Resource America Inc. F1Q09 (Qtr End 12/31/08) Earnings Call Transcript

| About: Resource America, (REXI)

Resource America Inc. (NASDAQ:REXI)

F1Q09 Earnings Call

February 5, 2009 8:30 am ET


Jonathan Z. Cohen – President, Chief Executive Officer

Purvi Kamdar – Director, Investor Relations

Steven J. Kessler – Chief Financial Officer


Welcome to the first quarter Resource America Inc. earnings conference call. (Operator Instructions) I would now like to turn the presentation over to Mr. Jonathan Cohen, President and CEO of Resource America Inc. Please proceed.

Jonathan Z. Cohen

Thank you for joining the Resource America earnings conference call for our first fiscal quarter ended December 31, 2008. This is Jonathan Cohen, President and CEO of Resource America and I welcome you to our call. Before I begin, I will ask Purvi Kamdar, our Director of Investor Relations, to read the Safe Harbor statement. Purvi.

Purvi Kamdar

When used in this conference call, the words believe, anticipate, expect and similar expressions are intended to identify forward-looking statements. Although the company believes that these forward-looking statements are based on reasonable assumptions, such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from these contained in the forward-looking statements.

These risks and uncertainties are discussed in the company’s reports filed with the SEC, including its reports on Forms 8-K, 10-Q and 10-K and in particular item one on the Form 10-K report under the title Risk Factors. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only of the date hereof. The company undertakes no obligation to update any of these forward-looking statements.

And with that, I’ll turn it back to Jonathan.

Jonathan Z. Cohen

Again, this is Jonathan Cohen and I thank you for joining our call. First, I would like to review our operations for the first fiscal quarter. The company reported adjusted income from continuing operations a non-GAAP measure of $94,000 or $0.01 per common share diluted for the first fiscal quarter of 2009 as compared to $4.5 million or $0.024 per common share diluted for the first fiscal quarter of 2008.

For the first fiscal quarter of 2009, the company reported adjusted revenues of $33.4 million. For the first fiscal quarter of 2009, the company reported adjusted operating income of $5 million. And 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 for the first fiscal quarter of 2008.

The company reported a net loss after discontinued operations of $3.2 million or $0.18 per common share diluted for the first fiscal quarter of 2009. As of December 31, 2008, the company’s GAAP book value per common share was $7.99 per share. You might remember that during our last conference call we spoke about a three-pronged approach to our business. Just to remind you what we spoke about.

The three-pronged approached included first, continuing to lower our general, administrative and operating expenses in response to the new environment. Second, maximizing our existing long-term management contracts and their earning powers and adding management of new assets and funds, and third, raising new investor capital by creating funds limited partnerships that reflect opportunities that have developed through the market dislocations and emphasize our capabilities to exploit those opportunities.

We have persevered through this very difficult economy and have continued to execute. The result is that we return to operating profitability at the company as a whole and specifically at our LEAF and resource real estate subsidiaries, have lowered our operating expenses significantly and expect you will see much improvement in the March 31, 2009 quarter in that regard, added assets in financing in the LEAF and resource real estate businesses and continued to manage resource financial fund management and receive significant fees for doing so.

Our results for the quarter reflect the reality of the world today, but also I believe reflect the ongoing sustainability of our business model. We continue to raise capital even though the worst of times. We continue to obtain financing for our funds even in the worst of times, and we continue to create new products even in the worst of times. We expect our businesses to return to decent profitability and start rebuilding book value and actual value of our subsidiaries.

Our business model has a tremendous amount of operating leverage and, therefore, as fund flows pick up we should be able to increase earnings significantly in a short period of time. In terms of capital, we have raised over $72 million of retail equity in our current funds and have put to work over $75 million of institutional capital, including our own small committee capital in the distressed real estate joint venture, which we previously announced. These are in our new funds over the last period of time.

Again, these new limited partnerships funds and ventures are subject to long-term contracts and provide both upfront fees, future management fees and incentive fees. In fiscal year 2009 alone, we expect to raise over $300 million of equity from LEAF resource real estate, our retail distress real estate fund, and our institutional distress real estate fund joint venture. We are pleased by this performance in fund raising during such a time of duress.

In terms of being able to finance our funds, which is a key driver of our business model, we continue to be able to obtain financing for our partnerships funds and joint ventures. As previously discussed at LEAF, we closed $355 million of new financing for our funds during our first fiscal quarter, which as we all know was one of the most challenging periods in the history of financial markets. In addition, we are currently working on an additional new facility of $75 million for one of our funds, which we expect will close within the next few days.

Our real estate funds are also able to access financing due to agencies Freddie Mac and Fannie Mae for multi-family acquisitions. We have closed on new financings of $31 million for our funds during the first quarter. Again, this accomplishment is significant when you consider how difficult it has been to obtain real estate financing during that period.

In terms of new ventures, we also continue to explore new opportunities and to develop new products. We have launched research real estate opportunity fund, a partnership focused on investing in distressed real estate assets. This will be added into our current joint venture in distressed real estate. We have launched a significant effort to marketing new products in the corporate bank loan sector and have begun marketing to separate managed accounts, as well as starting a targeted bank loan fund.

We continue to look for new ways to exploit the dislocation in the marketplace and use our network to raise capital for these opportunities.

Now, I will ask Steve Kessler, our CFO, to walk us through the financial highlights.

Steven J. Kessler

The press release, along with Jonathan’s comments, covered the results of operations. I would like to briefly discuss our balance sheet and cash flow statement. Our balance sheet assets increased to $808 million at December 31, 2008 from $758 million at September 30, 2008, an increase of about $50 million. Our borrowings increased to about $608 million at December 2008 from $554 million at September 30, 2008, an increase of $54 million.

Loans held for investment net on our balance sheet were $224 million at December 31, 2008 and represent a portfolio of floating rate syndicated bank loans that we consolidate under FIN 46-R. Our investment in exposure in this is about $7.9 million after tax at December 31, 2008.

We present our investment in commercial finance loans and leases in two categories on our balance sheet based on the ultimate resolution of the loan or lease. Those leases and loans that are to be sold to the LEAF funds are classified as held for sale. Those lease and loans that are owned by LEAF commercial finance fund, or in certain circumstances that we hold for our own account, are classified as held for investment.

LEAF commercial finance fund is consolidated on our balance sheet since we own the equity and it is a $25 million fund that is selling 8.25% fixed promissory notes to investors. The held for sale leases and notes were $103 million at December 31, 2008, and the held for investment leases and notes were about $240 million at December 31, 2008.

As of December 31, 2008, the company had reduced its total consolidated borrowings outstanding to $609 million from $1billion $50 million at December ’07, this was a decrease of $442 million. At December 31, 2008, borrowings include about $214 consolidated under FIN 46R related to the [inaudible] as to which the company has no recourse and they go with the loans held for investment that I previously discussed.

In addition, there was about $328 million of non-recourse revolving credit facilities and promissory notes at LEAF and about $68 million of other debt, which includes $13.7 million of mortgage debt secured by properties owned by the company’s subsidiaries.

It should be noted that our borrowings increased by $54.6 million from September ’08, as a result of an increase in our non-recourse revolving credit facilities and promissory notes at LEAF. We anticipate that borrowings under LEAF’s credit facilities will decrease as LEAF 4, LEAF’s current funds, obtains additional credit facilities for its own account, as Jonathan previously mentioned.

Let me now go to the cash flow statement. Net cash provided by operating activities of continuing operations as adjusted was $8.7 million for the fiscal quarter ended December 31, 2008. This was a decrease of $5 million as compared to net cash provided by operating activities as adjusted of $13.7 million for the fiscal quarter ended December ‘07.

Please see schedule three in the press release that reconciles net cash provided by or used in operating activities of continuing operations to net cash provided by operating activities of continuing operations as adjusted.

At this time, I will turn it back to Jonathan.

Jonathan Z. Cohen

Before I open the call up to any questions, if there are any, I want to emphasize that, although we are working in a very difficult financial market, we are finding opportunity. Not only are we positioning LEAF as a survivor in the commercial leasing business, one has to remember all the companies that have not survived, but we are positioning LEAF to be the leader in high quality asset origination servicing in management.

We believe when the world returns to some sense of normal behavior, not only will e be able to leverage up our funds to normal levels and increase our profitability, but also position LEAF as a standalone company. As for resource real estate, the world of distress real estate is just beginning and we are well positioned to take advantage of it. We will look to capitalize in both the distressed opportunity as well as other opportunities in the dislocated real estate markets

Although we returned to operating profitability this quarter, we are now positioned to see our operating expenses drop dramatically next quarter and in future quarters. This will start to allow us to return to true profitability. Now I will open the call to any questions, if there are any.


(Operator Instructions) There are no questions at this time.

Jonathan Z. Cohen

Well, thank you very much and we look forward to reporting next quarter.


Ladies and gentlemen, thank you for your participation in today’s conference. This concludes the presentation and you may now disconnect.

Question-and-Answer Session

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