Capital Trust, Inc. (CT) Q2 2010 Earnings Call Transcript July 28, 2010 10:00 am ET Executives Steve Plavin – President and CEO Geoff Jervis – CFO, Treasurer and Secretary Presentation Operator
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During the quarter, we added four loans totaling $82 million and two securities with a book value of $10 million to our loans and securities watch list, in addition to recording $19 million of loan loss provisions and $2 million of security impairments.The recoveries we achieved during the quarter primarily eliminated from transactions with existing sponsors hoping to preserve or enhance their equity and 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 restarting 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 originations. 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 aside 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 to the commercial real estate finance market create new investment opportunities, and CT's 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 service, 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'll turn it over to Geoff to run you through the second quarter financials. Geoff Jervis Thank you, Steve, and good morning, everyone. As Steve mentioned, last night we reported results for the second quarter, reporting 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 million of impairments on four securities and $2 million of net provisions for loan losses on nine loans. Loan loss provisions in the second quarter included $19 million of provisions against four loans, offset by $17 million of recovery 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 $0.29 per share during the period. Read the rest of this transcript for free on seekingalpha.com