CHICAGO, March 14 /PRNewswire-FirstCall/ -- Deerfield Triarc Capital Corp. today announced the results of operations for its fourth quarter and year ended December 31, 2006.
Fourth Quarter 2006 Highlights:
-- Net income of $14.7 million, or $0.28 per diluted common share
-- Estimated REIT taxable income, a non-GAAP financial measure, of
$23.3 million, or $0.45 per diluted common share
-- Record dividend distribution of $0.42 per share, up from $0.40 per
share in the third quarter of 2006
-- Fourth quarter increase of 23% in the structured and syndicated assets
portion of the alternative investments portfolio to $455 million
-- Book value per share of $13.32 at December 31, 2006
-- Adjusted book value per share, after adding back the fourth quarter
dividend which was declared before the end of the quarter for tax
purposes, decreased slightly to $13.74 at December 31, 2006, from
$13.78 per share at the end of the third quarter
-- Issued $70 million of trust preferred securities bearing interest at
three-month LIBOR plus 225 basis points
Fiscal Year 2006 Highlights:
-- Net income of $71.6 million, or $1.39 per share, compared with
$45.9 million, or $1.17 per share in 2005
-- Estimated REIT taxable income of $86.3 million, or $1.67 per share,
compared with $49.8 million, or $1.26 per share in 2005
-- 2006 distributions of $1.56 per share, up 27% from 2005
Results of Operations
Net income for the quarter ended December 31, 2006 totaled $14.7 million, or $0.28 per diluted common share, compared with net income of $19.6 million, or $0.38 per share, for the third quarter of 2006. The decrease reflected an impairment charge of $5.0 million on certain interest-only strip securities, lower valuations in the cash security trading portfolio, a provision for loan losses of $2.0 million and higher share-based fee expense due to the impact of our stock price appreciation on the revaluation of unvested grants. Providing a partial offset were improved derivative trading income, a 15 basis point increase in the net return on average investment in the residential mortgage- backed securities portfolio (RMBS) and gains on sale of RMBS. The company considers comparisons to the fourth quarter of 2005 less meaningful since the company redeployed a significant amount of its capital to higher yielding alternative assets during 2006.
Interest-only strip securities are purchased primarily for duration management or yield enhancement purposes. The impairment charge in the fourth quarter of 2006 was economically offset by an increase in fair value of the Available-for-Sale securities portfolio totaling $5.4 million that is reflected in equity.
Estimated REIT taxable income, a non-GAAP financial measure, for the quarter and year ended December 31, 2006, totaled $23.3 million and $86.3 million, or $0.45 and $1.67 per diluted common share, respectively. For a reconciliation of GAAP net income to estimated REIT taxable income, see the attached schedule.
Gregory H. Sachs, chairman and chief executive officer of Deerfield Capital Management LLC, the company's external manager, said, "We are pleased with the financial results produced in the second year of Deerfield Triarc's operations. The success of our diversified strategy is reflected in the recent stock price appreciation and the series of increasing dividends to DFR shareholders during 2006."
Investment Portfolio
The following table summarizes the carrying value of our invested assets and the respective balance sheet classifications as of December 31, 2006 (in thousands).
Carrying Value
Available- Trading Loans
for-Sale and Other Held for
Description (4) Securities Securities Sale Loans
RMBS (agency / AAA) $7,618,663 $72,765 $- $-
Corporate leveraged
loans (1) - - 8,000 403,976
Commercial mortgage-
backed assets 2,533 - 5,613 28,359
Equity securities - 6,382 - -
Total structured &
syndicated assets 2,533 6,382 13,613 432,335
Assets held in CLO (2) 9,042 - 269,155 -
Asset-backed securities
in CDO (3) 297,420 - - -
High yield corporate
bonds 10,445 - - -
Other investments 2,988 21,254 - -
Total alternative
investments 322,428 27,636 282,768 432,335
Total invested assets
- Dec 31, 2006 $7,941,091 $100,401 $282,768 $432,335
Total invested assets
- Sep 30, 2006 $8,449,538 $34,559 $282,482 $339,447
Carrying Value
Total Total
Dec 31, % of Sep 30, % of
Description (4) 2006 Total 2006 Total
RMBS (agency / AAA) $7,691,428 87.8% $8,125,381 89.2%
Corporate leveraged
loans (1) 411,976 332,617
Commercial mortgage-backed
assets 36,505 23,989
Equity securities 6,382 13,227
Total structured &
syndicated assets 454,863 5.2% 369,833 4.1%
Assets held in CLO (2) 278,197 3.2% 275,284 3.0%
Asset-backed securities
in CDO (3) 297,420 3.4% 296,771 3.3%
High yield corporate bonds 10,445 0.1% 17,438 0.2%
Other investments 24,242 0.3% 21,319 0.2%
Total alternative
investments 1,065,167 12.2% 980,645 10.8%
Total invested assets
- Dec 31, 2006 $8,756,595 100% $9,106,026 100%
Total invested assets
- Sep 30, 2006 $9,106,026
(1) Excludes credit default and total return swaps at December 31, 2006
with a fair value of approximately $1.0 million and $0.8 million and a
notional value of $68.0 million and $15.6 million, respectively.
(2) Includes $9.0 million of high yield corporate bonds.
(3) Includes non agency-backed RMBS, CMBS and other ABS.
(4) The portfolio instruments that constitute each asset category reflect
subjective judgments by the company and are subject to change.
Total invested assets grew 12.9% to $8.8 billion as of December 31, 2006 compared to $7.8 billion at the end of 2005. Structured and syndicated assets totaled $454.9 million, up $262.7 million since the prior year-end. The growth reflected the investment of proceeds from a warehouse funding facility and from the issuance of $70 million in trust preferred securities, into RMBS, and the continued ramp of the alternative investment portfolio.
Total invested assets declined $349 million, or 4% during the fourth quarter. The decrease reflects the impact of a higher percentage of the portfolio invested in structured and syndicated assets, which have significantly less leverage than RMBS, but higher return on equity.
Mortgage Securities Investment Portfolio
During the fourth quarter of 2006, the RMBS portfolio decreased by 5.3% to $7.7 billion from $8.1 billion as of September 30, 2006, primarily due to the reinvestment of principal paydowns from this portfolio into higher yielding alternative assets. At December 31, 2006, the aggregate amortized cost of RMBS exceeded its aggregate estimated fair value by $104.8 million. Unrecognized net gains of $58.4 million on interest rate swaps designated as a hedge provided a favorable offset. The net portfolio duration, which is the difference between the duration of the RMBS and that of the repurchase agreements funding these investments, adjusted for the effects of the company's swap portfolio, was approximately 0.1 years at December 31, 2006. Net return on average investment in the RMBS portfolio improved to 71 basis points during the fourth quarter primarily due to more favorable market conditions.
Commenting on the RMBS portfolio, Jonathan W. Trutter, chief executive officer of Deerfield Triarc Capital Corp., stated, "The mortgage book has performed well despite the persistently challenging interest rate environment. Spreads in this portfolio continue to be satisfactory while maintaining a relatively low sensitivity to changes in interest rates."
The mortgage-backed securities holdings consisted primarily of hybrid adjustable rate and fixed rate bonds as of December 31, 2006, as follows:
Estimated
Security Description (1) Par Amount Fair Value
(In thousands)
Hybrid Adjustable Rate RMBS:
Rate reset in 1 year or less $511,743 $509,905
Rate reset in 1 to 3 years 1,731,398 1,715,755
Rate reset in 3 to 5 years 2,491,987 2,473,489
Rate reset in 5 to 7 years 216,277 214,237
Rate reset in 7 to 10 years 410,762 403,632
Fixed Rate RMBS
15 year 177,083 176,345
30 year 2,138,649 2,130,171
Other:
Interest-only (I/O) strips (5) 207,358 30,096
I/O strips - trading (5) 640,903 4,911
I/O and principal-only strips (5) 67,905 32,887
Total RMBS - December 31, 2006 $8,594,065 $7,691,428
RMBS - September 30, 2006 $8,954,871 $8,125,381
Weighted Average
Constant
Security - Months Yield Pre-
Description to to Contractual payment Modified
(1) Coupon Reset(2) Maturity Maturity Rate(3) Duration(4)
Hybrid Adjustable
Rate RMBS:
Rate reset in
1 year or
less 4.52% 8 5.91% 04/02/35 43.7 0.9
Rate reset in
1 to 3 years 4.82% 29 5.70% 03/11/35 31.1 1.8
Rate reset in
3 to 5 years 5.04% 40 5.64% 07/09/35 29.2 1.8
Rate reset in
5 to 7 years 5.07% 65 5.57% 08/05/35 23.0 2.2
Rate reset in
7 to 10 years 5.22% 103 5 .78% 07/22/35 15.9 3.5
Fixed Rate RMBS
15 year 5.50% n/a 5.60% 10/09/20 12.3 3.0
30 year 5.82% n/a 5.78% 01/12/36 14.9 3.5
Other:
Interest-only
(I/O) strips
(5) n/m n/a 15.39% 05/07/35 10.6 (46.9)
I/O strips -
trading (5) n/m n/a 13.84% 05/18/35 12.8 66.4
I/O and
principal-
only
strips (5) n/m n/a 6.01% 10/15/34 10.5 3.9
(1) Includes securities classified as both available-for-sale and
trading.
(2) Represents number of months before conversion to floating rate.
(3) Constant prepayment rate refers to the expected average annualized
percentage rate of principal prepayments over the remaining life of
the security. The values represented in this table are estimates
only and the results of a third party financial model.
(4) Modified duration represents the approximate percentage change in
market value per 100 basis point change in interest rates.
(5) Interest- and principal-only strips represent solely the interest or
principal portion of a security. Therefore the par amount reflected
should not be used as a comparison to fair value.
n/m - not meaningful
n/a - not applicable
Fixed rate RMBS totaled 30.0% of the portfolio as of December 31, 2006. The company has hedged a substantial portion of 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.
The RMBS portfolio consists entirely of agency issued or AAA rated securities with no subprime residential exposure. A fairly limited amount of exposure to subprime residential mortgages exists in the alternative investment portfolio as discussed in the following section.
Alternative Investments Portfolio
Complementing the mortgage securities segment of the portfolio are alternative investments that represent attractive yield and diversification opportunities. During the fourth quarter of 2006, the structured and syndicated assets portion of this portfolio increased by 23.0% to $454.9 million from $369.8 million at September 30, 2006. Asset backed securities collateralized by subprime residential mortgages, which are held in the Pinetree ABS CDO, totaled $178.8 million at December 31, 2006.
Commenting on the subprime residential exposure in the company, Mr. Trutter noted, "Approximately 60% of Pinetree's assets are in investment grade-rated residential B/C mortgages, which are considered 'subprime'. DFR's investment at risk, however, is limited to our $12 million equity investment in the CDO."
Dividend
As previously announced, a quarterly distribution of $0.42 per share of common stock was declared for the fourth quarter of 2006, to shareholders of record as of December 29, 2006, payable on January 30, 2007. The following table summarizes our dividends paid in 2006.
Declaration Record Payment Dividend
Date Date Date Per Share
04/24/06 05/04/06 05/26/06 $0.36
07/25/06 08/04/06 08/28/06 0.38
10/24/06 11/07/06 11/27/06 0.40
12/19/06 12/29/06 01/30/07 0.42
Total - 2006 $1.56
Book Value
Book value per share at December 31, 2006, was $13.32 compared to $13.78 at September 30, 2006. Unlike the first three quarters of 2006, the fourth quarter dividend was declared before quarter-end to avoid a non-deductible excise tax on undistributed taxable income, which is computed on a calendar year basis. Book value per share at December 31, 2006 computed on a pro-forma basis, excluding the reduction of book value from the out-of-cycle fourth quarter dividend was $13.74, a decrease of less than 1% from September 30, 2006.
Conference Call
The company will host its quarterly earnings conference call for investors and other interested parties on Thursday, March 15, 2007, at 11:00 a.m. Eastern Time. The conference call will be accessible by telephone and through the Internet. Interested individuals are invited to access the call by dialing 877-704-5381. To participate on the webcast, log on to the company's website at http://www.deerfieldtriarc.com/ or http://www.earnings.com/ 15 minutes before the call to download the necessary software.
In addition, a taped rebroadcast will be available beginning one hour following the completion of the call, and will continue through March 22, 2007. To access the rebroadcast, dial 888-203-1112 and request reservation number 9416595. A replay of the call will also be available on the Internet at http://www.deerfieldtriarc.com/ or http://www.earnings.com/ for 30 days.
About the Company
Deerfield Triarc Capital Corp. (the company) is a diversified financial 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, or ABS Collateralized debt obligations, or
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 * *
NOTES TO PRESS RELEASE
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 higher than expected prepayment rates on the mortgages underlying our mortgage securities holdings; our inability to obtain favorable interest rates or margin terms on the financing that we need to leverage our mortgage securities and other positions; increased rates of default on our loan portfolio (which risk rises as the portfolio seasons), and decreased recovery rates on defaulted loans; flattening or inversion of the yield curve (short term rates increasing at greater rate than longer term rates), reducing our net interest income on our financed mortgage securities positions; our inability adequately to hedge our holdings sensitive to changes in interest rates; narrowing of credit spreads, thus decreasing our net interest income on future credit investments (such as bank loans); changes in REIT qualification requirements, making it difficult for us to conduct our investment strategy; lack of availability of qualifying real estate-related investments; disruption in the services we receive from our Manager, such as loss of key portfolio management personnel; our inability to continue to issue collateralized debt obligation vehicles (which can provide us with attractive financing for our debt securities investments); adverse changes in accounting principles, tax law, or legal/regulatory requirements; competition with other REITs for investments with limited supply; changes in the general economy or the debt markets in which we invest; and other risks and uncertainties disclosed from time to time in our filings with the Securities and Exchange Commission, all of which are difficult or impossible to predict accurately and many of which are beyond our 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
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share amounts)
December 31, December 31,
2006 2005
ASSETS
Cash and cash equivalents $72,523 $35,542
Due from broker 257,818 191,845
Restricted cash and cash equivalents 27,243 85,311
AFS securities, including
$7,422,494 and $6,847,723
pledged-at fair value 7,941,091 7,285,052
Trading securities-at fair value 94,019 4,738
Other investments 6,382 12,303
Derivative assets 55,624 69,406
Loans held for sale 282,768 294,063
Loans 432,335 158,111
Allowance for loan losses (2,000) -
Loans, net of Allowance for loan losses 430,335 158,111
Interest receivable 51,627 40,648
Other receivable 18,362 16,976
Prepaid and other assets 12,199 9,817
TOTAL ASSETS $9,249,991 $8,203,812
LIABILITIES
Repurchase agreements, including
$46,858 and $26,788 of accrued
interest $7,372,035 $6,768,396
Due to broker 158,997 77,327
Dividends payable 21,723 18,081
Derivative liabilities 21,456 6,053
Interest payable 33,646 18,262
Long term debt 948,492 615,550
Management and incentive fee
payable to related party 1,092 2,453
Other payables 3,597 487
TOTAL LIABILITIES 8,561,038 7,506,609
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;
51,721,903 and 51,659,701
shares issued and outstanding
(including 134,615 and 269,232
restricted shares) 51 51
Additional paid-in capital 748,803 747,919
Deferred equity compensation - (2,397)
Accumulated other comprehensive loss (47,159) (44,703)
Accumulated deficit (12,742) (3,667)
TOTAL STOCKHOLDERS' EQUITY 688,953 697,203
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $9,249,991 $8,203,812
DEERFIELD TRIARC CAPITAL CORP. AND ITS SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share amounts)
Three months ended Twelve months ended
December 31, December 31,
2006 2005 2006 2005
REVENUES
Net interest income:
Interest income $122,286 $97,210 $459,298 $236,149
Interest expense 99,374 76,855 372,615 177,442
Net interest
income 22,912 20,355 86,683 58,707
Provision for loan losses 2,000 - 2,000 -
EXPENSES
Management fee expense
to related party 4,676 4,211 15,696 13,746
Incentive fee expense to
related party 16 1,342 3,335 1,342
Professional services 665 329 2,179 880
Insurance expense 167 169 718 681
Other general and
administrative expenses 484 436 1,810 1,477
Total expenses 6,008 6,487 23,738 18,126
OTHER INCOME AND GAIN (LOSS)
Net gain (loss) on
available-for-sale
securities (2,297) 6,201 2,790 5,372
Net gain (loss) on
trading securities (533) (2,195) 750 (3,606)
Net gain (loss) on loans 312 23 1,167 (409)
Net gain on derivatives 2,440 1,129 5,664 3,758
Dividend income and
other net gain (loss) (539) 75 265 320
Net other
income and
gain (loss) (617) 5,233 10,636 5,435
Income before income tax
expense 14,287 19,101 71,581 46,016
Income tax expense (benefit) (398) 7 6 95
NET INCOME $14,685 $19,094 $71,575 $45,921
NET INCOME PER SHARE-Basic $0.29 $0.37 $1.39 $1.17
NET INCOME PER
SHARE-Diluted $0.28 $0.37 $1.39 $1.17
WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING -
Basic 51,457,517 51,267,560 51,419,191 39,260,293
WEIGHTED-AVERAGE NUMBER OF
SHARES OUTSTANDING -
Diluted 51,659,648 51,469,878 51,580,780 39,381,073
DEERFIELD TRIARC CAPITAL CORP. AND ITS SUBSIDIARIES
EFFECTIVE RATE AND NET RETURN ANALYSIS (1)
(Dollars in thousands)
Three months ended
September 30, Inc /
December 31, 2006 2006 (Dec)
Average Interest Effective Effective Effective
Balance(2) Income Rate(3) Rate(3) Rate(3)
RMBS (4) $8,066,017 $98,807 4.90% 4.75% 0.15 %
Assets held in CLO
(Market Square) 294,727 5,945 8.07% 8.61% (0.54)%
ABS held in CDO
(Pinetree) 306,553 5,284 6.89% 6.98% (0.09)%
Other alternative assets 377,681 12,250 12.97% 13.55% (0.58)%
Total investments $9,044,978 $122,286 5.41% 5.30% 0.11 %
Average Interest Effective Effective Effective
Balance(2) Income Rate(3) Rate(3) Rate(3)
Repurchase
agreements (5)(6) $7,405,302 $84,515 4.57% 4.57% (0.00)%
Market Square
long-term debt 276,000 4,246 6.15% 6.17% (0.02)%
Pinetree long-term
debt (5) 287,845 4,230 5.88% 7.16% (1.28)%
Revolving warehouse
facility 231,775 3,928 6.78% 6.96% (0.18)%
Trust preferred
securities (TPS) 110,728 2,455 8.87% 9.31% (0.44)%
Total borrowings $8,311,650 $99,374 4.78% 4.82% (0.04)%
Net return on average Net Interest Net Net Net
investment Income(7) Return(8) Return(8) Return(8)
RMBS (5) $14,292 0.71% 0.56% 0.15 %
Assets held in CLO
(Market Square) 1,699 2.31% 2.85% (0.54)%
ABS held in CDO
(Pinetree) (5) 1,054 1.38% 0.18% 1.20 %
Other alternative assets 8,322 8.81% 9.33% (0.52)%
Total net return
before TPS 25,367 1.12% 0.96% 0.16 %
Trust preferred securities (2,455) -0.11% -0.07% (0.04)%
Total net return $22,912 1.01% 0.89% 0.12 %
Net return on average Average Net Net Net Net
net investment Investment Return(9) Return(9) Return(9)
RMBS (5) $660,715 8.65% 6.72% 1.93 %
Assets held in CLO
(Market Square) 24,000 28.32% 35.13% (6.81)%
ABS held in CDO
(Pinetree) (5) 12,000 35.13% 4.63% 30.50 %
Other alternative assets 145,906 22.81% 23.67% (0.86)%
Total net return
(including TPS) $842,621 10.88% 9.53% 1.35 %
(1) This supplemental information is subject to various significant
limitations, including that it is being provided solely for general
informational purposes; it is based on unaudited financial
information; it is subject to revision; the past results presented are
not necessarily indicative of future results; the company makes no
representation about the appropriateness of the information in making
investment decisions; the portfolio instruments that constitute each
asset category reflect subjective judgments by the company and are
subject to change; the information is qualified in its entirety by the
following documents available on our website--the company's Annual
Report for 2006 on Form10-K filed with the SEC, the company's
subsequent quarterly reports on Form10-Q filed with the SEC, and the
"Notes to Press Release" included with this announcement.
(2) Average balance is calculated based on the month-end balances with the
exception of some of the Other alternative assets, which are based on
daily balances. Available-for-sale securities are included in this
analysis using historical cost while all other balances are at
carrying value. Average balances exclude any unsettled
purchases and sales.
(3) Effective rate is calculated by dividing Interest income or Interest
expense by the respective Average balance. The effective rate is
annualized.
(4) RMBS includes interest earning cash and short-term investments not
held in a CLO or CDO.
(5) This calculation includes the impact of designated hedging activity
(including increases/(decreases) in interest expense due to
ineffectiveness of ($571) and $1,118 in the three months ending
December 31 and September 30, 2006, respectively) and margin
borrowing.
(6) Repurchase agreements include an immaterial amount related to Other
alternative assets, however, these amounts are included in the RMBS
Net return calculations.
(7) Net interest income excludes all "Other income and gain (loss)" as
well as "Expenses" reported in the company's Consolidated Statements
of Operations.
(8) Net return on average investment is calculated by dividing Net
interest income by the investment Average balance and the return is
annualized.
(9) Net return on average net investment is calculated by dividing the Net
interest income by the respective average net investment. Average net
investment is calculated for RMBS and Other alternative assets by
taking their investment Average balance less the respective borrowings
Average balance. Net investment for the Assets held in CLO and ABS
held in CDO is their initial equity of $24,000 and $12,000,
respectively. The Return on average net investment is annualized.
DEERFIELD TRIARC CAPITAL CORP. AND ITS SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO ESTIMATED REIT TAXABLE INCOME
(UNAUDITED) (In thousands, except share and per share amounts)
3 Months Ended 12 Months
Ended
Mar 31, Jun 30, Sep 30, Dec 31, Dec 31,
2006 2006 2006 2006 2006
GAAP net
income $19,163 $18,164 $19,563 $14,685 $71,575
Adjustments to
GAAP net
income:
Difference
in rate of
premium
amortization
and discount
accretion 21 (62) 2,420 1,149 3,528
Interest
income on
non-accrual
loans - - - 696 696
Amortization of
gain on
terminated
swaps 131 225 314 313 983
Amortization of
financing
element in
Pinetree
swap (60) (57) (49) (48) (214)
Hedge
ineffective-
ness (589) 213 1,118 (572) 170
Provision for
loan losses - - - 2,000 2,000
Stock and
options
grant 385 276 377 (902) 136
Organization
costs (2) (2) (3) (2) (9)
Non-allowable
deduction for
meals &
entertainment 27 36 33 41 137
Cash distributions
treated as return
of capital
for tax - - (500) - (500)
Security basis
difference
recognized
upon sale (531) (100) (153) 76 (708)
Impairment of
available-for
sale securities
not recognized
for tax
purposes 1,838 197 - 4,970 7,005
Unrealized gain
(loss) (127) 1,313 (1,723) (101) (638)
Realized gain
previously
deferred as
return of
capital - 1,107 - 278 1,385
Gain on
intercompany
sale eliminated
for GAAP 243 (15) (12) (12) 204
Exclusion of
Deerfield
Triarc TRS
Holdings, LLC
net income (141) (52) (444) 628 (9)
Offshore TRS
book / tax
difference 151 151 151 151 604
Net adjustments
to GAAP net
income 1,346 3,230 1,529 8,665 14,770
Estimated REIT
taxable
income $20,509 $21,394 $21,092 $23,350 $86,345
Weighted
average
diluted
shares 51,515,588 51,552,764 51,615,604 51,659,648 51,580,780
Taxable
earnings
per diluted
share (1) $0.40 $0.41 $0.41 $0.45 $1.67
(1) Quarters may not sum to year-to-date due the calculation of earnings
per share for each period on a stand-alone basis.
The company believes that the presentation of estimated REIT taxable
income is useful because it indicates 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, GAAP net income 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, which 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.
