JER INVESTORS TRUST INC. 
By MCLEAN, Va., Nov. 10 /PRNewswire-FirstCall/ -- JER Investors Trust Inc. (OTC Bulletin Board: JERT),("JERT") today reported results for the quarter ended September 30, 2009:
Third Quarter Highlights:
-- Liquidity: At September 30, 2009, we had $1.1 million in unrestricted
cash and net borrowings on our repurchase agreement of $8.9 million. As
of November 6, 2009, unrestricted cash decreased to $1.0 million and net
borrowings on our repurchase agreement declined to $8.1 million. As of
September 30, 2009, we were not in compliance with the minimum tangible
net worth covenant under our repurchase agreement. In addition, this
repurchase agreement facility matures on December 22, 2009, and we
believe it is unlikely that the facility will be extended or renewed at
maturity. As a result, we are currently seeking a replacement source of
financing or, if unable to refinance, we will need to liquidate the CMBS
collateral that is security for the facility.
-- Operating Results: Net loss was $34.2 million and $61.3 million, or
$(7.58) and $(12.94), per ADCS, for the three and nine months ended
September 30, 2009, respectively.
-- Stockholders' Equity: Stockholders' equity at September 30, 2009 was
$(12.5) million, or $(2.14) per common share.
-- Real Estate Loan Portfolio Credit Statistics: Although all of our real
estate loans continue to be current, the fair value of such loans
declined during the quarter due to deteriorating underlying asset
performance, in particular certain hospitality backed mezzanine loans.
-- CMBS Portfolio Credit Statistics: Outlined below are credit statistics
relating to the approximately $47 billion of unpaid principal balance of
commercial real estate loans as of September 30, 2009, representing
approximately 3,500 loans, that serve as collateral for our "first-loss"
conduit CMBS investments.
-- 60-day and greater delinquencies on loan collateral underlying our
CMBS "first-loss" investments were 319 basis points at September 30,
2009 compared to 249 basis points at June 30, 2009. As of October
31, 2009, the 60-day and greater delinquency rate increased to 328
basis points.
-- Special servicing portfolio at September 30, 2009 consisted of 185
loans with an unpaid principal balance of approximately $3.4
billion. As of November 4, 2009, the number of loans in special
servicing increased to 207 loans with an aggregate unpaid principal
balance of approximately $3.8 billion. Of the $3.8 billion of loan
balances in special servicing, 58 loans totaling $2.1 billion are
current, 6 loans totaling $40.5 million have been foreclosed upon
and 143 loans totaling $1.7 billion are delinquent and are in
monetary default. Based on the evaluation of the collateral
properties underlying the CMBS investments and giving consideration
to the workout status of the respective loans, we have incorporated
estimates of future loan loss projections on the underlying
collateral into the cash flow projections for such CMBS investments.
-- CMBS Portfolio Loss Projections: Primarily due to the continuing
increases in delinquencies and the size of the special servicing
portfolio, as well as current weakness in the real estate and credit
markets, we increased our loss projections on the approximately $47
billion of commercial real estate loan collateral underlying our CMBS
"first-loss" investments as of September 30, 2009 to approximately $1.7
billion (approximately 3.6% of the unpaid principal balance of such
loans) from approximately $1.4 billion (approximately 3.0% of the unpaid
principal balance of such loans) at June 30, 2009. In addition, we
accelerated the projected timing of such losses and currently estimate
that approximately 71% of the total projected losses will occur through
2011 compared to approximately 64% in our June 30, 2009 loss
projections. Cumulative actual realized losses and cumulative appraisal
reduction amounts on the underlying loans serving as collateral for our
"first-loss" conduit CMBS investments through September 30, 2009 were
approximately $27.0 million and $378.7 million, respectively. As we
continue to monitor developments in our portfolio and the overall
macroeconomic environment, loss reserves may increase in the future in
response to further deterioration in the real estate and credit markets.
-- Other Than Temporary Impairment Charges: During the three and nine
months ended September 30, 2009, we recorded $2.7 million and $24.7
million, respectively, of impairment charges related to our CMBS
investments that are not financed by CDOs and relate to declines in the
projected net present value of future cash flows related to individual
CMBS investments and other than temporary impairment charges on our CMBS
driven by the unrealized losses on various CMBS bonds.
Recent Events
-- On October 7, 2009, we entered into an amendment with the counterparty
to our seven year fixed rate note payable, reducing the October and
November 2009 monthly payments due under the agreement from $0.4 million
to $75,000 and resulting in an aggregate deferral in payments of $0.8
million during such two-month period. In addition, the amendment
provides that commencing in December 2009, through and including
September 2010, the Company's monthly payments under the Agreement shall
be increased from $0.4 million to $0.5 million, thereby providing for
the repayment of the deferred payment amount over the ten-month period
following November 2009.
-- On October 14, 2009, we and our manager entered into an amendment to the
management agreement whereby, effective as of October 7, 2009, that
during the months of October and November 2009, (i) we shall not be
required to make any payments of base management fees and/or incentive
fees otherwise due and payable under the management agreement in excess
of $75,000 per month and (ii) any fees accruing and otherwise payable
under the management agreement in excess of the monthly cash limit shall
be deferred and due and payable by us to the manager on such date after
November 30, 2009 as we and the manager shall mutually agree in writing.
Liquidity
As previously disclosed, the Company has undertaken certain efforts to reduce expenses and preserve liquidity including: (i) discontinuing payment of quarterly dividends and replacing it with payment of an annual dividend to the extent required to satisfy REIT dividend requirements, (ii) seeking to reduce operating costs, primarily our general and administrative costs, (iii) seeking to restructure terms of our recourse indebtedness, including extension of scheduled maturity dates and/or modification of near-term interest payment requirements; and (iv) if necessary, pursuing sales of selected assets.
At this time, we expect that we will not generate taxable income in 2009, and therefore will not be required to pay a dividend for the year ended December 31, 2009.
During 2009, we have exchanged $56.3 million of our TRUPs into $70.3 million of junior subordinated notes, and cancelled $3.7 million of TRUPs thereby reducing quarterly cash interest payments from approximately $1.1 million per quarter on the TRUPs to approximately $0.1 million per quarter on the junior subordinated notes through April 2012. In addition, we amended our note payable to reduce monthly payments from approximately $0.4 million to $75,000 from July through November 2009, and amended our agreement with our manager to reduce cash basis monthly management fees to $75,000 from April to November 2009.
Currently, our primary source of free operating cash flow are our non-CDO CMBS investments. Cash flow from these investments have declined from approximately $4.0 million in the second quarter of 2009 to approximately $3.7 million during the third quarter of 2009 due to deteriorating macroeconomic and commercial real estate conditions evidenced by increasing delinquencies, special servicing activity and the appraisal reductions on collateral for such investments. In addition, cash flows from our retained preferred shares in CDO I declined from $0.4 million during the three months ended June 30, 2009 to $0 during the three months ended September 30, 2009 due primarily to CMBS bond downgrades to "CC" or below on CDO I collateral. Such securities are considered Defaulted Securities (as defined in the CDO I indenture), and the cash flow from such securities is therefore redirected to repay the senior most class of CDO I notes payable. This decline in non-CDO CMBS and CDO I cash flow has further adversely affected our liquidity.
Investments
JERT's investments as of September 30, 2009 consisted of ($ in millions):
September 30, 2009 Weighted Average
------------------------------------------ -----------------
% of
Face Amount/ Total Loss
Cost Basis Amortized Fair Investments Coupon Adjusted
(1) Cost Value (2) Rate (3) Yield
------------ --------- ------ ------------ -------- --------
CMBS not
financed
by CDOs $424.8 $13.1 $13.8 6.2% 5.2% 55.9%(4)
CMBS
financed
by CDO I 418.7 39.6 48.0 21.7% 4.9% 40.4%(4)
CMBS
financed
by CDO II 874.0 36.4 40.8 18.4% 5.2% 50.2%(4)
----- ---- ---- ---- --- ----
Total CMBS
(5) 1,717.5 89.1 102.6 46.3% 5.1% 46.2%
Real
estate
loans,
held for
investment
(6) 270.3 270.0 118.7 53.5% 3.3% 3.3%
Investment
in US Debt
Fund 0.4 0.4 0.4 0.2% N/A N/A
--- --- --- --- ----- -----
Total $1,988.2 $359.5 $221.7 100.0% 4.9% 13.9%
======== ====== ====== ===== === ====
(1) For investments in unconsolidated joint ventures.
(2) Based on fair value.
(3) Based on face amount.
(4) Loss adjusted yields for our CMBS investments reflect the impact of
estimated future losses on underlying collateral and are the basis on
which we record interest income on such investments in our GAAP
financial statements.
(5) Amortized cost has been reduced from original cost primarily due to
the recognition of cumulative impairments and basis writedowns of
$898.0 million through September 30, 2009.
(6) Real estate loans are financed by CDO II.
Borrowings
With respect to liabilities, at September 30, 2009, total liabilities were $246.7 million. The individual components of our liabilities are described below:
-- $8.9 million (or 3.6% of total liabilities) represents net borrowings
under a short-term repurchase facility with J.P. Morgan Securities Inc.
The facility is generally subject to "margin calls" based on
mark-to-market fair value determinations of the underlying collateral
and is fully recourse to us. As of September 30, 2009, we were not in
compliance with the minimum tangible net worth covenant under this
facility. The facility matures on December 22, 2009, and we believe it
is unlikely that the facility will be extended or renewed at maturity.
As a result, we are currently seeking a replacement source of financing
or, if we are unable to refinance, we will need to liquidate the CMBS
collateral that is security for the facility.
-- $117.5 million (or 47.6% of total liabilities) represents the estimated
fair value of borrowings in the form of long-term, "match-funded" notes
payable issued to third parties relating to our two collateralized debt
obligation offerings, CDO I and CDO II, with an aggregate face amount of
$959.3 million. CDO I and CDO II are not subject to "margin calls"
based on mark-to-market fair value determinations of the underlying
collateral and are generally non-recourse to the Company.
-- $9.8 million (or 4.0% of total liabilities) represents a note payable
into which the Company entered as a result of the restructuring of four
interest rate swaps. We have reflected this agreement as a note payable
on our consolidated balance sheets as it does not meet the definition of
a derivative. In July and October 2009, we amended this agreement and
as a result of such amendments, we are obligated to pay a fixed monthly
amount of $75,000 through November 2009, then increasing to
approximately $0.5 million through September 2010 and then decreasing to
approximately $0.4 million through February 2017.
-- $58.7 million (or 23.8% of total liabilities) represents the cost basis
of borrowings in the form of junior subordinated notes ("the Notes")
with a face amount of $70.3 million. The Notes will pay interest at an
annual rate of 0.5% through April 2012 and LIBOR plus 2.25% thereafter
through maturity in April 2037. These Notes are not subject to "margin
calls" based on mark-to-market fair value determinations of underlying
collateral but are fully recourse to us. These Notes were issued as
part of the exchange and cancellation of $56.3 million of face amount of
TRUPs in May 2009.
-- $46.7 million (or 18.9% of total liabilities) represents the fair value
of our CDO-related pay-fixed interest rate swaps with a notional balance
at September 30, 2009 of $413.1 million and a weighted-average interest
rate of 5.1%.
-- $5.1 million (or 2.1% of total liabilities) consists of amounts due to
affiliates of $1.7 million, trade payables and other liabilities.
As previously announced, CDO II did not meet certain over-collateralization coverage tests in February 2009, resulting in approximately $4.0 million and $13.5 million of cash that would have otherwise been paid to JERT during the three and nine months ended September 30, 2009, respectively, being redirected to repay principal on certain senior notes payable issued by CDO II. We expect this cash flow redirection to continue for the foreseeable future. As of September 30, 2009, we were not in compliance with the tangible net worth covenant on the JPMorgan repurchase agreement.
Non-GAAP Financial Measures
In this earnings release, we may disclose non-GAAP financial measures as defined by SEC Regulation G. In addition, we have used non-GAAP financial measures, in particular earnings (loss) per adjusted diluted common share, or ADCS, in this press release. A reconciliation of earnings (loss) per ADCS and the comparable GAAP financial measure (net income, assets, liabilities and stockholders' equity and earnings per share, as applicable) can be found at the end of this earnings release.
Generally accepted accounting principles ("GAAP") require that we retrospectively restate earnings per share for our 1-for-10 reverse stock split that occurred on February 20, 2009. However, under GAAP, we are precluded from retrospectively restating earnings per common share for our stock dividend paid on January 30, 2009 as a portion of this dividend was paid in cash. Management believes that it is meaningful to investors to disclose the retrospective effect of both the 1-for-10 reverse stock split as well as the stock dividend. Accordingly, we are presenting non-GAAP earnings per Adjusted Diluted Common Share ("ADCS"). See a reconciliation of earnings per common share calculated under GAAP to earnings per ADCS at the end of this release.
About JER Investors Trust Inc.
JER Investors Trust Inc. is a specialty finance company quoted on the OTC Bulletin Board that invests in commercial real estate structured finance products. Our target investments include commercial mortgage backed securities, mezzanine loans and B-Note participations in mortgage loans, commercial mortgage loans and net leased real estate investments. JER Investors Trust Inc. is organized and conducts its operations so as to qualify as a real estate investment trust ("REIT") for federal income tax purposes. For more information regarding JER Investors Trust Inc. and to be added to our e-mail distribution list, please visit www.jer.com.
Forward-Looking Statements
This press release does not constitute an offer of any securities for sale. Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. JER Investors Trust can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from JER Investors Trust's expectations include, but are not limited to, changes in the real estate and capital markets, our ability to maintain existing financing arrangements and other risks detailed from time to time in JER Investors Trust's SEC reports. Such forward-looking statements speak only as of the date of this press release. JER Investors Trust expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in JER Investors Trust's expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.
CONTACT:
J. Michael McGillis
Chief Financial Officer
JER Investors Trust Inc.
(703) 714-8000
JER INVESTORS TRUST INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
September December 31,
30, 2009 2008
--------- ------------
(unaudited) (audited)
ASSETS
Cash and cash equivalents $1,095 $8,357
Restricted cash 4,844 1,149
CMBS financed by CDOs, at fair value 88,817 180,210
CMBS not financed by CDOs, at fair value 13,812 42,432
Real estate loans, held for investment,
financed by CDOs, at fair value 118,717 189,980
Investments in unconsolidated joint
ventures 374 843
Accrued interest receivable 4,954 8,343
Due from affiliate 395 157
Deferred financing fees, net 896 981
Other assets 337 2,349
-------- --------
Total Assets $234,241 $434,801
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
CDO notes payable, at fair value $117,532 $211,695
Repurchase agreements 8,858 16,108
Junior subordinated debentures and notes 58,669 61,860
Notes payable 9,849 500
Interest rate swap agreements related to
CDOs, at fair value 46,668 91,984
Accounts payable and accrued expenses 1,519 839
Dividends payable - 2,274
Due to affiliate 1,651 689
Other liabilities 1,951 2,489
----- -----
Total Liabilities 246,697 388,438
Stockholders' Equity:
Common stock, $0.01 par value, 100,000,000 shares
authorized, 5,829,611 and 2,590,104 shares
issued and outstanding at September 30, 2009
and December 31, 2008, respectively 58 26
Additional paid-in capital 413,574 392,744
Cumulative cash dividends paid/declared (157,705) (157,705)
Cumulative stock dividends paid/declared (20,462) -
Cumulative deficit (226,903) (165,626)
Accumulated other comprehensive loss (21,018) (23,076)
------- ------
Total Stockholders' Equity (12,456) 46,363
------- ------
Total Liabilities and Stockholders'
Equity $234,241 $434,801
======== ========
JER INVESTORS TRUST INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(In thousands, except share and per share data)
For the Three For the Nine
Months Ended Months Ended
September 30, September 30,
--------------- ---------------
2009 2008 2009 2008
---- ---- ---- ----
REVENUES
Interest income from CMBS $11,354 $21,767 $43,957 $67,939
Interest income from real
estate loans 2,292 6,187 6,961 22,520
Interest income from cash
and cash equivalents 2 187 18 803
Equity in (losses)
earnings, net, of
unconsolidated joint
ventures (335) (429) (1,999) 538
Fee income 262 151 914 403
--- --- --- ---
Total Revenues 13,575 27,863 49,851 92,203
EXPENSES
Interest expense 6,343 12,437 20,420 41,633
Management fees, affiliate 989 1,844 3,160 5,545
General and administrative 1,677 1,610 6,068 5,528
----- ----- ----- -----
Total Expenses 9,009 15,891 29,648 52,706
INCOME BEFORE OTHER GAINS
(LOSSES) 4,566 11,972 20,203 39,497
OTHER GAINS (LOSSES)
Unrealized loss on
financial assets financed
with CDOs (19,330) (108,136) (154,069) (295,122)
Unrealized gain (loss),
net, on CDO related
financial liabilities (11,595) 99,319 110,373 375,831
Loss on interest rate swaps (5,663) (4,576) (17,842) (12,736)
Loss on impairment of CMBS (2,733) (29,800) (24,697) (129,686)
Unrealized gain (loss),
net, on real estate loans
held for sale - 8,781 - (20,094)
Unrealized gain (loss) on
non-CDO related interest
rate swaps - 2,685 13,860 (4,708)
Gain on exchange and
cancellation of TRUPs 518 - 3,175 -
Loss on sale of real
estate loans held for sale - (11,060) - (20,310)
Loss on termination of
interest rate swaps - (4,035) (12,280) (5,405)
--- ------ ------- ------
Total other gains
(losses) (38,803) (46,822) (81,480) (112,230)
------- ------- ------- --------
NET LOSS $(34,237) $(34,850) $(61,277) $(72,733)
======== ======== ======== ========
Net loss per share:
Basic $(5.88) $(13.53) $(12.04) $(28.26)
====== ======= ======= =======
Diluted $(5.88) $(13.53) $(12.04) $(28.26)
====== ======= ======= =======
Weighted average shares of
common stock outstanding:
Basic 5,827,067 2,575,148 5,087,632 2,573,292
========= ========= ========= =========
Diluted 5,827,067 2,575,148 5,087,632 2,573,292
========= ========= ========= =========
Dividends declared per
common share $- $3.00 $- $9.00
=== ===== === =====
JER INVESTORS TRUST INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(In thousands)
For the Nine
Months Ended
September 30,
---------------
2009 2008
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(61,277) $(72,733)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Amortization (accretion) of CMBS 8,659 (1,317)
Accretion of interest on junior subordinated
notes and notes payable 1,874 -
Amortization of debt issuance costs 86 2,857
Amortization of other comprehensive (income) loss
related to
CDO related interest rate swap agreements 2,208 2,093
Unrealized loss (gain) on CDO related financial
assets and liabilities, net 43,696 (80,709)
Unrealized and realized (gains) losses on
interest rate swaps (1,580) 10,113
Unrealized loss on impairment of CMBS 24,697 129,686
Loss on sale of real estate loans held for sale - 20,310
Gain on exchange and cancellation of TRUPs (3,175) -
Unrealized loss on real estate loans held for
sale, net - 20,094
Equity in (earnings) losses, net, from
unconsolidated joint ventures 1,999 (538)
Distributions from unconsolidated joint ventures - 1,252
Payment-in-kind ("PIK") interest on real estate
loan held for sale - (3,481)
Non-cash interest expense on junior subordinated
debentures and notes payable 1,432 -
Non-cash expense related to shares issued for
TRUPs exchange and cancellation 145 -
Stock compensation expense 18 267
Changes in assets and liabilities:
Decrease (increase) in other assets 152 (26)
Decrease in accrued interest receivable 3,389 1,234
Increase in due to/from affiliates, net 722 1,305
Increase (decrease) in accounts payable and
accrued expenses and other liabilities, net 142 (776)
------ ------
Net cash provided by operating activities 23,187 29,631
------ ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in unconsolidated joint ventures (1,529) (2,231)
(Increase) decrease in restricted cash, net (3,695) 4,731
Proceeds from sale of unconsolidated joint venture - 39,448
Proceeds from repayment of real estate loans 3,701 8,528
Proceeds from sale of real estate loans held for
sale - 90,981
--- ------
Net cash (used in) provided by investing
activities (1,523) 141,457
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (2,274) (43,885)
Proceeds from repurchase agreements - 2,426
Repayment of repurchase agreements (7,250) (176,213)
Repayment of CDO notes payable (15,245) -
Proceeds from notes payable, net (540) -
Exchange and cancellation of junior subordinated
debentures (337) -
Payment of financing costs - (3,015)
Payment of interest rate swap termination costs (3,280) (5,405)
------ ------
Net cash used in financing activities (28,926) (226,092)
------- --------
Net decrease in cash and cash equivalents (7,262) (55,004)
Cash and cash equivalents at beginning of period 8,357 87,556
------ -------
Cash and cash equivalents at end of period $1,095 $32,552
====== =======
Supplemental Disclosures of Cash Flow Information
Cash paid for interest $29,837 $50,384
======= =======
Non-cash note payable in satisfaction of interest
rate swap agreements $9,000 $-
====== ===
Dividends declared but not paid $- $7,751
=== ======
Stock issued as part of exchange and cancellation of
TRUPs $382 $-
==== ===
2. Earnings and Book Value per Adjusted Diluted Common Share ("ADCS") (1)
JER INVESTORS TRUST INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited)
EPS (Basic) EPS (Basic)
----------- -----------
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
2009 2008 2009 2008
---- ---- ---- ----
Earnings per share
(basic) under GAAP $(5.88) $(13.53) $(12.04) $(28.26)
Add (deduct) impact of
stock dividend (1.70) 6.52 (0.90) 13.63
----- ---- ----- -----
Earnings per adjusted
share (basic) $(7.58) $(7.01) $(12.94) $(14.63)
====== ====== ======= =======
EPS (Diluted) EPS (Diluted)
------------- -------------
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
2009 2008 2009 2008
---- ---- ---- ----
Earnings per share
(diluted) under GAAP $(5.88) $(13.53) $(12.04) $(28.26)
Add (deduct) impact of
stock dividend (1.70) 6.52 (0.90) 13.63
----- ---- ----- -----
Earnings per ADCS $(7.58) $(7.01) $(12.94) $(14.63)
====== ====== ======= =======
Book Value per Share (Basic)
----------------------------
As of September As of December
30, 2009 31, 2008
--------------- --------------
Book value per share
(basic) under GAAP $(2.14) $17.90
Add (deduct) impact of
stock dividend 0.01 (8.61)
---- -----
Book value per adjusted
share (basic) $(2.13) $9.29
====== =====
Book Value per Share (Diluted)
------------------------------
As of September As of December
30, 2009 31, 2008
--------------- --------------
Book value per share
(diluted) under GAAP $(2.14) $17.90
Add (deduct) impact of
stock dividend 0.01 (8.61)
---- -----
Book value per ADCS $(2.13) $9.29
====== =====
(1)( ) GAAP requires that we retrospectively restate earnings per share for our 1-for-10 reverse stock split that occurred on February 20, 2009. However, under GAAP, we are precluded from retrospectively restating earnings per share for our stock dividend paid on January 30, 2009 as a portion of this dividend was paid in cash. Management believes it is meaningful to investors to disclose the retrospective effect of both the 1-for-10 reverse stock split as well as the stock dividend. Accordingly, we are presenting the non-GAAP measure earnings per Adjusted Diluted Common Share ("ADCS").
SOURCE JER Investors Trust Inc.
