Significant Items and
Highlights
Resource Capital Corp. (NYSE:RSO) reported results
for the three and six months ended June 30, 2017.
Second Quarter 2017 Results
- GAAP net income allocable to common shares was $2.5 million, or
$0.08 per share-diluted, and $5.2 million, or $0.17 per-share
diluted, for the three and six months ended June 30, 2017,
respectively, as compared to a GAAP net loss allocable to common
shares of $1.5 million, or $(0.05) per share-diluted, for the three
months ended June 30, 2016, and GAAP net income allocable to common
shares of $8.1 million, or $0.26 per share-diluted, for the six
months ended June 30, 2016.
- GAAP net income for the three and six months ended
June 30, 2017 includes the following activity:-- Realized
gains of $5.6 million and $12.6 million, respectively, related to
the repayment of CRE loans held for sale.-- Net loss of $5.0
million and $6.4 million, respectively, incurred by Primary Capital
Mortgage, LLC ("PCM"). Of these losses, $4.2 million relates
to the asset purchase agreement entered into on June 6, 2017.--
Realized gains of $1.8 million on the sale of two investment
securities available-for-sale, for both periods then ended.-- Net
loss of $345,000 on the disposition of an investment in Pearlmark
Mezzanine Realty Partners IV, L.P., for both periods then
ended.
- Core earnings for the three and six months ended June 30,
2017 of $(3.0) million, or $(0.10) per share-diluted, and $(6.2)
million, or $(0.20) per share-diluted, respectively. A
reconciliation of GAAP net income (loss) to core earnings is set
forth in Schedule I of this release.
Additional Items
- RSO declared and paid common stock cash dividends of $0.05 per
share for the second quarter and an aggregate of $0.10 per share
for the six months ended June 30, 2017.
Commercial Real Estate
- Substantially all of the $1.3 billion CRE loan portfolio
comprises floating rate senior whole loans at June 30,
2017.
- The CRE whole loan portfolio had a weighted average spread of
4.89% and a weighted average one-month LIBOR floor of 0.37% at
June 30, 2017.
- In June 2017, RSO priced a $376.7 million CRE debt
securitization, which closed on July 13, 2017, and issued $251.5
million of notes at a weighted average cost of one-month LIBOR plus
1.03%.
The following table summarizes RSO's CRE
loan activities and fundings of previous commitments, at par, for
the three, six and twelve months ended June 30, 2017 (in
millions, except percentages):
|
Three Months Ended |
|
Six Months Ended |
|
Twelve Months Ended |
|
June 30, 2017 |
|
June 30, 2017 |
|
June 30, 2017 |
New
whole loans funded |
$ |
75.8 |
|
|
$ |
189.8 |
|
|
$ |
316.7 |
|
New
unfunded loan commitments |
8.9 |
|
|
23.8 |
|
|
34.0 |
|
Total
whole loan fundings and commitments |
84.7 |
|
|
213.6 |
|
|
350.7 |
|
Payoffs(1) (2) |
(118.1 |
) |
|
(228.8 |
) |
|
(452.8 |
) |
Previous commitments funded |
13.3 |
|
|
19.6 |
|
|
47.9 |
|
Principal paydowns |
(15.5 |
) |
|
(15.5 |
) |
|
(16.5 |
) |
Unfunded loan commitments |
(8.9 |
) |
|
(23.8 |
) |
|
(34.0 |
) |
Loans, net
funded/(repaid) |
$ |
(44.5 |
) |
|
$ |
(34.9 |
) |
|
$ |
(104.7 |
) |
|
|
|
|
|
|
Weighted average
one-month LIBOR floor on new originations |
0.86 |
% |
|
0.71 |
% |
|
0.61 |
% |
Weighted average spread
above one-month LIBOR |
4.93 |
% |
|
4.74 |
% |
|
4.91 |
% |
Weighted average
unlevered yield, including amortization of origination fees |
6.07 |
% |
|
5.75 |
% |
|
5.84 |
% |
|
(1) CRE
loan payoffs and extensions resulted in $704,000 and $1.3 million
of exit and extension fees during the three and six months ended
June 30, 2017, respectively. |
(2)
Activity does not include legacy CRE loans classified as assets
held for sale. |
Commercial Finance
- On May 16, 2017, RSO received proceeds of $4.2 million from the
sale of Harvest CLO VIII.
- On July 3, 2017, RSO received proceeds of $3.1 million from the
sale of Harvest CLO VII.
Discontinued Operations
- Pursuant to the Plan, the assets and liabilities of RSO's
residential mortgage lending business, PCM, and RSO's middle market
syndicated loan portfolio were reclassified to held for sale during
the fourth quarter of 2016 and are reported as discontinued
operations in the consolidated statements of operations.
- In June 2017, PCM sold its residential mortgage lending
operating platform and certain other assets and liabilities.
Proceeds of $2.6 million were received at closing and may be
increased subject to a contractual earn out provision over the next
18 months. PCM retained its loans held for sale, loans held for
investment and mortgage servicing rights. The retained assets are
expected to be liquidated by the end of the year.
- PCM recognized net losses of approximately $5.0 million and
$6.4 million for the three and six months ended June 30, 2017,
respectively, including $4.2 million of costs related to the
disposition of assets.
- At June 30, 2017, the remaining six middle market
syndicated loans, with an aggregate carrying value of $38.3
million, were current with respect to contractual payments
due. At June 30, 2017, the one remaining directly
originated middle market loan, with a carrying value of $1.8
million, was in default.
- The middle market portfolio generated net income of $798,000
and $1.7 million for the three and six months ended June 30,
2017, respectively.
Assets Held for Sale
- On July 5, 2017, RSO received proceeds of $67.0 million from
the June 2017 sale of a property that collateralized a legacy CRE
loan. The loan, with a par value of $67.5 million, was held
on the balance sheet at its appraised value of $61.4 million,
resulting in a realized gain of $5.6 million.
Liquidity
At July 31, 2017, RSO's liquidity consisted
of two primary sources:
- unrestricted cash and cash equivalents of $282.8 million;
and
- $247.9 million and $191.5 million available under two term
financing facilities to finance originations of CRE loans and $80.0
million available under a term financing facility to finance
purchases of commercial mortgage-backed securities ("CMBS").
Common Stock Book Value and Total
Stockholders' Equity
At June 30, 2017, RSO’s book value per
common share was $14.12, a decrease from $14.17 per common share at
December 31, 2016. The decrease in book value over the
six month period was attributable to the following: dividends paid
of $0.10 per common share (decrease); $0.04 per common share
attributable to the vesting of restricted stock (decrease); $0.08
per common share resulting from market adjustments on
available-for-sale securities and interest rate hedges (decrease);
and net income of $0.17 per common share (increase).
Total stockholders’ equity at June 30,
2017, which measures equity before accounting for non-controlling
interests, was $705.4 million, of which $270.1 million was
attributable to preferred stock. Total stockholders’ equity at
December 31, 2016 was $704.3 million, of which $270.1 million
was attributable to preferred stock.
Investment Portfolio
The following table summarizes the amortized
cost and net carrying amount of RSO's investment portfolio at
June 30, 2017, classified by asset type (in thousands, except
percentages):
|
|
Amortized Cost |
|
Net Carrying Amount |
|
Percent of Portfolio |
|
Weighted Average Coupon |
Loans Held for
Investment: |
|
|
|
|
|
|
|
|
CRE whole
loans(1) |
|
$ |
1,255,680 |
|
|
$ |
1,250,991 |
|
|
74.84 |
% |
|
5.97 |
% |
|
|
|
|
|
|
|
|
|
Loans Held for
Sale: |
|
|
|
|
|
|
|
|
Syndicated corporate loans(2) |
|
38 |
|
|
38 |
|
|
— |
% |
|
N/A(5) |
|
|
|
|
|
|
|
|
|
Investment
Securities Available-for-Sale: |
|
|
|
|
|
|
|
|
CMBS |
|
98,199 |
|
|
98,232 |
|
|
5.88 |
% |
|
3.93 |
% |
RMBS |
|
1,350 |
|
|
1,375 |
|
|
0.08 |
% |
|
5.46 |
% |
ABS |
|
15,828 |
|
|
16,788 |
|
|
1.00 |
% |
|
N/A(5) |
|
|
115,377 |
|
|
116,395 |
|
|
6.96 |
% |
|
|
Investment
Securities, Trading: |
|
|
|
|
|
|
|
|
Structured notes |
|
2,891 |
|
|
171 |
|
|
0.01 |
% |
|
N/A(5) |
|
|
|
|
|
|
|
|
|
Other
Investments: |
|
|
|
|
|
|
|
|
Investments in unconsolidated entities |
|
57,165 |
|
|
57,165 |
|
|
3.42 |
% |
|
N/A(5) |
Direct
financing leases(3) |
|
924 |
|
|
189 |
|
|
0.01 |
% |
|
5.66 |
% |
|
|
58,089 |
|
|
57,354 |
|
|
3.43 |
% |
|
|
|
|
|
|
|
|
|
|
|
Other Assets
Held for Sale: |
|
|
|
|
|
|
|
|
Residential mortgage loans |
|
126,893 |
|
|
126,893 |
|
|
7.59 |
% |
|
4.01 |
% |
Middle
market loans(4) |
|
52,103 |
|
|
40,079 |
|
|
2.40 |
% |
|
5.87 |
% |
Legacy
CRE loans |
|
79,605 |
|
|
79,605 |
|
|
4.77 |
% |
|
4.61 |
% |
|
|
258,601 |
|
|
246,577 |
|
|
14.76 |
% |
|
|
|
|
|
|
|
|
|
|
|
Total Investment Portfolio |
|
$ |
1,690,676 |
|
|
$ |
1,671,526 |
|
|
100.00 |
% |
|
|
|
(1) Net carrying amount includes an allowance for loan
losses of $4.7 million at June 30, 2017. |
(2) The fair value option was elected for syndicated
corporate loans held for sale. |
(3) Net carrying amount includes allowance for lease
losses of $735,000 at June 30, 2017. |
(4) Net carrying amount includes the lower of cost or
market valuation adjustments of $12.0 million at June 30,
2017. |
(5) There are no stated rates associated with these
investments. |
Supplemental Information
The following schedules of reconciliations and
supplemental information at June 30, 2017 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;
- Schedule III - Strategic Plan Update; and
- Supplemental Information.
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 CRE-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 ("Resource America"). In September 2016,
Resource America was acquired by C-III Capital Partners LLC, a
leading CRE investment management and services company engaged in a
broad range of activities.
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 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 for the year ended December 31, 2016 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
www.sec.gov.
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, RSO's strategic plan update and supplemental
information regarding RSO's CRE loan portfolio and loans held for
sale.
RESOURCE CAPITAL CORP. AND
SUBSIDIARIESCONSOLIDATED BALANCE SHEETS |
(in thousands, except share and per share
data) |
|
June 30, 2017 |
|
December 31, 2016 |
|
(unaudited) |
|
|
ASSETS
(1) |
|
|
|
Cash and
cash equivalents |
$ |
102,733 |
|
|
$ |
116,026 |
|
Restricted cash |
1,286 |
|
|
3,399 |
|
Interest
receivable |
6,333 |
|
|
6,404 |
|
CRE
loans, pledged as collateral and net of allowances of $4.7 million
and $3.8 million |
1,250,991 |
|
|
1,286,278 |
|
Loans
held for sale |
38 |
|
|
1,007 |
|
Principal
paydowns receivable |
87,550 |
|
|
19,280 |
|
Investment securities, trading |
171 |
|
|
4,492 |
|
Investment securities available-for-sale, including securities
pledged as collateral of $82.9 million and $97.5 million |
116,395 |
|
|
124,968 |
|
Investments in unconsolidated entities |
57,165 |
|
|
87,919 |
|
Derivatives, at fair value |
75 |
|
|
647 |
|
Direct
financing leases, net of allowances of $0.7 million and $0.5
million |
189 |
|
|
527 |
|
Intangible assets |
— |
|
|
213 |
|
Other
assets |
10,186 |
|
|
14,673 |
|
Deferred
tax asset, net |
4,240 |
|
|
4,255 |
|
Assets
held for sale (amount includes $79.6 million and $158.2 million of
legacy CRE loans held for sale in continuing operations) |
276,931 |
|
|
383,455 |
|
Total
assets |
$ |
1,914,283 |
|
|
$ |
2,053,543 |
|
LIABILITIES (2) |
|
|
|
Accounts
payable and other liabilities |
$ |
2,787 |
|
|
$ |
4,480 |
|
Management fee payable - related party |
876 |
|
|
1,318 |
|
Accrued
interest expense |
4,872 |
|
|
4,979 |
|
Borrowings |
1,069,339 |
|
|
1,191,456 |
|
Distributions payable |
5,577 |
|
|
5,560 |
|
Derivatives, at fair value |
484 |
|
|
97 |
|
Liabilities held for sale |
126,376 |
|
|
142,563 |
|
Total
liabilities |
1,210,311 |
|
|
1,350,453 |
|
EQUITY |
|
|
|
Preferred
stock, par value $0.001: 10,000,000 shares authorized 8.50%
Series A cumulative redeemable preferred shares, liquidation
preference $25.00 per share; 1,069,016 and 1,069,016 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; 5,544,579 and 5,544,579 shares issued
and outstanding |
6 |
|
|
6 |
|
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 4,800,000 shares issued
and outstanding |
5 |
|
|
5 |
|
Common
stock, par value $0.001: 125,000,000 shares authorized;
31,388,953 and 31,050,020 shares issued and outstanding (including
555,658 and 400,050 unvested restricted shares) |
31 |
|
|
31 |
|
Additional paid-in capital |
1,219,982 |
|
|
1,218,352 |
|
Accumulated other comprehensive income |
500 |
|
|
3,081 |
|
Distributions in excess of earnings |
(515,148 |
) |
|
(517,177 |
) |
Total
Resource Capital Corp. stockholders’ equity |
705,377 |
|
|
704,299 |
|
Non-controlling
interests |
(1,405 |
) |
|
(1,209 |
) |
Total equity |
703,972 |
|
|
703,090 |
|
TOTAL LIABILITIES AND EQUITY |
$ |
1,914,283 |
|
|
$ |
2,053,543 |
|
RESOURCE CAPITAL CORP. AND
SUBSIDIARIESCONSOLIDATED BALANCE SHEETS -
(Continued) |
(in thousands, except share and per share
data) |
|
June 30, 2017 |
|
December 31, 2016 |
|
(unaudited) |
|
|
(1) Assets of
consolidated variable interest entities ("VIEs") included in
total assets above: |
|
|
|
Restricted cash |
$ |
626 |
|
|
$ |
3,308 |
|
Interest
receivable |
2,431 |
|
|
3,153 |
|
CRE
loans, pledged as collateral and net of allowances of $0.8 million
and $0.8 million |
558,142 |
|
|
747,726 |
|
Loans
held for sale |
38 |
|
|
1,007 |
|
Principal
paydowns receivable |
20,500 |
|
|
5,820 |
|
Investment securities available-for-sale, including securities
pledged as collateral |
— |
|
|
369 |
|
Other
assets |
31 |
|
|
58 |
|
Total
assets of consolidated VIEs |
$ |
581,768 |
|
|
$ |
761,441 |
|
|
|
|
|
(2) Liabilities
of consolidated VIEs included in total liabilities
above: |
|
|
|
Accounts
payable and other liabilities |
$ |
109 |
|
|
$ |
133 |
|
Accrued
interest expense |
405 |
|
|
519 |
|
Borrowings |
305,214 |
|
|
480,103 |
|
Total
liabilities of consolidated VIEs |
$ |
305,728 |
|
|
$ |
480,755 |
|
RESOURCE CAPITAL CORP. AND
SUBSIDIARIESCONSOLIDATED STATEMENTS OF
OPERATIONS |
(in thousands, except share and per share
data)(unaudited) |
|
For the Three Months Ended |
|
For the Six Months Ended |
|
June 30, |
|
June 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
REVENUES |
|
|
|
|
|
|
|
Interest
income: |
|
|
|
|
|
|
|
CRE
loans |
$ |
21,841 |
|
|
$ |
21,821 |
|
|
$ |
43,374 |
|
|
$ |
42,802 |
|
Securities |
1,329 |
|
|
4,291 |
|
|
3,637 |
|
|
9,089 |
|
Interest
income - other |
465 |
|
|
2,296 |
|
|
2,095 |
|
|
3,533 |
|
Total
interest income |
23,635 |
|
|
28,408 |
|
|
49,106 |
|
|
55,424 |
|
Interest
expense |
14,347 |
|
|
13,446 |
|
|
28,601 |
|
|
26,748 |
|
Net
interest income |
9,288 |
|
|
14,962 |
|
|
20,505 |
|
|
28,676 |
|
Dividend
income |
20 |
|
|
18 |
|
|
39 |
|
|
35 |
|
Fee
income |
944 |
|
|
762 |
|
|
1,853 |
|
|
1,334 |
|
Total
revenues |
10,252 |
|
|
15,742 |
|
|
22,397 |
|
|
30,045 |
|
OPERATING
EXPENSES |
|
|
|
|
|
|
|
Management fees - related party |
2,638 |
|
|
3,099 |
|
|
5,318 |
|
|
7,136 |
|
Equity
compensation - related party |
734 |
|
|
1,352 |
|
|
1,522 |
|
|
1,841 |
|
General
and administrative |
3,580 |
|
|
3,811 |
|
|
7,443 |
|
|
7,453 |
|
Depreciation and amortization |
32 |
|
|
361 |
|
|
100 |
|
|
870 |
|
Impairment losses |
— |
|
|
— |
|
|
177 |
|
|
— |
|
Provision
for loan and lease losses |
131 |
|
|
147 |
|
|
1,130 |
|
|
77 |
|
Total
operating expenses |
7,115 |
|
|
8,770 |
|
|
15,690 |
|
|
17,377 |
|
|
|
|
|
|
|
|
|
|
3,137 |
|
|
6,972 |
|
|
6,707 |
|
|
12,668 |
|
OTHER INCOME
(EXPENSE) |
|
|
|
|
|
|
|
Equity in
(losses) earnings of unconsolidated entities |
(118 |
) |
|
2,696 |
|
|
243 |
|
|
4,918 |
|
Net
realized and unrealized gain on sales of investment securities
available-for-sale and loans and derivatives |
9,478 |
|
|
1,634 |
|
|
17,084 |
|
|
2,487 |
|
Net
realized and unrealized (loss) gain on investment securities,
trading |
(50 |
) |
|
183 |
|
|
(961 |
) |
|
328 |
|
Fair
value adjustments on financial assets held for sale |
79 |
|
|
— |
|
|
58 |
|
|
— |
|
Other
income (expense) |
17 |
|
|
38 |
|
|
85 |
|
|
(22 |
) |
Total
other income |
9,406 |
|
|
4,551 |
|
|
16,509 |
|
|
7,711 |
|
|
|
|
|
|
|
|
|
INCOME (LOSS)
FROM CONTINUING OPERATIONS BEFORE TAXES |
12,543 |
|
|
11,523 |
|
|
23,216 |
|
|
20,379 |
|
Income
tax benefit (expense) |
25 |
|
|
(615 |
) |
|
(1,474 |
) |
|
(619 |
) |
NET INCOME FROM
CONTINUING OPERATIONS |
12,568 |
|
|
10,908 |
|
|
21,742 |
|
|
19,760 |
|
NET LOSS FROM
DISCONTINUED OPERATIONS, NET OF TAX |
(4,184 |
) |
|
(6,379 |
) |
|
(4,745 |
) |
|
(1,211 |
) |
|
For the Three Months Ended |
|
For the Six Months Ended |
|
June 30, |
|
June 30, |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
NET
INCOME |
8,384 |
|
|
4,529 |
|
|
16,997 |
|
|
18,549 |
|
Net
income allocated to preferred shares |
(6,015 |
) |
|
(6,014 |
) |
|
(12,029 |
) |
|
(12,062 |
) |
Carrying
value in excess of consideration paid for preferred shares |
— |
|
|
(111 |
) |
|
— |
|
|
1,500 |
|
Net loss
allocable to non-controlling interests, net of taxes |
95 |
|
|
60 |
|
|
196 |
|
|
150 |
|
NET INCOME
(LOSS) ALLOCABLE TO COMMON SHARES |
$ |
2,464 |
|
|
$ |
(1,536 |
) |
|
$ |
5,164 |
|
|
$ |
8,137 |
|
NET INCOME
(LOSS) PER COMMON SHARE – BASIC |
|
|
|
|
|
|
|
CONTINUING OPERATIONS |
$ |
0.22 |
|
|
$ |
0.16 |
|
|
$ |
0.32 |
|
|
$ |
0.31 |
|
DISCONTINUED OPERATIONS |
$ |
(0.14 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.04 |
) |
TOTAL NET
INCOME (LOSS) PER COMMON SHARE - BASIC |
$ |
0.08 |
|
|
$ |
(0.05 |
) |
|
$ |
0.17 |
|
|
$ |
0.27 |
|
NET INCOME
(LOSS) PER COMMON SHARE – DILUTED |
|
|
|
|
|
|
|
CONTINUING OPERATIONS |
$ |
0.22 |
|
|
$ |
0.16 |
|
|
$ |
0.32 |
|
|
$ |
0.3 |
|
DISCONTINUED OPERATIONS |
$ |
(0.14 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.15 |
) |
|
$ |
(0.04 |
) |
TOTAL NET
INCOME (LOSS) PER COMMON SHARE - DILUTED |
$ |
0.08 |
|
|
$ |
(0.05 |
) |
|
$ |
0.17 |
|
|
$ |
0.26 |
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC |
30,820,442 |
|
|
30,410,451 |
|
|
30,786,527 |
|
|
30,505,428 |
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED |
31,020,926 |
|
|
30,410,451 |
|
|
30,967,840 |
|
|
30,724,272 |
|
SCHEDULE I
RESOURCE CAPITAL CORP. AND
SUBSIDIARIESRECONCILIATION OF GAAP NET INCOME
(LOSS) TO CORE EARNINGS(unaudited)
Beginning with the three months and year ended
December 31, 2016, RSO uses Core Earnings as a non-GAAP
financial measure to evaluate its operating performance. RSO
previously used Adjusted Funds from Operations as a non-GAAP
measure of operating performance.
Core Earnings exclude the effects of certain
transactions and GAAP adjustments that RSO believes are not
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 loans 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 allocable to common shares to Core Earnings
for the periods presented (in thousands, except per share
data):
|
For the Three Months Ended |
|
For the Six Months Ended |
|
|
|
|
|
|
|
June 30, |
|
June 30, |
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
Net income
(loss) allocable to common shares - GAAP |
$ |
2,464 |
|
|
$ |
(1,536 |
) |
|
$ |
5,164 |
|
|
$ |
8,137 |
|
|
Adjustment for realized
gain on CRE assets |
— |
|
|
(846 |
) |
|
— |
|
|
(843 |
) |
|
Net income
(loss) allocable to common shares - GAAP, adjusted |
2,464 |
|
|
(2,382 |
) |
|
5,164 |
|
|
7,294 |
|
|
|
|
|
|
|
|
|
|
|
Reconciling
items from continuing operations: |
|
|
|
|
|
|
|
|
Non-cash
equity compensation expense |
734 |
|
|
1,352 |
|
|
1,522 |
|
|
1,841 |
|
|
Non-cash
(recovery) provision for CRE loan losses |
— |
|
|
(68 |
) |
|
860 |
|
|
— |
|
|
Non-cash
amortization of discounts or premiums associated with
borrowings |
414 |
|
|
414 |
|
|
828 |
|
|
832 |
|
|
Income
tax expense from non-core investment |
— |
|
|
— |
|
|
1,499 |
|
|
— |
|
|
Net loss
(income) from limited partnership interest owned at the initial
measurement date(1) |
728 |
|
|
(180 |
) |
|
370 |
|
|
(453 |
) |
|
Realized
gain on non-core assets |
(1,785 |
) |
|
— |
|
|
(1,785 |
) |
|
— |
|
|
Net
income from non-core assets(2) |
(2,840 |
) |
|
(4,529 |
) |
|
(4,269 |
) |
|
(9,934 |
) |
|
|
|
|
|
|
|
|
|
|
Reconciling
items from discontinued operations and CRE assets: |
|
|
|
|
|
|
|
|
Net
interest income on legacy CRE loans held for sale |
(981 |
) |
|
— |
|
|
(2,305 |
) |
|
— |
|
|
Realized
gain on liquidation of CRE loan |
(5,608 |
) |
|
— |
|
|
(12,562 |
) |
|
— |
|
|
Net
income from other non-CRE investments held for sale |
(275 |
) |
|
— |
|
|
(299 |
) |
|
— |
|
|
Loss from
discontinued operations, net of taxes |
4,184 |
|
|
6,379 |
|
|
4,745 |
|
|
1,211 |
|
|
Core Earnings before
realized (gain) loss on CRE assets |
(2,965 |
) |
|
986 |
|
|
(6,232 |
) |
|
791 |
|
|
|
|
|
|
|
|
|
|
|
Adjustment for realized
gain on CRE assets |
— |
|
|
846 |
|
|
— |
|
|
843 |
|
|
Core Earnings
allocable to common shares |
$ |
(2,965 |
) |
|
$ |
1,832 |
|
|
$ |
(6,232 |
) |
|
$ |
1,634 |
|
|
Weighted average common
shares – diluted |
31,021 |
|
|
30,410 |
|
|
30,968 |
|
|
30,539 |
|
|
|
|
|
|
|
|
|
|
|
Core Earnings
per common share – diluted |
$ |
(0.10 |
) |
|
$ |
0.06 |
|
|
$ |
(0.20 |
) |
|
$ |
0.05 |
|
|
|
(1)
Initial measurement date is December 31, 2016. |
|
(2) Non-core assets are investments and
securities owned by RSO at the initial measurement date in (i)
Commercial Finance, (ii) Middle Market Lending, (iii) Residential
Mortgage Lending, (iv) legacy CRE loans designated as held for sale
and (v) other non-CRE assets included in assets held for sale. |
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 and
commercial real estate-related securities. 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
June 30, 2017 presented by operating segment (in thousands, except
per share data):
|
Commercial Real Estate Debt
Investments |
|
Corporate & Other |
|
Core Subtotal |
|
Commercial Finance |
|
Middle Market Lending |
|
Residential Mortgage Lending |
|
Total |
|
Net income (loss) allocable to common shares -
GAAP |
$ |
18,643 |
|
$ |
(16,182) |
|
$ |
2,461 |
|
$ |
4,160 |
|
$ |
798 |
|
$ |
(4,955) |
|
$ |
2,464 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling
items from continuing operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
equity compensation expense |
— |
|
|
734 |
|
|
734 |
|
|
— |
|
|
— |
|
|
— |
|
|
734 |
|
Non-cash
amortization of discounts or premiums associated with
borrowings |
— |
|
|
414 |
|
|
414 |
|
|
— |
|
|
— |
|
|
— |
|
|
414 |
|
Net loss
from limited partnership interest owned at the initial measurement
date(1) |
728 |
|
|
— |
|
|
728 |
|
|
— |
|
|
— |
|
|
— |
|
|
728 |
|
Realized
gain on non-core assets |
— |
|
|
— |
|
|
— |
|
|
(1,785 |
) |
|
— |
|
|
— |
|
|
(1,785 |
) |
Net
income from non-core assets(2) |
— |
|
|
— |
|
|
— |
|
|
(2,689 |
) |
|
— |
|
|
(151 |
) |
|
(2,840 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of allocated expenses to non-CRE activities |
— |
|
|
(438 |
) |
|
(438 |
) |
|
314 |
|
|
— |
|
|
124 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciling
items from discontinued operations and CRE assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
interest income on legacy CRE loans held for sale |
(981 |
) |
|
— |
|
|
(981 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(981 |
) |
Realized
gain on liquidation of CRE loan |
(5,608 |
) |
|
— |
|
|
(5,608 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(5,608 |
) |
Net
income from other non-CRE investments held for sale |
— |
|
|
(275 |
) |
|
(275 |
) |
|
— |
|
|
— |
|
|
— |
|
|
(275 |
) |
(Income)
loss from discontinued operations, net of taxes |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
(798 |
) |
|
4,982 |
|
|
4,184 |
|
Core Earnings allocable
to common shares |
$ |
12,782 |
|
|
$ |
(15,747 |
) |
|
$ |
(2,965 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(2,965 |
) |
Weighted average common
shares – diluted |
31,021 |
|
|
31,021 |
|
|
31,021 |
|
|
31,021 |
|
|
31,021 |
|
|
31,021 |
|
|
31,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Earnings per
common share – diluted |
$ |
0.41 |
|
|
$ |
(0.51 |
) |
|
$ |
(0.10 |
) |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(0.10 |
) |
|
(1) Initial measurement date is December 31, 2016. |
(2) Non-core assets are investments and securities owned by
RSO at the initial measurement date in (i) Commercial Finance, (ii)
Middle Market Lending, (iii) Residential Mortgage Lending, (iv)
legacy CRE loans designated as held for sale and (v) other non-CRE
assets included in assets held for sale. |
SCHEDULE II
RESOURCE CAPITAL CORP. AND
SUBSIDIARIESSUMMARY OF SECURITIZATION PERFORMANCE
STATISTICS(unaudited)
Securitizations - Distributions and
Coverage Test Summaries
The following table sets forth the distributions
made by and coverage test summaries for RSO's securitizations for
the periods presented (in thousands):
Name |
|
Cash Distributions |
|
Overcollateralization Cushion |
|
|
Six Months Ended |
|
Year Ended |
|
At June 30, |
|
At the Initial |
June 30, |
December 31, |
Measurement Date |
|
|
2017 |
|
2016 |
|
2017 (1) |
|
|
Apidos Cinco CDO (2) |
|
$ |
2,620 |
|
|
$ |
22,627 |
|
|
|
N/A |
|
|
$ |
17,774 |
|
RREF
CDO 2006-1 (3) |
|
$ |
— |
|
|
$ |
1,394 |
|
|
|
N/A |
|
|
$ |
24,941 |
|
RREF
CDO 2007-1 (4) |
|
$ |
— |
|
|
$ |
1,890 |
|
|
|
N/A |
|
|
$ |
26,032 |
|
RCC
CRE Notes 2013 (5) |
|
$ |
— |
|
|
$ |
37,759 |
|
|
|
N/A |
|
|
|
N/A |
|
RCC
2014-CRE2 (6) |
|
$ |
5,829 |
|
|
$ |
12,961 |
|
|
$ |
90,614 |
|
|
$ |
20,663 |
|
RCC
2015-CRE3 (7) |
|
$ |
4,627 |
|
|
$ |
10,907 |
|
|
$ |
42,737 |
|
|
$ |
20,313 |
|
RCC
2015-CRE4 (8) |
|
$ |
4,594 |
|
|
$ |
11,784 |
|
|
$ |
47,445 |
|
|
$ |
9,397 |
|
Moselle CLO S.A. (9) |
|
$ |
— |
|
|
$ |
183 |
|
|
|
N/A |
|
|
|
N/A |
|
|
(1) Overcollateralization cushion represents the
amount by which the collateral held by the securitization issuer
exceeds the maximum amount required. |
(2) Apidos Cinco was substantially liquidated on
November 14, 2016. As a result of the liquidation, RSO
received $20.4 million of cash and consolidated the remaining
assets. |
(3) Resource Real Estate Funding CDO 2006-1 was
liquidated on April 25, 2016, and, as a result, all $65.7
million of the remaining assets, at fair value at the date of
liquidation, were returned to RSO in exchange for RSO's preference
shares and equity notes in the securitization. |
(4) Resource Real Estate Funding CDO 2007-1 ("RREF CDO
2007-1") was liquidated on November 25, 2016, and, as a result,
all $130.9 million of the remaining assets, at fair value
at the date of liquidation, were returned to RSO in exchange for
RSO's preference shares and equity notes in the
securitization. |
(5) Resource Capital Corp. CRE Notes 2013 was
liquidated in December 2016, and, as a result, all $13.5
million of the remaining assets were returned to RSO in
exchange for RSO's preference share and equity notes in the
securitization. RSO also received $33.4 million in
principal on its preference share and equity notes. |
(6) Resource Capital Corp. 2014-CRE2 has no
reinvestment period; however, principal repayments, for a period
which ended in July 2016, may be designated to purchase loans held
outside of the securitization that represent the funded commitments
of existing collateral in the securitization that were not funded
as of the date the securitization was closed. Additionally, the
indenture does not contain any interest coverage test
provisions. |
(7) Resource Capital Corp. 2015-CRE3 has no
reinvestment period; however, principal repayments, for a period
ending in February 2017, may be designated to purchase loans held
outside of the securitization that represent the funded commitments
of existing collateral in the securitization that were not funded
as of the date the securitization was closed. Additionally, the
indenture does not contain any interest coverage test
provisions. |
(8) Resource Capital Corp. 2015-CRE4 has no
reinvestment period; however, principal repayments, for a period
ending in September 2017, may be designated to purchase loans held
outside of the securitization that represent the funded commitments
of existing collateral in the securitization that were not funded
as of the date the securitization was closed. Additionally, the
indenture does not contain any interest coverage test
provisions. |
(9) Moselle CLO S.A. was acquired on February 24,
2014, and the reinvestment period for this securitization expired
prior to the acquisition. In the fourth quarter of 2014, Moselle
CLO S.A. began liquidating and by January 2015 all of the assets
were sold. |
SCHEDULE III
RESOURCE CAPITAL CORP. AND
SUBSIDIARIESSTRATEGIC PLAN
UPDATE(unaudited)
In November 2016, the board of directors
approved the Plan, pursuant to which RSO is focused on making CRE
debt investments going forward. The Plan includes disposing
of certain non-core businesses and investments and underperforming
legacy CRE loans ("Identified Assets"), as well as maintaining a
dividend policy based on sustainable earnings. As part of the Plan,
certain Identified Assets were reclassified as discontinued
operations ("Discops") and/or assets held for sale ("AHFS") during
the fourth quarter of 2016. The following table delineates
these disposable investments by business segment and details the
current net book value of the businesses and investments included
in the Plan (in millions):
|
Identified Assets at Plan
Inception |
|
Impairments/ Adjustments on
Non-Monetized Assets (1)(2) |
|
Impairments/ Adjustments on
Monetized Assets (3) |
|
Monetized through |
|
Net Book Value at |
|
June 30, 2017 |
June 30, 2017 |
|
Discops and
AHFS |
|
|
|
|
|
|
|
|
|
|
Legacy
CRE Loans (4) |
$ |
194.7 |
|
|
$ |
(12.2 |
) |
|
$ |
(11.7 |
) |
|
$ |
(91.2 |
) |
|
$ |
79.6 |
|
|
Middle
Market Loans |
73.8 |
|
|
(18.6 |
) |
|
0.3 |
|
|
(15.4 |
) |
|
40.1 |
|
|
Residential Mortgage Lending Segment (5) |
56.6 |
|
|
1.1 |
|
|
(0.6 |
) |
|
(15.1 |
) |
|
42.0 |
|
|
Other
AHFS |
5.9 |
|
|
1.4 |
|
|
— |
|
|
— |
|
|
7.3 |
|
|
Subtotal - Discops and AHFS |
$ |
331.0 |
|
|
$ |
(28.3 |
) |
|
$ |
(12.0 |
) |
|
$ |
(121.7 |
) |
|
$ |
169.0 |
|
|
Investments in
Unconsolidated Entities |
86.6 |
|
|
(1.6 |
) |
|
0.4 |
|
|
(29.8 |
) |
|
55.6 |
|
|
Commercial
Finance Assets(6) |
62.5 |
|
|
(2.8 |
) |
|
2.4 |
|
|
(45.1 |
) |
|
17.0 |
|
|
Total |
$ |
480.1 |
|
|
$ |
(32.7 |
) |
|
$ |
(9.2 |
) |
|
$ |
(196.6 |
) |
|
$ |
241.6 |
|
|
|
(1) Reflects adjustments as a result of the
designation as AHFS or Discops, which occurred during the third and
fourth quarters of 2016 except as noted in (2) below. |
|
(2) The impairment adjustment to middle market
loans includes $5.4 million of fair value adjustments that occurred
prior to the inception of the Plan. |
|
(3) Reflects adjustments as a result of the
designation as AHFS or Discops, which occurred during the third and
fourth quarters of 2016 except as noted in (2) above. |
|
(4) Legacy CRE Loans includes $118.2 million par
value of loans at the inception of the Plan that were not reflected
on the consolidated balance sheets until RSO's investment in RREF
CDO 2007-1 was liquidated on November 25, 2016. |
|
(5) Includes $18.4 million of cash and cash
equivalents not classified as AHFS in the Residential Mortgage
Lending segment at June 30, 2017. |
|
(6) Commercial Finance Assets decreased by $1.5
million related to the reclassification of certain assets or other
assets on the consolidated balance sheet. |
RESOURCE CAPITAL CORP. AND
SUBSIDIARIESSUPPLEMENTAL INFORMATION(in
thousands, except percentages)
Loan Investment Statistics
The following table presents information on
RSO's allowances for loan losses and its loans held for sale
portfolio for the periods indicated (based on amortized cost):
|
|
June 30, |
|
December 31, |
2017 |
2016 |
Allowance for
loan losses: |
|
(unaudited) |
|
|
Specific
allowance: |
|
|
|
|
CRE
loans |
|
$ |
2,500 |
|
|
$ |
2,500 |
|
Total specific
allowance |
|
2,500 |
|
|
2,500 |
|
|
|
|
|
|
General allowance: |
|
|
|
|
CRE
loans |
|
2,189 |
|
|
1,329 |
|
Total general
allowance |
|
2,189 |
|
|
1,329 |
|
Total allowance for
loans |
|
$ |
4,689 |
|
|
$ |
3,829 |
|
Allowance as a
percentage of total loans |
|
0.4 |
% |
|
0.3 |
% |
|
|
|
|
|
Loans held for
sale: |
|
|
|
|
Syndicated corporate loans(1) |
|
$ |
38 |
|
|
$ |
1,007 |
|
Total loans held for
sale |
|
$ |
38 |
|
|
$ |
1,007 |
|
|
(1) The fair value option was elected for
syndicated corporate loans held for sale. |
|
RESOURCE CAPITAL CORP. AND
SUBSIDIARIESSUPPLEMENTAL
INFORMATION(unaudited)
The following table presents CRE loan portfolio
statistics at June 30, 2017 (based on carrying
value):
Loan type: |
|
Whole
loans (1) |
100.0 |
% |
Total |
100.0 |
% |
|
|
Collateral type: |
|
Multifamily |
44.5 |
% |
Office |
20.1 |
% |
Retail |
17.6 |
% |
Hotel |
17.2 |
% |
Industrial |
0.6 |
% |
Total |
100.0 |
% |
|
|
Collateral location: |
|
Texas |
29.7 |
% |
Florida |
11.7 |
% |
Southern California |
11.4 |
% |
Northern California |
9.5 |
% |
Georgia |
6.4 |
% |
Nevada |
5.2 |
% |
Arizona |
4.9 |
% |
Pennsylvania |
2.8 |
% |
Washington |
2.6 |
% |
Maryland |
2.5 |
% |
Other |
13.3 |
% |
Total |
100.0 |
% |
|
(1) Excludes legacy CRE loans classified as assets
held for sale at June 30, 2017. |
|
|
CONTACT:
DAVID J. BRYANT
CHIEF FINANCIAL OFFICER
RESOURCE CAPITAL CORP.
712 Fifth Avenue, 12th Floor
New York, NY 10019
212-506-3899
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