McLEAN, Va., Aug. 6 /PRNewswire-FirstCall/ -- JER Investors Trust Inc.
(NYSE: JRT) today reported results for the quarter ended June 30, 2008:
Second Quarter Highlights:
-- Liquidity: At June 30, 2008, we had $43.4 million in unrestricted cash
plus an additional $1.2 million of restricted cash as well as borrowings on
our repurchase agreements of $151.3 million. As of August 4, 2008,
unrestricted cash decreased to $38.4 million and borrowings on our repurchase
agreements decreased to $100.6 million.
-- Credit Performance: As of June 30, 2008, delinquency rates on
collateral for our CMBS portfolio in which we own the first-loss position
remain at low levels with a 60 day delinquency rate of approximately 31 basis
points compared to 32 basis points at March 31, 2008. Overall, CMBS portfolio
cash flow projections generally continue to be in line with original
underwriting. There were no delinquencies, impairment charges or loss
reserves established related to real estate loans as of and during the three
months ended June 30, 2008.
-- Adjusted Funds from Operations: Generated Adjusted Funds from
Operations ('AFFO') of $8.6 million and $19.6 million, or $0.33 and $0.76,
respectively, per diluted common share for the three and six months ended June
30, 2008.
-- GAAP Operating Results: Net income (loss) was $29.0 million and
$(37.9) million, or $1.13 and $(1.47), respectively, per diluted common share
for the three and six months ended June 30, 2008.
-- Stockholders' Equity: Stockholders' equity at June 30, 2008 is $262.8
million, or $10.15 per share, compared to $256.0 million, or $9.88 per share,
at March 31, 2008. In addition, if all assets and liabilities were carried at
fair value at June 30, 2008, we estimate that stockholders' equity would
increase to approximately $293.9 million or $11.35 per share. At the end of
this earnings release is a proforma calculation of the June 30, 2008 Fair
Value Balance Sheet and Stockholders' Equity.
-- Subsequent Events:
-- On July 31, 2008 we paid dividends of $7.8 million, or $0.30 per
share, which we declared in June 2008.
-- In July 2008, we sold a fixed rate real estate loan classified as
held for sale with a face amount of $65.0 million for proceeds of
$54.8 million. Proceeds from the sale of this loan were used to pay
down $40.8 million in related repurchase agreement borrowings and
$4.0 million of swap termination costs. The $50.8 million of
proceeds, net of swap termination costs, compares to a net carrying
value of the loan and swap of $50.8 million on June 30, 2008.
-- Between July 1, 2008 and August 4, 2008, we paid margin calls of
$9.5 million on our repurchase agreements.
Operating Results
Net income was $29.0 million, or $1.13 per diluted common share, for the
three months ended June 30, 2008, compared to net income of $10.1 million, or
$0.39 per diluted common share, for the three months ended June 30, 2007. Net
loss was $37.9 million, or $1.47 per diluted common share, for the six months
ended June 30, 2008, compared to net income of $19.9 million, or $0.77 per
diluted common share, for the six months ended June 30, 2007. AFFO was $8.6
million, or $0.33 per diluted share, for the three months ended June 30, 2008,
compared to $11.3 million, or $0.44 per diluted share, for the three months
ended June 30, 2007. AFFO was $19.6 million, or $0.76 per diluted share, for
the six months ended June 30, 2008, compared to $22.0 million, or $0.86 per
diluted share, for the six months ended June 30, 2007. At the end of this
earnings release is a reconciliation of GAAP net income (loss) to AFFO for the
three and six months ended June 30, 2008 and 2007.
Total revenues were $32.6 million and $64.3 million for the three and six
months ended June 30, 2008 compared to $34.2 million and $64.1 million for the
three and six months ended June 30, 2007, respectively. The decrease in
revenues for the three months ended June 30, 2008 compared to the same period
in 2007 is primarily due to the sale of our investment in real estate assets,
reduced income from real estate loans due to loan repayments and lower LIBOR
rates on our floating rate real estate loans and lower income from cash
balances due to lower cash balances and lower yields on cash, offset in part
by higher CMBS income due to acquisitions during 2007 and higher levels of
non-cash CMBS income. The non-cash CMBS income is principally due to the
other than temporary impairment charge on CMBS recorded during the first
quarter of 2008 which reduced our CMBS cost basis and increased GAAP yields on
CMBS, resulting in non-cash accretion income on these investments.
Interest expense for the three and six months ended June 30, 2008 was
$13.8 million and $29.2 million compared to $19.8 million and $35.4 million
for the three and six months ended June 30, 2007. Due to the adoption of SFAS
No. 159, effective January 1, 2008, as well as discontinuation of hedge
accounting on our non-CDO interest rate swaps, interest expense in the three
and six months ended June 30, 2008 does not include the impact of interest
rate swaps. During the three and six months ended June 30, 2007, interest
expense includes $(0.4) million and $(0.7) million related to interest rate
swaps. After adjusting for this classification difference, the $6.4 million
and $6.9 million decrease in interest expense for the three and six months
ended June 30, 2008, respectively, is primarily related to decreased LIBOR
rates in 2008 compared to 2007 and lower average balances outstanding on
repurchase agreements in 2008 offset in part, by higher borrowing spreads and
related facility costs on our repurchase agreements. In addition, interest
expense during the six months ended June 30, 2008 increased over the same
period in 2007 as a result of our issuance of junior subordinated debentures
in April 2007.
Total management fees were $1.9 million and $3.7 million for the three and
six months ended June 30, 2008 compared to $2.1 million and $4.1 million for
the three and six months ended June 30, 2007. Base management fees were $1.9
million and $3.7 million for each of the three and six months ended June 30,
2008 and 2007. We incurred no incentive management fees during the three and
six months ended June 30, 2008 compared to $0.2 million and $0.4 million
during the same periods in 2007.
General and administrative expenses were $1.9 million and $3.9 million for
the three and six months ended June 30, 2008 compared to $2.0 million and $4.3
million for the same periods in 2007. For the six months ended June 30, 2008
compared to the same period in 2007, the decrease in general and
administrative expenses is primarily due to decreased due diligence expense as
a result of lower acquisition volume.
During the three and six months ended June 30, 2008, other gains (losses),
net, of $14.0 million and $(65.4) million were recorded and consist of the
following (in millions):
Composition of Other Gains (Losses)
For the Three For the Six
Months Ended Months Ended
June 30, 2008 June 30, 2008
Changes in Fair Value
CDO related financial assets and liabilities
CMBS $(428) $(175,189)
Real estate loans (6,856) (11,764)
Notes payable 7,585 274,237
Interest rate swaps 22,322 2,244
Unrealized gain (loss) on CDO related
financial assets and liabilities 22,623 89,528
Non-CDO related financial assets and
liabilities
Loss on CMBS impairment (273) (45,395)
Real estate loans held for sale (506) (28,874)
Interest rate swaps 8,199 3,394
Unrealized gain (loss) on non-CDO
related financial assets and liabilities 7,420 (70,875)
Total changes in fair value 30,043 18,653
Realized Losses
Loss on real estate loan held for sale (1) (9,249) (9,249)
Loss on termination of non-CDO
interest rate swaps (1,370) (1,370)
Total realized losses (10,619) (10,619)
Cash payments on interest rate swaps (4,690) (6,773)
Recognition of amounts in other
comprehensive income (loss)
('AOCI') as of December 31, 2007
Loss on CMBS impairment - (54,457)
Unrealized gain (loss) on non-CDO
interest rate swaps - (10,795)
Amortization of swap termination costs (126) (250)
Amortization of unrealized loss on
CDO related interest rate swaps (575) (1,143)
Total recognition of amounts in AOCI
as of December 31, 2007 (701) (66,645)
Total other gains (losses) $14,033 $(65,384)
(1) Loan carrying value at March 31, 2008 reflected unrealized loss of
$8.1 million.
We recorded unrealized gains, net, on our CDO related financial assets and
liabilities of $22.6 million and $89.5 million, respectively, during the three
and six months ended June 30, 2008. For the three months ended June 30, 2008,
such unrealized gains, net, were primarily due to changes in fair value of our
interest rate swaps. Unrealized gains, net, for the six months ended June 30,
2008 were primarily due to the widening of credit spreads on CDO notes
payable, offset in part, by widening credit spreads on CMBS and real estate
loans.
We recorded non-cash impairment charges of $0.3 million and $99.9 million,
respectively, for the three and six months ended June 30, 2008 on our CMBS
investments not financed by CDO's. The non-cash impairment charges include
charges of $0.3 million and $2.4 million during the three and six months ended
June 30, 2008, respectively, related to declines in the projected net present
value of future cash flows on certain of the CMBS investments pursuant to EITF
99-20. The remaining non-cash CMBS impairment charges of $0 and $97.5 million
during the three and six months ended June 30, 2008 relates to other than
temporary declines in fair value due to widening credit spreads for CMBS
investments which began in the first half of 2007, accelerated throughout the
second half of 2007 and continued through the first quarter of 2008, resulting
in both increased severity of the level of unrealized losses as well as
increased duration of such unrealized losses. For the three and six months
ended June 30, 2007, we recorded no non-cash impairment charges on our CMBS
investments.
Unrealized losses, net, of $0.5 million and $28.9 million, respectively,
were recorded on our real estate loans held for sale during the three and six
months ended June 30, 2008. Note that these amounts are net of the reversal
of prior unrealized losses of $8.1 million on a loan that was sold during the
quarter ended June 30, 2008 at a realized loss of $9.2 million. The losses
were primarily due to spread widening on such loans and the impact of higher
benchmark rates on fixed rate loans. We carry these loans at the lower of
cost or estimated fair value, on an individual loan basis.
Unrealized gains (losses) on non-CDO related interest rate swaps of $8.2
million and $(7.4) million were recorded during the three and six months ended
June 30, 2008 as a result of discontinuing hedge accounting for these swaps
during 2008. These interest rate swaps were originally designated to hedge
existing floating rate indebtedness related to our repurchase agreements and
anticipated future long-term floating rate indebtedness. We discontinued
hedge accounting for these swaps as a result of uncertainty related to our
ability to obtain future long-term financing associated with such swaps due to
continued market disruptions as well as the potential for sales of certain of
our real estate loans held for sale which would ideally be financed by such
borrowings. No unrealized gains (losses) on interest rate swaps were recorded
during the three and six months ended June 30, 2007.
In connection with the sale of a real estate loan in June 2008 and
repayment of associated borrowings, the Company terminated an interest rate
swap with a notional balance of $45.0 million and paid swap termination costs
of $1.4 million.
Losses on interest rate swaps of $5.4 million and $8.2 million,
respectively, consist primarily of net cash settlements on such swaps of $4.7
million and $6.8 million during the three and six months ended June 30, 2008,
amortization of unrealized losses as of December 31, 2007 on CDO related
interest rate swaps of $0.6 million and $1.1 million during the three and six
months ended June 30, 2008 and amortization of swap termination costs, net,
from accumulated other comprehensive income of $0.1 million and $0.2 million
during the three and six months ended June 30, 2008.
Investment Activity
During the three months ended June 30, 2008, we received principal
repayments of $3.3 million related to two real estate loan investments.
In June 2008, we sold a fixed rate real estate loan classified as held for
sale with a face amount of $45.0 million for net proceeds of $36.2 million.
Proceeds from the sale were used to pay down $26.4 million of repurchase
agreement borrowings and $1.4 million in interest rate swap termination costs.
The $34.8 million of proceeds, net of swap termination costs, compares to a
net carrying value of the loan and swap of $33.4 million on March 31, 2008.
Since raising our initial equity capital in June 2004 through June 30,
2008, we have closed 55 investments, comprised of CMBS, real estate loans,
real estate assets and investments in the US Debt Fund totaling approximately
$2.0 billion.
