SOURCE: Resource Capital Corp.

Resource Capital Corp.

May 01, 2012 20:18 ET

Resource Capital Corp. Reports Results for Three Months Ended March 31, 2012

NEW YORK, NY--(Marketwire - May 1, 2012) -

Highlights

  • Adjusted Funds from Operations ("AFFO") of $0.23 per share-diluted.
  • Common stock cash dividend of $0.20 per share.
  • Book value per share improved to $5.46 at March 31, 2012 from $5.38 at December 31, 2011.
  • GAAP net income of $0.18 per share-diluted.
  • Total revenues increased by $4.7 million, or 23% as compared to the three months ended March 31, 2011.
  • Provisions for loan losses decreased by 16% as compared to the three months ended March 31, 2011 and decreased 64% as compared to the three months ended December 31, 2011.
  • Cash on hand of $173.8 million at March 31, 2012, a decrease of $12.1 million from $185.9 million at December 31, 2011.

Resource Capital Corp. (NYSE: RSO) ("RSO" or the "Company"), a real estate investment trust, or REIT, whose investment strategy focuses on commercial real estate ("CRE") assets, commercial mortgage-backed securities ("CMBS"), commercial finance assets and other investments, reported results for the three months ended March 31, 2012.

  • AFFO for the three months ended March 31, 2012 was $18.6 million, or $0.23 per share-diluted. A reconciliation of GAAP net income to AFFO is set forth in Schedule I of this release.
  • GAAP net income for the three months ended March 31, 2012 was $14.5 million, or $0.18 per share-diluted as compared to $13.1 million, or $0.22 for the three months ended March 31, 2011.

Jonathan Cohen, CEO and President of Resource Capital Corp., commented, "During the first quarter, we closed $15.1 million of new real estate whole loans and committed to over $73.0 million of additional loans scheduled to close in the second quarter. Our commercial real estate loan pipeline remains strong, and we are committed to continuing and accelerating our lending activities going forward. Our core businesses performed well and we had $0.23 of AFFO and paid a $0.20 cash dividend while building book value through a balance sheet that includes assets we believe have appreciation prospects."

Additional highlights:

Commercial Real Estate

  • CRE loan portfolio is now comprised of approximately 87% senior whole loans as of March 31, 2012, as compared to 77% a year ago.
  • RSO closed $15.1 million of whole loans in the three months ended March 31, 2012 with a weighted average yield of 7.1%, as compared to $21.2 million with a weighted average yield of 6.4% originated during the three months ended March 31, 2011.
  • RSO has committed over $73 million for five new CRE whole loans that are expected to close in the second quarter of 2012 from an ongoing pipeline of potential CRE loan transactions of over $250 million.
  • In March 2012, a joint venture between RSO and an institutional partner focused on distressed real estate sold an investment with realized net cash proceeds and a net gain to RSO of $1.1 million.
  • RSO received paydowns on CRE loans of $904,000 for the three months ended March 31, 2012.

The following table summarizes RSO's CRE loan activities and fundings of previous commitments, at par, for the three months ended March 31, 2012 (in millions, except percentages):

Three Months
Ended
March 31, 2012
12 Months
Ended
March 31, 2012
Floating
Weighted Average
Spread(1)
Weighted
Average Fixed
Rate
(2)
Whole loans $ 15.1 $ 129.0 3.32 % 9.67 %
Whole loans - future fundings (3) 2.0 11.4
New loans production 17.1 140.4
Sale of real estate loans - (48.9 )
Payoffs - (36.0 )
Principal paydowns (0.9 ) (7.0 )
Loans, net (4) $ 16.2 $ 48.5
(1) Represents the weighted average rate above the London Interbank Offered Rate ("LIBOR") on loans whose interest rate is based on LIBOR as of March 31, 2012. Of these new loans, $120.0 million have LIBOR floors with a weighted average floor of 3.21%.
(2) Reflects rates on RSO's portfolio balance as of March 31, 2012.
(3) Consists of fundings of previous commitments.
(4) The basis of new net loans does not include provisions for losses on legacy CRE loans of $350,000 for the three months ended March 31, 2012.

CMBS Securities

  • During the three months ended March 31, 2012, RSO acquired $9.3 million, par value, of CMBS at a weighted average price of 101.4%. In addition, RSO acquired $7.1 million, at cost, of interest only CMBS at a weighted average price of 10.4%. All of these 2012 CMBS purchases were financed by RSO's Wells Fargo repurchase facility and were AAA rated by at least one rating agency.

Commercial Finance - Syndicated Bank Loans

  • RSO's bank loan portfolio, including asset-backed securities ("ABS") and certain loans held for sale, at the end of the first quarter of 2012 was $1.2 billion, at amortized cost, with a weighted-average spread of one-month and three-month LIBOR plus 3.32% at March 31, 2012. RSO's bank loan portfolio is 100% match-funded through four collateralized loan obligation ("CLO") issuances.
  • During the three months ended March 31, 2012, RSO bought bank loans through its four CLOs with a par value of $136.6 million, at a net discount of $2.6 million. These purchased loans have an aggregate weighted average unlevered annual yield of approximately 4.5%.
  • RSO, through its subsidiary Resource Capital Asset Management, earned $1.9 million of net fees during the three months ended March 31, 2012.

Book Value

As of March 31, 2012, RSO's book value per common share was $5.46, an increase from $5.38 per common share at December 31, 2011. Total stockholders' equity was $462.8 million as of March 31, 2012 as compared to $429.7 million as of December 31, 2011. Total common shares outstanding were 84,717,745 as of March 31, 2012 as compared to 79,877,516 as of December 31, 2011.

Investment Portfolio

The table below summarizes the amortized cost and net carrying amount of RSO's investment portfolio as of March 31, 2012, classified by interest rate and by asset type. The following table includes both (i) the amortized cost of RSO's investment portfolio and the related dollar price, which is computed by dividing amortized cost by par amount, and (ii) the net carrying amount of RSO's investment portfolio and the related dollar price, which is computed by dividing the net carrying amount by par amount (in thousands, except percentages):

Amortized
cost
Dollar price Net carrying amount Dollar price Net carrying amount less amortized cost Dollar price
March 31, 2012
Floating rate
RMBS $ 12,131 23.38 % $ 9,213 17.76 % $ (2,918 ) -5.62 %
CMBS-private placement 28,216 100.00 % 11,213 39.74 % (17,003 ) -60.26 %
Structured notes 26,872 42.36 % 34,088 53.73 % 7,216 11.37 %
Other ABS - 0.00 % 23 0.28 % 23 0.28 %
Mezzanine loans (1) 53,915 99.98 % 53,108 98.48 % (807 ) -1.50 %
Whole loans (1) 537,368 99.79 % 531,251 98.66 % (6,117 ) -1.13 %
Bank loans (2) 1,148,210 97.64 % 1,143,114 97.20 % (5,096 ) -0.44 %
Loans held for sale 7,515 94.89 % 7,515 94.89 % - 0.00 %
ABS Securities 29,973 88.76 % 28,746 85.13 % (1,227 ) -3.63 %
Total floating rate 1,844,200 94.00 % 1,818,271 92.67 % (25,929 ) -1.33 %
Fixed rate
CMBS - private placement 144,970 73.98 % 141,795 72.36 % (3,175 ) -1.62 %
B notes (1) 16,407 99.13 % 16,164 97.71 % (243 ) -1.42 %
Mezzanine loans (1) 13,944 100.33 % 13,055 93.93 % (889 ) -6.40 %
Whole loans (1) 6,982 99.74 % 6,982 99.74 % - 0.00 %
Loans receivable-related party 9,429 100.00 % 9,429 100.00 % - 0.00 %
Total fixed rate 191,732 78.96 % 187,425 77.18 % (4,307 ) -1.78 %
Other (non-interest bearing)
Investment in real estate 47,694 100.00 % 47,694 100.00 % - 0.00 %
Investment in unconsolidated entities 48,171 100.00 % 48,171 100.00 % - 0.00 %
Total other 95,865 100.00 % 95,865 100.00 % - 0.00 %
Grand total $ 2,131,797 92.66 % $ 2,101,561 91.34 % $ (30,236 ) -1.32 %
(1) Net carrying amount includes an allowance for loan losses of $8.1 million at March 31, 2012, allocated as follows: B notes ($0.3 million), mezzanine loans ($1.7 million) and whole loans ($6.1 million).
(2) Net carrying amount includes an allowance for loan losses of $5.1 million at March 31, 2012.

Liquidity

At April 30, 2012, after paying RSO's first quarter dividend, RSO's liquidity of $127.9 million consisted of two primary sources:

  • unrestricted cash and cash equivalents of $21.2 million, restricted cash of $1.0 million in margin call accounts and $2.2 million in the form of real estate escrows, reserves and deposits; and
  • capital available for reinvestment in its six CDO entities of $103.5 million, of which $965,000 is designated to finance future funding commitments on CRE loans.

In addition, RSO has funds available through two CRE term facilities to finance the purchase of CMBS securities and to originate commercial real estate loans of $29.5 million and $150 million, respectively.

Capital Allocation

As of March 31, 2012, RSO had allocated its invested equity capital among its targeted asset classes as follows: 62% in CRE assets, 31% in commercial finance assets and 7% in other investments.

Supplemental Information

The following schedules of reconciliations or supplemental information as of and for the three months ended March 31, 2012 are included at the end of this release:

  • Schedule I - Reconciliation of GAAP Net Income to Funds from Operations ("FFO") and AFFO.
  • Schedule II - Summary of CDO and CLO Performance Statistics.
  • Supplemental Information regarding loan investment statistics, CRE loans and bank loans.

About Resource Capital Corp.

RSO is a diversified real estate finance company that is organized and conducts its operations to qualify as a REIT for federal income tax purposes. RSO's investment strategy focuses on CRE and CRE-related assets, and, to a lesser extent, commercial finance assets. RSO invests in the following asset classes: CRE-related assets such as commercial real estate property, whole loans, A-notes, B-notes, mezzanine loans, CMBS and investments in real estate joint ventures as well as commercial finance assets such as bank loans, lease receivables, other asset-backed securities, trust preferred securities, debt tranches of CDOs, structured note investments, and private equity investments principally issued by financial institutions.

RSO is externally managed by Resource Capital Manager, Inc., an indirect wholly-owned subsidiary of Resource America, Inc. (NASDAQ: REXI), a specialized asset management company that uses industry specific expertise to generate and administer investment opportunities for its own account and for outside investors in the real estate, financial fund management and commercial finance sectors.

For more information, please visit RSO's website at www.resourcecapitalcorp.com or contact investor relations at pkamdar@resourceamerica.com.

Safe Harbor Statement

Statements made in this release may include forward-looking statements, which involve substantial risks and uncertainties. RSO's actual results, performance or achievements could differ materially from those expressed or implied in this release. The risks and uncertainties associated with forward-looking statements contained in this release include those related to:

  • fluctuations in interest rates and related hedging activities;
  • the availability of debt and equity capital to acquire and finance investments;
  • defaults or bankruptcies by borrowers on RSO's loans or on loans underlying its investments;
  • adverse market trends which have affected and may continue to affect the value of real estate and other assets underlying RSO's investments;
  • increases in financing or administrative costs; and
  • general business and economic conditions that have impaired and may continue to impair the credit quality of borrowers and RSO's ability to originate loans.

For further information concerning these and other risks pertaining to the forward-looking statements contained in this release, and to the general risks to which RSO is subject, see Item 1A, "Risk Factors" included in its Annual Report on Form 10-K and the risks expressed in other of its public filings with the Securities and Exchange Commission.

RSO cautions you not to place undue reliance on any forward-looking statements contained in this release, which speak only as of the date of this release. All subsequent written and oral forward-looking statements attributable to RSO or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this release. Except to the extent required by applicable law or regulation, RSO undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of this filing or to reflect the occurrence of unanticipated events.

The remainder of this release contains RSO's unaudited consolidated balance sheets, unaudited consolidated statements of income, reconciliation of GAAP net income to FFO and AFFO and a summary of CDO and CLO performance statistics and supplemental information regarding RSO's CRE loan and bank loan portfolios.

RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
March 31, December 31,
2012 2011
(unaudited)
ASSETS
Cash and cash equivalents $ 37,562 $ 43,116
Restricted cash 136,211 142,806
Investment securities, trading 43,301 38,673
Investment securities available-for-sale, pledged as collateral, at fair value 174,834 153,366
Investment securities available-for-sale, at fair value 6,943 4,678
Property available-for-sale 1,934 2,980
Investment in real estate 47,694 48,027
Loans, pledged as collateral and net of allowances of $13.2 million and $27.5 million 1,763,674 1,772,063
Loans held for sale 7,515 3,154
Loans receivable-related party 9,429 9,497
Investments in unconsolidated entities 48,171 47,899
Dividend reinvestment plan proceeds receivable 8,000 -
Interest receivable 9,452 8,836
Deferred tax asset 626 626
Intangible assets 18,831 19,813
Other assets 4,249 4,093
Total assets $ 2,318,426 $ 2,299,627
LIABILITIES
Borrowings $ 1,801,909 $ 1,808,986
Distribution payable 17,000 19,979
Accrued interest expense 5,265 3,260
Derivatives, at fair value 13,304 13,210
Accrued tax liability 5,478 12,567
Deferred tax liability 5,624 5,624
Accounts payable and other liabilities 7,086 6,311
Total liabilities 1,855,666 1,869,937
STOCKHOLDERS' EQUITY
Preferred stock, par value $0.001: 100,000,000 shares authorized; no shares issued and outstanding - -
Common stock, par value $0.001: 500,000,000 shares authorized; 84,717,745 and 79,877,516 shares issued and outstanding (including 1,656,273 and 1,428,931 unvested restricted shares) 85 80
Additional paid-in capital 684,721 659,700
Accumulated other comprehensive loss (35,765 ) (46,327 )
Distributions in excess of earnings (186,281 ) (183,763 )
Total stockholders' equity 462,760 429,690
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,318,426 $ 2,299,627
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
(Unaudited)
Three Month Ended
March 31,
2012 2011
REVENUES
Interest income:
Loans $ 23,615 $ 21,250
Securities 3,584 2,760
Interest income - other 2,829 1,219
Total interest income 30,028 25,229
Interest expense 8,443 6,933
Net interest income 21,585 18,296
Rental income 1,919 23
Dividend income - 661
Fee income 1,862 1,646
Total revenues 25,366 20,626
OPERATING EXPENSES
Management fees - related party 3,443 2,338
Equity compensation - related party 868 460
Professional services 1,352 919
Insurance 158 177
Rental operating expense 1,320 145
General and administrative 1,063 800
Depreciation and amortization 1,361 253
Income tax expense 2,615 1,809
Total operating expenses 12,180 6,901
13,186 13,725
OTHER REVENUE (EXPENSE)
Impairment losses on real property held for sale (139 ) -
Net realized gain on investment securities available-for-sale and loans 380 156
Net realized and unrealized gain on investment securities, trading 2,144 1,806
Provision for loan losses (2,178 ) (2,606 )
Other income 1,088 61
Total other revenue (expense) 1,295 (583 )
NET INCOME $ 14,481 $ 13,142
NET INCOME PER SHARE - BASIC $ 0.18 $ 0.22
NET INCOME PER SHARE - DILUTED $ 0.18 $ 0.22
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 81,201,791 60,147,820
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - DILUTED 81,892,987 60,397,630
DIVIDENDS DECLARED PER SHARE $ 0.20 $ 0.25

SCHEDULE I

RESOURCE CAPITAL CORP. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO FFO and AFFO (1)
(in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
2012 (3)
Net income - GAAP $ 14,481
Adjustments:
Real estate depreciation and amortization 710
Gains on sales of joint venture real estate interests (2) (1,087 )
FFO (1) 14,104
Adjustments:
Non-cash items:
Impairment losses on real property held for sale 139
Provisions for loan losses 1,584
Straight line rental adjustments 8
Share-based compensation 868
Amortization of deferred costs (non real estate) and intangible assets 1,655
Cash items:
Gains on sales of joint venture real estate interests (2) 1,087
Capital expenditures (803 )
AFFO (1) $ 18,642
Weighted average shares - diluted 81,893
AFFO per share - diluted $ 0.23
(1) RSO currently evaluates its performance based on several performance measures, including FFO and AFFO (both non-GAAP measures), in addition to net income. RSO computes FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts as net income (computed in accordance with GAAP), excluding gains or losses on the sale of depreciable real estate, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, and after adjustments for unconsolidated/uncombined partnerships and joint ventures.
AFFO is a computation made by analysts and investors to measure a real estate company's cash flow generated by operations. RSO calculates AFFO by adding or subtracting from FFO: non-cash impairment losses resulting from fair value adjustments on financial instruments, non-cash provision for loan losses, straight-line rental effects, share based compensation, amortization of various deferred items and intangible assets, gains on sales of property through a joint venture and capital expenditures that are related to RSO's real estate owned.
Management believes that FFO and AFFO are appropriate measures of RSO's operating performance in that they are frequently used by analysts, investors and other parties in the evaluation of REITs. Management uses FFO and AFFO as measures of RSO's operating performance, and believes they are also useful to investors, because they facilitate an understanding of RSO's operating performance after adjustment for certain non-cash items, such as real estate depreciation, share-based compensation and various other items required by GAAP, and capital expenditures, that may not necessarily be indicative of current operating performance and that may not accurately compare RSO's operating performance between periods.
While RSO's calculation of AFFO may differ from the methodology used for calculating AFFO by other REITs and its AFFO may not be comparable to AFFO reported by other REITs, RSO also believes that FFO and AFFO may provide it and its investors with an additional useful measure to compare its performance with some other REITs. Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities determined in accordance with GAAP. Furthermore, FFO and AFFO do not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor AFFO should be considered as an alternative to net income as an indicator of RSO's operating performance or as an alternative to cash flow from operating activities as a measure of its liquidity.
(2) Amount represents gains on sales of joint venture real estate interests from a joint venture recorded by RSO.
(3) Comparative FFO and AFFO data is not provided since RSO did not own depreciable real property during the comparable period in 2011.

SCHEDULE II

RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUMMARY OF CDO AND CLO PERFORMANCE STATISTICS
(in thousands)
(unaudited)
Collateralized Debt Obligations - Distributions and Coverage Test Summary
The following table sets forth cash distributions from RSO's CDO investments and a summary of coverage test compliance for the CDO issuers for the periods presented:
Annualized
Interest
Cash Coverage Overcollateralization
Distributions Cushion Cushion
Year Ended Three Months
December Ended As of As of As of Initial
31, March 31, March 31, March 31, Measurement
Name CDO Type 2011 (1) 2012 (1) 2012 (2)(3) 2012 (4) Date
(actual) (actual)
Apidos CDO I (5) CLO $ 9,305 $ 2,089 $ 9,951 $ 13,685 $ 17,136
Apidos CDO III CLO $ 8,351 $ 2,114 $ 4,101 $ 9,450 $ 11,269
Apidos Cinco CDO CLO $ 9,941 $ 2,451 $ 4,972 $ 17,971 $ 17,774
Apidos CLO VIII(6) CLO $ - $ - $ 4,049 $ 13,657 $ 13,657
RREF 2006-1(7) CRE CDO $ 11,637 $ 3,289 $ 11,714 $ 56,406 $ 24,941
RREF 2007-1 CRE CDO $ 10,743 $ 2,969 $ 10,830 $ 39,825 $ 26,032
(1) Distributions on retained equity interests in CDOs (comprised of note investment and preference share ownership).
(2) Interest coverage includes annualized amounts based on the most recent trustee statements.
(3) Interest coverage cushion represents the amount by which annualized interest income expected exceeds the annualized amount payable on all classes of CDO notes senior to RSO's preference shares.
(4) Overcollateralization cushion represents the amount by which the collateral held by the CDO issuer exceeds the maximum amount required.
(5) Apidos CDO I reinvestment period expired in July 2011.
(6) Apidos CLO VIII, which closed in October 2011, had its first distribution in April 2012; RSO's share was $1.1 million.
(7) RREF CDO 2006-1 reinvestment period expired in September 2011.
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(in thousands, except percentages)
(unaudited)
Loan Investment Statistics
The following table presents information on RSO's impaired loans and related allowances for the periods indicated (based on amortized cost):
March 31, December 31,
2012 2011
Allowance for loan losses:
Specific allowance:
Commercial real estate loans $ 600 $ 17,065
Bank loans 2,499 1,593
Total specific allowance (1) 3,099 18,658
General allowance:
Commercial real estate loans 7,456 7,156
Bank loans 2,598 1,704
Total general allowance 10,054 8,860
Total allowance for loans and leases $ 13,153 $ 27,518
Allowance as a percentage of total loans 0.7 % 1.5 %
Loans held for sale:
Commercial Real Estate Loans:
Commercial real estate loans at cost $ - $ -
Commercial real estate loans provision - -
Commercial real estate loans held for sale - -
Bank Loans:
Bank loans at cost 7,920 5,692
Bank loans provision (405 ) (2,538 )
Bank loans held for sale 7,515 3,154
Loans held for sale $ 7,515 $ 3,154
(1) Includes allowances on the following specifically reserved assets: commercial real estate loans of $0.6 million, at par, and bank loans of $5.6 million, at par.
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(unaudited)
The following table presents commercial real estate loan portfolio statistics as of March 31, 2012 (based on par value):
Security type:
Whole loans 86.6 %
Mezzanine loans 10.8 %
B Notes 2.6 %
Total 100.0 %
Collateral type:
Multifamily 37.4 %
Hotel 27.4 %
Retail 18.2 %
Office 9.0 %
Flex 1.1 %
Self-storage 1.0 %
Other 5.9 %
Total 100.0 %
Collateral location:
Southern California 27.4 %
Northern California 13.7 %
Arizona 9.0 %
Florida 8.1 %
Colorado 6.2 %
Texas 6.1 %
Washington 4.8 %
New York 1.6 %
Other 23.1 %
Total 100.0 %
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(unaudited)
The following table presents bank loan portfolio statistics by industry as of March 31, 2012 (based on par value):
Industry type:
Healthcare, education and childcare 14.0 %
Diversified/conglomerate service 10.0 %
Broadcasting and entertainment 7.5 %
Automobile 7.1 %
Chemicals, plastics and rubber 5.5 %
Retail Stores 5.0 %
Electronics 4.5 %
Telecommunications 4.3 %
Hotels, motels, inns and gaming 4.1 %
Leisure, amusement, motion pictures, entertainment 3.8 %
Printing and publishing 3.1 %
Personal transportation 3.1 %
Other 28.0 %
Total 100.0 %

Contact Information

  • CONTACT:
    DAVID J. BRYANT
    CHIEF FINANCIAL OFFICER
    RESOURCE CAPITAL CORP.
    712 Fifth Ave, 12
    THFloor
    New York, NY 10019
    212-506-3870