Newport Beach, California – May 5, 2020
WFP Income Fund Announces a 5.14% Net Annualized Return through April 2020
May 5, 2020, Newport Beach, California - The WFP Income Fund, managed by Wilshire Finance Partners, paid investors a net annualized non-compounded return through April 30, 2020 of 5.14%. On a standalone basis, the fund paid 0.33% or a net annualized non-compounded return of 4.03% in April 2020. The net annualized compounded return for the fund since its inception on September 23, 2013 through April 30, 2020 was 8.86%.
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.
April 2020 was the best month of April for the Dow and S&P 500 in 82 years. Recent market moves continued to be fueled by investor optimism for the reopening of certain sectors of the economy and the hope for a faster recovery. Conversely, approximately 30 million Americans were unemployed and, according to Moody’s Analytics, as many as 30% of Americans with home loans, or approximately 15 million people, could soon stop paying their mortgages. Because certain mortgage servicers are required to advance payments to cover bondholders, entering into forbearance agreements to defer payments for a wave of borrowers means that those servicers may quickly face liquidity problems. As a result, mortgage servicers want the Federal Reserve and the United States Treasury to set aside stimulus money to help them avoid a liquidity crisis.
On the multifamily and commercial real estate front, all asset classes seem to be impacted to various degrees. From seniors housing facilities who, in spite of having no positive cases in the facility, are losing revenue due to move outs and attrition, to owner-user warehouse buildings where the operating business is prohibited from gathering their team to perform manufacturing functions, the ripple effect of the virus and resulting government action is touching most corners of the real estate market.
As addressed in other communications, a key factor in this environment is the duration of the virus itself as well as government intervention and the impact they have on public safety and the economy. Weighing an acceptable death rate against delaying a recovery is now a large part of the government decision-making process.
Several states have announced plans to reopen their respective states in phases in order to help restart their economies. California, for example, will permit retailers to open subject to social distancing requirements, but most offices are required to remain closed. Other states have similar plans, although the businesses permitted to reopen in each state differs. Some business owners are both eager and anxious to reopen – expressing the need to get their business started while at the same time expressing concern about protecting their employees and customers.
For the Fund, the April 1st payment due date was a first view of the impact of the virus on the borrowers and properties underlying the loans in the Fund’s portfolio. As of April 30, 2020, there was one (1) delinquent loan in the Fund and the portfolio remained relatively healthy. However, there were also multiple communications with borrowers regarding the impact of the virus and various governmental actions, including stay in place orders, rental forbearance programs and moratoriums on evictions, to the business of their tenants and, as a result, the property’s cash flows. Therefore, as addressed in more fully under “Loan Servicing Update” below, management entered into six (6) forbearance and modification agreements in April 2020 to provide varying degrees of payment relief to borrowers. As opposed to a blanket approach, management assessed the facts and circumstances of each loan in an attempt to address the needs as presented by a particular borrower.
Actions similar to those taken in April 2020 will occur on a continuous basis. Specifically, although most loans in the Fund were current at month end and certain interim relief was provided through loan modifications and forbearance agreements, as stated above the April 1, 2020 payment due date was the first collection date after the implementation of various federal, state and local policies impacting the real estate industry. Therefore, each future mortgage payment due date will provide a better near-term indication of the financial stress of the borrowers in the portfolio.
COVID-19 Strategic Adjustments
As addressed in prior communications, management is taking and will continue to take proactive, protective measures to help the Fund weather the current market conditions, including, those described below. Management cannot provide any representations guarantees about how the current situation will impact the underlying investments in the Fund and therefore the Fund’s performance. Management recommends that investors consider the following comments as well as information contained in prior communications when making investment decisions. Prior communications from management about the potential impacts resulting from the COVID-19 fallout may be found at https://wfpfunds.com/coronavirus-covid-19-update/.
- Reserves. On April 30, 2020, the Loan Loss Reserve represented approximately 1.29% of the aggregate outstanding principal balance of the loans in the Fund’s portfolio. The Fund has been setting aside funds in the Loan Loss Reserve since its inception and, in response to the anticipated impacts to the Fund’s portfolio resulting from the COVID-19 fallout, management increased the accrual in the reserve to approximately 0.17% per month or approximately 2.00% per annum as of the March 31, 2020 distribution date.
In addition to the Loan Loss Reserve, other factors impact the realization and calculation of the Fund’s returns; including, changes in the Fund’s loan portfolio through repayments and new loans, different economic terms on new loans such as interest rate increases or decreases, the impacts of cash in the fund, potential payment relief, and other factors. Therefore, investors are cautioned that applying a 2.00% annualized increase in the Loan Loss Reserve to prior returns of the Fund or other projections they may formulate will likely not align with the actual returns of the Fund.
Management will continue to assess the market and the adequacy of the reserves 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 Fund may experience. After the current conditions have subsided and the real estate market has normalized, management may distribute excess reserves, if any, to the then current investors in the Fund as a special dividend.
- Borrower Support; Potential Relief. As addressed more fully under “Loan Servicing Update” below, management continues to assess the fallout from the virus on the Fund’s borrowers and has taken various actions to provide interim payment relief to certain borrowers. The goal in those actions is not debt forgiveness but short-term payment relief allowing what is otherwise a good borrower caught in a bad set of circumstances the opportunity to manage their property and cash flows until the market stabilizes. While we believe those actions were sufficient based on the facts and circumstances presented to management at the time such relief was implemented, the facts and circumstances impacting the borrowers and their properties may change resulting in later impacts on the performance of the respective loans.
- Returns. The near-term impact of the increase of the Loan Loss Reserve and potential payment relief will be a reduction in the distributable return to the investors in the Fund. Nevertheless, management believes that establishing procedures and having certain tools and approaches in place to help mitigate portfolio risk are prudent given the current operating environment.
- Redemptions. After careful consideration, in order to better determine the impact of the current environment on the Fund, 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, management has instituted a temporary moratorium on new redemptions in the Fund. As of this release, the moratorium on redemptions has been extended. However, the moratorium will continue to be assessed and, as necessary, adjusted on a weekly basis.
- Underwriting Changes. Management has instituted changes to the Fund’s underwriting policies and procedures which, among other things, requires enhanced communications with all parties in the lending process, eliminates certain asset classes from loan consideration, reduces loan to value thresholds, increases the use of personal guarantees, and addresses certain practical considerations related to appraisals and third-party reports. These changes apply to both transactions in process as well as new loan requests.
- Selective Opportunities. The Fund continued to see new loan opportunities throughout April. However, as addressed under Underwriting Changes above, management is taking a more conservative approach in the current operating environment and as a result did not make any new loans during the month. While past performance is not indicative of future results, management still believes the Fund may be positioned to take advantage of additional lending and investment opportunities in the current market.
COVID-19 Additional Information
Additional announcements and information about the impacts of COVID-19 on the funds offered by or through Wilshire Finance Partners may be found at https://wfpfunds.com/coronavirus-covid-19-update/.
Performance by the Numbers
As of April 30, 2020:
|Net Annualized Non-Compounded Return:||5.14%*|
|Monthly Return (stand-alone basis):||0.33%
(or 4.03%* annualized)
|Net Annualized Compounded Return (since inception):||8.86%|
|Weighted Average Loan-to-Value:||61.22%|
|Weighted Average Maturity:||24 months|
|Average Loan Size:||$1,798,840|
|Repayment Percentage (through March):||9.68%|
|Liquidity / Cash Position:||16.56%
(REIT liquidity percentage)
*Net of the increase in the Loan Loss Allowance.
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.
Loan Servicing Update
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. Management anticipates that 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 management 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 formal modification and forbearance agreements in place as of the date of this release providing payment relief to certain borrowers, as well as initial conversations and communications with borrowers who may be seeking payment relief. Regardless of the existence of a formal agreement, changes in the facts and circumstances surrounding a borrower or a property may positively or negatively impact a loan’s performance resulting in a change in the method or approach used by the manager and the Fund’s results.
As of April 30, 2020, management was contacted by and initiated communications with approximately 42% of the borrowers in the WFP Income Fund. The outstanding principal balance of those borrowers represented approximately 52% of the loan portfolio. Several of the borrowers reached out to management to discuss their concerns about a potential future need for payment relief but did not require any immediate action.
As of April 30, 2020, there was 1 loan where the borrower did not make the April 1, 2020 mortgage payment within the 10-day grace period (i.e. April 11, 2020). Under normal circumstances, it is not necessarily unusual for one or more borrower’s to be delinquent on a payment in any given month. However, although such loans are not past 30 days in the delinquency, all delinquencies arising at this stage of the COVID-19 fallout are being monitored even more closely and are under greater scrutiny. Notwithstanding the present environment, all borrowers who are delinquent are contacted by Wilshire by phone, email and mail. In the case of the delinquent loan referenced above, it involves a loan secured by a retail property near a university that has suspended classes due to the “shelter in place orders." As of this release, management has contacted the borrower to discuss potential alternatives for relief and has started to prepare for collection action, including foreclosure.
At month end, management 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 28% of the loan portfolio. Under 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 66.60% from the original weighted average loan-to-value (Original WALTV) of approximately 64%.
Under the 2 forbearance agreements, management 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 1 agreement the uncollected payments will be spread over the remaining payments over the term of the loan, and under the other 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 78.15% from the original weighted average loan-to-value (Original WALTV) of approximately 62.20%. The increase in the Current WALTV over the Original WALTV in the loans under forbearance is the result of one loan where 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 April 30, 2020, no loans were in foreclosure and the fund did not hold any real estate owned (REO) in its portfolio. However, as referenced above, management has started to prepare for collection action against one borrower which may result in the commencement of a foreclosure action.
Further, the Loan Loss Reserve represented 1.29% of the aggregate outstanding principal balance of the loans in the Fund’s portfolio.
No loans repaid in April 2020 and as a result the percentage of loans that repaid through April 30, 2020 remained unchanged at approximately 9.68%.
Since the Income Fund’s inception in September 2013 through April 30, 2020, the net asset value (NAV) of the Fund remained stable.
“Our thoughts continue to be with those who have been severely impacted COVID-19 and its resulting impacts,” said Don Pelgrim, CEO of Wilshire Finance Partners. “We are also hopeful that the healthcare policies that are starting to be employed continue to protect the public while having a positive impact on the economy. The federal government acted very quickly and aggressively with its stimulus programs in April and several states began loosening their shelter in place requirements to help reopen certain businesses. However, the overall economic environment remains stifled and, while it is clear certain sectors have been more severely impacted than others, the impact of the virus on the real estate sector continues to evolve. To this point, the Fund has performed fairly well. And, while we are likely still early in this process and cannot provide any representations or guarantees about the brunt of the current environment on the underlying investments in the Fund, we continue to keep our primary focus on the protection and perseveration of our investor’s principal investments in the Fund. To that end, we will, among other things, continue to accrue at a higher rate in the loan loss reserve and work with the borrowers in the Fund to help them through the challenges they are facing in an effort to mitigate additional risk to the Fund. In addition to continuing to address risk in the present, we believe that patience and a longer investment horizon will be required to weather the impacts to the economy and the real estate market.”
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.
Wilshire Finance Partners, Inc.
Donald H. Pelgrim, Jr.
Source: Wilshire Finance Partners, Inc.
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.