Jonathan Z. Cohen – President, Chief Executive Officer & Director
Steven J. Kessler – Chief Financial Officer & Executive Vice President
Resource America, Inc. (REXI) F1Q08 Earnings Call February 8, 2008 8:30 AM ET
Good morning and welcome to the first quarter 2008 Resource America earnings conference call. My name is Latasha and I will be your coordinator for today. At this time all participants are on a listen only mode. We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions) I would now like to turn the call over to Mr. Jonathan Cohen, CEO and President of Recourse America. Please proceed.
Jonathan Z. Cohen
Thank you for joining our first quarter fiscal 2008 earnings conference call. This is Jonathan Cohen CEO and President of Resource America. Before we begin I will ask our Director of Investor Relations to read the Safe Harbor statement.
When used in this conference 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 these contained in the forward-looking statements. These risk and uncertainties are discussed in the company’s reports filed with the SEC including reports on Form 8K, 10Q and 10K and in particular item one on the Form 10K report under the title risk factors. Listen as a caution 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.
With that, I’ll turn it back to Jonathan.
Jonathan Z. Cohen
Looking back on our December 31, 2007 quarter we feel good about many aspects of our performance having earned $0.25 per share from continuing operations as adjusted. We seized the opportunity to grow our leasing business through distressed acquisitions of three sizable leasing businesses. We continue to grow our retail and institutional fund raising efforts through the continuation of leasing and real estate private equity partnerships and we started to reemphasize our distressed commercial mortgage acquisition and resolution efforts aggressively. Unfortunately, as is evident to most on this call, January and February proved to be much more difficult for the fixed income and debt market than most has expected. During the last three weeks after the quarter ended we determined as a company to end all warehousing of loan assets other than those acquired or originated for our commercial equipment leasing business and terminated the two warehouse credit facilities and sold those assets.
We took a $10.2 million charge net of tax loss in doing so in our December, 2007 quarter. This ends our warehouse risk and we can now move forward without looking in the rearview mirror. We made this determination due to the technical dynamics currently in the market and because we recognize that we must preserve our capital and limit our risks. We differentiate our leasing asset risk by the fact that we have existing limited partnerships where we can sell those assets. We are not dependent on others there.
For the quarter ending December 31, 2007 revenues grew substantially to $50.7 million from $24 million. Operating income grew to $22 million from $9.3. Adjusted income from continuing operations, a non-GAAP measure grew to $4.7 million or $0.25 per share diluted from $4.5 million or $0.23 per share diluted. Our growth at our company is clearly tilting towards leasing and real estate. On the leasing side we believe that we are now the third largest independent non bank leasing company in the United States in terms of originations. At LEAF we continue to raise private funds and expect to raise approximately $26 to $30 million for the fiscal year before minority interest and taxes. Certainly, a highlight of the quarter was LEAF’s stellar performance having produced $7.5 million of pre-tax contribution before minority interest for the quarter well on the way to our goal of $26 to $30 million for the fiscal year.
During the quarter lease originated $730 million of assets, raised $21 million of equity for its funds and grew its assets under management to $1.7 billion. LEAF has raised $32.2 million of equity dollars since October for LEAF III and believe we will finish the fundraising by May which is seven months ahead of schedule. Of course, we expect that LEAF IV will be launched soon thereafter. Although you may notice that LEAF’s assets on our balance sheet grew substantially due to the NetBank acquisition. Since the end of the quarter we have sold down to the funds and partnerships interest in over $240 million of those leases.
Outside of LEAF the opportunity on the real estate side is the largest potential growth component of our business and we intend to capitalize on it. As you know, we manage over $1.6 billion of real estate investments including properties and loans and we have a dedicated full service real estate organization of over 230 people on the ground throughout the United States involved in acquisitions, finance, lending and property and asset management; a tremendous team. This includes our expanded property management capability and we completed internalization of property management activities within our fund business and now manage 35 multifamily properties representing approximately 8,300 apartments. This platform will also allow us to continue to focus our efforts within the distressed real estate markets where we expect to leverage our 20 plus years of experience successfully managing troubled real estate loans and properties.
There are many people now talking about and trying to get into the distressed real estate business but for us that is a business in which we have 20 years of experience and we understand well and a great track record. Our ability to reemphasize this aspect of real estate is an exciting opportunity and a growth potential for years to come.
During the December quarter Resource Real Estate continued to perform and raised over $14 million through its retail channels since opening its latest fund. Since the beginning of October Resource Real Estate acquired for its managed partnership seven assets at an aggregate acquisition cost of $57.6 million. Our third asset manager Resource Financial Fund Management continues to be a stable source of management fees and produced approximately $8 million of these fees during the quarter. We are continuing to look to take advantage of opportunities in the markets where we can utilize our asset management professionals and our platform to manage additional assets with minimal or preferably no equity exposure.
We continue to strive to keep our earnings from continuing operations growing. Last year we earned $1.05 as adjusted from continuing operations and we are still looking forward to hitting our guidance goal of $1.20 as adjusted from continuing operations. We will of course, manage the company towards the preservation of capital, lower leverage and focus on growing the businesses that have true finite franchise value. Although the world and the capital markets are difficult we believe that we will emerge from this environment with valuable franchises.
Now, I will ask Steve Kessler, our Chief Financial Officer to take us through some additional financial highlights.
Steven J. Kessler
For the first quarter of fiscal 08 we reported revenues of $50.7 million, operating income of $21.9 million, a loss from continuing operations and a net loss of $6.4 million or $0.37 per common share diluted as compared to revenues of $24 million, operating income of $9.3 million, income from continuing operations of $4.5 million or $0.23 per common share diluted and net income of $4.4 million or $0.23 per common share diluted for the first quarter fiscal 07. A reconciliation of the company’s reported loss from continuing operations to adjusted income from continuing operations which is a non-GAAP measure is included as schedule one to this release.
I’d now like to review our borrowings. Our total borrowings at December 31st were comprised of the following and the equaled $1,050,000. The debt we had that was related to bank loan assets, we had one US warehouse credit facility of $54 million, a European warehouse credit facility of $89 million and a debt that we consolidated under FIN 46R of $213 million. This came out to $356 million related to those assets. In commercial finance or our LEAF business we had two secured revolving credit facilities at about $258 million and bridge loans which were used in the acquisition of NetBank of about $355 million. That’s a total of about $612.9 million. In addition, we had our corporate line which was at about $64 million and other borrowings, primarily mortgages of about $17 million. That’s how we get to the $1,050,000.
The US and European credit facilities which were terminated in January 08 and totaled $143 million and to which we now have no exposure will decrease our outstanding borrowings by that amount, $143 million. The $213 million of debt consolidated under FIN 46R and secured by bank loans is non-recourse to us. We have an investment of approximately $20.8 million and are working to reduce that amount. When the NetBank leases and loans are solid to an investment partnership which we expect to be completed in April, 2008 our borrowings will decrease by an additional $355 million.
At the end of January, 2008 we sold a 48% participation in the NetBank leases and loans to one of our investment partnerships. Although we expect to continue to consolidate the NetBank assets and borrowings at March 31, 2008 we have already reduced our borrowings and credit exposure by approximately $170 million. Thus, if the other debt on our balance sheet remains constant our borrowing exposure would decrease by a total of $143 million plus $355 million or $498 million.
Let me know go to the cash flow statement. Net cash provided by operating activities of continuing operations as adjusted was $14.4 million for the quarter ended December 31st 07, an increase of $8.1 million as compared to net cash provided by operating activities of $6.3 million in the first fiscal quarter ended December 06. Please see schedule two in the press release that reconciles net cash provided by used and operating activities of continuing operations to net cash provided by operating activities of continuing operations as adjusted.
Let me know turn it back to Jonathan.
Jonathan Z. Cohen
I think with that we will open the call for questions.
(Operator Instructions) I show no questions in the queue.
Jonathan Z. Cohen
Thank you very much and we look forward to speaking with you next quarter.
This concludes the presentation and you may all now disconnect.