Unassociated Document
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,
2008
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)
|
|
|
Registrant's
telephone number, including area code:
|
(212)
655-0220
|
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 is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange
Act. (Check one):
Large
accelerated filer o
|
Accelerated
filer ý
|
Non-accelerated
filer 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 28, 2008 was 22,095,499.
CAPITAL
TRUST, INC.
|
INDEX
|
|
|
|
|
Part
I.
|
Financial
Information |
|
|
|
|
|
|
Item
1: |
|
1
|
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1
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2
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3
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4
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5
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|
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Item
2: |
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29
|
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|
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Item
3: |
|
47
|
|
|
|
|
|
Item
4: |
|
49
|
|
|
|
|
Part
II.
|
Other
Information |
|
|
|
|
|
|
Item
1: |
|
50
|
|
|
|
|
|
Item
1A: |
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Item
2: |
|
50
|
|
|
|
|
|
Item
3: |
|
50
|
|
|
|
|
|
Item
4: |
|
50
|
|
|
|
|
|
Item
5: |
|
50
|
|
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|
Item
6: |
|
51
|
|
|
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|
|
Signatures |
|
52
|
|
|
|
|
Capital Trust, Inc. and Subsidiaries
|
|
Consolidated
Balance Sheets
|
|
September
30, 2008 and December 31, 2007
|
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
September
30,
|
|
December
31,
|
Assets
|
|
2008
|
|
2007
|
|
|
(unaudited)
|
|
(audited)
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
115,240 |
|
|
$ |
25,829 |
|
Restricted
cash
|
|
|
18,231 |
|
|
|
5,696 |
|
Commercial
mortgage backed securities
|
|
|
851,371 |
|
|
|
876,864 |
|
Loans
receivable, net
|
|
|
2,044,408 |
|
|
|
2,257,563 |
|
Equity
investment in unconsolidated subsidiaries
|
|
|
3,822 |
|
|
|
977 |
|
Deposits
and other receivables
|
|
|
790 |
|
|
|
3,927 |
|
Accrued
interest receivable
|
|
|
12,065 |
|
|
|
15,091 |
|
Interest
rate hedge assets
|
|
|
13 |
|
|
|
— |
|
Deferred
income taxes
|
|
|
4,160 |
|
|
|
3,659 |
|
Prepaid
and other assets
|
|
|
17,619 |
|
|
|
21,876 |
|
Total
assets
|
|
$ |
3,067,719 |
|
|
$ |
3,211,482 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
& Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued expenses
|
|
$ |
26,783 |
|
|
$ |
65,682 |
|
Repurchase
obligations and secured debt
|
|
|
816,208 |
|
|
|
911,857 |
|
Collateralized
debt obligations
|
|
|
1,158,787 |
|
|
|
1,192,299 |
|
Senior
unsecured credit facility
|
|
|
100,000 |
|
|
|
75,000 |
|
Junior
subordinated debentures
|
|
|
128,875 |
|
|
|
128,875 |
|
Participations
sold
|
|
|
337,015 |
|
|
|
408,351 |
|
Interest
rate hedge liabilities
|
|
|
19,932 |
|
|
|
18,686 |
|
Deferred
origination fees and other revenue
|
|
|
1,639 |
|
|
|
2,495 |
|
Total
liabilities
|
|
|
2,589,239 |
|
|
|
2,803,245 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders'
equity:
|
|
|
|
|
|
|
|
|
Class
A common stock $0.01 par value 100,000 shares authorized, 21,730 and
17,166 shares issued and outstanding at September 30, 2008 and December
31, 2007, respectively ("class A common stock")
|
|
|
217 |
|
|
|
172 |
|
Restricted
class A common stock $0.01 par value, 360 and 424 shares issued and
outstanding at September 30, 2008 and December 31, 2007, respectively
("restricted class A common stock" and together with class A common stock,
"common stock")
|
|
|
4 |
|
|
|
4 |
|
Additional
paid-in capital
|
|
|
554,454 |
|
|
|
426,113 |
|
Accumulated
other comprehensive loss
|
|
|
(12,152 |
) |
|
|
(8,684 |
) |
Accumulated
deficit
|
|
|
(64,043 |
) |
|
|
(9,368 |
) |
Total
shareholders' equity
|
|
|
478,480 |
|
|
|
408,237 |
|
|
|
|
|
|
|
|
|
|
Total
liabilities and shareholders' equity
|
|
$ |
3,067,719 |
|
|
$ |
3,211,482 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
Capital Trust, Inc. and Subsidiaries
|
Consolidated
Statements of Income
|
Three
and Nine Months Ended September 30, 2008 and 2007
|
(in
thousands, except share and per share data)
|
(unaudited)
|
|
|
|
Three
Months Ended
|
|
Nine
Months Ended
|
|
|
September
30,
|
|
September
30,
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
Income
from loans and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and related income
|
|
$ |
44,141 |
|
|
$ |
64,712 |
|
|
$ |
149,725 |
|
|
$ |
190,959 |
|
Less:
Interest and related expenses
|
|
|
28,175 |
|
|
|
43,716 |
|
|
|
98,918 |
|
|
|
120,008 |
|
Income
from loans and other investments, net
|
|
|
15,966 |
|
|
|
20,996 |
|
|
|
50,807 |
|
|
|
70,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees
|
|
|
3,477 |
|
|
|
1,115 |
|
|
|
9,827 |
|
|
|
2,446 |
|
Incentive
management fees
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
962 |
|
Servicing
fees
|
|
|
116 |
|
|
|
173 |
|
|
|
337 |
|
|
|
285 |
|
Other
interest income
|
|
|
483 |
|
|
|
173 |
|
|
|
1,307 |
|
|
|
754 |
|
Total
other revenues
|
|
|
4,076 |
|
|
|
1,461 |
|
|
|
11,471 |
|
|
|
4,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
5,711 |
|
|
|
6,840 |
|
|
|
18,819 |
|
|
|
21,483 |
|
Depreciation
and amortization
|
|
|
13 |
|
|
|
61 |
|
|
|
140 |
|
|
|
1,450 |
|
Total
other expenses
|
|
|
5,724 |
|
|
|
6,901 |
|
|
|
18,959 |
|
|
|
22,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on extinguishment of debt
|
|
|
— |
|
|
|
— |
|
|
|
6,000 |
|
|
|
— |
|
(Provision
for)/recovery of losses on loan impairment
|
|
|
— |
|
|
|
— |
|
|
|
(56,000 |
) |
|
|
4,000 |
|
Gain
on sale of investments
|
|
|
— |
|
|
|
— |
|
|
|
374 |
|
|
|
— |
|
Loss
from equity investments
|
|
|
(625 |
) |
|
|
(109 |
) |
|
|
(549 |
) |
|
|
(1,042 |
) |
Income
(loss) before income taxes
|
|
|
13,693 |
|
|
|
15,447 |
|
|
|
(6,856 |
) |
|
|
55,423 |
|
Income
tax provision (benefit)
|
|
|
26 |
|
|
|
(50 |
) |
|
|
(475 |
) |
|
|
(304 |
) |
Net
income (loss)
|
|
$ |
13,667 |
|
|
$ |
15,497 |
|
|
$ |
(6,381 |
) |
|
$ |
55,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per
share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss) earnings per share of common
stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.61 |
|
|
$ |
0.88 |
|
|
$ |
(0.31 |
) |
|
$ |
3.17 |
|
Diluted
|
|
$ |
0.61 |
|
|
$ |
0.87 |
|
|
$ |
(0.31 |
) |
|
$ |
3.14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares of common stock outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
22,247,042 |
|
|
|
17,594,047 |
|
|
|
20,707,262 |
|
|
|
17,555,724 |
|
Diluted
|
|
|
22,250,631 |
|
|
|
17,717,282 |
|
|
|
20,707,262 |
|
|
|
17,719,881 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends
declared per share of common stock
|
|
$ |
0.60 |
|
|
$ |
0.80 |
|
|
$ |
2.20 |
|
|
$ |
2.40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial
statements.
|
|
Consolidated
Statements of Changes in Shareholders' Equity
|
For
the Nine Months Ended September 30, 2008 and 2007
|
(in
thousands)
|
(unaudited)
|
|
|
Comprehensive
Income (Loss)
|
|
|
Class
A Common Stock
|
|
Restricted
Class A Common Stock
|
|
Additional
Paid-In Capital
|
|
Accumulated
Other Comprehensive Income/(Loss)
|
|
Accumulated
Deficit
|
|
Total
|
Balance
at January 1, 2007
|
|
|
|
|
|
$ |
169 |
|
|
$ |
5 |
|
|
$ |
417,641 |
|
|
$ |
12,717 |
|
|
$ |
(4,260 |
) |
|
$ |
426,272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income
|
|
$ |
55,727 |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
55,727 |
|
|
|
55,727 |
|
Unrealized
loss on derivative financial instruments
|
|
|
(4,158 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(4,158 |
) |
|
|
— |
|
|
|
(4,158 |
) |
Unrealized
gain on available for sale security
|
|
|
108 |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
108 |
|
|
|
— |
|
|
|
108 |
|
Amortization
of unrealized gain on securities
|
|
|
(1,259 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,259 |
) |
|
|
— |
|
|
|
(1,259 |
) |
Currency
translation adjustments
|
|
|
810 |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
810 |
|
|
|
— |
|
|
|
810 |
|
Issuance
of stock relating to asset purchase
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
707 |
|
|
|
— |
|
|
|
— |
|
|
|
707 |
|
Amortization
of deferred gains and losses on settlement of swaps
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(353 |
) |
|
|
— |
|
|
|
(353 |
) |
Sale
of shares of class A common stock under stock option
agreement
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
952 |
|
|
|
— |
|
|
|
— |
|
|
|
952 |
|
Restricted
class A common stock earned
|
|
|
— |
|
|
|
|
2 |
|
|
|
(1 |
) |
|
|
3,570 |
|
|
|
— |
|
|
|
— |
|
|
|
3,571 |
|
Dividends
declared on common stock
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(41,983 |
) |
|
|
(41,983 |
) |
Balance
at September 30, 2007
|
|
$ |
51,228 |
|
|
|
$ |
171 |
|
|
$ |
4 |
|
|
$ |
422,870 |
|
|
$ |
7,865 |
|
|
$ |
9,484 |
|
|
$ |
440,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at January 1, 2008
|
|
|
|
|
|
|
$ |
172 |
|
|
$ |
4 |
|
|
$ |
426,113 |
|
|
$ |
(8,684 |
) |
|
$ |
(9,368 |
) |
|
$ |
408,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(6,381 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,381 |
) |
|
|
(6,381 |
) |
Unrealized
loss on derivative financial instruments
|
|
|
(1,233 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,233 |
) |
|
|
— |
|
|
|
(1,233 |
) |
Unrealized
gain on available for sale security
|
|
|
277 |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
277 |
|
|
|
— |
|
|
|
277 |
|
Reclassification
to gain on sale of investments
|
|
|
(482 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(482 |
) |
|
|
— |
|
|
|
(482 |
) |
Amortization
of unrealized gain on securities
|
|
|
(1,278 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1,278 |
) |
|
|
— |
|
|
|
(1,278 |
) |
Deferred
loss on settlement of swap
|
|
|
(612 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(612 |
) |
|
|
— |
|
|
|
(612 |
) |
Amortization
of deferred gains and losses on settlement of swaps
|
|
|
(140 |
) |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(140 |
) |
|
|
— |
|
|
|
(140 |
) |
Shares
of class A common stock issued in public offering
|
|
|
— |
|
|
|
|
40 |
|
|
|
— |
|
|
|
112,567 |
|
|
|
— |
|
|
|
— |
|
|
|
112,607 |
|
Shares
of class A common stock issued under dividend reinvestment plan and
stock purchase plan
|
|
|
— |
|
|
|
|
5 |
|
|
|
— |
|
|
|
12,835 |
|
|
|
— |
|
|
|
— |
|
|
|
12,840 |
|
Sale
of shares of class A common stock under stock option
agreement
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
180 |
|
|
|
— |
|
|
|
— |
|
|
|
180 |
|
Restricted
class A common stock earned
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
2,759 |
|
|
|
— |
|
|
|
— |
|
|
|
2,759 |
|
Dividends
declared on common stock
|
|
|
— |
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(48,294 |
) |
|
|
(48,294 |
) |
Balance
at September 30, 2008
|
|
$ |
(9,849 |
) |
|
|
$ |
217 |
|
|
$ |
4 |
|
|
$ |
554,454 |
|
|
$ |
(12,152 |
) |
|
$ |
(64,043 |
) |
|
$ |
478,480 |
|
See
accompanying notes to consolidated financial statements.
|
|
Capital Trust, Inc. and Subsidiaries
|
|
Consolidated
Statements of Cash Flows
|
|
For
the Nine Months Ended September 30, 2008 and 2007
|
|
(in
thousands)
|
|
(unaudited)
|
|
|
|
|
|
Nine
Months Ended
|
|
|
September
30,
|
|
|
2008
|
|
2007
|
Cash
flows from operating activities:
|
|
|
|
|
|
|
Net
(loss) income
|
|
$ |
(6,381 |
) |
|
$ |
55,727 |
|
Adjustments
to reconcile net (loss) income to net cash provided by operating
activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
140 |
|
|
|
1,450 |
|
Gain
on extinguishment of debt
|
|
|
(6,000 |
) |
|
|
— |
|
Provision
for losses
|
|
|
56,000 |
|
|
|
— |
|
Gain
on sale of investment
|
|
|
(374 |
) |
|
|
— |
|
Loss
from equity investments
|
|
|
549 |
|
|
|
1,042 |
|
Distributions
of income from equity investments in unconsolidated
subsidiaries
|
|
|
— |
|
|
|
425 |
|
Restricted
class A common stock earned
|
|
|
2,759 |
|
|
|
3,570 |
|
Amortization
of premiums and discounts on loans/CMBS, and debt, net and deferred
interest on loans
|
|
|
(8,050 |
) |
|
|
(1,542 |
) |
Amortization
of deferred gains and losses on settlement of swaps
|
|
|
(140 |
) |
|
|
(200 |
) |
Amortization
of finance costs
|
|
|
4,003 |
|
|
|
4,134 |
|
Changes
in assets and liabilities, net:
|
|
|
|
|
|
|
|
|
Deposits
and other receivables
|
|
|
3,442 |
|
|
|
1,909 |
|
Accrued
interest receivable
|
|
|
3,026 |
|
|
|
(383 |
) |
Prepaid
and other assets
|
|
|
544 |
|
|
|
(404 |
) |
Deferred
income taxes
|
|
|
(501 |
) |
|
|
(50 |
) |
Deferred
origination fees and other revenue
|
|
|
(1,047 |
) |
|
|
(1,897 |
) |
Accounts
payable and accrued expenses
|
|
|
(4,662 |
) |
|
|
3,701 |
|
Net
cash provided by operating activities
|
|
|
43,308 |
|
|
|
67,482 |
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases
of CMBS
|
|
|
(660 |
) |
|
|
(110,550 |
) |
Principal
collections on and proceeds from CMBS
|
|
|
27,896 |
|
|
|
37,089 |
|
Origination,
purchase and fundings of loans receivable
|
|
|
(115,344 |
) |
|
|
(869,623 |
) |
Principal
collections on and proceeds from loans receivable
|
|
|
206,008 |
|
|
|
620,189 |
|
Equity
investments in unconsolidated subsidiaries
|
|
|
(3,473 |
) |
|
|
(9,122 |
) |
Return
of capital from equity investments in unconsolidated
subsidiaries
|
|
|
— |
|
|
|
1,616 |
|
Proceeds
from total return swaps
|
|
|
— |
|
|
|
1,815 |
|
Purchase
of equipment and leasehold improvements
|
|
|
(43 |
) |
|
|
(546 |
) |
Payments
for business purchased
|
|
|
— |
|
|
|
(1,853 |
) |
Payment
of capitalized costs
|
|
|
— |
|
|
|
(115 |
) |
Increase
in restricted cash
|
|
|
(12,535 |
) |
|
|
(2,034 |
) |
Net
cash provided by (used in) investing activities
|
|
|
101,849 |
|
|
|
(333,134 |
) |
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from repurchase obligations and secured debt
|
|
|
184,025 |
|
|
|
1,307,512 |
|
Repayment
of repurchase obligations and secured debt
|
|
|
(273,674 |
) |
|
|
(1,123,078 |
) |
Proceeds
from credit facilities
|
|
|
25,000 |
|
|
|
125,000 |
|
Repayment
of credit facilities
|
|
|
— |
|
|
|
(50,000 |
) |
Issuance
of junior subordinated debentures
|
|
|
— |
|
|
|
77,325 |
|
Purchase
of common equity in CT Preferred Trust I & CT Preferred Trust
II
|
|
|
— |
|
|
|
(2,325 |
) |
Repayment
of collateralized debt obligations
|
|
|
(33,274 |
) |
|
|
(17,017 |
) |
Settlement
of interest rate hedges
|
|
|
(612 |
) |
|
|
(153 |
) |
Payment
of financing costs
|
|
|
(306 |
) |
|
|
(2,474 |
) |
Sale
of class A common stock upon stock option exercise
|
|
|
180 |
|
|
|
952 |
|
Dividends
paid on common stock
|
|
|
(82,532 |
) |
|
|
(52,355 |
) |
Proceeds
from sale of shares of class A common stock
|
|
|
123,108 |
|
|
|
— |
|
Proceeds
from dividend reinvestment plan
|
|
|
2,339 |
|
|
|
— |
|
Net
cash (used in) provided by financing activities
|
|
|
(55,746 |
) |
|
|
263,387 |
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash and cash equivalents
|
|
|
89,411 |
|
|
|
(2,265 |
) |
Cash
and cash equivalents at beginning of year
|
|
|
25,829 |
|
|
|
26,142 |
|
Cash
and cash equivalents at end of period
|
|
$ |
115,240 |
|
|
$ |
23,877 |
|
|
|
|
|
|
|
|
|
|
See
accompanying notes to consolidated financial statements.
|
|
Capital Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements
(unaudited)
1. Organization
References
herein to “we,” “us” or “our” refer to Capital Trust, Inc. and its
subsidiaries unless the context specifically requires otherwise.
We are a
fully integrated, self-managed finance and investment management company that
specializes in credit-sensitive structured 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 commencement of our finance business in 1997 through September 30, 2008, we
have completed over $11.0 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 and we are headquartered in New York
City.
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 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 footnotes required by accounting principles generally
accepted in the United States for complete financial statements. The
accompanying unaudited consolidated interim financial statements should be read
in conjunction with the 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,
2007. In our opinion, all material adjustments (consisting of normal,
recurring accruals) considered necessary for a fair presentation have been
included. The results of operations for the nine months ended September 30, 2008
are not necessarily indicative of results that may be expected for the entire
year ending December 31, 2008. Our accounting and reporting policies
conform in all material respects to generally accepted accounting principles, or
GAAP, in the United States.
Principles
of Consolidation
The
accompanying unaudited consolidated interim financial statements include, on a
consolidated basis, our accounts, the accounts of our wholly-owned subsidiaries
and our interests in variable interest entities in which we are the primary
beneficiary. All significant intercompany balances and transactions
have been eliminated in consolidation. Our interests in CT Preferred Trust I and
CT Preferred Trust II, the issuers of trust securities backed by our junior
subordinated debentures, are accounted for using the equity method and their
assets and liabilities are not consolidated into our financial statements due to
our determination that CT Preferred Trust I and CT Preferred Trust II are
variable interest entities in which we are not the primary beneficiary under
Financial Accounting Standards Board, or FASB, Interpretation No. 46(R)
“Consolidation of Variable Interest Entities”, or FIN 46R. We account for our
co-investment interest in the private equity funds we manage, CT Mezzanine
Partners III, Inc., or Fund III, and CT Opportunity Partners I, LP, or
CTOPI, under the equity method of accounting. We also accounted for our
investment in Bracor Investimentos Imobiliarios Ltda., or Bracor, under the
equity method of accounting until we sold our investment in December 2007. As
such, we report a percentage of the earnings or losses of the companies in which
we have such investments equal to our ownership percentage on a single line item
in the consolidated statement of income as income from equity investments. CTOPI
is an investment company (under the American Institute of Certified Public
Accountants Investment Company Guide) and therefore it maintains its financial
records on a fair value basis. We have applied such accounting relative to our
investment in CTOPI pursuant to the Emerging Issues Task Force, or EITF, Issue
No. 85-12 “Retention of Specialized Accounting for Investments in
Consolidation.”
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 in connection 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. Fees on commitments that expire unused are
recognized at expiration. For loans where we have unfunded commitments, we
amortize the appropriate items on a straight line basis. Income recognition 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, a full recovery
of income and principal becomes doubtful. Income recognition is resumed when the
loan becomes contractually current and performance is demonstrated to be
resumed.
Fees from
special servicing and asset management services are recognized as services are
rendered. We account for incentive fees we earn from our investment management
business in accordance with Method 1 of EITF D-96, “Accounting for Management
Fees Based on a Formula”. Under Method 1, no incentive income is recorded until
all contingencies have been eliminated.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
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. At September 30,
2008 and December 31, 2007, a majority of the cash and cash equivalents
consisted of overnight deposits in demand deposit and money market
accounts. As of, and for the periods ended, September 30, 2008 and
December 31, 2007, 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.
Restricted
cash at September 30, 2008 was comprised of $18.2 million that is on deposit
with the trustee for our collateralized debt obligations, or CDOs, and is
expected to be used to pay contractual interest and principal and to purchase
replacement collateral for our reinvesting CDOs during their respective
reinvestment periods. Restricted cash at December 31, 2007 was $5.7
million.
Commercial
Mortgage Backed Securities
We
classify our commercial mortgage backed securities, or CMBS, pursuant to FASB
Statement of Financial Accounting Standards No. 115, “Accounting for
Certain Investments in Debt and Equity Securities”, or FAS 115, on the date of
acquisition of the investment. On August 4, 2005, we decided to change the
accounting classification of our CMBS investments 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 and any premiums or discounts are
amortized through the consolidated statements of income using the effective
interest method. Other than in the instance of impairment, these
held-to-maturity investments are shown in our financial statements at their
adjusted values pursuant to the methodology described above.
We may
also invest in CMBS and certain other 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 must estimate their
values. In making these estimates, management utilizes market prices provided by
dealers who make markets in these securities, but may, under certain
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.
Income on
these securities is recognized based upon a number of assumptions that are
subject to uncertainties and contingencies. 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 our reported interest income
on our mortgage backed securities include interest payment shortfalls due to
delinquencies on the underlying mortgage loans and the timing and magnitude of
credit losses on the mortgage loans underlying the securities that 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.
We
account for CMBS under EITF 99-20, “Recognition of Interest Income and
Impairment on Purchased and Retained Beneficial Interests in Securitized
Financial Assets”, or EITF 99-20. Under EITF 99-20, when significant changes in
estimated cash flows from the cash flows previously estimated occur due to
actual prepayment and credit loss experience and the present value of the
revised cash flows using the current expected yield is less than the present
value of the previously estimated remaining cash flows, adjusted for cash
receipts during the intervening period, an other than temporary impairment is
deemed to have occurred. Accordingly, the security is written down to fair value
with the resulting charge being included in income and a new cost basis
established with the original discount or premium written off when the new cost
basis is established. In accordance with this guidance, on a quarterly basis,
when significant changes in estimated cash flows from the cash flows previously
estimated occur due to actual prepayment and credit loss experience, we
calculate a revised yield based upon the current amortized cost of the
investment, including any other than temporary impairments recognized to date,
and the revised cash flows. The revised yield is then applied prospectively to
recognize interest income. Management must also assess whether unrealized losses
on securities reflect a decline in value that is other than temporary, and,
accordingly, write down the impaired security to its fair value, through a
charge to income. Significant judgment of management is required in this
analysis that includes, but is not limited to, making assumptions regarding the
collectability of the principal and interest, net of related expenses, on the
underlying loans.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
During
the fourth quarter of 2004, we concluded that two of our CMBS investments had
incurred other-than-temporary impairment and we incurred a charge of $5.9
million through the income statement. At September 30, 2008, we
believe there has not been any adverse change in estimated cash flows relating
to existing CMBS investments; therefore we did not recognize any additional
other than temporary impairment on any CMBS investments. Significant
judgment of management is required in this analysis that includes, but is not
limited to, making assumptions regarding the collectability of the principal and
interest, net of related expenses, on the underlying loans.
From time
to time we purchase CMBS and other investments in which we have a level of
control over the issuing entity; we refer to these investments as controlling
class investments. The presentation of controlling class investments in our
financial statements is governed in part by FIN 46R. FIN 46R could require that
certain controlling class investments be presented on a consolidated basis.
Based upon the specific circumstances of certain of our CMBS investments that
are controlling class investments and our interpretation of FIN 46R,
specifically the exemption for qualifying special purpose entities as defined
under FASB Statements of Financial Accounting Standard No. 140, “Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities”, or FAS 140, we have concluded that the entities that have issued
the controlling class investments should not be presented on a consolidated
basis. We are aware that FAS 140 is currently under review by
standard setters and that, as a result of this review, our current
interpretation of FIN 46R and FAS 140 may change.
Loans
Receivable and Reserve for Possible Credit Losses
We
purchase and originate commercial real estate debt and related instruments, or
Loans, to be held as long-term investments at amortized cost. Management must
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 were
determined to be permanently impaired, we would write down the Loan through a
charge to the reserve for possible credit losses. Given the nature of our Loan
portfolio and the underlying commercial real estate collateral, significant
judgment on the part of management is required in determining permanent
impairment and the resulting charge to the reserve, which includes but is not
limited to making assumptions regarding the value of the real estate that
secures the loan. Each Loan in our portfolio is evaluated at least quarterly
using our loan risk rating system which considers loan-to-value, debt yield,
cash flow stability, exit plan, loan sponsorship, loan structure and other
factors deemed necessary by management to assess the likelihood of delinquency
or default. If we believe that there is a potential for delinquency or default,
a downside analysis is prepared to estimate the value of the collateral
underlying our Loan, and this potential loss is multiplied by the default
likelihood to determine the size of the reserve. Actual losses, if any, could
ultimately differ from these estimates.
Deferred
Financing Costs
The
deferred financing costs which are included in prepaid and other assets on our
consolidated balance sheets include issuance costs related to our debt and are
amortized using the effective interest method or a method that approximates the
effective interest method.
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 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 the consolidated statements of income. In February 2008, the FASB issued FASB
Staff Position 140-3, “Accounting for Transfers of Financial Assets and
Repurchase Financing Transactions, or FSP 140-3, which provides guidance on
accounting for transfers of financial assets and repurchase
financings. FSP 140-3 presumes that an initial transfer of a
financial asset and a repurchase financing shall not be evaluated as a linked
transaction and shall be evaluated separately under FAS 140. If the
linked transaction does not meet the requirements for sale accounting, the
linked transaction 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.
FSP 140-3
is effective on a prospective basis for fiscal years beginning after November
15, 2008, with earlier application not permitted. Given that FSP
140-3 is to be applied prospectively, we do not expect that the adoption of FSP
140-3 will have a material impact on our financial statements with respect to
our existing transactions. New transactions entered into after
December 31, 2008, that are subject to FSP 140-3 may be presented differently on
our financial statements.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
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
variable 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 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.
To
determine the fair value of derivative instruments, we use third parties to
periodically value 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,
do not expect to pay substantial corporate level taxes (other than taxes payable
by our taxable REIT subsidiaries which are accounted for in accordance with FASB
Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes”, or FAS 109). 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 we may also
be subject to penalties.
In
September 2006, the FASB issued Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes an interpretation of FASB Statement No. 109”, or FIN
48. This interpretation clarifies the accounting for uncertainty in
income taxes recognized in an enterprise’s financial statements in accordance
with FAS 109. This interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure, and transition. This interpretation
was effective January 1, 2007. The adoption of FIN 48 did not have a material
impact on our financial results.
Accounting
for Stock-Based Compensation
We
account for stock-based compensation in accordance with FASB Statement of
Financial Accounting Standards No. 123(R) “Share Based Payment,” or FAS
123(R). Upon adoption of FAS 123(R), as of January 1, 2006, we have
elected to utilize the modified prospective method, and there was no impact from
this adoption. 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. Compensation expense
relating to stock-based compensation is recognized in net income using a fair
value measurement method.
We comply
with the provisions of the FASB Statement of Financial Accounting Standards
No. 130, “Reporting Comprehensive Income”, or FAS 130, in reporting
comprehensive income and its components in the full set of general purpose
financial statements. Total comprehensive (loss)/income was ($9.8) million and
$51.2 million, for the periods ended September 30, 2008 and 2007,
respectively. The primary components of comprehensive income other than
net loss for the nine months ended September 30, 2008 were the unrealized
gain/(loss) on derivative financial instruments and CMBS. At September 30,
2008, accumulated other comprehensive loss was $12.2 million, comprised of
unrealized gains on CMBS of $7.0 million, unrealized losses on cash flow swaps
of $19.9 million, and $736,000 of deferred realized gains on the settlement of
cash flow swaps.
Earnings
per Share of Common Stock
Earnings
per share of common stock are presented based on the requirements of the FASB
Statement of Financial Accounting Standards No. 128, “Earnings per Share”,
or FAS 128. Basic EPS is computed based on the net earnings applicable to common
stock and stock units divided by 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 weighted
average number of shares of common stock and stock units and potentially
dilutive common stock options.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States 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 periods
consolidated financial statements to conform to the September 30, 2008
presentation.
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 portfolio of interest earning
assets (including our co-investments in investment management vehicles) and the
financing thereof.
The
“Investment Management” segment includes the activities of our wholly-owned
investment management subsidiary, CT Investment Management Co. LLC, or CTIMCO,
and its subsidiaries. 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 CDOs and serves as senior servicer and special servicer
on certain of our investments and for third parties. In addition, CTIMCO owns
certain of our assets.
On June
15, 2007, we purchased a healthcare loan origination platform, located in
Birmingham, Alabama. We paid a $2.6 million initial purchase price ($1.9 million
in cash and $707,000 in common stock), and we have a contingent obligation to
pay up to an additional $1.8 million ($1.1 million in cash and $700,000 in
common stock) on March 15, 2009, if the acquired business meets certain
performance criteria. We have recorded $2.1 million of goodwill associated with
the initial purchase price.
Goodwill
represents the excess of acquisition costs over the fair value of net assets of
businesses acquired. Goodwill is reviewed annually in the fourth
quarter to determine if there is impairment at a reporting unit level or more
frequently if an indication of impairment exists. No impairment
charges for goodwill were recorded during the nine months ended September 30,
2008.
New
Accounting Pronouncements
In
September 2006, the FASB issued Statement of Financial Accounting Standards No.
157, “Fair Value Measurements”, or FAS 157. FAS 157 defines fair
value, establishes a framework for measuring fair value, and expands disclosures
about fair value measurements. FAS 157 applies to reporting periods beginning
after November 15, 2007. As discussed above, we report the changes in the value
of effective cash flow hedges and our available for sale securities through
accumulated other comprehensive income/(loss). We adopted FAS 157 as of January
1, 2008. As a result of the adoption of FAS 157, the fair value of
our interest rate hedge liabilities decreased by $961,000 due to the valuation
adjustment related to our credit.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The table
below details the fair value measurements at September 30, 2008 (in
millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurements at Reporting Date Using
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted
Prices in
Active
Markets for
Identical
Assets
(Level
1)
|
|
|
|
|
Significant
Unobservable
Inputs
(Level
3)
|
|
|
|
|
|
|
Significant
Other
Observable
Inputs
(Level
2)
|
|
|
|
Fair
Value at
September
30, 2008
|
|
|
|
Description
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate hedge assets
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Interest
rate hedge liabilities
|
|
|
(19.9 |
) |
|
|
— |
|
|
|
(19.9 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
(19.9 |
) |
|
$ |
— |
|
|
$ |
(19.9 |
) |
|
$ |
— |
|
In
February 2007, the FASB issued Statement of Financial Accounting Standards No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”, or
FAS 159. FAS 159 permits entities to choose to measure many financial
instruments, and certain other items, at fair value. FAS 159 also establishes
presentation and disclosure requirements designed to facilitate comparisons
between entities that choose different measurement attributes for similar types
of assets and liabilities. FAS 159 applies to reporting periods
beginning after November 15, 2007. We adopted FAS 159 as of January 1,
2008. Adoption of FAS 159 had no impact on the consolidated financial
statements as we did not elect to measure any financial instruments at fair
value.
In March
2008, the FASB issued Statement of Financial Accounting Standards No. 161,
“Disclosures about Derivative Instruments and Hedging Activities—an amendment of
FASB Statement No. 133”, or FAS 161. The use and complexity of
derivative instruments and hedging activities have increased significantly over
the past several years. Constituents have expressed concerns that the existing
disclosure requirements in FASB Statement No. 133, “Accounting for Derivative
Instruments and Hedging Activities”, do not provide adequate
information about how derivative and hedging activities affect an entity’s
financial position, financial performance, and cash flows. Accordingly, FAS 161
requires enhanced disclosures about an entity’s derivative and hedging
activities and thereby improves the transparency of financial reporting. FAS 161
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, with early application encouraged.
FAS 161 encourages, but does not require, comparative disclosures for earlier
periods at initial adoption. We are currently evaluating the
potential effect of the adoption of FAS 161 on our consolidated financial
statements.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
3.
|
Commercial
Mortgage Backed Securities
|
Activity
relating to our CMBS investments for the nine months ended September 30, 2008
was as follows ($ values in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
|
Asset
Type
|
|
Face
Value
|
|
Book
Value
|
|
Number
of Securities
|
|
Number
of Issues
|
|
Rating (1)
|
|
Coupon(2)
|
|
Yield(2)
|
|
Maturity
(Years)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
Rate
|
|
$ |
171,620 |
|
|
$ |
170,543 |
|
|
|
14 |
|
|
|
11 |
|
|
BB
|
|
|
8.16 |
% |
|
|
8.19 |
% |
|
|
2.6 |
|
Fixed
Rate
|
|
|
744,790 |
|
|
|
706,321 |
|
|
|
65 |
|
|
|
45 |
|
|
BB+
|
|
|
6.69 |
% |
|
|
7.14 |
% |
|
|
7.5 |
|
Total/Weighted
Average
|
|
|
916,410 |
|
|
|
876,864 |
|
|
|
79 |
|
|
|
56 |
|
|
BB+
|
|
|
6.97 |
% |
|
|
7.35 |
% |
|
|
6.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
Rate
|
|
|
3,300 |
|
|
|
660 |
|
|
|
1 |
|
|
|
— |
|
|
BB+
|
|
|
8.93 |
% |
|
|
43.92 |
% |
|
|
8.8 |
|
Fixed
Rate
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
—
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total/Weighted
Average
|
|
|
3,300 |
|
|
|
660 |
|
|
|
1 |
|
|
|
— |
|
|
BB+
|
|
|
8.93 |
% |
|
|
43.92 |
% |
|
|
8.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments &
Other (4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
Rate
|
|
|
121 |
|
|
|
(301 |
) |
|
|
— |
|
|
|
— |
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Fixed
Rate
|
|
|
32,662 |
|
|
|
26,454 |
|
|
|
3 |
|
|
|
1 |
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
Total/Weighted
Average
|
|
|
32,783 |
|
|
|
26,153 |
|
|
|
3 |
|
|
|
1 |
|
|
N/A
|
|
N/A
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
Rate
|
|
|
174,799 |
|
|
|
171,504 |
|
|
|
15 |
|
|
|
11 |
|
|
BB
|
|
|
7.45 |
% |
|
|
7.57 |
% |
|
|
2.0 |
|
Fixed
Rate
|
|
|
712,128 |
|
|
|
679,867 |
|
|
|
62 |
|
|
|
44 |
|
|
BB
|
|
|
6.68 |
% |
|
|
7.07 |
% |
|
|
7.0 |
|
Total/Weighted
Average
|
|
$ |
886,927 |
|
|
$ |
851,371 |
|
|
|
77 |
|
|
|
55 |
|
|
BB
|
|
|
6.83 |
% |
|
|
7.17 |
% |
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
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 $37.9 million face value ($37.5 million book value) of unrated
equity investments in collateralized debt
obligations.
|
(2)
|
Calculations
based on LIBOR of 3.93% as of September 30, 2008 and LIBOR of 4.60% as of
December 31, 2007.
|
(3)
|
Represents
the maturity of the investment assuming all extension options are
executed.
|
(4)
|
Includes
full repayments, sales, partial repayments, mark-to-market adjustments on
available for sale securities, and the impact of premium and discount
amortization and losses, if any. The figures shown in “Number
of Securities” and “Number of Issues” represent only the full
repayments/sales, if any.
|
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
tables below detail the ratings, vintage, property type and geographic
distribution of the collateral securing our CMBS at September 30, 2008 (in
thousands):
Ratings
|
|
|
|
Book Value
|
|
|
Percentage
|
AAA
|
|
|
$ |
162,268 |
|
|
|
19%
|
AA
|
|
|
|
24,775 |
|
|
|
3%
|
A |
|
|
|
158,823 |
|
|
|
19%
|
BBB
|
|
|
|
237,266 |
|
|
|
27%
|
BB
|
|
|
|
113,503 |
|
|
|
13%
|
B |
|
|
|
58,277 |
|
|
|
7%
|
CCC
|
|
|
|
5,019 |
|
|
|
1%
|
CC
|
|
|
|
5,363 |
|
|
|
1%
|
D |
|
|
|
48,617 |
|
|
|
6%
|
NR
|
|
|
|
37,460 |
|
|
|
4%
|
Total
|
|
|
$ |
851,371 |
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
Vintage
|
|
|
|
Book Value
|
|
|
Percentage
|
2007
|
|
|
$ |
110,291 |
|
|
|
13%
|
2006
|
|
|
|
48,755 |
|
|
|
6%
|
2005
|
|
|
|
61,768 |
|
|
|
7% |
2004
|
|
|
|
89,388 |
|
|
|
10% |
2003
|
|
|
|
29,607 |
|
|
|
3% |
2002
|
|
|
|
19,710 |
|
|
|
2% |
2001
|
|
|
|
18,972 |
|
|
|
2% |
2000
|
|
|
|
41,504 |
|
|
|
5% |
1999
|
|
|
|
30,186 |
|
|
|
4% |
1998
|
|
|
|
302,321 |
|
|
|
36% |
1997
|
|
|
|
72,995 |
|
|
|
9% |
1996
|
|
|
|
25,874 |
|
|
|
3% |
Total
|
|
|
$ |
851,371 |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
Property Type
|
|
|
|
Book Value
|
|
|
Percentage
|
Retail
|
|
|
$ |
272,439 |
|
|
|
32% |
Office
|
|
|
|
178,788 |
|
|
|
21% |
Hotel
|
|
|
|
148,990 |
|
|
|
18% |
Multi-Family
|
|
|
|
106,421 |
|
|
|
12% |
Other
|
|
|
|
65,556 |
|
|
|
8%
|
Healthcare
|
|
|
|
41,717 |
|
|
|
5%
|
Industrial
|
|
|
|
37,460 |
|
|
|
4% |
Total
|
|
|
$ |
851,371 |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
Geographic Location
|
|
|
|
Book Value
|
|
|
Percentage
|
Southeast
|
|
|
$ |
233,276 |
|
|
|
28% |
Northeast
|
|
|
|
204,329 |
|
|
|
24% |
West
|
|
|
|
154,950 |
|
|
|
18%
|
Southwest
|
|
|
|
118,341 |
|
|
|
14% |
Midwest
|
|
|
|
107,273 |
|
|
|
13%
|
Northwest
|
|
|
|
20,433 |
|
|
|
2% |
Other
|
|
|
|
12,769 |
|
|
|
1%
|
Total
|
|
|
$ |
851,371 |
|
|
|
100% |
As
detailed in Note 2, on August 4, 2005, pursuant to the provisions of FAS 115, we
decided to change the accounting classification of our then portfolio of CMBS
investments from available-for-sale to held-to-maturity.
While we
typically account for our CMBS investments on a held-to-maturity basis, under
certain circumstances we will account for CMBS on an available-for-sale
basis. At December 31, 2007, we had one CMBS investment that we
designated and accounted for on an available-for-sale basis with a face value of
$7.7 million. The security earned interest at a coupon of 8.34% as of
December 31, 2007. During the second quarter of 2008 we sold the
security for a gain of $374,000.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
Quarterly,
we reevaluate our CMBS portfolio to determine if there has been an
other-than-temporary impairment based upon our assessment of future cash flow
receipts. We believe that there has not been any adverse change in
estimated cash flows in our CMBS portfolio and, therefore, did not recognize any
other-than-temporary impairments. Significant judgment of management
is required in this analysis that includes, but is not limited to, making
assumptions regarding the collectability of principal and interest, net of
related expenses, on the underlying loans.
Certain
of our CMBS investments are carried at values in excess of their market
values. This difference can be caused by, among other things, changes
in interest rates, changes in credit spreads, realized/unrealized losses in the
underlying securities and general market conditions. At September 30,
2008, 72 CMBS investments with an aggregate carrying value of $791.3 million
were carried at values in excess of their market values. Market value
for these CMBS investments was $607.2 million at September 30, 2008. In total,
we had 77 CMBS investments with an aggregate carrying value of $851.4 million
that have an estimated market value of $673.2 million (this valuation does not
include the value of interest rate swaps entered into in conjunction with the
purchase/financing of these investments). We determine fair values using third
party dealer assessments of value, supplemented in certain cases with our own
internal estimations of fair value. We regularly examine the CMBS
portfolio and have determined that, despite changes in fair value, there have
been no changes in our expectations of estimated cash flows from our CMBS
portfolio since our last financial report. Our estimation of cash
flows expected to be generated by our CMBS portfolio is based upon an internal
review of the underlying mortgage 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. Our assessment of cash flows combined with our ability
and intent to hold our CMBS investments to maturity (at which point we expect to
recover book value plus amortized discounts/premiums, which may be at maturity),
is the basis for our conclusion that these investments are not impaired 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 for structured financial
products such as CMBS and CDOs.
The
following table shows the gross unrealized losses and fair value of our CMBS
with unrealized losses as of September 30, 2008 that are not deemed to be
other-than-temporarily impaired (in millions):
|
|
Less
Than 12 Months
|
|
Greater
Than 12 Months
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book
Value
|
|
Estimated
Fair Value
|
|
Gross
Unrealized Loss
|
|
Book
Value
|
|
Estimated
Fair Value
|
|
Gross
Unrealized Loss
|
|
Book
Value
|
|
Estimated
Fair Value
|
|
Gross
Unrealized Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
Rate
|
|
$ |
0.7 |
|
|
$ |
0.5 |
|
|
$ |
(0.2 |
) |
|
$ |
170.8 |
|
|
$ |
88.3 |
|
|
$ |
(82.5 |
) |
|
$ |
171.5 |
|
|
$ |
88.8 |
|
|
$ |
(82.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
|
|
202.4 |
|
|
|
181.0 |
|
|
|
(21.4 |
) |
|
|
417.4 |
|
|
|
337.4 |
|
|
|
(80.0 |
) |
|
|
619.8 |
|
|
|
518.4 |
|
|
|
(101.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$ |
203.1 |
|
|
$ |
181.5 |
|
|
$ |
(21.6 |
) |
|
$ |
588.2 |
|
|
$ |
425.7 |
|
|
$ |
(162.5 |
) |
|
$ |
791.3 |
|
|
$ |
607.2 |
|
|
$ |
(184.1 |
) |
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
4.
Loans Receivable
Activity
relating to our loans receivable for the nine months ended September 30, 2008
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
|
Asset
Type
|
|
Face
Value
|
|
Book
Value
|
|
Number
of Investments
|
|
Coupon(1)
|
|
Yield(1)
|
|
Maturity (Years)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
$ |
620,586 |
|
|
$ |
620,586 |
|
|
|
17 |
|
|
|
6.93 |
% |
|
|
7.23 |
% |
|
|
3.6 |
|
Subordinate
mortgage interests
|
|
|
515,797 |
|
|
|
508,900 |
|
|
|
28 |
|
|
|
7.31 |
% |
|
|
7.37 |
% |
|
|
3.7 |
|
Mezzanine
loans
|
|
|
939,038 |
|
|
|
937,209 |
|
|
|
26 |
|
|
|
8.19 |
% |
|
|
8.22 |
% |
|
|
3.5 |
|
Total/Weighted
Average
|
|
|
2,075,421 |
|
|
|
2,066,695 |
|
|
|
71 |
|
|
|
7.59 |
% |
|
|
7.71 |
% |
|
|
3.6 |
|
Fixed
rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Subordinate
mortgage interests
|
|
|
29,779 |
|
|
|
29,094 |
|
|
|
2 |
|
|
|
7.92 |
% |
|
|
8.09 |
% |
|
|
24.2 |
|
Mezzanine
loans
|
|
|
160,984 |
|
|
|
161,774 |
|
|
|
8 |
|
|
|
8.85 |
% |
|
|
8.84 |
% |
|
|
4.2 |
|
Total/Weighted
Average
|
|
|
190,763 |
|
|
|
190,868 |
|
|
|
10 |
|
|
|
8.70 |
% |
|
|
8.73 |
% |
|
|
7.3 |
|
Total/Weighted
Average - December 31, 2007
|
|
|
2,266,184 |
|
|
|
2,257,563 |
|
|
|
81 |
|
|
|
7.69 |
% |
|
|
7.80 |
% |
|
|
3.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Originations(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
|
42,282 |
|
|
|
42,282 |
|
|
|
— |
|
|
|
6.36 |
% |
|
|
6.47 |
% |
|
|
2.6 |
|
Subordinate
mortgage interests
|
|
|
25,744 |
|
|
|
25,744 |
|
|
|
— |
|
|
|
9.02 |
% |
|
|
9.43 |
% |
|
|
1.5 |
|
Mezzanine
loans
|
|
|
28,783 |
|
|
|
26,022 |
|
|
|
2 |
|
|
|
4.88 |
% |
|
|
5.32 |
% |
|
|
3.2 |
|
Total/Weighted
Average
|
|
|
96,809 |
|
|
|
94,048 |
|
|
|
2 |
|
|
|
6.63 |
% |
|
|
6.97 |
% |
|
|
2.5 |
|
Fixed
rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Subordinate
mortgage interests
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Mezzanine
loans
|
|
|
27,738 |
|
|
|
25,972 |
|
|
|
1 |
|
|
|
8.39 |
% |
|
|
8.92 |
% |
|
|
7.7 |
|
Total/Weighted
Average
|
|
|
27,738 |
|
|
|
25,972 |
|
|
|
1 |
|
|
|
8.39 |
% |
|
|
8.92 |
% |
|
|
7.7 |
|
Total/Weighted
Average
|
|
|
124,547 |
|
|
|
120,020 |
|
|
|
3 |
|
|
|
7.02 |
% |
|
|
7.39 |
% |
|
|
3.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repayments &
Other(5)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
|
120,758 |
|
|
|
120,758 |
|
|
|
1 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Subordinate
mortgage interests
|
|
|
4,076 |
|
|
|
(1,056) |
|
|
|
1 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Mezzanine
loans
|
|
|
116,562 |
|
|
|
165,491 |
|
|
|
1 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Total/Weighted
Average
|
|
|
241,396 |
|
|
|
285,193 |
|
|
|
3 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Fixed
rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Subordinate
mortgage interests
|
|
|
62 |
|
|
|
(1 |
) |
|
|
— |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Mezzanine
loans
|
|
|
47,921 |
|
|
|
47,983 |
|
|
|
1 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Total/Weighted
Average
|
|
|
47,983 |
|
|
|
47,982 |
|
|
|
1 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
Total/Weighted
Average
|
|
|
289,379 |
|
|
|
333,175 |
|
|
|
4 |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
N/A |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Floating
rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
|
542,110 |
|
|
|
542,110 |
|
|
|
16 |
|
|
|
6.26 |
% |
|
|
6.32 |
% |
|
|
2.9 |
|
Subordinate
mortgage interests
|
|
|
537,465 |
|
|
|
535,700 |
|
|
|
27 |
|
|
|
6.75 |
% |
|
|
6.79 |
% |
|
|
2.9 |
|
Mezzanine
loans
|
|
|
851,259 |
|
|
|
797,740 |
|
|
|
27 |
|
|
|
7.33 |
% |
|
|
7.38 |
% |
|
|
3.3 |
|
Total/Weighted
Average
|
|
|
1,930,834 |
|
|
|
1,875,550 |
|
|
|
70 |
|
|
|
6.87 |
% |
|
|
6.91 |
% |
|
|
3.1 |
|
Fixed
rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage
loans
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Subordinate
mortgage interests
|
|
|
29,717 |
|
|
|
29,095 |
|
|
|
2 |
|
|
|
7.91 |
% |
|
|
8.07 |
% |
|
|
23.7 |
|
Mezzanine
loans
|
|
|
140,801 |
|
|
|
139,763 |
|
|
|
8 |
|
|
|
7.81 |
% |
|
|
7.86 |
% |
|
|
5.2 |
|
Total/Weighted
Average
|
|
|
170,518 |
|
|
|
168,858 |
|
|
|
10 |
|
|
|
7.83 |
% |
|
|
7.90 |
% |
|
|
8.4 |
|
Total/Weighted
Average - September 30, 2008
|
|
$ |
2,101,352 |
|
|
$ |
2,044,408 |
|
|
|
80 |
|
|
|
6.95 |
% |
|
|
6.99 |
% |
|
|
3.5 |
|
(1)
|
Calculations
based on LIBOR of 3.93% as of September 30, 2008 and LIBOR of 4.60% as of
December 31, 2007.
|
(2)
|
Represents
the maturity of the investment assuming all extension options are
executed.
|
(3)
|
During
the first quarter of 2008, one subordinate mortgage interest with a book
value of $12.4 million switched from a fixed rate loan to a floating
rate.
|
(4)
|
Includes
additional fundings on prior period originations. The figures
shown in “Number of Investments” represent the actual number of
originations during the
period.
|
(5)
|
Includes
full repayments, sales, partial repayments and the impact of premium and
discount amortization and reserves/losses, if any. The figures
shown in “Number of Investments” represent only the full repayments/sales,
if any.
|
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
tables below detail the property type and geographic distribution of the
properties securing our loans receivable at September 30, 2008 (in
thousands).
Property Type
|
|
Book
Value
|
|
Percentage
|
Office
|
|
$
|
768,281
|
|
38%
|
Hotel
|
|
|
688,134
|
|
34%
|
Healthcare
|
|
|
147,566 |
|
|
Multi-Family
|
|
|
124,210
|
|
6%
|
Condominium
|
|
|
111,401 |
|
5%
|
Retail
|
|
|
68,982
|
|
3%
|
Mixed
Use
|
|
|
12,450
|
|
1%
|
Industrial
|
|
|
4,658
|
|
0%
|
Other
|
|
|
118,726
|
|
6%
|
Total
|
|
$
|
2,044,408
|
|
100%
|
Geographic Location
|
|
Book
Value
|
|
Percentage
|
Various
|
|
$
|
748,838
|
|
36%
|
|
|
|
565,269
|
|
28%
|
West
|
|
|
209,749 |
|
10%
|
South
East
|
|
|
194,300
|
|
9%
|
South
West
|
|
|
183,775
|
|
9%
|
North
West
|
|
|
81,456
|
|
4%
|
Mid
West
|
|
|
6,089
|
|
1%
|
Other
|
|
|
54,932 |
|
3%
|
Total
|
|
$
|
2,044,408
|
|
100%
|
Quarterly,
management reevaluates the reserve for possible credit losses based upon our
current portfolio of loans. Each loan in our portfolio is evaluated using our
loan risk rating system which considers loan-to-value, debt yield, cash flow
stability, exit plan, loan sponsorship, loan structure and other factors
necessary to assess the likelihood of delinquency or default. If we
believe that there is a potential for delinquency or default, a downside
analysis is prepared to estimate the value of the collateral underlying our
loan, and this potential loss is multiplied by the default
likelihood.
At
quarter end, a $5.5 million subordinate mortgage loan secured by a multifamily
property was classified as non performing. Although the loan
continues to pay interest, the borrower failed to meet certain conditions
required to exercise an option to extend the maturity date. We did not record a
provision for loan loss against this loan due to our expectation that we will
have a full recovery. As of September 30, 2008, including the
aforementioned loan, we had three loans with aggregate net book balances of
$17.3 million ($67.3 million gross book value, net of $50 million of reserves)
that were classified as non performing. The two pre-existing non
performing loans are: (i) a $50 million mezzanine loan secured by a portfolio of
office properties that matured during the first quarter of 2008 and was extended
for one year. Management made the decision in the second quarter of
2008 to record a $50 million reserve against the asset based upon conclusions
reached with respect to the probability of recovery on the loan; and (ii) an
$11.8 million parri passu participation in a first mortgage loan secured by a
multifamily property that ceased making payments in the first quarter of
2008. Subsequent to September 30, 2008, we foreclosed on the
collateral. We have not recorded a provision for loan loss against
this investment given our expectation for a full recovery. We did not
accrue interest on the two pre-existing non performing loans in the third
quarter.
During
the second quarter, a $10 million second mortgage loan secured by land, against
which we had previously (during the fourth quarter of 2007) recorded a $4
million reserve, was deemed unrecoverable and we wrote off the entire $10
million and reversed the pre-existing reserve. Simultaneously, $6
million of non recourse financing on the asset was forgiven by the
lender.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
following is a reconciliation of the provision for loan losses for the nine
months ended September 30, 2008 (in thousands):
|
|
|
|
Balance
at December 31, 2007
|
|
$ |
4,000 |
|
Provision
for loan losses
|
|
|
56,000 |
|
Realized
(losses) gains
|
|
|
(10,000 |
) |
Balance
at September 30, 2008
|
|
$ |
50,000 |
|
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. At September 30, 2008, our ten
Unfunded Loan Commitments totaled $73.9 million and, net of in place financing
commitments from our lenders, our net Unfunded Loan Commitments were $21.3
million.
In
connection with the loan portfolio, at September 30, 2008, we have deferred
origination fees, net of direct costs of $1.3 million which are being amortized
into income over the life of the loans.
At
September 30, 2008, we had $7,000 included in deposits and other receivables
which represented a partial repayment that was paid prior to September 30, the
proceeds of which had not been remitted to us by our servicers at quarter
end.
Total
return swaps are derivative contracts in which one party agrees to make payments
that replicate the total return of a defined underlying asset, typically in
return for another party agreeing to bear the risk of performance of the defined
underlying asset. Under total return swaps, we bear the risk of
performance of the underlying asset and receive payments from our counterparty
as compensation. In effect, these total return swaps allow us to
receive the leveraged economic benefits of asset ownership without our
acquiring, or our counterparty selling, the actual underlying
asset. Our total return swaps reference commercial real estate loans
and contain a put provision whereby our counterparty has the right to require us
to buy the entire reference loan at its par value under certain reference loan
performance scenarios. The put obligation imbedded in these
arrangements constitutes a recourse obligation for us to perform under the terms
of the contract.
Activity
relating to our total return swaps for the nine months ended September 30, 2008
was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
Weighted
Average
|
|
|
|
Fair
Market Value
(Book
Value)
|
|
Cash
Collateral
|
|
Reference/Loan
Participation
|
|
Number
of
Investments
|
|
Yield
|
|
Maturity
(Years)
|
|
December
31, 2007
|
|
|
—
|
|
|
—
|
|
$20,000
|
|
1
|
|
—
|
|
—
|
|
Originations-
Six Months
|
|
|
—
|
|
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
Repayments-
Six Months
|
|
|
—
|
|
|
—
|
|
20,000
|
|
1
|
|
—
|
|
—
|
|
September 30,
2008
|
|
|
$
—
|
|
|
$ —
|
|
$
—
|
|
—
|
|
—
|
|
—
|
|
The total
return swaps are treated as non-hedge derivatives for accounting purposes and,
as such, changes in their market value are recorded through the consolidated
statements of income. As of September 30, 2008, the reference/loan
participation was satisfied.
6.
|
Equity
Investment in Unconsolidated
Subsidiaries
|
Our
equity investments in unconsolidated subsidiaries consist primarily of our
co-investments in investment management vehicles that we sponsor and
manage. At September 30, 2008, we had co-investments in two such
vehicles, Fund III and CTOPI. 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)
Activity
relating to our equity investment in unconsolidated subsidiaries for the nine
months ended September 30, 2008 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fund
III
|
|
CTOPI
|
|
Other
and Capitalized Costs
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
Investment
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
923 |
|
|
$ |
(60 |
) |
|
$ |
35 |
|
|
$ |
898 |
|
Equity
investment
|
|
|
— |
|
|
|
3,473 |
|
|
|
— |
|
|
|
3,473 |
|
Loss
from equity investments
|
|
|
(306 |
) |
|
|
(214 |
) |
|
|
(29 |
) |
|
|
(549 |
) |
Ending
balance
|
|
$ |
617 |
|
|
$ |
3,199 |
|
|
$ |
6 |
|
|
$ |
3,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized
Costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$ |
79 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
79 |
|
Amortization
of capitalized costs
|
|
|
(79 |
) |
|
|
— |
|
|
|
— |
|
|
|
(79 |
) |
Ending
balance
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Balance
|
|
$ |
617 |
|
|
$ |
3,199 |
|
|
$ |
6 |
|
|
$ |
3,822 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
accordance with the management agreements with Fund III and CTOPI, CTIMCO may
earn incentive compensation when certain returns are achieved for the
shareholders/partners of Fund III and CTOPI, which will be accrued if and when
earned.
7.
Debt
At
September 30, 2008 and December 31, 2007, we had $2.2 billion and $2.3 billion
of total debt outstanding, respectively. The balances of each category of debt
and their respective coupons and all-in effective costs, including the
amortization of fees and expenses were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2008
|
|
December
31, 2007
|
|
|
Face
Value
|
|
Book
Value
|
|
Coupon
(1)
|
|
All-In
Cost
|
|
Face
Value
|
|
Book
Value
|
|
Coupon
(1)
|
|
All-In
Cost
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
obligations and secured debt
|
|
$ |
816,208 |
|
|
$ |
816,208 |
|
|
|
5.20 |
% |
|
|
5.46 |
% |
|
$ |
911,857 |
|
|
$ |
911,857 |
|
|
|
5.56 |
% |
|
|
5.80 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized debt
obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDO
I (Floating)
|
|
|
252,214 |
|
|
|
252,214 |
|
|
|
4.55 |
% |
|
|
5.01 |
% |
|
|
252,778 |
|
|
|
252,778 |
|
|
|
5.22 |
% |
|
|
5.67 |
% |
CDO
II (Floating)
|
|
|
298,913 |
|
|
|
298,913 |
|
|
|
4.42 |
% |
|
|
4.65 |
% |
|
|
298,913 |
|
|
|
298,913 |
|
|
|
5.09 |
% |
|
|
5.32 |
% |
CDO
III (Fixed)
|
|
|
256,252 |
|
|
|
257,864 |
|
|
|
5.22 |
% |
|
|
5.37 |
% |
|
|
259,803 |
|
|
|
261,654 |
|
|
|
5.22 |
% |
|
|
5.37 |
% |
CDO IV
(Floating)(2)
|
|
|
349,796 |
|
|
|
349,796 |
|
|
|
4.40 |
% |
|
|
4.51 |
% |
|
|
378,954 |
|
|
|
378,954 |
|
|
|
5.04 |
% |
|
|
5.11 |
% |
Total
CDOs
|
|
|
1,157,175 |
|
|
|
1,158,787 |
|
|
|
4.62 |
% |
|
|
4.85 |
% |
|
|
1,190,448 |
|
|
|
1,192,299 |
|
|
|
5.12 |
% |
|
|
5.34 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
unsecured credit facility
|
|
|
100,000 |
|
|
|
100,000 |
|
|
|
5.68 |
% |
|
|
5.96 |
% |
|
|
75,000 |
|
|
|
75,000 |
|
|
|
6.10 |
% |
|
|
6.40 |
% |
Junior
subordinated debentures
|
|
|
128,875 |
|
|
|
128,875 |
|
|
|
7.20 |
% |
|
|
7.30 |
% |
|
|
128,875 |
|
|
|
128,875 |
|
|
|
7.20 |
% |
|
|
7.30 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total/Weighted
Average
|
|
$ |
2,202,258 |
|
|
$ |
2,203,870 |
|
|
|
5.03 |
% |
|
|
5.27 |
% |
|
$ |
2,306,180 |
|
|
$ |
2,308,031 |
|
|
|
5.45 |
% |
|
|
5.66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Calculations
based on LIBOR of 3.93% as of September 30, 2008 and LIBOR of 4.60% as of
December 31, 2007.
|
(2)
|
Comprised
of $336.2 million of floating rate notes sold and $13.6 million of fixed
rate notes sold.
|
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
Repurchase
Obligations and Secured Debt
Our total
borrowings at September 30, 2008 under master repurchase agreements, asset
specific arrangements and our loan and security agreement were $816.2 million,
and we had the ability to borrow an additional $42.2 million without pledging
additional collateral. Loans and CMBS with a carrying value of $1.3
billion are pledged as collateral for our repurchase agreements.
In April
2008, we terminated the $6 million loan specific repurchase agreement with
Lehman Brothers related to the SunCal loan eliminating our obligation
thereunder. According to the termination agreement, Lehman Brothers retained
possession of the loan and we extinguished the debt for no further
consideration.
In May
2008, we entered into a new loan and security agreement with Lehman
Brothers. The agreement provides for an $18.0 million loan to us with
a maturity date in September 2013. The loan is designed to finance an
individual asset on a recourse basis at a cash cost of LIBOR plus
1.50%.
In June
2008, we amended our master repurchase agreements with the former Bear Stearns
entities by extending the termination date of each obligation to October 2008,
making them concurrent with the existing termination date under our master
repurchase agreement with JPMorgan.
In June
2008, we terminated our master repurchase agreement with Bank of America, which
was originally designed to finance on a recourse basis assets designated for our
second CDO. We had no obligations outstanding under the agreement at
the time of termination and the termination eliminated the payment of unused
fees associated with the line.
In July
2008, we extended the availability period under our $250 million master
repurchase agreement with Citigroup to July 28, 2009. As part of the
extension agreement, the repurchase dates for certain outstanding borrowings
were extended to July 29, 2010 with the remainder retaining their October 11,
2011 final maturities.
In July
2008, we extended the purchase period of our $300 million master repurchase
agreement with Morgan Stanley to July 29, 2009. We also terminated an
un-utilized $50 million master repurchase facility with Morgan Stanley which was
originally designed to warehouse finance CDO eligible assets.
On
October 24, 2008, we extended $355 million of master repurchase agreements with
JP Morgan (and the legacy Bear Stearns subsidiaries) to October 23, 2010. The
weighted average advance rate under the agreements is 79% and pricing is LIBOR
plus 1.49% on a blended basis. In connection with the extension, we
eliminated the excess availability under these agreements and agreed to reduce
the outstanding borrowings by $30 million in return for cushion from future
margin calls.
Collateralized
Debt Obligations
At
September 30, 2008, we had CDOs outstanding from four separate issuances with a
total face value of $1.2 billion. Our CDOs are financing vehicles for
our assets and, as such, are consolidated on our balance sheet representing the
amortized sales price of the securities we sold to third parties. Our
one reinvesting CDO provides us with $298.9 million of debt financing at a cash
cost of LIBOR plus 0.49% (4.42% at September 30, 2008) and an all-in effective
interest rate (including the amortization of issuance costs) of LIBOR plus 0.73%
(4.66% at September 30, 2008). Our three static CDOs provide us with
$859.9 million of financing with a cash cost of 4.69% and an all-in effective
interest rate of 4.91% at September 30, 2008. On a combined basis,
our CDOs provide us with $1.2 billion of non-recourse, non-mark-to-market, index
matched financing at a weighted average cash cost of 0.53% over the applicable
indices (4.62% at September 30, 2008) and a weighted average all-in cost of
0.76% over the applicable indices (4.85% at September 30,
2008). During the quarter, we received four downgrades to
classes of our third CDO, CT CDO III.
Senior
Unsecured Credit Facility
In March
2007, we closed a $50.0 million senior unsecured revolving credit facility with
WestLB AG, which was amended in September 2007 to increase the size to $100.0
million and add new lenders to the syndicate. In March 2008, we
exercised our term-out option under the agreement, extending the maturity date
of the $100 million principal balance outstanding to March 2009 as a non
revolving term loan. The loan bears interest at a cost of LIBOR plus
1.75% (LIBOR plus 2.03% on an all-in basis).
Junior
Subordinated Debentures
At
September 30, 2008, we had a total of $128.9 million of junior subordinated
debentures outstanding (securing $125 million of trust preferred securities sold
to third parties). Junior subordinated debentures are comprised of
two issuances of debentures, $77 million of debentures (securing $75 million of
trust preferred securities) issued in March 2007 and $52 million of debentures
(securing $50 million of trust preferred securities) issued in
2006. On a combined basis the securities provide us with $125 million
of financing at a cash cost of 7.20% and an all-in effective rate of
7.30%.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
Our
interests in the two issuing entities, CT Preferred Trust I and CT Preferred
Trust II, are accounted for using the equity method and the assets and
liabilities are not consolidated into our financial statements due to our
determination that CT Preferred Trust I and CT Preferred Trust II are variable
interest entities under FIN 46R and that we are not the primary beneficiary of
the entities. Interest on the junior subordinated debentures is included
in interest and related expenses on our consolidated statements of income while
the junior subordinated debentures are presented as a separate item in our
consolidated balance sheet.
Participations
sold represent interests in certain loans that we originated and subsequently
sold to CT Large Loan 2006, Inc. (a fund that we manage) and third
parties. We present these sold interests as both assets and
liabilities (in equal amounts) in conformity with GAAP on the basis that these
arrangements do not qualify as sales under FAS 140. At September 30,
2008, we had six such participations sold with a total book balance of $337.0
million at a weighted average coupon of LIBOR plus 3.29% (7.22% at September 30,
2008) and a weighted average yield of LIBOR plus 3.30% (7.23% at September 30,
2008).
In 2007,
the Company sub-participated a $73 million participation in a loan to CT Large
Loan 2006, Inc. The Company recorded the sub-participation as a secured
borrowing as it did not meet at least one of the criteria under FAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. In July 2008, the Company and CT Large Loan 2006,
Inc. agreed to terminate the sub-participation agreement and release themselves
from any further obligation to each other with respect to such sub-participation
agreement. As a result of this transaction, loans receivable and
participations sold decreased by $73 million during the third quarter of
2008.
The
income earned on the loans is recorded as interest income and an identical
amount is recorded as interest expense on the consolidated statements of
income.
9.
|
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 net payments
due under these swap contracts are recognized as interest expense over the life
of the contracts.
The
following table summarizes the notional and fair values of our derivative
financial instruments as of September 30, 2008. The notional value 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 (in
thousands):
Hedge
|
|
Type
|
|
Notional
Value
|
|
Interest
Rate
|
|
Maturity
|
|
Fair
Value
|
Swap
|
|
Cash
Flow Hedge
|
|
$ |
300,336 |
|
|
|
5.10 |
% |
|
2015
|
|
|
$ |
(13,044 |
) |
Swap
|
|
Cash
Flow Hedge
|
|
|
73,683 |
|
|
|
4.58 |
% |
|
2014
|
|
|
|
(1,450 |
) |
Swap
|
|
Cash
Flow Hedge
|
|
|
18,509 |
|
|
|
3.95 |
% |
|
2011
|
|
|
|
(222 |
) |
Swap
|
|
Cash
Flow Hedge
|
|
|
18,130 |
|
|
|
5.14 |
% |
|
2014
|
|
|
|
(1,057 |
) |
Swap
|
|
Cash
Flow Hedge
|
|
|
18,014 |
|
|
|
4.48 |
% |
|
2016
|
|
|
|
(501 |
) |
Swap
|
|
Cash
Flow Hedge
|
|
|
16,894 |
|
|
|
4.83 |
% |
|
2014
|
|
|
|
(730 |
) |
Swap
|
|
Cash
Flow Hedge
|
|
|
16,377 |
|
|
|
5.52 |
% |
|
2018
|
|
|
|
(1,487 |
) |
Swap
|
|
Cash
Flow Hedge
|
|
|
12,310 |
|
|
|
5.02 |
% |
|
2009
|
|
|
|
(188 |
) |
Swap
|
|
Cash
Flow Hedge
|
|
|
12,129 |
|
|
|
5.05 |
% |
|
2016
|
|
|
|
(584 |
) |
Swap
|
|
Cash
Flow Hedge
|
|
|
7,062 |
|
|
|
5.11 |
% |
|
2016
|
|
|
|
(257 |
) |
Swap
|
|
Cash
Flow Hedge
|
|
|
5,104 |
|
|
|
4.12 |
% |
|
2016
|
|
|
|
13 |
|
Swap
|
|
Cash
Flow Hedge
|
|
|
3,303 |
|
|
|
5.45 |
% |
|
2015
|
|
|
|
(263 |
) |
Swap
|
|
Cash
Flow Hedge
|
|
|
2,861 |
|
|
|
5.08 |
% |
|
2011
|
|
|
|
(114 |
) |
Swap
|
|
Cash
Flow Hedge
|
|
|
780 |
|
|
|
5.31 |
% |
|
2011
|
|
|
|
(34 |
) |
Total/Weighted
Average
|
|
|
|
$ |
505,492 |
|
|
|
4.95 |
% |
|
2015
|
|
|
$ |
(19,918 |
) |
As of
September 30, 2008, the derivative financial instruments were reported at their
fair value of $13,000 as interest rate hedge assets and $19.9 million as
interest rate hedge liabilities. Income and expense associated with these
instruments is recorded as interest expense on our consolidated statements of
income. The amount of hedge ineffectiveness was not material during any of the
periods presented.
Our
counterparties in these transactions are financial institutions and we are
dependent upon the 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)
10.
Earnings Per Share
The
following table sets forth the calculation of Basic and Diluted EPS for the nine
months ended September 30, 2008 and 2007 (in thousands, except share and per
share amounts):
|
|
Nine
Months Ended September 30, 2008
|
|
Nine
Months Ended September 30, 2007
|
|
|
Net
Loss
|
|
Shares
|
|
Per
Share Amount
|
|
Net
Income
|
|
Shares
|
|
Per
Share Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) earnings allocable to common stock
|
|
$(6,381)
|
|
20,707,262
|
|
$(0.31)
|
|
$55,727
|
|
17,555,724
|
|
$3.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding for the purchase of common stock
|
|
—
|
|
—
|
|
|
|
—
|
|
164,157
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
(loss) earnings per share of common stock and assumed
conversions
|
|
$(6,381)
|
|
20,707,262
|
|
$(0.31)
|
|
$55,727
|
|
17,719,881
|
|
$3.14
|
The
following table sets forth the calculation of Basic and Diluted EPS for the
three months ended September 30, 2008 and 2007 (in thousands, except share and
per share amounts):
|
|
Three
Months Ended September 30, 2008
|
|
Three
Months Ended September 30, 2007
|
|
|
Net
Income
|
|
Shares
|
|
Per
Share Amount
|
|
Net
Income
|
|
Shares
|
|
Per
Share Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings allocable to common stock
|
|
$13,667
|
|
22,247,042
|
|
$0.61
|
|
$15,497
|
|
17,594,047
|
|
$0.88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
outstanding for the purchase of common stock
|
|
—
|
|
3,589
|
|
|
|
—
|
|
123,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings per share of common stock and assumed conversions
|
|
$13,667
|
|
22,250,631
|
|
$0.61
|
|
$15,497
|
|
17,717,282
|
|
$0.87
|
We made
an election to be taxed as a REIT under Section 856(c) of the Internal
Revenue Code of 1986, as amended, commencing with the tax year ended
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 and its subsidiaries. To maintain qualification as a REIT, we
must distribute at least 90% of our REIT taxable income to our shareholders and
meet certain other requirements. If we fail to qualify as a REIT in any taxable
year, we may be subject to federal, state and local income taxes on our taxable
income at regular corporate rates. At September 30, 2008, we were in compliance
with all REIT requirements.
We did
not pay any taxes at the REIT level during the periods ended September 30, 2008
or 2007. However, CTIMCO, our investment management subsidiary, is a taxable
REIT subsidiary and subject to taxes on its earnings. During the period ended
September 30, 2008, CTIMCO recorded operating income before income taxes of $1.7
million, which when combined with GAAP to tax differences and changes in
valuation allowances, resulted in an income tax benefit of
$475,000.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
On
January 15, 2008, we issued 53,192 shares of class A common stock under our
dividend reinvestment plan. Net proceeds totaled approximately $1.5
million.
On March
4, 2008, we declared a dividend of $0.80 per share of class A common stock
applicable to the three-month period ended March 31, 2008, which was paid on
April 15, 2008 to shareholders of record on March 31, 2008.
On March
28, 2008, we closed a public offering of 4,000,000 shares of class A common
stock. We received net proceeds of approximately $113.0 million. Morgan Stanley
& Co. Incorporated acted as the sole underwriter of the
offering.
On April
15, 2008, we issued 28,426 shares of class A common stock under our dividend
reinvestment plan. Net proceeds totaled approximately
$799,000.
In June
2008, we issued 401,577 shares of class A common stock under our direct stock
purchase plan. Net proceeds totaled approximately $10.5
million.
On June
16, 2008, we declared a dividend of $0.80 per share of class A common stock
applicable to the three-month period ended June 30, 2008, which was paid on July
16, 2008 to shareholders of record on June 30, 2008.
On
September 16, 2008, we declared a dividend of $0.60 per share of class A common
stock applicable to the three-month period ended September 30, 2008, which was
paid on October 15, 2008 to shareholders of record on September 30,
2008.
On
October 15, 2008, we issued 5,368 shares of class A common stock under our
dividend reinvestment plan. Net proceeds totaled approximately
$47,000.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
13.
Employee
Benefit and Incentive Plans
We had
four benefit plans in effect at September 30, 2008: (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 plans 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. At September 30, 2008, there were 606,156
shares available under the 2007 Plan.
Activity
under these four plans for the nine months ended September 30, 2008 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
|
|
|
223,811 |
|
|
|
16,667 |
|
|
|
— |
|
|
|
— |
|
|
|
240,478 |
|
Expired
|
|
|
(53,334 |
) |
|
|
(16,667 |
) |
|
|
— |
|
|
|
— |
|
|
|
(70,001 |
) |
Ending
Balance
|
|
|
170,477 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
170,477 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted
Stock(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
|
— |
|
|
|
— |
|
|
|
423,931 |
|
|
|
— |
|
|
|
423,931 |
|
Granted
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
44,550 |
|
|
|
44,550 |
|
Vested
|
|
|
— |
|
|
|
— |
|
|
|
(108,224 |
) |
|
|
— |
|
|
|
(108,224 |
) |
Forfeited
|
|
|
— |
|
|
|
— |
|
|
|
(414 |
) |
|
|
— |
|
|
|
(414 |
) |
Ending
Balance
|
|
|
— |
|
|
|
— |
|
|
|
315,293 |
|
|
|
44,550 |
|
|
|
359,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Units(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
|
— |
|
|
|
80,017 |
|
|
|
— |
|
|
|
14,570 |
|
|
|
94,587 |
|
Granted
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
71,797 |
|
|
|
71,797 |
|
Ending
Balance
|
|
|
— |
|
|
|
80,017 |
|
|
|
— |
|
|
|
86,367 |
|
|
|
166,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Outstanding Shares
|
|
|
170,477 |
|
|
|
80,017 |
|
|
|
315,293 |
|
|
|
130,917 |
|
|
|
696,704 |
|
(1)
|
All
options are fully vested as of September 30,
2008.
|
|
(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. Under the terms of certain deferral
agreements, certain shares of restricted stock converted to deferred
stock units upon their initial
vesting.
|
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
following table summarizes the outstanding options as of September 30,
2008:
Exercise
Price
per
Share
|
|
Options
Outstanding
|
|
Weighted
Average
Exercise
Price per Share
|
|
Weighted
Average
Remaining Life
|
|
|
1997
Employee
Plan
|
|
1997
Director
Plan
|
|
1997
Employee
Plan
|
|
1997
Director
Plan
|
|
1997
Employee
Plan
|
|
1997
Director
Plan
|
$10.00
- $15.00
|
|
43,530
|
|
—
|
|
$13.41
|
|
$ —
|
|
|
|
—
|
$15.00
- $20.00
|
|
126,947
|
|
—
|
|
16.38
|
|
—
|
|
|
|
—
|
Total/Weighted
Average
|
|
170,477
|
|
—
|
|
$15.62
|
|
$ —
|
|
|
|
—
|
In
addition to the equity interests detailed above, we have granted percentage
interests in the incentive compensation received by us from the private equity
funds we manage. At September 30, 2008, we had granted, net of forfeitures, 43%
of the Fund III incentive compensation received by us.
A summary
of the unvested restricted shares as of and for the nine month period ended
September 30, 2008 was as follows:
|
|
Restricted
Shares
|
|
|
Shares
|
|
Grant
Date Fair Value
|
Unvested
at January 1, 2008
|
|
|
423,931 |
|
|
$ |
30.96 |
|
Granted
|
|
|
44,550 |
|
|
|
27.44 |
|
Vested
|
|
|
(108,224 |
) |
|
|
28.96 |
|
Forfeited
|
|
|
(414 |
) |
|
|
51.25 |
|
Unvested
at September 30, 2008
|
|
|
359,843 |
|
|
$ |
30.53 |
|
A summary
of the unvested restricted shares as of and for the nine month period ended
September 30, 2007 was as follows:
|
|
Restricted
Shares
|
|
|
|
Shares
|
|
|
Grant
Date Fair Value
|
|
Unvested
at January 1, 2007
|
|
|
480,967 |
|
|
$ |
29.56 |
|
Granted
|
|
|
23,015 |
|
|
|
51.25 |
|
Vested
|
|
|
(80,051 |
) |
|
|
28.38 |
|
Forfeited
|
|
|
— |
|
|
|
— |
|
Unvested
at September 30, 2007
|
|
|
423,931 |
|
|
$ |
30.96 |
|
The total
fair value of restricted shares which vested during the nine month periods ended
September 30, 2008 and 2007 was $2.1 million and $3.3 million,
respectively.
14.
Supplemental
Disclosures for Consolidated Statements of Cash Flows
Interest
paid on our outstanding debt during the nine months ended September 30, 2008 and
2007 was $84.5 million and $100.9 million, respectively, which excludes non-cash
items. Income taxes recovered by us during the nine months ended September 30,
2008 and 2007 were $677,000 and $1.5 million, respectively. Non-cash
investing and financing activity during the nine months ended September 30, 2008
resulted from our investments in loans where we sold
participations.
At
September 30, 2008, we had $544,000 included in deposits and other receivables
which represented loans and CMBS that had partial repayments on or prior to
September 30, 2008, the proceeds of which had not been remitted to us by our
servicers. The reclassification from loans receivable and CMBS to
deposits and other receivables resulted in a non-cash investing
activity.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
We have
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 all activities related to direct
investment activities (including direct investments in Funds) and the financing
thereof.
The
“Investment Management” segment includes all activities related to investment
management services provided to us and third party funds under management and
includes our taxable REIT subsidiary, CTIMCO and its subsidiaries.
The
following table details each segment's contribution to our overall profitability
and the identified assets attributable to each such segment for the nine months
ended, and as of, September 30, 2008, respectively (in thousands):
|
|
Balance
Sheet
|
|
Investment
|
|
Inter-Segment
|
|
|
|
|
|
Investment
|
|
Management
|
|
Activities
|
|
Total
|
Income
from loans and other
|
|
|
|
|
|
|
|
|
|
|
|
|
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and related income
|
|
$ |
149,725 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
149,725 |
|
Less:
Interest and related expenses
|
|
|
98,918 |
|
|
|
— |
|
|
|
— |
|
|
|
98,918 |
|
Income
from loans and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
investments, net
|
|
|
50,807 |
|
|
|
— |
|
|
|
— |
|
|
|
50,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees
|
|
|
— |
|
|
|
15,137 |
|
|
|
(5,310 |
) |
|
|
9,827 |
|
Servicing
fees
|
|
|
— |
|
|
|
337 |
|
|
|
— |
|
|
|
337 |
|
Other
interest income
|
|
|
1,391 |
|
|
|
24 |
|
|
|
(108 |
) |
|
|
1,307 |
|
Total
other revenues
|
|
|
1,391 |
|
|
|
15,498 |
|
|
|
(5,418 |
) |
|
|
11,471 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
8,517 |
|
|
|
15,612 |
|
|
|
(5,310 |
) |
|
|
18,819 |
|
Other
interest expense
|
|
|
— |
|
|
|
108 |
|
|
|
(108 |
) |
|
|
— |
|
Depreciation
and amortization
|
|
|
— |
|
|
|
140 |
|
|
|
— |
|
|
|
140 |
|
Total
other expenses
|
|
|
8,517 |
|
|
|
15,860 |
|
|
|
(5,418 |
) |
|
|
18,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on extinguishment of debt
|
|
|
6,000 |
|
|
|
— |
|
|
|
— |
|
|
|
6,000 |
|
Provision
for losses on loan impairment
|
|
|
(56,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
(56,000 |
) |
Gain
on sale of investments
|
|
|
374 |
|
|
|
— |
|
|
|
— |
|
|
|
374 |
|
Loss
from equity investments
|
|
|
(515 |
) |
|
|
(34 |
) |
|
|
— |
|
|
|
(549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income taxes
|
|
|
(6,460 |
) |
|
|
(396 |
) |
|
|
— |
|
|
|
(6,856 |
) |
Benefit
for income taxes
|
|
|
— |
|
|
|
475 |
|
|
|
— |
|
|
|
475 |
|
Net
(loss) income allocable to class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
$ |
(6,460 |
) |
|
$ |
79 |
|
|
$ |
— |
|
|
$ |
(6,381 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
3,060,233 |
|
|
$ |
10,521 |
|
|
$ |
(3,035 |
) |
|
$ |
3,067,719 |
|
All
revenues were generated from external sources within the United
States. The “Investment Management” segment earned fees of $5.3
million for management of the “Balance Sheet Investment” segment and was charged
$108,000 for inter-segment interest for the nine months ended September 30, 2008
which is reflected as offsetting adjustments to other interest income and other
interest expense in the inter-segment activities column in the table
above.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
following table details each segment's contribution to our overall profitability
and the identified assets attributable to each such segment for the nine months
ended, and as of, September 30, 2007, respectively (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
Sheet
|
|
Investment
|
|
Inter-Segment
|
|
|
|
|
|
Investment
|
|
Management
|
|
Activities
|
|
Total
|
Income
from loans and other
|
|
|
|
|
|
|
|
|
|
|
|
|
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and related income
|
|
$ |
189,801 |
|
|
$ |
1,158 |
|
|
$ |
— |
|
|
$ |
190,959 |
|
Less:
Interest and related expenses
|
|
|
120,008 |
|
|
|
— |
|
|
|
— |
|
|
|
120,008 |
|
Income
from loans and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
investments, net
|
|
|
69,793 |
|
|
|
1,158 |
|
|
|
— |
|
|
|
70,951 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
and advisory fees
|
|
|
— |
|
|
|
11,787 |
|
|
|
(9,341 |
) |
|
|
2,446 |
|
Incentive
management fees
|
|
|
— |
|
|
|
962 |
|
|
|
— |
|
|
|
962 |
|
Special
servicing fees
|
|
|
— |
|
|
|
285 |
|
|
|
— |
|
|
|
285 |
|
Other
interest income
|
|
|
1,095 |
|
|
|
54 |
|
|
|
(395 |
) |
|
|
754 |
|
Total
other revenues
|
|
|
1,095 |
|
|
|
13,088 |
|
|
|
(9,736 |
) |
|
|
4,447 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
12,812 |
|
|
|
18,012 |
|
|
|
(9,341 |
) |
|
|
21,483 |
|
Other
interest expense
|
|
|
— |
|
|
|
395 |
|
|
|
(395 |
) |
|
|
— |
|
Depreciation
and amortization
|
|
|
1,264 |
|
|
|
186 |
|
|
|
— |
|
|
|
1,450 |
|
Total
other expenses
|
|
|
14,076 |
|
|
|
18,593 |
|
|
|
(9,736 |
) |
|
|
22,933 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recovery
of losses on loan impairment
|
|
|
4,000 |
|
|
|
— |
|
|
|
— |
|
|
|
4,000 |
|
Loss
from equity investments
|
|
|
(508 |
) |
|
|
(534 |
) |
|
|
— |
|
|
|
(1,042 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
60,304 |
|
|
|
(4,881 |
) |
|
|
— |
|
|
|
55,423 |
|
Benefit
for income taxes
|
|
|
254 |
|
|
|
50 |
|
|
|
— |
|
|
|
304 |
|
Net
income (loss) allocable to class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
$ |
60,558 |
|
|
$ |
(4,831 |
) |
|
$ |
— |
|
|
$ |
55,727 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
3,059,131 |
|
|
$ |
52,349 |
|
|
$ |
(11,933 |
) |
|
$ |
3,099,547 |
|
All
revenues, except for $4.3 million included in interest and related income, were
generated from external sources within the United States. The
“Investment Management” segment earned fees of $9.3 million for management of
the “Balance Sheet Investment” segment and was charged $395,000 for
inter-segment interest for the nine months ended September 30, 2007 which is
reflected as offsetting adjustments to other interest income and other interest
expense in the inter-segment activities column in the table above.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
following table details each segment's contribution to our overall profitability
and the identified assets attributable to each such segment for the three months
ended, and as of, September 30, 2008, respectively (in thousands):
|
|
Balance
Sheet
|
|
Investment
|
|
Inter-Segment
|
|
|
|
|
|
Investment
|
|
Management
|
|
Activities
|
|
Total
|
Income
from loans and other
|
|
|
|
|
|
|
|
|
|
|
|
|
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and related income
|
|
$ |
44,141 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
44,141 |
|
Less:
Interest and related expenses
|
|
|
28,175 |
|
|
|
— |
|
|
|
— |
|
|
|
28,175 |
|
Income
from loans and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
investments, net
|
|
|
15,966 |
|
|
|
— |
|
|
|
— |
|
|
|
15,966 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees
|
|
|
— |
|
|
|
5,303 |
|
|
|
(1,826 |
) |
|
|
3,477 |
|
Servicing
fees
|
|
|
— |
|
|
|
116 |
|
|
|
— |
|
|
|
116 |
|
Other
interest income
|
|
|
505 |
|
|
|
9 |
|
|
|
(31 |
) |
|
|
483 |
|
Total
other revenues
|
|
|
505 |
|
|
|
5,428 |
|
|
|
(1,857 |
) |
|
|
4,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
2,808 |
|
|
|
4,729 |
|
|
|
(1,826 |
) |
|
|
5,711 |
|
Other
interest expense
|
|
|
— |
|
|
|
31 |
|
|
|
(31 |
) |
|
|
— |
|
Depreciation
and amortization
|
|
|
— |
|
|
|
13 |
|
|
|
— |
|
|
|
13 |
|
Total
other expenses
|
|
|
2,808 |
|
|
|
4,773 |
|
|
|
(1,857 |
) |
|
|
5,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from equity investments
|
|
|
(589 |
) |
|
|
(36 |
) |
|
|
— |
|
|
|
(625 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
before income taxes
|
|
|
13,074 |
|
|
|
619 |
|
|
|
— |
|
|
|
13,693 |
|
Provision
for income taxes
|
|
|
— |
|
|
|
26 |
|
|
|
— |
|
|
|
26 |
|
Net
income allocable to class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
$ |
13,074 |
|
|
$ |
593 |
|
|
$ |
— |
|
|
$ |
13,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
3,060,233 |
|
|
$ |
10,521 |
|
|
$ |
(3,035 |
) |
|
$ |
3,067,719 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All
revenues were generated from external sources within the United
States. The “Investment Management” segment earned fees of $1.8
million for management of the “Balance Sheet Investment” segment and was charged
$31,000 for inter-segment interest for the three months ended September 30, 2008
which is reflected as offsetting adjustments to other revenues and other
expenses in the inter-segment activities column in the table above.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
The
following table details each segment's contribution to our overall profitability
and the identified assets attributable to each such segment for the three months
ended, and as of, September 30, 2007, respectively (in thousands):
|
|
Balance
Sheet
|
|
Investment
|
|
Inter-Segment
|
|
|
|
|
|
Investment
|
|
Management
|
|
Activities
|
|
Total
|
Income
from loans and other
|
|
|
|
|
|
|
|
|
|
|
|
|
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and related income
|
|
$ |
63,554 |
|
|
$ |
1,158 |
|
|
$ |
— |
|
|
$ |
64,712 |
|
Less:
Interest and related expenses
|
|
|
43,716 |
|
|
|
— |
|
|
|
— |
|
|
|
43,716 |
|
Income
from loans and
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
other
investments, net
|
|
|
19,838 |
|
|
|
1,158 |
|
|
|
— |
|
|
|
20,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees
|
|
|
— |
|
|
|
2,663 |
|
|
|
(1,548 |
) |
|
|
1,115 |
|
Servicing
fees
|
|
|
— |
|
|
|
173 |
|
|
|
— |
|
|
|
173 |
|
Other
interest income
|
|
|
304 |
|
|
|
8 |
|
|
|
(139 |
) |
|
|
173 |
|
Total
other revenues
|
|
|
304 |
|
|
|
2,844 |
|
|
|
(1,687 |
) |
|
|
1,461 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
2,619 |
|
|
|
5,769 |
|
|
|
(1,548 |
) |
|
|
6,840 |
|
Other
interest expense
|
|
|
— |
|
|
|
139 |
|
|
|
(139 |
) |
|
|
— |
|
Depreciation
and amortization
|
|
|
— |
|
|
|
61 |
|
|
|
— |
|
|
|
61 |
|
Total
other expenses
|
|
|
2,619 |
|
|
|
5,969 |
|
|
|
(1,687 |
) |
|
|
6,901 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from equity investments
|
|
|
(109 |
) |
|
|
— |
|
|
|
— |
|
|
|
(109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) before income taxes
|
|
|
17,414 |
|
|
|
(1,967 |
) |
|
|
— |
|
|
|
15,447 |
|
Benefit
for income taxes
|
|
|
— |
|
|
|
50 |
|
|
|
— |
|
|
|
50 |
|
Net
income (loss) allocable to class A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
$ |
17,414 |
|
|
$ |
(1,917 |
) |
|
$ |
— |
|
|
$ |
15,497 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$ |
3,059,131 |
|
|
$ |
52,349 |
|
|
$ |
(11,933 |
) |
|
$ |
3,099,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $139,000
for inter-segment interest for the three months ended September 30,
2007.
16. Related
Party Transactions
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 invest, on a discretionary
basis, capital on behalf of WRBC in low risk 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. Each separate account has a one-year investment period with
extension provisions. CTIMCO earns a management fee equal to 0.25% per annum on
invested assets.
On April
27, 2007, we purchased a $20 million subordinated interest in a mortgage from a
dealer. Proceeds from the mortgage financing provide for the construction
and leasing of an office building in Washington, D.C. that is owned by a joint
venture. WRBC has a substantial economic interest in one of the joint
venture partners.
Capital
Trust, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (continued)
(unaudited)
WRBC
beneficially owned approximately 17.4% of our outstanding class A common
stock as of September 30, 2008, and a member of our board of directors
is an employee of WRBC.
On March
28, 2008 we announced the closing of our public offering of 4,000,000 shares of
our class A common stock. We received net proceeds of approximately $113
million. Morgan Stanley & Co. Incorporated acted as the sole underwriter of
the offering. Affiliates of Samuel Zell, our chairman of the board, and WRBC
purchased a number of shares in the offering sufficient to maintain their pro
rata ownership interests in the company.
During
the third quarter of 2008, CTOPI purchased $18.2 million face value of our CDO
debt in the open market for $9.8 million.
Affiliates
of Samuel Zell own interests in Fund III and CTOPI, two investment management
vehicles that we manage and within which we also have ownership
interests.
We
believe that the terms of the foregoing transactions are no less favorable than
could be obtained by us from unrelated parties on an arm’s length
basis.
17. Subsequent
Events
On
October 3, 2008, the Company and its co-lender foreclosed on a loan with an
outstanding balance of $11.8 million and secured by a multifamily property, and
took title to the collateral securing the original loan.
On
October 24, 2008, we extended $355 million of master repurchase agreements with
JP Morgan (and the legacy Bear Stearns subsidiaries) to October 23, 2010. The
weighted average advance rate under the agreements is 79% and pricing is LIBOR
plus 1.49% on a blended basis. In connection with the extension, we
eliminated the excess availability under these agreements and agreed to reduce
the outstanding borrowings by $30 million in return for cushion from future
margin calls.
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. The preparation of these financial statements requires our management
to make estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue and expenses, and related disclosure of contingent assets
and liabilities. Our accounting policies affect our more significant judgments
and estimates used in the preparation of our financial statements. Actual
results could differ from these estimates. Other than the adoption of
FAS 157, 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 February 28, 2008.
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 operations. In managing our operations, we focus on
originating investments, managing our portfolios and capitalizing our
businesses.
Current
Market Conditions
During
the first nine months of 2008, the global capital markets continued to
experience tremendous volatility and a wide-ranging lack of
liquidity. The impact of the global credit crisis on our sector has
been acute. Transaction volume has declined significantly, credit
spreads for all forms of mortgage debt have reached all-time highs, issuance
levels of commercial mortgage backed securities, or CMBS, have ground to a halt,
and other forms of financing from the debt markets have been dramatically
curtailed. Financial institutions still hold significant inventories
of unsold loans and CMBS, creating a further overhang on the
markets. We believe that the continuing dislocation in the debt
capital markets, coupled with a slowdown in the U.S. economy, has already
reduced property valuations and will ultimately impact real estate fundamentals.
These developments can impact the performance of our existing portfolio of
assets. Furthermore, the volatility in the capital markets has caused
stress to all financial institutions and, our business is dependent upon these
counterparties for, among other things, financing and interest rate
derivatives.
In
response to these conditions, we have continued our cautious approach, choosing
to maintain our liquidity and exercise patience until the markets have
settled. We believe that ultimately this environment will create new
opportunities in our markets for investors with credit and financial structuring
expertise. We believe that our balance sheet and investment
management businesses will benefit from a market environment where assets are
priced and structured more conservatively and there is less competition among
investors.
We
allocate 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 combination of balance sheet
and investment management capabilities allows us to maximize the scope of
opportunities upon which we can capitalize. Notwithstanding the
combined capabilities of our platform, we decided to continue a defensive
posture in light of the continued volatility. The table below
summarizes our gross originations and the allocation of opportunities between
our balance sheet and the investment management business for the nine month
period ended September 30, 2008 and the year ended December 31,
2007.
Gross
Originations(1)
(2)
|
|
|
|
|
(in
millions)
|
|
Nine months
ended
September 30,
2008
|
|
Year
ended
December
31, 2007
|
Balance
sheet
|
|
$48
|
|
$1,454
|
Investment
management
|
|
404
|
|
1,011
|
Total
originations
|
|
$452
|
|
$2,465
|
|
|
|
(1) |
Includes total
commitments both funded and unfunded.
|
(2)
|
Includes
$0 and $315 million of participations sold recorded on our balance sheet
relating to participations that we sold to
CT Large Loan 2006, Inc. for the nine months ended September 30, 2008 and
the year ended December 31, 2007, respectively. We have included these
originations in balance sheet originations and not in investment
management originations in order to avoid double
counting.
|
Our
balance sheet investments include CMBS and commercial real estate debt and
related instruments, or Loans, which we collectively refer to as our Interest
Earning Assets. Originations of Interest Earning Assets for our
balance sheet for the nine months ended September 30, 2008 and the year ended
December 31, 2007 are detailed in the table below:
Balance
Sheet Originations
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
Nine
months ended September
30, 2008
|
|
Year
ended December 31, 2007
|
|
|
Originations(1)
|
|
Yield(2)
|
|
LTV
/
Rating(3)
|
|
Originations(1)
|
|
Yield(2)
|
|
LTV
/
Rating(3)
|
CMBS
|
|
$1
|
|
45.02%
|
|
BB+
|
|
$111
|
|
8.92%
|
|
BB-
|
Loans(4)
|
|
47
|
|
7.10
|
|
55.8%
|
|
1,343
|
|
7.67
|
|
64.4%
|
Total
/ Weighted Average
|
$48
|
|
7.62%
|
|
|
|
$1,454
|
|
7.77%
|
|
|
|
|
|
(1) |
Includes
total commitments both funded and unfunded.
|
(2) |
Yield
on floating rate originations assumes LIBOR at September 30, 2008 and
December 31, 2007, of 3.93% and 4.60%, respectively.
|
(3) |
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 $3.0 million face value ($1.0 million book value ) at September
30, 2008 and $36.4 million face value ($36.4 million book value) at
December 31, 2007 of unrated equity investments in collateralized debt
obligations. Loan to Value (LTV) is based on third party appraisals
received by us when each loan is originated.
|
(4) |
Includes
$0 and $315 million of participations sold recorded on our balance sheet
relating to participations that we sold to CT Large Loan 2006, Inc. for
the nine months ended September 30, 2008 and the year ended December 31,
2007, respectively. We have included these originations in balance sheet
originations and not in investment management originations in order to
avoid double counting.
|
The table
below shows our Interest Earning Assets at September 30, 2008 and December 31,
2007. In any period, the ending balance of Interest Earning Assets
will be impacted not only by new balance sheet originations, but also by
repayments, advances, sales and losses, if any.
Interest
Earning Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
(in
millions)
|
|
September 30,
2008
|
|
December
31, 2007
|
|
|
Book
Value
|
|
Yield(1)
|
|
LTV
/
Rating(2)
|
|
Book
Value
|
|
Yield(1)
|
|
LTV
/
Rating(2)
|
CMBS
|
|
$851
|
|
7.17%
|
|
BB
|
|
$877
|
|
7.35%
|
|
BB+
|
Loans
|
|
2,044
|
|
6.99
|
|
64.9%
|
|
2,258
|
|
7.80
|
|
66.5%
|
Total
/ Weighted Average
|
|
$2,895
|
|
7.04%
|
|
|
|
$3,135
|
|
7.67%
|
|
|
|
|
|
(1) |
Yield
on floating rate Interest Earning Assets assumes LIBOR at September 30,
2008 and December 31, 2007, of 3.93% and 4.60%,
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 $37.9 million face value ($37.5 million book value) of unrated
equity investments in collateralized debt obligations. LTV is based on
third party appraisals received by us when each loan is
originated.
|
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. At September 30, 2008, our ten
Unfunded Loan Commitments were $74 million and, net of in place financing
commitments from our lenders, our net Unfunded Loan Commitments were $21
million.
In
addition to our investments in Interest Earning Assets, we have two equity
investments in unconsolidated subsidiaries as of September 30, 2008. The first
is an equity co-investment in a private equity fund that we manage, CT Mezzanine
Partners III, Inc., or Fund III. The second is an equity
co-investment in another private equity fund formed in 2007 that we manage, CT
Opportunity Partners I, LP, or CTOPI.
The table
below details the carrying value of those investments, as well as their
capitalized costs.
Equity
Investments
|
|
|
|
|
|
|
(in
thousands)
|
|
September 30,
|
|
December
31,
|
|
|
2008
|
|
2007
|
Fund
III
|
|
|
$617 |
|
|
|
$923 |
|
CTOPI
|
|
|
3,199 |
|
|
|
(60 |
) |
Capitalized
costs/other
|
|
|
6 |
|
|
|
114 |
|
Total
|
|
|
$3,822 |
|
|
|
$977 |
|
We
actively manage our balance sheet portfolio and the assets held by our
investment management vehicles. While our investments are primarily
in the form of debt, which generally means that we have limited influence over
the operations of the collateral securing our portfolios, we are aggressive in
exercising the rights afforded to us as a lender. These rights can
include collateral level budget approvals, lease approvals, loan covenant
enforcement, escrow/reserve management/collection, collateral release approvals
and other rights that we may negotiate. The table below details
balance sheet Interest Earning Assets loss experience for the nine months ended
September 30, 2008 and the twelve months ended December 31, 2007, and the
percentage of non-performing and/or impaired investments at September 30, 2008
and December 31, 2007.
Portfolio
Performance
|
|
|
|
|
|
|
(in
millions)
|
|
September 30,
2008
|
|
December
31, 2007
|
Interest
Earning Assets
|
|
|
$2,895 |
|
|
|
$3,135 |
|
Losses
|
|
|
|
|
|
|
|
|
Principal
Balance
|
|
|
$10 |
|
|
|
$0 |
|
Percentage
of Interest Earnings Assets
|
|
|
0.3 |
% |
|
|
0.0 |
% |
Non-performing/impaired
loans
|
|
|
|
|
|
|
|
|
|
|
|
$17 |
(1) |
|
|
$6 |
(2) |
Percentage
of Interest Earnings Assets
|
|
|
0.61 |
% |
|
|
0.2 |
% |
|
|
|
(1) |
At
September 30, 2008, includes one first mortgage loan with a principal
balance of $12 million and a subordinate mortgage loan with a principal
balance of $5 million against which we have no reserves and a $50 million
mezzanine loan against which we reserved $50 million in the second
quarter. The
principal balance gross of reserves was $67 million or 2.3% of Interest
Earning Assets.
|
(2) |
At
December 31, 2007, includes one second mortgage loan with a principal
balance of $10 million against which we had reserved $4 million. The
principal balance gross of reserves was $10 million or 0.3% of Interest
Earning Assets.
|
At
quarter end, a $5.5 million subordinate mortgage loan secured by a multifamily
property was classified as non performing. Although the loan
continues to pay interest, the borrower failed to meet certain conditions
required to exercise an option to extend the maturity date. We did
not record a provision for loan loss against this loan due to our expectation
that we will have a full recovery. As of September 30, 2008,
including the aforementioned loan, we had three loans with aggregate net book
balances of $17.3 million ($67.3 million gross book value, net of $50.0 million
of reserves) that were classified as non performing. The two
pre-existing non performing loans are: (i) a $50.0 million mezzanine loan
secured by a portfolio of office properties that matured during the first
quarter of 2008 and was extended for one year. Management made the
decision in the second quarter of 2008 to record a $50.0 million reserve against
the asset based upon conclusions reached with respect to the probability of
recovery on the loan; and (ii) an $11.8 million parri passu participation in a
first mortgage loan secured by a multifamily property that ceased making
payments in the first quarter of 2008. Subsequent to September 30,
2008, we foreclosed on the collateral. We have not recorded a
provision for loan loss against this investment given our expectation for a full
recovery. We did not accrue interest on the two pre-existing non
performing loans in the third quarter.
We
actively manage our CMBS investments using a combination of quantitative tools
and loan/property level analysis in order to monitor the performance of the
securities and their collateral versus our original
expectations. Securities are analyzed on a monthly basis for
delinquency, transfers to special servicing, and changes to the servicer’s
watchlist population. Realized loan losses are tracked on a monthly
basis and compared to our original loss expectations. On a periodic
basis, individual loans of concern are also re-underwritten. Updated
collateral loss projections are then compared to our original loss expectations
to determine how each investment is performing. Based on our review
of the portfolio, we concluded that no impairments were warranted in the nine
months ended September 30, 2008. At quarter end, there were
significant differences between the estimated fair value and the book value of
some of our CMBS investments. We believe these differences to be
related to the disruption in the capital markets and the general negative bias
toward structured financial products and not reflective of a change in cash flow
expectations from these securities.
The
ratings performance of our CMBS portfolio over the nine months ended September
30, 2008 and the year ended December 31, 2007 is detailed below:
CMBS
Rating Activity(1)
|
|
Nine months
ended
September 30,
2008
|
|
Year
ended
December
31, 2007
|
Upgrades
|
7
|
|
24
|
Downgrades
|
7
|
|
3
|
|
|
|
(1) |
Represents
activity from any of Fitch Ratings, Standard & Poor’s and/or Moody’s
Investors Service.
|
Two
trends in asset performance that we foresee for the fourth quarter of 2008 and
into 2009 are (i) borrowers faced with maturities will have a more difficult
time refinancing their properties in light of the volatility and lack of
liquidity in the capital markets, (ii) real estate fundamentals will deteriorate
as the U.S. economy continues to slow and (iii) capitalization rates for
commercial real estate will continue to increase.
Our
balance sheet investment activities are capital intensive and the availability
and cost of capital is a critical component of our business. We
capitalize our business with a combination of debt and equity. Our
debt sources, which we refer to as Interest Bearing Liabilities, currently
include repurchase agreements and secured debt, CDOs, a senior unsecured credit
facility, and junior subordinated debentures (which we also refer to as trust
preferred securities). Our equity capital is currently comprised
entirely of common equity. The table below shows our capitalization
mix as of September 30, 2008 and December 31, 2007:
|
|
|
|
|
Capital
Structure(1)
|
|
|
|
|
(in
millions)
|
|
September
30, 2008
|
|
December
31, 2007
|
Repurchase
obligations and secured debt
|
|
$816
|
|
$912
|
Collateralized
debt obligations
|
|
1,159
|
|
1,192
|
Senior
unsecured credit facility
|
|
100
|
|
75
|
Junior
subordinated debentures
|
|
129
|
|
129
|
Total
Interest Bearing Liabilities
|
|
$2,204
|
|
$2,308
|
All-in
cost of Debt(2)
|
|
5.27%
|
|
5.66%
|
|
|
|
|
|
Shareholders’
Equity
|
|
$478
|
|
$408
|
Ratio
of Interest Bearing Liabilities to Shareholders’ Equity
|
|
4.6:1
|
|
5.7:1
|
|
|
|
(1) |
Excludes
participations sold.
|
(2) |
Floating
rate liabilities assume LIBOR at September 30, 2008 and December 31, 2007,
of 3.93% and 4.60%,
respectively.
|
We use
leverage to enhance our returns on equity by attempting to: (i)
maximize the differential between the yield of our Interest Earning Assets and
the cost of our Interest Bearing Liabilities, and (ii) optimize the amount of
leverage employed. The use of leverage, however, adds risk to our
business, magnifying our shareholders’ exposure to asset level risk by
subordinating our equity interests to our debt capital providers. The
level of leverage we utilize is based upon what we believe to be the risk
associated with our assets, as well as the structure of our
liabilities. In general, we will apply greater amounts of leverage to
lower risk assets and vice versa. In addition, structural features of
our leverage, such as recourse, collateral mark-to-market provisions and
duration, factor into the amounts of leverage we are comfortable applying to our
Interest Earning Assets. Our sources of recourse financing generally
require financial covenants, including restrictions on corporate guarantees, the
maintenance of certain financial ratios (such as specified debt-to-equity and
debt service coverage ratios) as well as the maintenance of a minimum net
worth.
A summary
of selected structural features of our debt as of September 30, 2008 and
December 31, 2007 is detailed in the table below:
Interest
Bearing Liabilities
|
|
|
|
|
|
|
September 30,
2008
|
|
December
31, 2007
|
Weighted
average maturity (1)
|
|
4.0
yrs.
|
|
4.1
yrs.
|
%
Recourse
|
|
47.5%
|
|
48.1%
|
%
Subject to mark-to-market provisions
|
|
37.1%
|
|
39.5%
|
|
|
|
(1) |
Based
upon balances as of September 30, 2008 and December 31,
2007.
|
Over the
past few years, we have used CDOs as one method to finance our business.
While we expect to continue to utilize CDOs and other structured products to
finance both our balance sheet and our investment management businesses going
forward, the current state of the debt capital markets makes it unlikely that,
in the near term, we will be able to issue CDO liabilities similar to
our existing CDOs. The lack of a CDO or similar structured product market makes
us more reliant on other financing options such as our repurchase
facilities. Unlike our CDOs, our repurchase facilities are shorter
term, mark-to-market, recourse liabilities. Given the additional
liquidity risks associated with a portfolio of assets financed with these
types of liabilities, we believe that a higher degree of balance sheet
liquidity is necessary to manage these liabilities.
Our CDOs
are non-recourse, non-mark-to-market, index matched financings that generally
carry a lower cost of debt and allow for higher levels of leverage than our
other financing sources. During the first nine months of 2008, we did
not issue any new CDOs for our balance sheet, however, we continued contributing
assets to our previously issued reinvesting CDOs, CDO I with a reinvestment
period that expired in July 2008, and CDO II with a reinvestment period that
expires in April 2010. Our CDO liabilities as of September 30, 2008
and December 31, 2007 are described below:
Collateralized
Debt Obligations
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
December
31,
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Issuance Date
|
|
Type
|
|
Book Value
|
|
|
All in Cost(1)
|
|
|
Book Value
|
|
|
All in Cost(1)
|
|
CDO
I(2)
|
7/20/04
|
|
|
|
|
$252 |
|
|
|
5.01 |
% |
|
|
$253 |
|
|
|
5.67 |
% |
CDO
II (2)
|
3/15/05
|
|
Reinvesting
|
|
|
299 |
|
|
|
4.65 |
|
|
|
299 |
|
|
|
5.32 |
|
CDO
III
|
8/04/05
|
|
Static
|
|
|
258 |
|
|
|
5.37 |
|
|
|
261 |
|
|
|
5.37 |
|
CDO
IV(2)
|
3/15/06
|
|
Static
|
|
|
350 |
|
|
|
4.51 |
|
|
|
379 |
|
|
|
5.11 |
|
Total
|
|
|
|
|
|
$1,159 |
|
|
|
4.85 |
% |
|
|
$1,192 |
|
|
|
5.34 |
% |
|
|
|
(1) |
Includes
amortization of premiums and issuance costs.
|
(2) |
Floating
rate CDO liabilities assume LIBOR at September 30, 2008 and December 31,
2007, of 3.93% and 4.60%,
respectively.
|
Repurchase
obligation and secured loan agreement financings provide us with an important
revolving component to our liability structure. Our repurchase
agreements provide stand alone financing for certain assets and interim, or
warehouse, financing for assets that we plan to contribute to our
CDOs. At any point in time, the amounts and the cost of our
repurchase and secured loan borrowings are based upon the assets being financed
– higher risk assets will attract lower levels of leverage at higher costs and
vice versa. The table below summarizes our repurchase agreement
liabilities as of September 30, 2008 and December 31, 2007:
Repurchase
Agreements
|
|
|
($
in millions)
|
|
|
December
31,
2007
|
Repurchase
facility and secured debt amounts
|
$1,478
|
|
|
$1,600
|
|
Counterparties
|
6
|
|
|
5
|
|
Outstanding
repurchase borrowings and secured debt
|
$816
|
|
|
$912
|
|
|
L +
1.53%
|
|
|
L +
1.20%
|
|
Our
repurchase obligations and secured loan agreements generally include collateral
mark-to-market features. The mark-to-market provisions in our
repurchase facilities and secured loan agreements are designed to keep our
lenders’ credit exposure constant as a percentage of the market value of the
assets pledged as security to them. As market credit spreads have
increased and asset values have declined, the gross amount of leverage available
to us has been reduced as our assets have been marked-to-market. The
impact to date from these marks to market has been a reduction in our
liquidity. In addition, our repurchase agreements are not term
matched financings and mature from time to time. In 2008, we have
experienced lower advance rates and higher pricing under these agreements as we
negotiate renewals and extensions of these liabilities. Furthermore,
the volatility in the capital markets has caused stress to all financial
institutions and, our business is dependent upon these counterparties for, among
other things, financing and interest rate derivatives.
Our total
borrowings at September 30, 2008 under master repurchase agreements, asset
specific arrangements and our secured loan agreement were $816.2 million, and we
had the ability to borrow an additional $42.2 million without pledging
additional collateral. Loans and CMBS with a carrying value of $1.3
billion are pledged as collateral for our repurchase agreements.
In April
2008, we terminated the $6 million loan specific repurchase agreement with
Lehman Brothers related to the SunCal loan, eliminating our obligation
thereunder. According to the termination agreement, Lehman Brothers retained
possession of the loan and we extinguished the debt for no further
consideration.
In May
2008, we entered into a new loan and security agreement with Lehman
Brothers. The agreement provides for an $18.0 million loan to us with
a maturity date in September 2013. The loan is designed to finance an
individual asset on a recourse basis at a cash cost of LIBOR plus
1.50%.
In June
2008, we amended our master repurchase agreements with the former Bear Stearns
entities by extending the termination date of each obligation to October 2008,
making them concurrent with the existing termination date under our master
repurchase agreement with JPMorgan.
In June
2008, we terminated our master repurchase agreement with Bank of America, which
was originally designed to finance on a recourse basis assets designated for our
second CDO. We had no obligations outstanding under the agreement at
the time of termination and the termination eliminated the payment of unused
fees associated with the line.
In July
2008, we extended the availability period under our $250 million master
repurchase agreement with Citigroup to July 28, 2009. As part of the
extension agreement, the repurchase dates for certain outstanding borrowings
were extended to July 29, 2010 with the remainder retaining their October 11,
2011 final maturities.
In July
2008, we extended the purchase period of our $300 million master repurchase
agreement with Morgan Stanley to July 29, 2009. We also terminated an
un-utilized $50 million master repurchase facility with Morgan Stanley which was
originally designed to warehouse finance CDO eligible assets.
On
October 24, 2008, we extended $355 million of master repurchase agreements with
JP Morgan (and the legacy Bear Stearns subsidiaries) to October 23, 2010. The
weighted average advance rate under the agreements is 79% and pricing is LIBOR
plus 1.49% on a blended basis. In connection with the extension, we
eliminated the excess availability under these agreements and agreed to reduce
the outstanding borrowings by $30 million in return for cushion from future
margin calls.
In March 2007, we closed a $50.0 million senior unsecured
revolving credit facility with WestLB AG, which we amended in September 2007,
increasing the size to $100 million and adding new lenders to the
syndicate. In March 2008, we exercised our term-out option under the
agreement, extending the maturity date of the $100 million principal balance
outstanding to March 2009 as a non-revolving term loan. The loan
bears interest at a cost of LIBOR plus 1.75% (LIBOR plus 2.03% on an all-in
basis).
The most
subordinated components of our debt capital structure are junior subordinated
debentures that back trust preferred securities issued to third
parties. These securities represent long-term, subordinated,
unsecured financing and generally carry limited operational
covenants. At September 30, 2008, we had issued $129 million of
junior subordinated debentures that back $125 million of trust preferred
securities sold to third parties in two separate issuances. On a combined basis,
the junior subordinated debentures provide us with financing at a cash cost of
7.20% and an all-in effective rate of 7.30%.
Our
capital raising activities included the issuance of common stock in the first
quarter of 2008. On March 28, 2008, we issued 4,000,000 shares of class A common
stock in a public offering underwritten by Morgan Stanley & Co. Inc. Gross
proceeds were $28.75 per share and total net proceeds were $113 million. Changes
in the number of shares also resulted from option exercises, restricted stock
grants and vesting, stock unit grants, and the issuance of shares under our
dividend reinvestment plan and direct stock purchase plan.
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
|
|
December
31, 2007
|
Book
value (in millions)
|
|
$478
|
|
|
$408
|
|
Shares
|
|
|
|
|
|
|
Class
A common stock
|
|
21,730,288
|
|
|
17,165,528
|
|
Restricted
stock
|
|
359,843
|
|
|
423,931
|
|
Stock
units
|
|
166,384
|
|
|
94,587
|
|
Options(1)
|
|
5,544
|
|
|
84,743
|
|
Total
|
|
22,262,059
|
|
|
17,768,789
|
|
Book
value per share
|
|
$21.49
|
|
|
$22.97
|
|
|
|
|
(1) |
Dilutive
shares issuable upon the exercise of outstanding options assuming a
September 30, 2008 and December 31, 2007 stock price, respectively, and
the treasury stock
method.
|
At
September 30, 2008, we had 22,090,131 of our class A common stock and restricted
stock outstanding.
Other
Balance Sheet Items
Participations
sold represent participations in loans that we originated and sold to CT Large
Loan 2006, Inc. and third parties. We present these sold interests as
both assets and liabilities (in equal amounts) in conformity with GAAP on the
basis that these arrangements do not qualify as sales under FAS
140. At September 30, 2008, we had six such participations sold with
a total book balance of $337 million at a weighted average yield of LIBOR plus
3.30% (7.23% at September 30, 2008). The income earned on the loans
is recorded as interest income and an identical amount is recorded as interest
expense on the consolidated statements of income.
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 financial institutions and we are
dependent upon the 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, 2008 and December
31, 2007:
Interest
Rate Exposure
|
|
|
|
(in
millions)
|
|
|
|
December
31, 2007
|
Value
Exposure to Interest Rates(1)
|
|
|
|
Fixed
rate assets
|
|
$883 |
|
|
$948 |
|
Fixed
rate liabilities
|
|
|
(400 |
) |
|
|
(403 |
) |
Interest
rate swaps
|
|
|
(505 |
) |
|
|
(513 |
) |
Net
fixed rate exposure
|
|
$(22 |
) |
|
$32 |
|
Weighted
average maturity (assets)
|
|
|
7.2
|
yrs |
|
|
7.4
|
yrs |
Weighted
average coupon (assets)
|
|
|
6.90 |
% |
|
|
7.10 |
% |
|
|
|
|
|
|
|
|
|
Cash
Flow Exposure to Interest Rates(1)
|
|
|
|
|
|
|
|
|
Floating
rate assets
|
|
$2,044 |
|
|
$2,235 |
|
Floating
rate debt less cash
|
|
|
(2,007 |
) |
|
|
(2,280 |
) |
Interest
rate swaps
|
|
|
505 |
|
|
|
513 |
|
Net
floating rate exposure
|
|
$542 |
|
|
$468 |
|
|
|
|
|
|
|
|
|
|
Net
income impact from 100 bps change in LIBOR
|
|
$5.4 |
|
|
$4.7 |
|
|
|
|
(1) |
All
values are in terms of face or notional
amounts.
|
Investment
Management Overview
In
addition to our balance sheet investment activities, we act as an investment
manager for third parties. The purpose of our investment management
business is to leverage our platform, generating fee revenue from investing
third party capital and, in certain instances, co-investment
income. Our active investment management mandates are described
below:
|
·
|
CTOPI
is a multi-investor private equity fund designed to invest in commercial
real estate debt and equity, specifically taking advantage of the current
dislocation in the commercial real estate capital markets. On
July 14, 2008, CTOPI held its final closing with $540 million total equity
commitments. We have committed to invest $25 million in the
vehicle and entities controlled by our chairman have committed to invest
$20 million. The fund’s investment period expires in December
2010, and we earn base management fees as the investment manager to CTOPI
(1.60% of available equity commitments during the investment period and of
invested capital thereafter). In addition, we earn gross
incentive management fees of 20% of profits after a 9% preferred return
and a 100% return of capital.
|
|
·
|
CT
High Grade Partners II, LLC held its initial closing in June 2008 with
$667 million of commitments from two institutional
investors. The fund targets senior debt opportunities in the
commercial real estate debt sector and does not employ
leverage. We earn a 0.40% management fee on invested
capital.
|
|
·
|
CT
High Grade closed in November 2006, with a single, related party
investor committing $250 million. This separate account targets low
risk subordinate debt investments and does not utilize leverage and we
earn management fees of 0.25% per annum of invested assets. In
July 2007, we upsized the account by $100 million to $350 million and
extended the investment period to July
2008.
|
|
·
|
CT
Large Loan closed in May 2006 with total equity commitments of $325
million from eight third party investors. The fund employs leverage and we
earn management fees of 0.75% per annum of invested assets (capped at 1.5%
on invested equity). The investment period ended in May
2008.
|
|
·
|
CTX
Fund I, L.P., or CTX Fund, is a single investor fund designed to invest in
collateralized debt obligations, or CDOs, sponsored, but not issued, by
us. We do not earn fees on the CTX Fund, however, we earn CDO
management fees from the CDOs in which the CTX Fund invests. We
sponsored one such CDO in 2007, a $500 million CDO secured primarily by
credit default swaps referencing
CMBS.
|
|
·
|
Fund
III is a co-sponsored vehicle with a joint venture partner that closed in
August of 2003, invested from 2003 to 2005 and is currently liquidating in
the ordinary course. We have a co-investment in the fund, earn
100% of base management fees and we split incentive management fees with
our partner – our partner receives 37.5% of Fund III incentive management
fees.
|
At
September 30, 2008, we managed five private equity funds and one separate
account through our wholly-owned, taxable, investment management subsidiary, CT
Investment Management Co., LLC, or CTIMCO.
Investment
Management Mandates
|
|
|
|
|
|
|
|
|
|
Incentive
Management Fee
|
|
Type
|
|
Total
Equity Commitments ($ in millions)
|
|
Co-Investment%
|
|
Base
Management Fee
|
|
Company
%
|
|
Employee
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing:
|
|
|
|
|
|
|
|
|
|
|
|
CTOPI
|
Fund
|
|
$540
|
|
|
|
|
|
100%(2)(3)
|
|
0%(3)
|
CT
High Grade II
|
Fund
|
|
667
|
|
0%
|
|
0.40%
(Assets)
|
|
N/A
|
|
N/A
|
CT
High Grade
|
Sep.
Acct.
|
|
350
|
|
0%
|
|
|
|
N/A
|
|
N/A
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidating:
|
|
|
|
|
|
|
|
|
|
|
|
CT
Large Loan
|
Fund
|
|
325
|
|
(4)
|
|
0.75%
(Assets)
(5)
|
|
N/A
|
|
N/A
|
CTX
Fund
|
Fund
|
|
10(6)
|
|
(4)
|
|
(7)
|
|
100%(7)
|
|
0%(7)
|
Fund
III
|
Fund
|
|
425
|
|
4.71%
|
|
|
|
57%(8)
|
|
43%(9)
|
|
|
|
(1) |
We
have committed to invest $25 million in CTOPI.
|
(2) |
CTIMCO
earns gross incentive management fees of 20% of profits after a 9%
preferred return on capital and a 100% return of capital, subject to a
catch-up.
|
(3) |
We
have not allocated any of the CTOPI incentive management fee to employees
as of September 30, 2008.
|
(4) |
We
co-invest on a pari passu, asset by asset basis with CT Large Loan and CTX
Fund.
|
(5) |
Capped
at 1.5% of equity.
|
(6) |
In
2008, we reduced the total capital commitment in the CTX Fund to $10
million.
|
(7) |
CTIMCO
serves as collateral manager of the CDOs in which the CTX Fund invests and
CTIMCO earns base and incentive management fees as CDO collateral
manager. At September 30, 2008 we manage one such $500 million
CDO and earn base management fees of 0.15% of assets and have the
potential to earn incentive management fees.
|
(8) |
CTIMCO
earns gross incentive management fees of 20% of profits after a 10%
preferred return on capital and a 100% return of capital, subject to
a catch up.
|
(9) |
Portions
of the Fund III incentive management fees received by us have been
allocated to our employees as long-term performance
awards.
|
The table
below describes the status of our investment management vehicles as of September
30, 2008 and December 31, 2007.
Investment
Management Snapshot
|
(in
millions)
|
|
September
30, 2008
|
|
December
31, 2007
|
|
|
|
|
|
CTOPI
|
|
|
|
|
Assets
|
|
$286
|
|
$69
|
Equity
commitments(1)
|
|
$540
|
|
$314
|
Incentive
fees collected
|
|
$—
|
|
$—
|
Incentive
fees projected(2)
|
|
$—
|
|
$—
|
Status(3)
|
|
Investing
|
|
Investing
|
|
|
|
|
|
CT
High Grade II
|
|
|
|
|
Assets
|
|
$133
|
|
$—
|
Equity
commitments
|
|
$667
|
|
$—
|
Status(3)
|
|
Investing
|
|
N/A
|
|
|
|
|
|
CT
High Grade
|
|
|
|
|
Assets
|
|
$344
|
|
$305
|
Equity
|
|
$344
|
|
$305
|
Status(3)
|
|
Investing
|
|
Investing
|
|
|
|
|
|
CT
Large Loan
|
|
|
|
|
Assets
|
|
$251
|
|
$323
|
Equity
|
|
$55
|
|
$130
|
Status(4)
|
|
Liquidating
|
|
Investing
|
|
|
|
|
|
CTX
Fund
|
|
|
|
|
Assets(5)
|
|
$500
|
|
$500
|
Equity
|
|
$8
|
|
$7
|
Status(4)
|
|
Liquidating
|
|
Investing
|
|
|
|
|
|
Fund
III
|
|
|
|
|
Assets
|
|
$41
|
|
$47
|
Equity
|
|
$10
|
|
$15
|
Incentive
fees collected(6)
|
|
$5.6
|
|
$5.6
|
Incentive
fees projected(2)
|
|
$1.9
|
|
$2.6
|
Status(4)
|
|
Liquidating
|
|
Liquidating
|
|
|
|
|
|
|
|
|
(1) |
On
July 14, 2008, CTOPI held its final closing with $540 million of committed
equity.
|
(2) |
Assumes assets were
sold and liabilities were settled on October 1, 2008 and January 1, 2008,
respectively, at the recorded book value, and the fund’s equity and income
was distributed for the respective period ends. |
(3) |
CTOPI, CT High Grade
II, and CT High Grade investment periods expire in December 2010, June
2009 and July 2008, respectively. |
(4) |
Fund
III’s investment period ended in June 2005. The CTX Fund’s investment
period ended February 2008. CT Large Loan’s investment period expired May
2008.
|
(5) |
Represents
the total notional cash exposure to CTX CDO I
collateral.
|
(6) |
CTIMCO
received $5.6 million of incentive fees from Fund III in 2007 of which
$372,000 may have to be returned under certain circumstances. Accordingly,
we only recorded $5.2 million as revenue for the year ended December 31,
2007.
|
We expect
to continue to grow our investment management business, sponsoring additional
investment management vehicles consistent with the strategy of developing
mandates that are complementary to our balance sheet activities.
Comparison
of Results of Operations: Three Months Ended September 30, 2008 vs.
September 30, 2007
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
$
Change
|
|
%
Change
|
Income
from loans and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and related income
|
|
$ |
44,141 |
|
|
$ |
64,712 |
|
|
$ |
(20,571 |
) |
|
|
(31.8 |
%) |
Interest
and related expenses
|
|
|
28,175 |
|
|
|
43,716 |
|
|
|
(15,541 |
) |
|
|
(35.5 |
%) |
Income
from loans and other investments, net
|
|
|
15,966 |
|
|
|
20,996 |
|
|
|
(5,030 |
) |
|
|
(24.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees
|
|
|
3,477 |
|
|
|
1,115 |
|
|
|
2,362 |
|
|
|
211.8 |
% |
Servicing
fees
|
|
|
116 |
|
|
|
173 |
|
|
|
(57 |
) |
|
|
(32.9 |
%) |
Other
|
|
|
483 |
|
|
|
173 |
|
|
|
310 |
|
|
|
179.2 |
% |
Total
other revenues
|
|
|
4,076 |
|
|
|
1,461 |
|
|
|
2,615 |
|
|
|
179.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
5,711 |
|
|
|
6,840 |
|
|
|
(1,129 |
) |
|
|
(16.5 |
%) |
Depreciation
and amortization
|
|
|
13 |
|
|
|
61 |
|
|
|
(48 |
) |
|
|
(78.7 |
%) |
Total
other expenses
|
|
|
5,724 |
|
|
|
6,901 |
|
|
|
(1,177 |
) |
|
|
(17.1 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from equity investments
|
|
|
(625 |
) |
|
|
(109 |
) |
|
|
(516 |
) |
|
|
473.4 |
% |
Provision
(benefit) for income taxes
|
|
|
26 |
|
|
|
(50 |
) |
|
|
76 |
|
|
|
(152.0 |
%) |
Net
income
|
|
$ |
13,667 |
|
|
$ |
15,497 |
|
|
$ |
(1,830 |
) |
|
|
(11.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share - diluted
|
|
|
$0.61 |
|
|
|
$0.87 |
|
|
|
$(0.26 |
) |
|
|
(29.9 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
per share
|
|
|
$0.60 |
|
|
|
$0.80 |
|
|
|
$(0.20 |
) |
|
|
(25.0 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
LIBOR
|
|
|
2.62 |
% |
|
|
5.43 |
% |
|
|
(2.81 |
%) |
|
|
(51.7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from loans and other investments
A decline
in Interest Earning Assets ($89 million or 3% from September 30, 2007 to
September 30, 2008) and a 52% decrease in average LIBOR contributed to a $20.6
million (32%) decrease in interest income between the third quarter of 2007 and
the third quarter of 2008. Lower LIBOR and lower levels of leverage
resulted in a $15.5 million, or 36%, decrease in interest expense for the
period. On a net basis, net interest income decreased by $5.0
million, or 24%.
Base
management fees from our investment management business increased $2.4 million
(212%) during the third quarter of 2008 compared with the third quarter of
2007. The increase was attributed primarily to $2.4 million of new
fee revenue earned from CTOPI.
Servicing
fees declined $57,000 or 33% from the third quarter of 2007 to
2008.
Other
revenue increased by $310,000, or 179%, from the third quarter of 2007 to the
third quarter of 2008 primarily from investing our higher levels of cash in
interest bearing accounts.
General
and administrative expenses
General
and administrative expenses include compensation and benefits for employees,
operating expenses and professional fees. Total general and
administrative expenses decreased 17% between the third quarter of 2007 and the
third quarter of 2008. The decrease was a result of lower levels of
employment costs.
Depreciation
and amortization
Depreciation
and amortization decreased by $48,000 or 79% between the third quarter of 2007
and the third quarter of 2008 due primarily to the
capitalized costs associated with Fund III being fully amortized during the
first quarter of 2008.
Loss
from equity investments
The loss from equity
investments in the third quarter of 2008 resulted primarily from our share of
operating losses at Fund III and CTOPI. The loss from equity
investments in the third quarter of 2007 resulted primarily from our portion of
operating losses of $157,000 at Bracor offset by $48,000 of income from Fund
III. We sold our investment in Bracor during the fourth quarter of
2007.
We did
not pay any taxes at the REIT level in either the third quarter of 2007 or
2008. However, CTIMCO, our investment management subsidiary, is a
taxable REIT subsidiary and subject to taxes on its earnings. In the
third quarter of 2008, CTIMCO recorded operating income before income taxes of
$1.3 million, which when combined with GAAP to tax differences and changes in
valuation allowances resulted in a provision for income taxes of $26,000. In the third
quarter of 2007, CTIMCO recorded an operating loss before income taxes of $2.0
million, which resulted in an income tax benefit of $955,000, $905,000 of which
we reserved and $50,000 of which we recorded.
Net
income decreased by $1.8 million from the third quarter of 2007 to the third
quarter of 2008. The decrease in net income was primarily attributed
to a $5.0 million
decrease in net interest margin offset by an increase of $2.4 million in
management fees. On a diluted per share basis, net income was
$0.61 and $0.87 in the third quarter of 2008 and 2007,
respectively.
Our
dividend for the third quarter of 2008 was $0.60 per share, a decline of $0.20
per share from the third quarter of 2007.
Comparison
of Results of Operations: Nine Months Ended September 30, 2008 vs.
September 30, 2007
|
(in
thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
2007
|
|
$
Change
|
|
%
Change
|
Income
from loans and other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
and related income
|
|
$ |
149,725 |
|
|
$ |
190,959 |
|
|
$ |
(41,234 |
) |
|
|
(21.6 |
%) |
Interest
and related expenses
|
|
|
98,918 |
|
|
|
120,008 |
|
|
|
(21,090 |
) |
|
|
(17.6 |
%) |
Income
from loans and other investments, net
|
|
|
50,807 |
|
|
|
70,951 |
|
|
|
(20,144 |
) |
|
|
(28.4 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
fees
|
|
|
9,827 |
|
|
|
2,446 |
|
|
|
7,381 |
|
|
|
301.8 |
% |
Incentive
management fees
|
|
|
— |
|
|
|
962 |
|
|
|
(962 |
) |
|
|
(100.0 |
%) |
Servicing
fees
|
|
|
337 |
|
|
|
285 |
|
|
|
52 |
|
|
|
18.2 |
% |
Other
|
|
|
1,307 |
|
|
|
754 |
|
|
|
553 |
|
|
|
73.3 |
% |
Total
other revenues
|
|
|
11,471 |
|
|
|
4,447 |
|
|
|
7,024 |
|
|
|
157.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
18,819 |
|
|
|
21,483 |
|
|
|
(2,664 |
) |
|
|
(12.4 |
%) |
Depreciation
and amortization
|
|
|
140 |
|
|
|
1,450 |
|
|
|
(1,310 |
) |
|
|
(90.3 |
%) |
Total
other expenses
|
|
|
18,959 |
|
|
|
22,933 |
|
|
|
(3,974 |
) |
|
|
(17.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on extinguishment of debt
|
|
|
6,000 |
|
|
|
— |
|
|
|
6,000 |
|
|
|
N/A |
|
(Provision
for)/recovery of losses on loan impairment
|
|
|
(56,000 |
) |
|
|
4,000 |
|
|
|
(60,000 |
) |
|
|
(1,500.0 |
%) |
Gain
on sale of investments
|
|
|
374 |
|
|
|
— |
|
|
|
374 |
|
|
|
N/A |
|
Loss
from equity investments
|
|
|
(549 |
) |
|
|
(1,042 |
) |
|
|
493 |
|
|
|
(47.3 |
%) |
Benefit
for income taxes
|
|
|
475 |
|
|
|
304 |
|
|
|
171 |
|
|
|
56.25 |
% |
Net
(loss) income
|
|
$ |
(6,381 |
) |
|
$ |
55,727 |
|
|
$ |
(62,108 |
) |
|
|
(111.5 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income per share - diluted
|
|
|
$(0.31 |
) |
|
|
$3.14 |
|
|
|
$(3.45 |
) |
|
|
(109.8 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend
per share
|
|
|
$2.20 |
|
|
|
$2.40 |
|
|
|
$(0.20 |
) |
|
|
(8.3 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
LIBOR
|
|
|
2.84 |
% |
|
|
5.36 |
% |
|
|
(2.52 |
%) |
|
|
(47.0 |
%) |
Income
from loans and other investments
Inter
period changes in Interest Earning Assets, a 47% decrease in average LIBOR, a
write off of $776,000 of accrued interest receivable in the second quarter of
2008, and a $4.3
million interest payment in the second quarter of 2007 from the successful
resolution of a non performing loan, contributed to a $41.2 million (22%)
decrease in interest income between the first nine months of 2007 and the first
nine months of 2008. Lower LIBOR and lower levels of leverage
resulted in a $21.1 million, or 18%, decrease in interest expense for the
period. On a net basis, net interest income decreased by $20.1
million, or 28%.
Base
management fees from our investment management business increased $7.4 million
(302%) during the first nine months of 2008 compared with the first nine months
of 2007. The increase was attributed primarily to $6.8 million of new
fee revenue earned from CTOPI.
Incentive
management fees
Incentive
management fees from the investment management business decreased by $962,000 as
no incentive fee income was recorded in the first nine months of 2008 and
$962,000 of incentive management fees from CT Mezzanine Partners II LP, or Fund
II, were recognized in the first nine months of 2007.
Servicing
fee income during the first nine months of 2008 was $337,000 compared with
$285,000 in the first nine months of 2007. The 18% increase in
servicing fee revenue was a result of recognizing revenue relating to the
servicing contracts acquired as part of our purchase of the healthcare
origination platform in June 2007.
Other
revenue increased by $553,000, or 73%, from the first nine months of 2007 to the
first nine months of 2008 primarily from investing our higher levels of cash in
interest bearing accounts.
General
and administrative expenses
General
and administrative expenses include compensation and benefits for employees,
operating expenses and professional fees. Total general and
administrative expenses decreased 12% between the first nine months of 2007 and
the first nine months of 2008. The decrease was a result of lower
levels of base employment costs.
Depreciation
and amortization
Depreciation
and amortization decreased by $1.3 million or 90% between the first nine months
of 2007 and the first nine months of 2008 due primarily to the write
off of $1.3 million of capitalized costs related to the liquidation of Fund II
in the first quarter of 2007.
Gain
on extinguishment of debt
$6.0
million of debt forgiveness by a creditor was recorded as a gain on
extinguishment of debt in the second quarter of 2008. We recorded no
such gains for the nine months ended September 30, 2007.
(Provision
for) recovery of losses
During
the second quarter of 2008, we recorded a $50.0 million provision for loss
against a loan that we classified as non performing.
During
the second quarter of 2008, we also recorded an additional $6.0 million charge
on one loan that was classified as non performing at March 31,
2008. The loan was subsequently written off during the second quarter
and the $6.0 million liability collateralized by the loan was forgiven by the
creditor. The $4.0 million recovery recorded in the second quarter of
2007 related to the successful resolution of a non performing loan.
Gain
on sale of investments
At
December 31, 2007, we had one CMBS investment that we designated and accounted
for on an available-for-sale basis with a face value of $7.7
million. The security earned interest at a weighted average coupon of
8.34% at December 31, 2007. During the second quarter of 2008 the
security was sold for a gain of $374,000.
Loss
from equity investments
The loss from equity
investments in the first nine months of 2008 resulted primarily from our share
of operating losses at Fund III and CTOPI. The loss from
equity investments in the first nine months of 2007 resulted primarily from the
amortization of $384,000 of capitalized costs passed through to us from the
general partner of Fund II, our portion of operating losses at Fund II (as it
paid incentive management fees during the period) and our portion of operating
losses of $641,000 at Bracor. We sold our investment in Bracor during
the fourth quarter of 2007.
We did
not pay any taxes at the REIT level in either the first nine months of 2007 or
2008. However, CTIMCO, our investment management subsidiary, is a
taxable REIT subsidiary and subject to taxes on its earnings. In the
nine months ended September 30, 2008, CTIMCO recorded operating income before
income taxes of $1.7 million, which when combined with GAAP to tax differences
and changes in valuation allowances resulted in an income tax benefit of
$475,000. $254,000 of the tax benefit recorded for the nine months ended
September 30, 2007 was a result of the reversal of a tax liability reserve at
Capital Trust, Inc. In the nine months ended
September 30, 2007, CTIMCO recorded an operating loss before income taxes of
$4.9 million, which resulted in an income tax benefit of $3.1 million,
$2,950,000 of which we reserved and $304,000 of which we
recorded.
Net
income decreased by $62.1 million from the nine months ended September 30, 2007
to the nine months ended September 30, 2008. The decrease in net
income was primarily attributed to a $60 million increase in
provision for losses and a $20.1 million decrease in net interest income,
partially offset by
a $7.4 million increase in management fees and a $6.0 million gain on the
forgiveness of debt. On a diluted per share basis, net (loss)
income was ($0.31) and $3.14 in the nine months ended September 30, 2008 and
2007, respectively.
Our
dividends declared for the nine months ended September 30, 2008 were $2.20 per
share, a decline of $0.20 per share from the nine months ended September 30,
2007.
Liquidity
and Capital Resources
We expect
to use our available capital resources to make additional investments in our
existing portfolios and, eventually, to invest in new opportunities for our
balance sheet. We intend to continue to employ leverage on our
balance sheet to enhance our return on equity. At September 30, 2008, our net
liquidity was as follows:
Net
Liquidity
|
(in
millions)
|
|
|
Available
cash
|
|
$133 |
|
Available
borrowings
|
|
|
42 |
|
Total
immediate liquidity
|
|
|
175 |
|
Net
unfunded commitments(1)
|
|
|
(43 |
) |
Net
liquidity
|
|
$132 |
|
|
|
|
(1) |
Represents
gross unfunded commitments of $74 million less respective in place
financing commitments from our lenders of $53 million and our
commitments ($22 million) to our active investment management
funds.
|
At
September 30, 2008, we had total immediate liquidity of $175 million comprised
of $115 million in cash, $18 million in restricted cash and $42 million of
immediately available liquidity from our repurchase agreements. Our primary
sources of liquidity during the next 12 months are expected to be cash on hand,
cash generated from operations, principal and interest payments received on
loans and investments, additional borrowings under our repurchase agreements,
stock offerings, proceeds from our direct stock purchase plan and dividend
reinvestment plan, and other capital raising activities. We believe
these sources of capital will be adequate to meet both short-term and
medium-term cash requirements.
We
experienced a net increase in cash of $89.4 million for the nine months ended
September 30, 2008, compared to a net decrease of $2.3 million for the nine
months ended September 30, 2007.
Cash
provided by operating activities during the nine months ended September 30, 2008
was $43 million, compared to cash provided by operating activities of $68
million during the same period of 2007. The change was primarily due
to lower levels of income from loans and other investments, net.
For the
nine months ended September 30, 2008, cash provided by investing activities was
$102 million, compared to $333 million used in investing activities during the
same period in 2007. The change was primarily due to a decrease in
originations, acquisitions, and additional fundings of $864 million during the
nine months ended September 30, 2008 compared to the nine months ended September
30, 2007, and a decrease in principal repayments of $423 million for the same
periods.
For the
nine months ended September 30, 2008, cash used by financing activities was $56
million, compared to $263 million provided by financing activities during the
same period in 2007. The change was primarily due to proceeds from
and repayments on repurchase obligations and the issuance of junior subordinated
debentures and activity on other debt in the nine months ended September 30,
2007.
Our
authorized capital stock consists of 100,000,000 shares of $.01 par value class
A common stock, of which 22,090,131 shares were issued and outstanding at
September 30, 2008 and 100,000,000 shares of preferred stock, none of which were
outstanding at September 30, 2008.
On
January 15, 2008, we issued 53,192 shares of class A common stock under our
dividend reinvestment plan. Net proceeds totaled approximately $1.5
million.
On March
4, 2008, we declared a dividend of $0.80 per share of class A common stock
applicable to the three-month period ended March 31, 2008, which was paid on
April 15, 2008 to shareholders of record on March 31, 2008.
On March
28, 2008, we closed a public offering of 4,000,000 shares of class A common
stock. We received net proceeds of approximately $113.0 million. Morgan Stanley
& Co. Incorporated acted as the sole underwriter of the
offering.
On April
15, 2008, we issued 28,426 shares of class A common stock under our dividend
reinvestment plan. Net proceeds totaled approximately
$799,000.
In June
2008, we issued 401,577 shares of class A common stock under our direct stock
purchase plan. Net proceeds totaled approximately $10.5
million.
On
September 16, 2008, we declared a dividend of $0.60 per share of class A common
stock applicable to the three-month period ended September 30, 2008, which was
paid on October 15, 2008 to shareholders of record on September 30,
2008.
On
October 15, 2008, we issued 5,368 shares of class A common stock under our
dividend reinvestment plan. Net proceeds totaled approximately
$47,000.
Repurchase
Obligations and Secured Debt
At
September 30, 2008, we were party to nine master repurchase agreements with four
counterparties with total facility amounts of $1.5 billion. We were also a party
to asset specific repurchase obligations and a secured loan
agreement. At September 30, 2008, these asset specific borrowings
totaled $37.9 million. Our total borrowings at September 30, 2008
under master repurchase agreements, asset specific arrangements and our secured
loan agreement were $816.2 million, and we had the ability to borrow an
additional $42.2 million without pledging additional
collateral. Loans and CMBS with a carrying value of $1.3 billion are
pledged as collateral for our repurchase agreements.
The terms
of these agreements are described in Note 7 of the consolidated financial
statements and in the capitalization discussion above in this Item
2.
Collateralized
Debt Obligations
At September 30, 2008, we had CDOs
outstanding from four separate issuances with a total face value of $1.2
billion. Our CDOs are financing vehicles for our assets and, as such,
are consolidated on our balance sheet representing the amortized sales price of
the securities we sold to third parties. Our one reinvesting CDO
provides us with $298.9 million of debt financing at a cash cost of LIBOR plus
0.49% (4.42% at September 30, 2008) and an all-in effective interest rate
(including the amortization of issuance costs) of LIBOR plus 0.73% (4.66% at
September 30, 2008). Our three static CDOs provide us with $859.9
million of financing with a cash cost of 4.69% and an all-in effective interest
rate of 4.91% at September 30, 2008. On a combined basis, our CDOs
provide us with $1.2 billion of non-recourse, non-mark-to-market, index matched
financing at a weighted average cash cost of 0.53% over the applicable indices
(4.62% at September 30, 2008) and a weighted average all-in cost of 0.76% over
the applicable indices (4.85% at September 30, 2008). Additional liquidity will be generated
when assets that are currently pledged under repurchase obligations are
contributed to our reinvesting CDO as the difference between the repurchase
price under our repurchase agreements is generally less than the leverage
available to us in our CDOs. At September 30, 2008, we had additional
liquidity of $18 million in our CDOs in the form of restricted
cash.
Senior
Unsecured Credit Facility
In March
2007, we closed a $50.0 million senior unsecured revolving credit facility with
WestLB AG, which was amended in September 2007 to increase the size to $100.0
million and add new lenders to the syndicate. In March 2008, we
exercised our term-out option under the agreement, extending the maturity date
of the $100 million principal balance outstanding to March 2009 as a non
revolving term loan. The loan bears interest at a cost of LIBOR plus
1.75% (LIBOR plus 2.03% on an all in basis).
Junior
Subordinated Debentures
At
September 30, 2008, we had a total of $129 million of junior subordinated
debentures outstanding (securing $125 million of trust preferred securities sold
to third parties). Junior subordinated debentures are comprised of
two issuances of debentures, $77 million of debentures (securing $75 million of
trust preferred securities) issued in March 2007 and $52 million of debentures
(securing $50 million of trust preferred securities) issued in 2006. On a
combined basis the securities provide us with $125 million of financing at a
cash cost of 7.20% and an all-in effective rate of 7.30%.
Contractual Obligations
The
following table sets forth information about certain of our contractual
obligations as of September 30, 2008:
Contractual
Obligations
|
|
|
|
|
|
|
|
(in
millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments
due by period
|
|
|
|
Total
|
|
|
Less
than 1 year
|
|
|
1-3
years
|
|
|
3-5
years
|
|
|
More
than 5 years
|
|
Long-term
debt obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
obligations and secured debt
|
|
$ |
816 |
|
|
$ |
718 |
|
|
$ |
80 |
|
|
$ |
18 |
|
|
$ |
— |
|
Collateralized
debt obligations
|
|
|
1,157 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,157 |
|
Participations
sold
|
|
|
337 |
|
|
|
— |
|
|
|
56 |
|
|
|
281 |
|
|
|
— |
|
Senior
unsecured credit facility
|
|
|
100 |
|
|
|
100 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Junior
subordinated debentures
|
|
|
129 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
long-term debt obligations
|
|
|
2,539 |
|
|
|
818 |
|
|
|
136 |
|
|
|
299 |
|
|
|
1,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded
commitments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
74 |
|
|
|
— |
|
|
|
17 |
|
|
|
57 |
|
|
|
— |
|
Equity
investments
|
|
|
22 |
|
|
|
— |
|
|
|
22 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
unfunded commitments
|
|
|
96 |
|
|
|
— |
|
|
|
39 |
|
|
|
57 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
lease obligations
|
|
|
14 |
|
|
|
1 |
|
|
|
3 |
|
|
|
3 |
|
|
|
7 |
|
Total
|
|
$ |
2,649 |
|
|
$ |
819 |
|
|
$ |
178 |
|
|
$ |
359 |
|
|
$ |
1,293 |
|
Off-Balance
Sheet Arrangements
We have
no off-balance sheet arrangements.
Impact
of Inflation
Our
operating results depend in part on the difference between the interest income
earned on our interest-earning assets and the interest expense incurred in
connection with our interest-bearing liabilities. Changes in the
general level of interest rates prevailing in the economy in response to changes
in the rate of inflation or otherwise can affect our income by affecting the
absolute yield on our assets, as well as potentially impacting the spread
between our interest-earning assets and interest-bearing liabilities, as well
as, among other things, the value of our interest-earning assets and the average
life of our interest-earning assets. Interest rates are highly
sensitive to many factors, including governmental monetary and tax policies,
domestic and international economic and political considerations, and other
factors beyond our control. We employ a hedging strategy to limit the
effects of changes in interest rates on our operations, including engaging in
interest rate swaps in order to better match the cost of our liabilities with
the yield of our assets. There can be no assurance that we will be
able to adequately protect against the foregoing risks or that we will
ultimately realize an economic benefit from any hedging contract into which we
enter.
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
cautionary statements 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/liability management activities is to maximize
net interest income, while managing levels of interest rate risk. Net
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 variable rate liabilities to fixed rate liabilities for proper matching
with fixed rate assets. 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 the interest
expense related to debt and is recognized on the accrual basis.
As of
September 30, 2008, a 100 basis point change in LIBOR would impact our net
income by approximately $5.4 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 us. To monitor this risk, our asset management team
continuously reviews the 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 and credit spreads at September 30,
2008. For financial assets and debt obligations, the table presents
cash flows (in the cases of CMBS and Loans) to the expected maturity and
weighted average interest rates. For interest rate swaps, the table presents
notional amounts and weighted average fixed pay and variable receive interest
rates by contractual maturity dates. Notional amounts are used to
calculate the contractual cash flows to be exchanged under the
contract. Weighted average variable rates are based on rates in
effect as of the reporting date.
|
Expected
Maturity/Repayment Dates
|
|
Fourth
Quarter 2008
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
Thereafter
|
|
Total
|
|
Fair
Value
|
|
(dollars
in thousands)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CMBS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
$32,277
|
|
$5,842
|
|
$12,902
|
|
$70,856
|
|
$192,229
|
|
$395,183
|
|
$709,289
|
|
$584,384
|
Interest
Rate(1)
|
6.15%
|
|
7.61%
|
|
7.23%
|
|
7.62%
|
|
7.16%
|
|
6.29%
|
|
6.68%
|
|
|
Variable
Rate
|
$110
|
|
$44,020
|
|
$83,164
|
|
$1,975
|
|
$5,840
|
|
$39,689
|
|
$174,798
|
|
$88,819
|
Interest
Rate(1)
|
7.83%
|
|
6.05%
|
|
7.26%
|
|
5.93%
|
|
7.47%
|
|
9.45%
|
|
7.45%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
$444
|
|
$17,967
|
|
$1,997
|
|
$24,864
|
|
$2,124
|
|
$123,121
|
|
$170,517
|
|
$170,647
|
Interest
Rate(1)
|
8.27%
|
|
8.52%
|
|
8.23%
|
|
8.42%
|
|
7.76%
|
|
7.61%
|
|
7.83%
|
|
|
Variable
Rate
|
$22,413
|
|
$30,405
|
|
$176,243
|
|
$834,702
|
|
$804,072
|
|
$13,000
|
|
$1,880,835
|
|
$1,753,206
|
Interest
Rate(1)
|
7.77%
|
|
7.48%
|
|
6.91%
|
|
6.64%
|
|
7.07%
|
|
5.89%
|
|
6.87%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notional
Amounts
|
$21,600
|
|
$48,733
|
|
$13,383
|
|
$46,400
|
|
$81,887
|
|
$293,489
|
|
$505,492
|
|
$(19,918)
|
Fixed
Pay Rate(1)
|
5.47%
|
|
4.77%
|
|
5.06%
|
|
4.65%
|
|
4.98%
|
|
5.01%
|
|
4.97%
|
|
|
Variable
Receive Rate(1)
|
3.93%
|
|
3.93%
|
|
3.93%
|
|
3.93%
|
|
3.93%
|
|
3.93%
|
|
3.93%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase
obligations and secured debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
Rate
|
$388,236
|
|
$340,436
|
|
$69,522
|
|
—
|
|
—
|
|
$18,014
|
|
$816,208
|
|
$816,208
|
Interest
Rate(1)
|
4.76%
|
|
5.57%
|
|
5.20%
|
|
—
|
|
—
|
|
5.43%
|
|
5.15%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CDOs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
$2,419
|
|
$3,042
|
|
$5,541
|
|
$41,593
|
|
$68,965
|
|
$148,273
|
|
$269,833
|
|
$193,174
|
Interest
Rate(1)
|
5.18%
|
|
6.22%
|
|
5.21%
|
|
5.10%
|
|
5.16%
|
|
5.42%
|
|
5.30%
|
|
|
Variable
Rate
|
$3,050
|
|
$60,837
|
|
$46,479
|
|
$260,462
|
|
$207,616
|
|
$308,898
|
|
$887,342
|
|
$589,261
|
Interest
Rate(1)
|
4.29%
|
|
4.29%
|
|
4.26%
|
|
4.29%
|
|
4.52%
|
|
4.48%
|
|
4.41%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Senior
unsecured credit facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
—
|
|
$100,000
|
|
—
|
|
—
|
|
—
|
|
—
|
|
$100,000
|
|
$95,897
|
Interest
Rate(1)
|
—
|
|
5.68%
|
|
—
|
|
—
|
|
—
|
|
—
|
|
5.68%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Junior
subordinated debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed
Rate
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
$128,875
|
|
$128,875
|
|
$74,250
|
Interest
Rate(1)
|
—
|
|
—
|
|
—
|
|
—
|
|
—
|
|
7.20%
|
|
7.20%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Participations
sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable
Rate
|
—
|
|
—
|
|
—
|
|
$91,258
|
|
$245,823
|
|
—
|
|
$337,081
|
|
$316,863
|
Interest
Rate(1)
|
—
|
|
—
|
|
—
|
|
5.79%
|
|
7.76%
|
|
—
|
|
7.22%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_________________________________________
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Represents weighted average rates where applicable.
|
|
|
|
|
|
|
|
|
|
|
|
|
ITEM 4. Controls and Procedures
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 Securities 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
Securities 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 is 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 currently deem to
be immaterial also may adversely affect our business, financial condition or
operating results.
ITEM
2:
|
Unregistered Sales of Equity
Securities and Use of
Proceeds
|
None.
ITEM
3:
|
Defaults Upon Senior
Securities
|
None.
ITEM
4:
|
Submission of Matters to a Vote
of Security Holders
|
None.
ITEM
5:
|
Other
Information
|
None.
·
|
31.1
|
Certification
of John R. Klopp, 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 John R. Klopp, 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 the Company’s Annual Report on Form 10-K for the year
ended December 31, 2007, filed on March 4, 2008 with the Securities and
Exchange Commission.
|
|
_____________________ |
|
· Filed
herewith
|
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.
|
|
|
|
|
|
|
|
October 30,
2008
|
/s/
John R. Klopp |
|
Date |
John
R. Klopp |
|
|
Chief
Executive Officer |
|
|
|
|
|
|
|
October 30,
2008
|
/s/ Geoffrey G.
Jervis |
|
Date |
Geoffrey
G. Jervis |
|
|
Chief
Financial Officer |
|