As filed with the Securities and Exchange Commission on May 14, 1999
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number 1-14788
-------
Capital Trust, Inc.
-------------------
(Exact name of registrant as specified in its charter)
Maryland 94-6181186
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
605 Third Avenue, 26th Floor, New York, NY 10016
------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 655-0220
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- ---------------------
Class A Common Stock, New York Stock Exchange
$0.01 par value ("Class A Common Stock")
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes[ X ] No[ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of outstanding shares of the Registrant's Class A Common
stock as of May 13, 1999 was 18,352,983.
<PAGE>
EXPLANATORY NOTE
- ----------------
Capital Trust, Inc., a Maryland corporation (the "Company"), is the
successor to Capital Trust, a California business trust (the "Predecessor"),
following consummation of the reorganization on January 28, 1999 whereby the
Predecessor ultimately merged with and into the Company. Unless the context
otherwise requires, references to the business, assets, liabilities, capital
structure, operations and affairs of the Company include those of the
Predecessor prior to the reorganization.
<PAGE>
CAPITAL TRUST, INC.
INDEX
Part I. Financial Information
Item 1: Financial Statements 1
Consolidated Balance Sheets - March 31, 1999
(unaudited) and December 31, 1998 (audited) 1
Consolidated Statements of Income - Three Months
Ended March 31, 1999 and 1998 (unaudited) 2
Consolidated Statements of Changes in Stockholders' Equity - Three
Months Ended March 31, 1999 and 1998 (unaudited) 3
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1999 and 1998 (unaudited) 4
Notes to Consolidated Financial Statements (unaudited) 5
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 3: Quantitative and Qualitative Disclosures about
Market Risk 18
Part II. Other Information
Item 1: Legal Proceedings 20
Item 2: Changes in Securities 20
Item 3: Defaults Upon Senior Securities 20
Item 4: Submission of Matters to a Vote of Security Holders 20
Item 5: Other Information 21
Item 6: Exhibits and Reports on Form 8-K 22
Signatures 23
<PAGE>
Capital Trust, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 1999 and December 31, 1998
(in thousands)
<TABLE>
<CAPTION>
March 31,
1999
-----------------------
Assets (Unaudited)
<S> <C>
Cash and cash equivalents $ 24,837
Other available-for-sale securities, at fair value 2,814
Commercial mortgage-backed securities, available-for-sale and recorded at fair value 222,051
Certificated mezzanine investments available-for-sale, at fair value 45,333
Loans receivable, net of $4,582 and $4,017 reserve for possible credit losses at March 31,
1999 and December 31, 1998, respectively 497,839
Excess of purchase price over net tangible assets acquired, net 303
Deposits and other receivables 336
Accrued interest receivable 8,136
Deferred income taxes 3,321
Prepaid and other assets 7,718
=======================
Total assets $812,688
=======================
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses $ 9,635
Notes payable 3,820
Credit facilities 313,651
Term redeemable securities contract 127,135
Repurchase obligations 51,945
Deferred origination fees and other revenue 3,646
-----------------------
Total liabilities 509,832
-----------------------
Company-obligated, mandatorily redeemable, convertible preferred securities of
CT Convertible Trust I, holding solely 8.25% junior subordinated debentures
of Capital Trust, Inc.
("Convertible Trust Preferred Securities")
145,744
-----------------------
Stockholders' equity:
Class A Convertible Preferred Stock, $0.01 par value, $0.26 cumulative annual
dividend, 100,000 shares authorized, 12,268 shares issued and outstanding
(liquidation preference of $33,000) 123
Class A Common Stock, $0.01 par value, 100,000 shares authorized, 18,159 shares issued and
outstanding 182
Restricted Class A Common Stock, $0.01 par value, 144 and 55 shares issued and outstanding
at March 31, 1999 and December 31, 1998, respectively 1
Additional paid-in capital 189,578
Unearned compensation (817)
Accumulated other comprehensive income (395)
Accumulated deficit (31,560)
-----------------------
Total stockholders' equity 157,112
-----------------------
Total liabilities and stockholders' equity $812,688
=======================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
December 31,
1998
------------------------
Assets (Audited)
<S> <C>
Cash and cash equivalents $46,623
Other available-for-sale securities, at fair value 3,355
Commercial mortgage-backed securities, available-for-sale and recorded at fair value 31,650
Certificated mezzanine investments available-for-sale, at fair value 45,480
Loans receivable, net of $4,582 and $4,017 reserve for possible credit losses at March 31,
1999 and December 31, 1998, respectively 620,858
Excess of purchase price over net tangible assets acquired, net 308
Deposits and other receivables 401
Accrued interest receivable 8,041
Deferred income taxes 3,029
Prepaid and other assets 6,693
========================
Total assets $766,438
========================
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses $ 12,356
Notes payable 4,247
Credit facilities 371,754
Term redeemable securities contract -
Repurchase obligations 79,402
Deferred origination fees and other revenue 4,448
------------------------
Total liabilities 472,207
------------------------
Company-obligated, mandatorily redeemable, convertible preferred securities of
CT Convertible Trust I, holding solely 8.25% junior subordinated debentures
of Capital Trust, Inc.
("Convertible Trust Preferred Securities")
145,544
------------------------
Stockholders' equity:
Class A Convertible Preferred Stock, $0.01 par value, $0.26 cumulative annual
dividend, 100,000 shares authorized, 12,268 shares issued and outstanding
(liquidation preference of $33,000) 123
Class A Common Stock, $0.01 par value, 100,000 shares authorized, 18,159 shares issued and
outstanding 182
Restricted Class A Common Stock, $0.01 par value, 144 and 55 shares issued and outstanding
at March 31, 1999 and December 31, 1998, respectively 1
Additional paid-in capital 188,816
Unearned compensation (418)
Accumulated other comprehensive income 4,665)
Accumulated deficit (35,352)
------------------------
Total stockholders' equity 148,687
------------------------
Total liabilities and stockholders' equity $766,438
========================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<PAGE>
Capital Trust, Inc. and Subsidiaries
Consolidated Statements of Income
Three Months Ended March 31, 1999 and 1998
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
<S> <C> <C>
Income from loans and other investments:
Interest and related income $ 22,152 $ 7,977
Less: Interest and related expenses 8,618 3,081
------------------- ----------------
Income from loans and other investments, net 13,534 4,896
------------------- ----------------
Other revenues:
Advisory and investment banking fees 3,093 2,860
Other interest income 620 370
------------------- ----------------
Total other revenues 3,713 3,230
------------------- ----------------
Other expenses:
General and administrative 5,255 3,241
Other interest expense 91 106
Depreciation and amortization 87 46
Provision for possible credit losses 1,079 480
------------------- ----------------
Total other expenses 6,512 3,873
------------------- ----------------
Income before income taxes and distributions and amortization on
Convertible Trust Preferred Securities
10,735 4,253
Provision for income taxes 5,202 1,580
------------------- ----------------
Income before distributions and amortization on Convertible Trust
Preferred Securities 5,533 2,673
Distributions and amortization on Convertible Trust Preferred
Securities, net of income tax benefit of $1,554
1,741 -
------------------- ----------------
Net income $ 3,792 $ 2,673
Less: Class A Preferred Share dividend requirement (784) (784)
------------------- ----------------
Net income allocable to Class A Common Shares $ 3,008 $ 1,889
=================== ================
Per share information:
Net earnings per share of Class A Common Stock
Basic $ 0.16 $ 0.10
=================== ================
Diluted $ 0.12 $ 0.09
=================== ================
Weighted average shares of Class A Common Stock outstanding
Basic 18,317,103 18,207,900
=================== ================
Diluted 30,884,761 30,736,405
=================== ================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
<PAGE>
Capital Trust, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the Three Months Ended March 31, 1999 and 1998
(in thousands) (unaudited)
<TABLE>
<CAPTION>
Restricted Accumulated
Class A Class A Class A Additional
Comprehensive Preferred Common Common Paid-In
Income Stock Stock Stock Capital
------------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
Three months ended March 31, 1998
- ----------------------------------------
Balance at December 31, 1997 $ - $ 123 $ 182 $ - $188,257
Net income 2,673 - - - -
6
Change in unrealized gain on
available-for-sale securities (118) - - - -
Issuance of restricted
Class A Common Stock - - - 1 724
Restricted Class A Common Stock earned
- - - - -
=================== ============== ============== ============== ==============
Balance at March 31, 1998 $ 2,555 $ 123 $ 182 $ 1 $188,981
=================== ============== ============== ============== ==============
Three months ended March 31, 1999
- ----------------------------------------
Balance at December 31, 1998 $ - $ 123 $ 182 $ 1 $188,816
Net income 3,792 - - - -
Change in unrealized loss on
available-for-sale securities 4,270 - - - -
Cancellation of previously issued restricted
Class A Common Stock - - - (1) (149)
Issuance of Class A Common Stock unit
awards - - - - 312
Issuance of restricted
Class A Common Stock - - - 1 599
Restricted Class A Common Stock earned
- - - - -
=================== ============== ============== ============== ==============
Balance at March 31, 1999 $ 8,062 $ 123 $ 182 $ 1 $189,578
=================== ============== ============== ============== ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
<TABLE>
<CAPTION>
Other
Unearned Comprehensive Accumulated
Compensation Income Deficit Total
----------------- -------------------- ----------------- --------------
<S> <C> <C> <C> <C>
Three months ended March 31, 1998
- ----------------------------------------
Balance at December 31, 1997 $ - $ 387 $ (45,660) $ 143,289
Net income - - 2,673 2,673
Change in unrealized gain on
available-for-sale securities - (118) - (118)
Issuance of restricted
Class A Common Stock (725) - - -
Restricted Class A Common Stock earned
32 - - 32
================= ==================== ================= ==============
Balance at March 31, 1998 $ (693) $ 269 $ (42,987) $ 145,876
================= ==================== ================= ==============
Three months ended March 31, 1999
- ----------------------------------------
Balance at December 31, 1998 $ (418) $ (4,665) $ (35,352) $ 148,687
Net income - - 3,792 3,792
Change in unrealized loss on
available-for-sale securities - 4,270 - 4,270
Cancellation of previously issued restricted
Class A Common Stock 104 - - (46)
Issuance of Class A Common Stock unit
awards - - - 312
Issuance of restricted
Class A Common Stock (600) - - -
Restricted Class A Common Stock earned
97 - - 97
================= ==================== ================= ==============
Balance at March 31, 1999 $ (817) $ (395) $ (31,560) $ 157,112
================= ==================== ================= ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
Capital Trust, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Three months ended March 31, 1999 and 1998
(in thousands) (unaudited)
<TABLE>
<CAPTION>
1999 1998
----------------- --------------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,792 $ 2,673
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income taxes (292) -
Provision for credit losses 1,079 480
Depreciation and amortization 87 46
Restricted Class A Common Stock earned 97 32
Net amortization of premiums and accretion of discounts on loans and investments 54 -
Accretion of discounts on term redeemable securities contract 250 -
Net accretion of discounts and fees on Convertible Trust Preferred Securities 200 -
Expenses reversed on cancellation of restricted stock previously issued (46) -
Changes in assets and liabilities:
Deposits and other receivables 65 (3,540)
Accrued interest receivable (95) (2,600)
Prepaid and other assets (1,058) (895)
Deferred origination fees and other revenue (802) 1,730
Accounts payable and accrued expenses (2,409) (620)
--------------- --------------------
Net cash provided by (used in) operating activities 922 (2,694)
--------------- --------------------
Cash flows from investing activities:
Purchases of commercial mortgage-backed securities (185,947) (28,959)
Principal collections on commercial mortgage-backed securities - 10,963
Principal collections on certificated mezzanine investments 147 159
Origination and purchase of loans receivable (2,975) (148,153)
Principal collections and proceeds from sale of loans receivable 124,689 248
Purchases of equipment and leasehold improvements (49) (126)
Principal collections and proceeds from sales of available-for-sale
securities 529 2,253
--------------- --------------------
Net cash used in investing activities (63,606) (163,615)
--------------- --------------------
Cash flows from financing activities:
Proceeds from repurchase obligations 24 26,612
Repayment of repurchase obligations (27,481) (10,840)
Proceeds from credit facilities 26,957 148,714
Repayment of credit facilities (85,060) (39,864)
Proceeds from notes payable 78 -
Repayment of notes payable (505) (506)
Net proceeds from issuance of term redeemable
securities contract 126,885 -
--------------- --------------------
Net cash provided by financing activities 40,898 124,116
--------------- --------------------
Net decrease in cash and cash equivalents (21,786) (42,193)
Cash and cash equivalents at beginning of year 46,623 49,268
--------------- --------------------
Cash and cash equivalents at end of period $ 24,837 $ 7,075
=============== ====================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
March 31, 1999
(unaudited)
1. Presentation of Financial Information
The accompanying unaudited consolidated interim financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The accompanying unaudited consolidated interim financial
statements should be read in conjunction with the financial statements and the
related management's discussion and analysis of financial condition and results
of operations filed with the Annual Report on Form 10-K of Capital Trust, Inc.
and Subsidiaries (collectively, the "Company") for the fiscal year ended
December 31, 1998. In the opinion of management, all adjustments (consisting
only of normal recurring accruals) considered necessary for a fair presentation
have been included. The results of operations for the three months ended March
31, 1999, are not necessarily indicative of results that may be expected for the
entire year ending December 31, 1999.
The accompanying unaudited consolidated interim financial statements of the
Company include the accounts of the Company, VIC, Inc., which holds Victor
Capital and its wholly-owned subsidiaries, Natrest Funding I, Inc. (a single
purpose entity holding one Mortgage Loan), CT Convertible Trust I (a statutory
trust which issued the Convertible Trust Preferred Securities) and CT-BB Funding
Corp. (a single purpose entity holding fifteen CMBS). All significant
intercompany balances and transactions have been eliminated in consolidation.
The accounting and reporting policies of the Company conform in all material
respects to generally accepted accounting principles. Certain prior period
amounts have been reclassified to conform to current period classifications.
2. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
5
<PAGE>
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
3. Earnings Per Share of Class A Common Stock
Earnings per share of Class A Common Stock is presented based on the
requirements of Statement of Financial Accounting Standards No. 128 ("SFAS No.
128"). Basic EPS is computed based on the income applicable to Class A Common
Stock (which is net income reduced by the dividends on the Class A Preferred
Stock) divided by the weighted-average number of shares of Class A Common Stock
outstanding during the period. Diluted EPS is based on the net earnings
applicable to Class A Common Stock plus dividends on the Class A Preferred
Stock, divided by the weighted average number of shares of Class A Common Stock
and potentially dilutive shares of Class A Common Stock that were outstanding
during the period. At March 31, 1999, potentially dilutive shares of Class A
Common Stock include the convertible Class A Preferred Stock and dilutive Class
A Common Stock unit awards. At March 31, 1997, potentially dilutive shares of
Class A Common Stock include the convertible Class A Preferred Stock and
dilutive Class A Common Stock options. The options outstanding during the period
ended March 31, 1999 are not dilutive.
4. Supplemental Disclosures for Consolidated Statements of Cash Flows
Interest paid on the Company's outstanding debt during the three months ended
March 31, 1999 and 1998 was $9,020,000 and $2,260,000, respectively. Income
taxes paid by the Company during the three months ended March 31, 1999 and 1998
was $3,422,000 and $143,000, respectively.
5. Commercial Mortgage-Backed Securities ("CMBS")
On March 3, 1999, the Company, through its newly formed wholly-owned subsidiary,
CT-BB Funding Corp., acquired a portfolio of fixed-rate "BB" rated CMBS (the "BB
CMBS Portfolio") from an affiliate of the Company's credit provider under the
First Credit Facility (as hereinafter defined). The portfolio, which is
comprised of 11 separate issues with an aggregate face amount of $246.0 million,
was purchased for $196.9 million. In connection with the transaction, an
affiliate of the seller provided three-year term financing for 70% of the
purchase price at a floating rate above the London Interbank Offered Rate
("LIBOR") and entered into an interest rate swap with the Company for the full
duration of the BB CMBS Portfolio securities thereby providing a hedge for
interest rate risk. The financing was provided at a rate which was below the
current market for similar financing and, as such, the carrying amount of the
assets and the debt were reduced by $10.9 million to adjust the yield on the
debt to current market terms. The BB CMBS Portfolio securities bear interest at
fixed rates that average 7.74% on the face amount and mature at various dates
from March 2005 to December 2014. After giving effect to the discounted purchase
price and the adjustment of the carrying amount of the assets to bring the debt
to current market terms, the weighted average interest rate in effect at March
31, 1999 is 11.23%.
6
<PAGE>
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
6. Loans receivable
At March 31, 1999 and December 31, 1998, the Company's loans receivable
consisted of the following (in thousands):
March 31, December 31,
1999 1998
---------------- -----------------
(1) Mortgage Loans $ 243,188 $ 305,578
(2) Mezzanine Loans 257,225 317,278
(3) Other mortgage loans receivable 2,008 2,019
---------------- -----------------
502,421 624,875
Less: reserve for possible credit losses (4,582) (4,017)
================ =================
Total loans $ 497,839 $ 620,858
================ =================
At March 31, 1999, the weighted average interest rate in effect, after giving
effect to interest rate swaps and including amortization of fees and premiums,
for the Company's loans receivable was as follows:
(1) Mortgage Loans 10.28%
(2) Mezzanine Loans 11.21%
(3) Other mortgage loans receivable 8.40%
Total Loans 10.75%
At March 31, 1999, $346,582,000 (69%) of the aforementioned loans bear interest
at floating rates ranging from LIBOR plus 320 basis points to LIBOR plus 700
basis points. The remaining $155,839,000 (31%) of loans were financed at fixed
rates ranging from 8.50% to 12.50%.
During the quarter ended March 31, 1999, the Company provided $3.0 million of
additional fundings on four existing loans. The Company had unfunded commitments
on such assets totaling $28.0 million at March 31, 1999.
At March 31, 1999, the Company has letters of intent outstanding for various
other lending transactions, which were subject to satisfaction of certain
conditions.
7
<PAGE>
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
7. Long-Term Debt
Credit Facilities
At December 31, 1998, the Company was party to a credit agreement with a
commercial lender that provided for a three-year $355 million line of credit
(the "First Credit Facility"). Effective February 26, 1999, pursuant to an
amended and restated credit agreement, the Company extended the expiration of
such credit facility from December 2001 to February 2002 with an automatic
one-year amortizing extension option, if not otherwise extended.
At December 31, 1998, the Company was party to an additional credit agreement
with another commercial lender that provided for a $300 million line of credit
scheduled to expire in December 1999 (the "Second Credit Facility" together with
the First Credit Facility, the "Credit Facilities"). Effective March 30, 1999,
pursuant to an amended and restated credit agreement, the Company extended the
expiration of such credit facility from December 1999 to June 2000 with an
automatic nine-month amortizing extension option, if not otherwise extended.
Term Redeemable Securities Contract
In connection with the purchase of the BB CMBS Portfolio described in Note 5, an
affiliate of the seller provided financing for 70% of the purchase price, or
$137.8 million, at a floating rate of LIBOR plus 50 basis points pursuant to a
term redeemable securities contract. This rate was below the market rate for
similar financing, and, as such, a discount on the term redeemable securities
contract was recorded to reduce the carrying amount by $10.9 million, which had
the effect of adjusting the yield to current market terms. The debt has a
three-year term that expires in February 2002.
An affiliate of the seller also entered into an interest rate swap with the
Company for the full duration of the BB CMBS Portfolio securities thereby
providing a hedge for interest rate risk. The nominal values of the swaps were
tied to the amount of debt for the term of the debt and then to the assets for
the remaining terms of the assets. The market value of the swap at March 31,
1999 was $715,000.
By entering into the interest rate swap, the Company has effectively converted
the term redeemable securities contract to a fixed interest rate of 6.55%. After
adjusting the carrying amount and yield to current market terms, the term
redeemable securities contract bears interest at a fixed interest rate of 9.55%.
8
<PAGE>
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
8. Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return.
The provision for income taxes for the three months ended March 31, 1999 and
1998 is comprised as follows (in thousands):
1999 1998
--------------- ---------------
Current
Federal $ 3,270 $ 787
State 1,168 417
Local 1,055 376
Deferred
Federal (176) -
State (60) -
Local (55) -
--------------- -------------=
Provision for income taxes $ 5,202 $ 1,580
=============== ==============
The Company has federal net operating loss carryforwards ("NOLs") as of March
31, 1999 of approximately $12.6 million. Such NOLs expire through 2012. The
Company also has a federal capital loss carryover of approximately $1.6 million
that can be used to offset future capital gains. Due to CalREIT Investors
Limited Partnership's ("CRIL") purchase of 6,959,593 Common Shares from the
Company's former parent in January 1997 and another prior ownership change, a
substantial portion of the NOLs are limited for federal income tax purposes to
approximately $1.4 million annually. Any unused portion of such annual
limitation can be carried forward to future periods.
The reconciliation of income tax computed at the U.S. federal statutory tax rate
(35%) to the effective income tax rate for the three months ended March 31, 1999
and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
------------------------------- --------------------------------
$ % $ %
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Federal income tax at statutory rate $ 3,757 35.0% $ 1,489 35.0%
State and local taxes, net of federal tax
benefit 1,370 12.8% 523 12.3%
Utilization of net operating loss carryforwards (122) (1.1)% (425) (10.0)%
Compensation in excess of deductible limits 190 1.7% - - %
Other 7 0.1% (7) (0.1)%
--------------- --------------- ---------------- ----------------
$ 5,202 48.5% $ 1,580 37.2%
=============== =============== ================ ================
</TABLE>
9
<PAGE>
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax reporting purposes.
The components of the net deferred tax assets as of March 31, 1999 and December
31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
---------------------- --------------------
<S> <C> <C>
Net operating loss carryforward $ 4,437 $ 4,559
Reserves on other assets and for possible
credit losses 4,887 4,621
Other 146 119
---------------------- --------------------
Deferred tax assets 9,470 9,299
Valuation allowance (6,149) (6,270)
---------------------- --------------------
$ 3,321 $ 3,029
====================== ====================
</TABLE>
The Company recorded a valuation allowance to reserve a portion of its net
deferred tax assets in accordance with Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" ("SFAS No. 109"). Under SFAS
No. 109, this valuation allowance will be adjusted in future years, as
appropriate. However, the timing and extent of such future adjustments can not
presently be determined.
9. Employee Benefit Plans
1997 Long-Term Incentive Stock Plan
During the three months ended March 30, 1998, the Company issued an aggregate of
352,000 options to acquire shares of Class A Common Stock with an exercise price
of $6.00 per share (a price higher than the fair value market value based on
reported trading prices on the dates of the grant).
The Company also issued 104,167 restricted shares of Class A Common Stock which
vest one third on each of the following dates: January 30, 2000, January 30,
2001 and January 30, 2002. The Company also reserved for issuance 52,083
performance based restricted shares of Class A Common Stock which will be issued
upon the achievement of stock price performance goals and thereafter will vest
over specified vesting periods.
10
<PAGE>
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The following table summarizes the option activity under the incentive stock
plan for the quarter ended March 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average
Options Exercise Price Exercise Price
Outstanding per Share per Share
--------------------- ------------------- ----------------
<S> <C> <C> <C>
Outstanding at January 1, 1999 1,269,084 $6.00 - $11.38 $ 8.46
Granted in 1999 352,000 $6.00 6.00
Exercised in 1999 - - -
Canceled in 1999 (173,334) $6.00 - $11.38 9.11
----------------- ----------------
Outstanding at March 31, 1999 1,447,750 $6.00 - $10.00 $ 7.85
================= ================
</TABLE>
At March 31, 1999, 413,658 of the options are exercisable. At March 31, 1999,
the outstanding options have various remaining contractual exercise periods
ranging from 8.25 to 9.83 years with a weighted average life of 8.94 years.
10. Segment Reporting
In 1998, the Company adopted Statement of Financial Accounting Standards No. 131
Disclosures about Segments of an Enterprise and Related Information (SFAS No.
131). SFAS No. 131 is based on reporting information the way that management
organizes its segments within the Company for making operating decisions and
assessing performance.
During the first quarter of 1999, the Company reorganized the structure of its
internal organization by merging its Lending/Investment and Advisory segments
and thereby no longer managing its operations as separate segments. Previously,
the Company operated as two segments: Lending/Investment and Advisory.
Restatement of prior periods is not presented as the Company did not apply SFAS
No. 131 to interim financial statements in the initial year of its application.
11
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto appearing elsewhere in this
Form 10-Q. Historical results set forth are not necessarily indicative of the
future financial position and results of operations of the Company.
Overview of Financial Condition
- -------------------------------
During the first quarter of 1999, the Company, through its newly
formed wholly owned subsidiary, CT-BB Funding Corp., acquired a portfolio (the
"BB CMBS Portfolio") of "BB" rated commercial mortgage-backed securities
("CMBS") from an affiliate of the Company's credit provider under the First
Credit Facility (as hereinafter defined). The portfolio, which is comprised of
11 separate issues with an aggregate face amount of $246.0 million, was
purchased for $196.9 million. In connection with the transaction, an affiliate
of the seller provided three-year term financing for 70% of the purchase price
at a floating rate above the London Interbank Offered Rate ("LIBOR") and entered
into an interest rate swap with the Company for the full duration of the BB CMBS
Portfolio thereby providing a hedge for interest rate risk. The financing was
provided at a rate which was below the current market for similar financing and,
as such, the carrying amounts of the assets and the debt were reduced by $10.9
million which had the effect of adjusting the yield on the debt to current
market terms. These securities bear interest at various fixed rates, which, when
including the amortization of the discount, average 11.23%.
Since December 31, 1998, the Company funded $3.0 million of
commitments under four existing loans. The Company received full satisfaction of
four loans totaling $114.6 million and recorded a write-down of one loan asset
by $500,000 and subsequently sold it for $9.5 million during the quarter. At
March 31, 1999, the Company had outstanding loans, certificated mezzanine
investments and investments in commercial mortgage-backed securities totaling
approximately $770 million and additional commitments for fundings on
outstanding loans and certificated mezzanine investments of approximately $36.6
million.
In connection with the sale of a loan described above, one of the
repurchase obligations outstanding at December 31, 1998 for $7.5 million was
satisfied. Another repurchase obligation outstanding at December 31, 1998 for
$19.3 million was satisfied by transferring the liability to the Second Credit
Facility (as hereinafter defined). At March 31, 1999, the Company was party to
five repurchase obligations relating to assets sold by the Company with an
aggregate carrying amount of $71.0 million, which approximates the assets'
market value, and has a liability to repurchase these assets for $51.9 million.
The average interest rate in effect for all repurchase obligations at March 31,
1999 is 6.36%.
At December 31, 1998, the Company was a party to a credit agreement
with a commercial lender that provided for a three-year $355 million line of
credit (the "First Credit Facility"). Concurrent with the BB CMBS Portfolio
transaction, the First Credit Facility's maturity was extended to February 28,
2002 with an automatic one-year amortizing extension option, if not otherwise
extended.
12
<PAGE>
At December 31, 1998, the Company was a party to a credit agreement
with another commercial lender that provided for a $300 million line of credit
(the "Second Credit Facility" and together with the First Credit Facility, the
"Credit Facilities"). During the first quarter of 1999, the Company extended the
expiration date of its Second Credit Facility from December 1999 to June 2000
with an automatic nine-month amortizing extension option, if not otherwise
extended.
At March 31, 1999, the Company had $313.7 million outstanding under
the Credit Facilities. The decrease in the amount outstanding under the Credit
Facilities from the amount outstanding at December 31, 1998 was due to the
significant loan repayments received, offset by the cash utilized in the BB CMBS
Portfolio purchase and cash utilized to satisfy the repurchase obligation which
matured.
As of March 31, 1999, certain of the Company's loans and other
investments have been hedged so that the assets and the corresponding
liabilities were matched at floating rates over LIBOR and certain of the
Company's liabilities have been hedged so that the liabilities and the
corresponding CMBS were matched at fixed rates. During the quarter ended March
31, 1999, the Company terminated two swaps and partially terminated a third swap
in connection with the payoff of a loan and the sale of a loan resulting in a
payment of $323,000. The Company has entered into interest rate swap agreements
for notional amounts totaling approximately $238.4 million at March 31, 1999
with financial institution counterparties whereby the Company swapped fixed-rate
instruments, with average interest rates of approximately 6.01%, for floating
rate instruments with interest rates at LIBOR. The agreements mature at varying
times from September 2001 to July 2014.
Comparison of the Three Months Ended March 31, 1999 to the
- ----------------------------------------------------------
Three Months Ended March 31, 1998
----------------------------------
The Company reported net income allocable to shares of Class A Common
Stock of $3,008,000 for the three months ended March 31, 1999, an increase of
$1,119,000 from the net income allocable to shares of Class A Common Stock of
$1,889,000 for the three months ended March 31, 1998. This increase was
primarily the result of the increased revenues generated from the loan and other
investment portfolio which has more than doubled from the level a year earlier.
Income from loans and other investments, net, amounted to $13,534,000
for the three months ended March 31, 1999, an increase of $8,638,000 over the
$4,896,000 amount for the three months ended March 31, 1998. This increase was
primarily due to the increase in the amount of average interest earning assets
from approximately $290.6 million earning 11.1% for the three months ended March
31, 1998 to approximately $665.0 million earning 13.5% for the three months
ended March 31, 1999. This increase in the interest rate earned in 1999 over
that earned in 1998 was mainly due to additional interest and fees which were
recognized upon the early termination of three loans by the borrowers that
resulted in an additional $3.6 million of interest income. Without this
additional interest income, the earning rate for 1999 would have been 11.3%
which is consistent with the earning rate for the prior year. The increase in
revenues was partially offset by an increase in the amount of average interest
bearing liabilities from approximately $163.9 million at an average rate of 7.6%
for the three months ended
13
<PAGE>
March 31, 1998 to approximately $430.8 million at an average rate of 8.1% for
the three months ended March 31, 1999.
In addition, the Company also utilized $150.0 million of Convertible
Trust Preferred Securities which it issued on July 28, 1998 to finance its
interest earning assets. During the first quarter of 1999, the Company
recognized $1,741,000 of net expenses related to these securities. This amount
consisted of distributions to the holders totaling $3,094,000 and amortization
of discount and origination costs totaling $201,000. This was partially offset
by a tax benefit of $1,554,000.
During the three months ended March 31, 1999, other revenues totaled
$3,713,000, an increase of $483,000 over the same three month period in 1998.
The increase for the three months ended March 31, 1999 was due to an additional
of $233,000 of advisory and investment banking fees generated by Victor Capital
Group, L.P. and its related subsidiaries over the amount of such fees generated
in the prior year and a $250,000 increase in other interest income. The increase
in other interest income was due to the Company maintaining a higher level of
liquidity during the first quarter of 1999.
Other expenses increased from $3,873,000 for the three months ended
March 31, 1998 to $6,512,000 for three months ended March 31, 1999. The increase
was primarily due to the additional general and administrative expenses
necessary for the full-scale operations as a specialty finance company, the
largest components of such expenses are employee salaries and related costs and
the provision for possible credit losses. During March 1999, to reduce general
and administrative expenses to a level in line with budgeted business activity,
the Company reduced its workforce by approximately 30% and recorded a
restructuring charge of $650,000. During the period ended March 31, 1999, the
Company had an average of 45 full time employees as compared to average of 32
during the period ended March 31, 1998. The Company had 30 full time employees
at March 31, 1999. The increase in the provision for possible credit losses from
$480,000 for the three months ended March 31, 1998 to $1,079,000 for the three
months ended March 31, 1999 was due to the increase in average earning assets as
previously described.
For the three months ended March 31, 1999 and 1998, the Company
accrued $5,202,000 and $1,580,000, respectively, of income tax expense for
federal, state and local income taxes. The increase (from 37.2% to 48.5%) in the
effective tax rate was primarily due to a decrease in the net operating loss
carryforward available to offset taxable income. For the three months ended
March 31, 1998, net operating loss carryforwards reduced the effective tax rate
by 10.0% due to significant losses generated in 1997 which were not limited for
utilization in 1998. For the three months ended March 31, 1999, the reduction
was only 1.1% as all of the losses generated in 1997 were utilized in 1998.
The preferred stock dividend and dividend requirement arose in 1997
as a result of the Company's issuance of $33 million of shares of Class A
Preferred Stock on July 15, 1997. Dividends accrue on these shares at a rate of
9.5% per annum on a per share price of $2.69 for the 12,267,658 shares
outstanding.
14
<PAGE>
Liquidity and Capital Resources
- -------------------------------
At March 31, 1999, the Company had $24,837,000 in cash. The primary
sources of liquidity for the Company for the remainder of 1999, which the
Company believes will adequately meet future operating liquidity and capital
resource requirements, will be cash on hand, cash generated from operations,
interest and principal payments received on its investments, loans and
securities and additional borrowings under the Company's Credit Facilities. The
primary demands on the Company's capital resources will be the funding required
for the origination or acquisition of loans and other investments as the Company
continues to expand its specialty finance operations and the growth of its
portfolio of loans and other investments.
The Company experienced a net decrease in cash of $21,786,000 for the
three months ended March 31, 1999, compared to the net decrease of $42,193,000
for the three months ended March 31, 1998. The use of cash in the first quarter
of 1999 was primarily due to the purchase of the BB CMBS Portfolio (net of the
proceeds from the term redeemable securities contract) while the use of cash in
the first quarter of 1998 was due to the utilization of the proceeds of the
Class A Common Stock offering completed in the fourth quarter of 1997 in making
loans and other investments offset by additional borrowings. Cash provided by
operating activities during the three months ended March 31, 1999 increased by
$3,616,000 to $922,000, from cash used in operating activities of $2,694,000
during the same period of 1998. For the three months ended March 31, 1999, cash
used in investing activities was $63,606,000, a decrease of $100,009,000 from
$163,615,000 used during the same period in 1998 primarily as a result of the
significant repayments received on loans and other investments since December
31, 1998. The decrease in cash provided by financing activities, which decreased
$83,218,000 to $40,898,000 from $124,116,000, was due primarily to significant
repayments of borrowings under the Credit Facilities.
At March 31, 1999, the Company has two outstanding notes payable
totaling $3,820,000, outstanding borrowings under the Credit Facilities of
$313,651,000, outstanding borrowings on the term redeemable securities contract
of $127,135,000 and outstanding repurchase obligations of $51,945,000. At March
31, 1999, the Company had $341,349,000 of borrowing capacity available under the
Credit Facilities.
Year 2000 Information
- ---------------------
General Description of the Year 2000 Issue and the Nature and Effects of the
Year 2000 on Information Technology ("IT") and Non-IT Systems
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs or hardware that have date-sensitive software or
embedded chips may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar business
activities.
Based upon recent assessments, the Company determined that it was
required to replace certain of its software and certain hardware so that those
systems will properly utilize dates
15
<PAGE>
beyond December 31, 1999. The Company believes that with the replacement of the
previously existing software and certain hardware, the Year 2000 Issue can be
mitigated. However, if certain replacements are not made, or not completed
timely, the Year 2000 Issue could have a material impact on the operations of
the Company.
The Company's plan to resolve the Year 2000 Issue involves the
following four phases: assessment, remediation, testing and implementation. To
date, the Company has completed all phases of the plan for its in-house systems
that could be significantly affected by the Year 2000 Issue. In addition, the
Company will continue to gather information about the Year 2000 compliance
status of its significant service providers to monitor their compliance.
Status of Progress in Becoming Year 2000 Compliant, Including Timetable for
Completion of Each Remaining Phase
The Company believes it is 100% Year 2000 compliant with its in-house
IT systems (both software and hardware). The testing phase of the project was
completed during the quarter ended March 31, 1999.
Nature and Level of Importance of Third Parties and their Exposure to the Year
2000 Issue
The Company's loan servicing function is performed by an independent
third party. This service includes the calculation of interest and principal for
the Company's loans receivable, the processing of bills to the Company's
customers and the maintenance of lock boxes and escrow accounts on behalf of
borrowers. The vendor has advised the Company that they will be Year 2000
compliant by June 1999.
The Company has queried its significant service providers that do not
share information systems with the Company (external agents). To date, the
Company is not aware of any external agent with a Year 2000 Issue that would
materially impact the Company's results of operations, liquidity, or capital
resources. However, the Company has no means of ensuring that any external
agents used by the Company will be Year 2000 compliant. The inability of
external agents to complete their Year 2000 Issue resolution process in a timely
manner could materially impact the Company. The effect of non-compliance by
external agents is not determinable.
Costs of Year 2000 Compliance
The Company utilized both internal and external resources to replace,
test, and implement the software and operating equipment for Year 2000
modifications. The project was completed during the quarter ended March 31, 1999
and the Company incurred approximately $225,000 ($30,000 expensed and $195,000
capitalized for new systems and equipment) related to all phases of the Year
2000 project which was funded through operating cash flow. The Company does not
expect any additional project costs.
Risks of Year 2000
The Company believes it has an effective program in place to resolve
the Year 2000 Issue and has completed all the necessary phases of the Year 2000
program for its in-house IT systems.
16
<PAGE>
While the Company has completed its project, disruptions in the economy
generally resulting from Year 2000 Issue could materially adversely affect the
Company. The amount of potential liability and lost revenue cannot be reasonably
estimated at this time.
The Company currently has no contingency plans in the event that the
noted third parties do not complete their Year 2000 compliance. The Company
plans to evaluate the status of their completion in the second quarter of 1999
and determine whether a contingency plan is necessary.
Explanatory Note for the Use of Forward-Looking Statements
Except for historical information contained herein, this quarterly
report on Form 10-Q contains forward-looking statements within the meaning of
the Section 21E of the Securities and Exchange Act of 1934, as amended, which
involve certain risks and uncertainties. Forward-looking statements are included
with respect to, among other things, the Company's current business plan,
business strategy and portfolio management. The Company's actual results or
outcomes may differ materially from those anticipated. Representative examples
of such factors are discussed in more detail in the Company's 1998 fiscal year
Annual Report on Form 10-K, as amended, and include, among other things, the
availability of desirable loan and investment opportunities, the ability to
obtain and maintain targeted levels of leverage and borrowing costs, changes in
interest rates, continued loan performance and repayment and the maintenance of
loan loss allowance levels. The Company disclaims any intention or obligation to
update publicly or revise any forward-looking statements, whether as a result of
new information, future events or otherwise.
17
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
The principal objective of the Company's asset/liability management
activities is to maximize net interest income, while minimizing levels of
interest rate risk. Net interest income and interest expense are subject to the
risk of interest rate fluctuations. To mitigate the impact of fluctuations in
interest rates, the Company uses interest rate swaps to effectively convert
fixed-rate assets to variable-rate assets and variable-rate liabilities to
fixed-rate liabilities for proper matching with variable-rate liabilities and
fixed-rate assets. Each derivative used as a hedge is matched with an asset or
liability with which it has a high correlation. The swap agreements are
generally held to maturity and the Company does not use derivative financial
instruments for trading purposes. The Company uses interest rate swaps to reduce
the Company's exposure to interest rate fluctuations on certain fixed-rate loans
and investments and to provide more stable spreads between rates received on
loans and investments and the rates paid on their financing sources.
18
<PAGE>
The following table provides information about the Company's
financial instruments that are sensitive to changes in interest rates at March
31, 1999. For financial assets and debt obligations, the table presents cash
flows and weighted average interest rates based on the contractual maturity
dates. For interest rate swaps, the table presents notional amounts and weighted
average fixed pay and variable receive interest rates by contractual maturity
dates. Notional amounts are used to calculate the contractual cash flows to be
exchanged under the contract. Weighted-average variable rates are based on rates
in effect as of the reporting date.
<TABLE>
<CAPTION>
Expected Maturity Dates
----------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
CMBS
Fixed Rate - - - $189,855 - - $189,855 $189,885
Average interest rate - - - 11.23% - - 11.23%
Variable Rate - - - - $ 32,196 - $ 32,196 $ 32,196
Average interest rate - - - - 9.72% - 9.72%
Certificated Mezzanine
Investments
Variable Rate - $45,333 - - - - $ 45,333 $ 45,333
Average interest rate - 9.65% - - - - 9.65%
Loans receivable
Fixed Rate $ 19,780 - $ 35,000 $ 3,000 - $ 98,059 $155,839 $158,130
Average interest rate 11.51% - 11.77% 12.50% - 10.59% 11.01%
Variable Rate $109,991 $77,767 $132,325 - - $ 26,500 $346,582 $334,042
Average interest rate 11.90% 9.36% 10.35% - - 10.75% 10.65%
Liabilities:
Credit facilities
Variable Rate - $77,503 - $236,148 - - $313,651 $313,651
Average interest rate - 8.38% - 7.20% - - 7.49%
Term redeemable securities
contract
Variable Rate - - - $127,135 - - $127,135 $127,135
Average interest rate - - - 8.47% - - 8.47%
Repurchase obligations
Variable Rate $ 51,945 - - - - - $ 51,945 $ 51,945
Average interest rate 6.36% - - - - - 6.36%
Convertible Trust Preferred
Securities
Fixed Rate - - - - - $145,744 $145,744 $145,744
Average interest rate - - - - - 8.25% 8.25%
Interest rate swaps - - $ 28,000 $137,812 $ 19,310 $53,250 $238,372 $ (77)
Average fixed pay rate - - 5.79% 6.05% 6.04% 6.01% 6.01%
Average variable receive
rate - - 4.97% 4.96% 4.95% 4.94% 4.96%
</TABLE>
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities
None
ITEM 3: Defaults Upon Senior Securities
None
ITEM 4: Submission of Matters to a Vote of Security Holders
(a). The Registrant's predecessor, Capital Trust, a California business trust
(the "Predecessor"), held its 1998 annual meeting of shareholders on January 28,
1999.
(b) and (c). The Predecessor's shareholders acted on the following proposals:
1. To reorganize the Predecessor from a California common law business
trust into a Maryland corporation (the "Reorganization") ("Proposal
1");
2. To approve an amendment, necessary to implement the Reorganization, to
the Predecessor's amended and restated declaration of trust, dated as
of July 15, 1997 ("Proposal 2");
3. To elect ten trustees of the Predecessor (identified in the table
below) to serve until the next annual meeting of shareholders or until
such trustees' successors are elected and shall have been duly
qualified ("Proposal 3");
4. To approve the Predecessor's amended and restated 1997 long-term
incentive share plan, which increases the number of shares available
under and amends certain other provisions of the original plan
("Proposal 4);
5. To approve the Predecessor's amended and restated 1997 non-employee
trustee share plan, which increases the number of shares available
under and amends certain other provisions of the original plan
("Proposal 5");
6. To approve the Predecessor's 1998 employee share purchase plan
("Proposal 6");
7. To approve the Predecessor's 1998 non-employee share purchase plan
("Proposal 7");
8. To approve the Predecessor's share purchase loan plan ("Proposal 8");
and
20
<PAGE>
9. To ratify the appointment of Ernst & Young LLP as independent auditors
of the Predecessor for the fiscal year ending December 31, 1998
("Proposal 9").
The following table sets forth the number of votes in favor, the number of
votes opposed the number of abstentions (or votes withheld in the case of the
election of trustees) and broker non-votes with respect to each of the foregoing
proposals.
<TABLE>
<CAPTION>
Proposal Votes in Favor(1) Votes Opposed(1) Abstentions Broker Non-Votes(1)
(Withheld)(1)
<S> <C> <C> <C> <C>
Proposal 1 24,259,243 2,029,018 11,664 3,324,058
12,267,658 (2) -- (2) -- (2) -- (2)
Proposal 2 24,246,283 2,032,799 20,843 3,324,058
Proposal 3
Samuel Zell 29,580,500 -- 43,483 --
Jeffrey A. Altman 29,580,982 -- 43,001 --
Thomas E. Dobrowski 29,580,982 -- 43,001 --
Martin L. Edelman 29,580,982 -- 43,001 --
Gary R. Garrabrant 29,580,731 -- 43,252 --
Craig M. Hatkoff 29,580,731 -- 43,252 --
John R. Klopp 29,580,982 -- 43,001 --
Sheli Z. Rosenberg 29,580,982 -- 43,001 --
Steven Roth 29,580,982 -- 43,001 --
Lynne B. Sagalyn 29,581,056 -- 42,927 --
Proposal 4 23,853,425 2,414,625 31,875 3,324,058
Proposal 5 23,844,156 2,423,208 32,531 3,324,088
Proposal 6 26,106,763 164,403 28,759 3,324,058
Proposal 7 26,093,348 177,131 29,446 3,324,058
Proposal 8 24,101,471 2,169,101 29,353 3,324,058
Proposal 9 29,577,981 27,916 18,086 --
</TABLE>
(1) The holders of the Predecessors's class A common shares of beneficial
interest, $1.00 par value, ("Common Shares"), and the holders of the
Predecessor's class A 9.5% preferred shares of beneficial interest,
$1.00 par value ("Preferred Shares"), voted together as a single class
on all proposals acted upon at the annual meeting. In addition, the
holders of Preferred Shares voted as a separate class on Proposal 1.
There were 17,356,325 Common Shares and 12,267,658 Preferred Shares
represented at the annual meeting. The table sets forth information with
respect to the voting of the holders of Common Shares and Preferred
Shares as a single class, and in the case of Proposal 1, information
with respect to the voting of the holders of Preferred Shares.
(2) Represents information with respect to the voting of the holders of
Preferred Shares.
ITEM 5: Other Information
None
21
<PAGE>
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
10.1 Third Amendment to Amended and Restated Credit Agreement, dated as of
February 26, 1999, between Capital Trust, Inc. and German American
Capital Corporation (filed as Exhibit 10.12.b to Capital Trust, Inc.'s
Annual Report on Form 10-K (File No. 1-14788) filed on March 31, 1999
and incorporated herein by reference).
10.2 First Amendment to Master Loan and Security Agreement, dated as of
March 30, 1999, between Capital Trust Inc. and Morgan Stanley Mortgage
Capital Inc.
11.1 Statements regarding computation of earnings (loss) per share
27.1 Financial Data Schedules
(b) Reports on Form 8-K
During the fiscal quarter ended March 31, 1999, the Company filed the
following Current Reports on Form 8-K:
(1) Current Report on Form 8-K (File No. 333-52619), dated January 28,
1999, as filed with the Commission on January 29, 1999, reporting
under Item 5 "Other Events" the consummation of the reorganization
pursuant to which the Predecessor ultimately merged with and into the
Company.
(2) Current Report on Form 8-K (File No. 1-14788), dated February 26,
1999, as filed with the Commission on March 17, 1999, reporting under
Item 2 "Acquisition or Disposition of Assets" the acquisition of 15
separate classes of 11 issues of BB rated CMBS.
22
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL TRUST
May 14. 1999 /s/ John R. Klopp
- ------------ -----------------
Date John R. Klopp
Chief Executive Officer
/s/ Edward L. Shugrue III
-------------------------
Edward L. Shugrue III
Managing Director and
Chief Financial Officer
23
Exhibit 10.2
EXECUTION
================================================================================
FIRST AMENDMENT
TO
MASTER LOAN AND SECURITY AGREEMENT
FOR A CREDIT FACILITY
IN AN AMOUNT UP TO $300,000,000
Dated as of March 30, 1999
Between
CAPITAL TRUST, INC.
as Borrower
and
MORGAN STANLEY MORTGAGE CAPITAL INC.
as Lender
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
1. Amendments............................................................1
2. Representations and Warranties........................................4
3. Ratification, Confirmation and Assumption.............................4
4. Amendment to Pledge Agreements and Related Documents..................5
5. Binding Effect; No Partnership; Counterparts..........................5
6. Further Agreements....................................................5
7. Governing Law.........................................................5
8. Continuing Effect.....................................................5
9. Conditions Precedent..................................................6
EXHIBIT A Form of Amended and Restated Promissory Note
EXHIBIT C Form of Opinion of Counsel of Borrower
EXHIBIT F Form of Bailee Agreement
EXHIBIT G Schedule of Collateral Pledged Prior to March 30, 1999
Schedule 1 - Schedule of Pending Litigation
i
<PAGE>
FIRST AMENDMENT TO MASTER LOAN AND SECURITY AGREEMENT dated as of
March 30, 1999 (this "Amendment No. 1") between CAPITAL TRUST, INC., a Maryland
corporation ("Borrower"), and MORGAN STANLEY MORTGAGE CAPITAL INC., a New York
corporation ("Lender") to Master Loan and Security Agreement dated as of June 8,
1998 (the "Original Loan and Security Agreement") between Capital Trust, a
California business trust (a predecessor-in-interest of Borrower, hereinafter
"Predecessor Borrower") and Lender. Capitalized terms used herein without
definition have the meanings given to them in the Original Loan and Security
Agreement. The Original Loan and Security Agreement, as amended by this
Amendment No. 1, and as from time to time amended, modified, extended, and
supplemented, is hereinafter referred to as the "Loan and Security Agreement."
PRELIMINARY STATEMENT
Pursuant to the Original Loan and Security Agreement Lender may make
loans to fund Borrower's acquisition of Eligible Collateral from time to time
subject to the terms and conditions of the Original Loan and Security Agreement.
Lender and Borrower desire to amend the Original Loan and Security Agreement in
order to make certain additional arrangements regarding, among other things, the
extension of the term of the Original Loan and Security Agreement, limitations
on the amounts which may be borrowed against Eligible Collateral, the timing of
the repayment of amounts due and owing to Lender, the applicable rates of
interest to be paid on such borrowed amounts and the addition of certain
conditions regarding the financial status of Borrower.
In addition, Borrower has advised Lender that (i) Predecessor Borrower
has entered into, and merged with and into, Captrust Limited Partnership, a
Maryland limited partnership, (ii) Captrust Limited Partnership has survived
such merger and subsequently has merged with and into Borrower, and (iii)
Borrower has survived such subsequent merger with Captrust Limited Partnership.
In connection therewith, the parties desire that Borrower ratify, confirm, and
assume all liabilities of the borrower under the Original Loan and Security
Agreement, as amended hereby, the Note and the other Loan Documents.
Now, therefore, the parties hereto agree as follows:
1. Amendments. The Original Loan and Security Agreement is hereby amended as
follows:
(a) Defined terms. Subsection 1.01 of the Original Loan and Security
Agreement is hereby amended by (i) the addition of the following capitalized
terms which shall have the respective meanings set forth below:
"Amortization Period" means, if the Termination Date shall be extended
in accordance with the terms hereof, the period from and after July 1, 2000 to,
and including, April 1, 2001.
"Cash" means, at the date of determination, any and all cash and cash
equivalents as determined in accordance with GAAP.
"CMBS Loan Agreement" means that certain CMBS Loan Agreement dated as
of June 30, 1998 between Capital Trust and Lender, as may be amended,
supplemented or otherwise modified and in effect from time to time.
"Borrower" means Capital Trust, Inc., a Maryland corporation.
"Liquidity" means, at the date of determination, all Cash and amounts
available to be drawn by Borrower within three (3) days after notice under
secured and unsecured lines of credit (excluding amounts available to be drawn
hereunder or under the CMBS Loan Agreement).
<PAGE>
and
(ii) the deletion in their entirety of the respective meanings for the following
capitalized terms in the Original Loan and Security Agreement and the
substitution therefor of the respective meanings set forth below:
"Eurodollar Rate Spread" means (A) with respect to each item of Eligible
Collateral pledged to Lender before March 30, 1999 and set forth on Exhibit G
attached hereto, for the period to, and including, December 8, 1999, as to each
Advance Rate the applicable Eurodollar Rate Spread set forth below opposite such
Advance Rate for the applicable Collateral type, or such other Eurodollar Rate
Spread as may be mutually agreed to by Borrower and Lender:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Collateral Type Advance Rate Eurodollar Rate Spread (expressed
as percentage points per annum
and as basis points)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Subordinate Mortgage Loans, Mezzanine 65% 1.75% 175bp
Loans, CMBS and Equity Interests 75% 1.85% 185bp
80% 2.20% 220bp
- ------------------------------------------------------------------------------------------------------
</TABLE>
(B) with respect to each item of Eligible Collateral pledged to Lender
(i) before March 30, 1999 and set forth on Exhibit G attached hereto, for the
period from and after December 9, 1999 to, and including the date the Loans are
repaid in full (except as provided in clause (C) below), and (ii) from and after
March 30, 1999, for the period from and after the date of such pledge to, and
including, the date the Loans are repaid in full (except as provided in clause
(C) below), as to each Advance Rate the applicable Eurodollar Rate Spread set
forth below opposite such Advance Rate for the applicable Collateral type, or
such other Eurodollar Rate Spread as may be mutually agreed to by Borrower and
Lender:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Collateral Type Advance Rate Eurodollar Rate Spread (expressed
as percentage points per annum
and as basis points)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Conduit Loan 90% 1.25% 125bp
- ------------------------------------------------------------------------------------------------------
Non-Conduit Mortgage Loans
- --------------------------
First Mortgage (75% LTV maximum) 85% 1.75% 175bp
- ------------------------------------------------------------------------------------------------------
Subordinate Mortgage Loans, Mezzanine
Loans, CMBS and Equity Interests*
70% 2.25% 225bp
- ------------------------------------------------------------------------------------------------------
</TABLE>
* Solely for illustrative purposes, Borrower and Lender agree that the
following example of a transaction illustrates their intent: with respect to
an item of Collateral for which the appraised value of the underlying real
property is $100,000,000, on which Mortgage Loans and Mezzanine Loans have
been made in the aggregate amount of $85,000,000, with Lender advancing
hereunder 85% of a 75% LTV ($63,750,000), plus 70% of a subordinate Mortgage
Loan or Mezzanine Loan (70% of $10,000,000 equals $7,000,000), the aggregate
loans from Lender to Borrower would equal $70,750,000, resulting in a 83.24%
underlying loan-to-loan value. In addition, Lender will finance loans
originated by Borrower with an aggregate underlying LTV up to 90% and above
90% on a case-by-case basis. The Eurodollar Rate Spread may exceed the
levels set forth above on loans with underlying LTVs in excess of 90%.
and (C) with respect to each item of Eligible Collateral, in the event the
Termination Date shall be extended pursuant to the terms hereof, for the period
from and after July 1, 2000 to, and including, the date the Loans are repaid in
full, as to each Advance Rate the sum of (x) the applicable Eurodollar Rate
2
<PAGE>
Spread set forth opposite such Advance Rate for the applicable Collateral type
in clause (B) above, plus (y) .25 percent, or 25 basis points, per annum.
"Note" shall mean the promissory note provided for by Section 2.02(a)
hereof for Loans and any promissory note delivered in substitution or exchange
therefor, in each case as the same shall be modified, amended, supplemented or
extended and in effect from time to time including, without limitation, that
certain Amended and Restated Promissory Note dated as of June 8, 1998 by
Borrower to Lender given in substitution for, and replacement of, that certain
promissory note dated June 8, 1998 by Capital Trust to Lender.
"Termination Date" shall mean June 30, 2000 or such earlier date on
which this Loan Agreement shall terminate in accordance with the provisions
hereof or by operation of law; provided, however, that in the event that (i)
this Agreement shall not have been earlier terminated and (ii) no Default shall
have occurred and be continuing on June 30, 2000, the Termination Date shall be
automatically extended to April 1, 2001.
(b) Loans. Paragraph (a) of subsection 2.01 of the Original Loan and
Security Agreement is hereby amended by the deletion in the first sentence
thereof of the words "the Termination Date" and the substitution therefor of the
words "June 30, 2000."
(c) Repayment of Loans; Interest. Paragraph (a) of subsection 3.01 of the
Original Loan and Security Agreement is hereby amended by the insertion
immediately before the period at the end thereof of the following: "; provided,
however, in the event the Termination Date shall be extended to April 1, 2001
pursuant to the terms hereof, Borrower promises to repay such aggregate
principal amount of the Loans outstanding on June 30, 2000 by the payment on the
first Business Day of each month during the Amortization Period beginning with
August 1, 2000 (including the Termination Date, as extended; each, an
"Installment Date") of an amount equal to the quotient of (x) the aggregate
principal amount of the Loans outstanding as at June 30, 2000 divided by (y) the
number of Installment Dates during the Amortization Period (such schedule of
payments, the "Amortization Schedule"); provided, further, that in the event
that Borrower shall repay any portion of the outstanding principal in an amount
in excess of the amount then due and payable in accordance with the Amortization
Schedule, the Amortization Schedule shall be recalculated such that Borrower
shall repay the principal amount of the Loans outstanding as at the date of such
repayment (after taking such repayment into account) by the payment on each
Installment Date remaining in the Amortization Period of an amount equal to the
quotient of (x) the aggregate principal amount of the Loans outstanding as at
the date of such repayment (after taking such repayment into account) divided by
(y) the number of Installment Dates remaining during the Amortization Period."
(d) Representations and Warranties; Existence. Subsection 6.01 of the
Original Loan and Security Agreement is hereby amended by the deletion of the
words "business trust" in clause (a) thereof and the substitution therefor of
the word "corporation."
(e) Covenants of Borrower; Liquidity and Cash. Section 7 of the Original
Loan and Security Agreement is hereby amended by the consecutive addition at the
end thereof of the following subsections 7.17 and 7.18:
"7.17. Maintenance of Liquidity. Borrower shall not permit Liquidity at
any time to be less than $10,000,000.00."
"7.18. Maintenance of Cash. Borrower shall maintain at all times Cash in
an aggregate amount not less than $5,000,000.00."
3
<PAGE>
(f) Events of Default. Paragraph (e) of Section 8 of the Original Loan and
Security Agreement is hereby amended by the deletion of the subsection reference
"7.16" therein and the substitution therefor of the subsection reference "7.18."
(g) Promissory Note. Exhibit A to the Loan and Security Agreement is
hereby deleted in its entirety and Exhibit A attached hereto shall be
substituted therefor.
(h) Opinion of Counsel of Borrower. Exhibit C to the Loan and Security
Agreement is hereby deleted in its entirety and Exhibit C attached hereto shall
be substituted therefor.
(i) Bailee Agreement. Exhibit F to the Loan and Security Agreement is
hereby deleted in its entirety and Exhibit F attached hereto shall be
substituted therefor.
(j) Collateral Pledged Prior to March 30, 1999. The Loan and Security
Agreement is hereby amended by the addition immediately after Exhibit F thereof
of Exhibit G in the form attached hereto as Exhibit G.
2. Representations and Warranties.
------------------------------
Borrower hereby makes to Lender the representations and warranties
set forth in Section 6 of the Original Loan and Security Agreement, as amended
by this Amendment No.1; provided, that, for the purposes of the representations
and warranties made hereby, the representations and warranties set forth in
Section 6.04 (iii) of the Original Loan and Security Agreement are hereby
qualified by the exception therefrom of the pending litigation described on
Schedule 1 hereof; provided, further that the representation and warranty hereby
made with respect to the Tangible Net Worth of Borrower as set forth in Section
6.14 of the Original Loan and Security Agreement is made as to the Tangible Net
Worth of Borrower as at the date hereof.
3. Ratification, Confirmation and Assumption.
-----------------------------------------
Borrower hereby (i) ratifies, confirms and assumes all of the
obligations of Predecessor Borrower under, and adopts and agrees to be bound by
all of the terms, covenants and conditions of, the Original Loan and Security
Agreement, the Note and the other Loan Documents (as each of such Original Loan
and Security Agreement, Note and other Loan Documents are amended hereby) with
the same force and effect as if Borrower had been the party executing such
agreements as the "Borrower" thereunder and (ii) represents, warrants and
covenants that, as of the date hereof, (a) Borrower has no cause of action at
law or in equity against Lender (including, without limitation, any offset,
defense, deduction or counterclaim) with respect to any of such obligations, (b)
the principal amount due and owing under the Loan and Security Agreement is
$60,545,548.47 and (c) the principal amount of MS Indebtedness is
$60,545,548.47.
4. Amendment to Pledge Agreements and Related Documents.
----------------------------------------------------
Borrower and Lender hereby agree that each of those certain Pledge
and Security Agreements dated as of June 15, 1998 in respect of the 140 Broadway
Collateral (as set forth on Exhibit G
4
<PAGE>
hereto), as of June 15, 1998 in respect of the Cohen Brothers Collateral (as set
forth on Exhibit G hereto), and as of October 23, 1998 in respect of the Smooke
Collateral (as set forth on Exhibit G hereto), each between Predecessor Borrower
and Lender, and any and all documents entered into in connection therewith, are
hereby amended to provide that all references therein to (i) the Original Loan
and Security Agreement (as defined herein) shall hereafter mean the Loan and
Security Agreement (as defined herein) and (ii) the Note (as defined herein)
shall mean the Amended and Restated Promissory Note (as hereinafter defined).
5. Binding Effect; No Partnership; Counterparts.
--------------------------------------------
The provisions of the Original Loan and Security Agreement and this
Amendment No. 1 shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Nothing herein
contained shall be deemed or construed to create a partnership or joint venture
between any of the parties hereto. For the purpose of facilitating the execution
of this Amendment No. 1 as herein provided, this Amendment No. 1 may be executed
simultaneously in any number of counterparts, each of which counterparts shall
be deemed to be an original, and such counterparts when taken together shall
constitute but one and the same instrument.
6. Further Agreements.
------------------
Borrower agrees to execute and deliver such additional documents,
instruments or agreements as may be reasonably requested by Lender and as may be
necessary or appropriate to effectuate the purposes of this Amendment No. 1.
7. Governing Law.
-------------
This Amendment No. 1 shall be governed by the laws of the State of
New York.
8. Continuing Effect.
-----------------
Except as modified by this Amendment No. 1, all terms of the Original
Loan and Security Agreement shall remain in full force and effect.
9. Conditions Precedent.
--------------------
It is a condition precedent to the effectiveness of this Amendment
No.1 that each of the following shall have occurred:
(a) Borrower shall have executed and delivered to Lender the Amended and
Restated Promissory Note in the form attached hereto as Exhibit A (the "Amended
and Restated Promissory Note");
(b) each party hereto shall have executed and delivered this Amendment No.
1;
(c) Borrower shall have paid to Lender an extension fee in the amount of
$403,740.88;
5
<PAGE>
(d) Lender shall have received from Borrower an officer's certificate
dated the date hereof in the form required under Section 5.02(b) of the Loan and
Security Agreement; and
(e) Lender shall have received from Borrower's counsel, or counsels,
opinions substantially in the form of Exhibit C hereto acceptable to Lender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
1 to be duly executed by their respective officers thereunto duly authorized as
of the date first above written.
BORROWER
CAPITAL TRUST, INC.
By:/s/ Edward L. Shugrue, III
-------------------------------------------------
Name: Edward L. Shugrue, III
Title: Managing Director and Chief Financial Officer
and Assistant Secretary
Address for Notices:
-------------------
605 Third Avenue, 26th Floor
New York, New York 10016
Attention: Edward L. Shugrue, III
Chief Financial Officer
Telecopier No.: (212) 655-0044
Telephone No: (212) 655-0225
With a copy to:
Battle Fowler LLP
75 East 55th Street
New York, New York 10022
Attention: John A. Cahill, Esq.
Telecopier No.: (212) 856-7802
Telephone No.: (212) 856-6930
LENDER
------
MORGAN STANLEY MORTGAGE
CAPITAL INC.
By:/s/ Christian B. Malone
---------------------------------------
Name: Christian B. Malone
Title: Vice President
Address for Notices:
-------------------
1221 Avenue of the Americas
New York, New York 10020
Attention: Whole Loan Operations
Mortgage-Backed Securities Department,
Fixed-Income Division
Telecopier No.: 212-762-5594
Telephone No.: 212-762-5695
With a copy to:
Rogers & Wells LLP
200 Park Avenue
New York, New York 10166-0153
Attention: Frederick B. Utley, III, Esq.
Telecopier No.: (212) 878-8375
Telephone No.: (212) 878-8356
7
Exhibit 11.1
Capital Trust, Inc. and Subsidiaries
Form 10-Q
Statement Regarding Computation of Earnings per Share
<TABLE>
<CAPTION>
Three Months Ended March 31, 1999 Three Months Ended March 31, 1998
------------------------------------------------- ----------------------------------------------
Per Share Per Share
Net Income Shares Amount Net Loss Shares Amount
--------------- ----------------- -------------- ------------ ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net earnings per share of
Class A Common
Stock 3,008,000 18,317,103 $ 0.16 $ 1,889,000 18,207,900 $ 0.10
=============== =============
Effect of Dilutive Securities
Options outstanding for the
purchase of Class A Common
Stock -- -- -- 260,847
Future commitments for share
unit awards for the
issuance of Class A Common
Stock -- 300,000 -- --
Convertible Class A Preferred
Stock 784,000 12,267,658 784,000 12,267,658
---------------- --------------- -------------- ------------
Diluted EPS:
Net earnings per share of
Class A Common Stock and
Assumed Conversions 3,792,000 30,884,761 $ 0.12 $ 2,673,000 30,736,405 $ 0.09
=============== ================= ============== ============== ============= =============
</TABLE>
24
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL EXTRACTED FROM THE FINANCIAL
STATEMENTS OF CAPITAL TRUST FOR THE THREE MONTHS ENDED MARCH 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 24,837
<SECURITIES> 270,198
<RECEIVABLES> 502,421
<ALLOWANCES> 4,582
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 990
<DEPRECIATION> 401
<TOTAL-ASSETS> 812,688
<CURRENT-LIABILITIES> 9,635
<BONDS> 496,551
145,867
0
<COMMON> 183
<OTHER-SE> 156,806
<TOTAL-LIABILITY-AND-EQUITY> 812,688
<SALES> 0
<TOTAL-REVENUES> 25,865
<CGS> 0
<TOTAL-COSTS> 17,346
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,079
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 7,440
<INCOME-TAX> 3,648
<INCOME-CONTINUING> 3,792
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,792
<EPS-PRIMARY> 0.1
<EPS-DILUTED> 0.12
</TABLE>
