SAN MATEO, Calif.--(Business Wire)--
Capmark Financial Group Inc. ("Capmark" or "we") reported a net
loss of $212.9 million for the quarter ended March 31, 2008, compared
to net income of $175.5 million for the quarter ended March 31, 2007.
The current quarter loss was attributable to pre-tax net losses on
loans of $357.2 million primarily resulting from fair value
adjustments on Capmark's held for sale commercial mortgage loan
portfolio.
Company Highlights
-- In April 2008, Capmark sold interests in loans in its European
portfolio for approximately $1.8 billion in cash and used the
majority of the proceeds to repay outstanding debt. In
addition to increasing overall liquidity, the transaction
resulted in the reduction of:
-- Our retail property loan concentration, as a percentage of
total loans, from 19% as of March 31, 2008 to 11%
following the sale; and
-- Our average loan size from $9.9 million as of March 31,
2008 to $8.7 million following the sale.
-- Capmark's servicing portfolio increased to $380.2 billion as
of March 31, 2008, compared to $371.7 billion as of December
31, 2007, and $334.2 billion as of March 31, 2007.
-- Loan originations were $2.7 billion during the first quarter
of 2008, compared to $8.8 billion in the first quarter of 2007
due, in large part, to Capmark's ongoing balance sheet and
liquidity management and reduced volume of third-party
originations.
-- In April 2008, Capmark completed an exchange offer of
SEC-registered senior notes for the then-outstanding senior
notes issued pursuant to Rule 144A and Regulation S in May
2007. The terms and conditions of the registered notes are
substantially the same as the terms of the original notes,
except for terms relating to the registration.
Consolidated Financial Review
First quarter 2008 net revenue was $(139.7) million, compared to
$521.2 million in the same period in 2007, primarily as a result of a
decline in noninterest income from net losses on loans of $357.2
million in the first quarter of 2008 compared to net gains on loans of
$77.2 million in the first quarter of 2007. Net gains (losses) on
loans are primarily comprised of fair value adjustments on loans held
for sale and realized net gains/losses on loans sold.
Net interest income after provision for loan losses was $53.5
million in the first quarter of 2008 as compared to $77.2 million in
the same period in 2007. The decline was primarily due to lower
average spreads on interest-earning assets and a reduction of
accretion income on acquired non-performing loans year over year. The
decline in spread income was largely offset by gains on interest rate
hedges included in noninterest income in the first quarter of 2008.
Noninterest income was $(193.2) million for the first quarter of
2008 compared to $444.0 million in the first quarter of 2007. The
decline was primarily a result of the $357.2 million net loss on loans
in the first quarter of 2008 and a decline in fee and investment
income from $264.7 million in the first quarter of 2007 to $156.5
million in the first quarter of 2008. The decline in fee and
investment income was primarily attributable to reduced earnings from
joint ventures and partnership investments and a decline in asset
management fees due to higher performance-based fees earned during the
first quarter of 2007.
First quarter 2008 noninterest expenses were $208.6 million
compared to $235.8 million in 2007, an 11.5% decline. The decline was
primarily due to lower fixed and variable compensation expense.
Outlook on Liquidity
As of March 31, 2008, cash, restricted cash and cash equivalents
totaled $1.1 billion. Readily available cash and borrowing capacity
under our revolving credit facility totaled $0.9 billion (excluding
cash held by Capmark Bank).
During April 2008, Capmark sold interests in loans in its European
portfolio with an aggregate unpaid principal balance of approximately
$2.0 billion to an institutional investor in two transactions. The
total cash proceeds of approximately $1.8 billion from the sale were
primarily used to repay outstanding debt. As a result of the European
loan sale, as well as additional sales of other loans, readily
available cash and borrowing capacity under our revolving credit
facility was $2.3 billion as of April 30, 2008 (excluding cash held by
Capmark Bank).
The ratio of adjusted debt to adjusted equity was 6.7x as of March
31, 2008, compared to 5.9x as of December 31, 2007. As of March 31,
2008, our pro-forma adjusted debt to adjusted equity ratio was 6.2x
after giving effect to the closing of the European loan sale and the
application of a majority of the net proceeds to the repayment of
indebtedness.*
* See our discussion of Non-GAAP financial measures below.
Capmark has continued to take actions to maintain sufficient
liquidity to support its business operations in the current difficult
credit environment. These actions included the following:
-- We managed the volume and mix of loan originations among
product types to emphasize products with better liquidity and
lower funding costs, including government-sponsored programs,
third-party originations and loans funded by Capmark Bank.
During the first quarter of 2008, our total loan originations
of $2.7 billion primarily included $1.3 billion of
government-sponsored program originations, $646.2 million of
third-party originations, and $616.6 million of Capmark Bank
originations.
-- We generated over $2.0 billion of cash from repayments of held
for sale and investment loans, sales and syndications of
loans, and other investments in the first quarter and an
additional $1.8 billion of cash from the European loan sale in
April 2008.
-- We were able to extend or refinance over $680 million of
previously existing borrowing capacity on a committed basis
and lengthened the weighted average maturity of funding at
Capmark Bank by increasing our utilization of FHLB funding by
over $450 million.
-- We continued to control noninterest expenses.
Asset Quality
Asset quality has performed as expected in a difficult credit
environment. The composition of our assets remains diverse within the
commercial real estate sector, with only limited exposure to
residential real estate.
Capmark remains dedicated to the systematic oversight of its
assets and the determination of appropriate reserves and asset
valuations, informed by credit, servicing, capital markets, and
accounting professionals independent of the business platforms they
oversee.
Our loans are subject to a comprehensive quarterly risk rating
process managed by Capmark's Credit Department. This process enables
Capmark to identify emerging credit concerns on both the asset level
and portfolio level, and further enables us to determine strategies
and devote resources for optimum resolutions of issues.
As of March 31, 2008, Capmark's held for investment loan portfolio
was carried at $7.4 billion, which reflects an allowance for loan
losses totaling $32.1 million and prior fair value and other
adjustments totaling $97.3 million. The combination of the allowance
for loan losses and fair value and other adjustments totaled $129.4
million, or 1.75% of the total held for investment loan portfolio as
of March 31, 2008.
Capmark's held for sale loan portfolio, as of March 31, 2008, was
$7.7 billion. These loans do not have an allowance for loan losses but
are carried at fair value. Fair value adjustments represent an
aggregate discount of approximately $500 million to the aggregate
unpaid principal balance of $8.2 billion as of March 31, 2008. On a
pro-forma basis as of March 31, 2008 after giving effect to the
European loan sale, the total held for sale loan portfolio would have
been $5.9 billion, representing an aggregate discount of approximately
$300 million to the aggregate unpaid principal balance of $6.2
billion.
Selected portfolio information is as follows:
-- As of March 31, 2008, Capmark's loan portfolio totaled $15.1
billion, up from $14.7 billion as of December 31, 2007. On a
pro-forma basis as of March 31, 2008 after giving effect to
the European loan sale, Capmark's total loan portfolio would
have been $13.3 billion, a decrease of approximately 9.5%
since year-end.
-- The ratio of Capmark's originated non-performing assets to
total assets remained constant at 0.9% as of March 31, 2008,
and December 31, 2007.
-- As of March 31, 2008, 97.8% of Capmark's $15.1 billion loan
portfolio was comprised of first lien commercial mortgage
loans, with an average loan size of $9.9 million.
-- The weighted average loan-to-value ratio of Capmark's loan
portfolio was 68.9% as of March 31, 2008, compared to 70.4% as
of December 31, 2007.
-- As of March 31, 2008, Capmark had:
-- Total loan exposure to condominium projects of
approximately $191 million, or less than 1.0% of total
assets;
-- Commercial property land loan exposure of approximately
$504 million , or 2.1% of total assets;
-- Approximately $90 million, or 0.4% of total assets, of
balance sheet exposure to investment securities
collateralized by U.S. residential mortgage loans,
inclusive of all subprime exposure; and
-- Approximately $250 million of fixed rate U.S. loans
originated specifically for CMBS securitizations.
Debt Repurchase Program
Capmark's Board of Directors has authorized a debt repurchase
program pursuant to which Capmark may from time to time repurchase
(through open market repurchases or private transactions) and retire
up to $100 million of its outstanding senior notes.
The timing and the amount of any repurchases will be determined by
Capmark's management based on its evaluation of the prices of the
securities and other factors. The repurchase program may be suspended
or discontinued at any time.
Segment Condensed Financial Results
The following tables present unaudited selected summary financial
information for each of our six business segments and corporate and
other (amounts in millions):
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(unaudited)
Three months ended
March 31,
------------------
2008 2007
--------- --------
Net Revenue:
North American Lending and Mortgage Banking $ (1.7) $ 172.0
North American Investments and Funds Management 18.1 98.5
North American Servicing 75.0 96.3
Asian Operations 7.9 75.8
European Operations (238.6) 38.1
North American Affordable Housing 2.8 43.7
--------- --------
Subtotal (136.5) 524.4
Corporate and Other (3.2) (3.2)
--------- --------
Consolidated $ (139.7) $ 521.2
========= ========
(Loss) Income Before Income Taxes:
North American Lending and Mortgage Banking $ (40.9) $ 107.6
North American Investments and Funds Management 0.5 63.9
North American Servicing 23.2 44.0
Asian Operations (19.1) 49.3
European Operations (246.6) 28.3
North American Affordable Housing (5.8) 28.2
--------- --------
Subtotal (288.7) 321.3
Corporate and Other (44.2) (44.4)
--------- --------
Consolidated $ (332.9) $ 276.9
========= ========
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(unaudited) (unaudited)
March 31, 2008 December 31, 2007
-------------- -----------------
Total Assets:
North American Lending and Mortgage
Banking $ 12,344.6 $ 12,159.8
North American Investments and Funds
Management 1,081.5 1,050.6
North American Servicing 862.5 894.3
Asian Operations 3,087.2 2,789.0
European Operations 3,063.9 3,068.1
North American Affordable Housing 1,027.7 1,084.8
-------------- -----------------
Subtotal 21,467.4 21,046.6
Corporate and Other 2,087.8 2,217.8
-------------- -----------------
Consolidated $ 23,555.2 $ 23,264.4
============== =================
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Segment Analysis
North American Lending and Mortgage Banking
Our North American Lending and Mortgage Banking segment incurred a
pre-tax loss of $40.9 million during the three months ended March 31,
2008, compared to pre-tax income of $107.6 million for the same period
a year ago. The decrease resulted primarily from a decline in
noninterest income attributable to fair value adjustments on loans
reflected in net losses on loans of $109.4 million compared to net
gains on loans of $43.5 million for the first quarter of 2008 and
2007, respectively. Additionally, the segment generated lower loan
origination and placement fees in the first quarter of 2008 due to a
planned reduction of proprietary lending and reduced volume of
third-party originations. The decline in noninterest income was
partially offset by an increase in net interest income to $78.0
million in the first quarter of 2008 from $61.1 million in the first
quarter of 2007 due to an increase in interest earning loan assets in
2008 and a decrease in fixed and variable compensation expenses
resulting from reduced mortgage originations during the first quarter
of 2008.
North American Investments and Funds Management
Our North American Investments and Funds Management segment
reported pre-tax income of $0.5 million for the three months ended
March 31, 2008, compared to $63.9 million reported for the same period
a year ago. The decline in income was driven by a $28.5 million
reduction in income from joint ventures and partnerships, a decrease
of $26.2 million due to lower realized gains on investment securities
and CMBS, and a $10.5 million decrease in investment placement fees
due to lower transaction volume in the first quarter of 2008.
Real estate related assets under management in our North American
Investments and Funds Management business were approximately $10.2
billion as of March 31, 2008, compared to $10.3 billion as of December
31, 2007.
North American Servicing
Our North American Servicing segment generated pre-tax income of
$23.2 million during the first quarter of 2008 compared to $44.0
million for the same period a year ago. The decline in income was
primarily driven by lower noninterest income of approximately $20.5
million from a reduction in trust fees, document custodial income, and
servicing fees. This reduction resulted from lower prevailing interest
rates and a reduction in volume of mortgage loan servicing fee based
transactions during the first quarter of 2008 compared to the first
quarter of 2007.
Asian Operations
Our Asian Operations segment incurred a pre-tax loss of $19.1
million for the three months ended March 31, 2008, compared to pre-tax
income of $49.3 million for the same period a year ago. The decrease
was primarily due to approximately $34.7 million in lower net gains on
sales of real estate and loan investments during the quarter compared
to the same period in 2007. This segment also had an increase in
impairments on real estate investments totaling approximately $20.4
million and a decrease in net interest income of approximately $5.7
million during the quarter due to reductions in interest accretion on
lower acquired non-performing loan balances year over year.
European Operations
Our European Operations segment incurred a pre-tax loss of $246.6
million for the three months ended March 31, 2008, compared to pre-tax
income of $28.3 million for the same period in 2007. The loss resulted
primarily from a decrease in noninterest income from $28.7 million in
the first quarter of 2007 to a loss of $243.6 million in the first
quarter of 2008. The decrease in noninterest income was primarily a
result of net losses on loans of $245.6 million in the first quarter
of 2008 compared to net gains on loans in the first quarter of 2007.
In April 2008, we completed the sale of interests in 39 loans with an
unpaid principal balance of approximately $2.0 billion for an
aggregate sale price of approximately $1.8 billion. Losses related to
the loan interests sold, as well as fair value adjustments related to
the retained interests, were recognized in the first quarter of 2008
because the sale prices were indicative of fair value as of March 31,
2008.
North American Affordable Housing
Our North American Affordable Housing segment reported a pre-tax
loss of $5.8 million during the first quarter of 2008 compared
to pre-tax income of $28.2 million in the same period in 2007. The
results for the first quarter of 2007 included a non-recurring pre-tax
gain of approximately $71.5 million on the sale of the majority of
Capmark's Affordable Debt platform in February 2007. Excluding the
effects of that non-recurring gain, the segment would have recorded a
pre-tax loss of $43.3 million in that quarter.* The improvement year
over year was primarily attributable to a reduction in losses relating
to LIHTC yield guarantees, gains on disposition of real estate
investments, and lower operating expenses during the first quarter of
2008.
* See our discussion of Non-GAAP financial measures below.
Conference Call and Supplemental Financial Information
Capmark will hold a conference call for investors to be broadcast
live over the Internet on May 13, 2008, at 12:00 noon Eastern Time
regarding the topics addressed in this news release and the related
financial supplement. Investors can access a webcast (listen only) of
the conference call via Capmark's Web site by selecting "About Us"
near the top center of the home page then "Investor Relations" from
the drop-down menu and clicking on the first quarter webcast link. To
listen to the conference call, please go to the Web site at least
fifteen minutes prior to the scheduled start time to download and
install any necessary audio software. For those who are unable to
listen to the live broadcast, an archived replay will be available on
the Web site under "Investor Relations" in the drop-down menu "About
Us" for approximately 90 days.
Investors who have questions for Capmark management can
participate in the conference call by dialing in to one of the
following numbers:
-- Toll Free: 877-407-0778
-- International: 201-689-8565
The related financial supplement to accompany the conference call
remarks may be found on the Web site under "Investor Relations" in the
drop-down menu "About Us."
About Capmark(R):
Capmark is a diversified company that provides a broad range of
financial services to investors in commercial real estate-related
assets. Capmark has three core businesses: lending and mortgage
banking, investments and funds management, and loan servicing. Capmark
operates in North America, Europe and Asia.
Forward-Looking Statements
Certain statements in this release may constitute forward-looking
statements. These statements are based on management's current
expectations and beliefs but are subject to a number of factors and
uncertainties that could cause actual results to differ materially
from those described in the forward-looking statements. These risks
and uncertainties include, among others, adverse changes in debt and
capital markets conditions, which may adversely impact Capmark's
access to capital on acceptable terms or the value or salability of
our real estate related investments; interest rate and credit spread
fluctuations; adverse changes in commercial real estate markets;
changes in general economic and business conditions, which will, among
other things, affect the amount Capmark may earn on products and
services and the availability and credit worthiness of its customers;
changes in applicable laws and regulations; risks posed by
competition; currency risks and other risks associated with
international markets.
Such forward-looking statements are made only as of the date of
this release. Capmark expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in
Capmark's expectations with regard thereto or changes in events,
conditions, or circumstances on which any such statement is based.
Explanation of Capmark's Use of Certain Non-GAAP Financial
Measures
In addition to results presented in accordance with generally
accepted accounting principles (GAAP), this release includes certain
non-GAAP financial measures, such as those presented under the
headings "Outlook on Liquidity" and "Segment Analysis - North American
Affordable Housing." The non-GAAP financial measures presented are
reconciled to the most comparable GAAP financial measures herein.
Capmark believes these non-GAAP financial measures provide
information useful to investors in understanding the underlying
operational performance of the company, its business, and performance
trends, and facilitates comparisons with the performance of other
companies in the financial services industry.
Specifically, our ratio of adjusted debt to adjusted equity is a
financial measure that our management uses to evaluate the degree of
financial leverage present in our capital structure. In calculating
adjusted debt for purposes of this non-GAAP ratio, we adjust GAAP
total indebtedness to reflect the exclusion of the junior subordinated
debentures underlying the trust preferred securities issued by Capmark
Trust and the portion of our indebtedness relating to certain
securitization transactions and certain LIHTC partnership and limited
liability company interests, which is required to be consolidated
under GAAP but is not considered to be indebtedness under the terms of
our senior credit facility. In calculating adjusted equity for
purposes of this non-GAAP ratio, we adjust GAAP total stockholders'
equity to reflect the inclusion of the trust preferred securities
issued by Capmark Trust and the mezzanine equity we issued to our
employees and directors, which are commonly considered by investors
and rating agencies to be components of equity.
In addition, the presentation of our debt to equity and adjusted
debt to adjusted equity ratios on a pro-forma basis as of March 31,
2008, to give effect to the sale of a significant portion of our
European loan portfolio is useful to investors because the sale
resulted in a significant reduction in assets and debt and occurred
less than 30 days after the end of the first quarter of 2008.
Further, in our North American Affordable Housing segment
analysis, we have reported a pre-tax loss excluding the effects of a
specific non-recurring gain in 2007. Capmark believes the exclusion of
the non-recurring gain in 2007 is useful to investors for a meaningful
period on period comparison of the segment's results.
Although Capmark believes the non-GAAP financial measures
described above enhance investors' understanding of its business and
performance, these non-GAAP financial measures may not be comparable
to measurements used by other companies, including other financial
services companies, and should not be considered as a substitute for,
or an alternative to, GAAP-based financial measures.
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CAPMARK FINANCIAL GROUP INC.
Condensed Consolidated Statement of Operations (Unaudited)
(in millions, except per share data)
Three months ended Three months ended
March 31, 2008 March 31, 2007
------------------ ------------------
Net Interest Income
Interest income $ 277.0 $ 297.4
Interest expense 215.9 213.9
-------------------------------------
Net interest income 61.1 83.5
Provision for loan losses 7.6 6.3
-------------------------------------
Net interest income after
provision for loan losses 53.5 77.2
-------------------------------------
Noninterest Income
Net (losses) gains (349.7) 179.3
Fee and investment income 156.5 264.7
-------------------------------------
Total noninterest income (193.2) 444.0
-------------------------------------
Net Revenue (139.7) 521.2
-------------------------------------
Noninterest Expense
Compensation and benefits 89.6 120.0
Other expenses 119.0 115.8
-------------------------------------
Total noninterest expense 208.6 235.8
-------------------------------------
(Loss) income before minority
interest and income tax
(benefit) provision (348.3) 285.4
Minority interest income
(expense) 15.4 (8.5)
-------------------------------------
(Loss) income before income tax
(benefit) provision (332.9) 276.9
Income tax (benefit) provision (120.0) 101.4
-------------------------------------
Net (loss) income $ (212.9) $ 175.5
=====================================
Basic and diluted net (loss)
income per share:
Net (loss) income per share $ (0.49) $ 0.41
Weighted average shares
outstanding 432.9 432.8
*T
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CAPMARK FINANCIAL GROUP INC.
Condensed Consolidated Balance Sheet (Unaudited)
(in millions, except share amounts)
March 31, December 31,
2008 2007
--------- ------------
Assets
Cash, cash equivalents, and restricted cash $ 1,110.2 $ 1,436.8
Investment securities:
Trading 195.0 185.7
Available for sale 972.0 949.7
Loans held for sale 7,719.1 7,783.8
Loans held for investment, net of allowance for
loan losses of $32.1 million as of March 31,
2008 and $28.8 million as of December 31, 2007 7,378.5 6,891.7
Real estate investments 1,940.2 1,748.6
Equity investments 1,940.2 1,984.1
Other assets 2,300.0 2,284.0
----------------------
Total assets $23,555.2 $ 23,264.4
======================
Liabilities and Stockholders' Equity
Liabilities:
Short-term borrowings $ 5,069.8 $ 3,832.6
Long-term borrowings 8,973.0 8,307.7
Deposit liabilities 4,512.0 5,552.6
Real estate syndication proceeds 1,458.9 1,563.2
Other liabilities 821.3 1,069.0
----------------------
Total liabilities 20,835.0 20,325.1
----------------------
Commitments and Contingent Liabilities -- --
Minority Interest 339.6 330.2
Mezzanine Equity 100.6 102.4
Stockholders' Equity:
Common stock, $.001 par value, 650,000,000
shares authorized, 412,899,091 shares issued
and outstanding as of March 31, 2008, and
412,898,576 shares issued and outstanding as
of December 31, 2007 0.4 0.4
Other stockholders' equity 2,279.6 2,506.3
----------------------
Total stockholders' equity 2,280.0 2,506.7
----------------------
Total liabilities and stockholders' equity $23,555.2 $ 23,264.4
======================
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CAPMARK FINANCIAL GROUP INC.
Reconciliation of Non-GAAP Financial Measures
A reconciliation of our GAAP ratio of debt to equity to the non-GAAP
ratio of adjusted debt to adjusted equity as of March 31, 2008,
December 31, 2007, and Pro-forma March 31, 2008 is set forth below:
Pro-Forma
March 31, March December
Debt to Equity Ratio (GAAP) 2008 31, 2008 31, 2007
----------------------------------------- --------- -------- --------
(in millions of U.S.
dollars)
Total indebtedness(1) $17,124 $18,555 $17,693
========= ======== ========
Total stockholders' equity $2,280 $2,280 $2,507
========= ======== ========
Debt to equity ratio 7.5x 8.1x 7.1x
Adjusted Debt to Adjusted Equity Ratio
(Non-GAAP)
-----------------------------------------
Total indebtedness(1) $17,124 $18,555 $17,693
Less:
Junior subordinated debentures 250 250 250
Collateralized borrowings in
securitization trusts 262 262 261
Consolidated LIHTC partnerships debt 302 302 336
--------- -------- --------
Adjusted debt $16,310 $17,741 $16,846
========= ======== ========
Total stockholders' equity $2,280 $2,280 $2,507
Plus:
Trust preferred securities 250 250 250
Mezzanine equity 101 101 102
--------- -------- --------
Adjusted equity $2,631 $2,631 $2,859
========= ======== ========
Adjusted debt to adjusted equity ratio 6.2x 6.7x 5.9x
(1) Pro-forma "Total indebtedness" reflects the application of a
majority of the proceeds of the sale of interests in the European
loan portfolio to the repayment of indebtedness.
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Capmark Financial Group Inc.
Media:
Joyce Patterson, 215-328-3842
Joyce.Patterson@capmark.com
or
Investor Relations:
Paul Kopsky, Jr., 215-328-3000
Investor.relations@capmark.com
Copyright Business Wire 2008
