As filed with the Securities and Exchange Commission on May 15, 2000
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, 2000
--------------
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
--------------
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, par value $0.01 per share ("Class A Common Stock"), as of May 13, 2000
was 21,058,228.
<PAGE>
CAPITAL TRUST, INC.
INDEX
<TABLE>
<CAPTION>
<S> <C> <C>
Part I. Financial Information
Item 1: Financial Statements 1
Consolidated Balance Sheets - March 31, 2000
(unaudited) and December 31, 1999 (audited) 1
Consolidated Statements of Income - Three Months
Ended March 31, 2000 and 1999 (unaudited) 2
Consolidated Statements of Changes in Stockholders'
Equity - Three Months Ended March 31, 2000 and
1999 (unaudited) 3
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 2000 and 1999 (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 16
Part II. Other Information
Item 1: Legal Proceedings 17
Item 2: Changes in Securities 17
Item 3: Defaults Upon Senior Securities 17
Item 4: Submission of Matters to a Vote of Security Holders 17
Item 5: Other Information 17
Item 6: Exhibits and Reports on Form 8-K 18
Signatures 20
</TABLE>
<PAGE>
Capital Trust, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
-------------- --------------
Assets (Unaudited) (Audited)
<S> <C> <C>
Cash and cash equivalents $ 27,621 $ 38,782
Commercial mortgage-backed securities available-for-sale, at fair value 220,998 214,058
Certificated mezzanine investments available-for-sale, at fair value 45,129 45,432
Loans receivable, net of $8,572 and $7,605 reserve for possible credit losses at
March 31, 2000 and December 31, 1999, respectively 426,739 509,811
Excess of purchase price over net tangible assets acquired, net 280 286
Deposits and other receivables 38 533
Accrued interest receivable 6,739 9,528
Deferred income taxes 5,891 5,368
Prepaid and other assets 7,575 4,010
-------------- -------------
Total assets $ 741,010 $ 827,808
============== ==============
Liabilities and Stockholders' Equity
Liabilities:
Accounts payable and accrued expenses $ 7,358 $ 14,432
Notes payable 3,017 3,474
Credit facilities 257,071 343,263
Term redeemable securities contract 130,508 129,642
Repurchase obligations 28,399 28,703
Deferred origination fees and other revenue 3,061 3,411
--------------- --------------
Total liabilities 429,414 522,925
--------------- --------------
Company-obligated, mandatory redeemable, convertible preferred securities of CT
Convertible Trust I, holding solely 8.25% junior subordinated debentures of Capital
Trust, Inc. ("Convertible Trust Preferred Securities") 146,543 146,343
--------------- --------------
Stockholders' equity:
Class A 9.5% cumulative convertible preferred stock, $0.01 par value, $0.26 cumulative
annual dividend, 100,000 shares authorized, 2,278 shares issued and outstanding at
March 31, 2000 and December 31, 1999 (liquidation preference of $6,127) ("Class A
Preferred Stock") 23 23
Class B 9.5% cumulative convertible non-voting preferred stock, $0.01 par value, $0.26
cumulative annual dividend, 100,000 shares authorized, 4,043 shares issued and
outstanding at March 31, 2000 and December 31, 1999 (liquidation preference of
$10,876) ("Class B Preferred Stock" and together with Class A Preferred Stock,
"Preferred Stock") 40 40
Class A common stock, $0.01 par value, 100,000 shares authorized, 20,779 and
21,862 shares issued and outstanding at March 31, 2000 and December 31, 1999,
respectively 208 219
Class B common stock, $0.01 par value, 100,000 shares authorized, 2,294 shares issued and
outstanding at March 31, 2000 and December 31, 1999 ("Class B Common Stock") 23 23
Restricted Class A Common Stock, $0.01 par value, 326 and 127 shares issued and
outstanding at March 31, 2000 and December 31, 1999, respectively ("Restricted
Class A Common Stock" and together with Class A Common Stock and Class B
Common Stock, "Common Stock") 3 1
Additional paid-in capital 187,473 189,456
Unearned compensation (1,186) (407)
Accumulated other comprehensive loss (3,799) (10,164)
Accumulated deficit (17,732) (20,651)
--------------- -------------
Total stockholders' equity 165,053 158,540
---------------- -------------
Total liabilities and stockholders' equity $ 741,010 $ 827,808
================ ==============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 1 -
<PAGE>
Capital Trust, Inc. and Subsidiaries
Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
------------------ -------------------
<S> <C> <C>
Income from loans and other investments:
Interest and related income $ 22,693 $ 22,152
Less: Interest and related expenses 10,214 8,618
------------------ -------------------
Income from loans and other investments, net 12,479 13,534
------------------ -------------------
Other revenues:
Advisory and investment banking fees 1,325 3,093
Other interest income 202 620
------------------ -------------------
Total other revenues 1,527 3,713
------------------ -------------------
Other expenses:
General and administrative 3,753 5,255
Other interest expense 71 91
Depreciation and amortization 106 87
Provision for possible credit losses 966 1,079
------------------ -------------------
Total other expenses 4,896 6,512
------------------ -------------------
Income before income taxes and distributions and amortization
on Convertible Trust Preferred Securities 9,110 10,735
Provision for income taxes 4,450 5,202
------------------ -------------------
Income before distributions and amortization on Convertible
Trust Preferred Securities 4,660 5,533
Distributions and amortization on Convertible Trust Preferred
Securities, net of income tax benefit of $1,552 1,741 1,741
------------------ -------------------
Net income $ 2,919 $ 3,792
Less: Preferred Stock dividend requirement (404) (784)
------------------ -------------------
Net income allocable to Common Stock $ 2,515 $ 3,008
================== ===================
Per share information:
Net earnings per share of Common Stock
Basic $ 0.10 $ 0.16
================== ===================
Diluted $ 0.09 $ 0.12
================== ===================
Weighted average shares of Common Stock outstanding
Basic 24,487,475 18,317,103
================== ===================
Diluted 31,008,308 30,884,761
================== ===================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 2 -
<PAGE>
Capital Trust, Inc. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the Three Months Ended March 31, 2000 and 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Restricted
Class A Class B Class A Class B Class A Additional
Comprehensive Preferred Preferred Common Common Common Paid-In
Income/(Loss) Stock Stock Stock Stock Stock Capital
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1999 $ - $ 123 $ - $ 182 $ - $ 1 $ 188,816
Net income 3,792 - - - - - -
Unrealized gain on available-for-sale
securities, net of related income
taxes 4,270 - - - - - -
Issuance of Class A Common Stock
unit awards - - - - - - 312
Cancellation of previously issued
restricted Class A Common Stock
Issuance of restricted - - - - - (1) (149)
Class A Common Stock - - - - - 1 599
Restricted Class A Common Stock earned - - - - - - -
----------------- -----------------------------------------------------------------------
Balance at March 31, 1999 $ 8,062 $ 123 $ - $ 182 $ - $ 1 $ 189,578
================= =======================================================================
Balance at January 1, 2000 $ - $ 23 $ 40 $ 219 $ 23 $ 1 $ 189,456
Net income 2,919 - - - - - -
Unrealized gain on available-for-sale
securities, net of related income
taxes 6,365 - - - - - -
Issuance of warrants to purchase
shares of Class A Common Stock - - - - - - 1,360
Issuance of Class A Common Stock
unit awards - - - 1 - - 624
Issuance of restricted
Class A Common Stock - - - - - 2 948
Restricted Class A Common Stock earned - - - - - - -
Repurchase and retirement of shares of
Class A Common Stock previously
outstanding - - - (12) - - (4,915)
----------------- -----------------------------------------------------------------------
Balance at March 31, 2000 $ 9,284 $ 23 $ 40 $ 208 $ 23 $ 3 $ 187,473
================= =======================================================================
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other
Unearned Comprehensive Accumulated
Compensation Income/(Loss) Deficit Total
--------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1999 $ (418) $ (4,665) $ (35,352) $ 148,687
Net income - - 3,792 3,792
Unrealized gain on available-for-sale
securities, net of related income
taxes - 4,270 - 4,270
Issuance of Class A Common Stock
unit awards - - - 312
Cancellation of previously issued
restricted Class A Common Stock 104 - - (46)
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
========================================================
Balance at January 1, 2000 $ (407) $ (10,164) $ (20,651) $ 158,540
Net income - - 2,919 2,919
Unrealized gain on available-for-sale
securities, net of related income
taxes - 6,365 - 6,365
Issuance of warrants to purchase
shares of Class A Common Stock - - - 1,360
Issuance of Class A Common Stock
unit awards - - - 625
Issuance of restricted
Class A Common Stock (950) - - -
Restricted Class A Common Stock earned 171 - - 171
Repurchase and retirement of shares of
Class A Common Stock previously
outstanding - - - (4,927)
--------------------------------------------------------
Balance at March 31, 2000 $ (1,186) $ (3,799) $ (17,732) $ 165,053
========================================================
</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, 2000 and 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
2000 1999
---------------- -----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,919 $ 3,792
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Deferred income taxes (523) (292)
Provision for credit losses 966 1,079
Depreciation and amortization 106 87
Restricted Class A Common Stock earned 171 97
Amortization of premiums and accretion of discounts on
loans and investments, net (523) 54
Accretion of discounts on term redeemable securities contract 866 250
Accretion of discounts and fees on Convertible Trust Preferred
Securities, net 200 200
Expenses reversed on cancellation of restricted stock
previously issued - (46)
Changes in assets and liabilities, net:
Deposits and other receivables 495 65
Accrued interest receivable 2,789 (95)
Prepaid and other assets (2,283) (1,058)
Deferred origination fees and other revenue (350) (802)
Accounts payable and accrued expenses (6,449) (2,409)
---------------- -----------------
Net cash provided by (used in) operating activities (1,616) 922
---------------- -----------------
Cash flows from investing activities:
Purchases of commercial mortgage-backed securities - (185,947)
Principal collections on certificated mezzanine investments 303 147
Origination and purchase of loans receivable (1,896) (2,975)
Principal collections and proceeds from sale of loans receivable 83,950 124,689
Purchases of equipment and leasehold improvements (22) (49)
Principal collections and proceeds from sales of
available-for-sale securities - 529
---------------- -----------------
Net cash provided by (used in) investing activities 82,335 (63,606)
---------------- -----------------
Cash flows from financing activities:
Proceeds from repurchase obligations - 24
Repayment of repurchase obligations (304) (27,481)
Proceeds from credit facilities 16,000 26,957
Repayment of credit facilities (102,192) (85,060)
Repayment of notes payable (457) (427)
Net proceeds from issuance of term redeemable
securities contract - 126,885
Repurchase and retirement of shares of Class A Common
Stock previously outstanding (4,927) -
---------------- -----------------
Net cash provided by (used in) financing activities (91,880) 40,898
---------------- -----------------
Net decrease in cash and cash equivalents (11,161) (21,786)
Cash and cash equivalents at beginning of year 38,782 46,623
---------------- -----------------
Cash and cash equivalents at end of period $ 27,621 $ 24,837
================ =================
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 4 -
<PAGE>
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
1. Presentation of Financial Information
The accompanying unaudited consolidated interim financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States 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 accounting principles generally
accepted in the United States 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, 1999. 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, 2000, are not
necessarily indicative of results that may be expected for the entire year
ending December 31, 2000.
The accompanying unaudited consolidated interim financial statements of the
Company include the accounts of the Company and its wholly-owned subsidiaries.
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 accounting principles generally accepted in the United
States. Certain prior period amounts have been reclassified to conform to
current period classifications.
2. Use of Estimates
The preparation of financial statements 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.
3. Strategic Business Venture with Citigroup Investments Inc.
On March 8, 2000, the Company and certain of its wholly owned subsidiaries
entered into a strategic venture with affiliates of Citigroup Investments Inc.
("Citigroup"), following which it commenced its new investment management
business. The venture parties have agreed, among other things, to co-sponsor,
commit to invest capital in, and manage a series of high-yield commercial real
estate mezzanine investment funds (collectively, the "Mezzanine Funds").
Citigroup and the Company have made capital commitments to the Mezzanine Funds
of up to an aggregate of $400.0 million and $112.5 million, respectively,
subject to certain terms and conditions.
The strategic venture is governed by a venture agreement, dated as of March 8,
2000 (the "Venture Agreement"), pursuant to which the parties have created CT
Mezzanine Partners I LLC ("Fund I"), to which a Citigroup affiliate and a wholly
owned subsidiary of the Company, as members thereof, have made capital
commitments of $150 million and $50 million, respectively, to be invested in
stages upon approval by both members of each investment to be made by Fund I. A
wholly owned subsidiary of the Company, CT Investment Management Co., LLC
("CTIMCO"), serves as the exclusive investment manager to Fund I and is
currently negotiating suitable investments for the fund. Additionally, Citigroup
affiliates and subsidiaries of the Company have agreed to make additional
capital commitments of up to $250.0 million and $62.5 million, respectively, to
future Mezzanine Funds sponsored pursuant to the Venture Agreement that close
prior to December 31, 2001, which commitments are subject to the amount of
third-party capital commitments and other conditions contained in the Venture
Agreement.
In consideration of, among other things, Citigroup's $400 million aggregate
capital commitment to the Mezzanine Funds, the Company agreed in the Venture
Agreement to issue affiliates of Citigroup warrants to purchase shares of Class
A Common Stock. In connection with the organization of Fund I, the Company
issued a warrant to purchase 4.25 million shares of Class A Common Stock at
$5.00 per share. The foregoing warrant has a term of five years that expires on
March 8, 2005 and is not exercisable until March 8, 2001, whereupon it may be
exercised with cash or pursuant to a cash-less exercise feature. In connection
with the organization of subsequent Mezzanine Funds that
- 5 -
<PAGE>
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
close before December 31, 2001, the Company has agreed, subject to stockholder
approval, to issue additional warrants to purchase up to 5.25 million shares of
Class A Common Stock on the same terms as the initial warrants; the number of
shares subject to such warrants to be determined pursuant to a formula based on
the aggregate dollar amount of capital commitments made by affiliates of
Citigroup and clients of Citibank's private bank. The Company also issued
contingent cash rights, which terminate upon stockholder approval of the
additional warrants, that are intended to provide affiliates of Citigroup with
value equivalent to any additional warrants that otherwise would be issued to
such affiliates of Citigroup equal to the excess of the Class A Common Stock
trading price over $5.00 for each right exercised.
Pursuant to the Venture Agreement, CTIMCO has been named the exclusive
investment manager to the Mezzanine Funds. Further, each party has agreed to
certain exclusivity obligations with respect to the origination of assets
suitable for the Mezzanine Funds and the Company granted Citigroup the right of
first refusal to co-sponsor future Mezzanine Funds. The Company has also agreed,
as soon as practicable, to take the steps necessary for it to be treated as a
REIT for tax purposes on terms mutually satisfactory to the Company and
affiliates of Citigroup, subject to changes in law, or good faith inability to
meet the requisite qualifications. Unless the Company can find a suitable
"reverse merger" REIT candidate, the earliest that the Company can qualify for
re-election to REIT status will be upon filing its tax return for the year ended
December 31, 2002.
Pursuant to the Venture Agreement, the Company increased the size of its board
of directors by two and appointed Marc Weill and Michael Watson, chief executive
officer and senior vice president, respectively, of Citigroup Investments Inc.,
respectively, as directors in March 2000.
As a condition to the Venture Agreement and in order to facilitate its
conversion to REIT status as soon as practicable, the Company and the holders of
the Convertible Trust Preferred Securities agreed in principle on March 8, 2000,
to terminate their co-investment agreement with the Company and to amend the
terms of such securities. Such termination and amendment were completed as of
May 10, 2000. The revised terms are fully described in Note 10.
Through March 31, 2000, the Company has not made any equity contributions to any
Mezzanine Fund. The Company has capitalized costs totaling $4,327,000 that will
be amortized over the anticipated lives of the funds.
4. Earnings Per Share
The following table sets forth the calculation of Basic and Diluted EPS:
<TABLE>
<CAPTION>
Three Months Ended March 31, 2000 Three Months Ended March 31, 1999
----------------------------------------------- ----------------------------------------------
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
Common Stock $ 2,515,000 24,487,475 $ 0.10 $ 3,008,000 18,317,103 $ 0.16
============ ===========
Effect of Dilutive Securities
Future commitments for share
unit awards for the issuance
of Class A Common Stock -- 200,000 -- 300,000
Convertible Class A Preferred
Stock 404,000 6,320,833 784,000 12,267,658
----------------- ----------------- ---------------- -----------------
Diluted EPS:
Net earnings per share of
Common Stock and Assumed
Conversions $ 2,919,000 31,008,308 $ 0.09 $ 3,792,000 30,884,761 $ 0.12
================= ================ =========== ================ ================= ===========
</TABLE>
- 6 -
<PAGE>
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
5. Supplemental Disclosures for Consolidated Statements of Cash Flows
Interest paid on the Company's outstanding debt and Convertible Preferred Trust
Securities during the three months ended March 31, 2000 and 1999 was $13,146,000
and $12,114,000, respectively. Income taxes paid by the Company during the three
months ended March 31, 2000 and 1999 was $4,741,000 and $3,422,000,
respectively.
6. Loans receivable
At March 31, 2000 and December 31, 1999, the Company's loans receivable
consisted of the following (in thousands):
March 31, December 31,
2000 1999
------------- ------------
(1) Mortgage Loans $ 193,599 $ 270,332
(2) Mezzanine Loans 191,254 192,613
(3) Other mortgage loans receivable 50,458 54,471
------------- ------------
435,311 517,416
Less: reserve for possible credit losses (8,572) (7,605)
------------- ------------
Total loans $ 426,739 $ 509,811
============= ============
At March 31, 2000, 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 is as follows:
(1) Mortgage Loans 11.99%
(2) Mezzanine Loans 12.03%
(3) Other mortgage loans receivable 12.78%
Total loans 12.10%
At March 31, 2000, $306,556,000 (70%) of the aforementioned loans bear interest
at floating rates ranging from LIBOR plus 320 basis points to LIBOR plus 1000
basis points. The remaining $128,755,000 (30%) of loans were financed at fixed
rates ranging from 9.50% to 12.50%.
During the quarter ended March 31, 2000, the Company provided $1.9 million of
additional fundings on two existing loans. The Company had unfunded commitments
on four loans and certificated mezzanine investments totaling $23.7 million at
March 31, 2000.
At March 31, 2000, the Company had outstanding one letter of intent with respect
to a proposed $10,000,000 loan, which was funded in April 2000.
7. Stockholder's Equity
During March 2000, the Company announced a share repurchase program under which
the Company was authorized to purchase, from time to time, up to two million
shares of Class A Common Stock. As of March 31, 2000, the Company had purchased
and retired 1,213,500 shares of Class A Common Stock at an average price of
$4.06 per share (including commissions).
In consideration of, among other things, Citigroup's $400 million capital
commitment to the Mezzanine Funds, the Company agreed in the Venture Agreement
to issue affiliates of Citigroup warrants to purchase shares of Class A Common
Stock. The Company issued an initial warrant to purchase 4.25 million shares of
Class A Common Stock and has agreed under certain circumstances to issue
additional warrants to purchase up to 5.25 million shares of Class A Common
Stock. See Note 3 for a description of the terms of the warrants and the
circumstances under which the additional warrants may be issued. The value of
the warrants at issuance date, $1,360,000, was capitalized and will be amortized
over the anticipated lives of the Funds.
- 7 -
<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, 2000 and
1999 is comprised as follows (in thousands):
2000 1999
--------------- ---------------
Current
Federal $ 2,956 $ 3,270
State 1,060 1,168
Local 957 1,055
Deferred
Federal (316) (176)
State (109) (60)
Local (98) (55)
--------------- ---------------
Provision for income taxes $ 4,450 $ 5,202
=============== ===============
The Company has federal net operating loss carryforwards ("NOLs") as of March
31, 2000 of approximately $10.8 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 the ownership change
that occurred upon the purchase of 6,959,593 predecessor 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, 2000
and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
--------------------------------------------------------
$ % $ %
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Federal income tax at statutory rate $ 3,189 35.0% $ 3,757 35.0%
State and local taxes, net of federal
tax benefit 1,176 12.9% 1,370 12.8%
Utilization of net operating loss
carryforwards (122) (1.3)% (122) (1.1)%
Compensation in excess of deductible
limits 124 1.3% 190 1.7%
Other 83 0.9% 7 0.1%
------------- ----------- ------------- -------------
$ 4,450 48.8% $ 5,202 48.5%
========================================================
</TABLE>
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.
- 8 -
<PAGE>
<PAGE>
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The components of the net deferred tax assets as of March 31, 2000 and December
31, 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------------- --------------------
<S> <C> <C>
Net operating loss carryforward $ 3,766 $ 3,889
Reserves on other assets and for
possible credit losses 6,767 6,312
Other 863 795
--------------------- --------------------
Deferred tax assets 11,396 10,966
Valuation allowance (5,505) (5,628)
--------------------- --------------------
$ 5,891 $ 5,368
===================== ====================
</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 31, 2000, the Company issued an aggregate of
253,750 and 200,000 options to acquire shares of Class A Common Stock with an
exercise price of $4.125 and $6.00 per share, respectively (prices at or higher
than the fair value market value based on reported trading prices on the dates
of the grant).
The Company also issued 230,304 restricted shares of Class A Common Stock which
vest one third on each of the following dates: February 1, 2001, February 1,
2002 and February 1, 2003.
The following table summarizes the option activity under the incentive stock
plan for the quarter ended March 31, 2000:
<TABLE>
<CAPTION>
Weighted Average
Exercise Price
Options Exercise Price per Share
Outstanding per Share
------------------- ------------------------ ------------------
<S> <C> <C> <C>
Outstanding at January 1, 2000 1,233,917 $6.00 - $10.00 $ 7.89
Granted in 2000 453,750 $4.125 - $6.00 4.95
Exercised in 2000 - - -
Canceled in 2000 (69,505) $4.125 - $10.00 7.42
------------------- ------------------
Outstanding at March 31, 2000 1,618,162 $4.125 - $10.00 $ 7.08
=================== ==================
</TABLE>
At March 31, 2000, 730,508 of the options are exercisable. At March 31, 2000,
the outstanding options have various remaining contractual exercise periods
ranging from 7.25 to 9.83 years with a weighted average life of 8.75 years.
10. Subsequent Event
On May 10, 2000, the Company modified the terms of the $150 million aggregate
liquidation amount Convertible Trust Preferred Securities. The Convertible Trust
Preferred Securities were issued by the Company's consolidated statutory trust
subsidiary, CT Convertible Trust I (the "Trust") in July 1998. The Convertible
Trust Preferred Securities represented an undivided beneficial interest in the
assets of the Trust that consisted solely of the Company's $154,650,000
aggregate principal amount 8.25% step up convertible junior subordinated
debentures ("Convertible Debentures") that were concurrently issued and sold to
the Trust.
- 9 -
<PAGE>
<PAGE>
Capital Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
In connection with the modification, the outstanding Convertible Trust Preferred
Securities were cancelled and new variable step up convertible trust preferred
securities with an aggregate liquidation amount of $150,000,000 (the "New
Convertible Trust Preferred Securities") were issued to the holders of the
canceled securities in exchange therefore, and the Convertible Debentures were
canceled and new 8.25% step up convertible junior subordinated debentures in the
aggregate principal amount of $92,524,000 (the "New Convertible Debentures") and
new 13% step up non-convertible junior subordinated debentures in the aggregate
principal amount of $62,126,000 (the "New Non-Convertible Debentures" and
together with the New Convertible Debentures, the "New Debentures") were issued
to the Trust, as the holder of the canceled bonds, in exchange therefore. The
liquidation amount of the New Convertible Trust Preferred Securities is divided
into $89,742,000 of convertible amount (the "Convertible Amount") and
$60,258,000 of non-convertible amount (the "Non-Convertible Amount"), the
distribution, redemption and, as applicable, conversion terms of which, mirror
the interest, redemption and, as applicable, conversion terms of the New
Convertible Debentures and the New Non-Convertible Debentures, respectively,
held by the Trust.
Distributions on the New Convertible Trust Preferred Securities are payable
quarterly in arrears on each calendar quarter-end and correspond to the payments
of interest made on the New Debentures, the sole assets of the Trust.
Distributions are payable only to the extent payments are made in respect to the
New Debentures.
The New Convertible Trust Preferred Securities initially bear a blended coupon
rate of 10.16% per annum which rate will vary as the proportion of outstanding
Convertible Amount to the outstanding Non-Convertible Amount changes and will
step up in accordance with the coupon rate step up terms applicable to the
Convertible Amount and the Non-Convertible Amount.
The Convertible Amount bears a coupon rate of 8.25% per annum through March 31,
2002 and increases on April 1, 2002 to the greater of (i) 10.00% per annum,
increasing by 0.75% on October 1, 2004 and on each October 1 thereafter or (ii)
a percentage per annum equal to the quarterly dividend paid on a common share
multiplied by four and divided by $7.00. The Convertible Amount is convertible
into shares of Class A Common Stock, in increments of $1,000 in liquidation
amount, at a conversion price of $7.00 per share. The Convertible Amount is
redeemable by the Company, in whole or in part, on or after September 30, 2004.
The Non-Convertible Amount bears a coupon rate of 13.00% per annum through
September 30, 2004, increasing by 0.75% on October 1, 2004 and on each October 1
thereafter. The Non-Convertible Amount is redeemable by the Company, in whole or
in part, at any time.
For financial reporting purposes, the Trust will continue to be treated as a
subsidiary of the Company and, accordingly, the accounts of the Trust will be
included in the consolidated financial statements of the Company. Intercompany
transactions between the Trust and the Company, including the Debentures, will
be eliminated in the consolidated financial statements of the Company. The New
Convertible Trust Preferred Securities will be presented as a separate caption
between liabilities and shareholders' equity in the consolidated balance sheet
of the Company. Distributions on the New Convertible Trust Preferred Securities
will be recorded, net of the tax benefit, in a separate caption immediately
following the provision for income taxes in the consolidated statement of
operations of the Company.
- 10 -
<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.
Strategic Venture with Citigroup
- --------------------------------
On March 8, 2000, the Company and of its certain wholly owned
subsidiaries entered into a strategic venture with affiliates of Citigroup
Investments Inc. ("Citigroup"), following which it commenced its new investment
management business. The venture parties have agreed, among other things, to
co-sponsor, commit to invest capital in, and manage a series of high-yield
commercial real estate mezzanine investment funds (collectively, the "Mezzanine
Funds"). Citigroup and the Company have made capital commitments to the
Mezzanine Funds of up to an aggregate of $400.0 million and $112.5 million,
respectively, subject to certain terms and conditions.
The strategic venture is governed by a venture agreement, dated as of
March 8, 2000 (the "Venture Agreement"), pursuant to which the parties have
created CT Mezzanine Partners I LLC ("Fund I"), to which a Citigroup affiliate
and a wholly owned subsidiary of the Company, as members thereof, have made
capital commitments of $150 million and $50 million, respectively, to be
invested in stages upon approval by both members of each investment to be made
by Fund I. A wholly owned subsidiary of the Company, CT Investment Management
Co., LLC ("CTIMCO"), serves as the exclusive investment manager to Fund I and is
currently negotiating suitable investments for the fund. Additionally, Citigroup
affiliates and subsidiaries of the Company have agreed to make additional
capital commitments of up to $250.0 million and $62.5 million, respectively, to
future Mezzanine Funds sponsored pursuant to the Venture Agreement that close
prior to December 31, 2001, which commitments are subject to the amount of
third-party capital commitments and other conditions contained in the Venture
Agreement.
In consideration of, among other things, Citigroup's $400 million
aggregate capital commitment to the Mezzanine Funds, the Company agreed in the
Venture Agreement to issue affiliates of Citigroup warrants to purchase shares
of Class A Common Stock. In connection with the organization of Fund I, the
Company issued a warrant to purchase 4.25 million shares of Class A Common Stock
at $5.00 per share. The foregoing warrant has a term of five years that expires
on March 8, 2005 and is not exercisable until March 8, 2001, whereupon it may be
exercised with cash or pursuant to a cash-less exercise feature. In connection
with the organization of subsequent Mezzanine Funds that close before December
31, 2001, the Company has agreed, subject to stockholder approval, to issue
additional warrants to purchase up to 5.25 million shares of Class A Common
Stock on the same terms as the initial warrants; the number of shares subject to
such warrants to be determined pursuant to a formula based on the aggregate
dollar amount of capital commitments made by affiliates of Citigroup and clients
of Citibank's private bank. The Company also issued contingent cash rights,
which terminate upon stockholder approval of the additional warrants, that are
intended to provide such affiliates of Citigroup with value equivalent to any
additional warrants that otherwise would be issued to affiliates of Citigroup
equal to the excess of the Class A Common Stock trading price over $5.00 for
each right exercised.
Pursuant to the Venture Agreement, CTIMCO has been named the exclusive
investment manager to the Mezzanine Funds. Further, each party has agreed to
certain exclusivity obligations with respect to the origination of assets
suitable for the Mezzanine Funds and the Company granted Citigroup the right of
first refusal to co-sponsor future Mezzanine Funds. The Company has also agreed,
as soon as practicable, to take the steps necessary for it to be treated as a
REIT for tax purposes on terms mutually satisfactory to the Company and
affiliates of Citigroup, subject to changes in law, or good faith inability to
meet the requisite qualifications. Unless the Company can find a suitable
"reverse merger" REIT candidate, the earliest that the Company can qualify for
re-election to REIT status will be upon filing its tax return for the year ended
December 31, 2002.
The Company believes that its new business venture with Citigroup
emphasizes its strengths and provides it with the building blocks for a scalable
platform for high quality earnings growth. It also shifts the Company's focus
from that of a "balance sheet" lender to that of an investment manager. The
investment management business, as structured with Citigroup, also allows the
Company to tap the private equity markets as a source of fresh capital
- 11 -
<PAGE>
to fund its business. The venture further provides the potential for significant
operating leverage allowing the Company to grow earnings and to increase return
on equity without incurring substantial portfolio risk.
Overview of Financial Condition
- -------------------------------
Since December 31, 1999, the Company funded $1.9 million of commitments
under two existing loans. The Company received full satisfaction of two loans
totaling $78.5 million and partial repayments on eight loans and certificated
mezzanine investments totaling $5.7 million. At March 31, 2000, the Company had
outstanding loans, certificated mezzanine investments and investments in
commercial mortgage-backed securities totaling approximately $700 million and
additional commitments for fundings on outstanding loans and certificated
mezzanine investments of approximately $23.7 million.
At March 31, 2000, the Company had $257.1 million outstanding under the
credit facilities. The decrease in the amount outstanding under the credit
facilities from the amount outstanding at December 31, 1999 was due to the cash
received on loan repayments being utilized to pay down the credit facilities.
A repurchase obligation outstanding at December 31, 1999 for $10.9
million that matured in March 2000 was extended to April 2000 and subsequently
to May 2000 on the same terms as those in effect at December 31, 1999. At March
31, 2000, the Company was party to two repurchase obligations, including the
foregoing obligation, relating to assets sold by the Company with an aggregate
carrying amount of $45.1 million, which approximates the assets' market value,
and has a liability to repurchase these assets for $28.4 million. The average
interest rate in effect for the repurchase obligations at March 31, 2000 was
7.82%.
As of March 31, 2000, certain of the Company's loans and other
investments have been hedged with interest rate swaps 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. At March 31, 2000, the Company
was party to interest rate swap agreements for notional amounts totaling
approximately $238.2 million 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 December 2014.
During March 2000, the Company announced a share repurchase program
under which the Company may purchase, from time to time, up to two million
shares of the Company's Class A Common Stock. As of March 31, 2000, the Company
had purchased and retired 1,213,500 shares of the Company's Class A Common
Stock. The Company has and will continue to fund share repurchases with
available cash.
Now that the Company's new investment management business has commenced
and Fund I's asset origination and acquisition activities are ongoing under the
management of CTIMCO, the Company will not reinvest directly for its own
portfolio the working capital derived from maturing loans and investments,
unless otherwise approved or permitted by the funds. Pursuant to the Venture
Agreement, the Company will source potential investment opportunities to Fund I
or Fund II, when it has closed, and will use such working capital to make its
contributions to the funds as and when required. Therefore, if the amount of the
Company's maturing loans and investments increases significantly before excess
capital is invested in the funds, the Company may experience temporary
shortfalls in revenues and lower earnings until offsetting revenues are derived
from the funds.
Comparison of the Three Months Ended March 31, 2000 to the Three Months Ended
March 31, 1999
- --------------------------------------------------------------------------------
The Company reported net income allocable to shares of Common Stock of
$2,515,000 for the three months ended March 31, 2000, a decrease of $493,000
from the net income allocable to shares of Class A Common Stock of $3,008,000
for the three months ended March 31, 1999. This decrease was primarily the
result of the decreased advisory and investment banking revenues.
Interest and related income from loans and other investments amounted
to $22,693,000 for the three months ended March 31, 2000, an increase of
$541,000 over the $22,152,000 amount for the three months ended March 31, 1999.
While average interest earning assets increased from approximately $665.0
million for the three
- 12 -
<PAGE>
months ended March 31, 1999 to approximately $756.0 million for the three months
ended March 31, 2000, the interest rate earned on such assets decreased from
13.5% in 1999 to 12.0% in 2000. During the three months ended March 31, 2000,
the Company recognized an additional $456,000 on the early repayment of a loan,
while during the three months ended March 31, 1999, the Company recognized an
additional $3.6 million on the early repayment of three loans. Without this
additional interest income, the earning rate for 2000 would have been 11.8%
versus 11.3% for 1999. This increase is due primarily to an increase in the
average LIBOR rate from 4.95% in the first quarter of 1999 to 5.92% for the
first quarter of 2000. This increase was partially offset by the effects of
repayment of higher yielding assets.
Interest and related expenses amounted to $10,214,000 for the three
months ended March 31, 2000, an increase of $1,596,000 over the $8,618,000
amount for the three months ended March 31, 1999. The increase in expenses was
due to an increase in the amount of average interest bearing liabilities from
approximately $430.8 million at an average rate of 8.1% for the three months
ended March 31, 1999 to approximately $455.5 million at an average rate of 9.0%
for the three months ended March 31, 2000. The increase in the average rate is
consistent with the increase in the average LIBOR rate for the same periods.
In addition, the Company also utilizes $150.0 million of Convertible
Trust Preferred Securities, issued in July 1998, to finance its interest earning
assets. During the first quarter of 2000 and 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 $199,000. This was partially offset by a tax
benefit of $1,552,000.
During the three months ended March 31, 2000, other revenues totaled
$1,527,000, a decrease of $2,186,000 from the same three-month period in 1999.
For the three months ended March 31, 2000, there was $1,768,000 less advisory
and investment banking fees when compared to such fees in the prior year and a
$418,000 decrease in other interest income. The decrease in other interest
income was due to the Company maintaining a lower level of liquidity during the
first quarter of 2000.
Other expenses decreased from $6,512,000 for the three months ended
March 31, 1999 to $4,896,000 for the three months ended March 31, 2000. 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. This, along
with a decrease in average staffing levels and legal fees, primarily accounted
for the decrease in general and administrative expenses. During the period ended
March 31, 2000, the Company had an average of 27 full time employees as compared
to an average of 45 during the period ended March 31, 1999. The Company had 23
full time employees at March 31, 2000.
For the three months ended March 31, 2000 and 1999, the Company accrued
$4,450,000 and $5,202,000, respectively, of income tax expense for federal,
state and local income taxes. The decrease in taxes was due to a decrease in
earnings before taxes and distributions and amortization on Convertible Trust
Preferred Securities as the effective tax rate remained consistent.
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 accrued 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 or
$3,135,000 per annum through the second quarter of 1999. In the third quarter of
1999, 5,946,825 shares of Class A Preferred Stock were converted into an equal
number of shares of Class A Common Stock thereby reducing the number of
outstanding shares of Preferred Stock to 6,320,833 and the dividend requirement
to $1,615,000 per annum.
Liquidity and Capital Resources
- -------------------------------
At March 31, 2000, the Company had $27,621,000 in cash. The primary
sources of liquidity for the Company for the remainder of 2000, will be cash on
hand, cash generated from operations, principal and interest payments received
on investments (including loan repayments), loans and securities, and additional
borrowings under the credit facilities. The Company believes these sources of
capital will adequately meet future cash requirements. The Company expects that
during the remainder of 2000, it will use a significant amount of its available
capital resources to satisfy its capital contributions required in connection
with the previously discussed
- 13 -
<PAGE>
strategic venture with Citigroup. In connection with the existing portfolio
investment and loan business, the Company intends to employ leverage up to a
maximum 5:1 debt-to-equity ratio to enhance its return on equity.
The Company experienced a net decrease in cash of $11,161,000 for the
three months ended March 31, 2000, compared to the net decrease of $21,786,000
for the three months ended March 31, 1999. The use of cash in the first quarter
of 2000 was primarily to reduce liabilities while the use of cash in the first
quarter of 1999 was primarily to the purchase of the BB CMBS Portfolio (net of
the proceeds from the term redeemable securities contract). Cash used in
operating activities during the three months ended March 31, 2000 was
$1,616,000, a reduction of $2,538,000 from cash provided by operating activities
of $922,000 during the same period of 1999. For the three months ended March 31,
2000, cash provided by investing activities was $82,335,000, an increase of
$145,941,000 from $63,606,000 used during the same period in 1999, primarily as
a result of significant repayments received on loans since December 31, 1999 and
a reduced level of loan origination from that of the prior year. The Company
utilized the cash received on loan repayments to reduce the credit facilities,
which accounted for most of the $91,880,000 use of cash in financing activities
in the first quarter of 2000, a $132,778,000 decrease from the $40,898,000 cash
provided by financing activities in the same period of 1999, which included a
significant increase in borrowing from the issuance of the term redeemable
securities contract.
At March 31, 2000, the Company has two outstanding notes payable
totaling $3,017,000, outstanding borrowings under the credit facilities of
$257,071,000, outstanding borrowings on the term redeemable securities contract
of $130,508,000 and outstanding repurchase obligations of $28,399,000. At March
31, 2000, the Company had $391,358,000 of borrowing capacity available under the
credit facilities.
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 business plan, business
strategy, portfolio management and investment management business. 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 1999 fiscal year Annual Report on Form 10-K 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,
fluctuations in interest rates and credit spreads, 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.
- 14 -
<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 for proper matching with variable rate
liabilities and variable rate liabilities to fixed rate liabilities for proper
matching with 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.
The following table provides information about the Company's financial
instruments that are sensitive to changes in interest rates at March 31, 2000.
For financial assets and debt obligations, the table presents cash flows to the
expected maturity and weighted average interest rates based upon the current
carrying values. 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
-------------------------------------------------------------------------------------
2000 2001 2002 2003 2004 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
Assets: (dollars in thousands)
CMBS
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed Rate - - $196,874 - - - $196,874 $181,543
Average interest rate - - 11.51% - - - 11.51%
Variable Rate - - - $ 36,509 - - $ 36,509 $ 33,442
Average interest rate - - - 11.50% - - 11.50%
Certificated Mezzanine
Investments
Variable Rate $ 45,129 - - - - - $ 45,129 $ 45,129
Average interest rate 10.85% - - - - - 10.85%
Loans receivable
Fixed Rate - $ 28,000 $ 3,000 - - $ 96,850 $127,850 $124,328
Average interest rate - 12.59% 12.50% - - 11.41% 11.69%
Variable Rate $98,091 $133,465 $ 48,500 - - $ 26,500 $306,556 $299,708
Average interest rate 12.97% 11.53% 12.86% - - 11.81% 12.23%
Liabilities:
Credit facilities
Variable Rate - $117,761 - $139,310 - - $257,071 $257,071
Average interest rate - 9.16% - 8.44% - - 8.77%
Term redeemable securities
contract
Variable Rate - - $137,812 - - - $137,812 $130,508
Average interest rate - - 9.61% - - - 9.61%
Repurchase obligations
Variable Rate $ 28,399 - - - - - $ 28,399 $ 28,399
Average interest rate 7.82% - - - - - 7.82%
Convertible Trust
Preferred Securities
Fixed Rate - - - - - $150,000 $150,000 $146,543
Average interest rate - - - - - 8.99% 8.99%
Interest rate swaps - $ 28,000 $137,812 $ 19,109 - $53,250 $238,171 $ 17,495
Average fixed pay rate - 5.79% 6.05% 6.04% - 6.01% 6.01%
Average variable
receive rate - 5.91% 6.10% 5.99% - 5.94% 6.03%
</TABLE>
- 15 -
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1: Legal Proceedings
None
ITEM 2: Changes in Securities
(c) Recent Sales of Unregistered Securities
On March 8, 2000, the Company issued a warrant to Travelers Limited
Real Estate Mezzanine Investment I, LLC, an affiliate of Citigroup, to purchase
4.25 million shares of Class A Common Stock at a price of $5.00 per share. The
disclosure contained Note 3. Strategic Business Venture with Citigroup
Investments Inc. contained in Item 1 -- Financial Statements of PART I is
incorporated herein by reference in its entirety. The warrant was issued in
reliance upon Section 4(2) of the Securities Act of 1933, as amended, as a
transaction by an issuer not involving any public offering.
ITEM 3: Defaults Upon Senior Securities
None
ITEM 4: Submission of Matters to a Vote of Security Holders
None
ITEM 5: Other Information
None
<PAGE>
ITEM 6: Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description
------- -----------
10.1 Venture Agreement amongst Travelers Limited Real Estate Mezzanine
Investments I, LLC, Travelers General Real Estate Mezzanine
Investments II, LLC, Travelers Limited Real Estate Mezzanine
Investments II, LLC, CT-F1, LLC, CT-F2-GP, LLC, CT-F2-LP, LLC, CT
Investment Management Co., LLC and Capital Trust, Inc., dated as
of March 8, 2000 (filed as Exhibit 10.1 to the Company's Current
Report on Form 8-K (File No. 1-14788) filed on March 23, 2000 and
incorporated herein by reference).
10.2 Limited Liability Company Agreement of CT Mezzanine Partners I
LLC, by and among Travelers Limited Real Estate Mezzanine
Investments I, LLC and CT-F1, LLC, dated as of March 8, 2000
(filed as Exhibit 10.2 to the Company's Current Report on Form
8-K (File No. 1-14788) filed on March 23, 2000 and incorporated
herein by reference).
10.3 Limited Liability Company Agreement of CT MP II LLC, by and among
Travelers General Real Estate Mezzanine Investments II, LLC and
CT-F2-GP, LLC, dated as of March 8, 2000 (filed as Exhibit 10.3
to the Company's Current Report on Form 8-K (File No. 1-14788)
filed on March 23, 2000 and incorporated herein by reference).
10.4 Fund I Class A Common Stock Warrant Agreement, by Capital Trust,
Inc. granting warrant to Travelers Limited Real Estate Mezzanine
Investment I, LLC, dated as of March 8, 2000 (filed as Exhibit
10.4 to the Company's Current Report on Form 8-K (File No.
1-14788) filed on March 23, 2000 and incorporated herein by
reference).
10.5 Contingent Cash Rights Agreement, by and among Capital Trust,
Inc. and Travelers General Real Estate Mezzanine Investments II,
LLC, dated as of March 8, 2000 (filed as Exhibit 10.5 to the
Company's Current Report on Form 8-K (File No. 1-14788) filed on
March 23, 2000 and incorporated herein by reference).
10.6 Guaranty of Payment, by Capital Trust, Inc. in favor of Travelers
Limited Real Estate Mezzanine Investments I, LLC, Travelers
General Real Estate Mezzanine Investments II, LLC and Travelers
Limited Real Estate Mezzanine Investments II, LLC, dated as of
March 8, 2000 (filed as Exhibit 10.6 to the Company's Current
Report on Form 8-K (File No. 1-14788) filed on March 23, 2000 and
incorporated herein by reference).
10.7 Guaranty of Payment, by The Travelers Insurance Company in favor
of Capital Trust, Inc., CT-F1, LLC, CT-F2-GP, LLC, CT-F2-LP, LLC
and CT Investment Management Co., LLC, dated as of March 8, 2000
(filed as Exhibit 10.8 to the Company's Current Report on Form
8-K (File No. 1-14788) filed on March 23, 2000 and incorporated
herein by reference).
10.8 Investment Management Agreement, by and among CT Investment
Management Co., LLC and CT Mezzanine Partners I LLC, dated as of
March 8, 2000 (filed as Exhibit 10.8 to the Company's Current
Report on Form 8-K (File No. 1-14788) filed on March 23, 2000 and
incorporated herein by reference).
10.9 Investment Management Agreement, by and among CT Investment
Management Co., LLC, CT MP II LLC and CT Mezzanine Partners II
L.P., dated as of March 8, 2000 (filed as Exhibit 10.9 to the
Company's Current Report on Form 8-K (File No. 1-14788) filed on
March 23, 2000 and incorporated herein by reference).
10.10 Registration Rights Agreement, by and among Capital Trust, Inc.,
Travelers Limited Real Estate Mezzanine Investments I, LLC,
Travelers General Real Estate Mezzanine Investments II, LLC and
Travelers Limited Real Estate Mezzanine Investments II, LLC,
dated as of March 8, 2000 (filed as Exhibit 10.10 to the
Company's Current Report on Form 8-K (File No. 1-14788) filed on
March 23, 2000 and incorporated herein by reference).
- 16 -
<PAGE>
27.1 Financial Data Schedule
(b) Reports on Form 8-K
During the fiscal quarter ended March 31, 2000, the Company filed the
following Current Reports on Form 8-K:
(1) Current Report on Form 8-K, dated March 8, 2000, as filed with
the Commission on March 23, 2000, reporting under Item 5 "Other
Events" the establishment of a strategic venture with
affiliates of Citigroup Investments Inc. ("Citigroup") through
which the Company and Citigroup will co-sponsor, commit to
invest capital in and manage high yield commercial real estate
mezzanine investment funds.
- 18 -
<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 15. 2000 /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
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF CAPITAL TRUST, INC. FOR THE THREE MONTHS ENDED MARCH 31,
2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
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146,543
0
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