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8-K - FORM 8-K - BLACKSTONE MORTGAGE TRUST, INC. | c04030e8vk.htm |
EX-99.1 - EXHIBIT 99.1 - BLACKSTONE MORTGAGE TRUST, INC. | c04030exv99w1.htm |
Exhibit 99.2
Capital Trust Q2 10 Earnings Call
July 28, 2010
10:00 AM ET
July 28, 2010
10:00 AM ET
Operator:
|
Hello and welcome to the Capital Trust second quarter
2010 results conference call. Before we begin, please be
advised that the forward-looking statements contained in
the news release are subject to certain risks and
uncertainties including, but not limited to, the success
of the Companys debt restructuring, the continued credit
performance of the Companys loan and CMBS investments,
its asset/liability mix, the effectiveness of the
Companys hedging strategy, the rate of repayment of the
Companys portfolio assets and the impact of these events
on the Companys cash flow, as well as other risks
indicated from time to time in the Companys Form 10-K
and Form 10-Q filings with the Securities and Exchange
Commission. The Company assumes no obligation to update
or supplement forward-looking statements that become
untrue because of subsequent events or circumstances.
There will be a Q&A session following the
conclusion of this presentation. At that time, I will
provide instructions for submitting a question to
management. I will now turn the call over to Steve
Plavin, CEO of Capital Trust. Please go ahead. |
|
Steve Plavin:
|
Thank you. Good morning everyone. Thank you for joining
us and for your continued interest in Capital Trust. |
|
With me are Geoff Jervis, our Chief Financial Officer and
Tom Ruffing our Chief Credit Officer and Head of Asset
Management. |
||
Last night we reported our results for the second quarter
and filed our 10Q. CT reported net income of $2.9 million
or $0.13 per share. Operating income of $6.4 million was
primarily reduced by $4 million, the amount by which
current period provisions and impairments exceeded the
recovery of prior loan loss provisions. |
During the quarter we added four loans totaling $82
million and two securities with a book value of $10
million to our loan and security watch lists in addition
to recording $19 million of loan loss provisions and $2
million of securities impairments. |
||
The recoveries we achieved during the quarter primarily
emanated from transactions with existing sponsors hoping
to preserve or enhance their equity in properties
acquired at or near the peak of the market. Many
sponsors of similar vintage loans do not have the
liquidity to make such investments or have incurred such
steep losses that maintaining control of the underlying
real estate will be very difficult. Nonetheless, working
with motivated sponsors to maximize loan recoveries
continues to be one of our primary asset management
strategies. |
||
Despite persistent uncertainty in the overall economy,
lenders and investors are continuing to return to
commercial real estate. Many of the street conduit
programs are re-starting and loan terms for borrowers are
improving with the increased competition and low rates.
But most sponsors are still unable to achieve sufficient
proceeds to repay their existing loans so borrower demand
is weak. Property cash flows remain under intense
pressure, substantially below the peak levels anticipated
at loan origination. Even with lower cap rates and
greater market liquidity, very significant cash flow
improvement remains necessary for the full repayment of
most loans originated in 2006 and 2007. Many of the loans
from these vintages are being kept afloat by low Libor
and will be unable to sufficiently recover in order to
avoid a workout or foreclosure as final maturity dates
approach in 2011 and 2012. |
||
The challenges of the commercial real estate finance
markets create new investment opportunities and CTs
asset management business continues to grow. Including
our balance sheet assets and all of our third-party
managed vehicles, we now manage over $6 billion of
commercial real estate loans and securities. As a rated
special servicer, we are named on $2.6 billion of loans.
The scale and quality of our asset management operation
is recognized by our investors. The investment periods
for CT Opportunity Partners and CT High Grade Partners II
were both extended by a year during the second quarter
and we have over $500 million of equity remaining to
invest in those vehicles. |
Our second quarter results continue to reflect the
challenges of CT balance sheet loans and securities
originated at or near the peak of the market. We expect
challenging market conditions to persist for the next
several quarters as commercial property performance
typically lags the general economy which is still not yet
in full recovery. |
||
And with that, I will turn it over to Geoff to run you
through the second quarter financials. |
||
Geoffrey Jervis: Thank you Steve and good morning everyone. | ||
As Steve mentioned, last night we reported results for
the second quarter, recording net income of $2.9 million
or $0.13 per share. |
||
Net income for the quarter was primarily the result of
income from operations, offset partially by $4 million of
net reserves and impairments that we took against our
loan and security portfolios. |
||
Specifically, we recorded $2.0 million of impairments on
four securities and $2.0 million of net provisions for
loan losses on nine loans. Loan loss provisions in the
second quarter included $19.0 million of provisions
against four loans offset by $17.0 million of recoveries
associated with loan dispositions and restructurings. |
Exclusive of credit provisions, impairments and a
$463,000 gain on the extinguishment of debt associated
with our consolidated VIEs, operating income was $6.4
million or 29 cents per share during the period......the
primary components of this quarters operating income
were: |
||
Net interest margin of $7.8 million, down over $900,000
from last quarter and $2.6 million from the second
quarter of 2009, with the reduction due to asset level
non performance, loan and security repayments and, when
comparing to 2009, impacts from our new consolidation
regime as we are now consolidating additional variable
interest entities or VIEs the accounting change that I
discussed last quarter and will review when I discuss the
balance sheet. |
||
...other components of operating income were... | ||
Other revenues of $2.2 million, down $2.3 million from
the prior period, primarily due to an amendment to the
Companys management agreement with one of the private
equity funds it sponsors and manages, CT Opportunity
Partners I, LP, the major elements of which were a
retroactive reduction in the fees paid to us by the fund
and an extension of the funds investment period. |
||
...continuing down the income statement... | ||
Other expenses, primarily G&A, were $4.5 million, down
$200,000 from the prior quarter, and we recorded $932,000
of income from equity investments, up almost $600,000
from the prior period, as we picked up changes, primarily
non cash, in the capital accounts at two of our private
equity funds in which we have co-investments. |
||
In total, as mentioned before, net income for the quarter
was $2.9 million, however, for the first six months of
2010, net income was ($60.6 million) due primarily to
reserve activity in the first quarter. |
From a cash flow standpoint, it is important to note that
CTs liabilities include required amortization
provisions, in addition to those related to principal
repayments. In the second quarter, we redirected over
$8.5 million of income to additional amortization of our
CDOs and repurchase agreements through net interest
margin sweeps and other arrangements and paid $1.25
million of scheduled amortization on our senior credit
facility. These provisions obviously put an enormous
strain on the Company in terms of its ability to generate
net, available cash flow. |
||
Turning to the investment management business, our wholly
owned subsidiary, CTIMCO, recorded total third party
revenues of $3.2 million for the quarter on a gross
basis, which amount is adjusted down by $1.1 million due
to the retroactive amendment of the CT Opportunity
Partners management agreement that I referred to earlier.
In addition to managing its parent, Capital Trust, CTIMCO
operates 5 third party private equity vehicles, two of
which, CT Opportunity Partners I and CT High Grade
Partners II, are currently investing and have over $500
million of uncalled equity capital available for
investment. CTIMCO also earns revenue as a CDO collateral
manager, and as a special servicer. During the quarter,
special servicing fees were $1.2 million, down $300,000
from the previous quarter. |
||
Over to the balance sheet, | ||
As we mentioned last quarter, on January 1st, we adopted
FAS 167, requiring us to materially change the
presentation of our financial statements. Specifically,
the companys assets and liabilities are segregated into
those held directly and those representing the assets and
liabilities of certain CMBS and CDO trusts, or variable
interest entities (referred to as VIEs), that we are
required to consolidate. At year-end, these seven trusts
were carried, as securities, at $79 million, and at June
30 these securities were recorded as $2.78 billion of
loans and securitized debt obligations of $2.76 billion.
In the past, the only VIEs that we consolidated were the
4 CDOs that were issued by CT. Now, with the
consolidation of the 7 new VIEs, our total VIE assets are
$3.7 billion and our total VIE liabilities are $3.8
billion. |
Starting at the top of the balance sheet, Cash at quarter
end was $26.5 million. Uses of cash during the quarter
included the funding of $700,000 under one existing loan
commitment and the funding of a $1.5 million capital call
to CT Opportunity Partners. Under the terms of our March
debt restructuring, our only financial covenant
requires maintenance of a minimum cash balance of $5
million, a test that we complied with this quarter. Cash
represents the primary source of CTs liquidity and is
earmarked to meet the Companys unfunded commitments that
include $1 million on its loan portfolio and $16 million
to its private equity fund co-investments. As I
mentioned before, the cash flow that is redirected under
the provisions of our CDOs and repurchase agreements, as
well as the cash flow used to pay amortization under our
senior credit facility, while showing up on our financial
statements as income and operating cash flow, are not
available to us. When combined with the decline in
performance of the portfolio, cash flow available to us
is expected to be negative. Therefore, the Company will
likely be required to use its existing cash balances to
fund not only its loan and fund level commitments, but
also to pay for some portion of operating expenses. |
||
At quarter end, our Securities portfolio was comprised of
65 securities with a total net book value of $588 million
(7 securities with a carrying value of $17.7 million
being held directly and the balance being in VIEs).
Activity for the quarter included $7.6 million of
principal repayments, and $3.8 million of impairments. In
total, we have 13 impaired securities in the portfolio
with total gross book value of $102 million and total
impairments of $82 million. In addition, we have 14
securities with a total book value of $100 million on our
watch list. The directly held, non VIE portfolio has 4
impaired securities with total gross book value of $19.4
million and total impairments of $16.3 million. In
addition, the remaining 3 securities in the direct
portfolio with a total book value of $14.6 million are on
our watch list. |
Over to Loans, at quarter end, we held 134 loans with a
total carrying value of $3.8 billion. Significant
activity for the quarter included $59.4 million of loan
satisfactions and principal repayments, one loan with a
book balance of $12.1 million was transferred to REO when
we foreclosed on the property, one loan with a book
balance of $5.5 million was classified as held-for-sale,
and one loan with a book balance of $6.6 million was
transferred to other assets when we converted our
investment to equity in conjunction with a restructuring
of a loan. We recorded $19 million of provisions for loan
losses against four loans and experienced $17 million in
recoveries of previously recorded reserves. In total, 23
of the Companys loans totaling $865 million of gross
book value have recorded reserves of $605 million. In
addition to the loans with reserves, the Company
maintains a loan watch list that is comprised of
performing loans of concern that do not carry credit
reserves, this watchlist contains 29 loans with a total
book balance of $1.0 billion. Looking only at the
directly held portfolio, the Company held 34 loans with a
carrying value of $723 million and the net reserve
activity on this portfolio was $4 million for the quarter
($14 million of provisions less a $10 million recovery of
prior period losses). In the aggregate, 10 loans with
$477 million of gross book value have recorded reserves
of $373 million and 10 of the direct portfolios loans
with carrying values of $232 million are on the
watchlist. |
||
Equity investments in unconsolidated subsidiaries
reflects our co-investments in certain of our investment
management funds. The balance is comprised of a small
remaining position in CT Mezzanine Partners III, and our
$25 million co-investment in CT Opportunity Partners, of
which we have funded $8.7 million to date. Differences
between our fundings and the carrying value of this
account are almost exclusively due to the pick up of non
cash fair value adjustments at the fund. The fund carries
its assets and liabilities at fair value, as opposed to
amortized cost, with periodic changes in these values
flowing though the funds income statement changes
that we pick up under the equity method of accounting. |
||
On the liability side, our recourse debt is comprised of
repurchase obligations, a senior credit facility and
junior subordinated notes, for aggregate recourse debt of
$671 million. |
During the quarter, we continued to reduce borrowings
under our repurchase agreements through principal and net
interest margin sweeps, with total outstanding balances
at quarter end of $429 million, down $16 million from the
prior quarter. These facilities all mature in March of
2011 and, given the subordinate nature of our
investments, the performance of these investments and the
levels of current leverage against these investments,
there can be no assurances that we will be able to find
replacement financing. |
||
Our senior credit facility balance declined slightly
during the quarter, as mandatory amortization payments
exceeded capitalized interest provisions. This facility
is co-terminus with our repurchase agreements and, like
the repurchase agreements, there can be no assurances
that we will be able to find replacement financing. |
||
Our junior subordinated notes, the most subordinate part
of our debt capital structure, also restructured in 2009,
continue to accrete to their restructured face balance of
$144 million. These debentures carry an interest rate of
1% through 2012, when they revert back to their prior
coupon of 7.2%, and ultimately mature in 2036. |
||
Looking at our securitized debt, this account represents
the liabilities of our consolidated VIEs, our 4 CT CDOs
and the 7 newly consolidated VIE trusts. During the
quarter, this account decreased by $59 million, a result
of $54 million from repayments due to the application of
collateral principal proceeds and $5 million in interest
income redirection. |
||
Interest rate hedge liabilities increased by $4.3 million
from quarter to quarter with the change in value picked
up as a decrease to equity. |
Finally, our shareholders equity account ended the
quarter at a deficit of $294 million, a decrease of $3
million from March 31st due primarily to $1.9 million of
non-credit related impairments on securities, and the
$4.3 million decline in the fair value of interest rate
swaps, all of which were partially offset by net income....
and...on a per share basis, book value per share stood at
negative $13.11 at June 30th. |
||
With that, I will turn it back to Steve. | ||
Steve Plavin:
|
Thank you Geoff. Natasha you can open the call for questions. | |
Operator:
|
At this time, if you would like to ask a question, please
press the star and one on your touchtone phone. You
may withdraw yourself from the queue at any time by
pressing the pound key. Once again, its star and
one to ask a question. Well pause momentarily to
allow questions to enter the queue. |
|
Operator:
|
It appears we have no questions at this time. | |
Steve Plavin:
|
Thank you very much. We look forward to reporting to you next quarter. | |
Operator:
|
That concludes todays conference. You may disconnect at this time. |
END