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SOURCE: Resource Capital Corp.
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March 08, 2011 20:17 ET
Resource Capital Corp. Reports Results for Three Months and Year Ended December 31, 2010
NEW YORK, NY--(Marketwire - March 8, 2011) - Resource Capital Corp. (NYSE: RSO)
Highlights
-- Adjusted net income of $0.33 and $1.15 per share-diluted, respectively.
-- Estimated REIT taxable income of $0.14 and $0.85 per share-diluted,
respectively.
-- GAAP net (loss) income of ($0.17) and $0.41 per share-diluted,
respectively.
-- Net interest income increased by $5.4 million and $15.3 million, or
39.6% and 29.3%, compared to the three months and year ended December
31, 2009.
-- $197.7 million of total cash, including restricted cash of $168.2
million at December 31, 2010.
-- $124.9 million and $410.8 million of total loans receivable repaid and
settled, respectively.
-- Repurchased $15.0 million and $91.3 million of its CDO notes for $9.7
million and $56.7 million, a 35.5% and 37.9% discount to par, for gains
of $5.3 million and $34.6 million, respectively.
-- Common stock cash dividend of $0.25 and $1.00 per share, respectively.
-- In a recent development, RSO acquired 100% ownership interest in
Churchill Pacific Asset Management LLC which manages $1.9 billion in
syndicated bank loan and high yield assets and will be entitled to
collect senior, subordinate and incentive management fees.
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") loan assets, commercial mortgage-backed securities
("CMBS"), commercial finance assets and structured note investments,
reported results for the three months and year ended December 31, 2010.
-- Adjusted net income, a non-GAAP measure excluding the effect of
non-cash charges and non-operating capital transactions, was $18.5
million and $55.0 million, or $0.33 per share-diluted and $1.15 per
share-diluted for the three months and year ended December 31, 2010,
respectively, as compared to $10.2 million and $36.6 million, or $0.36
per share-diluted and $1.45 per share-diluted for the three months and
year ended December 31, 2009, increases of $8.3 million (82%) and $18.3
million (50%), respectively. For a reconciliation of adjusted net
income to GAAP net (loss) income, see Schedule I to this press release.
-- Estimated REIT taxable income, a non-GAAP measure, for the three months
and year ended December 31, 2010, was $7.6 million, or $0.14 per
share-diluted, and $40.7 million, or $0.85 per share-diluted,
respectively, as compared to $9.7 million, or $0.34 per share-diluted,
and $31.5 million, or $1.23 per share-diluted for the three months and
year ended December 31, 2009, respectively, a decrease of $2.1 million,
or 21%, and an increase of $9.3 million, or 29%, respectively. For a
reconciliation of estimated REIT taxable income to GAAP net (loss)
income, see Schedule II to this press release.
-- GAAP net loss for the three months ended December 31, 2010 was $9.4
million, or $0.17 per share-diluted and GAAP net income for the year
ended December 31, 2010 was $19.4 million, or $0.41 per share-diluted,
respectively, as compared to GAAP net income for the three months and
year ended December 31, 2009 of $12.1 million, or $0.43 per
share-diluted and $6.3 million, or $0.25 per share, respectively.
-- On December 16, 2010, the Company declared a quarterly distribution of
$0.25 per share of common stock, $14.6 million in the aggregate, which
was paid on January 26, 2011 to stockholders of record as of December
31, 2010.
Jonathan Cohen, CEO and President of Resource Capital Corp., commented,
"During 2010 we achieved significant improvements and positioned Resource
Capital to benefit from improving economic conditions. We had adjusted net
income of $1.15 per share and distributed $1.00 to our shareholders. We
made important investments in commercial finance and in the syndicated loan
business that we expect to generate meaningful returns. In addition, we
have repositioned our real estate loan business by restarting our
commercial mortgage origination platform and also by selling some mezzanine
loans and b-notes originated before the financial crisis
-- reducing our risk. With new investments at work and with significant
liquidity and capital to take advantage of more opportunities, we look
forward to 2011 and are excited about our prospects. We continue to expect
to pay a $1.00 cash dividend for 2011."
Additional financial results:
Commercial Real Estate
-- RSO received repayments on CRE loans of $1.8 million and $49.4 million
for the three months and year ended December 31, 2010, respectively.
For the year ended December 31, 2010, RSO sold two loans, which
resulted in $36.8 million of proceeds and had no such transactions for
the three month period.
-- RSO received repayments on CMBS investments of $360 and $1.2 million
and sold three and four CMBS investments, which resulted in the receipt
of $13.0 million and $19.1 million of proceeds during the three months
and year ended December 31, 2010, respectively.
-- During the three months and year ended December 31, 2010, RSO acquired
$9.8 million and $37.1 million par value of CMBS at a discount to par
of 7.8% and 22.5%, respectively. These purchases provided a weighted
average annual yield of approximately 5.8% and 7.2%, respectively.
-- RSO recorded asset impairments of $16.1 million and $26.6 million
during the three months and year ended December 31, 2010 on two and
five CMBS positions, respectively, that deteriorated and are in payment
default.
-- RSO has originated one new CRE whole loan totaling $6.3 million since
December 31, 2010.
The following table summarizes RSO's CRE loan activities and fundings of
previous commitments, at par, for the three months and year ended December
31, 2010 (in millions, except percentages):
Three Months Floating Weighted
Ended Year Ended Weighted Average
December 31, December 31, Average Fixed
2010 2010 Spread (1) Rate (2)
----------- ----------- ---------- ----------
Whole loans 17.7 17.7
Whole loans -
future fundings (3) $ 1.4 $ 4.9 3.05% 8.51%
=========== ===========
New loans production 19.1 22.6
Sale of real estate loans - (36.8)
Payoffs - (17.7)
Principal paydowns (1.8) (31.7)
----------- -----------
Loans, net (4) $ 17.3 $ (63.6)
=========== ===========
(1) Represents the weighted average rate above the London Interbank Offered
Rate ("LIBOR") on loans whose interest rate is based on LIBOR as of
December 31, 2010.
(2) Reflects rates on RSO's portfolio balance as of December 31, 2010.
(3) Consists of fundings of previous commitments.
(4) The basis of new net loans does not include provisions for losses on
CRE loans of $17.1 million for the three months ended December 31, 2010
and $44.4 million for the year ended December 31, 2010.
Commercial Finance -- Syndicated Bank Loans
-- RSO's bank loan portfolio, including asset-backed securities ("ABS")
held-to-maturity, ended the fourth quarter with total investments of
$890.1 million, at amortized cost, with a weighted-average spread of
one-month and three-month LIBOR plus 2.94%. All of RSO's bank loan
portfolio is match-funded through three collateralized loan obligation
("CLO") issuances with a weighted-average cost of three-month LIBOR
plus 0.47% (0.81% at December 31, 2010).
-- During the three months and year ended December 31, 2010, RSO bought
bank loans through its CLOs with a par value of $102.7 million and
$323.8 million, respectively, at a discount to par of 2.8% and 4.3%,
respectively. For the three months and year ended December 31, 2010,
the net discounts of $2.8 million and $11.2 million, respectively, each
improved the asset collateralization in its CLOs. These purchases
provided weighted average annual yields of approximately 5.1% and 4.4%,
respectively.
-- On February 24, 2011, RSO announced that it had entered into a
definitive agreement that will expand its management operations in
broadly syndicated bank loans. A subsidiary of RSO has agreed to
purchase 100% of the ownership interests in Churchill Pacific Asset
Management LLC ("CPAM") from Churchill Financial Holdings LLC
("Churchill") for $22.5 million. Through CPAM, RSO will be entitled to
collect senior, subordinated and incentive fees related to five
Collateralized Loan Obligations ("CLOs") totaling approximately $1.9
billion in assets managed by CPAM. CPAM will be assisted by Apidos
Capital Management, LLC, in managing the five CLOs. CPAM has
subsequently changed its name to Resource Capital Asset Management.
Commercial Finance -- Lease Receivables
-- RSO's lease receivables portfolio, which was acquired through a
securitization during the second quarter ended June 30, 2010, received
paydowns of $6.0 million and $14.0 million and proceeds from sales of
$347,000 and $1.6 million during the three months and year ended
December 31, 2010, respectively. The portfolio had a balance of $109.6
million as of December 31, 2010. RSO also paid down the notes issued
in the securitization by $8.2 million and $18.0 million during the
three months and year ended December 31, 2010, respectively, leaving an
outstanding balance of $95.0 million as of December 31, 2010.
-- On January 4, 2011, RSO entered into a joint venture with LEAF
Commercial Capital, Inc. ("LEAF Commercial"), which is a joint venture
among LEAF Financial Corp ("LEAF") (a subsidiary of Resource America),
RSO and Guggenheim Securities. LEAF contributed its leasing platform
and directly-held leases and loans to LEAF Commercial, while RSO and
Guggenheim Securities committed to investing up to $44.0 million of
capital in the form of preferred stock and subordinated debt,
respectively, into LEAF Commercial. A portion of RSO's investment
consisted of the contribution of leases and loans it had acquired from
LEAF which were held as of December 31, 2010. In return for RSO's
capital investments, RSO received 2,626 shares of LEAF Commercial
Series A preferred stock and warrants to purchase 4,800 shares of LEAF
Commercial common stock for an exercise price of $0.01 per share
(representing 48% of LEAF Commercial's common stock on a fully-diluted
basis).
Book Value
As of December 31, 2010, RSO's book value per common share was $5.99.
Total stockholders' equity was $348.3 million as of December 31, 2010 as
compared to $228.8 million as of December 31, 2009. Total common shares
outstanding were 58,183,425 as of December 31, 2010 as compared to
36,545,737 as of December 31, 2009.
Investment Portfolio
The table below summarizes the amortized cost and net carrying amount of
RSO's investment portfolio as of December 31, 2010, 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):
Net
carrying
amount
Net less
Amortized Dollar carrying Dollar amortized Dollar
cost (3) price amount price cost price
---------- ------ ---------- ------ --------- ------
December 31, 2010
Floating rate
CMBS - private
placement $ 31,127 100.00% $ 9,569 30.74% $ (21,558) -69.26%
Structured notes 7,984 34.09% 17,723 75.67% 9,739 41.58%
Other ABS - 0.00% 22 0.26% 22 0.26%
B notes (1) 26,485 99.94% 26,071 98.38% (414) -1.56%
Mezzanine
loans (1) 83,699 100.00% 82,680 98.78% (1,019) -1.22%
Whole loans (1) 441,372 99.92% 419,207 94.91% (22,165) -5.01%
Bank loans (2) 856,436 96.99% 850,500 96.32% (5,936) -0.67%
Loans held for
sale (3) 13,593 55.92% 13,593 55.92% - 0.00%
ABS held-to-
maturity (4) 29,036 91.08% 25,941 81.37% (3,095) -9.71%
---------- ---------- ---------
Total floating
rate 1,489,732 95.86% 1,445,306 93.01% (44,426) -2.85%
---------- ---------- ---------
Fixed rate
CMBS - private
placement 52,097 48.30% 54,369 50.41% 2,272 2.11%
B notes (1) 30,966 99.53% 30,482 97.97% (484) -1.56%
Mezzanine
loans (1) 38,545 100.23% 31,012 80.64% (7,533) -19.59%
Loans held for
sale (3) 15,000 75.00% 15,000 75.00% - 0.00%
Lease
receivables (5) 109,682 100.00% 109,612 99.94% (70) -0.06%
---------- ---------- ---------
Total fixed rate 246,290 80.20% 240,475 78.30% (5,815) -1.90%
---------- ---------- ---------
Grand total $1,736,022 93.28% $1,685,781 90.58% $ (50,241) -2.70%
========== ========== =========
(1) Net carrying amount includes an allowance for loan losses of $31.6
million at December 31, 2010, allocated as follows: B notes ($899,000),
mezzanine loans ($8.5 million) and whole loans ($22.2 million).
(2) The bank loan portfolio is carried at amortized cost less an allowance
for loan loss and was $853.8 million at December 31, 2010. The amount
disclosed represents net realizable value at December 31, 2010, which
includes a $2.6 million allowance for loan losses at December 31, 2010.
(3) Loans held for sale are carried at the lower of cost or market.
Amortized cost is equal to fair value.
(4) ABS held to maturity are carried at amortized cost less other-than-
temporary impairment.
(5) Net carrying amount includes a $70,000 allowance for lease receivables
losses at December 31, 2010.
Liquidity
At February 28, 2011, after disbursing the fourth quarter 2010 dividend,
RSO's liquidity of $215.0 million consists of two primary sources:
-- unrestricted cash and cash equivalents of $9.4 million and restricted
cash of $2.5 million in margin call accounts; and
-- capital available for reinvestment in its five CDO entities of $203.1
million, of which $0.9 million is designated to finance future funding
commitments on CRE loans.
Capital Allocation
As of December 31, 2010, RSO had allocated its invested equity capital
among its targeted asset classes as follows: 77% in CRE investments, 18% in
commercial bank loans, 3% in lease receivables and 2% in structured notes
(trading securities).
Supplemental Information
The following schedules of reconciliations or supplemental information as
of December 31, 2010 are included at the end of this release:
-- Schedule I -- Reconciliation of GAAP Net (Loss) Income to Adjusted Net
Income; and
-- Schedule II -- Reconciliation of GAAP Net (Loss) Income to Estimated
REIT Taxable Income; and
-- Schedule III -- Summary of CDO and CLO Performance Statistics.
-- Supplemental Information regarding loan and leasing investment
statistics, CRE loans, bank loans and lease receivables.
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 whole loans, A-notes,
B-notes, mezzanine loans, commercial mortgage-backed securities 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, commercial finance and financial
fund management 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;
-- capital markets conditions and the availability of financing;
-- 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 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 operations, reconciliation of
GAAP net (loss) income to adjusted net income, a reconciliation of GAAP net
(loss) income to estimated REIT taxable income and a summary of CDO and CLO
performance statistics and supplemental information regarding RSO's CRE
loan, bank loan and lease receivable portfolios.
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 31,
------------------------
2010 2009
----------- -----------
(unaudited)
ASSETS
Cash and cash equivalents $ 29,488 $ 51,991
Restricted cash 168,192 85,125
Investment securities-trading 17,723 -
Investment securities available-for-sale,
pledged as collateral, at fair value 57,998 39,304
Investment securities available-for-sale,
at fair value 5,962 5,238
Investment securities held-to-maturity, pledged
as collateral 29,036 31,401
Property available-for-sale 4,444 -
Loans, pledged as collateral and net of
allowances of $34.2 million and $47.1 million 1,443,271 1,557,757
Loans held for sale 28,593 8,050
Lease receivables, pledged as collateral, net
of allowances of $70,000 and $1.1 million and
net of unearned income 109,612 927
Loans receivable - related party 9,927 -
Investments in unconsolidated entities 6,791 3,605
Dividend reinvestment plan proceeds receivable 10,000 -
Interest receivable 6,330 5,754
Deferred tax asset 4,401 -
Other assets 2,432 2,252
----------- -----------
Total assets $ 1,934,200 $ 1,791,404
=========== ===========
LIABILITIES
Borrowings $ 1,543,251 $ 1,534,874
Distribution payable 14,555 9,170
Accrued interest expense 1,618 1,516
Derivatives, at fair value 13,292 12,767
Deferred tax liability 9,798 -
Accounts payable and other liabilities 3,360 4,247
----------- -----------
Total liabilities 1,585,874 1,562,574
----------- -----------
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; 58,183,425 and 36,545,737
shares issued and outstanding (including
534,957 and 437,319 unvested restricted
shares) 58 36
Additional paid-in capital 528,373 405,517
Accumulated other comprehensive loss (33,918) (62,154)
Distributions in excess of earnings (146,187) (114,569)
----------- -----------
Total stockholders' equity 348,326 228,830
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,934,200 $ 1,791,404
=========== ===========
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Three Months Ended Years Ended
December 31, December 31,
---------------------- ----------------------
2010 2009 2010 2009
---------- ---------- ---------- ----------
(unaudited) (unaudited)
REVENUES
Interest income:
Loans $ 19,751 $ 20,230 $ 76,836 $ 84,563
Securities 2,529 2,551 11,434 7,225
Leases 4,529 (1) 11,306 4,336
Interest income - other 1,684 416 4,335 1,469
---------- ---------- ---------- ----------
Total interest income 28,493 23,196 103,911 97,593
Interest expense 9,511 9,599 36,466 45,427
---------- ---------- ---------- ----------
Net interest income 18,982 13,597 67,445 52,166
---------- ---------- ---------- ----------
OPERATING EXPENSES
Management fees - related
party 3,371 2,483 13,216 8,363
Equity compensation -
related party 758 166 2,221 1,240
Professional services 1,441 1,074 3,627 3,866
Insurance 183 219 759 828
Depreciation on operating
leases 1,660 - 4,003 -
General and
administrative 829 487 3,061 1,764
Income tax expense
(benefit) 416 14 5,721 (2)
---------- ---------- ---------- ----------
Total expenses 8,658 4,443 32,608 16,059
---------- ---------- ---------- ----------
10,324 9,154 34,837 36,107
---------- ---------- ---------- ----------
OTHER (EXPENSE) REVENUE
Impairment losses on
investment securities (17,868) (11,396) (29,042) (27,490)
Recognized in other
comprehensive loss (1,578) (4,485) (2,238) (14,019)
---------- ---------- ---------- ----------
Net impairment losses
recognized in earnings (16,290) (6,911) (26,804) (13,471)
Net realized gain on
investment securities
available-for-sale and
loans 3,314 1,026 4,821 1,890
Net realized gains on
investment
securities-trading 516 - 5,052 -
Net unrealized gains on
investment
securities-trading 4,532 - 9,739 -
Provision for loan and
lease losses (16,958) (16,109) (43,321) (61,383)
Gains on the
extinguishment of debt 5,325 24,905 34,610 44,546
Other (expense) income (137) 25 513 (1,350)
---------- ---------- ---------- ----------
Total (expense) revenue (19,698) 2,936 (15,390) (29,768)
---------- ---------- ---------- ----------
NET (LOSS) INCOME $ (9,374) $ 12,090 $ 19,447 $ 6,339
========== ========== ========== ==========
NET (LOSS) INCOME PER
SHARE - BASIC $ (0.17) $ 0.43 $ 0.41 $ 0.25
========== ========== ========== ==========
NET (LOSS) INCOME PER
SHARE - DILUTED $ (0.17) $ 0.43 $ 0.41 $ 0.25
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING -
BASIC 55,928,662 27,829,752 47,715,082 25,205,403
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING -
DILUTED 55,928,662 28,166,984 47,907,281 25,355,821
========== ========== ========== ==========
DIVIDENDS DECLARED PER
SHARE $ 0.25 $ 0.25 $ 1.00 $ 1.15
========== ========== ========== ==========
SCHEDULE I
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET (LOSS) INCOME TO ADJUSTED NET INCOME (1)
(in thousands, except per share data)
(Unaudited)
Three Months Ended Years Ended
December 31, December 31,
-------------------- --------------------
2010 2009 2010 2009
--------- --------- --------- ---------
Net (loss) income - GAAP $ (9,374) $ 12,090 $ 19,447 $ 6,339
Adjustments:
Provision for loan and lease
losses (2) 16,958 16,109 43,321 61,383
Asset impairments 16,290 6,911 26,804 13,471
Gains on the extinguishment of
debt (5,325) (24,905) (34,610) (44,546)
--------- --------- --------- ---------
Adjusted net income, excluding
non-cash charges (1) $ 18,549 $ 10,205 $ 54,962 $ 36,647
========= ========= ========= =========
Adjusted net income per share -
diluted, excluding non-cash
charges $ 0.33 $ 0.36 $ 1.15 $ 1.45
========= ========= ========= =========
(1) During 2010, RSO evaluated its performance based on several performance
measures, including adjusted net income, in addition to net (loss)
income and estimated REIT taxable income. Adjusted net income
represents net income available to common shares, computed in
accordance with GAAP, before provision for loan and lease losses, gain
on the extinguishment of debt and non-operating capital items. These
items are recorded in accordance with GAAP and are typically non-cash
or non-operating items that do not impact RSO's operating performance
or ability to pay a dividend.
Management views adjusted net income as a useful and appropriate
supplement to GAAP net (loss) income because it helps management
evaluate RSO's performance without the effects of certain GAAP
adjustments that may not have a direct financial impact on RSO's
current operating performance and dividend paying ability. Management
uses adjusted net income to evaluate the performance of RSO's
investment portfolios, ability to manage its expenses and dividend
paying ability before the impact of non-cash adjustments and
non-operating capital gain or loss recorded in accordance with GAAP.
RSO believes this is a useful performance measure for investors to
evaluate these aspects of RSO's business as well. The most significant
adjustments RSO excludes in determining adjusted earnings as of
December 31, 2010 and 2009 are its provision for loan and lease losses,
loss from asset impairments and gain on the extinguishment of debt.
Management excludes all such items from its calculation of adjusted net
income because these items are not charges or losses which would impact
RSO's current operating performance. However, by excluding these
significant items, adjusted net income reduces an investor's
understanding of RSO's operating performance by excluding management's
expectation of possible future gains or losses from RSO's investment
portfolio.
Adjusted net income, as a non-GAAP financial measurement, does not
purport to be an alternative to GAAP net income (loss), or a measure of
operating performance or cash flows from operating activities
determined in accordance with GAAP as a measure of liquidity. Instead,
adjusted net income should be reviewed in connection with net income
(loss) and cash flows from operating, investing and financing
activities in RSO's consolidated financial statements to help analyze
management's expectation of potential future losses from RSO's
investment portfolio and other non-cash or capital matters that impact
its financial results. Adjusted net income and other supplemental
performance measures are defined in various ways throughout the REIT
industry. Investors should consider these differences when comparing
RSO's adjusted net income to these other REITs.
(2) Non-cash charges for loan and lease losses.
SCHEDULE II
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET (LOSS) INCOME
TO ESTIMATED REIT TAXABLE INCOME (1)
(in thousands, except per share data)
(Unaudited)
RSO calculates estimated REIT taxable income, which is a non-GAAP financial
measure, according to the requirements of the Internal Revenue Code. The
following table reconciles GAAP net (loss) income to estimated REIT taxable
income for the periods presented (in thousands, except per share data):
Three Months Ended Years Ended
December 31, December 31,
-------------------- --------------------
2010 2009 2010 2009
--------- --------- --------- ---------
Net (loss) income - GAAP $ (9,374) $ 12,090 $ 19,447 $ 6,339
Taxable REIT subsidiary's
(income) loss (3,222) 1,285 (9,833) 3,138
--------- --------- --------- ---------
Adjusted net (loss) income (12,596) 13,375 9,614 9,477
Adjustments:
Share-based compensation to
related parties 1,392 (117) 805 543
Capital loss carryover
(utilization)/losses from
the sale of securities (3,832) (160) (5,013) 4,818
Provision for loan and lease
losses unrealized 17,063 13,537 44,357 26,877
Asset impairments 16,125 6,911 26,638 13,471
Equity in income of real
estate joint venture (5,899) - (14,493) -
Tax gain on sale of real
estate joint venture 401 - 1,443 -
Deferral of extinguishment of
debt income - (15,789) - (28,530)
Net book to tax adjustment
for the inclusion of our
taxable foreign REIT
subsidiaries (5,997) (10,878) (22,204) (6,277)
Subpart F income
limitation (2) - 3,001 - 9,872
Distributable earnings from
nonconsolidating taxable
REIT subsidiary 1,000 - 1,000 -
Other net book to tax
adjustments (27) (175) (1,423) 1,212
--------- --------- --------- ---------
Estimated REIT taxable income $ 7,630 $ 9,705 $ 40,724 $ 31,463
========= ========= ========= =========
Amounts per share - diluted $ 0.14 $ 0.34 $ 0.85 $ 1.23
========= ========= ========= =========
(1) RSO believes that a presentation of estimated REIT taxable income
provides useful information to investors regarding its financial
condition and results of operations as this measurement is used to
determine the amount of dividends that RSO is required to declare to
its stockholders in order to maintain its status as a REIT for federal
income tax purposes. Since RSO, as a REIT, expects to make
distributions based on estimated REIT taxable income, RSO expects that
its distributions may at times be more or less than its reported GAAP
net income. Total estimated REIT taxable income is the aggregate amount
of estimated REIT taxable income generated by RSO and by its domestic
and foreign taxable REIT subsidiaries. Estimated REIT taxable income
excludes the undistributed taxable income (if any) of RSO's domestic
taxable REIT subsidiary, which is not included in REIT taxable income
until distributed to RSO. There is no requirement that RSO's domestic
taxable REIT subsidiary distribute its income to RSO. Estimated REIT
taxable income, however, includes the taxable income of RSO's foreign
taxable REIT subsidiaries because RSO generally will be required to
recognize and report their taxable income on a current basis. Because
not all companies use identical calculations, this presentation of
estimated REIT taxable income may not be comparable to other
similarly-titled measures of other companies.
(2) U.S. shareholders of controlled foreign corporations are required to
include their share of such corporations' income on a current basis;
however, losses sustained by such corporations do not offset income of
their U.S. shareholders on a current basis.
SCHEDULE III
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 collateralized debt obligations -
distributions and coverage test summary for the periods presented:
Annualized
Interest Overcollateral-
Coverage ization
Cash Distributions Cushion Cushion
------------------ -------- ------------------
As of
Years Ended As of As of Initial
December December December December Measure-
CDO 31, 2010 31, 2009 31, 2010 31, 2010 ment
Name Type (1) (1) (2)(3) (4) Date
------- -------- -------- -------- -------- --------
(actual) (actual)
Apidos CDO I CLO $ 7,695 $ 6,643 $ 8,528 $ 12,854 $ 17,136
Apidos CDO III CLO $ 6,552 $ 6,390 $ 3,483 $ 8,531 $ 11,269
Apidos Cinco CDO CLO $ 7,792 $ 7,553 $ 4,488 $ 21,030 $ 17,774
RREF 2006-1 CRE CDO $ 8,929 $ 13,222 $ 7,555 $ 18,446 $ 24,941
RREF 2007-1 CRE CDO $ 15,068 $ 20,536 $ 11,918 $ 14,024 $ 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.
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(in thousands, except percentages)
(Unaudited)
Loan and Leasing Investment Statistics
The following table presents information on RSO's impaired loans and lease
receivables and related allowances for the periods indicated (based on
amortized cost):
Allowance for loan and lease receivable losses:
Specific allowance:
Commercial real estate loans $ 20,844 $ 18,764
Bank loans 112 9,577
--------- ---------
Total specific allowance (1) 20,956 28,341
--------- ---------
General allowance:
Commercial real estate loans 10,773 10,533
Bank loans 2,504 8,248
Lease receivables 70 1,140
--------- ---------
Total general allowance 13,347 19,921
--------- ---------
Total allowance for loans and leases $ 34,303 $ 48,262
========= =========
Allowance as a percentage of total loan and lease
receivables 2.1% 2.9%
Loans held for sale:
Commercial Real Estate Loans:
Commercial real estate loans at cost $ 39,187 $ -
Commercial real estate loans provision (14,621) -
--------- ---------
Commercial real estate loans held for sale 24,566 -
--------- ---------
Bank Loans:
Bank loans at cost $ 5,172 $ 10,182
Bank loans provision (1,145) (2,132)
--------- ---------
Bank loans held for sale 4,027 8,050
--------- ---------
Loans held for sale $ 28,593 $ 8,050
========= =========
(1) Includes allowances on par values of the following assets: commercial
real estate loans of $42.2 million, bank loans of $0.3 million and
lease receivables of $0.2 million. Specific allowances were not taken
on the following asset par values that were evaluated under FAS 114 for
impairment: commercial real estate loans of $111.4 million and lease
receivable of $10.0 million. Statement of Financial Accounting
Standard 114 ("FAS 114") requires that loans that have been
restructured and / or extended are subject to evaluation as to whether
or not they are deemed to be troubled debt restructurings ("TDRs").
As an example, loans are deemed to be TDRs when a concession, such as
an extension of the term of the loan has been granted to the borrower.
These TDRs do not have an associated specific loan loss allowance
because the principal and interest amount is considered recoverable
based on expected collateral performance and / or guarantees made by
the borrowers.
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION, A NON-GAAP MEASURE
(Unaudited)
The following table presents commercial real estate loan portfolio
statistics as of December 31, 2010 (based on par value):
Security type:
Whole loans 66.9%
Mezzanine loans 24.4%
B Notes 8.7%
-------
Total 100.0%
=======
Collateral type:
Hotel 31.9%
Multifamily 26.9%
Office 22.6%
Retail 11.1%
Flex 1.1%
Self-storage 0.9%
Other 5.5%
-------
Total 100.0%
=======
Collateral location:
Southern California 26.0%
Northern California 12.0%
New York 10.4%
Arizona 8.8%
Florida 8.0%
Texas 5.0%
Tennessee 4.8%
Washington 4.7%
Colorado 4.6%
Other 15.7%
-------
Total 100.0%
=======
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(Unaudited)
The following table presents bank loan portfolio statistics by industry
as of December 31, 2010 (based on par value):
Industry type:
Healthcare, education and childcare 10.7%
Diversified/conglomerate service 9.0%
Broadcasting and entertainment 7.8%
Printing and publishing 5.5%
Retail stores 5.2%
Personal transportation 5.0%
Automobile 5.0%
Chemicals, plastics and rubber 4.8%
Telecommunications 4.7%
Personal, food and miscellaneous services 4.7%
Electronics 4.1%
CDOs 3.5%
Other 30.0%
-------
Total 100.0%
=======
The following table describes lease receivables by industry as of
December 31, 2010 (based on par value):
Industry type:
Services 55.7%
Manufacturing 10.9%
Finance, insurance and real estate 10.0%
Retail Trade 6.6%
Wholesale Trade 5.8%
Transportation, communication, energy 4.8%
Construction 3.1%
Public Administration 1.6%
Agriculture, forestry, fishing 1.1%
Other 0.4%
-------
Total 100.0%
=======