Resource America/LEAF Moving In Different Directions

May.11.12 | About: Resource America, (REXI)

It is best to wait until the actual SEC quarter filing than rely on the press release, as often only the items wanted to make the company look good are emphasized. This is the purpose of the public relations document. Many companies also don't file the actual SEC filing until after the standard telephone conference with analysts (and many of those chosen for questions are more friendly than not). They want you to report the news from the press release, not the SEC filing.

In the Resource America (NASDAQ:REXI) the press release leads off with a second fiscal quarter and six month GAAP net loss of $2.3 million and $2.1 million, the financial statements paint a much grimmer picture. It looks like the Cohen's are moving in another direction with their personal assets and influence.

Resource America company's assets decreased by $636 million (5%) from March 31, 2011 to March 31, 2012.


(Click to enlarge)

More serious, especially to those who invested in their subsidiary their leasing subsidiary with LEAF Funds, here are the numbers for the consolidated statement of operations that show the actual breakdown of the losses:


(Click to enlarge)

The consolidated balance sheet is as alarming showing from September 30, 2011 to March 31, 2012: total assets decreased from $422.5 million to $168.5 million. Borrowings were also down $222.6 million, bringing the liabilities down, yet the total equity dropped from $157.7 million to $117.5 million.


(Click to enlarge)

The press release from the president, who families are billionaires from gas and other investments, gives this rosy picture that is not reflected in the actual financial numbers:

"Jonathan Cohen, CEO and President, commented, 'The recent completion of our transaction creating CVC Credit Partners demonstrates the quality and value of our asset management platforms. We will recognize a gain of approximately $53 million, received gross proceeds of $25 million in cash, retained the right to collect substantial incentive fees and own 33% of a world-class global credit management business that we think will grow and prosper. Our other platforms are also advancing robustly. In real estate, both Resource Opportunity REIT and Resource Capital Corp. are growing and performing well. We end our second quarter very strong -- our businesses are doing well, we are growing, our balance sheet is in excellent condition and we are exploring opportunities to leverage those strengths to enhance shareholder value'."

It is interesting about LEAF Financial in the company press release, as the Resource America "deconsolidated" the company, which has spun into LEAF Commercial Capital.

There is nothing to support the numbers for the comments. The last SEC filing had:

(In thousands, except per share data):

LEAF Revenue
commercial finance
Resource America
income/loss
2007 $40,124 $3,696
2008 $93,016 ($26,243)
2009 $48, 767 ($14,931)
2010 $23,677 ($13,451)
2011 $21,795 ($8,228)
Click to enlarge

Yet the comment reads:

" -- Lease originations continue to trend upward, having increased by

159% and 26% during the second fiscal quarter ended March 31, 2012 as compared to the second fiscal quarter ended March 31, 2011 and the first fiscal quarter ended December 31, 2011, respectively.

-- LEAF's commercial finance assets at March 31, 2012 increased by40% from September 30, 2011.

-- LEAF continues to further expand its field sales presence to provide dedicated support to its top-priority dealers. Highly experienced industry experts were added to the Northeastern, Midwestern, and Southern California market places. LEAF's field sales team will work with key dealers and branch offices of its national accounts by developing unique offerings and providing support to build the relationships with those dealers."

From "New Hires" in Leasing News, most of the announcements are transfers of personnel from the old company to the new company, with a few changes in title. Perhaps those who read these press releases so often begin to believe in them. Maybe even LEAF has the same dilemma, actually starting to believe the press releases being disseminated.

Resource America) doesn't own the majority of Leaf Commercial anymore. The single largest owner is now EOS Partners (Leaf1). Resource America's equity stake in Leaf Commercial is down to 15.7%.

Resource America is not reporting Leaf Commercial on its financial statements anymore.

Leaf Financial is down to only managing the wind down of the remaining 4 funds. However, there is at least (-$38M) of losses (accounts over 181 days delinquent) still not charged off. As Leasing News has been reporting in previous articles, this means the investors are going to get hit big again and their equity investment reduced or loss completely, depending on what fund the losses occur. Several investors contacted Leasing News on changes requested, but there were too many questions, such as how almost $12M of property and equipment vanished from the books of Leaf between September 2011 and December 2011.

Interesting how LEAF was actually losing money in the quarter. I think this shows LEAF was always losing money. The $8,749M gain was not cash or revenue but rather how they decided to record Resource America investment down to zero (smoke and mirrors).

The question is how a real estate based company like Resource America can turn itself around. There's no growth there. Originally they tried to diversify by creating a commercial finance arm (LEAF) but that proved to be a flop. Looking back, for the first 3 years, LEAF was losing money and reportedly had to borrow $9 million from the parent to cover expenses. Cash was being covered by Robert Moskovitz ability as CFO, who was having trouble even paying attorneys (he reportedly is still the man controlling the cash flow and responsible to the new investors). Reportedly he is the go-between the new investors and LEAF.

What was most revealing was the first "on the record" comments from Dwight Galloway, CLP, who described what happened in "Why I Became a CLP" to his company: "In late 2007 our parent bank was closed by the FDIC. We were auctioned off to LEAF Financial and over the next three years we had to dismantle the fantastic team of dedicated professionals that had worked together for two decades. A heart-rending task many in leasing experienced during the recent recession. Respected? I have been around a long time, learned by making a lot of mistakes, and was merely the public face of a team of great people that worked hard and treated folks fairly."

Even when LEAF got lease originations up to $15 million a month they still couldn't cover expenses and had to rely on the parent for cash. From reports from ex-employees and current employees, the new Leaf Commercial Credit starts up they will run into a similar negative cash situation like before. One email was quite explicit in the delays of returning security deposits to lessees and other such activity.

Almost everyone tells this writer that the equipment lease business is tough potatoes right now. With a higher cost of funds, the evergreen clause in the copier division is what is keeping the company going.

So how can Resource America get going to get back in the black? If they hadn't sold off assets for a profit they would be showing heavier losses. I bet we'll see their net worth burn below the $100 million mark before the end of their year. Their initial paid in capital was over +$200 million. There is no way Resource America can risk pumping real money into Leaf again. The upside potential isn't there anymore, thus they are "discontinued."

Last year the file period on 3/31/2011 was not filed until May 10, so the March, 31 2012 statement 10Q should be published soon. Unfortunately the public will not be able to track the shenanigans of LEAF, to see what is really behind the spin of the many press releases; however, the story on the 4 LEAF Funds will continue. With the same old management and style, and the economies slow recovery, the investment firm (EOS) will have a tough road trying to build LEAF and sell it off later. It certainly appears Resource America tried. It certainly appears with their expertise, they bred the assets from LEAF Financial and bulletproofed it from lawsuits. According to emails to Leasing News, what remains are many LEAF Funds unhappy investors.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.