Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)

Executives

John Klopp – President and CEO

Geoff Jervis – CFO

Steve Plavin – COO

Analysts

David Fick – Stifel Nicolaus

Donald Fandetti – Citigroup

Richard Shane – Jefferies & Co.

Jade Rahmani – KBW

Tayo Okusanya – UBS

Cliff Sosan [ph] – UBS

Adam Berger – Cougar Trading

Capital Trust, Inc. (CT) Q3 2008 Earnings Call Transcript October 29, 2008 10:00 AM ET

Operator

Welcome to the Capital Trust third quarter 2008 results conference call. Before we begin please be advised that the forward-looking statements expressed in today's call are subject to certain risks and uncertainties including, but not limited to the continued performance, new or origination volume and the rate of repayment of the company's and its funds loan and investment portfolios, the continued maturity and satisfaction of the company's portfolio assets as well as other risks contained in the company's latest Form 10-K and Form 10-Q filings with the Securities and Exchange Commission.

The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. There will be a Q&A session following the conclusion of this presentation.

At this time, I would like to turn the call over to Mr. John Klopp, CEO of Capital Trust. Please go ahead, sir.

John Klopp

Thank you. Good morning, everyone. Thank you for joining us and for your continuing interest in Capital Trust.

Last night we reported our results for the third quarter and filed our 10-Q. In a truly remarkable period when the foundations of our financial system and economy have at times seemed on the verge of collapse CT held its own and more. Like many other public companies our stock has been hammered, trading to below $0.20 of book value, a price that we simply don't believe reflects the long-term value of our assets and our platform.

With earnings for the quarter of $0.61 per share, precisely where we expected, it would be easy to blame the stock price on short sellers or forced liquidations or general market panic, but the truth is that our business faces real challenges. We know (inaudible) fight, battling against declining property values, deleveraging financial institutions and a capital market that at the moment has virtually ceased functioning.

As we've said before, in this environment our job is to manage our credit, maintain our financing and raise new capital to defend our books and profit from the crisis. And if you can turn your eyes away from the screen for just a moment, CT fought hard and won some rounds in Q3, making good progress on all three of these fronts. Let's take them one at a time.

Credit – during the quarter one new loan in the amount of $5 million was classified as nonperforming when it failed to meet the conditions for a maturity extension. The underlying collateral is a multifamily apartment property located outside of Atlanta, 85% occupied with in-place cash flow that produces an 8.5% debt yield to our last dollar of exposure.

Although the loan has continued to pay interest, the sponsor has other unrelated issues and we chose to declare default and begin exercising our remedies. We believe that the value of the collateral exceeds our debt and that ultimately we will achieve a full collection.

At 9/30, including this asset, our $2 billion loan portfolio contains three nonperforming assets with an aggregate book value net of reserves of $17 million. Going forward we expect that we will have more issues like the Georgia apartment loan and that sooner or later we will incur losses.

Predicting when and where they will occur is very difficult, because while we know that values are down and financing is severely challenged, the faltering economy has just begun to bite into property cash flows.

The first sector to feel the impact will be hotels where reduced corporate and individual demand has already translated to the bottom-line. We simply don't know how deep and long a recession we're in for, but the answer will determine the final outcome on many of our loans.

The good news is that the vast majority of CT's loans, including our hotel assets, are backed by high-quality income producing properties, are held by strong sponsors and do not face final maturities until 2011 and 2012. What I do know that we are aggressively working every asset in our portfolio every day and that we will take any losses as soon as they are identified.

Financing – we've now completed the successful rollover of all of our repo financing and all of our 2008 debt maturities including an extension of our JPMorgan facility for two years. As predicted, the lenders have taken their pound of flesh, but the reductions in advance rates and the increases in pricing were all within the range that we anticipated.

Geoff will run you through the details on JP in a moment.

But the bottom line is that our lenders have continued to stick with us even as they fight their own battles. Going forward CT will remain in defensive mode, shepherding our liquidity to deal with potential volatility on both sides of the balance sheet.

And lastly, new capital – CT currently has almost $1 billion of undeployed equity capital in our investment management business which allows us to go on the offensive when market conditions are right. For obvious reasons we've not been rushing to put this money out instead picking our spots and finding credits that can withstand another leg down in the market.

We believe that this credit crisis will trigger a massive transfer of financial assets, often at fire-sale prices, and will create a lasting opportunity to make new loans at very high risk adjusted return. Our job is to best position CT to exploit the full range of these opportunities on behalf of our partners and our shareholders.

We expect that the world will stay ugly for a while and know that many challenges still lie ahead. But this fight is not over yet, not by a long shot. I don't think you should count CT out.

With that I'm going to turn it over to Geoff to go through the numbers.

Geoff Jervis

Thank you, John, and good morning, everyone. I'll begin with the balance sheet. Total assets at quarter-end were $3.1 billion, down $71 million from June 30th as our loan and CMBS portfolios experienced slight net repayment. We originated $200 million of investments in the quarter although all of our activity in Q3 was dedicated to our investment management vehicles and I will discuss the investment management business separately in a moment.

Our CMBS and loan portfolios account for $2.9 billion or 95% of our balance sheet assets, 28% in CMBS and 67% in loans. At quarter-end the book balance of the CMBS portfolio was $850 million with 77 securities and 55 separate issues. All of our securities were performing as expected at quarter-end and from a rating agency standpoint, the portfolio experienced five upgrades and no downgrades.

Our $2 billion loan portfolio consists of 80 loans, three of which were nonperforming at quarter-end. Two of the three were nonperforming at the end of Q2 and one additional loan, a $5 million B note secured by a multi-family project in Georgia, did not meet its extension criteria. We have not recorded a reserve against this asset as we expect a full recovery.

Our NPLs account for 2.3% of our interest earning assets and excluding macro, which is fully reserved for, our NPLs are less than 1% of interest earning assets. I would encourage investors to review both the loan note and maturity chart in Item III of our 10-Q for more information on the portfolio.

Moving down to equity investments, during the quarter, we funded the initial equity draw of our $25 million co-investment in CT Opportunity Partners I, investing just under 15% of our commitment or $3.5 million.

On the right side of the balance sheet, CDO I, one of our reinvesting CDOs, reached the end of its investment period and has converted to a static pool sequential pay vehicle. At quarter-end total cash in our remaining reinvesting CDO, CDO II was $18 million.

During the quarter S&P had firm ratings on four classes of liabilities issued by CDO IV and downgraded four classes while affirming the remaining rating on CDO III. These ratings actions do not have any direct impact on the company. In total, our CDO liabilities were $1.2 billion at quarter-end, representing almost 55% of our interest-bearing liabilities.

Since June 30th we extended the maturity of three of our repurchase agreements. Our $250 million facility with Citigroup, our $300 million facility with Morgan Stanley, and our $355 million facility with JPMorgan. All of our facilities were rolled within our expectations on advance rates and pricing and with the exception of JPMorgan were extended for a full year.

JPMorgan was extended for two years and in conjunction with the longer-term extension, we agreed to pay down the facility by $30 million creating a margin call corridor or cushion in the event of future declines in market value.

Turning to interest rates, as always, we remain committed to maintaining a matched asset liability mix. At the end of the quarter we had approximately $542 million of net positive floating rate exposure on a notional basis. Consequently, a change in LIBOR of 100 basis points would impact annual net income by approximately $5.4 million.

Our floating rate assets and liabilities are almost all matched to one month LIBOR and while there was no impact in Q3, recently elevated LIBOR levels may impact Q4.

Our liquidity position remained strong at quarter-end with $175 million of total liquidity comprised of $133 million of cash and $42 million of immediately available liquidity from our repurchase obligations. Today, liquidity stands at $125 million reflecting our repayment to JPMorgan last week with $70 million of cash on hand.

These numbers do not reflect the margin deficit cushion now embedded in the JPMorgan or any of our other facilities. Going forward there will be additional margin calls on our repo financed assets and we have the liquidity to meet them.

On the investment management front, at quarter-end our investment management subsidiary, CTIMCO, managed six third-party vehicles with total assets under management of $1.6 billion. CTIMCO originated $200 million of new investments during the third quarter for three of its mandates, primarily investing in discounted dealer inventory and super senior AAA CMBS.

Currently, CTIMCO manages two funds that are in their investment periods. CT Opportunity Partners I, a $540 million opportunity fund that held its final capital closing in July; and CT High Grade Partners II, a $667 million fund formed to invest in low risk commercial real estate debt on an unleveraged basis. On a combined basis CTIMCO has $1 billion of undeployed equity capital to take advantage of opportunities in the market.

Turning to the income statement, we reported net income of $13.7 million or $0.61 per share on a diluted basis for the third quarter of 2008. Highlights of the income statement include base management fees from our investment management business of $3.5 million for the quarter and $10 million for the nine month period, increases compared to a year ago period of over 200% and over 300%, respectively.

Other items of note were G&A that declined by $1.2 million or over 16% from the second quarter of 2008 and income from our equity investments which was a non-cash loss of $625,000 for the period due primarily to our equity method pick up of the mark-to-market activity at the new opportunity fund. That wraps it up for the financials and at this point I'll turn it back to John.

John Klopp

Thanks, Geoff. Someone told me that we may have cut out on audio there for a while, thankfully, during Geoff's part, not mine. But I think we should just go forward to Q&A. If there is anything that you didn't hear we can certainly address it then. Magen [ph], could you open it up for questions?

Question-and-Answer-Session

Operator

(Operator instructions) And we will take our first question from the side of David Fick at Stifel Nicolaus. Your line is now open.

David Fick – Stifel Nicolaus

Good morning, gentlemen. Can you just review for us the asset maturities in '08 and '09 as well as where you stand with interest reserves on those deals?

John Klopp

Sure. Steve, do you want to try to start on that one?

Steve Plavin

Yes, we have relatively few final maturities in '08 and '09 and they are in a schedule that's attached to the Form 10-Q Page 48.

David Fick – Stifel Nicolaus

What about the interest reserves on those? What I'm getting at is what kind of cushion do you have on the extension rights – to the extent you have to negotiate extensions on those deals?

Steve Plavin

The ability to extend those deals is very situation-specific. In some cases we're the only lender, we have greater latitude. Some cases we're just a layer of a multi-tiered capital structure and there we have a seat at the table, but we don't necessarily control. The '08 maturities we have remaining are in very good shape. They're cash flow positive, they don't need interest reserves. In '09 we also have relatively few final maturities. Number is very small in the order of $5 million – I'm sorry, $50 million. And it's a variety of deals, there are all some have interest reserves, some don't need them, some cases, we have great control, some cases we don't. But I think the maturity profile of our portfolio in general is very good. Most of the maturities are out to '11 and '12 and have adequate reserves to get us to the end, particularly, in the current environment of declining LIBOR.

David Fick – Stifel Nicolaus

Okay. Great. Geoff, congratulations on the financings, it's really great news. I'm just wondering, can you detail for us margin calls that you've gotten to-date as well as what you anticipate going forward you're going to have to deal with that. I know you have the liquidity at this point, but just to give people for instance of what you've dealt with so far?

Geoff Jervis

I'll start with the going forward. Look, we certainly do expect margin calls going forward, but I think the general assessment here is that from a spread mark standpoint we are reaching what must be the end. I think that the yields that are implied on the mark-to-market on our assets with our lenders can't really deteriorate much more. As far as marks that we incurred over the last 90 days, the mark-to-market were right around $50 million and we met all those obviously with cash and liquidity on hand.

David Fick – Stifel Nicolaus

Okay. Can you detail your current repo exposure breaking down CMBS versus loans?

Geoff Jervis

Almost all of our repo exposure is short-term floating rate loans.

John Klopp

And again, the flipside of that, David, is that virtually all of our long-term assets, including virtually all of our CMBS has been financed on a matched basis with term financing in the form of CDOs. It's over 90%. So what we have on the line, on the repo financings are almost in its entirety medium term floating rate loans which obviously on a relative basis have less volatility or less sensitivity to spread markets.

David Fick – Stifel Nicolaus

Okay. And then – JPMorgan facility, can you just give us a little more detail on the terms there?

Geoff Jervis

The advance rates in pricing, I think we said that we anticipated a decline there of around 5%, that's what we have. I think right now we're right at around 79%, 80% advance rate. And from a pricing standpoint I think we said that we expected pricing to change between 25 basis points and 75 basis points and it ended up being about 65 basis points to a cost of LIBOR 150 – actually LIBOR 149.

David Fick – Stifel Nicolaus

And I'm sure this is there, but the total size now?

John Klopp

355, although we have the ability to fund unfunded commitments which are single-digit million to increase that. But the element that we keep touching on in this facility is that while we got two years we paid it down by $30 million in order to get the two years. A good portion of that $30 million is available to us to meet future margin deficit, so it's a component of liquidity that we're not picking up in the numbers that we stated in the script.

David Fick – Stifel Nicolaus

Okay. And then two more quick things. Your 1998 CMBS is still a pretty good number. I presume that's mostly 10-year stuff. Are we getting to the end of that, shouldn't those be zero soon?

Geoff Jervis

They should, yes.

David Fick – Stifel Nicolaus

So do you expect that to happen there?

Geoff Jervis

I think it's really 11 years, 12 years, so it's really will be over the next two years that those will go away. Remember, these are mostly subordinate positions, so we are at the back of the bus with respect to repayments, although we expect to get full repayments on all of those securities.

David Fick – Stifel Nicolaus

Okay. And then my last question relates to the dividend and specifically, tax treatment for the Macklowe reserve, that was an open item for you in terms of what you have in there, what would happen there and what it would mean for a potential dividend payout?

Geoff Jervis

Before I turn it over to John to answer the dividend question, I would say on the Macklowe reserve that remains an open item, that's what the tax impact will be.

John Klopp

The Macklowe situation remains an open item and therefore the tax treatment thereof remains open. But we'll see where that shakes out whether it becomes something that can get resolved in '08 or it slips into '09, it just is unclear at this point, David. As it relates to dividends, I think our policy at this point remains the same. We're going to certainly look at our tax situation with respect to the Macklowe loss. But our intent is to continue at this point to pay out what we think is our run rate net income. We'll continue to reassess that as we always have based on conditions as they evolve, but there's really no change in terms of where we are at this point in time. If the situation – the world gets remarkably worse yet again I guess it's fair to say all bets are off and we'll just communicate with people as we go forward.

David Fick – Stifel Nicolaus

Okay, great. We know you're fighting alligators, but you've certainly done a good job to get to this point. Thanks, guys.

John Klopp

Thank you.

Operator

And our next question comes from the side of Don Fandetti of Citigroup. Your line is now open.

Donald Fandetti – Citigroup

Hi, good morning. Geoff, I was wondering if you could comment a little bit about the risk of CDO triggers. Do you feel pretty comfortable there, give us a little color?

Geoff Jervis

Sure, we have four balance sheet CDOs, CDOs I, II, III and IV. Two of the CDOs, CDOs III and IV do not have OC or IC triggers so there is no risk of any cash flow redirection on those. The other two CDOs, I and II, do have IC and OC tests and we clear those – we continue to clear those with the same margin we have in the past and do not anticipate assuming collateral performance, any issues.

Donald Fandetti – Citigroup

Okay. John, more broadly speaking, you had talked about a massive transfer of assets. Would you kind of elaborate on that in terms of the timing and who will be the sellers and who will be the buyers?

John Klopp

Well, we are in the midst of a galactic deleveraging of the entire system. And I think the result of that will be that many, many assets, including commercial real estate assets will end up being owned by somebody other than who owns them right now. Exactly when that happens, Don, exactly how much is it passes through potentially government hands and then out I don't know, I honestly don't know. But I do believe very firmly that this is a shift that will be of epic proportions and that I think it will happen in a very inefficient way in many cases. On the flip side, I also think, as I said, that there is going to be an extended period of time here where capital is very dear. And the result of that will be there is going to be an ability, an opportunity for a durable period of time to make loans on very attractive risk adjusted basis. And I think that those who have the network and the skill set and the expertise and the capital stand to make some serious money in the next couple of years. Beyond that in terms of specificity I don't know; you just need to be ready.

Donald Fandetti – Citigroup

Okay. Thanks. That's it.

John Klopp

Thank you.

Operator

And our next question comes from the side of Rick Shane of Jeffries. Your line is now open.

Richard Shane – Jefferies

Guys, thanks for taking my questions, most of them have been asked and answered. I just want to sort of confirm two things. Geoff, when you talked about the cash flows of the CDOs and the triggers, with the ratings downgrades on CDO III, given the way you described that as still cash flowing to CT?

Geoff Jervis

Yes, the downgrades have no impact to our cash flows. Really they were a change of methodology at S&P with the way they look at CMBS resecuritizations. Our credit view and our cash flow on that CDO have not changed at all. As a matter of fact, I would say CDO III is probably the highest quality credit CDO that we have.

Richard Shane – Jefferies

Okay. Great.

John Klopp

Those are liabilities that we've issued, so the fact that the liabilities get downgraded or upgraded has nothing basically to do with our position.

Richard Shane – Jefferies

Okay, it's only if the underlying securities are subject to downgrades that, that could cause cash flow shut off to you at the bottom of the stack?

John Klopp

Except that it does not because they do not have those kinds of triggers.

Richard Shane – Jefferies

Okay. Great. Second question and I just want to get clarification on the JPMorgan line. You say in the Q that there's – as of September 30th there was $42 million available to borrow under the JPMorgan line. I'm assuming that that does not factor in the modifications that were part of the renegotiation. You then go on to say in talking about some of the modifications that the line was effectively reduced by $30 million in order to provide cushion for future margin calls. So should we look at that as there's $30 million of cushion related to margin calls and effectively $12 million available to borrow if you wanted to go out and acquire new assets?

Geoff Jervis

Rick, the $42 million you're referring to is across all of our repos. And so with JPMorgan specifically, the $30 million repayment, you're right to characterize it as we have the ability under that $30 million to meet margin calls specific to the JPMorgan assets, but we don't have the ability to draw that $30 million into cash to meet other obligations of the company. The remaining amount, with respect to what the availability was at JPMorgan at quarter-end, it's really not apples to oranges. There was some, but it wasn't even a material component of the $42 million of available liquidity. That was mostly at other lenders.

Richard Shane – Jefferies

Got it. Okay, guys, thank you very much.

Geoff Jervis

Thank you.

Operator

And our next question comes from the side of Bose George of KBW. Your line is now open.

Jade Rahmani – KBW

Hello, this is Jade Rahmani on for Bose George. I wanted to ask what level of unlevered returns on capital you're currently seeing and if you plan on investing primarily through the asset management vehicles going forward?

Steve Plavin

This is Steve Plavin. The unlevered returns that we're seeing that are available are very high. The vehicles that we have that are investing are our opportunistic vehicle and a High Grade II vehicle. We're most active at present right now in High Grade and really with a focus in the CMBS space we find – at the super senior level AAA CMBS we're seeing spreads in the 500s over swaps. We view that as an attractive level. That's the area where we've been spending a lot of focus. Other areas in the market available now are primarily distressed debt, in some case, distressed holders, in other cases distressed properties or some cases both. We're looking at those opportunities also very carefully. Those returns I think are sort of in the mid-teens today, maybe the mid- to high-teens. But in a declining market we're being very cautious about jumping in.

Jade Rahmani – KBW

Okay. On the repo facilities, was $42 million the total amount of unused capacity that's currently available?

Geoff Jervis

At quarter-end, yes.

Jade Rahmani – KBW

Okay. And can you comment – I know the margin call question was asked, but can you comment on any margin calls since quarter-end?

Geoff Jervis

We have had margin calls since quarter-end and we have met them and I don't know what additional comment. I commented on what our liquidity was today, $125 million not including any of the cushion or corridor created up by the JPMorgan facility pay down or any of our other facilities so.

Jade Rahmani – KBW

Okay. And then just lastly, aside from interest rate sensitivity to changes in LIBOR, is there anything in this quarter's results that you would point out as nonrecurring normal income?

Geoff Jervis

I would say that really the equity investment line of our loss of $625,000 is really just the nuances in the way that we pick up our co-invest or primarily nuances in the way we pick up our co-invest in the opportunity fund which is a fair value vehicle and I would say that's really the only anomaly. Everything else, actually we were commenting on it internally just the other day that this is a very clean quarter with respect to interest income and interest expense.

Jade Rahmani – KBW

Great. Thanks very much.

Geoff Jervis

Thank you.

Operator

And our next question comes from the side of Tayo Okusanya of UBS. Your line is now open.

Tayo Okusanya – UBS

Good morning, gentlemen. Congratulations on a great quarter. Just a couple of follow up questions. Geoff, in regards to the West LB loan that's coming due in March 2009, have you guys started to have conversations with them? And what's the general sense about their ability to renew that loan or get an extension?

Geoff Jervis

The answer is, yes, we have had – started to have conversations and I think that we continue to have conversations. And our expectation is that we will have success in rolling all of our significant portion of that line. And again, it's not due until March of '09, but we've been having conversations with these guys over the last few months.

Tayo Okusanya – UBS

Okay. Do you have any sense of how much the financing cost on that line could go up?

Geoff Jervis

We really haven't gotten to that level of the conversation, but my expectation is that the unsecured market for commercial mortgage rates is no longer 175 over LIBOR.

Tayo Okusanya – UBS

Well said. Second question, the margin call you've gotten so far, could you give us a sense of what it implies in regards to mark-to-market on the collateral behind those lines? Are you getting marks now of $0.80 on the dollar, $0.85 on the dollar, $0.90 on the dollar?

Geoff Jervis

The marks are all over the map so it's hard to generalize. We've got spread marked, I would say that those marks sort of migrated through the 90s into the – perhaps into the high 80s, those are marks that really just are adjusting spreads on the assets when they were originally originated versus –

Tayo Okusanya – UBS

Where they are now?

Geoff Jervis

– the current spreads.

Tayo Okusanya – UBS

Got it. And then the last question, I know we talked about the CDO triggers earlier on, but what would you basically need to see from a credit perspective in order for the triggers on CDO I and CDO II to become an issue?

Geoff Jervis

Roughly speaking, 10% of the portfolio would have to have performance issues in order for us to start to breach the threshold, although it's really not that clear because the methodologies involve a reassessment of fair value. So probably in excess of 10%.

Tayo Okusanya – UBS

So 10% has to go NPL is that what you're saying?

Geoff Jervis

Loss.

Tayo Okusanya – UBS

It actually has to be a loss, not just an NPL issue.

Geoff Jervis

Yes.

Tayo Okusanya – UBS

Okay. Great. Thanks again and congratulations on the quarter.

Geoff Jervis

Thank you.

Operator

And our next question comes from the side of Cliff Sosan [ph] of UBS. Your line is now open.

Cliff Sosan – UBS

Hey, guys, and thank you for taking my call. I just want to send a couple of questions focused on liquidity. You said you have $125 million of liquidity today. I think you mentioned it was $75 million, my assumption, speaking from memory from what I heard earlier of cash and rest was availability on your line. I was just hoping you could walk me forward as you look at liquidity. Obviously, you have your unsecured loan maturing, I think that's $100 million. In addition you have unfunded commitments which – some portion of which you may have to fund and so and also there is potential for more margin call. So I was just kind of hoping you can give me, obviously, without giving guidance kind of how you're thinking of liquidity over the next 12 months or so?

Geoff Jervis

The number is $70 million of cash right now and the balance is restricted cash and availability. We believe that, that is sufficient to meet margin calls to meet whatever obligations we'll have on any of our other liabilities including the unsecured. When combined with a very, very modest expectation for some immediate term repayments that we know are in the works right now.

Cliff Sosan – UBS

And how much do you expect to fund of your unfunded commitments?

Geoff Jervis

Our expectation is that over the life of those loans that we'll fund a significant portion of them, but those are all financed – without exception they are all financed. And almost all of them are good news fundings coming with leasing activity or otherwise to properties.

Cliff Sosan – UBS

So I think – in the past I think you had almost $150 million of unfunded commitments, and I guess if some of that – and now as you have larger haircuts the cash used you fund those goes up. Do you have any sense over the next 12 months or so how much cash use is?

John Klopp

Let's start with the starting point because the 150 is not the right starting point.

Steve Plavin

The 150 is now about 75 at quarter-end. As Geoff mentioned, the majority of that is success based. So it's only funded in the event that there's additional leasing at properties that secure our loans. There is some ordinary course construction loan draw, but that's coming to an end. And there's about – 10% or more of that total are unfunded commitments that we will never fund. As Geoff mentioned, all these are incorporated assets that are financed by lenders and we are getting our advance rate on a go-forward basis as well as on the look back.

Geoff Jervis

Our net funding obligation to the financings below $20 million.

Cliff Sosan – UBS

Yes, that's what it sounds like, okay. Alright, well, thank you. One other question on your repo lines. You're obviously looking at the very – it's a good time to be a lender if you have capital. JPMorgan – I'm just trying to understand, JPMorgan clearly could use the money that is lent to you to go buy levered loans and earn 15% to 20% unlevered. How are you thinking about – from your dealings with your lenders why is it that they would leave a loan outstanding at LIBOR plus 150 basis points when there seem to be such better opportunities to invest those funds elsewhere?

John Klopp

I think that the answer is that these are long-term relationships. I think that a lot of the product that is financed on these lines was originated in conjunction with our lending partners and I think that the big benefit of our platform is that we continue to be huge counterparties for all of our lenders both in the high grade fund and the opportunity fund and buying product and continuing to be a source of liquidity for them. So I think it's a relationship trade to some degree. And if you look at JPMorgan's cost of funds, I will guarantee you that it's below LIBOR plus 149. So while it may not be the highest yield investments they have, if you're looking at it just on a standalone basis it certainly is not a money loser.

Cliff Sosan – UBS

I actually have seen CDS quotes for JPMorgan at LIBOR plus 115 this morning, but I hear your point. Alright, well, thank you very much and congratulations on a really good quarter.

John Klopp

Thank you.

Operator

(Operator instructions) We will take our next question from Adam Berger of Cougar Trading. Your line is now open.

Adam Berger – Cougar Trading

Hi, fellows. Just curiously, not on the JPMorgan, on the Citibank into Morgan, what are those – could you just tell me what those terms are on the new repos?

Geoff Jervis

Both were extended for one year. Both were executed during the quarter.

Adam Berger – Cougar Trading

Yes. Right.

Geoff Jervis

Pricing compared to before, pricing ranges from advanced rates I'd say 65% to 85% on the advance rates and on the pricing from 100 to 250 over.

Adam Berger – Cougar Trading

Okay. Thank you.

Geoff Jervis

Thank you.

Operator

It looks like that we have no further questions at this time.

John Klopp

Once again, thank you all for your interest. Stay tuned. We'll be back to you soon. Thank you.

Operator

This concludes today's teleconference. You may disconnect at any time. Thank you and have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Capital Trust, Inc. Q3 2008 Earnings Call Transcript

Check out Seeking Alpha’s new Earnings Center »

This Transcript
All Transcripts