UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
ý
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended September 30,
2010
OR
o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from ____________ to _____________
Commission
File Number 1-14788
Capital
Trust, Inc.
(Exact
name of registrant as specified in its charter)
Maryland
|
94-6181186
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
|
410 Park Avenue,
14th Floor, New York,
NY
|
10022
|
(Address
of principal executive offices)
|
(Zip
Code)
|
|
|
(212)
655-0220
(Registrant's
telephone number, including area
code)
|
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes x No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes o No
o [This requirement
is currently not applicable to the registrant.]
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
|
|
Accelerated
filer o
|
Non-accelerated
filer ý (Do not check if
a smaller reporting company)
|
|
Smaller
Reporting Company o
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No ý
APPLICABLE
ONLY TO CORPORATE ISSUERS:
The
number of outstanding shares of the registrant's class A common stock, par value
$0.01 per share, as of October 22, 2010 was 21,962,663.
INDEX
Part
I.
|
Financial
Information
|
|
|
|
|
|
|
Item
1:
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
2
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
Item
2:
|
|
44
|
|
|
|
|
|
Item
3:
|
|
62
|
|
|
|
|
|
Item
4:
|
|
64
|
|
|
|
|
Part II.
|
Other
Information
|
|
|
|
|
|
|
Item
1:
|
|
65
|
|
|
|
|
|
Item
1A:
|
|
65
|
|
|
|
|
|
Item
2:
|
|
65
|
|
|
|
|
|
Item
3:
|
|
65
|
|
|
|
|
|
Item
4:
|
|
65
|
|
|
|
|
|
Item
5:
|
|
65
|
|
|
|
|
|
Item
6:
|
|
66
|
|
|
|
|
|
|
|
67
|
PART I. FINANCIAL INFORMATION
ITEM
1.
|
Financial
Statements
|
Capital
Trust, Inc. and Subsidiaries
|
|
Consolidated
Balance Sheets
|
|
September
30, 2010 and December 31, 2009
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
|
December
31,
|
|
Assets
|
|
2010
|
|
|
2009
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
24,149 |
|
|
$ |
27,954 |
|
Securities
held-to-maturity
|
|
|
3,345 |
|
|
|
17,332 |
|
Loans
receivable, net
|
|
|
610,633 |
|
|
|
766,745 |
|
Loans
held-for-sale, net
|
|
|
59,953 |
|
|
|
— |
|
Equity
investments in unconsolidated subsidiaries
|
|
|
7,597 |
|
|
|
2,351 |
|
Accrued
interest receivable
|
|
|
2,600 |
|
|
|
3,274 |
|
Deferred
income taxes
|
|
|
1,155 |
|
|
|
2,032 |
|
Prepaid
expenses and other assets
|
|
|
5,976 |
|
|
|
8,391 |
|
Subtotal
|
|
|
715,408 |
|
|
|
828,079 |
|
|
|
|
|
|
|
|
|
|
Assets of Consolidated Variable Interest Entities
("VIEs")
|
|
|
|
|
|
|
|
|
Securities
held-to-maturity
|
|
|
531,349 |
|
|
|
697,864 |
|
Loans
receivable, net
|
|
|
2,962,597 |
|
|
|
391,499 |
|
Loans
held-for-sale, net
|
|
|
— |
|
|
|
17,548 |
|
Real
estate held-for-sale
|
|
|
8,055 |
|
|
|
— |
|
Accrued
interest receivable and other assets
|
|
|
18,442 |
|
|
|
1,645 |
|
Subtotal
|
|
|
3,520,443 |
|
|
|
1,108,556 |
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
4,235,851 |
|
|
$ |
1,936,635 |
|
|
|
|
|
|
|
|
|
|
Liabilities
& Shareholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
7,325 |
|
|
$ |
8,228 |
|
Repurchase
obligations
|
|
|
407,921 |
|
|
|
450,137 |
|
Senior
credit facility
|
|
|
98,393 |
|
|
|
99,188 |
|
Junior
subordinated notes
|
|
|
131,145 |
|
|
|
128,077 |
|
Participations
sold
|
|
|
288,127 |
|
|
|
289,144 |
|
Interest
rate hedge liabilities
|
|
|
5,900 |
|
|
|
4,184 |
|
Subtotal
|
|
|
938,811 |
|
|
|
978,958 |
|
|
|
|
|
|
|
|
|
|
Non-Recourse Liabilities of Consolidated
VIEs
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
|
4,588 |
|
|
|
1,798 |
|
Securitized
debt obligations
|
|
|
3,683,774 |
|
|
|
1,098,280 |
|
Interest
rate hedge liabilities
|
|
|
35,329 |
|
|
|
26,766 |
|
Subtotal
|
|
|
3,723,691 |
|
|
|
1,126,844 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
4,662,502 |
|
|
|
2,105,802 |
|
|
|
|
|
|
|
|
|
|
Shareholders'
deficit:
|
|
|
|
|
|
|
|
|
Class
A common stock, $0.01 par value, 100,000 shares authorized,
21,912
and
21,796 shares issued and outstanding as of September 30, 2010
and
December
31, 2009, respectively ("class A common stock")
|
|
|
219 |
|
|
|
218 |
|
Restricted
class A common stock, $0.01 par value, 51 and 79 shares
issued
and
outstanding as of September 30, 2010 and December 31, 2009,
respectively
("restricted class A common stock" and together with class
A
common stock, "common stock")
|
|
|
1 |
|
|
|
1 |
|
Additional
paid-in capital
|
|
|
559,339 |
|
|
|
559,145 |
|
Accumulated
other comprehensive loss
|
|
|
(55,940 |
) |
|
|
(39,135 |
) |
Accumulated
deficit
|
|
|
(930,270 |
) |
|
|
(689,396 |
) |
Total
shareholders' deficit
|
|
|
(426,651 |
) |
|
|
(169,167 |
) |
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' deficit
|
|
$ |
4,235,851 |
|
|
$ |
1,936,635 |
|
See
accompanying notes to consolidated financial statements.
Capital Trust, Inc. and Subsidiaries
|
|
Consolidated
Statements of Operations
|
|
Three
and Nine Months Ended September 30, 2010 and 2009
|
|
(in
thousands, except share and per share data)
|
|
(unaudited)
|
|
|
|
|
|
Three
Months Ended
|
|
|
Nine
Months Ended
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2010
|
|
|
2009
|
|
|
2010
|
|
|
2009
|
|
Income
from loans and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and related income
|
|
$ |
40,125 |
|
|
$ |
29,527 |
|
|
$ |
119,523 |
|
|
$ |
93,341 |
|
Less:
Interest and related expenses
|
|
|
31,557 |
|
|
|
19,604 |
|
|
|
94,462 |
|
|
|
61,116 |
|
Income
from loans and other investments, net
|
|
|
8,568 |
|
|
|
9,923 |
|
|
|
25,061 |
|
|
|
32,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees from affiliates
|
|
|
2,050 |
|
|
|
2,959 |
|
|
|
5,990 |
|
|
|
8,768 |
|
Incentive
management fees from affiliates
|
|
|
733 |
|
|
|
— |
|
|
|
733 |
|
|
|
— |
|
Servicing
fees
|
|
|
84 |
|
|
|
168 |
|
|
|
2,821 |
|
|
|
1,502 |
|
Other
interest income
|
|
|
155 |
|
|
|
16 |
|
|
|
260 |
|
|
|
153 |
|
Total
other revenues
|
|
|
3,022 |
|
|
|
3,143 |
|
|
|
9,804 |
|
|
|
10,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
5,143 |
|
|
|
5,492 |
|
|
|
14,383 |
|
|
|
18,450 |
|
Depreciation
and amortization
|
|
|
5 |
|
|
|
51 |
|
|
|
15 |
|
|
|
65 |
|
Total
other expenses
|
|
|
5,148 |
|
|
|
5,543 |
|
|
|
14,398 |
|
|
|
18,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other-than-temporary impairments of securities
|
|
|
(29,963 |
) |
|
|
(77,883 |
) |
|
|
(69,798 |
) |
|
|
(96,529 |
) |
Portion
of other-than-temporary impairments of securities
recognized
in other comprehensive income
|
|
|
(5,921 |
) |
|
|
11,987 |
|
|
|
12,094 |
|
|
|
17,612 |
|
Impairment
of goodwill
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,235 |
) |
Impairment
of real estate held-for-sale
|
|
|
(4,000 |
) |
|
|
— |
|
|
|
(4,000 |
) |
|
|
(2,233 |
) |
Net
impairments recognized in earnings
|
|
|
(39,884 |
) |
|
|
(65,896 |
) |
|
|
(61,704 |
) |
|
|
(83,385 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
(95,916 |
) |
|
|
(47,222 |
) |
|
|
(150,143 |
) |
|
|
(113,716 |
) |
Valuation
allowance on loans held-for-sale
|
|
|
(6,036 |
) |
|
|
— |
|
|
|
(6,036 |
) |
|
|
(10,363 |
) |
Gain
on extinguishment of debt
|
|
|
185 |
|
|
|
— |
|
|
|
648 |
|
|
|
— |
|
Income
(loss) from equity investments
|
|
|
1,056 |
|
|
|
(862 |
) |
|
|
2,358 |
|
|
|
(3,074 |
) |
Loss
before income taxes
|
|
|
(134,153 |
) |
|
|
(106,457 |
) |
|
|
(194,410 |
) |
|
|
(186,405 |
) |
Income
tax provision (benefit)
|
|
|
556 |
|
|
|
— |
|
|
|
849 |
|
|
|
(408 |
) |
Net
loss
|
|
$ |
(134,709 |
) |
|
$ |
(106,457 |
) |
|
$ |
(195,259 |
) |
|
$ |
(185,997 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
(6.02 |
) |
|
$ |
(4.75 |
) |
|
$ |
(8.73 |
) |
|
$ |
(8.32 |
) |
Diluted
|
|
$ |
(6.02 |
) |
|
$ |
(4.75 |
) |
|
$ |
(8.73 |
) |
|
$ |
(8.32 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,389,901 |
|
|
|
22,426,623 |
|
|
|
22,356,857 |
|
|
|
22,361,541 |
|
Diluted
|
|
|
22,389,901 |
|
|
|
22,426,623 |
|
|
|
22,356,857 |
|
|
|
22,361,541 |
|
See
accompanying notes to consolidated financial statements.
Capital
Trust, Inc. and Subsidiaries
|
|
Consolidated
Statements of Changes in Shareholders' Equity (Deficit)
|
|
For
the Nine Months Ended September 30, 2010 and 2009
|
|
(in
thousands)
|
|
(unaudited)
|
|
|
|
|
|
Comprehensive
Loss
|
|
|
|
Class
A Common Stock
|
|
|
Restricted
Class A Common Stock
|
|
|
Additional
Paid-In Capital
|
|
|
Accumulated
Other Comprehensive Loss
|
|
|
Accumulated
Deficit
|
|
|
Total
|
|
Balance
at January 1, 2009
|
|
|
|
|
|
$ |
217 |
|
|
$ |
3 |
|
|
$ |
557,435 |
|
|
$ |
(41,009 |
) |
|
$ |
(115,202 |
) |
|
$ |
401,444 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(185,997 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(185,997 |
) |
|
|
(185,997 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of change in accounting principle
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,243 |
) |
|
|
2,243 |
|
|
|
— |
|
Unrealized
gain (loss) on derivative financial instruments
|
|
|
13,465 |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
13,465 |
|
|
|
— |
|
|
|
13,465 |
|
Amortization
of net unrealized gains and losses on securities
|
|
|
(675 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(675 |
) |
|
|
— |
|
|
|
(675 |
) |
Amortization
of net deferred gains and losses on settlement of swaps
|
|
|
(70 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(70 |
) |
|
|
— |
|
|
|
(70 |
) |
Other-than-temporary
impairments of securities related to fair value
adjustments in excess of expected credit losses, net of
amortization
|
|
|
(17,346 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(17,346 |
) |
|
|
— |
|
|
|
(17,346 |
) |
Issuance
of warrants in conjunction with debt restructuring
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
940 |
|
|
|
— |
|
|
|
— |
|
|
|
940 |
|
Restricted
class A common stock earned
|
|
|
— |
|
|
|
|
1 |
|
|
|
— |
|
|
|
1,091 |
|
|
|
— |
|
|
|
— |
|
|
|
1,092 |
|
Deferred
directors' compensation
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
393 |
|
|
|
— |
|
|
|
— |
|
|
|
393 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2009
|
|
$ |
(190,623 |
) |
|
|
$ |
218 |
|
|
$ |
3 |
|
|
$ |
559,859 |
|
|
$ |
(47,878 |
) |
|
$ |
(298,956 |
) |
|
$ |
213,246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2010
|
|
|
|
|
|
|
$ |
218 |
|
|
$ |
1 |
|
|
$ |
559,145 |
|
|
$ |
(39,135 |
) |
|
$ |
(689,396 |
) |
|
$ |
(169,167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(195,259 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(195,259 |
) |
|
|
(195,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of change in accounting principle
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,800 |
|
|
|
(45,615 |
) |
|
|
(41,815 |
) |
Unrealized
gain (loss) on derivative financial instruments
|
|
|
(10,281 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(10,281 |
) |
|
|
— |
|
|
|
(10,281 |
) |
Amortization
of net unrealized gains and losses on securities
|
|
|
(754 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(754 |
) |
|
|
— |
|
|
|
(754 |
) |
Amortization
of net deferred gains and losses on settlement of swaps
|
|
|
(74 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(74 |
) |
|
|
— |
|
|
|
(74 |
) |
Other-than-temporary
impairments of securities related to fair value adjustments
in excess of expected credit losses, net of amortization
|
|
|
(9,496 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(9,496 |
) |
|
|
— |
|
|
|
(9,496 |
) |
Restricted
class A common stock earned
|
|
|
— |
|
|
|
|
1 |
|
|
|
— |
|
|
|
44 |
|
|
|
— |
|
|
|
— |
|
|
|
45 |
|
Deferred
directors' compensation
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
150 |
|
|
|
— |
|
|
|
— |
|
|
|
150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at September 30, 2010
|
|
$ |
(215,864 |
) |
|
|
$ |
219 |
|
|
$ |
1 |
|
|
$ |
559,339 |
|
|
$ |
(55,940 |
) |
|
$ |
(930,270 |
) |
|
$ |
(426,651 |
) |
See
accompanying notes to consolidated financial statements.
Capital Trust, Inc. and Subsidiaries
|
|
Consolidated
Statements of Cash Flows
|
|
For
the Nine Months Ended September 30, 2010 and 2009
|
|
(in
thousands)
|
|
(unaudited)
|
|
|
|
|
|
2010
|
|
|
2009
|
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(195,259 |
) |
|
$ |
(185,997 |
) |
Adjustments
to reconcile net loss to net cash provided by
|
|
|
|
|
|
|
|
|
operating
activities:
|
|
|
|
|
|
|
|
|
Net
impairments recognized in earnings
|
|
|
61,704 |
|
|
|
83,385 |
|
Provision
for loan losses
|
|
|
150,143 |
|
|
|
113,716 |
|
Valuation
allowance on loans held-for-sale
|
|
|
6,036 |
|
|
|
10,363 |
|
Gain
on extinguishment of debt
|
|
|
(648 |
) |
|
|
— |
|
(Income)
loss from equity investments
|
|
|
(2,358 |
) |
|
|
3,074 |
|
Employee
stock-based compensation
|
|
|
107 |
|
|
|
1,102 |
|
Depreciation
and amortization
|
|
|
15 |
|
|
|
65 |
|
Amortization
of premiums/discounts on loans and securities and deferred
interest
on loans
|
|
|
(2,581 |
) |
|
|
(4,966 |
) |
Amortization
of deferred gains and losses on settlement of swaps
|
|
|
(74 |
) |
|
|
(70 |
) |
Amortization
of deferred financing costs and premiums/discounts on
|
|
|
|
|
|
|
|
|
debt
obligations
|
|
|
5,596 |
|
|
|
5,166 |
|
Deferred
interest on senior credit facility
|
|
|
2,954 |
|
|
|
1,943 |
|
Deferred
directors' compensation
|
|
|
150 |
|
|
|
393 |
|
Changes
in assets and liabilities, net:
|
|
|
|
|
|
|
|
|
Accrued
interest receivable
|
|
|
351 |
|
|
|
1,439 |
|
Deferred
income taxes
|
|
|
877 |
|
|
|
— |
|
Prepaid
expenses and other assets
|
|
|
1,163 |
|
|
|
2,220 |
|
Accounts
payable and accrued expenses
|
|
|
56 |
|
|
|
(1,747 |
) |
Net
cash provided by operating activities
|
|
|
28,232 |
|
|
|
30,086 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Principal
collections of securities
|
|
|
35,806 |
|
|
|
11,342 |
|
Add-on
fundings under existing loan commitments
|
|
|
(1,562 |
) |
|
|
(7,698 |
) |
Principal
collections of loans receivable
|
|
|
183,761 |
|
|
|
56,188 |
|
Proceeds
from operation/disposition of real estate held-for-sale
|
|
|
— |
|
|
|
7,665 |
|
Proceeds
from disposition of loans
|
|
|
23,548 |
|
|
|
— |
|
Contributions
to unconsolidated subsidiaries
|
|
|
(2,917 |
) |
|
|
(2,315 |
) |
Distributions
from unconsolidated subsidiaries
|
|
|
29 |
|
|
|
— |
|
Net
cash provided by investing activities
|
|
|
238,665 |
|
|
|
65,182 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Decrease
in restricted cash
|
|
|
— |
|
|
|
18,666 |
|
Repayments
under repurchase obligations
|
|
|
(42,568 |
) |
|
|
(93,709 |
) |
Repayments
under senior credit facility
|
|
|
(3,750 |
) |
|
|
(2,500 |
) |
Repayment
of securitized debt obligations
|
|
|
(224,384 |
) |
|
|
(31,636 |
) |
Repayment
of participations sold
|
|
|
— |
|
|
|
(2,889 |
) |
Payment
of deferred financing costs
|
|
|
— |
|
|
|
(7 |
) |
Net
cash used in financing activities
|
|
|
(270,702 |
) |
|
|
(112,075 |
) |
|
|
|
|
|
|
|
|
|
Net
decrease in cash and cash equivalents
|
|
|
(3,805 |
) |
|
|
(16,807 |
) |
Cash
and cash equivalents at beginning of period
|
|
|
27,954 |
|
|
|
45,382 |
|
Cash
and cash equivalents at end of period
|
|
$ |
24,149 |
|
|
$ |
28,575 |
|
See
accompanying notes to consolidated financial statements.
Capital Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(unaudited)
Note
1. Organization
References
herein to “we,” “us” or “our” refer to Capital Trust, Inc., a Maryland
corporation, and its subsidiaries unless the context specifically requires
otherwise.
We are a
fully integrated, self-managed, real estate finance and investment management
company that specializes in credit sensitive financial products. To date, our
investment programs have focused on loans and securities backed by commercial
real estate assets. We invest for our own account directly on our balance sheet
and for third parties through a series of investment management vehicles. From
the inception of our finance business in 1997 through September 30, 2010, we
have completed over $11.4 billion of investments in the commercial real
estate debt arena. We conduct our operations as a real estate investment trust,
or REIT, for federal income tax purposes. We are traded on the New York Stock
Exchange under the symbol “CT”, and are headquartered in New York
City.
Note
2. Summary of Significant Accounting Policies
The
accompanying unaudited consolidated interim financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States, or GAAP, for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do
not include all of the information and notes required by GAAP for complete
financial statements. The accompanying unaudited consolidated interim financial
statements should be read in conjunction with the consolidated financial
statements and the related management’s discussion and analysis of financial
condition and results of operations filed with our Annual Report on Form 10-K
for the fiscal year ended December 31, 2009. In our opinion, all material
adjustments (consisting of normal, recurring accruals) considered necessary for
a fair presentation, in accordance with GAAP, have been included. The results of
operations for the nine months ended September 30, 2010 are not necessarily
indicative of results that may be expected for the entire year ending December
31, 2010.
Principles
of Consolidation
The
accompanying financial statements include, on a consolidated basis, our
accounts, the accounts of our wholly-owned subsidiaries, and variable interest
entities, or VIEs, in which we are the primary beneficiary, prepared in
accordance with GAAP. All significant intercompany balances and transactions
have been eliminated in consolidation.
VIEs are
defined as entities in which equity investors (i) do not have the
characteristics of a controlling financial interest, and/or (ii) do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The entity that
consolidates a VIE is known as its primary beneficiary. Our consolidated VIEs
generally include two categories of entities: (i) collateralized debt
obligations sponsored and issued by us, which we refer to as CT CDOs, and (ii)
other consolidated VIEs, which are also securitization vehicles but were not
issued or sponsored by us.
As of
September 30, 2010, our consolidated balance sheet includes an aggregate $3.5
billion of assets and $3.7 billion of liabilities related to 11 consolidated
VIEs. Due to the non-recourse nature of these VIEs, and other factors, our net
exposure to loss from investments in these entities is limited to $34.3 million.
See Note 11 for additional information on our investments in VIEs.
Balance
Sheet Presentation
As a
result of the recent accounting pronouncements discussed below, we have adjusted
the presentation of our consolidated balance sheet, in accordance with GAAP, to
separately categorize (i) our assets and liabilities, and (ii) the assets and
liabilities of consolidated VIEs. Assets of consolidated VIEs can generally only
be used to satisfy the obligations of those VIEs, and the liabilities of
consolidated VIEs are non-recourse to us. We have aggregated all the assets and
liabilities of our consolidated VIEs due to our determination that these
entities are substantively similar and therefore a further disaggregated
presentation would not be more meaningful. Similarly, the notes to our
consolidated financial statements separately describe our assets and liabilities
and those of consolidated VIEs.
Equity
Investments in Unconsolidated Subsidiaries
Our
co-investment interest in the private equity funds we manage are accounted for
using the equity method. These entities’ assets and liabilities are not
consolidated into our financial statements due to our determination that (i)
these entities are not VIEs, and (ii) the investors have sufficient rights to
preclude consolidation by us. As such, we report our allocable percentage of the
earnings or losses of these entities on a single line item in our consolidated
statements of operations as income (loss) from equity investments.
One such
fund, CT Opportunity Partners I, LP, or CTOPI, maintains its financial records
at fair value in accordance with GAAP. We have applied such accounting relative
to our investment in CTOPI, and include any adjustments to fair value recorded
at the fund level in determining the income (loss) we record on our equity
investment in CTOPI.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
Interest
income from our loans receivable is recognized over the life of the investment
using the effective interest method and is recorded on the accrual basis. Fees,
premiums, discounts and direct costs associated with these investments are
deferred until the loan is advanced and are then recognized over the term of the
loan as an adjustment to yield. For loans where we have unfunded commitments, we
amortize these fees and other items on a straight line basis. Fees on
commitments that expire unused are recognized at expiration. Income accrual is
generally suspended for loans at the earlier of the date at which payments
become 90 days past due or when, in the opinion of management, recovery of
income and principal becomes doubtful. Income is then recorded on the basis of
cash received until accrual is resumed when the loan becomes contractually
current and performance is demonstrated to be resumed.
Interest
income from our securities is recognized using a level yield with any purchase
premium or discount accreted through income over the life of the security. This
yield is calculated using cash flows expected to be collected which are based on
a number of assumptions on the underlying loans. Examples include, among other
things, the rate and timing of principal payments, including prepayments,
repurchases, defaults and liquidations, the pass-through or coupon rate and
interest rates. Additional factors that may affect reported interest income on
our securities include interest payment shortfalls due to delinquencies on the
underlying mortgage loans and the timing and magnitude of expected credit losses
on the mortgage loans underlying the securities. These are impacted by, among
other things, the general condition of the real estate market, including
competition for tenants and their related credit quality, and changes in market
rental rates. These uncertainties and contingencies are difficult to predict and
are subject to future events that may alter the assumptions.
Fees from
special servicing and asset management services are recorded on an accrual basis
as services are rendered under the applicable agreements, and when receipt of
fees is reasonably certain. We do not recognize incentive income from our
investment management business until contingencies have been eliminated.
Depending on the structure of our investment management vehicles, certain
incentive fees may be in the form of carried interest or promote
distributions.
Cash
and Cash Equivalents
We
classify highly liquid investments with original maturities of three months or
less from the date of purchase as cash equivalents. We place our cash and cash
equivalents with high credit quality institutions to minimize credit risk
exposure. As of, and for the periods ended, September 30, 2010 and December 31,
2009, we had bank balances in excess of federally insured amounts. We have not
experienced any losses on our demand deposits, commercial paper or money market
investments.
We
classify our securities as held-to-maturity, available-for-sale, or trading on
the date of acquisition of the investment. On August 4, 2005, we decided to
change the accounting classification of certain of our securities from
available-for-sale to held-to-maturity. Held-to-maturity investments are stated
at cost adjusted for the amortization of any premiums or discounts, which are
amortized through our consolidated statements of operations using the effective
interest method described above. Other than in the instance of an
other-than-temporary impairment (as discussed below), these held-to-maturity
investments are shown in our consolidated financial statements at their adjusted
values pursuant to the methodology described above.
We may
also invest in securities which may be classified as available-for-sale.
Available-for-sale securities are carried at estimated fair value with the net
unrealized gains or losses reported as a component of accumulated other
comprehensive income (loss) in shareholders’ equity. Many of these investments
are relatively illiquid and management is required to estimate their fair
values. In making these estimates, management utilizes market prices provided by
dealers who make markets in these securities, but may, under limited
circumstances, adjust these valuations based on management’s judgment. Changes
in the valuations do not affect our reported income or cash flows, but impact
shareholders’ equity and, accordingly, book value per share.
Further,
as required under GAAP, when, based on current information and events, there has
been an adverse change in cash flows expected to be collected from those
previously estimated, an other-than-temporary impairment is deemed to have
occurred. A change in expected cash flows is considered adverse if the present
value of the revised cash flows (taking into consideration both the timing and
amount of cash flows expected to be collected) discounted using the security’s
current yield is less than the present value of the previously estimated
remaining cash flows, adjusted for cash receipts during the intervening period.
Should an other-than-temporary impairment be deemed to have occurred, the
security is written down to fair value. The total other-than-temporary
impairment is bifurcated into (i) the amount related to expected credit losses,
and (ii) the amount related to fair value adjustments in excess of expected
credit losses, or the Valuation Adjustment. The portion of the
other-than-temporary impairment related to expected credit losses is calculated
by comparing the amortized cost basis of the security to the present value of
cash flows expected to be collected, discounted at the security’s current yield,
and is recognized through earnings in the consolidated statement of operations.
The remaining other-than-temporary impairment related to the Valuation
Adjustment is recognized as a component of accumulated other comprehensive
income (loss) in shareholders’ equity. A portion of other-than-temporary
impairments recognized through earnings is accreted back to the amortized cost
basis of the security through interest income, while amounts recognized through
other comprehensive income (loss) are amortized over the life of the security
with no impact on earnings.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
Loans
Receivable, Provision for Loan Losses, Loans Held-for-Sale and Related
Allowance
We
purchase and originate commercial real estate debt and related instruments, or
Loans, generally to be held as long-term investments at amortized cost.
Management is required to periodically evaluate each of these Loans for possible
impairment. Impairment is indicated when it is deemed probable that we will not
be able to collect all amounts due according to the contractual terms of the
Loan. If a Loan is determined to be impaired, we write down the Loan through a
charge to the provision for loan losses. Impairment on these loans
is measured by comparing the estimated fair value of the underlying collateral
to the carrying value of the respective loan. These valuations require
significant judgments, which include assumptions regarding capitalization rates,
leasing, creditworthiness of major tenants, occupancy rates, availability of
financing, exit plan, loan sponsorship, actions of other lenders and other
factors deemed necessary by management. Actual losses, if any, could
ultimately differ from these estimates.
In
addition, for certain pools of smaller loans which have similar credit
characteristics, primarily loans with an outstanding principal balance of $10.0
million or less in our other consolidated VIEs, we have recorded a general
provision for loan losses in lieu of the asset-specific provisions we record on
all other loans. This general provision is based on macroeconomic data with
respect to historic loan losses, vintage, property type, and other factors
deemed relevant for such loan pools. These loans do not undergo the same level
of asset management as our larger, direct investments.
Loans
held-for-sale are carried at the lower of our amortized cost basis and fair
value. A reduction in the fair value of loans held-for-sale is recorded as a
charge to our consolidated statement of operations as a valuation allowance on
loans held-for-sale.
Deferred
Financing Costs
The
deferred financing costs which are included in prepaid expenses and other assets
on our consolidated balance sheets include issuance costs related to our debt
obligations and are amortized using the effective interest method, or a method
that approximates the effective interest method, over the life of the related
obligations.
In
certain circumstances, we have financed the purchase of investments from a
counterparty through a repurchase agreement with that same counterparty. We
currently record these investments in the same manner as other investments
financed with repurchase agreements, with the investment recorded as an asset
and the related borrowing under any repurchase agreement recorded as a liability
on our consolidated balance sheets. Interest income earned on the investments
and interest expense incurred on the repurchase obligations are reported
separately on our consolidated statements of operations.
Subsequent
to our origination of these investments, revisions to GAAP presume that an
initial transfer of a financial asset and a repurchase financing shall be
evaluated as a linked transaction and not evaluated separately. If the
transaction does not meet the requirements for sale accounting, it shall
generally be accounted for as a forward contract, as opposed to the current
presentation, where the purchased asset and the repurchase liability are
reflected separately on the balance sheet. This revised guidance was effective
on a prospective basis, as of January 1, 2009, with earlier application
prohibited. Accordingly, new transactions entered into subsequently, which are
subject to the revised guidance, may be presented differently on our
consolidated financial statements. No such transactions have occurred since
January 1, 2009.
Interest
Rate Derivative Financial Instruments
In the
normal course of business, we use interest rate derivative financial instruments
to manage, or hedge, cash flow variability caused by interest rate fluctuations.
Specifically, we currently use interest rate swaps to effectively convert
floating rate liabilities that are financing fixed rate assets, to fixed rate
liabilities. The differential to be paid or received on these agreements is
recognized on the accrual basis as an adjustment to the interest expense related
to the attendant liability. The interest rate swap agreements are generally
accounted for on a held-to-maturity basis, and, in cases where they are
terminated early, any gain or loss is generally amortized over the remaining
life of the hedged item. These swap agreements must be effective in reducing the
variability of cash flows of the hedged items in order to qualify for the
aforementioned hedge accounting treatment. Changes in value of effective cash
flow hedges are reflected in our consolidated financial statements through
accumulated other comprehensive income (loss) and do not affect our net income.
To the extent a derivative does not qualify for hedge accounting, and is deemed
a non-hedge derivative, the changes in its value are included in net
income.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
To
determine the fair value of interest rate derivative financial instruments, we
use a third-party derivative specialist to assist us in periodically valuing our
interests.
Our
financial results generally do not reflect provisions for current or deferred
income taxes on our REIT taxable income. Management believes that we operate in
a manner that will continue to allow us to be taxed as a REIT and, as a result,
we do not expect to pay substantial corporate level taxes other than taxes
payable by our taxable REIT subsidiaries. Many of these requirements, however,
are highly technical and complex. If we were to fail to meet these requirements,
we may be subject to federal, state and local income tax on current and past
income, and penalties.
Accounting
for Stock-Based Compensation
Stock-based
compensation expense is recognized in net income using a fair value measurement
method, which we determine with the assistance of a third-party appraisal firm.
Compensation expense for the time vesting of stock-based compensation grants is
recognized on the accelerated attribution method and compensation expense for
performance vesting of stock-based compensation grants is recognized on a
straight line basis.
The fair
value of the performance vesting restricted common stock is measured on the
grant date using a Monte Carlo simulation to estimate the probability of the
market vesting conditions being satisfied. The Monte Carlo simulation is run
approximately 100,000 times. For each simulation, the payoff is calculated at
the settlement date, and is then discounted to the grant date at a risk-free
interest rate. The average of the values over all simulations is the expected
value of the restricted common stock on the grant date. The valuation is
performed in a risk-neutral framework, so no assumption is made with respect to
an equity risk premium. Significant assumptions used in the valuation include an
expected term and stock price volatility, an estimated risk-free interest rate
and an estimated dividend growth rate.
Estimates
of fair value are not intended to predict actual future events or the value
ultimately realized by employees who receive equity awards, and subsequent
events are not indicative of the reasonableness of the original estimates of
fair value made by us.
Comprehensive
Income (Loss)
Total
comprehensive loss was ($215.9) million and ($190.6) million, for the nine
months ended September 30, 2010 and 2009, respectively. The primary components
of comprehensive loss other than net income (loss) are the unrealized gains and
losses on derivative financial instruments and the component of
other-than-temporary impairments of securities related to the Valuation
Adjustment.
There was
a one-time $3.8 million adjustment to accumulated other comprehensive loss upon
our adoption of new accounting guidance effective January 1, 2010. See below in
this Note 2 the discussion under “Recent Accounting Pronouncements” for
additional information. See also Note 12 for additional discussion of
accumulated other comprehensive loss.
Earnings
per Share of Common Stock
Basic
earnings per share, or EPS, is computed based on the net earnings allocable to
common stock and stock units, divided by the weighted average number of shares
of common stock and stock units outstanding during the period. Diluted EPS is
based on the net earnings allocable to common stock and stock units, divided by
the weighted average number of shares of common stock, stock units and
potentially dilutive common stock options and warrants. See also Note 12 for
additional discussion of earnings per share.
The
preparation of financial statements in conformity with GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results may ultimately differ from
those estimates.
Certain
reclassifications have been made in the presentation of the prior period
consolidated financial statements to conform to the September 30, 2010
presentation. Primarily, certain assets and liabilities of consolidated VIEs
have been presented separately on our consolidated balance sheet. See above in
this Note 2 the discussion under “Balance Sheet Presentation” for additional
information.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
We
operate in two reportable segments. We have an internal information system that
produces performance and asset data for the two segments along service
lines.
The
Balance Sheet Investment segment includes our entire portfolio of interest
earning assets and the financing thereof.
The
Investment Management segment includes the investment management activities of
our wholly-owned investment management subsidiary, CT Investment Management Co.,
LLC, or CTIMCO, and its subsidiaries, as well as our co-investments in
investment management vehicles. CTIMCO is a taxable REIT subsidiary and serves
as the investment manager of Capital Trust, Inc., all of our investment
management vehicles and all of our CT CDOs, and serves as senior servicer and
special servicer for certain of our investments and for third
parties.
Goodwill
represents the excess of acquisition costs over the fair value of the net assets
of businesses acquired. Goodwill is reviewed, at least annually, to determine if
there is an impairment at a reporting unit level, or more frequently if an
indication of impairment exists. During the second quarter of 2009, we
completely impaired goodwill, and therefore do not have any recorded goodwill as
of September 30, 2010.
Fair
Value of Financial Instruments
The “Fair
Value Measurements and Disclosures” Topic of the Financial Accounting Standards
Board, or FASB, Accounting Standards Codification, or the Codification, defines
fair value, establishes a framework for measuring fair value, and requires
certain disclosures about fair value measurements under GAAP. Specifically, this
guidance defines fair value based on exit price, or the price that would be
received upon the sale of an asset or the transfer of a liability in an orderly
transaction between market participants at the measurement date. Our assets and
liabilities which are measured at fair value are discussed in Note
16.
Recent
Accounting Pronouncements
New
accounting guidance which was effective as of January 1, 2010 changed the
criteria for consolidation of VIEs and removed a preexisting consolidation
exception for qualified special purpose entities, such as certain securitization
vehicles. The amended guidance requires a qualitative, rather than quantitative
assessment of when a VIE should be consolidated. Specifically, an entity would
generally be required to consolidate a VIE if it has (i) the power to direct the
activities that most significantly impact the entity’s economic performance, and
(ii) the right to receive benefits from the VIE or the obligation to absorb
losses of the VIE that could be significant to the VIE.
As a
result of the amended guidance, we have consolidated an additional seven VIEs
beginning January 1, 2010, all of which are securitization vehicles not
sponsored by us. We have consolidated these entities generally due to our
ownership interests in subordinate classes of securities issued by the VIEs,
which investments carry certain control provisions. Although our investments are
generally passive in nature, by owning more than 50% of the controlling class of
each VIE we do control special servicer naming rights, which we believe gives us
the power to direct the most significant economic activities of these
entities.
Upon
consolidation of these seven VIEs, we recorded a one-time adjustment to
shareholders’ equity of ($41.8) million on January 1, 2010. This reduction in
equity is due to the difference between the aggregate pre-consolidation carrying
value of our investment in these VIEs (which were accounted for as securities)
and the aggregate net assets, or equity, of those VIEs upon consolidation. This
difference was primarily caused by asset impairments recorded at the VIEs which
are in excess of our investment amount. Due to the fact that the liabilities of
these VIEs are entirely non-recourse to us, this excess charge to equity, as
well as similar charges on VIEs previously consolidated, will eventually be
reversed when our interests in the VIEs are repaid, sold, or the VIEs are
otherwise deconsolidated in the future.
In
January 2010, the FASB issued Accounting Standards Update 2010-06, “Fair Value
Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value
Measurements,” or ASU 2010-06. ASU 2010-06 amends existing disclosure guidance
related to fair value measurements. Specifically, ASU 2010-06 requires (i)
details of significant asset or liability transfers in and out of Level 1 and
Level 2 measurements within the fair value hierarchy, and (ii) inclusion of
gross purchases, sales, issuances, and settlements within the rollforward of
assets and liabilities valued using Level 3 inputs within the fair value
hierarchy. In addition, ASU 2010-06 clarifies and increases existing disclosure
requirements related to (i) the disaggregation of fair value disclosures, and
(ii) the inputs used in arriving at fair values for assets and liabilities
valued using Level 2 and Level 3 inputs within the fair value hierarchy. ASU
2010-06 is effective for the first interim or annual period beginning after
December 15, 2009, except for the gross presentation of the Level 3 rollforward,
which is required for annual reporting periods beginning after December 15, 2010
and for interim periods within those years. The adoption of ASU 2010-06 did not
have a material impact on our consolidated financial statements. Additional
disclosure, as applicable, is included in Note 16.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
In
February 2010, the FASB issued Accounting Standards Update 2010-09,
“Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure
Requirements,” or ASU 2010-09. ASU 2010-09 primarily rescinds the requirement
that, for listed companies, financial statements clearly disclose the date
through which subsequent events have been evaluated. Subsequent events must
still be evaluated through the date of financial statement issuance; however,
the disclosure requirement has been removed to avoid conflicts with other SEC
guidelines. ASU 2010-09 was effective immediately upon issuance and was adopted
in February 2010. The adoption of ASU 2010-09 did not have a material impact on
our consolidated financial statements.
In
July 2010, the FASB issued Accounting Standards Update 2010-20,
“Receivables (Topic 310): Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses,” or ASU 2010-20. ASU 2010-20
primarily requires additional disaggregated disclosures of (i) credit risks
associated with financing receivables, and (ii) impaired financing receivables
and the related allowance for credit losses. ASU 2010-20 is generally effective
for the first interim or annual period ending after December 15, 2010; however
certain disclosures are not required until the first interim or annual period
beginning after December 15, 2010. The adoption of ASU 2010-20 will require us
to include additional disclosures in the notes to our consolidated financial
statements.
Note
3. Securities Held-to-Maturity
As
described in Note 2, our consolidated balance sheets separately state our assets
and liabilities and certain assets and liabilities of consolidated VIEs. The
following disclosures relate only to our securities portfolio we own
directly.
See also
Note 11 for comparable disclosures regarding securities that are held in
consolidated VIEs, as separately stated on our consolidated balance
sheets.
Our
securities portfolio consists of commercial mortgage-backed securities, or CMBS,
collateralized debt obligations, or CDOs, and other securities. Activity
relating to our securities portfolio for the nine months ended September 30,
2010 was as follows (in thousands):
|
|
CMBS
|
|
|
CDOs
& Other
|
|
|
|
Total
Book Value
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
$2,081 |
|
|
|
$15,251 |
|
|
|
|
$17,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal
paydowns
|
|
|
(127 |
) |
|
|
— |
|
|
|
|
(127 |
) |
Discount/premium
amortization & other (2)
|
|
|
193 |
|
|
|
590 |
|
|
|
|
783 |
|
Other-than-temporary
impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized
in earnings
|
|
|
(586 |
) |
|
|
(17,211 |
) |
|
|
|
(17,797 |
) |
Recognized
in accumulated other comprehensive income
|
|
|
586 |
|
|
|
2,568 |
|
|
|
|
3,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2010
|
|
|
$2,147 |
|
|
|
$1,198 |
|
|
|
|
$3,345 |
|
|
|
|
(1)
|
Includes securities with a total face value of $36.1 million and
$105.2 million as of September 30, 2010 and December 31, 2009,
respectively. Securities with an aggregate face value of $69.0 million,
which had a net carrying value of zero as of December 31, 2009, have been
eliminated in consolidation beginning January 1, 2010 as discussed in Note
2.
|
(2) |
Includes mark-to-market adjustments on securities previously
classified as available-for-sale, amortization of other-than-temporary
impairments, and losses, if
any.
|
As
detailed in Note 2, on August 4, 2005, we changed the accounting classification
of our then portfolio of securities from available-for-sale to held-to-maturity.
While we typically account for the securities in our portfolio on a
held-to-maturity basis, under certain circumstances we will account for
securities on an available-for-sale basis. As of both September 30, 2010 and
December 31, 2009, we had no securities classified as
available-for-sale.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
following table allocates our securities’ book value as of September 30, 2010
between their amortized cost basis, amounts related to mark-to-market
adjustments on securities previously classified as available-for-sale, and the
portion of other-than-temporary impairments not related to expected credit
losses (in thousands):
|
|
CMBS
|
|
|
CDOs
&
Other
|
|
|
|
Total
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized
cost basis
|
|
|
$5,541 |
|
|
|
$1,198 |
|
|
|
|
$6,739 |
|
Mark-to-market
adjustments on securities previously classified
as
available-for-sale
|
|
|
(549 |
) |
|
|
— |
|
|
|
|
(549 |
) |
Other-than-temporary
impairments recognized in accumulated
other
comprehensive income
|
|
|
(2,845 |
) |
|
|
— |
|
|
|
|
(2,845 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
book value
|
|
|
$2,147 |
|
|
|
$1,198 |
|
|
|
|
$3,345 |
|
The
following table details overall statistics for our securities portfolio as of
September 30, 2010 and December 31, 2009:
|
|
September
30, 2010
|
|
December
31, 2009
|
Number
of securities
|
|
7
|
|
9
|
Number
of issues
|
|
5
|
|
6
|
Rating
(1)
(2)
|
|
CCC
|
|
B-
|
Fixed
/ Floating (in millions) (3)
|
|
$2
/ $1
|
|
$16
/ $1
|
Coupon
(1)
(4)
|
|
6.81%
|
|
9.82%
|
Yield (1)
(4)
|
|
8.58%
|
|
7.89%
|
Life
(years) (1)
(5)
|
|
2.0
|
|
2.8
|
|
|
|
(1)
|
Represents a weighted average as of September 30, 2010 and December
31, 2009, respectively.
|
(2) |
Weighted average ratings are based on the lowest rating published
by Fitch Ratings, Standard & Poor’s or Moody’s Investors Service for
each security and exclude unrated equity investments in CDOs with a net
book value of $1.2 million as of both September 30, 2010 and December 31,
2009.
|
(3) |
Represents the aggregate net book value of our portfolio allocated
between fixed rate and floating rate securities.
|
(4) |
Coupon is based on the securities’ contractual interest rates,
while yield is based on expected cash flows for each security, and
considers discounts/premiums and asset non-performance. Calculations for
floating rate securities are based on LIBOR of 0.26% and 0.23% as of
September 30, 2010 and December 31, 2009,
respectively.
|
(5) |
Weighted
average life is based on the timing and amount of future expected
principal payments through the expected repayment date of each respective
investment. |
The table
below details the ratings and vintage distribution of our securities as of
September 30, 2010 and December 31, 2009 (in thousands):
|
|
Rating
as of September 30, 2010
|
|
|
Rating
as of December 31, 2009
|
Vintage
|
|
B
|
|
CCC
and
Below
|
|
|
Total
|
|
|
B
|
|
CCC
and
Below
|
|
|
Total
|
2003
|
|
$—
|
|
$1,197
|
|
|
$1,197
|
|
|
$13,488
|
|
$1,162
|
|
|
$14,650
|
2002
|
|
—
|
|
—
|
|
|
—
|
|
|
—
|
|
602
|
|
|
602
|
2000
|
|
—
|
|
866
|
|
|
866
|
|
|
—
|
|
879
|
|
|
879
|
1997
|
|
226
|
|
—
|
|
|
226
|
|
|
246
|
|
—
|
|
|
246
|
1996
|
|
—
|
|
1,056
|
|
|
1,056
|
|
|
—
|
|
955
|
|
|
955
|
Total
|
|
$226
|
|
$3,119
|
|
|
$3,345
|
|
|
$13,734
|
|
$3,598
|
|
|
$17,332
|
Other-than-temporary
impairments
Quarterly,
we reevaluate our securities portfolio to determine if there has been an
other-than-temporary impairment based upon expected future cash flows from each
securities investment. As a result of this evaluation, under the accounting
guidance discussed in Note 2, during the nine months ended September 30, 2010,
we recorded a gross other-than-temporary impairment of $14.6 million. In
addition, we determined that $3.2 million of impairments previously recorded in
other comprehensive income should be recognized as credit losses due to a
decrease in cash flow expectations for two of our securities with an aggregate
net book value of $1.1 million.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
To
determine the component of the gross other-than-temporary impairment related to
expected credit losses, we compare the amortized cost basis of each
other-than-temporarily impaired security to the present value of its revised
expected cash flows, discounted using its pre-impairment yield. Significant
judgment of management is required in this analysis that includes, but is not
limited to, (i) assumptions regarding the collectability of principal and
interest, net of related expenses, on the underlying loans, and (ii) current
subordination levels at both the individual loans which serve as collateral
under our securities and at the securities themselves.
The
following table summarizes activity related to the other-than-temporary
impairments of our securities during the nine months ended September 30, 2010
(in thousands):
|
|
Gross
Other-Than-Temporary Impairments
|
|
|
|
Credit
Related Other-Than-Temporary Impairments
|
|
|
Non-Credit
Related Other-Than-Temporary Impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
$85,838 |
|
|
|
|
$79,210 |
|
|
|
$6,628 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
of change in accounting principle (1)
|
|
|
(68,989 |
) |
|
|
|
(68,989 |
) |
|
|
— |
|
Additions
due to change in expected cash
flows
|
|
|
14,643 |
|
|
|
|
17,797 |
|
|
|
(3,154 |
) |
Amortization
of other-than-temporary impairments
|
|
|
(831 |
) |
|
|
|
(202 |
) |
|
|
(629 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2010
|
|
|
$30,661 |
|
|
|
|
$27,816 |
|
|
|
$2,845 |
|
|
|
|
(1)
|
Due to the consolidation of additional VIEs, as discussed in Note
2, other-than-temporary impairments which were previously recorded on our
investment in these entities have been eliminated in consolidation
beginning January 1,
2010.
|
Unrealized
losses and fair value of securities
Certain
of our securities are carried at values in excess of their fair values. This
difference can be caused by, among other things, changes in credit spreads and
interest rates. The following table shows the gross unrealized losses and fair
value of our securities for which the fair value is lower than our book value as
of September 30, 2010 and that are not deemed to be other-than-temporarily
impaired (in millions):
|
|
Less
Than 12 Months
|
|
Greater
Than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Fair
Value
|
|
Gross
Unrealized
Loss
|
|
Estimated
Fair
Value
|
|
Gross
Unrealized
Loss
|
|
|
Estimated
Fair
Value
|
|
Gross
Unrealized
Loss
|
|
|
Book
Value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
Rate
|
|
$—
|
|
$—
|
|
$0.2
|
|
($1.0)
|
|
|
$0.2
|
|
($1.0)
|
|
|
$1.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
—
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$—
|
|
$—
|
|
$0.2
|
|
($1.0)
|
|
|
$0.2
|
|
($1.0)
|
|
|
$1.2
|
|
|
|
(1)
|
Excludes, as of September 30, 2010, $2.1 million of securities
which were carried at or below fair value and securities against which an
other-than-temporary impairment equal to the entire book value was
recognized in
earnings.
|
As of
September 30, 2010, one of our securities with an aggregate carrying value of
$1.2 million was carried at a balance in excess of its fair value. Fair value
for this security was $158,000 as of September 30, 2010. In total, as of
September 30, 2010, we had seven investments in securities with an aggregate
book value of $3.3 million that have an estimated fair value of $4.6 million,
including three investments in CMBS with an estimated fair value of $4.4 million
and four investments in CDOs and other securities with an estimated fair value
of $158,000. These valuations do not include the value of interest rate swaps
entered into in conjunction with the purchase/financing of these investments, if
any.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
following table shows the gross unrealized losses and fair value of our
securities for which the fair value is lower than our book value as of December
31, 2009 and that are not deemed to be other-than-temporarily impaired (in
millions):
|
|
Less
Than 12 Months
|
|
Greater
Than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Fair
Value
|
|
Gross
Unrealized
Loss
|
|
Estimated
Fair
Value
|
|
Gross
Unrealized
Loss
|
|
|
Estimated
Fair
Value
|
|
Gross
Unrealized
Loss
|
|
|
Book
Value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
Rate
|
|
$—
|
|
$—
|
|
$0.2
|
|
($0.9)
|
|
|
$0.2
|
|
($0.9)
|
|
|
$1.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
|
—
|
|
—
|
|
3.8
|
|
(9.7)
|
|
|
3.8
|
|
(9.7)
|
|
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$—
|
|
$—
|
|
$4.0
|
|
($10.6)
|
|
|
$4.0
|
|
($10.6)
|
|
|
$14.6
|
|
|
|
(1)
|
Excludes, as of December 31, 2009, $2.7 million of securities which
were carried at or below fair value and securities against which an
other-than-temporary impairment equal to the entire book value was
recognized in
earnings.
|
As of
December 31, 2009, three securities with an aggregate carrying value of $14.6
million were carried at values in excess of their fair values. Fair value for
these securities was $4.0 million as of December 31, 2009. In total, as of
December 31, 2009, we had nine investments in securities with an aggregate book
value of $17.3 million that have an estimated fair value of $8.5 million,
including three investments in CMBS with an estimated fair value of $3.9 million
and six investments in CDOs and other securities with an estimated fair value of
$4.7 million. These valuations do not include the value of interest rate swaps
entered into in conjunction with the purchase/financing of these investments, if
any.
We
determine fair values using third party dealer assessments of value,
supplemented in limited cases with our own internal financial model-based
estimations of fair value. We regularly examine our securities portfolio and
have determined that, despite the differences between carrying value and fair
value discussed above, our expectations of future cash flows have only changed
adversely for six of our securities, against which we have recognized
other-than-temporary-impairments.
Our
estimation of cash flows expected to be generated by our securities portfolio is
based upon an internal review of the underlying loans securing our investments
both on an absolute basis and compared to our initial underwriting for each
investment. Our efforts are supplemented by third party research reports, third
party market assessments and our dialogue with market participants. As of
September 30, 2010, we do not intend to sell our securities, nor do we believe
it is more likely than not that we will be required to sell our securities
before recovery of their amortized cost bases, which may be at maturity. This,
combined with our assessment of cash flows, is the basis for our conclusion that
these investments are not impaired, other than as described above, despite the
differences between estimated fair value and book value. We attribute the
difference between book value and estimated fair value to the current market
dislocation and a general negative bias against structured financial products
such as CMBS and CDOs.
Investments
in variable interest entities
Our
securities portfolio includes investments in both CMBS and CDOs, which
securitization structures are generally considered VIEs. We have not
consolidated these VIEs due to our determination that, based on the structural
provisions of each entity and the nature of our investments, we do not have the
power to direct the activities that most significantly impact these entities'
economic performance.
These
securities were acquired through investment, and do not represent a
securitization or other transfer of our assets. We are not named as special
servicer on these investments, nor do we have the right to name special
servicer.
We are
not obligated to provide, nor have we provided, any financial support to these
entities. As of September 30, 2010, our maximum exposure to loss as a result of
our investment in these entities is $36.1 million, the principal amount of our
securities portfolio. We have recorded other-than-temporary impairments of $30.7
million against this portfolio, resulting in a net exposure to loss of $5.4
million as of September 30, 2010.
Note
4. Loans Receivable, net
As
described in Note 2, our consolidated balance sheets separately state our assets
and liabilities and certain assets and liabilities of consolidated VIEs. The
following disclosures relate only to our loans receivable portfolio we own
directly.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
See also
Note 11 for comparable disclosures regarding loans receivable that are held in
consolidated VIEs, as separately stated on our consolidated balance
sheets.
Activity
relating to our loans receivable for the nine months ended September 30, 2010
was as follows (in thousands):
|
|
Gross
Book Value
|
|
Provision
for Loan Losses
|
|
|
Net
Book
Value (1)
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
$1,126,697
|
|
($359,952)
|
|
|
$766,745
|
|
|
|
|
|
|
|
|
Additional
fundings
(2)
|
|
1,842
|
|
—
|
|
|
1,842
|
Satisfactions
(3)
|
|
(21,000)
|
|
—
|
|
|
(21,000)
|
Principal
paydowns
|
|
(10,215)
|
|
—
|
|
|
(10,215)
|
Discount/premium
amortization & other
|
|
580
|
|
—
|
|
|
580
|
Provision
for loan losses (4)
|
|
—
|
|
(61,330)
|
|
|
(61,330)
|
Realized
loan losses
|
|
(17,511)
|
|
17,511
|
|
|
—
|
Reclassification
to loans held-for-sale
|
|
(76,632)
|
|
10,643
|
|
|
(65,989)
|
|
|
|
|
|
|
|
|
September
30, 2010
|
|
$1,003,761
|
|
($393,128)
|
|
|
$610,633
|
|
|
|
(1)
|
Includes loans with a total principal balance of $1.00 billion and
$1.13 billion as of September 30, 2010 and December 31, 2009,
respectively.
|
(2) |
Additional fundings includes capitalized interest of
$281,000.
|
(3) |
Includes final maturities, full repayments, and
sales.
|
(4) |
Provision for loan losses is presented net of a $10.0 million
recovery of provisions recorded in prior
periods.
|
The
following table details overall statistics for our loans receivable portfolio as
of September 30, 2010 and December 31, 2009:
|
|
September
30, 2010
|
|
December
31, 2009
|
Number
of investments
|
|
31
|
|
35
|
Fixed
/ Floating (in millions) (1)
|
|
$53
/ $558
|
|
$58
/ $708
|
Coupon
(2)
(3)
|
|
3.71%
|
|
3.77%
|
Yield (2)
(3)
|
|
3.71%
|
|
3.59%
|
Maturity
(years) (2)
(4)
|
|
1.7
|
|
2.2
|
|
|
|
(1)
|
Represents the aggregate net book value of our portfolio allocated
between fixed rate and floating rate
loans.
|
(2) |
Represents a weighted average as of September 30, 2010 and December
31, 2009, respectively.
|
(3) |
Calculations for floating rate loans are based on LIBOR of 0.26%
and 0.23% as of September 30, 2010 and December 31, 2009,
respectively.
|
(4) |
Represents the final maturity of each investment assuming all
extension options are
executed.
|
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
tables below detail the types of loans in our portfolio, as well as the property
type and geographic distribution of the properties securing our loans, as of
September 30, 2010 and December 31, 2009 (in thousands):
|
|
September
30, 2010
|
|
December
31, 2009
|
Asset
Type
|
|
Book
Value
|
|
Percentage
|
|
Book
Value
|
|
Percentage
|
Senior
mortgages
|
|
|
$238,614 |
|
|
|
39 |
% |
|
|
$302,999 |
|
|
|
40 |
% |
Mezzanine
loans
|
|
|
232,460 |
|
|
|
38 |
|
|
|
209,980 |
|
|
|
27 |
|
Subordinate
interests in mortgages
|
|
|
116,425 |
|
|
|
18 |
|
|
|
179,525 |
|
|
|
23 |
|
Other
|
|
|
23,134 |
|
|
|
5 |
|
|
|
74,241 |
|
|
|
10 |
|
Total
|
|
|
$610,633 |
|
|
|
100 |
% |
|
|
$766,745 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
Type
|
|
Book
Value
|
|
Percentage
|
|
Book
Value
|
|
Percentage
|
Office
|
|
|
$310,755 |
|
|
|
51 |
% |
|
|
$339,142 |
|
|
|
44 |
% |
Hotel
|
|
|
146,883 |
|
|
|
24 |
|
|
|
176,557 |
|
|
|
23 |
|
Healthcare
|
|
|
52,104 |
|
|
|
9 |
|
|
|
113,900 |
|
|
|
15 |
|
Multifamily
|
|
|
18,102 |
|
|
|
3 |
|
|
|
23,657 |
|
|
|
3 |
|
Retail
|
|
|
14,230 |
|
|
|
2 |
|
|
|
14,219 |
|
|
|
2 |
|
Other
|
|
|
68,559 |
|
|
|
11 |
|
|
|
99,270 |
|
|
|
13 |
|
Total
|
|
|
$610,633 |
|
|
|
100 |
% |
|
|
$766,745 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic
Location
|
|
Book
Value
|
|
Percentage
|
|
Book
Value
|
|
Percentage
|
Northeast
|
|
|
$178,342 |
|
|
|
29 |
% |
|
|
$222,303 |
|
|
|
29 |
% |
Southeast
|
|
|
170,031 |
|
|
|
28 |
|
|
|
196,640 |
|
|
|
26 |
|
Southwest
|
|
|
96,190 |
|
|
|
16 |
|
|
|
97,384 |
|
|
|
13 |
|
West
|
|
|
54,714 |
|
|
|
9 |
|
|
|
76,751 |
|
|
|
10 |
|
Northwest
|
|
|
29,926 |
|
|
|
5 |
|
|
|
64,260 |
|
|
|
8 |
|
Midwest
|
|
|
6,614 |
|
|
|
1 |
|
|
|
18,827 |
|
|
|
2 |
|
International
|
|
|
39,558 |
|
|
|
6 |
|
|
|
54,800 |
|
|
|
7 |
|
Diversified
|
|
|
35,258 |
|
|
|
6 |
|
|
|
35,780 |
|
|
|
5 |
|
Total
|
|
|
$610,633 |
|
|
|
100 |
% |
|
|
$766,745 |
|
|
|
100 |
% |
Quarterly,
management evaluates our loan portfolio for impairment as described in Note 2.
The following table describes our impaired loans as of September 30, 2010,
including impaired loans that are current in their interest payments and those
that are delinquent on contractual payments (in thousands):
|
|
No.
of
Loans
|
|
Gross
Book
Value
|
|
Provision
for
Loan
Loss
|
|
|
Net
Book Value
|
Impaired
loans:
|
|
|
|
|
|
|
|
|
|
Performing
loans
|
|
6
|
|
$365,701
|
|
($316,680)
|
|
|
$49,021
|
Non-performing
loans
|
|
4
|
|
101,846
|
|
(76,448)
|
|
|
25,398
|
|
|
|
|
|
|
|
|
|
|
Total
impaired loans
|
|
10
|
|
$467,547
|
|
($393,128)
|
|
|
$74,419
|
The
following table details the allocation of our provision for loan losses as of
September 30, 2010 (in thousands):
|
|
September
30, 2010
|
Provision
for Loan Losses
|
|
Book
Value
|
|
Percentage
|
Mezzanine
loans
|
|
$302,288
|
|
77%
|
Subordinate
interests in mortgages
|
|
73,931
|
|
19
|
Senior
mortgages
|
|
16,909
|
|
4
|
Total
|
|
$393,128
|
|
100%
|
Our
average balance of impaired loans was $75.8 million during the nine months ended
September 30, 2010. Subsequent to their impairment, we recorded interest on
impaired loans that are performing of $8.9 million during the first nine months
of 2010, substantively all of which was received in cash. Our average balance of
impaired loans was $25.2 million during the nine months ended September 30,
2009. Subsequent to their impairment, we recorded interest on these loans of
$357,000 during the first nine months of 2009.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
In some
cases our loan originations are not fully funded at closing, creating an
obligation for us to make future fundings, which we refer to as Unfunded Loan
Commitments. Typically, Unfunded Loan Commitments are part of construction and
transitional loans. As of September 30, 2010, our two Unfunded Loan Commitments
totaled $778,000, which will generally only be funded when and/or if the
borrower meets certain performance hurdles with respect to the underlying
collateral, or to reimburse costs associated with leasing
activity.
Note
5. Loans Held-for-Sale, Net
Activity
relating to our loans held-for-sale for the nine months ended September 30, 2010
was as follows (in thousands):
|
|
Gross
Book
Value
|
|
Valuation
Allowance
|
|
|
Net
Book Value
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
$—
|
|
$—
|
|
|
$—
|
|
|
|
|
|
|
|
|
Reclassification
from loans receivable
|
|
76,632
|
|
(10,643)
|
|
|
65,989
|
Valuation
allowance on loans held-for-sale
|
|
—
|
|
(6,036)
|
|
|
(6,036)
|
|
|
|
|
|
|
|
|
September
30, 2010
|
|
$76,632
|
|
($16,679)
|
|
|
$59,953
|
The
following table details overall statistics for our loans held-for-sale portfolio
as of September 30, 2010:
|
|
September
30, 2010
|
Number
of investments
|
|
2
|
Coupon
(1)
(2)
|
|
4.88%
|
Yield (1)
(2)
|
|
4.81%
|
Maturity
(years) (1)
(3)
|
|
1.5
|
|
|
|
(1)
|
Represents a weighted average as of September 30,
2010.
|
(2) |
Calculations for floating rate loans are based on LIBOR of 0.26% as
of September 30, 2010.
|
(3) |
Represents the final maturity of each investment assuming all
extension options are
executed.
|
During
the third quarter of 2010, we reclassified a $60.7 million senior mortgage loan
to loans held-for-sale, against which we recorded a $2.5 million valuation
allowance resulting in a net book value of $58.0 million as of September 30,
2010, which amount approximates fair value. We have previously sold a $28.7
million pari passu interest in this loan to one of our investment management
vehicles. The transaction did not qualify for sale treatment under GAAP and we
therefore still carry the entire $60.7 million loan as an asset and $28.7
million as a liability, as described in Note 9.
During
the second quarter of 2010, we reclassified a $16.1 million mezzanine loan to
loans held-for-sale, against which we have previously recorded a provision for
loan losses of $10.6 million. During the third quarter of 2010, we recorded an
additional $3.5 million valuation allowance against this loan resulting in a net
book value of $2.0 million as of September 30, 2010, which amount approximates
fair value.
See also
Note 11 for comparable disclosures regarding loans held-for-sale that are held
in consolidated VIEs, as separately stated on our consolidated balance
sheets.
Note
6. Real Estate Held-for-Sale
We do not
have any real estate held-for-sale as of September 30, 2010. During the nine
months ended September 30, 2009, we recorded a $2.2 million impairment against
an investment which was sold in July 2009.
See also
Note 11 for comparable disclosures regarding real estate held-for-sale that are
held in consolidated VIEs, as separately stated on our consolidated balance
sheets.
Note
7. Equity Investments in Unconsolidated Subsidiaries
Our
equity investments in unconsolidated subsidiaries consist primarily of our
co-investments in investment management vehicles that we sponsor and manage. As
of September 30, 2010, we had a co-investment in one such vehicle, CT
Opportunity Partners I, LP, or CTOPI, in which we have a commitment to invest up
to $25.0 million, or 4.6% of CTOPI’s total capital commitments. We have funded
$10.1 million of our commitment as of September 30, 2010, resulting in a $14.9
million unfunded commitment balance. In addition to our co-investments, we
record capitalized costs associated with these vehicles in equity investments in
unconsolidated subsidiaries.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
During
the third quarter of 2010, we completed the liquidation of one of our investment
management vehicles, CT Mezzanine Partners III, Inc., or Fund III, and
recorded $733,000 of incentive management fees.
Activity
relating to our equity investments in unconsolidated subsidiaries for the nine
months ended September 30, 2010 was as follows (in thousands):
|
|
Fund
III
|
|
CTOPI
|
|
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
$158
|
|
$2,175
|
|
$18
|
|
|
$2,351
|
Contributions
|
|
—
|
|
2,917
|
|
—
|
|
|
2,917
|
(Loss)
income from equity investments
|
|
(129)
|
|
2,492
|
|
(5)
|
|
|
2,358
|
Distributions
|
|
(29)
|
|
—
|
|
—
|
|
|
(29)
|
September
30, 2010
|
|
$—
|
|
$7,584
|
|
$13
|
|
|
$7,597
|
In
accordance with the CTOPI management agreement, CTIMCO may earn incentive
compensation when certain returns are achieved for the partners of CTOPI, which
will be accrued if and when earned, and when appropriate contingencies have been
eliminated. As of September 30, 2010, our maximum exposure to loss from CTOPI
was $10.1 million.
Note
8. Debt Obligations
As
described in Note 2, our consolidated balance sheets separately state our assets
and liabilities and certain assets and liabilities of consolidated VIEs. The
following disclosures relate to the debt obligations of Capital Trust, Inc. and
its wholly-owned subsidiaries only.
See also
Note 11 for comparable disclosures regarding the debt obligations of
consolidated VIEs, that are non-recourse to us, as separately stated on our
consolidated balance sheets.
As of
September 30, 2010 and December 31, 2009, we had $637.5 million and $677.4
million of total debt obligations outstanding, respectively. The balances of
each category of debt, their respective coupons and all-in effective costs,
including the amortization of fees and expenses, were as follows (in
thousands):
|
|
September
30, 2010
|
|
|
December
31, 2009
|
|
|
|
September
30, 2010
|
Recourse
Debt Obligations
|
|
Principal
Balance
|
|
|
Book
Balance
|
|
|
Book
Balance
|
|
|
|
Coupon(1)
|
|
|
All-In Cost(1)
|
|
|
Maturity Date(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan
|
|
|
$229,403 |
|
|
|
$229,277 |
|
|
|
$258,203 |
|
|
|
|
1.73 |
% |
|
|
1.78 |
% |
|
March
15, 2011
|
Morgan
Stanley
|
|
|
135,801 |
|
|
|
135,735 |
|
|
|
148,170 |
|
|
|
|
2.12 |
% |
|
|
2.12 |
% |
|
March
15, 2011
|
Citigroup
|
|
|
42,932 |
|
|
|
42,909 |
|
|
|
43,764 |
|
|
|
|
1.60 |
% |
|
|
1.60 |
% |
|
March
15, 2011
|
Total
repurchase obligations
|
|
|
408,136 |
|
|
|
407,921 |
|
|
|
450,137 |
|
|
|
|
1.84 |
% |
|
|
1.87 |
% |
|
March
15, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
credit facility
|
|
|
98,393 |
|
|
|
98,393 |
|
|
|
99,188 |
|
|
|
|
3.26 |
% |
|
|
7.20 |
% |
|
March
15, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior subordinated
notes
(3)
|
|
|
143,753 |
|
|
|
131,145 |
|
|
|
128,077 |
|
|
|
|
1.00 |
% |
|
|
4.28 |
% |
|
April
30, 2036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Weighted
Average
|
|
|
$650,282 |
|
|
|
$637,459 |
|
|
|
$677,402 |
|
|
|
|
1.87 |
% |
|
|
3.19 |
%(4) |
|
May
15, 2016
|
|
|
|
(1)
|
Represents a weighted average for each respective facility,
assuming LIBOR of 0.26% at September 30, 2010 for floating rate debt
obligations.
|
(2) |
Maturity dates for our repurchase obligations with JPMorgan, Morgan
Stanley and Citigroup, and our senior credit facility, do not give effect
to the potential one year extension, to March 15, 2012, which is at our
lenders’ sole discretion.
|
(3) |
The coupon for junior subordinated notes will remain at 1.00% per
annum through April 29, 2012, increase to 7.23% per annum for the period
from April 30, 2012 through April 29, 2016 and then convert to a floating
interest rate of three-month LIBOR + 2.44% per annum through
maturity.
|
(4) |
Including the impact of interest rate hedges with an aggregate
notional balance of $64.2 million as of September 30, 2010, the effective
all-in cost of our debt obligations would be 3.68% per
annum.
|
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
Repurchase
Obligations
On March
16, 2009, we amended and restructured our repurchase obligations with: (i)
JPMorgan Chase Bank, N.A., JPMorgan Chase Funding Inc. and J.P. Morgan
Securities Inc., or collectively JPMorgan, (ii) Morgan Stanley Bank, N.A., or
Morgan Stanley, and (iii) Citigroup Financial Products Inc. and Citigroup Global
Markets Inc., or collectively Citigroup.
Specifically,
on March 16, 2009, we entered into separate amendments to the respective master
repurchase agreements with JPMorgan, Morgan Stanley and Citigroup. Pursuant to
the terms of each such agreement, we amended the terms of each such facility,
without any change to the collateral pool securing the debt owed to each
repurchase lender, to provide the following:
|
·
|
Maturity
dates were modified to one year from the March 16, 2009 effective date of
each respective agreement, which maturity dates may be extended further
for two one-year periods. The first one-year extension option was
exercised by us in March 2010, as a result of a successful twenty percent
reduction in the amount owed each repurchase lender from the amount
outstanding as of the March 16, 2009 amendment. The second one-year
extension option is exercisable by each repurchase lender in its sole
discretion. Currently, maturity dates for our repurchase agreements have
been extended to March 15, 2011.
|
|
·
|
We
agreed to pay each repurchase lender periodic amortization as follows: (i)
mandatory payments, payable monthly in arrears, in an amount equal to
sixty-five (65%) of the net interest income generated by each such
lender’s collateral pool (this amount did not change during the first
one-year extension period), and (ii) one hundred percent (100%) of the
principal proceeds received from the repayment of assets in each such
lender’s collateral pool. In addition, under the terms of the amendment
with Citigroup, we agreed to pay Citigroup an additional quarterly
amortization payment generally equal to the product of (i) the total cash
paid (including both principal and interest) during the period to our
senior credit facility in excess of an amount equivalent to LIBOR plus
1.75% based upon a $100.0 million facility amount, and (ii) a fraction,
the numerator of which is Citigroup’s then outstanding repurchase facility
balance and the denominator is the total outstanding indebtedness of our
repurchase lenders.
|
|
·
|
We
further agreed to amortize each repurchase lender’s secured debt at the
end of each calendar quarter on a pro rata basis until we have repaid our
repurchase facilities and thereafter our senior credit facility in an
amount equal to any unrestricted cash in excess of the sum of (i) $25.0
million, and (ii) any unfunded loan and co-investment
commitments.
|
|
·
|
Each
repurchase lender was relieved of its obligation to make future advances
with respect to unfunded commitments arising under investments in its
collateral pool.
|
|
·
|
We
received the right to sell or refinance collateral assets provided we
apply one hundred percent (100%) of the proceeds to pay down the related
repurchase facility balance subject to minimum release price
mechanics.
|
|
·
|
We
eliminated the cash margin call provisions and amended the mark-to-market
provisions that were in effect under the original terms of
the repurchase facilities. Under the revised facilities, going
forward, collateral value is expected to be determined by our lenders
based upon changes in the performance of the underlying real estate
collateral as opposed to changes in market spreads under
the original terms. Beginning September 2009, each collateral pool
may be valued monthly. If a repurchase lender determines that the ratio of
their total outstanding facility balance to total collateral value exceeds
1.15x the ratio calculated as of the effective date of the amended
agreements, we may be required to liquidate collateral and reduce the
borrowings or post other collateral in an effort to bring the ratio
back into compliance with the prescribed ratio, which may or may not be
successful.
|
In each
master repurchase agreement amendment and the amendment to our senior credit
agreement described in greater detail below, which we collectively refer to as
our restructured debt obligations, we also replaced all existing financial
covenants with the following uniform covenants which:
|
·
|
prohibit
new balance sheet investments except, subject to certain limitations,
co-investments in our investment management vehicles or protective
investments to defend existing collateral assets on our balance
sheet;
|
|
·
|
prohibit
the incurrence of any additional indebtedness except in limited
circumstances;
|
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
|
·
|
limit
the total cash compensation to all employees and, specifically with
respect to our chief executive officer and chief financial officer, freeze
their base salaries at 2008 levels, and require cash bonuses to any of
them to be approved by a committee comprised of one representative
designated by the repurchase lenders, the administrative agent under the
senior credit facility and a representative of our board of
directors;
|
|
·
|
prohibit
the payment of cash dividends to our common shareholders except to the
minimum extent necessary to maintain our REIT
status;
|
|
·
|
require
us to maintain a minimum amount of liquidity, as defined, of $5.0
million;
|
|
·
|
trigger
an event of default if our current chief executive officer ceases his
employment with us during the term of the agreement and we fail to hire a
replacement acceptable to the lenders;
and
|
|
·
|
trigger
an event of default, if any event or condition occurs which causes any
obligation or liability of more than $1.0 million to become due prior to
its scheduled maturity or any monetary default under our restructured debt
obligations if the amount of such obligation is at least $1.0
million.
|
On March
16, 2009, in connection with the restructuring discussed above, we issued to
JPMorgan, Morgan Stanley and Citigroup warrants to purchase 3,479,691 shares of
our class A common stock at an exercise price of $1.79 per share, which is equal
to the closing bid price on the New York Stock Exchange on March 13, 2009. The
fair value assigned to these warrants, totaling $940,000, has been recorded as a
discount on the related debt obligations with a corresponding increase to
additional paid-in capital, and will be accreted as a component of interest
expense over the term of each respective facility. The warrants were valued
using the Black-Scholes valuation method.
The
following table details the aggregate outstanding principal balance, carrying
value and fair value of our assets, primarily loans receivable, which were
pledged as collateral under our repurchase facilities as of September 30, 2010,
as well as the amount at risk under each facility (in thousands). The amount at
risk is generally equal to the carrying value of our collateral less the
outstanding principal balance of the associated repurchase
facility.
|
|
|
|
Loans
and Securities Collateral Balances, as of September 30,
2010
|
|
|
Repurchase
Lender
|
|
Facility
Balance
|
|
Principal
Balance
|
|
Carrying
Value
|
|
Fair Value (1)
|
|
Amount at Risk (2)
|
JPMorgan (3)
|
|
$229,403
|
|
$476,921
|
|
$308,217
|
|
$261,203
|
|
$86,336
|
Morgan Stanley (4)
|
|
135,801
|
|
367,636
|
|
238,749
|
|
144,320
|
|
102,948
|
Citigroup
|
|
42,932
|
|
77,648
|
|
76,340
|
|
61,327
|
|
33,407
|
|
|
$408,136
|
|
$922,205
|
|
$623,306
|
|
$466,850
|
|
$222,691
|
|
|
|
(1)
|
Fair values represent the amount at which assets could be sold in
an orderly transaction between a willing buyer and willing seller. The
immediate liquidation value of these assets would likely be substantially
lower.
|
(2) |
Amount at risk is calculated on an asset-by-asset basis for each
facility and considers the greater of (a) the carrying value of an asset
and (b) the fair value of an asset, in determining the total
risk.
|
(3) |
In addition to serving as collateral for our JPMorgan repurchase
facility, these assets also secure our interest rate swap agreements.
These agreements with JPMorgan are in a net liability position of $11.0
million (their termination value), as described in Note
10.
|
(4) |
Amounts other than principal exclude certain subordinate interests
in our CT CDOs which have been pledged as collateral to Morgan Stanley.
These interests have been eliminated in consolidation and therefore have a
carrying value of zero on our balance
sheet.
|
Senior
Credit Facility
On March
16, 2009, we entered into an amended and restated senior credit agreement
governing our term loan from WestLB AG, New York Branch, participant and
administrative agent, Fortis Capital Corp., Wells Fargo Bank, N.A., JPMorgan
Chase Bank, N.A., Morgan Stanley Bank, N.A. and Deutsche Bank Trust Company
Americas, which we collectively refer to as the senior lenders. Pursuant to the
amended and restated senior credit agreement, we and the senior lenders agreed
to:
|
·
|
extend
the maturity date of the senior credit agreement to be co-terminus with
the maturity date of our repurchase facilities (as they may be further
extended until March 16, 2012, as described
above);
|
|
·
|
increase
the cash interest rate under the senior credit agreement to LIBOR plus
3.00% per annum (from LIBOR plus 1.75%), plus an accrual rate of 7.20% per
annum less the cash interest rate;
|
|
·
|
initiate
quarterly amortization equal to the greater of: (i) $5.0 million per
annum, and (ii) 25% of the annual cash flow received from our then
unencumbered collateralized debt obligation
interests;
|
|
·
|
pledge
our unencumbered CT CDO interests and provide a negative pledge with
respect to certain other assets;
and
|
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
|
·
|
replace
all existing financial covenants with substantially similar covenants and
default provisions to those described above with respect to our repurchase
facilities.
|
As of
September 30, 2010, we had $98.4 million outstanding under our senior credit
facility at a cash cost of LIBOR plus 3.00% per annum. Since we amended and
restated our senior credit agreement on March 16, 2009, we have made
amortization payments of $7.5 million, and $5.9 million of accrued interest was
added to the outstanding balance.
Junior
Subordinated Notes
The most
subordinate component of our debt obligations are our junior subordinated notes.
As of September 30, 2010, these notes had a principal balance of $143.8 million
($131.1 million book balance) at a cash cost of 1.00% per annum.
Pursuant
to exchange agreements dated March 16, 2009 and May 14, 2009, we issued a $143.8
million aggregate principal amount of junior subordinated notes which mature on
April 30, 2036 and are freely redeemable by us at par at any time. The interest
rate payable under the subordinated notes is 1% per annum from the date of
issuance through and including April 29, 2012, a fixed rate of 7.23% per annum
through and including April 29, 2016, and thereafter a floating rate, reset
quarterly, equal to three-month LIBOR plus 2.44% until maturity. The junior
subordinated notes contain a covenant that through April 30, 2012, subject to
certain exceptions, we may not declare or pay dividends or distributions on, or
redeem, purchase or acquire any of our equity interests except to the extent
necessary to maintain our status as a REIT.
Note
9. Participations Sold
Participations
sold represent interests in certain loans that we originated and subsequently
sold to one of our investment management vehicles or to third parties. We
present these participations sold as both assets and non-recourse liabilities
because these arrangements do not qualify as sales under GAAP. We have no
economic exposure to these liabilities in excess of the value of the assets
sold. As of September 30, 2010, we had five such participations sold with a
total gross carrying value of $288.1 million.
The
income earned on these loans is recorded as interest income and an identical
amount is recorded as interest expense in our consolidated statements of
operations. Generally, participations sold are recorded as assets and
liabilities in equal amounts on our consolidated balance sheets. We have
recorded an aggregate $173.7 million of provisions for loan losses against
certain of our participations sold assets, resulting in a net book value of
$114.5 million as of September 30, 2010. The associated liabilities have not
been adjusted as of September 30, 2010, because we are prohibited by GAAP from
reducing their carrying value until the loan assets are contractually
extinguished.
The
following table describes our participations sold assets and liabilities as of
September 30, 2010 and December 31, 2009 (in thousands):
|
|
September
30,
|
|
|
December
31,
|
|
|
|
2010
|
|
|
2009
|
|
Participations
sold assets
|
|
|
|
|
|
|
Gross
carrying value
|
|
|
$288,127 |
|
|
|
$289,144 |
|
Less:
Provision for loan losses
|
|
|
(173,668 |
) |
|
|
(172,465 |
) |
Net
book value of assets
|
|
|
$114,459 |
|
|
|
$116,679 |
|
|
|
|
|
|
|
|
|
|
Participations
sold liabilities
|
|
|
|
|
|
|
|
|
Net
book value of liabilities
|
|
|
$288,127 |
|
|
|
$289,144 |
|
Net
impact to shareholders' equity
|
|
|
($173,668 |
) |
|
|
($172,465 |
) |
Note
10. Derivative Financial Instruments
To manage
interest rate risk, we typically employ interest rate swaps, or other
arrangements, to convert a portion of our floating rate debt to fixed rate debt
in order to index match our assets and liabilities. The interest rate swaps that
we employ are designated as cash flow hedges and are designed to hedge fixed
rate assets against floating rate liabilities. Under cash flow hedges, we pay
our hedge counterparties a fixed rate amount and our counterparties pay us a
floating rate amount, which we settle monthly, and record as a component of
interest expense. Our counterparties in these transactions are financial
institutions and we are dependent upon the financial health of these
counterparties and a functioning interest rate derivative market in order to
effectively execute our hedging strategy.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
As
described in Note 2, our consolidated balance sheets separately state our assets
and liabilities and certain assets and liabilities of consolidated VIEs. The
following disclosures relate only to the interest rate hedge liabilities of
Capital Trust, Inc. and its wholly-owned subsidiaries.
See also
Note 11 for comparable disclosures regarding the interest rate hedge liabilities
of consolidated VIEs, which are non-recourse to us, as separately stated on our
consolidated balance sheets.
The
following table summarizes the notional amounts and fair values of our interest
rate swaps as of September 30, 2010 and December 31, 2009 (in thousands). The
notional amount provides an indication of the extent of our involvement in the
instruments at that time, but does not represent exposure to credit or interest
rate risk.
Type
|
|
Counterparty
|
|
September
30, 2010
Notional
Amount
|
|
Interest Rate (1)
|
|
Maturity
|
|
September
30, 2010
Fair
Value
|
|
December
31, 2009
Fair
Value
|
Cash
Flow Hedge
|
|
JPMorgan
Chase
|
|
$17,806
|
|
5.14%
|
|
2014
|
|
($1,537)
|
|
($1,182)
|
Cash
Flow Hedge
|
|
JPMorgan
Chase
|
|
16,894
|
|
4.83%
|
|
2014
|
|
(1,402)
|
|
(966)
|
Cash
Flow Hedge
|
|
JPMorgan
Chase
|
|
16,377
|
|
5.52%
|
|
2018
|
|
(1,865)
|
|
(1,239)
|
Cash
Flow Hedge
|
|
JPMorgan
Chase
|
|
7,062
|
|
5.11%
|
|
2016
|
|
(702)
|
|
(440)
|
Cash
Flow Hedge
|
|
JPMorgan
Chase
|
|
3,221
|
|
5.45%
|
|
2015
|
|
(335)
|
|
(237)
|
Cash
Flow Hedge
|
|
JPMorgan
Chase
|
|
2,812
|
|
5.08%
|
|
2011
|
|
(59)
|
|
(120)
|
Total/Weighted
Average
|
|
|
|
$64,172
|
|
5.16%
|
|
2015
|
|
($5,900)
|
|
($4,184)
|
|
|
|
(1)
|
Represents the gross fixed interest rate we pay to our
counterparties under these derivative instruments. We receive an amount of
interest indexed to one-month LIBOR on all of our interest rate
swaps.
|
As of
both September 30, 2010 and December 31, 2009, all of our derivative financial
instruments were recorded at fair value as interest rate hedge liabilities on
our consolidated balance sheet. During the nine months ended September 30, 2010,
we did not enter into any new derivative financial instrument
contracts.
The table
below shows amounts recorded to other comprehensive income and amounts recorded
to interest expense from other comprehensive income for the nine months ended
September 30, 2010 and 2009 (in thousands):
|
|
Amount
of gain (loss) recognized
|
|
Amount
of loss reclassified from OCI
|
|
|
in
OCI for the nine months ended
|
|
to income for the
nine months ended (1)
|
Hedge
|
|
September
30, 2010
|
|
September
30, 2009
|
|
September
30, 2010
|
|
September
30, 2009
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
($1,716)
|
|
$6,768
|
|
($2,237)
|
|
($2,581)
|
|
|
|
(1)
|
Represents net amounts paid to swap counterparties during the
period, which are included in interest expense, offset by an immaterial
amount of non-cash swap
amortization.
|
All of
our hedges were classified as highly effective for all of the periods presented.
Over the next twelve months, as we make payments under our hedge agreements, we
expect approximately $2.9 million to be reclassified from other comprehensive
income to interest expense. This amount is generally equal to the present value
of such expected payments under the respective derivative
contracts.
Certain
of our derivative agreements contain provisions whereby a default on any of our
recourse debt obligations could also constitute a default under these derivative
obligations. As of September 30, 2010, derivatives related to these agreements
were in a net liability position of $11.0 million (their termination value)
based on their contractual terms, which amount excludes certain adjustments made
in arriving at fair value in accordance with GAAP. If we default on any of our
recourse debt obligations, we could be required to settle our obligations under
the derivative agreements at their termination value. As of September 30, 2010,
we were not in default under any of our recourse debt obligations and have not
posted any assets as collateral under our derivative agreements.
On
October 10, 2008, we terminated an interest rate swap with a notional amount of
$18.0 million as a result of our counterparty filing for bankruptcy. In the
second quarter of 2010, we paid our former counterparty $246,000 to settle a
claim concerning the termination of this interest rate swap, which is included
as a component of interest expense on our consolidated statement of
operations.
Note
11. Consolidated Variable Interest Entities
As of
September 30, 2010, our consolidated balance sheet includes an aggregate $3.5
billion of assets and $3.7 billion of liabilities related to 11 consolidated
variable interest entities, or VIEs. Due to the non-recourse nature of these
VIEs, and other factors discussed below, our net exposure to loss from
investments in these entities is limited to $34.3 million.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
Our
consolidated VIEs generally include two categories of entities: (i)
collateralized debt obligations sponsored and issued by us, which we refer to as
CT CDOs, and (ii) other consolidated VIEs, which are also securitization
vehicles but were not issued or sponsored by us. We have historically
consolidated the CT CDOs; however we began consolidating the additional VIEs as
of January 1, 2010, as discussed in Note 2.
CT
CDOs
We
currently consolidate four collateralized debt obligation, or CDO, trusts, which
are VIEs that were sponsored by us. These CT CDO trusts invest in commercial
real estate debt instruments, some of which we originated/acquired and
transferred to the trust entities, and are financed by the debt and equity they
issue. We are named as collateral manager of all four CT CDO trusts and are
named special servicer on a number of CDO collateral assets. As a result of
consolidation, our subordinate debt and equity ownership interests in these CT
CDO trusts have been eliminated, and our balance sheet reflects both the assets
held and debt issued by these CDO trusts to third parties. Similarly, our
operating results and cash flows include the gross amounts related to the assets
and liabilities of the CT CDO entities, as opposed to our net economic interests
in these entities. Fees earned by us for the management of these CDO trusts are
eliminated in consolidation.
Our
interest in the assets held by these CT CDO trusts, which are consolidated on
our balance sheet, is restricted by the structural provisions of these entities,
and our recovery of these assets will be limited by the CDO trusts’ distribution
provisions, which are subject to change due to covenant breaches or asset
impairments, as further described below in this Note 11. The liabilities of the
CT CDO trusts, which are also consolidated on our balance sheet, are
non-recourse to us, and can generally only be satisfied from each CDO trust’s
respective asset pool.
We are
not obligated to provide, nor have we provided, any financial support to these
CT CDO trusts. Accordingly, other than in the event of a breach of certain
representations or warranties (discussed in detail below), our maximum exposure
to loss as a result of our investment in these entities is limited to $233.8
million, the notional amount of the subordinate debt and equity interest we
retained in these CDO trusts. After giving effect to certain transfers of these
interests, provisions for loan losses and other-than-temporary impairments
recorded as of September 30, 2010, our remaining net exposure to loss from these
entities is $34.3 million.
Other
Consolidated VIEs
As
discussed above, we currently consolidate seven additional VIEs, all of which
are securitization vehicles substantially similar to the CT CDOs. These VIEs
invest in commercial real estate debt instruments, which investments were not
originated or transferred to the VIEs by us. In addition to our investment in
the subordinate classes of the securities issued by these VIEs, we are named
special servicer on a number of the VIEs’ assets. As a result of consolidation,
our ownership interests in these VIEs have been eliminated, and our balance
sheet reflects both the assets held and debt issued by these VIEs to third
parties. Similarly, our operating results and cash flows include the gross
amounts related to the assets and liabilities of the VIEs, as opposed to our net
economic interests in these entities. Special servicing fees paid to us on
assets owned by these VIEs are eliminated in consolidation.
Our
interest in the assets held by these VIEs, which are consolidated on our balance
sheet, is restricted by the structural provisions of these entities, and a
recovery of our investment in the VIEs will be limited by each entity’s
distribution provisions. The liabilities of the VIEs, which are also
consolidated on our balance sheet, are non-recourse to us, and can generally
only be satisfied from each VIE’s respective asset pool.
We are
not obligated to provide, nor have we provided, any financial support to these
VIEs. In addition, five of these seven investments have been made through our CT
CDOs, which limits our exposure to loss as discussed above. Accordingly, as of
September 30, 2010, our maximum exposure to loss as a result of our investment
in these entities is limited to $69.0 million, the notional amount of our
investment in the two VIEs not held by our CT CDOs. Prior to consolidation, we
have previously impaired 100% of our investment in these entities, resulting in
a zero net exposure to loss as of September 30, 2010.
As
described in Note 2, our consolidated balance sheets separately state our assets
and liabilities and certain assets and liabilities of consolidated VIEs. The
following disclosures relate specifically to the assets and liabilities of these
VIEs, as separately stated on our consolidated balance sheets.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
A.
Securities Held-to-Maturity – Consolidated VIEs
Our
consolidated VIEs’ securities portfolio consists of CMBS, CDOs, and other
securities. Activity relating to these securities for the nine months ended
September 30, 2010 was as follows (in thousands):
|
|
CMBS
|
|
|
CDOs
& Other
|
|
|
|
Total
Book
Value
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
$624,791 |
|
|
|
$73,073 |
|
|
|
|
$697,864 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
of consolidation due to change in accounting principal
|
|
|
(78,087 |
) |
|
|
— |
|
|
|
|
(78,087 |
) |
Principal
paydowns
|
|
|
(7,993 |
) |
|
|
(17,906 |
) |
|
|
|
(25,899 |
) |
Maturities
|
|
|
(9,781 |
) |
|
|
— |
|
|
|
|
(9,781 |
) |
Discount/premium
amortization & other (2)
|
|
|
3,068 |
|
|
|
(661 |
) |
|
|
|
2,407 |
|
Other-than-temporary
impairments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recognized
in earnings
|
|
|
(39,907 |
) |
|
|
— |
|
|
|
|
(39,907 |
) |
Recognized
in accumulated other comprehensive income
|
|
|
(15,248 |
) |
|
|
— |
|
|
|
|
(15,248 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2010
|
|
|
$476,843 |
|
|
|
$54,506 |
|
|
|
|
$531,349 |
|
|
|
|
(1)
|
Includes securities with a total face value of $614.4 million and
$751.2 million as of September 30, 2010 and December 31, 2009,
respectively. Securities with an aggregate face value of $92.4 million,
which had a net carrying value of $78.1 million as of December 31, 2009,
have been eliminated in consolidation beginning January 1, 2010 as
discussed in Note 2.
|
(2) |
Includes mark-to-market adjustments on securities previously
classified as available-for-sale, amortization of other-than-temporary
impairments, and losses, if
any.
|
As
detailed in Note 2, on August 4, 2005, we changed the accounting classification
of our then portfolio of securities from available-for-sale to held-to-maturity.
While we typically account for the securities in our portfolio on a
held-to-maturity basis, under certain circumstances, we will account for
securities on an available-for-sale basis. As of both September 30, 2010 and
December 31, 2009, our consolidated VIEs had no securities classified as
available-for-sale.
The
following table allocates our consolidated VIEs’ securities’ book value as of
September 30, 2010 between their amortized cost basis, amounts related to
mark-to-market adjustments on securities previously classified as
available-for-sale, and the portion of other-than-temporary impairments not
related to expected credit losses (in thousands):
|
|
CMBS
|
|
|
CDOs
&
Other
|
|
|
|
Total
Securities
|
|
Amortized
cost basis
|
|
$ |
488,348 |
|
|
$ |
54,506 |
|
|
|
$ |
542,854 |
|
Mark-to-market
adjustments on securities previously classified as
available-for-sale
|
|
|
5,371 |
|
|
|
— |
|
|
|
|
5,371 |
|
Other-than-temporary
impairments recognized in accumulated other
comprehensive income
|
|
|
(16,876 |
) |
|
|
— |
|
|
|
|
(16,876 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
book value
|
|
$ |
476,843 |
|
|
$ |
54,506 |
|
|
|
$ |
531,349 |
|
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
following table details overall statistics for our consolidated VIEs’ securities
portfolio as of September 30, 2010 and December 31, 2009:
|
|
September
30, 2010
|
|
December
31, 2009
|
Number
of securities
|
|
57
|
|
64
|
Number
of issues
|
|
41
|
|
47
|
Rating
(1) (2)
(3)
|
|
BBB-
|
|
BB-
|
Fixed
/ Floating (in millions) (4)
|
|
$530
/ $1
|
|
$618
/ $80
|
Coupon
(1)
(5)
|
|
6.67%
|
|
6.11%
|
Yield (1)
(5)
|
|
7.11%
|
|
6.58%
|
Life
(years) (1)
(6)
|
|
2.9
|
|
3.6
|
|
|
|
(1)
|
Represents a weighted average as of September 30, 2010 and December
31, 2009, respectively.
|
(2) |
Weighted average ratings are based on the lowest rating published
by Fitch Ratings, Standard & Poor’s or Moody’s Investors Service for
each security.
|
(3) |
Increase in weighted average rating as of September 30, 2010 is
primarily due to the consolidation of additional VIEs as described in Note
2.
|
(4) |
Represents the aggregate net book value of our portfolio allocated
between fixed rate and floating rate securities.
|
(5) |
Coupon is
based on the securities’ contractual interest rates, while yield is based
on expected cash flows for each security, and considers discounts/premiums
and asset non-performance. Calculations for floating rate securities are
based on LIBOR of 0.26% and 0.23% as of September 30, 2010 and December
31, 2009, respectively. |
(6) |
Weighted
average life is based on the timing and amount of future expected
principal payments through the expected repayment date of each respective
investment. |
The table
below details the ratings and vintage distribution of our consolidated VIEs’
securities as of September 30, 2010 (in thousands):
|
|
Rating
as of September 30, 2010
|
Vintage
|
|
AAA
|
|
AA
|
|
A
|
|
BBB
|
|
BB
|
|
B
|
|
CCC
and
Below
|
|
|
Total
|
2007
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
|
$—
|
2006
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
15,445
|
|
|
15,445
|
2005
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
3,761
|
|
19,650
|
|
|
23,411
|
2004
|
|
—
|
|
24,823
|
|
10,195
|
|
—
|
|
—
|
|
—
|
|
2,335
|
|
|
37,353
|
2003
|
|
9,906
|
|
—
|
|
—
|
|
4,978
|
|
—
|
|
—
|
|
—
|
|
|
14,884
|
2002
|
|
—
|
|
—
|
|
—
|
|
6,651
|
|
—
|
|
2,639
|
|
—
|
|
|
9,290
|
2001
|
|
—
|
|
—
|
|
—
|
|
4,821
|
|
4,131
|
|
—
|
|
5,000
|
|
|
13,952
|
2000
|
|
7,434
|
|
—
|
|
—
|
|
—
|
|
3,966
|
|
—
|
|
22,300
|
|
|
33,700
|
1999
|
|
—
|
|
—
|
|
11,362
|
|
1,425
|
|
17,363
|
|
—
|
|
—
|
|
|
30,150
|
1998
|
|
103,287
|
|
45,426
|
|
37,780
|
|
43,377
|
|
43,056
|
|
—
|
|
9,041
|
|
|
281,967
|
1997
|
|
—
|
|
—
|
|
34,601
|
|
—
|
|
5,173
|
|
3,416
|
|
3,500
|
|
|
46,690
|
1996
|
|
24,507
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
24,507
|
Total
|
|
$145,134
|
|
$70,249
|
|
$93,938
|
|
$61,252
|
|
$73,689
|
|
$9,816
|
|
$77,271
|
|
|
$531,349
|
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The table
below details the ratings and vintage distribution of our consolidated
VIEs’ securities as
of December 31, 2009 (in thousands):
|
|
Rating
as of December 31, 2009
|
Vintage
|
|
AAA
|
|
AA
|
|
A
|
|
BBB
|
|
BB
|
|
B
|
|
CCC
and
Below
|
|
|
Total
|
2007
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
$2,812
|
|
$—
|
|
$28,921
|
|
|
$31,733
|
2006
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
8,933
|
|
28,325
|
|
|
37,258
|
2005
|
|
—
|
|
—
|
|
—
|
|
11,866
|
|
1,250
|
|
14,630
|
|
22,104
|
|
|
49,850
|
2004
|
|
—
|
|
24,848
|
|
19,225
|
|
—
|
|
25,540
|
|
9,782
|
|
—
|
|
|
79,395
|
2003
|
|
9,905
|
|
—
|
|
—
|
|
4,976
|
|
—
|
|
—
|
|
—
|
|
|
14,881
|
2002
|
|
—
|
|
—
|
|
—
|
|
6,616
|
|
—
|
|
2,599
|
|
—
|
|
|
9,215
|
2001
|
|
—
|
|
—
|
|
—
|
|
4,843
|
|
14,204
|
|
—
|
|
—
|
|
|
19,047
|
2000
|
|
7,506
|
|
—
|
|
—
|
|
—
|
|
4,982
|
|
—
|
|
22,069
|
|
|
34,557
|
1999
|
|
—
|
|
—
|
|
11,436
|
|
1,432
|
|
17,359
|
|
—
|
|
—
|
|
|
30,227
|
1998
|
|
117,349
|
|
—
|
|
82,791
|
|
75,314
|
|
11,807
|
|
—
|
|
12,900
|
|
|
300,161
|
1997
|
|
—
|
|
—
|
|
35,101
|
|
4,876
|
|
8,580
|
|
—
|
|
18,778
|
|
|
67,335
|
1996
|
|
24,205
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
|
24,205
|
Total
|
|
$158,965
|
|
$24,848
|
|
$148,553
|
|
$109,923
|
|
$86,534
|
|
$35,944
|
|
$133,097
|
|
|
$697,864
|
Other-than-temporary
impairments
Quarterly,
we reevaluate our consolidated VIEs’ securities portfolio to determine if there
has been an other-than-temporary impairment based upon expected future cash
flows from each securities investment. As a result of this evaluation, under the
accounting guidance discussed in Note 2, during the nine months ended September
30, 2010, we recorded a gross other-than-temporary impairment of $55.2 million.
This gross other-than-temporary impairment includes $39.9 million related to
expected credit losses which has been recorded through earnings, and $15.2
million of fair value adjustments in excess of expected credit losses, or
Valuation Adjustments, which have been recorded as a component of accumulated
other comprehensive income (loss) on our consolidated balance sheet with no
impact on earnings.
To
determine the component of the gross other-than-temporary impairment related to
expected credit losses, we compare the amortized cost basis of each
other-than-temporarily impaired security to the present value of its revised
expected cash flows, discounted using its pre-impairment yield. Significant
judgment of management is required in this analysis that includes, but is not
limited to, (i) assumptions regarding the collectability of principal and
interest, net of related expenses, on the underlying loans, and (ii) current
subordination levels at both the individual loans which serve as collateral
under our securities and at the securities themselves.
The
following table summarizes activity related to the other-than-temporary
impairments of our consolidated VIEs’ securities during the nine months ended
September 30, 2010 (in thousands):
|
|
Gross
Other-Than-Temporary Impairments
|
|
|
|
Credit
Related Other-Than-Temporary Impairments
|
|
|
Non-Credit
Related Other-Than-Temporary Impairments
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
|
$32,508 |
|
|
|
|
$25,112 |
|
|
|
$7,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact
of change in accounting principle (1)
|
|
|
(5,376 |
) |
|
|
|
(1,576 |
) |
|
|
(3,800 |
) |
Additions
due to change in expected cash
flows
|
|
|
55,155 |
|
|
|
|
39,907 |
|
|
|
15,248 |
|
Amortization
of other-than-temporary impairments
|
|
|
(1,702 |
) |
|
|
|
267 |
|
|
|
(1,969 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2010
|
|
|
$80,585 |
|
|
|
|
$63,710 |
|
|
|
$16,875 |
|
|
|
|
(1)
|
Due to the consolidation of additional VIEs, as discussed in Note
2, other-than-temporary impairments which were previously recorded on our
investment in these entities have been eliminated in consolidation
beginning January 1,
2010.
|
Unrealized
losses and fair value of securities
Certain
of our consolidated VIEs’ securities are carried at values in excess of their
fair values. This difference can be caused by, among other things, changes in
credit spreads and interest rates.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
following table shows the gross unrealized losses and fair value of securities
for which the fair value is lower than their book value as of September 30, 2010
and that are not deemed to be other-than-temporarily impaired (in
millions):
|
|
Less
Than 12 Months
|
|
Greater
Than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Fair
Value
|
|
Gross
Unrealized
Loss
|
|
Estimated
Fair
Value
|
|
Gross
Unrealized
Loss
|
|
|
Estimated
Fair
Value
|
|
Gross
Unrealized
Loss
|
|
|
Book
Value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
Rate
|
|
$—
|
|
$—
|
|
$—
|
|
$—
|
|
|
$—
|
|
$—
|
|
|
$—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
|
26.1
|
|
(0.3)
|
|
285.8
|
|
(51.1)
|
|
|
311.9
|
|
(51.4)
|
|
|
363.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$26.1
|
|
($0.3)
|
|
$285.8
|
|
($51.1)
|
|
|
$311.9
|
|
($51.4)
|
|
|
$363.3
|
|
|
|
(1)
|
Excludes, as of September 30, 2010, $168.0 million of securities
which were carried at or below fair value and securities against which an
other-than-temporary impairment equal to the entire book value was
recognized in
earnings.
|
As of
September 30, 2010, 36 of our consolidated VIEs’ securities with an aggregate
carrying value of $363.3 million were carried at values in excess of their fair
values. Fair value for these securities was $311.9 million as of September 30,
2010. In total, as of September 30, 2010, we had 57 investments in securities
with an aggregate book value of $531.3 million that have an estimated fair value
of $488.8 million, including 55 investments in CMBS with an estimated fair value
of $436.3 million and two investments in CDOs and other securities with an
estimated fair value of $52.5 million. These valuations do not include the value
of interest rate swaps entered into in conjunction with the purchase/financing
of these investments, if any.
The
following table shows the gross unrealized losses and fair value of our
consolidated VIEs securities for which the fair value is lower than our book
value as of December 31, 2009 and that are not deemed to be
other-than-temporarily impaired (in millions):
|
|
Less
Than 12 Months
|
|
Greater
Than 12 Months
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
Fair
Value
|
|
Gross
Unrealized
Loss
|
|
Estimated
Fair
Value
|
|
Gross
Unrealized
Loss
|
|
|
Estimated
Fair
Value
|
|
Gross
Unrealized
Loss
|
|
|
Book
Value (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
Rate
|
|
$—
|
|
$—
|
|
$24.5
|
|
($55.1)
|
|
|
$24.5
|
|
($55.1)
|
|
|
$79.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
|
27.6
|
|
(3.9)
|
|
333.6
|
|
(125.9)
|
|
|
361.2
|
|
(129.8)
|
|
|
491.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$27.6
|
|
($3.9)
|
|
$358.1
|
|
($181.0)
|
|
|
$385.7
|
|
($184.9)
|
|
|
$570.6
|
|
|
|
(1)
|
Excludes, as of December 31, 2009, $127.2 million of securities
which were carried at or below fair value and securities against which an
other-than-temporary impairment equal to the entire book value was
recognized in
earnings.
|
As of
December 31, 2009, 54 of our consolidated VIEs securities with an aggregate
carrying value of $570.6 million were carried at values in excess of their fair
values. Fair value for these securities was $385.7 million as of December 31,
2009. In total, as of December 31, 2009, we had 64 investments in securities
with an aggregate book value of $697.9 million that have an estimated fair value
of $519.1 million, including 62 investments in CMBS with an estimated fair value
of $451.5 million and two investments in CDOs and other securities with an
estimated fair value of $67.6 million. These valuations do not include the value
of interest rate swaps entered into in conjunction with the purchase/financing
of these investments, if any.
We
determine fair values using third party dealer assessments of value,
supplemented in limited cases with our own internal financial model-based
estimations of fair value. We regularly examine our securities portfolio and
have determined that, despite these differences between carrying value and fair
value, our expectations of future cash flows have only changed adversely for 10
of our securities, against which we have recognized
other-than-temporary-impairments. See Note 3 for additional discussion of fair
value estimations.
Investments
in variable interest entities
Our
consolidated VIEs’ securities portfolio includes investments in both CMBS and
CDOs, which securitization structures are generally considered VIEs. We have not
consolidated these VIEs due to our determination that, based on the structural
provisions of each entity and the nature of our investments, we do not have the
power to direct the activities that most significantly impact these entities'
economic performance.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
These
securities were acquired through investment, and do not represent a
securitization or other transfer of our assets. We are not named as special
servicer on these investments.
We are
not obligated to provide, nor have we provided, any financial support to these
entities. As these securities are financed by our non-recourse CT CDOs, our
exposure to loss is therefore limited to our interests in these consolidated
entities described above.
B.
Loans Receivable, Net – Consolidated VIEs
Activity
relating to our consolidated VIEs’ loans receivable for the nine months ended
September 30, 2010 was as follows (in thousands):
|
|
Gross
Book
Value
|
|
Provision
for
Loan
Losses
|
|
|
Net
Book
Value
(1)
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
$508,971
|
|
($117,472)
|
|
|
$391,499
|
|
|
|
|
|
|
|
|
Impact
of consolidation due to change in accounting
principal
|
|
2,980,075
|
|
(134,834)
|
|
|
2,845,241
|
Satisfactions
(2)
|
|
(103,816)
|
|
—
|
|
|
(103,816)
|
Principal
paydowns
|
|
(63,218)
|
|
—
|
|
|
(63,218)
|
Discount/premium
amortization & other (3)
|
(6,242)
|
|
—
|
|
|
(6,242)
|
Provision
for loan losses (4)
|
|
—
|
|
(88,813)
|
|
|
(88,813)
|
Realized
loan losses
|
|
(45,020)
|
|
45,020
|
|
|
—
|
Reclassification
to real estate held-for-sale
|
|
(15,068)
|
|
3,014
|
|
|
(12,054)
|
|
|
|
|
|
|
|
|
September
30, 2010
|
|
$3,255,682
|
|
($293,085)
|
|
|
$2,962,597
|
|
|
|
(1)
|
Includes loans with a total principal balance of $3.26 billion and
$511.4 million as of September 30, 2010 and December 31, 2009,
respectively. Loans with an aggregate principal balance of $2.98 billion
as of December 31, 2009 have been consolidated onto our balance sheet
beginning January 1, 2010, as discussed in Note
2.
|
(2) |
Includes final maturities and full
repayments.
|
(3) |
Includes one loan which was restructured in June 2010 and converted
to a $6.6 million equity participation in the borrower entity. This equity
investment has been reclassified to Accrued Interest Receivable and Other
Assets on our consolidated balance sheet as of September 30,
2010.
|
(4) |
Provision for loan losses is presented net of a $2.5 million
recovery of provisions recorded in prior
periods.
|
The
following table details overall statistics for our consolidated VIEs’ loans
receivable portfolio as of September 30, 2010 and December 31,
2009:
|
|
September
30, 2010
|
|
December
31, 2009
|
Number
of investments
|
|
96
|
|
26
|
Fixed
/ Floating (in millions) (1)
|
|
$222
/ $2,741
|
|
$72
/ $319
|
Coupon
(2)
(3)
|
|
2.28%
|
|
3.65%
|
Yield (2)
(3)
|
|
2.30%
|
|
3.58%
|
Maturity
(years) (2)
(4)
|
|
1.3
|
|
3.4
|
|
|
|
(1)
|
Represents the aggregate net book value of our portfolio allocated
between fixed rate and floating rate
loans.
|
(2) |
Represents a weighted average as of September 30, 2010 and December
31, 2009, respectively.
|
(3) |
Calculations for floating rate loans are based on LIBOR of 0.26%
and 0.23% as of September 30, 2010 and December 31, 2009,
respectively.
|
(4) |
For loans in CT CDOs, assumes all extension options are executed.
For loans in other consolidated VIEs, maturity is based on information
provided by the trustees of each respective
VIE.
|
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
tables below detail the types of loans in our consolidated VIEs’ portfolio, as
well as the property type and geographic distribution of the properties securing
these loans, as of September 30, 2010 and December 31, 2009 (in
thousands):
|
|
September
30, 2010
|
|
December
31, 2009
|
Asset
Type
|
|
Book
Value
|
|
Percentage
|
|
Book
Value
|
|
Percentage
|
Senior
mortgages
|
|
|
$2,250,318 |
|
|
|
75 |
% |
|
|
$35,829 |
|
|
|
9 |
% |
Mezzanine
loans
|
|
|
356,485 |
|
|
|
12 |
|
|
|
103,726 |
|
|
|
26 |
|
Subordinate
interests in mortgages
|
|
|
343,496 |
|
|
|
11 |
|
|
|
228,662 |
|
|
|
59 |
|
Other
|
|
|
22,963 |
|
|
|
2 |
|
|
|
23,282 |
|
|
|
6 |
|
Total
|
|
|
$2,973,262 |
|
|
|
100 |
% |
|
|
$391,499 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
Type
|
|
Book
Value
|
|
Percentage
|
|
Book
Value
|
|
Percentage
|
Healthcare
|
|
|
$1,162,495 |
|
|
|
39 |
% |
|
|
$27,976 |
|
|
|
7 |
% |
Office
|
|
|
827,261 |
|
|
|
28 |
|
|
|
174,695 |
|
|
|
45 |
|
Hotel
|
|
|
655,266 |
|
|
|
22 |
|
|
|
128,150 |
|
|
|
33 |
|
Retail
|
|
|
196,250 |
|
|
|
7 |
|
|
|
8,660 |
|
|
|
2 |
|
Other
|
|
|
131,990 |
|
|
|
4 |
|
|
|
52,018 |
|
|
|
13 |
|
Total
|
|
|
$2,973,262 |
|
|
|
100 |
% |
|
|
$391,499 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic
Location
|
|
Book
Value
|
|
Percentage
|
|
Book
Value
|
|
Percentage
|
Northeast
|
|
|
$463,725 |
|
|
|
16 |
% |
|
|
$225,117 |
|
|
|
57 |
% |
Southeast
|
|
|
322,352 |
|
|
|
10 |
|
|
|
72,976 |
|
|
|
19 |
|
Southwest
|
|
|
177,959 |
|
|
|
6 |
|
|
|
29,550 |
|
|
|
8 |
|
West
|
|
|
165,123 |
|
|
|
6 |
|
|
|
36,041 |
|
|
|
9 |
|
Midwest
|
|
|
26,305 |
|
|
|
1 |
|
|
|
8,884 |
|
|
|
2 |
|
Diversified
|
|
|
1,817,798 |
|
|
|
61 |
|
|
|
18,931 |
|
|
|
5 |
|
Total
|
|
|
$2,973,262 |
|
|
|
100 |
% |
|
|
$391,499 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated
loan loss provision:
|
|
|
(10,665 |
) |
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
book value
|
|
|
$2,962,597 |
|
|
|
|
|
|
|
$391,499 |
|
|
|
|
|
Quarterly,
management evaluates our consolidated VIEs’ loan portfolio for impairment as
described in Note 2. The following table describes our consolidated VIEs’
impaired loans as of September 30, 2010, including impaired loans that are
current in their interest payments and those that are delinquent on contractual
payments (in thousands):
|
|
No.
of
Loans
|
|
Gross
Book
Value
|
|
Provision
for
Loan
Loss
|
|
|
Net
Book Value
|
Impaired
loans:
|
|
|
|
|
|
|
|
|
|
Performing
loans
|
|
7
|
|
$421,974
|
|
($184,937)
|
|
|
$237,037
|
Non-performing
loans
|
|
7
|
|
167,661
|
|
(97,483)
|
|
|
70,178
|
|
|
|
|
|
|
|
|
|
|
Total
impaired loans
|
|
14
|
|
$589,635
|
|
($282,420)
|
|
|
$307,215
|
In
addition, as described in Note 2, we have recorded a $10.7 million general
provision for loan losses against 41 loans in our consolidated VIEs with an
aggregate principal balance of $127.2 million.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
following table details the allocation of our consolidated VIEs’ provision for
loan losses as of September 30, 2010 (in thousands):
|
|
September
30, 2010
|
Provision
for Loan Losses
|
|
Book
Value
|
|
Percentage
|
Subordinate
interests in mortgages
|
|
|
$108,337 |
|
|
|
36 |
% |
Senior
mortgages
|
|
|
90,334 |
|
|
|
31 |
|
Mezzanine
loans
|
|
|
83,749 |
|
|
|
29 |
|
Unallocated
|
|
|
10,665 |
|
|
|
4 |
|
Total
|
|
|
$293,085 |
|
|
|
100 |
% |
The
average balance of impaired loans held by consolidated VIEs was $172.8 million
during the nine months ended September 30, 2010. Subsequent to their impairment,
we recorded interest on impaired loans that are performing of $4.3 million
during the first nine months of 2010, substantively all of which was received in
cash. The average balance of impaired loans held by consolidated VIEs was $30.1
million during the nine months ended September 30, 2009. Subsequent to their
impairment, we recorded interest on these loans of $397,000 during the first
nine months of 2009.
C.
Loans Held-for-Sale, Net – Consolidated VIEs
As of
December 31, 2009, we were in the process of finalizing a sale of one of our
consolidated VIEs’ non-performing loans with a gross carrying value of $18.3
million to a third party. We had previously recorded a provision for loan losses
of $9.2 million against this loan, and in the fourth quarter of 2009 recaptured
$8.4 million of the provision to reflect the expected sales proceeds. In January
2010, we completed the sale of this loan for $17.5 million, which approximates
its net book value at December 31, 2009. Accordingly, our consolidated VIEs do
not have any loans classified as held-for-sale as of September 30,
2010.
D.
Real Estate Held-for-Sale – Consolidated VIEs
In April
2010 we completed foreclosure on the land which served as collateral for a $15.1
million loan held by one of our consolidated VIEs. This loan had a net book
value of $12.1 million at the time of foreclosure, which amount was transferred
to real estate held-for-sale. Subsequently, in the third quarter of 2010, we
recorded a $4.0 million impairment to reflect this investment at its approximate
fair value of $8.1 million.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
E.
Debt Obligations – Consolidated VIEs
As of
September 30, 2010 and December 31, 2009, our consolidated VIEs had $3.7 billion
and $1.1 billion of total non-recourse securitized debt obligations outstanding,
respectively. The balances of each entity’s outstanding securitized debt
obligations, their respective coupons and all-in effective costs, including the
amortization of fees and expenses, were as follows (in thousands):
|
|
September
30, 2010
|
|
December
31, 2009
|
|
|
September
30, 2010
|
Non-Recourse
Securitized Debt Obligations
|
|
Principal
Balance
|
|
Book
Balance
|
|
Book
Balance
|
|
|
Coupon(1)
|
|
All-In Cost(1)
|
|
Maturity Date(2)
|
CT
collateralized debt obligations (CDOs)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CT
CDO I
|
|
|
$201,136 |
|
|
|
$201,136 |
|
|
|
$233,168 |
|
|
|
|
0.95 |
% |
|
|
0.95 |
% |
|
July
2039
|
CT
CDO II
|
|
|
264,533 |
|
|
|
264,533 |
|
|
|
283,671 |
|
|
|
|
0.78 |
% |
|
|
1.05 |
% |
|
March
2050
|
CT
CDO III
|
|
|
247,828 |
|
|
|
248,709 |
|
|
|
254,156 |
|
|
|
|
5.23 |
% |
|
|
5.15 |
% |
|
June
2035
|
CT CDO IV (3)
|
|
|
292,289 |
|
|
|
292,289 |
|
|
|
327,285 |
|
|
|
|
0.90 |
% |
|
|
1.02 |
% |
|
October
2043
|
Total
CT CDOs
|
|
|
1,005,786 |
|
|
|
1,006,667 |
|
|
|
1,098,280 |
|
|
|
|
1.95 |
% |
|
|
2.04 |
% |
|
July
2042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
consolidated VIEs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMACC
1997-C1
|
|
|
102,579 |
|
|
|
102,579 |
|
|
|
N/A |
|
|
|
|
7.11 |
% |
|
|
7.11 |
% |
|
July
2029
|
GSMS
2006-FL8A
|
|
|
136,598 |
|
|
|
136,598 |
|
|
|
N/A |
|
|
|
|
0.81 |
% |
|
|
0.81 |
% |
|
June
2020
|
JPMCC
2005-FL1A
|
|
|
97,796 |
|
|
|
97,796 |
|
|
|
N/A |
|
|
|
|
0.84 |
% |
|
|
0.84 |
% |
|
February
2019
|
MSC
2007-XLFA
|
|
|
753,888 |
|
|
|
753,888 |
|
|
|
N/A |
|
|
|
|
0.52 |
% |
|
|
0.52 |
% |
|
October
2020
|
MSC
2007-XLCA
|
|
|
535,229 |
|
|
|
535,229 |
|
|
|
N/A |
|
|
|
|
1.53 |
% |
|
|
1.53 |
% |
|
July
2017
|
CSFB
2006-HC1
|
|
|
1,051,017 |
|
|
|
1,051,017 |
|
|
|
N/A |
|
|
|
|
0.80 |
% |
|
|
0.80 |
% |
|
May
2023
|
Total
other consolidated VIEs
|
|
|
2,677,107 |
|
|
|
2,677,107 |
|
|
|
N/A |
|
|
|
|
1.11 |
% |
|
|
1.11 |
% |
|
May
2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Weighted
Average
|
|
|
$3,682,893 |
|
|
|
$3,683,774 |
|
|
|
$1,098,280 |
|
|
|
|
1.34 |
% |
|
|
1.36 |
%(4) |
|
February
2027
|
|
|
|
(1)
|
Represents a weighted average for each respective facility,
assuming LIBOR of 0.26% at September 30, 2010 for floating rate debt
obligations.
|
(2) |
Maturity dates represent the contractual maturity of each
securitization trust. Repayment of securitized debt is a function of
collateral cash flows which are disbursed in accordance with the
contractual provisions of each trust, and is therefore expected to occur
prior to contractual maturity.
|
(3) |
Comprised, at September 30, 2010 of $279.8 million of floating rate
notes sold and $12.5 million of fixed rate notes
sold.
|
(4) |
Including the impact of interest rate hedges with an aggregate
notional balance of $344.4 million as of September 30, 2010, the effective
all-in cost of our consolidated VIEs’ debt obligations would be 1.80% per
annum.
|
As
discussed above, our consolidated VIEs generally include two categories of
entities: (i) collateralized debt obligations sponsored and issued by us, which
we refer to as CT CDOs, and (ii) other consolidated VIEs, which are also
securitization vehicles but were not issued or sponsored by us. We have
historically consolidated the CT CDOs; however we began consolidating the
additional VIEs as of January 1, 2010.
CT
CDOs
As of
September 30, 2010, we had CT CDOs outstanding from four separate issuances with
a total face value of $1.0 billion. As of September 30, 2010, $349.9 million of
loans receivable and $531.3 million of securities were financed by our CT CDOs.
As of December 31, 2009, $409.0 million of loans receivable and $697.9 million
of securities were financed by our CT CDOs.
CT CDO I
and CT CDO II each have interest coverage and overcollateralization tests,
which, when breached, provide for hyper-amortization of the senior notes sold by
a redirection of cash flow that would otherwise have been paid to the
subordinate classes, some of which are owned by us. Furthermore, all four of our
CT CDOs provide for the re-classification of interest proceeds from impaired
collateral as principal proceeds, which also serve to hyper-amortize senior
notes sold.
During
2009, we were informed by our CDO trustee of impairments due to rating agency
downgrades of certain of the securities which serve as collateral in all of our
CT CDOs. These impairments, combined with the non-performance of certain loan
collateral, resulted in breaches of interest coverage and overcollateralization
tests at CT CDO I and CT CDO II, as well as the reclassification of interest
proceeds from the impaired collateral as principal proceeds in all four of our
CT CDOs. Other than collateral management fees, we currently receive cash
payments from only one of our four CT CDOs, CT CDO III.
Further,
due to the hyper-amortization of senior notes, certain subordinate classes are
accruing unpaid interest, resulting in an increased liability to these classes.
As senior notes which carry a lower rate of interest continue to hyper-amortize,
and certain subordinate notes continue to accrue deferred interest, the
weighted-average cost of debt for our CT CDOs has and will continue to
increase.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
When we
formed (and reinvested) our four CT CDOs, we made certain representations and
warranties with respect to Capital Trust, Inc. and the loans and securities that
we contributed as collateral to these CT CDOs. In the event that these
representations or warranties are proved to be untrue at the time that the
respective collateral was contributed, we may be required to repurchase certain
of those loans and securities. These representations and warranties generally
relate to specific corporate and asset related subjects, including, among other
things, proper corporate authorization, compliance with laws and regulations,
ownership of the assets, title to, lack of liens encumbering and adequate
insurance covering the underlying collateral properties and the lack of existing
loan defaults.
The
maximum potential amount of future payment we may be required to make to
repurchase assets is $1.2 billion, the current face amount of all loans and
securities in our four CT CDOs. In certain cases, we may be able to reduce the
impact of any such purchase obligation through recoveries from the exercise of
remedies against the institution from which we acquired the asset and received
substantially the same representations and warranties. This potential
recoverable amount is not currently estimable and would depend on the nature of
the representation and warranty breached and the circumstances under which each
asset was transferred to the CT CDO. Since inception, we have not been required
to repurchase any assets nor have we received any notice of assertion of a
potential breach of any representation or warranty. Any payment required to
repurchase a loan or security could materially impact our
liquidity.
Other
Consolidated VIEs
In
addition to the CT CDOs sponsored by us, which are discussed above, we also have
consolidated certain other VIEs beginning on January 1, 2010, as discussed in
Note 2. The debt obligations of these entities are separately presented on our
consolidated balance sheet along with the CT CDOs issued by us, as they are also
securitized, non-recourse obligations. These obligations will generally be
satisfied with the repayment of assets in each such entity’s collateral pool, or
will be discharged when losses are realized. As of September 30, 2010, $2.6
billion of loans receivable serve as collateral for the securities issued by
these other consolidated VIEs.
F.
Derivative Financial Instruments – Consolidated VIEs
The
following table summarizes the notional amounts and fair values of our
consolidated VIEs’ interest rate swaps as of September 30, 2010 and December 31,
2009 (in thousands). The notional amount provides an indication of the extent of
our involvement in the instruments at that time, but does not represent exposure
to credit or interest rate risk.
Type
|
|
Counterparty
|
|
September
30, 2010
Notional
Amount
|
|
Interest Rate (1)
|
|
Maturity
|
|
September
30, 2010
Fair
Value
|
|
December
31, 2009
Fair
Value
|
Cash
Flow Hedge
|
|
Swiss
RE Financial
|
|
$264,863
|
|
5.10%
|
|
2015
|
|
($28,684)
|
|
($21,785)
|
Cash
Flow Hedge
|
|
Bank
of America
|
|
44,891
|
|
4.58%
|
|
2014
|
|
(3,946)
|
|
(3,005)
|
Cash
Flow Hedge
|
|
Morgan
Stanley
|
|
17,878
|
|
3.95%
|
|
2011
|
|
(550)
|
|
(794)
|
Cash
Flow Hedge
|
|
Bank
of America
|
|
10,916
|
|
5.05%
|
|
2016
|
|
(1,565)
|
|
(930)
|
Cash
Flow Hedge
|
|
Bank
of America
|
|
5,104
|
|
4.12%
|
|
2016
|
|
(568)
|
|
(212)
|
Cash
Flow Hedge
|
|
Morgan
Stanley
|
|
780
|
|
5.31%
|
|
2011
|
|
(16)
|
|
(40)
|
Total/Weighted
Average
|
|
|
|
$344,432
|
|
4.95%
|
|
2015
|
|
($35,329)
|
|
($26,766)
|
|
|
|
(1)
|
Represents the gross fixed interest rate we pay to our
counterparties under these derivative instruments. We receive an amount of
interest indexed to one-month LIBOR on all of our interest rate
swaps.
|
As of
both September 30, 2010 and December 31, 2009, all of our consolidated VIEs’
derivative financial instruments were recorded at fair value as interest rate
hedge liabilities on our consolidated balance sheet.
The table
below shows amounts recorded to other comprehensive income and amounts recorded
to interest expense from other comprehensive income for the nine months ended
September 30, 2010 and 2009 (in thousands):
|
|
Amount
of (loss) gain recognized
|
|
Amount
of loss reclassified from OCI
|
|
|
in
OCI for the nine months ended
|
|
to income for the
nine months ended (1)
|
Hedge
|
|
September
30, 2010
|
|
September
30, 2009
|
|
September
30, 2010
|
|
September
30, 2009
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
($8,563)
|
|
$6,075
|
|
($12,305)
|
|
($12,852)
|
|
|
|
(1)
|
Represents net amounts paid to swap counterparties during the
period, which are included in interest expense, offset by an immaterial
amount of non-cash swap
amortization.
|
All of
our consolidated VIEs’ hedges were classified as highly effective for all of the
periods presented. Over the next twelve months, as we make payments under our
hedge agreements, we expect approximately $15.3 million to be reclassified from
other comprehensive income to interest expense. This amount is generally equal
to the present value of expected payments under the respective derivative
contracts.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
As of
September 30, 2010, our consolidated VIEs have not posted any assets as
collateral under derivative agreements.
Note
12. Shareholders’ Equity
We have
the authority to issue up to 200,000,000 shares of stock, consisting of (i)
100,000,000 shares of class A common stock, and (ii) 100,000,000 shares of
preferred stock. Subject to applicable New York Stock Exchange listing
requirements, our board of directors is authorized to issue additional shares of
authorized stock without shareholder approval. In addition, to the extent not
issued, currently authorized stock may be reclassified between class A common
stock and preferred stock.
Common
Stock
Shares of
class A common stock are entitled to vote on all matters presented to a
vote of shareholders, except as provided by law or subject to the voting rights
of any outstanding preferred stock. Holders of record of shares of class A
common stock on the record date fixed by our board of directors are entitled to
receive such dividends as may be declared by the board of directors subject to
the rights of the holders of any outstanding preferred stock. A total of
22,415,957 shares of common stock and stock units were issued and outstanding as
of September 30, 2010.
We did
not repurchase any of our common stock during the nine months ended September
30, 2010, other than the 8,621 shares we acquired pursuant to elections by
incentive plan participants to satisfy tax withholding obligations through the
surrender of shares equal in value to the amount of the withholding obligation
incurred upon the vesting of restricted stock.
We have
not issued any shares of preferred stock since we repurchased all of the
previously issued and outstanding preferred stock in 2001.
As
discussed in Note 8, in conjunction with our debt restructuring, we issued to
our repurchase lenders warrants to purchase an aggregate 3,479,691 shares of our
class A common stock at an exercise price of $1.79 per share. The warrants will
become exercisable on March 16, 2012 and expire on March 16, 2019, and may be
exercised through a cashless exercise at the option of the warrant holders. The
fair value assigned to these warrants, totaling $940,000, has been recorded as
an increase to additional paid-in capital, and will be amortized over the term
of the related debt obligations. The warrants were valued using the
Black-Scholes valuation method.
Dividends
We
generally intend to distribute each year substantially all of our taxable income
(which does not necessarily equal net income as calculated in accordance with
GAAP) to our shareholders to comply with the REIT provisions of the Internal
Revenue Code of 1986, as amended, or the Internal Revenue Code. If necessary for
REIT qualification purposes, we may need to distribute any taxable income
remaining after giving effect to the distribution of the final regular quarterly
dividend each year, together with the first regular quarterly dividend payment
of the following taxable year or, at our discretion, in a separate dividend
distributed prior thereto. We refer to these dividends as special dividends. As
required by covenants in our restructured debt obligations, our cash dividend
distributions are restricted to the minimum amount necessary to maintain our
status as a REIT. Moreover, such covenants require us to make any distribution
in stock to the extent permitted, taking into consideration the recent Internal
Revenue Service rulings which allow REITs to distribute up to 90% of their
dividends in the form of stock for tax years ending on or before December 31,
2011.
In
addition to the
foregoing restrictions, our dividend policy remains
subject to revision at the discretion of our board of directors. All
distributions will be made at the discretion of our board of directors and will
depend upon our taxable income, our financial condition, our maintenance of REIT
status and other factors as our board of directors deems relevant. No dividends
were declared during the nine months ended September 30, 2010 or
2009.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
Accumulated
Other Comprehensive Income (Loss)
The
following table details the primary components of accumulated other
comprehensive income (loss) as of September 30, 2010 and significant activity
for the nine months ended September 30, 2010 (in thousands):
|
|
Mark-to-Market
on Interest Rate Hedges
|
|
Deferred
Gains on Settled Hedges
|
|
Other-than-Temporary
Impairments
|
|
Unrealized
Gains on Securities
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2009
|
|
($30,950)
|
|
$263
|
|
($14,024)
|
|
$5,576
|
|
|
($39,135)
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
effect of change in accounting principle
|
|
—
|
|
—
|
|
3,800
|
|
—
|
|
|
3,800
|
Unrealized
loss on derivative financial instruments
|
|
(10,281)
|
|
—
|
|
—
|
|
—
|
|
|
(10,281)
|
Amortization
of net unrealized gains on securities
|
|
—
|
|
—
|
|
—
|
|
(754)
|
|
|
(754)
|
Amortization
of net deferred gains on settlement of swaps
|
|
—
|
|
(74)
|
|
—
|
|
|
|
|
(74)
|
Other-than-temporary
impairments of securities (1)
|
|
—
|
|
—
|
|
(9,496)
|
|
—
|
|
|
(9,496)
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2010
|
|
($41,231)
|
|
$189
|
|
($19,720)
|
|
$4,822
|
|
|
($55,940)
|
|
|
|
(1)
|
Represents other-than-temporary impairments of securities related
to fair value adjustments in excess of expected credit losses, net of
amortization of $2.6
million.
|
Earnings
Per Share
The
following table sets forth the calculation of Basic and Diluted earnings per
share, or EPS, based on the weighted average of both restricted and unrestricted
class A common stock outstanding, for the nine months ended September 30, 2010
and 2009 (in thousands, except share and per share amounts):
|
|
Nine
Months Ended September 30, 2010
|
|
|
Nine
Months Ended September 30, 2009
|
|
|
|
Net
|
|
|
Wtd.
Avg.
|
|
|
Per
Share
|
|
|
Net
|
|
|
Wtd.
Avg.
|
|
|
Per
Share
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Amount
|
|
|
Loss
|
|
|
Shares
|
|
|
Amount
|
|
Basic
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss allocable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
($195,259 |
) |
|
|
22,356,857 |
|
|
|
($8.73 |
) |
|
|
($185,997 |
) |
|
|
22,361,541 |
|
|
|
($8.32 |
) |
Effect
of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
& Options outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
the purchase of common stock
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Diluted
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock and assumed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversions
|
|
|
($195,259 |
) |
|
|
22,356,857 |
|
|
|
($8.73 |
) |
|
|
($185,997 |
) |
|
|
22,361,541 |
|
|
|
($8.32 |
) |
The
following table sets forth the calculation of Basic and Diluted earnings per
share, or EPS, based on the weighted average of both restricted and unrestricted
class A common stock outstanding, for the three months ended September 30, 2010
and 2009 (in thousands, except share and per share amounts):
|
|
Three
Months Ended September 30, 2010
|
|
|
Three
Months Ended September 30, 2009
|
|
|
|
Net
|
|
|
Wtd.
Avg.
|
|
|
Per
Share
|
|
|
Net
|
|
|
Wtd.
Avg.
|
|
|
Per
Share
|
|
|
|
Loss
|
|
|
Shares
|
|
|
Amount
|
|
|
Loss
|
|
|
Shares
|
|
|
Amount
|
|
Basic
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss allocable to
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
($134,709 |
) |
|
|
22,389,901 |
|
|
|
($6.02 |
) |
|
|
($106,457 |
) |
|
|
22,426,623 |
|
|
|
($4.75 |
) |
Effect
of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
& Options outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
for
the purchase of common stock
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Diluted
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock and assumed
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
conversions
|
|
|
($134,709 |
) |
|
|
22,389,901 |
|
|
|
($6.02 |
) |
|
|
($106,457 |
) |
|
|
22,426,623 |
|
|
|
($4.75 |
) |
As of
September 30, 2010, Diluted EPS excludes 129,000 options and 3.5 million
warrants, which were not dilutive for the period. These instruments could
potentially impact Diluted EPS in future periods depending on changes in our
stock price. As of September 30, 2009, Diluted EPS excludes 162,000 options and
3.5 million warrants, which were similarly not dilutive.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
Note
13. General and Administrative Expenses
General
and administrative expenses for the nine months ended September 30, 2010
and 2009 consisted of the following (in thousands):
|
Nine
Months Ended September 30,
|
|
2010
|
|
2009
|
Personnel
costs
|
$7,103
|
|
$7,950
|
Employee
stock-based compensation
|
107
|
|
1,102
|
Professional
services
|
3,019
|
|
4,342
|
Restructuring
costs
|
1,110
|
|
3,042
|
Operating
and other costs
|
1,746
|
|
2,014
|
Subtotal
|
$13,085
|
|
$18,450
|
|
|
|
|
Expenses
from other consolidated VIEs
|
1,298
|
|
—
|
Total
|
$14,383
|
|
$18,450
|
Note
14. Income Taxes
We made
an election to be taxed as a REIT under Section 856(c) of the Internal
Revenue Code, commencing with the tax year ending December 31, 2003.
As a REIT, we generally are not subject to federal, state, and local income
taxes except for the operations of our taxable REIT subsidiary, CTIMCO. To
maintain qualification as a REIT, we must distribute at least 90% of our annual
REIT taxable income to our shareholders and meet certain other requirements. If
we fail to qualify as a REIT, we may be subject to material penalties as well as
federal, state and local income tax on our taxable income at regular corporate
rates. As of September 30, 2010 and December 31, 2009, we were in compliance
with all REIT requirements.
In
addition, we are subject to taxation on the income generated by investments in
our CT CDOs. Due to the redirection provisions of our CT CDOs, which reallocate
principal proceeds and interest otherwise distributable to us to repay senior
note holders, assets financed through our CT CDOs may generate current taxable
income without a corresponding cash distribution to us. See Note 11 for further
discussion of these redirection provisions.
During
the nine months ended September 30, 2010, CTIMCO paid small amounts of federal,
state and local taxes. During the nine months ended September 30, 2009, CTIMCO
paid no federal taxes but paid small amounts of state and local taxes. As of
December 31, 2009, we had net operating losses, or NOLs, and net capital losses,
or NCLs, available to be carried forward and utilized in current or future
periods. These included NOLs of $324.4 million and NCLs of $97.6 million at
Capital Trust, Inc., as well as NOLs of $407,000 at CTIMCO.
Deferred
income taxes recorded on our consolidated balance sheets reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities used for financial reporting purposes and the amounts used in the
computation of our current income tax obligations.
Note
15. Employee Benefit and Incentive Plans
We had
four benefit plans in effect as of September 30, 2010: (1) the Second
Amended and Restated 1997 Long-Term Incentive Stock Plan, or 1997 Employee Plan,
(2) the Amended and Restated 1997 Non-Employee Director Stock Plan, or 1997
Director Plan, (3) the Amended and Restated 2004 Long-Term Incentive Plan,
or 2004 Plan, and (4) the 2007 Long-Term Incentive Plan, or 2007 Plan. The 1997
Employee Plan and 1997 Director Plan expired in 2007 and no new awards may be
issued under them, and no further grants will be made under the 2004 Plan. Under
the 2007 Plan, a maximum of 700,000 shares of class A common stock may be
issued. Shares canceled under the 2004 Plan are available to be reissued under
the 2007 Plan. As of September 30, 2010, there were 388,623 shares available
under the 2007 Plan.
Under
these plans, our employees are issued shares of our restricted common stock. We
record grant date fair value of these shares as an expense over their vesting
period. A portion of these shares vest pro rata over a three-year service
period, with the remainder contingently vesting after a four-year period based
on the returns we have achieved.
As of
September 30, 2010, unvested share-based compensation consisted of 50,611 shares
of restricted common stock with an unamortized value of $137,000. Subject to
vesting conditions and the continued employment of certain employees, these
costs will be recognized as compensation expense over the next three
years.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
Activity
under these four plans for the nine months ended September 30, 2010 is
summarized in the table below in share and share equivalents:
Benefit
Type
|
|
1997 Employee
Plan
|
|
1997 Director
Plan
|
|
2004
Plan
|
|
2007
Plan
|
|
Total
|
Options(1)
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
170,477
|
|
—
|
|
—
|
|
—
|
|
170,477
|
Expired
|
|
(41,585)
|
|
—
|
|
—
|
|
—
|
|
(41,585)
|
Ending
balance
|
|
128,892
|
|
—
|
|
—
|
|
—
|
|
128,892
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Common
Stock(2)
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
—
|
|
—
|
|
3,480
|
|
75,543
|
|
79,023
|
Granted
|
|
—
|
|
—
|
|
—
|
|
16,875
|
|
16,875
|
Vested
|
|
—
|
|
—
|
|
(3,480)
|
|
(41,807)
|
|
(45,287)
|
Ending
balance
|
|
—
|
|
—
|
|
—
|
|
50,611
|
|
50,611
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Units(3)
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
—
|
|
80,017
|
|
—
|
|
384,029
|
|
464,046
|
Granted,
deferred and (vested), net
|
|
—
|
|
(11,473)
|
|
—
|
|
721
|
|
(10,752)
|
Ending
balance
|
|
—
|
|
68,544
|
|
—
|
|
384,750
|
|
453,294
|
Total
outstanding
|
|
128,892
|
|
68,544
|
|
—
|
|
435,361
|
|
632,797
|
|
|
|
(1)
|
All options are fully vested as of September 30,
2010.
|
(2) |
Comprised of both performance based awards that vest upon the
attainment of certain common equity return thresholds and time based
awards that vest based upon an employee’s continued employment on vesting
dates.
|
(3) |
Stock units are granted to certain members of our board of
directors in lieu of cash compensation for services and in lieu of
dividends earned on previously granted stock
units.
|
The
following table summarizes the outstanding options as of September 30,
2010:
|
|
|
|
|
|
Weighted
Average
|
|
Weighted
Average
|
Exercise Price
per Share
|
|
Options
Outstanding
|
|
Exercise
Price per Share
|
|
Remaining
Life (in Years)
|
$10.00
- $15.00
|
|
|
35,557
|
|
|
|
$13.50
|
|
|
|
0.18
|
|
$15.00
- $20.00
|
|
|
93,335
|
|
|
|
15.80
|
|
|
|
0.22
|
|
Total/Weighted
Average
|
|
|
128,892
|
|
|
|
$15.17
|
|
|
|
0.21
|
|
A summary
of the unvested restricted common stock as of and for the nine months ended
September 30, 2010 was as follows:
|
Restricted
Common Stock
|
|
Shares
|
|
Grant
Date Fair Value
|
Unvested
at January 1, 2010
|
79,023
|
|
$7.99
|
Granted
|
16,875
|
|
1.27
|
Vested
|
(45,287)
|
|
8.16
|
Unvested
at September 30, 2010
|
50,611
|
|
$6.43
|
A summary
of the unvested restricted common stock as of and for the nine months ended
September 30, 2009 was as follows:
|
Restricted
Common Stock
|
|
Shares
|
|
Grant
Date Fair Value
|
Unvested
at January 1, 2009
|
331,197
|
|
$30.61
|
Granted
|
216,269
|
|
3.32
|
Vested
|
(58,348)
|
|
27.44
|
Forfeited
|
(201,696)
|
|
28.99
|
Unvested
at September 30, 2009
|
287,422
|
|
$12.27
|
The total
grant date fair value of restricted shares which vested during the nine months
ended September 30, 2010 and 2009 was $370,000 and $1.6 million,
respectively.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
In
addition to the equity interests detailed above, we may grant percentage
interests in the incentive compensation received by us from certain of our
investment management vehicles. As of September 30, 2010, there were no such
grants outstanding; however we had previously granted a portion of the Fund III
incentive compensation received by us during 2010.
Note
16. Fair Values
Assets
and Liabilities Recorded at Fair Value
Certain
of our assets and liabilities are measured at fair value either (i) on a
recurring basis, as of each quarter-end, or (ii) on a nonrecurring basis, as a
result of impairment or other events. Generally, loans held-for-sale, real
estate held-for-sale, and interest rate swaps are measured at fair value on a
recurring basis, while impaired loans and securities are measured at fair value
on a nonrecurring basis. These fair values are determined using a variety of
inputs and methodologies, which are detailed below. As discussed in Note 2, the
“Fair Value Measurement and Disclosures” Topic of the Codification establishes a
fair value hierarchy that prioritizes the inputs used in determining fair value
under GAAP, which includes the following classifications, in order of
priority:
|
·
|
Level
1 generally includes only unadjusted quoted prices in active markets for
identical assets or liabilities as of the reporting
date.
|
|
·
|
Level
2 inputs are those which, other than Level 1 inputs, are observable for
identical or similar assets or
liabilities.
|
|
·
|
Level
3 inputs generally include anything which does not meet the criteria of
Levels 1 and 2, particularly any unobservable
inputs.
|
The
following table summarizes our assets and liabilities, including those of our
consolidated VIEs, which are recorded at fair value as of September 30, 2010 (in
thousands):
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Quoted
Prices in
|
|
|
Significant
Other
|
|
|
Significant
|
|
|
|
Fair
Value at
|
|
|
Active
Markets
|
|
|
Observable
Inputs
|
|
|
Unobservable
Inputs
|
|
|
|
September
30, 2010
|
|
|
(Level
1)
|
|
|
(Level
2)
|
|
|
(Level
3)
|
|
Measured
on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-VIE
loans held-for-sale
|
|
|
$59,953 |
|
|
|
$— |
|
|
|
$— |
|
|
|
$59,953 |
|
VIE
real estate held-for-sale
|
|
|
$8,055 |
|
|
|
$— |
|
|
|
$— |
|
|
|
$8,055 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-VIE
interest rate hedge liabilities
|
|
|
($5,900 |
) |
|
|
$— |
|
|
|
($5,900 |
) |
|
|
$— |
|
VIE
interest rate hedge liabilities
|
|
|
($35,329 |
) |
|
|
$— |
|
|
|
($35,329 |
) |
|
|
$— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Measured
on a nonrecurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-VIE impaired
loans (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
mortgage
|
|
|
$34,538 |
|
|
|
$— |
|
|
|
$— |
|
|
|
$34,538 |
|
Subordinate
interests in mortgages
|
|
|
39,880 |
|
|
|
— |
|
|
|
— |
|
|
|
39,880 |
|
Mezzanine
loans
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
$74,418 |
|
|
|
$— |
|
|
|
$— |
|
|
|
$74,418 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIE impaired loans
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
mortgage
|
|
|
$152,286 |
|
|
|
$— |
|
|
|
$— |
|
|
|
$152,286 |
|
Subordinate
interests in mortgages
|
|
|
29,100 |
|
|
|
— |
|
|
|
— |
|
|
|
29,100 |
|
Mezzanine
loans
|
|
|
125,828 |
|
|
|
— |
|
|
|
— |
|
|
|
125,828 |
|
|
|
|
$307,214 |
|
|
|
$— |
|
|
|
$— |
|
|
|
$307,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-VIE impaired
securities (2)
|
|
|
$— |
|
|
|
$— |
|
|
|
$— |
|
|
|
$— |
|
VIE impaired
securities (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
mortgage-backed securities
|
|
|
$9,001 |
|
|
|
$— |
|
|
|
$7,699 |
|
|
|
$1,302 |
|
|
|
|
(1)
|
Loans receivable against which we have recorded a provision for
loan losses as of September 30, 2010.
|
(2) |
Securities which were other-than-temporarily impaired during the
three months ended September 30,
2010.
|
The
following methods and assumptions were used to estimate the fair value of each
type of asset and liability which was recorded at fair value as of September 30,
2010:
Loans held-for-sale: Our
loans held-for-sale are carried at fair value, which was determined by taking
into consideration the value of the underlying collateral, creditworthiness of
the borrower, and expected proceeds from the sale of the loans.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
Real estate held-for-sale:
Real estate held-for-sale is valued based on expected proceeds from a
sale of the asset.
Interest rate hedge liabilities:
Interest rate hedges are valued using advice from a third party
derivative specialist, based on a combination of observable market-based inputs,
such as interest rate curves, and unobservable inputs such as credit valuation
adjustments due to the risk of non-performance by both us and our
counterparties. See Notes 10 and 11 for additional details on our interest rate
hedges.
Impaired loans: The loans
identified for impairment are collateral dependant loans. Impairment on these
loans is measured by comparing management’s estimation of fair value of the
underlying collateral to the carrying value of the respective loan. These
valuations require significant judgments, which include assumptions regarding
capitalization rates, leasing, creditworthiness of major tenants, occupancy
rates, availability of financing, exit plan, loan sponsorship, actions of other
lenders and other factors deemed necessary by management. The table above
includes all impaired loans, regardless of the period in which impairment was
recognized.
Additional
details of our loans which were recorded at fair value as of September 30, 2010
are described below:
Senior mortgage loans: Two of
our senior mortgage loans with an aggregate principal balance of $51.5 million
are reported at fair value as of September 30, 2010,
including one hotel loan ($25.1 million) and one office loan ($26.4 million).
These loans have a weighted average maturity of October 2011 and a weighted
average coupon of 2.0% as of September 30,
2010.
Subordinate interests in mortgages:
Four of our subordinate interests in mortgage loans with an aggregate
principal balance of $113.8 million are reported at fair value as of September 30, 2010,
including two hotel loans ($43.4 million), one office loan ($29.0 million), and
one condominium loan ($41.4 million). These loans have a weighted average
maturity of March 2011 and a weighted average coupon of 3.6% as of September 30,
2010.
Mezzanine loans: Four of our
mezzanine loans with an aggregate principal balance of $302.3 million are
reported at fair value as of September 30, 2010,
including three hotel loans ($29.3 million) and one office loan ($8.0 million).
These loans have a weighted average maturity of March 2012 and a weighted
average coupon of 3.3% as of September 30,
2010.
Additional
details of our consolidated VIEs’ loans which were recorded at fair value as of
September 30,
2010 are described below:
Senior mortgage loans: Three
of our consolidated VIEs’ senior mortgage loans with an aggregate principal
balance of $242.6 million are reported at fair value as of September 30, 2010,
including one office loan ($75.0 million) and two mixed-use/other loan ($167.6
million). These loans have a weighted average maturity of June 2011 and a
weighted average coupon of 2.1% as of September 30,
2010.
Subordinate interests in mortgages:
Eight of our consolidated VIEs’ subordinate interests in mortgage loans
with an aggregate principal balance of $137.8 million are reported at fair value
as of September 30, 2010,
including three hotel loans ($61.5 million), three office loans ($60.7 million),
one multifamily loan ($5.4 million), and one mixed-use/other loan ($10.2
million). These loans have a weighted average maturity of August 2011 and a
weighted average coupon of 2.7% as of September 30,
2010.
Mezzanine loans: Three of our
consolidated VIEs’ mezzanine loans with an aggregate principal balance of $209.6
million are reported at fair value as of September 30, 2010,
including two hotel loans ($188.6 million) and one retail loan ($21.0 million).
These loans have a weighted average maturity of September 2011 and a weighted
average coupon of 2.2% as of September 30,
2010.
Impaired securities:
Securities which are other-than-temporarily impaired are generally valued
by a combination of (i) obtaining assessments from third-party dealers and, (ii)
in limited cases where such assessments are unavailable or, in the opinion of
management, deemed not to be indicative of fair value, discounting expected cash
flows using internal cash flow models and estimated market discount rates. In
the case of internal models, expected cash flows of each security are based on
management’s assumptions regarding the collection of principal and interest on
the underlying loans and securities. The table above includes only securities
which were impaired during the three months ended September 30, 2010.
Previously impaired securities have been subsequently adjusted for amortization,
and are therefore no longer reported at fair value as of September 30,
2010.
As of
September 30, 2010, three of our securities were 100% impaired using assessment
from third-party dealers, resulting in a net book value of zero.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
As of
September 30,
2010, four of our consolidated VIEs securities were other-than-temporarily
impaired and therefore reported at fair value. Three of these securities were
valued using assessments from third-party dealers. The dealer valuation obtained
for one B-rated (by Fitch) security with a 2005 vintage was determined to not be
indicative of fair value and, accordingly, was valued internally by discounting
expected future cash flows using a 20% discount rate. This analysis resulted in
a valuation equal to 12% of the face amount of the security.
The
following table reconciles the beginning and ending balances of assets measured
at fair value on a recurring basis using Level 3 inputs (in
thousands):
|
|
Loans
|
|
|
Real
Estate
|
|
|
|
Held-for-Sale
|
|
|
Held-for-Sale
|
|
December
31, 2009
|
|
|
$— |
|
|
|
$— |
|
Transfer
from loans receivable (non-VIEs)
|
|
|
65,989 |
|
|
|
— |
|
Transfer
from loans receivable (VIEs)
|
|
|
— |
|
|
|
12,055 |
|
|
|
|
|
|
|
|
|
|
Adjustments
to fair value included in earnings:
|
|
|
|
|
|
|
|
|
Valuation
allowance on loans held-for-sale
|
|
|
(6,036 |
) |
|
|
— |
|
Impairment
of real estate held-for-sale
|
|
|
— |
|
|
|
(4,000 |
) |
|
|
|
|
|
|
|
|
|
September
30, 2010
|
|
|
$59,953 |
|
|
|
$8,055 |
|
Fair
Value of Financial Instruments
In
addition to the above disclosures for assets and liabilities which are recorded
at fair value, GAAP also requires disclosure of fair value information about
financial instruments, whether or not recognized in the statement of financial
position, for which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are estimated using present
value or other valuation techniques. Those techniques are significantly affected
by the assumptions used, including the estimated market discount rate and the
estimated future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in an immediate settlement of the instrument. Rather,
these fair values reflect the amounts that management believes are realizable in
an orderly transaction among willing parties. These disclosure requirements
exclude certain financial instruments and all non-financial
instruments.
The
following table details the carrying amount, face amount, and approximate fair
value of the financial instruments described above (in thousands):
Fair
Value of Financial Instruments
|
|
|
|
|
|
|
(in
thousands)
|
|
September
30, 2010
|
|
December
31, 2009
|
|
|
Carrying
Amount
|
|
Face
Amount
|
|
Fair
Value
|
|
Carrying
Amount
|
|
Face
Amount
|
|
Fair
Value
|
Financial
assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$24,149
|
|
$24,149
|
|
$24,149
|
|
$27,954
|
|
$27,954
|
|
$27,954
|
Securities
held-to-maturity
|
|
3,345
|
|
36,059
|
|
4,570
|
|
17,332
|
|
105,174
|
|
8,544
|
Loans
receivable, net
|
|
610,633
|
|
1,005,036
|
|
514,242
|
|
766,745
|
|
1,128,738
|
|
588,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated VIE assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
held-to-maturity
|
|
531,349
|
|
614,448
|
|
488,768
|
|
697,864
|
|
751,214
|
|
519,118
|
Loans
receivable, net
|
|
2,962,597
|
|
3,257,620
|
|
2,559,740
|
|
391,499
|
|
511,412
|
|
316,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
obligations
|
|
407,921
|
|
408,136
|
|
408,136
|
|
450,137
|
|
450,704
|
|
450,704
|
Senior
credit facility
|
|
98,393
|
|
98,393
|
|
14,759
|
|
99,188
|
|
99,188
|
|
24,797
|
Junior
subordinated notes
|
|
131,145
|
|
143,753
|
|
2,875
|
|
128,077
|
|
143,753
|
|
14,375
|
Participations
sold
|
|
288,127
|
|
259,568
|
|
109,209
|
|
289,144
|
|
289,209
|
|
102,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated VIE
liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized
debt obligations
|
|
3,683,774
|
|
3,682,893
|
|
2,526,524
|
|
1,098,280
|
|
1,097,106
|
|
494,704
|
The
following methods and assumptions were used to estimate the fair value of each
class of financial instruments, excluding those described above that are carried
at fair value, for which it is practicable to estimate that value:
Cash and cash equivalents:
The carrying amount of cash on deposit and in money market funds is
considered to be a reasonable estimate of fair value.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
Securities held-to-maturity:
These investments, other than securities that have been
other-than-temporarily impaired, are recorded on a held-to-maturity basis and
not at fair value. The fair values presented above have been estimated by a
combination of (i) obtaining assessments from third party dealers and, (ii) in
limited cases where such assessments are unavailable or, in the opinion of
management, deemed not to be indicative of fair value, discounting expected cash
flows using internal cash flow models and estimated market discount rates. The
expected cash flows of each security are based on management’s assumptions
regarding the collection of principal and interest on the underlying loans and
securities.
Loans receivable, net: Other
than impaired loans, these assets are recorded at their amortized cost and not
at fair value. The fair values presented above were estimated by management
taking into consideration factors including capitalization rates, leasing,
occupancy rates, availability and cost of financing, exit plan, sponsorship,
actions of other lenders and indications of market value from other market
participants.
Repurchase obligations: These
instruments are recorded at their total face balance, less unamortized discount.
As a result of our debt restructuring on March 16, 2009, our repurchase
obligations no longer have terms which are comparable to other facilities in the
market. Given the unique nature of our restructured obligations, it is not
practicable to estimate their fair value. Accordingly, they are presented above
at their current face value. See Note 8 for a detailed description of our
repurchase obligations.
Senior credit facility: This
instrument is recorded on the basis of total cash proceeds borrowed, and not at
fair value. The fair value presented above was estimated by management based on
the amount at which similar placed financial instruments would be valued
today.
Junior subordinated notes:
These instruments are recorded at their total face balance, less
unamortized discount. The fair value presented above was estimated by management
based on the amount at which similar placed financial instruments would be
valued today.
Securitized debt obligations:
These obligations are recorded at the face value of outstanding
obligations to third parties and not at fair value. The fair values
presented above have been estimated by obtaining assessments from third party
dealers.
Note
17. Supplemental Disclosures for Consolidated Statements of Cash
Flows
As a
result of the amended accounting guidance described in Note 2, we have
consolidated an additional seven VIEs beginning January 1, 2010, all of which
are securitization vehicles not sponsored by us. The consolidation of these
entities has materially impacted our statement of cash flows, primarily the
amounts reported as principal collections of loans and repayments of securitized
debt obligations. Notwithstanding the gross presentation on our consolidated
statement of cash flows, the consolidation of these entities has no impact on
our net cash flow.
Interest
paid on our outstanding debt obligations during the nine months ended September
30, 2010 and 2009 was $79.9 million and $50.8 million, respectively. This
includes $36.3 million of interest paid on our outstanding debt obligations for
the nine months ended September 30, 2010 from newly consolidated VIEs. The
difference between interest expense on our consolidated statement of operations
and interest paid is primarily due to non-cash interest expense recorded on loan
participations sold, as well as amortization of discounts on our debt
obligations and deferred interest on our senior credit facility.
Taxes
recovered by us during the nine months ended September 30, 2010 and 2009 were
$132,000 and $408,000, respectively.
Note
18. Transactions with Related Parties
We earn
base management and incentive fees in our capacity as investment manager for
multiple vehicles which we have sponsored. Due to the nature of our relationship
with these vehicles, all management fees are considered revenue from related
parties under GAAP.
On
November 9, 2006, we commenced our CT High Grade MezzanineSM investment
management initiative and entered into three separate account agreements with
affiliates of W. R. Berkley Corporation, or WRBC, for an aggregate of $250
million. On July 25, 2007, we amended the agreements to increase the
aggregate commitment of the WRBC affiliates to $350 million. Pursuant to
these agreements, we invested capital, on a discretionary basis, on behalf of
WRBC in commercial real estate mortgages, mezzanine loans and participations
therein. The separate accounts are entirely funded with committed capital
from WRBC and are managed by a subsidiary of CTIMCO. CTIMCO earns a
management fee equal to 0.25% per annum on invested assets.
WRBC
beneficially owned approximately 17.0% of our outstanding common stock and
stock units as of October 22, 2010, and a member of our board of
directors is an employee of WRBC.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
In July
2008, CTOPI, a private equity fund that we manage, held its final closing
completing its capital raise with $540 million total equity commitments.
EGI-Private Equity II, L.L.C., an affiliate under common control of the chairman
of our board of directors, owns a 3.7% limited partner interest in CTOPI. During
the nine months ended September 30, 2010, we recorded $3.2 million in fees from
CTOPI, $131,000 of which were attributable to EGI Private Equity II, L.L.C.
Affiliates of the chairman of our board of directors also owned interests in
Fund III, an investment management vehicle that we managed and in which we also
had an ownership interest. Fund III completed its liquidation in the normal
course in September 2010.
Effective
December 1, 2009, John R. Klopp retired as our chief executive officer. In
conjunction with his departure, Mr. Klopp was retained as a consultant to the
company through November 2010, for which he is paid $83,333 per month over the
twelve-month term. We recognized 100% of this consulting fee in 2009 as a
component of general and administrative expense.
Note
19. Segment Reporting
We
operate in two reportable segments. We have an internal information system that
produces performance and asset data for our two segments along service
lines.
The
Balance Sheet Investment segment includes our entire portfolio of interest
earning assets and the financing thereof.
The
Investment Management segment includes the investment management activities of
our wholly-owned investment management subsidiary, CT Investment Management Co.,
LLC, or CTIMCO, and its subsidiaries, as well as our co-investments in
investment management vehicles. CTIMCO is a taxable REIT subsidiary and serves
as the investment manager of Capital Trust, Inc., all of our investment
management vehicles and all of our CT CDOs, and serves as senior servicer and
special servicer for certain of our investments and for third
parties.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
following table details each segment's contribution to our operating results and
the identified assets attributable to each such segment for the nine months
ended, and as of, September 30, 2010 (in thousands):
|
|
Balance
Sheet
|
|
|
Investment
|
|
|
Inter-Segment
|
|
|
|
|
|
|
Investment
|
|
|
Management
|
|
|
Activities
|
|
|
Total
|
|
Income
from loans and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and related income
|
|
|
$119,523 |
|
|
|
$— |
|
|
|
$— |
|
|
|
$119,523 |
|
Less:
Interest and related expenses
|
|
|
94,462 |
|
|
|
— |
|
|
|
— |
|
|
|
94,462 |
|
Income
from loans and other investments, net
|
|
|
25,061 |
|
|
|
— |
|
|
|
— |
|
|
|
25,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees from affiliates
|
|
|
— |
|
|
|
6,244 |
|
|
|
(254 |
) |
|
|
5,990 |
|
Incentive
management fees from affiliates
|
|
|
— |
|
|
|
733 |
|
|
|
— |
|
|
|
733 |
|
Servicing
fees
|
|
|
— |
|
|
|
4,351 |
|
|
|
(1,530 |
) |
|
|
2,821 |
|
Other
interest income
|
|
|
259 |
|
|
|
1 |
|
|
|
— |
|
|
|
260 |
|
Total
other revenues
|
|
|
259 |
|
|
|
11,329 |
|
|
|
(1,784 |
) |
|
|
9,804 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
4,659 |
|
|
|
9,978 |
|
|
|
(254 |
) |
|
|
14,383 |
|
Servicing
fee expense
|
|
|
1,530 |
|
|
|
— |
|
|
|
(1,530 |
) |
|
|
— |
|
Depreciation
and amortization
|
|
|
— |
|
|
|
15 |
|
|
|
— |
|
|
|
15 |
|
Total
other expenses
|
|
|
6,189 |
|
|
|
9,993 |
|
|
|
(1,784 |
) |
|
|
14,398 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other-than-temporary impairments of securities
|
|
|
(69,798 |
) |
|
|
— |
|
|
|
— |
|
|
|
(69,798 |
) |
Portion
of other-than-temporary impairments of securities
recognized in other comprehensive income
|
|
|
12,094 |
|
|
|
— |
|
|
|
— |
|
|
|
12,094 |
|
Impairment
of real estate held-for-sale
|
|
|
(4,000 |
) |
|
|
|
|
|
|
|
|
|
|
(4,000 |
) |
Net
impairments recognized in earnings
|
|
|
(61,704 |
) |
|
|
— |
|
|
|
— |
|
|
|
(61,704 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
(150,143 |
) |
|
|
— |
|
|
|
— |
|
|
|
(150,143 |
) |
Valuation
allowance on loans held-for-sale
|
|
|
(6,036 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6,036 |
) |
Gain
on extinguishment of debt
|
|
|
648 |
|
|
|
— |
|
|
|
— |
|
|
|
648 |
|
Income
from equity investments
|
|
|
— |
|
|
|
2,358 |
|
|
|
— |
|
|
|
2,358 |
|
(Loss)
income before income taxes
|
|
|
(198,104 |
) |
|
|
3,694 |
|
|
|
— |
|
|
|
(194,410 |
) |
Income
tax provision
|
|
|
14 |
|
|
|
835 |
|
|
|
— |
|
|
|
849 |
|
Net
(loss) income
|
|
|
($198,118 |
) |
|
|
$2,859 |
|
|
|
$— |
|
|
|
($195,259 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
$4,225,572 |
|
|
|
$13,111 |
|
|
|
($2,832 |
) |
|
|
$4,235,851 |
|
All
revenues were generated from external sources within the United States. The
Investment Management segment earned fees of $254,000 for management of the
Balance Sheet Investment segment and $1.5 million for serving as collateral
manager of the four CT CDOs consolidated under our Balance Sheet Investment
segment as well as special servicing activity for certain CT CDO assets for the
nine months ended September 30, 2010.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
following table details each segment's contribution to our operating results and
the identified assets attributable to each such segment for the nine months
ended, and as of, September 30, 2009 (in thousands):
|
|
Balance
Sheet
|
|
|
Investment
|
|
|
Inter-Segment
|
|
|
|
|
|
|
Investment
|
|
|
Management
|
|
|
Activities
|
|
|
Total
|
|
Income
from loans and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and related income
|
|
|
$93,341 |
|
|
|
$— |
|
|
|
$— |
|
|
|
$93,341 |
|
Less:
Interest and related expenses
|
|
|
61,116 |
|
|
|
— |
|
|
|
— |
|
|
|
61,116 |
|
Income
from loans and other investments, net
|
|
|
32,225 |
|
|
|
— |
|
|
|
— |
|
|
|
32,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees from affiliates
|
|
|
— |
|
|
|
12,746 |
|
|
|
(3,978 |
) |
|
|
8,768 |
|
Servicing
fees
|
|
|
— |
|
|
|
2,012 |
|
|
|
(510 |
) |
|
|
1,502 |
|
Other
interest income
|
|
|
150 |
|
|
|
16 |
|
|
|
(13 |
) |
|
|
153 |
|
Total
other revenues
|
|
|
150 |
|
|
|
14,774 |
|
|
|
(4,501 |
) |
|
|
10,423 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
10,066 |
|
|
|
12,362 |
|
|
|
(3,978 |
) |
|
|
18,450 |
|
Servicing
fee expense
|
|
|
510 |
|
|
|
— |
|
|
|
(510 |
) |
|
|
— |
|
Other
interest expense
|
|
|
— |
|
|
|
13 |
|
|
|
(13 |
) |
|
|
— |
|
Depreciation
and amortization
|
|
|
— |
|
|
|
65 |
|
|
|
— |
|
|
|
65 |
|
Total
other expenses
|
|
|
10,576 |
|
|
|
12,440 |
|
|
|
(4,501 |
) |
|
|
18,515 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other-than-temporary impairments of securities
|
|
|
(96,529 |
) |
|
|
— |
|
|
|
— |
|
|
|
(96,529 |
) |
Portion
of other-than-temporary impairments of securities
recognized in other comprehensive income
|
|
|
17,612 |
|
|
|
— |
|
|
|
— |
|
|
|
17,612 |
|
Impairment
of goodwill
|
|
|
— |
|
|
|
(2,235 |
) |
|
|
— |
|
|
|
(2,235 |
) |
Impairment
of real estate held-for-sale
|
|
|
(2,233 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,233 |
) |
Net
impairments recognized in earnings
|
|
|
(81,150 |
) |
|
|
(2,235 |
) |
|
|
— |
|
|
|
(83,385 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
(113,716 |
) |
|
|
— |
|
|
|
— |
|
|
|
(113,716 |
) |
Valuation
allowance on loans held-for-sale
|
|
|
(10,363 |
) |
|
|
— |
|
|
|
— |
|
|
|
(10,363 |
) |
Loss
from equity investments
|
|
|
— |
|
|
|
(3,074 |
) |
|
|
— |
|
|
|
(3,074 |
) |
Loss
before income taxes
|
|
|
(183,430 |
) |
|
|
(2,975 |
) |
|
|
— |
|
|
|
(186,405 |
) |
Income
tax benefit
|
|
|
(408 |
) |
|
|
— |
|
|
|
— |
|
|
|
(408 |
) |
Net
loss
|
|
|
($183,022 |
) |
|
|
($2,975 |
) |
|
|
$— |
|
|
|
($185,997 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
$2,382,157 |
|
|
|
$10,424 |
|
|
|
($1,957 |
) |
|
|
$2,390,624 |
|
All
revenues were generated from external sources within the United States. The
Investment Management segment earned fees of $4.0 million for management of the
Balance Sheet Investment segment and $510,000 for servicing as collateral
manager of the four CT CDOs consolidated under our Balance Sheet Investment
segment, and was charged $13,000 for inter-segment interest for the nine months
ended September 30, 2009.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
following table details each segment's contribution to our operating results and
the identified assets attributable to each such segment for the three months
ended, and as of, September 30, 2010 (in thousands):
|
|
Balance
Sheet
|
|
|
Investment
|
|
|
Inter-Segment
|
|
|
|
|
|
|
Investment
|
|
|
Management
|
|
|
Activities
|
|
|
Total
|
|
Income
from loans and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and related income
|
|
|
$40,125 |
|
|
|
$— |
|
|
|
$— |
|
|
|
$40,125 |
|
Less:
Interest and related expenses
|
|
|
31,557 |
|
|
|
— |
|
|
|
— |
|
|
|
31,557 |
|
Income
from loans and other investments, net
|
|
|
8,568 |
|
|
|
— |
|
|
|
— |
|
|
|
8,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees from affiliates
|
|
|
— |
|
|
|
1,859 |
|
|
|
191 |
|
|
|
2,050 |
|
Incentive
management fees from affiliates
|
|
|
— |
|
|
|
733 |
|
|
|
— |
|
|
|
733 |
|
Servicing
fees
|
|
|
— |
|
|
|
1,066 |
|
|
|
(982 |
) |
|
|
84 |
|
Other
interest income
|
|
|
155 |
|
|
|
— |
|
|
|
— |
|
|
|
155 |
|
Total
other revenues
|
|
|
155 |
|
|
|
3,658 |
|
|
|
(791 |
) |
|
|
3,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
1,295 |
|
|
|
3,657 |
|
|
|
191 |
|
|
|
5,143 |
|
Servicing
fee expense
|
|
|
982 |
|
|
|
— |
|
|
|
(982 |
) |
|
|
— |
|
Depreciation
and amortization
|
|
|
— |
|
|
|
5 |
|
|
|
— |
|
|
|
5 |
|
Total
other expenses
|
|
|
2,277 |
|
|
|
3,662 |
|
|
|
(791 |
) |
|
|
5,148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other-than-temporary impairments of securities
|
|
|
(29,963 |
) |
|
|
— |
|
|
|
— |
|
|
|
(29,963 |
) |
Portion
of other-than-temporary impairments of securities
recognized in other comprehensive income
|
|
|
(5,921 |
) |
|
|
— |
|
|
|
— |
|
|
|
(5,921 |
) |
Impairment
of real estate held-for-sale
|
|
|
(4,000 |
) |
|
|
|
|
|
|
|
|
|
|
(4,000 |
) |
Net
impairments recognized in earnings
|
|
|
(39,884 |
) |
|
|
— |
|
|
|
— |
|
|
|
(39,884 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
(95,916 |
) |
|
|
— |
|
|
|
— |
|
|
|
(95,916 |
) |
Valuation
allowance on loans held-for-sale
|
|
|
(6,036 |
) |
|
|
|
|
|
|
|
|
|
|
(6,036 |
) |
Gain
on extinguishment of debt
|
|
|
185 |
|
|
|
— |
|
|
|
— |
|
|
|
185 |
|
Income
from equity investments
|
|
|
— |
|
|
|
1,056 |
|
|
|
— |
|
|
|
1,056 |
|
(Loss)
income before income taxes
|
|
|
(135,205 |
) |
|
|
1,052 |
|
|
|
— |
|
|
|
(134,153 |
) |
Income
tax provision
|
|
|
— |
|
|
|
556 |
|
|
|
— |
|
|
|
556 |
|
Net
(loss) income
|
|
|
($135,205 |
) |
|
|
$496 |
|
|
|
$— |
|
|
|
($134,709 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
$4,225,572 |
|
|
|
$13,111 |
|
|
|
($2,832 |
) |
|
|
$4,235,851 |
|
All
revenues were generated from external sources within the United States. The
Investment Management segment refunded fees of $191,000 related to its
management of the Balance Sheet Investment segment and earned $982,000 for
serving as collateral manager of the four CT CDOs consolidated under our Balance
Sheet Investment segment as well as special servicing activity for certain CT
CDO assets for the three months ended September 30, 2010.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
following table details each segment's contribution to our operating results and
the identified assets attributable to each such segment for the three months
ended, and as of, September 30, 2009 (in thousands):
|
|
Balance
Sheet
|
|
|
Investment
|
|
|
Inter-Segment
|
|
|
|
|
|
|
Investment
|
|
|
Management
|
|
|
Activities
|
|
|
Total
|
|
Income
from loans and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and related income
|
|
|
$29,527 |
|
|
|
$— |
|
|
|
$— |
|
|
|
$29,527 |
|
Less:
Interest and related expenses
|
|
|
19,604 |
|
|
|
— |
|
|
|
— |
|
|
|
19,604 |
|
Income
from loans and other investments, net
|
|
|
9,923 |
|
|
|
— |
|
|
|
— |
|
|
|
9,923 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees from affiliates
|
|
|
— |
|
|
|
4,459 |
|
|
|
(1,500 |
) |
|
|
2,959 |
|
Servicing
fees
|
|
|
— |
|
|
|
423 |
|
|
|
(255 |
) |
|
|
168 |
|
Other
interest income
|
|
|
15 |
|
|
|
1 |
|
|
|
— |
|
|
|
16 |
|
Total
other revenues
|
|
|
15 |
|
|
|
4,883 |
|
|
|
(1,755 |
) |
|
|
3,143 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
2,600 |
|
|
|
4,392 |
|
|
|
(1,500 |
) |
|
|
5,492 |
|
Servicing
fee expense
|
|
|
255 |
|
|
|
— |
|
|
|
(255 |
) |
|
|
— |
|
Depreciation
and amortization
|
|
|
— |
|
|
|
51 |
|
|
|
— |
|
|
|
51 |
|
Total
other expenses
|
|
|
2,855 |
|
|
|
4,443 |
|
|
|
(1,755 |
) |
|
|
5,543 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other-than-temporary impairments of securities
|
|
|
(77,883 |
) |
|
|
— |
|
|
|
— |
|
|
|
(77,883 |
) |
Portion
of other-than-temporary impairments of securities
recognized in other comprehensive income
|
|
|
11,987 |
|
|
|
— |
|
|
|
— |
|
|
|
11,987 |
|
Net
impairments recognized in earnings
|
|
|
(65,896 |
) |
|
|
— |
|
|
|
— |
|
|
|
(65,896 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
(47,222 |
) |
|
|
— |
|
|
|
— |
|
|
|
(47,222 |
) |
Loss
from equity investments
|
|
|
— |
|
|
|
(862 |
) |
|
|
— |
|
|
|
(862 |
) |
Loss
before income taxes
|
|
|
(106,035 |
) |
|
|
(422 |
) |
|
|
— |
|
|
|
(106,457 |
) |
Income
tax provision
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Net
loss
|
|
|
($106,035 |
) |
|
|
($422 |
) |
|
|
$— |
|
|
|
($106,457 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
|
$2,382,157 |
|
|
|
$10,424 |
|
|
|
($1,957 |
) |
|
|
$2,390,624 |
|
All
revenues were generated from external sources within the United States. The
Investment Management segment earned fees of $1.5 million for management of the
Balance Sheet Investment segment and $255,000 for serving as collateral manager
of the four CT CDOs consolidated under our Balance Sheet Investment segment for
the three months ended September 30, 2009.
ITEM
2. Management's
Discussion and Analysis of Financial Condition and Results of
Operations
References
herein to “we,” “us” or “our” refer to Capital Trust, Inc. and its
subsidiaries unless the context specifically requires otherwise.
The
following discussion should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this quarterly
report on Form 10-Q. Historical results set forth are not necessarily indicative
of our future financial position and results of operations.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America, or GAAP. The preparation of these financial statements requires our
management to make estimates and assumptions with regard to the reported amounts
of assets, liabilities, revenue and expenses, and related disclosure of
contingent assets and liabilities. Actual results could differ from these
estimates. Other than the adoption of the new accounting guidance discussed
below under “Principles of Consolidation,” there have been no material changes
to our Critical Accounting Policies described in our annual report on Form 10-K
filed with the Securities and Exchange Commission on March 2, 2010.
Principles
of Consolidation
The
accompanying financial statements include, on a consolidated basis, our
accounts, the accounts of our wholly-owned subsidiaries, and variable interest
entities, or VIEs, in which we are the primary beneficiary, prepared in
accordance with GAAP. All significant intercompany balances and transactions
have been eliminated in consolidation.
VIEs are
defined as entities in which equity investors (i) do not have the
characteristics of a controlling financial interest, and/or (ii) do not have
sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. The entity that
consolidates a VIE is known as its primary beneficiary.
As of
September 30, 2010, our consolidated balance sheet includes an aggregate $3.5
billion of assets and $3.7 billion of liabilities related to 11 consolidated
VIEs. Due to the non-recourse nature of these VIEs, and other factors, our net
exposure to loss from investments in these entities is limited to $34.3 million.
See Note 11 to our consolidated financial statements for additional information
on our investments in VIEs.
Balance
Sheet Presentation
We have
adjusted the presentation of our consolidated balance sheet, in accordance with
GAAP, to separately categorize (i) our assets and liabilities, and (ii) the
assets and liabilities of consolidated VIEs. Assets of consolidated VIEs can
generally only be used to satisfy the obligations of those VIEs, and the
liabilities of consolidated VIEs are non-recourse to us. Similarly, the
following discussion of our financial condition and results of operations
separately describes our assets and liabilities from those of our consolidated
VIEs.
We
believe that the accounting for loan participations sold as well as
consolidation of VIEs, in particular the VIEs newly consolidated effective
January 1, 2010, while in accordance with GAAP, has resulted in a presentation
of gross assets and liabilities and provisions/impairments being recorded in
excess of our economic exposure in such entities.
Our
business model is designed to produce a mix of net interest margin from our
balance sheet investments and fee income plus co-investment income from our
investment management vehicles. In managing our operations, we focus on
originating investments, managing our portfolios and capitalizing our
businesses.
We have
historically allocated investment opportunities between our balance sheet and
investment management vehicles based upon our assessment of risk and return
profiles, the availability and cost of capital, and applicable regulatory
restrictions associated with each opportunity. The restructuring of our recourse
secured and unsecured debt obligations, as discussed in Note 8 to our
consolidated financial statements, includes covenants that require us to
effectively cease our balance sheet investment activities. Going forward, until
these covenants are eliminated, we will not make new balance sheet investments,
but will continue to carry out investment activities for our investment
management vehicles, consistent with our previous strategies and investment
mandates for each respective vehicle.
Notwithstanding
the current capabilities of our investment management platform, we have
maintained a defensive posture with respect to investment originations in light
of the continued market volatility.
The table
below summarizes our total originations and the allocation of opportunities
between our balance sheet and investment management business for the nine months
ended September 30, 2010 and for the year ended December 31, 2009.
Originations(1)
|
|
|
|
|
(in
millions)
|
|
Nine
months ended
September
30, 2010
|
|
Year
ended
December
31, 2009
|
Balance
sheet
|
|
$―
|
|
$―
|
Investment
management
|
|
212
|
|
138
|
Total
originations
|
|
$212
|
|
$138
|
|
|
|
(1)
|
Includes total commitments, both funded and unfunded, net of any
related purchase
discounts.
|
Balance
Sheet Investments
Our
balance sheet investments include various types of commercial mortgage backed
securities and collateralized debt obligations, or Securities, and commercial
real estate loans and related instruments, or Loans, certain of which are assets
of consolidated VIEs. We collectively refer to these as Interest Earning Assets.
The table below shows our Interest Earning Assets as of September 30, 2010 and
December 31, 2009.
Interest
Earning Assets
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
September
30, 2010
|
|
December
31, 2009
|
|
|
Book
Value
|
|
Yield(1)
|
|
Book
Value
|
|
Yield(1)
|
Securities
held-to-maturity
|
|
|
$3 |
|
|
|
8.58 |
% |
|
|
$17 |
|
|
|
7.89 |
% |
Loans
receivable, net (2)
|
|
|
524 |
|
|
|
3.97 |
|
|
|
650 |
|
|
|
3.73 |
|
Loans
held-for-sale, net (2)
|
|
|
33 |
|
|
|
4.98 |
|
|
|
— |
|
|
|
— |
|
Subtotal
/ Weighted Average
|
|
|
$560 |
|
|
|
4.06 |
% |
|
|
$667 |
|
|
|
3.84 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated VIE Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
held-to-maturity
|
|
|
$531 |
|
|
|
7.11 |
% |
|
|
$698 |
|
|
|
6.58 |
% |
Loans
receivable, net
|
|
|
2,963 |
|
|
|
2.30 |
|
|
|
391 |
|
|
|
3.58 |
|
Loans
held-for-sale, net
|
|
|
— |
|
|
|
— |
|
|
|
18 |
|
|
|
— |
|
Subtotal
/ Weighted Average
|
|
|
$3,494 |
|
|
|
3.03 |
% |
|
|
$1,107 |
|
|
|
5.41 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
/ Weighted Average
|
|
|
$4,054 |
|
|
|
3.17 |
% |
|
|
$1,774 |
|
|
|
4.82 |
% |
|
|
|
(1)
|
Yield on floating rate assets assumes LIBOR of 0.26% and 0.23% at
September 30, 2010 and December 31, 2009,
respectively.
|
(2) |
Excludes loan participations sold with a net book value of $114.5
million and $116.7 million as of September 30, 2010 and December 31, 2009,
respectively. These participations are net of $173.7 million and $172.5
million of provisions for loan losses as of September 30, 2010 and
December 31, 2009,
respectively.
|
In some
cases our Loan originations are not fully funded at closing, creating an
obligation for us to make future fundings, which we refer to as Unfunded Loan
Commitments. Typically, Unfunded Loan Commitments are part of construction and
transitional Loans. As of September 30, 2010, our two Unfunded Loan Commitments
totaled $778,000, which will generally only be funded when and/or if the
borrower meets certain performance hurdles with respect to the underlying
collateral, or to reimburse costs associated with leasing activity.
In
addition to our investments in Interest Earning Assets, we also hold equity
investments in unconsolidated subsidiaries, which represent our co-investments
in private equity funds that we manage. As of September 30, 2010, this balance
primarily relates to one such fund, CT Opportunity Partners I, LP, or
CTOPI.
During
the third quarter of 2010, we completed the liquidation of one of our investment
management vehicles, CT Mezzanine Partners III, Inc., or Fund III, in which
we had a 4.7% investment. We recorded $733,000 of incentive management fees in
conjunction with the liquidation of Fund III.
The table
below details the carrying value of these investments, as of September 30, 2010
and December 31, 2009.
Equity
Investments
|
|
|
|
|
(in
thousands)
|
|
September
30, 2010
|
|
December
31, 2009
|
|
|
|
|
|
Fund
III
|
|
$—
|
|
$158
|
CTOPI
|
|
7,584
|
|
2,175
|
Capitalized
costs/other
|
|
13
|
|
18
|
Total
|
|
$7,597
|
|
$2,351
|
We
actively manage our balance sheet portfolio and the assets held by our
investment management vehicles with our in-house team of asset managers. While
our investments are primarily in the form of debt, we are aggressive in
exercising the rights afforded to us as a lender. These rights may include
collateral level budget approvals, lease approvals, loan covenant enforcement,
escrow/reserve management/collection, collateral release approvals and other
rights that we may negotiate. In light of the recent deterioration in property
level performance, property valuation, and the real estate capital markets, an
increasing number of our loans are either non-performing and/or on our watch
list. This requires intensive efforts on the part of our asset management team
to maximize our recovery of those investments.
We
actively manage our Securities portfolio using a combination of quantitative
tools and loan/property level analysis to monitor the performance of the
Securities and their collateral against our original expectations. Securities
are analyzed to monitor underlying loan delinquencies, transfers to special
servicing, and changes to the servicer’s watch list population. Realized losses
on underlying loans are tracked and compared to our original loss expectations.
On a periodic basis, individual loans of concern are also
re-underwritten.
As of
September 30, 2010, there were significant differences between the estimated
fair value and the book value of some of the Securities in our portfolio. We
believe these differences to be related to the current market dislocation and a
general negative bias against structured financial products and not reflective
of a change in cash flow expectations from these securities. Accordingly, we
have not recorded any additional other-than-temporary impairments against such
Securities.
The table
below details the overall credit profile of our Interest Earning Assets,
excluding those held by consolidated VIEs, which includes: (i) Loans against
which we have recorded a provision for loan losses, or reserves, (ii) Securities
against which we have recorded an other-than-temporary impairment, and (iii)
Loans and Securities that are categorized as Watch List, which are currently
performing but pose a higher risk of non-performance and/or loss. We actively
monitor and manage Watch List Assets to mitigate these risks in our
portfolio.
Portfolio
Performance - Non-VIE Assets(1)
|
|
|
|
|
(in
millions, except for number of investments)
|
September
30, 2010
|
|
December
31, 2009
|
|
|
|
|
|
|
Interest
earning assets, excluding VIEs ($ / #)
|
$560 /
|
40 |
|
$667
/
|
44 |
|
|
|
|
|
|
Impaired
Loans (2)
|
|
|
|
|
|
Performing
loans ($ / #)
|
$80 /
|
7 |
|
$53
/
|
6 |
Non-performing
loans ($ / #)
|
$27 /
|
5 |
|
$5
/
|
3 |
Total
($ / #)
|
$107 /
|
12 |
|
$58
/
|
9 |
Percentage
of interest earning assets
|
19.1%
|
|
8.7%
|
|
|
|
|
|
|
Impaired
Securities (2)
($ / #)
|
$2
/
|
6 |
|
$3
/
|
6 |
Percentage
of interest earning assets
|
0.4%
|
|
0.4%
|
|
|
|
|
|
|
Watch
List Assets (3)
|
|
|
|
|
|
Watch
list loans ($ / #)
|
$156
/
|
8 |
|
$259
/
|
8 |
Watch
list securities ($ / #)
|
$1
/
|
1 |
|
$15
/
|
3 |
Total
($ / #)
|
$157
/
|
9 |
|
$274
/
|
11 |
Percentage
of interest earning assets
|
28.0%
|
|
41.1%
|
|
|
|
(1)
|
Portfolio statistics include Loans classified as held-for-sale, but
exclude loan participations sold.
|
(2) |
Amounts represent net book value after provisions for loan losses,
valuation allowances on loans-held-for-sale and other-than-temporary
impairments of securities.
|
(3) |
Watch List Assets exclude Loans against which we have recorded a
provision for loan losses or valuation allowance, and Securities which
have been other-than-temporarily
impaired.
|
Excluding
Loans in our consolidated VIEs, three Loans with an outstanding balance of $80.9
million as of September 30, 2010, which did not qualify for extension pursuant
to the corresponding loan agreements, were extended during the nine months ended
September 30, 2010.
The table
below details the overall credit profile of Interest Earning Assets held in
consolidated VIEs, which includes: (i) Loans where we have foreclosed upon the
underlying collateral and own an equity interest in real estate, (ii) Loans
against which we have recorded a provision for loan losses, or reserves, (iii)
Securities against which we have recorded an other-than-temporary impairment,
and (iv) Loans and Securities that are categorized as Watch List, which are
currently performing but pose a higher risk of non-performance and/or loss. We
actively monitor and manage Watch List assets to mitigate these risks in our
portfolio.
Portfolio
Performance - Consolidated VIE Assets(1)
|
|
|
|
(in
millions, except for number of investments)
|
September
30, 2010
|
|
December
31, 2009
|
|
|
|
|
|
|
Interest
earning assets of consolidated VIEs ($ / #)
|
$3,494
|
/
153 |
|
$1,107
|
/
91 |
|
|
|
|
|
|
Real
estate owned ($ / #)
|
$8
|
/
1 |
|
$―
|
/
― |
Percentage
of interest earning assets
|
0.2% |
|
―% |
|
|
|
|
|
|
Impaired
Loans (2)
|
|
|
|
|
|
Performing
loans ($ / #)
|
$237
|
/
7 |
|
$43
|
/
6 |
Non-performing
loans ($ / #)
|
$70
|
/
7 |
|
$30
|
/
5 |
Total
($ / #)
|
$307
|
/
14 |
|
$73
|
/
11 |
Percentage
of interest earning assets
|
8.8% |
|
6.6% |
|
|
|
|
|
|
Impaired
Securities
(2) ($ / #)
|
$14
|
/
10 |
|
$25
|
/
5 |
Percentage
of interest earning assets
|
0.4% |
|
2.3% |
|
|
|
|
|
|
Watch
List Assets (3)
|
|
|
|
|
|
Watch
list loans ($ / #)
|
$516
|
/
15 |
|
$53
|
/
2 |
Watch
list securities ($ / #)
|
$72
|
/
10 |
|
$150
|
/
16 |
Total
($ / #)
|
$588
|
/
25 |
|
$203
|
/
18 |
Percentage
of interest earning assets
|
16.8% |
|
18.3% |
|
|
|
(1)
|
Portfolio statistics include Loans classified as
held-for-sale.
|
(2) |
Amounts represent net book value after provisions for loan losses,
valuation allowances on loans-held-for-sale and other-than-temporary
impairments of securities.
|
(3) |
Watch List Assets exclude Loans against which we have recorded a
provision for loan losses or valuation allowances, and Securities which
have been other-than-temporarily
impaired.
|
The
ratings performance of our Securities portfolio, including securities held by
consolidated VIEs, over the nine months ended September 30, 2010 and the year
ended December 31, 2009 is detailed below:
Rating
Activity(1)
|
|
Nine
months ended
September
30, 2010
|
|
Year
ended
December
31, 2009
|
Securities
Upgraded
|
2
|
|
1
|
Securities
Downgraded
|
23
|
|
21
|
|
|
|
(1)
|
Represents activity from any of Fitch Ratings, Standard &
Poor’s or Moody’s Investors
Service.
|
We
continue to foresee trends in asset performance in that are likely to lead to
further defaults and downgrades: borrowers faced with maturities continue to
have a difficult time refinancing their properties in light of the volatility
and lack of liquidity in the financial markets, and the continued weakness of
real estate fundamentals as the impacts of a weak U.S. economy continue to
filter into the commercial real estate sector, impacting cash flows. These
trends may result in negotiated extensions or modifications of the terms of our
investments or the exercise of foreclosure and other remedies. In any event, it
is likely that we will continue to experience difficulty with respect to our
investments and will likely incur material losses in our portfolio.
We
capitalize our business with a combination of debt and equity. Our debt sources,
which we collectively refer to as Interest Bearing Liabilities, currently
include repurchase agreements, a senior credit facility and junior subordinated
notes. Our balance sheet also includes the non-recourse securitized debt
obligations of consolidated VIEs. Our equity capital is currently comprised
entirely of common stock.
During
2009, our recourse Interest Bearing Liabilities, including repurchase
agreements, our senior credit facility and junior subordinated notes, were
restructured, exchanged, terminated, or otherwise satisfied. We believe that the
March 2009 restructuring improved the stability of our capital structure,
however, there can be no assurance that a further restructuring will not be
required or that any such further restructuring will be successful.
Critical
features of our restructured debt obligations are described below; see also Note
8 to our consolidated financial statements for additional
information.
|
·
|
Maturity
dates of our repurchase agreements and senior credit facility have been
extended to March 16, 2011 with an additional one-year extension option,
exercisable by each lender in its sole
discretion.
|
|
·
|
We
agreed to pay each of our repurchase lenders periodic amortization as
follows: (i) sixty-five (65%) of the net interest income generated by each
lender’s collateral pool, and (ii) one hundred percent (100%) of the
principal proceeds received from the repayment of assets in each lender’s
collateral pool.
|
|
·
|
We
agreed to initiate quarterly amortization of our senior credit facility,
an amount generally equal to $5.0 million per
annum.
|
|
·
|
We
eliminated the cash margin call provisions and amended the mark-to-market
provisions that were in effect under the original terms of
the repurchase facilities. Generally, if a repurchase lender
determines that the ratio of their total outstanding facility balance to
total collateral value exceeds 1.15x the ratio calculated as of the
effective date of the amended agreements, we may be required to liquidate
collateral and reduce the borrowings or post other collateral in an
effort to bring the ratio back into compliance with the prescribed
ratio.
|
|
·
|
We
are prohibited from making new balance sheet investments except, subject
to certain limitations, co-investments in our investment management
vehicles or protective investments to defend existing collateral assets on
our balance sheet.
|
|
·
|
We
are prohibited from incurring any additional indebtedness except in
limited circumstances.
|
|
·
|
We
are prohibited from paying cash dividends to our common shareholders
except to the minimum extent necessary to maintain our REIT
status.
|
The table
below describes our Interest Bearing Liabilities as of September 30, 2010 and
December 31, 2009:
Interest
Bearing Liabilities(1)
|
|
|
|
|
|
|
(Principal
balance, in millions)
|
|
September
30, 2010
|
|
|
December
31, 2009
|
|
|
|
|
|
|
|
|
Recourse
debt obligations
|
|
|
|
|
|
|
Secured credit facilities
|
|
|
|
|
|
|
Repurchase
obligations
|
|
|
$408 |
|
|
|
$451 |
|
Senior
credit facility
|
|
|
98 |
|
|
|
99 |
|
Subtotal
|
|
|
506 |
|
|
|
550 |
|
|
|
|
|
|
|
|
|
|
Unsecured credit facilities
|
|
|
|
|
|
|
|
|
Junior
subordinated notes
|
|
|
144 |
|
|
|
144 |
|
Total
recourse debt obligations
|
|
|
$650 |
|
|
|
$694 |
|
|
|
|
|
|
|
|
|
|
%
Subject to valuation tests
|
|
|
62.8 |
% |
|
|
65.0 |
% |
Weighted
average effective cost of recourse debt (2)
(3)
|
|
|
3.19 |
% |
|
|
3.11 |
% |
|
|
|
|
|
|
|
|
|
Non-recourse
securitized debt obligations
|
|
|
|
|
|
|
|
|
CT
Collateralized debt obligations
|
|
|
$1,006 |
|
|
|
$1,097 |
|
|
|
|
|
|
|
|
|
|
Other
consolidated VIE's
|
|
|
2,678 |
|
|
|
N/A |
|
Total
non-recourse securitized debt obligations
|
|
|
$3,684 |
|
|
|
$1,097 |
|
|
|
|
|
|
|
|
|
|
Weighted
average effective cost of non-recourse debt (2)
(4)
|
|
|
1.36 |
% |
|
|
1.93 |
% |
|
|
|
|
|
|
|
|
|
Total
interest bearing liabilities
|
|
|
$4,334 |
|
|
|
$1,791 |
|
|
|
|
|
|
|
|
|
|
Shareholders'
deficit
|
|
|
($427 |
) |
|
|
($169 |
) |
|
|
|
(1)
|
Excludes participations sold.
|
(2) |
Floating rate debt obligations assume LIBOR of 0.26% and 0.23% at
September 30, 2010 and December 31, 2009,
respectively.
|
(3) |
Including the impact of interest rate hedges with an aggregate
notional balance of $64.2 million as of September 30, 2010 and $64.4
million as of December 31, 2009, the effective all-in cost of our recourse
debt obligations would be 3.68% and 3.58% per annum,
respectively.
|
(4) |
Including the impact of interest rate hedges with an aggregate
notional balance of $344.4 million as of September 30, 2010 and $352.8
million as of December 31, 2009, the effective all-in cost of our
non-recourse debt obligations would be 1.80% and 3.44% per annum,
respectively.
|
Recourse
Debt Obligations
The table
below summarizes our repurchase obligations as of September 30, 2010 and
December 31, 2009, the terms of which are generally discussed
above:
Repurchase
Obligations
|
|
|
|
|
($
in millions)
|
|
September
30, 2010
|
|
December
31, 2009
|
|
|
|
|
|
Counterparties
|
|
3
|
|
3
|
Outstanding
repurchase obligations
|
|
$408
|
|
$451
|
All-in
cost
|
|
L +
1.61%
|
|
L +
1.66%
|
Our
senior credit facility currently has a cash interest rate of LIBOR plus 3.00%
per annum, and accrues additional interest equal to 7.20% per annum less the
cash interest rate. Additional accrued interest is added to the outstanding
facility balance on a quarterly basis.
The most
subordinated component of our recourse debt obligations are our junior
subordinated notes. These securities represent long-term, subordinated,
unsecured financing and generally carry limited covenants. As of September 30,
2010, we had $143.8 million of junior subordinated notes outstanding with a book
value of $131.1 million and a current coupon of 1.00% per annum. The interest
rate on these notes will increase to 7.23% per annum for the period from April
30, 2012 through April 29, 2016 and then convert to a floating interest rate of
three-month LIBOR plus 2.44% per annum through maturity on April 30,
2036.
Non-Recourse
Debt Obligations
Non-recourse
securitized debt obligations of consolidated VIEs include our four CT CDOs as
well as securities issued by other consolidated VIEs, which are securitization
vehicles not sponsored by us.
These
consolidated non-recourse securitized debt obligations are described
below:
Non-Recourse
Securitized Debt Obligations
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
September
30, 2010
|
|
|
December
31, 2009
|
|
|
|
Book
Value
|
|
|
All-in
Cost(1)
|
|
|
Book
Value
|
|
|
All-in
Cost(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CT collateralized debt
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
CT
CDO I
|
|
|
$201 |
|
|
|
0.95 |
% |
|
|
$233 |
|
|
|
0.88 |
% |
CT
CDO II
|
|
|
265 |
|
|
|
1.05 |
|
|
|
284 |
|
|
|
0.99 |
|
CT
CDO III
|
|
|
249 |
|
|
|
5.15 |
|
|
|
254 |
|
|
|
5.15 |
|
CT
CDO IV
|
|
|
292 |
|
|
|
1.02 |
|
|
|
327 |
|
|
|
0.97 |
|
Total
CT CDOs
|
|
|
$1,007 |
|
|
|
2.04 |
% |
|
|
$1,098 |
|
|
|
1.92 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other consolidated VIEs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GMACC
1997-C1
|
|
|
$102 |
|
|
|
7.11 |
% |
|
|
N/A |
|
|
|
N/A |
|
GSMS
2006-FL8A
|
|
|
137 |
|
|
|
0.81 |
|
|
|
N/A |
|
|
|
N/A |
|
JPMCC
2005-FL1A
|
|
|
98 |
|
|
|
0.84 |
|
|
|
N/A |
|
|
|
N/A |
|
MSC
2007-XLFA
|
|
|
754 |
|
|
|
0.52 |
|
|
|
N/A |
|
|
|
N/A |
|
MSC
2007-XLCA
|
|
|
535 |
|
|
|
1.53 |
|
|
|
N/A |
|
|
|
N/A |
|
CSFB
2006-HC1
|
|
|
1,051 |
|
|
|
0.80 |
|
|
|
N/A |
|
|
|
N/A |
|
Total
other consolidated VIEs
|
|
|
$2,677 |
|
|
|
1.11 |
% |
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
non-recourse debt obligations
|
|
|
$3,684 |
|
|
|
1.36 |
% |
|
|
$1,098 |
|
|
|
1.92 |
% |
|
|
|
(1)
|
Includes amortization of premiums and issuance costs of CT CDOs.
Floating rate debt obligations assume LIBOR of 0.26% and 0.23% at
September 30, 2010 and December 31, 2009,
respectively.
|
Shareholders’
Equity
We did
not issue any new shares of class A common stock during the year. Changes in the
number of outstanding shares during the nine months ended September 30, 2010
resulted from restricted common stock grants, forfeitures and vesting, as well
as stock unit grants.
The
following table calculates our book value per share as of September 30, 2010 and
December 31, 2009:
Shareholders'
Equity
|
|
|
|
|
|
|
|
|
September
30, 2010
|
|
|
December
31, 2009
|
|
|
|
|
|
|
|
|
Book
value (in millions)
|
|
|
($427 |
) |
|
|
($169 |
) |
Shares:
|
|
|
|
|
|
|
|
|
Class
A common stock
|
|
|
21,912,052 |
|
|
|
21,796,259 |
|
Restricted
common stock
|
|
|
50,611 |
|
|
|
79,023 |
|
Stock
units
|
|
|
453,294 |
|
|
|
464,046 |
|
Warrants
& Options(1)
|
|
|
— |
|
|
|
— |
|
Total
|
|
|
22,415,957 |
|
|
|
22,339,328 |
|
Book
value per share
|
|
|
($19.03 |
) |
|
|
($7.57 |
) |
|
|
|
(1)
|
Excludes shares issuable upon the exercise of outstanding warrants
and options. These shares would be anti-dilutive as of both September 30,
2010 and December 31, 2009 because an increase in shares would decrease
the book deficit per
share.
|
As of
September 30, 2010, there were 21,962,663 shares of our class A common stock and
restricted common stock outstanding.
Other
Balance Sheet Items
Participations
sold represent interests in certain loans that we originated and subsequently
sold to one of our investment management vehicles or to third parties. We
present these participations sold as both assets and non-recourse liabilities
because these arrangements do not qualify as sales under GAAP. We have no
economic exposure to these liabilities in excess of the value of the assets
sold. As of September 30, 2010, we had five such participations sold with a
total gross carrying value of $288.1 million.
The
income earned on these loans is recorded as interest income and an identical
amount is recorded as interest expense on our consolidated statements of
operations. Generally, participations sold are recorded as assets and
liabilities in equal amounts on our consolidated balance sheet. We have recorded
an aggregate $173.7 million of provisions for loan losses against certain of our
participations sold assets, resulting in a net book value of $114.5 million as
of September 30, 2010. The associated liabilities have not been adjusted as of
September 30, 2010, and will not be eliminated until the loans are contractually
extinguished, at which time we will record a gain of $173.7
million.
We
endeavor to manage a book of assets and liabilities that are generally matched
with respect to interest rates, typically financing floating rate assets with
floating rate liabilities and fixed rate assets with fixed rate liabilities. In
some cases, we finance fixed rate assets with floating rate liabilities and, in
those cases, we may use interest rate derivatives, such as swaps, to effectively
convert the floating rate debt to fixed rate debt. In such instances, the equity
we have invested in fixed rate assets is not typically swapped, leaving a
portion of our equity capital exposed to changes in value of the fixed rate
assets due to interest rate fluctuations. The balance of our assets earn
interest at floating rates and are financed with floating rate liabilities,
leaving a portion of our equity capital exposed to cash flow variability from
fluctuations in rates. Generally, these assets and liabilities earn interest at
rates indexed to one-month LIBOR.
Our
counterparties in these transactions are large financial institutions and we are
dependent upon the financial health of these counterparties and a functioning
interest rate derivative market in order to effectively execute our hedging
strategy.
The table
below details our interest rate exposure as of September 30, 2010 and December
31, 2009:
Interest
Rate Exposure
|
|
|
|
(in
millions)
|
|
September
30, 2010
|
|
|
December
31, 2009
|
|
Value
exposure to interest rates(1)
|
|
|
|
|
|
|
Fixed
rate assets
|
|
|
$925 |
|
|
|
$833 |
|
Fixed
rate debt
|
|
|
(507 |
) |
|
|
(410 |
) |
Interest
rate swaps
|
|
|
(409 |
) |
|
|
(417 |
) |
Net
fixed rate exposure
|
|
|
$9 |
|
|
|
$6 |
|
Weighted
average coupon (fixed rate assets)
|
|
|
7.18 |
% |
|
|
6.91 |
% |
|
|
|
|
|
|
|
|
|
Cash
flow exposure to interest rates(1)
|
|
|
|
|
|
|
|
|
Floating
rate assets
|
|
|
$3,776 |
|
|
|
$1,678 |
|
Floating
rate debt less cash
|
|
|
(3,802 |
) |
|
|
(1,642 |
) |
Interest
rate swaps
|
|
|
409 |
|
|
|
417 |
|
Net
floating rate exposure
|
|
|
$383 |
|
|
|
$453 |
|
Weighted
average coupon (floating rate assets)
(2)
|
|
|
2.16 |
% |
|
|
3.29 |
% |
|
|
|
|
|
|
|
|
|
Net
income impact from 100 bps change in LIBOR
|
|
|
$3.8 |
|
|
|
$4.5 |
|
|
|
|
(1)
|
All values are in terms of face or notional amounts, and include
loans classified as held-for-sale.
|
(2) |
Weighted average coupon assumes LIBOR of 0.26% and 0.23% at
September 30, 2010 and December 31, 2009,
respectively.
|
Investment
Management Overview
In
addition to our balance sheet investment activities, we act as an investment
manager for third parties and as special servicer for certain of our loan
investments, as well as for third parties. The table below details investment
management and special servicing fee revenue generated by our wholly-owned,
taxable, investment management subsidiary, CT Investment Management Co., LLC, or
CTIMCO, for the nine months ended September 30, 2010 and 2009:
Investment
Management Revenues
|
|
|
(in
thousands)
|
|
September
30, 2010
|
|
|
September
30, 2009
|
|
|
|
|
|
|
|
|
Fees generated as:
|
|
|
|
|
|
|
Public
company manager (1)
|
|
|
$254 |
|
|
|
$3,978 |
|
Private
equity manager
|
|
|
6,723 |
|
|
|
8,768 |
|
CDO
collateral manager
|
|
|
715 |
|
|
|
510 |
|
Special
servicer
|
|
|
3,636 |
|
|
|
1,502 |
|
Total
fees
|
|
|
$11,328 |
|
|
|
$14,758 |
|
|
|
|
|
|
|
|
|
|
Eliminations
(2)
|
|
|
(1,784 |
) |
|
|
(4,488 |
) |
|
|
|
|
|
|
|
|
|
Total
fees, net
|
|
|
$9,544 |
|
|
|
$10,270 |
|
|
|
|
(1)
|
Beginning in the fourth quarter of 2009, public company management
fees were offset by special servicing and CDO collateral management fees
generated by our balance sheet portfolio. Gross public company management
fees were $2.6 million for the nine months ended September 30, 2010,
offset by $2.3 million of special servicing and CDO collateral management
fees.
|
(2) |
Fees received by CTIMCO from Capital Trust, Inc., or other
consolidated subsidiaries, have been eliminated in
consolidation.
|
We have
developed our investment management business to leverage our platform, generate
fee revenue from investing third party capital and, in certain instances, earn
co-investment income. Our active investment management mandates are described
below:
|
·
|
CT
Opportunity Partners I, LP, or CTOPI, is currently investing capital. The
fund held its final closing in July 2008 with $540 million in total equity
commitments from 28 institutional and individual investors. Currently,
$322 million of committed equity remains undrawn. We have a $25 million
commitment to invest in the fund ($10 million currently funded, $15
million unfunded) and entities controlled by the chairman of our board
have committed to invest $20 million. In May 2010 the fund’s investment
period was extended to December 13, 2011. The fund targets opportunistic
investments in commercial real estate, specifically high yield debt,
equity and hybrid instruments, as well as non-performing and
sub-performing loans and securities. Currently, we earn base management
fees of 0.6% per annum of unfunded equity commitments and 1.3% per annum
of invested capital through December 13, 2010. Subsequent to December 13,
2010, we will earn base management fees of 1.3% per annum of invested
capital. In addition, we earn net incentive management fees of 17.7% of
profits after a 9% preferred return and a 100% return of
capital.
|
|
·
|
CT
High Grade Partners II, LLC, or CT High Grade II, is currently investing
capital. The fund closed in June 2008 with $667 million of commitments
from two institutional investors. Currently, $207 million of committed
equity remains undrawn. In May 2010, the fund’s investment period was
extended to May 30, 2011. The fund targets senior debt opportunities in
the commercial real estate sector and does not employ leverage. We earn a
base management fee of 0.40% per annum on invested
capital.
|
|
·
|
CT
High Grade MezzanineSM,
or CT High Grade, is no longer investing capital (its investment period
expired in July 2008). The fund closed in November 2006, with a single,
related party institutional investor committing $250 million, which was
subsequently increased to $350 million in July 2007. This separate account
targeted lower LTV subordinate debt investments without leverage. We earn
management fees of 0.25% per annum on invested
capital.
|
|
·
|
CT
Large Loan 2006, Inc., or CT Large Loan, is no longer investing capital
(its investment period expired in May 2008). The fund closed in May 2006
with total equity commitments of $325 million from eight institutional
investors. We earn management fees of 0.75% per annum of fund assets
(capped at 1.5% on invested
equity).
|
The table
below provides additional information regarding the three private equity funds
and one separate account we managed as of September 30, 2010.
Investment
Management Mandates, as of September 30, 2010
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
Management Fee
|
|
|
|
|
Total
|
|
Total
Capital
|
|
Co-
|
|
Base
|
|
Company
|
|
Employee
|
|
|
Type
|
|
Investments(1)
|
|
Commitments
|
|
Investment
%
|
|
Management
Fee
|
|
%
|
|
%
|
Investing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CT
High Grade II
|
|
Fund
|
|
$460
|
|
$667
|
|
—
|
|
|
0.40%
(Assets)
|
|
N/A
|
|
N/A
|
CTOPI
|
|
Fund
|
|
276
|
|
540
|
|
4.63%
|
(2)
|
|
(Assets/Equity)(3)
|
|
100%(4)
|
|
—%(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidating:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CT
High Grade
|
|
Sep.
Acc.
|
|
328
|
|
350
|
|
—
|
|
|
0.25%
(Assets)
|
|
N/A
|
|
N/A
|
CT
Large Loan
|
|
Fund
|
|
201
|
|
325
|
|
—
|
(6)
|
|
0.75% (Assets)(7)
|
|
N/A
|
|
N/A
|
|
|
|
(1)
|
Represents total investments, on a cash basis, as of
period-end.
|
(2) |
We have committed to invest $25.0 million in
CTOPI.
|
(3) |
CTIMCO earns base management fees of 0.6% per annum of unfunded
equity commitments and 1.3% per annum of invested capital through December
13, 2010. Subsequent to December 13, 2010 CTIMCO will earn base management
fees of 1.3% per annum of invested capital.
|
(4) |
CTIMCO earns net incentive management fees of 17.7% of profits
after a 9% preferred return on capital and a 100% return of capital,
subject to a catch-up.
|
(5) |
We have not
allocated any of the CTOPI incentive management fee to employees as of
September 30, 2010. |
(6) |
We have
co-invested on a pari passu, asset by asset basis with CT Large
Loan. |
(7) |
Capped at 1.5%
of equity. |
During
the third quarter of 2010, we ceased investment management activity related to
two vehicles, CT Mezzanine Partners III, Inc., or Fund III, and CTX CDO I, Ltd.,
or the CTX CDO. Fund III was a vehicle we co-sponsored with a joint venture
partner, which completed its liquidation in the ordinary course with the
satisfaction of its final investment in August 2010. We recorded $733,000 of
incentive management fees in conjunction with the liquidation of Fund III. The
CTX CDO was a CDO sponsored, but not issued, by us from which we earned a
collateral management fee. In July 2010, we were replaced as collateral manager
of the CTX CDO.
Results
of Operations
Comparison
of Results of Operations: Three Months Ended September 30, 2010 vs.
September 30, 2009
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
$
Change
|
|
|
%
Change
|
|
Income
from loans and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and related income
|
|
|
$40,125 |
|
|
|
$29,527 |
|
|
|
$10,598 |
|
|
|
35.9 |
% |
Less:
Interest and related expenses
|
|
|
31,557 |
|
|
|
19,604 |
|
|
|
11,953 |
|
|
|
61.0 |
% |
Income
from loans and other investments, net
|
|
|
8,568 |
|
|
|
9,923 |
|
|
|
(1,355 |
) |
|
|
(13.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees from affiliates
|
|
|
2,050 |
|
|
|
2,959 |
|
|
|
(909 |
) |
|
|
(30.7 |
%) |
Incentive
management fees from affiliates
|
|
|
733 |
|
|
|
— |
|
|
|
733 |
|
|
|
N/A |
|
Servicing
fees
|
|
|
84 |
|
|
|
168 |
|
|
|
(84 |
) |
|
|
(50.0 |
%) |
Other
interest income
|
|
|
155 |
|
|
|
16 |
|
|
|
139 |
|
|
|
N/A |
|
Total
other revenues
|
|
|
3,022 |
|
|
|
3,143 |
|
|
|
(121 |
) |
|
|
(3.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
5,143 |
|
|
|
5,492 |
|
|
|
(349 |
) |
|
|
(6.4 |
%) |
Depreciation
and amortization
|
|
|
5 |
|
|
|
51 |
|
|
|
(46 |
) |
|
|
(90.2 |
%) |
Total
other expenses
|
|
|
5,148 |
|
|
|
5,543 |
|
|
|
(395 |
) |
|
|
(7.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other-than-temporary impairments of securities
|
|
|
(29,963 |
) |
|
|
(77,883 |
) |
|
|
47,920 |
|
|
|
(61.5 |
%) |
Portion
of other-than-temporary impairments of securities
recognized
in other comprehensive income
|
|
|
(5,921 |
) |
|
|
11,987 |
|
|
|
(17,908 |
) |
|
|
(149.4 |
%) |
Impairment
of real estate held-for-sale
|
|
|
(4,000 |
) |
|
|
— |
|
|
|
(4,000 |
) |
|
|
N/A |
|
Net
impairments recognized in earnings
|
|
|
(39,884 |
) |
|
|
(65,896 |
) |
|
|
26,012 |
|
|
|
(39.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
(95,916 |
) |
|
|
(47,222 |
) |
|
|
(48,694 |
) |
|
|
103.1 |
% |
Valuation
allowance on loans held-for-sale
|
|
|
(6,036 |
) |
|
|
— |
|
|
|
(6,036 |
) |
|
|
N/A |
|
Gain
on extinguishment of debt
|
|
|
185 |
|
|
|
— |
|
|
|
185 |
|
|
|
N/A |
|
Income
(loss) from equity investments
|
|
|
1,056 |
|
|
|
(862 |
) |
|
|
1,918 |
|
|
|
N/A |
|
Loss
before income taxes
|
|
|
(134,153 |
) |
|
|
(106,457 |
) |
|
|
(27,696 |
) |
|
|
26.0 |
% |
Income
tax provision
|
|
|
556 |
|
|
|
— |
|
|
|
556 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
($134,709 |
) |
|
|
($106,457 |
) |
|
|
($28,252 |
) |
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - diluted
|
|
|
($6.02 |
) |
|
|
($4.75 |
) |
|
|
($1.27 |
) |
|
|
26.7 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
per share
|
|
|
$0.00 |
|
|
|
$0.00 |
|
|
|
$0.00 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
LIBOR
|
|
|
0.29 |
% |
|
|
0.27 |
% |
|
|
0.02 |
% |
|
|
7.1 |
% |
Income
from loans and other investments, net
As
discussed in Note 2 to our consolidated financial statements, recent accounting
guidance requires us to consolidate additional VIEs, primarily CMBS and CDO
trusts, beginning January 1, 2010. As a result, our interest earning assets
increased $1.8 billion from September 30, 2009 to September 30, 2010. This
increase resulted in a material increase in interest income for the third
quarter of 2010 compared to the third quarter of 2009. Similarly, an increase in
interest bearing liabilities of $2.5 billion resulted in a material increase in
interest expense for the third quarter of 2010 compared to the third quarter of
2009. In addition, an increase in non-performing loans contributed to an
offsetting decrease in net interest income during the third quarter of 2010
compared to the third quarter of 2009.
Management
fees from affiliates
Base
management fees from our investment management business decreased $909,000, or
31%, during the third quarter of 2010 compared to the third quarter of 2009. The
decrease was attributed primarily to a decrease of $1.1 million in fees from
CTOPI due to an amendment to the fund’s management agreement, which reduced
management fees and extended the fund’s investment period. This decrease was
offset by increased fees at CT High Grade II due to additional investment
activity.
Incentive
management fees from affiliates
We
recorded $733,000 of incentive management fees during the third quarter of 2010
in conjunction with the liquidation of Fund III. We recorded no such fees during
the third quarter of 2009.
Servicing
fees decreased $84,000 during the third quarter of 2010 compared to the third
quarter of 2009. The decrease in fees was primarily due to a one-time
modification fee recorded in the third quarter of 2009.
General
and administrative expenses
General
and administrative expenses include personnel costs, operating expenses,
professional fees and, for the third quarter of 2010, $323,000 of expenses
associated with newly consolidated VIEs, as described in Note 2 to our
consolidated financial statements. Excluding expenses from newly consolidated
VIEs, general and administrative expenses decreased 12% between the third
quarter of 2010 and the third quarter of 2009 due to lower personnel costs, and
lower professional fees and other operating costs. This overall decrease was
partially offset by $166,000 of incentive compensation paid during the third
quarter of 2010 to employees and former employees as a result of incentive
management fees received from Fund III.
Net
impairments recognized in earnings
During
the third quarter of 2010, we recorded a gross other-than-temporary impairment
of $30.0 million on seven of our Securities that had an adverse change in cash
flow expectations, all of which was included in earnings. We also reclassified
$5.9 million of impairments that were previously included in other comprehensive
income into earnings due to revised cash flow expectations. In addition, we
recorded a $4.0 million impairment on Real Estate Held-for-Sale to reflect the
property at fair value.
During
the third quarter of 2009, we recorded a gross other-than-temporary impairment
of $77.9 million on three of our securities that had an adverse change in cash
flow expectations. Of this amount, $12.0 million (the amount considered fair
value adjustments in excess of credit impairment) was included in other
comprehensive income, resulting in a net $65.9 million impairment (the amount
considered credit impairment) included in earnings.
Provision
for loan losses
During
the third quarter of 2010 we recorded an aggregate $95.9 million provision for
loan losses. This net provision included $98.4 million of provisions against six
loans, offset by a $2.5 million recovery of one loan that had previously been
impaired. During the third quarter of 2009, we recorded an aggregate $47.2
million provision for loan losses against six loans.
Valuation
allowance on loans held-for-sale
During
the three months ended September 30, 2010 we recorded $6.0 million of valuation
allowances on two loans that we classified as held-for-sale to reflect these
assets at fair value. We did not record a valuation allowance on loans
held-for-sale in the third quarter of 2009.
Gain
on extinguishment of debt
During
the third quarter of 2010, we recorded a $185,000 gain on the extinguishment of
debt due to realized losses from collateral assets held by consolidated
securitization trusts. We recorded no such gains in 2009.
Income
(loss) from equity investments
The
income from equity investments during the third quarter of 2010 was primarily
$1.2 million from our co-investment in CTOPI. CTOPI’s income for the quarter was
largely the result of fair value adjustments on its investment portfolio. The
loss from equity investments during the third quarter of 2009 resulted primarily
from our share of losses from CTOPI, also largely derived from fair value
adjustments on the underlying investments.
During
the third quarter of 2010, we recorded an income tax provision of $556,000 which
was primarily due to differences between GAAP and tax recognition methodologies
associated with certain revenue and expense items. We did not record a tax
provision in the third quarter of 2009.
We did
not pay any dividends in the third quarter of 2010 or 2009.
Comparison
of Results of Operations: Nine Months Ended September 30, 2010 vs.
September 30, 2009
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
$
Change
|
|
|
%
Change
|
|
Income
from loans and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and related income
|
|
|
$119,523 |
|
|
|
$93,341 |
|
|
|
$26,182 |
|
|
|
28.0 |
% |
Less:
Interest and related expenses
|
|
|
94,462 |
|
|
|
61,116 |
|
|
|
33,346 |
|
|
|
54.6 |
% |
Income
from loans and other investments, net
|
|
|
25,061 |
|
|
|
32,225 |
|
|
|
(7,164 |
) |
|
|
(22.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees from affiliates
|
|
|
5,990 |
|
|
|
8,768 |
|
|
|
(2,778 |
) |
|
|
(31.7 |
%) |
Incentive
management fees from affiliates
|
|
|
733 |
|
|
|
— |
|
|
|
733 |
|
|
|
N/A |
|
Servicing
fees
|
|
|
2,821 |
|
|
|
1,502 |
|
|
|
1,319 |
|
|
|
87.8 |
% |
Other
interest income
|
|
|
260 |
|
|
|
153 |
|
|
|
107 |
|
|
|
69.9 |
% |
Total
other revenues
|
|
|
9,804 |
|
|
|
10,423 |
|
|
|
(619 |
) |
|
|
(5.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
14,383 |
|
|
|
18,450 |
|
|
|
(4,067 |
) |
|
|
(22.0 |
%) |
Depreciation
and amortization
|
|
|
15 |
|
|
|
65 |
|
|
|
(50 |
) |
|
|
(76.9 |
%) |
Total
other expenses
|
|
|
14,398 |
|
|
|
18,515 |
|
|
|
(4,117 |
) |
|
|
(22.2 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
other-than-temporary impairments of securities
|
|
|
(69,798 |
) |
|
|
(96,529 |
) |
|
|
26,731 |
|
|
|
(27.7 |
%) |
Portion
of other-than-temporary impairments of securities
recognized
in other comprehensive income
|
|
|
12,094 |
|
|
|
17,612 |
|
|
|
(5,518 |
) |
|
|
(31.3 |
%) |
Impairment
of goodwill
|
|
|
— |
|
|
|
(2,235 |
) |
|
|
2,235 |
|
|
|
N/A |
|
Impairment
of real estate held-for-sale
|
|
|
(4,000 |
) |
|
|
(2,233 |
) |
|
|
(1,767 |
) |
|
|
79.1 |
% |
Net
impairments recognized in earnings
|
|
|
(61,704 |
) |
|
|
(83,385 |
) |
|
|
21,681 |
|
|
|
(26.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision
for loan losses
|
|
|
(150,143 |
) |
|
|
(113,716 |
) |
|
|
(36,427 |
) |
|
|
32.0 |
% |
Valuation
allowance on loans held-for-sale
|
|
|
(6,036 |
) |
|
|
(10,363 |
) |
|
|
4,327 |
|
|
|
(41.8 |
%) |
Gain
on extinguishment of debt
|
|
|
648 |
|
|
|
— |
|
|
|
648 |
|
|
|
N/A |
|
Income
(loss) from equity investments
|
|
|
2,358 |
|
|
|
(3,074 |
) |
|
|
5,432 |
|
|
|
N/A |
|
Loss
before income taxes
|
|
|
(194,410 |
) |
|
|
(186,405 |
) |
|
|
(8,005 |
) |
|
|
4.3 |
% |
Income
tax provision (benefit)
|
|
|
849 |
|
|
|
(408 |
) |
|
|
1,257 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
($195,259 |
) |
|
|
($185,997 |
) |
|
|
($9,262 |
) |
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share - diluted
|
|
|
($8.73 |
) |
|
|
($8.32 |
) |
|
|
($0.41 |
) |
|
|
5.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
per share
|
|
|
$0.00 |
|
|
|
$0.00 |
|
|
|
$0.00 |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
LIBOR
|
|
|
0.28 |
% |
|
|
0.37 |
% |
|
|
(0.09 |
%) |
|
|
(0.25 |
) |
Income
from loans and other investments, net
As
discussed in Note 2 to our consolidated financial statements, recent accounting
guidance requires us to consolidate additional VIEs, primarily CMBS and CDO
trusts, beginning January 1, 2010. As a result, our interest earning assets
increased by $1.8 billion from September 30, 2009 to September 30, 2010. This
increase resulted in a material increase in interest income for the nine months
ended September 30, 2010 compared to the nine months ended September 30, 2009.
Similarly, an increase in interest bearing liabilities of $2.5 billion resulted
in a material increase in interest expense for the nine months ended September
30, 2010 compared to the nine months ended September 30, 2009. In addition, an
increase in non-performing loans contributed to an offsetting decrease in net
interest income during the nine months ended September 30, 2010 compared to the
nine months ended September 30, 2009.
Management
fees from affiliates
Base
management fees from our investment management business decreased $2.8 million,
or 32%, during the nine months ended September 30, 2010 compared to the nine
months ended September 30, 2009. The decrease was attributed primarily to a
decrease of $3.2 million in fees from CTOPI due to an amendment to the fund’s
management agreement, which reduced management fees and extended the fund’s
investment period. This decrease was offset by increased fees at CT High Grade
II due to additional investment activity.
Incentive
management fees from affiliates
We
recorded $733,000 of incentive management fees during the third quarter of 2010
in conjunction with the liquidation of Fund III. We recorded no such fees during
the third quarter of 2009.
Servicing
fees increased $1.3 million during the nine months ended September 30, 2010
compared to the nine months ended September 30, 2009. The increase in fees was
primarily due to modification activity on loans for which we are named special
servicer.
General
and administrative expenses
General
and administrative expenses include personnel costs, operating expenses and
professional fees and, for the nine months ended September 30, 2010, $1.3
million of expenses associated with newly consolidated VIEs, as described in
Note 2 to our consolidated financial statements. Excluding expenses from newly
consolidated VIEs, general and administrative expenses decreased $5.4 million,
or 29%, between the nine months ended September 30, 2010 and the nine months
ended September 30, 2009. Personnel costs decreased $1.8 million relative to the
nine months ended September 30, 2009 and $3.0 million of costs associated with
our March 2009 debt restructuring were included in general and administrative
expenses for the nine months ended September 30, 2009.
Net
impairments recognized in earnings
During
the nine months ended September 30, 2010, we recorded a gross
other-than-temporary impairment of $69.8 million on 12 of our Securities that
had an adverse change in cash flow expectations. Of this amount, $12.1 million
(the amount considered fair value adjustments in excess of credit impairment)
was included in other comprehensive income, resulting in a net $57.7 million
impairment (the amount considered credit impairment) included in earnings. In
addition, we recorded a $4.0 million impairment on Real Estate Held-for-Sale to
reflect the property at fair value.
During
the nine months ended September 30, 2009, we recorded a gross
other-than-temporary impairment of $96.5 million on 10 of our securities that
had an adverse change in cash flow expectations. Of this amount, $78.9 million
was included in earnings and the remainder, $17.6 million, was included in other
comprehensive income. We also recorded (i) an other-than-temporary impairment of
$2.2 million on our Real Estate Held-for-Sale to reflect the property at fair
value, and (ii) a $2.2 million impairment of goodwill related to our June 2007
acquisition of a healthcare loan origination platform.
Provision
for loan losses
During
the nine months ended September 30, 2010, we recorded $150.1 million of
provisions for loan losses against 11 loans. During the nine months ended
September 30, 2009, we recorded an aggregate $113.7 million provision for loan
losses against 13 loans.
Valuation
allowance on loans held-for-sale
During
the nine months ended September 30, 2010 we recorded $6.0 million of valuation
allowances on two loans that we classified
as held-for-sale to reflect these assets at fair value. During the nine months
ended September 30, 2009, we recorded a $10.4
million valuation allowance against two loans that we classified as
held-for-sale to reflect these assets at fair value.
Gain
on extinguishment of debt
During
the third quarter of 2010, we recorded a $648,000 gain on the extinguishment of
debt due to realized losses from collateral assets held by consolidated
securitization trusts. We recorded no such gains in 2009.
Income
(loss) from equity investments
The
income from equity investments during the nine months ended September 30, 2010 was primarily
$2.5 million from our co-investment in CTOPI. CTOPI’s income for the quarter was
largely the result of fair value adjustments on its investment portfolio. The
loss from equity investments during the nine months ended September 30, 2009 resulted
primarily from our share of losses at both CTOPI and Fund III. The $2.9 million
loss recorded in 2009 with respect to CTOPI was also largely derived from fair
value adjustments on the underlying investments.
Income
tax provision (benefit)
During
the nine months ended September 30, 2010, we recorded an income tax provision of
$849,000 which was primarily due to differences between GAAP and tax recognition
methodologies associated with certain revenue and expense items. During the nine
months ended September 30, 2009, we received
$408,000 in tax refunds that we recorded as an offset to income tax
expense.
We did
not pay any dividends in the nine months ended September 30, 2010 or
2009.
Liquidity
and Capital Resources
Sources
of liquidity as of September 30, 2010 include cash on deposit, the net cash flow
generated by our interest earning assets described below, interest from
unencumbered assets, and investment management fees from private equity funds,
CDOs, and special servicing. Uses of liquidity other than those described below
related to our secured debt obligations include interest on our senior credit
facility and junior subordinated notes, operating expenses, Unfunded Loan
Commitments, various commitments to our managed funds, and any dividends
necessary to maintain our REIT status. We believe our current sources of
capital, coupled with our expectations regarding potential asset dispositions
and other transactions, will be adequate to meet our near term cash
requirements.
Our
primary source of liquidity is our portfolio of interest earning assets, a
significant portion of which serves as collateral for our secured debt
obligations (primarily our repurchase facilities and CT CDOs). Correspondingly,
our primary use of liquidity is the payment of interest and principal to our
lenders.
Our
liquidity and capital resources outlook was significantly impacted by the
restructuring of our debt obligations during the first quarter of 2009. We
agreed to pay each of our repurchase lenders additional principal amortization
equal to 65% of the net interest margin and 100% of the principal proceeds from
assets in their collateral pool, which amounts would otherwise have been free
cash flow available to us. In addition, as described in Note 11 to our
consolidated financial statements, covenant breaches in our CT CDOs have
resulted in a redirection of cash flow to amortize senior note holders, which
amounts would similarly have been available to us. In both cases, the additional
principal amortization to our repurchase lenders and senior CT CDO notes are a
function of cash received under each respective collateral pool, and are only
required to the extent there is cash flow in excess of the interest expense
otherwise due under each respective facility. Accordingly, these amortization
and redirection provisions cannot result in a cash outflow to our repurchase
lenders and CT CDOs, only a diminution of liquidity available to us. In addition
to the required repayments to our repurchase lenders, we agreed to increase the
cash coupon by 1.25% per annum and to make a minimum quarterly amortization
payment of $1.3 million under our senior credit facility. See Note 8 to our
consolidated financial statements for additional information on our restructured
debt obligations.
Our
consolidated statement of cash flows for the nine months ended September 30, 2010 includes the
cash inflows and outflows of the newly consolidated VIEs described in Note 2 to
our consolidated financial statements. While this does not impact our net cash
flow, it does increase certain gross cash flow disclosures.
We
experienced a net decrease in cash of $3.8 million for the nine months ended
September 30, 2010, compared to a net decrease of $16.8 million for the nine
months ended September 30, 2009.
Cash
provided by operating activities during the nine months ended September 30, 2010
was $28.2 million, compared to cash provided by operating activities of $30.1
million during the same period of 2009. The decrease was primarily due to a
decrease in our net interest margin.
During
the nine months ended September 30, 2010, cash provided by investing activities
was $238.7 million, compared to $65.2 million provided by investing activities
during the same period in 2009. Excluding $146.0 million of asset principal
repayments in the first nine months of 2010 resulting from newly consolidated
VIEs, as discussed above, cash provided by investing activities increased by
$27.5 million. This increase was primarily due to (i) an additional $6.0 million
of asset principal repayments in the first nine months of 2010 (ii) an
additional $15.9 million of proceeds collected from the disposition of loans and
real estate held-for-sale, and (iii) a decrease of $6.1 million in add-on loan
fundings over the same period.
During
the nine months ended September 30, 2010, cash used in financing activities was
$270.7 million, compared to $112.1 million during the same period in 2009.
Excluding $131.8 million of securitized debt repayments in the first nine months
of 2010 resulting from newly consolidated VIEs, as discussed above, cash used in
financing activities increased by $26.8 million. This increase was primarily due
to (i) additional repayments of securitized debt obligations at CT CDOs of $60.1
million during the first nine months of 2010, and (ii) a change in restricted
cash of $18.7 million. This was offset by a net decrease of repayments under
recourse debt obligations of $49.9 million over the same period.
Our
authorized capital stock consists of 100,000,000 shares of $0.01 par value class
A common stock, of which 21,962,663 shares were issued and outstanding as of
September 30, 2010, and 100,000,000 shares of preferred stock, none of which
were outstanding as of September 30, 2010.
Pursuant
to the terms of our debt restructuring on March 16, 2009, we issued to JPMorgan,
Morgan Stanley and Citigroup warrants to purchase 3,479,691 shares of our class
A common stock at an exercise price of $1.79 per share, the closing bid price on
the New York Stock Exchange on March 13, 2009. The warrants will become
exercisable on March 16, 2012 and expire on March 16, 2019, and may be exercised
through a cashless exercise.
Repurchase
Obligations
As of
September 30, 2010, we were party to three master repurchase agreements with
three counterparties, with aggregate total outstanding borrowings of $408.1
million. The terms of these agreements are described in Note 8 to our
consolidated financial statements.
Senior
Credit Facility
As of
September 30, 2010, we had $98.4 million outstanding under our senior credit
facility at a cash cost of LIBOR plus 3.00% and an all-in cost of 7.20%. The
terms of this agreement are described in Note 8 to our consolidated financial
statements.
Junior
Subordinated Notes
As of
September 30, 2010 we had $143.8 million of junior subordinated notes
outstanding with a book value of $131.1 million and a current coupon of 1.00%
per annum. The terms of these notes are described in Note 8 to our consolidated
financial statements.
Non-Recourse
Securitized Debt Obligations
As of
September 30, 2010, we had non-recourse securitized debt obligations from
consolidated VIEs with a total face value of $3.7 billion. The terms of these
obligations are described in Note 11 to our consolidated financial
statements.
The
information concerning the terms of our repurchase agreements, our senior credit
facility, our junior subordinated notes, and the non-recourse securitized debt
obligations of consolidated VIEs, presented in Notes 8 and 11 to our
consolidated financial statements, is incorporated herein by
reference.
The
following table sets forth information about certain of our contractual
obligations as of September 30, 2010:
Contractual
Obligations(1)
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
due by period
|
|
|
|
Total
|
|
|
Less
than
1
year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More
than
5
years
|
|
Parent
company obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recourse debt obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
obligations
|
|
|
$408 |
|
|
|
$408 |
|
|
|
$— |
|
|
|
$— |
|
|
|
$— |
|
Senior
credit facility
|
|
|
98 |
|
|
|
98 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Junior
subordinated notes
|
|
|
144 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
144 |
|
Total
recourse debt obligations
|
|
|
650 |
|
|
|
506 |
|
|
|
— |
|
|
|
— |
|
|
|
144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
1 |
|
|
|
— |
|
|
|
1 |
|
|
|
— |
|
|
|
— |
|
Equity
investments(2)
|
|
|
16 |
|
|
|
— |
|
|
|
16 |
|
|
|
— |
|
|
|
— |
|
Total
unfunded commitments
|
|
|
17 |
|
|
|
— |
|
|
|
17 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease obligations
|
|
|
9 |
|
|
|
1 |
|
|
|
2 |
|
|
|
2 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
parent company obligations
|
|
|
676 |
|
|
|
507 |
|
|
|
19 |
|
|
|
2 |
|
|
|
148 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
VIE obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recourse securitized debt
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CT
collateralized debt obligations
|
|
|
1,006 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,006 |
|
Other
consolidated VIEs
|
|
|
2,757 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,757 |
|
Total
non-recourse debt obligations
|
|
|
3,763 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
consolidated VIE obligations
|
|
|
3,763 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,763 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
contractual obligations
|
|
|
$4,439 |
|
|
|
$507 |
|
|
|
$19 |
|
|
|
$2 |
|
|
|
$3,911 |
|
|
|
|
(1)
|
We are also subject to interest rate swaps for which we cannot
estimate future payments due.
|
(2) |
CTOPI’s investment period expires in December 2011, at which point
our obligation to fund capital calls will be limited. It is possible that
our unfunded capital commitment will not be entirely called, and the
timing and amount of such required contributions is not estimable. Our
entire unfunded commitment is assumed to be funded by December 2011 for
purposes of the above table.
|
Off-Balance
Sheet Arrangements
We have
no off-balance sheet arrangements.
Note
on Forward-Looking Statements
Except
for historical information contained herein, this quarterly report on Form 10-Q
contains forward-looking statements within the meaning of the Section 21E of the
Securities and Exchange Act of 1934, as amended, which involve certain risks and
uncertainties. Forward-looking statements are included with respect to, among
other things, our current business plan, business and investment strategy and
portfolio management. These forward-looking statements are identified by their
use of such terms and phrases as "intends," "intend," "intended," "goal,"
"estimate," "estimates," "expects," "expect," "expected," "project,"
"projected," "projections," "plans," "anticipates," "anticipated," "should,"
"designed to," "foreseeable future," "believe," "believes" and "scheduled" and
similar expressions. Our actual results or outcomes may differ materially from
those anticipated. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date the statement was
made. We assume no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or
otherwise.
Important
factors that we believe might cause actual results to differ from any results
expressed or implied by these forward-looking statements are discussed in the
risk factors contained in Exhibit 99.1 to this Form 10-Q, which are incorporated
herein by reference. In assessing forward-looking statements contained herein,
readers are urged to read carefully all cautionary statements contained in this
Form 10-Q.
ITEM
3. Quantitative
and Qualitative Disclosures About Market Risk
Interest
Rate Risk
The
principal objective of our asset and liability management activities is to
maximize net interest income while minimizing levels of interest rate risk.
Interest income and interest expense are subject to the risk of interest rate
fluctuations. In certain instances, to mitigate the impact of fluctuations in
interest rates, we use interest rate swaps to effectively convert floating rate
liabilities to fixed rate liabilities for proper matching with fixed rate
assets. Each derivative used as a hedge is matched with a liability with which
it is expected to have a high correlation. The swap agreements are generally
held-to-maturity and we do not use interest rate derivative financial
instruments for trading purposes. The differential to be paid or received on
these agreements is recognized as an adjustment to interest expense and is
recognized on the accrual basis.
As of
September 30, 2010, a 100 basis point change in LIBOR would impact our net
income by approximately $3.8 million.
Credit
Risk
Our loans
and investments, including our fund investments, are also subject to credit
risk. The ultimate performance and value of our loans and investments depends
upon the owner’s ability to operate the properties that serve as our collateral
so that they produce cash flows adequate to pay interest and principal due to
us. To monitor this risk, our asset management team continuously reviews our
investment portfolio and in certain instances is in constant contact with our
borrowers, monitoring performance of the collateral and enforcing our rights as
necessary.
The
following table provides information about our financial instruments that are
sensitive to changes in interest rates as of September 30, 2010. For
financial assets and debt obligations, the table presents face balance and
weighted average interest rates. For interest rate swaps, the table presents
notional amounts and weighted average fixed pay and floating receive interest
rates. These notional amounts are used to calculate the contractual cash flows
to be exchanged under each contract.
Financial
Assets and Liabilities Sensitive to Changes in Interest Rates as of
September 30, 2010
|
(in
thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-VIE
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
Loans
Receivable
|
|
Loans
Held-for-Sale
|
|
Total
|
|
|
Fixed
rate assets
|
$34,475
|
|
$52,247
|
|
$16,130
|
|
$102,852
|
|
|
Interest
rate(1)
|
8.24%
|
|
8.23%
|
|
8.55%
|
|
8.28%
|
|
|
Floating
rate assets
|
$1,584
|
|
$952,789
|
|
$60,699
|
|
$954,373
|
|
|
Interest
rate(1)
|
5.44%
|
|
3.41%
|
|
4.76%
|
|
3.72%
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-VIE
Debt Obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
|
|
Senior
|
|
Jr.
Subordinated
|
|
Participations
|
|
|
|
Obligations
|
|
Credit
Facility
|
|
Notes
|
|
Sold
|
|
Total
|
Fixed
rate debt
|
$—
|
|
$—
|
|
$143,753
|
|
$—
|
|
$143,753
|
Interest
rate(1)
(2)
|
—
|
|
—
|
|
1.00%
|
|
—
|
|
1.00%
|
Floating
rate debt
|
$408,136
|
|
$98,393
|
|
$—
|
|
$288,220
|
|
$766,097
|
Interest
rate(1)
(2)
|
1.84%
|
|
3.26%
|
|
—
|
|
3.21%
|
|
2.43%
|
|
|
|
|
|
|
|
|
|
|
Non-VIE
Derivative Financial Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
amounts
|
$64,172
|
|
|
|
|
|
|
|
|
Fixed
pay rate(1)
|
5.16%
|
|
|
|
|
|
|
|
|
Floating
receive rate(1)
|
0.26%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
of Consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities
|
|
Loans
Receivable
|
|
Total
|
|
|
|
|
Fixed
rate assets
|
$588,697
|
|
$233,850
|
|
$822,547
|
|
|
|
|
Interest
rate(1)
|
6.58%
|
|
8.22%
|
|
7.05%
|
|
|
|
|
Floating
rate assets
|
$25,752
|
|
$3,023,769
|
|
$3,049,521
|
|
|
|
|
Interest
rate(1)
|
1.82%
|
|
1.82%
|
|
1.82%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securitized
Non-Recourse Debt Obligations of Consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
CT
CDOs
|
|
Consolidated
VIEs
|
|
Total
|
|
|
|
|
Fixed
rate debt
|
$260,275
|
|
$102,579
|
|
$362,854
|
|
|
|
|
Interest
rate(1)
|
5.31%
|
|
7.11%
|
|
5.81%
|
|
|
|
|
Floating
rate debt
|
$745,511
|
|
$2,574,528
|
|
$3,320,039
|
|
|
|
|
Interest
rate(1)
|
0.77%
|
|
0.87%
|
|
0.85%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Financial Instruments of Consolidated VIEs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
amounts
|
$344,432
|
|
|
|
|
|
|
|
|
Fixed
pay rate(1)
|
4.95%
|
|
|
|
|
|
|
|
|
Floating
receive rate(1)
|
0.26%
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents weighted average rates where applicable. Floating rates
are based on LIBOR of 0.26%, which is the rate as of September 30,
2010.
|
(2) |
The coupon on our junior subordinated notes will remain at 1.00%
per annum through April 29, 2012, increase to 7.23% per annum for the
period from April 30, 2012 through April 29, 2016 and then convert to a
floating interest rate of three-month LIBOR + 2.44% per annum through
maturity in 2036.
|
Evaluation
of Disclosure Controls and Procedures
An
evaluation of the effectiveness of the design and operation of our "disclosure
controls and procedures" (as defined in Rule 13a-15(e) under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the
period covered by this quarterly report was made under the supervision and with
the participation of our management, including our Chief Executive Officer and
Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that our disclosure controls and
procedures (a) are effective to ensure that information required to be disclosed
by us in reports filed or submitted under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified by
Securities and Exchange Commission rules and forms and (b) include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by us in reports filed or submitted under the Exchange Act is
accumulated and communicated to our management, including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding required disclosure.
Changes
in Internal Controls
There
have been no significant changes in our "internal control over financial
reporting" (as defined in Rule 13a-15(f) of the Exchange Act) that occurred
during the period covered by this quarterly report that have materially
affected, or are reasonably likely to materially affect, our internal control
over financial reporting.
PART II. OTHER INFORMATION
ITEM
1:
|
Legal
Proceedings
|
None.
In
addition to the other information discussed in this quarterly report on Form
10-Q, please consider the risk factors provided in our updated risk factors
attached as Exhibit 99.1, which could materially affect our business, financial
condition or future results. Additional risks and uncertainties not currently
known to us or that we deem to be immaterial may adversely affect our business,
financial condition, or operating results.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
None.
|
Defaults
Upon Senior Securities
|
None.
None.
None.
|
3.1a
|
Charter
of the Capital Trust, Inc. (filed as Exhibit 3.1.a to Capital
Trust, Inc.’s Current Report on Form 8-K (File No. 1-14788)
filed on April 2, 2003 and incorporated herein by
reference).
|
|
3.1b
|
Certificate
of Notice (filed as Exhibit 3.1 to Capital Trust, Inc.’s Current
Report on Form 8-K (File No. 1-14788) filed on February 27,
2007 and incorporated herein by reference).
|
|
3.2
|
Second
Amended and Restated By-Laws of Capital Trust, Inc. (filed as
Exhibit 3.2 to Capital Trust, Inc.’s Current Report on
Form 8-K (File No. 1-4788) filed on February 27, 2007 and
incorporated herein by reference).
|
·
|
10.1
|
Securities
Purchase Agreement, dated as of May 11, 2004, by and among Capital Trust,
Inc., W.R. Berkley Corporation and certain shareholders of Capital Trust,
Inc.
|
·
|
10.2
|
Junior
Subordinated Indenture, dated as of March 16, 2009, between Capital Trust,
Inc. and The Bank of New York Mellon Trust Company, National Association,
as Trustee.
|
·
|
10.3
|
Junior
Subordinated Indenture, dated as of May 14, 2009, between Capital Trust,
Inc. and The Bank of New York Mellon Trust Company, National Association,
as Trustee.
|
+
·
|
10.4
|
Amendment
No. 10 to Master Repurchase Agreement, dated as of March 16, 2009, by and
among Capital Trust, Inc, CT RE CDO 2004-1 SUB, LLC, CT RE CDO 2005-1 SUB,
LLC, CT XLC Holding, LLC and Morgan Stanley Bank, N.A.
|
+
·
|
10.5
|
Amendment
No. 1 to Master Repurchase Agreement, dated as of March 16, 2009, by and
among CT BSI Funding Corp., Capital Trust, Inc. and JPMorgan Chase Bank,
N.A.
|
+
·
|
10.6
|
Amendment
No. 1 to Master Repurchase Agreement, dated as of March 16, 2009, by and
among Capital Trust, Inc., CT BSI Funding Corp. and JPMorgan Chase Funding
Inc.
|
+
·
|
10.7
|
Amendment
No. 3 to Master Repurchase Agreement, dated as of March 16, 2009, by and
between Capital Trust, Inc., Citigroup Global Markets, Inc. and
Citigroup Financial Products Inc.
|
+
·
|
10.8
|
Pledge
and Security Agreement, dated as of March 16, 2009, by and between Capital
Trust, Inc. and WestLB AG, New York Branch.
|
·
|
31.1
|
Certification
of Stephen D. Plavin, Chief Executive Officer, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
·
|
31.2
|
Certification
of Geoffrey G. Jervis, Chief Financial Officer, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
·
|
32.1
|
Certification
of Stephen D. Plavin, Chief Executive Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
·
|
32.2
|
Certification
of Geoffrey G. Jervis, Chief Financial Officer, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
|
·
|
99.1
|
Updated
Risk Factors from our Annual Report on Form 10-K for the year ended
December 31, 2009, filed on March 2, 2010 with the Securities and Exchange
Commission.
|
|
+
|
Confidential
treatment has been requested for certain portions which are omitted in the
copy of the exhibit electronically filed with the SEC. The omitted
information has been filed separately with the SEC pursuant to our
application for confidential
treatment.
|
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
|
CAPITAL
TRUST, INC.
|
|
|
|
|
|
|
|
|
/s/
Stephen D. Plavin |
|
Date
|
Stephen D. Plavin
Chief
Executive Officer
(Principal
executive officer)
|
|
|
|
|
|
|
|
October 26,
2010
|
/s/
Geoffrey G. Jervis |
|
Date
|
Geoffrey
G. Jervis
Chief
Financial Officer
(Principal
financial officer and
Principal
accounting officer)
|
|