Resource America, Inc. (NASDAQ:REXI)
Q2 2016 Earnings Conference Call
August 3, 2016, 8:30 am ET
Jonathan Cohen - President & CEO
Tom Elliott - CFO
Alan Feldman - SVP & CEO, Resource Real Estate
Purvi Kamdar - Director, IR
Good day, ladies and gentlemen, and welcome to the Q2 2016 Resource America Earnings Conference Call. All participants are in a listen-only mode. [Operator Instructions]. As a reminder, this call is being recorded.
I would now like to turn the call over to Jonathan Cohen, President and CEO. You may begin.
Thank you. And thank you for joining the Resource America earnings conference call for the second quarter ended June 30, 2016. This is Jonathan Cohen, President and CEO of Resource America. Joining me today are my colleagues: Tom Elliott, our Chief Financial Officer; Alan Feldman, who heads our Real Estate Equity business; and Purvi Kamdar, our Director of Investor Relations, who I will now ask to read the Safe Harbor statement.
Thank you, Jonathan. When used in this call; the words believes, 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 those 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 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 will turn it back to Jonathan.
Thanks, Purvi. On May 22, 2016, Resource America entered into a definitive agreement to be acquired by C-III Capital Partners LLC. We are in the process of completing the necessary requirements to complete the transaction. A shareholder meeting with respect to the merger is scheduled for August 25, 2016. Upon the successful completion of this transaction, Resource America shareholders will receive $9.78 per share in cash. Since we have an outstanding proxy with respect to the C-III merger, we will not be taking any questions on this call.
Now to our earnings for the June quarter. During the quarter ended June 30, 2016, we earned adjusted net income of $2 million or $0.09 per common share diluted. We increased our gross assets under management by $1.2 billion to $23 billion, a 6% increase from the same period a year ago and three continued to grow our diversified income funds which has now raised over $130 million since inception.
Now let us walk you briefly through our businesses. I will review our real estate debt asset management business, Alan Feldman, will review our real estate equity asset management business, and then I will review our credit asset management business. After that Tom Elliott will discuss our financials.
Resource Capital Corp's our debt asset management business their earnings from the core commercial real estate business was strong in this quarter and we expect them to be stronger prospectively. On August 1, RSO, Resource Capital entered into a purchase agreement to sell Northport to a third-party JV for $247 million and capitalize on an opportunity to clarify its core business and increase its equity allocation commercial real estate to over 75% with the goal of at least 90% and to generate substantial liquidity. RSO reported AFFO adjusted fund from operations for the second quarter of $0.48 or 14% above the $0.43 dividend paid.
Now I would like Alan Feldman to walk us through the real estate equity asset management business in greater detail.
Thank you very much, Jonathan. This is Alan Feldman, Head of the Real Estate Equity division at Resource. And I'm pleased to join the call this morning. I would like to highlight some of our recent activity and address our core areas of business focus.
First our two multi-family REITs, REIT I and II have combined real estate assets of more than $1.7 billion with over 13,400 apartment units as of June 30, 2016.
This past quarter we completed two acquisitions on behalf of REIT II totaling $151 million, along with $195 million of financings associated with these acquisitions and other properties. The new acquisitions include properties in Portland, Oregon, and Dallas, Texas. These are both markets where we already own and operate properties and are considered fundamentally strong apartment markets for workforce housing.
For REIT I, we also generated approximately $29 million for its shareholders from the sale of two investments and a payoff on the small preferred equity investment.
At Resource, our second area of focus is the launching of our two newest REITs, the innovation Office REIT and Apartment REIT III, both of which have already broken Escrow. For both REITs we are actively building out the broker dealer selling group, beginning to raise capital, and looking at prospective acquisitions for these funds. We currently have over 40 selling agreements for these new REITs.
Our third area business focus is liquid alternatives and new product development in this space. Our real estate focus fund, the Resource Real Estate Diversified Income Fund or DIF has more than $145 million of assets under management as of June 30, 2016, and a selling group of more than 50 distributing broker dealers.
The Resource Credit Income Fund or CIF is beginning to raise capital and we are working on expanding the selling group of broker dealers focusing on the group of core broker dealers already distributing the real estate fund.
Our fourth and final area of focus is fund liquidations. We continue to liquidate a series of older Reg D limited partnerships and investment programs. In calendar year 2016 we have already generated approximately $13.5 million of cash, gains, and fees associated with the wind down of these programs. This activity is continuing with the remaining funds and programs.
To summarize we are very focused on our core business of raising and investing capital prudently on behalf of our investors and broker dealer partners.
Thank you. Jonathan?
Thanks Alan. Now to Resource America's credit business which is primarily focused on CVC Credit Partners, our joint venture with CVC Capital, a private equity and asset management platform; as well as residual management of Trust Preferred and ABS Securities. Since last quarter, CVC successfully priced Apidos XXII, a $409 million par value issuance CLO and also Cordatus Loan Fund VII, €454 million par value issuance.
CVC Credit Partners now manages $13.2 billion in CLO and managed account assets and we continue to work with our partners at CVC to add more products to the segment.
Now I'll ask Tom Elliott, our Chief Financial Officer, to comment on the financials.
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 a net loss attributable to common shareholders of $272,000 or $0.01 per common share diluted for the second quarter of 2016 as compared to net income attributable to common shareholders of $201,000 or $0.01 per common share diluted for the same prior year period.
Our net loss for the quarter includes $4 million of transaction costs related to the merger that were required to be expensed during the quarter.
Assets under management increased from $21.8 billion as of June 30, 2015, to $23 billion as of June 30, 2016. After adjusting for our joint ventured managed products net assets managed by the company were $9.6 billion as of June 30, 2016, as compared to $10.6 billion as of June 30, 2015.
At June 30, 2016, net assets reflect our 24% interest in our joint venture with CVC credit while net assets as of June 30, 2015, reflected our 33% interest in CVC credit.
As of June 30, 2016 the company's GAAP per book value per common share was $7.12.
Total stockholders' equity was $136 million as of June 30, 2016, as compared to a $153.7 million as of June 30, 2015, which has been adjusted to reflect the deconsolidation of RSO.
Weighted average basic shares outstanding were 20,835,000 and total diluted shares were 21,124,000 as compared to 22,867,000 basic and 23,135,000 million diluted shares for the same period last year.
At this time I will turn it back to Jonathan.
Thanks, Tom. We just wanted to thank before we end -- we just wanted to thank everyone for all their support encouragement over the years. Thank you. I Jonathan Cohen would like to especially thank senior management and specifically Purvi Kamdar, our great Investor Relations Director for all of their collective hard work over the years in providing clear and also detailed disclosure to all investors.
And with that we'll end the call and thank you very much.
End of Q&A
Ladies and gentlemen thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a great day.
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