• | Net Income |
• | FFO |
• | AFFO |
• | Adjusted Net Income as utilized to calculate the IMF (highlight significant adjustments to net income) |
(dollars in thousands) | For the Years Ended December 31, | |||||||||||||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | Total (1) / Average (2) | ||||||||||||||||||||||||||||
Financial Measures: | ||||||||||||||||||||||||||||||||||||
Net Income/(loss) | $ | 10,908 | $ | 15,606 | $ | 8,890 | $ | (3,074 | ) | $ | 6,339 | $ | 19,447 | $ | 37,716 | $ | 63,199 | $ | 159,031 | |||||||||||||||||
FFO | 10,908 | 15,606 | 8,890 | (3,074 | ) | 6,343 | 19,380 | 41,771 | 64,221 | 164,045 | ||||||||||||||||||||||||||
AFFO | 14,078 | 19,790 | 47,391 | 40,028 | 27,706 | 43,929 | 63,945 | 86,170 | 343,035 | |||||||||||||||||||||||||||
Adjusted Operating Earnings | 13,961 | 19,158 | 11,930 | 26,402 | 45,098 | 41,843 | 47,771 | 94,357 | 300,520 | |||||||||||||||||||||||||||
Base management fees: | $ | 2,668 | $ | 3,718 | $ | 5,079 | $ | 4,547 | $ | 3,787 | $ | 5,413 | $ | 6,995 | $ | 8,315 | $ | 40,522 | ||||||||||||||||||
Net Income | 24.5 | % | 23.8 | % | 57.1 | % | (147.9 | )% | 59.7 | % | 27.8 | % | 18.5 | % | 13.2 | % | 25.5% | |||||||||||||||||||
FFO | 24.5 | % | 23.8 | % | 57.1 | % | (147.9 | )% | 59.7 | % | 27.9 | % | 16.7 | % | 12.9 | % | 24.7% | |||||||||||||||||||
AFFO | 19.0 | % | 18.8 | % | 10.7 | % | 11.4 | % | 13.7 | % | 12.3 | % | 10.9 | % | 9.6 | % | 11.8% | |||||||||||||||||||
Adjusted Operating Earnings | 19.1 | % | 19.4 | % | 42.6 | % | 17.2 | % | 8.4 | % | 12.9 | % | 14.6 | % | 8.8 | % | 13.5% | |||||||||||||||||||
Incentive fees, excluding extinguishment of debt and TRS (detailed below): | $ | 344 | $ | 1,120 | $ | 1,475 | $ | 1,324 | $ | — | $ | — | $ | 755 | $ | 1,993 | $ | 7,011 | ||||||||||||||||||
Net Income | 3.2 | % | 7.2 | % | 16.6 | % | (43.1 | )% | 0.0% | 0.0% | 2.0 | % | 3.2 | % | 4.4% | |||||||||||||||||||||
FFO | 3.2 | % | 7.2 | % | 16.6 | % | (43.1 | )% | 0.0% | 0.0% | 1.8 | % | 3.1 | % | 4.3% | |||||||||||||||||||||
AFFO | 2.4 | % | 5.7 | % | 3.1 | % | 3.3 | % | 0.0% | 0.0% | 1.2 | % | 2.3 | % | 2.0% | |||||||||||||||||||||
Adjusted Operating Earnings | 2.5 | % | 5.8 | % | 12.4 | % | 5.0 | % | 0.0% | 0.0% | 1.6 | % | 2.1 | % | 2.3% | |||||||||||||||||||||
Incentive related to extinguishment of debt: (3) | $ | — | $ | — | $ | — | $ | 430 | $ | 4,576 | $ | 4,393 | $ | 966 | $ | 3,981 | $ | 14,346 | ||||||||||||||||||
Net Income | 0.0% | 0.0% | 0.0% | (14.0 | )% | 72.2 | % | 22.6 | % | 2.6 | % | 6.3 | % | 9.0% | ||||||||||||||||||||||
FFO | 0.0% | 0.0% | 0.0% | (14.0 | )% | 72.1 | % | 22.7 | % | 2.3 | % | 6.2 | % | 8.7% | ||||||||||||||||||||||
AFFO | 0.0% | 0.0% | 0.0% | 1.1 | % | 16.5 | % | 10.0 | % | 1.5 | % | 4.6 | % | 4.2% | ||||||||||||||||||||||
Adjusted Operating Earnings | 0.0% | 0.0% | 0.0% | 1.6 | % | 10.1 | % | 10.5 | % | 2.0 | % | 4.2 | % | 4.8% | ||||||||||||||||||||||
Taxable REIT Subsidiary ("TRS") incentive fees: (3) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 3,410 | $ | 2,306 | $ | 4,223 | $ | 9,939 | ||||||||||||||||||
Net Income | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 17.5 | % | 6.1 | % | 6.7 | % | 6.2% | ||||||||||||||||||||||||
FFO | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 17.5 | % | 5.5 | % | 6.6 | % | 6.1% | ||||||||||||||||||||||||
AFFO | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 7.8 | % | 3.6 | % | 4.9 | % | 2.9% | ||||||||||||||||||||||||
Adjusted Operating Earnings | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 8.1 | % | 4.8 | % | 4.5 | % | 3.3% | ||||||||||||||||||||||||
Property management fees: | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 249 | $ | 486 | $ | 735 | ||||||||||||||||||
Net Income | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.7 | % | 0.8 | % | 0.5% | |||||||||||||||||||||||||
FFO | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.6 | % | 0.8 | % | 0.4% | |||||||||||||||||||||||||
AFFO | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.4 | % | 0.6 | % | 0.2% | |||||||||||||||||||||||||
Adjusted Operating Earnings | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.5 | % | 0.5 | % | 0.2% | |||||||||||||||||||||||||
(dollars in thousands) | For the Years Ended December 31, | |||||||||||||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | Total (1) / Average (2) | ||||||||||||||||||||||||||||
Property acquisition fees: | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 484 | $ | — | $ | 484 | ||||||||||||||||||
Net Income | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 1.3 | % | 0.0% | 0.3 | % | |||||||||||||||||||||||||
FFO | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 1.2 | % | 0.0% | 0.3 | % | |||||||||||||||||||||||||
AFFO | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.8 | % | 0.0% | 0.1 | % | |||||||||||||||||||||||||
Adjusted Operating Earnings | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 1.0 | % | 0.0% | 0.2 | % | |||||||||||||||||||||||||
Asset management fees: | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 70 | $ | 45 | $ | 115 | ||||||||||||||||||
Net Income | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.2 | % | 0.1% | 0.1% | ||||||||||||||||||||||||||
FFO | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.2 | % | 0.1% | 0.1% | ||||||||||||||||||||||||||
AFFO | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.1 | % | 0.1% | 0.0% | ||||||||||||||||||||||||||
Adjusted Operating Earnings | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.1 | % | 0.0% | 0.0% | ||||||||||||||||||||||||||
Breakup fee: | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 5 | $ | 5 | ||||||||||||||||||
Net Income | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | |||||||||||||||||||||||||||
FFO | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | |||||||||||||||||||||||||||
AFFO | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | |||||||||||||||||||||||||||
Adjusted Operating Earnings | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | |||||||||||||||||||||||||||
Debt placement fees: | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 50 | $ | 50 | ||||||||||||||||||
Net Income | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.1% | 0.0% | |||||||||||||||||||||||||||
FFO | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.1% | 0.0% | |||||||||||||||||||||||||||
AFFO | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.1% | 0.0% | |||||||||||||||||||||||||||
Adjusted Operating Earnings | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.1% | 0.0% | |||||||||||||||||||||||||||
Servicing fees: | $ | — | $ | 679 | $ | 789 | $ | 953 | $ | 505 | $ | 284 | $ | — | $ | — | $ | 3,210 | ||||||||||||||||||
Net Income | 0.0% | 4.4 | % | 8.9 | % | (31.0 | )% | 8.0 | % | 1.5 | % | 0.0% | 0.0% | 2.0% | ||||||||||||||||||||||
FFO | 0.0% | 4.4 | % | 8.9 | % | (31.0 | )% | 8.0 | % | 1.5 | % | 0.0% | 0.0% | 2.0% | ||||||||||||||||||||||
AFFO | 0.0% | 3.4 | % | 1.7 | % | 2.4 | % | 1.8 | % | 0.6 | % | 0.0% | 0.0% | 0.9% | ||||||||||||||||||||||
Adjusted Operating Earnings | 0.0% | 3.5 | % | 6.6 | % | 3.6 | % | 1.1 | % | 0.7 | % | 0.0% | 0.0% | 1.1% | ||||||||||||||||||||||
Equipment acquisition fees: | $ | 247 | $ | 1,067 | $ | 387 | $ | 425 | $ | — | $ | 101 | $ | — | $ | — | $ | 2,227 | ||||||||||||||||||
Net Income | 2.3 | % | 6.8 | % | 4.4 | % | (13.8 | )% | 0.0% | 0.5 | % | 0.0% | 0.0% | 1.4% | ||||||||||||||||||||||
FFO | 2.3 | % | 6.8 | % | 4.4 | % | (13.8 | )% | 0.0% | 0.5 | % | 0.0% | 0.0% | 1.4% | ||||||||||||||||||||||
AFFO | 1.8 | % | 5.4 | % | 0.8 | % | 1.1 | % | 0.0% | 0.2 | % | 0.0% | 0.0% | 0.6% | ||||||||||||||||||||||
Adjusted Operating Earnings | 1.8 | % | 5.6 | % | 3.2 | % | 1.6 | % | 0.0% | 0.2 | % | 0.0% | 0.0% | 0.7% | ||||||||||||||||||||||
Collateral management fees: | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 763 | $ | 266 | $ | 1,029 | ||||||||||||||||||
Net Income | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 2.0 | % | 0.4 | % | 0.6% | |||||||||||||||||||||||||
FFO | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 1.8 | % | 0.4 | % | 0.6% | |||||||||||||||||||||||||
AFFO | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 1.2 | % | 0.3 | % | 0.3% | |||||||||||||||||||||||||
Adjusted Operating Earnings | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% | 1.6 | % | 0.3 | % | 0.3% | |||||||||||||||||||||||||
(1) | For financial measures, reflects the sum of the dollar amounts for the periods presented. |
(2) | Reflects the aggregate fee as a percentage of the aggregate financial measure (e.g. Net Income, FFO, AFFO and Adjusted Operating Earnings). |
(3) | Reflects incentive fees earned in connection with the repurchase of CDO liabilities and from trading gains within RSO's taxable REIT subsidiary. These opportunistic activities were the result of severe dislocation in the credit markets and were not a part of the original design and purpose of the entity and are not expected to be part of the ongoing purpose and design of RSO. |
(dollars in thousands) | For the Years Ended December 31, | |||||||||||||||||||||||||||||||
2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | |||||||||||||||||||||||||
Equity compensation | $ | 2,709 | $ | 2,432 | $ | 1,565 | $ | 540 | $ | 1,240 | $ | 2,223 | $ | 2,526 | $ | 4,636 | ||||||||||||||||
Incentive management fees | 344 | 1,120 | 1,475 | 1,754 | 4,576 | 7,365 | 3,624 | 9,636 | ||||||||||||||||||||||||
Net loan reserves, asset impairments and unrealized losses on investments | — | — | — | 45,023 | 73,077 | 60,458 | 27,743 | 9,487 | ||||||||||||||||||||||||
Net realized charge-offs | — | — | — | (16,789 | ) | (39,256 | ) | (50,536 | ) | (35,474 | ) | (2,420 | ) | |||||||||||||||||||
Gains on consolidation of CLOs | — | — | — | — | — | — | — | (4,745 | ) | |||||||||||||||||||||||
Income taxes | — | — | — | — | — | 4,484 | 12,036 | 14,602 |
1. | RSO, by design, was formed to invest in corporate loans and commercial real estate assets utilizing securitization structures with match-funded liabilities where RSO would invest in the most subordinated, or equity tranche, of the securitization vehicle. The notes and the equity tranche are secured by (i) commercial mortgage loans, mezzanine loans and commercial mortgage backed securities, in the case of the commercial real estate CDOs, and (ii) non-investment grade corporate loans and high yield debt securities, in the case of the syndicated bank loan CLOs. |
a. | The underlying assets are primarily floating rate investments matched with floating liabilities and the structures are designed, by the use of interest rate hedges when needed, to eliminate interest rate risk. |
b. | RSO and related parties identified the loans and securities that would be part of the CDOs and CLOs and has the ability to manage those loans and securities under certain circumstances giving RSO control over those financial assets. The securitization transactions were marketed to note holders as a leveraged investment opportunity with credit risk associated with the underlying portfolio assets. |
2. | Management believes that RSO is a securitization entity. This conclusion is based on the significance of RSO's assets and liabilities held within securitization vehicles relative to its total assets and liabilities. |
a. | In September 2010, management completed its initial assessment and application of ASC 810, Consolidation-Variable Interest Entities. As part of its review of the transition guidance set forth in ASC 810-10-65-2, the Company considered the design and makeup of RSO's investment portfolio. As of September 30, 2010, RSO's investment portfolio was substantially held within securitization vehicles. The assets of these vehicles represented approximately 98% of RSO's total assets ($1.905 billion/$1.935 billion) and the debt of these vehicles represented approximately 97% of RSO's total borrowings ($1.528 billion/$1.580 billion). Management concluded that based on this analysis, RSO was a securitization entity and subject to the provisions of ASC 810 based on the specific guidance under ASC 810-10-65-2(aa) which discusses the effective date of FAS 167 amendments to FASB Interpretation 46-R, Consolidation of Variable Interest Entities, or “FIN 46(R)”. Management believes that absent this interpretation, RSO, as a mortgage real estate investment fund, would have been eligible for the deferral and would have remained subject to FIN 46(R). |
3. | The quantitative approach referenced in ASC 810-10-25-38A(b) applies the concept of contractual cash flows set forth in the illustrative computation of expected losses, expected residual returns and expected variability in ASC 810-10-55-42. |
a. | The Company believes that total contractual cash flows, as presented in the example provided in ASC 810-10-55-42, is intended to include the principal and interest components of a financial instrument. The illustration provided is also consistent with the illustration provided in Appendix A of FIN 46(R) where additional information is provided regarding the assumptions utilized in the example. Section A1(e) of FIN 46(R) states, “No other factors affect the fair value of the assets. Thus, the present value of the expected cash flows from the pool of financial assets is assumed to be equal to the fair value of the assets”. The Company believes that for this statement to be accurate the principal component of a financial asset would be required to establish fair value. |
Very truly yours, | |
Ledgewood a professional corporation | |
By: /s/ J. Baur Whittlesey | |
J. Baur Whittlesey |
Very truly yours, | |
Resource America, Inc. | |
By: /s/ Thomas C. Elliott Thomas C. Elliott | |
Title: Senior Vice President and Chief Financial Officer | |
Dated: July 18, 2013 |