On Friday, September 20th, Resource Capital (RSO) declared a regular quarterly dividend of $0.20/share, which was in-line with its previous dividend that was paid out on July 26th. In most cases the announcement of a regularly scheduled dividend wouldn't give us much to write on, however, and in the wake of Friday's announcement I wanted to highlight a number of catalysts behind my decision to remain bullish on shares of this particular real estate investment trust.
Headquartered in New York, New York, Resource Capital purchases and manages a diversified portfolio of commercial real estate-related and commercial finance assets in the United States. The company invests in commercial real estate-related assets, such as commercial real estate property, whole loans, A-notes, B-notes, mezzanine loans, commercial mortgage-backed securities and investments in real estate joint ventures. It also invests in commercial finance assets, including bank loans, lease receivables and other asset-backed securities, trust preferred securities, debt tranches of collateralized debt obligations, structured note investments, and private equity investment principally issued by financial institutions.
Recent Performance and Trend Status
On Monday shares of RSO, which currently possess a market cap of $757.03 million, a beta of 1.92, a P/E ratio of 10.63, a forward P/E ratio of 7.84 and a current dividend yield of 12.76% ($0.80), settled at a price of $6.27/share. Based on their closing price of $6.27/share, shares of RSO are trading 4.09% above their 20-day simple moving average, 2.04% above their 50-day simple moving average, and 3.63% above their 200-day simple moving average.
These numbers indicate a short-term, mid-term and a sustainable long-term uptrend for the stock, which generally translates into an aggressive buying mode for most traders. From a cash and debt perspective, Resource Capital has $205.95 million in cash and $1.57 billion in debt on its books as of June 30, 2013.
A Significant Q/Q Increase in Commercial Loan Originations
During the second quarter Resource Capital missed AFFO estimates by a fairly wide margin of $0.03/share ($0.16/actual vs. $0.19/estimated) and before I proceed in highlighting one of the company's stronger catalysts during the quarter, I must note that I'm not downplaying the idea that the miss was just a one-time thing or an anomaly investors should turn their cheeks to. Rather, I'm highlighting the fact that the company realized significant gains in the amount of commercial real estate loans when compared to the first quarter of 2013 ($91 million Q2 '13 vs. $61.4 million Q1 '13) and if such performance continues the company's AFFO performance could see an immediate improvement.
On August 6th when Resource Capital announced its second quarter results, Jonathan Cohen, the company's CEO and President, noted that, "During the second quarter Resource Capital originated $91 million of commercial real estate loans, nearly a 50% increase over the first quarter, and we expect to grow originations meaningfully looking forward. Our increased capital base gives us confidence that our originations and AFFO will increase, driven by our ability to originate commercial real estate loans at slightly higher rates and larger size."
Based on Mr. Cohen's statements, I strongly believe that all eyes will now be focused on the continued growth of the company's commercial originations from both a quarterly and annual perspective. If the company can maintain this level of origination growth over the next 12-24 months, I see no reason why average quarterly originations wouldn't exceed $125 million by this time next year.
18-Month Dividend Behavior
Since March 28, 2012, the company has maintained its quarterly distribution of $0.20/share over the last 18 months. From an income perspective, the company's forward yield of 12.76% ($0.80) coupled with its ability to maintain its distribution rather than decrease it (as has been the case with a number of its peers) certainly makes this particular company a highly considerable option for long-term investors who may be in search of a higher-yielding play, with the ability to maintain its quarterly distribution, and located in the heart of the commercial REIT sector.
For those of you who may be considering a position in Resource Capital, I'd keep a watchful eye on a number of catalysts over the next 12-24 months as each could contribute significantly to the company's long-term AFFO growth. These catalysts include but are not limited to the company's ability to demonstrate continued growth with regard to commercial loan originations, the company's ability to maintain a healthy dividend over the next 12-24 months, and last, but not least, any move by the Federal Reserve that would hint at or go as far as implementing a taper with regard to its QE3 spending policy, as such a move could hinder the company's ability to meet and/or exceed near-term expectations.