First Quarter Highlights:
-- Liquidity: At March 31, 2009, we had $4.0 million in unrestricted cash and net borrowings on our repurchase agreement of $13.4 million. As of May 4, 2009, unrestricted cash decreased to $2.9 million and net borrowings on our repurchase agreement declined to $12.6 million. -- Earnings and Adjusted Funds from Operations Per Adjusted Diluted Common Share: Generally accepted accounting principles ("GAAP") requires that we retrospectively restate earnings per share for our 1-for-10 reverse stock split that occurred on February 20, 2009. However, under GAAP, we are precluded from retrospectively restating earnings per common share for our stock dividend paid on January 30, 2009 as a portion of this dividend was paid in cash. Management believes that it is meaningful to investors to disclose the retrospective effect of both the 1-for-10 reverse stock split as well as the stock dividend. Accordingly, we are presenting non-GAAP earnings per Adjusted Diluted Common Share ("ADCS"). See a reconciliation of earnings and AFFO per common share calculated under GAAP to earnings per ADCS at the end of this release. -- Adjusted Funds from Operations: Adjusted Funds from Operations ("AFFO"), a non-GAAP measure, was $4.3 million, or $0.86 per ADCS, for the three months ended March 31, 2009. See reconciliations of net income (loss) determined in accordance with GAAP to AFFO at the end of this release. -- Operating Results: Net loss was $18.3 million, or $(3.69) per ADCS, for the three months ended March 31, 2009. -- Stockholders' Equity: Stockholders' equity at March 31, 2009 was $27.9 million, or $5.60 per diluted share. -- Real Estate Loan Portfolio Credit Statistics: There were no delinquencies or loss reserves established related to real estate loans as of March 31, 2009. -- CMBS Portfolio Credit Statistics: Outlined below are credit statistics relating to the approximately $48 billion of unpaid principal balance of commercial real estate loans, representing approximately 3,500 loans, that serve as collateral for our "first-loss" conduit CMBS investments. -- 60-day and greater delinquencies on loan collateral underlying our CMBS "first-loss" investments was 165 basis points at March 31, 2009 compared to 83 basis points at December 31, 2008. As of April 30, 2009, the 60-day and greater delinquency rate increased to 191 basis points. -- Special servicing portfolio at March 31, 2009 consisted of 104 loans with an unpaid principal balance of approximately $1.2 billion. As of May 5, 2009, the number of loans in special servicing increased to 126 loans with an aggregate unpaid principal balance of approximately $2.3 billion.
-- CMBS Portfolio Loss Projections: Primarily due to the continuing increases in delinquencies and the special servicing portfolio, as well as current weakness in the real estate and credit markets, we increased our loss projections on the approximately $48 billion of commercial real estate loan collateral underlying our CMBS "first-loss" investments as of March 31, 2009 to approximately $1.2 billion (approximately 2.5% of the unpaid principal balance of such loans) from approximately $964 million (approximately 2.0% of the unpaid principal balance of such loans) at December 31, 2008, as compared to 1.4% at original underwriting. In addition, we accelerated the projected timing of such losses and currently estimate that approximately 59.5% of the total projected losses will occur through 2011 compared to approximately 51.6% in our December 31, 2008 loss projections, and approximately 15.1% in our original underwriting. Cumulative actual realized losses on our "first-loss" conduit CMBS investments through March 31, 2009 were approximately $3.4 million. As we continue to monitor developments in our portfolio and the overall macroeconomic environment, loss reserves may increase in the future in response to further deterioration in the real estate and credit markets. -- Other Than Temporary Impairment Charges: During the three months ended March 31, 2009, we recorded $14.5 million of impairment charges related to our CMBS investments that are not financed by CDOs and relate to declines in the projected net present value of future cash flows related to individual CMBS investments and other than temporary impairment charges on our CMBS driven by the duration and severity of our unrealized losses on 23 separate CMBS bonds pursuant to EITF 99-20.
Recent Events
We did not make interest payments due on
Liquidity
As previously disclosed, the Company has undertaken or expects to commence certain efforts to reduce expenses and preserve liquidity including; (i) discontinuing payment of quarterly dividends and replacing it with payment of an annual dividend to the extent required to satisfy REIT dividend requirements, (ii) seeking to reduce operating costs, primarily our general and administrative costs, (iii) seeking to restructure terms of our recourse indebtedness including extension of scheduled maturity dates and/or modification of near-term interest payment requirements; and (iv) if necessary, pursue sales of selected assets.
Investments
JERT's investments as of
Weighted March 31, 2009 Average -------------- --------- Face % of Amount/ Total Cost Invest- Coupon Loss Basis Amortized Fair ments Rate Adjusted (1) Cost Value (2) (3) Yield --------- --------- ------ ------- ------- --------- CMBS not financed by CDOs $432.3 $23.6 $23.6 8.2% 5.2% 57.2%(4) CMBS financed by CDO I 418.7 50.5 50.5 17.6% 4.9% 40.7%(4) CMBS financed by CDO II 888.9 61.3 61.3 21.3% 5.2% 51.6%(4) ----- ---- ---- ---- --- ---- Total CMBS (5) 1,739.9 135.4 135.4 47.1% 5.1% 47.9% Real estate loans, held for investment (6) 270.6 270.3 152.0 52.9% 3.6% 3.6% Investments in US Debt Fund 0.1 0.1 0.1 0.0% N/A N/A --- --- --- --- ----- ----- Total $2,010.6 $405.8 $287.5 100.0% 4.9% N/A ======== ====== ====== ===== === ===== (1) For investments in unconsolidated joint ventures. (2) Based on fair value. (3) Based on face amount. (4) Loss adjusted yields for our CMBS investments reflect the impact of estimated future losses on underlying collateral and are the basis on which we record interest income on such investments in our GAAP financial statements in accordance with guidance provided by EITF 99- 20. (5) Amortized cost has been reduced from original cost primarily due to the recognition of cumulative impairments of $849.0 million. (6) Real estate loans are financed by CDO II.
Borrowings
With respect to liabilities, at
-- $127.4 million (or 45.6% of total liabilities) represents the estimated fair value of borrowings in the form of long term, "match-funded" notes payable issued to third parties relating to our two collateralized debt obligation offerings, CDO I and CDO II with an aggregate face amount of $969.9 million. Pursuant to our adoption of SFAS No. 159 effective January 1, 2008, we elected to account for these notes payable using the fair value option. CDO I and CDO II are not subject to "margin calls" based on mark-to-market fair value determinations of the underlying collateral and are generally non-recourse to the Company. -- $13.4 million (or 4.8% of total liabilities) represents net borrowings under short-term repurchase facilities with JPMorgan. The facility is generally subject to "margin calls" based on mark-to-market fair value determinations of the underlying collateral and is fully recourse to us. -- $9.0 million (or 3.2% of total liabilities) represents a note payable the Company entered into as a result of the restructuring of four interest rate swaps. On March 3, 2009, we entered into a new agreement with our counterparty to terminate and replace all of our outstanding non-CDO interest rate swaps, which had a $245.1 million ending notional amount and a $21.4 million net fair value liability as of December 31, 2008, in exchange for a new seven-year fixed rate-for-fixed interest rate agreement. Under such agreement, we will pay a fixed monthly amount of approximately $0.4 million through February 2017. We have reflected this agreement, at fair value, as a note payable on our consolidated balance sheets as it does not meet the definition of a derivative. -- $61.9 million (or 22.1% of total liabilities) represents borrowings in the form of unsecured junior subordinated debentures. These junior subordinated debentures are not subject to "margin calls" based on mark-to-market fair value determinations of underlying collateral but are fully recourse to us. These debentures have a maturity date of April 2037 and are outstanding in connection with our April 2007 issuance of $60.0 million of trust preferred securities. -- $62.1 million (or 22.2% of total liabilities) represents the fair value of our CDO-related pay-fixed interest rate swaps with a notional balance at March 31, 2009 of $413.1 million and a weighted-average interest rate of 5.0%. -- $5.6 million (or 2.1% of total liabilities) consists of amounts due to affiliates of $1.3 million, trade payables and other liabilities.
As of
Non-GAAP Financial Measures
In this earnings release, we may disclose non-GAAP financial measures as defined by SEC Regulation G. In addition, we have used non-GAAP financial measures, in particular Adjusted Funds from Operations, or AFFO, as well as earnings (loss) per adjusted diluted common share, or ADCS, in this press release. A reconciliation of AFFO and earnings (loss) per ADCS and the comparable GAAP financial measure (net income, assets, liabilities and stockholders' equity and earnings per share, as applicable) can be found at the end of this earnings release.
About JER Investors Trust Inc.
JER Investors Trust Inc. is a specialty finance company quoted on the OTC Bulletin Board that originates and acquires commercial real estate structured finance products. Our target investments include commercial mortgage backed securities, mezzanine loans and B-Note participations in mortgage loans, commercial mortgage loans and net leased real estate investments. JER Investors Trust Inc. is organized and conducts its operations so as to qualify as a real estate investment trust ("REIT") for federal income tax purposes. For more information regarding JER Investors Trust Inc. and to be added to our e-mail distribution list, please visit www.jer.com.
Forward-Looking Statements
This press release does not constitute an offer of any securities for sale. Certain items in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. JER Investors Trust can give no assurance that its expectations will be attained. Factors that could cause actual results to differ materially from JER Investors Trust's expectations include, but are not limited to, changes in the real estate and capital markets, our ability to source and fund new investments and other risks detailed from time to time in JER Investors Trust's SEC reports. Such forward-looking statements speak only as of the date of this press release. JER Investors Trust expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in JER Investors Trust's expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.
CONTACT: J. Michael McGillis Chief Financial Officer JER Investors Trust Inc. (703) 714-8000 JER INVESTORS TRUST INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) March 31, December 31, 2009 2008 --------- ------------ (unaudited) (audited) ASSETS Cash and cash equivalents $3,959 $8,357 Restricted cash 4,587 1,149 CMBS financed by CDOs, at fair value 111,812 180,210 CMBS not financed by CDOs, at fair value 23,616 42,432 Real estate loans, held for investment, at fair value at March 31, 2009 and December 31, 2008 152,032 189,980 Investments in unconsolidated joint ventures 115 843 Accrued interest receivable 7,599 8,343 Due from affiliate 411 157 Deferred financing fees, net 973 981 Other assets 2,130 2,349 -------- -------- Total Assets $307,234 $434,801 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: CDO notes payable, at fair value $127,400 $211,695 Repurchase agreements 13,358 16,108 Junior subordinated debentures 61,860 61,860 Notes payable 9,000 500 Interest rate swap agreements, at fair value 62,140 91,984 Accounts payable and accrued expenses 1,637 839 Dividends payable - 2,274 Due to affiliate 1,287 689 Other liabilities 2,626 2,489 ----- ----- Total Liabilities 279,308 388,438 Stockholders' Equity: Common stock, $0.01 par value, 100,000,000 shares authorized, 4,987,994 and 2,590,104 shares issued and outstanding at March 31, 2009 and December 31, 2008, respectively 50 26 Additional paid-in capital 413,194 392,744 Cumulative cash dividends paid/declared (157,705) (157,705) Cumulative stock dividends paid/declared (20,462) - Cumulative deficit (183,960) (165,626) Accumulated other comprehensive loss (23,191) (23,076) ------ ------ Total Stockholders' Equity 27,926 46,363 ------ ------ Total Liabilities and Stockholders' Equity $307,234 $434,801 ======== ======== JER INVESTORS TRUST INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (In thousands, except share and per share data) For the Three Months Ended March 31, ---------------------- 2009 2008 ---- ---- REVENUES Interest income from CMBS $15,237 $21,452 Interest income from real estate loans 2,328 8,886 Interest income from cash and cash equivalents 11 422 Equity in (losses) earnings, net, of unconsolidated joint ventures (1,599) 933 Fee income 412 97 --- -- Total Revenues 16,389 31,790 EXPENSES Interest expense 6,494 15,415 Management fees, affiliate 1,210 1,827 General and administrative 2,782 1,980 ----- ----- Total Expenses 10,486 19,222 INCOME BEFORE OTHER GAINS (LOSSES) 5,903 12,568 OTHER GAINS (LOSSES) Unrealized loss on financial assets financed with CDOs (100,236) (179,669) Unrealized gain, net, on CDO related financial liabilities 95,585 246,574 Loss on interest rate swaps (6,654) (2,775) Loss on impairment of CMBS (14,512) (99,579) Unrealized loss, net, on real estate loans held for sale - (28,368) Unrealized gain (loss) on non-CDO interest rate swaps 13,860 (15,600) Loss on termination of interest rate swaps (12,280) - ------- --- Total other gains (losses) (24,237) (79,417) ------- ------- NET LOSS $(18,334) $(66,849) ======== ======== Net loss per share: Basic $(4.36) $(26.00) ====== ======= Diluted $(4.36) $(25.97) ====== ======= Weighted average shares of common stock outstanding: Basic 4,201,006 2,570,830 ========= ========= Diluted 4,203,975 2,573,644 ========= ========= Dividends declared per common share $- $- === === JER INVESTORS TRUST INC. AND SUBSIDIARIES CONSOLIDATED SCHEDULE OF OTHER GAINS (LOSSES) (unaudited) (In thousands) For the Three Months Ended March 31, --------------------- 2009 2008 ---- ---- Changes in Fair Value CDO related financial assets and liabilities CMBS $(65,726) $(174,761) Real estate loans (34,510) (4,908) Notes payable 79,601 266,652 Interest rate swaps 15,984 (20,078) ------ ------- Unrealized gain (loss) on CDO related financial assets and liabilities (4,651) 66,905 ------ ------ Non-CDO related financial assets and liabilities Loss on CMBS impairment (14,512) (45,123) Real estate loans held for sale - (28,368) Interest rate swaps 13,860 (4,804) ------ ------ Unrealized gain (loss) on non-CDO related financial assets and liabilities (652) (78,295) ---- ------- Total changes in fair value (5,303) (11,390) ------ ------- Realized Losses Loss on termination of interest rate swaps (12,280) - ------- --- Total realized losses (12,280) - ------- --- Cash payments on interest rate swaps (5,927) (2,083) ------ ------ Recognition of amounts in other comprehensive income (loss) ("AOCI") as of December 31, 2007 Loss on CMBS impairment - (54,457) Unrealized gain (loss) on non-CDO related interest rate swaps - (10,795) Amortization of swap termination costs (132) (124) Amortization of unrealized loss on CDO related interest rate swaps (595) (568) ---- ---- Total recognition of amounts in AOCI as of December 31, 2007 (727) (65,944) ---- ------- -------- -------- Total other gains (losses) $(24,237) $(79,417) ======== ======== JER INVESTORS TRUST INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (In thousands) For the Three Months Ended March 31, ---------------------- 2009 2008 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(18,334) $(66,849) Adjustments to reconcile net income to net cash provided by operating activities: CMBS and real estate loan (accretion) amortization 6,139 179 Amortization of debt issuance costs 9 223 Amortization of other comprehensive (income) loss related to CDO related interest rate swap agreements 727 696 Unrealized (gain) loss on CDO related financial assets and liabilities, net 4,651 (66,905) Unrealized and realized losses on interest rate swaps (1,581) 15,202 Unrealized loss on impairment of CMBS 14,512 99,579 Unrealized (gain) loss on real estate loans held for sale, net - 28,368 Equity in (earnings) losses, net, from unconsolidated joint ventures 1,599 (933) Distributions from unconsolidated joint ventures - 1,252 Stock compensation expense 11 49 Changes in assets and liabilities: Decrease (increase) in other assets 216 160 Decrease (increase) in accrued interest receivable 745 571 Increase (decrease) in due to/from affiliates, net 344 (374) Increase (decrease) in accounts payable and accrued expenses and other liabilities, net 932 267 ----- ------ Net cash provided by operating activities 9,970 11,485 ----- ------ CASH FLOWS FROM INVESTING ACTIVITIES: Investment in unconsolidated joint ventures (871) (413) (Increase) decrease in restricted cash, net (3,438) 5,528 Proceeds from repayment of real estate loans 3,439 4,133 ----- ----- Net cash provided by (used in) investing activities (870) 9,248 ---- ----- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends paid (2,274) (28,391) Proceeds from repurchase agreements - 1,393 Repayment of repurchase agreements (2,750) (67,198) Repayment of CDO notes payable, net (4,694) - Repayment of notes payable (500) - Payment of financing costs - (1,428) Payment of interest rate swap termination costs (3,280) - ------ --- Net cash (used in) provided by financing activities (13,498) (95,624) ------- ------- Net decrease in cash and cash equivalents (4,398) (74,891) Cash and cash equivalents at beginning of period 8,357 87,556 ------ ------- Cash and cash equivalents at end of period $3,959 $12,665 ====== ======= Supplemental Disclosures of Cash Flow Information Cash paid for interest $11,834 $18,121 ======= ======= Non-cash note payable in satisfaction of interest rate swap agreements $9,000 $- ====== === Dividends declared but not paid $- $- === === 1. Adjusted Funds from Operations JER INVESTORS TRUST INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited) (in thousands, except share and per share data) For the Three Months Ended March 31, ---------------------- 2009 2008 ---- ---- (unaudited) Net income (loss) available to common stockholders $(18,334) $(66,849) Add: Unrealized gain, net, on CDO related financial assets and liabilities 4,651 (66,905) Amortization of December 31, 2007 unrealized loss on CDO related interest rate swaps 594 569 Unrealized loss on impairment of CMBS 14,512 99,579 Unrealized (gain) loss on real estate loan held for sale - 28,368 Unrealized (gain) loss on non-CDO interest rate swap agreements (13,860) 15,600 Realized loss on termination of non-CDO interest rate swap agreement 12,280 - Equity in (earnings) losses, net, of unconsolidated joint ventures 1,599 (933) Cash distributions from unconsolidated joint ventures - 1,252 Redirection of CDO II cash flow to amortize CDO II class A note payable (4,290) - Depreciation on consolidated real estate assets - 238 CMBS and real estate loan (accretion) amortization 6,139 179 Estimated costs of unsuccessful equity offering 999 - --- --- Adjusted Funds from Operations (AFFO) $4,290 $11,098 ====== ======= AFFO per ADCS: Basic $0.86 $2.23 ===== ===== Diluted $0.86 $2.23 ===== ===== 2. Earnings, AFFO and Book Value per Adjusted Diluted Common Share ("ADCS") (1) JER INVESTORS TRUST INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (unaudited) EPS (Basic) ----------- For the Three Months Ended March 31, -------------------------- 2009 2008 ---- ---- Earnings per share (basic) under GAAP $(4.36) $(26.00) Add (deduct) impact of stock dividend 0.67 12.55 ---- ----- Earnings per adjusted share (basic) $(3.69) $(13.45) ====== ======= EPS (Diluted) ------------- For the Three Months Ended March 31, -------------------------- 2009 2008 ---- ---- Earnings per share (diluted) under GAAP $(4.36) $(25.97) Add (deduct) impact of stock dividend 0.68 12.52 ---- ----- Earnings per ADCS $(3.68) $(13.45) ====== ======= AFFO per Share (Basic) ---------------------- For the Three Months Ended March 31, -------------------------- 2009 2008 ---- ---- AFFO per share (basic) under GAAP $1.02 $4.32 Add (deduct) impact of stock dividend (0.16) (2.09) ----- ----- AFFO per adjusted share (basic) $0.86 $2.23 ===== ===== AFFO per Share (Diluted) ------------------------ For the Three Months Ended March 31, -------------------------- 2009 2008 ---- ---- AFFO per share (diluted) under GAAP $1.02 $4.31 Add (deduct) impact of stock dividend (0.16) (2.08) ----- ----- AFFO per ADCS $0.86 $2.23 ===== ===== Book Value per Share (Basic) ---------------------------- As of As of March 31, December 31, 2009 2008 ----------- ------------- Book value per share (basic) under GAAP $5.60 $17.90 Add (deduct) impact of stock dividend - (8.61) --- ----- Book value per adjusted share (basic) $5.60 $9.29 ===== ===== Book Value per Share (Diluted) ------------------------------ As of As of March 31, December 31, 2009 2008 ----------- ------------- Book value per share (diluted) under GAAP $5.60 $17.90 Add (deduct) impact of stock dividend - (8.61) --- ----- Book value per ADCS $5.60 $9.29 ===== ===== (1) GAAP requires that we retrospectively restate earnings per share for our 1-for-10 reverse stock split that occurred on February 20, 2009. However, under GAAP, we are precluded from retrospectively restating earnings per share for our stock dividend paid on January 30, 2009 as a portion of this dividend was paid in cash. Management believes it is meaningful to investors to disclose the retrospective effect of both the 1-for-10 reverse stock split as well as the stock dividend. Accordingly, we are presenting the non-GAAP measure earnings per Adjusted Diluted Common Share ("ADCS").
SOURCE JER Investors Trust Inc.