UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following financial information reflects the historical results of Resource Capital Corp. (the “Company”) as adjusted on a pro forma basis to give effect to the sale of Northport TRS, LLC (“Northport”), the Company's middle market loan business and an indirect wholly-owned subsidiary, for $246.8 million, subject to certain adjustments, to CVC Credit Partners U.S. Lending I, L.P. The transaction closed on August 4, 2016 and includes 18 self-originated loans and a syndicated loan with a collective par balance of $257.3 million held by Northport and the assumption of a credit facility.
The accompanying unaudited pro forma condensed consolidated financial information is presented as of and for the six months ended June 30, 2016 for the Company's unaudited and condensed consolidated balance sheet and unaudited and condensed consolidated statement of operations. Pro forma financial information is also presented for the year ended December 31, 2015 solely for the unaudited and condensed consolidated statement of operations. The unaudited and condensed pro forma information assumes the sale transaction described above was consummated at June 30, 2016 for the unaudited and condensed consolidated balance sheet information for the period then ended. The unaudited and condensed consolidated statement of operations information for the year ended December 31, 2015 and the period ended June 30, 2016 assumes the transaction was consummated at January 1, 2015, giving full effect to the transaction for the periods presented.
The pro forma financial information was derived by adjusting the Company’s historical consolidated financial statements. The Company's management believes that the adjustments provide a reasonable basis for presenting the significant effects of the transaction described above. The unaudited and condensed consolidated financial information are for illustrative purposes only. The financial results may have been different had the sale actually taken place at the time indicated. You should not rely upon the unaudited and condensed consolidated financial information as being indicative of the historical results that would have been achieved had the transaction occurred at the times indicated or of the future results the Company will experience.
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(in thousands, except share and per share data)
|
| | | | | | | | | | | | | |
| | As of June 30, 2016 |
| | RSO Historical | | Adjustments | | Notes | | Pro Forma |
| | | | | | | | |
| ASSETS | | | | | | | |
| Cash and cash equivalents | $ | 71,990 |
| | $ | 104,498 |
| | 2(a) | | $ | 176,488 |
|
| Investment securities | 259,262 |
| | — |
| | | | 259,262 |
|
| Loans held for sale | 1,476,880 |
| | — |
| | | | 1,476,880 |
|
| Loans, pledged as collateral and net of allowances | 420,308 |
| | (245,573 | ) | | 2(b) | | 174,735 |
|
| Interest receivable | 8,868 |
| | (1,765 | ) | | 2(b) | | 7,103 |
|
| Deferred tax asset, net | 16,916 |
| | (3,130 | ) | | 2(c) | | 13,786 |
|
| Other assets | 135,620 |
| | 442 |
| | 2(c) | | 136,062 |
|
| Total assets | $ | 2,389,844 |
| | $ | (145,528 | ) | | | | $ | 2,244,316 |
|
| LIABILITIES | |
| | | | | | |
|
| Borrowings | $ | 1,575,219 |
| | $ | (144,000 | ) | | 2(d) | | $ | 1,431,219 |
|
| Accrued interest expense | 5,282 |
| | (107 | ) | | 2(d) | | 5,175 |
|
| Other liabilities | 32,912 |
| | 1,416 |
| | 2(e) | | 34,328 |
|
| Total liabilities | 1,613,413 |
| | (142,691 | ) | | | | 1,470,722 |
|
| EQUITY | |
| | | | | | |
|
| Preferred and common stock | 43 |
| | — |
| | | | 43 |
|
| Additional paid-in capital | 1,218,340 |
| | — |
| | | | 1,218,340 |
|
| Accumulated other comprehensive income (loss) | 700 |
| | — |
| | | | 700 |
|
| Distributions in excess of earnings | (441,522 | ) | | (2,837 | ) | | 2(f) | | (444,359 | ) |
| Total stockholders’ equity | 777,561 |
| | (2,837 | ) | | | | 774,724 |
|
| Non-controlling interests | (1,130 | ) | | — |
| | | | (1,130 | ) |
| Total equity | 776,431 |
| | (2,837 | ) | | | | 773,594 |
|
| TOTAL LIABILITIES AND EQUITY | $ | 2,389,844 |
| | $ | (145,528 | ) | | | | $ | 2,244,316 |
|
The accompanying notes are an integral part of these statements
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share data)
|
| | | | | | | | | | | | | |
| | For the Six Months Ended June 30, 2016 |
| | RSO Historical | | Adjustments | | Notes | | Pro Forma |
| REVENUES | | | | | | | |
| Interest income: | | | | | | | |
| Loans | $ | 65,477 |
| | $ | (12,177 | ) | | 2(g) | | $ | 53,300 |
|
| Securities | 9,089 |
| | — |
| | | | 9,089 |
|
| Interest income - other | 3,533 |
| | (11 | ) | | 2(g) | | 3,522 |
|
| Total interest income | 78,099 |
| | (12,188 | ) | |
| | 65,911 |
|
| Interest expense | 34,407 |
| | (4,001 | ) | | 2(g) | | 30,406 |
|
| Net interest income | 43,692 |
| | (8,187 | ) | |
| | 35,505 |
|
| Dividend income | 35 |
| | — |
| | | | 35 |
|
| Fee income | (598 | ) | | — |
| | | | (598 | ) |
| Total revenues | 43,129 |
| | (8,187 | ) | |
| | 34,942 |
|
| OPERATING EXPENSES | |
| | |
| | | | |
| Management fees - related party | 7,136 |
| | — |
| | | | 7,136 |
|
| General and administrative | 21,223 |
| | (968 | ) | | 2(g) | | 20,255 |
|
| Provision for loan and lease losses | 12,136 |
| | (9,916 | ) | | 2(g) | | 2,220 |
|
| Other operating expenses | 3,827 |
| | (24 | ) | | 2(g) | | 3,803 |
|
| Total operating expenses | 44,322 |
| | (10,908 | ) | |
| | 33,414 |
|
| | | | | | | | |
| | (1,193 | ) | | 2,721 |
| |
| | 1,528 |
|
| OTHER INCOME (EXPENSE) | |
| | |
| | | | |
| Net realized and unrealized gain on sales of investment securities available-for-sale and loans and derivatives | 11,774 |
| | — |
| | | | 11,774 |
|
| Other income | 5,243 |
| | — |
| | | | 5,243 |
|
| Total other income | 17,017 |
| | — |
| |
| | 17,017 |
|
| | | | | | | | |
| INCOME (LOSS) BEFORE TAXES | 15,824 |
| | 2,721 |
| |
| | 18,545 |
|
| Income tax benefit | 2,725 |
| | (2,698 | ) | | 2(h) | | 27 |
|
| NET INCOME (LOSS) | 18,549 |
| | 23 |
| |
| | 18,572 |
|
| | | | | | | | |
| Net (income) loss allocated to preferred shares | (12,062 | ) | | — |
| | | | (12,062 | ) |
| Carrying value in excess of consideration paid for preferred shares | 1,500 |
| | — |
| | | | 1,500 |
|
| Net (income) loss allocable to non-controlling interest, net of taxes | 150 |
| | — |
| | | | 150 |
|
| NET INCOME ALLOCABLE TO COMMON SHARES | $ | 8,137 |
| | $ | 23 |
| |
| | $ | 8,160 |
|
| NET INCOME PER COMMON SHARE – BASIC | $ | 0.27 |
| | $ | — |
| | | | $ | 0.27 |
|
| NET INCOME PER COMMON SHARE – DILUTED | $ | 0.26 |
| | $ | — |
| | | | $ | 0.26 |
|
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC | 30,505,428 |
| | 30,505,424 |
| | | | 30,505,424 |
|
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED | 30,724,272 |
| | 30,724,268 |
| | | | 30,724,268 |
|
The accompanying notes are an integral part of these statements
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except share and per share data)
|
| | | | | | | | | | | | | |
| | For the Year Ended December 31, 2015 |
| | RSO Historical | | Adjustments | | Notes | | Pro Forma |
| REVENUES | | | | | | | |
| Interest income: | | | | | | | |
| Loans | $ | 134,930 |
| | $ | (12,535 | ) | | 2(g) | | $ | 122,395 |
|
| Securities | 18,332 |
| | — |
| | | | 18,332 |
|
| Interest income - other | 4,815 |
| | (2 | ) | | 2(g) | | 4,813 |
|
| Total interest income | 158,077 |
| | (12,537 | ) | | | | 145,540 |
|
| Interest expense | 65,653 |
| | (2,333 | ) | | 2(g) | | 63,320 |
|
| Net interest income | 92,424 |
| | (10,204 | ) | | | | 82,220 |
|
| Dividend income | 66 |
| | — |
| | | | 66 |
|
| Fee income | 9,509 |
| | — |
| | | | 9,509 |
|
| Total revenues | 101,999 |
| | (10,204 | ) | | | | 91,795 |
|
| OPERATING EXPENSES | |
| | |
| | | | |
| Management fees - related party | 13,306 |
| | — |
| | | | 13,306 |
|
| General and administrative | 48,081 |
| | (864 | ) | | 2(g) | | 47,217 |
|
| Provision for loan and lease losses | 49,889 |
| | — |
| | | | 49,889 |
|
| Other operating expenses | 8,437 |
| | (18 | ) | | 2(g) | | 8,419 |
|
| Total operating expenses | 119,713 |
| | (882 | ) | | | | 118,831 |
|
| | | | | | | | |
| | (17,714 | ) | | (9,322 | ) | | | | (27,036 | ) |
| OTHER INCOME (EXPENSE) | |
| | |
| | | | |
| Net realized and unrealized gain on sales of investment securities available-for-sale and loans and derivatives | 35,703 |
| | — |
| | | | 35,703 |
|
| Other income | 939 |
| | — |
| | | | 939 |
|
| Total other income | 36,642 |
| | — |
| | | | 36,642 |
|
| | | | | | | | |
| INCOME (LOSS) BEFORE TAXES | 18,928 |
| | (9,322 | ) | | | | 9,606 |
|
| Income tax expense | (1,745 | ) | | 1,341 |
| | 2(h) | | (404 | ) |
| NET INCOME (LOSS) | 17,183 |
| | (7,981 | ) | | | | 9,202 |
|
| | | | | | | | |
| Net (income) loss allocated to preferred shares | (24,437 | ) | | — |
| | | | (24,437 | ) |
| Net (income) loss allocable to non-controlling interest, net of taxes | (6,628 | ) | | — |
| | | | (6,628 | ) |
| NET LOSS ALLOCABLE TO COMMON SHARES | $ | (13,882 | ) | | $ | (7,981 | ) | | | | $ | (21,863 | ) |
| NET LOSS PER COMMON SHARE – BASIC | $ | (0.43 | ) | | $ | (0.25 | ) | | | | $ | (0.68 | ) |
| NET LOSS PER COMMON SHARE – DILUTED | $ | (0.43 | ) | | $ | (0.25 | ) | | | | $ | (0.68 | ) |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC | 32,280,319 |
| | 32,280,319 |
| | | | 32,280,319 |
|
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - DILUTED | 32,280,319 |
| | 32,280,319 |
| | | | 32,280,319 |
|
The accompanying notes are an integral part of these statements
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited pro forma condensed consolidated financial statements and explanatory notes present the financial statements of the Company assuming the transaction was consummated at June 30, 2016, with respect to the balance sheet and as of January 1, 2015 with respect to the the statements of operations for the six months ended June 30, 2016 and the year ended December 31, 2015.
The following are descriptions of the columns included in the accompanying unaudited pro forma condensed consolidated financial statements:
Historical - Represents the historical condensed consolidated balance sheet of the Company as of June 30, 2016, and the historical condensed consolidated statements of operations of the Company for the six months ended June 30, 2016 and the year ended December 31, 2015.
Pro Forma Adjustments - Represents the adjustments to the historical condensed consolidated financial statements required to derive the pro forma financial position of the Company as of June 30, 2016, assuming the transaction occurred as of June 30, 2016, and the pro forma results of operation of the Company for the six months ended June 30, 2016 and the year ended December 31, 2015, assuming the transaction occurred as of January 1, 2015.
NOTE 2 - PRO FORMA ADJUSTMENTS
Condensed Consolidated Balance Sheet
| |
| (a) | Cash and cash equivalents include receipt of the following items (in thousands): |
|
| | | |
| Net cash consideration at closing of the transaction | $ | 101,826 |
|
| Receipt of payment on related party loan at closing of the transaction | 2,361 |
|
| Net principal and accrued interest activity, subsequent to June 30, 2016 | 311 |
|
| | $ | 104,498 |
|
| |
| (b) | These adjustments represents the elimination of the loans sold and the associated accrued interest receivable. The adjustment for the loans sold is comprised of the following adjustments (in thousands): |
|
| | | |
| Par value of loans sold at closing of the transaction | $ | 257,339 |
|
| Provision for loan losses for the loans sold | (9,916 | ) |
| Principal activity, net, subsequent to June 30, 2016 | (1,211 | ) |
| Deferred revenue and loan discounts | (639 | ) |
| | $ | 245,573 |
|
| |
| (c) | These adjustments represent the impact of the transaction on the deferred tax asset, net and prepaid tax asset, included in other assets. |
| |
| (d) | These adjustments represent the elimination of the associated borrowings assumed and paid down as well as accrued interest payable. |
| |
| (e) | This adjustment represents liabilities assumed at the closing of the transaction offset by cash consideration received for accrued interest through the closing of the transaction. |
| |
| (f) | This adjustment represents transaction costs of $148,000 paid at closing and the tax impact referenced in (e) above. |
Condensed Consolidated Statement of Operations
| |
| (g) | These adjustments represent the elimination of the revenues and direct operating expenses associated with the assets sold subject to the transaction, including a $9.9 million loss on the loans sold in the transaction. These adjustments exclude certain corporate allocations and intercompany transactions, which would have been absorbed by the Company on a consolidated level. |
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS (continued)
| |
| (h) | The adjustments in (g) above were tax effected using an estimated tax rate of 44.8%, based on the blended federal and state statutory income tax rates. The Company has made certain adjustments to tax benefit/(expense) for corporate allocations and intercompany transactions to reflect the structure of its disposed investment in a taxable REIT subsidiary. |
The adjustment for the income tax benefit/(expense) for the periods presented is as follows (in thousands):
|
| | | | | | | |
| | For the Six Months Ended | | For the Year Ended |
| | June 30, 2016 | | December 31, 2015 |
| Pro forma adjustments | $ | (853 | ) | | $ | 2,947 |
|
| Corporate allocations/intercompany transactions | (1,846 | ) | | (1,606 | ) |
| | $ | (2,698 | ) | | $ | 1,341 |
|
