-- REIT taxable income, a non-GAAP measure, of $0.44 per share-diluted
for the quarter ended September 30, 2007.
-- Dividend distribution of $0.41 per share, up 11% from the prior year
quarter and unchanged from the second quarter.
-- Adjusted net income per common share-diluted, a non-GAAP measure, of
$0.46 for the quarter ended September 30, 2007.
-- Economic book value, a non-GAAP measure, of $12.44 per share at
September 30, 2007.
-- GAAP net loss of $0.56 per share-diluted including a non-cash
impairment charge of $25.5 million on the ABS-RMBS portfolio for the
quarter ended September 30, 2007.
-- As of November 1, 2007, RCC had repurchased 263,000 shares at a
weighted average price of $10.50.
The following schedules of reconciliations as of September 30, 2007 are
included in this release:
-- Schedule I - GAAP Net (Loss) Income to Adjusted Net Income;
-- Schedule II - GAAP Net (Loss) Income to Estimated REIT Taxable Income;
and
-- Schedule III - GAAP Stockholders' Equity to Economic Book Value.
RCC reported for the quarter ended September 30, 2007, adjusted net income,
a non-GAAP measure, excluding the effect of a non-cash impairment charge,
was $11.6 million, or $0.46 per share-diluted, compared to $0.33 per
share-diluted for the third quarter of 2006. RCC reported for the nine
months ended September 30, 2007 adjusted net income excluding the effect of
a
non-cash impairment charge, was $31.6 million, or $1.27 per share-diluted,
compared to $1.01 per share-diluted for the same period in 2006.
RCC reported for the quarter ended September 30, 2007, GAAP net loss was
$13.9 million, or $0.56 per share-diluted, as compared to net loss of $2.4
million, or $0.14 per share-diluted for the third quarter of 2006. RCC
reported net income for the nine months ended September 30, 2007 was $5.4
million, or $0.22 per share-diluted, as compared to net income for the nine
months ended September 30, 2006 of $8.8 million, or $0.51 per
share-diluted. Net loss during the third quarter ended September 30, 2007
and the significant decrease in net income during the nine months ended
September 30, 2007 was primarily the result of a non-cash charge of $25.5
million representing other-than-temporary impairment under GAAP of an
ABS-RMBS portfolio held by Ischus CDO II, a securitization vehicle
consolidated by RCC as of September 30, 2007, as required under GAAP.
After reflecting this impairment, RCC has a remaining investment of
$722,000 in the ABS-RMBS portfolio.
Book Value
RCC's economic book value per common share outstanding, a non-GAAP measure,
at September 30, 2007 was $12.44. Economic book value is computed by adding
back to GAAP book value any unrealized losses in stockholders' equity or
charged through income that are in excess of RCC's maximum exposure in a
consolidated investment. Under GAAP, RCC is required to absorb unrealized
losses on investments held by certain of its consolidated entities,
primarily RCC's consolidated securitization backed by ABS-RMBS, even if
those losses are in excess of RCC's maximum exposure to loss, or RCC's
retained investment in those securitizations. In addition, RCC added back
unrealized losses on derivatives (cash flow hedges) that are associated
with fixed-rate loans that have not been adjusted through stockholders'
equity for market fluctuations. Economic book value per share is computed
by dividing the economic book value by the number of shares outstanding at
the end of the period.
RCC's GAAP book value per common share at September 30, 2007 was $6.97 as
compared to $13.33 at December 31, 2006, a 48% decrease, caused primarily
by an unrealized loss, which is in excess of RCC's maximum risk of loss or
its retained investment, on its ABS-RMBS portfolio. Total stockholders'
equity was $174.3 million at September 30, 2007 as compared to $317.6
million at December 31, 2006. Total common shares outstanding were
25,017,966 at September 30, 2007 as compared to 23,821,434 at December 31,
2006.
Jonathan Cohen, CEO and President of RCC, commented, "The third quarter of
2007 will go down in history as one of the most difficult for financial
companies here in the United States and elsewhere. Nonetheless, we
performed well, generating $0.46 of adjusted net income and distributing
$0.41 to our shareholders. We have converted from primarily a subordinate
buyer of commercial real estate loans to an originator of senior secured
whole loans and bank loans. With our ABS-RMBS exposure now written down to
a de minimis amount, we are positioned to benefit from our match-funded
vehicles that have a relatively low cost of funds. Our assets continue to
perform and we continue to try to build franchise value in a dislocated
marketplace. We are dedicated to maintaining and growing our dividend."
Additional financial results for the third quarter ended September 30, 2007
and recent developments include:
General
-- RCC's net interest income increased by $6.0 million, or 72%, to $14.3
million for the quarter ended September 30, 2007, as compared to $8.3
million for the same period in 2006.
-- RCC's total assets grew by $523.4 million during the nine months ended
September 30, 2007, primarily in commercial real estate and commercial
finance assets, as described below.
Commercial Real Estate
-- RCC continued to increase its investment in commercial real estate
("CRE") loans. RCC produced new CRE loans, on a gross basis, of $88.0
million during the third quarter ended September 30, 2007. The aggregate
portfolio of CRE loans (net of sales, repayments and discounts) grew by
$38.7 million to $930.4 million at September 30, 2007, from $891.7 million
at June 30, 2007, not including future funding obligations of $11.2
million.
The following table summarizes RCC's CRE loan origination activities
and future funding obligations, at par, for the three months, nine
months and 12 months ended September 30, 2007 (in millions, except
percentages):
Three Nine
Months Months 12 Months Floating Weighted
Ended Ended Ended Weighted Average
September September September Average Fixed
30, 2007 30, 2007 30, 2007 Spread Rate
--------- --------- --------- --------- ---------
Whole loans $ 62.8 $ 360.3 $ 476.5 2.72% 7.81%
Whole loans,
future
funding
obligations 11.2 54.2 65.4 N/A N/A
A notes - - - N/A N/A
B notes - - 48.9 3.22% 7.58%
Mezzanine loans - 95.3 136.0 2.64% 8.03%
CMBS 14.0 90.5 120.6 N/A* 5.93%
--------- --------- ---------
New loans production 88.0 600.3 847.4
Payoffs (20.2) (174.2) (183.7)
Principal paydowns (10.1) (13.0) (18.6)
Sales of CRE loans - (41.2) (41.2)
Whole loans,
future
funding
obligations (11.2) (54.2) (65.4)
Sales of CMBS - (29.9) (29.9)
--------- --------- ---------
Net - new loans 46.5 287.8 508.6
Discounts (7.8) (13.5) (17.9)
--------- --------- ---------
New loans, net of
discounts $ 38.7 $ 274.3 $ 490.7
========= ========= =========
-------------
* Weighed average floating rate coupon of 6.87% at September 30, 2007.
Commercial Finance
-- RCC's bank loan portfolio ended the period with total investments of
$952.0 million, at cost, with a weighted-average spread of three-month
LIBOR plus 2.21%. 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 $82.8
million, at cost, 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 $79.2 million as of September
30, 2007 and a weighted-average interest rate of 6.40%.
Investment Portfolio
The table below summarizes the amortized cost and estimated fair value of
the RCC's investment portfolio as of September 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 RCC's investment portfolio and the related dollar price,
which is computed by dividing the estimated fair value by par amount (in
thousands, except percentages):
Premium/ Fair Unrealized
Amortized discount Fair value gains Dollar
cost to par value to par (losses) price
---------- ------ ---------- ------ --------- ------
September 30, 2007
Floating rate
-------------
ABS-RMBS $ 317,769 91.70% $ 201,134 58.04% $(116,635) -33.66%
CMBS 359 100.00% 357 99.44% (2) -0.56%
CMBS-private
placement 54,850 93.32% 49,700 84.56% (5,150) -8.76%
B notes 79,781 100.06% 79,781 100.06% - 0.00%
Mezzanine loans 142,327 100.08% 142,327 100.08% - 0.00%
Whole loans 398,037 99.33% 398,037 99.33% - 0.00%
Bank loans (1) 951,984 100.07% 915,678 96.25% (36,306) -3.82%
Other 22,377 98.14% 17,521 76.85% (4,856) -21.29%
---------- ---------- ---------
Total floating
rate $1,967,484 98.25% $1,804,535 90.12% $(162,949) -8.13%
========== ========== =========
Fixed rate
----------
ABS-RMBS $ 6,000 100.00% $ 2,700 45.00% $ (3,300) -55.00%
CMBS 27,581 98.88% 23,802 85.33% (3,779) -13.55%
CMBS - Private
Placement 28,246 98.92% 25,571 89.55% (2,675) -9.37%
Other ABS 2,580 99.96% 2,232 86.48% (348) -13.48%
B notes 56,107 100.18% 56,107 100.18% - 0.00%
Mezzanine loans 81,141 94.48% 81,141 94.48% - 0.00%
Whole loans 97,731 99.02% 97,731 99.02% - 0.00%
Equipment leases
and notes (2) 82,804 100.24% 82,605 100.00% (199) 0.24%
---------- ---------- ---------
Total fixed rate $ 382,190 98.45% $ 371,889 95.79% $ (10,301) -2.66%
========== ========== =========
Grand total $2,349,674 98.28% $2,176,424 91.04% $(173,250) -7.24%
========== ========== =========
-------------
(1) Fair value and unrealized gains (losses) includes a $196,000 provision
for loan losses.
(2) Fair value and unrealized gains (losses) includes a $199,000 provision
for lease losses.
Liquidity
At November 6, 2007, RCC's liquidity consists of $50.0 million of
restricted cash available for reinvestment in its six CDOs, $8.0 million of
cash and cash equivalents, $5.3 million of restricted cash in margin call
accounts and $10.8 million of available cash from its three year
non-recourse secured financing facilities. RCC also has $199.4 million of
unused capacity under its secured financing facilities, $38.3 million
available to finance future funding commitments associated with real estate
whole loans under Resource Real Estate Funding CDO 2007-1, Ltd. ("RREF CDO
2"), $23.4 million available under a secured term facility and $11.2
million of unused capacity under its unsecured revolving credit facility.
Capital Allocation
As of September 30, 2007, RCC had allocated its equity capital among its
targeted asset classes as follows: 75% in commercial real estate loans, 24%
in commercial bank loans and 1% in direct financing leases and notes.
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, 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. (
-- 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 RCC's investments;
-- increases in financing or administrative costs; and
-- general business and economic conditions that would impair the credit
quality of borrowers and 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 RCC's consolidated balance sheets,
consolidated statements of operations and reconciliations of its estimated
GAAP net (loss) income to adjusted net income, GAAP net (loss) income to
estimated REIT taxable income and GAAP stockholders' equity to economic
book value.
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
September 30, December 31,
2007 2006
------------- -------------
(Unaudited)
ASSETS
Cash and cash equivalents $ 15,138 $ 5,354
Restricted cash 76,887 32,731
Securities available-for-sale, at fair
value 323,017 420,997
Loans held for investment, net 1,806,912 1,240,288
Direct financing leases and notes, net 82,605 88,970
Investments in unconsolidated entities 1,548 1,548
Accrued interest receivable 14,002 8,839
Principal paydown receivables 427 503
Other assets 5,700 3,599
------------- -------------
Total assets $ 2,326,236 $ 1,802,829
============= =============
LIABILITIES
Borrowings $ 2,115,381 $ 1,463,853
Distribution payable 10,257 7,663
Accrued interest expense 13,819 6,523
Derivatives, at fair value 8,571 2,904
Accounts payable and other liabilities 3,910 4,335
------------- -------------
Total liabilities 2,151,938 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;
25,136,866 and 23,821,434 shares issued
(including 357,382 and 234,224 unvested
restricted shares) 25 24
Additional paid-in capital 357,184 341,400
Deferred equity compensation - (1,072)
Accumulated other comprehensive loss (143,166) (9,279)
Treasury stock, at cost; 118,900 and 0
shares, respectively (1,280) -
Distributions in excess of earnings (38,465) (13,522)
------------- -------------
Total stockholders’ equity 174,298 317,551
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $ 2,326,236 $ 1,802,829
============= =============
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2007 2006 2007 2006
---------- ---------- ----------- ----------
REVENUES
Securities $ 8,768 $ 16,248 $ 24,072 $ 48,673
Loans 37,125 19,905 100,117 46,625
Leases 1,856 1,589 5,667 3,391
Interest income - other 769 1,406 2,080 4,788
---------- ---------- ----------- ----------
Interest income 48,518 39,148 131,936 103,477
Interest expense 34,266 30,855 91,255 78,576
---------- ---------- ----------- ----------
Net interest income 14,252 8,293 40,681 24,901
OTHER REVENUE
Net realized (losses)
gains on investments 115 (8,314) 336 (8,853)
Other income 310 384 779 391
---------- ---------- ----------- ----------
Total revenues 14,677 363 41,796 16,439
---------- ---------- ----------- ----------
OPERATING EXPENSES
Management fees - related
party 1,298 917 5,357 3,147
Equity compensation -
related party 94 798 717 1,620
Professional services 772 480 2,005 1,266
Insurance 116 126 351 372
General and
administrative 496 443 1,403 1,220
---------- ---------- ----------- ----------
Total operating
expenses 2,776 2,764 9,833 7,625
OTHER EXPENSES
Provision for loan and
lease losses 326 - 326 -
Asset impairments 25,490 - 26,277 -
---------- ---------- ----------- ----------
Total expenses 28,592 2,764 36,436 7,625
---------- ---------- ----------- ----------
NET (LOSS) INCOME $ (13,915) $ (2,401) $ 5,360 $ 8,814
========== ========== =========== ==========
NET (LOSS) INCOME PER SHARE
- BASIC $ (0.56) $ (0.14) $ 0.22 $ 0.51
========== ========== =========== ==========
NET (LOSS) INCOME PER SHARE
- DILUTED $ (0.56) $ (0.14) $ 0.22 $ 0.51
========== ========== =========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING -
BASIC 24,807,162 17,585,171 24,650,313 17,261,091
========== ========== =========== ==========
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING -
DILUTED 24,807,162 17,585,171 24,910,848 17,388,566
========== ========== =========== ==========
DIVIDENDS DECLARED PER
SHARE $ 0.41 $ 0.37 $ 1.21 $ 1.06
========== ========== =========== ==========
SCHEDULE I
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET (LOSS) INCOME TO ADJUSTED NET INCOME (1)
(in thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- ---------------------
2007 2006 2007 2006
--------- --------- ---------- ----------
Net (loss) income - GAAP $ (13,915) $ (2,401) $ 5,360 $ 8,814
Add:
Asset impairments related to
ABS-RMBS portfolio 25,490 - 26,277 -
Net realized loss from sale
of Agency RMBS portfolio - 8,301 - 8,768
--------- --------- ---------- ----------
Adjusted net income, excluding
non-cash charges $ 11,575 $ 5,900 $ 31,637 $ 17,582
========= ========= ========== ==========
Adjusted net income per
share-diluted, excluding
non-cash charges (1) (2) $ 0.46 $ 0.33 $ 1.27 $ 1.01
========= ========= ========== ==========
(1) During 2007, RCC began evaluating its performance based on several
measures, including adjusted net income. Management views adjusted net
income as a useful and appropriate supplements to net income and net
income per share. The measure serves as an additional measure of RCC's
operating performance because it facilitates evaluation of RCC without
the effects of certain adjustments in accordance with accounting
principles generally accepted in the U.S. ("GAAP") that may not
necessarily be indicative of current operating performance. Adjusted
net income should not be considered as an alternative to net income or
cash flows from operating activities (each computed in accordance with
GAAP). Instead, adjusted net income should be reviewed in connection
with net income and cash flows from operating, investing and financing
activities in RCC's consolidated financial statements, to help analyze
how RCC's business is performing. Adjusted net income and other
supplemental performance measures are defined in various ways
throughout the REIT industry. Investors should consider these
differences when comparing RCC's adjusted net income to those of other
REITs.
(2) Includes 137,623 and 135,419 of dilutive shares not used in the
calculation of net loss per share - diluted for the three months ended
September 30, 2007 and 2006, respectively, as the effect would have
been anti-dilutive.
SCHEDULE II
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
RECONCILIATION OF GAAP NET (LOSS) INCOME
TO ESTIMATED REIT TAXABLE INCOME (1)
(Unaudited)
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, except per share data):
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
2007 2006 2007 2006
--------- --------- --------- ----------
Net (loss) income - GAAP $ (13,915) $ (2,401) $ 5,360 $ 8,814
Adjustments:
Share-based compensation to
related parties (385) 798 (725) 1,620
Incentive management fee
expense to related parties
paid in shares (417) - - 108
Capital losses from the sale
of securities
available-for-sale - 10,875 - 12,286
Asset impairments related to
ABS-RMBS portfolio 25,490 - 26,277 -
Other net book to tax
adjustments 90 (49) 139 713
--------- --------- --------- ----------
Estimated REIT taxable income $ 10,863 $ 9,223 $ 31,051 $ 23,541
========= ========= ========== ==========
Amounts per share - diluted (2) $ 0.44 $ 0.52 $ 1.25 $ 1.35
========= ========= ========== ==========
(1) 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 income, RCC expects that its
distributions may at times be more or less than its reported income.
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 income 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.
(2) Includes 137,623 and 135,419 of dilutive shares not used in the
calculation of net loss per share - diluted for the three months
ended September 30, 2007 and 2006, respectively, as the effect would
have been anti-dilutive.
SCHEDULE III
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
RECONCILIATION OF GAAP STOCKHOLDERS' EQUITY TO ECONOMIC BOOK VALUE (1)(2)
(in thousands, except per share data)
(Unaudited)
As of
September 30, 2007
--------------------
Stockholders’ equity - GAAP $ 174,298
Add:
Unrealized losses recognized in excess of value at
risk - ABS-RMBS portfolio 128,034
Unrealized losses recognized in excess of value at
risk - Derivatives 8,825
--------------------
Economic book value $ 311,157
====================
Shares outstanding as of September 30, 2007 25,017,966
--------------------
Economic book value per share $ 12.44
====================
(1) Management views economic book value, a non-GAAP measure, as a useful
and appropriate supplement to GAAP stockholders' equity and book value
per share. The measure serves as an additional measure of our value
because it facilitates evaluation of us without the effects of
unrealized losses on investments in excess of our value at risk.
Under GAAP, we are required to absorb unrealized losses on investments
of certain of our consolidated entities, primarily our consolidated
securitizations, even if those unrealized losses are in excess of our
maximum value at risk, or our investment in those securitizations.
Unrealized losses recognized in our financial statements, prepared in
accordance with GAAP, that are in excess of our maximum value at risk
are added back to stockholders' equity in arriving at economic book
value. Economic book value should be reviewed in connection with GAAP
stockholders' equity as set forth in our consolidated balance sheets,
to help analyze our value to investors. Economic book value is
defined in various ways throughout the REIT industry. Investors should
consider these differences when comparing our economic book value to
that of other REITs.
(2) RCC adds back unrealized losses on derivatives (cash flow hedges) that
are associated with fixed-rate loans that have not been adjusted
through stockholders' equity for market fluctuations.
Contact Information: 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)