In our 2006 annual letter, we wrote the following about Resource America (NASDAQ:REXI):
REXI is a rapidly growing asset manager, operating in three segments: Financial Fund Management, Real Estate Management and Equipment Management. We believe that the combined value of these businesses, when added to the value of the remaining legacy assets, far exceeds the current market price of nearly $26 per share. The total market capitalization is under $440 million. While the stock price was up dramatically in 2006, we believe the growth of intrinsic value kept pace thanks to one of the primary drivers of value, assets under management, growing from $7.1 billion to $12.1 billion.
The stock has been weak due to concerns that REXI’s fund management business will be negatively impacted by the implosion of the subprime mortgage market. While certain REXI- sponsored structured funds have exposure to subprime mortgages, the credit risk is borne by the investors in these funds, not by REXI.
After meeting with management recently, we continue to believe that any impact will likely be minimal, REXI’s primary value drivers remain intact and the stock is cheap.
Full disclosure: Long REXI.