This report contains certain forward-looking statements. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “could,” “estimate,” “expects,” “intend,” “may,” “plan,” “potential,” “project,” “should,” “will” and “would” or the negative of these terms or other comparable terminology.
Forward-looking statements contained in this report are based on our beliefs, assumptions and expectations regarding our future performance, taking into account all information currently available to us. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us or are within our control. If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Forward-looking statements we make in this report are subject to various risks and uncertainties that could cause actual results to vary from our forward-looking statements, including:
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the factors described in this report, including those set forth under the sections captioned “Risk Factors,” “Business,” and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations;”
changes in our industry, interest rates, the debt securities markets, real estate markets or the general economy;
increased rates of default and/or decreased recovery rates on our investments;
availability, terms and deployment of capital;
availability of qualified personnel;
changes in governmental regulations, tax rates and similar matters;
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changes in our business strategy;
availability of investment opportunities in commercial real estate-related and commercial finance assets;
the degree and nature of our competition;
the adequacy of our cash reserves and working capital; and
the timing of cash flows, if any, from our investments.
We caution you not to place undue reliance on these forward-looking statements which speak only as of the date of this report. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this filing or to reflect the occurrence of unanticipated events.
ITEM 1.
General
We are a diversified real estate finance company that is organized and conducts our operations to qualify as a real estate investment trust, or REIT, for federal income tax purposes under Subchapter M of the Internal Revenue Code of 1986, as amended. Our investment strategy focuses on commercial real estate, and commercial real estate-related assets and, to a lesser extent, commercial finance assets. We invest in the following asset classes: commercial real estate-related assets such as commercial real estate property, whole loans, A-notes, B-notes, mezzanine loans, commercial mortgage back securities and investments in real estate joint ventures as well as commercial finance assets such as bank loans, lease receivables and other asset-back securities, trust preferred securities, debt tranches of collateralize debt obligations, structured note investments and private equity investment principally issued by financial institutions. Our objective is to provide our stockholders with total returns over time, including quarterly distributions and capital appreciation, while seeking to manage the risks associated with our investment strategy. We have financed a substantial portion of our portfolio investments through borrowing strategies seeking to match the maturities and repricing dates of our financings with the maturities and repricing dates of those investments, and have sought to mitigate interest rate risk through derivative instruments.
We are externally managed by Resource Capital Manager, Inc., which we refer to as the Manager, a wholly-owned indirect subsidiary of Resource America, Inc. (NASDAQ: REXI), a specialized asset management company that uses industry specific expertise to evaluate, originate, service and manage investment opportunities through its commercial real estate, commercial finance and financial fund management operating segments. As of December 31, 2011, Resource America managed approximately $13.3 billion of assets in these sectors. To provide its services, the Manager draws upon Resource America, its management team and their collective investment experience.
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Our investments target the following asset classes:
Asset Class
Principal Investments
Commercial real estate-related assets
● First mortgage loans, which we refer to as whole loans;
● First priority interests in first mortgage real estate loans, which we refer
to as A notes;
● Subordinated interests in first mortgage real estate loans, which we refer
to as B notes;
● Mezzanine debt related to commercial real estate that is senior to the
borrower’s equity position but subordinated to other third-party
financing;
● Commercial mortgage-backed securities, which we refer to as CMBS; and
● Commercial real estate, or CRE, primarily multifamily properties.
Commercial finance assets
● Senior secured corporate loans, which we refer to as bank loans;
● Other asset-backed securities, which we refer to as other ABS;
● Preferred equity investment in a commercial leasing enterprise
comprised of small- and middle-ticket commercial direct financing
leases and notes;
● Structured note investments and residential mortgage-backed securities,
which we refer to as RMBS, which comprise our trading securities portfolio;
● Debt tranches of collateralized debt obligations and collateralized loan
obligations, which we refer to as CDOs and CLOs, respectively.
During 2011, the economic environment became more positive in the United States which resulted in several positive operating developments for us. Our ability to access the capital markets improved as we raised $83.6 million through our dividend reinvestment and share purchase program, or DRIP, entered into a $100.0 million term facility with Wells Fargo Bank, National Association in February 2011 to purchase CMBS, entered into a $150.0 million repurchase facility with Wells Fargo in February 2012 to originate CRE loans and closed our fourth CLO securitization, Apidos CLO VIII, in October 2011. Our asset quality improved, resulting in substantial decreases in 2011 in both our provision for loan losses (to $13.9 million in 2011 from $43.3 million in 2010) and impairment losses (to $6.9 million in 2011 from $26.8 million in 2010), although we did experience a moderate increase (recorded through other comprehensive income) in losses with respect to our available-for-sale portfolio (to $32.0 million in 2011 from $19.3 million in 2010), which we attribute principally to market factors rather than economic problems with the portfolio assets.