Resource Capital Corp., (RSO)

Q2 2010 Earnings Call

August 3, 2010 8:30 a.m. ET


Jonathan Cohen – Chief Executive Officer, President, Director, and Chairman of Investment Committee

David Bryant – Chief Financial Officer, Chief Accounting Officer, Sr. Vice President, and Treasurer

David Bloom – Sr. Vice President of Real Estate Investments

Purvi Kamdar – Director of Investor Relations


Gabriel Poggi – FBR Capital Markets



Good day, ladies and gentlemen, and welcome to the Q2 2010 Resource Cap Corp. earnings conference call. My name is Michelle and I will be your operator for today. (Operator instructions.) As a reminder, this conference is being recorded for replay purposes.

I will now turn the presentation over to your host for today’s conference, Mr. Jonathan Cohen, President and CEO of Resource Capital Corp. Please proceed.

Jonathan Cohen

Thank you for joining the Resource Capital Corp conference call for the Q2 of 2010. I am Jonathan Cohen, President and CEO of Resource Capital Corp. Before I begin I would like to ask Purvi Kamdar, our Director of Investor Relations, to read the safe harbor statement.

Purvi Kamdar

Thank you, Jonathan. When used in this conference call, the words “believe,” “anticipate,” “expect,” and similar expressions are intended to identify forward looking statements. Although the company believes that these forward looking statements are based on reasonable assumptions, such statements are subject to certain risks and uncertainties, which can cause actual results to differ materially from those contained in the forward-looking statements.

These risks and uncertainties are discussed in the company’s reports filed with the SEC, including its reports on forms 8K, 10Q, and 10K, and in particular item #1 on the Form 10K report under the title “Risk Factors.” Investors are cautioned not to place undue reliance on these forward looking statements, which speak only of the date hereof. The company undertakes no obligations to update any of these forward-looking statements.

And with that I will turn it back over.

Jonathan Cohen

Thank you, Purvi. First, for a few highlights. For the three and six months ended June 30 th, 2010, we had net income of $0.30 and $0.36 per share diluted respectively, and for the three and six months ended June 30 th, 2010, we had retaxable income of $0.30 and $0.55 per share diluted respectively.

We announced a dividend of $0.25 per common share for the quarter ended June 30 th, 2010, or $12.8 million in aggregate paid on July 27 th, 2010, to stockholders of record as of June 30 th, 2010. GAAP booked value was $5.92 per common share as of June 30 th, 2010.

With those highlights out of the way I will now introduce my colleagues. With me today are David Bloom, Senior Vice President in charge of Real Estate Lending; and David Bryant, our Chief Financial Officer; as well as Purvi Kamdar, our Director of Investor Relations.

The Q2 of 2010 was marked by many positive events, including first we completed a public offering of 8,625,000 shares with net proceeds of approximately $42.8 million. Second, we repurchased $36.1 million par value of our real estate CDO debt at a discount of 45%. Of note, since the quarter end we’ve purchased $20 million par value of our CDO debt at a discount of 31%. These were the AAA’s.

Third, we deployed by mid July, including commitments, most of the capital from our public offering. Fourth we saw our watch list, or impaired list as laid forth in our press release each quarter and today, drop to 6.5% of our portfolio from 9.5% one year ago, a marked improvement in credit. And fifth, we purchased a large portfolio of leases and loans with term financing, with estimated GAAP returns of 18%.

We are excited about where the balance sheet ended this quarter, specifically as it relates to our real estate finance portfolios, which saw leverage fall to a meager 1.7 times. While we continue to build our cash position as our investment update press release indicated a week or so ago, we have started to deploy that cash and will continue to do so. This deployment’s high rates, especially inside the CDOs, will augment our already-growing net interest margin, which grew by over $3 million in the Q2 of 2010 when compared to the Q2 of 2009.

Now to the CDO bond buybacks. Including $20 million of debt we purchased in mid-July, we have now purchased approximately $137 million of our debt back. During 2010 we have purchased approximately $76.4 million at a blended discount of about 38%. This includes $20 million of notes that we bought in July for a gain of $6.25 million, or $0.12 per share. Most of these notes were originally rated AAA through A. While we continue to see debt purchase opportunities and believe we will buy another $20 million to $30 million of debt over the next few months, we are dedicated to growing our interest margin and increasing our gains in our investment portfolio through discount purchases.

This has been most obvious in our commercial finance and syndicated bank loan portfolios where our net spread over LIBOR has increased from 252 basis points as of June, 2009, to 270 basis points as of June, 2010. As I said last quarter we believe we can add between $0.12 to $0.20 of net operating income by putting the cash currently in our structured vehicles as well as some unrestricted cash to work both in terms of continuing to buy back our debt as well as with new investments. We have started to see this, and by September this improvement should be very evident in our earning power.

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