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Capital Trust CEO Discusses Q3 2010 Results - Earnings Call Transcript

Capital Trust CEO Discusses Q3 2010 Results - Earnings Call Transcript

Capital Trust, Inc. (



Q3 2010 Earnings Conference Call

October 27, 2010


Steve Plavin – President and CEO

Geoff Jervis – CFO, Treasurer and Secretary


Darryl Kasper – Madison International

Evan Dreyfuss – Talon Asset Management



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Hello and welcome to the Capital Trust third quarter 2010 results conference call. Before we begin, please be advised that the forward-looking statements contained in this news release are subject to certain risks and uncertainties including, but not limited to, the success of the company’s debt restructuring, the continued credit performance of the company’s loans and CMBS investments, its asset liability mix, the effectiveness of the company’s hedging strategies, 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 this 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 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 third quarter and filed our 10-Q. CT reported a net loss of $134.7 million or $6.02 per share. This loss was driven by a $141.8 million of reserves and impairments offset by operating and other income.

During the quarter, we recorded $102 million of net loss provisions and valuation allowances in our loan portfolio and $40 million of impairments on securities in OREO. We also added one loan with a book value of $11 million and one security with a book value of $3 million to our loan and security watch list. Geoff will run you through the detailed numbers, but lower property valuation was the primary driver behind the increase in provisions while projected underlying loan losses on junior classes of CMBS and CDOs led to the increased impairments.

We are operating in a bifurcated market, where primary assets in major cities values are up significantly. In these markets tenant demand has already began or is anticipated to improve in the near term. For secondary properties and markets, weak local economies provide little near-term hope. New demand generation for space has yet to emerge, and there is little clarity as to what will catalyze these markets and when it will occur.

In general, property cash flows remain under intense pressure, substantially below the levels projected in loan origination in 2006 and 2007. Very significant cash flow improvement remains necessary for the full repayment of financings based on those cash flow projections. Many loans from those vintages have being kept afloat by low LIBOR and many will be unable to sufficiently recover in order to avoid a restructure or foreclosure as final maturity dates approach in 2011 and 2012.

These difficult current market conditions continue to create opportunities for our CT investment management subsidiary. During this quarter, we originated five new investments totaling a $157.5 million for funds managed by CTIMCO. Real estate loans and securities managed by the CTIMCO exceeds $6 billion and several of our opportunistic investments have been sourced as a result of our portfolio management activities.

CTIMCO also remains an active special servicer of loans in CMBS pools. With over $500 million of equity remain to invest in Opportunity Partners and CT High Grade Partners II, CTIMCO remains an active investor in the market. Our third 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 highly leveraged loans approach final maturity. Our repurchase obligations and syndicated credit facilities totaled $507 million mature in March 2011. We are currently working to address these maturities that can broad no assurance at this time that we will be successful. And now Geoff will run you through the third quarter financials.

Geoff Jervis

Thank you, Steve, and good morning, everyone. As Steve mentioned, last night we reported results for the third quarter, reporting a net loss of $134.7 million or $6.02 per share. The net loss for the quarter was primarily as a result of $141.8 million of credit impairments to the company’s investment portfolio comprised of $95.9 million of net loan loss provisions on seven loans, $35.9 million of security impairments on eight securities, $6 million of valuation allowances on our two loans out for sale and $4 million of impairments on our one real estate out for sale asset.

Excluding these impairments a $1.2 million of other items, net operating income was $5.9 million or $0.26 per share for the period. Apart from the impairment activity, the major component of net income was net interest margins, on our portfolio of $8.6 million, up $790,000 from last quarter on a series of one-time events offset by the continued negative impact of asset level non-performance in our portfolio.

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