Huntington Preferred Capital Inc. Prefer (HPCCP, Financial) filed Quarterly Report for the period ended 2009-03-31.
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Also, a REIT must annually satisfy two gross income tests: (1) 75% of its gross income must be from qualifying income closely connected with real estate activities; and (2) 95% of its gross income must be derived from sources qualifying for the 75% test plus dividends, interest, and gains from the sale of securities. In addition, a REIT must distribute 90% of the REITs taxable income for the taxable year, excluding any net capital gains, to maintain its non-taxable status for federal income tax purposes. For tax year 2008, HPCI met all annual income and distribution tests.
HPCI operates in a manner that will not cause it to be deemed an investment company under the Investment Company Act. The Investment Company Act exempts from registration as an investment company an entity that is primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate (Qualifying Interests). Under positions taken by the SEC staff in no-action letters, in order to qualify for this exemption, HPCI must invest at least 55% of its assets in Qualifying Interests and an additional 25% of its assets in real estate-related assets, although this percentage may be reduced to the extent that more than 55% of its assets are invested in Qualifying Interests. The assets in which HPCI may invest under the Internal Revenue Code therefore may be further limited by the provisions of the Investment Company Act and positions taken by the SEC staff. At March 31, 2009, HPCI was exempt from registration as an investment company under the Investment Company Act and intends to operate its business in a manner that will maintain this exemption.
Net income for the first quarter 2009 was $24.2 million, down 64%, from $67.4 million for the first quarter 2008. Net income applicable to common shares was $19.0 million for the first quarter of 2009, a decrease of $37.1 million, or 66%, compared with the first quarter of 2008. The decrease in net income for the first quarter of 2009, compared with same period of 2008, was primarily the result of higher provision for allowance for credit losses, as well as lower interest and fee income.
HPCIs largest credit exposure was commercial real estate loan participation interests, which totaled $3.3 billion and represented 78% of total loan participation interests at March 31, 2009 and December 31, 2008, compared with 73% at March 31, 2008. Total consumer and residential real estate loan participation interests were $0.9 billion and represented 22% of total loan participations at March 31, 2009 and December 31, 2008, compared with 27% at March 31, 2008. These portfolios are discussed in greater detail below in the Commercial Real Estate Credit and Consumer Credit sections of this report.
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Highlight of Business Operations:
Qualification as a REIT involves application of specific provisions of the Internal Revenue Code relating to various asset tests. A REIT must satisfy six asset tests quarterly: (1) 75% of the value of the REITs total assets must consist of real estate assets, cash and cash items, and government securities; (2) not more than 25% of the value of the REITs total assets may consist of securities, other than those includible under the 75% test; (3) not more than 5% of the value of its total assets may consist of securities of any one issuer, other than those securities includible under the 75% test or securities of taxable REIT subsidiaries; (4) not more than 10% of the outstanding voting power of any one issuer may be held, other than those securities includible under the 75% test or securities of taxable REIT subsidiaries; (5) not more than 10% of the total value of the outstanding securities of any one issuer may be held, other than those securities includible under the 75% test or securities of taxable REIT subsidiaries; and (6) a REIT cannot own securities in one or more taxable REIT subsidiaries which comprise more than 20% of its total assets. At March 31, 2009, HPCI met all of the quarterly asset tests.Also, a REIT must annually satisfy two gross income tests: (1) 75% of its gross income must be from qualifying income closely connected with real estate activities; and (2) 95% of its gross income must be derived from sources qualifying for the 75% test plus dividends, interest, and gains from the sale of securities. In addition, a REIT must distribute 90% of the REITs taxable income for the taxable year, excluding any net capital gains, to maintain its non-taxable status for federal income tax purposes. For tax year 2008, HPCI met all annual income and distribution tests.
HPCI operates in a manner that will not cause it to be deemed an investment company under the Investment Company Act. The Investment Company Act exempts from registration as an investment company an entity that is primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate (Qualifying Interests). Under positions taken by the SEC staff in no-action letters, in order to qualify for this exemption, HPCI must invest at least 55% of its assets in Qualifying Interests and an additional 25% of its assets in real estate-related assets, although this percentage may be reduced to the extent that more than 55% of its assets are invested in Qualifying Interests. The assets in which HPCI may invest under the Internal Revenue Code therefore may be further limited by the provisions of the Investment Company Act and positions taken by the SEC staff. At March 31, 2009, HPCI was exempt from registration as an investment company under the Investment Company Act and intends to operate its business in a manner that will maintain this exemption.
Net income for the first quarter 2009 was $24.2 million, down 64%, from $67.4 million for the first quarter 2008. Net income applicable to common shares was $19.0 million for the first quarter of 2009, a decrease of $37.1 million, or 66%, compared with the first quarter of 2008. The decrease in net income for the first quarter of 2009, compared with same period of 2008, was primarily the result of higher provision for allowance for credit losses, as well as lower interest and fee income.
HPCIs largest credit exposure was commercial real estate loan participation interests, which totaled $3.3 billion and represented 78% of total loan participation interests at March 31, 2009 and December 31, 2008, compared with 73% at March 31, 2008. Total consumer and residential real estate loan participation interests were $0.9 billion and represented 22% of total loan participations at March 31, 2009 and December 31, 2008, compared with 27% at March 31, 2008. These portfolios are discussed in greater detail below in the Commercial Real Estate Credit and Consumer Credit sections of this report.
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