FOR IMMEDIATE RELEASE
CONTACT: DAVID J. BRYANT
CHIEF FINANCIAL OFFICER
RESOURCE CAPITAL CORP.
1845 WALNUT STREET
10TH FLOOR
PHILADELPHIA, PA 19103
215/546-5005, 215/546-5388 (fax)
RESOURCE CAPITAL CORP. ANNOUNCES
SECOND QUARTER 2007 OPERATING RESULTS
New York, N.Y., August 7, 2007 – Resource Capital Corp. (NYSE: RSO) (“RCC” or the “Company”), a real estate investment trust whose investment strategy focuses on commercial real estate loan assets and, to a lesser extent, higher-yielding commercial finance assets, reported results for the second quarter ended June 30, 2007.
Highlights
| · | For the three months ended June 30, 2007, RCC had estimated REIT taxable income of $0.42 per share-diluted. |
| · | For the quarter ended June 30, 2007, RCC declared a dividend of $0.41 per common share, which represents an increase of 5.1% from the dividend paid for the quarter ended March 31, 2007. |
| · | RCC’s Board of Directors approved a share repurchase plan of up to 2.5 million common shares. |
| · | The Company closed Apidos Cinco CDO, Ltd., financing a $350.0 million portfolio of bank loans, with a weighted-average cost of liabilities at three-month LIBOR plus 0.51%. |
| · | The Company closed Resource Real Estate Funding CDO 2007-1, Ltd. (“RREF CDO-2”), financing a $500.0 million portfolio of commercial real estate loans and commercial mortgage-backed securities (“CMBS”), with a weighted-average cost of liabilities of one-month LIBOR plus 0.61%. |
| · | RCC acquired $389.2 million of new assets, including $313.0 million of commercial real estate loans and future funding obligations committed. |
RCC reported that for the quarter ended June 30, 2007, net income excluding the effect of a non-cash impairment charge was $10.6 million, or $0.43 per share-diluted, compared to $0.34 per share-diluted for the second quarter of 2006 an increase of $0.09 per share-diluted, or 26%. The impairment charge was $787,000 with respect to two of its ABS-RMBS securities and represents an other-than-temporary impairment under GAAP. This charge resulted in a reduction to net income of $0.03 per share-diluted.
RCC reported that for the three months ended June 30, 2007 net income was $9.8 million, or $0.39 per share-diluted as compared to net income of $6.1 million, or $0.34 per share-diluted for the second quarter of 2006 an increase of $3.7 million (61%) and $0.05 (15%) per share-diluted, respectively.
RCC reported that net income for the six months ended June 30, 2007 was $19.3 million, or $0.77 per share-diluted as compared to net income for of the six months ended June 30, 2006 of $11.2 million or $0.65 per share-diluted for the second quarter ended June 30, 2006, an increase of $8.1 million (72%) and $0.12 (18%) per share-diluted, respectively.
A reconciliation of REIT taxable income to net income is provided at the end of this release.
Jonathan Cohen, CEO and President of RCC, commented, “We continued to direct our focus during the second quarter to the origination and match-funding of self-originated commercial real estate whole loans. After closing our second commercial real estate CDO on June 26, 2007, we have solidified long-term financing for approximately $850 million of commercial real estate-related loans at a weighted-average funding rate of 70 basis points over LIBOR. Given the current market, we expect to benefit as loans prepay within our portfolio and are replaced by loans with wider spreads. We believe this strategy will produce stable and growing results in the future.”
Additional Highlights for the second quarter ended June 30, 2007 and recent developments include:
General
| · | RCC’s net interest income increased by $4.8 million (57%) to $13.2 million for the quarter ended June 30, 2007 as compared to $8.4 million for the same period in 2006. |
| · | RCC’s total assets grew by $583.0 million during the six months ended June 30, 2007, primarily in commercial real estate and commercial finance assets as detailed below. |
Commercial Real Estate
| · | RCC continued to increase its investment in commercial real estate (“CRE”) loans. RCC produced new loans, on a gross basis, of $313.0 million during the second quarter ended June 30, 2007. The aggregate portfolio of commercial real estate loans (net of sales, repayments and discounts) grew by $160.3 million to $892.3 million at June 30, 2007 from $732.0 million at March 31, 2007 not including future funding obligations of $19.7 million. |
| · | On June 26, 2007, RCC closed RREF CDO-2 to provide long-term financing for a $500.0 million portfolio of commercial real estate loans and CMBS. RCC retained an investment of $110.0 million in this financing. The notes issued by RREF CDO-2 bear interest at a weighted-average interest rate of LIBOR plus 0.61%. At June 30, 2007, the weighted-average rate on all notes issued to outside investors was 5.93%. |
The following table summarizes RCC’s CRE loan origination activities and future funding obligations, at par, for the three months, six months and 12 months ended June 30, 2007 (in millions, except percentages):
Three Months Ended June 30, 2007 | Six Months Ended June 30, 2007 | 12 Months Ended June 30, 2007 | Floating Weighted Average Spread | Weighted Average Fixed Rate | ||||||||||||||||
| Whole loans | $ | 178.7 | $ | 297.6 | $ | 490.2 | 2.69 | % | 7.76 | % | ||||||||||
| Whole loans, future funding obligations | 19.7 | 49.3 | 67.5 | N/A | N/A | |||||||||||||||
| A notes | − | − | 22.5 | N/A | N/A | |||||||||||||||
| B notes | − | − | 66.2 | 3.12 | % | 7.57 | % | |||||||||||||
| Mezzanine loans | 65.7 | 95.3 | 186.6 | 2.62 | % | 8.17 | % | |||||||||||||
| CMBS | 48.9 | 76.5 | 106.6 | N/A* | 6.53 | % | ||||||||||||||
| New loans production | 313.0 | 518.7 | 939.6 | |||||||||||||||||
| Payoffs | (126.0 | ) | (154.0 | ) | (187.0 | ) | ||||||||||||||
| Principal pay downs | (2.8 | ) | (2.9 | ) | (8.6 | ) | ||||||||||||||
| Sales of CRE loans | − | (41.2 | ) | (41.2 | ) | |||||||||||||||
| Whole loans, future funding obligations | (19.7 | ) | (49.3 | ) | (67.5 | ) | ||||||||||||||
| Sales of CMBS | − | (29.9 | ) | (29.9 | ) | |||||||||||||||
| Net – new loans | 164.5 | 241.4 | 605.4 | |||||||||||||||||
| Discounts | (4.2 | ) | (5.5 | ) | (5.9 | ) | ||||||||||||||
| New loans, net of discounts | $ | 160.3 | $ | 235.9 | $ | 599.5 | ||||||||||||||
| * | Weighed average floating rate coupon of 6.11% at June 30, 2007. |
Commercial Finance
| · | On May 30, 2007, RCC closed Apidos Cinco CDO, Ltd., a collateralized loan obligation (“CLO”), that will provided long-term financing for a $350.0 million portfolio of bank loans. RCC retained $28.0 million of equity in this financing. The notes issued by Apidos Cinco CDO bear interest at a weighted-average interest rate of three-month LIBOR plus 0.51%. At June 30, 2007, the weighted average rate on all notes was 5.88%. |
| · | RCC’s bank loan portfolio ended the period with total investments of $938.1 million, at cost, with a weighted-average spread of LIBOR plus 2.19%. All of RCC’s bank loan portfolio is match-funded through three CLO issuances with a weighted-average cost of three-month LIBOR plus 0.47%. |
| · | RCC’s commercial finance subsidiary ended the quarter with $83.1 million in direct financing leases and notes at a weighted-average rate of 8.68%. RCC’s leasing portfolio is match-funded through a secured term facility, which had a balance of $80.9 million as of June 30, 2007 and a weighted-average interest rate of 6.32%. |
Corporate Matters
| · | On July 12, 2007, RCC filed a registration statement on Form S-3 with the Securities and Exchange Commission to register the shares of RCC common stock underlying the warrants issued on January 13, 2006 to all holders of RCC common stock of record as of January 4, 2006. |
Liquidity
At August 7, 2007, RCC’s liquidity consists of $40.5 million of restricted cash to invest in its six CDO’s and $47.1 million of cash and available cash from its three year non-recourse secured financing facilities. RCC also has $518.1 million of unused capacity under its secured financing facilities, $43.3 million available to finance future funding commitments associated with real estate whole loans under RREF CDO-2, $16.8 million available under a secured term facility and $5.5 million of unused capacity under its unsecured revolving credit facility.
Capital Allocation
As of June 30, 2007, RCC had allocated its equity capital among its targeted asset classes as follows: 71.3% in commercial real estate loans, 21.0% in commercial bank loans, 7.1% in asset-backed securities, and 0.6% in direct financing leases and notes.
Book Value
RCC’s book value per common share at June 30, 2007 was $11.57 as compared to $13.33 at December 31, 2006, a 13% decrease, caused primarily by an unrealized loss on our ABS-RMBS portfolio marked through other comprehensive income. Total stockholders’ equity was $290.6 million at June 30, 2007 as compared to $317.6 million at December 31, 2006. Total common shares outstanding were 25,116,217 at June 30, 2007 as compared to 23,821,434 at December 31, 2006.
Investment Portfolio
The table below summarizes the amortized cost and estimated fair value of the RCC’s investment portfolio as of June 30, 2007, classified by interest rate type. The following table includes both (i) the amortized cost of RCC’s investment portfolio and the related dollar price, which is computed by dividing amortized cost by par amount, and (ii) the estimated fair value of our investment portfolio and the related dollar price, which is computed by dividing the estimated fair value by par amount (in thousands, except percentages):
Amortized cost | Premium/ discount to par | Fair value | Market value to par | Unrealized gains/losses | Dollar price | |||||||||||||||||||
June 30, 2007 | ||||||||||||||||||||||||
Floating rate | ||||||||||||||||||||||||
| ABS-RMBS | $ | 337,983 | 99.12 | % | $ | 289,208 | 84.82 | % | $ | (48,775 | ) | -14.30 | % | |||||||||||
| CMBS | 373 | 100.00 | % | 375 | 100.54 | % | 2 | 0.54 | % | |||||||||||||||
| CMBS-private placement | 33,288 | 99.98 | % | 33,199 | 99.72 | % | (89 | ) | -0.26 | % | ||||||||||||||
| REIT – TRUPS | 5,644 | 94.07 | % | 5,614 | 93.57 | % | (30 | ) | -0.50 | % | ||||||||||||||
| Other ABS | 16,719 | 99.52 | % | 15,965 | 95.03 | % | (754 | ) | -4.49 | % | ||||||||||||||
| A notes | − | 0.00 | % | − | 0.00 | % | − | 0.00 | % | |||||||||||||||
| B notes | 99,929 | 99.99 | % | 99,929 | 99.99 | % | − | 0.00 | % | |||||||||||||||
| Mezzanine loans | 151,626 | 100.05 | % | 151,626 | 100.05 | % | − | 0.00 | % | |||||||||||||||
| Whole loans | 348,221 | 99.16 | % | 348,221 | 99.16 | % | − | 0.00 | % | |||||||||||||||
| Bank loans | 938,068 | 100.11 | % | 936,616 | 99.95 | % | (1,452 | ) | -0.16 | % | ||||||||||||||
Total floating rate | $ | 1,931,851 | 99.73 | % | $ | 1,880,753 | 97.09 | % | $ | (51,098 | ) | -2.64 | % | |||||||||||
Fixed rate | ||||||||||||||||||||||||
| ABS-RMBS | $ | 6,000 | 100.00 | % | $ | 4,988 | 83.13 | % | $ | (1,012 | ) | -16.87 | % | |||||||||||
| CMBS | 27,570 | 98.84 | % | 25,668 | 92.02 | % | (1,902 | ) | -6.82 | % | ||||||||||||||
| CMBS – Private Placement | 38,387 | 94.38 | % | 36,928 | 90.79 | % | (1,459 | ) | -3.59 | % | ||||||||||||||
| REIT-TRUPS | − | 0.00 | % | − | 0.00 | % | − | 0.00 | % | |||||||||||||||
| Other ABS | 2,715 | 100.00 | % | 2,529 | 93.15 | % | (186 | ) | -6.85 | % | ||||||||||||||
| B notes | 56,198 | 100.19 | % | 56,198 | 100.19 | % | − | 0.00 | % | |||||||||||||||
| Mezzanine loans | 80,993 | 94.25 | % | 80,993 | 94.25 | % | − | 0.00 | % | |||||||||||||||
| Whole loans | 84,651 | 99.01 | % | 84,651 | 99.01 | % | − | 0.00 | % | |||||||||||||||
| Equipment leases and notes | 83,074 | 100.00 | % | 83,074 | 100.00 | % | − | 0.00 | % | |||||||||||||||
Total fixed rate | $ | 379,588 | 97.86 | % | $ | 375,029 | 96.69 | % | $ | (4,559 | ) | -1.17 | % | |||||||||||
Grand total | $ | 2,311,439 | 99.41 | % | �� | $ | 2,255,782 | 97.02 | % | $ | (55,657 | ) | -2.39 | % | ||||||||||
About Resource Capital Corp.
Resource Capital Corp. is a diversified real estate finance company that qualifies as a real estate investment trust, or REIT, for federal income tax purposes. RCC’s investment strategy focuses on commercial real estate-related assets, and, to a lesser extent, higher-yielding commercial finance assets. RCC invests in the following asset classes: commercial real estate-related assets such as whole loans, A-notes, B-notes, mezzanine loans and mortgage-related securities and commercial finance assets such as other asset-backed securities, bank loans, equipment leases and notes, trust preferred securities, debt tranches of collateralized debt obligations and private equity investments principally issued by financial institutions.
RCC 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 financial fund management, real estate, and commercial finance sectors.
For more information, please visit the RCC’s website at www.resourcecapitalcorp.com or contact investor relations at pschreiber@resourceamerica.com
Safe Harbor Statement
Statements made in this release include forward-looking statements, which involve substantial risks and uncertainties. RCC’s actual results, performance or achievements could differ materially from those expressed or implied in this release. The risks and uncertainties associated with forward-looking statements contained in this release include those related to:
| · | fluctuations in interest rates and related hedging activities; |
| · | capital markets conditions and the availability of financing; |
| · | defaults or bankruptcies by borrowers on RCC’s loans or on loans underlying its investments; |
| · | adverse market trends which may affect the value of real estate and other assets underlying the RCC’s investments; |
| · | increases in financing or administrative costs; and |
| · | general business and economic conditions that would impair the credit quality of borrowers and the RCC’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 RCC is subject, see Item 1A, “Risk Factors” included in its annual report on Form 10-K and in other of its public filings with the Securities and Exchange Commission.
RCC 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 RCC 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, RCC 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 the RCC’s consolidated balance sheets, consolidated statements of operations and a reconciliation of its estimated REIT taxable income to the Company’s GAAP net income.
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
June 30, | December 31, | |||||||
2007 | 2006 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 2,729 | $ | 5,354 | ||||
Restricted cash | 102,509 | 30,721 | ||||||
Due from broker | − | 2,010 | ||||||
Securities available-for-sale, at fair value | 414,474 | 420,997 | ||||||
Loans held for investment | 1,759,686 | 1,240,288 | ||||||
Direct financing leases and notes | 83,074 | 88,970 | ||||||
Investments in unconsolidated entities | 1,548 | 1,548 | ||||||
Derivatives, at fair value | 72 | − | ||||||
Accrued interest receivable | 12,538 | 8,839 | ||||||
Principal paydown receivables | 4,595 | 503 | ||||||
Other assets | 4,600 | 3,599 | ||||||
Total assets | $ | 2,385,825 | $ | 1,802,829 | ||||
LIABILITIES | ||||||||
Borrowings | $ | 2,072,786 | $ | 1,463,853 | ||||
Distribution payable | 10,298 | 7,663 | ||||||
Accrued interest expense | 8,155 | 6,523 | ||||||
Derivatives, at fair value | − | 2,904 | ||||||
Accounts payable and other liabilities | 3,988 | 4,335 | ||||||
Total liabilities | 2,095,227 | 1,485,278 | ||||||
STOCKHOLDERS’ EQUITY | ||||||||
Preferred stock, par value $0.001: 100,000,000 shares authorized; no shares issued and outstanding | - | - | ||||||
Common stock, par value $0.001: 500,000,000 shares authorized; 25,116,217 and 23,821,434 shares issued and outstanding (including 363,945 and 234,224 unvested restricted shares) | 25 | 24 | ||||||
Additional paid-in capital | 356,774 | 341,400 | ||||||
Deferred equity compensation | - | (1,072 | ) | |||||
Accumulated other comprehensive loss | (51,908 | ) | (9,279 | ) | ||||
Distributions in excess of earnings | (14,293 | ) | (13,522 | ) | ||||
Total stockholders’ equity | 290,598 | 317,551 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 2,385,825 | $ | 1,802,829 | ||||
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share data)
(Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
REVENUES | ||||||||||||||||
Securities | $ | 7,908 | $ | 16,053 | $ | 15,304 | $ | 32,425 | ||||||||
Loans | 32,711 | 15,700 | 62,992 | 26,720 | ||||||||||||
Leases | 1,901 | 1,297 | 3,811 | 1,803 | ||||||||||||
Interest income − other | 910 | 1,846 | 1,311 | 3,382 | ||||||||||||
Interest income | 43,430 | 34,896 | 83,418 | 64,330 | ||||||||||||
Interest expense | 30,222 | 26,519 | 56,989 | 47,721 | ||||||||||||
Net interest income | 13,208 | 8,377 | 26,429 | 16,609 | ||||||||||||
OTHER REVENUE | ||||||||||||||||
Net realized (losses) gains on investments | (636 | ) | 161 | (566 | ) | (538 | ) | |||||||||
Other income | 433 | 7 | 469 | 7 | ||||||||||||
Total revenues | 13,005 | 8,545 | 26,332 | 16,078 | ||||||||||||
EXPENSES | ||||||||||||||||
Management fees − related party | 2,027 | 1,237 | 4,059 | 2,230 | ||||||||||||
Equity compensation − related party | 137 | 240 | 623 | 822 | ||||||||||||
Professional services | 541 | 469 | 1,233 | 785 | ||||||||||||
Insurance | 114 | 125 | 235 | 246 | ||||||||||||
General and administrative | 350 | 408 | 907 | 778 | ||||||||||||
Total expenses | 3,169 | 2,479 | 7,057 | 4,861 | ||||||||||||
NET INCOME | $ | 9,836 | $ | 6,066 | $ | 19,275 | $ | 11,217 | ||||||||
NET INCOME PER SHARE – BASIC | $ | 0.40 | $ | 0.35 | $ | 0.78 | $ | 0.66 | ||||||||
NET INCOME PER SHARE – DILUTED | $ | 0.39 | $ | 0.34 | $ | 0.77 | $ | 0.65 | ||||||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING – BASIC | 24,704,471 | 17,580,293 | 24,569,694 | 17,099,051 | ||||||||||||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING – DILUTED | 24,944,162 | 17,692,586 | 24,891,686 | 17,222,553 | ||||||||||||
DIVIDENDS DECLARED PER SHARE | $ | 0.41 | $ | 0.36 | $ | 0.80 | $ | 0.69 | ||||||||
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET INCOME TO ESTIMATED REIT TAXABLE INCOME
(Unaudited)
Estimated REIT Taxable Income
RCC calculates estimated REIT taxable income, which is a non-GAAP financial measure, according to the requirements of the Internal Revenue Code. The following table reconciles net income to estimated REIT taxable income for the periods presented (in thousands):
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2007 | 2006 | 2007 | 2006 | |||||||||||||
| Net income | $ | 9,836 | $ | 6,066 | $ | 19,275 | $ | 11,217 | ||||||||
| Additions: | ||||||||||||||||
Share-based compensation to related parties | (345 | ) | 240 | (340 | ) | 822 | ||||||||||
Incentive management fee expense to related parties paid in shares | 231 | 77 | 417 | 108 | ||||||||||||
Capital losses from the sale of securities available-for-sale | − | − | − | 1,411 | ||||||||||||
Addback of GAAP loss reserve | 856 | − | 856 | − | ||||||||||||
Other net book to tax adjustments | (60 | ) | − | (20 | ) | − | ||||||||||
| Estimated REIT taxable income | $ | 10,518 | $ | 6,383 | $ | 20,188 | $ | 13,558 | ||||||||
| Amounts per share | $ | 0.42 | $ | 0.36 | $ | 0.81 | $ | 0.76 | ||||||||
RCC believes that a presentation of estimated REIT taxable income provides useful information to investors regarding its financial condition and results of operations as this measurement is used to determine the amount of dividends that RCC is required to declare to its stockholders in order to maintain its status as a REIT for federal income tax purposes. Since RCC, as a REIT, expects to make distributions based on taxable earnings, RCC expects that its distributions may at times be more or less than its reported earnings. Total taxable income is the aggregate amount of taxable income generated by RCC and by its domestic and foreign taxable REIT subsidiaries. Estimated REIT taxable income excludes the undistributed taxable income of RCC’s domestic taxable REIT subsidiary, if any such income exists, which is not included in REIT taxable income until distributed by RCC. There is no requirement that RCC’s domestic taxable REIT subsidiary distribute its earnings to RCC. Estimated REIT taxable income, however, includes the taxable income of RCC’s foreign taxable REIT subsidiaries because RCC generally will be required to recognize and report its taxable income on a current basis. Because not all companies use identical calculations, this presentation of estimated REIT taxable income may not be comparable to other similarly-titled measures of other companies.