NEW YORK, NY — (Marketwired) — 11/05/13 — Resource Capital Corp. (NYSE: RSO)
Adjusted Funds from Operations (“AFFO”) of $0.24 and $0.61 per share-diluted (see Schedule I).
Commercial real estate (“CRE”) loan originations of $94.2 million and $246.9 million, for the three and nine months ended September 30, 2013, respectively, as compared to $32.6 million and $115.4 million for the same periods in 2012, increases of 189% and 114%, respectively.
Book value allocable to common shares of $5.56 per share at September 30, 2013 (see Schedule II).
Common stock cash dividend of $0.20 and $0.60 per share. Dividend guidance reaffirmed at $0.20 per share for the fourth quarter of 2013.
RSO is providing guidance of $0.20 per quarter common stock dividend per share throughout 2014 or $0.80 for the year.
In October 2013, RSO closed and issued $115.0 million aggregate principal amount of its 6.00% convertible senior notes due 2018, which included a $15.0 million over-allotment option. RSO received net proceeds of approximately $111.1 million after payment of underwriting discounts and commissions and other offering costs.
(NYSE: RSO) , a real estate investment trust, or REIT, whose investment strategy focuses on CRE assets, commercial mortgage-backed securities (“CMBS”), commercial finance assets and other investments, reported results for the three and nine months ended September 30, 2013.
AFFO for the three and nine months ended September 30, 2013 was $30.8 million, or $0.24 per share-diluted, and $71.4 million, or $0.61 per share-diluted, respectively, as compared to $23.0 million, or $0.26 per share-diluted, and $63.8 million, or $0.75 per share-diluted for the three and nine months ended September 30, 2012, 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 and nine months ended September 30, 2013 was $22.1 million, or $0.18 per share-diluted, and $40.2 million, or $0.34 per share-diluted, respectively, as compared to $18.2 million, or $0.20 per share-diluted, and $49.1 million, or $0.57 per share-diluted for the three and nine months ended September 30, 2012, respectively.
Jonathan Cohen, CEO and President of Resource Capital Corp., commented, “We continued to expand our commercial real estate loan originations during this quarter and are now on a $450 million annualized run rate. We expect this to increase substantially in 2014 and will offset the runoff of our legacy CLO business. We are pleased to provide dividend per share guidance for 2014 of $0.80 or $0.20 per quarter.”
Commercial Real Estate
CRE loan portfolio is comprised of approximately 90% senior whole loans as of September 30, 2013, as compared to 85% at December 31, 2012.
RSO closed $279.2 million of new whole loans in the last 12 months with a weighted average yield of 6.55%, including origination fees. In addition, RSO funded $15.8 million of previous loan commitments on existing loans for total production of $295.0 million in the last 12 months. During the 12 month period, RSO also acquired $15.2 million of mezzanine loans with a weighted average yield of 20.0%.
The following table summarizes RSO-s CRE loan activities and fundings of previous commitments, at par, for the three, nine and 12 months ended September 30, 2013 (in millions, except percentages):
CMBS
During the nine months ended September 30, 2013, RSO acquired $32.9 million, par value, of CMBS. These 2013 CMBS purchases were in part financed by RSO-s Wells Fargo repurchase facility and were AAA rated by at least one rating agency. In addition, RSO acquired $42.8 million, par value, of CMBS which were also partially financed by 30-day repurchase contracts with a repurchase value of $30.3 million. Also, during the nine months ended September 30, 2013, RSO acquired $43.9 million, par value, of CMBS, which were not financed with debt.
Commercial Finance – Syndicated Bank Loans
RSO-s bank loan portfolio, including asset-backed securities (“ABS”), corporate bonds and certain loans held for sale, at the end of the third quarter of 2013 was $940.7 million, at amortized cost, with a weighted-average spread of one-month and three-month LIBOR plus 3.29% at September 30, 2013. RSO-s bank loan portfolio was nearly 100% match-funded through five collateralized loan obligation (“CLO”) issuances.
During the three and nine months ended September 30, 2013, RSO bought bank loans through its CLOs with a par value of $98.6 million and $331.3 million, respectively, at a net discount of $297,000 and $3.2 million, respectively. These purchased loans have an aggregate weighted average unlevered annual yield of approximately 4.34% and 4.13%, respectively.
RSO, through its subsidiary, Resource Capital Asset Management, earned $4.2 million of net fees during the nine months ended September 30, 2013.
Corporate
In October 2013, RSO completed an underwritten public offering of $115.0 million (including an over-allotment option exercise) aggregate principal amount of its 6.00% convertible senior notes due 2018. RSO received net proceeds of approximately $111.1 million after payment of underwriting discounts and commissions and other offering expenses.
RSO sold approximately 157,000 shares of its 8.25% Series B cumulative redeemable preferred stock at a weighted average price of $24.80 with a liquidation preference of $25.00 per share for net proceeds of $3.7 million during the third quarter 2013, pursuant to an at-the-market program.
RSO also sold approximately 5,000 shares of its 8.50% Series A cumulative redeemable preferred stock at a weighted average price of $24.26 with a liquidation preference of $25.00 per share for net proceeds of $112,000 during the third quarter 2013, pursuant to an at-the-market program.
As we model our business into 2014, we now guide our shareholders that we currently expect to distribute $0.80 per common share in 2014 and accordingly, expect to pay a $0.20 common stock dividend per quarter throughout 2014. This guidance is based on our expectations of robust originations at our commercial real estate lending business and good capital allocation and returns from our other businesses.
The table below summarizes the amortized cost and net carrying amount of RSO-s investment portfolio as of September 30, 2013, 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):
At October 31, 2013, after paying RSO-s third quarter 2013 common and preferred stock dividends, RSO-s liquidity is derived from three primary sources:
unrestricted cash and cash equivalents of $259.6 million, restricted cash of $777,000 in margin call accounts and $1.4 million in the form of real estate escrows, reserves and deposits;
capital available for reinvestment in one of its collateralized debt obligation (“CDO”) and one CLO entity of $28.1 million, of which $430,000 is designated to finance future funding commitments on CRE loans; and
loan principal repayments that will pay down outstanding CLO notes of $23.1 million and $5.5 million in interest collections.
In addition, RSO has funds available through three term financing facilities to finance the origination of CRE loans of $90.9 million and $200.0 million, and to finance the purchase of CMBS of $42.2 million, respectively.
As of September 30, 2013, RSO had allocated its invested equity capital among its targeted asset classes as follows: 78% in CRE assets, 18% in commercial finance assets and 4% in other investments.
The following schedules of reconciliations or supplemental information as of September 30, 2013 are included at the end of this release:
Schedule I – Reconciliation of GAAP Net Income to Funds from Operations (“FFO”) and AFFO.
Schedule II – Book value allocable to common shares rollforward.
Schedule III – Summary of CDO and CLO Performance Statistics.
Supplemental Information regarding loan investment statistics, CRE loans and bank loans.
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 assets, and, to a lesser extent, commercial finance assets and other investments. 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, corporate bonds, 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 or contact investor relations at .
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, a reconciliation of GAAP net income to FFO and AFFO, a book value allocable to common shares rollforward, a summary of CDO and CLO performance statistics and supplemental information regarding RSO-s CRE loan and bank loan portfolios.
We evaluate our performance based on several performance measures, including funds from operations, or FFO, and adjusted funds from operations, or AFFO, in addition to net income. We compute 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. We calculate AFFO by adding or subtracting from FFO the non-cash impacts of the following: non-cash impairment losses resulting from fair value adjustments on financial instruments, provision for loan losses, equity investment gains and losses, straight-line rental effects, share based compensation, amortization of various deferred items and intangible assets, gains on sales of property that are wholly owned or through a joint venture in addition to the cash impact of capital expenditures that are related to our real estate owned. In addition, we calculate AFFO by adding and subtracting from FFO the cash impacts of the following: extinguishment of debt, sales of property and capital expenditures.
Management believes that FFO and AFFO are appropriate measures of our 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 our operating performance, and believes they are also useful to investors, because they facilitate an understanding of our 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 our operating performance between periods.
While our calculations of AFFO may differ from the methodology used for calculating AFFO by other REITs and our AFFO may not be comparable to AFFO reported by other REITs, we also believe that FFO and AFFO may provide us and our investors with an additional useful measure to compare our 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 our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.
The following table reconciles GAAP net income to FFO and AFFO for the periods presented (in thousands, except per share data):
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:
The following table presents information on RSO-s allowance for loan losses for the periods indicated:
The following table presents commercial real estate loan portfolio statistics as of September 30, 2013 (based on par value):
The following table presents bank loan portfolio statistics by industry as of September 30, 2013 (based on par value):