UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 5, 2014

Resource Capital Corp.
(Exact name of registrant as specified in its charter)
Maryland
 
1-32733
 
20-2287134
(State or other jurisdiction
 
(Commission
 
(IRS Employer
of Incorporation)
 
File Number)
 
Identification No.)
 
 
 
 
 
712 Fifth Avenue, 12th Floor
New York, NY
 
 
 
10019
(Address of principal executive offices)
 
 
 
(Zip Code)
Registrant's telephone number, including area code: 212-506-3899
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))






ITEM 2.02    Results of Operations and Financial Condition.
On August 5, 2014, Resource Capital Corp. (the "Company") issued a press release regarding its operating results for the three and six months ended June 30, 2014. A copy of this press release is furnished with this report as an exhibit. The information in this Current Report, including the exhibit hereto, is being furnished and shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.

ITEM 9.01     Financial Statements and Exhibits.
(d)
The exhibit furnished as part of this report is identified in the Exhibit Index immediately following the signature page of this report. Such Exhibit Index is incorporated herein by this reference.

SIGNATURE(S)
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
Resource Capital Corp.
 
 
 
 
/s/ David J. Bryant
 
Date:
August 5, 2014
 
 David J. Bryant
Chief Financial Officer
 





Exhibit Index
 
Exhibit No.
 
Description
 
 
EX 99.1
 
Press Release
 










FOR IMMEDIATE RELEASE

CONTACT:
DAVID J. BRYANT
CHIEF FINANCIAL OFFICER
RESOURCE CAPITAL CORP.
712 Fifth Ave, 12TH Floor
New York, NY 10019
212-506-3870
        
RESOURCE CAPITAL CORP.
REPORTS RESULTS FOR
THREE AND SIX MONTHS ENDED JUNE 30, 2014
Highlights
•
Adjusted Funds from Operations (“AFFO”) of $0.19 and $0.38 per share-diluted (see Schedule I).
•
Originated $214.0 million in new CRE loans during the three months ended June 30, 2014, with $180.7 million funded. Originated $330.7 million in new CRE loans during the six months ended June 30, 2014, with $288.9 million funded.
•
GAAP net income allocable to common shares of $0.11 and $0.23 per share-diluted.
•
Closed a $354 million commercial securitization at a weighted average cost of LIBOR + 129 bps.
•
Common stock cash dividend of $0.20 and $0.40 per share.

New York, N.Y., August 5, 2014 - Resource Capital Corp. (NYSE: RSO) (“RSO” or the “Company”), a real estate investment trust, or REIT, whose investment strategy focuses on commercial real estate assets, commercial mortgage-backed securities (“CMBS”), commercial finance assets and other investments, reported results for the three and six months ended June 30, 2014.
•
AFFO for the three and six months ended June 30, 2014 was $24.0 million, or $0.19 per share-diluted and $49.0 million, or $0.38 per share-diluted, respectively, as compared to $19.6 million, or $0.16 per share-diluted and $40.6 million, or $0.36 per share-diluted for the three and six months ended June 30, 2013, respectively. A reconciliation of GAAP net income to AFFO is set forth in Schedule I of this release.
•
GAAP net income allocable to common shares for the three and six months ended June 30, 2014 was $14.7 million, or $0.11 per share-diluted and $29.8 million, or $0.23 per share-diluted, respectively, as compared to $6.5 million, or $0.05 per share-diluted and $18.1 million, or $0.16 per share-diluted for the three and six months ended June 30, 2013, respectively.

Jonathan Cohen, CEO and President of Resource Capital Corp., commented, "Our Commercial Real Estate loan originations are growing tremendously. This should benefit the organic growth of our company.  Our CRE loan portfolio reached $1.0 billion of book value for the first time during the second quarter, and our success in securitizing those loans lets us continue to grow in an accretive way."








Additional highlights:
Commercial Real Estate
•
CRE loan portfolio is comprised of approximately 92% senior whole loans as of June 30, 2014, as compared to 88% a year ago.
•
RSO closed and funded $464.9 million of new whole loans in the last 12 months with a weighted average yield of 5.80%, including origination fees. In addition, RSO funded $19.2 million of previous loan commitments on existing loans.
•
GAAP book value of CRE loans held for investment has reached a milestone balance of $1.0 billion.
The following table summarizes RSO's CRE loan activities and fundings of previous commitments, at par, for the three, six and 12 months ended June 30, 2014 (in millions, except percentages):
 
Three Months Ended
 
Six Months Ended
 
12 Months Ended
 
Floating Weighted
Average Spread (2) (3)
 
Weighted Average
Fixed Rate
 
June 30,
2014
 
June 30,
2014
 
June 30,
2014
 
 
New whole loans funded (1) (4) 
$
181.0

 
$
292.5

 
$
484.1

 
4.90
%
 
—

New mezzanine loan funded
3.0

 
3.0

 
3.0

 
—

 
16.00
%
Payoffs (5)
(58.1
)
 
(80.3
)
 
(123.7
)
 
 
 
 
Sales
—

 
—

 
—

 
 
 
 
Principal paydowns
(0.9
)
 
(1.9
)
 
(15.0
)
 
 
 
 
Loans, net
$
125.0

 
$
213.3

 
$
348.4

 
 
 
 
________________
(1)
New whole loan production does not include unfunded commitments on whole loans of $33.3 million which brings total origination of commercial real estate whole loans to $214.0 million during the three months ended June 30, 2014.
(2)
Represents the weighted average rate above the one-month London Interbank Offered Rate (“LIBOR”) on loans whose interest rate is based on LIBOR as of June 30, 2014. Of these loans, $270.9 million have LIBOR floors with a weighted average floor of 0.48%.
(3)
Reflects rates on RSO's portfolio balance as of June 30, 2014.
(4)
Whole loan production includes the funding of previous commitments of $3.3 million for the three months, $6.9 million for the six months and $19.2 million for the twelve months ended June 30, 2014, respectively.
(5)
CRE loan payoffs and extensions resulted in $2.0 million in extension and exit fees during the three months ended June 30, 2014.
•
On July 30, 2014, RSO closed a $354 million CLO backed by self-originated commercial mortgage loans - its second CLO deal in an eight-month period. The CLO issued $235.3 million of non-recourse, floating-rate notes at a weighted average cost of LIBOR + 129 basis points. RSO retained the subordinate notes and the preferred shares in the transaction.
CMBS
•
During the six months ended June 30, 2014, RSO purchased $53.2 million par value of CMBS which were partially financed by 30-day repurchase contracts with a repurchase value of $37.3 million. In addition, RSO purchased $4.3 million, par value, of CMBS, which were financed by RSO's Wells Fargo repurchase facility and were AAA rated by at least one rating agency.
•
RSO sold $87.2 million, par value, of CMBS, which improved in value by $2.0 million during the quarter.




Commercial Finance
The following table summarizes RSO's middle market lending portfolio loan activities and fundings of previous commitments, at par, for the three, six, and 12 months ended June 30, 2014 (in millions, except percentages):
 
Three Months
Ended
June 30,
2014
 
Six Months
Ended
June 30,
2014
 
12 Months
Ended
June 30,
2014
 
Weighted
Average
Spread (1) (2)
 
Weighted
Average
All-in Rate (2)
 
Weighted Average Yield
 
 
 
 
 
 
 
 
 
 
Middle Market loan production (3)
$
77.7

 
$
110.1

 
$
160.3

 
7.16
%
 
8.20
%
 
9.04
%
Sales
(5.1
)
 
(11.6
)
 
(16.7
)
 
 
 
 
 
 
Principal paydowns
(5.1
)
 
(7.2
)
 
(7.9
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Loans, net
$
67.5

 
$
91.3

 
$
135.7

 
 
 
 
 
 
________________
(1)
Represents the weighted average rate above the one-month and three-month LIBOR on loans whose interest rate is based on LIBOR as of June 30, 2014. Of these loans, $120.9 million have LIBOR floors with a weighted average floor of 1.02%.
(2)
Reflects rates on RSO's portfolio balance as of June 30, 2014.
(3)
Loan production does not include $36.1 million of unfunded commitments as of June 30, 2014.
•
RSO's bank loan portfolio, including asset-backed securities (“ABS”), corporate bonds, certain loans held for sale and middle market loans, at the end of the second quarter of 2014 was $757.5 million, at amortized cost, with a weighted-average spread of one-month and three-month LIBOR plus 3.81% at June 30, 2014. RSO's bank loan portfolio was substantially match-funded through four CLO issuances.
•
RSO, through its subsidiary Resource Capital Asset Management, earned $2.8 million of net fees during the six months ended June 30, 2014.
Corporate
•
RSO issued 4.8 million shares of its 8.625% Series C Cumulative Redeemable Preferred Stock, at a price of $24.2125 per share with a liquidation preference of $25.00 per share, for net proceeds of $116.2 million.
•
Total revenues increased by $13.0 million, or 60%, and $14.3 million, or 27%, as compared to revenues for the three and six months ended June 30, 2013, respectively.







Investment Portfolio
The table below summarizes the amortized cost and net carrying amount of RSO's investment portfolio as of June 30, 2014, classified by interest rate and by asset type. The following table includes both (i) the amortized cost of RSO's investment portfolio and the related dollar price, which is computed by dividing amortized cost by par amount, and (ii) the net carrying amount of RSO's investment portfolio and the related dollar price, which is computed by dividing the net carrying amount by par amount (in thousands, except percentages):
 
Amortized
cost
 
Dollar price
 
Net carrying
amount
 
Dollar price
 
Net carrying
amount less
amortized cost
 
Dollar price(4)
June 30, 2014
 
 
 
 
 
 
 
 
 
 
 
Floating rate
 
 
 
 
 
 
 
 
 
 
 
RMBS, trading
$
1,901

 
20.61
%
 
$
332

 
3.60
%
 
$
(1,569
)
 
(17.01
)%
CMBS-private placement
26,644

 
91.86
%
 
16,793

 
57.89
%
 
(9,851
)
 
(33.96
)%
Structured notes - trading
8,056

 
34.62
%
 
8,619

 
37.04
%
 
563

 
2.42
 %
Structured notes - available-for-sale
23,203

 
94.11
%
 
24,655

 
100.00
%
 
1,452

 
5.89
 %
RMBS - available-for-sale
30,647

 
100.00
%
 
30,647

 
100.00
%
 
—

 
—
 %
Mezzanine loans
12,480

 
99.17
%
 
12,422

 
98.70
%
 
(58
)
 
(0.46
)%
Whole loans (1)
954,746

 
99.50
%
 
949,292

 
98.93
%
 
(5,454
)
 
(0.57
)%
Bank loans (2)
706,581

 
99.64
%
 
705,912

 
99.55
%
 
(669
)
 
(0.09
)%
Loans held for sale (3)
15,427

 
98.14
%
 
15,427

 
98.14
%
 
—

 
—
 %
ABS Securities
32,145

 
114.26
%
 
33,360

 
118.58
%
 
1,215

 
4.32
 %
Corporate Bonds
3,360

 
97.25
%
 
3,467

 
100.35
%
 
107

 
3.10
 %
   Total floating rate
1,815,190

 
98.36
%
 
1,800,926

 
97.59
%
 
(14,264
)
 
(0.77
)%
Fixed rate
 
 
 
 
 
 
 
 
 
 
 
CMBS-private placement
149,339

 
79.82
%
 
155,581

 
83.16
%
 
6,242

 
3.34
 %
CMBS-linked transactions
12,901

 
104.67
%
 
13,676

 
110.96
%
 
775

 
6.29
 %
B notes (1)
16,138

 
99.60
%
 
16,062

 
99.13
%
 
(76
)
 
(0.47
)%
Mezzanine loans (1)
54,780

 
99.99
%
 
54,524

 
99.52
%
 
(256
)
 
(0.47
)%
Residential mortgage loans
2,470

 
100.00
%
 
2,444

 
98.95
%
 
(26
)
 
(1.05
)%
Loans held for sale (3)
24,859

 
100.00
%
 
24,859

 
100.00
%
 
—

 
—
 %
Loans receivable-related party
5,451

 
100.00
%
 
4,751

 
87.16
%
 
(700
)
 
(12.84
)%
Total fixed rate
265,938

 
87.71
%
 
271,897

 
89.68
%
 
5,959

 
1.97
 %
Other (non-interest bearing)
 
 
 
 
 
 
 
 
 
 
 
Property available-for-sale
29,509

 
100.00
%
 
29,509

 
100.00
%
 
—

 
—
 %
Investment in unconsolidated entities
60,480

 
100.00
%
 
60,480

 
100.00
%
 
—

 
—
 %
   Total other
89,989

 
100.00
%
 
89,989

 
100.00
%
 
—

 
—
 %
      Grand total
$
2,171,117

 
96.99
%
 
$
2,162,812

 
96.62
%
 
$
(8,305
)
 
(0.37
)%
 
(1)
Net carrying amount includes an allowance for loan losses of $5.8 million at June 30, 2014, allocated as follows:  B notes $76,000, mezzanine loans $314,000 and whole loans $5.5 million.
(2)
Net carrying amount includes allowance for loan losses of $669,000 at June 30, 2014.
(3)
Loans held for sale are carried at the lower of cost or fair market value. Amortized cost is equal to fair value.
(4)
Differences in percentages are due to rounding




Liquidity
At July 31, 2014, after paying our second quarter 2014 common and preferred stock dividends, our liquidity is derived from three primary sources:
•
unrestricted cash and cash equivalents of $156.3 million, restricted cash of $500,000 in margin call accounts and $2.0 million in the form of real estate escrows, reserves and deposits;
•
capital available for reinvestment in two of our securitizations of $3.9 million, all of which is designated to finance future funding commitments on CRE loans; and
•
loan principal repayments of $59.6 million that will pay down outstanding CLO note balances as well as interest collections of $4.5 million.
In addition, RSO has funds available through three term financing facilities to finance the origination of CRE loans of $250 million and $200 million, respectively, and to finance the purchase of CMBS of $67.8 million.
Capital Allocation
As of June 30, 2014, RSO had allocated its invested equity capital among its targeted asset classes as follows: 68% in CRE assets, 31% in commercial finance assets and 1% in other investments.
Supplemental Information
The following schedules of reconciliations or supplemental information as of June 30, 2014 are included at the end of this release:
•
Schedule I - Reconciliation of GAAP Net Income to Funds from Operations (“FFO”) and AFFO.
•
Schedule II - Book Value Allocable to Common Shareholders Rollforward.
•
Schedule III - Securitizations - Distributions and Coverage Test Summary.
•
Supplemental Information regarding loan investment statistics, CRE loans and bank 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 pkamdar@resourcecapitalcorp.com.





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.
The remainder of this release contains RSO's unaudited consolidated balance sheets, unaudited consolidated statements of income, reconciliation of GAAP net income to FFO and AFFO, Book value allocable to common shareholders rollforward, summary of CDO and CLO performance statistics and supplemental information regarding RSO's CRE loan and bank loan portfolios.











RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)

 
June 30,
2014
 
December 31,
2013
 
(unaudited)
 
 
ASSETS (1)
 
 
 
Cash and cash equivalents
$
222,313

 
$
262,270

Restricted cash
91,215

 
63,309

Investment securities, trading
8,951

 
11,558

Investment securities available-for-sale, pledged as collateral, at fair value
196,009

 
162,608

Investment securities available-for-sale, at fair value
68,494

 
52,598

Linked transactions, net at fair value
13,676

 
30,066

Loans held for sale
40,286

 
21,916

Property available-for-sale
29,509

 
25,346

Investment in real estate
—

 
29,778

Loans, pledged as collateral and net of allowances of $6.5 million and $13.8 million
1,740,656

 
1,369,526

Loans receivable–related party net of allowances of $700,000 and $0
4,751

 
6,966

Investments in unconsolidated entities
60,480

 
69,069

Derivatives, at fair value
755

 
—

Interest receivable
12,028

 
8,965

Deferred tax asset
7,480

 
5,212

Principal paydown receivable
31,950

 
6,821

Intangible assets
10,771

 
11,822

Prepaid expenses
4,153

 
2,871

Other assets
15,272

 
10,726

Total assets
$
2,558,749

 
$
2,151,427

LIABILITIES (2)
 

 
 

Borrowings
$
1,579,834

 
$
1,319,810

Distribution payable
28,697

 
27,023

Accrued interest expense
2,063

 
1,693

Derivatives, at fair value
9,855

 
10,586

Accrued tax liability
2,389

 
1,629

Deferred tax liability
4,036

 
4,112

Accounts payable and other liabilities
9,948

 
12,650

Total liabilities
1,636,822

 
1,377,503

STOCKHOLDERS’ EQUITY
 

 
 

Preferred stock, par value $0.001:  10,000,000 shares authorized 8.50% Series A cumulative redeemable preferred shares, liquidation preference $25.00
per share, 1,011,743 and 680,952 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 4,611,294 and 3,485,078 shares issued and outstanding
5

 
3

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 0 shares issued and outstanding
5

 
—

Common stock, par value $0.001:  500,000,000 shares authorized; 131,153,573 and 127,918,927 shares issued and outstanding (including 2,550,103 and 3,112,595 unvested restricted shares)
131

 
128

Additional paid-in capital
1,209,488

 
1,042,480

Accumulated other comprehensive loss
(10,194
)
 
(14,043
)
Distributions in excess of earnings
(277,120
)
 
(254,645
)
Total stockholders’ equity
922,316

 
773,924

     Non-controlling interest
(389
)
 
—

          Total equity
921,927

 
773,924

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
$
2,558,749

 
$
2,151,427








RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
(in thousands, except share and per share data)

 
June 30,
2014
 
December 31,
2013
 
(unaudited)
 
 
(1) Assets of consolidated VIEs included in total assets:
 
 
 
        Restricted cash
$
88,762

 
$
61,372

        Investment securities available-for-sale, pledged as collateral, at fair value
114,641

 
105,846

        Loans held for sale
1,808

 
2,376

        Loans, pledged as collateral and net of allowances of $4.9 million and $8.8 million
1,234,382

 
1,219,569

        Interest receivable
6,955

 
5,627

        Prepaid expenses
154

 
247

        Principal paydown receivable
31,950

 
6,821

        Total assets of consolidated VIEs (a)
$
1,478,652

 
$
1,401,858

 
 
 
 
(2) Liabilities of consolidated VIEs included in total liabilities:
 
 
 
        Borrowings
$
1,111,314

 
$
1,070,339

        Accrued interest expense
1,295

 
918

        Derivatives, at fair value
9,071

 
10,191

        Accounts payable and other liabilities
1,958

 
1,604

        Total liabilities of consolidated VIEs (b)
$
1,123,638

 
$
1,083,052

_______________
(a)
Assets of each of the consolidated variable interest entities ("VIE"s) may only be used to settle the obligations of each respective VIE.
(b)
The creditors of the Company's VIEs have no recourse to the general credit of the Company.





RESOURCE CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(unaudited)

 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2014
 
2013
 
2014
 
2013
REVENUES
 
 
 
 
 
 
 
Interest income:
 
 
 
 
 
 
 
Loans
$
26,219

 
$
26,184

 
$
46,448

 
$
53,996

Securities
3,391

 
3,896

 
7,395

 
7,538

Interest income − other
982

 
635

 
3,834

 
2,501

Total interest income
30,592

 
30,715

 
57,677

 
64,035

Interest expense
10,610

 
11,134

 
20,247

 
22,299

Net interest income
19,982

 
19,581

 
37,430

 
41,736

Rental income
1,507

 
5,052

 
6,659

 
11,226

Dividend income
17

 
17

 
153

 
33

Equity in net earnings (losses) of unconsolidated subsidiaries
1,762

 
72

 
3,776

 
(353
)
Fee income
2,717

 
1,527

 
5,473

 
2,937

Net realized and unrealized gains on sales of investment securities available-for-sale and loans
4,261

 
2,394

 
7,941

 
2,785

Net realized and unrealized (losses) gains on investment securities, trading
(650
)
 
(1,751
)
 
(2,210
)
 
(635
)
Unrealized gains (losses) and net interest income on linked transactions, net
5,012

 
(5,245
)
 
7,317

 
(5,504
)
Total revenues
34,608

 
21,647

 
66,539

 
52,225

OPERATING EXPENSES
 

 
 

 
 

 
 

Management fees − related party
3,314

 
2,915

 
6,394

 
5,893

Equity compensation − related party
2,032

 
2,155

 
3,699

 
5,746

Rental operating expense
1,077

 
3,624

 
4,473

 
7,561

General and administrative
11,896

 
2,382

 
20,001

 
5,863

Depreciation and amortization
760

 
999

 
1,596

 
2,137

Income tax (benefit) expense
(446
)
 
1,737

 
(430
)
 
3,499

Net impairment losses recognized in earnings
—

 
535

 
—

 
556

Provision (benefit) for loan losses
782

 
(1,242
)
 
(3,178
)
 
(200
)
Total operating expenses
19,415

 
13,105

 
32,555

 
31,055

 
15,193

 
8,542

 
33,984

 
21,170

OTHER REVENUE (EXPENSE)
 

 
 

 
 

 
 

Loss on reissuance of debt
(533
)
 
—

 
(602
)
 
—

Other expense
—

 
—

 
(1,262
)
 
—

Gain on sale of real estate
3,042

 
—

 
3,042

 
—

Total other revenue
2,509

 
—

 
1,178

 
—

NET INCOME
17,702

 
8,542

 
35,162

 
21,170

Net income allocated to preferred shares
(3,358
)
 
(1,800
)
 
(5,758
)
 
(3,111
)
Net loss (income) allocable to non-controlling interest, net of taxes
333

 
(209
)
 
389

 
—

NET INCOME ALLOCABLE TO COMMON SHARES
$
14,677

 
$
6,533

 
$
29,793

 
$
18,059

NET INCOME PER COMMON SHARE – BASIC
$
0.12

 
$
0.05

 
$
0.24

 
$
0.16

NET INCOME PER COMMON SHARE – DILUTED
$
0.11

 
$
0.05

 
$
0.23

 
$
0.16

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING − BASIC
126,952,493

 
120,738,176

 
126,288,516

 
112,508,254

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING − DILUTED
128,142,637

 
122,283,503

 
127,409,127

 
113,832,183







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 cash flow generated by operations.  The Company calculates AFFO by adding or subtracting from FFO the non-cash impacts of the following: non-cash impairment losses resulting from fair value adjustments on financial instruments, provision for loan losses, equity investment gains and losses, straight-line rental effects, share based compensation, amortization of various deferred items and intangible assets, gains or losses on sales of property that are wholly owned or owned through a joint venture, in addition to the cash impact of capital expenditures that are related to its real estate owned. In addition, the Company adds and subtracts from FFO the cash and non-cash impact of reissuances or extinguishments of debt and sales of property, respectively.
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.





The following table reconciles GAAP net income to FFO and AFFO for the periods presented (unaudited) (in thousands, except share and per share data):
 
 
Three Months Ended
 
Six Months Ended
 
 
June 30,
 
June 30,
 
 
2014
 
2013
 
2014
 
2013
Net income allocable to common shares - GAAP
 
$
14,677

 
$
6,533

 
$
29,793

 
$
18,059

Adjustments:
 
 
 
 
 
 
 
 
   Real estate depreciation and amortization
 
214

 
592

 
506

 
1,265

   Gains on sale of property (1) 
 
(3,912
)
 
—

 
(4,778
)
 
22

   Gains on sale of preferred equity
 
(65
)
 
—

 
(1,049
)
 
—

FFO
 
10,914

 
7,125

 
24,472

 
19,346

Adjustments:
 
 
 
 
 
 
 
 
Non-cash items:
 
 
 
 
 
 
 
 
   Adjust for impact of imputed interest on
VIE accounting
 
—

 
1,090

 
—

 
—

   Provision (benefit) for loan losses
 
688

 
(1,928
)
 
563

 
(1,734
)
   Amortization of deferred costs (non real estate)
and intangible assets
 
1,963

 
1,604

 
4,186

 
3,470

   Equity investment losses (gains)
 
278

 
(304
)
 
1,560

 
32

   Share-based compensation
 
2,032

 
2,155

 
3,699

 
5,746

   Impairment losses
 
—

 
535

 
—

 
556

   Unrealized (gains) losses on CMBS marks - linked transactions
 
(439
)
 
6,385

 
(2,202
)
 
6,385

   Unrealized loss on trading portfolio
 
1,029

 
—

 
1,471

 
—

   Straight line rental adjustments
 
—

 
1

 
2

 
3

   Loss on resale of debt
 
533

 
—

 
602

 
—

   MTM adjustments on consolidated European CLO
 
(146
)
 
—

 
(146
)
 
—

   PCM expenses
 
—

 
—

 
300

 
—

REIT tax planning adjustments
 
170

 
1,632

 
1,127

 
2,358

Cash items:
 
 
 
 
 
 
 
 
   Gains on sale of property (1) 
 
3,912

 
—

 
4,778

 
(22
)
   Gains on sale of preferred equity
 
65

 
—

 
1,049

 
—

   Gain on the extinguishment of debt
 
3,068

 
1,716

 
7,599

 
5,301

   Capital expenditures
 
(25
)
 
(404
)
 
(38
)
 
(822
)
AFFO
 
$
24,042

 
$
19,607

 
$
49,022

 
$
40,619

 
 
 
 
 
 
 
 
 
Weighted average shares – diluted
 
128,142,637

 
122,283,503

 
127,409,127

 
113,832,183

 
 
 
 
 
 
 
 
 
AFFO per share – diluted 
 
$
0.19

 
$
0.16

 
$
0.38

 
$
0.36

 
(1)
Amount represents gains/losses on sales of owned real estate as well as sales of joint venture real estate interests that were recorded by RSO on an equity basis.





SCHEDULE II

RESOURCE CAPITAL CORP. AND SUBSIDIARIES
BOOK VALUE ALLOCABLE TO COMMON SHAREHOLDERS ROLLFORWARD
(dollars in thousands, except per share data)
(unaudited)

Balance Sheet - Book Value Reconciliation Year to Date
 
 
Amount
 
Per Share
Book value at December 31, 2013, allocable to common shareholders (1)
 
$
674,681

 
$
5.41

Net income allocable to common shareholders - six months ended
 
29,793

 
0.23

 
 
 
 
 
Change in other comprehensive loss:
 
 
 
 
    Available for sale securities
 
2,713

 
0.02

    Derivatives
 
1,332

 
0.01

    Foreign currency conversion
 
(196
)
 
—

Common dividends
 
(51,842
)
 
(0.40
)
Proceeds (dilution) from additional shares issued during the period (2)
 
17,671

 
(0.03
)
Total net increase (decrease)
 
(529
)
 
(0.17
)
Book value at June 30, 2014, allocable to common shareholders (1)(3)
 
$
674,152

 
$
5.24

__________________
(1)
Per share calculations exclude unvested restricted stock, as disclosed on the consolidated balance sheets, of 2.6 million and 3.1 million shares as of June 30, 2014 and December 31, 2013, respectively.
(2)
Includes issuance of common shares from the Company's dividend reinvestment plan of 2.6 million shares as well as 120,000 shares issued upon vesting of shares of restricted stock.
(3)
Book value is calculated as total stockholder's equity of $922.3 million less preferred stock equity of $248.2 million.

Balance Sheet - Book Value Reconciliation Quarter to Date
 
 
Amount
 
Per Share
Book value at March 31, 2014, allocable to common shareholders (1)
 
$
665,300

 
5.28

Net income allocable to common shareholders - three months ended
 
14,677

 
0.11

 
 
 
 
 
Change in other comprehensive loss:
 
 
 
 
    Available for sale securities
 
3,003

 
0.02

    Derivatives
 
874

 
0.01

Common dividends
 
(26,179
)
 
(0.20
)
Proceeds (dilution) from additional shares issued during the period (2)
 
16,477

 
0.02

Total net increase (decrease)
 
8,852

 
(0.04
)
Book value at June 30, 2014, allocable to common shareholders (1)(3)
 
$
674,152

 
$
5.24

__________________
(1)
Per share calculations exclude unvested restricted stock, as disclosed on the consolidated balance sheets, of 2.6 million and 2.7 million shares as of June 30, 2014 and March 31, 2014, respectively.
(2)
Includes issuance of common shares from the Company's dividend reinvestment plan of 2.6 million shares as well as 562,000 shares issued upon vesting of shares of restricted stock.
(3)
Book value is calculated as total stockholder's equity of $922.3 million less preferred stock equity of $248.2 million.





SCHEDULE III

RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUMMARY OF CDO AND CLO 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 RSO's securitizations for the periods presented (in thousands):
Name
 
Cash Distributions
 
Annualized Interest Coverage Cushion
 
Overcollateralization Cushion
 
 
Six Months Ended 
 June 30,
 
Year Ended
December 31,
 
As of
June 30,
 
As of
June 30,
 
As of Initial
Measurement Date
 
 
2014 (1)
 
2013 (1)
 
2014 (2) (3)
 
2014 (4)
 
Apidos CDO I (5)
 
$
940

 
$
4,615

 
$
936

 
$
13,213

 
$
17,136

Apidos CDO III (6)
 
$
2,135

 
$
6,495

 
$
3,766

 
$
9,882

 
$
11,269

Apidos Cinco CDO (7)
 
$
5,186

 
$
12,058

 
$
9,807

 
$
19,657

 
$
17,774

RREF 2006-1 (8)
 
$
3,349

 
$
36,828

 
$
6,083

 
$
64,077

 
$
24,941

RREF 2007-1 (9)
 
$
4,242

 
$
10,880

 
$
6,168

 
$
62,208

 
$
26,032

RCC CRE Notes 2013 (10)
 
$
5,701

 
N/A

 
N/A

 
N/A

 
N/A

Moselle CLO S.A. (11)
 
$
1,384

 
N/A

 
N/A

 
N/A

 
N/A

* The above table does not include Apidos CLO VIII or Whitney CLO I, as these CLOs were previously called and were substantially liquidated.
_______________
(1)
Distributions on retained equity interests in CDOs (comprised of note investments and preference share ownership) and principal paydowns on notes owned; RREF CDO 2006-1 includes $231,000 and $28.1 million of paydowns during the six months ended June 30, 2014 and the year ended December 31, 2013, 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 CDO notes senior to the Company's preference shares.
(4)
Overcollateralization cushion represents the amount by which the collateral held by the CDO issuer exceeds the maximum amount required.
(5)
Apidos CDO I's reinvestment period expired in July 2011.
(6)
Apidos CDO III's reinvestment period expired in June 2012.
(7)
Apidos Cinco CDO's reinvestment period expired in May 2014.
(8)
RREF CDO 2006-1's reinvestment period expired in September 2011.
(9)
RREF CDO 2007-1's reinvestment period expired in June 2012.
(10)
RCC CRE Notes 2013 closed on December 23, 2013; the first distribution was in January 2014. There is no reinvestment period for the securitization. Additionally, the indenture contains no coverage tests.
(11)
Moselle CLO S.A. was acquired on February 24, 2014; the first distribution was in April 2014. The reinvestment period for this securitization expired prior to the acquisition of this securitization.






RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(in thousands, except percentages)
(unaudited)

Loan Investment Statistics

The following table presents information on RSO's impaired loans and related allowances for the periods indicated (based on amortized cost):
 
 
June 30,
2014
 
December 31,
2013
Allowance for loan losses:
 
 
 
 
Specific allowance:
 
 
 
 
     Commercial real estate loans
 
$
1,800

 
$
4,572

     Bank loans
 
441

 
2,621

Total specific allowance
 
2,241

 
7,193

General allowance:
 
 
 
 
     Commercial real estate loans
 
4,044

 
5,844

     Bank loans
 
228

 
770

     Residential mortgage loans
 
26

 
—

     Loans receivable, related party
 
700

 
—

Total general allowance
 
4,998

 
6,614

Total allowance for loans
 
$
7,239

 
$
13,807

Allowance as a percentage of total loans
 
0.4
%
 
1.0
%
 
 
 
 
 
Loans held for sale:
 
 
 
 
     Commercial real estate
 
$
—

 
$
—

     Bank loans
 
15,427

 
6,850

     Residential mortgage loans
 
24,859

 
15,066

Total loans held for sale (1)
 
$
40,286

 
$
21,916

__________________
(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 June 30, 2014 (based on par value):
Security type:
 
Whole loans
92.0
%
Mezzanine loans
6.4
%
B Notes
1.6
%
Total
100.0
%
 
 
Collateral type:
 
Multifamily
42.1
%
Hotel
18.6
%
Retail
16.9
%
Office
15.5
%
Mixed Use
3.1
%
Industrial
1.3
%
Other
2.5
%
Total
100.0
%
 
 
Collateral location:
 
Southern California
24.1
%
Northern California
8.4
%
Texas
21.0
%
Arizona
9.5
%
Florida
4.9
%
Pennsylvania
3.3
%
Utah
3.0
%
Washington
2.9
%
Minnesota
2.8
%
Nevada
2.4
%
Other
17.7
%
Total
100.0
%





RESOURCE CAPITAL CORP. AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
(unaudited)

    
The following table presents bank loan portfolio statistics by industry as of June 30, 2014 (based on par value):
Industry type:
 
Healthcare, education and childcare
15.3
%
Diversified/conglomerate service
11.8
%
Chemicals, plastics and rubber
6.2
%
Broadcasting and entertainment
5.9
%
Leisure, amusement, motion pictures, entertainment
5.0
%
Automobile
4.8
%
Retail stores
4.7
%
CDO
4.5
%
Finance
3.9
%
Telecommunications
3.8
%
Hotels, motels, inns and gaming
3.5
%
Personal, food and miscellaneous services
2.8
%
Diversified/conglomerate manufacturing
2.8
%
Electronics
2.7
%
Utilities
2.4
%
Oil and gas
2.3
%
Mining, steel, iron and non-precious metals
2.0
%
Other
15.6
%
Total
100.0
%










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