CHICAGO, March 17 /PRNewswire-FirstCall/ -- Deerfield Triarc Capital Corp. announced today the results of operations for its fourth quarter and year ended December 31, 2005.
HIGHLIGHTS:
-- Fourth quarter net income totaled $19.1 million, or $0.37 per diluted
share, an increase of 35% over the prior quarter.
-- Net income for the year totaled $45.9 million, or $1.17 per diluted
share.
-- Estimated REIT taxable income for the year, a non-GAAP financial
measure, was $50.6 million, or $1.29 per basic and $1.28 per diluted
common share.
-- Quarterly distribution of $0.35 per share for the fourth quarter of
2005.
-- 2005 distributions totaled $1.225 per share.
-- Increased investment portfolio of RMBS and other securities to $7.3
billion as of December 31, 2005, from $545.1 million at December 31,
2004.
-- Increase of 26% in loan portfolio to $452.2 million as of December 31,
2005 from $357.9 million at September 30, 2005. These totals included
loans held by Market Square CLO, Ltd. of $288.1 million at December
31, 2005 and $279.4 million at September 30, 2005.
-- Closed the Pinetree CDO Ltd. secured borrowing transaction in November
2005, generating $288 million of long-term financing.
-- Net RMBS portfolio duration of approximately 0.34 years at December
31, 2005.
Results of Operations
Net income for the quarter ended December 31, 2005, totaled $19.1 million or $0.37 per diluted common share, an increase of $5.0 million compared to net income for the quarter ended September 30, 2005 of $14.1 million or $0.27 per diluted common share. Net income for the year ended December 31, 2005 totaled $45.9 million, or $1.17 per diluted common share. The company commenced operations in December 2004, and accordingly there are no comparable prior period 2004 operating results.
Estimated REIT taxable income, a non-GAAP financial measure, for the quarter and year ended December 31, 2005 totaled $18.8 million and $50.6 million, or $0.37 and $1.28 per diluted common share, respectively. See the attached schedule for a reconciliation of GAAP net income to estimated REIT taxable income.
Total invested assets grew to $7.8 billion as of December 31, 2005 compared to $7.5 billion as of September 30, 2005. Growth was primarily in residential mortgage-backed securities ("RMBS"), loans, and other asset-backed securities.
Gregory H. Sachs, a director of the company and Chairman and CEO of Deerfield Capital Management LLC, the company's external manager, said, "We are pleased with the significant growth demonstrated in the first year of operations for Deerfield Triarc. Our diversified financial company platform, focused on an actively managed and appropriately hedged portfolio, is an extension of our successful model at Deerfield Capital Management and continues to generate solid cash flow, maximizing our returns to shareholders."
Investment Portfolio
The following table summarizes the carrying value of our investment portfolio, excluding credit default swaps, and the respective balance sheet classification as of December 31, 2005.
Carrying Value
Available Other Loans
-for- Sale Trading Invest- Held
Securities Securities ments For Sale Loans Total
(In Thousands)
Security
Description
RMBS $7,006,132 $4,738 $- $- $- $7,010,870
Asset-backed
securities
in CDO 245,511 - - - - 245,511
Loans - - - 291,190 158,111 449,301
Commercial
mortgage
loans - - - 2,873 - 2,873
Common and
preferred
equities 15,846 - 12,303 - - 28,149
High yield
corporate
bonds 14,642 - - - - 14,642
Other
investments 2,921 - - - - 2,921
Total $7,285,052 $4,738 $12,303 $294,063 $158,111 $7,754,267
Mortgage Securities Investment Portfolio
During the three month period ended December 31, 2005, the RMBS portfolio increased by 2.0%, to $7.0 billion from $6.9 billion as of September 30, 2005.
Commenting on the portfolio, Jonathan W. Trutter, the CEO of Deerfield Triarc Capital Corp., said, "We continue to build our core earning portfolio of high credit quality RMBS, by utilizing efficient leverage, while keeping interest rate sensitivity lower through an active hedging program."
As of December 31, 2005, the aggregate amortized cost of the RMBS exceeded its aggregate estimated fair value by $110.8 million. Unrecognized net gains of $70.2 million on interest rate swaps designated as a hedge provided a favorable offset. The aggregate net unamortized purchase premium related to the RMBS was $59.8 million as of December 31, 2005, compared to $71.9 million as of September 30, 2005. The RMBS amortized cost, as a percentage of aggregate par value, was 100.9% as of December 31, 2005, compared to 101.4% as of September 30, 2005. Premium bonds tend to have shorter durations than discount or par bonds and their values are thus generally less sensitive to interest rate movement. The net portfolio duration, which is the difference between the duration of the RMBS and the duration of the repurchase agreements funding these investments, adjusted for the effects of the company's swap portfolio, was approximately 0.34 years at December 31, 2005.
The mortgage-backed securities holdings consist primarily of hybrid adjustable rate and fixed rate bonds as of December 31, 2005 as follows (dollars in thousands):
Percent
of
Estimate Percent Total
of Invest-
Security Description (1) Par Amount Fair Value RMBS ments
Agency RMBS:
3-1 hybrid adjustable rate $839,047 $832,161 11.9% 10.7%
5-1 hybrid adjustable rate 3,826,135 3,807,634 54.3% 49.1%
7-1 hybrid adjustable rate 176,699 174,881 2.5% 2.3%
10-1 hybrid adjustable rate 387,334 381,702 5.4% 4.9%
30 year fixed rate 540,950 531,145 7.6% 6.8%
Non-Agency RMBS:
Fixed rate (3) 299,792 292,641 4.2% 3.8%
Hybrid adjustable rate (3) 956,248 955,094 13.6% 12.3%
Other:
Interest only strips (4) 639,865 35,612 0.5% 0.5%
Total RMBS $7,666,070 $7,010,870 100.0% 90.4%
RMBS - September 30, 2005 $6,872,967
Weighted Average
Months Constant
to Yield Contr- Pre-
Reset to actual payment Duration
Security Description (1) Coupon (2) Maturity Maturity Rate in Years
Agency RMBS:
3-1 hybrid adjustable
rate 4.40% 22 5.24% 11/29/34 24.87 1.63
5-1 hybrid adjustable
rate 4.90% 51 5.26% 04/22/35 17.66 2.09
7-1 hybrid adjustable
rate 4.96% 73 5.42% 03/19/35 16.94 2.49
10-1 hybrid adjustable
rate 5.17% 114 5.54% 06/22/35 8.03 3.04
30 year fixed rate 5.30% NA 5.61% 09/05/35 7.03 4.28
Non-Agency RMBS:
Fixed rate (3) 5.50% NA 5.82% 07/14/35 0.09 6.26
Hybrid adjustable rate
(3) 5.36% NA 5.62% 05/09/35 22.22 1.76
Other:
Interest only strips
(4) 1.16% NA 22.83% 12/30/32 14.18 -38.18
(1) Includes securities classified as both Available-for-sale and
Trading.
(2) Represents number of months before conversion to floating rate.
(3) Non-agency RMBS are AAA rated.
(4) Interest only strips represent only the interest portion of a
security. Therefore, the par amount reflected should not be used as a
comparison to fair value.
In order to mitigate a significant portion of the negative impact of an overall higher interest rate or flatter yield curve environment, the company invested in a mix of longer-duration hybrid rate and fixed rate investments. In addition, the company used its hedging program to lock in financing rates to achieve the desired net portfolio duration of between zero and half a year. Fixed rate securities totaled 12.3% of the RMBS portfolio as of December 31, 2005. The company has hedged the borrowing costs associated with the repurchase agreements funding the RMBS portfolio using interest rate swaps, which are accounted for as cash flow hedges under GAAP.
Alternative Investments Portfolio
In addition to mortgage securities, the portfolio includes alternative investments across a variety of asset classes that represent attractive yield and diversification opportunities. During the three month period ended December 31, 2005, the alternative investment portfolio increased by 23.7%, to $743.4 million from $601.1 million as of September 30, 2005. Commenting on this segment of the portfolio, CEO Trutter said, "We have made significant progress in our objective to ramp up alternative investments in the overall portfolio, while maintaining spreads that properly compensate for the additional credit risk in these asset classes."
At December 31, 2005, the alternative portfolio consisted of the following assets:
Available-for-sale securities (carried at fair value, changes in value in equity)
-- asset-backed securities - $245.5 million
-- high-yield corporate bonds - $14.7 million
-- common and preferred equities - $15.8 million
-- other investments - $2.9 million
Loans
-- held for sale (carried at lower of cost or market) - $294.1 million
-- held for investment (carried at cost less estimated loan loss) -
$158.1 million
Other investments (carried at cost)
-- common and preferred equities - $12.3 million
Secured financing transactions (included in amounts above)
-- Market Square CLO Ltd. - bank loans held for sale portfolio of $288.1
million at December 31, 2005 ($300 million targeted size) financed
with bonds over 12 years at a weighted-average cost of LIBOR plus
0.49%
-- Pinetree CDO Ltd. - asset-backed securities portfolio of $245.5
million at December 31, 2005 ($300 million targeted size) financed
with bonds over 40 years at a weighted-average cost of LIBOR plus
0.55%
Securitization Transactions
The company closed Pinetree CDO Ltd. ("Pinetree"), a $300 million CDO transaction providing financing for asset-backed securities investments, in November 2005. The closing of the Pinetree transaction resulted in the discharging of all borrowings under a related warehousing agreement entered into in May 2005.
Dividend
As previously announced, the company declared a quarterly distribution of $0.35 per share of common stock for the fourth quarter of 2005 to shareholders of record as of December 30, 2005, paid on January 30, 2006. Distributions declared in 2005 totaled $1.225 per common share.
Book Value
Book value per share at December 31, 2005 was $13.50 compared to $13.95 at September 30, 2005. During the fourth quarter of 2005, dividends per share of $0.35 and $0.30 were declared on December 20th and October 26th, respectively. Book value per share at September 30, 2005 would have been $13.65 per share had the October dividend declaration occurred prior to the end of the third quarter. On a pro-forma adjusted basis, book value per share decreased approximately 1% during the fourth quarter of 2005.
About the Company
Deerfield Triarc Capital Corp. is a specialty finance company formed in 2004 to invest in real estate-related securities and various other asset classes. The company has elected and intends to continue to qualify to be taxed as a real estate investment trust, or REIT, for federal income tax purposes. The objective is to provide attractive returns to investors through a combination of dividends and capital appreciation, which the company intends to achieve by opportunistically investing in financial assets and to construct an investment portfolio appropriately leveraged to seek attractive risk- adjusted returns.
The targeted asset classes and the principal investments the company expects to make in each are as follows:
Asset Class Principal Investments
Real Estate-Related Securities Residential mortgage-backed securities,
or RMBS
Commercial mortgage-backed securities,
or CMBS
Other Asset-backed Securities, Collateralized debt obligations, or
or ABS CDOs
Consumer ABS
Loans and Related Derivatives Senior Secured and Unsecured Loans
Credit Default Swaps on Senior Secured
Loans
Leveraged Finance Instruments Corporate Mezzanine Loans
High Yield Corporate Bonds
Distressed and Stressed Debt Securities
Private Equity Investments
In addition, the company may invest opportunistically in other types of investments within the core competencies of its manager, Deerfield Capital Management, including investment grade corporate bonds and related derivatives, government bonds and related derivatives, and other fixed income related instruments.
* * Notes and Tables to Follow * *
FORWARD-LOOKING STATEMENT
The statements in this press release that are not historical facts, including, most importantly, information concerning possible or assumed future results of operations of Deerfield Triarc Capital Corp. ("Deerfield Triarc" or the "company") and statements preceded by, followed by, or that include the words "may," "believes," "plans," "expects," "anticipates" or the negation thereof, or similar expressions, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 (the "Reform Act"). All statements that address operating performance, events or developments that are expected or anticipated to occur in the future, including statements related to revenue growth, earnings per share growth or statements expressing general optimism about future operating results, are forward-looking statements within the meaning of the Reform Act. These forward-looking statements are based on our current expectations, speak only as of the date of this press release and are susceptible to a number of risks, uncertainties and other factors. Our actual results, performance and achievements may differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. For those statements, we claim the protection of the safe harbor for forward- looking statements contained in the Reform Act. Many important factors could affect our future results and could cause those results to differ materially from those expressed in the forward-looking statements contained herein. Such factors include, but are not limited to, general volatility of the securities markets in which we invest and the market price of our common stock; changes in our industry, interest rates, the debt securities markets or the general economy; increased prepayments of the mortgage and other loans underlying our mortgage-backed or other asset-backed securities; increased rates of default and/or decreased recovery rates on our investments; changes in governmental regulations, tax rates and similar matters; our expected financings and investments; availability of investment opportunities in real estate-related and other securities; the degree and nature of our competition; and other risks and uncertainties disclosed from time to time in the company's filings with the Securities and Exchange Commission, all of which are difficult or impossible to predict accurately and many of which are beyond the company's control.
All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referenced above. New risks and uncertainties arise from time to time, and it is impossible for us to predict these events or how they may affect us. We assume no obligation to update any forward-looking statements after the date of this press release as a result of new information, future events or developments, except as required by federal securities laws. In addition, it is our policy generally not to make any specific projections as to future earnings, and we do not endorse any projections regarding future performance that may be made by third parties.
DEERFIELD TRIARC CAPITAL CORP. AND ITS SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except share and per share amounts)
December 31,
2005 2004
ASSETS
Cash and cash equivalents $35,542 $268,686
Due from broker 191,845 -
Restricted cash and cash
equivalents 85,311 -
Available-for-sale securities,
including $6,847,723 and $327,636
pledged-at fair value 7,285,052 444,958
Held to maturity securities-at
amortized cost - 100,125
Trading securities-at fair value 4,738 -
Other investments 12,303 -
Derivative assets 69,406 -
Loans held for sale 294,063 -
Loans 158,111 -
Interest receivable 40,648 1,211
Other receivable 16,976 -
Prepaid and other assets 9,817 -
TOTAL ASSETS $8,203,812 $814,980
LIABILITIES
Repurchase agreements, including
$26,788 and $22 of accrued
interest $6,768,396 $317,810
Due to broker 77,327 117,689
Dividends payable 18,081 -
Derivative liabilities 6,053 276
Interest payable 18,262 -
Long term debt 615,550 -
Management and incentive fee
payable 2,453 160
Offering costs payable 47 857
Other payables 440 176
TOTAL LIABILITIES 7,506,609 436,968
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.001:
100,000,000 shares authorized;
none issued and outstanding - -
Common stock, par value $0.001:
500,000,000 shares authorized;
51,659,701 and 27,326,986
shares issued and outstanding
(including 269,232 and 403,847
restricted shares) 51 27
Additional paid-in capital 747,919 385,205
Deferred equity compensation (2,397) (6,225)
Accumulated other comprehensive
loss (44,703) (704)
Retained deficit (3,667) (291)
TOTAL STOCKHOLDERS' EQUITY 697,203 378,012
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $8,203,812 $814,980
DEERFIELD TRIARC CAPITAL CORP. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share amounts)
Quarter Ended Year Ended
December 31, 2005 December 31, 2005
REVENUES
Net interest income:
Interest income $97,210 $236,149
Interest expense 76,855 177,442
Net interest income 20,355 58,707
EXPENSES
Management and incentive fee
expense to related party 5,553 15,088
Professional services 329 880
Insurance expense 169 681
Other general and administrative
expenses 443 1,572
Total expenses 6,494 18,221
OTHER INCOME AND GAIN (LOSS)
Net gain on sale of available-for-
sale securities 6,201 5,372
Net loss on trading securities (2,195) (3,606)
Net gain / (loss) on loans 23 (409)
Net gain on derivatives 1,129 3,758
Dividend income 75 320
Net other income and gain 5,233 5,435
NET INCOME $19,094 $45,921
NET INCOME PER SHARE-Basic $0.37 $1.17
NET INCOME PER SHARE-Diluted $0.37 $1.17
WEIGHTED-AVERAGE NUMBER OF SHARES
OUTSTANDING - Basic 51,267,560 39,260,293
WEIGHTED-AVERAGE NUMBER OF SHARES
OUTSTANDING - Diluted 51,469,878 39,381,073
DEERFIELD TRIARC CAPITAL CORP. AND ITS SUBSIDIARIES RECONCILIATION OF GAAP NET INCOME TO ESTIMATED REIT TAXABLE INCOME (UNAUDITED)
Quarter ended Year ended
December 31, 2005 December 31, 2005
(In thousands)
GAAP net income $19,094 $45,921
Adjustments to GAAP net income:
Organization costs (2) 24
Hedge ineffectiveness 425 327
Stock and options grant (966) 1,956
Tax premium/discount amortization
difference 813 1,125
Removal of unrealized (gain) loss 3,313 4,460
Amortization recognized for tax on
interest-only RMBS 2 2,437
Basis difference on sold interest-
only RMBS (2,246) (2,246)
Gain on terminated swaps, including
amortization (196) (1,909)
Non-allowable deduction for meals
and entertainment 16 52
Accrued income deemed return of
capital for tax (1,384) (1,384)
Market Square CLO Ltd. discount
amortization difference (39) (39)
Exclusion of Deerfield Triarc TRS
Holdings, LLC net income (24) (149)
Net adjustments to GAAP net income (288) 4,654
Estimated REIT taxable income $18,806 $50,575
The company believes that the presentation of estimated REIT taxable income is useful to investors because it demonstrates the estimated minimum amount of distributions it must make in order to avoid corporate level income tax. However, beyond its intent to distribute to stockholders at least 90% of REIT taxable income on an annual basis in order to maintain our REIT qualification, the company does not expect that the amount of distributions it makes will necessarily correlate to estimated REIT taxable income. Rather, the company expects to determine the amount of distributions to make based on cash flow and what it believes to be an appropriate and competitive dividend yield relative to other specialty finance companies and mortgage REITs. Estimated REIT taxable income will not necessarily bear any close relation to cash flow. Accordingly, the company does not consider estimated REIT taxable income to be a reliable measure of liquidity although the related distribution requirement can impact liquidity and capital resources. Moreover, there are limitations associated with estimated REIT taxable income as a measure of financial performance over any period, and the presentation of estimated REIT taxable income may not be comparable to similarly titled measures of other companies, who may use different calculations. As a result, estimated REIT taxable income should not be considered as a substitute for GAAP net income as a measure of financial performance.
