Inaddition, as of
March 31, 2008, we reset the cost basis and yields for all ofour CMBS investments to amounts representative of our fair value estimates inresponse to the significant duration and severity of unrealized losses on suchinvestments at
March 31, 2008. Assuming such CMBS investments are held tomaturity, the Company generally expects that such unrealized losses and otherthan temporary impairment charges on CMBS investments will reverse over time,absent adverse changes in the amount and timing of actual or projected losseson underlying collateral versus losses that are currently projected andreflected in our 'Loss Adjusted,' or GAAP yield.
Real estate loans held for investment are carried on our balance sheet atfair value, which was $260.6 million at March 31, 2008. Real estate loansheld for sale are carried on our balance sheet at the lower of cost orestimated fair value which was $189.2 million at March 31, 2008.
Stockholders' Equity
At March 31, 2008, our GAAP book value per share was $9.88, compared to$0.42 at December 31, 2007. The increase is primarily due to adoption of SFASNo 159, effective January 1, 2008 whereby we elected to account for allfinancial assets and liabilities related to our CDOs at fair value. Theimpact of adopting SFAS No. 159 increased stockholders' equity byapproximately $246.1 million to approximately $256.9 million or $9.92 pershare as of January 1, 2008 primarily as a result of marking our CDO notespayable to estimated fair value.
If we were to mark all of our assets and liabilities to market as of March31, 2008, we estimate that our stockholders' equity would approximate $285.3million or $11.02 per share. At the end of this earnings release is aproforma calculation of the March 31, 2008 fair value balance sheet andstockholders' equity.
Credit Quality and Continued Focus on Commercial Real Estate
We continue to focus our business activities on debt securities and loanscollateralized by commercial real estate assets. We have no investments insingle family residential loans or residential mortgage backed securities,including no investments in 'sub prime' residential loans or 'sub prime'residential mortgage backed securities. However, at March 31, 2008, wecontinued to have one $3.2 million mezzanine real estate loan collateralizedby garden-style apartments located in Florida that have been converted to for-sale condominiums. The balance of this loan was repaid in full during April2008.
For our 26 CMBS investments as of March 31, 2008, the performance of theunderlying collateral in aggregate has generally remained consistent with ouroriginal underwriting. In addition, there are no existing delinquencies ormonetary defaults on any of our 16 real estate loans and our 50% ownershipinterest in the joint venture that owns 12 real estate assets. An impairmentcharge of $99.6 million was recorded during the three months ended March 31,2008 related to our CMBS investments that are not financed by CDO's, of which$2.1 million relates to declines in the projected net present value of futurecash flows on 5 separate CMBS bonds pursuant to EITF 99-20.
During the three months ended March 31, 2008, we received repayments onreal estate loans totaling $4.1 million. Subsequent to March 31, 2008 andthrough May 8, 2008, we received additional repayments on real estate loanstotaling $3.3 million.
For our 26 CMBS investments, 21 are investments in conduit issuancesbetween 2004 and 2007 in which we own the first-loss position. For the 21first-loss CMBS positions which are collateralized by approximately 3,500loans with an aggregate outstanding balance of approximately $48 billion, the60 day delinquency rate based on the remittance reports as of March 31, 2008was 32 basis points compared to 27 basis points at December 31, 2007.Including transfers in and loans returned to the master servicer subsequent toMarch 31, 2008, there are currently 20 loans totaling approximately $206million that are being managed by the Special Servicer, which is an affiliateof the J.E. Robert Company. Of the $206 million of loan balances in specialservicing, two loans totaling $23 million are current, three loans totaling$13 million have been foreclosed upon and 15 loans totaling $170 million aredelinquent and are in monetary default. The $183 million balance of the 18loans that are either delinquent or have been foreclosed upon representapproximately 38 basis points of the total outstanding loan balancecollateralizing the 21 first-loss CMBS investments.
Based on the evaluation of the collateral properties underlying the CMBSinvestments and giving consideration to the workout status of the respectiveloans, we have incorporated estimates of future loan loss assumptions from theunderlying collateral into the cash flow projections for such CMBSinvestments.
Borrowings / Liquidity
At March 31, 2008, we had $12.7 million in unrestricted cash plus anadditional $1.1 million of restricted cash. As of May 8, 2008, unrestrictedcash increased $20.1 million to $32.8 million primarily as a result ofproceeds from the sale of the remaining 50% interest in the Charter Schooljoint venture, proceeds from real estate loan repayments and net operatingcash flow aggregating $5.8 million, offset, in part by margin calls of $17.4million related to our repurchase agreements and payment of our first quarter2008 dividend of $7.7 million.
With respect to liabilities, at March 31, 2008, total liabilities were$760.4 million. The individual components of our liabilities are described asfollows:
-- $439.5 million (or 57.8% of total liabilities) represents the estimated fair value of borrowings in the form of long term, 'match-funded' debt relating to our two collateralized debt obligation offerings, CDO I and CDO II with an aggregate face amount of $974.6 million. Pursuant to our adoption of SFAS No. 159 effective January 1, 2008 we elected to account for these notes payable using the fair value option. CDO I and CDO II are not subject to 'margin calls' based on mark-to-market fair value determinations of the underlying collateral, have maturities tied specifically to actual repayments of underlying collateral and are generally non-recourse to the Company. Absent the Company purchasing such notes payable at these discounted values or a situation where the proceeds from collateral were insufficient to satisfy the notes payable, the Company expects at this time that collateral for the notes payable will ultimately repay the face amount in full.
-- $196.1 million (or 25.8% of total liabilities) represents borrowings under short-term repurchase facilities with three separate lenders. These facilities are generally subject to 'margin calls' based on mark-to-market fair value determinations of the underlying collateral, and contain certain recourse provisions to us. As of May 8, 2008, March 31, 2008 and December 31, 2007, repurchase agreement borrowings consisted of the following:
Amount May 8, 2008 March 31, 2008 December 31, 2007 Secured by CMBS Bear Stearns/ Liquid Funding $15.9 $18.0 $77.4 JPMorgan 35.3 35.3 18.7 Secured by real estate loans Goldman Sachs 127.4 142.8 165.8 $178.6 $196.1 $261.9
-- $61.9 million (or 8.1% of total liabilities) represents borrowings in the form of unsecured junior subordinated debentures. These debentures are not subject to 'margin calls' based on mark-to-market fair value determinations of underlying collateral but are fully recourse to us. These debentures have a maturity date of April 2037 and are outstanding in connection with our April 2007 issuance of $60 million of trust preferred securities.
-- $57.4 million (or 7.5%) represents the fair value of our CDO- related pay-fixed interest rate swaps ($41.9 million) and non-CDO related pay-fixed interest rate swaps ($15.5 million).
At March 31, 2008, the ratio of total liabilities to stockholders equitywas 3.0x. Excluding the impact of the accumulated other comprehensive income(loss) component of stockholders' equity, or Adjusted Stockholders' Equity (anon-GAAP measure), the ratio of total liabilities to Adjusted Stockholders'Equity was 2.7x and 4.2x at March 31, 2008 and December 31, 2007,respectively. We believe Adjusted Stockholders' Equity is a meaningfulmeasure as certain of the financial covenants within our repurchase agreementsuse Adjusted Stockholders' Equity as a measure of our leverage. At the end ofthis earnings release is a reconciliation of stockholders' equity determinedin accordance with GAAP to Adjusted Stockholders' Equity as well as the March31, 2008 Fair Value Balance Sheet and Stockholders' Equity.
Dividends
On April 18, 2008, the Board of Directors approved the declaration of aregular cash dividend of $0.30 per common share for the three months endedMarch 31, 2008. The dividends were paid on May 6, 2008 to common stockholdersof record on May 1, 2008.
2008 Outlook
In 2008, we will continue to focus our efforts on maintaining liquidity,monitoring and managing credit risk, and if excess liquidity is available,targeting investments that that will generate the highest risk adjustedreturns. Maintaining liquidity may require us to sell assets which couldresult in lower future revenues or result in realized losses. In addition, weexpect that our GAAP earnings will continue to be increasingly volatileprimarily as a result of our adoption of SFAS No. 159 for which we willreflect changes in the market values of our CDO related financial assets andliabilities in the income statement, discontinuation of hedge accounting forour interest rate swaps and treating certain of our real estate loans as heldfor sale. As a result, we will continue to report AFFO as a measure of ouroperating performance as we believe it is a meaningful measure of ouroperating results and cash flows.
About JER Investors Trust Inc.
JER Investors Trust Inc. is a New York Stock Exchange listed specialtyfinance company that originates and acquires commercial real estate structuredfinance products. The Company's target investments include commercial mortgagebacked securities, mezzanine loans and B-Note participations in mortgageloans, commercial mortgage loans and net leased real estate investments. JERInvestors Trust Inc. is organized and conducts its operations so as to qualifyas a real estate investment trust ('REIT') for federal income tax purposes.For more information regarding JER Investors Trust Inc. and to be added to oure-mail distribution list, please visit www.jer.com .
Conference Call
Management will host an earnings conference call on Monday, May 12, 2008at 11 A.M. eastern daylight time. A copy of the earnings release will beposted to the Investor Resources section of the JER Investors Trust Inc.website provided below. All interested parties are welcome to participate onthe live call. You can access the conference call by dialing (866) 831-6272(from within the U.S.) or (617) 213-8859 (from outside of the U.S.) tenminutes prior to the scheduled start of the call; please reference passcode'61605370.'
A webcast of the conference call will be available to the public on alisten-only basis at www.jer.com. A replay of the earnings call will beavailable until May 19, 2008 by dialing (888) 286-8010 (from within the U.S.)or (617) 801-6888 (from outside of the U.S.); please reference passcode'67692931.'
Non-GAAP Financial Measures
During the quarterly conference call, we may discuss non-GAAP financialmeasures as defined by SEC Regulation G. In addition, we have used non-GAAPfinancial measures, in particular Adjusted Funds from Operations, or AFFO,Adjusted Stockholders' Equity and a Fair Value Balance Sheet in this pressrelease. Reconciliations of AFFO, Adjusted Stockholders' Equity, the FairValue Balance Sheet and the comparable GAAP financial measure (net income,assets, liabilities and stockholders' equity, as applicable) can be found atthe end of this earnings release.
Forward-Looking Statements
Certain items in this press release may constitute forward-lookingstatements within the meaning of the Private Securities Litigation Reform Actof 1995. These statements are based on management's current expectations andbeliefs and are subject to a number of trends and uncertainties that couldcause actual results to differ materially from those described in the forward-looking statements. JER Investors Trust can give no assurance that itsexpectations will be attained. Factors that could cause actual results todiffer materially from JER Investors Trust's expectations include, but are notlimited to, changes in the real estate and capital markets, our continuedability to source and fund new investments, and other risks detailed from timeto time in JER Investors Trust's SEC reports. Such forward-looking statementsspeak only as of the date of this press release. JER Investors Trust expresslydisclaims any obligation to release publicly any updates or revisions to anyforward-looking statements contained herein to reflect any change in JERInvestors Trust's expectations with regard thereto or change in events,conditions or circumstances on which any statement is based.
CONTACTS:
J. Michael McGillis, Chief Financial Officer JER Investors Trust Inc. (703) 714-8182
Brent Feigenbaum, Director and Chief Marketing Officer, JER Investors Trust Inc. (212) 659-6458
Jim O'Leary, Vice President Edelman Public Relations (212) 704-8224
JER INVESTORS TRUST INC.
