Resource Capital Corp. (NYSE:RSO)
Wall Street Analyst Forum
November 17, 2008 12:30 pm ET
Gerry Scott - President of Wall Street Analyst Forum
David Bryant - CFO
David Bloom - Head of Real Estate
Good afternoon, ladies and gentlemen in our ongoing attempt to adhere to the published schedule, as much for our virtual webcast attendees and to our physical attendees, I'd like to go ahead and introduce the next company. As I mentioned earlier this morning, there is a couple of different new media distributions of the presentation and question-and-answer sessions that take place in the conference.
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For us, they are transcribing the presentations and the interactive Q&A sessions that take place, and you will be able to find those on Yahoo! Finance and MSN Money and AOL Finance, six hours or so after the conference is over.
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Having said that, I'd like to introduce the next company in this afternoon's Financial Services program, Resource Capital Corp. is a commercial real estate, specialty finance company, that qualifies as a Real Estate Investment Trust or REIT for Federal Income Tax purposes.
Resource Capital Corp's investment strategy focuses on commercial real estate-related assets and to a lesser extent, higher yielding commercial finance assets. The company invests in the following asset classes, commercial real estate-related asset such as whole loans, A-notes, B-notes, mezzanine loans, and mortgage related securities.
And commercial finance assets such as other asset-backed securities, senior securitized or senior secured corporate loans, equipment leases and notes, trust preferred securities, debt tranches of collateralized debt obligations and private equity investment, principally issued by financial institutions.
Resource Capital Corp is externally managed by Resource Capital Manager, an indirect fully-owned subsidiary of Resource America, stock symbol, REXI on NASDAQ, 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 and the commercial finance, real estate, and financial fund management sectors.
So in further introduction, I would like introduce David Bryant, Chief Financial Officer, and David Bloom, Head of Real Estate for a breakout session, which is normally in the room across the hall, because there is not a company presenting here next. We are in no pressure to leave the room, so the Q&A session can basically go as long as we need to go. Okay. Thank you.
Okay. We're going to do a little tag team with the presentation and I'll ask Dave to talk about our real estate and I'll cover some corporate information at the end.
Welcome and thank you for joining us this afternoon. As Gerry said, I'm Dave Bryant, the Senior Vice President and CFO of the company. I have been with the company since June of 2006, which was shortly after the company had its initial public offering.
With me today, again, are Dave Bloom our SVP of Real Estate Investments. Dave will cover real estate specific to our company and have some comments on the current marketplace, although I doubt that Dave will want to give us any stock tips in this market.
Purvi Kamdar is also here, she is our Director of Investor Relations. Should anyone have any follow-up questions or want to get additional detail on the company afterwards.
Although, [CV or Neil], so I don't think I know anybody here personally in the room. I spent a great deal of my career at Penn REIT, formerly The Rubin Organization. Most of that time, about 16 years of the 18 in a traditional finance role, and about two years as a Real Estate Asset Manager.
PREIT is, for those who don't know in equity REIT, primarily invested in malls and shopping centers, and that maybe the one category suffering more than companies like ours, in this market.
Standard forward-looking statement and a brief background, a history on the company. We did a private offering and sold a little bit over 14 million shares in March of 2005 about 3.5 years ago, followed by the IPO in February of '06, in which about two plus million shares were issued, and another six plus million in a following offering in December of '06.
We also raised another 50 million with two trust preferred offerings in 2006, one in May and one in September. This raise is technically debt, but it's important to note that this security has a 30-year life, it's a long commitment. And as Gerry said, we are externally managed, which I'll cover in more detail, at the end of the presentation.
So a little about who we are, what we do, what our goals are. As Gerry said, we are a commercial finance specialty finance company, with of course, an emphasis on commercial real estate, as we ought to have so much of our investments in real estate, in order to qualify as a REIT.
We are whole loan-centric, Dave will talk a little bit more about that, but generally, that means we are lending money on real estate from 0% to 70% to 80% of loan-to-value. We look to deliver a healthy dividend and we think we've done a pretty good job at doing that by providing a good platform for our borrowers and generating attractive yields to shareholders.
A little about how committed we are to the platform, our sponsor company Resource America, earns a fair share of the company, approximately 8% as of September 30th, our most recent quarter end. And I would note that there is also significant investment of another 6% or so, controlled by a combination of employees and senior management.
We had a pretty stable financial performance. You can see our dividend on the top right was raised from $0.39 to $0.41 and we stayed there for a little over a year, and most recently dropped back down to $0.39 in the third quarter.
That has produced a very attractive yield, based on our book value, based on our stock price, forgive me, but it's outrageous, because, our stock price is a little over about $3 a share as of this morning. So, we are yielding over 50% on that metric.
Couple of notes on pre-tax borrowings, we had some unusual items in the fourth quarter of '07 and first quarter of '08. In the fourth quarter of '07, we had a significant exit fee from one of our real estate loans that paid off, that yielded about 600,000 in exit fees.
And in the first quarter of '08, we had about $2 million which came from the purchase of our debt, our own issued debt at a discount. So that was again on that transaction, of $2 million. Otherwise, these numbers have been fairly stable.
And in the fourth quarter of '07, on the bottom chart, dividends declared divided by beginning book value, we had a portfolio, where we consolidated an ABS portfolio, where we had to write-down the assets greater than our equity invested, which drove that return up to 23%, and then we deconsolidated and got rid of those assets in the fourth quarter, and to a more normalized 50% yield.
A little about our investment highlights. We again had declared a dividend in the third quarter of $0.39, year-to-date $1.21 and we project to a $1.58 to $1.60 for the calendar year. This includes our previously announced fourth quarter guidance of $0.37 to $0.39 per share.
So we are producing a good yield and most of our assets again are in commercial real estate and commercial finance. The thing I would stretch here is that we are match-funded in excess of 90%.
We think that this is the strongest part of our balance sheet, because all that debt is long-term debt, with several years of reinvestment to play out before that debt gets into maturity. So the point being we have little risk of immediate refinancing ourselves.
I'd also note that the yield and debt rates cited here about 6.5% on assets and weighted average at 3.6% on debt, are a function of LIBOR. Most of our assets and most of our debt are floating rates.
And lastly here, before I turn the presentation over to Dave, we moved in 2006 to a commercial real estate whole loan operation by adding a senior loan origination team, which is based in Los Angeles. And also worth noting is that we support that origination effort with a very capable and robust asset management and credit monitoring group of people.
Dave will cover commercial real estate.
Thanks to all for coming here today. Very briefly, as far as my background. I have been with Resource America since 2001. I joined in very late 2001 from Colony Capital, which is an international real estate opportunity fund, where I was coincidentally, or ironically as the case maybe, a distressed debt professional, covering largely sort of Asian sellers at the wind-up in the States and then factual the Asian financial crisis.
We relaunched the real estate business of Resource America in 2001 and 2002, and really made it an integral part of our asset management platform. We have other real estate business lines, that are very substantial. We have private equity funds that invest in multifamily across the country. We have a distressed debt platform.
We had a legacy portfolio, which was really where Resource America had gotten their start in real estate. From '91 to '98 they bought one-off non-performing loans, not in bulk from the RTC, but across the board from people who did write from the RTC, from distressed Asian financial sellers and that portfolio has been largely monetized, some assets on a number of occasions, because they were recapitalized.
We ran that portfolio in a very specific way. We kept the loans, we kept the investments booked as loans. We've been in the real estate lending business consistently since 1991. We had a net effective control of the assets through the use of, for balanced agreements and we accessed the capital markets for long-term financing. And it was really the borrower's obligation financing for the real value of the asset. So we've really been playing in the debt markets for quite some time.
In 2004, late 2004, we really saw a tremendous opportunity in the transitional loan space. Transitional loans, things that have a story to them. The conduit market was really designed to finance fundamental, stabilized real estate. Where the wheels came off the cart in the CMBS market. Very specifically, with people pushing the envelope and putting forward underwritings in and debt service reserves and all sorts of other things.
So, that happened after we got in the business. We thought it was a really opportune time. The transitional loans, that we would bid on a transitional loan, it would be a shopping center, it would have an anchor that is gone dark, wonderful sponsor, putting in 30% equity needed future fundings, because the anchor that went dark was just a remerger, it was an Albertsons that merged out, it was closed, and then we had a future funding obligation of say $5 million.
So it was, for example a $15 million initial loan, $5 million future funding for whatever happened to the old Albertsons space and we would bid it in price that the way it was supposed to be priced. Those types of loans are supposed to be priced at 300 and over, with a point-in and a point-out and all sorts of other things, elements of personal recourse.
Conduits all of a sudden said we need more volume, we have more people, the market is getting bigger and we would find ourselves at the end of the day, being sort of the best transitional lender there. But having a conduit come in and say, we will lend you all of the money at 150 over, we will just future fund and we will jam it into a securitization. It worked for a while, it ultimately blew up.
I don't think that real estate was or at least commercial real estate was the drunk driver on the highway of this particular credit crunch. I think there are lots of other things that went on. I will keep my conversation specifically to commercial real estate. Right now, it's an enormous market, it's an asset class of its own, it trades or it detrades quite readily. The commercial real estate net lease market is estimated to be about $3 trillion.
Quick metrics; 2007, truncated year, so things really stopped in the fourth quarter, but commercial mortgage backed securitization volumes were $270 billion and that was in a truncated year. There were predictions really to go probably as high as 325, 330. As we get to this point this year, we are at $12 billion.
The system is very badly broken. The buyers of bonds are broken. People don't trust anybody anymore about anything, and still we are looking at a security that's been around since 1993 and has a historic default rate of 35 basis points, if you look at CMBS across the board.
No, we are not a CMBS shop. CMBS is rarely the takeout for our loans. But it's important, because when the CMBS bid comes back into the market, you will see liquidity cruising back into the system, things will be different, it will be a more disciplined structure. And one of the things that we will benefit from at the time is people will stay in their corners for a good period of time.
After '98, people found themselves not properly hedged and a few shops blew up, [Nomura] went away, [CS] set up, pretty famous claim out. There were all the rising stars, who were volume players, then sort of went away. The market took about a year to get back to normalcy. Somebody ultimately broke ranks and then (inaudible) and everything within the securitization again.
After 2001, same thing, rally back was much quicker. We've really been in kind of a market where there is no bid, even for the most senior conscious of any new securitization, at any level that makes sort of for a breakeven pricing that a borrower would like. If I offer a borrower money right now, because my cost of capital is fixed. I can offer a borrower money at 8%.
It's short-term. They understand that. That breaks out a now to be LIBOR plus 650. But in a short-term transitional asset, they like that very, very much.
Conduits, they were supposed to be the low cost provider, can't make loans at 8%. Their breakeven at these rates is really north of 10. So, until the buyer deal and the structured vexes and we don't see massive defaults. I think things will probably juggle on.
Our portfolio is currently $865 million. We do have some CMBS, we call it structural CMBS, because we issued collateral debt obligations, co-collateral debt obligations. We don't find them, we don't find CDO to be a bad word.
In the commercial real estate space, the structure is really the best structure there is. Better, of course, than even a [Rinek]; because the sponsor holds the equity. So, in a $345 million deal, [workers loss can] hold $90 million. And our $500 million deal workers loss can hold $120 million of that particular deal. We are motivated, we are there, we are really sort of, we are not outsourcing credit, we are portfolio lenders and make every loans as such.
Just sort of a point about our company in general. 73% of our common equity and our trust is invested in the commercial real estate. We really are a commercial real estate REIT. We have the benefit, because we are externally managed of taking some of the other premium managers that we have, the Resource America.
Resource America has about $20 billion of assets under management. We have a leveraged loan group that is really best of breed. We have a small equipment leasing team. Again, one of the top five in the country, sort of, in the small equipment leasing space.
And we're able to with, a limited amount of our capital, put in some commercial loans. These are largely syndicated leveraged loans, with a very broad dedicated team. Our leasing company has upward just 700 employees. We can put some leasing assets then.
What it really helps to do is, create purity of earnings and smooth things out to a level that perhaps in an otherwise different type of real estate portfolio, might not be so smooth. We are particularly proud of our portfolio.
We think defaults, we had one $12 million default that was not a victim of the credit crisis, it was the story of sort of a good mall gone bad. We took an impairment for having done $1.8 billion of loans, a $12 million hickey is something that I think. We can still look at ourselves in the mirror because, at the time we close the loans, it was hovering to our position at 1.18 debt service coverage ratio and trending up. It was thought to be a fairly safe loan and sometimes things happen.
Of important note is the fact that we have $845 million of long-term dedicated capital. Non-callable, non-markable, just capital that's there at very, very attractive funding, at LIBOR plus, about 70 basis points.
Again, a parallel platform for us, we have lots of businesses. While we have a dedicated team that works exclusively on our safety and debt origination and management, it's important to have a real national view.
You can see here, we've got real estate equity investments and our private equity funds. Our private equity funds are only multifamily. Multifamily is a really unique window into the soul of a city. You can't do [arbitron] of a multifamily property, like you can 666 that avenue right down the street, that was recently refinanced at some ridiculously high rate, and some ridiculously low loan-to-value ratio.
Really, what you need to understand in multifamily is, where people shop, where they work, where they seek entertainment, and therefore, where they want to live. It really gives us tremendous insight into cities that we would do transitional loans in.
I think, if you can look in the green, which is our debt instruments, our performing real estate debt investments. We tend to invest in a smile, which is kind of from New York, down through the coast and back up.
There are obviously some players outside of that that make sense in cities that we know unlike Austin, Texas for example. We own apartments in Austin. We know Austin extremely well and have two debt investments there that we just love.
The information arbitrage that we get from our teams is essential. Getting into the team I think is really kind of the crust of the story. Ed Cohen and Jon Cohen are our Chairman and our President and CEO, and Steve Kessler have a combined 90 years of experience in real estate.
I seldom say that, when they are all in the room, because it's pretty evident that one doesn't have as much as the others, but these are seasoned real estate professionals, life time real estate investors and people who had seen market cycles.
This is a market cycle that unless you have been through the great depression, you really haven't seen. But, it certainly feels like a lot of different things and for me it feels very much like Asia in '98.
I've been in real estate since 1986. Alan Feldman, who is the CEO of Resource Real Estate and my partner in the business, who focuses more on the equity and the distressed debt side, notwithstanding the effecting on the distressed debt. So a person by training.
Again, sort of a real estate person since 1989. Dave has spoken about himself. Kyle Geoghegan and Darryl Myrose, they were senior managing directors at Bear Stearns. They joined us in July of 2006.
Bear Stearns, for anyone who follows real estate at all, was the most traditional and conservative conduit that there was. They did not push the envelope, arguably until the end, when everyone was looking to buy market share, they were long gone by that time.
And at that point, competing for a securitized debt product, people would negotiate over two basis points, and it just wasn't fun for them. These are classically trained credit people with advanced degrees, having originated billions and billions of dollars of loan.
Joan Sapinsley, she is also in debt origination. She runs our CMBS platform. Joan had been with Teachers for 15 years. Of note, Teachers had a $20 billion CMBF portfolio. Joan was also in charge of their large loan program and ran their conduit for a period of time.
She is a Governor of the CMSA, which is our industry organization and really kind of the industry icon. It was a wonderful thing when she joined us. She coincidentally joined us when markets had priced.
I think the week she joined us, sort of a week after she joined us, there was the pricing of two deals, where we all sort of knew that the bottom kind of had come. Things couldn't get any tighter. Super senior, AAAs and a CMBS transaction price that swapped plus 15 and the BBB- of the same pool price that swapped 83.
Today, her example of AAA is traded at about 650 and there is no bid at all for BBBs. There is really no bid in the market, it's just a very inefficient market at this point.
In addition to that, we've got 10 dedicated professionals just in the debt team. We've a loan asset management team, because these are loans that do require constant care and feed and other future advances, there are things that need to go on, business plans that need to be monitored, leases that need to be signed off, on, construction draws that need to be approved.
I'd say construction draw, I make a distinction. We don't do construction lending. I think we've avoided a lot of the trap doors into that market. We do value-add deals, and obviously with value-add deals, there's build-out for stage, the addition of a spa or the redoing of rooms in a hotel.
On top of that are the 35 dedicated professionals meeting, all of our professionals. They are dedicated, but dedicated just to the real estate group who run our multifamily acquisitions, our distressed funds, our legacy portfolio and now our distressed operations.
On top of that, you can then put sort of the back office and all the senior management, of which I am, Dave is not because he is required to be a dedicated professional, a dedicated employee of only Resource Capital Corp., but I also sit as a Senior Vice President at the holding company, of Resource America, and sort of the knowledge base there is deep as well.
Our portfolio, what we have struggled to do and keep a diverse and granular portfolio. Diversity and granularity, I think is key. Going long, at a point when CDO technologies came in and we actually took a long time to wait into the space. At Resource America we manage 37 CDO and CLOs.
The last space we entered was the commercial real estate space, because it was the hardest, it was the last to develop and the hardest to really understand where it was going to track out. And there were people who were just doing pure arbitrage deals and sort of four guys and a ramp line and people who'd go sell at the SIVs and we sort of understand what happened to SIVs and now we can sort of understand what happened to those guys.
They were taking large positions. They were dependent on Wall Street for their debt. They were buying B-notes and mezz and whole loans to a certain point and weren't getting this sort of diversity and granularity that we get. I think you can see we're well spread out through the major real estate food groups.
On top of that, going to the next slide, is really our portfolio makeup, the components. We are 65% whole loans. We originated the whole loans ourselves. We were involved in the origination of the loans that we have in most of the mezzanine loans and most of the B-notes. That again, that's a market we exited in really 2006.
In 2005, when we were ramping and looking to pay a dividend early, there was still relative value in B-notes, that you are involved, so you knew the borrower, you could go with the borrower to an investment bank or a conduit that you knew well and say, here is our borrower, we will take the sub debt, you price the first. And it was very efficient pricing.
Also of important note is, in the whole loans, we maintain a direct dialog with borrowers. A lot of people are saying, wow, it's really hard to work out XYZ loans. Because XYZ loan has an A-note that's part of a CMBS execution and up to 10 tranches of mezzanine that are shared among two to four different players each.
Very famous sort of deal that will be out there, where this will be a real test and workout land is the Extended Stay America Hotel portfolio, which was an $8 billion tree with a $4 billion first mortgage and $4 billion of subordinate debt. It was a deal that took a lot of banks down and it's just going to be a bear of a workout.
For us, having constant dialog with our borrowers, being able to work with them, being out in front of any problem is core to our essence. It's really how we work, it has worked extremely well and in this particular market, short-term maturities are everybody's problem, because there is really not a takeout.
Now, interestingly enough, across our $835 million portfolio, we've got 49 separate loan positions. That's a nice kind of granular portfolio. We don't have bullet maturities. And to the extent, we get to a point and these markets stay frozen, we are able to work with our borrowers and modify to this extent, and people are happy to have this type of debt.
Flipping over to another slide, talking about current market dynamics before, so a lot of this might be rehashed. The 10-year fixed rate CMBS quote, while I say it's still largely absent. It's gone; it's not in the market. We deal in a market of notional liquidity. Especially then, forgetting leverage-on-leverage, it's even stranger.
We have a $100 million term facility with a prominent French bank that we put in place a long time ago, and we paid for. And people thought we were insane. But, it was the only prudent way to run a business. Our primary bankers said, you can have a repo line for us, for free at huge advance rates, and it's great.
But they have been, they have all, there's huge fore sellers now, because of the mark-to-market issues and the liquidation coming off of that. While all of these facilities have some element of mark-to-market, they are having paid for a term facility, that was a four year facility a while back, gives us a lot of room to maneuver.
More about pricing in terms have all changed, things are much more conservative. We are going to come out of this in a very different world. I think, really as I said, people are going to stay in their corners.
CMBS lenders are going to be making stabilized loans with trailing 12 month, trailing 12 years; I am sure where the agencies would like to start. Trailing 12 month cash flows that are verifiable, that at a minimum hit a 120, and are really looking more to 125. And, 80% for a multifamily will be maximum leverage, as opposed to sort of where things got to, and really 75% on other assets.
For us, as a transitional lender, the opportunities are endless. There are a number of people for those of you who watch this space, I'd love to apologize, but with Goldman Sachs at 62 and ISTAR, who we really looked up to when we were out on the road during our IPO when I was part of that.
I prayed every night, that just someday we would close within 10% of ISTAR, because a lot of people said, well you are like ISTAR, you have other business lines in addition to just structured finance. And what I forgot to do was color my prayer. ISTAR is now at $1.60 and we are at $3. So we are there in parity, but they kind of dropped below us. Again, it's a match ship to match funding issue.
Loan spread continued to be dramatically wide. Market paralysis is pervasive. We are really well positioned for this temporary pullback. No bullet maturities, I think that we've got loans with extension rights, next year probably approximating $40 million. The extension rights are, you know as a right extension, they pay us an extension fee, and they can move on.
Our portfolio is performing extremely well. I think it's important to note, and this is little things that are lost. We are being priced right now essentially like a two year I/O bond. Some one says, they are great for two years dividends, the whole portfolio is going to [crater], the equity is going to get cut off and their CDOs and things will be over. Thus, we trade like someone with real credit problems.
CDO originally came out after we did. Gramercy has been there a little bit before. I mean, if we go through every one and no one is here to differentiate between companies. What I'd like to do is, talk about the fact that we made our loans and are willing to keep our mistakes and are lucky to the extent that we don't really have many mistakes.
We have a chairman who is a commercial banker by training, actually a world leading Greek Classic Scholar by actual training, a commercial banker by trade, and just we really always looked at ourselves as an unregulated commercial bank, that held ourselves to their similar standards.
So, in looking at where we are different, what we did, what other people didn't? We put LIBOR floors. We stretched things to the floor and the cap. I think it's very important. We have a weighted average LIBOR floor of 4.76. That's 336 basis points over where LIBOR closed on Thursday. And LIBOR is going to within 25 basis points of the Fed Fund's target rate. That's what it's supposed to do.
Our entire team now, we are really busy asset managers. We get 20 to 40 high quality loan opportunities each week that we were doing a heartbeat. And people who would pay 10% in full recourse, and fees-in and fees-out, it's not going to serve us well corporately to do it. Stock is trading at $3, dividending out a$1.50, [mostly the] thing we could do, buy stock. We've got some very big shareholders who say that. We can also selectively buy our debt backs. But most importantly, now cash is [gone].
So, Dave, who is our shepherd of cash and likes to hoard it. We are really in the process of sort of doing that. We are de-leveraging our term facilities where we can because we have the long-term locked-in liabilities. We're paying for them regardless in the CDO, so as instead we are using a line as it was suppose to be. The line was never supposed to be anything other than a holding period than a holding place for things to ultimately go into the CDOs.
Asset level, you know, again, we view the purity of earnings to be very consistent. We come out, we affirm guidance for this quarter. And I can't speak broadly, but there are things that are keeping me up at night other than bears, [Wrigley] bears mostly, but not stock market bears.
I think it's important that, we talk about the size of our loans. Our average loan is $20 million to $25 million. Those loans are value at place by IRR driven investors. Time kills all IRRs. There's lots of liquidity in the cash buyer market. There are banks who are lending to people at 50% for recourse at 125 or 140 or 150 over. In the worst of this credit crisis, we saw $44 million of payouts in our portfolio, which now gives us dry powder to do things like de-lever our line and move things then.
I think there are portfolios uniquely situated for a time like this. The mega transactions, Blackstone LXR or [Trizac Con] or anyone of the Blackstone deals. No one really knows kind of when the IPOs are going to happen or when they will be recap. Hopefully, low LIBOR will save a lot of those deals and some are below [peak] but it's not going to affect the broader market.
Again, I'd sort of say, we're well-positioned to take advantage of existing cost liabilities. As we get repayments and we do, we're able to reinvest in kind of a much more accretive way. So, while we are now sort of in a steady state, we really do view a point where liquidity returns to the market.
Transitional lenders are largely absent from the market, because many of the people who came out, when we came out in '04-'05 will not be in the space. We are prudent and planned to be survivors.
So our biggest issue remains capital aggregation. We've talked about this a lot. We are asked question about this a lot. How do you get capital to grow your business? We don't really need capital to grow our business. We have plenty of capital. We can raise offerings. We do a number of things. But at this point, we are happy where we are. We have strategic partnerships that we can tap.
I think right now we are really in active holding pattern with very pure dividend power, something that it's better to be lucky than good, hopefully we were a little of both. We were the last theory CDO to get out over the objections of one of the bankers who wanted to wait for the market to get better. We had a fine execution and again $845 million of sort of dedicated long-term money in this market goes a long way, especially for the type of lending that we do.
With that rambling done, I will turn it back to Dave to talk about some of our corporate and liquidity issues, and then rejoin you for Q&A.
Thanks, Dave. To few quick slides when we are cash and few other metrics, here is a view when our liquidity after funding the third quarter dividend, which happened just a couple of days prior to the end of October.
We also have a plan to use a substantial portion of the restricted cash available for investments that $59.5 million which will move assets off of our CRE term facility which has a very modest leverage only one times levered and increase our unrestricted cash balance when we do that. We had to conclude this month in November.
One other item I know with respect to liquidity are short-term repurchase debt is [all began] has a balance of $180,000. So with that point, we are subject to only margin cost. We limited our margin cost pressure to the interest rate swaps that we have.
We like to present economic book value because it facilitates a view on the company without the effects of unrealized losses in our investments, which we expect to recover and hope our value at maturity and on interest rate swaps, which we intend to hold to maturity.
In the CMBS investments, we had no impairments. And also with respect to the derivatives, our borrowers are liable to reimburse cost of breakage if they prepay before maturity.
Here, we see very strong returns on our portfolios, even with approximately $116 million in commercial real estate assets with very minimal leverage. All of our bank loans are financed with CLO debt which is also a long-term funding over $950 million of funding inefficiency the 845 that Dave's talked about in real estate.
Our equipment leasing is housed in our taxable REIT subsidiary. That's not good REIT income. The aggregate returns are nearly 18% are presented before considering general and administrative costs, which run at about 3%. So when you do the math, you get to about 15% net return.
This chart shows our evolution post IPO from a mixed real estate finance company, which had both residential and commercial mortgages to a commercial real estate centric platform. So the light blue bar growing over time.
Just a quick illustration of our portfolio mix, this points out the difference that's created by leverage, because we have about three quarters of our equity on the right in the blue and that's hitting commercial real estate, yes, slightly less than half of our assets. The bank loans being more highly levered.
And last, as I promised, a few notes on our externally managed relationship. We are externally managed by our sponsored company Resource America, which trades as REXI on NASDAQ as Gerry highlighted at the onset. Our management contract allows for all salaries of REIT management and administrations are to be covered by the manger, REXI.
The REXI in return receives a base management fee of 1.5% of our original equity raise and there is an incentive management fee component to the fee structure as well and that is paid only after an 8% return on the original equity before deducting the base fees. So essentially, we have to earn over 9.5% on the original equity before an incentive fee is paid.
The incentive management fee ratio was 25%; it's paid 75% in cash and 25% in stock. And there have been times when the manager has taken more stock than cash than the minimum 25%.
As Dave pointed out, each of these groups and Resource Financial Fund Management, Resource Real Estate, Inc. have significant experience well over 20 years at the top of each of these segments.
That concludes our formal remarks, and Dave and I, of course, are both here for any Q&A you may have. Any questions, yes?
Unidentified Audience Member
So does your communication with the borrowers, have you been getting any feedback from them on payments, any possible concern down the road with the resale or the situation where it is in [April '09]?
Your question was, our borrowers, because we are in communication with our borrowers, do we have any issues with sort of the--
Unidentified Audience Member
No, do you have an issues?
No, but are they getting back to us with issues they see. So you are saying our borrowers where our loans are secured by retail, do they see softening sales, things like that?
Unidentified Audience Member
You know what, we have with the exception of one trillion claim out as I discussed, we have avoided regional malls. Regional malls are having a horrific time. We have gone into sort of neighborhood shopping centers that are remarkably well located with great sponsorship. And to the contrary our retail portfolio is performing extremely well.
We have two sort of, we lent on two boxes, two sort of empty box net lease splits. One that was a bunch of CVS, the CVS didn't occupy four of the six have been leased and are now occupied by Wal-Mart, maybe Wal-Mart concepts. We similarly had things that were caught in the JCPenney, it's been off of [thrift]. Again hard corners in the right cities are always going to be full.
So, of those seven properties, five are Walgreens now, one is a Hastings and the other is a local that I can't remember. The closed Albertsons I talked about is one of the original sites, one of the first sites for Tesco's, long-awaited, and Super Secret, Fresh & Easy, which is very, very good. Our exposure in sort of sub debt space to broader portfolio is in to, we have one position in some outlet malls, and they are performing extremely well.
Everyone is afraid of retail in general, I can tell you that, the mall portfolio that went bad had the list of horribles. It had two big boxes, two anchors merged, one exercise the buyout option, one owned its pads and then chose to go to another center. It also had Linens 'n Things exposure and had just sent $3 million building out a fresh new Steve & Barry's.
If that's not a perfect storm in sort of a good mall going bad, I really can't think of one. Now, I guess you could have it in Circuit City. But other than that, it was pretty much all I could take at the time. But thanks for the question.
Any more questions?
This is not from negotiating with the borrower.
Thank you for coming and this would be next door in a breakout for…
Well, that's something we need to go to breakout room. He said we can take here for all of them.
Okay, great. Thanks for coming.
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