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Resource America, Inc. (NASDAQ:REXI)

F2Q13 Earnings Call

May 7, 2013 8:30 AM ET

Executives

Jonathan Cohen – President and CEO

Purvi Kamdar – Director, Marketing and IR

Tom Elliott – SVP and CFO

Operator

Good day, ladies and gentlemen, and welcome to the Q2 2013 Resource America Earnings Conference Call. My name is Lora, and I’ll be your operator for today. At this time, all participants are in listen-only mode and we will conduct a question-and-answer session towards the end of the conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

And now I’d like to turn the call over to Mr. Jonathan Cohen, President and CEO of Resource America. Please proceed, sir.

Jonathan Cohen

Thank you. And thank you for joining the Resource America Earnings Conference Call for the Second Fiscal Quarter Ending March 31, 2013. 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 Kamdar

Thank you, Jonathan. When used in this conference call, the words believe, anticipates, expects, 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 the Forms 8-K, 10-Q and 10-K, and in particular Item 1A 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 as 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 Cohen

Thanks again, Purvi. This is Jonathan Cohen. Thanks for joining our call. Now to our earnings, the company reported adjusted income from continuing operations attributable to common shareholders, net of tax, of $3.2 million or $0.14 per common share diluted for the second fiscal quarter ended March 31, 2013, as compared to adjusted income from continuing operations, net of tax, of $478,000 or $0.02 per common share diluted for the second fiscal quarter ended March 31, 2012.

As I’ve done in past conference calls, I want to focus on what grows the company and its profitability. First, assets under management, our assets under management grew by 18% or $2.3 billion to $15.3 billion over the last 12 months.

Second, adjusted cash earnings from operations grew from a loss of $530,000 during the quarter ended March 31, 2012 to a profit of nearly $2.7 million this quarter. Third, we raised new equity capital for our real estate product of approximately $100 million for the quarter, up over 100% from $47 million a year ago.

As we pointed out in the press release, these numbers do not include nearly $115 million, Resource Capital Corporation raised in a public offering after the end of the fiscal quarter nor any other fund raising we did in April.

Now, I’ll touch on our two areas of asset management, real estate and credit. Our real estate businesses are growing significantly. Resource Capital Corporation and Resource Real Estate Opportunity REIT both raised significant capital, which was collectively over $100 million during the quarter and the run rate has grown substantially.

Already, through April 30, 2013, for the current quarter, we have raised over $123 million at Resource Capital and $26 million at Resource Real Estate Opportunity REIT.

We continue to see tremendous opportunities to invest in both the commercial real estate lending sector as well as the distress in value-add multi-family apartment sector. These assets are the ones targeted by Resource Capital and Resource Real Estate Opportunity REIT.

Moreover, the appetite by individual investors to invest in these assets and, of course, institutional investors as well and the yields that they produce is also significant. We believe we are a top manager in these spaces and offer very competitive products.

Just as important to Resource America is our corporate credit business, CVC Credit Partners, our joint venture with CVC Capital, the private equity and asset management platform. Although, we now only own 33% of the business, it is a much larger business and has a much more significant ability to raise capital for its products.

We have added roughly $2 billion in AUM since we closed – assets under management, since we closed the deal with CVC only a year ago. Most of this growth has come from the U.S. CLOs, which we manage for institutional investors.

CVC Credit Partners has been very active closing a $400 million CLO during the quarter and another $523 million CLO in April 2013. CVC Credit Partners is a top performer in a thriving industry. The CLO market is robust and we expect to benefit from our ownership in one of the premier global credit managers.

We also seem to be gaining strength in the institutional marketing effort and we look forward to expanding the credit business at CVC Credit Partners. The focus of growth there in assets under management is in the European CLO markets, which are the – European CLO markets, which are just reopening; global credit opportunities, where we are – just launching distinct funds; and in managed account.

Due to the continued great performance of the legacy Apidos CLOs, we have started receiving incentive fees owed to us by various CLOs. In January, as part of our quarterly distributions, we received $344,000 in incentive fees and subsequent in the quarter, received $644,000 in additional incentive fees in connection with the April distributions.

Remember, we retained 75% of these fees when we sold a majority of the business is CVC. We expect these fees to be quite substantial and we’ll continue to collect them over the next few years.

Our balance sheet remains very strong with substantial liquidity and little debt. And we are generating positive operating cash earnings. All of the growth over the past few years leaves us with a much different balance sheet and a different and more focused company.

Our balance sheet is solid with a strong cash position, very little debt and a book value of approximately $7.36 as of March 31, and a company that has tremendous access to third-party capital for such a relatively small asset management company.

As I’ve said in past calls, we hope that this year will be known as the tipping point for Resource America’s profitability, so far so good. It certainly has been a good first few quarters to our fiscal year. We believe the company has already started to show signs of its business model succeeding. We are now in a position to add significantly to our assets under management, enhance our cash flow.

Now, I will ask Tom Elliott, our Chief Financial Officer, to comment on the financials.

Tom Elliott

Thank you, Jonathan. I’d like to first discuss the operating results, and then highlight a few items on our balance sheet. The company reported net income attributable to common shareholders of $744,000 or $0.03 per common share diluted for the second fiscal quarter ended March 31, 2013, as compared to a net loss attributable to common shareholders of $2.3 million or $0.12 per common share diluted for the second fiscal quarter ended March 31, 2012.

Total borrowings as of March 31, 2013 were $22.3 million. This includes $10 million of 9% senior notes that mature in March 2015 and $12.3 million of other debt, of which, $10.4 million relates to property debt secured by one of our legacy assets that is due in September 2021.

As of March 31, 2013, the company had no outstanding debt under its corporate credit facilities and had $10.5 million of available credit. Both the company’s $3.5 million revolving credit facility with Republic Bank and $7.5 million revolving credit facility with TD Bank mature in December 2014.

As of March 31, 2013, the company’s GAAP book value per common share was $7.36. Total stockholders’ equity was $145.2 million as of March 31, 2013, as compared to $146.1 million as of September 30, 2012.

Total common shares outstanding were 19,729,588 as of March 31, 2013, as compared to 19,706,514 as of September 30, 2012.

As Jonathan highlighted in his remarks, the company’s adjusted operating cash flow was $2.7 million for the quarter ended March 31, 2013. We arrived at adjusted operating cash flow by adding or deducting non-cash items impacting our financial results to income loss from continuing operations before taxes.

At this time, I’ll turn it back to Jonathan.

Jonathan Cohen

Thank you, Tom. Thank you for joining our call. We will now open the call to any questions, if there are any.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Okay. Sir, you have no questions at this time. (Operator Instructions). Okay. I’d now like to turn the call over to Jonathan Cohen for closing remarks.

Jonathan Cohen

Thank you. And we appreciate your support, and we look forward to speaking with you next quarter. Thanks.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.

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