Capital Trust, Inc. (



Q1 2011 Earnings Call

May 11, 2011 10:00 a.m. ET


Stephen Plavin – CEO and President

Geoffrey Jervis – CFO

Thomas Ruffing – CCO, Asset Management


Chris Mittleman – Mittleman Brothers



Hello, and welcome to the Capital Trust first quarter 2011 results conference call.

Compare to:
Previous Statements by CT
» Capital Trust CEO Discusses Q4 2010 Results - Earnings Call Transcript
» Capital Trust CEO Discusses Q3 2010 Results - Earnings Call Transcript
» Capital Trust, Inc. Q2 2010 Earnings Call Transcript
» Capital Trust, Inc. Q1 2010 Earnings Call Transcript

Before we begin, please be advised that the forward-looking statements contained on this conference call are subject to certain risks and uncertainties, including but not limited to the continued credit performance of the Company’s loan and CMBS investments, its asset/liability mix, the effectiveness of the Company’s hedging strategy, the rate of repayment of the Company’s portfolio assets and the impact of these events on the Company’s cash flow, as well as other risks indicated from time to-time in the Company’s 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 Stephen Plavin, CEO of Capital Trust.

Stephen Plavin

Thank you. Good morning, everyone. Thank you for joining us and for your interest in Capital Trust. With me are Geff Jervis, our Chief Financial Officer; and Tom Ruffing, our Chief Credit Officer and Head of Asset Management.

Last night, we filed our 10-Q and announced our results for the first quarter, which was highlighted by the comprehensive restructuring of all of our Legacy recourse liabilities, in a transaction that closed March 31.

Geff will take you through the key points of the restructure in the quarterly results, and also introduce our adjusted balance sheet and operating results. I will focus my remarks on post-restructured CT and the commercial mortgage market.

Completing the debt restructure was a necessary step in the evolution of Capital Trust. Our financial condition is greatly improved. We have isolated the down side REIT associated with our peak of the market balance sheet assets while maintaining management control at a significant ownership interest.

By having established the necessary time to work and collect our legacy assets in an improving market, we will maximize the recovery for all legacy REIT-share stakeholders as well as the CT shareholders.

In fact, we’ve already paid down over $100 million of legacy REIT debt from underline loan repayments since quarter end. Although there is still great volatility within the legacy REIT portfolio, we do expect to achieve additional pay downs over the next 12 months as we work the assets and progress towards the beginning of the equity realization, which is still likely a few years out.

Post restructure, CT maintains full economic and management control of CT Investor Management Company, or CTIMCO, our wholly-owned management subsidiary. CTIMCO manages its public company parent, the newly formed legacy asset REIT, four CT-sponsored private equity funds, five CDOs, and loan workouts and restructuring for the CMBS special servicer.

We have maintained all the capabilities of our platform and are now very well positioned to continue our capital raising, lending, investing, and asset management activities. We see great opportunity in the commercial mortgage finance market. The floating rate market, an historic area of strength for CT, is still dislocated and highly inefficient. The commercial banks, CMBS originators and CMBS investors, have not returned to the floating-rate market, which is now significantly funded by private bridge lenders with the high cost of capital.

This steep yield curve helps us market from a demand perspective while LIBOR provides a hedge to interest rates, likely to rise over time. The need for mezzanine financing to fill the gap on recapitalizations will continue to expand as the peak of the market five-year loans mature. There will also be more than distress opportunities for our special servicer in opportunistic fund.

We’ve been active in the low LTD mezzanine space through our high-grade fund, providing efficient financing due to investment-grade loans being securitized. We see continuing investment opportunity in this segment, particularly as a CMBS market expands to better handle large financing request.

While the specific opportunities and commercial mortgage events will evolve and change over time, we believe that this scale of the opportunity is great and emerging now, and the platform is very well positioned to exploit these opportunities.

With our recapitalization now more than a month behind us, we are evaluating all of our options regarding how to best position CT for the future. We expect to significantly advanced this process over the next quarter, so stay tuned. And with that, I’ll turn it over to Geff.

Geoffrey Jervis

Thank you, Steve, and good morning everyone. As Steve mentioned, last night we reported our earnings for the first quarter and filed our Form 10-Q. Net income for the period was $254.6 million or $11.35 per share, driven by $250 million of gains on the extinguishment of debt, primarily associated with our March 31 restructuring.

Total assets on the balance sheet at quarter end stood at $3.9 billion, down $230 million from year end as the portfolio continued to experience repayment. Total liabilities were $4 billion and shareholders’ equity was negative $111 million.

On a per-share basis, based upon 22.8 million shares outstanding, book value per share was negative $4.88. As these GAAP numbers show, we continue to be plagued by the distortions of GAAP required consolidation regimes. This quarter, as we promised on the last earnings call, we began reporting an adjusted income statement and balance sheet.

Read the rest of this transcript for free on