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SOURCE: Resource America, Inc.
Resource America, Inc. Reports Operating Results for the First Fiscal Quarter Ended December 31, 2008
PHILADELPHIA, PA--(Marketwire - February 4, 2009) - Resource America, Inc. (
The Company recorded non-cash charges, net of tax, of $3.1 million for the first fiscal quarter of 2009. These charges primarily relate to the impairment of residual interests the Company holds in some of its sponsored funds that invested in bank loans and trust preferred securities, unrealized depreciation in the value of the Company's other sponsored funds with investments in financial institutions and a non-cash increase in the reserve for credit losses for one consolidated investment vehicle. In conjunction therewith, the Company reported a GAAP net loss after discontinued operations of $3.2 million, or $0.18 per common share-diluted, for the first fiscal quarter of 2009 as compared to a GAAP net loss of $11.0 million, or $0.63 per common share-diluted, for the first fiscal quarter of 2008.
Jonathan Cohen, CEO and President, commented, "Although this quarter saw (i) the return to profitability of our leasing company and our real estate company, (ii) the continued fundraising for new products and (iii) the lowering of our cost structure (which will become more evident next quarter), we continue to incur non-cash writedowns primarily related to our activities during 2006-2007 in leveraged loans and trust preferred securities. The pace and severity of these writedowns seem to be slowing significantly as the balance sheet of our financial fund management company shrinks. We continue to make progress in the March 31, 2009 quarter on all aspects."
The Company also reported:
-- Retail Capital Fundraising. During the fourth quarter of fiscal 2008,
the Company launched three funds through its retail broker-dealer channel
with targeted fundraising of approximately $280.0 million. Two funds
launched by LEAF Financial Corp. ("LEAF"), the Company's commercial finance
subsidiary, have raised $52.0 million from August 2008 through February 3,
2009 and the third fund, launched by Resource Real Estate Holdings, Inc.
("Resource Real Estate"), has raised $20.4 million from July 2008 through
February 3, 2009.
-- Distressed Real Estate Funds. The Company, through its distressed
real estate joint ventures, has closed on $71.1 million of acquisitions,
including committed capital, from September 2007 through November 2008.
The Company acquired $13.2 million of these distressed assets in the first
fiscal quarter of 2009 and anticipates using its retail broker-dealer
channel to launch a $50.0 million fund to expand its distressed real estate
operations.
-- LEAF Fund Financing Activities. In November 2008, the Company,
through LEAF Equipment Leasing Income Fund III, L.P. ("Fund III"), an
unconsolidated leasing partnership managed by LEAF, entered into two
financing facilities totaling $355.0 million including: (i) a $205.0
million credit facility led by Morgan Stanley Bank that was used to acquire
the assets of NetBank Business Finance in November 2007 and (ii) a five-
year revolving $150.0 million credit facility that refinanced a maturing
credit facility and will also fund future originations.
-- Reduced Balance Sheet Exposure. The Company has reduced to $354,000,
net of tax, its balance sheet exposure to future valuation adjustments
related to investments in trust preferred securities reported as
investments in unconsolidated entities and direct investments in
collateralized debt obligations secured by trust preferred securities. The
Company has no exposure to valuation adjustments for residential mortgage-
backed securities and has reduced its balance sheet exposure to investments
in collateralized debt obligations secured by bank loans reported as
securities available-for-sale to $3.4 million, net of tax.
-- Reduction of General and Administrative Expenses. The Company
instituted measures in fiscal 2008 to reduce its general and administrative
expenses which it expects will result in savings of approximately $19.5
million on an annualized basis beginning in January 2009, $2.5 million more
than previously reported.
-- Debt Reduction. As of December 31, 2008, the Company reduced its
total consolidated borrowings outstanding to $608.7 million from $1.05
billion at December 31, 2007, a decrease of $441.8 million (42%). At
December 31, 2008, borrowings include $213.5 million of borrowings
consolidated under FIN 46-R as to which there is no recourse to the
Company, $327.7 million of non-recourse revolving credit facilities and
promissory notes at LEAF and $67.5 million of other debt, which includes
$13.7 million of mortgage debt secured by properties owned by the Company's
subsidiaries.
-- Adjusted Revenues and Adjusted Operating Income. For the first fiscal
quarter of 2009, the Company reported adjusted revenues of $33.4 million as
compared to $50.7 million for the first fiscal quarter of 2008. For the
first fiscal quarter of 2009, the Company reported adjusted operating
income of $5.0 million as compared to $22.1 million for the first fiscal
quarter of 2008. Adjusted revenues and adjusted operating income, both non-
GAAP measures, include $1.2 million of pre-tax fair value adjustments on
investments reported under the equity method of accounting for the first
fiscal quarter of 2009 as compared to $6.7 million for the first fiscal
quarter of 2008. A reconciliation of the Company's reported GAAP revenues
and operating income to adjusted revenues and adjusted operating income is
included as Schedule II to this release.
Assets Under Management
The following table details the Company's assets under management by operating segment:
At December 31,
-----------------------------
2008 2007
-------------- --------------
Financial fund management $ 14.2 billion $ 14.6 billion
Real estate 1.7 billion 1.7 billion
Commercial finance 1.6 billion 1.6 billion
-------------- --------------
$ 17.5 billion $ 17.9 billion
============== ==============
A description of how the Company calculates assets under management is set forth in Item 1 of the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2008.
Book Value
As of December 31, 2008, the Company's GAAP book value per common share was $7.99 per share. Total stockholders' equity was $141.2 million as of December 31, 2008 as compared to $166.9 million as of December 31, 2007. Total common shares outstanding were 17,665,259 as of December 31, 2008 as compared to 17,431,066 as of December 31, 2007.
Other Highlights for the First Fiscal Quarter Ended December 31, 2008 and Recent Developments
-- LEAF began a public offering of up to $200.0 million of limited
partnership interests in August 2008 for LEAF Equipment Finance Fund 4,
L.P. ("Fund 4"), an equipment leasing partnership, and for LEAF Commercial
Finance Fund ("LCFF"), a $25.0 million offering in the form of 8.25%
promissory notes. Through February 3, 2009, LEAF had raised $52.0 million
for Fund 4 and LCFF.
-- Resource Real Estate, the Company's real estate asset manager that
invests in and manages real estate investment vehicles on behalf of itself
and for outside investors and operates the Company's commercial real estate
debt platform, increased its assets under management to $1.7 billion at
December 31, 2008, an increase of $75.0 million (5%) from December 31,
2007. Since January 1, 2008, Resource Real Estate has acquired $119.3
million in real estate assets for its investment vehicles including four
properties during the first fiscal quarter ended December 31, 2008.
-- Resource Real Estate commenced fundraising for Resource Real Estate
Investors 7, L.P. ("RREI 7"), a $40.0 million offering that will invest in
multifamily real estate assets. Through February 3, 2009, Resource Real
Estate had raised $20.4 million through RREI 7. We anticipate closing this
fund in late fiscal 2009. In addition, Resource Real Estate intends to
launch Resource Real Estate Opportunity Fund L.P., a real estate
partnership focused on investing in discounted real estate.
-- Resource Real Estate's wholly-owned subsidiary, Resource Residential,
a multifamily and commercial property management company, completed its
first full year of operations. As of December 31, 2008, Resource
Residential employed 289 property management personnel.
-- Resource Real Estate increased the apartment units it manages or whose
management it supervises to 17,653 at December 31, 2008 from 14,919 at
December 31, 2007. This includes a portfolio of 50 multifamily properties
representing 12,301 apartment units managed by Resource Residential.
-- The Company announced on February 2, 2009 the payment of a cash
dividend in the amount of $0.07 per share on the Company's common stock on
March 13, 2009 to all holders of record at the close of business on
February 13, 2009.
-- Resource Capital Corp. (NYSE : RSO), a real estate investment trust for
which the Company is the external manager and a shareholder, paid a cash
dividend distribution of $0.39 per common share for its fourth quarter
ended December 31, 2008.
-- The Company generated $8.7 million of cash from operating activities
from continuing operations as adjusted during the quarter ended December
31, 2008. A reconciliation of net cash (used in) provided by operating
activities of continuing operations to net cash provided by operating
activities of continuing operations as adjusted, a non-GAAP measure, is
included as Schedule III to this release.
Resource America, Inc. is a specialized asset management company that uses industry specific expertise to generate and administer investment opportunities for its own account and for outside investors in the commercial finance, real estate and financial fund management sectors.
For more information, please visit our website at www.resourceamerica.com or contact investor relations at pkamdar@resourceamerica.com.
Statements made in this release include forward-looking statements, which involve substantial risks and uncertainties. The Company's actual results, performance or achievements could differ materially from those expressed or implied in this release and its other reports filed with the Securities and Exchange Commission. For information pertaining to risks relating to these forward-looking statements, reference is made to the section "Risk Factors" contained in Item 1A of the Company's Annual Report on Form 10-K. The Company undertakes no obligation to update or revise any forward-looking statements to reflect new or changing information or events except as may be required by law.
This press release shall not constitute an offer to sell or a solicitation of an offer to buy any of the securities described herein, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction. A copy of the prospectus relating to the offering of Fund 4 may be obtained by contacting Chadwick Securities, Inc. at (866) 323-0241.
The remainder of this release contains the Company's consolidated balance sheets, consolidated statements of operations, consolidated statements of cash flows, a reconciliation of GAAP loss from continuing operations to adjusted income from continuing operations, a reconciliation of GAAP revenue to adjusted revenue and GAAP operating income to adjusted operating income and a reconciliation of net cash (used in) provided by operating activities of continuing operations to net cash provided by operating activities of continuing operations as adjusted.
RESOURCE AMERICA, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
December 31, September 30,
2008 2008
------------ ------------
(unaudited)
ASSETS
Cash $ 16,082 $ 14,910
Restricted cash 21,421 23,689
Receivables 2,638 2,014
Receivables from managed entities and
related parties 36,769 35,674
Loans sold, not settled, at fair value - 662
Loans held for investment, net 223,326 219,664
Investments in commercial finance - held for
investment, net 239,583 182,315
Investments in commercial finance - held for
sale, at fair value 103,023 110,773
Investments in real estate, net 36,961 37,972
Investment securities available-for-sale, at
fair value 16,895 22,746
Investments in unconsolidated entities 17,313 18,523
Property and equipment, net 15,950 16,886
Deferred tax assets 53,956 44,467
Goodwill 7,969 7,969
Intangible assets, net 4,173 4,329
Other assets 11,989 15,764
------------ ------------
Total assets $ 808,048 $ 758,357
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses and other liabilities $ 55,014 $ 56,309
Payables to managed entities and related
parties 420 586
Borrowings 608,684 554,059
Deferred tax liabilities 1,007 1,060
Minority interests 1,701 2,610
------------ ------------
Total liabilities 666,826 614,624
------------ ------------
Commitments and contingencies - -
Stockholders' equity:
Preferred stock, $1.00 par value, 1,000,000
shares authorized;none outstanding - -
Common stock, $.01 par value, 49,000,000
shares authorized; 27,432,444 and
27,421,552 shares issued, respectively
(including nonvested restricted stock of
466,724 and 513,386, respectively) 270 269
Additional paid-in capital 270,504 269,689
Accumulated deficit (8,434) (3,980)
Treasury stock, at cost; 9,300,461 and
9,312,232 shares, respectively (101,312) (101,440)
Accumulated other comprehensive loss (19,806) (20,805)
------------ ------------
Total stockholders' equity 141,222 143,733
------------ ------------
$ 808,048 $ 758,357
============ ============
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
December 31,
--------------------
2008 2007
--------- ---------
REVENUES
Commercial finance $ 15,384 $ 27,965
Real estate 6,890 6,472
Financial fund management 9,919 9,622
--------- ---------
32,193 44,059
COSTS AND EXPENSES
Commercial finance 7,449 9,381
Real estate 5,918 5,466
Financial fund management 5,728 6,614
General and administrative 4,008 3,458
Provision for credit losses 3,744 2,773
Depreciation and amortization 1,547 965
--------- ---------
28,394 28,657
--------- ---------
OPERATING INCOME 3,799 15,402
OTHER (EXPENSE) INCOME
Interest expense (8,399) (14,677)
Minority interest income (expense), net 814 (1,091)
Loss on sales of loans - (18,332)
Impairment charges on investment securities
available-for-sale (4,923) (1,017)
Other income, net 1,699 981
--------- ---------
(10,809) (34,136)
--------- ---------
Loss from continuing operations before taxes (7,010) (18,734)
Income tax benefit (3,715) (7,868)
--------- ---------
Loss from continuing operations (3,295) (10,866)
Income (loss) from discontinued operations, net of
tax 75 (111)
--------- ---------
NET LOSS $ (3,220) $ (10,977)
========= =========
Basic loss per common share:
Continuing operations $ (0.18) $ (0.62)
Discontinued operations - (0.01)
--------- ---------
Net loss $ (0.18) $ (0.63)
========= =========
Weighted average shares outstanding 17,639 17,428
========= =========
Diluted loss per common share:
Continuing operations $ (0.18) $ (0.62)
Discontinued operations - (0.01)
--------- ---------
Net loss $ (0.18) $ (0.63)
========= =========
Weighted average shares outstanding 17,639 17,428
========= =========
Dividends declared per common share $ 0.07 $ 0.07
========= =========
RESOURCE AMERICA, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Three Months Ended
December 31,
--------------------
2008 2007
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,220) $ (10,977)
Adjustments to reconcile net loss to net cash (used
in) provided by operating activities:
Impairment charges on securities
available-for-sale 4,923 1,017
Depreciation and amortization 2,011 1,290
Provision for credit losses 3,744 2,773
Minority interest (income) expense (814) 1,091
Equity in losses of unconsolidated entities 314 3,061
Distributions from unconsolidated entities 1,548 4,764
Loss on sales of loans - 18,332
Gain on sales of investments in commercial finance
assets (233) -
Gain on sales of assets (3) (301)
Deferred income tax benefit (653) (8,288)
Non-cash compensation on long-term incentive plans 1,208 905
Non-cash compensation issued (4) 110
Non-cash compensation received (103) (97)
(Increase) decrease in commercial finance investments
held for sale (23,443) 19,546
Changes in operating assets and liabilities (2,058) (245)
--------- ---------
Net cash (used in) provided by operating activities
of continuing operations (16,783) 32,981
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (127) (3,375)
Payments received on real estate loans and real
estate 126 3,695
Investments in real estate (1,118) (738)
Purchase of commercial finance assets held for
investment (41,942) (28,293)
Payments received on commercial finance assets held
for investment 13,881 16,202
Purchase of investments (10,126) (200,311)
Proceeds from sale of investments 3,419 1,957
Principal payments received on loans 2,024 -
Net cash paid for acquisitions - (8,022)
Increase in other assets (3,453) (3,842)
--------- ---------
Net cash used in investing activities of continuing
operations (37,316) (222,727)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings 163,095 416,900
Principal payments on borrowings (108,601) (162,452)
Distributions paid to minority interest holders (72) (937)
Dividends paid (1,234) (1,236)
Increase in restricted cash 2,268 (57,273)
Proceeds from issuance of stock - 158
Purchase of treasury stock - (237)
Purchase of subsidiary stock held by a
noncontrolling stockholder (264) -
--------- ---------
Net cash provided by financing activities of
continuing operations 55,192 194,923
--------- ---------
CASH FLOWS FROM DISCONTINUED OPERATIONS:
Operating activities 79 (6)
Financing activities - (5)
--------- ---------
Net cash provided by (used in) discontinued
operations 79 (11)
--------- ---------
Increase in cash 1,172 5,166
Cash at beginning of year 14,910 14,624
--------- ---------
Cash at end of period $ 16,082 $ 19,790
========= =========
This press release contains supplemental financial information determined by methods other than in accordance with Accounting Principles Generally Accepted in the United States of America ("GAAP"). The Company's management uses these non-GAAP measures in its analysis of the Company's performance. Management believes the presentation of these financial measures excluding the impact of certain items provides useful supplemental information that is essential to a proper understanding of the financial results of the Company. These disclosures should not be viewed as a substitute for results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
SCHEDULE I
RECONCILIATION OF GAAP LOSS FROM CONTINUING OPERATIONS
TO ADJUSTED INCOME FROM CONTINUING OPERATIONS
(in thousands, except per share data)
(unaudited)
Three Months Ended
December 31,
--------------------
2008 2007
--------- ---------
Loss from continuing operations - GAAP $ (3,295) $ (10,866)
Adjustments, net of tax:
Partnership level adjustments (1) 588 3,868
Impairment charges on CDO investments 2,065 590
Loan reserves 480 -
Loss on sales of loans 336 10,633
Severance costs 85 -
Resource Residential start-up costs - 317
Other (165) -
--------- ---------
Adjusted income from continuing operations (2) $ 94 $ 4,542
========= =========
Adjusted weighted average diluted shares outstanding
(3) 18,058 18,641
========= =========
Adjusted income from continuing operations per
share-diluted $ 0.01 $ 0.24
========= =========
(1) Primarily includes mark to market adjustments on investments in
partnerships that the Company manages.
(2) During the first fiscal quarter of 2009 and 2008, in connection with
substantial volatility and reduction in liquidity in the global credit
markets, the Company recorded several significant adjustments. For
comparability purposes, the Company is presenting adjusted income from
continuing operations because it facilitates the evaluation of the
Company without the effect of these adjustments. Adjusted income from
continuing operations should not be considered as an alternative to
loss from continuing operations (computed in accordance with GAAP).
Instead, adjusted income from continuing operations should be reviewed
in connection with loss from continuing operations in the Company's
consolidated financial statements, to help analyze how the Company's
business is performing.
(3) Includes 419,000 and 1,213,000 dilutive shares not used in the
calculation of loss from continuing operations per share-diluted for
the three months ended December 31, 2008 and 2007, respectively.
SCHEDULE II
RECONCILIATION OF GAAP REVENUES TO ADJUSTED REVENUES AND RECONCILIATION OF
GAAP OPERATING INCOME TO ADJUSTED OPERATING INCOME
(in thousands)
(unaudited)
Three Months Ended
December 31,
2008 2007
---------- ----------
Revenues
Commercial finance $ 15,384 $ 27,965
Real estate 6,890 6,472
Financial fund management 9,919 9,622
---------- ----------
Total revenues - GAAP 32,193 44,059
Adjustments:
Fair value adjustments (1) 1,218 6,681
---------- ----------
Adjusted revenues (1) $ 33,411 $ 50,740
========== ==========
Operating income - GAAP $ 3,799 $ 15,402
Adjustments:
Fair value adjustments (1) 1,218 6,681
---------- ----------
Adjusted operating income (1) $ 5,017 $ 22,083
========== ==========
(1) Management of the Company views adjusted revenues and adjusted
operating income as useful and appropriate supplements to revenues -
GAAP and operating income - GAAP since they exclude fair value
adjustments related to current credit market conditions and are not
indicative of the Company's current operating performance. Adjusted
revenues and adjusted operating income, both non-GAAP measures, include
$1.2 million of pre-tax fair value adjustments on investments reported
under the equity method of accounting for the first fiscal quarter of
2009 as compared to $6.7 million for the first fiscal quarter of 2008.
SCHEDULE III
RECONCILIATION OF NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES OF
CONTINUING OPERATIONS TO NET CASH PROVIDED BY OPERATING ACTIVITIES OF
CONTINUING OPERATIONS AS ADJUSTED
(in thousands)
(unaudited)
Net cash provided by operating activities of continuing operations as adjusted was $8.7 million for the three months ended December 31, 2008, a decrease of $5.0 million as compared to $13.7 million for the three months ended December 31, 2007. The following reconciles net cash (used in) provided by operating activities of continuing operations to net cash provided by operating activities of continuing operations as adjusted (in thousands):
Three Months Ended
December 31,
--------------------
2008 2007
--------- ---------
Net cash (used in) provided by operating activities
of continuing operations - GAAP $ (16,783) $ 32,981
Adjustments:
Decrease (increase) in commercial finance
investments held for sale 23,443 (19,546)
Changes in operating assets and liabilities 2,058 245
--------- ---------
Net cash provided by operating activities of
continuing operations as adjusted (1) $ 8,718 $ 13,680
========= =========
(1) Management of the Company believes net cash provided by operating
activities of continuing operations as adjusted is a useful and
appropriate supplement to GAAP net cash (used in) provided by operating
activities of continuing operations since it reflects how management
views its liquidity and working capital requirements.
STEVEN KESSLER
CHIEF FINANCIAL OFFICER
RESOURCE AMERICA, INC.
ONE CRESCENT DRIVE, SUITE 203
PHILADELPHIA, PA 19112
215/546-5005
215/546-4785 (fax)