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| REXI > SEC Filings for REXI > Form 10-Q on 8-Feb-2013 | All Recent SEC Filings |
8-Feb-2013
Quarterly Report
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 December 31, 2012, we managed $15.3 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 our financial fund management segment, our recent focus has primarily been
the sponsorship and management of collateralized debt and loan obligations, or
CDOs and CLOs. In addition, on April 17, 2012, we completed the sale of 100% of
our equity interests in Apidos Capital Management, LLC, or Apidos, our 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 partnership interests in a joint venture, CVC
Credit Partners, L.P., or CVC Credit Partners, that includes the Apidos
portfolios as well as the portfolios 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 during fiscal 2012. Through our new joint
venture, we closed Apidos CLO IX ($409.8 million of par value) in July 2012,
Apidos CLO X ($450.0 million of par value) in November 2012 and Apidos CLO XI
($400.0 million of par value) in January 2013. 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.
We currently account for our interests in LEAF Commercial Capital, Inc., or
LEAF, as an equity method investment. In addition, we have recorded provisions
for credit losses of $4.5 million during the three months ended December 31,
2012 on our receivables due from three of our commercial finance investment
funds based on reductions in their projected cash flows.
We recorded a consolidated net loss attributable to common shareholders of $1.4
million for the three months ended December 31, 2012 primarily due to the
provision for credit loss on receivables from our commercial finance investment
funds.
Assets Under Management
We increased our assets under management by $2.0 billion to $15.3 billion at
December 31, 2012 from $13.3 billion at December 31, 2011. The following table
sets forth information relating to our assets under management by operating
segment (in millions, except percentages) (1):
December 31, Increase (Decrease)
2012 2011 Amount Percentage
Financial fund management (2) $ 13,007 $ 11,145 $ 1,862 17%
Real estate 1,795 1,610 185 11%
Commercial finance 529 549 (20 ) (4)%
$ 15,331 $ 13,304 $ 2,027 15%
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(1) We describe how we calculate assets under management, in the notes to the third table of this section.
(2) The increase is primarily due to the $2.1 billion addition of the CVC portfolio contributed in April 2012 to CVC Credit Partners, our joint venture with CVC in which we own 33%, and the addition of Apidos CLO X ($450.0 million). This increase was offset, in part, by reductions in the eligible collateral bases of our ABS ($282.6 million), corporate loan ($166.4 million) and trust preferred portfolios ($287.2 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, tenant-in-common, or TIC, property interest programs, two real estate investment trusts, or REITs, and other investment funds. All of our operating segments manage assets on behalf of Resource Capital Corp., or RSO. 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 December 31, 2012
Financial fund management 44 13 - 3
Real estate 2 9 6 6
Commercial finance - 4 - 2
46 26 6 11
As of December 31, 2011
Financial fund management 38 13 - 1
Real estate 2 8 6 5
Commercial finance - 4 - 2
40 25 6 8
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As of December 31, 2012 and December 31, 2011, we managed assets in the following classes for the accounts of institutional and individual investors, RSO, and for our own account (in millions):
December 31, 2012 December 31, 2011
Institutional and
Individual Investors RSO Company Total Total
Bank loans (1) $ 5,368 $ 2,735 $ - $ 8,103 $ 5,666
Trust preferred securities
(1) 3,582 - - 3,582 3,869
Asset-backed securities
(1) 1,208 - - 1,208 1,490
Mortgage and other real
estate-related loans (2) 17 962 - 979 881
Real properties (2) 717 83 16 816 729
Commercial finance assets
(3) 529 - - 529 549
Private equity and other
assets (1) 98 16 - 114 120
$ 11,519 $ 3,796 $ 16 $ 15,331 $ 13,304
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(1) We value these assets at their amortized cost.
(2) We value our managed real estate assets as the sum of: (i) the amortized cost of our commercial real estate loans; and (ii) the book value of each of the following: (a) real estate and other assets held by our real estate investment entities, (b) our outstanding legacy loan portfolio, and (c) our interests in real estate.
(3) We value our commercial finance assets as the sum of the book value of the financed equipment and leases and loans.
Employees
As of December 31, 2012, we had 612 full-time employees, an increase of 60 or
(11%), from 552 employees at December 31, 2011. The following table summarizes
our employees by operating segment:
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30
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Financial Fund Corporate/
Total Real Estate Management (1) Other (2)
December 31, 2012
Investment professionals 57 43 11 3
Other 65 18 13 34
122 61 24 37
Property management 490 490 - -
Total 612 551 24 37
December 31, 2011
Investment professionals 69 39 28 2
Other 70 19 12 39
139 58 40 41
Property management 413 413 - -
Total 552 471 40 41
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(1) Decrease due to the April 2012 deconsolidation of Apidos as a result of the transaction with CVC.
(2) As a result of the November 2011 deconsolidation of LEAF, we no longer have any commercial finance employees.
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):
Three Months Ended
December 31,
2012 2011
Fund management revenues (1) $ 7,228 $ 8,449
Finance and rental revenues (2) 3,333 6,099
RSO management fees 4,659 3,689
Gains on resolution of loans (3) - 60
Other revenues (4) 485 367
$ 15,705 $ 18,664
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(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) Includes gains (losses) on trading securities. 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
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
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• to a significantly lesser extent, the management and resolution of a portfolio of real estate loans and property interests that we acquired at various times between 1991 and 1999, which we collectively refer to as our legacy portfolio.
The following table sets forth information related to real estate assets managed
(1) (in millions):
December 31,
2012 2011
Assets under management (1):
Commercial real estate debt $ 916 $ 792
Real estate investment funds and programs 582 566
RRE Opportunity REIT 131 44
Distressed portfolios 71 114
Properties managed for RSO 64 60
Institutional portfolios 15 15
Legacy portfolio 16 19
$ 1,795 $ 1,610
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(1) For information on how we calculate assets under management, see "Assets under Management", above.
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):
Three Months Ended
December 31,
2012 2011
Revenues:
Management fees:
Asset management fees $ 2,224 $ 1,847
Resource Residential property management fees 2,025 1,637
REIT management fees from RSO 4,667 1,383
8,916 4,867
Other:
Rental property income and revenues of consolidated VIE
(1) 1,429 1,313
Master lease revenues 1,073 1,019
Fee income from sponsorship of investment entities 884 801
Gains and fees on resolution of loans and other property
interests 831 60
Equity in earnings of unconsolidated entities 21 606
$ 13,154 $ 8,666
Costs and expenses:
General and administrative expenses $ 4,168 $ 3,747
Resource Residential property management expenses 2,089 1,598
Master lease expenses 1,073 1,016
Rental property expenses and expenses of consolidated VIE
(1) 668 831
$ 7,998 $ 7,192
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(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 - Three Months Ended December 31, 2012 as Compared to Three Months
Ended December31, 2011
Revenues from our real estate operations increased $4.5 million to $13.2 million
for the three months ended December 31, 2012. We attribute the increase
primarily to the following:
Management fees
• a $377,000 increase in asset management fees, reflecting a $534,000
increase in broker-dealer manager fees earned for raising funds for RRE
Opportunity REIT, partly offset by a $217,000 increase in the discount
recorded for management fees that we expect to receive in future
periods;
• a $388,000 increase in property management fees earned by our property
manager, Resource Residential, reflecting a 4,063 unit increase (27%)
in multifamily units under management to 19,267 units at December 31,
2012 from 15,204 units at December 31, 2011; and
• a $3.3 million increase in REIT management fees from RSO. The base
management fees increased by $670,000 due to the increase in the equity
of RSO upon which this fee is based. We also earned incentive
management fees of $2.6 million during the three months ended December
31, 2012, as compared to none for the same period last year. The
incentive management fees are based on the adjusted operating earnings
of RSO, which vary by quarter.
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Other revenues
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