Resource Capital Corp. Reports Results for Three Months and Year Ended December 31, 2015
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NEW YORK, NY -- (Marketwired) -- 02/29/16 -- Resource Capital Corp. (NYSE: RSO)
Highlights
- Adjusted net income was $13.7 million for the three months ended December 31, 2015, or $0.43 per share, and normalized AFFO was $15.4 million, or $0.49 per share for the same period (see Schedule I).
- Since the inception of the common stock repurchase program, we repurchased approximately 5.9% of our outstanding shares through December 31, 2015.
- Net interest income increased by $5.2 million, or 23.9%, as compared to the fourth quarter of 2014 and by $4.4 million, or 19.7%, as compared to the third quarter of 2015.
- Originated $255.1 million and $744.2 million in new Commercial Real Estate ("CRE") loans during the three months and year ended December 31, 2015.
- RSO's book value per common share was $17.63.
- GAAP net income (loss) allocable to common shares of $0.03 and $(0.43) per share-diluted.
- Adjusted Funds from Operations ("AFFO") of $0.36 and $2.08 per share-diluted (see Schedule I).
- Common stock cash dividend of $0.42 and $2.34 per share.
Resource Capital Corp. (NYSE: RSO) ("RSO" or the "Company"), a real estate investment trust, or REIT, whose investment strategy focuses on CRE assets, commercial mortgage-backed securities ("CMBS"), middle market loans, commercial finance assets and other investments, reported results for the three months and year ended December 31, 2015. All per share amounts stated in this release take into account the one-for-four reverse stock split effective on August 31, 2015 as though it were in full effect for all periods presented for comparison purposes.
Fourth Quarter 2015 Results
- RSO reported AFFO for the three months ended December 31, 2015 of $11.3 million, or $0.36 per share-diluted. A reconciliation of GAAP net income (loss) to AFFO is set forth in Schedule I of this release.
- Adjusted net income was $13.7 million, or $0.43 per share-diluted for the three months ended December 31, 2015, which includes adjustments for several items, including (i) approximately $3.3 million for provisions in our middle market loan segment; (ii) approximately $2.6 million for mark-to-market adjustments in our middle market loan segment; (iii) approximately $1.0 million for mark-to-market adjustments on our trading portfolio; (iv) approximately $2.7 million for provisions and impairments in our commercial finance segment; (v) approximately $2.3 million for loan indemnifications and aged receivables write-offs in our residential mortgage lending segment; and (vi) approximately $900,000 related to mark-to-market adjustments related to share-based compensation. A reconciliation from GAAP net income to adjusted net income is included in Schedule I of this release.
Additional highlights:
Commercial Real Estate
- CRE loan portfolio, at carrying value, is comprised of approximately 99% senior whole loans as of December 31, 2015, an increase from 94% as of December 31, 2014.
- $1.5 billion, or 93%, of floating rate senior whole loans in the CRE portfolio have London Interbank Offered Rate ("LIBOR") floors with a weighted average floor of 0.36% as of December 31, 2015.
- Interest income on whole loans increased by $30.4 million, or 52.8%, to $87.9 million during the year ended December 31, 2015 as compared to $57.5 million during the year ended December 31, 2014.
- Closed and funded $683.4 million of new whole loans in the 12 months ended December 31, 2015, with a weighted average yield of 5.36%, including amortization of origination fees.
The following table summarizes RSO's CRE loan activities and fundings of previous commitments, at par, for the three, 12 and 24 months ended December 31, 2015 (in millions, except percentages):
Floating
Three Months 12 Months 24 Months Weighted Weighted
Ended Ended Ended Average Average
December 31, December 31, December 31, Spread Fixed
2015 2015 2015 (1) (2) Rate
------------ ------------ ------------ -------- --------
New whole loans
funded and
originated $ 228.7 $ 683.4 $ 1,351.2 4.80% --
Unfunded loan
commitments 26.4 60.8 170.3
------------ ------------ ------------
New loans
originated 255.1 744.2 1,521.5
Payoffs (3) (211.3) (381.6) (540.5)
Previous
commitments
funded 10.9 47.5 69.1
Principal pay
downs (0.1) (2.1) (7.8)
Unfunded loan
commitments (26.4) (60.8) (170.3)
------------ ------------ ------------
Loans, net
funded $ 28.2 $ 347.2 $ 872.0
============ ============ ============
(1) Represents the weighted average rate above one-month LIBOR on loans
whose interest rates are based on LIBOR for loans originated during the
year ended December 31, 2015. The $683.4 million of loans originated
during the year ended December 31, 2015 have LIBOR floors with a
weighted average floor of 0.23% as of December 31, 2015.
(2) Reflects rates on new whole loans funded and originated during the year
ended December 31, 2015.
(3) CRE loan payoffs and extensions resulted in $2.4 million in extension
and exit fees during the year ended December 31, 2015.
Commercial Finance & Middle Market Loans
- During 2015, RSO increased the total availability on a syndicated revolving credit facility used to fund middle market loans by $85.0 million, from $140.0 million to $225.0 million, and the total commitment to $300.0 million. At December 31, 2015, $190.0 million was outstanding on the facility.
- RSO's middle market loan portfolio was $379.5 million at carrying value, with a weighted-average spread of one-month and three-month LIBOR plus 9.79% at December 31, 2015.
- RSO's legacy bank loan portfolio, including asset-backed securities ("ABS"), corporate bonds, and loans held for sale was $142.5 million at amortized cost, with a weighted-average spread of one-month and three-month LIBOR plus 3.72% at December 31, 2015. RSO's bank loan portfolio was completely match-funded through a collateralized loan obligation ("CLO") issuer.
- RSO earned $3.9 million of net fees through its subsidiary, Resource Capital Asset Management, during the year ended December 31, 2015.
The following table summarizes RSO's middle market lending portfolio loan activities and fundings of previous commitments, at par, for the three, 12 and 24 months ended December 31, 2015 (in millions, except percentages):
Three Months 12 Months 24 Months Weighted
Ended Ended Ended Weighted Average
December 31, December 31, December 31, Average All-in
2015 2015 2015 Spread(1) Rate(2)
------------ ------------ ------------ --------- --------
New loans
funded and
originated $ 49.5 $ 179.5 $ 422.8 9.37% 10.46%
Unfunded loan
commitments 2.8 12.7 21.7
------------ ------------ ------------
New loans
originated 52.3 192.2 444.5
Payoffs and
sales (3) (13.9) (67.6) (96.1)
Previous
commitments
funded 0.3 13.0 28.3
Principal pay
downs (5.5) (10.0) (25.9)
Unfunded loan
commitments (2.8) (12.7) (21.7)
------------ ------------ ------------
Loans, net
funded $ 30.4 $ 114.9 $ 329.1
============ ============ ============
(1) Represents the weighted-average rate above the one-month and three-month
LIBOR on loans whose interest rates are based on LIBOR for loans
originated during the year ended December 31, 2015, excluding fees. Of
these loans, $138.3 million have LIBOR floors with a weighted average
floor of 1.06%.
(2) Reflects rates on RSO's entire portfolio balance as of December 31,
2015, excluding fees.
(3) Middle Market loan payoffs resulted in $358,000 of exit fees during the
year ended December 31, 2015.
Liquidity
At January 31, 2016, after paying our fourth quarter 2015 common and preferred stock dividends, our liquidity is derived from three primary sources:
- unrestricted cash and cash equivalents of $77.7 million and restricted cash of $1.4 million in margin call accounts;
- capital available for reinvestment in three of RSO's CRE securitizations of $19.3 million, all of which is designated to finance future funding commitments on CRE loans; and
- loan principal repayments of $22.0 million that will pay down outstanding CLO note balances, as well as interest collections of $1.6 million.
In addition, RSO has $425.0 million available through two term financing facilities to finance the origination of CRE loans and $74.4 million available through a term financing facility to finance the purchase of CMBS. RSO also has $47.0 million available through a middle market syndicate facility to finance the direct origination of middle market loans and purchase of syndicated bank loans.
Equity Allocation
As of December 31, 2015, RSO had allocated its invested equity capital among its targeted asset classes as follows: 71% in CRE assets, 27% in commercial finance and middle market assets and 2% in other investments.
Book Value
As of December 31, 2015, RSO's book value per common share was $17.63. Total stockholders' equity at December 31, 2015, which measures equity before the consideration of non-controlling interests, was $818.9 million, of which $274.7 million was attributable to preferred stock.
Capital Transactions
Since the inception of the program through December 31, 2015, RSO has repurchased $25.9 million of its common stock (approximately 2.0 million shares), which represented approximately 5.9% of the outstanding common shares, at a weighted average price of $12.95 per share.
Investment Portfolio
The table below summarizes the amortized cost and net carrying amount of RSO's investment portfolio, classified by asset type, as of December 31, 2015 (in thousands, except percentages):
Weighted
Amortized Net Carrying Percent of average
As of December 31, 2015 cost Amount portfolio coupon
------------ ------------ ----------- -----------
Loans Held for
Investment:
Commercial real estate
loans (1):
Whole loans $ 1,630,801 $ 1,627,056 64.02% 5.09%
B notes 15,934 15,919 0.63% 8.68%
Mezzanine loans 45,372 7,293 0.29% 9.01%
Bank loans (4) 134,517 133,235 5.24% 3.80%
Middle market loans
(5) 379,452 375,513 14.78% 9.72%
Residential mortgage
loans (6) 1,746 1,735 0.07% 4.44%
------------ ------------ -----------
2,207,822 2,160,751 85.03%
------------ ------------ -----------
Loans held for sale (2):
Bank loans 1,475 1,475 0.06% 0.84%
Residential mortgage
loans 94,471 94,471 3.72% 3.92%
------------ ------------ -----------
95,946 95,946 3.78%
------------ ------------ -----------
Investments in
Available-for-Sale
Securities:
CMBS-private placement 158,584 159,424 6.27% 5.21%
RMBS 2,156 2,190 0.08% 4.87%
ABS 41,994 44,214 1.74% N/A (3)
Corporate Bonds 2,422 2,260 0.09% 4.88%
------------ ------------ -----------
205,156 208,088 8.18%
------------ ------------ -----------
Investment Securities-
Trading:
Structured notes 28,576 25,550 1.00% N/A (3)
RMBS 1,896 -- --% N/A (3)
------------ ------------ -----------
30,472 25,550 1.00%
------------ ------------ -----------
Other:
Investment in
unconsolidated
entities 50,030 50,030 1.97% N/A (3)
Direct financing
leases (7) 1,396 931 0.04% 5.66%
------------ ------------ -----------
51,426 50,961 2.01%
------------ ------------ -----------
Total Investment
Portfolio $ 2,590,822 $ 2,541,296 100.00%
============ ============ ===========
(1) Net carrying amount includes an allowance for loan losses of $41.8
million at December 31, 2015, allocated as follows: whole loans $3.7
million, B notes $15,000 and mezzanine loans $38.1 million.
(2) Loans held for sale are carried at the lower of cost or fair market
value. Amortized cost is equal to fair value.
(3) There is no stated rate associated with these securities.
(4) Net carrying amount includes allowance for loan losses of $1.3 million
at December 31, 2015.
(5) Net carrying amount includes allowance for loan losses of $3.9 million
at December 31, 2015.
(6) Net carrying amount includes allowance for loan losses of $11,000 at
December 31, 2015.
(7) Net carrying amount includes allowance for loan losses of $465,000 at
December 31, 2015.
Supplemental Information
The following schedules of reconciliations or supplemental information as of December 31, 2015 are included at the end of this release:
- Schedule I - Reconciliation of GAAP Net Income to Funds from Operations ("FFO") and AFFO.
- Schedule II - Summary of General and Administrative Expenses.
- Schedule III - Summary of Securitization Performance Statistics.
- Supplemental Information regarding loan investment statistics, CRE loans, bank loans and middle market loans.
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 commercial real estate-related debt and equity investments. RSO also makes other commercial finance investments.
RSO is externally managed by Resource Capital Manager, Inc., an indirect wholly-owned subsidiary of Resource America, Inc. (NASDAQ: REXI), an asset management company that specializes in real estate and credit investments.
For more information, please visit RSO's website at www.resourcecapitalcorp.com or contact investor relations at [email protected].
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 which have affected and may continue to affect the value of real estate and other assets underlying RSO's investments;
- increases in financing or administrative costs; and
- general business and economic conditions that have impaired and may continue to impair the credit quality of borrowers and RSO's ability to originate loans.
For further information concerning these and other risks pertaining to the forward-looking statements contained in this release, and to the general risks to which RSO is subject, see Item 1A, "Risk Factors" included in its Annual Report on Form 10-K and the risks expressed in other of its public filings with the Securities and Exchange Commission.
RSO cautions you not to place undue reliance on any forward-looking statements contained in this release, which speak only as of the date of this release. All subsequent written and oral forward-looking statements attributable to RSO or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this release. Except to the extent required by applicable law or regulation, RSO undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of this filing or to reflect the occurrence of unanticipated events.
Furthermore, certain non-GAAP financial measures will be discussed on this conference call. Our presentations of this information is not intended to be considered in isolation 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 Generally Accepted Accounting Principles can be accessed through our 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, reconciliation of GAAP net income to FFO and AFFO, summary of securitization performance statistics and supplemental information regarding RSO's CRE loan, bank loan and middle market loan portfolios.
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
December 31, December 31,
2015 2014
------------ ------------
(unaudited)
ASSETS (1)
Cash and cash equivalents $ 78,756 $ 79,905
Restricted cash 40,635 122,138
Investment securities, trading 25,550 20,786
Investment securities available-for-sale,
pledged as collateral, at fair value 162,306 197,800
Investment securities available-for-sale, at
fair value 45,782 77,920
Linked transactions, net at fair value -- 15,367
Loans held for sale ($94.5 million and $113.4
million at fair value) 95,946 113,675
Property available-for-sale -- 180
Loans, pledged as collateral and net of
allowances of $47.5 million and $4.6 million 2,160,751 1,925,980
Loans receivable-related party -- 558
Investments in unconsolidated subsidiaries 50,030 59,827
Derivatives, at fair value 3,446 5,304
Interest receivable 14,009 16,260
Deferred tax asset, net 12,646 12,634
Principal paydown receivable 17,941 40,920
Direct financing leases, net of allowances of
$465,000 and $0 931 2,109
Intangible assets 26,228 18,610
Prepaid expenses 3,180 4,196
Other assets 22,295 14,510
------------ ------------
Total assets $ 2,760,432 $ 2,728,679
============ ============
LIABILITIES (2)
Borrowings $ 1,895,288 $ 1,716,871
Distribution payable 17,351 30,592
Accrued interest expense 5,604 2,123
Derivatives, at fair value 3,941 8,476
Accrued tax liability 549 9,219
Accounts payable and other liabilities 10,939 9,287
------------ ------------
Total liabilities 1,933,672 1,776,568
------------ ------------
EQUITY
Preferred stock, par value $0.001: 10,000,000
shares authorized 8.50% Series A cumulative
redeemable preferred shares, liquidation
preference $25.00per 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 5,740,479 and
5,601,146 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; 31,562,724 and 33,243,794
shares issued and outstanding (including
691,369 and 505,910 unvested restricted
shares) 32 33
Additional paid-in capital 1,228,346 1,245,345
Accumulated other comprehensive income (loss) (2,923) 6,043
Distributions in excess of earnings (406,603) (315,910)
------------ ------------
Total stockholders' equity 818,864 935,523
Non-controlling interests 7,896 16,588
------------ ------------
Total equity 826,760 952,111
------------ ------------
TOTAL LIABILITIES AND EQUITY $ 2,760,432 $ 2,728,679
============ ============
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
(in thousands, except share and per share data)
December 31, December 31,
2015 2014
------------ ------------
(unaudited)
(1) Assets of consolidated Variable Interest
Entities ("VIEs") included in the total assets
above:
Cash and cash equivalents $ 95 $ 25
Restricted cash 39,061 121,247
Investments securities available-for-sale,
pledged as collateral, at fair value 66,137 119,203
Loans, pledged as collateral and net of
allowances of $42.8 million and $3.3 million 1,416,441 1,261,137
Loans held for sale 1,475 282
Interest receivable 6,592 8,941
Prepaid expenses 238 221
Principal receivable 17,800 25,767
Other assets 833 (12)
------------ ------------
Total assets of consolidated VIEs $ 1,548,672 $ 1,536,811
============ ============
(2) Liabilities of consolidated VIEs included in
the total liabilities above:
Borrowings $ 1,032,581 $ 1,046,494
Accrued interest expense 923 1,000
Derivatives, at fair value 3,346 8,439
Unsettled loan purchases -- (529)
Accounts payable and other liabilities (117) (386)
------------ ------------
Total liabilities of consolidated VIEs $ 1,036,733 $ 1,055,018
============ ============
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Three Months Ended Years Ended
December 31, December 31,
------------------------ ------------------------
2015 2014 2015 2014
----------- ----------- ----------- -----------
(unaudited) (unaudited)
REVENUES
Interest income:
Loans $ 39,006 $ 29,383 $ 134,930 $ 102,857
Securities 3,914 4,702 18,332 17,265
Leases 306 -- 556 --
Interest income -
other 1,340 1,304 4,259 6,785
----------- ----------- ----------- -----------
Total interest
income 44,566 35,389 158,077 126,907
Interest expense 17,721 13,726 65,653 45,473
----------- ----------- ----------- -----------
Net interest
income 26,845 21,663 92,424 81,434
Rental income -- 664 -- 8,441
Dividend income 16 17 66 186
Fee income 3,192 2,219 9,509 9,385
----------- ----------- ----------- -----------
Total revenues 30,053 24,563 101,999 99,446
----------- ----------- ----------- -----------
OPERATING EXPENSES
Management fees -
related party 2,994 3,584 13,306 13,584
Equity compensation -
related party 1,584 2,069 3,145 6,566
Rental operating
expense -- 275 6 5,443
Lease operating 43 -- 57 --
General and
administrative 14,412 11,361 48,080 34,861
Depreciation and
amortization 3,044 579 4,858 2,737
Impairment losses 313 -- 372 --
Provision for loan
losses 6,055 3,543 49,889 1,804
----------- ----------- ----------- -----------
Total operating
expenses 28,445 21,411 119,713 64,995
----------- ----------- ----------- -----------
1,608 3,152 (17,714) 34,451
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE)
Equity in net earnings
of unconsolidated
subsidiaries 686 104 2,388 4,767
Net realized and
unrealized gain
(loss) on sales of
investment securities
available-for-sale
and loans and
derivatives 5,723 7,321 35,703 15,283
Net realized and
unrealized (loss)
gain on investment
securities, trading (2,320) (984) (547) (2,818)
Unrealized gain (loss)
and net interest
income on linked
transactions, net -- 356 235 7,850
(Loss) on
reissuance/gain on
extinguishment of
debt -- (1,973) (1,403) (4,442)
Gain on sale of real
estate 225 3,154 206 6,127
Other income (expense) 60 -- 60 (1,262)
----------- ----------- ----------- -----------
Total other income
(expense) 4,374 7,978 36,642 25,505
----------- ----------- ----------- -----------
NET INCOME (LOSS) BEFORE
TAXES 5,982 11,130 18,928 59,956
Income tax (expense)
benefit 1,224 1,545 (1,745) 2,212
----------- ----------- ----------- -----------
NET INCOME (LOSS) 7,206 12,675 17,183 62,168
Net (income) loss
allocated to
preferred shares (6,115) (5,873) (24,437) (17,176)
Net (income) loss
allocable to non-
controlling interest,
net of taxes (142) 104 (6,628) (965)
----------- ----------- ----------- -----------
NET INCOME (LOSS)
ALLOCABLE TO COMMON
SHARES $ 949 $ 6,906 $ (13,882) $ 44,027
=========== =========== =========== ===========
NET INCOME (LOSS) PER
COMMON SHARE - BASIC $ 0.03 $ 0.21 $ (0.43) $ 1.38
=========== =========== =========== ===========
NET INCOME (LOSS) PER
COMMON SHARE - DILUTED $ 0.03 $ 0.21 $ (0.43) $ 1.36
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING - BASIC 31,100,828 32,450,417 32,280,319 32,007,766
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OFCOMMON SHARES
OUTSTANDING - DILUTED 31,551,089 32,725,085 32,280,319 32,314,847
=========== =========== =========== ===========
SCHEDULE I
RESOURCE CAPITAL CORP. AND SUBSIDIARIES RECONCILIATION OF GAAP NET INCOME TO FFO and AFFO (in thousands, except per share data) (unaudited)
Funds from Operations
The Company evaluates its performance based on several performance measures, including funds from operations, or FFO, and adjusted funds from operations ("AFFO") in addition to net income. The Company computes FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts as net income (computed in accordance with GAAP), excluding gains or losses on the sale of depreciable real estate, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, and after adjustments for unconsolidated/uncombined partnerships and joint ventures.
AFFO is a computation made by analysts and investors to measure a real estate company's operating performance. We calculate AFFO by adding or subtracting from FFO the impact of non-cash accounting items as well as the effects of items that we deem to be non-recurring in nature. We deem transactions to be non-recurring if a similar transaction has not occurred in the past two years, and if we do not expect a similar transaction to occur in the next two years. We adjust for these non-cash and non-recurring items to analyze our ability to produce cash flow from on-going operations, which we use to pay dividends to our shareholders. Non-cash adjustments to FFO include the following: impairment losses resulting from fair value adjustments on financial instruments; provisions for loan losses; equity investment gains and losses; straight-line rental effects; share based compensation expense; amortization of various deferred items and intangible assets; gains on sales of property that are wholly owned or owned through a joint venture; the cash impact of capital expenditures that are related to our real estate owned; and REIT tax planning adjustments, which primarily relate to accruals for owned properties for which we made a foreclosure election and adjustments to tax estimates with respect to the final resolution of foreclosed property when it is listed for sale. In addition, we calculate AFFO by adding and subtracting from FFO the realized cash impacts of the following: extinguishment of debt, reissuances of debt, sales of property and capital expenditures.
Management believes that FFO and AFFO are appropriate measures of the Company's operating performance in that they are frequently used by analysts, investors and other parties in the evaluation of REITs. Management uses FFO and AFFO as measures of its operating performance, and believes they are also useful to investors, because they facilitate an understanding of the Company's operating performance after adjustment for certain non-cash items, such as real estate depreciation, share-based compensation and various other items required by GAAP, and capital expenditures, that may not necessarily be indicative of current operating performance and that may not accurately compare the Company's operating performance between periods.
While the Company's calculations of AFFO may differ from the methodology used for calculating AFFO by other REITs and its AFFO may not be comparable to AFFO reported by other REITs, the Company also believes that FFO and AFFO may provide the Company and its investors with an additional useful measure to compare its performance with some other REITs. Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities determined in accordance with GAAP. Furthermore, FFO and AFFO do not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor AFFO should be considered as an alternative to GAAP net income as an indicator of the Company's operating performance or as an alternative to cash flow from operating activities as a measure of its liquidity.
Adjusted net income and normalized AFFO reflect what management believes is a transparent look into what the quarter's net income and AFFO would have been if not for certain items, including many non-recurring items, that do not represent the Company's expected ongoing operations.
The following table reconciles GAAP net income (loss) to FFO and AFFO for the periods presented (unaudited) (in thousands, except per share data):
Three Months Ended Years Ended
December 31, December 31,
------------------ ------------------
2015 2014 2015 2014
-------- -------- -------- --------
Net income (loss) allocable to
common shares - GAAP $ 949 $ 6,906 $(13,882) $ 44,027
Adjustments:
Real estate depreciation and
amortization -- -- -- 506
Gains on sales of property (1) (415) (3,511) (396) (8,990)
Gains on sale of preferred equity -- 195 -- (912)
-------- -------- -------- --------
FFO allocable to common shares 534 3,590 (14,278) 34,631
Adjustments:
Non-cash items:
Adjust for impact of imputed
interest on VIE accounting -- -- -- --
Provision (recovery) for loan and
lease losses 867 (271) 43,438 820
Amortization of deferred costs
(non real estate) and intangible
assets 4,194 2,932 13,949 8,309
Amortization of discount on
convertible senior notes 708 -- 2,364 1,879
Impairment charge on intangible
asset, net of tax benefit 1,534 -- 1,534 --
Equity investment (gains) losses (1,467) 696 (2,829) 2,243
Share-based compensation 1,585 2,069 3,145 6,566
Impairment losses 313 -- 372 --
Unrealized (gains) losses on CMBS
marks - linked transactions (2) -- 97 (235) (1,894)
Unrealized (gains) losses on
trading portfolio 1,880 1,310 1,616 2,567
Unrealized (gains) losses on FX
transactions (116) 822 1,985 3,363
Unrealized (gains) losses on
derivatives (295) (1,760) 2,029 (1,381)
Other adjustments -- -- -- 2
Loss on reissuance of debt -- 1,973 1,403 4,442
Change in mortgage servicing
rights valuation reserve (550) 364 100 664
Change in residential loan
warranty reserve 1,694 -- 2,295 --
Dead deal costs -- -- 399 --
REIT tax planning adjustments -- (17) 317 1,403
Cash items:
Gains on sales of property (1) 415 3,511 396 8,990
Gains on sale preferred equity -- (195) -- 912
Gains on resale of debt -- 6,536 9,252 21,469
Capital expenditures -- -- -- (38)
-------- -------- -------- --------
AFFO allocable to common shares $ 11,296 $ 21,657 $ 67,252 $ 94,947
======== ======== ======== ========
Weighted average shares - diluted 31,551 32,725 32,280 32,315
AFFO per share - diluted $ 0.36 $ 0.66 $ 2.08 $ 2.94
======== ======== ======== ========
(1) Amount represents gains/losses on sales of owned real estate as well as
sales of a joint venture real estate interest that were recorded by RSO
on an equity basis.
(2) Due to a change in accounting guidance, as of January 1, 2015, the
concept of linked transactions no longer exists.
We have five reportable operating segments: Commercial Real Estate Lending, Commercial Finance, Middle Market Lending, Residential Mortgage Lending, and Corporate & Other. The reportable operating segments are business units that offer different products and services. The Commercial Real Estate Lending operating segment includes our activities and operations related to commercial real estate loans, commercial real estate-related securities, and investments in real estate. The Commercial Finance operating segment includes our activities and operations related to bank loans, bank 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 loans. The Residential Mortgage Lending operating segment includes our activities and operations related to the origination and servicing of residential mortgage loans and the investment in residential mortgage-backed securities ("RMBS"). 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. In an effort to normalize net income (loss) and AFFO, for the three months ended, the following table presents a reconciliation of GAAP net income (loss) to adjusted net income (loss) and normalized AFFO for the three months ended December 31, 2015 presented by operating segment (in thousands, except per share data):
Commercial
Real Middle Residential
Estate Commercial Market Mortgage Corporate
Lending Finance Lending Lending & Other Total
-------- -------- -------- ------- -------- -------
Net income (loss)
allocable to
common shares -
GAAP, before
normalization
adjustments $ 20,202 $ (2,996) $ 3,200 $(2,614) $(16,843) $ 949
Normalization
adjustments:
Middle market
portfolio
lower of cost
or market
adjustment,
net of tax -- -- 2,600 -- -- 2,600
Middle market
portfolio
provision, net
of tax -- -- 3,300 -- -- 3,300
Residential
mortgage
lending
nonrecurring
legacy loan
indemnification -- -- -- 1,500 -- 1,500
Residential
mortgage
lending
nonrecurring
direct write-
off of aged
servicing
advanced
receivables -- -- -- 825 -- 825
Impairment -
RCAM related
CLO, net of
tax -- 1,534 -- -- -- 1,534
Legacy trading
portfolio
mark-to-market
adjustment,
net of tax -- 1,000 -- -- -- 1,000
Share based
compensation,
mark-to-market
adjustment -- -- -- -- 900 900
Direct
financing
leases
provision, net
of tax -- 307 -- -- -- 307
Bank loan
portfolio
provision -- 816 -- -- -- 816
-------- -------- -------- ------- -------- -------
Total
normalization
adjustments -- 3,657 5,900 2,325 900 12,782
-------- -------- -------- ------- -------- -------
Adjusted net
income (loss) 20,202 661 9,100 (289) (15,943) 13,731
Adjustments to
net income
(loss) to
reconcile AFFO:
Provision
(recovery) for
loan and lease
losses (275) 155 (2,747) 11 -- (2,856)
Amortization of
deferred costs
(non real
estate) and
intangible
assets 1,913 1,778 233 239 31 4,194
Amortization of
discount on
convertible
senior notes -- -- -- -- 708 708
Equity
investment
(gains) losses -- (1,467) -- -- -- (1,467)
Share-based
compensation -- -- -- -- 685 685
Impairment
losses -- 314 -- -- -- 314
Unrealized
(gains) losses
on trading
portfolio -- 880 -- -- -- 880
Unrealized
(gains) losses
on FX
transactions -- (116) -- -- -- (116)
Unrealized
(gains) losses
on derivatives -- -- (224) 126 (197) (295)
Change in
mortgage
servicing
rights
valuation
reserve -- -- -- (550) -- (550)
Change in
residential
loan warranty
reserve -- -- -- 194 -- 194
-------- -------- -------- ------- -------- -------
Total AFFO
adjustments 1,638 1,544 (2,738) 20 1,227 1,691
-------- -------- -------- ------- -------- -------
AFFO allocable by
segment $ 21,840 $ 2,205 $ 6,362 $ (269) $(14,716) $15,422
======== ======== ======== ======= ======== =======
Weighted average
shares - diluted 31,551 31,551 31,551 31,551 31,551 31,551
AFFO per share -
diluted (by
segment) $ 0.69 $ 0.07 $ 0.20 $ (0.01) $ (0.47) $ 0.49
Contribution by
percentage 72.5% 7.3% 21.1% (0.9)%
Allocation $ 0.35 $ 0.04 $ 0.10 $ --
SCHEDULE II
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUMMARY OF GENERAL AND ADMINISTRATIVE EXPENSES
(in thousands)
(unaudited)
The following table presents the break out of general and administrative
expenses between Corporate general and administrative expenses and
Residential Mortgage Lending general and administrative expenses:
Three Months Ended Years Ended
December 31, December 31,
2015 2014 2015 2014
--------- --------- --------- ---------
General and administrative expenses:
Corporate $ 4,845 $ 3,958 $ 17,746 $ 15,263
Residential mortgage lending 9,567 7,403 30,334 19,598
--------- --------- --------- ---------
Total $ 14,412 $ 11,361 $ 48,080 $ 34,861
========= ========= ========= =========
SCHEDULE III
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUMMARY OF SECURITIZATION PERFORMANCE STATISTICS
(in thousands)
(unaudited)
Securitizations - Distributions and Coverage Test Summary
The following table sets forth the distributions made and coverage test
summaries for each of our securitizations for the periods presented (in
thousands):
Annualized
Interest
Coverage Overcollateralization
Cash Distributions Cushion Cushion
--------------------- ------------ ----------------------
Years Ended As of
December 31, December 31,
--------------------- -----------------------
As of
Initial
Measurement
Name 2015 (1) 2014 (1) 2015 (2) (3) 2015 (4) Date
---------- ---------- ------------ ---------- -----------
Apidos III (5) $ 13,995 $ 3,551 $ -- $ -- $ 11,269
Apidos Cinco $ 6,336 $ 9,757 $ 4,505 $ 21,642 $ 17,774
RREF 2006-1 $ 3,451 $ 10,172 $ 4,003 $ 91,875 $ 24,941
RREF 2007-1 $ 6,102 $ 7,630 $ 19,651 $ 67,149 $ 26,032
RCC CRE Notes 2013 $ 9,129 $ 11,860 N/A N/A N/A
RCC 2014-CRE2 (6) $ 15,826 $ 5,463 N/A $ 35,946 20,663
RCC 2015-CRE3 (7) $ 9,186 N/A N/A $ 20,313 20,313
RCC 2015-CRE4 (8) $ 3,291 N/A N/A $ 8,659 9,397
Moselle CLO S.A.
(9) $ 29,099 $ 2,891 N/A N/A N/A
* The above table does not include Apidos I, Apidos CLO VIII or Whitney CLO
I, as these CLOs were previously called and were substantially liquidated.
No securitizations had open reinvestment periods as of December 31, 2015.
(1) Distributions on retained equity interests in securitizations (comprised
of note investments and preference share ownership) and principal
paydowns on notes owned; RREF CDO 2006-1 includes $0 and $4.2 million of
paydowns during the years ended December 31, 2015 and 2014,
respectively.
(2) Interest coverage includes annualized amounts based on the most recent
trustee statements.
(3) Interest coverage cushion represents the amount by which annualized
interest income expected exceeds the annualized amount payable on all
classes of securitization notes senior to the Company's preference
shares.
(4) Overcollateralization cushion represents the amount by which the
collateral held by the securitization issuer exceeds the maximum amount
required.
(5) Apidos III was liquidated on June 12, 2015 and substantially all of its
assets were sold. The Company received a return of principal of $12.9
million through September 30, 2015.
(6) Resource Capital Corp. 2014-CRE2 has no reinvestment period; however,
principal repayments, for a period ending 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 contains no interest coverage
test provisions.
(7) Resource Capital Corp. 2015-CRE3 closed on February 24, 2015; the first
distribution was in March 2015. There is 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 contains no interest coverage
test provisions.
(8) Resource Capital Corp. 2015-CRE4 closed on August 18, 2015; the first
distribution was in September 2015. There is 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 contains no 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 the Company began to liquidate Moselle CLO S.A.
and by January 2015, all of the assets were sold.
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(in thousands, except percentages)
Loan Investment Statistics
The following table presents information on RSO's impaired loans and
related allowances for the periods indicated (based on amortized cost):
December 31, December 31,
2015 2014
------------ ------------
Allowance for loan losses: (unaudited)
Specific allowance:
Commercial real estate loans $ 40,274 $ --
Bank loans 1,282 570
------------ ------------
Total specific allowance 41,556 570
------------ ------------
General allowance:
Commercial real estate loans 1,565 4,043
Bank loans -- --
Middle market loans 3,939 --
Residential mortgage loans 11 --
------------ ------------
Total general allowance 5,515 4,043
------------ ------------
Total allowance for loans $ 47,071 $ 4,613
============ ============
Allowance as a percentage of total loans 2.1% 0.2%
Loans held for sale:
Bank loans $ 1,475 282
Residential mortgage loans 94,471 113,393
------------ ------------
Total loans held for sale (1) $ 95,946 $ 113,675
============ ============
(1) Loans held for sale are presented at the lower of cost or fair value.
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(unaudited)
The following table presents commercial real estate loan portfolio
statistics as of December 31, 2015 (based on carrying value):
Security type:
Whole loans 98.6%
Mezzanine loans 0.4%
B Notes 1.0%
-----
Total 100.0%
=====
Collateral type:
Multifamily 43.4%
Hotel 13.2%
Office 21.5%
Retail 21.9%
-----
Total 100.0%
=====
Collateral location:
Southern California 16.8%
Northern California 11.9%
Texas 26.8%
Georgia 7.4%
Arizona 3.8%
Florida 5.4%
North Carolina 4.9%
Nevada 3.7%
Colorado 2.8%
Pennsylvania 2.1%
Maryland 2.1%
Minnesota 1.9%
Other 10.4%
-----
Total 100.0%
=====
RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(unaudited)
The following table presents bank loan portfolio statistics by industry as
of December 31, 2015 (based on carrying value):
Industry type:
Diversified/Conglomerate Service 13.1%
Automobile 12.9%
Retail Stores 9.2%
Healthcare, Education and Childcare 7.9%
Chemicals, Plastics and Rubber 7.7%
Hotels, Motels, Inns and Gaming 6.9%
Electronics 4.9%
Personal Transportation 4.0%
Broadcasting and Entertainment 4.7%
Leisure, Amusement, Motion Pictures, Entertainment 3.1%
CDO 2.9%
Printing and Publishing 2.8%
Personal, Food and Miscellaneous Services 2.7%
Finance 2.6%
Aerospace and Defense 2.5%
Utilities 2.1%
Other 10.0%
-----
Total 100.0%
=====
The following table presents middle market loan portfolio statistics by
industry as of December 31, 2015 (based on carrying value):
Industry type:
Diversified/Conglomerate Service 12.8%
Healthcare, Education, and Childcare 12.4%
Insurance 11.1%
Hotels, Motels, Inns, and Gaming 9.9%
Telecommunications 7.7%
Structure Finance Securities 7.4%
Buildings and Real Estate 5.7%
Beverage, Food and Tobacco 5.3%
Leisure, Amusement, Motion Pictures, Entertainment 5.1%
Personal Transportation 4.4%
Banking 3.9%
Home and Office Furnishings, Housewares, and Durable Consumer
Products 2.7%
Personal, Food, and Miscellaneous Services 2.7%
Broadcasting and Entertainment 2.4%
Finance 2.3%
Diversified/Conglomerate Manufacturing 1.8%
Cargo Transport 1.6%
Oil and Gas 0.8%
-----
Total 100.0%
=====
CONTACT: DAVID J. BRYANT CHIEF FINANCIAL OFFICER RESOURCE CAPITAL CORP. 712 Fifth Ave, 12TH Floor New York, NY 10019 212-506-3870
Source: Resource Capital Corp.
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