SOURCE: Resource Capital Corp.

February 25, 2015 20:00 ET

Resource Capital Corp. Reports Results for Three Months and Year Ended December 31, 2014

NEW YORK, NY--(Marketwired - Feb 25, 2015) - Resource Capital Corp. (NYSE: RSO)

Highlights

  • Adjusted Funds from Operations ("AFFO") of $0.17 and $0.73 per share-diluted (see Schedule I).

  • Total revenues increased by $20.3 million, or 480.4%, and $16.5 million, or 19.8%, as compared to the three months and year ended December 31, 2013.

  • Total assets increased by $577.7 million, or 26.9%, and net interest income increased $24.5 million, or 43.0%, as compared to the year ended December 31, 2013.

  • Originated $302.3 million and $777.3 million in new Commercial Real Estate ("CRE") loans during the three months and year ended December 31, 2014. This represents record production levels on both a quarterly and annual basis since inception.

  • Originated CRE loans with an average loan balance of $22.2 million during the year ended December 31, 2014 as compared to $13.4 million during the year ended December 31, 2013.

  • Originated $87.3 million and $268.6 million in new Middle Market loans during the three months and year ended December 31, 2014.

  • GAAP net income allocable to common shares of $0.05 and $0.34 per share-diluted.

  • Common stock cash dividend of $0.20 and $0.80 per share.

  • Originated $112.1 million in new CRE loans during the period January 1, 2015 through February 25, 2015.

  • In February 2015, closed a $346.2 million CRE securitization at a weighted average cost of LIBOR + 190 bps. This is our third securitization in the last 14 months, through which we have term financed just over $1 billion of mortgage assets.

Resource Capital Corp. (NYSE: RSO) ("RSO" or the "Company"), a real estate investment trust, or REIT, whose investment strategy focuses on commercial real estate assets, commercial mortgage-backed securities ("CMBS"), commercial finance assets and other investments, reported results for the three months and year ended December 31, 2014.

  • AFFO for the three months and year ended December 31, 2014 was $21.7 million, or $0.17 per share-diluted and $94.9 million, or $0.73 per share-diluted, respectively, as compared to $17.2 million, or $0.14 per share-diluted and $88.6 million, or $0.74 per share-diluted for the three months and year ended December 31, 2013, respectively. A reconciliation of GAAP net income to AFFO is set forth in Schedule I of this release.

  • GAAP net income allocable to common shares for the three months and year ended December 31, 2014 was $6.9 million, or $0.05 per share-diluted, and $44.0 million, or $0.34 per share-diluted, respectively, as compared to a net loss of $948,000, or $(0.01) per share-diluted and net income of $39.2 million, or $0.33 per share-diluted for the three months and year ended December 31, 2013, respectively.

Jonathan Cohen, CEO and President of Resource Capital Corp., commented, "In 2014 we originated a record amount of commercial real estate loans, exceeding $775 million. That production generates high-teens or better returns on equity through our ability to securitize the loans with excellent execution. We have securitized in excess of $1 billion of loans in the last fourteen months, which reflects marketplace recognition of our ability to produce at these levels and maintain high credit quality. Also, Northport Capital, our middle market corporate lending platform, closed in excess of $265 million of new investments in 2014, its first full year in operation. We continue to see robust loan origination pipelines and look forward to growing our lending operations and recurring interest income in 2015."

Additional highlights:
Commercial Real Estate

  • CRE loan portfolio is comprised of approximately 94% senior whole loans as of December 31, 2014, as compared to 90% at December 31, 2013.

  • RSO closed $664.8 million of new whole loans in the last 12 months with a weighted average yield, including pro-rated loan origination fees, of 5.73%.

  • On February 24, 2015, RSO closed a $346.2 million CRE securitization backed by self-originated commercial mortgage loans, its third securitization in the trailing 14 month period. The securitization issued $282.1 million of non-recourse, floating-rate notes at a weighted average cost of LIBOR +190 basis points. RSO retained the subordinate notes and the preferred shares in the transaction.

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, 2014 (in millions, except percentages):

                         
    Three Months Ended
December 31,
 2014
    Year Ended
December 31,
 2014
    Floating Weighted
Average Spread
(2) (3)
    Weighted Average
Fixed Rate
 
Whole loan production (1) (4)   $ 265.4     $ 686.4     5.04 %   --  
Mezzanine loan funded     --       3.0     --     16.00 %
Payoffs (5)     (20.5 )     (158.9 )            
Principal paydowns     (2.3 )     (5.7 )            
Loans, net   $ 242.6     $ 524.8              
                             
(1)   Whole loan production does not include unfunded commitments on whole loans of $46.5 million and $98.1 million, which bring total origination of new commercial real estate whole loans to $302.3 million and $774.3 million during the three months and year ended December 31, 2014. RSO also funded a new mezzanine loan of $3.0 million, bringing total originations to $777.3 million, during the year ended December 31, 2014.
(2)   Represents the weighted average rate above the one-month London Interbank Offered Rate ("LIBOR") on loans whose interest rate is based on LIBOR as of December 31, 2014. Of these loans, $659.0 million have LIBOR floors with a weighted average floor of 0.40%.
(3)   Reflects rates on RSO's portfolio balance as of December 31, 2014.
(4)   Whole loan production includes the funding of commitments available to borrowers which were originated prior to 2014 of $9.6 million and $10.2 million for the three months and year ended December 31, 2014, respectively. Whole loan production also includes the funding of commitments available to borrowers which were originated during and for the year ended December 31, 2014, of $11.4 million.
(5)   CRE loan payoffs and extensions resulted in $2.7 million in extension and exit fees during the year ended December 31, 2014.
     

CMBS

  • During the year ended December 31, 2014, RSO purchased $73.2 million, par value, of CMBS which were partially financed by 30-day repurchase contracts with a repurchase value of $52.6 million. In addition, RSO purchased $15.4 million, par value, of CMBS which were financed by RSO's Wells Fargo repurchase facility and were AAA-rated by one or more ratings agencies.

Commercial Finance

  • RSO closed a $125.0 million syndicated credit facility to support the anticipated growth of its middle market lending platform. At December 31, 2014, $113.5 million was outstanding on the facility.

  • RSO's middle market loan portfolio at the end of the fourth quarter of 2014 was $250.1 million, at amortized cost, with a weighted-average spread of one-month and three-month LIBOR plus 7.78% at December 31, 2014.

  • RSO's bank loan portfolio, including asset-backed securities ("ABS"), corporate bonds, including certain loans held for sale was $323.2 million, at amortized cost, with a weighted-average spread of one-month and three-month LIBOR plus 3.63% at December 31, 2014. RSO's bank loan portfolio was completely match-funded through two CLO issuances.

  • RSO, through its subsidiary Resource Capital Asset Management, earned $5.1 million of net fees during the year ended December 31, 2014.

The following table summarizes RSO's middle market lending portfolio loan activities and fundings of previous commitments, at par, for the three months and year ended December 31, 2014 (in millions, except percentages):

   
Three Months Ended
December 31,
 2014
   
Year Ended
December 31,
 2014
    Weighted
Average
Spread
(2) (3)
    Weighted
Average
All-in Rate
(3)
    Weighted Average Yield  
Middle Market loan production (1)(4)   $ 87.3     $ 268.6     7.78 %   8.89 %   8.97 %
Sales     (4.8 )     (31.4 )                  
Principal paydowns     (1.9 )     (15.8 )                  
Loan production, net   $ 80.6     $ 221.4                    
                                   
(1)   Middle market production does not include unfunded commitments of $1.5 million and $19.0 million, which bring total origination of new middle market loans to $88.4 million and $276.4 during the three months and year ended December 31, 2014.
(2)   Represents the weighted average rate above the one-month and three-month LIBOR on loans whose interest rate is based on LIBOR as of December 31, 2014, excluding fees. Of these loans, $225.3 million have LIBOR floors with a weighted average floor of 1.24%.
(3)   Reflects rates on RSO's portfolio balance as of December 31, 2014, excluding fees.
(4)   Middle loan production includes the funding of commitments available to borrowers which were originated prior to 2014 of $4.0 million for the year ended December 31, 2014. Middle market loan production also includes the funding of commitments available to borrowers which were originated during the year ended December 31, 2014, of $0.4 million and $11.2 million, for the three months and year ended December 31, 2014, respectively.
     

Corporate

  • RSO sold approximately 57,000 and 388,000 shares of its 8.50% Series A Cumulative Preferred Stock at a weighted average price of $24.12 and $23.82, and with a liquidation preference of $25.00 per share, for net proceeds of $1.4 million and $9.0 million for the three months and year ended December 31, 2014, respectively, pursuant to an at-the-market program.

  • RSO sold approximately 867,000 and 2.1 million shares of its 8.25% Series B Cumulative Preferred Stock at a weighted average price of $22.99 and $23.02, and with a liquidation preference of $25.00 per share, for net proceeds of $19.4 million and $47.5 million for the three months and year ended December 31, 2014, respectively, pursuant to an at-the-market program.

  • RSO issued 4.8 million shares of its 8.625% Series C Cumulative Redeemable Preferred Stock, at a price of $24.2125 per share, with a liquidation preference of $25.00 per share, for net proceeds of $116.2 million in June 2014.

  • RSO sold approximately 935,000 and 5.5 million shares of common stock through its DRIP program, resulting in $4.9 million and $30.3 million in proceeds for the three months and year ended December 31, 2014, respectively.

Investment Portfolio
The table below summarizes the amortized cost and net carrying amount of RSO's investment portfolio as of December 31, 2014, classified by interest rate and by asset type (in thousands, except percentages):

                   
    Amortized
cost
  Net Carrying Amount   Percent of
portfolio
    Weighted
average coupon
Loans held for investment:                      
  Commercial real estate loans (1):                      
    Whole loans   $ 1,263,592   $ 1,259,834   52.26 %   5.33%
    B notes     16,072     16,017   0.66 %   8.68%
    Mezzanine loans     67,366     67,136   2.78 %   7.44%
  Bank loans     330,648     330,078   13.69 %   3.70%
  Middle market loans     250,113     250,113   10.38 %   8.35%
  Residential mortgage loans     2,802     2,802   0.12 %   4.57%
  Loans receivable-related party     1,277     1,277   0.05 %   4.62%
      1,931,870     1,927,257   79.94 %    
Loans held for sale (2):                      
  Bank loans     282     282   0.01 %   3.76%
  Residential mortgage loans     111,454     111,454   4.62 %   4.04%
      111,736     111,736   4.63 %    
Investments in available-for-sale securities:                      
  CMBS     168,669     170,405   7.07 %   4.78%
  CMBS-linked transactions     14,900     15,367   0.64 %   5.44%
  RMBS     29,814     30,751   1.28 %   3.17%
  ABS     55,617     72,157   2.99 %   N/A (3)
  Corporate bonds     2,415     2,407   0.10 %   4.88%
      271,415     291,087   12.08 %    
Investment securities, trading:                      
  Structured notes     23,319     20,786   0.86 %   N/A (3)
  RMBS     1,896     --   -- %   N/A (3)
      25,215     20,786   0.86 %    
Other (non-interest bearing):                      
  Property available-for-sale     180     180   0.01 %   N/A
  Investment in unconsolidated entities     59,827     59,827   2.48 %   N/A
      60,007     60,007   2.49 %    
Total Investment Portfolio   $ 2,400,243   $ 2,410,873   100.00 %    
                       
(1)   Net carrying amount includes an allowance for loan losses of $4.0 million at December 31, 2014, allocated as follows: whole loans $3.8 million, B notes $55,000 and mezzanine loans $231,000.
(2)   Loans held for sale are carried at the lower of cost or fair market value. Amortized cost is equal to fair value.
(3)   There is no stated rate associated with these securities.
     

Liquidity
At January 31, 2015, after paying our fourth quarter 2014 common and preferred stock dividends, our liquidity is derived from three primary sources:

  • unrestricted cash and cash equivalents of $188.5 million, restricted cash of $680,000 in margin call accounts and $203,000 in the form of real estate escrows, reserves and deposits;

  • capital available for reinvestment in one of our CRE CDO's of $250,000 and one of our CRE securitizations of $2.7 million, all of which is designated to finance future funding commitments on CRE loans; and

  • loan principal repayments of $33.1 million that will pay down outstanding CLO note balances as well as interest collections of $3.2 million.

In addition, RSO has $134.3 million and $173.8 million available through two term financing facilities to finance the origination of CRE loans and $74.5 million available through a term financing facility to finance the purchase of CMBS. RSO also has $11.5 million available through a middle market syndicate facility to finance the direct origination of middle market loans and purchase of syndicated bank loans.

Capital Allocation
As of December 31, 2014, RSO had allocated its invested equity capital among its targeted asset classes as follows: 67% in CRE assets, 29% in commercial finance assets and 4% in other investments.

Book Value

As of December 31, 2014, RSO's book value per common share was $5.07, a decrease from $5.41 per common share at December 31, 2013. Total stockholders' equity, which is a measure of equity before consideration of non-controlling interests, was $935.5 million of which $271.7 million was attributable to preferred stock at December 31, 2014. Total stockholders' equity was $773.9 million of which $99.2 million was attributable to preferred stock at December 31, 2013. The decrease in book value per common share of $0.34 was due to dividends paid on common stock of ($0.80), partially offset by net income allocable to common shares of $0.34 and net adjustments through other comprehensive income of $0.15.

Supplemental Information
The following schedules of reconciliations or supplemental information as of December 31, 2014 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 Securitization Performance Statistics.
  • Supplemental Information regarding loan investment statistics, CRE loans, bank loans and middle market loans.

About Resource Capital Corp.
RSO is a real estate investment trust that is primarily focused on originating, holding and managing commercial mortgage loans and other commercial real estate-related debt and equity investments. RSO also makes other commercial finance investments.

RSO is externally managed by Resource Capital Manager, Inc., an indirect wholly-owned subsidiary of Resource America, Inc. (NASDAQ: REXI), an asset management company that specializes in real estate and credit investments.

For more information, please visit RSO's website at www.resourcecapitalcorp.com or contact investor relations at pkamdar@resourcecapitalcorp.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, summary of securitization performance statistics and supplemental information regarding RSO's CRE loan, bank loan and middle market loan portfolios.

RESOURCE CAPITAL CORP. AND SUBSIDIARIES  
CONSOLIDATED BALANCE SHEETS  
(in thousands, except share and per share data)  
   
  December 31,
 2014
  December 31,
 2013
 
  (unaudited)      
ASSETS (1)            
  Cash and cash equivalents $ 79,905   $ 262,270  
  Restricted cash   122,138     63,309  
  Investment securities, trading   20,786     11,558  
  Investment securities available-for-sale, pledged as collateral, at fair value   197,800     162,608  
  Investment securities available-for-sale, at fair value   77,920     52,598  
  Linked transactions, net at fair value   15,367     30,066  
  Loans held for sale   111,736     21,916  
  Property available-for-sale   180     25,346  
  Investment in real estate   --     29,778  
  Loans, pledged as collateral and net of allowances of $4.6 million and $13.8 million   1,925,980     1,369,526  
  Loans receivable-related party   1,277     6,966  
  Investments in unconsolidated entities   59,827     69,069  
  Derivatives, at fair value   5,304     --  
  Interest receivable   16,260     8,965  
  Deferred tax asset   13,094     5,212  
  Principal paydown receivable   40,920     6,821  
  Direct financing leases   2,109     --  
  Intangible assets   9,736     11,822  
  Prepaid expenses   4,196     2,871  
  Other assets   24,604     10,726  
    Total assets $ 2,729,139   $ 2,151,427  
LIABILITIES (2)            
  Borrowings $ 1,716,871   $ 1,319,810  
  Distribution payable   30,592     27,023  
  Accrued interest expense   2,123     1,693  
  Derivatives, at fair value   8,476     10,586  
  Accrued tax liability   9,219     1,629  
  Deferred tax liability   460     4,112  
  Accounts payable and other liabilities   9,287     12,650  
    Total liabilities   1,777,028     1,377,503  
EQUITY            
  Preferred stock, par value $0.001: 10,000,000 shares authorized 8.50% Series A cumulative redeemable preferred shares, liquidation preference $25.00per share, 1,069,016 and 680,952 shares issued and outstanding   1     1  
  Preferred stock, par value $0.001: 10,000,000 shares authorized 8.25% Series B cumulative redeemable preferred shares, liquidation preference $25.00 per share 5,601,146 and 3,485,078 shares issued and outstanding   6     3  
  Preferred stock, par value $0.001: 10,000,000 shares authorized 8.625% Series C cumulative redeemable preferred shares, liquidation preference $25.00 per share 4,800,000 and 0 shares issued and outstanding   5     --  
  Common stock, par value $0.001: 500,000,000 shares authorized; 132,975,177 and 127,918,927 shares issued and outstanding (including 2,023,639 and 3,112,595 unvested restricted shares)   133     128  
  Additional paid-in capital   1,245,245     1,042,480  
  Accumulated other comprehensive income (loss)   6,043     (14,043 )
  Distributions in excess of earnings   (315,910 )   (254,645 )
    Total stockholders' equity   935,523     773,924  
  Non-controlling interests   16,588     --  
    Total equity   952,111     773,924  
TOTAL LIABILITIES AND EQUITY $ 2,729,139   $ 2,151,427  
             
             
             
RESOURCE CAPITAL CORP. AND SUBSIDIARIES  
CONSOLIDATED BALANCE SHEETS - (Continued)  
(in thousands, except share and per share data)  
   
    December 31,
2014
    December 31,
2013
 
    (unaudited)        
(1) Assets of consolidated Variable Interest Entities ("VIEs") included in the total assets (a) above:                
  Restricted cash   $ 121,267     $ 61,372  
  Investments securities available-for-sale, pledged as collateral, at fair value     100,676       105,846  
  Loans, pledged as collateral and net of allowances of $3.3 million and $8.8 million     1,389,535       1,219,569  
  Loans held for sale     282       2,376  
  Interest receivable     10,425       5,627  
  Prepaid expenses     299       247  
  Principal receivable     25,767       6,821  
  Other assets     (12 )     --  
  Total assets of consolidated VIEs   $ 1,648,239     $ 1,401,858  
                 
(2) Liabilities of consolidated VIEs included in the total liabilities above (b):                
  Borrowings   $ 1,046,494     $ 1,070,339  
  Accrued interest expense     1,000       918  
  Derivatives, at fair value     8,439       10,191  
  Unsettled loan purchases     (529 )     --  
  Accounts payable and other liabilities     (386 )     1,604  
  Total liabilities of consolidated VIEs   $ 1,055,018     $ 1,083,052  
                   
(a)   Assets of each of the consolidated VIEs may only be used to settle the obligations of each respective VIE.
(b)   The creditors of the Company's VIEs have no recourse to the general credit of the Company.
     
     
     
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,  
    2014     2013     2014     2013  
    (unaudited)     (unaudited)        
REVENUES                                
  Interest income:                                
    Loans   $ 29,383     $ 21,085     $ 102,857     $ 99,455  
    Securities     4,702       3,360       17,265       14,309  
    Interest income - other     1,304       1,032       6,785       4,212  
      Total interest income     35,389       25,477       126,907       117,976  
  Interest expense     13,726       26,949       45,473       61,010  
      Net interest income     21,663       (1,472 )     81,434       56,966  
  Rental income     664       4,048       8,441       19,923  
  Dividend income     17       17       186       273  
  Fee income     2,219       1,639       9,385       5,821  
    Total revenues     24,563       4,232       99,446       82,983  
                                 
OPERATING EXPENSES                                
  Management fees - related party     3,584       3,214       13,584       14,220  
  Equity compensation - related party     2,069       2,606       6,566       10,472  
  Rental operating expense     275       2,978       5,443       14,062  
  General and administrative - Corporate     3,958       3,543       15,263       12,304  
  General and administrative - PCM     7,403       2,203       19,598       2,203  
  Depreciation and amortization     579       814       2,737       3,855  
  Income tax benefit     (1,545 )     (5,262 )     (2,212 )     (1,041 )
  Net impairment losses recognized in earnings     --       52       --       863  
  Provision for loan losses     3,543       2,479       1,804       3,020  
    Total operating expenses     19,866       12,627       62,783       59,958  
      4,697       (8,395 )     36,663       23,025  
OTHER INCOME (EXPENSE)                                
  Equity in net earnings of unconsolidated subsidiaries     104       1,837       4,767       949  
  Net realized gain on sales of investment securities available-for-sale and loans     7,321       6,282       15,283       9,637  
  Net realized and unrealized (loss) gain on investment securities, trading     (984 )     540       (2,818 )     (324 )
  Unrealized gain (loss) and net interest income on linked transactions, net     356       502       7,850       (3,841 )
  Loss on reissuance of debt     (1,973 )     --       (4,442 )     --  
  Gain on the sale of real estate     3,154       9       6,127       16,616  
  Other income (expense)     --       391       (1,262 )     391  
    Total other revenue     7,978       9,561       25,505       23,428  
NET INCOME     12,675       1,166       62,168       46,453  
  Net income allocated to preferred shares     (5,873 )     (2,114 )     (17,176 )     (7,221 )
  Net (income) loss allocable to non-controlling interest, net of taxes     104       --       (965 )     --  
NET INCOME (LOSS) ALLOCABLE TO COMMON SHARES   $ 6,906     $ (948 )   $ 44,027     $ 39,232  
NET INCOME (LOSS) PER COMMON SHARE - BASIC   $ 0.05     $ (0.01 )   $ 0.34     $ 0.33  
NET INCOME (LOSS) PER COMMON SHARE - DILUTED   $ 0.05     $ (0.01 )   $ 0.34     $ 0.33  
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC     129,801,666       124,435,700       128,031,064       118,478,672  
WEIGHTED AVERAGE NUMBER OFCOMMON SHARES OUTSTANDING - DILUTED     130,900,431       124,435,700       129,259,386       120,038,973  
                                 
                                 
                                 

SCHEDULE I

 
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO FFO and AFFO
(in thousands, except per share data)
(unaudited)
 

Funds from Operations
The Company evaluates its performance based on several performance measures, including funds from operations, or FFO, and adjusted funds from operations ("AFFO") in addition to net income. The Company 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 operating performance. We calculate AFFO by adding or subtracting from FFO the impact of non-cash accounting items as well as the effects of items that we deem to be non-recurring in nature. We deem transactions to be non-recurring if a similar transaction has not occurred in the past two years, and if we do not expect a similar transaction to occur in the next two years. We adjust for these non-cash and non-recurring items to analyze our ability to produce cash flow from on-going operations, which we use to pay dividends to our shareholders. Non-cash adjustments to FFO include the following: impairment losses resulting from fair value adjustments on financial instruments; provisions for loan losses; equity investment gains and losses; straight-line rental effects; share based compensation expense; amortization of various deferred items and intangible assets; gains on sales of property that are wholly owned or owned through a joint venture; the cash impact of capital expenditures that are related to our real estate owned; and REIT tax planning adjustments, which primarily relate to accruals for owned properties for which we made a foreclosure election and adjustments to tax estimates with respect to the final resolution of foreclosed property when it is listed for sale. In addition, we calculate AFFO by adding and subtracting from FFO the realized cash impacts of the following: extinguishment of debt, reissuances of debt, sales of property and capital expenditures.

Management believes that FFO and AFFO are appropriate measures of the Company'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 its operating performance, and believes they are also useful to investors, because they facilitate an understanding of the Company'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 the Company's operating performance between periods.

While the Company's calculations 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, the Company also believes that FFO and AFFO may provide the Company 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 GAAP net income as an indicator of the Company's operating performance or as an alternative to cash flow from operating activities as a measure of its liquidity.

The following table reconciles GAAP net income to FFO and AFFO for the periods presented (unaudited) (in thousands, except per share data):

             
    Three Months Ended     Years Ended  
    December 31,     December 31,  
    2014     2013     2014     2013  
Net income (loss) allocable to common shares - GAAP   $ 6,906     $ (948 )   $ 44,027     $ 39,232  
Adjustments:                                
  Real estate depreciation and amortization     --       381       506       2,122  
  Gains on sale of property (1)     (3,511 )     (333 )     (8,990 )     (14,588 )
  Losses (gains) on sale of preferred equity     195       --       (912 )     --  
FFO     3,590       (900 )     34,631       26,766  
Adjustments:                                
  Non-cash items:                                
    Adjust for impact of imputed interest on VIE accounting     --       899       --       899  
    (Recovery) provision for loan losses     (271 )     (1,186 )     820       (3,325 )
    Amortization of deferred costs (non real estate) and intangible assets     2,932       1,151       10,188       6,060  
    Equity investment losses (gains)     696       (195 )     2,243       183  
    Share-based compensation     2,069       2,605       6,566       10,472  
    Impairment losses     --       52       --       863  
    Unrealized losses (gains) on CMBS marks - linked transactions     97       195       (1,894 )     6,018  
    Unrealized losses on trading portfolio     1,310       --       2,567       --  
    Unrealized losses (gains) on derivatives     (938 )     --       1,982       --  
    Loss on resale of debt     1,973       --       4,442       --  
    Add-back interest related to Whitney note discount amortization     --       --       --       2,549  
    Loss on liquidation and deconsolidation of Apidos VIII     --       16,036       --       16,036  
    PCM expenses and provisions on mortgage servicing rights, net of tax     364       --       664       --  
    Other adjustments     --       (6 )     2       (12 )
REIT tax planning adjustments     (17 )     (2,189 )     1,403       890  
Cash items:                                
  Gains on sale of property (1)     3,511       333       8,990       14,588  
  (Losses) gains on sale of preferred equity     (195 )     --       912       --  
  Gains on the resale of debt     6,536       561       21,469       7,810  
  Capital expenditures     --       (140 )     (38 )     (1,149 )
AFFO   $ 21,657     $ 17,216     $ 94,947     $ 88,648  
                                 
Weighted average shares - diluted     130,900       124,436       129,259       120,039  
                                 
AFFO per share - diluted   $ 0.17     $ 0.14     $ 0.73     $ 0.74  
                                 
(1)   Amount represents gains/losses on sales of owned real estate as well as sales of a joint venture real estate interest that were recorded by RSO on an equity basis.
     
     
     

SCHEDULE II

 
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUMMARY OF SECURITIZATION PERFORMANCE STATISTICS
(in thousands)
(unaudited)
 

Securitizations - Distributions and Coverage Test Summary
The following table sets forth the distributions made and coverage test summaries for each of our securitizations for the periods presented (in thousands):

Name   Cash Distributions   Annualized Interest Coverage Cushion   Overcollateralization
Cushion
Years Ended   As of    
December 31,   December 31,   As of Initial
Measurement Date
2014 (1)   2013 (1)   2014 (2) (3)   2014 (4)  
    (actual)   (actual)            
Apidos CDO I (5)   $ 16,322   $ 4,615     N/A     N/A   $ 17,136
Apidos CDO III (6)   $ 3,551   $ 6,495   $ 2,504   $ 9,473   $ 11,269
Apidos Cinco CDO (7)   $ 9,757   $ 12,058   $ 8,756   $ 20,630   $ 17,774
RREF 2006-1 (8)   $ 10,172   $ 36,828   $ 4,033   $ 54,289   $ 24,941
RREF 2007-1 (9)   $ 7,630   $ 10,880   $ 3,960   $ 58,690   $ 26,032
RCC CRE Notes 2013 (10)   $ 11,860     N/A     N/A     N/A     N/A
RCC CRE 2014 (11)   $ 5,463     N/A     N/A     N/A     N/A
Moselle CLO S.A. (12)   $ 2,891     N/A     N/A     N/A     N/A
* The above table does not include Apidos CLO VIII or Whitney CLO I, as these CLOs were previously called and were substantially liquidated.
     
(1)   Distributions on retained equity interests in CDOs (comprised of note investments and preference share ownership) and principal paydowns on notes owned; RREF 2006-1 includes $4.2 million and $28.1 million of paydowns during the years ended December 31, 2014 and 2013, respectively; Apidos CDO I includes $15.0 million of paydowns during the year ended December 31, 2014.
(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 our 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's reinvestment period expired in July 2011. Apidos CDO I was called and substantially liquidated as of October 27, 2014; as such, there are no overcollateralization or interest coverage test requirements as of December 31, 2014.
(6)   Apidos CDO III's reinvestment period expired in June 2012.
(7)   Apidos Cinco CDO's reinvestment period expired in May 2014.
(8)   RREF 2006-1's reinvestment period expired in September 2011.
(9)   RREF 2007-1's reinvestment period expired in June 2012.
(10)   Resource Capital Corp. CRE Notes 2013 ("RCC CRE Notes 2013") has no reinvestment period. Additionally, the indenture contains no coverage tests.
(11)   Resource Capital Corp. 2014-CRE2 ("RCC CRE 2014") closed on July 30, 2014; the first distribution was in August 2014. There is no reinvestment period for the securitization. Additionally, the indenture contains no coverage tests.
(12)   Moselle CLO S.A. was acquired on February 24, 2014; the first distribution we were entitled to receive was in April 2014. The reinvestment period for this securitization expired prior to the acquisition of this securitization. As of December 31, 2014, Moselle CLO S.A. was called and its assets were substantially liquidated.
     
     
     
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(in thousands, except percentages)
 

Loan Investment Statistics

The following table presents information on RSO's impaired loans and related allowances for the periods indicated (based on amortized cost):

    December 31,     December 31,  
    2014     2013  
Allowance for loan losses:   (unaudited)        
Specific allowance:                
  Commercial real estate loans   $ --     $ 4,572  
  Bank loans     570       2,621  
Total specific allowance     570       7,193  
General allowance:                
  Commercial real estate loans     4,043       5,844  
  Bank loans     --       770  
Total general allowance     4,043       6,614  
Total allowance for loans   $ 4,613     $ 13,807  
Allowance as a percentage of total loans     0.2 %     1.0 %
                 
Loans held for sale:                
  Bank loans   $ 282     $ 2,377  
  Middle market loans     --       4,473  
  Residential mortgage loans     111,454       15,066  
Total loans held for sale (1)   $ 111,736     $ 21,916  
                 
(1)   Loans held for sale are presented at the lower of cost or fair value.
     
     
     
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(unaudited)
 

The following table presents commercial real estate loan portfolio statistics as of December 31, 2014 (based on par value):

Security type:      
Whole loans   93.8 %
Mezzanine loans   5.0 %
B Notes   1.2 %
Total   100.0 %
       
Collateral type:      
Multifamily   43.5 %
Hotel   19.1 %
Office   16.2 %
Retail   15.4 %
Mixed Use   1.5 %
Other   4.3 %
Total   100.0 %
       
Collateral location:      
Southern California   20.6 %
Northern California   6.8 %
Texas   27.3 %
Arizona   7.3 %
Florida   6.0 %
Nevada   3.3 %
Utah   2.7 %
Pennsylvania   2.4 %
Washington   2.2 %
Minnesota   2.2 %
Other   19.2 %
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, 2014 (based on par value):

Industry type:      
  Healthcare, Education and Childcare   17.5 %
  Diversified/Conglomerate Service   11.7 %
  Automobile   8.5 %
  Chemicals, Plastics and Rubber   6.7 %
  Retail Stores   6.0 %
  Broadcasting and Entertainment   4.2 %
  Personal, Food and Miscellaneous Services   4.2 %
  Electronics   3.6 %
  Leisure, Amusement, Motion Pictures, Entertainment   3.5 %
  Telecommunications   3.3 %
  Hotels, Motels, Inns and Gaming   3.2 %
  Personal Transportation   3.1 %
  Utilities   2.6 %
  Finance   2.3 %
  Buildings and Real Estate   2.0 %
  Banking, Finance, Insurance and Real Estate   1.9 %
  Other   15.7 %
    Total   100.0 %
       

The following table presents middle market loan portfolio statistics by industry as of December 31, 2014 (based on par value):

Industry type:      
  Personal, Food and Miscellaneous Services   13.7 %
  Hotels, Motels, Inns and Gaming   13.0 %
  Healthcare, Education and Childcare   10.3 %
  Structure Finance Securities   10.2 %
  Leisure, Amusement, Motion Pictures, Entertainment   7.9 %
  Buildings and Real Estate   6.0 %
  Personal Transportation   5.7 %
  Beverage, Food and Tobacco   5.0 %
  Cargo Transport   5.0 %
  Diversified/Conglomerate Manufacturing   4.1 %
  Home and Office Furnishings, Housewares and Durable Consumer Products   4.0 %
  Oil and Gas   3.9 %
  Finance   3.6 %
  Diversified/Conglomerate Service   2.8 %
  Chemicals, Plastics and Rubber   2.4 %
  Insurance   2.4 %
    Total   100.0 %
       

Contact Information

  • CONTACT:
    David J. Bryant
    Chief Financial Officer
    Resource Capital Corp.
    712 Fifth Ave, 12th Floor
    New York, NY 10019
    212-506-3870