|
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
|
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
Maryland
|
52-2414533
|
(State
or Other Jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
Incorporation
or Organization)
|
|
1065 Avenue of the Americas, New York,
NY
|
10018
|
(Address
of Principal Executive Offices)
|
(ZIP
Code)
|
Registrant’s
Telephone Number, Including Area Code:
|
(212)
217-6300
|
Large accelerated filer
¨
|
Accelerated
filer x
|
Non-accelerated
filer ¨
|
Smaller reporting
company ¨
|
(Do
not check if a smaller reporting
company)
|
Page
|
||
PART
I. FINANCIAL INFORMATION
|
2
|
|
Item
1.
|
Financial
Statements
|
2
|
Consolidated
Balance Sheets as of September 30, 2010 (unaudited) and December 31,
2009
|
2
|
|
Consolidated
Statements of Operations (unaudited) for the Three and Nine Months Ended
September 30, 2010 and 2009
|
3
|
|
Consolidated
Statement of Changes in Equity (unaudited) for the Nine Months Ended
September 30, 2010
|
4
|
|
Consolidated
Statements of Cash Flows (unaudited) for the Nine Months Ended September
30, 2010 and 2009
|
5
|
|
Notes
to Consolidated Financial Statements (unaudited)
|
7
|
|
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
33
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
45
|
Item
4.
|
Controls
and Procedures
|
48
|
PART
II. OTHER INFORMATION
|
49
|
|
Item
1.
|
Legal
Proceedings
|
49
|
Item
1A.
|
Risk
Factors
|
49
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
50
|
Item
3.
|
Defaults
Upon Senior Securities
|
50
|
Item
4.
|
[Removed
and Reserved]
|
50
|
Item
5.
|
Other
Information
|
50
|
Item
6.
|
Exhibits
|
50
|
SIGNATURES
|
51
|
PART
I.
|
FINANCIAL
INFORMATION
|
Item
1.
|
Financial
Statements
|
(Amounts in thousands, except share and per share
amounts)
|
As Of
September 30,
2010
|
As Of
December 31,
2009
|
||||||
Assets
|
||||||||
Real
estate investments, net
|
$ | 1,373,428 | $ | 1,408,819 | ||||
Loans
held for investment, net
|
212,963 | 221,211 | ||||||
Commercial
mortgage-backed securities
|
151,938 | 153,056 | ||||||
Cash
and cash equivalents
|
57,798 | 38,546 | ||||||
Asset
held for sale
|
– | 3,410 | ||||||
Structuring
fees receivable
|
474 | 1,094 | ||||||
Other
assets
|
79,104 | 78,279 | ||||||
Total
Assets
|
$ | 1,875,705 | $ | 1,904,415 | ||||
Liabilities
and Equity
|
||||||||
Mortgages
on real estate investments
|
$ | 933,170 | $ | 943,811 | ||||
Collateralized
debt obligations
|
256,504 | 263,310 | ||||||
Credit
facility
|
93,092 | 126,262 | ||||||
Secured
term loan
|
104,783 | 114,070 | ||||||
Convertible
senior notes
|
33,785 | 49,452 | ||||||
Other
long-term debt
|
30,930 | 30,930 | ||||||
Total
Debt Obligations
|
1,452,264 | 1,527,835 | ||||||
Intangible
liabilities on real estate investments
|
37,952 | 39,591 | ||||||
Accounts
payable, accrued expenses and other liabilities
|
19,493 | 18,700 | ||||||
Dividends
and distributions payable
|
5,066 | 3,822 | ||||||
Total
Liabilities
|
1,514,775 | 1,589,948 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
equity:
|
||||||||
Preferred
stock, $0.01 par value, 100,000,000 shares authorized, Series A cumulative
redeemable preferred, liquidation preference $25.00 per share, 3,200,600
and 1,400,000 shares issued and outstanding, respectively
|
73,776 | 33,657 | ||||||
Common
stock, $0.01 par value, 500,000,000 shares authorized, 57,184,965 and
51,709,511 shares issued and outstanding, respectively
|
572 | 517 | ||||||
Additional
paid in capital
|
308,105 | 303,368 | ||||||
Accumulated
other comprehensive loss
|
(22,729 | ) | (24,332 | ) | ||||
Total
Stockholders' Equity
|
359,724 | 313,210 | ||||||
Non-controlling
interest in consolidated subsidiaries
|
1,206 | 1,257 | ||||||
Total
Equity
|
360,930 | 314,467 | ||||||
Total
Liabilities and Equity
|
$ | 1,875,705 | $ | 1,904,415 |
For the Three Months
Ended September 30,
|
For the Nine Months
Ended September 30,
|
|||||||||||||||
(Amounts in thousands, except per share
amounts)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Revenues:
|
||||||||||||||||
Rental
revenue
|
$ | 31,278 | $ | 34,479 | $ | 94,356 | $ | 102,004 | ||||||||
Interest
income from loans and securities
|
6,888 | 7,621 | 20,902 | 23,592 | ||||||||||||
Property
expense recoveries
|
2,982 | 2,700 | 8,775 | 8,416 | ||||||||||||
Other
revenue
|
218 | 161 | 645 | 524 | ||||||||||||
Total
revenues
|
41,366 | 44,961 | 124,678 | 134,536 | ||||||||||||
Expenses:
|
||||||||||||||||
Interest
expense
|
21,011 | 22,386 | 64,041 | 68,120 | ||||||||||||
Property
expenses
|
6,190 | 4,726 | 18,498 | 14,859 | ||||||||||||
Loss
on investments
|
– | 5,912 | – | 13,739 | ||||||||||||
General
and administrative expenses
|
2,462 | 2,596 | 7,899 | 7,750 | ||||||||||||
General
and administrative expenses-stock based compensation
|
662 | 550 | 1,879 | 1,570 | ||||||||||||
Depreciation
and amortization expense on real property
|
12,121 | 12,596 | 36,253 | 39,178 | ||||||||||||
Loan
processing expenses
|
67 | 76 | 202 | 232 | ||||||||||||
Total
expenses
|
42,513 | 48,842 | 128,772 | 145,448 | ||||||||||||
(Loss)
gain on extinguishment of debt
|
(14 | ) | 415 | (293 | ) | 9,829 | ||||||||||
Loss
from continuing operations
|
(1,161 | ) | (3,466 | ) | (4,387 | ) | (1,083 | ) | ||||||||
Income
from discontinued operations
|
– | 80 | 37 | 435 | ||||||||||||
Net
loss before non-controlling interest in consolidated
subsidiaries
|
(1,161 | ) | (3,386 | ) | (4,350 | ) | (648 | ) | ||||||||
Non-controlling
interest in consolidated subsidiaries
|
8 | 13 | 23 | 9 | ||||||||||||
Net
loss
|
(1,153 | ) | (3,373 | ) | (4,327 | ) | (639 | ) | ||||||||
Dividends
allocable to preferred shares
|
(1,625 | ) | (711 | ) | (3,992 | ) | (2,133 | ) | ||||||||
Net
loss allocable to common stockholders
|
$ | (2,778 | ) | $ | (4,084 | ) | $ | (8,319 | ) | $ | (2,772 | ) | ||||
Earnings
per share:
|
||||||||||||||||
Net
loss per common share, basic and diluted
|
$ | (0.05 | ) | $ | (0.08 | ) | $ | (0.15 | ) | $ | (0.06 | ) | ||||
Weighted
average number of common shares outstanding, basic and
diluted
|
57,185 | 50,179 | 55,822 | 48,539 | ||||||||||||
Dividends
declared per common share
|
$ | 0.06 | $ | 0.05 | $ | 0.18 | $ | 0.15 | ||||||||
Dividends
declared per preferred share
|
$ | 0.51 | $ | 0.51 | $ | 1.52 | $ | 1.52 |
Stockholders'
Equity
|
||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
at
Par
|
Additional
Paid-In
Capital
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
Non-controlling
Interest
|
Total
Equity
|
|||||||||||||||||||
Balance
at December 31, 2009
|
$ | 33,657 | $ | 517 | $ | 303,368 | $ | (24,332 | ) | $ | 1,257 | $ | 314,467 | |||||||||||
Incentive
stock plan compensation expense
|
– | – | 1,879 | – | – | 1,879 | ||||||||||||||||||
Incentive
stock plan grants issued and forfeited
|
– | 5 | (5 | ) | – | – | – | |||||||||||||||||
Net
loss
|
– | – | (4,327 | ) | – | – | (4,327 | ) | ||||||||||||||||
Non-controlling
interest in consolidated subsidiaries
|
– | – | – | – | (23 | ) | (23 | ) | ||||||||||||||||
Issuance
of common stock
|
– | 50 | 23,408 | – | – | 23,458 | ||||||||||||||||||
Issuance
of preferred stock
|
40,119 | – | – | – | – | 40,119 | ||||||||||||||||||
Repurchase
of convertible senior notes-equity component
|
– | – | (1,050 | ) | – | – | (1,050 | ) | ||||||||||||||||
Dividends
declared-preferred
|
– | – | (4,876 | ) | – | – | (4,876 | ) | ||||||||||||||||
Dividends
declared-common
|
– | – | (10,292 | ) | – | – | (10,292 | ) | ||||||||||||||||
Distributions
declared-operating partnership units
|
– | – | – | – | (28 | ) | (28 | ) | ||||||||||||||||
Amortization
of unrealized loss on securities previously classified as available for
sale
|
– | – | – | 516 | – | 516 | ||||||||||||||||||
Increase
in fair value of securities available for sale
|
– | – | – | 640 | – | 640 | ||||||||||||||||||
Reclassification
of derivative items into earnings
|
– | – | – | 447 | – | 447 | ||||||||||||||||||
Balance
at September 30, 2010
|
$ | 73,776 | $ | 572 | $ | 308,105 | $ | (22,729 | ) | $ | 1,206 | $ | 360,930 |
For the Nine Months
Ended September 30,
|
||||||||
2010
|
2009
|
|||||||
Operating
activities
|
||||||||
Net
loss
|
$ | (4,327 | ) | $ | (639 | ) | ||
Adjustments
to reconcile net loss to cash provided by operating
activities:
|
||||||||
Depreciation
and amortization
|
36,317 | 39,619 | ||||||
Stock
based compensation
|
1,879 | 1,570 | ||||||
Amortization
of above and below market leases
|
1,247 | 1,016 | ||||||
Loss
attributable to non-controlling interest in consolidated
subsidiaries
|
(23 | ) | (9 | ) | ||||
Loss
(gain) on extinguishment of debt
|
293 | (9,829 | ) | |||||
Loss
on investments
|
– | 13,739 | ||||||
Straight-lining
of rents
|
1,371 | 5,825 | ||||||
Amortization
of discounts/premiums, and origination fees/costs, net
|
(417 | ) | (350 | ) | ||||
Amortization
of debt issuance costs, leasing commissions and fair market value of debt
issued or assumed
|
2,188 | 2,710 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Structuring
fees receivable
|
619 | 572 | ||||||
Other
assets
|
(2,377 | ) | (6,356 | ) | ||||
Accounts
payable, accrued expenses and other liabilities
|
483 | 1,523 | ||||||
Deposits
and escrows
|
1 | 1 | ||||||
Net
cash provided by operating activities
|
37,254 | 49,392 | ||||||
Investing
activities
|
||||||||
Proceeds
from sale of loans
|
– | 41,206 | ||||||
Additions
to loans held for investment
|
– | (790 | ) | |||||
Principal
received from borrowers
|
8,274 | 12,817 | ||||||
Purchase
of commercial mortgage-backed securities
|
– | (496 | ) | |||||
Proceeds
from sale of securities
|
– | 7,475 | ||||||
Repayments
of commercial mortgage-backed securities
|
2,664 | 2,681 | ||||||
Proceeds
from lease termination and sale of real estate investments
|
3,410 | 6,544 | ||||||
Real
estate improvements, additions, rebates and construction in
progress
|
(3,587 | ) | (794 | ) | ||||
Leasing
commission costs
|
(1,070 | ) | (756 | ) | ||||
Deposits
on potential equity investments
|
(50 | ) | – | |||||
Return
of deposits on potential equity investments
|
50 | – | ||||||
Purchases
of furniture, fixtures, equipment and leasehold
improvements
|
(29 | ) | (5 | ) | ||||
Net
cash provided by investing activities
|
9,662 | 67,882 | ||||||
Financing
activities
|
||||||||
Borrowings
from mortgages on real estate investments
|
1,296 | 1,164 | ||||||
Repayments
of mortgages on real estate investments
|
(11,151 | ) | (9,594 | ) | ||||
Repayments
of collateralized debt obligations
|
(6,835 | ) | – | |||||
Collateralized
debt obligations repurchased
|
– | (2,881 | ) | |||||
Repayments
on credit facility
|
(33,170 | ) | (60,074 | ) | ||||
Repayments
on secured term loan
|
(9,288 | ) | (7,022 | ) | ||||
Convertible
senior notes repurchased
|
(17,335 | ) | (9,583 | ) | ||||
Debt
issuance costs
|
(804 | ) | (6 | ) | ||||
Escrows
held with mortgage lender
|
– | 212 | ||||||
Common
stock issued, net of offering costs
|
23,458 | 10,280 | ||||||
Preferred
stock issued, net of offering costs
|
40,119 | – | ||||||
Distributions
to non-controlling interest
|
(28 | ) | (16 | ) | ||||
Dividends
paid on common and preferred stock
|
(13,926 | ) | (6,962 | ) | ||||
Net
cash used in financing activities
|
(27,664 | ) | (84,482 | ) | ||||
Net
increase in cash and cash equivalents
|
19,252 | 32,792 | ||||||
Cash
and cash equivalents at beginning of period
|
38,546 | 8,439 | ||||||
Cash
and cash equivalents at end of period
|
$ | 57,798 | $ | 41,231 |
For the Nine Months
Ended September 30,
|
||||||||
2010
|
2009
|
|||||||
Supplemental
disclosure of cash flow information
|
||||||||
Cash
paid for interest expense
|
$ | 60,253 | $ | 64,217 | ||||
Cash
paid for income taxes
|
200 | – | ||||||
Distributions
declared but not paid
|
9 | 8 | ||||||
Dividends
declared but not paid
|
5,056 | 3,288 | ||||||
Supplemental
disclosure of noncash operating, investing and financing
information
|
||||||||
Mortgage
notes payable transferred on properties sold
|
$ | – | $ | 14,400 |
1.
|
Organization
|
2.
|
Summary
of Significant Accounting Policies
|
|
·
|
“Held
to maturity” are those securities that the Company has the positive intent
and ability to hold until maturity. All of the Company’s
securities classified as held to maturity were transferred to this
classification (from “available for sale” classification) in January
2008. For a security transferred into the held to maturity
category, the security is recorded at estimated fair value on the date of
transfer, with any unrealized gain or loss amortized against the related
fair value adjustment recorded as a component of Other Comprehensive
Income (Loss) within Stockholders’ Equity over the expected term of the
security using the effective interest
method.
|
|
·
|
“Available
for sale” are those securities that the Company does not hold for the
purpose of selling in the near-term, but may dispose of prior to
maturity. They are presented on the Consolidated Balance Sheet
at fair value with the net unrealized gains or losses included in
Accumulated Other Comprehensive Income (Loss), a component of
Stockholders’ Equity on the Company’s Consolidated Balance
Sheet.
|
For the three months
ended September 30,
|
For the nine months
ended September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
loss allocable to common stockholders
|
$ | (2,778 | ) | $ | (4,084 | ) | $ | (8,319 | ) | $ | (2,772 | ) | ||||
Weighted
average number of common shares outstanding, basic and
diluted
|
57,185 | 50,179 | 55,822 | 48,539 | ||||||||||||
Loss
per share, basic and diluted
|
$ | (0.05 | ) | $ | (0.08 | ) | $ | (0.15 | ) | $ | (0.06 | ) | ||||
Non-vested
shares included in weighted average number of shares outstanding
above
|
1,739 | 1,803 | 1,739 | 1,803 |
3.
|
Real
Estate Investments
|
Sep 30, 2010
|
Dec 31, 2009
|
|||||||
Unaudited
|
||||||||
Real
estate investments, at cost:
|
||||||||
Land
|
$ | 189,021 | $ | 189,021 | ||||
Building
and improvements
|
1,239,064 | 1,237,249 | ||||||
Construction
in progress
|
2,082 | 310 | ||||||
Intangible
assets
|
180,722 | 180,722 | ||||||
Less:
Accumulated depreciation and amortization
|
(237,461 | ) | (198,483 | ) | ||||
Real
estate investments, net
|
$ | 1,373,428 | $ | 1,408,819 | ||||
Intangible
liabilities on real estate investments:
|
||||||||
Intangible
liabilities
|
$ | 47,908 | $ | 47,908 | ||||
Less:
Accumulated amortization
|
(9,956 | ) | (8,317 | ) | ||||
Intangible
liabilities on real estate investments, net
|
$ | 37,952 | $ | 39,591 |
Location
|
Tenant
|
Property
Type
|
Approximate
Square
Feet
|
Lease
Term (years)(1)
|
Construction
in Progress at
9/30/10
|
Estimated
Remaining
Funding
|
Estimated
Total
Investment
|
Estimated
Completion
Date
|
|||||||||||||||||||
Louisville,
Kentucky
|
Michelin
North
America,
Inc.
|
Warehouse/
distribution
|
150,000 | 10 | $ | 1,461 | $ | 6,930 | $ | 8,391 |
1Q
2011
|
(1)
|
The
lease is scheduled to commence upon substantial completion of the building
and the satisfaction of certain other
conditions.
|
Sep 30, 2010
|
Dec 31, 2009
|
|||||||
Unaudited
|
||||||||
Accrued
Rental Income
|
$ | 34,256 | $ | 35,317 | ||||
Deferred
Rental Income
|
311 | - |
For the three months
ended September 30,
|
For the nine months
ended September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Depreciation
on real estate (included in depreciation and amortization
expense)
|
$ | 8,040 | $ | 8,204 | $ | 24,103 | $ | 24,600 | ||||||||
Amortization
of in-place leases (included in depreciation and amortization
expense)
|
3,996 | 4,359 | 11,988 | 14,534 | ||||||||||||
Amortization
of above-market leases (included as a reduction of rental
revenue)
|
962 | 962 | 2,887 | 2,887 | ||||||||||||
Amortization
of below-market leases (included as a component of rental
revenue)
|
547 | 634 | 1,640 | 1,901 |
Intangible
Assets
|
Intangible
Liabilities
|
|||||||
3
Months Ending December 31, 2010
|
$ | 4,958 | $ | 547 | ||||
2011
|
19,120 | 2,186 | ||||||
2012
|
14,702 | 2,186 | ||||||
2013
|
9,030 | 2,051 | ||||||
2014
|
8,672 | 1,954 | ||||||
Thereafter
|
31,241 | 29,028 | ||||||
$ | 87,723 | $ | 37,952 |
4.
|
Loans
Held for Investment
|
Sep 30, 2010
|
Dec 31, 2009
|
|||||||
Unaudited
|
||||||||
Principal
|
$ | 216,968 | $ | 225,242 | ||||
(Discount)
Premium
|
(2,650 | ) | (2,642 | ) | ||||
Cost
basis
|
214,318 | 222,600 | ||||||
Allowance
for loan losses
|
(944 | ) | (944 | ) | ||||
Carrying
amount of loans
|
213,374 | 221,656 | ||||||
Deferred
origination fees, net
|
(411 | ) | (445 | ) | ||||
Total
|
$ | 212,963 | $ | 221,211 |
Average
carrying amount
|
||||||||||||||||||||||||
Carrying
Amount
|
For
the three months
ended
September 30,
|
For
the nine months
ended
September 30,
|
||||||||||||||||||||||
Borrower
|
9/30/2010
|
12/31/2009
|
2010
|
2009
|
2010
|
2009
|
||||||||||||||||||
West
End Mortgage Finance Fund I L.P.
|
$ | 1,000 | $ | 1,000 | $ | 1,000 | $ | 1,000 | 1,000 | 2,305 |
Interest
Income Recognized
|
||||||||||||||||||||||||||||||||
For
the three months
ended
September 30,2010
|
For
the nine months
ended
September 30,2010
|
For
the three months
ended
September 30,2009
|
For
the nine months
ended
September 30,2009
|
|||||||||||||||||||||||||||||
Borrower
|
Accrual
|
Cash
|
Accrual
|
Cash
|
Accrual
|
Cash
|
Accrual
|
Cash
|
||||||||||||||||||||||||
West
End Mortgage Finance Fund I L.P.
|
$ | – | $ | – | $ | – | $ | – | $ | – | $ | – | 115 | 115 |
5.
|
Commercial
Mortgage-Backed Securities and Structuring Fees
Receivable
|
Description
|
Number of
Securities
|
Face
Value
|
Carry
Value
|
Amortized
Cost
|
Fair
Value
|
Gross
Unrecognized
Gain
|
Gross
Unrecognized
Loss
|
|||||||||||||||||||||
Held
to Maturity
|
16 | $ | 153,638 | $ | 138,772 | $ | 148,128 | $ | 104,542 | $ | 1,678 | $ | (45,264 | ) | ||||||||||||||
Available
For Sale
|
8 | 36,011 | 13,166 | 22,243 | 13,166 | - | (9,077 | ) | ||||||||||||||||||||
Total
|
24 | $ | 189,649 | $ | 151,938 | $ | 170,371 | $ | 117,708 | $ | 1,678 | $ | (54,341 | ) |
Description
|
Classification
|
Sep
30, 2010
|
||||
Unaudited
|
||||||
BSCMS
1999 CLF1, Class E Face Amount
|
Available
For Sale
|
$ | 3,326 | |||
BSCMS
1999 CLF1, Class F Face Amount
|
Available
For Sale
|
251 | ||||
CMLBC
2001-CMLB-1, Class H Face Amount
|
Available
For Sale
|
11,907 | ||||
CMLBC
2001-CMLB-1, Class J Face Amount
|
Available
For Sale
|
6,383 | ||||
NLFC
1999-LTL-1, Class X (IO) Carry Value
|
Available
For Sale
|
4,654 | ||||
WBCMT
2004-C15 180E Face Amount
|
Available
For Sale
|
8,000 | ||||
BACMS
2002-2, Class V-1 (7-Eleven, Inc.) Face Amount
|
Available
For Sale
|
589 | ||||
BACMS
2002-2, Class V-2 (Sterling Jewelers) Face Amount
|
Available
For Sale
|
901 | ||||
BACM
2006-4, Class H Face Amount
|
Held
To Maturity
|
8,000 | ||||
Banc
of America 2007-1, Class C Face Amount
|
Held
To Maturity
|
500 | ||||
CALFS
1997-CTL1, Class D Face Amount
|
Held
To Maturity
|
6,000 | ||||
CMLBC
2001-CMLB-1, Class E Face Amount
|
Held
To Maturity
|
9,526 | ||||
CMLBC
2001-CMLB-1, Class G Face Amount
|
Held
To Maturity
|
9,526 | ||||
JP
Morgan 2006-LDP9 Face Amount
|
Held
To Maturity
|
200 | ||||
NLFC
1999-LTL-1, Class E Face Amount
|
Held
To Maturity
|
11,081 | ||||
Wachovia
2007-C30, Class AJ Face Amount
|
Held
To Maturity
|
200 | ||||
Wachovia
2007-C31, Class AJ Face Amount
|
Held
To Maturity
|
200 | ||||
Wachovia
2007-C33, Class AJ Face Amount
|
Held
To Maturity
|
200 | ||||
WBCMT
2004-C15 180D Face Amount
|
Held
To Maturity
|
15,000 | ||||
WBCMT
2006-C27, Class C Face Amount
|
Held
To Maturity
|
11,000 | ||||
CVS
Corporation Face Amount
|
Held
To Maturity
|
17,628 | ||||
Koninklijke
Ahold, N.V. 7.82% Jan 2020 Face Amount
|
Held
To Maturity
|
8,032 | ||||
Lucent
6.70% due 9/1/2020 Face Amount
|
Held
To Maturity
|
34,722 | ||||
Yahoo,
Inc. Face Amount
|
Held
To Maturity
|
21,824 | ||||
Unearned
Discount
|
(19,279 | ) | ||||
Cost
Basis
|
170,371 | |||||
Net
unrealized gain (loss) on securities
|
(18,433 | ) | ||||
Total
|
$ | 151,938 |
Sep 30, 2010
|
Dec 31, 2009
|
|||||||
Unaudited
|
||||||||
Unrealized
gains on securities previously available for sale
|
$ | 768 | $ | 801 | ||||
Unrealized
losses on securities previously available for sale
|
(10,124 | ) | (10,673 | ) | ||||
Unrealized
losses on securities available for sale
|
(9,077 | ) | (9,717 | ) |
Aggregate
Fair Value
|
Aggregate
Unrealized
Loss
|
Number of
Securities
|
||||||||||
In
unrealized loss position less than 12 months
|
$ | 324 | $ | 53 | 4 | |||||||
In
unrealized loss position 12 or more months
|
88,745 | 54,288 | 15 |
6.
|
Assets Sold
and Discontinued Operations
|
7.
|
Fair
Value
|
Carrying Amount
|
Notional Amount
|
Estimated Fair Value
|
||||||||||||||||||||||
9/30/2010
|
12/31/2009
|
9/30/2010
|
12/31/2009
|
9/30/2010
|
12/31/2009
|
|||||||||||||||||||
Assets:
|
||||||||||||||||||||||||
Loans
held for investment
|
$ | 213,374 | $ | 221,656 | $ | 216,968 | $ | 225,242 | $ | 236,180 | $ | 219,185 | ||||||||||||
Commercial
mortgage-backed securities
|
151,938 | 153,056 | 189,649 | 191,876 | 117,708 | 113,306 | ||||||||||||||||||
Structuring
fees receivable
|
474 | 1,094 | N/A | N/A | 474 | 1,094 | ||||||||||||||||||
Liabilities:
|
||||||||||||||||||||||||
Mortgages
on real estate investments
|
$ | 933,170 | $ | 943,811 | $ | 929,761 | $ | 939,616 | $ | 1,001,384 | $ | 902,408 | ||||||||||||
Collateralized
debt obligations
|
256,504 | 263,310 | 256,665 | 263,500 | 229,172 | 150,114 | ||||||||||||||||||
Credit
facility
|
93,092 | 126,262 | 93,092 | 126,262 | 93,092 | 126,262 | ||||||||||||||||||
Secured
term loan
|
104,783 | 114,070 | 104,783 | 114,070 | 96,103 | 98,641 | ||||||||||||||||||
Convertible
senior notes
|
33,785 | 49,452 | 35,009 | 52,444 | 35,971 | 46,956 | ||||||||||||||||||
Other
long-term debt
|
30,930 | 30,930 | 30,930 | 30,930 | 27,989 | 21,925 |
|
·
|
Level
1 – Quoted prices are available in active markets for identical assets or
liabilities at the reporting date. As of September 30, 2010,
the Company has not classified any of its securities available for sale as
Level 1.
|
|
·
|
Level
2 – Pricing inputs other than quoted prices included within Level 1 that
are observable for substantially the full term of the asset or
liability. Level 2 assets include quoted prices for similar
assets or liabilities in active markets; quoted prices for identical or
similar assets or liabilities that are not active; and inputs other than
quoted prices that are observable, such as models or other valuation
methodologies. As of September 30, 2010, the Company has not
classified any of its securities available for sale as Level
2.
|
|
·
|
Level
3 – Inputs reflect management’s best estimate of what market participants
would use in pricing the asset or liability at the measurement date. These
valuations require a considerable amount of judgment and
assumptions. As of September 30, 2010, the Company has
classified all of its securities available for sale as Level
3. Management evaluates a variety of inputs and then estimates
fair value based on those inputs. The primary inputs evaluated
by management are broker quotations (observable), index pricing
(observable), market yields and credit spreads on securities with similar
credit ratings and duration (observable), collateral values (observable),
and liquidity of the security (unobservable). These inputs are
the factors employed by management and to its knowledge other parties in
determining where to price actual transactions. Broker quotes
generally reflect expected pricing rather than actual trades and may also
reflect distressed transactions in inactive and dislocated
markets.
|
Quoted Prices in
Active Markets for
Identical Assets
and Liabilities
(Level 1)
|
Significant Other
Observable
Inputs
(Level 2)
|
Significant
Unobservable
Inputs
(Level 3)
|
Balance at
September 30,2010
|
|||||||||||||
Assets
|
||||||||||||||||
Securities
available for sale
|
$ | – | $ | – | $ | 13,166 | $ | 13,166 |
Three months ended September 30,
|
Nine months ended September 30,
|
|||||||||||||||
Securities available for
sale
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Beginning
balance
|
$ | 13,049 | $ | 10,815 | $ | 13,044 | $ | 13,483 | ||||||||
Gains
(losses) included in net income (loss)
|
– | – | – | (133 | ) | |||||||||||
Gains
(losses) included in other comprehensive income
|
311 | 1,613 | 639 | (492 | ) | |||||||||||
Amortization
included in interest income
|
(34 | ) | (52 | ) | (116 | ) | (176 | ) | ||||||||
Settlements
or repayments
|
(160 | ) | (203 | ) | (401 | ) | (509 | ) | ||||||||
Ending
balance
|
$ | 13,166 | $ | 12,173 | $ | 13,166 | $ | 12,173 |
Sep 30, 2010
|
Dec 31, 2009
|
|||||||
Unaudited
|
||||||||
Receivables
and accrued interest
|
$ | 7,234 | $ | 11,304 | ||||
Prepaid
expenses and deposits
|
2,978 | 1,267 | ||||||
Reserve
accounts
|
19,246 | 14,868 | ||||||
Funds
with CDO trustee pending distribution
|
4,915 | 4,697 | ||||||
Restricted
cash
|
322 | 276 | ||||||
Amounts
held by servicer
|
355 | 261 | ||||||
Accrued
rental income
|
34,256 | 35,317 | ||||||
Debt
issuance costs, net
|
6,448 | 7,653 | ||||||
Deferred
leasing costs, net
|
1,625 | 718 | ||||||
Investment
in statutory trust
|
930 | 930 | ||||||
Other
|
795 | 988 | ||||||
Total
|
$ | 79,104 | $ | 78,279 |
|
·
|
established
a maximum revolving credit commitment of
$140,000;
|
|
·
|
extended
the maturity date of the credit agreement to July 16, 2013, from April 28,
2011; and
|
|
·
|
set
the Company’s interest rate on its borrowings at one-month LIBOR plus 275
basis points (an increase from one-month LIBOR plus 250 basis points at
June 30, 2010).
|
At September 30, 2010
|
At December 31, 2009
|
|||||||||||||||
Borrowings
|
Collateral
Carry Value
|
Borrowings
|
Collateral
Carry Value
|
|||||||||||||
Credit Agreement
|
(unaudited)
|
(unaudited)
|
||||||||||||||
Loans
held for investment
|
$ | 6,497 | $ | 11,231 | $ | 6,757 | $ | 11,481 | ||||||||
Intercompany
mortgage loans and investments in CapLease CDO
|
83,222 | 105,106 | 115,857 | 141,332 | ||||||||||||
Commercial
mortgage-backed securities
|
3,373 | 9,692 | 3,648 | 11,485 | ||||||||||||
Owned
property
|
– | 27,142 | – | 28,131 | ||||||||||||
Total
|
$ | 93,092 | $ | 153,171 | $ | 126,262 | $ | 192,429 |
For the three months
ended September 30,
|
For the nine months
ended September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
unaudited
|
unaudited
|
unaudited
|
unaudited
|
|||||||||||||
Weighted
average effective financing rate
|
3.63 | % | 3.72 | % | 3.68 | % | 3.71 | % | ||||||||
One-Month
LIBOR rate
|
0.32 | % | 0.29 | % | 0.28 | % | 0.39 | % |
Sep 30, 2010
|
Dec 31, 2009
|
Effective
Financing
|
|||||||||||||||||||||||
Property Level Debt - Fixed Rate
|
Face
|
Carry Value
|
Face
|
Carry Value
|
Coupon
|
Rate (1)
|
Maturity
|
||||||||||||||||||
(unaudited)
|
(unaudited)
|
||||||||||||||||||||||||
$ | 14,764 | $ | 14,764 | $ | 14,920 | $ | 14,920 | 5.11 | % | 5.2 | % | ||||||||||||||
Aetna
Life Insurance Company, Fresno, CA
|
16,043 | 16,043 | 16,043 | 16,043 | 5.63 | % | 5.7 | % |
Dec
2016
|
||||||||||||||||
Allstate
Insurance Company, Charlotte, NC
|
19,788 | 19,788 | 19,981 | 19,981 | 5.68 | % | 5.7 | % |
Jan
2016
|
||||||||||||||||
Allstate
Insurance Company, Roanoke, VA
|
21,067 | 21,067 | 21,273 | 21,273 | 5.68 | % | 5.8 | % |
Jan
2016
|
||||||||||||||||
AmeriCredit
Corp., Arlington, TX
|
27,317 | 27,055 | 27,682 | 27,395 | 5.28 | % | 5.5 | % |
Sep
2017
|
||||||||||||||||
AMVESCAP
PLC, Denver, CO
|
43,700 | 43,700 | 43,700 | 43,700 | 6.03 | % | 6.1 | % |
Jul
2016
|
||||||||||||||||
Aon
Corporation, Glenview, IL
|
61,244 | 61,244 | 62,313 | 62,313 | 5.23 | % | 5.8 | % |
Nov
2014
|
||||||||||||||||
Bunge
North America, Inc., Fort Worth, TX
|
6,262 | 6,262 | 6,262 | 6,262 | 5.45 | % | 5.5 | % |
May
2017
|
||||||||||||||||
Cadbury
Schweppes Plc, Whippany, NJ
|
33,403 | 33,403 | 33,881 | 33,881 | 5.26 | % | 5.3 | % |
Mar
2015
|
||||||||||||||||
Capital
One Financial Corporation, Plano, TX
|
19,966 | 19,966 | 20,277 | 20,277 | 5.24 | % | 5.3 | % |
May
2013
|
||||||||||||||||
Choice
Hotels International, Inc., Silver Spring, MD
|
28,310 | 28,310 | 29,094 | 29,094 | 5.30 | % | 5.3 | % |
May
2013
|
||||||||||||||||
County
of Yolo, California, Woodland, CA
|
10,332 | 10,332 | 10,332 | 10,332 | 5.68 | % | 5.7 | % |
Feb
2017
|
||||||||||||||||
Farmers
Group, Inc., Simi Valley, CA
|
25,620 | 25,620 | 25,620 | 25,620 | 5.81 | % | 5.8 | % |
Jan
2017
|
||||||||||||||||
Farmers
New World Life Insurance Company,
Mercer
Island, WA
|
30,200 | 30,200 | 30,200 | 30,200 | 5.69 | % | 5.7 | % |
Jan
2016
|
||||||||||||||||
ITT
Industries, Inc., Herndon, VA
|
40,530 | 40,530 | 40,902 | 40,902 | 5.33 | % | 5.4 | % |
Jun
2015
|
||||||||||||||||
Johnson
Controls, Inc., Largo, FL
|
16,200 | 16,200 | 16,200 | 16,200 | 5.48 | % | 5.5 | % |
Jan
2017
|
||||||||||||||||
Koninklijke
Ahold, N.V., Levittown, PA
|
14,093 | 14,093 | 14,246 | 14,246 | 6.05 | % | 6.1 | % |
Jul
2016
|
||||||||||||||||
Lowes
Companies, Inc., Aliso Viejo, CA
|
42,037 | 42,037 | 42,125 | 42,125 | 5.10 | % | 5.4 | % |
Jul
2015
|
||||||||||||||||
Nestle
Holdings, Inc., Breinigsville, PA; Fort Wayne, IN; and
Lathrop,
CA
|
117,000 | 117,000 | 117,000 | 117,000 | 6.32 | % | 5.7 | % |
Aug
2012
|
||||||||||||||||
Omnicom
Group, Inc., Irving, TX
|
12,860 | 12,860 | 13,080 | 13,080 | 5.24 | % | 5.3 | % |
May
2013
|
||||||||||||||||
Pearson
Plc., Lawrence, KS
|
15,867 | 15,867 | 16,009 | 16,009 | 5.84 | % | 5.9 | % |
May
2016
|
||||||||||||||||
T-Mobile
USA, Inc., Nashville, TN
|
10,784 | 10,784 | 10,885 | 10,885 | 5.59 | % | 5.7 | % |
Dec
2016
|
||||||||||||||||
The
Travelers Corporation, Hartford, CT
|
6,397 | 6,522 | 10,298 | 10,674 | 9.80 | % | 5.5 | % |
Sep
2011
|
||||||||||||||||
The
Travelers Corporation, Hartford, CT
|
16,795 | 17,323 | 15,499 | 16,360 | 10.76 | % | 7.7 | % |
Oct
2011
|
||||||||||||||||
Tiffany
& Co., Parsippany, NJ
|
58,400 | 58,400 | 58,400 | 58,400 | 5.33 | % | 5.3 | % |
Oct
2015
|
||||||||||||||||
Time
Warner Entertainment Company, L.P., Milwaukee, WI
|
17,500 | 17,500 | 17,500 | 17,500 | 5.55 | % | 5.6 | % |
Dec
2016
|
||||||||||||||||
TJX
Companies, Inc., Philadelphia, PA
|
69,719 | 69,719 | 70,209 | 70,209 | 5.57 | % | 5.6 | % |
Mar
2016
|
||||||||||||||||
United
States Government (DEA), Birmingham, AL
|
11,126 | 11,126 | 11,242 | 11,242 | 5.23 | % | 5.4 | % |
Sep
2015
|
||||||||||||||||
United
States Government (EPA), Kansas City, KS
|
19,678 | 22,368 | 19,676 | 22,535 | 7.57 | % | 5.4 | % |
Oct
2022
|
||||||||||||||||
United
States Government (FBI), Albany, NY
|
10,137 | 10,137 | 10,137 | 10,137 | 5.50 | % | 5.7 | % |
Nov
2016
|
||||||||||||||||
United
States Government (FBI), Birmingham, AL
|
18,575 | 18,575 | 18,747 | 18,747 | 5.23 | % | 5.3 | % |
Sep
2015
|
||||||||||||||||
United
States Government (NIH), N. Bethesda, MD
|
59,836 | 59,836 | 60,929 | 60,929 | 5.32 | % | 5.6 | % |
Sep
2015
|
||||||||||||||||
United
States Government (SSA), Austin, TX
|
5,316 | 5,316 | 5,372 | 5,372 | 5.23 | % | 5.5 | % |
Sep
2015
|
||||||||||||||||
United
States Government (VA), Ponce, PR
|
4,862 | 5,000 | 5,308 | 5,477 | 7.30 | % | 6.4 | % |
Apr
2016
|
||||||||||||||||
Walgreen
Co., Pennsauken, NJ
|
1,350 | 1,413 | 1,478 | 1,554 | 7.65 | % | 6.0 | % |
Oct
2016
|
||||||||||||||||
Walgreen Co., Portsmouth,
VA
|
2,683 | 2,810 | 2,796 | 2,937 | 7.20 | % | 6.2 | % |
Jul
2018
|
||||||||||||||||
Total
|
$ | 929,761 | $ | 933,170 | $ | 939,616 | $ | 943,811 |
(1)
|
The
effective rate is the Company’s approximate borrowing cost, including the
effect of hedge gains or losses and other deferred financing costs
associated with the related
borrowing.
|
Carry Value
|
||||
$ | 165,004 | |||
Intercompany
mortgage loans on CapLease properties
|
33,954 | |||
Commercial
mortgage-backed securities
|
82,553 | |||
Total
|
$ | 281,511 |
Carry Value
|
||||
$ | 36,535 | |||
Intercompany
mortgage loans on CapLease properties
|
42,849 | |||
Commercial
mortgage-backed securities
|
56,219 | |||
Total
|
$ | 135,603 |
Sep 30, 2010
|
Dec 31, 2009
|
|||||||
(Unaudited)
|
||||||||
Convertible
notes - principal
|
$ | 35,009 | $ | 52,444 | ||||
Unamortized
debt discount
|
(1,224 | ) | (2,992 | ) | ||||
Convertible
senior notes - net
|
$ | 33,785 | $ | 49,452 |
Quarter Ended
|
Record
Date
|
Payment
Date
|
Dividend
Per Share
|
Total
Amount
|
||||||||
3/31/2009
|
3/31/2009
|
4/15/2009
|
$ | 0.05 | $ | 2,396 | ||||||
6/30/2009
|
6/30/2009
|
7/15/2009
|
0.05 | 2,433 | ||||||||
9/30/2009
|
9/30/2009
|
10/15/2009
|
0.05 | 2,577 | ||||||||
12/31/2009
|
12/31/2009
|
1/15/2010
|
0.06 | 3,103 | ||||||||
3/31/2010
|
3/31/2010
|
4/15/2010
|
0.06 | 3,431 | ||||||||
6/30/2010
|
6/30/2010
|
7/15/2010
|
0.06 | 3,431 | ||||||||
9/30/2010
|
9/30/2010
|
10/15/2010
|
0.06 | 3,431 |
Quarter Ended
|
Record
Date
|
Payment
Date
|
Dividend
Per Share
|
Total
Amount
|
||||||||
12/31/2008
|
12/31/2008
|
1/15/2009
|
$ | 0.5078125 | $ | 711 | ||||||
3/31/2009
|
3/31/2009
|
4/15/2009
|
0.5078125 | 711 | ||||||||
6/30/2009
|
6/30/2009
|
7/15/2009
|
0.5078125 | 711 | ||||||||
9/30/2009
|
9/30/2009
|
10/15/2009
|
0.5078125 | 711 | ||||||||
12/31/2009
|
12/31/2009
|
1/15/2010
|
0.5078125 | 711 | ||||||||
3/31/2010
|
3/31/2010
|
4/15/2010
|
0.5078125 | 1,625 | ||||||||
6/30/2010
|
6/30/2010
|
7/15/2010
|
0.5078125 | 1,625 | ||||||||
9/30/2010
|
9/30/2010
|
10/15/2010
|
0.5078125 | 1,625 |
Number of
Shares
|
||||
Stock
Awards at January 1, 2009
|
1,791,195 | |||
Granted
During the Year Ended December 31, 2009
|
1,107,600 | (1) | ||
Forfeited
During the Year Ended December 31, 2009
|
(8,340 | ) | ||
Stock
Awards at January 1, 2010
|
2,890,455 | |||
Granted
During the Period Ended September 30, 2010
|
479,500 | (2) | ||
Stock
Awards at September 30, 2010
|
3,369,955 |
|
(1)
|
Shares
are scheduled to vest between March 2010 and March 2014, but will
generally be forfeited if the recipient either terminates his employment
with the Company or ceases to be a member of CapLease’s Board of Directors
at any time prior to the vesting date. Vesting of an aggregate
of 523,572 shares is also subject to satisfaction of objective and
subjective performance criteria, to be determined by CapLease’s
Compensation Committee.
|
|
(2)
|
Shares
are scheduled to vest between March 2011 and March 2015, but will
generally be forfeited if the recipient either terminates his employment
with the Company or ceases to be a member of CapLease’s Board of Directors
at any time prior to the vesting date. Vesting of an aggregate
of 241,125 shares is also subject to satisfaction of objective and
subjective performance criteria, to be determined by CapLease’s
Compensation Committee.
|
Shares
Awarded
Under Plan
|
Shares Priced
Under FASB
ASC 718-10-30
|
Weighted
Average
Fair Value
|
||||||||||
Nonvested
at January 1, 2009
|
930,232 | 606,800 | $ | 9.66 | ||||||||
Current
period awards
|
1,107,600 | 688,741 | 2.23 | |||||||||
Prior
period awards
|
N/A | 119,140 | 1.88 | |||||||||
Vested
|
(228,476 | ) | (228,476 | ) | 6.77 | |||||||
Forfeited
|
(8,340 | ) | (8,340 | ) | 4.31 | |||||||
Nonvested
at January 1, 2010
|
1,801,016 | 1,177,865 | 4.17 | |||||||||
Current
period awards
|
479,500 | 286,600 | 4.84 | |||||||||
Prior
period awards
|
N/A | 198,966 | 4.84 | |||||||||
Vested
|
(541,149 | ) | (541,149 | ) | 3.84 | |||||||
Nonvested
at September 30, 2010
|
1,739,367 | 1,122,282 | 4.62 |
For the three months
ended September 30,
|
For the nine months
ended September 30,
|
|||||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
loss
|
$ | (1,153 | ) | $ | (3,373 | ) | $ | (4,327 | ) | $ | (639 | ) | ||||
Increase
in fair value on securities available for sale
|
314 | 3,714 | 640 | 1,411 | ||||||||||||
Amortization
of unrealized loss on securities previously classified as available for
sale
|
187 | 197 | 516 | 419 | ||||||||||||
Reclassification
of derivative items into earnings
|
145 | 165 | 447 | 596 | ||||||||||||
Comprehensive
(loss) income
|
$ | (507 | ) | $ | 703 | $ | (2,724 | ) | $ | 1,787 |
Sep 30, 2010
|
Dec 31, 2009
|
|||||||
Net
unrealized losses on securities available for sale
|
$ | (9,077 | ) | $ | (9,717 | ) | ||
Net
unrealized losses on securities previously classified as available for
sale
|
(9,356 | ) | (9,872 | ) | ||||
Net
realized losses on derivatives
|
(4,296 | ) | (4,743 | ) | ||||
Accumulated
other comprehensive loss
|
$ | (22,729 | ) | $ | (24,332 | ) |
3
Months Ending December 31, 2010
|
$ | 25,547 | ||
2011
|
123,773 | |||
2012
|
122,481 | |||
2013
|
94,415 | |||
2014
|
91,378 | |||
Thereafter
|
429,864 | |||
$ | 887,458 |
Corporate /
Unallocated
|
Operating
Real Estate
|
Debt
Investments
|
||||||||||||||||||||||
Sep 30, 2010
|
Sep 30, 2009
|
Sep 30, 2010
|
Sep 30, 2009
|
Sep 30, 2010
|
Sep 30, 2009
|
|||||||||||||||||||
Total
revenues
|
$ | 203 | $ | 136 | $ | 34,411 | $ | 37,330 | $ | 6,752 | $ | 7,495 | ||||||||||||
Total
expenses
|
4,613 | 5,061 | 33,460 | 33,004 | 4,440 | 10,777 | ||||||||||||||||||
(Loss)
gain on extinguishment of debt
|
(14 | ) | 415 | – | – | – | – | |||||||||||||||||
Income
(loss) from continuing operations
|
(4,424 | ) | (4,510 | ) | 951 | 4,326 | 2,312 | (3,282 | ) | |||||||||||||||
Total
assets
|
73,139 | 56,767 | 1,435,566 | 1,504,813 | 367,000 | 379,006 |
Corporate /
Unallocated
|
Operating
Real Estate
|
Debt
Investments
|
||||||||||||||||||||||
Sep 30, 2010
|
Sep 30, 2009
|
Sep 30, 2010
|
Sep 30, 2009
|
Sep 30, 2010
|
Sep 30, 2009
|
|||||||||||||||||||
Total
revenues
|
$ | 690 | $ | 313 | $ | 103,627 | $ | 110,861 | $ | 20,361 | $ | 23,362 | ||||||||||||
Total
expenses
|
14,894 | 15,603 | 100,265 | 103,931 | 13,613 | 25,914 | ||||||||||||||||||
(Loss)
gain on extinguishment of debt
|
(293 | ) | 9,829 | – | – | – | – | |||||||||||||||||
Income
(loss) from continuing operations
|
(14,497 | ) | (5,461 | ) | 3,362 | 6,930 | 6,748 | (2,552 | ) | |||||||||||||||
Total
assets
|
73,139 | 56,767 | 1,435,566 | 1,504,813 | 367,000 | 379,006 |
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
|
|
·
|
impacting
our pace of investment activity. Our ability to add assets
continues to be hindered by market conditions. Overall
transaction volumes, while improving, remain depressed and interest rates
remain at historic lows, resulting in downward pressure on capitalization
rates on new investment opportunities. We cannot provide any
assurance as to when and at what yields and other terms we will be able to
add additional new assets to our
portfolio.
|
|
·
|
causing
us to maintain higher levels of liquidity due to the significant weakness
and uncertainty regarding economic
conditions.
|
|
·
|
operating
real estate (including our investments in owned real properties);
and
|
|
·
|
debt
investments (including our loan investments as well as our investments in
securities).
|
Corporate /
Unallocated
|
Operating
Real Estate
|
Debt
Investments
|
||||||||||||||||||||||
Sep 30, 2010
|
Sep 30, 2009
|
Sep 30, 2010
|
Sep 30, 2009
|
Sep 30, 2010
|
Sep 30, 2009
|
|||||||||||||||||||
Total
revenues
|
$ | 203 | $ | 136 | $ | 34,411 | $ | 37,330 | $ | 6,752 | $ | 7,495 | ||||||||||||
Total
expenses
|
4,613 | 5,061 | 33,460 | 33,004 | 4,440 | 10,777 | ||||||||||||||||||
(Loss)
gain on extinguishment of debt
|
(14 | ) | 415 | – | – | – | – | |||||||||||||||||
Income
(loss) from continuing operations
|
(4,424 | ) | (4,510 | ) | 951 | 4,326 | 2,312 | (3,282 | ) | |||||||||||||||
Total
assets
|
73,139 | 56,767 | 1,435,566 | 1,504,813 | 367,000 | 379,006 |
Corporate /
Unallocated
|
Operating
Real Estate
|
Debt
Investments
|
||||||||||||||||||||||
Sep 30, 2010
|
Sep 30, 2009
|
Sep 30, 2010
|
Sep 30, 2009
|
Sep 30, 2010
|
Sep 30, 2009
|
|||||||||||||||||||
Total
revenues
|
$ | 690 | $ | 313 | $ | 103,627 | $ | 110,861 | $ | 20,361 | $ | 23,362 | ||||||||||||
Total
expenses
|
14,894 | 15,603 | 100,265 | 103,931 | 13,613 | 25,914 | ||||||||||||||||||
(Loss)
gain on extinguishment of debt
|
(293 | ) | 9,829 | – | – | – | – | |||||||||||||||||
Income
(loss) from continuing operations
|
(14,497 | ) | (5,461 | ) | 3,362 | 6,930 | 6,748 | (2,551 | ) | |||||||||||||||
Total
assets
|
73,139 | 56,767 | 1,435,566 | 1,504,813 | 367,000 | 379,006 |
For the Three Months
Ended September 30,
|
For the Nine Months
Ended September 30,
|
|||||||||||||||
(Amounts in thousands, except per share
amounts)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Net
loss allocable to common stockholders
|
$ | (2,778 | ) | $ | (4,084 | ) | $ | (8,319 | ) | $ | (2,772 | ) | ||||
Add
(deduct):
|
||||||||||||||||
Non-controlling
interest in consolidated subsidiaries
|
(8 | ) | (13 | ) | (23 | ) | (9 | ) | ||||||||
Depreciation
and amortization expense on real property
|
12,121 | 12,596 | 36,253 | 39,178 | ||||||||||||
Depreciation
and amortization expense on discontinued operations
|
– | 33 | – | 249 | ||||||||||||
Funds
from operations
|
$ | 9,335 | $ | 8,532 | $ | 27,911 | $ | 36,646 | ||||||||
Weighted
average number of common shares outstanding, basic and
diluted
|
57,185 | 50,179 | 55,822 | 48,539 | ||||||||||||
Weighted
average number of OP units outstanding
|
156 | 156 | 156 | 156 | ||||||||||||
Weighted
average number of common shares and OP units outstanding,
diluted
|
57,341 | 50,335 | 55,978 | 48,695 | ||||||||||||
Net
loss per common share, basic and diluted
|
$ | (0.05 | ) | $ | (0.08 | ) | $ | (0.15 | ) | $ | (0.06 | ) | ||||
Funds
from operations per share
|
$ | 0.16 | $ | 0.17 | $ | 0.50 | $ | 0.75 |
|
·
|
payment
defaults on our assets which we expect could be triggered primarily in the
event of the bankruptcy of the underlying tenant or
tenants;
|
|
·
|
unexpected
capital expenditures on our owned
properties;
|
|
·
|
margin
calls on our Wells Fargo Bank credit agreement;
or
|
|
·
|
margin
calls on any future risk management
transactions.
|
Sep 30, 2010
|
Dec 31, 2009
|
|||||||
Debt
|
||||||||
Mortgages
on real estate investments
|
$ | 933,170 | $ | 943,811 | ||||
Collateralized
debt obligations
|
256,504 | 263,310 | ||||||
Credit
facility
|
93,092 | 126,262 | ||||||
Secured
term loan
|
104,783 | 114,070 | ||||||
Convertible
senior notes
|
33,785 | 49,452 | ||||||
Other
long-term debt
|
30,930 | 30,930 | ||||||
Total
Debt
|
$ | 1,452,264 | $ | 1,527,835 | ||||
Assets
|
||||||||
Total
assets
|
$ | 1,875,705 | $ | 1,904,415 | ||||
Accumulated
depreciation and amortization on owned properties
|
227,505 | 190,166 | ||||||
Intangible
liabilities on real estate investments
|
(37,952 | ) | (39,591 | ) | ||||
Prepaid
expenses and deposits
|
(2,978 | ) | (1,267 | ) | ||||
Accrued
rental income
|
(34,256 | ) | (35,317 | ) | ||||
Deferred
rental income
|
311 | – | ||||||
Debt
issuance costs, net
|
(6,448 | ) | (7,653 | ) | ||||
Other
|
(795 | ) | (988 | ) | ||||
Total
Assets, as adjusted
|
$ | 2,021,092 | $ | 2,009,765 | ||||
Leverage
(Total Debt/Total Assets, as adjusted)
|
72 | % | 76 | % |
|
·
|
established
a maximum revolving credit commitment of $140
million;
|
|
·
|
extended
the maturity date of the credit agreement to July 16, 2013, from April 28,
2011; and
|
|
·
|
set
the interest rate on our borrowings at one-month LIBOR plus 275 basis
points (an increase from one-month LIBOR plus 250 basis points at June 30,
2010).
|
|
·
|
our
ability to renew leases as they expire or lease-up vacant
space;
|
|
·
|
our
ability to close new investment transactions that we have under
contract;
|
|
·
|
our
ability to make additional investments in a timely manner or on acceptable
terms;
|
|
·
|
current
credit market conditions and our ability to obtain long-term financing for
our asset investments in a timely manner and on terms that are consistent
with those we project when we invest in the
asset;
|
|
·
|
access
to capital markets and capital market
conditions;
|
|
·
|
adverse
changes in the financial condition of the tenants underlying our
investments;
|
|
·
|
our
ability to make scheduled payments on our debt
obligations;
|
|
·
|
increases
in our financing costs (including as a result of LIBOR rate increases),
our general and administrative costs and/or our property
expenses;
|
|
·
|
changes
in our industry, the industries of our tenants, interest rates or the
general economy;
|
|
·
|
impairments
in the value of the collateral underlying our investments;
and
|
|
·
|
the
degree and nature of our
competition.
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market
Risk
|
|
·
|
increases
in credit spreads can result in spread compression on investments we
target and, thus, a slowing of our new investment
pace;
|
|
·
|
increases
in credit spreads can increase our anticipated cost to finance assets not
yet financed with long-term fixed rate debt, causing our expected spread
on these assets to be reduced; and
|
|
·
|
increases
in credit spreads can lower the value of our loans and securities as
required yields on these assets
increase.
|
Carrying
Amount
|
Notional
Amount
|
Weighted
Average
Effective
Interest /
Financing Rate |
Maturity Date
|
Fair Value
|
|||||||||||||||
(dollars
in thousands)
|
|||||||||||||||||||
Assets:
|
|||||||||||||||||||
Loans
held for investment (1)
|
$ | 213,374 | $ | 216,968 | 6.7 | % |
Various
|
$ | 236,180 | ||||||||||
Commercial
mortgage-backed securities (2)
|
151,938 | 189,649 | 7.5 | % |
2012-2028
|
117,708 | |||||||||||||
Structuring
fees receivable
|
474 | N/A | 8.6 | % |
2010-2020
|
474 | |||||||||||||
Liabilities
|
|||||||||||||||||||
Mortgage
notes payable (4)
|
$ | 933,170 | $ | 929,761 | 5.6 | % |
2011-2022
|
$ | 1,001,384 | ||||||||||
Collateralized
debt obligations (4)
|
256,504 | 256,665 | 5.6 | % |
2015
|
229,172 | |||||||||||||
Credit
facility (3)
|
93,092 | 93,092 | 3.4 | % |
2013
|
93,092 | |||||||||||||
Secured
term loan (4)
|
104,783 | 104,783 | 6.0 | % |
2018
|
96,103 | |||||||||||||
Convertible
senior notes (5)
|
33,785 | 35,009 | 10.2 | % |
2012
|
35,971 | |||||||||||||
Other
long-term debt (6)
|
30,930 | 30,930 | 8.3 | % |
2016
|
27,989 |
(1)
|
This
portfolio of loans bears interest at fixed rates. We have
estimated the fair value of this portfolio of loans based on sales of
loans with similar credit and structural characteristics where available,
and management’s estimate of fair values where comparable sales
information is not available. The maturity dates for the loans
range from 2011 through 2033.
|
(2)
|
Commercial
mortgage-backed securities represent subordinate interests in
securitizations, as well as pass-through certificates representing our pro
rata investments in a pool of mortgage loans (collectively,
CMBS). Structuring fees receivable represent cash flows
receivable by us from the sale of loans to third-party
purchasers. The notional values for the CMBS are shown at their
respective face amounts. The fair values of CMBS reflect
management’s best estimate and require a considerable amount of judgment
and assumptions. Management evaluates a variety of inputs and
then estimates fair value based on those inputs. The primary
inputs evaluated by management are broker quotations, index pricing,
market yields and credit spreads on securities with similar credit ratings
and duration, collateral values, and liquidity of the
security. Fair value for the structuring fees receivable is
shown at our amortized cost for these items. For the CMBS, we
expect to receive monthly interest coupon payments, and contractual
principal payments as scheduled.
|
(3)
|
Our
credit facility bears interest at floating rates, and we believe that for
similar financial instruments with comparable credit risks, the effective
rates approximate market value. Accordingly, the carrying
amounts outstanding are believed to approximate fair
value.
|
(4)
|
We
estimate the fair value of mortgage notes on real estate investments,
collateralized debt obligations and the secured term loan using a
discounted cash flow analysis, based on our estimates of market interest
rates. For mortgages where we have an early payment right, we
also consider the prepayment amount to evaluate the fair
value. The maturity date of the collateralized debt obligations
of January 2015 reflects the first date the auction call mechanism in the
notes is triggered and is used to compute the related fair value and
weighted average effective interest
rate.
|
(5)
|
The
carry value and effective financing rate on the convertible senior notes
reflect the impact of the new accounting guidance applicable to the notes
as of January 1, 2009. See Note 9 in our consolidated financial
statements included in this Form 10-Q. We estimate the fair
value of our convertible senior notes using a discounted cash flow
analysis, based upon management’s estimates of market interest rates, and
indications of market yields, where available. The maturity
date of our convertible senior notes reflects our expected maturity date
in October 2012 when the note investors have the right to require us to
repurchase their notes for cash and is used to compute the related fair
value and weighted average effective interest
rate.
|
(6)
|
We
estimate the fair value of our other long-term debt using a discounted
cash flow analysis, based upon management’s estimates of market interest
rates. The maturity date of our other long-term debt reflects
our expected maturity date in January 2016 and is used to compute the
related fair value and weighted average effective interest
rate.
|
Expected Maturity Dates
|
||||||||||||||||||||||||
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
|||||||||||||||||||
(in thousands, notional amounts where appropriate,
otherwise carrying amounts)
|
||||||||||||||||||||||||
$ | 2,919 | $ | 13,721 | $ | 12,884 | $ | 10,034 | $ | 7,520 | $ | 169,890 | |||||||||||||
Commercial
mortgage-backed securities
|
351 | 3,241 | 26,715 | 4,305 | 7,319 | 147,718 | ||||||||||||||||||
Structuring
fees receivable
|
148 | 72 | 79 | 86 | 49 | 40 | ||||||||||||||||||
Mortgages
on real estate investments
|
4,741 | 35,929 | 131,486 | 69,445 | 67,678 | 623,891 | ||||||||||||||||||
Collateralized
debt obligations
|
2,294 | 10,266 | 10,949 | 26,065 | 19,221 | 187,709 | ||||||||||||||||||
Credit
facility
|
835 | 10,929 | 7,647 | 73,681 | – | – | ||||||||||||||||||
Secured
term loan
|
2,903 | 13,737 | 15,380 | 13,602 | 12,349 | 46,812 | ||||||||||||||||||
Convertible
senior notes
|
(142 | ) | (596 | ) | 34,523 | – | – | – | ||||||||||||||||
Other
long-term debt
|
– | – | – | – | – | 30,930 |
Item
4.
|
Controls
and Procedures
|
PART
II.
|
OTHER
INFORMATION
|
Item
1.
|
Legal
Proceedings
|
Item
1A.
|
Risk
Factors
|
|
·
|
Completion
of the project in a timely and workmanlike manner will be dependent upon
the efforts of various parties outside of our control, such as our
developer partner and the general contractor and any
subcontractors. Construction could be delayed if these parties
fail to perform their obligations or for a variety of other reasons
outside of our control, which could subject us to losses for failure to
timely deliver the completed project to the tenant or result in a
termination of the underlying
lease.
|
|
·
|
Unanticipated
environmental conditions at the property could also delay completion of
the project or force us to abandon the project if we determine that
remediation of the conditions would be too
expensive.
|
|
·
|
Construction
costs may exceed original estimates, which could adversely impact our
expected return from the
investment.
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of
Proceeds
|
Item
3.
|
Defaults
Upon Senior Securities
|
Item
4.
|
[Removed
and Reserved]
|
Item
5.
|
Other
Information
|
Item
6.
|
Exhibits
|
12.1
|
Computation
of ratio of earnings to fixed charges and ratio of earnings to combined
fixed charges and preferred stock dividends
|
31.1
|
Certification
of the Registrant’s Chief Executive Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
31.2
|
Certification
of the Registrant’s Chief Financial Officer pursuant to Rule
13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
32.1
|
Certification
of the Registrant’s Chief Executive Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
32.2
|
Certification
of the Registrant’s Chief Financial Officer pursuant to 18 U.S.C. 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
CAPLEASE,
INC.
|
||
Registrant
|
||
Date: November
5, 2010
|
/s/ Paul H. McDowell
|
|
Paul
H. McDowell
Chairman
and Chief Executive Officer
|
||
Date: November
5, 2010
|
/s/ Shawn P. Seale
|
|
Shawn
P. Seale
Senior
Vice President, Chief Financial Officer
and
Treasurer
|