Jonathan Cohen – President, Chief Executive Officer
Purvi Kamdar – Director, Investor Relations
Steven Kessler – Chief Financial Officer, Executive Vice President
Resource America Inc. (REXI) Q3 2009 Earnings Call August 6, 2009 8:30 AM ET
Good day ladies and gentlemen and welcome to the Third Quarter 2009 Resource America Inc. earnings conference call. My name is Yaniq. I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. (Operator Instructions) I would now like to turn the presentation over to your host for today's call, Mr. Jonathan Cohen, President and CEO of Resource America. Please proceed sir.
Thank you. Thank you for joining the Resource America earnings conference call for our third fiscal quarter ended June 30, 2009. 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.
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 undertake any of these forward-looking statements.
And with that, I’ll turn it back to Jonathan.
Thanks. Again, this is Jonathan Cohen and I thank you for joining our call. Before I get to the highlights of the quarter. I will review some of the strategic initiatives underway at the company.
First, we continue to employ best-of-breed managers. We have maintained a loyal and top-notch crew of investment professionals. Second, we continue to raise investment funds successfully to proprietary retail channel and I'll beginning to see that amount rise on a monthly basis. Third, we are focused on deleveraging our company and have made good progress in that effort.
Fourth, we are dedicated to building our distressed real estate asset management business. This is a huge opportunity, and we are perfectly situated to take advantage of it. We are doing just that and will be doing more of it.
Fifth, we are committed to optimizing value at our leasing company. We believe we have one of the best platforms in the industry and as the economy stabilize it the value of such outstanding platforms only grow.
Now I would like to review our financial performance with the third fiscal quarter. Please remember, we are a September 30 fiscal year company.
The Company was break-even for the third fiscal quarter ended June 30 2009 as compared to adjusted income from continuing operations of $1.6 million or $0.08 for common share diluted for the third fiscal quarter ended June 30 2008.
For the third fiscal quarter ended June 30th 2009 the company reported adjusted revenues of $22.4 million as compared to $39 million for this third quarter ended June 30 2008.
The company reported a net loss of $204,000 or $0.01 per share on a GAAP basis. As of June 30 2009, the company's book value for common share was $7.32 per share. Now back to the strategic initiatives.
First as I began, the cornerstone of this company is our people. We clearly have one of the best leasing teams in the country. Our leveraged loan team that I believe is perform better than 99% of their peers and continues to outperform, as well as a distressed real estate team that carries with it a 18 year track record with compounded returns of over 20% annually. We've continue to invest in these areas during the downturn to incentivize those people and are now well positioned for the recovery.
Second, our employees are supported by a marketing effort, which is mainly directed at high network individuals through our proprietary retail channel. Continuing these efforts during the downturn has surely benefit us.
It has been costly, but it has benefited us. The Company has raised a total of $146 million of investment funds during fiscal 2009. We are very pleased with being able to raise this much equity during a recession and believe through that channel. And believe that investor apatite for yield and alternative investors, which we specialize and we will allow us to ramp up real estate fund raising as well as other areas that are in business in.
Third. We have deleveraged and we will continue to do so. Our total debt on our balance sheet is gone from $554 million to $182 million since the beginning of fiscal 2009. We will keep chopping away and will seek to wind up terming out some of the debts to a longer period of time.
Our total recourse bank facility debt is $34 million or less than 10% of our assets, a smaller amount relative to our market capitalization and the value, which we think the businesses work.
Why are we so excited about the future of Resource America while the present is mediocre and the recent past has been so challenging. The answer lies in our platforms.
Let's talk distressed real estate. With over $400 billion of CMBS maturing in the next 18 months. At least 400 billion.
Commercial real estate is in a free fall on a national basis. With the distressed real estate platform run by Alan Feldman, Resource Real Estate is poised to pounce on this opportunities because they have the infrastructure over 300 nationwide real estate personnel. The ability to analyze complicated situations, honed over 18 years of dealing with distress situations along with returns of over 20% compounded.
The ability to raise capital they continue to raise capital, the retail institutional channels including a $500 million joint venture with an institutional partner and other private partnerships. With such a significant opportunity, we need a large vehicle, so we have filed with the SEC a new publicly registered non-traded REIT, which aims to raise $750 million of new capital and to raise capital through our proprietary retail channel.
Now, let's now discuss leasing. Leasing continues to be profitable and we continue to raise capital. In fact July was one of our best equity raising months ever with over $10 million of new capital raised into the LEAF 4.
We believe that leverage was return eventually and we will be able to increase returns and asset management fees, which are tied to Asset Under Management. We believe that we have a powerful platform there is a capability to originate over $1 billion per year of small- to middle-ticket leases, can service them and can work them out where needed.
We expect that as banks become more inundated with cheap deposits, they will need a stable middle market platform to use. That time could be soon. As for our Resource Financial Fund Management, although we continue to run down the legacy ABS management business, we continue to maintain a strong leveraged loan business and continue to be paid well for doing so.
We are trying to grow our loan business with new assets and have started to receive confirmation of our good track record. We are looking to grow the institutional accounts in this area. As I mentioned earlier, our outstanding leveraged loan team has a track record that is excellent. And we are making efforts to exploit that. Now I will ask Steve Kessler, our Chief Financial Officer to walk us through the financial highlights.
Thank you Jonathan. 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 decreased to $367.5 million at June 30 the 2009. From $758.4 million at September 30 2008.
This was a decrease of almost $391 million our borrowings decreased to a $181.6 million at June 30 '09 from $554.1 million at September 30 '08. A decrease of $372. Loans held for investment net were $219.6 million at September 30 2008 and represented a portfolio of floating rates syndicated loans that we consolidated under FIN 46(R). We sold this investment in the March quarter and have no further exposure to that investment.
We present our investment in commercial finance loans and leases in two categories on our balance sheet based on the ultimate resolution a loan lease. Those loans and leases that are to be sold LEAF funds are classified as held for sale.
The held for sale leases and notes are $137.9 million at June 30 2009. As compared to $110.8 million at September 2008. This is an increase of $27.1 million. The held for investment leases and notes are $7 million at June 30 2009 as compared to a $182.3 million at September '08 a decrease on $175.3 million, which is part of the deleveraging that Jonathan spoke about.
As of June 30 2009. We were able to reduce out total consolidated borrowings outstanding to $181 million. June 30 borrowings included a $130.6 million of non-recourse revolving credit facility at LEAF. And $51 million of other debt, which includes $13.6 million of mortgage debt secured by properties owned by our subsidiaries.
In connection with the overall reduction in borrowings it is important to note that our corporate secured revolving credit facilities net of cash reach a peak of $58.5 million at March 31 2008. Those facilities at June 30 2009 a net borrowings of $17 million. A reduction of $41.5 million since March 31 2008.
Let me now go to the cash flow statement. Net cash used in and provided by operating activities of continuing operations as adjusted was $34.5 million for the nine months ended June 30, 2009. This was a decrease of $1.4 million as compared to net cash provided by operating activities as adjusted of $35.9 million for the nine months ended June 30, 2008.
Please look at schedule 3, in the press release that reconciles net cash used in and provided by 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.
Thank you Steve. Before I open the call up to any questions, I want to let our shareholders know that we are working hard to focus on our on our core capabilities. Those in distressed real estate, leasing and leveraged loans; that we think we have a valuable franchise and one with a tremendous amount of operating leverage, meaning that even the slightest little change in additional Assets Under Management translates into a decent move in marginal profitability. We are looking forward to capitalize, on this opportunities ahead of us and we are turning to a fast growing company that we want to work.
Thanks and now for any questions. I'll open it and up for a few minutes. Thank you.
Ladies and gentlemen. (Operator Instructions). At the moment Mr. Cohen, I show no questions.
Okay, thank you very much, and we'll look forward to speaking with you next quarter.
Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Have a good day.