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Resource Capital Corp. Reports Results for Three Months and Year Ended December 31, 2016






NEW YORK, NY — (Marketwired) — 03/13/17 — (NYSE: RSO)

GAAP net loss allocable to common shares of $(0.31) and $(1.73) per share-diluted and core earnings of $(0.12) and $(0.03) per share-diluted (see Schedule I).

Common stock cash dividends of $0.05 and $1.31 per share.

In November, the board of directors approved a strategic plan (the “Plan”) that allows Resource Capital Corp. (“RSO” or the “Company”) to focus on making commercial real estate (“CRE”) debt investments. The Plan includes disposing of certain non-CRE assets and businesses and underperforming legacy CRE loans and maintaining a dividend policy based on sustainable earnings. Legacy CRE loans are loans underwritten prior to 2010. As part of the Plan, certain non-CRE assets and underperforming legacy CRE loans were reclassified as held for sale during the fourth quarter of 2016.

GAAP net loss for the three months ended December 31, 2016 includes impairments of $12.2 million attributable to the reclassification of assets to held for sale, comprised of provisions for loan losses of $7.7 million on two legacy CRE loans and fair value adjustments of $4.5 million on business segments classified as discontinued operations. Additionally, GAAP net loss for the three months ended December 31, 2016 includes an unrealized loss of $2.6 million on a previously impaired middle market loan, a specific provision for loan loss of $2.5 million on one CRE whole loan, a $1.4 million write-down of RSO–s deferred tax asset and a gain of $2.8 million on the liquidation of our last remaining legacy CRE securitization, resulting in a net impairment charge for the fourth quarter of 2016 of $15.9 million.

Since September 30, 2016 and through February 28, 2017, RSO has monetized $78.4 million of the investments that were included in the Plan and it expects to continue this disposition process during the remainder of 2017.

(NYSE: RSO) reported results for the three months and year ended December 31, 2016.

GAAP net loss allocable to common shares for the three months and year ended December 31, 2016 was $9.5 million, or $(0.31) per share-diluted, and $53.0 million, or $(1.73) per share-diluted, respectively, as compared to GAAP net income allocable to common shares for the three months ended December 31, 2015 of $949,000, or $0.03 per share-diluted, and GAAP net loss allocable to common shares for the year ended December 31, 2015 of $13.9 million, or $(0.43) per share-diluted.

RSO reported core earnings for the three months and year ended December 31, 2016 of $(3.7) million, or $(0.12) per share-diluted, and $(1.0) million, or $(0.03) per share-diluted, respectively. A reconciliation of GAAP net income (loss) to core earnings is set forth in Schedule I of this release.

RSO declared and paid common stock cash dividends of $0.05 per share for the fourth quarter and $1.31 per share for the year ended December 31, 2016.

Commercial Real Estate

Substantially all of the $1.3 billion CRE loan portfolio comprises floating rate senior whole loans at December 31, 2016.

The CRE whole loan portfolio had a weighted average spread of 4.97% and a weighted average London Interbank Offered Rate (“LIBOR”) floor of 0.30% at December 31, 2016.

Interest income on whole loans increased by $9.4 million, or 12.32%, to $85.2 million during the year ended December 31, 2016 as compared to $75.8 million during the year ended December 31, 2015. Included in this amount is $355,000 of net interest income earned on legacy CRE loans classified as assets held for sale at December 31, 2016. For comparison purposes, this excludes income in the 2015 period from our legacy CRE collateralized debt obligations (“CDOs”) that were deconsolidated in the first quarter of 2016.

RSO closed and funded $173.0 million of new whole loans during the 12 months ended December 31, 2016, with a weighted average unlevered yield of 5.95%, including amortization of origination fees.

The following table summarizes RSO–s CRE loan activities and fundings of previous commitments, at par, for the three, 12 and 24 months ended December 31, 2016 (in millions, except percentages):

Legacy CRE CDO Liquidations

On April 25, 2016, RSO called and liquidated its investment in Resource Real Estate Funding CDO 2006-1 (“RREF 2006-1”). RSO received the remaining collateral of $65.7 million, at fair value, recognizing a gain of approximately $846,000, in exchange for its remaining interest after repaying CDO debt.

On November 25, 2016, RSO called and liquidated its investment in Resource Real Estate Funding CDO 2007-1 (“RREF 2007-1”). RSO received the remaining collateral of $130.9 million, at fair value, recognizing a gain of approximately $2.1 million, in exchange for its remaining interest after repaying the CDO debt. RSO repaid $60.3 million of third-party notes to trigger the liquidation, of which $26.6 million was returned in the form of principal payments, for a net outlay of $33.7 million.

CRE Asset Impairment and Loan Reserves

RSO recorded other-than-temporary impairment of $19.9 million during the year ended December 31, 2016 on its interest in RREF 2007-1.

Pursuant to the Plan, during the quarter ended December 31, 2016, $158.2 million of legacy CRE loans were reclassified to assets held for sale. As a result, a charge of $15.8 million was taken to write the loans down to fair value, of which $7.7 million relates to the three months ended December 31, 2016. Additionally, RSO recorded a provision for loan loss of $2.5 million on one CRE loan related to a shopping center in Roswell, GA, which was determined based on an appraisal obtained during the quarter.

Commercial Finance and Middle Market Loans

During the three months ended December 31, 2016, RSO–s middle market syndicated loan portfolio was reclassified to assets held for sale and a loss of $819,000 was taken to reflect the lower of cost or fair market value. As a result of the reclassification, the middle market lending segment was reported as a discontinued operation and excluded from continuing operations for all periods presented. At December 31, 2016, six middle market syndicated loans, with an aggregate carrying value of $38.5 million, were current with respect to contractual payments due. Additionally, during the three months ended December 31, 2016, two of the other middle market syndicated loans paid off at par and one middle market syndicated loan was sold at a slight discount generating total cash proceeds of approximately $15.0 million.

On November 14, 2016, Apidos CDO Cinco, LTD was called causing all of the notes payable to be redeemed and substantially all of its assets to be liquidated. RSO received $20.4 million of cash as a result of the liquidation through December 2016. As a result of the repayment of all senior and mezzanine notes of the deal, RSO consolidated Apidos Cinco–s remaining assets, at fair value, onto its balance sheet. The assets at liquidation consisted primarily of cash, one structured security and three syndicated corporate loans, which had an aggregate fair value of $2.3 million.

Residential Mortgage Lending

As part of the Plan to exit non-core asset classes, the assets and liabilities of RSO–s residential mortgage lending business, Primary Capital Mortgage, LLC (“PCM”), have been reclassified to held for sale and are considered discontinued operations at December 31, 2016. PCM originated $1.8 billion of agency mortgage loans and $127.2 million of jumbo mortgage loans during the year ended December 31, 2016. PCM obtained its New York license to operate during the quarter ended December 31, 2016. PCM also serviced over $3.4 billion of residential mortgage loans at December 31, 2016. In December 2016, PCM sold approximately $14.5 million of its agency servicing asset portfolio. This sale generated cash of $13.2 million, a future cash receivable of $1.5 million (expected to be received in May 2017) and a loss of $600,000 from transaction costs. PCM recognized losses of approximately $5.2 million and $10.2 million for the quarter and year ended December 31, 2016, respectively.

At February 28, 2017, RSO–s liquidity is derived from two primary sources:

unrestricted cash and cash equivalents of $171.0 million; and

capital available for reinvestment in two of RSO–s CRE securitizations of $5.0 million, all of which is designated to finance future funding commitments on CRE loans.

RSO also had $94.3 million and $163.3 million available under two term financing facilities to finance originations of CRE loans and $78.4 million available under a term financing facility to finance purchases of CMBS at February 28, 2017.

At December 31, 2016, RSO–s book value per common share was $14.17, a decrease from $17.63 per common share at December 31, 2015. The decrease in book value during the year was attributable to the following: a net loss of $1.73 per common share; dividends paid of $1.31 per common share; declines of $0.55 per common share resulting from deconsolidation adjustments and $0.23 per common share attributable to the expense associated with the vesting of restricted stock; offset by increases of $0.16 per common share resulting from RSO–s share repurchases and $0.20 per common share resulting from marks on available-for-sale securities and interest rate hedges.

Total stockholders– equity at December 31, 2016, which measures equity before accounting for non-controlling interests, was $704.3 million, of which $270.1 million was attributable to preferred stock. Total stockholders– equity at December 31, 2015 was $818.9 million, of which $274.7 million was attributable to preferred stock.

Since the inception of the share repurchase program in August 2015 through December 31, 2016, RSO has repurchased $35.2 million of its common stock (approximately 2.8 million shares), which represents approximately 8.3% of its outstanding common shares, at a weighted average price of $12.60 per share. RSO repurchased 196,000 shares of its Series B Preferred stock, which had an accretive impact to the book value of our common stock of $1.5 million, or $0.05 per share-diluted, during the year ended December 31, 2016.

The following table summarizes the amortized cost and net carrying amount of RSO–s investment portfolio at December 31, 2016, classified by asset type (in thousands, except percentages):

The following schedules of reconciliations or supplemental information at December 31, 2016 are included at the end of this release:

Schedule I – Reconciliation of GAAP Net Income (Loss) to Core Earnings;

Schedule II – Summary of Securitization Performance Statistics; and

Supplemental Information.

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 investments. RSO has historically made other commercial finance investments.

RSO is externally managed by Resource Capital Manager, Inc., an indirect wholly-owned subsidiary of Resource America, Inc. In September 2016, Resource America was acquired by C-III Capital Partners LLC, a leading commercial real estate investment management and services company engaged in a broad range of activities.

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 that 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 release or to reflect the occurrence of unanticipated events.

Furthermore, certain non-GAAP financial measures are discussed in this release. RSO–s presentation of this information is not intended to be considered in isolation of or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP are set forth in Schedule I of this release and can be accessed through RSO–s filings with the SEC at .

The remainder of this release contains RSO–s unaudited consolidated balance sheets, unaudited consolidated statements of operations, a reconciliation of GAAP net income (loss) to core earnings, a summary of securitization performance statistics and supplemental information regarding RSO–s CRE loan portfolio.

Beginning with the three months and year ended December 31, 2016, RSO is now using Core Earnings as a non-GAAP financial measure to evaluate its operating performance. RSO previously used Adjusted Funds from Operations (“AFFO”) as a non-GAAP measure of operating performance.

Core Earnings exclude the effects of certain transactions and GAAP adjustments that RSO believes are not necessarily indicative of its current CRE loan portfolio and other CRE related investments and operations. Core Earnings exclude income (loss) from all non-core assets such as Commercial Finance, Middle Market Lending, Residential Mortgage Lending, legacy CRE assets and other non-CRE assets designated as assets held for sale at the initial measurement date.(1)

Core Earnings is defined as GAAP net income (loss) allocable to common shareholders, excluding (i) non-cash equity compensation expense, (ii) incentive fees payable to our external manager, (iii) unrealized gains and losses, (iv) non-cash provisions for loan losses, (v) non-cash impairments on securities, (vi) non-cash amortization of discounts or premiums associated with borrowings, (vii) net income or loss from a limited partnership interest owned at the initial measurement date, (viii) net income or loss from non-core assets,(2) (ix) real estate depreciation and amortization and (x) foreign currency gains or losses. Core Earnings may also be adjusted periodically to exclude certain one-time events pursuant to changes in GAAP and certain non-cash items.

Core Earnings does not represent net income or cash generated from operating activities and should not be considered as an alternative to GAAP net income or as a measure of liquidity under GAAP. RSO–s methodology for calculating Core Earnings may differ from methodologies used by other companies to calculate similar supplemental performance measures, and, accordingly, its reported Core Earnings may not be comparable to similar performance measures used by other companies.

The following table provides a reconciliation from GAAP net income (loss) allocable to common shares to Core Earnings for the periods presented (in thousands, except per share data):

We have five operating segments: Commercial Real Estate Debt Investments; Commercial Finance; Middle Market Lending; Residential Mortgage Lending; and Corporate & Other. The Commercial Real Estate Debt Investments operating segment includes our activities and operations related to commercial real estate loans, commercial real estate-related securities and investments in real estate. The Commercial Finance operating segment includes our activities and operations related to syndicated corporate loans, syndicated corporate loan-related securities and direct financing leases. The Middle Market Lending operating segment includes our activities and operations related to the origination and purchase of middle market corporate loans. The Residential Mortgage Lending operating segment includes our activities and operations related to originating and servicing residential mortgage loans and investments in residential mortgage-backed securities. The Corporate & Other segment includes corporate level interest income, interest expense, inter-segment eliminations not allocable to any particular operating segment and general and administrative expense.

As part of our plan to exit non-CRE businesses, the entire Middle Market Lending and substantially all of the Residential Mortgage Lending segments are reported as discontinued operations. The following table presents a reconciliation of GAAP net income (loss) to Core Earnings for the three months ended December 31, 2016 presented by operating segment (in thousands, except per share data):

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