Acres Commercial Realty Corp (ACR) 2006 Q1 法說會逐字稿

Good day, ladies and gentlemen. And welcome to the first quarter 2006 Resource Capital Corporation conference call. My name is Cindy and I'll be the coordinator for today.

[OPERATOR INSTRUCTIONS]

I'd now like to turn the call over to Mr. Jonathan Cohen, President and Chief Executive Officer. Please proceed, sir.

Thank you. And thank you for joining us for Resource Capital Corporation's first quarter earnings call. Before I began I'd like to read the Safe Harbor Statement. When used in this conference call the words "believes," "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 could cause actual results to differ materially from these containing in the forward-looking statements. These risks and uncertainties are discussed in company's report filed with SEC, including its report in forms 8-K, 10-Q and 10-K and in particular, item one on the Form 10-K report under the title 'Risk Factors.'

Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The company undertakes no obligation to update any of these forward-looking statements.

Again, thank you for joining. I'm pleased to say that we continue to make great progress in building Resource Capital. And we're beginning to see the fruits of our labor pay off. The most obvious way we think to see this is by looking at first earnings, second re-taxable income, third asset mix and origination capability, and the fourth continued dedication to matched funding of assets and liabilities.

First, I'll go through the earnings. The company earned income of $5.2 million or $0.31 per share diluted for the quarter ended March 31, 2006 as compared to a net loss of 48,000 or $0.0 per share diluted for the period ended March 31, 2005. I just want to remind everybody that we [analyze] as a company on March 8, 2005 upon the completion of our 144A offering.

Included in net income for the quarter ended March 31, 2006 was a net capital loss of $1.3 million, which resulted due to the sale of a $125.4 million of the agency RMBS. Our lower than natural pre-payment the agency RMBS preferred continues to shrink and as it May 5, 2006, the total fair value of our agency -- of our agency RMBS was approximately 818 million.

This is approximately $184 million lower than on December 31, 2005. We expect to continue to allow the portfolio to low up and to lower our exposure to this task. As we do that, we expect to reinvest those proceeds into higher yielding assets. The second way to look at this is really through re-taxable income. Re-taxable income and non-GAAP financial measurement was $7.2 million or $0.43 per share diluted for the quarter ended March 31, 2006. This is on the average shares. Based on shares outstanding at the end quarter, re-taxable income was $0.40 per share.

To maintain our qualification as a REIT, as many of you know, we must distribute at least 90% of our annual re-taxable income. The disparity between our GAAP net income and our taxable REIT income is primarily driven by the amortization of stock based compensation and capital items which are excluded from re-taxable income.

Before those capital items but after amortization of stock based compensation, re-taxable income would've been $5.8 million or $0.34 per common share fully diluted. We're proud of these results given the additional shares issued in our initial public offering completed on February 10, 2006 almost halfway through the quarter.

We expect re-taxable income and its counterparts, the dividend that we distribute, to continue to increase as we continue to optimize the use of our equity. The third way to look at our company is asset mix and origination. This quarter saw a noticeable shift in the various asset boxes and substantial lowering over the leverage on our agency RMBS portfolio.

From December 31, 2005 to March 31, 2006, our agency RMBS portfolio decreased 17%. Syndicated loans increased 18%. Commercial real estate increased 24% and actually 42% from December 31, 2005. From May 5, 2006, we've seen assets increased 164%.

Since the end of the quarter this trend continues and the agency RMBS assets continue to decrease. And the commercial real estate and lending assets continue to increase. Most remarkable has been the commercial real estate syndicated loan and commercial lease and loan platforms.

We originated overall $152 million of these types of assets during the quarter ended March 31, 2006. And since the end of the quarter, we have originated over 110 million more of these types of assets.

The fourth way to look at our company is the match funding. Match funding, as of today, we will have completed three CDOs for Resource Capital-- two collateral loan obligation pools and one ABS CDO. These three CDOs will finance over $1 billion of assets, more than 50% of our present total.

We're working hard to complete our first commercial real estate CDO and once completed, we'll have match funded close to 70% of our assets. With the rolling off of the agency RMBS portfolio, which has had substantially until late 2007, we expect the dedication to match funding assets and liability to continue and this percentage to rise.

Now I just want to walk through a few highlights from the quarter. And then I'll ask David Bloom to walk through some of our commercial real estate transactions and give you some characteristics of the portfolio on the commercial real estate side that we now have on our books.

Some highlights. First, the company's net interest income increased to $8.2 million for the quarter ended March 31, 2006. Second, we entered into $100 million secured term credit facility to fund direct investment in equipment leases and notes. Third, our book value increased to 12.79 from 12.46 as of December 31st. Not included in this book value was the net unrealized gain on our syndicated loan portfolio of $2.9 million or over $0.16 per share. This included book value would've been approximately $12.95.

The net duration of the remaining agency RMBS portfolio was 1.74 years and the leverage on the portfolio was approximately nine times debt to equity. The leverage for the company as a whole on March 31, 2006 was 7.9 times debt to equity. We expect it to decrease as we continue to shift our assets to commercial real estate and loans.

Now I'll ask David Bloom, Senior Vice President in charge of Resource real estate funding, our commercial real estate lending arm, to walk us through the happenings on the commercial real estate part of our business.

Thanks very much, Jonathan. With regard to commercial mortgage platform at a current balance of $242.8 million, we've grown our portfolio by $89 million, which represents a 42% increase over the period ended December 31, 2005.

The current commercial mortgage portfolio consist of 17 different loans and represents a granular and diverse pool that we're ramping into our first CDO transaction. The forward pipeline remains very strong with two loans totaling $28 million in the process of closing and an additional six loans totaling $109 million identified and going through our development process.

From a loan to value perspective, the identified commercial mortgage portfolio has a very solid 70% centric characteristic. 68% percentage of the identified portfolio comprised of D-notes within the property's first mortgages as well as an A-note. Approximately 32% of our positions are on mezzanine loans.

The eventual pool for the first CDO transaction should maintain a split of approximately 70% mortgage positions and 30% mezzanine loan positions. The weighted average spread on the commercial mortgage pool is approximately LIBOR plus 325. And during the ramp period for the first CDO, the portfolio is financed on term warehouse facilities at a cost of approximate LIBOR plus 1.25 with an average advance of approximately 68%.

Resource real estate funding CDO 1 is already into the rating agencies and we anticipate marketing a transaction by June with pricing and closing near the end of the current quarter or shortly thereafter.

Our current CDO transaction, which is being led by Deutsche Bank and co-managed by Bear Stearns, will be approximately $340 million in total size and will deploy approximately $84 million of RCC equity.

We anticipate the cost to financing for CDO 1 to be in the neighborhood of LIBOR plus 80 with a leverage of approximately 75%. We're well into the process of planning for and structuring resource real estate funding CDO 2, which we're preliminarily targeting as a year end transaction. Although given the strength of our forward pipeline, we can envision an earlier closing.

Resource real estate funding continues to focus on a direct origination capabilities. As we have proven with prior transactions, there is premium to market pricing for directly originated loans, a function we're uniquely setup to accommodate based on the existing infrastructure that supports Resource real estate nationwide investment platforms in both equity and debt. Having gone through that, I'll now turn it back to Jonathan.

Thank you. And I just want to spend a moment just reminding people that the three CDOs that we put on [CLOs] and one ABS CDO are continuing to perform remarkably. The structure that was put on by our Resource Capital group and the credit underlying the ABS CDO remains pristine and the structure remarkable and tailored for Resource Capital. On the [CLO] side, Gretchen [inaudible] and her team at [inaudible] continue to do an excellent job both on the credits and on maintaining the spread of this marketplace.

And with that, I think that I will open the floor to any questions that our audience may have.

Thank you, sir.

[OPERATOR INSTRUCTIONS]

And your first question will come from the line of Douglas Harter of Credit Suisse. Please proceed.

Thank you. David, I was just wondering, you were talking about the 109 million of loans that are currently going through the due diligence process. If you could sort of walk through what percent you expect to actually close of those and how long that those generally take to work through that process?

Sure Doug. The loans are-- like I said, they're identified. Our due diligence process is fairly exhaustive. I cut back what our [core] pipeline looks like. I would anticipate a ratio of probably 75% there closing-it's a four to six week process.

Okay, so that would likely be either sort of towards the end of this quarter or early next quarter? Is that fair?

Yes. This is Jonathan and we have already closed additional loans after the end of the quarter.

Absolutely. Then just one other just clarification. On the net realized gains, where were the other gains coming from to offset the 1.4 million negative on the RMBS portfolio?

Doug, there were capital gains, a few capital losses and gains within the quarter. In the syndicated loan portfolio, we had gains that were actually flowing through for me on the income statement that are ordinary gains on that portfolio. The agency portfolio had a $1.3 million loss. We have a small loss on the non-agency assets sold in our portfolio and a small loss on a security and the private equity portfolio. Also, on the income statement is a gain from the sale or the repayment of an equipment lease that paid off early and the interest proceeds were received on that repayment.

Thank you.

Thank you.

[OPERATOR INSTRUCTIONS]

And Mr. Cohen, you have no other questions at this time.

Okay, well thank you very much and we look forward to speaking to you next quarter.

Thank you for your participation in today's conference. This does conclude the presentation and you may now disconnect your lines. Have a wonderful day.