Financial Results and Other Significant Events: - First quarter net
loss of ($44.1) million, or ($1.44) per diluted common share; -
First quarter AFFO totaled ($67.5) million, or ($2.19) per diluted
common share after recording a $68.7 million provision for loan
losses on the Company's $1.3 billion loan portfolio; - Maintained
$20.1 million of unrestricted cash with no short-term debt
obligations; - Signed letter of intent for transaction with
Stoneleigh Partners Acquisition Corporation HARTFORD, Conn., May 15
/PRNewswire-FirstCall/ -- Realty Finance Corporation (Other OTC:
RTYFZ) today reported results for the first quarter ended March 31,
2009. Realty Finance Corporation (the "Company") reported a first
quarter net loss of ($44.1) million, or ($1.44) per diluted common
share, including a $26.4 million unrealized gain related to the
mark-to-market impact of certain assets and liabilities due to the
application of SFAS 159. Adjusted funds from operations ("AFFO")
for the first quarter of 2009, which exclude the results of
discontinued operations and any impact from the application of SFAS
159, was ($67.5) million, or ($2.19) per diluted common share,
after recording a $68.7 million provision for loan losses. The
provision for loan losses is made up of $68.5 million with respect
to five whole loans and $0.2 million for one mezzanine loan. Letter
of Intent On April 8, 2009, Stoneleigh Partners Acquisition
Corporation (NYSE Alternext: SOC) ("Stoneleigh"), a special purpose
acquisition company, entered into a non-binding letter of intent
("LOI") with the Company. The terms of the non-binding LOI provide
for the acquisition by Stoneleigh of 31.0 million shares of newly
issued common stock of the Company and the issuance of $31.25
million principal amount senior secured notes of the Company for
aggregate consideration payable to the Company of $25 million in
cash. The entire amount of the net proceeds of the transaction will
be immediately invested in a side car vehicle. Stoneleigh has the
option to adjust its investment to any amount between $20.0 million
and $150.0 million; provided, however, that the number of shares of
the Company's common stock and principal amount of notes shall be
adjusted proportionately. The notes will be secured by a first
priority senior secured position in all of the assets of the
Company, including the capital stock of the Company's subsidiaries,
and bear interest at the rate of 8%. Interest on the notes may be
deferred for a period not to exceed four quarterly payments.
Stoneleigh will also have the right to appoint three of six members
to the Company's board of directors upon the closing of the
transaction. The notes will contain a liquidity covenant requiring
the Company to maintain at least $4.0 million of liquidity. If the
Company's liquidity falls below $4.0 million, Stoneleigh has the
right to appoint one additional director to the board of directors
of the Company. If the Company's liquidity falls below $1.0
million, Stoneleigh has the right to accelerate the full payment of
the notes. The Company is subject to a break-up fee of $800,000 if
it violates a 60-day exclusive period or exercises its fiduciary
duties and consummates an alternative transaction with a person in
which the Company engaged discussions during the exclusive period.
Given the uncertainty in the capital markets, there can be no
assurance that this transaction will close on these terms or at
all. Strategy The Company continues to actively manage its existing
investment portfolio of approximately $1.3 billion. If the
Stoneleigh transaction is not consummated, the Company plans to
continue to explore other strategic alternatives, one of which
could be winding down the affairs of the Company. Liquidity and
Funding At March 31, 2009, the Company had $20.1 million of cash
and cash equivalents available and $47.2 million of restricted
cash. The restricted cash is comprised primarily of $27.1 million
of funded escrow reserve requirements related to tenant
improvements and leasing reserves on a number of the Company's
first mortgage loans and $9.5 million of cash available within its
second collateralized debt obligation ("CDO II"). Due to the
failure of the overcollateralization test in CDO II subsequent to
March 31, 2009, the $9.5 million of cash available within CDO II
was used to pay down the notes of the senior bondholders. In
addition, within CDO II, the Company had available $22.8 million of
its $75 million revolving facility specifically designated to fund
future financing commitments on its existing loan portfolio. This
undrawn capacity covers substantially all of the Company's future
commitments on its loan portfolio. Loan and commercial
mortgage-backed securities ("CMBS") prepayments, sales and
amortization payments totaled $7.7 million during the first quarter
of 2009. In addition, one mezzanine loan and one B-Note were
extended during the first quarter of 2009. The majority of the
Company's investments are pledged as collateral for its
collateralized debt obligation ("CDO") bonds and the income
generated from these investments is used to fund interest
obligations of its CDO bonds and the remaining income, if any, is
retained by the Company. The Company's CDO bonds contain interest
coverage and asset overcollateralization covenants that must be met
in order for the Company to receive cash flow distributions. If the
Company fails the interest coverage or asset overcollateralization
covenants in either of the CDOs, all cash flows from the CDO
(including interest on the bonds the Company owns, distributions on
the common and preferred equity and the subordinate management
fees) would be utilized to repay principal and interest on the
outstanding CDO bonds and the Company would not receive any
residual payments until the CDO was back in compliance with such
tests. On February 25, 2009, the Company was notified by the
trustee of its first CDO ("CDO I") that the Company failed the
overcollateralization test for CDO I on the February 25, 2009
payment date and, as a result, future net cash flows from CDO I
will be utilized to pay down principal of senior bondholders rather
than being paid to the Company until such time as the covenant is
back in compliance, if ever. On April 14, 2009, the Company was
notified by the CDO II trustee that the Company failed the
overcollateralization test for CDO II on the April 7, 2009 payment
date and, as a result, future net cash flows from CDO II will be
utilized to pay down principal of senior bondholders rather than
being paid to the Company until such time as the covenant is back
in compliance, if ever. With both CDOs out of compliance with
overcollateralization covenants, the Company has minimal incoming
cash flows from its primary business and there is no assurance when
or if the Company will be able to regain compliance with these
covenants. The breach of the overcollateralization covenant in
either CDO provides MBIA, the controlling class of CDO II
bondholders, the ability to terminate the existing collateral
management agreement, as amended, in respect of CDO II and to
remove the Company as the collateral manager of CDO II. The Company
has not been notified by MBIA of its intentions with respect to
such termination right. With minimal incoming cash flows,
management plans to fulfill short-term capital requirements
including operating expenses, working capital and debt service with
(i) cash on hand as of March 31, 2009, (ii) senior collateral
management fees, (iii) proceeds from principal or interest payments
and other cash flows from operations, (iv) reduction in
administrative costs, as a result of becoming a non-reporting
company, (v) reduction in employee headcount, and (vi) sale of the
Company's unencumbered 1515 Market Street LLC joint venture
interest, if possible under current market conditions. If the
Company is unable to execute asset and loan sales in a timely
manner or to receive anticipated proceeds therefrom or fully
utilizes available cash, it may have an adverse effect on its
business, results of operations and ability to make distributions
to its stockholders. If the Company is unable to make required
payments under its junior subordinated indentures, breach any
representation or violate any covenant thereunder, its lenders may
accelerate the maturity of its debt or require the Company to
pledge more collateral. If the Company is unable to pay off its
borrowings in such a situation, (i) the lenders could accelerate
the debt, (ii) such lenders could force the Company into
bankruptcy, and (iii) such lenders could force it to take other
actions to protect the value of their collateral. Any such event
would have a material adverse effect on the Company's liquidity,
the value of its common stock and the ability to make distributions
to its stockholders. Operating Results Loan and CMBS investments
generated investment income of $18.9 million and net investment
income of $3.8 million for the first quarter 2009 compared to $24.4
million and $4.8 million in the fourth quarter of 2008
respectively. Net investment income represents investment income
from the Company's loan and CMBS investments, less interest expense
on the Company's borrowings related to these investments. Interest
expense on borrowings related to the Company's loan and CMBS
investments was $15.1 million for the first quarter 2009 compared
to $19.6 million in the previous quarter and reflects interest
expense on $1.37 billion of investment grade notes issued by the
Company's two CDOs and $50.0 million of trust preferred securities.
At March 31, 2009, the Company's debt-to-book equity ratio was 8.1x
compared to 6.6x at December 31, 2008. Company Obligations The
Company's major outstanding obligations as of March 31, 2009 are
detailed in the table below: Unpaid Principal Balance/ Unrealized
Carrying Outstanding (Gain)/ Principal Value at Stated Interest
Obligation Loss Payments 3/31/09 Maturity Rate (000s) (000s) (000s)
(000s)
--------------------------------------------------------------------------
CDO I bonds payable (1) 3/25/2046 1.03% $508,500 $(114,840)
$(23,968) $369,692 CDO II bonds payable (1) 4/7/2052 2.05% 857,200
(328,786) - 528,414 Trust preferred securities (2) 7/30/2036 8.10%
50,000 (44,645) - 5,355 Mortgage note payable (3) 12/14/2008 2.25%
25,794 N/A N/A 25,794 Mortgage note payable (3) 4/1/2010 5.96%
29,170 N/A N/A 29,170 Loans - future funding obligations (4) 26,734
N/A N/A N/A Lease Obligation (5) 2,709 N/A N/A N/A Severance
Obligation (6) 2,798 N/A N/A N/A
------------------------------------------- $1,502,905 $(488,271)
$(23,968) $958,425 (1) $133,500 of the total CDO I bonds payable
and $407,200 of the total CDO II bonds payable are accounted for
under the fair value option prescribed by SFAS 159. (2) In July
2006, the Company completed the issuance of $50,000 in unsecured
trust preferred securities through a newly formed Delaware
statutory trust, RFC Trust I, which is one of the Company's wholly-
owned subsidiaries. The securities bear interest at a fixed rate of
8.10% for the first ten years ending July 2016. Thereafter the rate
will float based on the 90-day LIBOR plus 249 points. The trust
preferred securities are accounted for under the fair value option
prescribed by SFAS 159. (3) The mortgage note payables relate to
two consolidated joint venture equity investments and the debt is
non-recourse to the Company. The joint venture for the $25.8
million mortgage did not pay the mortgage and is in default. The
lender has begun foreclosure. (4) All committed fundings on loans
to be funded through designated restricted cash or the Company's
CDO revolver. (5) The Company's corporate offices in Hartford, CT
are subject to an operating lease agreement effective July 1, 2007.
The lease is for approximately twelve thousand square feet. The
lease term is ten years and has a renewal option to extend the term
of the lease for up to one additional period of five years. (6) The
Company has a severance and retention plan in place for its 15
employees, including the executive officers, which could result in
an obligation of up to $2.8 million. Investment Portfolio As of
March 31, 2009, the Company's investment portfolio of approximately
$1.3 billion in assets consisted of the following: Carrying Percent
of Value Number of Total Weighted Average Investment (000s)
Investments Investments Coupon Yield
------------------------------------------------------------------------
Whole loans $827,155 37 62.8% 5.30% 5.09% B Notes 218,448 11 16.6%
5.42% 5.76% Mezzanine loans 207,648 11 15.7% 6.69% 6.71% CMBS
43,880 67 3.3% 4.54% 7.15% Real estate owned 10,629 2 0.8% N/A N/A
Joint venture investments 10,130 7 0.8% N/A N/A
-------------------------------- Total investments before loan loss
reserve 1,317,890 135 100.0% Loan loss reserve (165,141) ========
Total investments, net 1,152,749 Note: CMBS shown net of ($273,085)
of unrealized fair value marks. The investment portfolio decreased
by $88.6 million since December 31, 2008. The reduction is
primarily comprised of $68.7 million of loan loss reserves
recognized during the quarter and $10.6 million in unrealized fair
value marks on the CMBS portfolio. In addition, loan and CMBS
prepayments, sales and amortization payments totaled $7.7 million
during the first quarter of 2009. Loan Portfolio The Company's loan
portfolio (whole loans, B Notes, mezzanine loans) is comprised
solely of commercial real estate with no sub-prime exposure. At
March 31, 2009, the Company's loan portfolio totaled $1.25 billion
and consisted of 45.6 percent floating rate and 54.4 percent fixed
rate loans, with a weighted average maturity of 2.1 years. The loan
portfolio has an industry standard weighted average loan-to-value
ratio of 69.8 percent compared to 71.1 percent in the previous
quarter and is comprised of 68.8 percent first mortgages and 31.2
percent structured debt. The industry standard weighted average
loan-to-value ratio of 69.8 percent is typically based on the most
recent stabilized value appraisal, and in most cases is the
appraisal received at closing. The Company performs an internal
valuation on each loan and the weighted average loan-to-value ratio
based on this internal analysis is greater than 95%. The Company's
loan portfolio has one loan scheduled to mature without an
extension option totaling $20.1 million in 2009. As of March 31,
2009, the Company's loan portfolio had the following maturity
characteristics: Number of Carrying Investments Value Year of
Maturity Maturing (000s) % of Total
----------------------------------------------------------------
Loans in maturity default 4 $103,883 8.3% 2009 10 244,337 19.5%
2010 16 283,094 22.6% 2011 12 294,270 23.4% 2012 7 177,815 14.2%
2013 2 33,564 2.7% Thereafter 8 116,288 9.3%
--------------------------- Total 59 $1,253,251 100% At March 31,
2009, the Company had the following watch list and non-performing
loans: Unpaid Principal Carrying % of Investment Balance Value
Total Type Classification (000s) (000s) Assets
-----------------------------------------------------------------------
Whole Loan Watch $37,970 $16,600 1.3% Whole Loan Watch 35,684
19,200 1.5% Whole Loan Watch 35,000 35,000 2.7% Whole Loan Watch
32,327 30,952 2.4% Whole Loan Watch 31,800 20,850 1.6% B-Note Watch
16,000 16,000 1.2% B-Note Non-Performing 42,830 - 0.0% Whole Loan
Non-Performing 40,760 21,420 1.7% Mezzanine Loan Non-Performing
40,000 - 0.0% Mezzanine Loan Non-Performing 25,000 - 0.0% Mezzanine
Loan Non-Performing 18,170 - 0.0% Whole Loan Non-Performing 10,500
10,500 0.8% Bridge Loan Non-Performing 7,500 - 0.0% Bridge Loan
Non-Performing 2,123 - 0.0% --------------------------------
$375,664 $170,522 13.2% Non-Performing Loans The Company has eight
loans totaling $186.9 million with a carrying value of $31.9
million that are non-performing. The non-performing assets
represent 14.5 percent of total assets. Details of the
non-performing loans are as follows: A $42.8 million B-Note had a
maturity default on December 1, 2007 and is secured by a class A
parcel of land in New York City that is intended to be developed
into a mixed use retail and residential site. The B-Note was
originally due on October 1, 2007 and was extended for 60 days with
the sponsor funding an additional $150.0 million of cash equity.
Interest on the loan has been paid through December 31, 2007 at the
contractual rate. As of March 31, 2009, foreclosure proceedings on
the collateral of the loan continue. Given the current financial
markets and the inability to refinance the loan in the near term,
the Company previously recorded a loan loss reserve to cover its
entire position. A $40.8 million whole loan secured by an office
building located in San Francisco, California. The building has a
below market occupancy rate and does not fully cover debt service
obligations, requiring the borrower to contribute significant
capital. The loan matured on March 9, 2009 without payment and the
Company is in the process of structuring a deed in lieu of
foreclosure with the borrower. The Company has recorded a loan loss
reserve of $19.3 million. A $40.0 million mezzanine loan had a
maturity default on February 9, 2008 and is collateralized by four
class A office properties located in New York City. The sponsor of
this investment is also the sponsor of the $42.8 million B-Note
investment discussed above. Based on the negotiated sales prices of
three of the four class A office properties, it is likely that no
proceeds will remain after satisfaction of senior debt obligations.
The Company previously recorded a loan loss reserve to cover its
entire position. A $25.0 million mezzanine loan secured by an
interest in an apartment complex in New York City. The borrower did
not pay October's debt service and has requested significant
modifications of the outstanding loans against the property. Based
on the current financial markets and the uncertainty regarding a
restructuring, the Company previously recorded a loan loss reserve
to cover its entire position. A $18.2 million mezzanine loan for a
specialty retail development located in Tennessee. The Company's
loan as well as the senior construction loan matured in January
2009 without payment. Based on the current financial markets and
the borrower filing Chapter 7 bankruptcy, the Company previously
recorded a loan loss reserve to cover its entire position. A $10.5
million whole loan for a mixed use industrial and commercial
facility located in Windsor, CT. In 2008, the largest tenant of the
facility, which is also the borrower, closed operations and engaged
a broker to sell the building. Management concluded that no loan
loss reserve was necessary at this time based on the estimated fair
market value of the underlying collateral from a recent third party
appraisal. A $7.5 million bridge loan secured by development rights
to build an office building in the Washington, DC area. The
borrower is in the process of changing the use of the project,
completing predevelopment activities and obtaining necessary
regulatory approvals to start construction. The loan has been
extended until August 2009, with interest deferred. Given the
uncertainty in the current financial markets regarding the ability
to obtain construction financing, the Company previously recorded a
loan loss reserve to cover its entire position. A $2.1 million
bridge loan secured by development rights to build a mixed use
office, retail and hotel facility in the Miami, Florida area. The
borrower is in the process of obtaining construction financing for
the development and completing other predevelopment activities. The
loan matured in November 2008 without payment. The Company recently
executed a 90-day forbearance through August 2009. Given the
uncertainty in the current financial markets regarding the ability
to obtain construction financing, the Company previously recorded a
loan loss reserve to cover its entire position. Watch List Loans At
March 31, 2009, the Company had six loans totaling $188.8 million
with a carrying value of $138.6 million that are on its watch list,
all of which were added to the watch list during the quarter. The
watch list assets represent 14.6 percent of total assets. Details
of the watch list assets are as follows: A $38.0 million whole loan
secured by two Class A office buildings in Reston, VA. The property
is not fully occupied and in 2009 the borrower will need to
contribute capital to cover projected interest and operating
expense shortfalls. The borrower has requested a modification of
the loan terms. Given the current workout negotiations and the
current market conditions, the Company recorded a loss reserve of
$21.4 million. A $35.7 million whole loan secured by two Class A
office buildings in Oak Brook, Illinois. The building's occupancy
has declined since closing and the property does not fully cover
debt service obligations, requiring the borrower to contribute
significant capital. Subsequent to March 31, 2009, the borrower did
not make the May interest payment. Given the current market
conditions and the payment default, the Company recorded a loss
reserve of $16.5 million. A $35.0 million whole loan secured by a
full service boutique hotel in New York City. Cash flows have
decreased significantly in the first quarter of 2009 due to the
economic downturn impacting New York City. The borrower has
requested a modification of the loan terms. Subsequent to March 31,
2009, the borrower did not make the April and May interest
payments. Given the high likelihood and terms of the loan
modification, management concluded that no loan loss reserve was
necessary at this time. A $32.3 million whole loan and mezzanine
loan secured by six Class B to Class B+ office buildings located in
and around Albany, New York and a Class B+ office building in
Rochester, New York. The terms of the senior and mezzanine loans
were amended on February 27, 2009. Based on the expected cash flows
under the modified loan, the Company previously recorded a loan
loss reserve. As of March 31, 2009, the loan is performing under
the modified terms and no adjustment to the reserve is necessary. A
$31.8 million whole loan secured by an apartment complex in
Phoenix, Arizona. The property cash flows have declined in 2009 and
are expected to further decline in 2010. The borrower has requested
a modification of the loan terms. Given the current workout
negotiations and the current market conditions, the Company
recorded a loss reserve of $10.9 million. A $16.0 million B-Note
secured by an industrial building in Warren, MI. The building is
occupied by auto industry tenants with long-term leases in place.
The loan is current at this time. Subsequent to March 31, 2009, a
major tenant occupying approximately 40.0 percent of the building
filed for Chapter 11 bankruptcy. Loan Loss Reserves At March 31,
2009, the Company's total loan loss reserves were $165.1 million,
or 13.2 percent of total loan investments, relating to the
Company's non-performing and watch list loans having an aggregate
unpaid principal balance of $375.7 million. CMBS Portfolio At March
31, 2009, the Company's CMBS portfolio consisted of 67 CMBS
investments with a face value of $317.0 million and a carrying
value of $43.9 million. The average vintage of the underlying
collateral is 50.3 months with 33.3 percent of the portfolio rated
investment grade. The underlying loan delinquency of the portfolio
is 1.90 percent compared to the market average of 1.95 percent. The
entire CMBS portfolio is term financed within the Company's two
CDOs. As of March 31, 2009, 66 of the 67 CMBS investments were
current with interest payments. For more details on the Company's
CMBS portfolio, please refer to the tables on page 15 of this
release. Joint Venture Investment Portfolio At March 31, 2009, the
Company had $74.1 million invested in seven joint venture equity
investments with a carrying value of $10.1 million. Legal
Proceedings On October 30, 2007, a putative class action lawsuit
was commenced in the United States District Court for the District
of Connecticut against the Company, the former chief financial
officer and the former chief executive officer seeking remedies
under the Securities Act of 1933, as amended. Amended complaints
filed on March 25, 2008 and May 6, 2008 added the chairman and the
underwriters that participated in the Company's October 2006
initial public offering as additional defendants. The underwriters
have since been dropped from the suit by voluntary dismissal filed
by the plaintiffs with the court in December 2008. The plaintiffs
allege that the registration statement and prospectus relating to
the initial public offering contained material misstatements and
material omissions. Specifically, the plaintiffs allege that
management had knowledge of certain loan impairments and did not
properly disclose or record such impairments in the financial
statements. The plaintiffs seek to represent a class of all persons
who purchased or otherwise acquired common stock that is traceable
to the initial public offering in September 2006 and seek damages
in an unspecified amount. On July 29, 2008, the Company filed a
Motion to Dismiss the putative class action suit with the federal
district court for the District of Connecticut. Following oral
arguments in November 2008, the plaintiffs filed a second amended
complaint on December 22, 2008 and voluntarily dismissed the action
against the underwriters. The Company has since filed a revised
Motion to Dismiss the second amended complaint, argued its motion
before the court in April 2009, and is awaiting the court's ruling
on that motion. The Company believes that the allegations and
claims against it and its chairman, former chief financial officer
and former chief executive officer are without merit and the
Company intends to contest these claims vigorously. An adverse
resolution of the action could have a material adverse effect on
the Company's financial condition and results of operations in the
period in which class action lawsuit is resolved. The Company is
not presently able to estimate potential losses, if any, related to
this lawsuit. Dividends As previously announced, the Company
suspended dividends in the fourth quarter of 2008. The Board of
Directors will continually reevaluate operating results, REIT
qualification requirements, available tax losses, economic
conditions, capital requirements, liquidity, retention of capital
and other operating trends when determining future dividends.
Significant Accounting Policies In preparing the consolidated
financial statements, management is required to make estimates and
assumptions that affect the amounts reported in the financial
statements. Actual results could differ from those estimates and
assumptions. Significant estimates in the consolidated financial
statements include the valuation of our commercial mortgage backed
securities, valuation of our CDOs, valuation of our junior
subordinated debentures, valuation of derivatives, estimation of
loan loss reserves and estimation of impairment of long-lived
assets. The Company's significant accounting policies are included
as part of the Company's Annual Report on Form 10-K for the period
December 31, 2008 filed on March 16, 2009. About Realty Finance
Corporation Realty Finance Corporation is a commercial real estate
specialty finance company primarily focused on originating,
acquiring, investing in, financing and managing a diversified
portfolio of commercial real estate-related loans and securities.
Realty Finance Corporation has elected to qualify to be taxed as a
real estate investment trust, or REIT, for federal income tax
purposes. For more information on the Company, please visit the
Company's website at http://www.realtyfinancecorp.com/. The
Company's common stock is currently quoted on the Pink OTC Markets,
or Pink Sheets. While not a requirement, the Pink Sheets encourages
companies having their securities quoted thereon to provide
adequate current information in accordance with its disclosure
guidelines. The Company will evaluate, on a quarterly basis going
forward, the need to issue press releases containing information
similar to such information disclosed herein. There is no assurance
that the Company will provide timely periodic disclosures or at
all. The Company has elected to qualify to be taxed as a real
estate investment trust, or REIT, for U. S. federal income tax
purposes commencing with the taxable year ended December 31, 2005.
As a REIT, the Company generally will not be subject to U. S.
federal income tax on that portion of income that is distributed to
stockholders if at least 90% of the its REIT taxable income is
distributed to its stockholders. The Company conducts its
operations so as to not be regulated as an investment company under
the Investment Company Act of 1940, as amended, or the 1940 Act.
Non-GAAP Financial Measures The Company has used non-GAAP financial
measures as defined by SEC Regulation G, such as FFO, and AFFO in
this press release. A reconciliation of each non-GAAP financial
measure and the comparable GAAP financial measure (net income) can
be found on page 14 of this release. Funds from Operations ("FFO")
and Adjusted Funds From Operations ("AFFO") are non-GAAP financial
measures, which are widely recognized measures of REIT performance.
The Company computes FFO in accordance with standards established
by the National Association of Real Estate Investment Trusts
("NAREIT"), which may not be comparable to FFO reported by other
REITs that do not compute FFO in accordance with the NAREIT
definition, or that interpret the NAREIT definition differently
than the Company does. The revised White Paper on FFO approved by
the Board of Governors of NAREIT in April 2002 defines FFO as net
income (loss) (computed in accordance with GAAP), excluding gains
(or losses) from debt restructuring and sales of properties, plus
real estate depreciation and amortization and after adjustments for
unconsolidated/uncombined partnerships and joint ventures. The
Company presents FFO and AFFO because it considers them important
supplemental measures of its operating performance and believes
that they are frequently used by securities analysts, investors and
other interested parties in the evaluation of REITs. The Company
also uses FFO and AFFO as one of several criteria to determine
performance-based equity bonuses for members of the Company's
senior management team. FFO and AFFO are intended to exclude GAAP
historical cost depreciation and amortization of real estate and
related assets, which assumes that the value of real estate assets
diminishes ratably over time. Historically, however, real estate
values have risen or fallen with market conditions. Because FFO and
AFFO exclude depreciation and amortization unique to real estate,
gains and losses from property dispositions and extraordinary
items, it provides a performance measure that, when compared year
over year, reflects the impact to operations from trends in
occupancy rates, rental rates, operating costs, interest costs,
providing perspective not immediately apparent from net income. The
Company considers gains and losses on the sale of debt investments
to be a normal part of its recurring operations and therefore does
not exclude such gains and losses while arriving at FFO. AFFO is a
computation often made by REIT industry analysts and investors to
measure a real estate company's cash flow generated from
operations. The Company believes that AFFO is helpful to investors
as a measure of its liquidity position because, along with cash
generated from operating activities, this measure provides
investors with an understanding of its ability to pay dividends. In
addition, because this measure is commonly used in the REIT
industry, the Company's use of AFFO may assist investors in
comparing its liquidity position with that of other REITs. Further,
it is the financial measure upon which incentive compensation
payable under the Company's management agreement is payable. The
Company calculates AFFO by subtracting from or adding to FFO: --
normalized recurring expenditures that are capitalized by us and
then amortized, but which are necessary to maintain the Company's
properties and revenue stream, e.g., leasing commissions and tenant
improvement allowances; -- an adjustment to reverse the effects of
straight-lining of rents and fair value lease revenue under SFAS
141; -- the amortization or accrual of various deferred costs
including intangible assets and equity based compensation; --
unrealized gains or losses on derivative transactions and financial
instruments including the impact from the adoption of, and
continuing application of, SFAS 159; and -- results from
discontinued operations. The Company's calculation of AFFO differs
from the methodology used for calculating AFFO by certain other
REITs and, accordingly, may not be comparable to such other REITs.
Neither FFO nor AFFO represent cash generated from operating
activities or net income in accordance with GAAP and should not be
considered as an alternative to net income (determined in
accordance with GAAP), as a measure of liquidity, nor is it
indicative of funds available to fund the Company's cash needs,
including the Company's ability to make cash distributions. The
Company urges investors to carefully review the GAAP financial
information included as part of the Company's Annual Report on Form
10-K, Quarterly Reports on Form 10-Q, and quarterly earnings
releases. Forward-Looking Information This press release contains
forward-looking statements based upon the Company's beliefs,
assumptions and expectations of its future performance, taking into
account all information currently available. These beliefs,
assumptions and expectations can change as a result of many
possible events or factors, not all of which are known to the
Company or are within its control. If a change occurs, the
Company's business, financial condition, liquidity and results of
operations may vary materially from those expressed in its
forward-looking statements. The factors that could cause actual
results to vary from the Company's forward-looking statements
include: the risk factors included as part of the Company's Annual
Report on Form 10-K for the period December 31, 2008 filed on March
16, 2009; the Company's future operating results; its business
operations and prospects; general volatility of the securities
market in which the Company invests and the market prices of its
common stock; the effect of trading on the Pink Sheets; the
Company's ability to begin making investments in the future;
availability, terms and deployment of short-term and long-term
capital; availability of qualified personnel; changes in the
industry; interest rates; the debt securities, credit and capital
markets, the general economy or the commercial finance and real
estate markets specifically; performance and financial condition of
borrowers and corporate customers; increased prepayments of the
mortgage and other loans underlying the Company's investments; the
status of the class action lawsuit; the potential derivative
shareholder claim and any future litigation that may arise; the
ultimate resolution of the Company's eight non-performing loans
having an unpaid principal balance of $186.9 million and the
Company's six watch list loans having an unpaid principal balance
of $188.8 million; the monetization of the Company's joint venture
investments; the ability to come back into compliance with the
overcollateralization tests in CDO I and CDO I; whether the Company
remains as the collateral manager of CDO II; the ability to close
the transaction with Stoneleigh; the ability to continue as a going
concern; availability of liquidity; and other factors, which are
beyond the Company's control. The Company undertakes no obligation
to publicly update or revise any of the forward-looking statements.
For further information, please refer to the Company's previous
periodic filings with the Securities and Exchange Commission. Note,
the Company is no longer a Securities and Exchange Commission
reporting company as of March 16, 2009. Realty Finance Corporation
Consolidated Statements of Income (Unaudited) (Amounts in
thousands, except per share and share data) For the Three For the
Three Months Ended Months Ended March 31, 2009 March 31, 2008
-------------- -------------- Revenues: Investment income $18,934
$27,843 Property operating income 1,150 1,069 Other income 787 408
--- --- Total revenues 20,871 29,320 ------ ------ Expenses:
Interest expense 15,580 21,495 Management fees - 1,610 Property
operating expenses 828 830 Other general and administrative 2,393
3,909 Compensation expense 1,119 - Depreciation and amortization
274 252 Provision for loan losses 68,730 - ------ -- Total expenses
88,924 28,096 ------ ------ Loss on investment (36) - Gains on
financial instruments 26,359 13,153 ------ ------ Income (loss)
from continuing operations before equity in net loss of
unconsolidated joint ventures, minority interest, and discontinued
operations (41,730) 14,377 Equity in net loss of unconsolidated
joint ventures (295) (1,940) ---- ------ Income (loss) from
continuing operations before minority interest and discontinued
operations (42,025) 12,437 Minority interest (20) (28) --- ---
Income (loss) from continuing operations (42,005) 12,465
Discontinued Operations: Operating results from discontinued
operations (190) (2,740) Loss on impairment of asset held for sale
(1,945) - Gain on sale of investment - 6,780 --- ----- Income
(loss) from discontinued operations (2,135) 4,040 ------ ----- Net
income (loss) $(44,140) $16,505 ======== ======= Weighted-average
shares of common stock outstanding: Basic weighted-average common
shares outstanding 30,759,462 30,415,572 ========== ==========
Diluted weighted-average common shares and common share equivalents
outstanding 30,759,462 30,482,437 ========== ========== Basic and
diluted earnings per share: Income (loss) from continuing
operations $(1.37) $0.41 Income (loss) from discontinued operations
(0.07) 0.13 ----- ---- Net income (loss) $(1.44) $0.54 ====== =====
Dividends per common share $- $0.15 === ===== Realty Finance
Corporation Consolidated Balance Sheets (Amounts in thousands,
except per share and share data) March 31, 2009 December 31, 2008
(Unaudited) (Audited) ----------- --------- Assets: Cash & cash
equivalents $21,271 $23,133 Restricted cash 47,183 67,252 Loans and
other lending investments, net ($77,420 and $6,402 at fair value,
respectively) 1,088,110 1,168,733 Commercial mortgage backed
securities, at fair value 43,880 54,620 Real estate, net 26,800
33,441 Investment in unconsolidated joint ventures 10,643 11,352
Derivative assets, at fair value 187 260 Accrued interest 6,177
6,707 Other assets 11,245 11,509 Assets held for sale 37,203 25,936
------ ------ Total assets $1,292,699 $1,402,943 ==========
========== Liabilities and Stockholders' Equity: Liabilities:
Collateralized debt obligations ($97,074 and $124,292 at fair
value, respectively) $898,106 $949,292 Mortgage notes payable
54,964 54,964 Note payable 18,540 19,199 Derivative liabilities, at
fair value 102,181 109,508 Management fee payable 13 243 Accounts
payable and accrued expenses 7,853 11,714 Other liabilities 26,846
31,087 Junior subordinated deferrable interest debentures held by
trusts that issued trust preferred securities, at fair value 5,355
8,375 Liabilities held for sale 915 153 --- --- Total liabilities
1,114,773 1,184,535 --------- --------- Commitments and
contingencies - - Minority interest (42) (21) Stockholders' Equity:
Preferred stock, par value $.01 per share: 50,000,0000 shares
authorized; no shares issued or outstanding at March 31, 2009 and
December 31, 2008 - - Common stock, par value $.01 per share:
100,000,000 shares authorized; 30,936,533 and 30,823,200 shares
issued and outstanding at March 31, 2009 and December 31, 2008
respectively 309 308 Additional paid-in capital 423,054 423,046
Accumulated other comprehensive loss (34,156) (37,826) Accumulated
deficit (211,239) (167,099) -------- -------- Total stockholders'
equity 177,968 218,429 ------- ------- Total liabilities and
stockholders' equity $1,292,699 $1,402,943 ========== ==========
Realty Finance Corporation Funds From Operations and Adjusted Funds
From Operations (Unaudited, amounts in thousands, except per share
and share data) For the Three For the Three Months Ended Months
Ended March 31, 2009 March 31, 2008 -------------- --------------
Funds from operations: Net income (loss) $(44,140) $16,505 Gain
from sale of property - discontinued operations - (6,780) Real
estate depreciation and amortization: Consolidated joint ventures
189 171 Unconsolidated joint ventures 893 2,156 Discontinued
operations 87 156 -- --- Funds from operations $(42,971) $12,208
Adjusted funds from operations: Amortization of deferred
stock-based compensation 10 288 Straight-line rental income -
unconsolidated joint ventures (37) (597) Unrealized gain on
financial instruments (26,359) (13,153) Unrealized loss on
financial instruments unconsolidated joint ventures - 339 Fair
value lease revenue (SFAS 141) - unconsolidated joint ventures
(149) (163) Operating results from discontinued operations 2,048
2,584 ----- ----- $(67,458) $1,506 ======== ====== Weighted-average
shares of common stock outstanding: Basic 30,759,462 30,415,572
========== ========== Diluted 30,759,462 30,482,437 ==========
========== FFO share of common stock: Basic $(1.40) $0.40 ======
===== Diluted $(1.40) $0.40 ====== ===== AFFO share of common
stock: Basic $(2.19) $0.05 ====== ===== Diluted $(2.19) $0.05
====== ===== CMBS Portfolio by Credit Ratings Initial Current Face
Face Value Value Market % of Total Security Ratings Ratings Value
Market Cumulative Description (000s) (000s) (000s) Value %
------------ ------- ------- ------ ------- ---------- CMBS Class A
or better $5,000 $5,000 $2,500 5.7% 5.7% CMBS Class BBB 220,070
76,217 12,110 27.6% 33.3% CMBS Class BB 51,443 69,321 8,537 19.5%
52.8% CMBS Class B 33,347 138,678 18,415 42.0% 94.7% CMBS Below B
7,105 27,749 2,318 5.3% 100.0% ---------------------------------
Total securities available-for- sale $316,965 $316,965 $43,880
100.0% CMBS Portfolio by Vintage Face Market % of Total Security
Value Value Market Cumulative Description (000s) (000s) Value %
------------ ------ ------ ------- ---------- CMBS 1998 Vintage
$12,500 $5,230 11.9% 11.9% CMBS 2000 Vintage 11,211 2,473 5.6%
17.6% CMBS 2001 Vintage 9,537 3,090 7.0% 24.6% CMBS 2002 Vintage
12,542 1,247 2.8% 27.4% CMBS 2005 Vintage 79,127 14,433 32.9% 60.3%
CMBS 2006 Vintage 157,966 14,968 34.1% 94.4% CMBS 2007 Vintage
34,082 2,439 5.6% 100.0% ------------------------ Total securities
available-for- sale $316,965 $43,880 100.0% DATASOURCE: Realty
Finance Corporation CONTACT: Daniel Farr, Chief Financial Officer
of Realty Finance Corporation, +1-860-275-6234, Web Site:
http://www.realtyfinancecorp.com/
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