Acres Commercial Realty Corp (ACR) 2006 Q2 法說會逐字稿

Welcome to the second quarter 2006 Resource Capital Corp. earnings conference call. My name is Enrique, and I will be the audio coordinator for today. At this time, all participants are in a listen-only mode. We will be conducting a question and answer session towards the end of the conference.

If at any time during the call you require audio assistance, please press star, followed by zero, and a coordinator will be happy to assist you. I would now like to turn this presentation over to your host for today's call, Mr. Jonathan Cohen, CEO and President of Research Capital Corp. Please proceed, sir.

Thank you, and thank you for joining us for Resource Capital Corporation's second quarter earnings conference call. Before I begin, I would like to read the Safe Harbor statement. When used in this conference call, the words believes, anticipates, expects 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 contained in the forward-looking statements.

These risks and uncertainties are discussed in the company's report filed with the SEC, including its reports on 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 dates hereof. The company undertakes no obligation to update any of these forward-looking statements.

Again, this is Jonathan Cohen, CEO and President of Resource Capital Corporation, and thank you for joining. I am pleased to say that we continued to make progress in building in growing Resource Capital and are beginning to see the fruits of labor pay off. First, I will start with the earnings, and then I will walk you through our dividend and our asset mix and origination platform.

The company earned income of $6.1 million, or $0.34 per share diluted for the quarter ended June 30th, 2006, as compared to net income of 2.2 million or $0.15 per share diluted for the quarter ended June 30th, 2005. Estimated REIT taxable income, a non-GAAP financial measurement, was 6.4 million, or $0.36 per share diluted for the quarter ended June 30th, 2006, as compared to 3.1 million, or $0.20 per share diluted, for the quarter ended June 30th, 2005. To maintain our qualification as a REIT, we must distribute at least 90% of our annual REIT taxable income.

The disparity between our GAAP net income and our taxable REIT income is primarily driven by the amortization of stock-based compensation granted during our 144A offering and any capital items, should they exist, which are excluded from REIT taxable income.

Our dividend. Resource Capital Corp. paid a quarterly dividend of $0.36 per common share for the second quarter of 2006, an increase of $0.03 per common share, or 9%, from the dividend paid for the first quarter of 2006. This distribution was paid on July 21st, 2006, to all shareholders of record as of June 29th, 2006. Based on this dividend, the annual dividend would be $1.44, or an 11.25% yield on the price of the stock at the close of the market on August 1st, 2006.

We are very proud of that increase from the previous quarter's dividend of $0.33 and we look forward to delivering more for our shareholders. Asset mix and origination. We continue to build Resource Capital and focus our attention on building a top-notch REIT focused on commercial loan and mortgage origination and investment. In this regard, we saw the quarter marked by a few major accomplishment.

We hired [Darryl Miros] and [Kyle Gagin], who previously led Bear Stearns' commercial mortgage origination effort to their positions of managing directors and head of their Los Angles office. We have quickly begun to originate through this channel and have approved or funded more than $62 million in mortgages already. We substantially increased our investment equity in commercial real estate, and you'll hear our new CFO talk about the fact that it is closing up almost 40% of our total equity as of the present period.

We invested this specifically in the commercial mezzanine loans, whole loans and B notes, increasing our gross investment from 212 million to 300 million as of July 31st, 2006, even after receiving a paydown of $27.5 million on our B note, secured by the Ritz Carlton in Miami.

On July 27th, we priced a $345 million commercial real estate CDO to match fund our commercial real estate loan. The 265,600 in notes issued by CDO one will provide financing for the $345 million portfolio of real estate loans and will bear interest at a weighted average of LIBOR plus 82 basis points. David Bloom will walk us through some of the highlights of that transaction and tell us a little bit more about the commercial real estate portfolio.

In May, we closed [Appadus 3], a $285 million CLO that completed match funding for our portfolio of commercial syndicated bank loans. We continued to ramp up our syndicated loan portfolio and ended the quarter with over $605 million on our books. These loans earn interest at a weighted average spread of LIBOR plus 235 including that, but as three CDO, we've completed two syndicated bank loan CDOs, providing financing of $584 million at a weighted average rate of LIBOR plus 46 basis points.

We originated this quarter more than $16 million of equipment leases and asset-backed loans, and we saw our RMBS agency portfolio balance continue to decline as we cease to reinvest into this class at this time, and we have been reinvesting those dollars into the commercial products originated both by our new team and our old team and those people who have been working with us for close to a decade.

Now I will ask Dave Bloom to walk through some of the commercial real estate transactions, or, more precisely, just give some details about where we are on the commercial real estate side. And then we'll ask Dave Bryant, our new Chief Financial Officer, to discuss some corporate matters and some financial highlights.

Great, thanks very much, Jonathan. As Jonathan stated, on July 27th, RCC priced its first commercial real estate CDO and this transaction is expected to close on August 10th. Resource real estate funding CDO 2006 one is our first such financing transaction for an initial portfolio of 24 loans, with an aggregate balance of $345 million. The weighted average cost of this spot financing is LIBOR plus 0.82, and this is an actively managed pool with a three-year no call and five-year reinvestment period.

In this transaction, RCC will issue $265.6 million of non-recourse notes, rated AAA through BBB-minus, and RCC will retain the BB, single B tranches, as well as 100% of the preference shares issued by the CDO, leaving RCC's retained interest in this financing transaction at approximately $80 million. As of the pricing of the CDO, the portfolio therein consisted of 20 positions secured by 175 properties in total, which included two A notes, or senior loans, seven B notes and 11 mezzanine loans.

As Jonathan mentioned, we had one loan payoff during the marketing period, so while we went out with a 9% forward ramp, the remaining ramp collateral as of the pricing represented 17% of the deal, but all of this ramp collateral for the deal has been identified and is currently in the closing process.

Just some detail metrics, the average size of the individual loan position in the CDO is $14.9 million, and the weighted average loan to value of the initial portfolio in the aggregate is 73.85%. As to the forward pipeline, it's very full. We have an extensive transaction pipeline with over $500 million of deals in process, of closing or under review. With the addition of our Los Angeles-based origination team to augment our team in New York, our whole loan direct origination platform is ramping up as we have planned, and we continue to see deals from all possible sources.

We're currently structuring our second CDO financing transaction, which we would then anticipate bringing to market before the end of the year. With that, I'll turn it back to Jonathan.

Thank you, Dave, and as many of you know, the prime driver right now really is a shift in the underlying asset mix of our company, moving the roll off of the agency portfolio, which was very well constructed and protected in this very volatile marketplace by our team. But as it rolls off and we don't reinvest, we're reinvesting that quickly into higher-yielding commercial real estate and commercial loan product.

And with that, I'd like to just ask Dave Bryant - first of all, welcome him to the team and then invite him to just give some highlights on corporate highlights and financial highlights.

Thank you, Jonathan. It is my pleasure to be here with RCC and here today to give some financial highlights for the second quarter. Our book value per common share June 30th, 2006, showed modest improvement to $12.66, as compared to $12.46 at December 31st, 2005, a 2% increase. This is based on total stockholders' equity of 225.5 million at June 30th and 195.3 million at December 31st, 2005 and total sales outstanding of approximately 17.8 million and approximately 15.7 million at June 30th and December 31st, respectively.

Our board declared a dividend of $0.36 per common share, or 6.4 million in the aggregate, for the quarter ended June 30th, 2006. We earned estimated REIT taxable income, a non-GAAP measurement, of 6.4 million. That also represents $0.36 per common share outstanding. For the six months ended June 30th, 2006, we have declared total dividends of $0.69 per common share and realized estimated REIT taxable income of 13.6 million, or $0.79 per common share.

We intend to maintain our qualification as a REIT under the Internal Revenue Code by making regular quarterly dividends of at least 90% of our annual REIT taxable income. Resource Capital has steadily decreased its agency RMBS portfolio from 1.5 billion at December 31st, 2005 - I'm sorry, 1 billion at December 31st, 2005, to 790.8 million at June 30th, 2006. As previously indicated, it is the company's objective to lower its exposure to interest rate sensitive assets. Resource Capital has not been reinvesting prepayment proceeds into agency RMBS and continues to believe that this portfolio will decrease substantially in size over the next 18 months. As of August 1st, 2006, the portfolio of agency RMBS had an approximate fair value of 783.5 million.

At June 30th, 2006, our investment portfolio totaled 2.2 billion and in addition to the 790.8 million of agency RMBS, or 36% of our portfolio, we invested 605.1 million, or 28%, in commercial bank loans, 347.8 million, or 16%, in non-agency RMBS, 319 million, or 15%, in commercial real estate-related investments, and 78 million or 4% in leasing assets.

The remaining 21.7 million, or 1%, was in asset-backed securities. At June 30th, 2006, Resource Capital's investment portfolio was financed with approximately 2 billion of total indebtedness and included the following - 960 million of CDO senior notes, 934.1 million of repurchase agreements, 73.3 million outstanding under our term facility, 25.8 million of an unsecured junior subordinated debenture related to our [trust] issuance in May 2006, and of course 225 million of equity.

At June 30th, 2006, our 2 billion in borrowings had a weighted average interest rate of 5.7% and a weighted average maturity of 10.6 years. To conclude, on an equity allocation basis, the portfolio described above breaks down as follows - commercial real estate loans, 38% of our equity, agency, 26% of our equity, which is net of our marked to market, syndicated loans, 22%, non-agency RMBS and asset-backed securities as 12%, and direct financing leases and notes of 2%.

With that, our formal remarks are complete and we'll now be happy to answer any questions you may have.

Thank you, sir.

[OPERATOR INSTRUCTIONS].

Sir, you have a question from the line of [Juan Blake].

Hey, guys, how are you? Congratulations on this quarter. I have a couple of questions regarding your CDOs. I got in late on the call. You said that for the resource real estate funding, the CDO was to have 17% be ramped. When would you expect this to be completed?

We actually already identified that being completed as we speak.

Okay. And then, you also closed the [inaudible] CDO three on May 5th. Is it already ramped, 100% ramped?

This is [John Stallwagon] from Appadus. Yes, we're effectively fully ramped.

And, last question, there is another [appealing] CDO four in the market from Morgan Stanley.

That's not affiliated with Resource Capital Corp. That's being managed by Appadus.

Okay, great. That was it. Thanks.

I just want to also add for those of you, at the end of July, our agency marked to market improved well in excess of $4 million and something I forgot to say before, and all other things being equal it added about $0.25-plus to the end of July, which brought us actually closer to 12.90, or a little bit above that, as far as our actual book value at July 31st. Do we have any other questions?

Sir, at this time, you have no additional questions.

Okay, thank you very much. Great.

Ladies and gentlemen, this concludes the presentation. You may now disconnect.

Have a good day.