Jonathan Cohen - President and CEO David Bloom - SVP - Real Estate David Bryant – CFO Purvi Kamdar - IR

Good day ladies and gentlemen and welcome to the Quarter Four Fiscal Year Ended 2012 Resource Capital Corp. Earnings Conference Call. My name is Kathy and I’ll be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes. I’d like to turn the call over to Mr. Jonathan Cohen, President and CEO of Resource Capital Corp. Please proceed, sir.

Thank you. Thank you for joining the Resource Capital Corp. conference call for the fourth quarter and fiscal year ended December 31, 2012. I am Jonathan Cohen, President and CEO of Resource Capital Corp. Before I begin I would like to ask Purvi Kamdar, our Director of Investor Relations, to read the Safe Harbor statement.

Thank you, Jonathan. When used in this conference call, the words believes, anticipates, expects and similar expressions are intended to be taken as 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 Form 8-K, 10-Q and 10-K, and in particular, Item 1-A on the Form 10-K report under the tile, 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'll turn it back to Jonathan.

Thank you, Purvi. First, a few highlights. Adjusted funds from operations, AFFO, was $0.22 for the three months and $0.97 per share diluted for the year ended December 31, 2012. We paid a dividend of $0.20 per common share for the three months and $0.80 per share for the year ended December 31, 2012. Our book value to common share shareholders increased to $5.61 per share at December 31, 2012, as compared to $5.48 at December 31, 2011. Our GAAP net income for the three months and year ended December 31, 2012 was $14.1 million of $0.14 per share diluted, and $63.2 million or $0.71 per share diluted, respectively, as compared to $400,000 or $0.01 per share diluted at $37.7 million or $0.53 per share diluted for the three months and year ended December 31, 2011, respectively. With those highlights out of the way, I will not introduce my colleagues. With me today are David Bloom, Senior Vice President in charge of Real Estate. We also have David Bryant, our Chief Financial Officer, and Purvi Kamdar, our Director of Investor Relations. In my opinion, 2012 was a great year at Resource Capital Corp. We accomplished a lot both financially and operationally. We increased the size and diversification of the company to obtain a sizable dividend. We expanded our liquidity sources to improve preferred stock and various debt facilities, while still maintaining extremely low leverage in my opinion. We increased our commercial real estate originations to over $63 million in the fourth quarter, while adhering to the under-writing standards and quality standard that we have established here as our bedrock. We increased book value to $5.61 from $5.48 while paying a dividend rate of over 14% of book value. As a manager and significant shareholder, I myself am very pleased with…

Thanks very much, Jonathan. Resource Capital Corp's commercial mortgage and CMBS portfolio has a current balance of approximately $908 million in a diverse and granular pool. RSO's commercial mortgage portfolio is comprised of 43 individual loans with an aggregate committed balance of approximately $683 million. The underlying collateral base continues to be in geographically diverse markets, spread across the major asset categories with a portfolio breakdown of 29% multi-family, 17% office, 23% hotel, 19% retail and 12% other such as research and development, and mixed use. The portfolio is in components as follows, 86% whole loans, 12% mezzanine loans, and 2% B-notes. During the fourth quarter of 2012 through today, RSO closed seven new loans totaling $78.2 million, with four more loans in process totaling another $105 million. Currently, RSO has issued applications on five new loans totaling approximately $108 million, is in negotiations on an additional $198 million with new lending opportunities and is actively underwriting additional loans totaling approximately $500 billion. While we see many lending opportunities, we remain keenly aware of credit, value and deal structure. And although we are lending on lightly transitional properties, we continue to focus on loans with day one cash flow coverage and meaningful sponsor equity. New loans being financed on RSO is $150 million term financing facility with Wells Fargo Bank. And we are in the late stages of discussions with Wells Fargo to upsize and extend this term financing facility. The Wells Fargo term facility is specifically designed to fund our long-established bridge lending business. Targeted returns on new loans utilizing the Wells Fargo facility are between 13% and 18% which will increased the return on equity and overall profitability of RSO's direct origination platform. In addition, we are actively planning long-term securitized financing options to more efficiently fully match…

Thanks, Dave. Now I will also review our syndicated bank loans portfolio. Resource Capital syndicated bank loan portfolio has a carrying value of approximately $1.3 billion at amortized cost. Overall, I believe that our portfolio remains in excellent conditions and little has changed since last quarter. As of December 31, 2012, we have specific reserves of $3.2 million and general reserves of $6.5 million as compared with specific reserves of $2.1 million and general reserves of $3.0 million for the third quarter. We continue to forecast a very very benign outlook in corporate credit for the next year or two. The default rate for the last 12-months was 0.38%. This has been a terrific business line for Resource Capital and we will continue to allocate capital to it. In addition to our portfolio of syndicated bank loans we also collect management fees from our acquisition of the right to manage five other CLOs. During the year ended December 31, 2012, we received $7 million in fees. This has turned out to be a very good transaction at this point. Now I will ask David Bryant, our Chief Financial Officer to discuss our financials.

Thank you, Jonathan. RSO’s Board declared a cash dividend for the fourth quarter and full-year of $0.20 and $0.80 per common share or approximately $21 million and $75.1 million in the aggregate respectively. Our adjusted funds from operations or AFFO for the fourth quarter and year was $22.3 million and $86.2 million or $0.22 and $0.97 per common share diluted respectively. AFFO for the year was impacted by several non-cash adjustments netting to $15.9 million. Also REIT tax planning adjustments of $6.8 million and to a lesser extent, net cash outlays of approximately $750,000. This represents an AFFO payout ratio of approximately 82.4% for the year and demonstrates our ability to cover the dividend from operating cash flow. During the period we took steps to ensure compliance with the 75% REIT gross income test. First, we reduced our non-qualifying net income from bank loans by making a temporary election to treat two CLOs as taxable for the period of November '12 ending on December 31, 2012. Second, we further reduced our non-qualifying income by selling two credit impaired positions that were trading below our tax basis. We expect to cover the gross income test in 2013 with significant growth in gross income from real estate owned, as well as from growth in our real estate loan portfolio, and do not consider these fourth quarter tax planning items to be part of our normal operations. We passed all the critical interest coverage and over-collateralization tests in our two real estate CDOs and five bank loan CLOs through December 2012. Each of these structured financings performed well and continues to generate stable and even improving cash flow to us in 2012 and continuing into 2013. The CRE CDOs produced over $28.3 million and bank loan CLOs generated $33.6 million of cash flow…

With that I will open the call for any questions.

(Operator Instructions) Your first question comes from the line of [Gabe Poche, FBR].

Jonathan, you guys talked about really ramping origination in 2013, are there any numbers that you want to put around that from a net perspective whether you have any kind of an internal target per quarter. Obviously there is closing nuances and there is timing gaps etcetera, but is there kind of an internal RSO goal for what you would like to originate in 2013? And then piggy backing on that, is there an amount of origination or a size that you would like to get to for new originations that then you could then securitize?

Yeah. I mean we are not so far off of -- first of all, thanks for bringing up this securitization market because that is obviously a very important part of what can drive earnings and dividends here at Resource Capital. And that market is becoming much more acceptable, much cheaper and it enables us to really ramp our portfolio aggressively while maintaining great credit and being able to provide our borrowers with good loans. As far as origination is concerned, we did $53 million last quarter and we clearly think that origination on a, sort of annual basis can get to the $350 million to $500 million range within a very short period on a runway basis. We are ramping up our abilities, our people and we are finding that we are in great transactions. One of the reasons that we have been staying a little bit more liquid in terms of our balance sheet is because we are now starting to look at $20 million-$30 million-$40 million loans that we can take down just in cash, selling A note or eventually sell the mezz piece and then securitize the A notes. And having liquidity to do so I think is very important. So the numbers themselves, if in fact we hit on some of these bigger loans that could be $450 million to $500 million would be usually achievable. If we stay with mostly in $10 million to $20 million, I would put it at $350 million number. Dave Bloom, do you want to add anything to that.

Yeah, I think that’s exactly right. I mean we are certainly hitting on some of the larger loans but I think on a blended average you are right.

Thank you for questions, sir. You have no questions at this time. (Operator Instructions)

Are there any other questions?

There are no more questions.

Well, I wanted to thank everybody for joining the call. I hope that you found the information that we gave which I know is extensive, to be helpful. We are available for any calls, either Purvi Kamdar, Dave Bryant, and of course you can call anybody else, including David Bloom and others or myself. So please let us know if you have any questions and we look forward to a great 2013. Thank you.

Thanks for joining today's conference. This concludes the presentation, you may now disconnect. Good day.