UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2013
OR
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-14788
Blackstone Mortgage Trust, Inc.
(Exact name of registrant as specified in its charter)
Maryland | 94-6181186 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
345 Park Avenue, 10th Floor, New York, NY | 10154 | |
(Address of principal executive offices) | (Zip Code) |
(212) 655-0220
(Registrants telephone number, including area code)
Capital Trust, Inc.
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ¨ | Accelerated filer | ¨ | |||
Non-accelerated filer | ¨ (Do not check if a smaller reporting company) | Smaller Reporting Company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of outstanding shares of the registrants class A common stock, par value $0.01 per share, as of May 6, 2013 was 2,926,651 (after giving effect to the one-for-ten reverse stock split effected at 5:01 p.m. (EDT) on May 6, 2013).
Blackstone Mortgage Trust, Inc.
INDEX
Part I. |
Financial Information | |||||||
Item 1: | 1 | |||||||
Consolidated Balance Sheets March 31, 2013 (unaudited) and December 31, 2012 |
||||||||
3 | ||||||||
4 | ||||||||
5 | ||||||||
6 | ||||||||
7 | ||||||||
Item 2: |
Managements Discussion and Analysis of Financial Condition and Results of Operations |
34 | ||||||
Item 3: | 46 | |||||||
Item 4: | 48 | |||||||
Part II. |
Other Information | |||||||
Item 1: | 49 | |||||||
Item 1A: | 49 | |||||||
Item 2: | 49 | |||||||
Item 3: | 49 | |||||||
Item 4: | 49 | |||||||
Item 5: | 49 | |||||||
Item 6: | 51 | |||||||
52 |
ITEM 1. | Financial Statements |
Blackstone Mortgage Trust, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2013 and December 31, 2012
(in thousands, except per share data)
March 31,
2013 |
December 31,
2012 |
|||||||
(unaudited) | ||||||||
Assets | ||||||||
Cash and cash equivalents |
$ | 15,361 | $ | 15,423 | ||||
Restricted cash |
12,719 | 14,246 | ||||||
Investment in CT Legacy Asset, at fair value |
| 132,000 | ||||||
Securities, at fair value |
11,702 | | ||||||
Loans receivable, at fair value |
150,332 | | ||||||
Loans receivable, net |
139,500 | 141,500 | ||||||
Loans held-for-sale, net |
1,800 | | ||||||
Equity investments in unconsolidated subsidiaries |
20,046 | 13,306 | ||||||
Accrued interest receivable, prepaid expenses, and other assets |
13,693 | 5,868 | ||||||
|
|
|
|
|||||
Total assets |
$ | 365,153 | $ | 322,343 | ||||
|
|
|
|
|||||
Liabilities & Equity | ||||||||
Liabilities: |
||||||||
Accounts payable, accrued expenses and other liabilities |
$ | 30,760 | $ | 21,209 | ||||
Secured notes |
8,671 | 8,497 | ||||||
Repurchase obligations |
20,214 | | ||||||
Securitized debt obligations |
136,944 | 139,184 | ||||||
Interest rate swap liabilities |
6,119 | | ||||||
|
|
|
|
|||||
Total liabilities |
202,708 | 168,890 | ||||||
|
|
|
|
|||||
Commitments and contingencies |
| | ||||||
Equity: |
||||||||
Class A common stock, $0.10 par value, 100,000 shares authorized, 2,927 shares issued and outstanding as of March 31, 2013 and December 31, 2012 |
293 | 293 | ||||||
Additional paid-in capital |
609,040 | 609,002 | ||||||
Accumulated deficit |
(533,238 | ) | (535,851 | ) | ||||
|
|
|
|
|||||
Total Blackstone Mortgage Trust, Inc. stockholders equity |
76,095 | 73,444 | ||||||
Noncontrolling interests |
86,350 | 80,009 | ||||||
|
|
|
|
|||||
Total equity |
162,445 | 153,453 | ||||||
|
|
|
|
|||||
Total liabilities and equity |
$ | 365,153 | $ | 322,343 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements.
- 1 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2013 and December 31, 2012
(in thousands, except per share data)
The following table presents the portion of the consolidated balances presented above attributable to consolidated variable interest entities, or VIEs. The following assets may only be used to settle obligations of these consolidated VIEs and these liabilities are only the obligations of these consolidated VIEs and they do not have recourse to the general credit of Blackstone Mortgage Trust, Inc.
March 31,
2013 |
December 31,
2012 |
|||||||
(unaudited) | ||||||||
Assets | ||||||||
Loans receivable, net |
$ | 139,500 | $ | 141,500 | ||||
Loans held-for-sale, net |
1,800 | | ||||||
Accrued interest receivable, prepaid expenses, and other assets |
2,433 | 4,021 | ||||||
|
|
|
|
|||||
Total assets |
$ | 143,733 | $ | 145,521 | ||||
|
|
|
|
|||||
Liabilities | ||||||||
Accounts payable, accrued expenses and other liabilities |
$ | 168 | $ | 88 | ||||
Securitized debt obligations |
136,944 | 139,184 | ||||||
|
|
|
|
|||||
Total liabilities |
$ | 137,112 | $ | 139,272 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements.
- 2 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Consolidated Statements of Operations
Three Months Ended March 31, 2013 and 2012
(in thousands, except share and per share data)
(unaudited)
Three Months Ended
March 31, |
||||||||
2013 | 2012 | |||||||
Income from loans and other investments: |
||||||||
Interest and related income |
$ | 1,456 | $ | 14,716 | ||||
Less: Interest and related expenses |
777 | 23,342 | ||||||
|
|
|
|
|||||
Income (loss) from loans and other investments, net |
679 | (8,626 | ) | |||||
Other expenses: |
||||||||
General and administrative |
2,038 | 756 | ||||||
|
|
|
|
|||||
Total other expenses |
2,038 | 756 | ||||||
Total other-than-temporary impairments of securities |
| | ||||||
Portion of other-than-temporary impairments of securities recognized in other comprehensive income |
| (160 | ) | |||||
|
|
|
|
|||||
Net impairments recognized in earnings |
| (160 | ) | |||||
Recovery of provision for loan losses |
| 8 | ||||||
Valuation allowance on loans held-for-sale |
(200 | ) | | |||||
Fair value adjustment on investment in CT Legacy Asset |
| 3,954 | ||||||
Gain on deconsolidation of subsidiary |
| 146,380 | ||||||
Income from equity investments |
| 696 | ||||||
|
|
|
|
|||||
(Loss) income before income taxes |
(1,559 | ) | 141,496 | |||||
Income tax provision |
38 | 301 | ||||||
|
|
|
|
|||||
(Loss) income from continuing operations |
($ | 1,597 | ) | $ | 141,195 | |||
|
|
|
|
|||||
Loss from discontinued operations, net of tax |
| (573 | ) | |||||
|
|
|
|
|||||
Net (loss) income |
($ | 1,597 | ) | $ | 140,622 | |||
|
|
|
|
|||||
Net income attributable to noncontrolling interests |
(1,518 | ) | (74,069 | ) | ||||
|
|
|
|
|||||
Net (loss) income attributable to Blackstone Mortgage Trust, Inc. |
($ | 3,115 | ) | $ | 66,553 | |||
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|
|
|
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Per share information: |
||||||||
(Loss) income from continuing operations per share of common stock: |
||||||||
Basic |
($ | 1.03 | ) | $ | 29.39 | |||
|
|
|
|
|||||
Diluted |
($ | 1.03 | ) | $ | 27.64 | |||
|
|
|
|
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Loss from discontinued operations per share of common stock: |
||||||||
Basic |
$ | | ($ | 0.25 | ) | |||
|
|
|
|
|||||
Diluted |
$ | | ($ | 0.25 | ) | |||
|
|
|
|
|||||
Net (loss) income per share of common stock: |
||||||||
Basic |
($ | 1.03 | ) | $ | 29.14 | |||
|
|
|
|
|||||
Diluted |
($ | 1.03 | ) | $ | 27.39 | |||
|
|
|
|
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Weighted average shares of common stock outstanding: |
||||||||
Basic |
3,016,425 | 2,283,741 | ||||||
|
|
|
|
|||||
Diluted |
3,016,425 | 2,430,147 | ||||||
|
|
|
|
See accompanying notes to consolidated financial statements.
- 3 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Consolidated Statements of Comprehensive (Loss) Income
For the Three Months Ended March 31, 2013 and 2012
(in thousands)
(unaudited)
2013 | 2012 | |||||||
Net (loss) income |
($ | 1,597 | ) | $ | 140,622 | |||
Other comprehensive income: |
||||||||
Unrealized gain on derivative financial instruments |
| 2,267 | ||||||
Gain on interest rate swaps no longer designated as cash flow hedges |
| 1,998 | ||||||
Amortization of unrealized gains and losses on securities |
| (756 | ) | |||||
Amortization of deferred gains and losses on settlement of swaps |
| (56 | ) | |||||
Other-than-temporary impairments of securities related to fair value adjustments in excess of expected credit losses, net of amortization |
| 387 | ||||||
|
|
|
|
|||||
Other comprehensive income |
| 3,840 | ||||||
|
|
|
|
|||||
Comprehensive (loss) income |
($ | 1,597 | ) | $ | 144,462 | |||
|
|
|
|
|||||
Less: Comprehensive income attributable to noncontrolling interests |
(1,518 | ) | (74,079 | ) | ||||
|
|
|
|
|||||
Comprehensive (loss) income attributable to Blackstone Mortgage Trust, Inc. |
($ | 3,115 | ) | $ | 70,383 | |||
|
|
|
|
See accompanying notes to consolidated financial statements.
- 4 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Consolidated Statements of Changes in (Deficit) Equity
For the Three Months Ended March 31, 2013 and 2012
(in thousands)
(unaudited)
Class A
Common Stock |
Restricted
Class A Common Stock |
Additional
Paid-In Capital |
Accumulated
Other Comprehensive Loss |
Accumulated
Deficit |
Total Blackstone
Mortgage Trust, Inc. Stockholders (Deficit) Equity |
Noncontrolling
Interests |
Total | |||||||||||||||||||||||||
Balance at January 1, 2012 |
$ | 220 | $ | 2 | $ | 597,049 | ($ | 40,584 | ) | ($ | 667,111 | ) | ($ | 110,424 | ) | ($ | 18,515 | ) | ($ | 128,939 | ) | |||||||||||
Net income |
| | | | 66,553 | 66,553 | 74,069 | 140,622 | ||||||||||||||||||||||||
Other comprehensive income |
| | | 3,830 | | 3,830 | 10 | 3,840 | ||||||||||||||||||||||||
Deconsolidation of CT Legacy Asset |
| | | 1,293 | | 1,293 | | 1,293 | ||||||||||||||||||||||||
Restricted class A common stock earned, net of shares deferred |
| 1 | 125 | | | 126 | | 126 | ||||||||||||||||||||||||
Deferred directors compensation |
| | 56 | | | 56 | | 56 | ||||||||||||||||||||||||
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|
|||||||||||||||||
Balance at March 31, 2012 |
$ | 220 | $ | 3 | $ | 597,230 | ($ | 35,461 | ) | ($ | 600,558 | ) | ($ | 38,566 | ) | $ | 55,564 | $ | 16,998 | |||||||||||||
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|
|||||||||||||||||
Balance at January 1, 2013 |
$ | 293 | $ | | $ | 609,002 | $ | | ($ | 535,851 | ) | $ | 73,444 | $ | 80,009 | $ | 153,453 | |||||||||||||||
Net loss |
| | | | (3,115 | ) | (3,115 | ) | 1,518 | (1,597 | ) | |||||||||||||||||||||
Consolidation of subsidiary |
| | | | 5,728 | 5,728 | 6,235 | 11,963 | ||||||||||||||||||||||||
Distributions to noncontrolling interests |
| | | | | | (1,412 | ) | (1,412 | ) | ||||||||||||||||||||||
Deferred directors compensation |
| | 38 | | | 38 | | 38 | ||||||||||||||||||||||||
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|
|||||||||||||||||
Balance at March 31, 2013 |
$ | 293 | $ | | $ | 609,040 | $ | | ($ | 533,238 | ) | $ | 76,095 | $ | 86,350 | $ | 162,445 | |||||||||||||||
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|
|
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See accompanying notes to consolidated financial statements.
- 5 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2013 and 2012
(in thousands)
(unaudited)
2013 | 2012 | |||||||
Cash flows from operating activities: |
||||||||
Net (loss) income |
($ | 1,597 | ) | $ | 140,622 | |||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: |
||||||||
Net impairments recognized in earnings |
| 160 | ||||||
Recovery of provision for loan losses |
| (8 | ) | |||||
Valuation allowance on loans held-for-sale |
200 | | ||||||
Fair value adjustment on CT Legacy Asset |
| (3,954 | ) | |||||
Gain on deconsolidation of subsidiary |
| (146,380 | ) | |||||
Income from equity investments in unconsolidated subsidiaries |
| (696 | ) | |||||
Distributions of income from unconsolidated subsidiaries |
| 61 | ||||||
Employee stock-based compensation |
| 129 | ||||||
Incentive awards plan expense |
963 | (282 | ) | |||||
Deferred directors compensation |
38 | 56 | ||||||
Distributions from CT Legacy Asset |
| 1,830 | ||||||
Amortization of premiums/discounts on loans and securities and deferred interest on loans |
| (171 | ) | |||||
Amortization of deferred gains and losses on settlement of swaps |
| (56 | ) | |||||
Amortization of deferred financing costs and premiums/discounts on debt obligations |
174 | 8,813 | ||||||
Loss on interest rate swaps not designated as cash flow hedges |
| 2,772 | ||||||
Changes in assets and liabilities, net: |
||||||||
Accrued interest receivable |
432 | (2,999 | ) | |||||
Deferred income taxes |
| (1,423 | ) | |||||
Prepaid expenses and other assets |
812 | 2,986 | ||||||
Accounts payable and accrued expenses |
(266 | ) | (182 | ) | ||||
|
|
|
|
|||||
Net cash provided by operating activities |
756 | 1,278 | ||||||
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|
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|
|||||
Cash flows from investing activities: |
||||||||
Principal collections and proceeds from securities |
| 21,496 | ||||||
Principal collections of loans receivable |
1,135 | 83,000 | ||||||
Contributions to unconsolidated subsidiaries |
| (324 | ) | |||||
Distributions from unconsolidated subsidiaries |
| 677 | ||||||
Decrease in restricted cash |
1,527 | 473 | ||||||
|
|
|
|
|||||
Net cash provided by investing activities |
2,662 | 105,322 | ||||||
|
|
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|
|||||
Cash flows from financing activities: |
||||||||
Borrowings under repurchase obligations |
| 123,977 | ||||||
Repayments under repurchase obligations |
| (58,464 | ) | |||||
Repayments under mezzanine loan |
| (63,000 | ) | |||||
Repayment of securitized debt obligations |
(2,239 | ) | (106,729 | ) | ||||
Purchase of and distributions to noncontrolling interests |
(1,097 | ) | | |||||
Redemption of noncontrolling interests |
(144 | ) | | |||||
Vesting of restricted class A common stock |
| (4 | ) | |||||
|
|
|
|
|||||
Net cash used in financing activities |
(3,480 | ) | (104,220 | ) | ||||
|
|
|
|
|||||
Net (decrease) increase in cash and cash equivalents |
($ | 62 | ) | $ | 2,380 | |||
Cash and cash equivalents at beginning of period |
15,423 | 34,818 | ||||||
|
|
|
|
|||||
Cash and cash equivalents at end of period |
$ | 15,361 | $ | 37,198 | ||||
|
|
|
|
See accompanying notes to consolidated financial statements.
- 6 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
Note 1. Organization
References herein to Blackstone Mortgage Trust, Company, we, us or our refer to Blackstone Mortgage Trust, Inc. and its subsidiaries unless the context specifically requires otherwise.
We are a real estate finance company that focuses primarily on originating mortgage loans backed by commercial real estate assets. Our business plan is to originate, acquire and manage commercial real estate loans and securities and other commercial real estate-related debt instruments. Our investment objective is to preserve and protect our capital while producing attractive risk-adjusted returns primarily through dividends generated from current income on our portfolio.
From the inception of our finance business in 1997 through December 19, 2012, we were a fully integrated, self-managed, real estate finance and investment management company that invested for our own account directly on our balance sheet and for third parties through a series of investment management vehicles. On December 19, 2012, we consummated a strategic transaction that included, among other things, disposition of our investment management and special servicing business, including CT Investment Management Co., LLC, or CTIMCO, to an affiliate of The Blackstone Group L.P., or Blackstone. In conjunction with the sale, we entered into a management agreement with BREDS/CT Advisors L.L.C., which is an affiliate of Blackstone, whereby we became externally managed. We refer to BREDS/CT Advisors L.L.C. as our Manager, and we refer to the entire transaction as our Investment Management Business Sale.
We conduct our operations as a real estate investment trust, or REIT, for U.S. federal income tax purposes. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all of our net taxable income to stockholders and maintain our qualification as a REIT. We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act. We are organized as a holding company and conduct our business primarily through our various subsidiaries.
On April 26, 2013, our board of directors approved the change of our name from Capital Trust, Inc. to Blackstone Mortgage Trust, Inc., which we effected at 5:01 p.m. (EDT) on May 6, 2013 concurrently with a one-for-ten reverse stock split of our class A common stock. Except where the context indicates otherwise, all class A common stock numbers herein have been adjusted to give retroactive effect to the reverse stock split.
Sale of Investment Management Platform
On December 19, 2012, pursuant to a previously announced purchase and sale agreement, dated September 27, 2012, or Purchase Agreement, by and between us and Huskies Acquisition LLC, or Huskies Acquisition, an affiliate of Blackstone, and an assignment agreement, dated as of December 19, 2012 by and among us, Huskies Acquisition and Blackstone Holdings III L.P., or Holdings III, an affiliate of Blackstone, we completed the disposition of our investment management and special servicing business for a purchase price of $21.4 million. The sale included our equity interests in CTIMCO, our related private investment fund co-investments, and 100% of the outstanding class A preferred stock of CT Legacy REIT Mezz Borrower, Inc., or CT Legacy REIT. Pursuant to the terms of the Purchase Agreement, on December 19, 2012, we entered into a management agreement with our Manager, which was amended and restated as of March 26, 2013, pursuant to which we are now managed by our Manager pursuant to the terms and conditions of the management agreement. In addition, Blackstone received the right to designate two members of our board of directors, and exercised that right by designating an employee and one of its senior advisors to replace two former members of our board of directors who resigned effective December 19, 2012. As a result of the Investment Management Business Sale, the income and expense items related to our investment management business have been reclassified to income from discontinued operations on our consolidated statement of operations. See Note 8 for a further discussion of discontinued operations.
On December 19, 2012, we also closed our sale to Holdings III of 500,000 shares of our class A common stock for a purchase price of $10.0 million.
In connection with the consummation of the Investment Management Business Sale and the closing of our sale of 500,000 shares of class A common stock to Holdings III, we paid a previously announced $20.00 per share special cash dividend on December 20, 2012 to holders of record of our class A common stock at the close of business on November 12, 2012.
- 7 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The assets we retained following our Investment Management Business Sale consist primarily of: (i) our cash and cash equivalents of $15.4 million as of March 31, 2013, (ii) our interests in CT Legacy Partners, as defined below, a vehicle we formed to own and finance certain legacy assets that we retained in connection with a comprehensive debt restructuring in 2011, (iii) our carried interest in CT Opportunity Partners I, LP, or CTOPI, a private investment fund that was previously under our management and is now managed by an affiliate of our Manager, and (iv) our subordinated interests in certain collateral debt obligations, or CT CDOs.
CT CDO Deconsolidation
We have historically included the assets and liabilities of three CT CDOs in our consolidated balance sheet, CT CDO I, CT CDO II, and CT CDO IV. When we formed these CT CDOs, we retained residual debt and equity positions in each CT CDO, and CTIMCO serves as collateral manager of each CT CDO. As a result of the Investment Management Business Sale, we are no longer the collateral manager for our CT CDOs, nor the special servicer on their collateral assets. Due to the externalization of these management functions, and our lack of material economic interest in the residual equity we own in CT CDOs II and IV, we ceased to be the primary beneficiary of these entities and, therefore, discontinued the consolidation of CT CDOs II and IV as of December 19, 2012, which we refer to as the CT CDO Deconsolidation. We recognized a gain of $53.9 million on the deconsolidation of CT CDOs II and IV, which was due primarily to the reversal of charges to shareholders equity resulting from losses previously recorded in excess of our economic interests in these non-recourse securitization vehicles.
CT Legacy Partners Merger
To maintain its tax efficiency, on March 20, 2013, a majority of the stockholders of CT Legacy REIT voted in favor of a plan of merger, dated March 22, 2013, or the Merger, whereby CT Legacy REIT merged with and into CT Legacy Partners, LLC, or CT Legacy Partners, and whereby CT Legacy Partners was the surviving entity, effective as of March 22, 2013. As a result of the Merger, all outstanding shares of class A-1 common stock, class A-2 common stock, class B common stock, and class A preferred stock of CT Legacy REIT were converted into limited liability company shares, or LLC Shares, in CT Legacy Partners. These LLC Shares have economic and voting rights equivalent to the corresponding shares of stock of CT Legacy REIT. In addition, all outstanding shares of class B preferred stock of CT Legacy REIT were redeemed on March 21, 2013 for an aggregate $147,000, which amount is comprised of the shares par value, liquidation preference, and accrued dividends thereon.
As a result of the Merger, we have consolidated CT Legacy Partners as of March 20, 2013 and, therefore, the remaining legacy assets and liabilities from our comprehensive debt restructuring on March 31, 2011, which we refer to as our March 2011 Restructuring. See Note 3 for further discussion of CT Legacy Partners.
Structure of Notes to Consolidated Financial Statements
As of March 31, 2013, the majority of our asset and liabilities relate to either: (i) CT Legacy Partners, (ii) CTOPI, or (iii) CT CDO I. We have combined the disclosures of assets and liabilities related to each of these three portfolios to provide a better understanding of each portfolios economic position and contribution to our consolidated balance sheet.
Note 2. Summary of Significant Accounting Policies
The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP, for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited consolidated interim financial statements should be read in conjunction with the consolidated financial statements and the related managements discussion and analysis of financial condition and results of operations filed with our Annual Report on Form 10-K for the fiscal year ended December 31, 2012. In our opinion, all material adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation, in accordance with GAAP, have been included. The results of operations for the three months ended March 31, 2013 are not necessarily indicative of results that may be expected for the entire year ending December 31, 2013.
Principles of Consolidation and Basis of Presentation
The accompanying financial statements include, on a consolidated basis, our accounts, the accounts of our wholly-owned subsidiaries, and variable interest entities, or VIEs, in which we are the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.
- 8 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
VIEs are defined as entities in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The entity that consolidates a VIE is known as its primary beneficiary, and is generally the entity with (i) the power to direct the activities that most significantly impact the VIEs economic performance, and (ii) the right to receive benefits from the VIE or the obligation to absorb losses of the VIE that could be significant to the VIE.
We have separately presented, following our consolidated balance sheet, the assets of consolidated VIEs that can only be used to satisfy the obligations of those VIEs, and the liabilities of consolidated VIEs that are non-recourse to us. We have aggregated all of such assets and liabilities of consolidated VIEs in this presentation due to our determination that these entities are substantively similar and therefore a further disaggregated presentation would not be more meaningful.
CT Legacy Partners accounts for its operations in accordance with industry-specific GAAP accounting guidance for investment companies, pursuant to which it reports its investments at fair value. We have retained this specialized accounting in consolidation and, accordingly, report the loans and securities investment of CT Legacy Partners at fair value on our consolidated balance sheet.
As more fully described in Note 1, we sold our investment management business to Blackstone in December 2012. As a result, the income and expense items related to our investment management business have been reclassified to income from discontinued operations on our consolidated statement of operations.
Certain reclassifications have been made in the presentation of the prior period consolidated financial statements to conform to the March 31, 2013 presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may ultimately differ from those estimates.
Equity Investments in Unconsolidated Subsidiaries
Our carried interest in CTOPI is accounted for using the equity method. CTOPIs assets and liabilities are not consolidated into our financial statements due to our determination that (i) it is not a VIE and (ii) the investors have sufficient rights to preclude consolidation by us. As such, we report our allocable percentage of the net assets of CTOPI on our consolidated balance sheet. We have deferred the recognition of income from CTOPI until cash is collected or appropriate contingencies have been eliminated and, therefore do not recognize any income from equity investments in unconsolidated subsidiaries.
Revenue Recognition
Interest income from our loans receivable is recognized over the life of the investment using the effective interest method and is recorded on the accrual basis. Fees, premiums, discounts and direct costs associated with these investments are deferred until the loan is advanced and are then recognized over the term of the loan as an adjustment to yield. For loans where we have unfunded commitments, we amortize these fees and other items on a straight line basis. Fees on commitments that expire unused are recognized at expiration. Income accrual is generally suspended for loans at the earlier of the date at which payments become 90 days past due or when, in the opinion of our Manager, recovery of income and principal becomes doubtful. Income is then recorded on the basis of cash received until accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.
Interest income from our securities is recognized using a level yield with any purchase premium or discount accreted through income over the life of the security. This yield is calculated using cash flows expected to be collected which are based on a number of assumptions on the underlying loans. Examples include, among other things, the rate and timing of principal payments, including prepayments, repurchases, defaults and liquidations, the pass-through or coupon rate, and interest rates. Additional factors that may affect reported interest income on our securities include interest payment shortfalls due to delinquencies on the underlying mortgage loans and the timing and magnitude of expected credit losses on the mortgage loans underlying the securities. These are impacted by, among other things, the general condition of the real estate market, including competition for tenants and their related credit quality, and changes in market rental rates. These uncertainties and contingencies are difficult to predict and are subject to future events that may alter the assumptions.
- 9 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Cash and Cash Equivalents
We classify highly liquid investments with original maturities of three months or less from the date of purchase as cash equivalents. We place our cash and cash equivalents with high credit quality institutions to minimize credit risk exposure. We may have bank balances in excess of federally insured amounts. We have not experienced, and do not expect, any losses on our demand deposits, commercial paper or money market investments.
Restricted Cash
We classify the cash balances held by CT Legacy Partners as restricted because, while these cash balances are available for use by CT Legacy Partners for operations, debt service, or other purposes, they cannot be used by us until our allocable share is distributed from CT Legacy Partners, and cannot be co-mingled with any of our other, unrestricted cash balances. See Note 3 for additional discussion of CT Legacy Partners.
Securities
We classify our securities as held-to-maturity, available-for-sale, or trading on the date of acquisition of the investment. Held-to-maturity investments are stated at cost, adjusted for the amortization of any premiums or discounts, which are amortized through our consolidated statements of operations using the level yield method described above. Other than in the instance of an other-than-temporary impairment, as discussed below, these held-to-maturity investments are carried on our consolidated financial statements at their amortized cost basis.
We may also invest in securities which may be classified as available-for-sale. Available-for-sale securities are carried at estimated fair value with the net unrealized gains or losses reported as a component of accumulated other comprehensive income (loss) in stockholders equity. Changes in the valuations do not affect our reported income or cash flows, but do impact stockholders equity and, accordingly, book value per share.
Further, as required under GAAP, when, based on current information and events, there has been an adverse change in the cash flows expected to be collected from those previously estimated for one of our securities, an other-than-temporary impairment is deemed to have occurred. A change in expected cash flows is considered adverse if the present value of the revised cash flows (taking into consideration both the timing and amount of cash flows expected to be collected) discounted using the securitys current yield is less than the present value of the previously estimated remaining cash flows, adjusted for cash receipts during the intervening period.
Should an other-than-temporary impairment be deemed to have occurred, the security is written down to fair value. The total other-than-temporary impairment is bifurcated into (i) the amount related to expected credit losses, and (ii) the amount related to fair value adjustments in excess of expected credit losses, or the Valuation Adjustment. The portion of the other-than-temporary impairment related to expected credit losses is calculated by comparing the amortized cost basis of the security to the present value of cash flows expected to be collected, discounted at the securitys current yield, and is recognized through earnings in the consolidated statement of operations. The remaining other-than-temporary impairment related to the Valuation Adjustment is recognized as a component of accumulated other comprehensive income (loss) in stockholders equity. A portion of other-than-temporary impairments recognized through earnings is accreted back to the amortized cost basis of the security through interest income, while amounts recognized through other comprehensive income (loss) are amortized over the life of the security with no impact on earnings.
Loans Receivable, Provision for Loan Losses, Loans Held-for-Sale and Related Allowance
We purchase and originate commercial real estate debt and related instruments generally to be held as long-term investments at amortized cost. We are required to periodically evaluate each of these loans for possible impairment. Impairment is indicated when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan. If a loan is determined to be impaired, we write down the loan through a charge to the provision for loan losses. Impairment on these loans is measured by comparing the estimated fair value of the underlying collateral to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders and other factors deemed necessary by our Manager. Actual losses, if any, could ultimately differ from these estimates.
In conjunction with our quarterly loan portfolio review, our Manager assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, loan-to-value ratio, or LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one through eight, which ratings are defined as follows:
1 | - | Low Risk: A loan that is expected to perform through maturity, with relatively lower LTV, higher in-place debt yield, and stable projected cash flow. |
- 10 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
2 | - | Average Risk: A loan that is expected to perform through maturity, with medium LTV, average in-place debt yield, and stable projected cash flow. | ||
3 | - | Acceptable Risk: A loan that is expected to perform through maturity, with relatively higher LTV, acceptable in-place debt yield, and some uncertainty (due to lease rollover or other factors) in projected cash flow. | ||
4 | - | Higher Risk: A loan that is expected to perform through maturity, but has exhibited a material deterioration in cash flow and/or other credit factors. If negative trends continue, default could occur. | ||
5 | - | Low Probability of Default/Loss: A loan with one or more identified weakness that we expect to have a 15% probability of default or principal loss. | ||
6 | - | Medium Probability of Default/Loss: A loan with one or more identified weakness that we expect to have a 33% probability of default or principal loss. | ||
7 | - | High Probability of Default/Loss: A loan with one or more identified weakness that we expect to have a 67% or higher probability of default or principal loss. | ||
8 | - | In Default: A loan which is in contractual default and/or which has a very high likelihood of principal loss. |
In certain cases, we may classify loans as held-for-sale based upon the specific facts and circumstances of particular loans, including known or expected transactions. Loans held-for-sale are carried at the lower of their amortized cost basis and fair value. A reduction in the fair value of loans held-for-sale is recorded as a charge to our consolidated statement of operations as a valuation allowance on loans held-for-sale.
Deferred Financing Costs
The deferred financing costs which are included in prepaid expenses and other assets on our consolidated balance sheets include issuance costs related to our debt obligations, and are amortized using the effective interest method, or a method that approximates the effective interest method, over the life of the related obligations.
Repurchase Obligations
We record investments financed with repurchase obligations as a separate assets and the related borrowing under any repurchase agreement recorded as a liability on our consolidated balance sheets. Interest income earned on the investments and interest expense incurred on the repurchase obligations are reported separately on our consolidated statements of operations.
Interest Rate Derivative Financial Instruments
In the normal course of business, we use interest rate derivative financial instruments to manage, or hedge, cash flow variability caused by interest rate fluctuations. Specifically, we may use interest rate swaps to convert floating rate liabilities that are financing fixed rate assets into fixed rate liabilities. The differential to be paid or received on these agreements is recognized on the accrual basis as an adjustment to the interest expense related to the attendant liability. The interest rate swap agreements are generally accounted for on a held-to-maturity basis, and, in cases where they are terminated early, any gain or loss is generally amortized over the remaining life of the hedged item. These swap agreements must be effective in reducing the variability of cash flows of the hedged items in order to qualify for the aforementioned hedge accounting treatment. Changes in the fair value of effective cash flow hedges are reflected on our consolidated financial statements through accumulated other comprehensive income (loss) and do not affect our net income (loss). To the extent a derivative does not qualify for hedge accounting, and is deemed a non-hedge derivative, the changes in its fair value are included in net income (loss).
To determine the fair value of interest rate derivative financial instruments, we use a third-party derivative specialist to assist us in periodically valuing our interests.
Income Taxes
Our financial results generally do not reflect provisions for current or deferred income taxes on our REIT taxable income. We believe that we operate in a manner that will continue to allow us to be taxed as a REIT and, as a result, we generally do not expect to pay substantial corporate level taxes other than those payable by our taxable REIT subsidiaries. Many of these requirements, however, are highly technical and complex. If we were to fail to meet these requirements, we may be subject to federal, state and local income tax on current and past income, and penalties. See Note 9 for additional information.
Accounting for Stock-Based Compensation
Stock-based compensation expense is recognized in net income using a fair value measurement method, which we determine with the assistance of a third-party appraisal firm. Compensation expense for the time vesting of stock-based compensation grants is recognized on the accelerated attribution method and compensation expense for performance vesting of stock-based compensation grants is recognized on a straight line basis.
- 11 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The fair value of the performance vesting restricted class A common stock is measured on the grant date using a Monte Carlo simulation to estimate the probability of the market vesting conditions being satisfied. The Monte Carlo simulation is run approximately 100,000 times. For each simulation, the payoff is calculated at the settlement date, and is then discounted to the grant date at a risk-free interest rate. The average of the values over all simulations is the expected value of the restricted class A common stock on the grant date. The valuation is performed in a risk-neutral framework, so no assumption is made with respect to an equity risk premium. Significant assumptions used in the valuation include an expected term and stock price volatility, an estimated risk-free interest rate and an estimated dividend growth rate.
Comprehensive (Loss) Income
Total comprehensive (loss) income was ($1.6 million) and $144.5 million for the three months ended March 31, 2013 and 2012, respectively. The primary components of comprehensive income other than net income are the unrealized gains and losses on derivative financial instruments and the component of other-than-temporary impairments of securities related to the Valuation Adjustment.
Earnings per Share of Common Stock
Basic earnings per share, or EPS, is computed based on the net earnings allocable to common stock and stock units, divided by the weighted average number of shares of common stock and stock units outstanding during the period. Diluted EPS is determined using the treasury stock method, and is based on the net earnings allocable to common stock and stock units, divided by the weighted average number of shares of common stock, stock units and potentially dilutive common stock options and warrants. On April 26, 2013, our board of directors approved a one-for-ten reverse stock split of our class A common stock which we effected on May 6, 2013. Our earnings per share disclosures have been retroactively adjusted to reflect the reverse stock split.
We have separately determined EPS and diluted EPS for income (loss) from continuing operations and for net income (loss) allocable to common stockholders. See Note 6 for additional discussion of earnings per share.
Fair Value of Financial Instruments
The Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or the Codification, defines fair value, establishes a framework for measuring fair value, and requires certain disclosures about fair value measurements under GAAP. Specifically, this guidance defines fair value based on exit price, or the price that would be received upon the sale of an asset or the transfer of a liability in an orderly transaction between market participants at the measurement date. Our assets and liabilities which are measured at fair value are discussed in Note 11.
Recent Accounting Pronouncements
In January 2013, the FASB issued Accounting Standards Update 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures About Offsetting Assets and Liabilities, or ASU 2013-01. ASU 2013-1 was developed to clarify which instruments and transactions are subject to the offsetting disclosure requirements set forth by Accounting Standards Update 2011-11 Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities. ASU 2013-01 is effective for the first interim or annual period beginning on or after January 1, 2013, and should be applied retrospectively for all comparative periods presented. The adoption of ASU 2013-1 did not have a material impact on our consolidated financial statements.
In February 2013, the FASB issued Accounting Standards Update 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, or ASU 2013-02. ASU 2013-02 implements the previously deferred requirement to disclose reclassification adjustments into and out of accumulated other comprehensive income in either a note or on the face of the financial statements. ASU 2013-02 is effective for the first interim or annual period beginning after December 15, 2012, and should be applied prospectively. As we no longer have a balance of accumulated other comprehensive income as of December 31, 2012, we do not expect the adoption of ASU 2013-02 to have a material impact on our consolidated financial statements.
Note 3. CT Legacy Partners
As discussed in Note 1, CT Legacy Partners holds the remaining assets and liabilities of our legacy portfolio, which we had previously transferred to CT Legacy REIT (the predecessor of CT Legacy Partners) in connection with our March 2011 Restructuring. CT Legacy Partners is beneficially owned 52% by us and 48% by our former lenders. In
- 12 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
addition, CT Legacy Partners has issued class B common shares, a subordinate class of equity which entitles its holders to receive approximately 25% of the dividends that would otherwise be payable to us on our equity interest in CT Legacy Partners, after aggregate cash distributions of $50.0 million have been paid to all other classes of common equity. Further, CT Legacy Partners has issued class A preferred shares which entitle its holder to cumulative preferred distributions in an amount generally equal to the greater of (i) 2.5% of certain of CT Legacy Partners assets, and (ii) $1.0 million per annum.
As of March 31, 2013, CT Legacy Partners had not made any distribution payments to its common equity holders.
Our equity interest in CT Legacy Partners is comprised of 4,393,750 class A-1 common shares, 775,000 class A-2 common shares, and 118,651 class B common shares. The outstanding common shares of CT Legacy Partners are comprised of 4.4 million class A-1 common shares, 5.6 million class A-2 common shares, and 1.5 million class B common shares. The equity interests of other members of CT Legacy Partners are reflected as noncontrolling interests on our consolidated balance sheet.
Net Investment in CT Legacy Partners
The following table details the components of our gross investment in CT Legacy Partners included in our consolidated balance sheet, as well as our net investment in CT Legacy Partners after the future payments under the secured notes and management incentive awards plan as of March 31, 2013 ($ in thousands):
Blackstone Mortgage Trusts Investment in CT Legacy Partners as of March 31, 2013 |
||||
Gross investment in CT Legacy Partners: | ||||
Restricted cash |
$ | 12,719 | ||
Securities, at fair value |
11,702 | |||
Loans receivable, at fair value |
150,332 | |||
Accrued interest receivable, prepaid expenses, and other assets |
8,879 | |||
Accounts payable, accrued expenses and other liabilities |
(815 | ) | ||
Repurchase obligations |
(20,214 | ) | ||
Interest rate swap liabilities |
(6,119 | ) | ||
Noncontrolling interests |
(86,350 | ) | ||
|
|
|||
$ | 70,134 | |||
|
|
|||
Secured notes, including prepayment premium (1) |
(11,059 | ) | ||
Management incentive awards plan, fully vested (2) |
(10,563 | ) | ||
|
|
|||
Net investment in CT Legacy Partners |
$ | 48,512 | ||
|
|
(1) | Includes the full potential prepayment premium on secured notes, as described below. We carry this liability at its amortized basis of $8.7 million on our balance sheet as of March 31, 2013. The remaining interest and prepayment premium will be recognized, as applicable, over the term of the secured notes as a component of interest expense. |
(2) | Assumes full payment of the management incentive awards plan, as described below, based on the hypothetical GAAP liquidation value of CT Legacy Partners as of March 31, 2013. We periodically accrue a payable for the management incentive awards plan based on the vesting schedule for the awards and continued employment with an affiliate of our Manager of the award recipients. As of March 31, 2013, our balance sheet includes $6.3 million in accounts payable and accrued expenses for the management incentive awards plan. |
Secured Notes
In conjunction with our March 2011 Restructuring and the corresponding satisfaction of our senior credit facility and junior subordinated notes, certain wholly-owned subsidiaries of ours issued secured notes to these former creditors, which secured notes are non-recourse to us. The secured notes had an aggregate initial face value of $7.8 million and are secured by 93.5% of our equity interests in the class A-1 and class A-2 common shares of CT Legacy Partners, which represents 48.3% of the total outstanding class A-1 and class A-2 common shares of CT Legacy Partners. The secured notes mature on March 31, 2016 and bear interest at a rate of 8.2% per annum, which interest may be deferred until maturity. All distributions we receive from our equity interests in the common shares of CT Legacy Partners which serve as collateral under the secured notes must be used to pay, or prepay, interest and principal due thereunder, and only after the notes full satisfaction will we receive any cash flow from the common equity interests in CT Legacy Partners that serve as collateral for the notes. Any prepayment, or partial prepayment, of the secured notes will incur a prepayment premium resulting in a total payment of principal and interest under the secured notes of $11.1 million.
- 13 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
We had secured notes outstanding with an accreted book value of $8.7 million and $8.5 million as of March 31, 2013 and December 31, 2012, respectively.
CT Legacy Partners Management Incentive Awards Plan
In conjunction with our March 2011 Restructuring, we created an employee pool for up to 6.75% of the distributions paid to the common equity holders of CT Legacy Partners (subject to certain caps and priority distributions). As of December 31, 2012, incentive awards for 92% of the pool were granted to our former employees, and the remainder remains unallocated. If any awards remain unallocated at the time distributions are paid, any amounts otherwise payable to the unallocated awards will be distributed pro-rata to the plan participants then employed by an affiliate of our Manager.
Approximately 82% of these grants have the following vesting schedule, which is contingent on continued employment with an affiliate of our Manager: (i) 25% vests on the date of grant, (ii) 25% vests in March 2013, (iii) 25% vests in March 2014, and (iv) the remainder vests upon our receipt of distributions from CT Legacy Partners. The remaining 18% of these grants vest upon our receipt of distributions from CT Legacy Partners.
We accrue a liability for the amounts due under these grants based on the value of CT Legacy Partners and the periodic vesting of the awards granted. Accrued payables for these awards were $6.3 million and $5.3 million as of March 31, 2013 and December 31, 2012, respectively.
A. Securities, at Fair Value CT Legacy Partners
CT Legacy Partners securities portfolio consists of CMBS and CDO securities. These securities had an aggregate principal balance of $135.3 million and are reported at their aggregate fair value of $11.7 million as of March 31, 2013. The following table details overall statistics for CT Legacy Partners securities portfolio as of March 31, 2013:
March 31, 2013 | ||||
Number of securities |
12 | |||
Number of issues |
6 | |||
Rating (1) (2) |
CCC | |||
Coupon (1) (3) |
6.30 | % | ||
Yield (1) (3) |
5.67 | % | ||
Life (years) (1) (4) |
4.2 |
(1) | Represents a weighted average as of March 31, 2013. |
(2) | Weighted average ratings are based on the lowest rating published by Fitch Ratings, Standard & Poors or Moodys Investors Service for each security. |
(3) | Coupon is based on the securities contractual interest rates, while yield is based on expected cash flows for each security, and considers discounts/premiums and asset non-performance. Calculations for floating rate securities are based on LIBOR of 0.20% as of March 31, 2013. |
(4) | Weighted average life is based on the timing and amount of future expected principal payments through the expected repayment date of each respective investment. |
We record CT Legacy Partners securities investments at fair value, which is determined using third party dealer assessments of value and our own internal financial model-based estimations. See Note 11 for further discussion of fair value.
- 14 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
B. Loans Receivable, at Fair Value CT Legacy Partners
CT Legacy Partners loans receivable portfolio consisted of loans with an aggregate principal balance of $257.4 million, which are reported at their aggregate fair value of $150.3 million as of March 31, 2013. The following table details overall statistics for CT Legacy Partners loans receivable portfolio as of March 31, 2013 ($ in millions):
March 31, 2013 | ||||
Number of investments |
12 | |||
Fixed / Floating (1) |
$ | 24 / $126 | ||
Coupon (2) (3) |
6.48 | % | ||
Yield (2) (3) |
5.58 | % | ||
Maturity (years) (2) (4) |
1.2 |
(1) | Represents the aggregate net book value of the portfolio allocated between fixed rate and floating rate loans |
(2) | Represents a weighted average as of March 31, 2013. |
(3) | Calculations for floating rate loans are based on LIBOR of 0.20% as of March 31, 2013. |
(4) | For loans in CT CDO I, assumes all extension options are executed. For loans in GSMS 2006-FL8A, maturity is based on information provided by its trustee. |
We record CT Legacy Partners loans receivable investments at fair value, which is determined using our own internal financial model-based estimations. See Note 11 for further discussion of fair value.
The tables below detail the types of loans in CT Legacy Partners loan portfolio, as well as the property type and geographic distribution of the properties securing these loans, as of March 31, 2013 ($ in thousands):
March 31, 2013 | ||||||||
Asset Type |
Book Value | Percentage | ||||||
Subordinate interests in mortgages |
$ | 80,853 | 54 | % | ||||
Mezzanine loans |
43,265 | 29 | ||||||
Senior mortgages |
26,214 | 17 | ||||||
|
|
|
|
|||||
Total |
$ | 150,332 | 100 | % | ||||
|
|
|
|
Property Type |
Book Value | Percentage | ||||||
Hotel |
$ | 50,653 | 34 | % | ||||
Office |
43,844 | 29 | ||||||
Multifamily |
12,814 | 9 | ||||||
Other |
43,021 | 28 | ||||||
|
|
|
|
|||||
Total |
$ | 150,332 | 100 | % | ||||
|
|
|
|
Geographic Location |
Book Value | Percentage | ||||||
Northeast |
$ | 56,658 | 38 | % | ||||
Northwest |
43,022 | 29 | ||||||
West |
13,705 | 9 | ||||||
Southeast |
11,931 | 8 | ||||||
International |
25,016 | 16 | ||||||
|
|
|
|
|||||
Total |
$ | 150,332 | 100 | % | ||||
|
|
|
|
Loan risk ratings
Quarterly, our Manager evaluates CT Legacy Partners loan portfolio as described in Note 2. In conjunction with our quarterly loan portfolio review, our Manager assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one (less risk) through eight (greater risk), which ratings are defined in Note 2.
- 15 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The following table allocates the net book value and principal balance of CT Legacy Partners loans receivable based on our internal risk ratings as of March 31, 2013 ($ in thousands):
Loans Receivable as of March 31, 2013 | ||||||||||||
Risk Rating |
Number
of Loans |
Principal
Balance |
Net
Book Value |
|||||||||
1 - 3 |
2 | $ | 32,683 | $ | 32,874 | |||||||
4 - 5 |
4 | 41,754 | 36,910 | |||||||||
6 - 8 |
6 | 182,961 | 80,548 | |||||||||
|
|
|
|
|
|
|||||||
Total |
12 | $ | 257,398 | $ | 150,332 | |||||||
|
|
|
|
|
|
In making this risk assessment, one of the primary factors we consider is how senior or junior each loan is relative to other debt obligations of the borrower. The following tables further allocate CT Legacy Partners loans receivable by both loan type and our internal risk ratings as of March 31, 2013 ($ in thousands):
Senior Mortgage Loans | ||||||||||||
as of March 31, 2013 | ||||||||||||
Risk Rating |
Number
of Loans |
Principal
Balance |
Net
Book Value |
|||||||||
1 - 3 |
| $ | | $ | | |||||||
4 - 5 |
1 | 15,000 | 13,705 | |||||||||
6 - 8 |
1 | 17,869 | 12,509 | |||||||||
|
|
|
|
|
|
|||||||
Total |
2 | $ | 32,869 | $ | 26,214 | |||||||
|
|
|
|
|
|
Subordinate Interests in Mortgages | ||||||||||||
as of March 31, 2013 | ||||||||||||
Risk Rating |
Number
of Loans |
Principal
Balance |
Net
Book Value |
|||||||||
1 - 3 |
1 | $ | 12,814 | $ | 12,814 | |||||||
4 - 5 |
| | | |||||||||
6 - 8 |
4 | 110,268 | 68,039 | |||||||||
|
|
|
|
|
|
|||||||
Total |
5 | $ | 123,082 | $ | 80,853 | |||||||
|
|
|
|
|
|
Mezzanine & Other Loans | ||||||||||||
as of March 31, 2013 | ||||||||||||
Risk Rating |
Number
of Loans |
Principal
Balance |
Net
Book Value |
|||||||||
1 - 3 |
1 | $ | 19,869 | $ | 20,060 | |||||||
4 - 5 |
3 | 26,754 | 23,205 | |||||||||
6 - 8 |
1 | 54,824 | | |||||||||
|
|
|
|
|
|
|||||||
Total |
5 | $ | 101,447 | $ | 43,265 | |||||||
|
|
|
|
|
|
Nonaccrual loans
In accordance with our revenue recognition policies discussed in Note 2, we do not accrue interest on loans which are 90 days past due or, in the opinion of our Manager, are otherwise uncollectable. Accordingly, we do not have any material interest receivable accrued on nonperforming loans as of March 31, 2013.
- 16 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The following table details CT Legacy Partners loans receivable which are on nonaccrual status as of March 31, 2013 ($ in thousands):
C. Repurchase Obligations CT Legacy Partners
As of March 31, 2013, CT Legacy Partners was party to a repurchase facility with JPMorgan with an outstanding balance of $20.2 million. The facility matures on December 15, 2014, and carries a rate of LIBOR+6.00% as of March 31, 2013.
The following table details the aggregate outstanding principal balance and fair value of CT Legacy Partners assets, primarily loans receivable, which were pledged as collateral under the JPMorgan repurchase facility as of March 31, 2013, as well as the amount at risk under the facility ($ in thousands). The amount at risk is generally equal to the book value of the collateral less the outstanding principal balance of the repurchase facility.
Loans and Securities Collateral | ||||||||||||||||
Balances, | ||||||||||||||||
Repurchase Lender |
Facility Balance | Principal Balance | Fair Value (1) | Amount at Risk (2) | ||||||||||||
JP Morgan |
$ | 20,214 | $ | 323,736 | $ | 162,034 | $ | 141,820 |
(1) | Fair values represent the amount at which an asset could be sold in an orderly transaction between a willing buyer and willing seller. The immediate liquidation value of these assets would likely be substantially lower. |
(2) | Amount at risk is calculated on an asset-by-asset basis for the facility and considers the greater of (a) the book value of an asset and (b) the fair value of an asset, in determining the total risk. |
D. Derivative Financial Instruments CT Legacy Partners
The following table summarizes the notional amounts and fair values of CT Legacy Partners interest rate swaps as of March 31, 2013 ($ in thousands). The notional amount provides an indication of the extent of CT Legacy Partners involvement in the instruments at that time, but it does not represent exposure to credit or interest rate risk.
Counterparty |
March 31, 2013
Notional Amount |
Interest Rate (1) | Maturity |
March 31, 2013
Fair Value |
||||||||||||
JPMorgan Chase |
$ | 17,317 | 5.14 | % | 2014 | ($ | 990 | ) | ||||||||
JPMorgan Chase |
17,057 | 5.52 | % | 2018 | (2,672 | ) | ||||||||||
JPMorgan Chase |
16,184 | 4.83 | % | 2014 | (1,146 | ) | ||||||||||
JPMorgan Chase |
7,062 | 5.11 | % | 2016 | (921 | ) | ||||||||||
JPMorgan Chase |
3,103 | 5.45 | % | 2015 | (390 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total/Weighted Average |
$ | 60,723 | 5.17 | % | 2015 | ($ | 6,119 | ) | ||||||||
|
|
|
|
|
|
|
|
(1) | Represents the gross fixed interest rate CT Legacy Partners pays to its counterparties under these derivative instruments. CT Legacy Partners receives an amount of interest indexed to one-month LIBOR on all of its interest rate swaps. |
As of March 31, 2013 CT Legacy Partners had not posted any assets as collateral under derivative agreements.
- 17 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Note 4. Equity Investments in Unconsolidated Subsidiaries
As of March 31, 2013, our equity investments in unconsolidated subsidiaries consisted solely of our carried interest in CTOPI, a fund sponsored and managed by CTIMCO. Historically, this balance has also included our co-investments in investment management vehicles that were sponsored and managed by CTIMCO. As described in Note 1, we sold two such co-investments to an affiliate of Blackstone in December 2012 in conjunction with our Investment Management Business Sale; however, we retained 100% of our carried interest in CTOPI.
Activity relating to our equity investments in unconsolidated subsidiaries for the three months ended March 31, 2013 was as follows ($ in thousands):
CTOPI | ||||
Carried Interest (1) | ||||
Total as of December 31, 2012 |
$ | 13,306 | ||
Incentive income allocation (2) |
6,740 | |||
|
|
|||
Total as of March 31, 2013 |
$ | 20,046 | ||
|
|
(1) | The allocation of carried interest from CTOPI is net of a $1.4 million advance distribution of incentive compensation to satisfy our 2012 income tax obligation related to the allocation of taxable income in respect of our carried interest in CTOPI. |
(2) | We have deferred the recognition of incentive income allocated to us from CTOPI in respect of our carried interest in CTOPI, and recorded an offsetting liability as a component of accounts payable and other liabilities on our consolidated balance sheet. |
Our carried interest in CTOPI entitles us to earn incentive compensation in an amount equal to 17.7% of the funds profits, after a 9% preferred return and 100% return of capital to the CTOPI partners. As of March 31, 2013, we had been allocated $21.4 million of incentive compensation from CTOPI based on a hypothetical liquidation of the fund at its net asset value. Accordingly, we have recognized this allocation as an equity investment in CTOPI on our consolidated balance sheet; however, we have deferred the recognition of income until cash is collected or appropriate contingencies have been eliminated.
The CTOPI partnership agreement provides for advance distributions in respect of our incentive compensation to allow us to pay any income taxes owed on phantom taxable income allocated to us from the partnership. We refer to these distributions as CTOPI Tax Advances. During 2012, we received one such CTOPI Tax Advance of $1.4 million. In the event the performance of CTOPI does not ultimately result in a sufficient allocation of incentive compensation to us, we would be required to return these CTOPI Tax Advances to the fund.
As of March 31, 2013, our maximum exposure to loss from CTOPI was $1.4 million, the amount of CTOPI Tax Advances we have received from CTOPI.
CTOPI Incentive Management Fee Grants
In January 2011, we created a management compensation pool for employees equal to 45% of the CTOPI incentive management fee received by us. As of March 31, 2013, we had granted 96% of the pool to our former employees, and the remainder remains unallocated. If any awards remain unallocated at the time incentive management fees are received by us, any amounts otherwise payable to the unallocated awards will be distributed pro-rata to the plan participants then employed by an affiliate of our Manager.
Approximately 96% of these grants have the following vesting schedule, which is contingent on continued employment with an affiliate of our Manager: (i) one-third on the date of grant, (ii) one-third on September 13, 2012, and (iii) the remainder vests upon our receipt of incentive management fees from CTOPI. The remaining 4% of these grants vest solely upon our receipt of incentive management fees from CTOPI or the disposition of certain investments owned by CTOPI.
Note 5. Consolidated Securitization Vehicles
As of March 31, 2013, our consolidated balance sheet included an aggregate $143.7 million of assets and $137.1 million of liabilities related to two consolidated securitization vehicles, CT CDO I and GSMS 2006-FL8A, a CMBS vehicle consolidated by CT CDO I. As of December 31, 2012, our consolidated balance sheet included an aggregate $145.5 million of assets and $139.3 million of liabilities related to these two consolidated securitization vehicles.
- 18 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Securitization Vehicles Overview
We own the residual debt and equity positions of CT CDO I, and through CT CDO I, we own the subordinate securities of the GSMS 2006-FL8A securitization. As a result of consolidation, our subordinate debt and equity ownership interests in these entities are not included on our balance sheet, which instead reflects both the assets held and debt issued by these entities to third-parties. Similarly, our operating results and cash flows include the gross amounts related to the assets and liabilities of these securitization vehicles, as opposed to our net economic interests in these entities.
Our economic interest in the loans receivable assets held by these entities, which are consolidated on our balance sheet, is restricted by the structural provisions of these entities, and our recovery of these assets will be limited by the entities distribution provisions. The liabilities of the securitization vehicles, which are also consolidated on our balance sheet, are non-recourse to us, and can only be satisfied by proceeds from each entitys respective asset pool.
We are not obligated to provide, nor have we provided, any financial support to these securitization vehicles. As of March 31, 2013, our maximum exposure to loss from these vehicles was $6.6 million, the difference between the assets and liabilities of such vehicles included on our consolidated balance sheet.
An affiliate of our Manager is the CDO collateral manager for one of our consolidated securitization vehicles, and is named special servicer on a number of these two entities collateral assets.
A. Loans Receivable, Net Consolidated Securitization Vehicles
The following table details overall statistics for our consolidated securitization vehicles loans receivable portfolio as of March 31, 2013 and December 31, 2012 ($ in thousands):
March 31, 2013 | December 31, 2012 | |||||||
Number of investments |
6 | 7 | ||||||
Principal balance |
$ | 157,579 | $ | 164,180 | ||||
Net book value |
$ | 139,500 | $ | 141,500 | ||||
Coupon (1) (2) |
4.64 | % | 4.73 | % | ||||
Yield (1) (2) |
3.57 | % | 4.74 | % | ||||
Maturity (years) (1) (3) |
0.5 | 0.7 |
(1) | Represents a weighted average as of March 31, 2013 and December 31, 2012, respectively. |
(2) | All loans are floating rate loans as of both March 31, 2013 and December 31, 2012. Calculations are based on LIBOR of 0.20% and 0.30% as of March 31, 2013 and December 31, 2012, respectively. |
(3) | For loans in CT CDO I, assumes all extension options are executed. For loans in GSMS 2006-FL8A, maturity is based on information provided by its trustee. |
- 19 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The tables below detail the types of loans in our consolidated securitization vehicles loan portfolio, as well as the property type and geographic distribution of the properties securing these loans, as of March 31, 2013 and December 31, 2012 ($ in thousands):
March 31, 2013 | December 31, 2012 | |||||||||||||||
Asset Type |
Book Value | Percentage | Book Value | Percentage | ||||||||||||
Subordinate interests in mortgages |
$ | 77,000 | 55 | % | $ | 79,000 | 56 | % | ||||||||
Senior mortgages |
62,500 | 45 | 62,500 | 44 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 139,500 | 100 | % | $ | 141,500 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
Property Type |
Book Value | Percentage | Book Value | Percentage | ||||||||||||
Office |
$ | 109,500 | 78 | % | $ | 111,500 | 79 | % | ||||||||
Hotel |
30,000 | 22 | 30,000 | 21 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 139,500 | 100 | % | $ | 141,500 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
Geographic Location |
Book Value | Percentage | Book Value | Percentage | ||||||||||||
West |
$ | 92,500 | 66 | % | $ | 92,500 | 65 | % | ||||||||
Northeast |
27,000 | 19 | 27,000 | 19 | ||||||||||||
Southeast |
12,404 | 10 | 12,404 | 9 | ||||||||||||
Southwest |
7,596 | 5 | 9,596 | 7 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 139,500 | 100 | % | $ | 141,500 | 100 | % | ||||||||
|
|
|
|
|
|
|
|
Loan risk ratings
Quarterly, our Manager evaluates our consolidated securitization vehicles loan portfolio for impairment as described in Note 2. In conjunction with our quarterly loan portfolio review, our Manager assesses the performance of each loan, and assigns a risk rating based on several factors including risk of loss, LTV, collateral performance, structure, exit plan, and sponsorship. Loans are rated one (less risk) through eight (greater risk), which ratings are defined in Note 2.
The following table allocates the net book value and principal balance of our consolidated securitization vehicles loans receivable based on our internal risk ratings as of March 31, 2013 and December 31, 2012 ($ in thousands):
Loans Receivable as of March 31, 2013 | Loans Receivable as of December 31, 2012 | |||||||||||||||||||||||
Risk Rating |
Number
of Loans |
Principal
Balance |
Net
Book Value |
Number
of Loans |
Principal
Balance |
Net
Book Value |
||||||||||||||||||
1 - 3 |
2 | $ | 50,000 | $ | 50,000 | 2 | $ | 47,000 | $ | 47,000 | ||||||||||||||
4 - 5 |
2 | 89,500 | 89,500 | 2 | 92,500 | 92,500 | ||||||||||||||||||
6 - 8 |
2 | 18,079 | | 3 | 24,680 | 2,000 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
6 | $ | 157,579 | $ | 139,500 | 7 | $ | 164,180 | $ | 141,500 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
In making this risk assessment, one of the primary factors we consider is how senior or junior each loan is relative to other debt obligations of the borrower. The following tables further allocate our consolidated securitization vehicles loans receivable by both loan type and our internal risk ratings as of March 31, 2013 and December 31, 2012 ($ in thousands):
Senior Mortgage Loans | ||||||||||||||||||||||||
as of March 31, 2013 | as of December 31, 2012 | |||||||||||||||||||||||
Risk Rating |
Number
of Loans |
Principal
Balance |
Net
Book Value |
Number
of Loans |
Principal
Balance |
Net
Book Value |
||||||||||||||||||
1 - 3 |
| $ | | $ | | | $ | | $ | | ||||||||||||||
4 - 5 |
1 | 62,500 | 62,500 | 1 | 62,500 | 62,500 | ||||||||||||||||||
6 - 8 |
| | | | | | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
1 | $ | 62,500 | $ | 62,500 | 1 | $ | 62,500 | $ | 62,500 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
- 20 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Subordinate Interests in Mortgages | ||||||||||||||||||||||||
as of March 31, 2013 | as of December 31, 2012 | |||||||||||||||||||||||
Risk Rating |
Number
of Loans |
Principal
Balance |
Net
Book Value |
Number
of Loans |
Principal
Balance |
Net
Book Value |
||||||||||||||||||
1 - 3 |
2 | $ | 50,000 | $ | 50,000 | 2 | $ | 47,000 | $ | 47,000 | ||||||||||||||
4 - 5 |
1 | 27,000 | 27,000 | 1 | 30,000 | 30,000 | ||||||||||||||||||
6 - 8 |
2 | 18,079 | | 3 | 24,680 | 2,000 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total |
5 | $ | 95,079 | $ | 77,000 | 6 | $ | 101,680 | $ | 79,000 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Loan impairments
The following table describes our consolidated securitization vehicles impaired loans as of March 31, 2013, including impaired loans that are current in their interest payments and those that are delinquent on contractual payments ($ in thousands):
March 31, 2013 | ||||||||||||||||
Impaired Loans |
No. of
Loans |
Gross Book
Value |
Loan Loss
Reserve (1) |
Net Book Value | ||||||||||||
Performing loans |
1 | $ | 7,531 | ($ | 7,531 | ) | $ | | ||||||||
Non-performing loans |
1 | 10,548 | (10,548 | ) | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total impaired loans |
2 | $ | 18,079 | ($ | 18,079 | ) | $ | | ||||||||
|
|
|
|
|
|
|
|
(1) | Reserve for loan loss represents a 100% loss severity against two subordinate interests in mortgages with an aggregate principal balance of $18.1 million as of March 31, 2013. |
The following table describes our consolidated securitization vehicles impaired loans as of December 31, 2012, including impaired loans that are current in their interest payments and those that are delinquent on contractual payments ($ in thousands):
December 31, 2012 | ||||||||||||||||
Impaired Loans |
No. of
Loans |
Gross Book
Value |
Loan Loss
Reserve (1) |
Net Book Value | ||||||||||||
Performing loans |
1 | $ | 7,531 | ($ | 7,531 | ) | $ | | ||||||||
Non-performing loans |
2 | 17,149 | (15,149 | ) | 2,000 | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total impaired loans |
3 | $ | 24,680 | ($ | 22,680 | ) | $ | 2,000 | ||||||||
|
|
|
|
|
|
|
|
(1) | Reserve for loan loss represents a 92% loss severity against seven subordinate interests in mortgages with an aggregate principal balance of $24.7 million as of December 31, 2012. |
Generally, we have recorded loan loss reserves against all loans which are in maturity default, or otherwise have past-due principal payments. As of March 31, 2013, our consolidated securitization vehicles had one loan with a net book value of $27.0 million which was in maturity default but had no reserve recorded. We expect to collect all principal and interest due under this loan.
- 21 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
There was no income recorded on impaired loans in our consolidated securitization vehicles during the three months ended March 31, 2013. The following table details our consolidated securitization vehicles average balance of impaired loans by loan type, and the income recorded on such loans subsequent to their impairment during the year ended December 31, 2012 ($ in thousands):
(1) | Substantially all of the income recorded on impaired loans during the period was received in cash. |
Nonaccrual loans
In accordance with our revenue recognition policies discussed in Note 2, we do not accrue interest on loans which are 90 days past due or, in the opinion of our Manager, are otherwise uncollectable. Accordingly, we do not have any material interest receivable accrued on nonperforming loans as of March 31, 2013.
The following table details our consolidated securitization vehicles loans receivable which are on nonaccrual status as of March 31, 2013 ($ in thousands):
Nonaccrual Loans Receivable as of March 31, 2013 |
||||||||
Asset Type |
Principal
Balance |
Net
Book Value |
||||||
Subordinate Interests in Mortgages |
$ | 18,079 | | |||||
|
|
|
|
|||||
Total |
$ | 18,079 | | |||||
|
|
|
|
The following table details our consolidated securitization vehicles loans receivable which are on nonaccrual status as of December 31, 2012 ($ in thousands):
Nonaccrual Loans Receivable as of December 31, 2012 |
||||||||
Asset Type |
Principal
Balance |
Net
Book Value |
||||||
Subordinate Interests in Mortgages |
$ | 24,680 | $ | 2,000 | ||||
|
|
|
|
|||||
Total |
$ | 24,680 | $ | 2,000 | ||||
|
|
|
|
B. Loans Held-for-Sale, Net Consolidated Securitization Vehicles
Activity relating to our consolidated securitization vehicles loans held-for-sale for the three months ended March 31, 2013 was as follows ($ in thousands):
Gross Book
Value |
Valuation
Allowance |
Net Book
Value |
||||||||||
December 31, 2012 |
$ | | $ | | $ | | ||||||
Reclassification from loans receivable |
6,601 | (4,601 | ) | 2,000 | ||||||||
Valuation allowance on loans held-for-sale |
| (200 | ) | (200 | ) | |||||||
|
|
|
|
|
|
|||||||
March 31, 2013 |
$ | 6,601 | ($ | 4,801 | ) | $ | 1,800 | |||||
|
|
|
|
|
|
During the first quarter of 2013, we reclassified a $6.6 million subordinate mortgage loan and its related $4.6 million reserve for loan losses to loans held-for-sale. We recorded an additional $200,000 valuation allowance to reflect this loan at its approximate fair value.
- 22 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
C. Debt Obligations Consolidated Securitization Vehicles
The balances of each of our consolidated securitization vehicles outstanding securitized debt obligations, their respective coupons and all-in effective costs, including the amortization of fees and expenses, were as follows ($ in thousands):
March 31,
2013 |
December 31,
2012 |
March 31,
2013 |
||||||||||||||||||||||
Non-Recourse Securitized Debt Obligations |
Principal
Balance |
Book
Value |
Book
Value |
Coupon (1) |
All-In
Cost (1) |
Maturity
Date (2) |
||||||||||||||||||
CT CDO I |
$ | 88,892 | $ | 88,892 | $ | 91,131 | 1.63 | % | 1.63 | % | July 2039 | |||||||||||||
GSMS 2006-FL8A |
$ | 48,052 | $ | 48,052 | $ | 48,053 | 1.07 | % | 1.07 | % | June 2020 | |||||||||||||
Total/Weighted Average |
$ | 136,944 | $ | 136,944 | $ | 139,184 | 1.43 | % | 1.43 | % | October 2032 |
(1) | Represents a weighted average for each respective facility, assuming LIBOR of 0.20% at March 31, 2013 for floating rate debt obligations. |
(2) | Maturity dates represent the contractual maturity of each securitization trust. Repayment of securitized debt is a function of collateral cash flows which are disbursed in accordance with the contractual provisions of each trust, and is generally expected to occur prior to the maturity date above. |
As of March 31, 2013, loans receivable with an aggregate book value of $141.3 million served as collateral for the non-recourse debt and equity securities issued by our consolidated securitizations vehicles. As of December 31, 2012, loans receivable with an aggregate book value of $141.5 million served as collateral for the securities issued by these same vehicles.
One of our consolidated securitization vehicles, CT CDO I is subject to interest coverage and overcollateralization tests which, when breached, provide for hyper-amortization of the senior notes by a redirection of cash flow that would otherwise have been paid to the subordinate classes, some of which are owned by us. Furthermore, CT CDO I provides for the re-classification of interest proceeds from impaired collateral as principal proceeds, which also serve to hyper-amortize the senior notes sold. As a result collateral asset impairments and the related breaches of these interest coverage and overcollateralization tests, we currently do not receive any cash payments from CT CDO I.
Note 6. Stockholders Equity
Authorized Capital
We have the authority to issue up to 200,000,000 shares of stock, consisting of 100,000,000 shares of class A common stock and 100,000,000 shares of preferred stock. Subject to applicable NYSE listing requirements, our board of directors is authorized to cause us to issue additional shares of authorized stock without stockholder approval. In addition, to the extent not issued, currently authorized stock may be reclassified between class A common stock and preferred stock.
Reverse Stock Split
On April 26, 2013, our board of directors approved a one-for-ten reverse stock split of our class A common stock which we effected on May 6, 2013. As a result of the reverse stock split, the number of outstanding shares of our class A common stock was reduced to 2,926,651.
Common Stock
Holders of shares of class A common stock are entitled to vote on all matters submitted to a vote of stockholders, subject to the voting rights of any outstanding shares of preferred stock. Holders of record of shares of class A common stock on the record date fixed by our board of directors are entitled to receive such dividends as may be authorized by our board of directors and declared by us, subject to the rights of the holders of any shares of outstanding preferred stock. A total of 3,018,018 shares of class A common stock and stock units were issued and outstanding as of March 31, 2013.
- 23 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The following table details the movement in our outstanding shares of class A common stock and restricted class A common stock for the three months ended March 31, 2013 and March 31, 2012:
Three Months Ended 31, | ||||||||
Class A Common Stock Outstanding (1)(2)(3) |
2013 | 2012 | ||||||
Beginning balance |
2,926,651 | 2,221,111 | ||||||
Issuance of restricted class A common stock |
| 10,000 | ||||||
Forfeiture of restricted class A common stock |
| (404 | ) | |||||
Purchase of shares for tax withholding upon vesting of restricted class A common stock |
| (155 | ) | |||||
Conversion of restricted class A common stock to deferred units |
| (6,000 | ) | |||||
|
|
|
|
|||||
Ending balance |
2,926,651 | 2,224,552 | ||||||
|
|
|
|
(1) | Includes shares of our class A common stock and restricted class A common stock. |
(2) | Excludes deferred stock units held by members of our board of directors of 91,000, and 58,000 as of March 31, 2013 and 2012, respectively. |
(3) | Share amounts have been retroactively updated to reflect the one-for-ten reverse stock split which we effected as of May 6, 2013. See Note 14 for further discussion. |
Preferred Stock
We have not issued any shares of preferred stock since we repurchased all of our previously issued and outstanding preferred stock in 2001.
Dividends
We generally intend to distribute each year substantially all of our taxable income (which does not necessarily equal net income as calculated in accordance with GAAP) to our stockholders to comply with the REIT provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code.
Our dividend policy remains subject to revision at the discretion of our board of directors. All distributions will be made at the discretion of our board of directors and will depend upon our taxable income, our financial condition, our maintenance of REIT status, applicable law, and other factors as our board of directors deems relevant.
No dividends were declared during the three months ended March 31, 2013 or 2012.
- 24 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Accumulated Other Comprehensive Loss
We did not have any accumulated other comprehensive income or loss as of December 31, 2012 or March 31, 2013. The following table details the primary components of accumulated other comprehensive loss as of March 31, 2012, and significant activity for the three months ended March 31, 2012 (in thousands):
Accumulated Other Comprehensive Loss |
Market on
Interest Rate Hedges |
Deferred Gains
on Settled Hedges |
Other-than-
Temporary Impairments |
Unrealized
Gains on Securities |
Total | |||||||||||||||
Total as of December 31, 2011 |
($ | 27,423 | ) | $ | 56 | ($ | 16,578 | ) | $ | 3,361 | ($ | 40,584 | ) | |||||||
Unrealized gain on derivative financial instruments |
2,267 | | | | 2,267 | |||||||||||||||
Ineffective portion of cash flow hedges (1) |
1,998 | | | | 1,998 | |||||||||||||||
Amortization of net unrealized gains on securities |
| | | (756 | ) | (756 | ) | |||||||||||||
Amortization of net deferred gains on settlement of swaps |
| (56 | ) | | | (56 | ) | |||||||||||||
Other-than-temporary impairments of securities (2) |
| | 377 | | 377 | |||||||||||||||
Deconsolidation of CT Legacy Assets (3) |
| | 3,879 | (2,586 | ) | 1,293 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total as of March 31, 2012 |
($ | 23,158 | ) | $ | | ($ | 12,322 | ) | $ | 19 | ($ | 35,461 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Allocation to non-controlling interest (3) |
| |||||||||||||||||||
|
|
|||||||||||||||||||
Accumulated other comprehensive loss as of March 31, 2012 |
|
($ | 35,461 | ) | ||||||||||||||||
|
|
(1) | As a result of the deconsolidation of CT Legacy Assets in the first quarter of 2012, the balance of accumulated other comprehensive income related to cash flow hedges of CT Legacy Assets was reclassified to interest expense. |
(2) | Represents other-than-temporary impairments of securities in excess of credit losses, including amortization of prior other-than-temporary impairments of $217,000. |
(3) | As further described in Note 1 above, we deconsolidated CT Legacy Assets in the first quarter of 2012. As a result, the balances of accumulated other comprehensive income related to CT Legacy Assets, including those allocable to noncontrolling interests are no longer included in our consolidated financial statements. |
Noncontrolling Interests
The noncontrolling interests included on our consolidated balance sheet represent the equity interests in CT Legacy Partners that are not owned by us, as described in Note 3. CT Legacy Partners outstanding common stock includes class A-1 common shares, class A-2 common shares, and subordinate class B common shares. A portion of CT Legacy Partners consolidated equity and results of operations are allocated to these noncontrolling interests based on their pro-rata ownership of CT Legacy Partners.
- 25 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The following table details the components of noncontrolling interests as of March 31, 2013 ($ in thousands):
Noncontrolling Interests in CT Legacy Partners as of March 31, 2013 |
||||
Gross investment in CT Legacy Partners: | ||||
Restricted cash |
$ | 12,719 | ||
Securities, at fair value |
11,702 | |||
Loans receivable, at fair value |
150,332 | |||
Accrued interest receivable, prepaid expenses, and other assets |
8,879 | |||
Accounts payable, accrued expenses and other liabilities |
(815 | ) | ||
Repurchase obligations |
(20,214 | ) | ||
Interest rate hedge liabilities |
(6,119 | ) | ||
|
|
|||
$ | 156,484 | |||
|
|
|||
Equity interests owned by Blackstone MortgageTrust, Inc. |
(70,134 | ) | ||
|
|
|||
Noncontrolling interests in CT Legacy Partners |
$ | 86,350 | ||
|
|
Earnings Per Share
The following table sets forth the calculation of basic and diluted net income per share of class A common stock based on the weighted average of both restricted and unrestricted class A common stock outstanding, for the three months ended March 31, 2013 and 2012 ($ in thousands, except per share amounts):
Net Income (Loss) per Share of Common Stock (1) | ||||||||
Three Months Ended March 31, | ||||||||
2013 | 2012 | |||||||
Net (loss) income |
($ | 3,115 | ) | $ | 66,553 | |||
Weighted average shares outstanding |
3,016,425 | 2,283,741 | ||||||
Warrants & options outstanding for the purchase of class A common stock |
| 146,406 | ||||||
|
|
|
|
|||||
Weighted average shares outstanding, diluted |
3,016,425 | 2,430,147 | ||||||
Per share amount, basic |
($ | 1.03 | ) | $ | 29.14 | |||
|
|
|
|
|||||
Per share amount, diluted |
($ | 1.03 | ) | $ | 27.39 | |||
|
|
|
|
(1) | Share and per share amounts have been retroactively updated to reflect the one-for-ten reverse stock split which we effected as of May 6, 2013. See Note 14 for further discussion. |
- 26 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The following table sets forth the calculation of basic and diluted income from continuing operations per share of class A common stock based on the weighted average of both restricted and unrestricted class A common stock outstanding, for the three months ended March 31, 2013 and 2012 ($ in thousands, except per share amounts):
Income (Loss) from Continuing Operations
per Share of Common Stock (1) Three Months Ended March 31, |
||||||||
2013 | 2012 | |||||||
(Loss) income from continuing operations |
($ | 1,597 | ) | $ | 141,195 | |||
Net income attributable to noncontrolling interests |
(1,518 | ) | (74,069 | ) | ||||
|
|
|
|
|||||
(Loss) income from continuing operations attributable to Capital Trust, Inc. |
($ | 3,115 | ) | $ | 67,126 | |||
Weighted average shares outstanding |
3,016,425 | 2,283,741 | ||||||
Warrants & options outstanding for the purchase of class A common stock |
| 146,406 | ||||||
|
|
|
|
|||||
Weighted average shares outstanding, diluted |
3,016,425 | 2,430,147 | ||||||
Per share amount, basic |
($ | 1.03 | ) | $ | 29.39 | |||
|
|
|
|
|||||
Per share amount, diluted |
($ | 1.03 | ) | $ | 27.64 | |||
|
|
|
|
(1) | Share and per share amounts have been retroactively updated to reflect the one-for-ten reverse stock split which we effected as of May 6, 2013. See Note 14 for further discussion. |
Note 7. General and Administrative Expenses
As a result of our Investment Management Business Sale, the operating expenses related to our investment management business have been reclassified to income (loss) from discontinued operations on our consolidated statements of operations. See Note 1 for further discussion of the Investment Management Business Sale. General and administrative expenses included in net income from continuing operations for the three months ended March 31, 2013 and 2012 consisted of the following ($ in thousands):
Three Months Ended March 31, | ||||||||
General and Administrative Expenses |
2013 | 2012 | ||||||
Professional services |
$ | 639 | $ | 256 | ||||
Operating and other costs |
436 | 594 | ||||||
|
|
|
|
|||||
Subtotal |
1,075 | 850 | ||||||
|
|
|
|
|||||
Non-cash personnel costs | ||||||||
Management incentive awards plan - CT Legacy Partners (1) |
963 | (282 | ) | |||||
Employee stock-based compensation |
| 129 | ||||||
|
|
|
|
|||||
Subtotal |
963 | (153 | ) | |||||
|
|
|
|
|||||
Expenses of consolidated securitization vehicles |
| 59 | ||||||
|
|
|
|
|||||
Total |
$ | 2,038 | $ | 756 | ||||
|
|
|
|
(1) | Represents the accrual of amounts payable under the CT Legacy Partners management incentive awards during the period. See Note 3 for discussion of the CT Legacy Partners management incentive awards plan. |
In conjunction with the Investment Management Business Sale, we entered into a new management agreement with our Manager, which was amended and restated as of March 26, 2013, pursuant to which our Manager earns a base management fee in an amount equal to the greater of (a) $250,000 per annum and (b) 1.50% per annum multiplied by our outstanding Equity balance, as defined in the management agreement with our Manager. In addition, our Manager is entitled to an incentive fee in an amount equal to the product of (a) 20% and (b) the excess of (i) our Core Earnings (as defined in the management agreement) for the previous 12-month period (or the period since January 1, 2013, whichever is shorter) and (ii) an amount equal to 7.00% per annum multiplied by our outstanding Equity, provided that our Core Earnings over the prior three-year period (or the period since the date of the first offering of our class A common stock following December 19, 2012, whichever is shorter) is greater than zero. Core
- 27 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Earnings is generally equal to our net income (loss) prepared in accordance with GAAP, excluding (i) certain non-cash items and (ii) the net income (loss) related to our legacy portfolio. During the three months ended March 31, 2013, we incurred $63,000 of management fees payable to our Manager, which are included in general and administrative expenses.
Note 8. Discontinued Operations
As more fully described in Note 1, we sold our investment management business, CTIMCO, to an affiliate of Blackstone in December 2012. As a result, the income and expense items related to our investment management business have been reclassified to loss from discontinued operations on our consolidated statement of operations.
The following table provides additional information on the components of discontinued operations for the three months ended March 31, 2013 and 2012 ($ in thousands):
Three Months Ended March 31, | ||||||||
Discontinued Operations |
2013 | 2012 | ||||||
Servicing fees |
$ | | $ | 2,020 | ||||
Management fees from affiliates |
| 1,585 | ||||||
|
|
|
|
|||||
Total revenues |
| 3,605 | ||||||
General and administrative expenses |
| 3,555 | ||||||
|
|
|
|
|||||
Income from discontinued operations before income taxes |
| 50 | ||||||
|
|
|
|
|||||
Income tax provision |
| (623 | ) | |||||
|
|
|
|
|||||
Loss from discontinued operations |
| ($ | 573 | ) | ||||
|
|
|
|
|||||
Loss from discontinued operations per share of common stock: |
||||||||
Basic |
$ | | ($ | 0.25 | ) | |||
|
|
|
|
|||||
Diluted |
$ | | ($ | 0.25 | ) | |||
|
|
|
|
Note 9. Income Taxes
We made an election to be taxed as a REIT, effective January 1, 2003, under the Internal Revenue Code for U.S. federal income tax purposes. We generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. Our qualification as a REIT also depends on our ability to meet various other requirements imposed by the Internal Revenue Code, which relate to organizational structure, diversity of stock ownership and certain restrictions with regard to the nature of our assets and the sources of our income. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets.
These qualifications have become more difficult to meet in light of the transfer of our legacy portfolio to CT Legacy REIT in conjunction with our March 2011 Restructuring, and the lack of new, replacement investment activity. As discussed in Note 1, on March 20, 2013, CT Legacy REIT merged into CT Legacy Partners, whereby CT Legacy Partners was the surviving entity. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four full taxable years. As of March 31, 2013 and December 31, 2012, we were in compliance with all REIT requirements.
In addition, we include in our taxable income the income generated by investments in three of our CT CDOs, which is different from our GAAP financial statements, which only include income from CT CDO I. Due to the redirection provisions of our consolidated CT CDOs, which reallocate principal proceeds and interest otherwise distributable to us to repay senior noteholders, assets financed through our CT CDOs may generate current taxable income without a corresponding cash distribution to us. See Note 5 for further discussion of these redirection provisions.
During the three months ended March 31, 2013, we recorded a current income tax provision of $38,000. As a result of our sale of CTIMCO we no longer have any deferred tax assets or liabilities as of December 31, 2012.
- 28 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
As of December 31, 2012, we had net operating losses, or NOLs, of $161.5 million and net capital losses, or NCLs, of $121.4 million available to be carried forward and utilized in current or future periods. If we are unable to utilize our NOLs, they will expire in 2029. If we are unable to utilize our NCLs, $2.0 million will expire in 2013, $87.4 million will expire in 2014, $31.4 million will expire in 2015, and $618,000 will expire in 2017. The availability of these NOLs and NCLs is subject to certain change of control provisions promulgated by the Internal Revenue Service with respect to the ownership of Blackstone Mortgage Trust, Inc.
As of March 31, 2013, tax years 2009 through 2012 remain subject to examination by taxing authorities.
Note 10. Employee Benefit and Incentive Plans
Stock-Based Incentive Plans
We do not have any employees following the consummation of the Investment Management Business Sale on December 19, 2012, as described in Note 1. In addition, all unvested restricted class A common stock was vested in conjunction with the sale. However, as of March 31, 2013, certain members of our board of directors continue to receive a portion of their director fees in stock units in lieu of cash compensation for services, and certain of our former employees continue to participate in the CTOPI incentive management fee grants and the CT Legacy Partners management incentive awards plan.
We had stock-based incentive awards outstanding under three benefit plans as of March 31, 2013: (i) our amended and restated 1997 non-employee director stock plan, or 1997 Director Plan, (ii) our 2007 long term incentive plan, or 2007 Plan, and (iii) our 2011 long term incentive plan, or 2011 Plan. The 1997 Director Plan and the 2007 Plan expired in 2007 and 2011, respectively and no new awards may be issued under them. Under the 2011 Plan, a maximum of 100,000 shares of class A common stock may be issued, and shares canceled under previous plans are also available to be reissued under the 2011 Plan. As of March 31, 2013, there were 10,000 shares available under the 2011 Plan.
As of March 31, 2013, there were an aggregate 91,000 stock units outstanding under the 1997 Director Plan, 2007 Plan, and 2011 Plan. These stock units are granted to certain members of our board of directors in lieu of cash compensation for services and in lieu of dividends earned on previously granted stock units.
The preceding share and stock unit amounts have been retroactively updated to reflect the one-for-ten reverse stock split which we effected as of May 6, 2013. See Note 14 for further discussion.
Note 11. Fair Values
Assets and Liabilities Recorded at Fair Value
Certain of our assets and liabilities are measured at fair value either (i) on a recurring basis, as of each quarter-end, or (ii) on a nonrecurring basis, as a result of impairment or other events. Generally, loans held-for-sale, the investment in CT Legacy Asset, and interest rate swaps are measured at fair value on a recurring basis, while impaired loans and securities are measured at fair value on a nonrecurring basis. These fair values are determined using a variety of inputs and methodologies, which are detailed below.
As discussed in Note 2, the Fair Value Measurement and Disclosures Topic of the Codification establishes a fair value hierarchy that prioritizes the inputs used in determining fair value under GAAP, which includes the following classifications, in order of priority:
|
Level 1 generally includes only unadjusted quoted prices in active markets for identical assets or liabilities as of the reporting date. |
|
Level 2 inputs are those which, other than Level 1 inputs, are observable for identical or similar assets or liabilities. These include: |
|
Quoted prices in active markets for similar instruments, |
|
Quoted prices in less active or inactive markets for identical or similar instruments where multiple price quotes can be obtained, and |
|
Other observable inputs such as interest rates, yield curves, credit risks, and default rates. |
|
Level 3 inputs generally include anything which does not meet the criteria of Levels 1 and 2, particularly any unobservable inputs. These include: |
|
Information provided by third-parties in cases where the third-party has relied on significant unobservable inputs, |
- 29 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
|
Quoted prices in less active or inactive markets for identical or similar instruments where only one price quote can be obtained, and |
|
Internally-generated unobservable inputs. |
The following table summarizes our assets and liabilities, including those of CT Legacy Partners and our consolidated securitization vehicles, which are recorded at fair value as of March 31, 2013 ($ in thousands):
Fair Value Measurements Using | ||||||||||||||||
Total
Fair Value at March 31, 2013 |
Quoted Prices
in Active Markets (Level 1) |
Other
Observable Inputs (Level 2) |
Significant
Unobservable Inputs (Level 3) |
|||||||||||||
Measured on a recurring basis: | ||||||||||||||||
Securities, at fair value |
$ | 11,702 | $ | | $ | 2,274 | $ | 9,428 | ||||||||
Loans receivable, at fair value |
$ | 150,332 | $ | | $ | | $ | 150,332 | ||||||||
Loans held-for-sale, net |
$ | 1,800 | $ | | $ | | $ | 1,800 | ||||||||
Interest rate swap liabilities |
($ | 6,119 | ) | $ | | ($ | 6,119 | ) | $ | | ||||||
Measured on a nonrecurring basis: | ||||||||||||||||
Securitization vehicles impaired loans receivable (1) |
$ | | $ | | $ | | $ | |
(1) | Loans receivable against which we have recorded a loan loss reserve as of March 31, 2013. |
The following table reconciles the beginning and ending balances of assets measured at fair value on a recurring basis using Level 3 inputs ($ in thousands):
Securities,
at fair value |
Loans Receivable,
at fair value |
Loans
Held-for-Sale, net |
Investment in
CT Legacy Assets |
|||||||||||||
December 31, 2012 |
$ | | $ | | $ | | $ | 132,000 | ||||||||
Consolidation of CT Legacy Parent |
11,702 | 150,332 | | (132,000 | ) | |||||||||||
Transfer from loans receivable, net |
| | 2,000 | | ||||||||||||
Adjustments to fair value included in earnings: | ||||||||||||||||
Valuation allowance on loans held-for-sale |
| | (200 | ) | | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
March 31, 2013 |
$ | 11,702 | $ | 150,332 | $ | 1,800 | $ | | ||||||||
|
|
|
|
|
|
|
|
The fair values of each type of asset recorded at fair value using Level 3 inputs are determined by an internal committee comprised of members of senior management of our Manager, including our chief executive officer, chief financial officer and our chief credit officer and head of asset management. The following methods and assumptions were used to estimate the fair value of each type of asset and liability which was recorded at fair value as of March 31, 2013:
Securities, at fair value: CT Legacy Partners securities are generally valued by a combination of (i) obtaining assessments from third-party dealers and, (ii) in cases where such assessments are unavailable or deemed not to be indicative of fair value, discounting expected cash flows using internal cash flow models and estimated market discount rates. In the case of internal models, expected cash flows of each security are based on assumptions regarding the collection of principal and interest on the underlying loans and securities. As of March 31, 2013, all securities were valued by obtaining assessments from third-party dealers.
Loans, at fair value: CT Legacy Partners loans receivable are generally valued by discounting expected cash flows using internal cash flow models and estimated market rates. Expected cash flows of each loan are based on our Managers assumptions regarding the collection of principal and interest from the respective borrowers.
Loans held-for-sale: Loans held-for-sale are valued based on expected net proceeds from a sale of the asset.
Interest rate swap liabilities: Interest rate swaps are valued using advice from a third-party derivative specialist, based on a combination of observable market-based inputs, such as interest rate curves, and unobservable inputs such as credit valuation adjustments due to the risk of non-performance by both us and our counterparties. See Note 3 for additional details on our interest rate swaps. We have made an accounting policy decision to utilize the so-called portfolio exception under GAAP, and have valued our interest rate swap liabilities, as applicable, on a net basis.
- 30 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Impaired loans : The loans identified for impairment are collateral dependent loans. Impairment on these loans is measured by comparing our Managers estimation of fair value of the underlying collateral, less costs to sell, to the book value of the respective loan. These valuations require significant judgments, which include assumptions regarding capitalization rates, leasing, creditworthiness of major tenants, occupancy rates, availability of financing, exit plan, loan sponsorship, actions of other lenders and other factors deemed necessary by our Manager. The table above includes all impaired loans, regardless of the period in which impairment was recognized.
As of March 31, 2013, two of our consolidated securitization vehicles subordinate interests in mortgage loans with an aggregate principal balance of $18.1 million are reported at fair value. These hotel loans are in maturity default and have a weighted average coupon of 3.8% per annum as of March 31, 2013. The range of key assumptions used for arriving at the fair value of these loans included capitalization rates between 9% and 15% and assumed occupancy rates between 75% and 83%.
The following table lists the range of key assumptions used in arriving at the fair value of each of these types of loans receivable as of March 31, 2013 ($ in millions):
Assumption Ranges for Significant | Book Value | |||||||||||
Unobservable Inputs (Level 3) (1) | Sensitivity to a | |||||||||||
Recovery | 100bps Discount | |||||||||||
Collateral Type |
Discount Rate | Percentage (2) | Book Value | Rate Increase | ||||||||
Hotel |
8% - 12% | 84% - 100% | $ | 50.7 | (0.6 | %) | ||||||
Mixed Use / Other |
15% - 20% | 100% | 43.0 | (0.4 | %) | |||||||
Multifamily |
3% | 100% | 12.8 | (3.5 | %) | |||||||
Office |
7% - 18% | 77% - 100% | 43.8 | (1.5 | %) | |||||||
|
|
|||||||||||
$ | 150.3 | |||||||||||
|
|
(1) | Excludes loans for which there is no expectation of future cash flows. |
(2) | Represents the proportion of the principal expected to be collected relative to the loan balance as of March 31, 2013. |
Fair Value of Financial Instruments
In addition to the above disclosures for assets and liabilities which are recorded at fair value, GAAP also requires disclosure of fair value information about financial instruments, whether or not recognized in the statement of financial position, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are estimated using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the estimated market discount rate and the estimated future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in an immediate settlement of the instrument. Rather, these fair values reflect the amounts that our Manager believes are realizable in an orderly transaction among willing parties. These disclosure requirements exclude certain financial instruments and all non-financial instruments.
- 31 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
The following table details the carrying amount, face amount, and approximate fair value of the financial instruments described above ($ in thousands). All fair value estimates, except for cash and cash equivalents, are measured using significant unobservable inputs, or Level 3 inputs, as further described above.
Fair Value of Financial Instruments |
||||||||||||||||||||||||
March 31, 2013 | December 31, 2012 | |||||||||||||||||||||||
Carrying
Amount |
Face
Amount |
Fair
Value |
Carrying
Amount |
Face
Amount |
Fair
Value |
|||||||||||||||||||
Financial assets: | ||||||||||||||||||||||||
Cash and cash equivalents |
$ | 15,361 | $ | 15,361 | $ | 15,361 | $ | 15,423 | $ | 15,423 | $ | 15,423 | ||||||||||||
Restricted cash |
12,719 | 12,719 | 12,719 | 14,246 | 14,246 | 14,246 | ||||||||||||||||||
Loans receivable, net |
139,500 | | 136,484 | 141,500 | 164,180 | 133,682 | ||||||||||||||||||
Financial liabilities: | ||||||||||||||||||||||||
Secured notes |
8,671 | 8,671 | 7,596 | 8,497 | 8,497 | 7,374 | ||||||||||||||||||
Repurchase obligations |
20,214 | 20,214 | 20,537 | | | | ||||||||||||||||||
Securitized debt obligations |
136,944 | 136,944 | 88,051 | 139,184 | 139,184 | 89,880 |
The following methods and assumptions were used to estimate the fair value of each class of financial instruments, excluding those described above that are carried at fair value, for which it is practicable to estimate that value:
Cash and cash equivalents: The carrying amount of cash on deposit and in money market funds approximates fair value.
Restricted cash: The carrying amount of restricted cash approximates fair value.
Loans receivable, net: Other than impaired loans, these assets are recorded at their amortized cost and not at fair value. The fair values presented above were estimated by our Manager taking into consideration factors including capitalization rates, leasing, occupancy rates, availability and cost of financing, exit plan, sponsorship, actions of other lenders and indications of market value from other market participants.
S ecured notes: These notes are recorded at their aggregate principal balance and not at fair value. The fair value was estimated based on the rate at which a similar credit facility would be priced today.
Repurchase obligations: These facilities were recorded at their aggregate principal balance and not at fair value. The fair value was estimated based on the rate at which a similar credit facility would be priced today.
Securitized debt obligations: These obligations are recorded at the face value of outstanding obligations to third-parties and not at fair value. The fair values presented above have been estimated by obtaining assessments from third-party dealers.
Note 12. Supplemental Disclosures for Consolidated Statements of Cash Flows
As described in Note 1, our financial statements have historically included the results of consolidated securitization vehicles. The consolidation of these entities has materially impacted our statement of cash flows, primarily the amounts reported as principal collections of loans and repayments of securitized debt obligations. Notwithstanding the gross presentation on our consolidated statement of cash flows, the consolidation of these entities has no impact on our net cash flow.
Interest paid on our outstanding debt obligations during the three months ended March 31, 2013 and 2012 was $377,000 and $12.3 million, respectively. This includes interest paid by consolidated securitization vehicles and CT Legacy Partners. The difference between interest expense on our consolidated statement of operations and interest paid is primarily due to non-cash interest expense recorded from the amortization of discount of the Five Mile Capital Partners, LLC, or Five Mile Capital, mezzanine loan, interest rate swaps, loan participations sold, and deferred interest on various debt obligations.
Net income taxes paid by us during the three months ended March 31, 2013 and 2012 were $38,000 and $1.2 million, respectively. The taxes paid in 2012 relate primarily to the investment management activities of our taxable REIT subsidiary, CTIMCO, which was sold in conjunction with the Investment Management Business Sale.
Significant non-cash investing and financing activities that are not presented on our consolidated statements of cash flows include (i) the repayments of our loan participations sold assets and liabilities, and (ii) the consolidation and deconsolidation of securitization vehicles during the year.
- 32 -
Blackstone Mortgage Trust, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(unaudited)
Note 13. Transactions with Related Parties
Transactions Related to Our External Manager
As further described in Note 1, in December 2012 we concluded multiple, related transactions with Blackstone and its affiliates, including: (i) the Investment Management Business Sale, (ii) the sale of 500,000 shares of our class A common stock for $20.00 per share, and (iii) the execution of a new external management agreement with our Manager. In addition, Blackstone received the right to designate two members of our board of directors, and exercised that right by designating an employee and one of its senior advisors to replace two former members of our board of directors who resigned effective December 19, 2012. See Note 1 for further discussion.
As of March 31, 2013, our consolidated balance sheet included $71,000 of accrued management fees payable to our Manager. In addition, as of March 31, 2013, our consolidated balance sheet includes $422,000 of preferred distributions payable by CT Legacy Partners to an affiliate of our Manager. During the three months ended March 31, 2013, CT Legacy Partners made aggregate preferred distributions of $1.1 million to an affiliate of our Manager.
There may be conflicts between us and our Manager with respect to certain of the investments in the CT Legacy Partners and CTOPI portfolios where an affiliate of our Manager holds a related investment that is senior, junior, or pari passu to the investments held by these portfolios.
The management agreement with our Manager excludes from the management fee calculation our interests in CT Legacy Partners, CTOPI, and our CT CDOs, which may result in further conflicts between the economic interests of us and our Manager. Certain of our former employees are now employed by an affiliate of our Manager. See Note 7 for further discussion of the management agreement with our Manager.
Other Related Party Transactions
In conjunction with the Investment Management Business Sale, we entered into a letter agreement with W.R. Berkley Corporation, or WRBC, pursuant to which we will not undertake any offering of our class A common stock, or other equity securities, in an aggregate amount greater than $30.0 million without prior approval of a majority of the independent members of our board of directors. The requirement to obtain this approval will terminate upon the closing of the first offering to exceed the aggregate $30.0 million threshold. WRBC beneficially owned class A common stock representing approximately 13.1% of our outstanding class A common stock and stock units as of May 1, 2013, and a member of our board of directors is an employee of WRBC.
Wholly-owned subsidiaries of WRBC are investors in certain private funds under Five Mile Capitals management. Five Mile Capital provided an $83.0 million mezzanine loan to CT Legacy REIT in connection with our March 2011 Restructuring, and holds a significant interest in the common equity of CT Legacy Partners. In February 2012 we refinanced CT Legacy Partners Five Mile Capital mezzanine loan and repurchase facility with a single, new $124.0 million repurchase facility with JPMorgan.
Note 14. Subsequent Events
Subsequent to March 31, 2013, as a result of asset repayments in the CT Legacy Partners Portfolio, the JPMorgan repurchase obligation was reduced by $13.6 million, to $6.6 million as of May 6, 2013.
On April 26, 2013, our board of directors approved a one-for-ten reverse stock split of our class A common stock which we effected on May 6, 2013. As a result of the reverse stock split, the number of outstanding shares of our class A common stock was reduced to 2,926,651 as of May 6, 2013.
On May 6, 2013, we changed our name from Capital Trust, Inc. to Blackstone Mortgage Trust, Inc. and our stock ticker symbol from CT to BXMT.
- 33 -
ITEM 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
References herein to Blackstone Mortgage Trust, Company, we, us or our refer to Blackstone Mortgage Trust, Inc. and its subsidiaries unless the context specifically requires otherwise.
The following discussion should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q. In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed in Item 1A. Risk Factors in our annual report on Form 10-K for the year ended December 31, 2012 and elsewhere in this quarterly report on Form 10-Q.
Introduction
We are a real estate finance company that focuses primarily on originating mortgage loans backed by commercial real estate assets. Our business plan is to create the premier global commercial real estate lending platform and to originate, acquire and manage commercial real estate loans and securities and other commercial real estate-related debt instruments. Our investment objective is to preserve and protect our capital while producing attractive risk-adjusted returns primarily through dividends generated from current income on our portfolio.
From the inception of our finance business in 1997 through December 19, 2012, we were a fully integrated, self-managed, real estate finance and investment management company that invested for our own account directly on our balance sheet and for third parties through a series of investment management vehicles. On December 19, 2012, we consummated a strategic transaction that included, among other things, disposition of our investment management and special servicing business, including CT Investment Management Co., LLC, or CTIMCO, to an affiliate of The Blackstone Group L.P., or Blackstone. In conjunction with the sale, we entered into a management agreement with BREDS/CT Advisors L.L.C., which is an affiliate of Blackstone, whereby we became externally managed. We refer to BREDS/CT Advisors L.L.C. as our Manager, and we refer to the entire transaction as our Investment Management Business Sale.
We conduct our operations as a real estate investment trust, or REIT, for U.S. federal income tax purposes. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all of our net taxable income to stockholders and maintain our qualification as a REIT. We also operate our business in a manner that permits us to maintain our exemption from registration under the Investment Company Act of 1940, as amended, or the Investment Company Act. We are organized as a holding company and conduct our business primarily through our various subsidiaries.
On April 26, 2013, our board of directors approved the change of our name from Capital Trust, Inc. to Blackstone Mortgage Trust, Inc., which we effected at 5:01 p.m. (EDT) on May 6, 2013 concurrently with a one-for-ten reverse stock split of our class A common stock. Except where the context indicates otherwise, all class A common stock numbers herein have been adjusted to give retroactive effect to the reverse stock split.
Sale of Investment Management Platform
On December 19, 2012, pursuant to a previously announced purchase and sale agreement, dated September 27, 2012, or Purchase Agreement, by and between us and Huskies Acquisition LLC, or Huskies Acquisition, an affiliate of Blackstone, and an assignment agreement, dated as of December 19, 2012 by and among us, Huskies Acquisition and Blackstone Holdings III L.P., or Holdings III, an affiliate of Blackstone, we completed the disposition of our investment management and special servicing business for a purchase price of $21.4 million The sale included our equity interests in CTIMCO, our related private investment fund co-investments, and 100% of the outstanding class A preferred stock of CT Legacy REIT Mezz Borrower, Inc., or CT Legacy REIT. Pursuant to the terms of the Purchase Agreement, on December 19, 2012, we entered into a management agreement with our Manager, which was amended and restated as of March 26, 2013, pursuant to which we are now managed by our Manager pursuant to the terms and conditions of the management agreement. In addition, Blackstone received the right to designate two members of our board of directors, and exercised that right by designating an employee and one of its senior advisors to replace two former members of our board of directors who resigned effective December 19, 2012. As a result of the Investment Management Business Sale, the income and expense items related to our investment management business have been reclassified to income from discontinued operations on our consolidated statement of operations. See Note 8 to our consolidated financial statements for a further discussion of discontinued operations.
On December 19, 2012, we also closed our sale to Holdings III of 500,000 shares of our class A common stock for a purchase price of $10.0 million.
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In connection with the consummation of the Investment Management Business Sale and the closing of our sale of 500,000 shares of class A common stock to Holdings III, we paid a previously announced $20.00 per share special cash dividend on December 20, 2012 to holders of record of our class A common stock at the close of business on November 12, 2012.
I. Our Significant Assets
The assets we retained following our Investment Management Business Sale consist primarily of: (i) our cash and cash equivalents of $15.4 million as of March 31, 2013, (ii) our interests in CT Legacy Partners, as defined below, a vehicle we formed to own and finance certain legacy assets that we retained in connection with a comprehensive debt restructuring in 2011, (iii) our carried interest in CTOPI, a private investment fund that was previously under our management and is now managed by an affiliate of our Manager, and (iv) our subordinated interests in certain collateral debt obligations, or CT CDOs, in particular CT CDO I.
CT Legacy Partners
Our investment in CT Legacy Partners, LLC, or CT Legacy Partners, is our most significant asset following our Investment Management Business Sale, and represents our 52% equity interest in our portfolio of legacy assets and liabilities. As of March 31, 2013, the CT Legacy Partners portfolio included loans with an aggregate principal balance of $257.4 million and securities with an aggregate face value of $135.3 million, all of which serve as collateral for CT Legacy Partners only debt obligation, its repurchase facility with JPMorgan with an outstanding balance of $20.2 million as of March 31, 2013. This repurchase facility is non-recourse to CT Legacy Partners and us. We are not obligated to provide, nor have we provided, any financial support to CT Legacy Partners.
The following table details the components of our gross investment in CT Legacy Partners included in our consolidated balance sheet, as well as our net investment in CT Legacy Partners after the future payments under the secured notes and management incentive awards plan as of March 31, 2013 ($ in thousands):
Blackstone Mortgage Trusts Investment in CT Legacy Partners as of March 31, 2013 |
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Gross investment in CT Legacy Partners: |
||||
Restricted cash |
$ | 12,719 | ||
Securities, at fair value |
11,702 | |||
Loans receivable, at fair value |
150,332 | |||
Accrued interest receivable, prepaid expenses, and other assets |
8,879 | |||
Accounts payable, accrued expenses and other liabilities |
(815 | ) | ||
Repurchase obligations |
(20,214 | ) | ||
Interest rate swap liabilities |
(6,119 | ) | ||
Noncontrolling interests |
(86,350 | ) | ||
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|
|||
$ | 70,134 | |||
|
|
|||
Secured notes, including prepayment premium (1) |
(11,059 | ) | ||
Management incentive awards plan, fully vested (2) |
(10,563 | ) | ||
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|
|||
Net investment in CT Legacy Partners |
$ | 48,512 | ||
|
|
(1) | Includes the full potential prepayment premium on secured notes, as described below. We carry this liability at its amortized basis of $8.7 million on our balance sheet as of March 31, 2013. The remaining interest and prepayment premium will be recognized, as applicable, over the term of the secured notes as a component of interest expense. |
(2) | Assumes full payment of the management incentive awards plan, as described below, based on the hypothetical GAAP liquidation value of CT Legacy Partners as of March 31, 2013. We periodically accrue a payable for the management incentive awards plan based on the vesting schedule for the awards and continued employment with an affiliate of our Manager of the award recipients. As of March 31, 2013, our balance sheet includes $6.3 million in accounts payable and accrued expenses for the management incentive awards plan. |
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The CT Legacy Partners portfolio is primarily comprised of investments which were originated in 2006 and 2007, a substantial portion of which are distressed and not expected to repay in full or, in certain cases, at all. See Note 3 to our consolidated financial statements for further discussion of the consolidated assets and liabilities of CT Legacy Partners. The following table provides details of CT Legacy Partners loan portfolio, on a loan-by-loan basis ($ in millions):
CT Legacy Partners Loans Receivable as of March 31, 2013 (1) |
||||||||||||||||||||||
Principal
Balance |
Book
Value (2) |
Coupon (3) | Maturity (4) | Loan Type |
Geographic
Location |
Property
Type |
||||||||||||||||
Loan A |
$ | 27.0 | $ | 28.8 | L+2.75 | % | 12/31/14 | Sub. mortgage | Northwest | Other | ||||||||||||
Loan B |
25.4 | 25.0 | L+7.94 | % | 4/9/13 | Sub. mortgage | International | Hotel | ||||||||||||||
Loan C |
19.9 | 20.1 | 8.00 | % | 9/1/14 | Mezzanine | Northeast | Office | ||||||||||||||
Loan D |
17.9 | 12.5 | L+4.00 | % | 3/15/12 | Sr. mortgage | Northeast | Office | ||||||||||||||
Loan E |
15.0 | 13.7 | L+4.00 | % | 3/9/14 | Sr. mortgage | West | Hotel | ||||||||||||||
Loan F |
12.8 | 12.8 | L+1.96 | % | 1/3/17 | Sub. mortgage | Northeast | Multifamily | ||||||||||||||
Loan G |
14.4 | 14.2 | L+2.75 | % | 12/31/14 | Sub. mortgage | Northwest | Other | ||||||||||||||
Loan H |
14.3 | 11.9 | L+8.50 | % | 6/9/13 | Mezzanine | Southeast | Hotel | ||||||||||||||
Loan I |
8.0 | 7.8 | 12.00 | % | 10/9/13 | Mezzanine | Northeast | Office | ||||||||||||||
Loan J |
4.5 | 3.5 | 8.77 | % | 2/1/16 | Mezzanine | Northeast | Office | ||||||||||||||
Other (5) |
98.2 | | Various | Various | Various | Various | Various | |||||||||||||||
|
|
|
|
|||||||||||||||||||
$ | 257.4 | $ | 150.3 | |||||||||||||||||||
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|
|
|
(1) | In addition, CT Legacy Partners owns investments in securities with an aggregate face value of $135.3 million and a net book value of $11.7 million. |
(2) | Represents the fair value of each loan as of March 31, 2013. |
(3) | All floating rate loans are indexed to one-month LIBOR as of March 31, 2013. |
(4) | Maturity date assumes all extension options are executed. |
(5) | Includes four loans receivable investments, each of which are 100% impaired as of March 31, 2013. |
Repurchase Obligations
As of March 31, 2013, CT Legacy Partners was party to a repurchase facility with JPMorgan with an outstanding balance of $20.2 million. The facility matures on December 15, 2014, and carries a rate of LIBOR+6.00% as of March 31, 2013. This repurchase facility is non-recourse to CT Legacy Partners and us.
Interest Rate Swap Liabilities
As of March 31, 2013, CT Legacy Partners was party to five interest rate swap agreements with JPMorgan with an aggregate notional amount of $60.7 million. Under each of these interest rate swap agreements, CT Legacy Partners pays a fixed rate of interest and receives an amount indexed to one-month LIBOR. As of March 31, 2013, these agreements had a weighted average pay rate of 5.17% per annum and were recorded as an aggregate liability of $6.1 million, representing the fair value of the future estimated payments under these agreements. CT Legacy Partners has not posted any assets as collateral under these agreements, and they are each non-recourse to CT Legacy Partners and us.
Secured Notes
In conjunction with our March 2011 Restructuring, as defined below, and the corresponding satisfaction of our senior credit facility and junior subordinated notes, certain wholly-owned subsidiaries of ours issued secured notes to these former creditors, which secured notes are non-recourse to us. The secured notes had an aggregate initial face value of $7.8 million and are secured by 93.5% of our equity interests in the class A-1 and class A-2 common shares of CT Legacy Partners, which represents 48.3% of the total outstanding class A-1 and class A-2 common shares of CT Legacy Partners. The secured notes mature on March 31, 2016 and bear interest at a rate of 8.2% per annum, which interest may be deferred until maturity. All distributions we receive from our equity interests in the common shares of CT Legacy Partners which serve as collateral under the secured notes must be used to pay, or prepay, interest and principal due thereunder, and only after the notes full satisfaction will we receive any cash flow from the common equity interests in CT Legacy Partners that serve as collateral for the notes. Any prepayment, or partial prepayment, of the secured notes will incur a prepayment premium resulting in a total payment of principal and interest under the secured notes of $11.1 million.
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We had secured notes outstanding with an accreted book value of $8.7 million and $8.5 million as of March 31, 2013 and December 31, 2012, respectively.
CT Legacy Partners Management Incentive Awards Plan
In conjunction with our March 2011 Restructuring, as defined below, we created an employee pool for up to 6.75% of the distributions paid to the common equity holders of CT Legacy Partners (subject to certain caps and priority distributions). As of December 31, 2012, incentive awards for 92% of the pool were granted to our former employees, and the remainder remains unallocated. If any awards remain unallocated at the time distributions are paid, any amounts otherwise payable to the unallocated awards will be distributed pro-rata to the plan participants then employed by an affiliate of our Manager.
Approximately 82% of these grants have the following vesting schedule, which is contingent on continued employment with an affiliate of our Manager: (i) 25% vests on the date of grant, (ii) 25% vests in March 2013, (iii) 25% vests in March 2014, and (iv) the remainder vests upon our receipt of distributions from CT Legacy Partners. The remaining 18% of these grants vest upon our receipt of distributions from CT Legacy Partners.
We accrue a liability for the amounts due under these grants based on the value of CT Legacy Partners and the periodic vesting of the awards granted. Accrued payables for these awards were $6.3 million and $5.3 million as of March 31, 2013 and December 31, 2012, respectively.
CT Legacy Partners Background
CT Legacy Partners holds the remaining assets and liabilities of our legacy portfolio, which we had previously transferred to CT Legacy REIT (the predecessor of CT Legacy Partners) in connection with our March 2011 Restructuring, as defined below. CT Legacy Partners is beneficially owned 52% by us and 48% by our former lenders. In addition, CT Legacy Partners has issued class B common shares, a subordinate class of equity which entitles its holders to receive approximately 25% of the dividends that would otherwise be payable to us on our equity interest in CT Legacy Partners, after aggregate cash distributions of $50.0 million have been paid to all other classes of common equity. Further, CT Legacy Partners has issued class A preferred shares which entitle its holder to cumulative preferred distributions in an amount generally equal to the greater of (i) 2.5% of certain of CT Legacy Partners assets, and (ii) $1.0 million per annum.
On March 31, 2011, we restructured, amended, or extinguished all of our outstanding recourse debt obligations, which we refer to as our March 2011 Restructuring. Our March 2011 Restructuring involved: (i) the contribution of certain of our legacy assets to a newly formed subsidiary, CT Legacy REIT, (ii) the assumption of our legacy repurchase obligations by CT Legacy REIT, and (iii) the extinguishment of the remainder of our recourse obligations, our senior credit facility and junior subordinated notes. The restructuring was financed with a new $83.0 million mezzanine loan obtained by CT Legacy REIT from an affiliate of Five Mile Capital Partners, LLC, or Five Mile Capital, and the issuance of equity interests in the common stock of CT Legacy REIT to the former lenders under our senior credit facility and our former junior subordinated noteholders, as well as to an affiliate of Five Mile Capital. Upon completion of our March 2011 Restructuring, we no longer had any recourse debt outstanding.
To maintain its tax efficiency, on March 20, 2013, a majority of the stockholders CT Legacy REIT voted in favor of a plan of merger, dated March 22, 2013, or the Merger, whereby CT Legacy REIT merged with and into CT Legacy Partners, effective as of March 22, 2013. As a result of the Merger, all outstanding shares of class A-1 common stock, class A-2 common stock, class B common stock, and class A preferred stock of CT Legacy REIT were converted into limited liability company shares, or LLC interests, in CT Legacy Partners. These LLC interests have economic and voting rights equivalent to the corresponding shares of stock of CT Legacy REIT. All outstanding shares of class B preferred stock of CT Legacy REIT were redeemed on March 21, 2013.
Our economic interest in CT Legacy Partners is subject to (i) the secured notes, which are non-recourse obligations that are collateralized by certain of our equity interests in the common shares of CT Legacy Partners, (ii) incentive awards that provide for the participation in amounts earned from our retained equity interests in CT Legacy Partners, and (iii) the subordinate class B common stock of CT Legacy Partners.
Carried Interest in CTOPI
We have historically co-invested in certain of the investment management vehicles that we sponsored and managed. As further described above, we sold all of our co-investments to an affiliate of Blackstone in December 2012 in conjunction with the sale of our investment management business. We have, however, retained 100% of our carried interest in one of our funds, CTOPI.
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Our carried interest in CTOPI entitles us to earn incentive compensation in an amount equal to 17.7% of the funds profits, after a 9% preferred return and 100% return of capital to the CTOPI partners. As of March 31, 2013, we have been allocated $21.4 million of incentive compensation from CTOPI based on a hypothetical liquidation of the fund at its net asset value. Accordingly, we have recognized this allocation as an equity investment in CTOPI on our consolidated balance sheet; however, we have deferred the recognition of income until cash is collected or appropriate contingencies have been eliminated.
The CTOPI partnership agreement provides for advance distributions in respect of our incentive compensation to allow us to pay any income taxes owed on phantom taxable income allocated to us from the partnership. We refer to these distributions as CTOPI Tax Advances. During 2012, we received one such CTOPI Tax Advance of $1.4 million, resulting in a net book value for our investment in CTOPI of $20.0 million as of March 31, 2013. In the event the performance of CTOPI does not ultimately result in an allocation of incentive compensation to us, we would be required to refund these CTOPI Tax Advances to the fund.
CTOPI Incentive Management Fee Grants
In January 2011, we created a management compensation pool for employees equal to 45% of the CTOPI incentive management fee received by us. As of March 31, 2013, we had granted 96% of the pool to our former employees, and the remainder remains unallocated. If any awards remain unallocated at the time incentive management fees are received by us, any amounts otherwise payable to the unallocated awards will be distributed pro rata to the plan participants then employed by an affiliate of our Manager.
Approximately 96% of these grants have the following vesting schedule, which is contingent on continued employment with an affiliate of our Manager: (i) one-third on the date of grant, (ii) one-third on September 13, 2012 and (iii) the remainder vests upon our receipt of incentive management fees from CTOPI. The remaining 4% of these grants vest solely upon our receipt of incentive management fees from CTOPI or the disposition of certain investments owned by CTOPI.
Consolidated Securitization Vehicles CT CDO I
As of March 31, 2013, our consolidated balance sheet included an aggregate $143.7 million of assets and $137.1 million of liabilities related to two consolidated securitization vehicles.
Specifically, we own the residual debt and equity positions of CT CDO I, and through CT CDO I, we own the subordinate securities of the GSMS 2006-FL8A securitization. As a result of consolidation, our subordinate debt and equity ownership interests in these entities are not included on our balance sheet, which instead reflects both the assets held and debt issued by these entities to third-parties. Similarly, our operating results and cash flows include the gross amounts related to the assets and liabilities of these securitization vehicles, as opposed to our net economic interests in these entities.
Our economic interest in the loans receivable assets held by these entities, which are consolidated on our balance sheet, is restricted by the structural provisions of these entities, and our recovery of these assets will be limited by the entities distribution provisions. The liabilities of the securitization vehicles, which are also consolidated on our balance sheet, are non-recourse to us, and can only be satisfied by proceeds from each entitys respective asset pool.
We are not obligated to provide, nor have we provided, any financial support to these securitization vehicles.
The following table details the components of CT CDO I included in our consolidated balance sheet as of March 31, 2013 ($ in thousands):
Investment in CT CDO I |
March 31, 2013 | |||
Loans receivable, net |
$ | 139,500 | ||
Loans held-for-sale, net |
1,800 | |||
Accrued interest receivable, prepaid expenses, and other assets |
2,433 | |||
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|
|||
Total assets |
$ | 143,733 | ||
Accounts payable, accrued expenses and other liabilities |
$ | 168 | ||
Securitized debt obligations |
136,944 | |||
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|
|||
Total liabilities |
$ | 137,112 | ||
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|
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Net investment in CT CDO I |
$ | 6,621 | ||
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|
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See Note 5 to our consolidated financial statements for further discussion of the consolidated loans receivable portfolio and securitized debt obligations of CT CDO I. The following table provides details of CT CDO Is loan portfolio, on a loan-by-loan basis ($ in millions):
Consolidated Securitization Vehicles Loans Receivable and Loans Held-For-Sale as of March 31, 2013 |
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Principal
Balance |
Book
Value |
Coupon (1) | Maturity (2) | Loan Type |
Geographic
Location |
Property
Type |
||||||||||||||||
Loan A |
$ | 62.5 | $ | 62.5 | L+0.86 | % | 5/3/13 | Sr. mortgage | West | Office | ||||||||||||
Loan B |
30.0 | 30.0 | L+7.25 | % | 5/9/14 | Sub. mortgage | West | Hotel | ||||||||||||||
Loan C |
27.0 | 27.0 | L+9.53 | % | 10/9/13 | Sub. mortgage | Northeast | Office | ||||||||||||||
Loan D |
20.0 | 20.0 | L+5.06 | % | 10/9/13 | Sub. mortgage | Diversified | Office | ||||||||||||||
Loan E (3) |
6.6 | 1.8 | L+5.01 | % | 2/9/13 | Sub. mortgage | Southwest | Office | ||||||||||||||
Other (4) |
18.1 | | Various | Various | Various | Various | Various | |||||||||||||||
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|
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|
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$ | 164.2 | $ | 141.3 | |||||||||||||||||||
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(1) | All floating rate loans are indexed to one-month LIBOR as of March 31, 2013. |
(2) | For loans in CT CDO I, assumes all extension options are executed. For loans in GSMS 2006-FL8A, maturity is based on information provided by its trustee. |
(3) | Loan has been classified as held-for-sale as of March 31, 2013. Accordingly, its book value represents fair market value as of March 31, 2013. |
(4) | Includes two loans receivable investments, each of which are 100% impaired as of March 31, 2013. |
II. Our Liquidity and Operations
Liquidity and Capital Resources
Liquidity
As of March 31, 2013, we had cash and cash equivalents of $15.4 million. However, we currently do not have access to liquidity from our investment portfolio, including our equity interests in CT Legacy Partners, our carried interest in CTOPI, and our residual ownership interest in CT CDO I. Over the next several years, however we do expect to realize recoveries from these portfolios.
Regarding our equity interests in CT Legacy Partners, the proceeds generated by this portfolio will not be distributed to CT Legacy Partners common equity holders, including us, until the related repurchase obligation, which had an outstanding balance of $20.2 million as of March 31, 2013, has been repaid. In addition, the majority of the first $11.1 million of distributions we receive from CT Legacy Partners must be used to repay our secured notes before any material cash flow is available to us.
Regarding our carried interest in CTOPI, we will not receive any incentive distributions until the fund has returned all of its investors capital and paid a 9% preferred return.
Regarding our residual ownership interest in CT CDO I, as described in Note 5 to our consolidated financial statements, covenant breaches in our CT CDOs have resulted in a redirection of cash flow to amortize senior notes, which amounts would otherwise have been available to us. We do, however, expect to ultimately receive payments on our residual interests in the CDO once the debt held by third parties has been repaid.
As a result of our Investment Management Business Sale, we no longer have access to the liquidity generated by our investment management business or the class A preferred distributions of CT Legacy Partners that were sold as part of that transaction. Similarly, we no longer bear the expenses of operating our investment management business, including the related income tax obligations, nor do we have any capital commitments to any of our previously managed funds. Accordingly, as of March 31, 2013, our primary source of liquidity is the $15.4 million of cash on deposit at Blackstone Mortgage Trust, Inc., and our primary uses of liquidity are the operating expenses of our remaining business, which are limited, any clawback payments of advance incentive distributions from CTOPI, and any dividends necessary to maintain our REIT status. During the three months ended March 31, 2013, we incurred $639,000 of professional fees and $436,000 of operating expenses related to our remaining business. These include $63,000 of management fee expenses payable to our Manager which fees, absent a change in our capitalization, are limited to $250,000 per annum. We are also required to reimburse our Manager for certain expenses.
See Note 4 to our consolidated financial statements for further discussion of advance incentive distributions from CTOPI.
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We have no obligations to provide financial support to CT Legacy Partners, CTOPI, or our consolidated securitization vehicles, and all debt obligations of such entities, some of which are consolidated onto our financial statements, are non-recourse to us. In addition, we have the ability to obtain additional liquidity through the issuance of stock, incurrence of debt, or other capital raising activities.
On April 26, 2013, we filed a registration statement with the Securities and Exchange Commission related to a proposed offering of shares of our class A common stock. We plan to use substantially all the net proceeds from this offering to acquire our target assets in a manner consistent with our investment strategies and investment guidelines and for working capital and general corporate purposes.
Cash Flows
Our consolidated statements of cash flows include the cash inflows and outflows of the consolidated entities described in Note 1 to our consolidated financial statements. While this does not impact our net cash flow, it does increase certain gross cash flow disclosures.
We experienced a net decrease in cash of $62,000 for the three months ended March 31, 2013, compared to a net increase of $2.4 million for the three months ended March 31, 2012.
Cash provided by operating activities during the three months ended March 31, 2013 was $756,000, compared to cash provided by operating activities of $1.3 million during the three months ended March 31, 2012. The decrease was primarily due to the deconsolidation of certain entities in 2012, as further described in Note 1 to our consolidated financial statements.
During the three months ended March 31, 2013, cash provided by investing activities was $2.7 million, compared to $105.3 million provided by investing activities during the three months ended March 31, 2012. The decrease was primarily due to additional asset principal repayments inside of consolidated securitization vehicles in 2012.
During the three months ended March 31, 2013, cash used in financing activities was $3.5 million, compared to $104.2 million during the same period in 2012. This decrease was primarily due to additional repayments of securitized debt obligations by consolidated securitization vehicle and repayments of our legacy debt obligations during 2012.
Capitalization
We have historically capitalized our business with a combination of debt and equity which has included common equity, preferred equity, unsecured debt, and secured debt. As of March 31, 2013, our consolidated debt obligations included (i) our non-recourse secured notes secured only by certain of our equity interests in the common stock of CT Legacy Partners, (ii) CT Legacy Partners repurchase obligations, which are non-recourse to us, and (iii) non-recourse securitized debt obligations of CT CDO I. See above discussion of CT Legacy Partners and the related secured notes and repurchase obligations, as well as the discussion of CT CDO I for further information.
Our equity capital is comprised entirely of class A common stock. We did not issue any new shares of class A common stock during the three months ended March 31, 2013. Changes in the number of outstanding shares during the three months ended March 31, 2013 resulted from stock unit grants to our board of directors.
On April 26, 2013, our board of directors approved a one-for-ten reverse stock split of our class A common stock which we effected on May 6, 2013. As a result of the reverse stock split, the number of outstanding shares of our class A common stock was reduced to 2,926,651.
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The following table calculates our book value per share as of March 31, 2013 and December 31, 2012 ($ in thousands, except per share amounts):
Shareholders Equity (1) |
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March 31, 2013 | December 31, 2012 | |||||||
Shareholders equity |
$ | 76,095 | $ | 73,444 | ||||
Shares: |
||||||||
Class A common stock |
2,926,651 | 2,926,651 | ||||||
Restricted class A common stock |
| | ||||||
Stock units |
91,366 | 89,756 | ||||||
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|
|
|||||
Total |
3,018,018 | 3,016,407 | ||||||
|
|
|
|
|||||
Book value per share |
$ | 25.21 | $ | 24.35 | ||||
|
|
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|
(1) | Share and per share amounts have been retroactively updated to reflect the one-for-ten reverse stock split which we effected as of May 6, 2013. See Note 14 for further discussion. |
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Asset Management and Portfolio Performance
We are focused on maximizing the recovery of our legacy assets, including those in our CT Legacy Partners portfolio, CTOPI portfolio, and CT CDO I. While these investments are primarily in the form of debt, we are aggressive in exercising the rights afforded to us as a lender. These rights may include collateral level budget approvals, lease approvals, loan covenant enforcement, escrow/reserve management/collection, collateral release approvals and other rights that we may negotiate. In light of the recent deterioration in property level performance, property valuation, and the real estate capital markets, a significant number of our legacy assets are either non-performing and/or on our Watch List.
Watch List Assets include loans and securities that pose a higher risk of non-performance and/or loss. The primary determinant of Watch List status is the internal risk rating of our loans and securities, each of which is rated 1 (lowest risk) to 8 (highest risk) as part of our Managers periodic review of our investment portfolio.
See Notes 2, 3, and 5 to our consolidated financial statements for a further discussion of our internal loan risk ratings, which are based on both the performance of the loans and that of the underlying collateral assets. Our internal risk ratings for our securities also run from 1 (lowest risk) to 8 (highest risk) and similarly focus on the performance of the underlying collateral, in particular on our estimation of probable losses on the commercial mortgage loans that underlie our securities investments, and the degree to which our positions are insulated from those losses by third-party, subordinate capital in the securitizations.
Watch List Assets include both loans and securities with an internal risk rating of 4.
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The table below details the Watch List Assets held in CT Legacy Partners as of March 31, 2013 ($ in millions):
Watch List Assets - CT Legacy Partners (1) |
||||
March 31, 2013 | ||||
Interest earning assets of CT Legacy Partners ($ / #) |
$ | 162 / 24 | ||
Watch List Assets |
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Watch list loans ($ / #) |
$ | 118 / 10 | ||
Watch list securities ($ / #) |
$ | 9 / 10 | ||
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Total ($ / #) |
$ | 127 / 20 | ||
Percentage of interest earning assets |
78.3 | % |
(1) | All values are in terms of net book value. |
The table below details the Watch List Assets held in consolidated securitization vehicles as of March 31, 2013 and December 31, 2012 ($ in millions):
(1) | All values are in terms of net book value. |
Income Taxes
We made an election to be taxed as a REIT, effective January 1, 2003, under the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, for U.S. federal income tax purposes. We generally must distribute annually at least 90% of our net taxable income, subject to certain adjustments and excluding any net capital gain, in order for U.S. federal income tax not to apply to our earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under U.S. federal tax laws. Our qualification as a REIT also depends on our ability to meet various other requirements imposed by the Internal Revenue Code, which relate to organizational structure, diversity of stock ownership and certain restrictions with regard to the nature of our assets and the sources of our income. Even if we qualify as a REIT, we may be subject to certain U.S. federal income and excise taxes and state and local taxes on our income and assets.
These qualifications have become more difficult to meet in light of the transfer of our legacy portfolio to CT Legacy REIT in conjunction with our March 2011 Restructuring, and the lack of new, replacement investment activity. As discussed above, on March 20, 2013, CT Legacy REIT merged into CT Legacy Partners, whereby CT Legacy Partners was the surviving entity. If we fail to maintain our qualification as a REIT for any taxable year, we may be subject to material penalties as well as federal, state and local income tax on our taxable income at regular corporate rates and we would not be able to qualify as a REIT for the subsequent four full taxable years. As of March 31, 2013 and December 31, 2012, we were in compliance with all REIT requirements.
In addition, we include in our taxable income the income generated by investments in three of our CT CDOs, which is different from our GAAP financial statements, which only include income from CT CDO I. Due to the redirection provisions of our consolidated CT CDOs, which reallocate principal proceeds and interest otherwise distributable to us to repay senior noteholders, assets financed through our CT CDOs may generate current taxable income without a corresponding cash distribution to us. See Note 5 for further discussion of these redirection provisions.
During the three months ended March 31, 2013, we recorded a current income tax provision of $38,000. As a result of our sale of CTIMCO we no longer have any deferred tax assets or liabilities as of December 31, 2012.
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As of December 31, 2012, we had net operating losses, or NOLs, of $161.5 million and net capital losses, or NCLs, of $121.4 million available to be carried forward and utilized in current or future periods. If we are unable to utilize our NOLs, they will expire in 2029. If we are unable to utilize our NCLs, $2.0 million will expire in 2013, $87.4 million will expire in 2014, $31.4 million will expire in 2015, and $618,000 will expire in 2017. The availability of these NOLs and NCLs is subject to certain change of control provisions promulgated by the Internal Revenue Service with respect to the ownership of Blackstone Mortgage Trust, Inc.
As of March 31, 2013, tax years 2009 through 2012 remain subject to examination by taxing authorities.
Results of Operations
Comparison of Results of Operations: Three Months Ended March 31, 2013 vs. March 31, 2012 |
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($ in thousands, except per share amounts) | ||||||||||||||||
2013 | 2012 | $ Change | % Change | |||||||||||||
Income from loans and other investments: |
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Interest and related income |
$ | 1,456 | $ | 14,716 | ($ | 13,260 | ) | (90.1 | %) | |||||||
Less: Interest and related expenses |
777 | 23,342 | (22,565 | ) | (96.7 | %) | ||||||||||
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Income (loss) from loans and other investments, net |
679 | (8,626 | ) | 9,305 | N/A | |||||||||||
Other expenses: |
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General and administrative |
2,038 | 756 | 1,282 | 169.6 | % | |||||||||||
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Total other expenses |
2,038 | 756 | 1,282 | 169.6 | % | |||||||||||
Total other-than-temporary impairments of securities |
| | | N/A | ||||||||||||
Portion of other-than-temporary impairments of securities recognized in other comprehensive income |
| (160 | ) | 160 | (100.0 | %) | ||||||||||
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Net impairments recognized in earnings |
| (160 | ) | 160 | (100.0 | %) | ||||||||||
Recovery of provision for loan losses |
| 8 | (8 | ) | (100.0 | %) | ||||||||||
Valuation allowance on loans held-for-sale |
(200 | ) | | (200 | ) | 100.00 | % | |||||||||
Fair value adjustment on investment in CT Legacy Asset |
| 3,954 | (3,954 | ) | (100.0 | %) | ||||||||||
Gain on deconsolidation of subsidiaries |
| 146,380 | (146,380 | ) | (100.0 | %) | ||||||||||
Income from equity investments in unconsolidated subsidiaries |
| 696 | (696 | ) | (100.0 | %) | ||||||||||
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(Loss) income before income taxes |
(1,559 | ) | 141,496 | (143,055 | ) | (101.1 | %) | |||||||||
Income tax provision |
38 | 301 | (263 | ) | (87.4 | %) | ||||||||||
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(Loss) income from continuing operations |
($ | 1,597 | ) | $ | 141,195 | ($ | 142,792 | ) | (101.1 | %) | ||||||
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Loss from discontinued operations, net of tax |
| (573 | ) | 573 | (100.0 | %) | ||||||||||
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Net (loss) income |
($ | 1,597 | ) | $ | 140,622 | ($ | 142,219 | ) | (101.1 | %) | ||||||
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Net income attributable to noncontrolling interests |
(1,518 | ) | (74,069 | ) | 72,551 | (98.0 | %) | |||||||||
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Net (loss) income attributable to Capital Trust, Inc. |
($ | 3,115 | ) | $ | 66,553 | ($ | 69,668 | ) | (104.7 | %) | ||||||
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Net (loss) income from continuing operations per share - diluted |
($ | 1.03 | ) | $ | 27.64 | ($ | 28.67 | ) | N/A | |||||||
Net (loss) income per share - diluted |
($ | 1.03 | ) | $ | 27.39 | ($ | 28.42 | ) | N/A | |||||||
Dividend per share |
$ | 0.00 | $ | 0.00 | $ | 0.00 | N/A | |||||||||
Average LIBOR |
0.20 | % | 0.24 | % | (0.0 | %) | (15.6 | %) |
Income from loans and other investments, net
As discussed in Note 1 to our consolidated financial statements, we deconsolidated the assets and liabilities of CT CDOs II and IV in 2012. As a result of this and repayments in our portfolio, interest income decreased $13.3 million, or 90%, and interest expense decreased by $22.6 million, or 97%, during the first quarter of 2013 compared to the first quarter of 2012. Also, interest expense for 2012 included $10.2 million relating to acceleration of discount associated with the Five Mile Capital mezzanine loan. On a net basis, net interest income increased by $9.3 million as the decrease in interest income was less than the reduction in interest expense.
General and administrative expenses
General and administrative expenses include operating expenses, professional fees and expenses associated with consolidated securitization vehicles. General and administrative expenses increased by $1.3 million between the first quarter of 2013 and the first quarter of 2012. The increase was primarily due to expenses recognized under the CT Legacy Partners incentive awards plan. Other expenses were generally consistent from period-to-period.
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Net impairments recognized in earnings
There were no impairments recognized in earnings during the first quarter of 2013. During the first quarter of 2012, we recognized a $160,000 impairment, representing an additional credit loss on one of the securities in our consolidated securitization vehicles.
Recovery of provision for loan losses
There was no provision for loan losses during the first quarter of 2013. During the first quarter of 2012, we recorded an $8,000 recovery of provision for loan losses on one loan that had been previously impaired.
Valuation allowance on loans held-for-sale
During the first quarter of 2013, we recorded a $200,000 valuation allowance related to one loan that was classified as held-for-sale to reflect this asset at estimated fair value. We recorded no such valuation allowances on loans held-for-sale during the first quarter of 2012.
Fair value adjustment on investment in CT Legacy Asset
We did not record any fair value adjustment on our investment in CT Legacy Asset during the three months ended March 31, 2013. During the first quarter of 2012, we recognized $4.0 million of fair value adjustments on our investment in CT Legacy Asset.
Gain on deconsolidation of subsidiaries
There were no gains on deconsolidation of subsidiaries during the first quarter of 2013. During the first quarter of 2012, we recognized a gain of $146.4 million on the deconsolidation of CT Legacy Asset. This gain was primarily the result of a reversal of charges to GAAP equity resulting from losses previously recorded in excess of our economic interests in this vehicle.
Income from equity investments in unconsolidated subsidiaries
There was no income from equity investments in unconsolidated subsidiaries during the first quarter of 2013. Income recognition on our carried interest in CTOPI has been deferred.
The income from equity investments in unconsolidated subsidiaries during the first quarter of 2012 of $696,000 was from our co-investment in CTOPI. CTOPIs income was largely the result of fair value adjustments on its investment portfolio, and the recognition of income on investments purchased at a discount.
Income tax provision
During the first quarter of 2013, we paid income taxes of $38,000 related to 2012. During the first quarter of 2012, we recorded an income tax provision of $301,000, primarily based on an estimated alternative minimum tax liability.
Loss from discontinued operations, net of tax
We did not have any income (loss) from discontinued operations during the first quarter of 2013. During the first quarter of 2012, we incurred a $573,000 loss from discontinued operations related to our former investment management and special servicing business, which was sold in December 2012.
Net income attributable to noncontrolling interests
The net income attributable to noncontrolling interests recorded during the first quarter of 2013 and 2012 represents the pro-rata share of CT Legacy Partners net income for each period allocable to equity interests not owned by us.
Dividends
We did not pay any dividends on our class A common stock in the first quarter of 2013 or 2012.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America, or GAAP. The preparation of these financial statements requires our Manager to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Actual results could differ from these estimates. There have been no material changes to our Critical Accounting Policies described in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 26, 2013.
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Note on Forward-Looking Statements
Except for historical information contained herein, this quarterly report on Form 10-Q contains forward-looking statements within the meaning of the Section 21E of the Securities Exchange Act of 1934, as amended, which involve certain risks and uncertainties. Forward-looking statements may predict or describe our future operations, business plans, business and investment strategies and portfolio management and the performance of our investments. These forward-looking statements are identified by their use of such terms and phrases as intend, goal, estimate, expect, project, projections, plans, seeks, anticipates, should, could, may, designed to, foreseeable future, believe, scheduled, and similar expressions. Our actual results or outcomes may differ materially from those anticipated. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. We assume no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Important factors that we believe might cause actual results to differ from any results expressed or implied by these forward-looking statements are discussed in the risk factors contained Item 1A. Risk Factors in our annual report on Form 10-K for the year ended December 31, 2012 and elsewhere in this quarterly report on Form 10-Q, which are incorporated herein by reference. In assessing forward-looking statements contained herein, readers are urged to read carefully all cautionary statements contained in this Form 10-Q.
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ITEM 3. | Quantitative and Qualitative Disclosures About Market Risk |
Interest Rate Risk
Our business is exposed to the risks related to interest rate fluctuations. Generally, we attempt to structure our portfolios so that fixed rate assets are financed by fixed rate liabilities and floating rate assets are financed by floating rate liabilities. In certain instances, to mitigate the impact of fluctuations in interest rates, we use interest rate swaps to effectively convert floating rate liabilities to fixed rate liabilities for proper matching with fixed rate assets. Each derivative used as a hedge is matched with a liability with which it is expected to have a high correlation. The swap agreements are generally held-to-maturity and we do not use interest rate derivative financial instruments for trading purposes. Our floating rate assets and liabilities are generally indexed to one-month LIBOR.
Our investments in fixed rate assets are generally exposed to changes in value due to interest rate fluctuations, and our investments in floating rate assets are generally exposed to cash flow variability from fluctuations in rates.
CT CDO I
Our investment in CT CDO I is exposed to the risks related to interest rate fluctuations discussed above. The table below details our interest rate exposure to this portfolio as of March 31, 2013 ($ in thousands):
Interest Rate Exposure - CT CDO I |
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March 31, 2013 | ||||
Cash flow exposure to interest rates (1) |
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Floating rate assets |
$ | 164,180 | ||
Floating rate debt |
(136,944 | ) | ||
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Net floating rate exposure |
$ | 27,236 | ||
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Weighted average coupon (floating rate assets) (2) |
4.66 | % | ||
Net income impact from 100 bps change in LIBOR |
$ | 272.4 |
(1) | All values are in terms of face or notional amounts, and exclude securities investments from which we do not expect any future cash flows. |
(2) | Weighted average coupon assumes LIBOR of 0.20% at March 31, 2013. |
CT Legacy Partners
Our investment in CT Legacy Partners is exposed to the risks related to interest rate fluctuations discussed above. The table below details our interest rate exposure to this portfolio as of March 31, 2013 ($ in thousands):
Interest Rate Exposure - CT Legacy Partners |
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March 31, 2013 | ||||
Value exposure to interest rates (1) |
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Fixed rate assets |
$ | 153,463 | ||
Interest rate swaps |
(60,724 | ) | ||
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Net fixed rate exposure |
$ | 92,739 | ||
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Weighted average coupon (fixed rate assets) |
8.32 | % | ||
Cash flow exposure to interest rates (1) |
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Floating rate assets |
$ | 239,261 | ||
Floating rate debt |
(20,214 | ) | ||
Interest rate swaps |
60,724 | |||
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Net floating rate exposure |
$ | 279,771 | ||
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Weighted average coupon (floating rate assets) (2) |
4.33 | % | ||
Net income impact from 100 bps change in LIBOR |
$ | 2,797.7 |
CTOPI
Although our carried interest investment in CTOPI generally relates to a portfolio of interest earning assets, our economic interest in this portfolio relates primarily to the realization of investments purchased at a discount by CTOPI. Accordingly, our investment in this portfolio is not exposed to a significant degree of interest rate risk. See Note 4 to our consolidated financial statements for additional discussion of CTOPI.
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Secured Notes
Although our secured notes are interest bearing liabilities, they contain prepayment provisions such that we will ultimately be required to pay $11.1 million to satisfy these obligations. Accordingly, we are not exposed to any interest rate risk under our secured notes. See Note 3 to our consolidated financial statements for additional discussion of our secured notes.
Risk of Non-Performance
In addition to the risks related to fluctuations in asset values and cash flows associated with movements in interest rates, there is also the risk of non-performance on floating rate assets. In the case of a significant increase in interest rates, the additional debt service payments due from our borrowers may strain the operating cash flows of the collateral real estate assets and, potentially, contribute to non-performance or, in severe cases, default.
Credit Risk
Our loans and investments are also subject to credit risk. The ultimate performance and value of our loans and investments depends upon the owners ability to operate the properties that serve as our collateral so that they produce cash flows adequate to pay interest and principal due to us. To monitor this risk, our Managers asset management team continuously reviews our investment portfolios and in certain instances is in regular contact with our borrowers, monitoring performance of the collateral and enforcing our rights as necessary.
Equity Capital Market Risks
We are exposed to risks related to the equity capital markets, and our related ability to raise capital through the issuance of our class A common stock or other equity instruments. As a REIT, we are required to distribute a significant portion of our taxable income annually, which constrains our ability to accumulate operating cash flow to finance our business, and further requires us to periodically raise equity capital.
Real Estate Market Risks
Our portfolios are comprised of loans and securities secured by commercial real estate assets. As a result, in addition to our exposure to interests rate and credit risks as a lender, we are exposed to the risks generally associated with the commercial real estate market, including variances in occupancy rates, capitalization rates, absorption rates, and other macroeconomic factors beyond our control. We seek to manage these risks through our underwriting and asset management processes.
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ITEM 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of the period covered by this quarterly report on Form 10-Q was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (a) are effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by Securities and Exchange Commission rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Controls over Financial Reporting
There have been no significant changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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ITEM 1: | Legal Proceedings |
None.
ITEM 1A: | Risk Factors |
Our business inherently involves certain risks and uncertainties. The risks and uncertainties described below or in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012 are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also impair our business operations. Should one or more of any of these risks materialize, our business, financial condition, results of operations or liquidity could be materially adversely affected.
Except as set forth below, there have been no material changes to the risk factors disclosed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012. The information below updates, and should be read in conjunction with, the risk factors and information disclosed under Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2012.
We do not own the Blackstone name, but we may use it as part of our corporate name pursuant to a trademark license agreement with an affiliate of Blackstone. Use of the name by other parties or the termination of our trademark license agreement may harm our business.
We have entered into a trademark license agreement, or Trademark License Agreement, with an affiliate of Blackstone pursuant to which it has granted us a fully paid-up, royalty-free, non-exclusive, non-transferable license to use the name Blackstone Mortgage Trust, Inc. and the ticker symbol BXMT. Under this agreement, we have a right to use this name for so long as our Manager (or another affiliate of Blackstone TM L.L.C., or Licensor) serves as our Manager (or another managing entity) and the Manager remains an affiliate of the Licensor under the Trademark License Agreement. The Trademark License Agreement may also be earlier terminated by either party as a result of certain breaches or for convenience upon 90 days prior written notice; provided that upon notification of such termination by us, the Licensor may elect to effect termination of the Trademark License Agreement immediately at any time after 30 days from the date of such notification. The Licensor and its affiliates, such as Blackstone, will retain the right to continue using the Blackstone name. We will further be unable to preclude the Licensor from licensing or transferring the ownership of the Blackstone name to third parties, some of whom may compete with us. Consequently, we will be unable to prevent any damage to goodwill that may occur as a result of the activities of the Licensor, Blackstone or others. Furthermore, in the event that the Trademark License Agreement is terminated, we will be required to, among other things, change our name and NYSE ticker symbol. Any of these events could disrupt our recognition in the market place, damage any goodwill we may have generated and otherwise harm our business.
ITEM 2: | Unregistered Sales of Equity Securities and Use of Proceeds |
None.
ITEM 3: | Defaults Upon Senior Securities |
None.
ITEM 4: | Mine Safety Disclosures |
None.
ITEM 5: | Other Information |
Amended and Restated Registration Rights Agreement
On May 6, 2013, we entered into an Amended and Restated Registration Rights Agreement (the Amended and Restated Registration Rights Agreement) with Blackstone Holdings III L.P., or Holdings III, and our Manager, each of which is an affiliate of Blackstone. As of May 6, 2013 affiliates of Blackstone owned approximately 17.1% of our outstanding shares of class A common stock.
The Amended and Restated Registration Rights Agreement amends and restates the Registration Rights Agreement (the Original Agreement), dated December 19, 2012, between us and Holdings III that we entered in connection with the consummation of the Investment Management Business Sale and the closing of our sale of 5.0 million shares (before giving effect to the one-for-ten reverse stock split that we effected on May 6, 2013) of class A common stock to Holdings III. Pursuant to the terms of the Amended and Restated Registration Rights Agreement, on or after the earlier of (x) such date that we become eligible to use Form S-3 in connection with a public offering of our securities and (y) December 19, 2013, Holdings III or our Manager may require us to prepare and file a shelf registration
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statement relating to the resale of all shares of class A common stock currently held or later acquired by them or their permitted transferees and under certain circumstances they may require us to file up to four resale registration statements on demand and provide unlimited piggyback rights with respect to the resale of such shares (subject to certain cutback and other provisions).
The foregoing description of the Amended and Restated Registration Rights Agreement does not purport to be complete and is qualified in its entirety by reference to the complete terms of the Amended and Restated Registration Rights Agreement, a copy of which is filed as Exhibit 10.2 to this Quarterly Report on Form 10-Q and is incorporated herein by reference.
Indemnification Agreements with Officers
On May 6, 2013, we entered into indemnification agreements, or Indemnification Agreements, with each of Randall S. Rothschild, our Secretary and Managing Director, Legal and Compliance, Douglas N. Armer, our Principal, Head of Capital Markets and Anthony F. Marone, Jr., our Vice President, Assistant Treasurer and Controller, each, an Indemnitee, who were elected to serve as officers of Blackstone Mortgage Trust subsequent to the Investment Management Business Sale. Each of Messrs. Rothschild, Armer and Marone also serve as officers of our Manager and are employed by affiliates of Blackstone.
Each of the Indemnification Agreements is in substantially in the same form as the indemnification agreements we entered into with each of our directors and executive officers at the Item of the Investment Management Business Sale, a form of which was filed as Exhibit 10.1 to our Current Report on Form 8-K filed with the Securities and Exchange Commission on December 21, 2012.
The Indemnification Agreements provide that we will, subject to certain limitations and exceptions, indemnify, to the fullest extent permitted under Maryland law, and advance expenses to, each Indemnitee, in connection with (among other things) the Indemnitees capacity as a director, officer, employee or agent of Blackstone Mortgage Trust. This obligation includes, subject to certain terms and conditions, indemnification for any expenses (including reasonable attorneys fees), judgments, fines, penalties and settlement amounts actually and reasonably incurred by the Indemnitee in connection with any threatened or pending action, suit or proceeding. In certain instances, we may be required to advance such expenses, in which case the Indemnitee will be obligated to reimburse us for the amounts advanced if it is later determined that the Indemnitee is not entitled to indemnification for such expenses.
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ITEM 6: | Exhibits |
10.1 | Amended and Restated Management Agreement, dated as of March 26, 2013, by and between Blackstone Mortgage Trust, Inc. (formerly Capital Trust, Inc.) and BREDS/CT Advisors L.L.C. (filed as Exhibit 10.1 to Capital Trust, Inc.s Current Report on Form 8-K (File No. 1-14788) filed on March 26, 2013 and incorporated herein by reference) | |||
| 10.2 | Amended and Restated Registration Rights Agreement, dated May 6, 2013, by and among Blackstone Mortgage Trust, Inc., Blackstone Holdings III L.P. and BREDS/CT Advisors L.L.C. | ||
| 31.1 | Certification of Stephen D. Plavin, Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
| 31.2 | Certification of Geoffrey G. Jervis, Chief Financial Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
+ | 32.1 | Certification of Stephen D. Plavin, Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
+ | 32.2 | Certification of Geoffrey G. Jervis, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
* | 101.INS | XBRL Instance Document | ||
* | 101.SCH | XBRL Taxonomy Extension Schema Document | ||
* | 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | ||
* | 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | ||
* | 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | ||
* | 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| Filed herewith |
+ | This exhibit shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act) or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933, as amended (the Securities Act), or the Exchange Act. |
* | Attached as Exhibit 101 to this Quarterly Report on Form 10-Q are the following materials, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets at March 31, 2013 and December 31, 2012; (ii) the Consolidated Statements of Operations for the three months ended March 31, 2013 and 2012; (iii) the Consolidated Statements of Comprehensive (Loss) Income for the three months ended March 31, 2013 and 2012; (iv) the Consolidated Statements of Changes in (Deficit) Equity for the three months ended March 31, 2013 and 2012; (v) the Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and 2012; and (vi) Notes to Consolidated Financial Statements. |
Pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act, is deemed not filed for purposes of Section 18 of the Exchange Act, and otherwise is not subject to liability under these sections.
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BLACKSTONE MORTGAGE TRUST, INC. | ||||
May 6, 2013 |
/s/ Stephen D. Plavin |
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Date | Stephen D. Plavin | |||
Chief Executive Officer | ||||
(Principal executive officer) | ||||
May 6, 2013 |
/s/ Geoffrey G. Jervis |
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Date | Geoffrey G. Jervis | |||
Chief Financial Officer | ||||
(Principal financial officer and Principal accounting officer) |
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Exhibit 10.2
EXECUTION VERSION
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT is made and entered into as of May 6, 2013 by and among BLACKSTONE MORTGAGE TRUST, INC., a Maryland corporation formerly known as Capital Trust, Inc. (the Company ), BLACKSTONE HOLDINGS III L.P., a Delaware limited partnership (the Investor ) and BREDS / CT Advisors L.L.C., a Delaware limited liability company (the Manager ).
WHEREAS, on December 19, 2012 the Company issued and sold to the Investor, and the Investor purchased, 5,000,000 shares (or 500,000 shares after giving effect to the Companys one-for-ten reverse stock split effected upon the close of business on May 6, 2013) (the Investor Shares ) of the Companys class A common stock, par value $0.01 per share (the Common Stock ), in a private placement pursuant to that certain Purchase and Sale Agreement, dated as of September 27, 2012, between the Company and Huskies Acquisition LLC (as amended, restated, supplemented, or otherwise modified from time to time, the Purchase and Sale Agreement );
WHEREAS, pursuant to the terms of the Purchase and Sale Agreement, the Company and the Investor entered into the Registration Rights Agreement, dated as of December 19, 2012 (the Original Registration Rights Agreement );
WHEREAS, the Company has filed a registration statement on Form S-11 (File No. 333-187541) in connection with a proposed offering of shares of Common Stock and wishes to induce the Investor to acquire shares of Common Stock in such offering;
WHEREAS, the Companys board of directors has adopted an equity incentive plan that remains subject to approval by the Companys stockholders and that contemplates the grant of awards to the Manager and its affiliates and wishes to provide the Manager with certain registration rights with respect to awards made under equity incentive plans; and
WHEREAS, the Company and the Investor have agreed to amend and restate the Original Registration Rights Agreement on the terms set forth herein and the Manager has agreed to become a party hereto.
NOW, THEREFORE, for the mutual promises made herein and in the other agreements executed by the parties concurrently herewith or contemplated hereby, and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows:
Section 1. | Definitions |
The following capitalized terms used herein have the following meanings:
Affiliate of any Person means another Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with such first Person. A Person shall be deemed to control another Person if the controlling Person possesses, directly or indirectly, the power to direct or cause the direction of management and policies of the other Person, whether through the ownership of voting securities, by contract, or otherwise.
Agent means the principal placement agent on an agented placement of Registrable Securities.
Agreement means this Amended and Restated Registration Rights Agreement, as the same may be amended, restated, supplemented, or otherwise modified from time to time.
Automatic Shelf Registration Statement shall have the meaning specified in Rule 405 under the Securities Act.
Business Day means any day, other than a Saturday or Sunday or a day on which commercial banks in New York, New York are required by law or permitted to be closed.
Commission means the Securities and Exchange Commission, or any other federal agency then administering the Securities Act or the Exchange Act.
Common Stock is defined in the recitals to this Agreement.
Company is defined in the preamble to this Agreement.
EDGAR is defined in Section 3.1(e) of this Agreement.
Exchange Act means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time.
Existing Registration Rights means the terms and conditions of the registration rights and other terms and conditions contained in the Registration Rights Agreement, dated as of May 11, 2004, by and between the Company and W.R. Berkley Corporation.
Holder means (i) the Investor as owner of Registrable Securities, (ii) the Manager as an owner of Registrable Securities, and (iii) any Person who becomes a Holder pursuant to Section 7.6 .
Inspectors is defined in Section 3.1(m) of this Agreement.
Investor is defined in the preamble to this Agreement.
Investor Shares is defined in the recitals to this Agreement.
Majority Selling Holders means those Selling Holders whose Registrable Securities included in such registration or offering, as applicable, represent a majority of the Registrable Securities of all Selling Holders included therein.
Manger is defined in the preamble to this Agreement.
Maximum Threshold is defined in Section 2.3(b) of this Agreement.
Minimum Effective Period is defined in Section 2.1(c) of this Agreement.
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Non-Shelf Demand Registration is defined in Section 2.1(c) of this Agreement.
Non-Shelf Demand Registration Notice is defined in Section 2.1(c) of this Agreement.
Non-Shelf Demand Registration Statement is defined in Section 2.1(c) of this Agreement.
Original Registration Rights Agreement is defined in the recitals to this Agreement.
Person means any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing.
Piggy-Back Registration is defined in Section 2.3(a) of this Agreement.
Pro Rata Adjusted is defined in Section 2.3(b)(x)(ii) of this Agreement.
Prospectus means the prospectus or prospectuses included in any Registration Statement (including any free writing prospectus (as defined in Rule 405 of the Securities Act) and any prospectus subject to completion and a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Securities covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference or deemed to be incorporated by reference in such prospectus or prospectuses.
Purchase and Sale Agreement is defined in the recitals to this Agreement.
Registrable Securities means all shares of Common Stock and any Securities into which the Common Stock may be converted or exchanged pursuant to any merger, consolidation, sale of all or any part of its assets, corporate conversion or other extraordinary transaction of the Company held by a Holder (whether now held or hereafter acquired, and including any such Securities received by a Holder upon the conversion or exchange of, or pursuant to such a transaction with respect to, other Securities held by such Holder). As to any particular Registrable Securities, such Securities shall cease to be Registrable Securities on the earliest to occur of: (a) the date on which a Registration Statement with respect to the sale of such Registrable Securities shall have become effective under the Securities Act and such Registrable Securities shall have been sold, transferred, disposed of in accordance with such Registration Statement; (b) the date on which such Registrable Securities shall have ceased to be outstanding; or (c) any date after December 19, 2019 on which Company counsel delivers a written opinion of counsel, which shall be in a form reasonably satisfactory to Holders counsel, to the effect that such Holders Registrable Securities are eligible for sale without registration pursuant to Rule 144 (or any successor provision) under the Securities Act and without volume limitations or other restrictions on transfer thereunder; or (d) the date on which such Registrable Securities have been sold to a third party and all transfer restrictions and restrictive legends with respect to such Registrable Securities are removed upon the consummation of such sale.
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Registration Statement means any registration statement filed by the Company with the Commission in compliance with the Securities Act (including any Shelf Registration Statement, Non-Shelf Demand Registration Statement or any Registration Statement filed in connection with a Piggy-Back Registration) for a public offering and sale of the Common Stock or other securities of the Company, including the Prospectus, amendments and supplements to such Registration Statement, including pre- and post-effective amendments, all exhibits and all materials incorporated by reference or deemed to be incorporated by reference in such Registration Statement (other than a registration statement (i) on Form S-4 or Form S-8 or any successor form to Form S-4 or Form S-8 or in connection with any employee or director welfare, benefit or compensation plan, (ii) covering only securities proposed to be issued in exchange for securities or assets of another entity, (iii) in connection with an exchange offer or an offering of securities exclusively to existing security holders of the Company or its subsidiaries, (iv) relating to a transaction pursuant to Rule 145 of the Securities Act, (v) for an offering of debt that is convertible into equity securities of the Company, or (vi) for a dividend reinvestment plan).
Securities means capital stock, limited partnership interests, limited liability company interests, beneficial interests, warrants, options, notes, bonds, debentures, and other securities, equity interests, ownership interests and similar obligations of every kind and nature of any Person.
Securities Act means the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder, all as the same shall be in effect at the time.
Selling Holders means, with respect to a specified registration or offering pursuant to this Agreement, the Holders whose Registrable Securities are proposed to be included in such registration or offering, as applicable.
Shelf Effectiveness Period is defined in Section 2.1(a) of this Agreement.
Shelf Offering is defined in Section 2.1(b) of this Agreement.
Shelf Offering Notice is defined in Section 2.1(b) of this Agreement.
Shelf Registration Notice is defined in Section 2.1(a) of this Agreement.
Shelf Registration Statement means a Registration Statement on Form S-3 or another appropriate form for an offering to be made on a delayed or continuous basis pursuant to Rule 415 under the Securities Act.
Suspension Event is defined in Section 2.4 of this Agreement.
Transfer means and includes the act of selling, giving, transferring, creating a trust (voting or otherwise), assigning or otherwise disposing of (other than pledging, hypothecating or otherwise transferring as security or any transfer upon any merger or consolidation) (and
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correlative words shall have correlative meanings); provided , however , that any transfer or other disposition upon foreclosure or other exercise of remedies of a secured creditor after an event of default under or with respect to a pledge, hypothecation or other transfer as security shall constitute a Transfer.
Underwriters Representative means the managing underwriter, or in the case of a co-managed underwriting, the managing underwriter designated as the Underwriters Representative by the co-managers.
WKSI shall mean a well-known seasoned issuer, as defined in Rule 405 under the Securities Act.
Section 2. | Registration Rights |
2.1 Shelf Registration . (a) At any time and from time to time on or after the earlier of (x) such date that the Company becomes eligible to use Form S-3 in connection with a public offering of its securities and (y) December 19, 2013 (the first anniversary of the issuance of the Investor Shares) and provided the Common Stock is listed on a national securities exchange, any Holder may deliver to the Company a written notice (a Shelf Registration Notice ) requiring the Company to prepare and file with the Commission a Shelf Registration Statement with respect to resales of some or all Registrable Securities by the Holders as promptly as practicable after receiving the Shelf Registration Notice, but in no event more than forty-five (45) days following receipt of such notice. Unless such Shelf Registration Statement shall become automatically effective, the Company shall use commercially reasonable efforts to cause the Shelf Registration Statement to become or be declared effective by the Commission for all of the Registrable Securities covered thereby as promptly as practicable following delivery of the Shelf Registration Notice (if it is not an automatically effective Shelf Registration Statement) but in no event later than ninety (90) days after the filing of such Shelf Registration Statement. To the extent the Company is a WKSI at the time that the Shelf Registration Statement is to be filed, the Company shall file an automatic Shelf Registration Statement which covers such Registrable Securities. The Company agrees to use commercially reasonable efforts to keep the Shelf Registration Statement (or a successor Registration Statement filed with respect to the Registrable Securities) continuously effective (including by filing a new Shelf Registration Statement if the initial Shelf Registration Statement expires) in order to permit the Prospectus forming a part thereof to be lawfully delivered and the Shelf Registration Statement useable for resale of the Registrable Securities, subject to Section 2.4 , so long as there are any Registrable Securities outstanding (the Shelf Effectiveness Period ).
(b) Shelf Offerings . Subject to Section 2.4 , upon the written request of a Holder ( Shelf Offering Notice ) to the Company from time to time during the Shelf Effectiveness Period, the Company will use commercially reasonable efforts to facilitate a takedown of Registrable Securities off of the Shelf Registration Statement by such Holder ( Shelf Offering ) by amending or supplementing the Prospectus related to the Shelf Registration Statement as may be reasonably requested by such Holder as promptly as reasonably practicable upon receipt of the Shelf Offering Notice and taking other actions contemplated by Section 3.1 that may be applicable to such Shelf Offering. Subject to the Existing Registration Rights, neither the Company nor any stockholder of the Company (other than the Holders) may include securities in any offering requested under Section 2.1 of this Agreement.
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(c) Non-Shelf Demand Registration . Subject to Section 2.4 , at any time and from time to time on or after (x) such date that the Company becomes eligible to use Form S-3 in connection with a public offering of its securities and (y) December 19, 2013 (the first anniversary of the issuance of the Investor Shares) from time to time, if the Company has not effected or is not diligently pursuing a Shelf Registration Statement pursuant to Section 2.1(a) or the Company is not eligible to file a Shelf Registration Statement or the Shelf Registration Statement shall cease to be effective, any Holder may deliver to the Company a written notice (a Non-Shelf Demand Registration Notice ) informing the Company that the Holder requires the Company to register for resale some or all of such Holders Registrable Securities (a Non-Shelf Demand Registration ). Upon receipt of the Non-Shelf Demand Registration Notice, then the Company will use commercially reasonable efforts to file with the Commission as promptly as practicable after receiving the Non-Shelf Demand Registration Notice, but in no event more than sixty (60) days following receipt of such notice, a Registration Statement covering all requested Registrable Securities (the Non-Shelf Demand Registration Statement ), and agrees (subject to Section 2.4 ) to use commercially reasonable efforts to cause the Non-Shelf Demand Registration Statement to be declared effective by the Commission as soon as reasonably practicable following the filing thereof, but in no event later than ninety (90) days after the filing of such Non-Shelf Demand Registration Statement. Subject to Section 2.4 , the Company agrees to use reasonable efforts to keep any Non-Shelf Demand Registration Statement continuously effective (including the preparation and filing of any amendments and supplements necessary for that purpose) for a period of not less than sixty (60) days ( Minimum Effective Period ). All offers and sales by a Holder under a Non-Shelf Demand Registration Statement shall be completed within the period during which such Non-Shelf Demand Registration Statement remains effective and not the subject of any stop order, injunction or other order of the Commission. Upon notice that such Non-Shelf Demand Registration Statement is no longer effective, no Holder will offer or sell the Registrable Securities under the Non-Shelf Demand Registration Statement. If directed in writing by the Company, each Holder will return or destroy all undistributed copies of the Prospectus in its possession, other than permanent file copies in the possession of such Holders counsel or as other required by applicable law or the document retention policies of such Holder or its Affiliates, upon the expiration of such period.
(d) Notice to Holders . The Company shall give written notice of the proposed filing of any Shelf Registration Statement or Non-Shelf Demand Registration Statement to all Holders as soon as practicable, and each Holder who wishes to participate in such Registration Statement shall notify the Company in writing within five (5) Business Days after the receipt by the Holder of the notice from the Company, and shall specify in such notice the number of Registrable Securities to be included in the applicable Registration Statement.
(e) Underwritten Offerings . If any registration or offering pursuant to Section 2.1 involves an underwritten offering (whether on a firm, best efforts or all reasonable efforts basis or otherwise), or an agented offering, the Majority Selling Holders shall have the right to select the underwriter or underwriters and manager or managers to administer such underwritten offering or the placement agent or agents for such agented offering, provided , however , that each Person so selected shall be reasonably acceptable to the Company.
(f) Rights Subject to Existing Registration Rights . The registration rights contained in this Section 2.1 shall be subject to the Existing Registration Rights, and the Company shall not be required to cause a registration pursuant to this Section 2.1 to be declared effective or to include any Registrable Securities in a Shelf Offering or Non-Shelf Demand Registration hereunder to the extent not permitted by the Existing Registration Rights.
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2.2 Limitations on Non-Shelf Demand Registration Rights; Priority on Demand .
(a) Limitations on Non-Shelf Demand Registration Rights . Notwithstanding the provisions of Section 2.1 , the Shelf Registration and Non-Shelf Demand Registration rights granted to the Holders in Section 2.1 are subject to the limitations:
(i) that the aggregate market value of the Registrable Securities to be included in the applicable Registration Statement shall be at least $2,500,000, which market value shall be determined by multiplying the number of Registrable Securities to be included in such Registration Statement by the closing price of the Registrable Securities on the trading day immediately preceding the date of the Shelf Registration Notice or Non-Shelf Demand Registration Notice, as applicable ( provided , that (x) the limitation set forth in this clause (a) shall not be in effect at any time the Holders Registrable Securities are not able to be sold under Rule 144 because of the Companys failure to comply with the information requirements thereunder, unless at such time, the Companys counsel delivers a written opinion of counsel, which shall be in a form reasonably satisfactory to such Holders counsel, to such Holders to the effect that such Holders Registrable Securities may be publicly offered and sold without registration under the Securities Act and (y) if the Underwriters Representative or Agent advises the Company in writing that, in its opinion, the amount of securities requested to be included in such offering exceeds the amount which can be sold in such offering without adversely affecting the marketability of the offering, the minimum aggregate market value of Registrable Securities to be included in any Shelf Registration or Non-Shelf Demand Registration, as applicable, may be reduced to the extent required, but in no event may the aggregate market value of the Registrable Securities included therein be lower than $1,250,000); and
(ii) that the Company shall be obligated to effect no more than four (4) Non-Shelf Demand Registrations in total. For purposes of this Section 2.2(a)(ii), a Non-Shelf Demand Registration shall not be deemed to have been effected: (A) unless a Non-Shelf Demand Registration Statement with respect thereto has become effective, (B) if after such Non-Shelf Demand Registration Statement has become effective, such Non-Shelf Demand Registration Statement or the related offer, sale or distribution of Registrable Securities thereunder is interfered with by any stop order, injunction or other order or requirement of the Commission or other governmental agency or court for any reason not attributable to the Holders and such interference is not thereafter promptly eliminated, or (C) if the conditions to closing specified in the underwriting agreement, if any, entered into in connection with such Non-Shelf Demand Registration are not satisfied or waived by reason of a failure on the part of the Company, unless caused by a Holder. If the Company shall have complied with its obligations under this Section 2.2(a)(ii) , a right to demand a registration pursuant to this Section 2.2(a)(ii) shall be deemed to have been
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satisfied upon the earlier of (X) the date as of which all of the Registrable Securities included therein shall have been disposed of pursuant to a Non-Shelf Demand Registration Statement, (Y) the date when all of the Registrable Securities covered by the Non-Shelf Demand Registration Statement cease to be Registrable Securities and (Z) the date as of which such Non-Shelf Demand Registration shall have been continuously effective for the Minimum Effective Period.
(b) Priority on Demand Registrations . If the Underwriters Representative or Agent of a requested underwritten or agented Shelf Offering or Non-Shelf Demand Registration advises the Company in writing that in its opinion the shares of Registrable Securities proposed to be included in any such offering or registration exceeds the number of securities that can be sold in such offering and/or that the number of shares of Registrable Securities proposed to be included in any such registration would materially adversely affect the price per share of the Companys equity securities to be sold in such offering, the Company shall include in such registration only the number of shares of Registrable Securities that, in the opinion of Underwriters Representative or Agent, can be sold without adversely affecting the marketability of the applicable offering. If the number of shares that can be sold is less than the number of shares of Registrable Securities proposed to be registered or sold pursuant to Section 2.1 , the Company shall, subject to the Existing Registration Rights, allocate the amount of Registrable Securities to be so sold among the Holders pro rata on the basis of the number Registrable Securities requested to be included in such registration by each Holder electing to participate in such registration pursuant to Section 2.1 (or in such other proportions as mutually agreed among the Holders).
2.3 Piggy-Back Registration Rights . (a) Subject to the terms and conditions of the Existing Registration Rights as to any Holder, and to the extent a Holders Registrable Securities have not been registered pursuant to Section 2.1(a) , from and after December 19, 2013 (the first anniversary of the issuance of the Investor Shares), if (i) the Company proposes to file a Registration Statement under the Securities Act with respect to an offering of equity securities by the Company for its own account (other than a Shelf Registration Statement relating to primary offerings by the Company) or for any of the other security holders of the Company for their account (other than pursuant to Section 2.1 ) or (ii) equity securities of the Company are to be sold in an underwritten offering (whether or not for the account of the Company) (other than pursuant to Section 2.1 ) pursuant to an Automatic Shelf Registration Statement or a Registration Statement covering the Registrable Securities, then the Company shall (i) give prompt written notice of such proposed filing and/or offering to all Holders if an Automatic Shelf Registration Statement is used in such offering or, if an Automatic Shelf Registration Statement is not used, those Holders with Registrable Securities included in such Registration Statement, as soon as practicable but in no event less than ten (10) Business Days prior to the anticipated filing date of the Registration Statement or anticipated date of pricing of such underwritten offering, which notice shall, subject to the Holder agreeing in writing to keep such information confidential, describe the amount and type of securities to be included in such offering, the intended method(s) of distribution, and the name of the proposed managing underwriter(s) or Agent, if any, of the offering, and (ii) offer to the Holders in such notice the opportunity to register the sale of or include in such offering, as applicable, such number of Registrable Securities as such Holders may request in writing within five (5) Business Days following receipt of such notice (a Piggy-Back Registration ). If at any time after giving written notice of its intention to register
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any securities and prior to the effective date of the Registration Statement filed in connection with such Piggy-Back Registration or prior to the pricing of any such underwritten offering, the Company shall determine for any reason not to register or to delay registration of such securities or to discontinue such underwritten offering, as applicable, the Company may, at its election, give written notice of such determination to each Holder and, (x) in the case of a determination not to register or to discontinue such offering, shall be relieved of its obligation to register any Registrable Securities in connection with such registration or undertake such offering, as applicable, and (y) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities for the same period as the delay in registering such other securities. The Company shall cause all of the Registrable Securities requested to be included in a non-underwritten registration to be included in such registration and shall use commercially reasonable efforts to cause the managing underwriter(s) of a proposed underwritten offering (or Agent with respect to an agented offering) to permit the inclusion of the Registrable Securities requested in such underwritten or agented offering to be so included on the same terms and conditions as any similar securities of the Company included therein and shall use commercially reasonable efforts to cause the managing underwriter(s) to permit the sale or other disposition of such Registrable Securities in accordance with the intended method(s) of distribution thereof. All Holders proposing to distribute their Registrable Securities through a Piggy-Back Registration that involves an underwriter(s) or Agent shall (i) in connection with such distribution enter into an underwriting or agency agreement, as applicable, in reasonable and customary form with the underwriter(s) or Agent selected by the Company or the Person exercising demand registration rights, as applicable, and (ii) complete and execute all questionnaires, powers-of-attorney, indemnities, opinions and other documents reasonably required under the terms of such underwriting agreement or agency agreement, as applicable; provided , that any such indemnities, contribution or expense reimbursement obligations shall not be more onerous to the Holders than those set forth under Section 4 and Section 5 of this Agreement.
(b) Priority on Piggy-Back Registrations . If the Underwriters Representative for a Piggy-Back Registration that is to be an underwritten (or the Agent for an agented offering), advises the Company and the Holders requesting Piggy-Back Registration that in its opinion the dollar amount or number of shares of Common Stock or other securities that the Company desires to sell, taken together with shares of Common Stock or other securities, if any, as to which registration or inclusion in the offering has been demanded pursuant to written contractual arrangements with Persons other than the Holders hereunder, the Registrable Securities as to which registration or inclusion in the offering has been requested under this Section 2.3 , and the shares of Common Stock or other securities, if any, as to which registration or inclusion in the offering has been requested pursuant to the written contractual piggy-back registration rights of other stockholders of the Company, exceeds the maximum dollar amount or maximum number of securities that can be sold in such offering without adversely affecting the proposed offering price, the timing, the distribution method, or the probability of success of such offering (such maximum dollar amount or maximum number of securities, as applicable, the Maximum Threshold ), then the Company shall, subject to the Existing Registration Rights, include in any such registration:
(x) if the registration or offering, as applicable, is undertaken for the Companys account: (i) first, that number of shares of Common Stock or other securities that the Company
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desires to sell that can be sold without exceeding the Maximum Threshold and (ii) second, to the extent that the Maximum Threshold has not been reached under the foregoing clause (i) the shares of Common Stock or other securities, if any, comprised of Registrable Securities as to which registration has been requested pursuant to Section 2.3 by the Holders pro rata in accordance with the number of Registrable Securities which such Holders have requested be included in such underwritten offering or agented offering, regardless of the number of Registrable Securities or other securities held by each such Person (such proportion is referred to herein as Pro Rata Adjusted ) that can be sold without exceeding the Maximum Threshold; and (iii) third, to the extent the Maximum Threshold has not been reached under the foregoing clauses (i) and (ii), the shares of Common Stock or other securities for the account of other Persons that the Company is obligated to register or otherwise include pursuant to written contractual piggy-back registration rights with such Persons and that can be sold without exceeding the Maximum Threshold; and
(y) if the registration is a demand registration or offering undertaken at the demand of Persons other than the Holders hereunder: (i) first, subject to the Existing Registration Rights, that number of shares of Common Stock or other securities requested to be sold for the account of such demanding Persons and the Registrable Securities that the Holders have requested to be included pursuant to this Section 2.3 that can be sold without exceeding the Maximum Threshold, Pro Rata Adjusted; (ii) second, to the extent that the Maximum Threshold has not been reached under the foregoing clause (i), the shares of Common Stock or other securities that the Company desires to sell that can be sold without exceeding the Maximum Threshold; and (iii) third, to the extent that the Maximum Threshold has not been reached under the foregoing clauses (i) and (ii), the shares of Common Stock or other securities, if any, for the account of other Persons that the Company is obligated to register pursuant to written contractual piggy-back registration rights with such Persons that can be sold without exceeding the Maximum Threshold.
(c) Limitation on Piggy-Back Registration Rights . The Piggy-Back Registration Rights contained in this Section 2.3 shall be subject to the Existing Registration Rights, and the Company shall not be required to include any Registrable Securities in a Piggy-Back Registration hereunder to the extent not permitted by the Existing Registration Rights.
(d) Withdrawal . Any Holder may elect to withdraw such Holders request for inclusion of Registrable Securities in any Piggy-Back Registration by giving written notice to the Company of such request to withdraw prior to the effectiveness of the Registration Statement or the pricing of an underwritten offering, as applicable. The Company (whether on its own determination or as the result of a withdrawal by Persons making a demand pursuant to written contractual obligations) may withdraw a Registration Statement at any time prior to the effectiveness of the Registration Statement without thereby incurring any liability to the Holders. Notwithstanding any such withdrawal, the Company shall pay all expenses incurred by the Holders in connection with such Piggy-Back Registration as provided in Section 5 .
2.4 Suspension of Use of Registration Statement . Notwithstanding the provisions of Sections 2.1 or 2.3(a) , the Company shall be entitled to postpone the filing of a Registration Statement, and to require Holders not to sell under a Registration Statement or to suspend the use or effectiveness thereof if the Chief Executive Officer or the Chief Financial Officer of the
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Company certifies to the Holders in writing that the Board of Directors of the Company has determined in good faith that there exist circumstances relating to a material pending development, including, but not limited to a pending or contemplated material acquisition or merger or other material transaction or event, which would require additional disclosure by the Company in the Registration Statement of previously non-public material information which the Company in its good faith judgment has a bona fide business purpose for keeping confidential and the nondisclosure of which in the Registration Statement might cause the Registration Statement to fail to comply with disclosure requirements pursuant to applicable law (any such development, a Suspension Event ); provided , however , that the Company may not delay, suspend or withdraw the Registration Statement or any offering thereunder, as applicable, for more than sixty (60) days at any one time, or more than an aggregate of ninety (90) days in any rolling twelve (12) month period; provided , further , that, any applicable Minimum Effective Period shall be extended by the aggregate number of days that the Registration Statement is suspended or withdrawn pursuant to a Suspension Event. Upon receipt of any written notice from the Company of the happening of any Suspension Event during the period the Registration Statement is effective or if as a result of a Suspension Event the Registration Statement or related Prospectus contains any untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made (in the case of the Prospectus), not misleading, each Holder agrees that (i) it will immediately discontinue offers and sales of the Registrable Securities under the Registration Statement until the Holder receives copies of a supplemental or amended Prospectus (which the Company agrees to promptly prepare) that corrects the misstatement(s) or omission(s) referred to above and receives notice that any required post-effective amendment has become effective or unless otherwise notified by the Company that it may resume such offers and sales and (ii) it will maintain the confidentiality of any information included in the written notice delivered by the Company unless otherwise required by law, subpoena or other applicable judicial or administrative request. If so directed in writing by the Company, each Holder will return to the Company or destroy all undistributed copies of the Prospectus covering the Registrable Securities current at the time of receipt of such notice that is in its possession, other than permanent file copies in the possession of such Holders counsel or as other required by applicable law or the document retention policies of such Holder or its Affiliates.
Section 3. | Additional Obligations of the Company and the Holders |
3.1 Obligations of the Company . Other than as explicitly set forth below, when the Company is required to effect the registration of any Registrable Securities or facilitate or effect any offering pursuant to Section 2 of this Agreement, as applicable, subject to Section 2.2(a) and 2.4 , the Company shall:
(a) use commercially reasonable efforts to (i) register or qualify the Registrable Securities by the time the applicable Registration Statement is declared effective by the Commission under all applicable state securities or blue sky laws of such jurisdictions as any Holder may reasonably request in writing, (ii) to keep each such registration or qualification effective during the period such Registration Statement is required to be kept effective pursuant to this Agreement, (iii) cooperate with the Holders and the underwriters or Agents, if any, and their respective counsel in connection with any filings required to be made with FINRA or other
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applicable regulatory authorities, and (iv) to do any and all other similar acts and things that may be reasonably necessary or advisable to enable the Holders to consummate the disposition of the Registrable Securities in each such jurisdiction; provided , however , that the Company shall not be required to (A) qualify generally to do business in any jurisdiction as a foreign corporation or to register as a broker or dealer in any jurisdiction where it would not otherwise be required to so qualify or register but for this Agreement, (B) take any action that would cause it to become subject to any taxation in any jurisdiction where it would not otherwise be subject to such taxation or (C) take any action that would subject it to the general service of process in any jurisdiction where it is not then so subject;
(b) promptly notify each Selling Holder of the receipt, and provide copies to the Selling Holders, of any comments or other correspondence from staff of the Commission with respect to any Registration Statement and, subject to Section 2.4 , use commercially reasonable efforts to promptly respond to such comments and provide copies of such responses to the Selling Holders;
(c) as promptly as practicable, prepare and file with the Commission, if necessary, such amendments and supplements to the Registration Statement and the Prospectus used in connection with such Registration Statement or any document incorporated therein by reference or file any other required document as may be necessary to cause or maintain the effectiveness of such Registration Statement for so long as such Registration Statement is required to be kept effective and to comply with the provisions of the Securities Act and the rules thereunder with respect to the disposition of all securities covered by such Registration Statement and the instructions applicable to the registration form used by the Company;
(d) in the event that any Registrable Securities included in a Registration Statement subject to, or required by, this Agreement remain unsold at the end of the period during which the Company is obligated to maintain the effectiveness of such Registration Statement, file a post-effective amendment to the Registration Statement for the purpose of removing such securities from registered status;
(e) furnish, without charge, to the Holders such number of copies of the Registration Statement, each amendment and supplement thereto (in each case including all exhibits, but excluding any documents to be incorporated by reference therein that are publicly available on the Commissions Electronic Data Gathering, Analysis and Retrieval system ( EDGAR )), and the Prospectus included in such Registration Statement (including each preliminary Prospectus) in conformity with the requirements of the Securities Act as the Holders or any underwriter or Agent may reasonably request for use in and in order to facilitate the public sale or other disposition of the Registrable Securities owned by the Holders;
(f) if a disposition of Registrable Securities takes the form of an underwritten or agented offering, any bought deal or block trade, promptly enter into customary agreements (including, in the case of an underwritten offering, underwriting agreements in customary form, and including provisions with respect to indemnification and contribution in customary form and consistent with the provisions relating to indemnification and contribution contained herein) and promptly take all other customary actions at such times as customarily occur in similar registered offerings in order to facilitate the disposition of such Registrable Securities and in connection therewith, including:
(i) make such representations and warranties to the Selling Holders and the underwriters, if any, in form, substance and scope as are customarily made by issuers in similar underwritten offerings;
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(ii) obtain opinions of counsel to the Company and updates thereof (which counsel and opinions (in form, scope and substance) shall be reasonably satisfactory to the Selling Holders and the Underwriters Representative or Agent, if any) addressed to each Selling Holder and the underwriters, if any, covering the matters customarily covered in opinions requested in sales of securities or underwritten offerings and such other matters as may be reasonably requested by such Selling Holders and the lead managing underwriter, and the Company shall furnish to each Selling Holder a signed counterpart of any such legal opinion;
(iii) obtain cold comfort letters and updates thereof from the Companys independent certified public accountants addressed to the Selling Holders, if permissible, and the underwriters, if any, which letters shall be customary in form and shall cover matters of the type customarily covered in cold comfort letters to underwriters in connection with primary underwritten offerings, and the Company shall furnish to each Selling Holder a signed counterpart of any such comfort letter; and
(iv) use commercially reasonable efforts to obtain executed lock-up agreements from the officers and directors of the Company and from the holders of more than 5% of the Companys equity securities (who are, or whose associated persons are, bound by the Companys insider trading policy), if requested by the underwriters.
(g) promptly notify the Holders: (i) when the Registration Statement, any pre-effective amendment, the Prospectus or any prospectus supplement related thereto or post-effective amendment to the Registration Statement has been filed, and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective, (ii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or the initiation or threat of any proceedings for that purpose, and (iii) of the receipt by the Company of any notification with respect to the suspension of the qualification of any Registrable Securities for sale under the securities or blue sky laws of any jurisdiction or the initiation of any proceeding for such purpose;
(h) use commercially reasonable efforts to prevent the issuance of any order suspending the effectiveness of a Registration Statement or suspending the qualification or exemption from qualification under state securities or blue sky laws, and, if any such order suspending the effectiveness of a Registration Statement or suspending the qualification or exemption from qualification under state securities or blue sky laws is issued, shall promptly use commercially reasonable efforts to obtain the withdrawal of such order at the earliest possible moment (and shall provide the Holders with prompt notice thereof);
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(i) after the filing of a Registration Statement and thereafter until the expiration of the period during which the Company is required to maintain the effectiveness of the applicable Registration Statement as set forth in the applicable sections above, promptly notify the Holders: (i) of the existence of any fact of which the Company is aware or the happening of any event which has resulted in (A) the Registration Statement, as then in effect, containing an untrue statement of a material fact or omitting to state a material fact required to be stated therein or necessary to make any statements therein not misleading, (B) the Prospectus included in such Registration Statement containing an untrue statement of a material fact or omitting to state a material fact necessary to make any statements therein, in the light of the circumstances under which they were made, not misleading or (C) the representations and warranties of or relating to the Company contained in any agreement for the sale of any Registrable Securities under a Registration Statement ceasing to be true and correct in any material respect and (ii) of the Companys reasonable determination that a post-effective amendment to the Registration Statement would be appropriate or required or that there exist circumstances not yet disclosed to the public which make further sales under such Registration Statement inadvisable pending such disclosure and post-effective amendment; and, if the notification relates to any event described in either of clauses (i) or (ii) of this Section 3.1(i) , at the request of the Majority Selling Holders, the Company shall, subject to Section 2.4 , prepare and file with the Commission a post-effective amendment to the Registration Statement or a supplement to the Prospectus and furnish to the Holders a reasonable number of copies of such post-effective amendment or supplement or file any other required document so that (x) such Registration Statement shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading and (y) such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(j) use commercially reasonable efforts to cause all such Registrable Securities to be listed, and to maintain the listing of such Registrable Securities, on the national securities exchange on which the Common Stock is then listed and cause to be satisfied all requirements and conditions of such securities exchange to the listing or quoting of such securities that are reasonably within the control of the Company including registering the applicable class of Registrable Securities under the Exchange Act, if appropriate, and using commercially reasonable efforts to cause such registration to become effective pursuant to the rules of the Commission in accordance with the terms hereof;
(k) if requested by any Holder participating in the offering of Registrable Securities, incorporate in a prospectus supplement or post-effective amendment such information concerning the Holder or the intended method of distribution as the Holder reasonably requests to be included therein and is reasonably necessary to permit the sale of the Registrable Securities pursuant to the Registration Statement, including information with respect to the number of Registrable Securities being sold, the purchase price being paid therefor and any other material terms of the offering; provided , however , that the Company shall not be obligated to include in any such prospectus supplement or post-effective amendment any requested information that is not required by the rules of the Commission and is unreasonable in scope compared with the Companys most recent prospectus or prospectus supplement used in connection with a primary or secondary offering of equity securities by the Company;
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(l) make available to its stockholders, as soon as practicable but no later than ninety (90) days following the end of the 12-month period beginning with the first month of the Companys first fiscal quarter commencing after the effective date of each Registration Statement filed pursuant to this Agreement an earnings statement satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(m) make the Companys executive officers available for customary presentations to investors to discuss the affairs of the Company at times that may be mutually and reasonably agreed upon (including to the extent customary, senior management participation in due diligence calls with the underwriters (or Agent) and their counsel and, in the case of any marketed underwritten offering, participation in any road show as reasonably requested by the lead managing underwriters for such offering), and provide the Holders, the underwriters and their respective counsel, accountants and other advisors (the Inspectors ) reasonable access to its books and records as shall be reasonably requested in order to conduct a reasonable due diligence investigation within the meaning of the Securities Act with respect to any applicable Registration Statement; provided , that such Inspectors agree to keep such information confidential (subject to customary exceptions) unless the disclosure of such information is necessary to avoid or correct a misstatement or omission in such Registration Statement;
(n) in connection with the preparation and filing of any Registration Statement, Prospectus or any amendments or supplements thereto, (i) give the Selling Holders, the underwriters or Agent (if applicable) and their respective counsels the opportunity to review and provide comments on such Registration Statement, each Prospectus included therein or filed with the Commission, and each amendment thereof or supplement thereto, (ii) fairly and in good faith consider such comments in any such documents prior to the filing thereof as the counsel to the Holders or underwriters may reasonably request, and (iii) make available such of the Companys representatives as shall be reasonably requested by the Holders or any underwriter for discussion of such documents;
(o) provide and cause to be maintained a transfer agent and registrar for all Registrable Securities covered by such Registration Statement from and after a date not later than the effective date of such Registration Statement;
(p) cooperate with the Holders to facilitate the timely delivery, preparation and delivery of certificates (or evidence of direct registration), with requisite CUSIP numbers, representing Registrable Securities to be sold;
(q) to the extent the Company is a WKSI during the period in which this Agreement is in effect, use commercially reasonable efforts to take such actions as under its control to remain a WKSI and not become an ineligible issuer during the period when any Registration Statement remains in effect; and
(r) take such other actions as are reasonably required in order to expedite or facilitate the disposition of Registrable Securities included in each such registration.
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3.2 Cooperation; Holdback Agreement .
(a) In connection with any Registration Statement utilized by the Company to satisfy the registration rights pursuant to this Agreement, each Holder agrees to reasonably cooperate with the Company in connection with the preparation of the Registration Statement, and each Holder agrees that it will (i) respond in a timely manner to any written request by the Company to provide or verify information regarding the Holder or the Holders Registrable Securities (including the proposed manner of sale) that may be required to be included in such Registration Statement and related Prospectus pursuant to the rules and regulations of the Commission, and (ii) provide in a timely manner information regarding the proposed distribution by the Holder of the Registrable Securities and such other information as may be requested by the Company from time to time in connection with the preparation of and for inclusion in the Registration Statement and related Prospectus.
(b) To the extent requested in writing by the managing underwriter(s), in connection with an underwritten primary or secondary offering to the public, each Holder, which together with its Affiliates, owns more than 5% of the outstanding Common Stock of the Company at the time of such underwritten offering agrees and will cause its Affiliates to agree, subject to the Companys compliance with Section 2.3 , not to sell or otherwise transfer or dispose of any Registrable Securities (or other securities that are the same or similar to those being offered in connection with such public sale) of the Company held by them (other than Registrable Securities included in such offering in accordance with the terms hereof) for a period equal to the lesser of sixty (60) days following the effective date of a Registration Statement of the Company filed under the Securities Act or such shorter period as the managing underwriter(s) shall agree to; provided , that all other stockholders who own more than 5% of the outstanding Common Stock of the Company and all officers and directors of the Company enter into similar agreements; and provided , further , that if any stockholder or officer or director is released from any such (or similar) lock-up obligations with respect to such an underwritten offering, then the Holders shall also be released simultaneously from their lock-up obligations. Such agreement shall be in writing in form reasonably satisfactory to the Company and the Underwriters Representative. The Company may impose stop-transfer instructions with respect to the shares of Registrable Securities (or other securities of the Company) subject to the foregoing restriction until the end of said period.
Section 4. | Indemnification; Contribution |
4.1 Indemnification by the Company . The Company agrees to indemnify and hold harmless each Holder and each Person, if any, who controls any Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and any of their partners, members, officers, directors, employees, agents, advisors or representatives, as follows:
(i) against any and all loss, liability, claim, damage, action, cost, judgment and expense whatsoever (including reasonable fees, expenses and disbursements of attorneys and other professionals), as incurred, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto) pursuant to which the Registrable Securities were registered under the Securities Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of
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or based upon any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto), including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage, action, cost, judgment and expense whatsoever (including reasonable fees, expenses and disbursements of attorneys and other professionals), as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; and
(iii) against any and all cost or expense whatsoever, as incurred (including reasonable fees, expenses and disbursements of attorneys and other professionals), reasonably incurred in investigating, preparing, defending against or participating in (as a witness or otherwise) any litigation, or investigation or proceeding by any third party or governmental agency or body, commenced or threatened, in each case whether or not a party, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraph (i) or (ii) above;
provided , however , that the indemnity provided pursuant to this Section 4.1 does not apply to any Holder with respect to any loss, liability, claim, damage, action, cost, judgment or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by such Holder expressly for use in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto) or (B) any Holders failure to deliver an amended or supplemental Prospectus furnished to the Holder by the Company (as and to the extent that the same was required by law to be delivered), if such loss, liability, claim, damage or expense would not have arisen had such delivery occurred at or after the time furnished to such Holder by the Company and prior to any sale of securities covered by such Prospectus.
4.2 Indemnification by Holder . Each Holder (and each permitted assignee of such Holder, on a several basis) severally and not jointly agrees to indemnify and hold harmless the Company, and each of its directors and officers (including each director and officer of the Company who signed a Registration Statement), and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, as follows:
(i) against any and all loss, liability, claim, damage, action, cost, judgment and expense whatsoever, as incurred, arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto) pursuant to which the Registrable Securities of such Holder were registered under the Securities Act, including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of
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or based upon any untrue statement or alleged untrue statement of a material fact contained in any Prospectus (or any amendment or supplement thereto), including all documents incorporated therein by reference, or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage, judgment and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, if such settlement is effected with the written consent of the Holder; and
(iii) against any and all expense whatsoever, as incurred (including reasonable fees and disbursements of counsel), reasonably incurred in investigating, preparing, defending against or participating in (as a witness or otherwise) any litigation, or investigation or proceeding by any governmental agency or body, commenced or threatened, in each case whether or not a party, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under subparagraphs (i) or (ii) above;
provided , however , that the indemnity provided pursuant to this Section 4.2 shall only apply with respect to any loss, liability, claim, damage, action, cost judgment or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by such Holder expressly for use in the Registration Statement (or any amendment thereto) or the Prospectus (or any amendment or supplement thereto) or (B) any Holders failure to deliver an amended or supplemental Prospectus furnished to the Holder by the Company (as and to the extent that the same was required by law to be delivered), if such loss, liability, claim, damage or expense would not have arisen had such delivery occurred at or after the time furnished to such Holder by the Company and prior to any sale of securities covered by such Prospectus. Notwithstanding the provisions of this Section 4.2 , a Holder and any permitted assignee shall not be required to indemnify the Company, its officers, directors or control persons with respect to any amount in excess of the amount of the total net proceeds to the Holder or such permitted assignee, as the case may be, from sales of the Registrable Securities of the Holder under the Registration Statement or Prospectus, as applicable, that is the subject of the indemnification claim.
4.3 Conduct of Indemnification Proceedings . An indemnified party hereunder shall give reasonably prompt notice to the indemnifying party of any action or proceeding commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify the indemnifying party (i) shall not relieve it from any liability which it may have under the indemnity agreement provided in Section 4.1 or 4.2 above, unless and only to the extent it did not otherwise learn of such action and the lack of notice by the indemnified party results in the forfeiture by the indemnifying party of substantial rights and defenses, and (ii) shall not, in any event, relieve the indemnifying party from any obligations to any indemnified party other than the indemnification obligation provided under Section 4.1 or 4.2 above and the contribution
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obligation provided in Section 4.4 below. If the indemnifying party so elects within a reasonable time after receipt of such notice, the indemnifying party may assume the defense of such action or proceeding at such indemnifying partys own expense with counsel chosen by the indemnifying party and approved by the indemnified party, which approval shall not be unreasonably withheld; provided , however , that the indemnifying party will not settle, compromise or consent to the entry of any judgment with respect to any such action or proceeding without the written consent of the indemnified party unless such settlement, compromise or consent secures the unconditional release of the indemnified party and does not include a statement as to or an admission of fault, culpability or a failure to act, by or on behalf of any indemnified party; and provided , further , that, if the indemnified party reasonably determines that a conflict of interest exists where it is advisable for the indemnified party to be represented by separate counsel or that, upon advice of counsel, there may be legal defenses available to it which are different from or in addition to those available to the indemnifying party (or in the situation where the indemnifying party fails to take reasonable steps necessary to defend diligently the action or proceeding within 20 Business Days after receiving notice from the indemnified party that the indemnified party believes the indemnifying party has failed to do so), then the indemnifying party shall not be entitled to assume such defense and the indemnified party shall be entitled to separate counsel at the indemnifying partys expense, it being understood, however, that the indemnifying party shall not, in connection with any one such action, claim or proceeding or separate but substantially similar or related actions, claims or proceedings in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one additional firm of attorneys (together with appropriate local counsel) at any time for all such indemnified parties. If the indemnifying party is not entitled to assume the defense of such action or proceeding as a result of the second proviso to the preceding sentence, the indemnifying partys counsel shall be entitled to conduct the indemnifying partys defense and counsel for the indemnified party shall be entitled to conduct the defense of the indemnified party, it being understood that both such counsel will cooperate with each other to conduct the defense of such action or proceeding as efficiently as possible. If the indemnifying party is not so entitled to assume the defense of such action or does not assume such defense, the indemnifying party will not be liable for any settlement effected without the written consent of the indemnifying party, not to be unreasonably withheld, delayed or conditioned. If an indemnifying party is entitled to assume, and assumes, the defense of such action or proceeding in accordance with this paragraph, the indemnifying party shall not be liable for any fees and expenses of counsel for the indemnified party incurred thereafter in connection with such action or proceeding.
4.4 Contribution . In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in Sections 4.1 and 4.2 above is for any reason held to be unenforceable by a court of competent jurisdiction to any indemnified party although applicable in accordance with its terms, the Company and the relevant Holder shall contribute to the aggregate losses, liabilities, claims, damages, actions, costs, judgments and expenses of the nature contemplated by such indemnity agreement incurred by the Company and the Holder, in such proportion as is appropriate to reflect the relative fault of the Company on the one hand and the Holder on the other hand, in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages, actions, costs, judgments or expenses. The relative fault of the indemnifying party and indemnified party shall be determined by reference to, among other things, whether the action in question, including any untrue or alleged untrue
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statement of a material fact or omission or alleged omission to state a material fact, relates to information supplied by the indemnifying party or the indemnified party, and the parties relative intent, knowledge, access to information and opportunity to correct or prevent such action.
The parties hereto agree that it would not be just or equitable if contribution pursuant to this Section 4.4 were determined by pro rata allocation or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. Notwithstanding the provisions of this Section 4.4 , a Holder shall not be required to contribute any amount in excess of the amount that it would have been obligated to pay by way of indemnification if the indemnification provided for under Section 4.2 had been available under the circumstances.
Notwithstanding the foregoing, no Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any indemnifying party who was not guilty of such fraudulent misrepresentation. For purposes of this Section 4.4 , each Person, if any, who controls a Holder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act, and any of their partners, members, officers, directors, employees, agents or representatives, shall have the same rights to contribution as the Holder, and each director of the Company, each officer of the Company who signed a Registration Statement and each Person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company.
In addition, no Person shall be obligated to contribute hereunder for any amounts in payment for any settlement of any action or claim, effected without such Persons written consent.
4.5 Survival . The indemnification and contribution provisions in this Section 4 shall be a continuing right and shall survive the registration and sale of any securities by any Person entitled to indemnification or contribution, as applicable hereunder, and the expiration or termination of this Agreement.
Section 5. | Registration Expenses |
The Company shall pay all expenses incident to the performance by the Company of its registration obligations under Section 2 above, including (i) all expenses incurred in connection with the preparation, printing and distribution of any Registration Statement and Prospectus and all amendments and supplements thereto, (ii) Commission and state securities registration, listing and filing fees, (iii) all fees and expenses of complying with securities or blue sky laws (including reasonable fees and disbursements of counsel for the Holders in connection with blue sky qualifications of the securities and determination of their eligibility for investment under the laws of such jurisdictions), (iv) all Financial Industry Regulatory Authority, Inc. fees and fees of any applicable stock exchange, including the New York Stock Exchange, (v) fees and disbursements of counsel for the Company and fees and expenses for the independent certified public accountants retained by the Company (including the expenses or costs associated with the delivery of any opinions or comfort letters), (vi) all internal expenses of the Company (including all salaries and expenses of its officers and employees performing legal or accounting duties);
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(vii) the fees and expenses of any Person, including special experts, retained by the Company in connection with the preparation of any Registration Statement; and (viii) the fees and disbursements of one counsel representing the Holders registering Registrable Securities pursuant to the Registration Statement and/or participating in the offering, as applicable, provided such fees and disbursements shall not exceed fifty thousand dollars ($50,000.00). Each Holder shall be responsible for the payment of any brokerage and sales commissions, fees and disbursements of the Holders accountants and other advisors (other than legal counsel to the Holders, to the extent the Company has agreed to pay for such legal counsel pursuant to this Section 5 ), and any transfer taxes relating to the sale or disposition of the Registrable Securities by such Holder pursuant to this Agreement. The Company shall have no obligation to pay any other costs or expenses incurred by the Holders, including underwriting discounts or selling commissions attributable to the Registrable Securities being sold by the Holders thereof, which underwriting discounts or selling commissions shall be borne by such Holders. In addition, in an underwritten offering, all selling stockholders and the Company shall bear the expenses of the underwriters, pro rata , in proportion to the respective amount of shares each sells in such offering.
Section 6. | Rule 144 Compliance |
The Company shall use commercially reasonable efforts to file as and when applicable, on a timely basis, all reports required to be filed by it under the Exchange Act. The Company shall use commercially reasonable efforts to make and keep current public information available as specified in paragraph (c) of Rule 144 (or any successor rule) promulgated under the Securities Act. The Company shall use commercially reasonable efforts to take such further action as may be reasonably required from time to time to enable the Holders to Transfer Registrable Securities without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 or any other exemption from registration. Upon the request of any Holder, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements and, if not, the specifics thereof, as well as any such other information as may be reasonably requested to allow such Holder to sell its Registrable Securities pursuant to Rule 144. In connection with any Transfer of Registrable Securities by a Holder pursuant to Rule 144 promulgated under the Securities Act, the Company shall cooperate with the Holder to facilitate the timely preparation and delivery of certificates representing the Registrable Securities to be sold and not bearing any Securities Act legend, and enable certificates for such Registrable Securities to be for such number of shares and registered in such names as Holder may reasonably request at least five (5) Business Days prior to any sale of Registrable Securities hereunder or, if practicable, and at the request of such Holder, have such Registrable Securities delivered electronically via DWAC through the Depository Trust Company.
Section 7. | Miscellaneous |
7.1 Additional Agreements; Certain Transactions .
(a) In the event that any shares of Common Stock or other securities are issued in respect of, or in exchange for, or in substitution of the Registrable Securities by reason of any reorganization, recapitalization, reclassification, merger, consolidation, spin-off, partial or
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complete liquidation, share dividend, split-up, sale of assets, distribution to stockholders or combination of the shares or any other similar change in the Companys capital structure, the Company agrees that appropriate adjustments shall be made to this Agreement to ensure that the Holders have, immediately after consummation of such transaction, substantially the same rights from the Company or another issuer of securities, as applicable, as it has immediately prior to the consummation of such transaction in respect of the Registrable Securities under this Agreement.
(b) The Company shall not enter into any agreement with respect to the Companys securities that is inconsistent with the rights granted to the Holders under this Agreement, and, other than the Existing Registration Rights, no such agreement is currently in effect.
7.2 In-Kind Distributions . If any Holder seeks to effectuate an in-kind distribution of all or part of its Registrable Securities to its direct or indirect equity holders, the Company will cooperate with such Holder and the Companys transfer agent to facilitate such in-kind distribution in the manner reasonably requested by such Holder and consistent with the Companys obligations under the Securities Act.
7.3 Entire Agreement . This Agreement contains the entire agreement and understanding among the parties hereto with respect to the subject matter of this Agreement, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter of this Agreement. The express terms of this Agreement control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms of this Agreement.
7.4 Amendments and Waivers .
(a) The provisions of this Agreement, including the provisions of this Section 7.4 , may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the written consent of the Company and the Holders of two-thirds of the outstanding Registrable Securities. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each Holder, each future Holder, and the Company.
(b) Notice of any amendment, modification or supplement to this Agreement adopted in accordance with this Section 7.4 shall be provided by the Company to the Holders prior to the effective date of such amendment, modification or supplement.
7.5 No Implied Waivers; Remedies . No failure or delay on the part of any party in exercising any right, privilege, power, or remedy under this Agreement, and no course of dealing shall operate as a waiver of any such right, privilege, power or remedy; nor shall any single or partial exercise of any right, privilege, power or remedy under this Agreement preclude any other or further exercise of any such right, privilege, power or remedy or the exercise of any other right, privilege, power or remedy. No waiver shall be asserted against any party unless signed in writing by such party. The rights, privileges, powers and remedies available to the parties are cumulative and not exclusive of any other rights, privileges, powers or remedies provided by statute, at law, in equity or otherwise.
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7.6 Assignment .
(a) Except as expressly provided in this Section 7.6 , the rights of the parties hereto cannot be assigned and any purported assignment or Transfer to the contrary shall be void ab initio . Subject to the terms and limitations contained this Section 7.6 , any Holder may assign any of its rights under this Agreement, without the consent of the Company, (x) to any Person to whom such Holder Transfers any Registrable Securities or any rights to acquire Registrable Securities so long as such Transfer is not made pursuant to an effective Registration Statement or pursuant to Rule 144 (or any successor provision thereto) under the Securities Act or (y) in connection with a pledge of Registrable Securities to a bona fide lender.
(b) Notwithstanding Section 7.6(a) , no Holder may assign any of its rights under this Agreement to any Person to whom such Holder Transfers any Registrable Securities if the Transfer of such Registrable Securities requires registration under the Securities Act.
(c) The nature and extent of any rights assigned shall be as agreed to between the assigning party and the assignee. No Person may be assigned any rights under this Agreement unless (x) the Company is given written notice by the assigning party at the time of such assignment stating the name and address of the assignee, identifying the securities of the Company as to which rights are being assigned, and providing a description of the nature and extent of the rights that are being assigned and (y) the assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement as a Holder, including the provisions of this Section 7.6 .
(d) Notwithstanding the foregoing, the Investor may assign its rights, under this Agreement without the prior written consent of the Company to one or more of its Affiliates; provided , that the Investor remains responsible for the obligations under this Agreement with respect to such assignee.
7.7 Successors and Assigns; No Third Party Beneficiaries . This Agreement will be binding upon and inure to the benefit of the parties hereto and their successors and permitted assigns. This Agreement is not intended, and shall not be construed, to confer any rights or benefits on any Persons that are not party hereto other than as expressly set forth in Section 4 and Section 7.6 .
7.8 Notices .
(a) All notices, demands or requests provided for or permitted to be given pursuant to this Agreement must be in writing, to the following addresses:
(i) if to the Company: |
Blackstone Mortgage Trust, Inc. 345 Park Avenue, 10th Floor New York, NY 10154 |
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Attention: | Chief Financial Officer | |||
Fax No.: | (212) 655-0220 |
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(iii) if to any Holder other than the Investor, to the address contained in the records of the Company, or at such other address as the addressee may have furnished in writing to the sender as provided herein.
(b) Any notice or demand that may or are required to be given hereunder by any party to another shall be deemed to have been duly given if (i) personally delivered or delivered by facsimile or electronic mail, when received or (ii) sent by U.S. Express Mail or recognized overnight courier, on the second following Business Day (or third following Business Day if mailed outside the United States).
7.9 Specific Performance . The parties hereto acknowledge that the obligations undertaken by them hereunder are unique and that there would be no adequate remedy at law if any party fails to perform any of its obligations hereunder, and accordingly agree that each party, in addition to any other remedy to which it may be entitled at law or in equity, shall be entitled to (i) compel specific performance of the obligations, covenants and agreements of any other party under this Agreement in accordance with the terms and conditions of this Agreement and (ii) obtain preliminary injunctive relief to secure specific performance and to prevent a breach or contemplated breach of this Agreement in any court of the United States or any State thereof having jurisdiction, and in any such case, no bond or security shall be required in connection therewith.
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7.10 GOVERNING LAW . THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK. EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED STATES DISTRICT COURT FOR ANY DISTRICT WITHIN SUCH STATE FOR THE PURPOSE OF ANY ACTION OR JUDGMENT RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY AND TO THE LAYING OF VENUE IN SUCH COURT.
7.11 WAIVER OF JURY TRIAL . EACH PARTY HERETO ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND, THEREFORE, EACH SUCH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT TO ANY ACTION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT.
7.12 Headings; References; Interpretation . The headings contained in this Agreement are solely for convenience and reference and shall not limit or otherwise affect the meaning or interpretation of any of the terms or provisions of this Agreement. The references herein to Sections, unless otherwise indicated, are references to sections of this Agreement. Whenever the words include, includes, or including are used in this Agreement, they shall be deemed to be followed by the words without limitation. Unless the context requires otherwise, all words used in this Agreement in the singular number shall extend to and include the plural number, all words in the plural number shall extend to and include the singular number, and all words in any gender shall extend to and include all genders. To the fullest extent permitted by law, this Agreement shall be construed without regard to any presumption or rule requiring construction against the party drafting or causing this instrument to be drafted.
7.13 Severability . If any provision of the Agreement shall be held to be invalid, the remainder of the Agreement shall not be affected thereby.
7.14 Counterparts; Facsimile; PDF . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts of this Agreement, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories. Any facsimile or Adobe portable document format copies hereof or signature hereon shall, for all purposes, be deemed originals.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed on its behalf as of the date first herein above set forth.
COMPANY:
BLACKSTONE MORTGAGE TRUST, INC. | ||
By: |
/s/ Randall S. Rothschild |
|
Name: Randall S. Rothschild | ||
Title: Authorized Signatory |
HOLDERS:
BLACKSTONE HOLDINGS III L.P.
By: Blackstone Holdings III GP L.P., its general partner
By: Blackstone Holdings III GP Management L.L.C., its general partner
By: |
/s/ Laurence A. Tosi |
|
Name: Laurence A. Tosi | ||
Title: Chief Financial Officer |
BREDS / CT ADVISORS L.L.C.
By: Blackstone Real Estate Special Situations Advisors L.L.C., its sole member
By: |
/s/ Randall S. Rothschild |
|||
Name: | Randall S. Rothschild | |||
Title: | Authorized Person |
[ Signature Page to Registration Rights Agreement ]
Exhibit 31.1
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Stephen D. Plavin, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Blackstone Mortgage Trust, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 6, 2013
/s/ Stephen D. Plavin |
Stephen D. Plavin |
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION
PURSUANT TO 17 CFR 240.13a-14
PROMULGATED UNDER
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Geoffrey G. Jervis, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Blackstone Mortgage Trust, Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: May 6, 2013
/s/ Geoffrey G. Jervis |
Geoffrey G. Jervis |
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Blackstone Mortgage Trust, Inc. (the Company ) on Form 10-Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report ), I, Stephen D. Plavin, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Stephen D. Plavin |
Stephen D. Plavin |
Chief Executive Officer |
May 6, 2013 |
This certification accompanies each Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided by the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Blackstone Mortgage Trust, Inc. (the Company ) on Form 10-Q for the period ended March 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the Report ), I, Geoffrey G. Jervis, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Geoffrey G. Jervis |
Geoffrey G. Jervis |
Chief Financial Officer |
May 6, 2013 |
This certification accompanies each Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
A signed original of this written statement required by Section 906 has been provided by the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.