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CreXus Investment Corp. Reports Results for the 3rd Quarter 2012

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NEW YORK--(BUSINESS WIRE)--

CreXus Investment Corp. (NYSE: CXS), today reported GAAP net income for the quarter ended September 30, 2012 of $22.6 million or $0.30 per average share, as compared to $39.9 million or $0.52 per average share for the quarter ended September 30, 2011 and $14.4 million or $0.19 per average share for the quarter ended June 30, 2012.

Common dividends declared for the quarters ended September 30, 2012, September 30, 2011, and June 30, 2012, were $0.32, $0.30 and $0.27 per common share, respectively. The Company distributes dividends based on its current estimate of taxable earnings per common share, not GAAP earnings. Taxable and GAAP earnings will typically differ due to items such as differences in premium amortization and discount accretion, non-taxable unrealized and realized gains and losses, credit loss recognition, and non-deductible general and administrative expenses. The annualized dividend yield on the Company's common stock for the quarter ended September 30, 2012, based on the September 30, 2012 closing price of $10.81, was 11.84%.

On a GAAP basis the Company provided a return on average equity of 9.83%, 17.61% and 6.24%, for the quarters ended September 30, 2012, September 30, 2011, and June 30, 2012, respectively.

Kevin Riordan, Chief Executive Officer and President of CreXus, commented on the quarter's results. “With $125 million of capital committed this quarter, we continue the process of increasing our portfolio yield and maturity while maintaining a consistent risk profile, and building a book of business that is designed to perform for the long-term. The weight of Fed involvement in the fixed income markets is being felt in our markets and credit spreads are tightening, but we believe this will result in an increase in new loan originations and securities issuance. Our pipeline and platform remain active, and we will continue to capitalize on opportunities as they arise.”

The weighted average yield on commercial real estate debt and preferred equity was 10.29%, 16.80% and 11.27% at September 30, 2012, September 30, 2011 and June 30, 2012, respectively. The yield on the Company's real estate portfolio, which includes real estate held for sale, as of the quarters ended September 30, 2012, and June 30, 2012 was 9.44% and 9.50%, respectively. The Company held no real estate properties at September 30, 2011.

The following table summarizes segmented investment portfolio information for the Company:

           

Quarter ended

September 30,

2012

   

Quarter ended

September 30,

2011

    Quarter ended

June 30, 2012

 
Commercial Real Estate Debt and Preferred Equity Portfolio   (dollars in thousands)  
Debt investment portfolio at period-end $ 731,815     $ 873,644     $ 676,478
Preferred equity portfolio at period-end 39,769 21,282 -
Fixed-rate investments as percentage of portfolio 65% 50% 65%
Adjustable-rate investments as percentage of portfolio 35% 50% 35%
Fixed-rate investments
Agency mortgage-backed securities as percentage of fixed-rate assets - 38% -
Commercial mortgage loans as percentage of fixed-rate assets 92% 58% 100%
Commercial preferred equity as percentage of fixed-rate assets 8% 4% -
Adjustable-rate investments
Commercial mortgage loans as percentage of adjustable-rate assets 100% 100% 100%
Weighted average yield on commercial real estate debt and preferred equity at period-end 10.29% 16.80% 11.27%
Real Estate Properties Portfolio including Real Estate Held for Sale
Real estate investment at period-end (1) 78,703 - 81,604
Annualized yield on real estate investment portfolio at period end (2) 9.44% -

9.50%

Mortgages payable on real estate 19,150 - 19,150
Net equity in investments in real estate 59,553 - 62,454
Annualized yield on net equity in investments in real estate (2) 11.28% -

11.32%

Weighted average cost of funds on real estate investment financing (3) 3.49% - 3.49%
     

(1)

 

Includes $41.5 million and $44.1 million in real estate held for sale at September 30, 2012 and June 30, 2012, respectively.

Also includes related net intangible assets in excess of liabilities associated with purchase price allocation.

(2)

Impairment charge and gain on sale related to discontinued operations were not annualized for purposes of determining the yield on equity.

(3)

Interest expense includes net payments related to the interest rate swap and excludes change in market value.

 

The following table summarizes select characteristics for each of the Company's asset classes:

            Quarter ended     Quarter ended       Quarter ended  
  September 30, 2012     September 30, 2011       June 30, 2012  
 

Commercial

Loans

 

Preferred

Equity

 

Real

Estate

     

Commercial

Loans

 

Preferred

Equity

 

Agency

MBS

     

Commercial

Loans

 

Real

Estate

   
Weighted average amortized cost basis $ 98.9   $ 100.0   - 85.6   93.8   104.7 $ 97.0   -
Weighted average coupon 9.63% 11.00% - 5.40% 10.09% 4.77% 9.50% -
Fixed-rate percentage of asset class 64% 100% - 37% 100% 100% 65% -
Adjustable-rate percentage of asset class 36% 100% - 63% - - 35% -
Weighted average yield on assets at period-end 10.24% 11.35% 9.44% 19.97% 17.28% 3.39% 11.27%

9.50%

Weighted average cost of funds at period-end - - 3.49%

 (1)

- - - - 3.49%

 (1)

     

(1)

 

Interest expense includes net payments related to the interest rate swap and excludes change in market value.

 

At September 30, 2012, the Company's commercial mortgage loan portfolio included one loan on non-accrual status. At September 30, 2011 the Company had two loans relating to one group of underlying properties that were 30 days or more delinquent. At June 30, 2012, the Company's commercial mortgage loan portfolio had no delinquent loans. At September 30, 2012, the Company had no allowance for loan losses. At September 30, 2012 the Company classified two loans as Watch List. The Company had two loans classified as Workout at September 30, 2011 and one loan classified as Watch List at June 30, 2012.

The accretion of discount on the Company's loan and preferred equity portfolio, which is a component of interest income, for the quarters ended September 30, 2012, September 30, 2011 and June 30, 2012, was $8.0 million, $30.2 million and $2.6 million, respectively. The total net discount remaining at September 30, 2012 was $7.9 million.

The Company's discontinued operations were composed of net income of $2.9 million and a $2.6 million impairment charge for the quarter ended September 30, 2012, which relates to the net operating results of collateral acquired during the quarter ended March 30, 2012 via a deed in lieu of foreclosure that are recorded as real estate held for sale in the Consolidated Statements of Financial Condition. Net income from discontinued operations for the quarter ended September 30, 2012 is recorded net of a tax provision of approximately $425 thousand.

Annualized general and administrative expenses, including the management fee, as a percentage of average total equity was 2.07%, 1.86% and 2.00% for the quarters ended September 30, 2012, September 30, 2011, and June 30, 2012, respectively. At September 30, 2012, the Company had a common stock book value per share of $11.93, as compared to $11.96 and $11.96 at September 30, 2011 and June 30, 2012, respectively.

CreXus acquires, manages and finances, directly or through its subsidiaries, commercial mortgage loans and other commercial real estate debt, commercial real property, commercial mortgage-backed securities and other commercial and residential real estate-related assets. The Company's principal business objective is to generate net income for distribution to investors from the spread between the yields on its investments and the cost of borrowing to finance their acquisition and secondarily to provide capital appreciation. The Company, a Maryland corporation that has elected to be taxed as a real estate investment trust (“REIT”), is externally managed by Fixed Income Discount Advisory Company, a wholly owned subsidiary of Annaly Capital Management, Inc.

The Company prepares a supplement to provide additional quarterly information for the benefit of its shareholders. The supplement can be found at the Company's website in the Investor Relations section under “Quarterly Supplemental Information”.

The Company will hold the third quarter 2012 earnings conference call on Tuesday, November 6, 2012, at 11:00 a.m. ET. The number to call is 1-866-524-3160 for domestic calls, 1-412-317-6760 for international calls and 1-866-605-3852 for Canadian calls. There is no pass code; please reference CreXus Investment Corp. third quarter earnings. The replay number is 1-877-344-7529 for domestic calls and 1-412-317-0088 for international calls and the conference number is 10019912. The replay will be available at 1:00 p.m. ET through November 8, 2012 at 12:00 p.m. ET. There will be a web cast of the call on www.crexusinvestment.com. If you would like to be added to the e-mail distribution list, please visit www.crexusinvestment.com, click on Investor Relations, then E-Mail Alerts, enter your e-mail address where indicated and click the Submit button.

This news release and our public documents to which we refer contain or incorporate by reference certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements which are based on various assumptions (some of which are beyond our control) may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “may,” “would,” “will” or similar expressions, or variations on those terms or the negative of those terms. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, our business and strategy; our projected financial and operating results; our ability to obtain and maintain financing arrangements and the terms of such arrangements; financing and advance rates for our targeted assets; our continuing or future relationships with third parties; our ability to realize our expectations of advantages of acquiring assets; general volatility of the markets in which we acquire assets; the implementation, timing and impact of, and changes to, various government programs; our expected assets; changes in the value of our assets; interest rate mismatches between our assets and our borrowings used to fund such purchases; changes in interest rates and mortgage prepayment rates; effects of interest rate caps on our adjustable-rate assets; rates of default or decreased recovery rates on our assets; prepayments of the mortgage and other loans underlying our mortgage-backed or other asset-backed securities; the degree to which our hedging strategies may or may not protect us from interest rate volatility; changes in governmental regulations, tax law and rates, accounting guidance, and similar matters; availability of opportunities in real estate-related and other securities; availability of qualified personnel; estimates relating to our ability to make distributions to our stockholders in the future; our understanding of our competition; market trends in our industry, interest rates, the debt securities markets or the general economy; our ability to integrate and manage newly acquired assets into our portfolio; our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended; and our ability to maintain our qualification as a REIT for federal income tax purposes. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in our most recent annual report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. We do not undertake, and specifically disclaim all obligations, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

 
 
CREXUS INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except share and per share data)
           
September 30, 2012 June 30, 2012 March 31, 2012 December 31, 2011 September 30, 2011
Assets: (unaudited) (unaudited) (unaudited) (1) (unaudited)
Cash and cash equivalents $ 105,575 $ 189,128 $ 257,490 $ 202,814 $ 47,233
Agency mortgage-backed securities, at fair value - - - - 200,335

Commercial mortgages net of allowance for loan losses

 ($0, $0, $0, $369 and $331, respectively)

Senior 146,437 123,845 200,878 374,348 323,850
Subordinate 38,837 38,720 38,527 71,517 71,041
Mezzanine 546,541 513,913 390,682 306,936 278,418

Preferred equity, net allowance for loan losses

 ($0, $0, $0, $0, and $38, respectively)

39,769 - - - 21,282
Real estate held for sale 41,514 44,071 52,800 - -
Investment in real estate, net 33,926 34,196 34,466 33,196 -
Intangible assets, net 5,201 5,306 5,412 - -
Rents receivable 221 154 87 32 -
Accrued interest receivable 5,116 4,140 3,509 2,608 3,861
Principal receivable from servicer - 11,429 - - -
Other assets   5,275   2,527   3,540   1,420     975
Total assets $ 968,412 $ 967,429 $ 987,391 $ 992,871   $ 946,995
 
Liabilities:
Mortgages payable $ 19,150 $ 19,150 $ 19,150 $ 16,600 $ -
Participation sold (non-recourse) - - 14,898 14,755 -
Accrued interest payable - - 48 6 -
Accounts payable and other liabilities 4,864 5,809 4,537 4,048 4,038
Dividends payable 24,523 20,692 20,688 26,817 22,986
Intangible liabilities, net 1,938 1,969 2,014 - -
Investment management fees payable to affiliate   3,450   3,426   3,470   3,488     3,373
Total liabilities   53,925   51,046   64,805   65,714     30,397
 
Stockholders' Equity:
Common stock, par value $0.01 per share, 1,000,000,000

authorized, 76,630,528, 76,630,528, 76,620,112, 76,620,112,

 and, 76,620,112 shares issued and outstanding, respectively

766 766 766 766 766
Additional paid-in-capital 890,862 890,862 890,757 890,757 890,757
Accumulated other comprehensive income - - - - 4,397
Retained earnings   22,859   24,755   31,063   35,634     20,678
Total stockholders' equity   914,487   916,383   922,586   927,157     916,598
Total liabilities and stockholders' equity $ 968,412 $ 967,429 $ 987,391 $ 992,871   $ 946,995
 

(1)

Derived from the audited consolidated statements of financial condition at December 31, 2011.

 
 
CREXUS INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands, except share and per share data)
     
For the Quarter ended

September 30,

2012

(unaudited)

 

June 30, 2012

(unaudited)

 

March 31,

2012

(unaudited)

 

December 31,

2011

(unaudited)

 

September 30,

2011

(unaudited)

 
Net interest income:
Interest income $ 26,841 $ 17,678 $ 23,226 $ 41,568 $ 44,174
Interest expense (187 ) (310 ) (360 ) (75 ) (21 )
Servicing fee   (149 )   (114 )   (115 )   (142 )   (213 )
Net interest income   26,505     17,254     22,751     41,351     43,940  
 
Other income:
Realized loss on sale of loan - (525 ) - - -
Realized gains on sales of investments - - - 4,556 -
Miscellaneous fee income 126 127 515 511 217
Rental income   809     811     712     238     -  
Total other income   935     413     1,227     5,305     217  
 
Other expenses:
Provision for loan losses - - 2,803 - -
Management fees to affiliate 3,446 3,426 3,471 3,560 3,373
General and administrative expenses 1,327 1,180 2,710 1,269 848
Amortization Expense 105 106 123 - -
Depreciation expense   271     270     275     54     -  
Total other expenses   5,149     4,982     9,382     4,883     4,221  
 
Net income before income tax 22,291 12,685 14,596 41,773 39,936
Income tax   6     32     1    

(1)

    -  
Net income from continuing operations   22,285     12,653     14,595     41,774     39,936  
 

Net income (loss) from discontinued operations (net of tax expense

 of $425, $1,564, $295, $0 and $0, respectively)

2,903 (46 ) 1,522 - -
Gain on sale from discontinued operations - 1,774 - - -
Impairment charges   (2,560 )   -     -     -     -  
Total income from discontinued operations   343     1,728     1,522     -     -  
 
Net Income $ 22,628   $ 14,381   $ 16,117   $ 41,774   $ 39,936  
 
Net income per share-basic and diluted, continuing operations $ 0.29 $ 0.17 $ 0.19 $ 0.55 $ 0.52
Total income per share-basic and diluted, discontinued operations   0.01     0.02     0.02     -     -  
Net income per share-basic and diluted $ 0.30   $ 0.19   $ 0.21   $ 0.55   $ 0.52  
Dividend declared per share of common stock $ 0.32   $ 0.27   $ 0.27   $ 0.35   $ 0.30  
Weighted average number of shares outstanding-basic and diluted   76,630,528     76,624,462     76,620,112     76,620,112     76,620,112  
Comprehensive income:
Net income $ 22,628   $ 14,381   $ 16,117   $ 41,774   $ 39,936  
Other comprehensive income (loss):
Unrealized gains on securities available-for-sale - - - 159 1,649
Reclassification adjustment for realized gains included in net income   -     -     -     (4,556 )   -  
Total other comprehensive (loss) income   -     -     -     (4,397 )   1,649  
Comprehensive income $ 22,628   $ 14,381   $ 16,117   $ 37,377   $ 41,585  

     
 
CREXUS INVESTMENT CORP.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(dollars in thousands, except share and per share data)
               
For the Nine Months Ended

September 30,

2012

September 30,

2011

(unaudited) (unaudited)
 
Net interest income:
Interest income $ 67,745 $ 64,672
Interest expense (857 ) (2,295 )
Servicing fees   (378 )   (429 )
Net interest income   66,510     61,948  
 
Other income:
Realized loss on sale of loan (525 ) -
Realized gains on sales of investments - 13,925
Miscellaneous fee income 768 217
Rental income   2,332     -  
Total other income   2,575     14,142  
 
Other expenses:
Provision for loan losses, net 2,803 127
Management fees to affiliate 10,343 7,398
General and administrative expenses 5,217 1,942
Amortization expense 334 -
Depreciation expense   816     -  
Total other expenses   19,513     9,467  
 
Net income before income tax 49,572 66,623
Income tax   39     1  
Net income from continuing operations   49,533     66,622  
 

Net income from discontinued operations

 (net of tax expense of $2,284 and $0, respectively)

4,379 -
Gain on sale from discontinued operations 1,774 -
Impairment changes   (2,560 )   -  
Total income from discontinued operations   3,593     -  
 
Net Income $ 53,126   $ 66,622  
 
Net income per share-basic and diluted, continuing operations $ 0.65 $ 1.15
Total income per share-basic and diluted, discontinued operations   0.04     -  
Net income per share-basic and diluted $ 0.69   $ 1.15  
Dividend declared per share of common stock $ 0.86   $ 0.78  
Weighted average number of shares outstanding-basic and diluted   76,625,054     57,887,511  
Comprehensive income:
Net income $ 53,126   $ 66,622  
Other comprehensive income:
Unrealized gains on securities available-for-sale - 7,847
Reclassification adjustment for realized gains included in net income   -     (13,925 )
Total other comprehensive income (loss)   -     (6,078 )
Comprehensive income $ 53,126   $ 60,544  

CreXus Investment Corp.
Investor Relations
1-877-291-3453
www.crexusinvestment.com


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