
• No Loads or commissions
• Not correlated to the stock or bond markets
• Not interest-rate sensitive

About Wilshire Finance Partners and our investment alternatives. 

Wilshire Finance Partners, Inc. (“Wilshire”) specializes in real estate finance and investments and is the manager of the WFP Income Fund, LLC (“WFP Income Fund”) and the WFP Opportunity Fund, LLC (“WFP Opportunity Fund” and collectively with the WFP Income Fund, the “Funds”). The WFP Income Fund invests in a diversified pool of residential, multifamily, and commercial real estate-related short-term bridge loans secured by first trust deeds and mortgages. The WFP Opportunity Fund invests in a diversified pool of residential, multifamily, and commercial real estate-related short-term bridge loans, participating loans, real estate joint ventures, and direct real estate investments. Wilshire commenced operations in January 2008 and launched the WFP Income Fund and the WFP Opportunity Fund in September 2013.

 

The WFP Income Fund is approved for both retirement and non-retirement accounts on the following alternative investment platforms:

 

  • Charles Schwab; (SSID Number available through an Advisor)
  • Fidelity Investments (National Financial Services or NFS); CUSIP Number 94699K534
  • Pershing as WFP INCOME FUND LLC; CUSIP Number 929LP9220
  • TD Ameritrade as WFP INCOME FUND LLC NSA; CUSIP Number 93099B102
  • Wells Fargo Advisors; No CUSIP number required

 

The WFP Opportunity Fund is approved for both retirement and non-retirement accounts on the following alternative investment platform:

 

  • Charles Schwab; (SSID Number available through an Advisor)
  • Fidelity Investments (National Financial Services or NFS); CUSIP Number 94699B948
  • TD Ameritrade as WFP OPPORTUNITY FUND NSA; CUSIP Number 93099C100

 

In addition, each of the WFP Income Fund and WFP Opportunity Fund are approved for self-directed retirement accounts and various other platforms without the need for the CUSIP number, including, Community National Bank, Equity Trust Company (Sterling Trust), Millennium Trust Company, Pensco Trust Company, Provident Trust Company, Strata Trust Company and Shareholder Services Group.

 

Each of the WFP Income Fund and WFP Opportunity Fund is open to investors, wealth managers and individual investment advisors under the above referenced platforms using standard subscription and transfer procedures.

 

Investors and advisors may also invest directly through Wilshire.  Individual investors not using a third-party advisor may be required to meet additional requirements of the platform providers.

 

Safe Harbor Statement

 

This communication is not an offer to sell or the solicitation of offers to purchase the securities of either of the Funds, individual loan or trust deed investments, or otherwise (individually and collectively, the “Securities”). The purpose of this communication is to provide an overview of the respective Securities and their private placement. Persons interested in learning about the Securities and their private placement will be provided with the respective Private Placement Memorandum (inclusive of exhibits thereto and any supplements, the “Memorandum”), which provides a description of the Securities, the terms of their private placement, a discussion of risk factors, a copy of the limited liability company operating agreement for the fund (as applicable), a subscription agreement and other information related to the Securities.

 

This communication contains certain forward-looking statements regarding the Securities and the investment objectives and strategies of each of the Funds. The forward-looking statements are based on current expectations that involve numerous risks and uncertainties which are difficult or impossible to predict accurately and many of which are beyond the control of Wilshire, as the manager of the Funds. Although Wilshire believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements, the inclusion of such information should not be regarded as a representation by Wilshire, any placement agent, or any other person, that the objectives and strategies of the respective Securities or the Funds will be achieved.

 

Investments in the Securities may only be made solely by accredited investors (which for natural persons, are investors who meet certain minimum annual income or net worth threshold), who are provided with the Memorandum and who complete, execute and deliver the subscription documents included therein. Each of the Securities is being offered in reliance on an exemption from the registration requirements of the Securities Act of 1933, as amended (the Securities Act) and are not required to comply with specific disclosure requirements that apply to registration under the Securities Act. The Securities Exchange Commission has not passed upon the merits of or given its approval to the Securities, the terms of the offering, or the accuracy or completeness of any offering materials. Each of the Securities is subject to legal restrictions on transfer and resale and investors should not assume they will be able to resell the Securities. Past performance is not indicative of future results. Investing in any of the Securities, including the Funds, involves substantial risk, including loss of investment, and is not suitable for all investors.

 

Contact:

Wilshire Finance Partners, Inc.

Donald H. Pelgrim, Jr.

(866) 575-5070

dpelgrim@wilshirefp.com

Source: Wilshire Finance Partners, Inc.

DISCLOSURES

Wilshire Finance Partners, Inc. specializes in real estate finance and investments and is the manager of the WFP Income Fund, LLC (the “Income Fund”) and the WFP Opportunity Fund, LLC (the “Opportunity Fund” and collectively with the Income Fund, the “Funds”).  This communication is not an offer to sell or the solicitation of offers to purchase the securities of either of the Funds or otherwise. The purpose of this communication is to provide an overview of the respective Funds and their private placement.  Persons interested in learning about either of the Funds and their private placement will be provided with a Private Placement Memorandum (inclusive of exhibits thereto and any supplements, the “Memorandum”), which provides a description of the respective Fund, the terms of its private placement, a discussion of risk factors, a copy of such Fund’s limited liability company operating agreement, a subscription agreement and other information related to the respective Fund.  This communication contains certain forward-looking statements regarding each of the Funds’ investment objectives and strategies. The forward-looking statements are based on current expectations that involve numerous risks and uncertainties which are difficult or impossible to predict accurately and many of which are beyond the control of Wilshire Finance Partners, as the manager of the Funds.  Although Wilshire Finance Partners believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the forward-looking statements will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements, the inclusion of such information should not be regarded as a representation by Wilshire Finance Partners, any placement agent, or any other person, that the objectives and strategies of the respective Funds will be achieved.  An investment in either of the Funds may be made solely by accredited investors (which for natural persons, are investors who meet certain minimum annual income or net worth threshold), who are provided with the Memorandum and who complete, execute and deliver the subscription documents included therein.  Each of the Funds securities are being offered in reliance on an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) and are not required to comply with specific disclosure requirements that apply to registration under the Securities Act.  Neither the Securities Exchange Commission nor any state agency has passed upon the merits of or given its approval to the securities, the terms of the offering, or the accuracy or completeness of any offering materials.  The securities are subject to legal restrictions on transfer and resale and investors should not assume they will be able to resell the securities.  Past performance is not indicative of future results. Investing in the Funds involves substantial risk, including loss of investment, and is not suitable for all investors.

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