Good day, ladies and gentlemen, and welcome to the second quarter 2015 Resource Capital Corp. Earnings Conference Call. My name is [Luci] 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 the conference. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Mr. Jonathan Cohen, President and CEO of Resource Capital Corp. Please proceed.

Thank you for joining the Resource Capital Corp. earnings conference call for the second quarter ended June 30, 2015. 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 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. With that, I’ll turn it back to Jonathan.

Thank you, Purvi. In looking at the quarter ended June 30, 2015 we believe we are faced with contradiction. Our core businesses continued to perform consistently with our expectation and remain well positioned for the future. However we cannot ignore the significant pressure on our stock price which has certainly been a source of frustration for our shareholders and for us personally. On top of that a legacy mezzanine loan that we purchased in 2007, one of the last two mezzanine positions in our portfolio deteriorated suddenly due to its exposure to Puerto Rico and we were forced to impair that asset. We stopped investing in this type of loan in 2007 and the remaining mezzanine loan in our portfolio is a very good credit, a $7 million position secured by property in New York City and we expected to pay off within the next 18 months. This impairment causes our book value to decrease to $4.56 leaving us trading at approximately 78% of GAAP book value. We are mightily undervalued and are very focused on improving our stock price and returns for our shareholders. First and foremost, we are implementing the one for four reverse stock split which the company believes will benefit shareholders by attracting a broader range of investors as a result of a higher per share stock price. Second, the Board has authorized a $50 million repurchase program for our securities which we will begin in the near future and focus on the common stock. Third, we will strategically review our business lines and contemplate alternative for our middle market corporate lending practice so that we can have a company that is predominantly real estate focused. Fourth, you will see substantial executive and director buying of shares post earnings. Fifth, we will keep on running our…

Thank you, Jonathan. Resource Capital Corp.'s committed commercial mortgage and CMBS portfolio has a current balance in excess of $1.93 billion in a pool that remains both granular and diverse. RSO's commercial mortgage portfolio is comprised of 88 individual loans with an aggregate committed balance of approximately $1.74 billion and is comprised of 96% self-originated whole loans, 3% mezzanine loans and 1% B notes. The underlying collateral base securing RSO's commercial mortgage portfolio continues to be spread across the major asset categories in geographically varied markets with a portfolio breakdown of 49% multifamily, 20% office, 15% retail, 14% hotel and 2% other such as mixed used deals. During the second quarter of 2015, RSO closed new loans with commitments totaling $185 million which was in line with our anticipated production targets. Of more significance though, RSO's trailing 12-month production as of the end of the second quarter of 2015 was approximately $788 million, which is a 52% increase over the trailing 12-month period as of the end of the second quarter of 2014. In addition, since the end of the second quarter, we have closed new loans with commitments totaling approximately $76 million and have another $132 million of new loans in the process of closing. As of today just slightly over seven months into 2015, RSO’s aggregate new loan production activity stands at approximately $550 million across 27 separate loan positions. Our origination pipeline remains full and continues to grow. We currently have approximately $325 million of new lending opportunities underwritten, quoted and in negotiation with a forward pipeline of opportunities under review of approximately $300 million in active underwriting and structuring. Jonathan addressed the specific reserve that we took this quarter on a mezzanine loan that was part of a very large multi-tranche financing that included a $1.3…

Thank you Dave. Now I will ask Dave Bryant our Chief Financial Officer to discuss our financials.

Thank you, Jonathan. Resource Capital Corp. declared and paid a cash dividend for the second quarter ended June 30, 2015, $0.16 per common share. Our adjusted fund from operations or AFFO for the quarter of $20 million was $0.15 per common share. In determining AFFO for the second quarter, there were several non-cash adjustments that netted to approximately $47.3 million and cash adjustments of $3.8 million. The non-cash adjustments include the 38.1 million mezzanine loan impairment discussed earlier. We passed all of the interest coverage and overcollateralization tests in all of our securitizations that require such tests, including our legacy real estate CDOs and one legacy bank CLO. Our two most recent securitizations 2014-CRE2 and 2015-CRE3 are subject only to over collateralization tests which we had easily passed. Each of these structured finance vehicles did very well and produced healthy cash flow to us in Q2 2015. We had one of our legacy bank CLOs liquidate in Q2 as expected and we received 7.6 million and expect to receive additional 4.8 million in Q3. This return of capital when combined with a Q1 CLO which liquidated brings legacy CLO cash returns to 42.2 million which we intend to deploy in our real estate lending platform and to a lesser extent our middle market loan platform. We have commitments of 400 million on our commercial real estate term facility which of course we employee until we obtain longer term mass funding typically through a CLO securitization. We saw the healthy new loan production by our commercial real estate originators continue in Q2 and this provides us with certain benefits. First, we have a strong track record with the credit quality of our self-originated commercial real estate loans. Second, we have weighted average LIBOR floors of 52 basis points on 1.4 billion…

Thank you Dave. You've heard today the important message that the operations of the business have been solid, credits good, increasing originations, strong credit quality again and the excellent securitization execution. I hope that you've also heard that we recognize and appreciate how frustrated our investors have been with our stock performance. We are large holders of the stock and completely share that frustration and are committed to do all we can. We will be buying back our stock, we will execute the reverse stock split, we will work to accelerate the improvements to ROE that we know are coming as our remaining order credits repay and we will evaluate strategic alternatives to maximize the value of Northport and we'll keep focused on maximizing shareholder return. Thank you. And now we're available for any questions.

Good morning John. I know this is a tough call for you guys and I appreciate you stepping up addressing the stock situation right upfront for us. Thank you. I'd like to clarify for starters not that -- we'll come back to those large mez loans but at March you were carrying 67.5 million of mez loans with the 38 million impaired suggesting maybe 29 million to 30 million of other mez loans. Now I wanted to compare that you mentioned there was one remaining of 7 million in New York. Can you just clarify what is left in the mez bucket beyond this hotel loan?

Steve, this is Dave, let me reconcile that for you. So you're right it was 67 less 38 gets you to about 29, about 13 paid off in Q2 on one position. And another nine or nine and half paid off in July right after the quarter ended. So that's why we're now left with little over seven from that one position.

That's helpful. Appreciate you clarifying that and the characteristics of the remaining seven and look we recognize you guys have done an amazing job over last two or three years just shedding mez where you could and just getting back to the large problematic loan. I guess it sounds like to me that it was a combination of both the structure, the original loan structure, and what became sort of an idiosyncratic situation with respect to what you ended up with as residual credit, and that's really the only question I have is you started off with 13 loans and it sounds like you're ending up with three loans that are, happen to be in Puerto Rico, you used the term the last loans. So help me understand as payoffs were made collateral was released; did you benefit from any of the pay down as these other 10 hotel properties were sold or did all that cash flow go to senior tranches. Let's start there?

To be clear the priority of payment is sequential so the senior loan is retired first and then tranches of mezzanine loan are retired in a specific order after that.

Yeah, that's, that's what was going through my mind. So, you end up going from, it's almost like adverse selection. The most liquid properties I guess, go out first and as a subordinate investor you're kind of left with, you're really lending on the weaker loans in the pool I guess and you acknowledge that that was the weakness in that structure and one reason why you guys ceased doing that business. Okay, so and just to be clear there is three hotels left and they're all in Puerto Rico. Correct?

There are now two, they are all in Puerto Rico.

So let me suggest this and maybe other analysts will have questions after this, but just a thought, this is very complicated. I think look, there is a $0.31 hit to book that's all fine, we know you're not in this business, I think investors will like to make their own decision about the possibility of any type of recovery, it can't hurt you any more now, right? But a thought I had is -- because it is so detailed and involved, I think people might want to know, how many room keys, what RevPAR, would you at least consider, and you don't have to answer this, but I'm going to suggest that you consider putting in information piece together on the two loans or whatever you can disclose publicly and maybe put that out on an 8-K, and then sophisticated real estate investors can kind of draw their own conclusions as to whether there is any possibility of a recovery or what would have to develop, so just a suggestion there if I may.

This is Jonathan and thank you Steve and we will take that under consideration.

You are very welcome. When you have these legacy situations, John, where you could end up in effect with a $40 million credit loss, is there any reach back on prior incentive fees that may have been paid, is there any adjustment to that for the benefit of shareholders, how would you and the Board address that if this becomes a real loss?

Well first of all we haven't, unfortunately for us made very many incentive fees over the years. So I don’t think there is many to reach back to but obviously when it becomes real loss it goes into that calculation.

Okay. So, going forward it would kind of create a [indiscernible]?

Exactly.

Got it. Okay, that's helpful. And then one final thing, love everything you're doing with the buyback, with insiders, I think the reverse split will be helpful, we've seen that help in a couple of other situations recently, notably Chimera, you didn't mention the dividend. And I guess when we look at your liquidity situation, the money that you want to put into the buyback, can you make any comment as to how you view this stability of the dividend over the next two or three quarters?

Sure, this loan actually did not pay us very much, it was a combination of mez and preferred equity in the restructure and therefore as you can see if you do the calculations on its effect on this quarter even writing off all the accrued that we wrote off it was like a $0.015. So we don’t look like this as being any effect on our ability to come through with our plan which has a $0.16 dividend in it.

Thank you. And the next question comes from Lee Cooperman, Omega Advisors. Please go ahead.

Just if I may, not to say -- just to tell you a little bit. Stock prices declined after reverse splits, that's the history of the academic literature. So you should be aware of that. Second, we make this sound like the stock market has treated us badly, but we have to accept the fact that really we've done a bad job. You disrespected your equity, whenever the stock traded, it's slightly above book value, you flooded the market with additional equity. And then, you look at the trend of the dividend. In 2007, the dividend was $0.41 a quarter, then it went to $0.39, then it went to $0.30, then it went to $0.25, then it went to $0.20, then it went to $0.16. So the market is just basically extrapolating the trend. Now Steve asked you the question, I guess you've answered it, as far as you can see, the dividend at the present level of $0.16 per quarter is secure. So I would say, given how optimistic you sound and how miss-valued the stock is in your opinion, okay, why with the $50 million representing 11% of the market cap, why don't we resort to a Dutch auction tender to buy those shares in while they are cheap, rather than stretching this out, and buying it, maybe, when it goes back up, which is what we don't want to do. So explain to me, if you're so frustrated, you think the stock is so undervalued, so miss-priced, and $50 million is 11% of the market cap, why don't we basically retire this dividend and retire the stock more quickly, rather than slowly?

Lee when you say retire this dividend, what do you mean by that?

Well when you're buying back a stock giving 18%, you can't earn 18% on your money. So buying back is anti-dilutive. You're buying back at a discount to book value, you're buying back stock at a return that you can't generate. The problem you got yourself into is by having constant equity offerings and putting out more stock, you had to -- the cash flow had to service more shares, and it became very dilutive, because the world we live in, you can't earn 18% on your money. So, the reason I say it's anti-dilutive, if you're sitting on $50 million in cash earning nothing, I think that's what you earn these days, right, in an interest rate like 0.5% or 1%, if you're lucky, so take the $50 million and buy back a share that yields 18%, it's accretive to the remaining shares. And you come across very, very -- I won't say optimistic, but very positive on how undervalued you are, and my question is, why not buy the $50 million now when the stock is depressed? Because if you're right that the stock is depressed and undervalued, you'll be buying at a higher price of six or 12 months from now.

I generally agree with your analysis and is something that we will take under consideration.

Thank you. The next question comes from Richard Eckert of MLV & Company. Please proceed.

Actually, I may jump around here now, got two or three different questions. The first is on the share repurchases. I believe you had the existing share repurchase authorizations dates back to last September, October and really, very little of that was used despite the shares trading well below book value, well below 90%, 80% of book value. Why is it that you're only getting aggressive now?

First of all, as I said -- thanks for the question, first of all. Two things one is as we went into the end of the year quarter of that year our businesses which have been growing dramatically and putting out high teens type ROEs had a need for a lot of capital and in fact we raised money around the convert at that time because we were so worried about the amount of origination we had. So while we started buying back stock and wanted to buy back stock at 90% or 85% of book really when we put it out the stock was somewhere around 95% of book, 90% of book and then it got lower; as it got lower we were actually investing in the business and immediately we felt like we needed the capital to support our businesses. We now have pretty good liquidity although we do need capital to grow our businesses and obviously there is a different impact you can make buying something at 75% of book versus 90% of book, we think is substantial to future owners of the stock. Not just in terms of the dividend and retiring that but also in terms of the actual value of these assets.

I'm just thinking at current levels, the shares have languished for a while now. Buying back shares has to be your highest ROE type of investment?

And that’s why we are very committed to it.

We were talking about the sustainability of the dividend. Are you still pre-split are you still optimistic that you can reach $0.70, $0.71, $0.72 in AFFO per share this year.

Yes we were at $0.17 before riding off the entire accrued interest from that AFFO which was about $3 million bringing us to $0.15 plus. So we would have been around $0.17 having because it didn’t add very much to this quarter and growing the question really there always is getting net income to get up to closer to the $0.15 level. And we think that we can do that and if we feel like they we're on the path to do that then we will feel very good about the $0.16 dividend right now we feel like our -- this doesn’t change the path that we have been moving forward on.

And finally did I see anywhere in the press release the allocation between commercial real estate and commercial finance?

Yes it's disclosed in there, it is currently 68% real estate, 29 commercial finance and 3% other. We did get down a little bit this quarter in real estate. But I see that as a temporary blimp because we have such a strong origination pipeline coming from Dave Bloom and his team. Again that’s temporary and we'll move back up into the low 70s and we remain committed to growing that to a minimum of 75% and more as we implement some of the strategies that Jon talked about.

And our next question comes from Ryan Tomasello of KBW. Please go ahead.

I was wondering if you can provide some color on the types of loans you're currently originating for the CRE book. For example, can you give a sense of the range of loan yields and LTVs currently, and how those have trended over the past year?

We are still focused on cash flow in loans slightly transitional. If we look at a pool of our on our sort of most recent loans I think we have a kind of weighted average coupon over LIBOR of about 4.96%. There are wins out there going with some pressure on pricing, we have as of the end of the last quarter, our analysis showed 40% of our borrowers were repeat borrowers, there is a premium on closing. And we're able to maintain our spreads. Our LTV breaks at 75% or little less and our average loan remains sort of about 75%. And for a three year term interest rate pre-tax required to one year extensions.

Yes that's some good color. Given the volatility that we saw in the CMBS market in 2Q, have you guys seen any spread widening in 2Q on the loans, you've been making or are loan yields continuing to tighten?

It's a very interesting dynamic. I think that there is a ripple effect and the sort of term securitization market leads sort of spreads widening out. You should put us in a fairly stark contrast to CMBS loans although we always look at that sort of on a daily basis where that breakeven is. So we're sizing our loans right for either sale or take out which we sensitize every loan for regardless of what the sponsors says they're going to do. But that considered there are banks with major shells that have the ability to select borrowers and have as much as 30 basis points on spread as they’ve seen sort of super senior on AAAs pricing at swaps 102 swaps 103. It will ripple through that market and make its way through ours. We have no interest in being involved in a race for the bottom without the right execution and the type of return.

Great, thanks. And then I guess moving on to some other questions, just given the current level of the stock price, can you talk about how management thinks about current capital availability and accessing the capital markets?

Yes, we really don’t need to access the capital markets for the next foreseeable future six months plus, nine months something like that at the growth rate that we are at right now and you know we have lots of assets that were moving around and finding additional capital and tightening up our own balance sheet.

Okay, thanks. And then just finally overall can you just give your current view of where we are in the commercial real estate cycle and current -- the trajectory of current lending centers?

I would say that we think there are people stretching a little bit, but we haven't seen the kind of stretching that we saw for instance in 2005 to 2007 and we continue to find loans to do -- to make at our standard.

Thank you and I'd like to turn the call ahead to Jonathan for closing remarks.

Thank you. I just want to say we appreciate your support and all are frustrated as you are, so hopefully we have much better things to report in three months. Thank you

Thank you. Thanks for joining today's conference and this concludes the presentation. You may now disconnect. Good day.