Overview
We are a specialized asset management company that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through our our real estate, financial fund management and commercial finance subsidiaries as well as our joint ventures.. As a specialized asset manager, we seek to develop investment funds for outside investors for which we provide asset management services, typically under long-term management arrangements either through a contract with, or as the manager or general partner of, our sponsored investment funds. We typically maintain an investment in the funds we sponsor. As of September 30, 2012, we managed $14.9 billion of assets. We limit our fund development and management services to asset classes where we own existing operating companies or have specific expertise. We believe this strategy enhances the return on investment we can achieve for our funds. In our real estate operations, we concentrate on the ownership, operation and management of multifamily and commercial real estate and real estate mortgage loans including whole mortgage loans, first priority interests in commercial mortgage loans, known as A notes, subordinated interests in first mortgage loans, known as B notes, mezzanine loans, investments in discounted and distressed real estate loans and investments in "value-added" properties (properties which, although not distressed, need substantial improvements to reach their full investment potential). In our financial fund management operations, we concentrate on bank loans, trust preferred securities of banks, bank holding companies, insurance companies and other financial companies, and asset backed securities, or ABS.
In our real estate segment, we have focused our efforts primarily on acquiring and managing a diversified portfolio of commercial real estate and real estate related debt that has been significantly discounted due to the effects of current economic conditions and high levels of leverage. We expect to continue to expand this business by raising investor funds through our retail broker channel for investment programs, principally through Resource Real Estate Opportunity REIT, Inc. which we refer to as RRE Opportunity REIT. In April 2012, we completed the sale of our common equity interests in Apidos Capital Management, LLC, or Apidos, our former CLO management subsidiary, to CVC Capital Partners SICAV-FIS, S.A., a private equity firm, or CVC. In connection with the transaction, we received $25.0 million in cash (before transaction costs) and 33% partnership interests in a joint venture, CVC Credit Partners, L.P., or CVC Credit Partners, that includes the Apidos portfolio as well as the portfolio contributed by CVC. Additionally, we retained a preferred equity interest in Apidos, which entitles us to receive 75% of the incentive management fees from the legacy Apidos portfolios that were previously managed by us and are now managed by CVC Credit Partners. We recorded a $54.5 million net gain on the sale.
In our financial fund management segment, our recent focus has primarily been the sponsorship and management of collateralized debt and loan obligations, or CLOs and CDOs. In October 2011, on behalf of Resource Capital Corp., or RSO, and third-party investors, we closed Apidos CLO VIII ($350.0 million of par value). Through our new joint venture, we closed Apidos CLO IX ($409.8 million of par value) in July 2012 and Apidos CLO X ($450.0 million of par value) in November 2012. For fiscal 2013, we expect to continue to focus on managing our existing assets as well as to continue to expand our CLO business through our joint venture.
Our commercial finance operations underwent significant restructuring and recapitalization during fiscal 2011 and the first quarter of fiscal 2012. These transactions provided substantial amounts of equity and debt financing to the lease origination and servicing platform, which is now held by LEAF Commercial Capital, Inc., or LEAF. Our subsidiary, LEAF Financial Corporation, retained the partnership management operations. As a result of the recapitalization, our equity interest in LEAF was reduced to 14.9% on a fully diluted basis, and we have deconsolidated LEAF from our financial statements as of November 16, 2011. We recorded an $8.7 million gain on the deconsolidation of LEAF, inclusive of a $1.7 million remeasurement gain to reflect our investment in LEAF at fair value during our first fiscal quarter ended December 31, 2011. Due to the deconsolidation of LEAF, we have decreased our total assets at September 30, 2012 by $227.9 million and our outstanding borrowings by $184.7 million from the corresponding balances reported at September 30, 2011. We currently account for our interests in LEAF as an equity method investment. From November 16, 2011 to March 31, 2012, the equity losses we recorded from LEAF reduced our investment to zero as of March 31, 2012. In addition, we have recorded provisions for credit losses of $16.8 million during fiscal 2012 on our receivables due from three of our commercial finance investment funds based on reductions in their projected cash flows.

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During fiscal 2012, we further improved our balance sheet and liquidity by refinancing our existing corporate debt. In November 2011, we redeemed $8.8 million of our Senior Notes and modified the remaining $10.0 million of notes to reduce the interest rate to 9% from 12% and to extend the maturity to October 2013. In conjunction with the modification of the notes, we accelerated the amortization of the warrant cost associated with the original issuance and, accordingly, recorded a loss on extinguishment of debt of $2.2 million during fiscal 2012. In October and November 2012, we amended our corporate credit facilities with Republic Bank and TD Bank, respectively, to extend the maturities of those facilities to December 2014. As of November 30, 2012, we have $10.5 million of availability under these two facilities.
We recorded consolidated net income attributable to common shareholders of $25.8 million for fiscal 2012. This was primarily the result of recording a $36.0 net gain (net of tax of $18.5 million) from the sale of Apidos, offset, in part, by an $11.1 million (net of tax of $5.7 million) provision for credit losses on our receivables from the commercial finance funds.

Assets Under Management
We increased our assets under management by $1.6 billion to $14.9 billion at
September 30, 2012 from $13.3 billion at September 30, 2011. The following table
sets forth information relating to our assets under management by operating
segment (in millions, except percentages) (1):
                                  September 30,          Increase (Decrease)
                                2012        2011       Amount        Percentage
Financial fund management (2) $ 12,665    $ 11,102    $ 1,563   (2)     14%
Real estate                      1,735       1,617        118            7%
Commercial finance                 520         585        (65 )        (11)%
                              $ 14,920    $ 13,304    $ 1,616           12%

(1) For information on how we calculate assets under management, see the first table and related notes in Item 1, "Business - Assets Under Management."

(2) The increase is primarily due to the $2.0 billion addition of the CVC portfolio contributed to CVC Credit Partners in which we own 33% and the addition of Apidos CLO VIII with $351.4 million and Apidos CLO IX with $398.4 million of assets, respectively. This increase was offset, in part, by reductions in the eligible collateral bases of our ABS ($312.8 million), corporate loan ($158.6 million) and trust preferred portfolios ($247.3 million) resulting from defaults, paydowns, sales and calls.

Our assets under management are primarily managed through various investment entities including CDOs and CLOs, public and private limited partnerships, TIC property interest programs, two REITs, and other investment funds. The following table sets forth the number of entities we manage by operating segment:

                                                                                     Other
                                                       Limited                     Investment
                                     CDOs and CLOs   Partnerships   TIC Programs     Funds
As of September 30, 2012 (1)
Financial fund management                 43              13             -             3
Real estate                                2              9              6             5
Commercial finance                         -              4              -             2
                                          45              26             6             10
As of September 30, 2011 (1)
Financial fund management                 37              13             -             1
Real estate                                2              8              6             5
Commercial finance                         -              4              -             2
                                          39              25             6             8

(1) All of our operating segments manage assets on behalf of RSO.

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The revenues in each of our operating segments are generated by the fees we earn for structuring and managing the investment entities we sponsored on behalf of individual and institutional investors and RSO, and the income produced by the assets and investments we manage for our own account. The following table sets forth information about our revenue sources (in thousands):

                                       Years Ended September 30,
                                     2012         2011        2010
Fund management revenues (1)      $   33,062    $ 43,521    $ 51,411
Finance and rental revenues (2)       12,903      27,738      20,281
RSO management fees                   15,927      11,496      10,649
Gains on resolution of loans (3)          84         196       2,870
Other revenues (4)                     2,460       3,065       3,517
                                  $   64,436    $ 86,016    $ 88,728

(1) Includes fees from each of our real estate, financial fund management and commercial finance operations and our share of the income or loss from limited and general partnership interests we own in our real estate, financial fund management and commercial finance operations.

(2) Includes rental income, revenues from certain real estate assets and interest income on bank loans from our financial fund management operations. For periods prior to November 2011, includes interest and rental income from our commercial finance operations.

(3) Includes the resolution of loans we hold in our real estate segment.

(4) For periods prior to November 2011, primarily includes insurance fees, documentation fees and other charges earned by our commercial finance operations.

We provide a more detailed discussion of the revenues generated by each of our business segments under
"-Results of Operations: ":Real Estate", ":Financial Fund Management", and ":Commercial Finance."

Results of Operations: Real Estate
During fiscal 2012, we continued to redirect the focus of our real estate subsidiary, Resource Real Estate, Inc., from acquiring and managing performing multifamily assets to (a) acquiring and managing a diversified portfolio of commercial real estate and real estate related debt that have been significantly discounted due to the effects of economic events and high levels of leverage; and (b) managing existing assets for our real estate programs. We formed RRE Opportunity REIT, which will further invest in discounted commercial real estate and real estate related debt. The public offering for this fund commenced in June 2010. Through September 30, 2012, RRE Opportunity REIT has raised $168.1 million through its public and private offerings, acquired three properties and ten real estate loans, foreclosed on six loans, and has received a discounted settlement payment on one loan. For fiscal 2013, we expect that our primary fundraising efforts in our real estate segment will be focused on RRE Opportunity REIT.
Through our real estate segment, we focus on four different areas:
• the acquisition, ownership and management of portfolios of discounted real estate and real estate related debt, which we have acquired through two sponsored real estate investment entities as well as through joint ventures with institutional investors;

•         the management of sponsored real estate investment entities that
          principally invest in multifamily housing;


•         the management, principally for RSO, of general investments in
          commercial real estate debt, including first mortgage debt, whole
          loans, mortgage participations, B notes, mezzanine debt and related
          commercial real estate securities; and


•         to a significantly lesser extent, the management and resolution of a
          portfolio of real estate loans and property interests that we acquired

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The following table sets forth information related to real estate assets managed
(1) (in millions):

                                             September 30,
                                            2012       2011
Assets under management (1):
Commercial real estate debt               $   871    $   760
Real estate investment funds and programs     578        566
RRE Opportunity REIT                          107         36
Distressed portfolios                          80        161
Properties managed for RSO                     64         60
Institutional portfolios                       15         15
Legacy portfolio                               20         19
                                          $ 1,735    $ 1,617

(1) For information on how we calculate assets under management, see Item 1, "Business - "Assets under Management."

We support our real estate investment funds by making long-term investments in them. In addition, from time to time, we make bridge investments in the funds to facilitate acquisitions. We record losses on these equity method investments primarily as a result of depreciation and amortization expense recorded by the property interests. Fee income can be highly variable and, for fiscal 2013, will depend upon the success of RRE Opportunity REIT and the timing of its acquisitions.
The following table sets forth information relating to the revenues recognized and costs and expenses incurred in our real estate operations (in thousands):

                                                         Years Ended September 30,
                                                    2012            2011           2010
Revenues:
Management fees:
Asset management fees                           $     8,045     $    6,435     $    4,842
Resource Residential property management fees         7,190          6,063          5,296
REIT management fees from RSO                         8,966          6,706          7,775
                                                     24,201         19,204         17,913
Other:
Rental property income and revenues of
consolidated VIEs (1)                                 4,961          4,761          4,644
Master lease revenues                                 4,175          4,080          4,002
Fee income from sponsorship of investment
entities                                              4,741          2,034          1,500
Interest, including accreted loan discount                -              -            113
Gains and fees on resolution of loans and other
property interests                                       84            196          2,870
Equity in earnings of unconsolidated entities         2,433          8,105            869
                                                $    40,595     $   38,380     $   31,911
Costs and expenses:
General and administrative expenses             $    15,106     $   10,515     $    7,718
Resource Residential property management
expenses                                              6,869          6,076          4,870
Master lease expenses                                 4,173          4,448          4,791
Rental property expenses and expenses of
consolidated VIEs (1)                                 3,521          3,426          3,401
                                                $    29,669     $   24,465     $   20,780

(1) We generally consolidate a variable interest entity, or VIE, when we are deemed to be the primary beneficiary of the entity.

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Revenues - Fiscal 2012 Compared to Fiscal 2011 Revenues from our real estate operations increased $2.2 million to $40.6 million for fiscal 2012. We attribute the increase primarily to the following:
Management fees

•         a $1.6 million increase in asset management fees, reflecting the
          additional properties in our distressed loan portfolio;


•         a $1.1 million increase in property management fees earned by our
          property manager, Resource Residential, reflecting a 2,762 unit
          increase (18%) in multifamily units under management to 17,979 units at
          September 30, 2012 from 15,217 units at September 30, 2011; and


•         a $2.3 million increase in REIT management fees from RSO. The base
          management fees increased by $971,000 due to the increase in the equity
          we manage for RSO and the incentive management fees increased by $1.3
          million which are based on the adjusted operating earnings of RSO,
          which varies by quarter.

Other revenues

•         a $2.7 million increase in fee income in connection with the purchase
          and third-party financing of properties through our real estate
          investment entities, as follows:


•               during fiscal 2012, we earned $4.7 million in fees primarily from
                the following activities:


•                     the acquisition of three properties (valued at $64.2
                      million) and three loans (valued at $23.6 million); and


•                     the sale of four properties (valued at $46.7 million) and
                      two loans (valued at $920,000).


•               during fiscal 2011, we earned $2.0 million in fees primarily from
                the following activities:


•                     the acquisition of seven loans and a pool of four loans
                      (aggregate value of $71.3 million);

• the acquisition of two properties on behalf of RSO; and

• the sale of buildings owned by two of our equity investments and one building we managed.

This increase was more than offset by

•         a $5.7 million decrease in the equity in earnings of unconsolidated
          entities. During fiscal 2012, we earned equity income of $2.4 million.
          During fiscal 2011, we had recorded $8.1 million of equity income,
          primarily reflecting the $8.4 million gain from the sale of a
          Washington DC office building by one of our legacy portfolio
          investments, offset, in part, by $755,000 of equity losses in our real
          estate investment partnerships.

Costs and Expenses - Fiscal 2012 Compared to Fiscal 2011

Costs and expenses of our real estate operations increased $5.2 million (21%). We attribute these changes primarily to the following:
• a $4.6 million increase in general and administrative expenses principally related to:

• $1.0 million of start-up costs related to RRE Opportunity REIT; and

•               a $2.9 million increase in wages and benefits, reflecting the
                additional staffing required to manage the increased properties
                under management as well as the wholesalers hired to increase our
                fundraising capabilities; and


•         a $793,000 increase in Resource Residential expenses due to increased
          wages and benefits, principally in conjunction with the additional
          personnel needed to operate and manage the increase in properties.

Revenues - Fiscal 2011 Compared to Fiscal 2010 Revenues from our real estate operations increased $6.5 million (20%) to $38.4 million for fiscal 2011 from $31.9 million in fiscal 2010. We attribute the increase primarily to the following:
Management fees

•         a $1.6 million increase in asset management fees, reflecting the
          additional properties in our distressed loan portfolio; and


•         a $767,000 increase in property management fees earned by our property
          manager, Resource Residential, reflecting a 1,695 unit increase (13%)
          in multifamily units under management to 15,217 units at September 30,
          2011 from 13,522 units at September 30, 2010.

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These increases were offset, in part, by

•         a $1.1 million decrease in REIT management fees from RSO. The $1.6
          million increase in the base management fee, which increased as a
          result of equity capital raised though RSO's dividend reinvestment and
          share purchase program, was more than offset by a $2.6 million decrease
          in the incentive management fee for fiscal 2011 as compared to fiscal
          2010.

Other revenues
•a $534,000 increase in fee income in connection with the purchase and third-party financing of properties through our real estate investment entities, as follows:

•               during fiscal 2011, we earned $2.0 million in fees primarily from
                the following activities:


•                     the acquisition of seven loans and a pool of four loans
                      (aggregate value of $71.3 million);

• the acquisition of two properties on behalf of RSO; and

•                     the sale of buildings owned by two of our equity
                      investments and one building we managed.


•               during fiscal 2010, we earned $1.5 million in fees primarily from

• the acquisition of six loans (aggregate value of $81.1 million); and

• the acquisition of four properties (aggregate value of $19.3 million).

•         a $7.2 million increase in the equity in earnings of unconsolidated
          entities. During fiscal 2011, we recorded an $8.4 million equity gain
          from the sale of a Washington DC office building by one of our legacy
          portfolio investments, which was offset, in part, by the equity losses
          from our real estate investment partnerships of $755,000, as compared
          to equity losses of $624,000 recorded the prior year.

These increases were offset, in part, by

•         a $2.7 million decrease in gains and fees on the resolution of loans
          and other property interests. During fiscal 2010, we recorded a gain of
          $1.9 million (proceeds of $4.8 million) on the settlement of a loan, a
          gain of $642,000 on the sale of an asset by a joint venture, and a gain
          of $145,000 from another asset sale (proceeds of $260,000).
          Additionally, we received proceeds of $2.1 million, including a cost
          reimbursement of $101,000, from the sale of a joint venture interest to
          RSO.

Costs and Expenses - Fiscal 2011 Compared to Fiscal 2010 Costs and expenses of our real estate operations increased $3.7 million (18%). We attribute these changes primarily to the following:
• a $2.8 million increase in general and administrative expenses related principally to the start-up costs of RRE Opportunity REIT; and

•         a $1.2 million increase in Resource Residential expenses due to
          increased wages and benefits, principally in conjunction with the
          additional personnel needed to operate and manage the increase in
          properties.

Results of Operations: Financial Fund Management General. We conduct our financial fund management operations primarily through six separate operating entities:

•         CVC Credit Partners, a joint venture between us and an unrelated
          third-party, finances, structures and manages investments in bank
          loans, high yield bonds and equity investments through CLO issuers,
          managed accounts and a credit opportunities fund. Prior to April 17,
          2012, we conducted these operations through our Apidos business;


•         Trapeza Capital Management, LLC, or TCM, a joint venture between us and
          an unrelated third-party, manages investments in trust preferred
          securities and senior debt securities of banks, bank holding companies,
          insurance companies and other financial companies through CDO issuers
          and related partnerships. TCM, together with the Trapeza CDO issuers
          and Trapeza partnerships, are collectively referred to as Trapeza;


•         Resource Financial Institutions Group, Inc., or RFIG, serves as the
          general partner for seven company-sponsored affiliated partnerships
          which invest in financial institutions;


•         Ischus Capital Management, LLC, or Ischus, finances, structures and
          manages investments in ABS including residential mortgage-backed
          securities, or RMBS, and commercial mortgage-backed securities, or
          CMBS;


•         Resource Capital Markets, Inc., or Resource Capital Markets, through
          our registered broker-dealer subsidiary, Resource Securities, Inc.
          (formerly Chadwick Securities, Inc.), or Resource Securities, acts as
          an agent in the primary and secondary markets for structured finance
          securities and manages accounts for institutional investors; and


•         Resource Capital Manager, Inc., or RCM, an indirect wholly-owned
          subsidiary, provides investment management

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and administrative services to RSO under a management agreement between us, RCM and RSO.

The following table sets forth information relating to assets managed by our financial fund management operating entities on behalf of institutional and . . .