Crystal River Capital, Inc.
Three World Financial Center
200 Vesey Street, 10th Floor
New York, New York 10281-1010
FOR IMMEDIATE RELEASE
THURSDAY, NOVEMBER 8, 2007
| Crystal River’s management will host a dial-in teleconference to review its third quarter 2007 financial results on November 9, 2007, at 9:00 a.m. (EST). The teleconference can be accessed by dialing 888-713-3592 or 913-312-0679 (International). A replay of the recorded teleconference will be available through November 23, 2007. The replay can be accessed by dialing 888-203-1112 or 719-457-0820 (International) and entering passcode 1322046. A live audio webcast of the call will be accessible on the Company's website, www.crystalriverreit.com, via a link from the Investor Relations section. A replay of the audio webcast will be archived in the Investor Relations section of the Company's website. |
CRYSTAL RIVER REPORTS THIRD QUARTER 2007 FINANCIAL RESULTS
NEW YORK, NY—November 8, 2007—Crystal River Capital, Inc. (“Crystal River” or the “Company”) (NYSE: CRZ) today announced its financial results for the quarter ended September 30, 2007.
Third Quarter Highlights
($ in millions, | Three Months Ended | |||||||||||
except per share data) | September 30, 2007 | June 30, 2007 | September 30, 2006 | |||||||||
| Revenues | $ | 64.7 | $ | 62.6 | $ | 55.6 | ||||||
| Net income (loss) | $ | (93.9 | ) | $ | (9.1 | ) | $ | 11.3 | ||||
Per share | $ | (3.76 | ) | $ | (0.36 | ) | $ | 0.50 | ||||
Net investment income (1) | $ | 23.6 | $ | 21.2 | $ | 16.2 | ||||||
Per share | $ | 0.94 | $ | 0.85 | $ | 0.72 | ||||||
Operating earnings (1) | $ | 20.2 | $ | 17.0 | $ | 12.9 | ||||||
Per share | $ | 0.81 | $ | 0.68 | $ | 0.57 | ||||||
| Dividends declared per share | $ | 0.68 | $ | 0.68 | $ | 0.60 | ||||||
(1) Defined below
| · | Increased net investment income per share by 11% to $0.94 from the second quarter of 2007 |
| · | Increased operating earnings per share by 19% to $0.81 from the second quarter of 2007; operating earnings were at highest level since Company’s formation in 2005 |
| · | Estimated REIT taxable income per share totaled $0.78 in the third quarter of 2007 |
| · | Net loss of $93.9 million included non-cash impairment charges totaling $81.3 million |
| · | Adjusted book value of $15.25 per share and GAAP book value of $12.29 per share at September 30, 2007 |
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“Our primary focus in the third quarter was a combination of deleveraging the balance sheet by divesting lower-yielding Agency MBS, increasing available cash, and reinvesting into higher-yielding asset opportunities,” said Clifford Lai, President and Chief Executive Officer of Crystal River. “Our ability to reallocate capital from lower-yielding to higher-yielding investments will be a key to continued earnings growth in an environment where issuing debt and raising capital are challenging. Our operating earnings and net investment income increased in the period as a result of the cumulative effects of prior investment activity.”
THIRD QUARTER FINANCIAL SUMMARY
Revenues for the quarter ended September 30, 2007 increased to $64.7 million, from $62.6 million in the second quarter of 2007. Net investment income (defined below) for the quarter ended September 30, 2007 increased to $23.6 million, or $0.94 per share, up from $21.2 million, or $0.85 per share, in the second quarter of 2007. Operating earnings (defined below) for the quarter ended September 30, 2007 increased to $20.2 million, or $0.81 per share, up from $17.0 million, or $0.68 per share, in the second quarter of 2007.
The net loss for the quarter ended September 30, 2007 totaled $93.9 million, or $3.76 per share, compared to a net loss of $9.1 million, or $0.36 per share, in the second quarter of 2007, and net income of $11.3 million, or $0.50 per share, for the third quarter of 2006. The primary contributor to the net loss was a non-cash impairment charge of $81.3 million.
Of the total charge, $38.3 million was taken in accordance with accounting rule EITF 99-20, and is primarily attributable to the decline in projected yields related to changes in the Company’s cash flow assumptions on underlying assets. An additional $33.7 million in impairments relate to other than temporary declines in market values and are primarily a consequence of wider yield spreads affecting the mark to market of the residential mortgage-backed securities. An impairment charge of $9.3 million was taken for unrealized losses on the Company’s commercial mortgage-backed securities (“CMBS”) securities designated for possible sale. This non-cash impairment charge represents mark to market changes due to an increase in yield spreads since the purchase of these securities.
The following table details the Company’s impairment charges by type and by sector for the quarter ended September 30, 2007:
Impairments | ||||||||||||||||
($ in millions) | Carrying Value | EITF 99-20 | Other than temporary declines in market values | Designated for possible sale | ||||||||||||
| CMBS | $ | 468.0 | $ | (11.1 | ) | $ | ― | $ | (9.3 | ) | ||||||
Prime RMBS (1) | 144.6 | (0.6 | ) | (16.4 | ) | ― | ||||||||||
| Sub-prime RMBS | 79.5 | (26.6 | ) | (14.2 | ) | ― | ||||||||||
| Preferred stock | 1.7 | ― | (3.1 | ) | ― | |||||||||||
Total | $ | 693.8 | $ | (38.3 | ) | $ | (33.7 | ) | $ | (9.3 | ) | |||||
(1) | Residential mortgage-backed securities (“RMBS”) |
Revenues for the nine months ended September 30, 2007 increased 30% to $185.1 million compared to revenues of $142.1 million for the nine months ended September 30, 2006. Net investment income for the nine months ended September 30, 2007 increased 49% to $63.3 million compared to net investment income of $42.4 million for the nine months ended September 30, 2006. Operating earnings for the nine months ended September 30, 2007 increased 55% to $52.0 million, or $2.08 per share, compared to operating earnings of $33.6 million, or $1.75 per share, for the nine months ended September 30, 2006. The net loss for the nine months ended September 30, 2007 totaled $95.5 million, or $3.82 per share, compared to net income of $32.7 million, or $1.71 per share, for the nine months ended September 30, 2006. The primary contributor to the net loss was a non-cash impairment charge of $104.0 million.
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Net Investment Income Margin
The Company increased its net investment income margin to 2.14% at September 30, 2007 from 1.65% at June 30, 2007, representing a mid-teens return on equity. The increase was a result of higher asset yields which more than offset increased liability costs. The following table summarizes the Company’s asset yield, liability cost and net investment income margin:
September 30, 2007 | June 30, 2007 | September 30, 2006 | |
| Asset yield | 7.39% | 6.79% | 6.11% |
| Liability cost | 5.25% | 5.14% | 4.79% |
| Net investment income margin | 2.14% | 1.65% | 1.32% |
THIRD QUARTER PORTFOLIO REVIEW
Total Investment Portfolio at September 30, 2007
The following table summarizes the Company’s investment portfolio at September 30, 2007 and at June 30, 2007:
September 30, 2007 | June 30, 2007 | |||||||||||||||
| ($ in millions) | Carrying Value | % Total | Carrying Value | % Total | ||||||||||||
| Available for sale securities | ||||||||||||||||
Agency MBS (1) | $ | 1,423.6 | 54.3 | % | $ | 2,369.2 | 63.3 | % | ||||||||
CMBS | 468.0 | 17.8 | % | 510.9 | 13.6 | % | ||||||||||
Prime RMBS | 144.6 | 5.5 | % | 168.0 | 4.5 | % | ||||||||||
Sub-prime RMBS | 79.5 | 3.0 | % | 113.4 | 3.0 | % | ||||||||||
ABS (2) | 20.2 | 0.8 | % | 42.0 | 1.1 | % | ||||||||||
Preferred stock | 1.7 | 0.1 | % | 3.4 | 0.1 | % | ||||||||||
| Direct Real estate loans | ||||||||||||||||
Construction loans | 25.3 | 1.0 | % | 20.5 | 0.5 | % | ||||||||||
Mezzanine loans | 31.8 | 1.2 | % | 31.9 | 0.9 | % | ||||||||||
Whole loans | 155.8 | 5.9 | % | 213.5 | 5.7 | % | ||||||||||
Real Estate Finance Fund | 34.6 | 1.3 | % | 35.3 | 1.0 | % | ||||||||||
| Commercial real estate-owned | 236.9 | 9.0 | % | 212.2 | 5.7 | % | ||||||||||
| Alternative investments | 1.6 | 0.1 | % | 23.4 | 0.6 | % | ||||||||||
Total | $ | 2,623.6 | 100.0 | % | $ | 3,743.7 | 100.0 | % | ||||||||
(1) Agency mortgage-backed securities (“MBS”)
(2) Asset-backed securities (“ABS”)
The table below details the impact of purchases and sales, principal paydowns, amortizations and mark to market adjustments on our available for sale securities during the third quarter of 2007:
Mark-to-Markets | ||||||||||||||||||||||||||||
($ in millions) | Carrying Value6/30/2007 | Purchases/ (Sales) | Principal Paydowns | (Prem.)/ Disc. Amor-tization | Impairments | OCI (1) | Carrying Value9/30/2007 | |||||||||||||||||||||
| Agency MBS | $ | 2,369.2 | $ | (870.8 | ) | $ | (83.6 | ) | $ | (0.7 | ) | $ | ― | $ | 9.5 | $ | 1,423.6 | |||||||||||
| CMBS | 510.9 | 26.3 | ― | 1.6 | (20.4 | ) | (50.4 | ) | 468.0 | |||||||||||||||||||
| Prime RMBS | 168.0 | ― | (6.4 | ) | 3.3 | (17.0 | ) | (3.3 | ) | 144.6 | ||||||||||||||||||
| Sub-prime RMBS | 113.4 | ― | (0.4 | ) | 2.7 | (40.8 | ) | 4.6 | 79.5 | |||||||||||||||||||
| ABS | 42.0 | (15.7 | ) | (4.8 | ) | 0.3 | ― | (1.6 | ) | 20.2 | ||||||||||||||||||
| Preferred Stock | 3.4 | ― | ― | ― | (3.1 | ) | 1.4 | 1.7 | ||||||||||||||||||||
Total | $ | 3,206.9 | $ | (860.2 | ) | $ | (95.2 | ) | $ | 7.2 | $ | (81.3 | ) | $ | (39.8 | ) | $ | 2,137.6 | ||||||||||
(1) Other Comprehensive Income (“OCI”)
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The table below summarizes the breakdown of our available for sale securities between assets held by non-recourse securitization subsidiaries and assets held directly at September 30, 2007:
($ in millions) | Securitized Assets | Unsecuritized Assets | Consolidated Carrying Value | |||||||||
| Agency MBS | $ | ― | $ | 1,423.6 | $ | 1,423.6 | ||||||
| CMBS | 346.8 | 121.2 | 468.0 | |||||||||
| Prime RMBS | 76.6 | 68.0 | 144.6 | |||||||||
| Sub-prime RMBS | 42.7 | 36.8 | 79.5 | |||||||||
| ABS | ― | 20.2 | 20.2 | |||||||||
| Preferred Stock | ― | 1.7 | 1.7 | |||||||||
Total | $ | 466.1 | $ | 1,671.5 | $ | 2,137.6 | ||||||
Commercial Real Estate (“CRE”) Investment Portfolio
Crystal River remains focused on shifting the balance sheet towards longer-term, commercial real estate assets that can be funded with longer-term debt. As part of this investment strategy, the Company purchased Arlington Contact Center, a high-quality office building located in Arlington, Texas, that comprises approximately 172,000 rentable square feet. The building is 100% leased on a triple-net basis for 20 years to JPMorgan Chase. The transaction amount was approximately $26 million, and was financed with a long-term fixed rate mortgage loan. The building was acquired from the Brookfield Real Estate Opportunity Fund, an affiliate of Brookfield Asset Management Inc. The transaction closed on September 25, 2007.
Commercial real estate portfolio at September 30, 2007:
Location | Tenant | Year of Expiry | Total Area (000s Sq.Ft.) | Book Value (1) (millions) | Debt (millions) | Net Book Equity (millions) | ||||||||||||
| Houston, Texas | JPMorgan Chase | 2021 | 428.6 | $ | 62.7 | $ | 53.4 | $ | 9.3 | |||||||||
| Arlington, Texas | JPMorgan Chase | 2027 | 171.5 | 22.0 | 20.9 | 1.1 | ||||||||||||
| Phoenix, Arizona | JPMorgan Chase | 2021 | 724.0 | 155.2 | 145.1 | 10.1 | ||||||||||||
Total | 1,324.1 | $ | 239.9 | $ | 219.4 | $ | 20.5 | |||||||||||
(1) | Book Value includes intangible assets, intangible liabilities, but excludes rent enhancement receivables |
Real Estate Loan Investment Portfolio
At September 30, 2007, Crystal River’s real estate loan portfolio, which consists of mezzanine loans,
B Notes, construction loans and whole loans, totaled $212.9 million and had a weighted average interest rate of 7.6%. During the quarter, the Company sold $55.3 million in whole loans. The Company’s real estate loan portfolio continues to perform at or above expectations.
Real estate loan portfolio at September 30, 2007:
Weighted Average | ||||||||||||||||
($ in millions) | # of Loans | Carrying Value | Interest Rate | Years to Maturity | ||||||||||||
| Whole loans | 15 | $ | 155.8 | 6.3 | % | 6.5 | ||||||||||
| Construction loans | 2 | 25.3 | 12.7 | % | 0.8 | |||||||||||
| Mezzanine loans | 3 | 31.8 | 9.9 | % | 7.4 | |||||||||||
Total Real Estate Loans | 20 | $ | 212.9 | 7.6 | % | 6.0 | ||||||||||
Commercial Mortgage-Backed Securities (“CMBS”) Investment Portfolio
At September 30, 2007, Crystal River’s CMBS portfolio totaled $468.0 million. Pursuant to its investment strategy, Crystal River continued to increase its CMBS allocation during the quarter with the purchase of approximately $26.3 million of securities.
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The Company’s CMBS portfolio had an average credit rating of BB-. The weighted average debt service coverage ratio (“DSCR”), which measures the amount of cash flow available to meet annual interest and principal payments on debt, was 1.54 and the weighted average loan-to-value ratio (“LTV”) ratio was 68.6%. Mark to market adjustments during the third quarter of 2007 totaled $(70.8) million.
CMBS portfolio at September 30, 2007:
Weighted Average | ||||||||||||||||
($ in millions) | Amortized Cost | Carrying Value | Book Yield (1) | Term (yrs) | ||||||||||||
| BBB | $ | 252.0 | $ | 215.4 | 6.4 | % | 9.1 | |||||||||
| BB | 154.6 | 130.2 | 8.5 | % | 9.2 | |||||||||||
| B | 78.1 | 66.5 | 12.1 | % | 10.3 | |||||||||||
| Not rated | 70.5 | 55.9 | 16.3 | % | 10.9 | |||||||||||
Total CMBS | $ | 555.2 | $ | 468.0 | 9.0 | % | 9.8 | |||||||||
(1) Book yield is the internal rate of return, which is the rate of interest that equates the estimated periodic future cash inflows of an instrument with its cost or cash outflows at acquisition based on amortized cost. |
Agency Mortgage-Backed Securities (“MBS”) Investment Portfolio
Agency MBS are securities that have been guaranteed by an agency of the U.S. government (Ginnie Mae) or by U.S. government sponsored enterprises (Fannie Mae and Freddie Mac). Owners of Agency MBS are guaranteed the timely payment of principal and interest, which gives the securities the equivalent of an AAA credit rating, the highest rating available. The Company’s Agency MBS are hybrid adjustable rate securities where the underlying mortgages have an initial fixed-rate period for either three years or five years. Following that initial fixed interest rate period, the loans usually reset every month.
At September 30, 2007, Crystal River’s Agency MBS portfolio totaled $1,423.6 million. During the quarter, the Company sold $876.5 million of Fannie Mae and Freddie Mac Agency MBS. Mark to market adjustments during the third quarter of 2007 totaled $9.5 million.
Agency MBS portfolio at September 30, 2007:
Weighted Average | ||||||||||||||||
($ in millions) | Amortized Cost | Carrying Value | Book Yield | Term to Reset (yrs) | ||||||||||||
| 3/1 hybrid adjustable rate | $ | 334.8 | $ | 336.1 | 5.1 | % | 1.6 | |||||||||
| 5/1 hybrid adjustable rate | 1,086.2 | 1,087.5 | 5.3 | % | 1.7 | |||||||||||
Total Agency MBS | $ | 1,421.0 | $ | 1,423.6 | 5.3 | % | 1.7 | |||||||||
Prime Residential Mortgage-Backed Securities (“RMBS”) Investment Portfolio
At September 30, 2007, Crystal River's prime RMBS portfolio totaled $144.6 million. The prime RMBS securities had an average credit rating of B and a DSCR of 2.0. While these mortgages have and are expected to continue to perform well from a credit perspective, mark to market adjustments during the third quarter of 2007 totaled $(20.3) million.
Prime RMBS portfolio at September 30, 2007:
Weighted Average | ||||||||||||||||
($ in millions) | Amortized Cost | Carrying Value | Book Yield | Term (yrs) | ||||||||||||
| BBB | $ | 15.0 | $ | 14.9 | 7.9 | % | 3.1 | |||||||||
| BB | 44.2 | 43.5 | 18.5 | % | 4.1 | |||||||||||
| B | 67.5 | 66.3 | 23.7 | % | 4.6 | |||||||||||
| Not rated | 19.9 | 19.9 | 66.1 | % | 3.5 | |||||||||||
Total Prime RMBS | $ | 146.6 | $ | 144.6 | 26.3 | % | 4.1 | |||||||||
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Sub-prime RMBS Investment Portfolio
At September 30, 2007, Crystal River's sub-prime RMBS portfolio totaled $79.5 million. Of that amount, $60.5 million was from the 2005 vintage, $15.9 million from the 2006 vintage and $3.1 million from the 2007 vintage. The sub-prime RMBS securities had an average credit rating of BB+ and a DSCR of 1.3. Mark to market adjustments during the third quarter of 2007 totaled $(36.2) million.
Sub-prime RMBS portfolio at September 30, 2007:
Weighted Average | ||||||||||||||||
($ in millions) | Amortized Cost | Carrying Value | Book Yield | Term (yrs) | ||||||||||||
| A | $ | 19.7 | $ | 19.7 | 16.1 | % | 2.3 | |||||||||
| BBB | 29.0 | 29.0 | 20.9 | % | 2.2 | |||||||||||
| BB | 30.7 | 30.8 | 13.2 | % | 1.3 | |||||||||||
Total Sub-prime RMBS | $ | 79.4 | $ | 79.5 | 16.7 | % | 1.8 | |||||||||
Other Investments
During the quarter, Crystal River sold approximately $15.7 million of its Aircraft ABS and its $23.7 million investment in the financing of British Airport Authority, a company that owns and operates several airports in Great Britain.
Stock Repurchase Plan
Following the implementation of a stock repurchase plan covering up to two million shares, Crystal River repurchased a total of 234,700 shares of its common stock at an average price of $15.56 and a total cost of $3.7 million through September 30, 2007, including 59,700 shares that settled after quarter-end.
Financing Details
During the quarter, Crystal River increased its cash position to $40.9 million, and had financing capacity in the form of secured and unsecured facilities and unencumbered assets. The Company has and will continue to work to match-fund assets and liabilities. As at September 30, 2007, 91.4% of Crystal River’s debt, excluding Agency MBS, has been term-financed through CDO debt, other term debt and funding facilities.
Subsequent to quarter-end, the funding facility from Brookfield Asset Management was amended to a secured facility at a revised rate of LIBOR plus 250 basis points, representing a rate reduction of 150 basis points from the previous facility.
The following table shows the Company’s available for sale assets, real estate loans and other investments as of September 30, 2007 and the different lines used to finance such assets, categorized by (i) CDO debt, (ii) other term debt, such as mortgage loans on commercial real estate and trust preferred securities, (iii) funding facilities, which include warehouse lines and term bank facilities, and (iv) reverse repurchase agreements:
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Assets | Debt | |||||||||||||||||||
($ in millions) | Carrying Value | CDO Debt (1) | Other Term Debt | Funding Facilities (2) | Repurchase Agreements | |||||||||||||||
| CMBS | $ | 468.0 | $ | 391.0 | $ | ― | $ | ― | $ | 57.0 | ||||||||||
| Prime RMBS | 144.6 | 65.0 | ― | 7.7 | 9.9 | |||||||||||||||
| Sub-prime RMBS | 79.5 | 36.2 | ― | 14.9 | 7.2 | |||||||||||||||
| ABS | 20.2 | ― | ― | ― | 14.8 | |||||||||||||||
| CDO Notes | ― | ― | ― | 5.6 | ― | |||||||||||||||
| Preferred stock | 1.7 | ― | ― | ― | ― | |||||||||||||||
| Real estate loans | 212.9 | 15.2 | 100.5 | ― | ― | |||||||||||||||
| Commercial real estate | 236.9 | ― | 219.4 | ― | ― | |||||||||||||||
| Real Estate Finance Fund | 34.6 | ― | ― | 37.3 | ― | |||||||||||||||
| Alternative investments | 1.6 | ― | ― | ― | ― | |||||||||||||||
| Trust preferred securities | ― | ― | 51.6 | ― | ― | |||||||||||||||
Subtotal | $ | 1,200.0 | $ | 507.4 | $ | 371.5 | $ | 65.5 | $ | 88.9 | ||||||||||
| Agency MBS | 1,423.6 | (3) | ― | ― | ― | 1,422.2 | ||||||||||||||
Total | $ | 2,623.6 | $ | 507.4 | $ | 371.5 | $ | 65.5 | $ | 1,511.1 | ||||||||||
(1) CDO debt has been allocated based upon the asset mix within the Company’s CDOs
(2) Related party repurchase agreement of $37.3 million reflected as funding facilities
(3) Excludes margin cash and securities sold but not yet settled at September 30, 2007
Adjusted Book Value
Due to the general widening of yield spreads and the resulting mark to market adjustments to the Company’s available for sale securities, GAAP common equity book value per share declined from $19.37 at June 30, 2007 to $12.29 at September 30, 2007. The majority of the assets with negative mark to market adjustments have been permanently financed in the Company’s two collateralized debt obligations (“CDOs”). Under current GAAP, the debt issued by the Company’s CDOs is not marked to market. However, the Company has determined that non-recourse CDO debt would have had approximately a $73.5 million, or $2.96 per share, positive impact on book value, had the CDO debt been marked to market. The following table shows the Company’s reconciliation of adjusted book value and per share amounts based on the 24.8 million shares outstanding at September 30, 2007:
($ in millions) | Total | Per Share Amount | ||||||
| Stockholders’ equity | $ | 305.2 | $ | 12.29 | ||||
| Add: Mark to market adjustments on CDO debt | 73.5 | 2.96 | ||||||
Adjusted book value | $ | 378.7 | $ | 15.25 | ||||
Additional Information
The Company intends to file its Form 10-Q for the quarter ended September 30, 2007 with the Securities and Exchange Commission by Wednesday, November 14, 2007. Please read the Form 10-Q carefully as it contains Crystal River’s consolidated financial statements and footnotes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations. The Form 10-Q will also be made available under the Investor Relations section of Crystal River’s website at www.crystalriverreit.com.
About Crystal River
Crystal River Capital, Inc. (NYSE: CRZ) is a specialty finance REIT. The Company invests in real estate related securities, such as commercial and residential mortgage-backed securities, commercial real estate, real estate loans and instruments, and other alternative asset classes. The Company focuses on
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opportunities across the entire real estate investment spectrum that are consistent with its goals of generating high current income and long-term capital appreciation.
Definition of Operating Earnings
This press release and accompanying financial information make reference to operating earnings on a total and per share basis. The Company considers its operating earnings to be income after operating expenses but before realized and unrealized gains and losses, hedge ineffectiveness, foreign currency exchange impact, loss on impairment of assets and commercial real estate depreciation and amortization. The Company believes operating earnings provides useful information to investors because it views operating earnings as an effective indicator of the Company’s profitability and financial performance over time. Operating earnings can and will fluctuate based on changes in asset levels, funding rates, available reinvestment rates, expected losses on credit sensitive positions and the return on the Company’s investments as the underlying assets are carried at estimated fair market value. The Company provides the components of operating earnings and a full reconciliation from net income (loss) to operating earnings with the financial statements accompanying this press release. Operating earnings is a non-GAAP measure which does not have any standard meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies.
Definition of Net Investment Income
This press release and accompanying financial information make reference to net investment income on a total and per share basis. The Company considers its net investment income to be total revenues including income from equity investments less interest expense. The Company provides the components of net investment income with the financial statements accompanying this press release. Net investment income is a non-GAAP measure which does not have any standard meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies.
Definition of Estimated REIT Taxable Income
Estimated REIT taxable income is a non-GAAP financial measure and does not purport to be an alternative to net income determined in accordance with GAAP as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. Estimated REIT taxable income excludes the undistributed taxable income of Crystal River’s domestic taxable REIT subsidiary. This non-GAAP financial measure is important to Crystal River and its stockholders because, as a real estate investment trust, we are required to pay substantially all of our REIT taxable income in the form of distributions to our stockholders and estimated REIT taxable income is an effective indicator of the total amount of REIT taxable income available for distributions. Because not all REITs use identical calculations, this presentation of estimated REIT taxable income may not be comparable to other similarly titled measures prepared and reported by other companies. The Company provides a full reconciliation from net loss to estimated REIT taxable income with the financial statements accompanying this press release.
Definition of Adjusted Book Value
This press release and accompanying financial information make reference to adjusted book value on a total and per share basis. The Company considers its adjusted book value to be stockholders’ equity including mark to market adjustments on CDO debt. The Company provides the components of adjusted book value with the financial statements accompanying this press release. Adjusted book value is a non-GAAP measure which does not have any standard meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies.
Forward-Looking Information
This news release, and our public documents to which we refer, contain or incorporate by reference certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as
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amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements that are based on various assumptions (some of which are beyond our control) may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "anticipate," "continue," “should,” “intend,” or similar terms or variations on those terms or the negative of those terms. Although we believe that the expectations contained in any forward-looking statement are based on reasonable assumptions, we can give no assurance that our expectations will be attained. Factors that could cause actual results to differ materially from those set forth in the forward-looking statements include, but are not limited to, changes in interest rates, changes in yield curve, changes in prepayment rates, the effectiveness of our hedging strategies, the availability of mortgage-backed securities and other targeted investments for purchase and origination, the availability and cost of capital for financing future investments and, if available, the terms of any such financing, changes in the market value of our assets, future margin reductions and the availability of liquid assets to post additional collateral, changes in business conditions and the general economy, competition within the specialty finance sector, changes in government regulations affecting our business, our ability to maintain our qualification as a real estate investment trust for federal income tax purposes and other risks disclosed from time to time in our filings with the Securities and Exchange Commission. For more information on the risks facing the Company, see the risk factors in Exhibit 99.1 to our Form 10-Q for the period ended June 30, 2007, filed with the SEC on August 14, 2007. We do not undertake, and specifically disclaim any obligation, to publicly release any update or supplement to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
COMPANY CONTACT
Marion Hayes
Investor Relations
Crystal River Capital, Inc.
(212) 549-8413
mhayes@crystalriverreit.com
[CRZ-F]
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Condensed Consolidated Balance Sheets
September 30, | June 30, | December 31, | ||||||||||
2007 | 2007 | 2006 | ||||||||||
(in thousands, except share and per share data) | (unaudited) | (unaudited) | ||||||||||
ASSETS | ||||||||||||
Available for sale securities, at fair value | $ | 2,137,660 | $ | 3,206,870 | $ | 3,342,608 | ||||||
Real estate loans | 212,942 | 265,904 | 237,670 | |||||||||
Commercial real estate, net | 236,903 | 212,219 | ― | |||||||||
Other investments | 36,193 | 58,661 | 20,133 | |||||||||
Intangible assets | 82,229 | 79,575 | ― | |||||||||
Cash and cash equivalents | 40,890 | 19,671 | 39,023 | |||||||||
Restricted cash | 77,581 | 89,295 | 79,483 | |||||||||
Receivables | 36,740 | 45,402 | 28,143 | |||||||||
Due from broker | 41,178 | 85,908 | ― | |||||||||
Prepaid expenses and other assets | 916 | 1,244 | 1,791 | |||||||||
Deferred financing costs, net | 11,598 | 11,598 | 4,929 | |||||||||
Derivative assets | 6,721 | 30,942 | 20,865 | |||||||||
Total Assets | $ | 2,921,551 | $ | 4,107,289 | $ | 3,774,645 | ||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||||||
Accounts payable, accrued expenses and cash collateral payable | $ | 3,027 | $ | 6,819 | $ | 11,486 | ||||||
Due to Manager | 1,302 | 1,730 | 2,040 | |||||||||
Due to broker | ― | 100,971 | 94,881 | |||||||||
Dividends payable | 16,910 | 17,025 | 16,514 | |||||||||
Intangible liabilities | 79,276 | 72,395 | ― | |||||||||
Repurchase agreements | 1,539,259 | 2,475,672 | 2,723,643 | |||||||||
Repurchase agreement, related party | 37,319 | 40,806 | 144,806 | |||||||||
Collateralized debt obligations | 507,405 | 512,012 | 194,396 | |||||||||
Junior subordinated notes held by trust that issued trust preferred securities | 51,550 | 51,550 | ― | |||||||||
Mortgage payable | 219,380 | 198,500 | ― | |||||||||
Senior mortgage-backed notes | 100,477 | 101,116 | ― | |||||||||
Interest payable | 11,401 | 20,890 | 19,417 | |||||||||
Derivative liabilities | 49,062 | 23,415 | 11,148 | |||||||||
Total Liabilities | 2,616,368 | 3,622,901 | 3,218,331 | |||||||||
Commitments and contingencies | ― | ― | ― | |||||||||
Stockholders’ Equity | ||||||||||||
Preferred Stock, par value $0.001 per share;100,000,000 shares | ||||||||||||
authorized, no shares issued and outstanding | ― | ― | ― | |||||||||
Common stock, $0.001 par value, 500,000,000 shares | ||||||||||||
authorized, 24,829,245, 25,004,245 and 25,021,800shares issued and outstanding, respectively | 25 | 25 | 25 | |||||||||
Additional paid-in capital | 564,591 | 567,000 | 566,285 | |||||||||
Accumulated other comprehensive income (loss) | (89,793 | ) | (23,842 | ) | 13,212 | |||||||
Dividends declared in excess of results of operations | (169,640 | ) | (58,795 | ) | (23,208 | ) | ||||||
Total Stockholders’ Equity | 305,183 | 484,388 | 556,314 | |||||||||
Total Liabilities and Stockholders’ Equity | $ | 2,921,551 | $ | 4,107,289 | $ | 3,774,645 | ||||||
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Condensed Consolidated Statements of Operations (Unaudited)
Three months ended | Nine months ended | |||||||||||||||||||
(in thousands, except share and per share data) | Sept. 30, 2007 | June 30, 2007 | Sept. 30, 2006 | Sept. 30, 2007 | Sept. 30, 2006 | |||||||||||||||
Revenues | ||||||||||||||||||||
Interest income – available for salesecurities | $ | 52,945 | $ | 50,823 | $ | 50,510 | $ | 153,972 | $ | 129,428 | ||||||||||
Interest income – real estate loans | 4,512 | 4,404 | 2,582 | 13,241 | 7,671 | |||||||||||||||
Other Interest and dividend income | 2,220 | 2,276 | 2,535 | 7,196 | 5,007 | |||||||||||||||
Total interest and dividend income | 59,677 | 57,503 | 55,627 | 174,409 | 142,106 | |||||||||||||||
Rental income, net | 4,998 | 5,110 | ― | 10,656 | ― | |||||||||||||||
Total revenues | 64,675 | 62,613 | 55,627 | 185,065 | 142,106 | |||||||||||||||
Expenses | ||||||||||||||||||||
Interest expense | 41,840 | 41,993 | 39,452 | 123,968 | 99,728 | |||||||||||||||
Management fees, related party | 1,416 | 1,828 | 2,164 | 5,597 | 5,476 | |||||||||||||||
Professional fees | 857 | 1,204 | 835 | 2,843 | 2,349 | |||||||||||||||
Depreciation and amortization | 2,816 | 2,798 | ― | 5,925 | ― | |||||||||||||||
Incentive fees | ― | ― | ― | 124 | ― | |||||||||||||||
Insurance expense | 265 | 325 | 115 | 672 | 306 | |||||||||||||||
Directors’ fees | 173 | 178 | 82 | 513 | 318 | |||||||||||||||
Public company expense | 225 | 161 | ― | 457 | ― | |||||||||||||||
Commercial real estate expenses | 333 | 344 | ― | 677 | ― | |||||||||||||||
Other expenses | 105 | 206 | 88 | 401 | 338 | |||||||||||||||
Total expenses | 48,030 | 49,037 | 42,736 | 141,177 | 108,515 | |||||||||||||||
Other revenues (expenses) | ||||||||||||||||||||
Realized net gain (loss) on sale ofsecurities available for sale, realestate loans and other investments | (2,502 | ) | (440 | ) | 898 | (1,322 | ) | (769 | ) | |||||||||||
Realized and unrealized gain (loss)on derivatives | (27,724 | ) | (4,776 | ) | (1,303 | ) | (41,101 | ) | 6,147 | |||||||||||
Impairments on available for salesecurities | (81,293 | ) | (22,058 | ) | (865 | ) | (103,986 | ) | (7,790 | ) | ||||||||||
Foreign currency exchange gain | (459 | ) | 4,249 | (315 | ) | 4,292 | 1,560 | |||||||||||||
Income from equity investments | 741 | 589 | ― | 2,179 | ― | |||||||||||||||
Other | 658 | (214 | ) | (51 | ) | 586 | (32 | ) | ||||||||||||
Total other expenses | (110,579 | ) | (22,650 | ) | (1,636 | ) | (139,352 | ) | (884 | ) | ||||||||||
Net income (loss) | $ | (93,934 | ) | $ | (9,074 | ) | $ | 11,255 | $ | (95,464 | ) | $ | 32,707 | |||||||
Net income (loss) per share – basicand diluted | $ | (3.76 | ) | $ | (0.36 | ) | $ | 0.50 | $ | (3.82 | ) | $ | 1.71 | |||||||
Weighted average number ofshares outstanding: | ||||||||||||||||||||
Basic and diluted | 24,995,885 | 25,029,782 | 22,422,507 | 25,023,058 | 19,166,846 | |||||||||||||||
Dividends declared per share ofcommon stock | $ | 0.68 | $ | 0.68 | $ | 0.60 | $ | 2.04 | $ | 2.05 | ||||||||||
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Net Investment Income (Unaudited)
Three months ended | Nine months ended | |||||||||||||||||||
(in thousands, except share and per share data) | Sept. 30, 2007 | June 30, 2007 | Sept. 30, 2006 | Sept. 30, 2007 | Sept. 30, 2006 | |||||||||||||||
| Total interest and dividend income | $ | 59,677 | $ | 57,503 | $ | 55,627 | $ | 174,409 | $ | 142,106 | ||||||||||
| Rental income, net | 4,998 | 5,110 | ― | 10,656 | ― | |||||||||||||||
| Income from equity investments | 741 | 589 | ― | 2,179 | ― | |||||||||||||||
| Interest expense | (41,840 | ) | (41,993 | ) | (39,452 | ) | (123,968 | ) | (99,728 | ) | ||||||||||
Net investment income | $ | 23,576 | $ | 21,209 | $ | 16,175 | $ | 63,276 | $ | 42,378 | ||||||||||
Net investment income per share | $ | 0.94 | $ | 0.85 | $ | 0.72 | $ | 2.53 | $ | 2.21 | ||||||||||
| Weighted average number ofshares outstanding: | ||||||||||||||||||||
Basic and diluted | 24,995,885 | 25,029,782 | 22,422,507 | 25,023,058 | 19,166,846 | |||||||||||||||
Reconciliation of Net Income (Loss) to Operating Earnings (Unaudited)
Three months ended | Nine months ended | |||||||||||||||||||
(in thousands, except share and per share data) | Sept. 30, 2007 | June 30, 2007 | Sept. 30, 2006 | Sept. 30, 2007 | Sept. 30, 2006 | |||||||||||||||
| Net income (loss) | $ | (93,934 | ) | $ | (9,074 | ) | $ | 11,255 | $ | (95,464 | ) | $ | 32,707 | |||||||
Realized net gain (loss) on sale ofsecurities available for sale, realestate loans and other investments | 2,502 | 440 | (898 | ) | 1,322 | 769 | ||||||||||||||
Realized and unrealized (gain) losson derivatives | 27,724 | 4,776 | 1,303 | 41,101 | (6,147 | ) | ||||||||||||||
Impairments on available for salesecurities | 81,293 | 22,058 | 865 | 103,986 | 7,790 | |||||||||||||||
Foreign currency exchange gain | 459 | (4,249 | ) | 315 | (4,292 | ) | (1,560 | ) | ||||||||||||
Depreciation and amortization | 2,816 | 2,798 | ― | 5,925 | ― | |||||||||||||||
Other | (658 | ) | 214 | 51 | (586 | ) | 32 | |||||||||||||
Operating earnings | $ | 20,202 | $ | 16,963 | $ | 12,891 | $ | 51,992 | $ | 33,591 | ||||||||||
Operating earnings per share | $ | 0.81 | $ | 0.68 | $ | 0.57 | $ | 2.08 | $ | 1.75 | ||||||||||
| Weighted average number of sharesoutstanding: | ||||||||||||||||||||
Basic and diluted | 24,995,885 | 25,029,782 | 22,422,507 | 25,023,058 | 19,166,846 | |||||||||||||||
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Comprehensive Loss (Unaudited)
(in thousands) | Three months ended September 30, 2007 | Nine months ended September 30, 2007 | ||||||
Net loss | $ | (93,934 | ) | $ | (95,464 | ) | ||
| Net unrealized holdings loss on securities available for sale | (39,683 | ) | (90,157 | ) | ||||
| Unrealized loss on cash flow hedges | (27,900 | ) | (11,200 | ) | ||||
| Deferred gain (loss) on settled cash flow hedges | 2,526 | 68 | ||||||
| Amortization of net gains on cash flow hedges into net income | (894 | ) | (1,716 | ) | ||||
Comprehensive loss | $ | (159,885 | ) | $ | (198,469 | ) | ||
Reconciliation of Net Loss to Estimated REIT Taxable Income (Unaudited)
(in thousands, except share and per share data) | Three months ended September 30, 2007 | Nine months ended September 30, 2007 | ||||||
GAAP net loss | $ | (93,934 | ) | $ | (95,464 | ) | ||
Adjustments to GAAP net loss: | ||||||||
Net loss of taxable REIT subsidiary | 9,957 | 15,936 | ||||||
Share based compensation | (55 | ) | 478 | |||||
Net tax adjustments related to interest income | (1,418 | ) | 1,984 | |||||
Book derivative loss in excess of tax loss | 17,320 | 24,165 | ||||||
Realized tax losses in excess of book losses | 1,719 | 1,185 | ||||||
Impairment losses not deductible for tax purposes | 81,293 | 103,986 | ||||||
Rent escalation | (249 | ) | (497 | ) | ||||
Foreign currency | 4,751 | ― | ||||||
Other | 190 | 164 | ||||||
Net adjustments from GAAP net loss to estimated REITtaxable income | 113,508 | 147,401 | ||||||
Estimated REIT taxable income | 19,574 | 51,937 | ||||||
Weighted average number of shares outstanding: | ||||||||
Basic and diluted | 24,995,885 | 25,023,058 | ||||||
Estimated REIT taxable income per share of common stock | $ | 0.78 | $ | 2.08 | ||||
13