EX-99.1 2 rso-20151231xex991.htm EXHIBIT 99.1 Exhibit




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 MONTHS AND YEAR ENDED DECEMBER 31, 2015

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.

New York, N.Y., February 29, 2016 - 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):
 
Three Months Ended
 
12 Months Ended
 
24 Months Ended
 
Floating
Weighted
Average Spread (1) (2)
 
Weighted Average Fixed Rate
 
December 31,
2015
 
December 31,
2015
 
December 31,
2015
 
 
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):
 
 
 
 
 
 
 
Weighted
Average
Spread (1)
 
Weighted
Average
All-in Rate (2)
 
Three Months Ended
 
12 Months Ended
 
24 Months Ended
 
 
 
December 31,
2015
 
December 31,
2015
 
December 31,
2015
 
 
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):
As of December 31, 2015
Amortized
cost
 
Net Carrying Amount
 
Percent of
portfolio
 
Weighted
average 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 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.
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,
2015
 
December 31,
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 $25.00
per 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,
2015
 
December 31,
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 OF
COMMON 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 Estate Lending
 
Commercial Finance
 
Middle Market Lending
 
Residential Mortgage Lending
 
Corporate & 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 December 31,
 
Years Ended 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):
Name
 
Cash Distributions
 
Annualized Interest Coverage Cushion
 
Overcollateralization
Cushion
 
Years Ended
 
As of
 
 
 
December 31,
 
December 31,
 
As of Initial
Measurement Date
 
2015 (1)
 
2014 (1)
 
2015 (2) (3)
 
2015 (4)
 
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.




5RESOURCE 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
%