ACRES Commercial Realty Corp. (ACR) Q4 2015 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Resource Capital Corp. Q4, 2015 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the conference over to Mr. Jonathan Cohen, President and CEO. Please go ahead.

Thank you. Thank you for joining the Resource Capital Corp. earnings conference call for the fourth quarter and year ended December 31, 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 in the 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. Furthermore, certain non-GAAP financial measures will be discussed on this conference call. Our presentations of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Reconciliations of these non-GAAP financial measures to the most comparable measures prepared in accordance with Generally Accepted Accounting Principles can be accessed through our filings with the SEC at www.sec.gov. And with that, I’ll turn it back to Jonathan.

Thank you, Purvi. First a few highlights from the fourth quarter and year ended December 31, 2015. Adjusted net income was $13.7 million for the three months ended December 31, 2015, or $0.43 per share. Normalized AFFO was $15.4 million or $0.49 per share for the quarter, which I will discuss in more detail shortly. Net interest income increased by $5.2 million or 23.9%, compared to the fourth quarter of 2014 and by $4.4 million or 19.7%, compared to the third quarter of 2015. Between August and December of 2015, we have bought back approximately 6% of our outstanding shares. During 2015, we originated $744.2 million in new commercial real estate loans. During the fourth quarter of 2015, we originated $255 million in new commercial real estate loans, including future funding commitments. Book value per share was $17.63 as of December 31, 2015. We paid common stock to cash dividends of $0.42 and $2.34 per share during the quarter in the year. With those highlights out of the way, I will now introduce my colleagues. With me today are Dave Bloom, Head of Real Estate; David Bryant, our Chief Financial Officer; and Purvi Kamdar, our Director of Investor Relations. While our commercial real estate business continues to perform well, we are cognizant of the overall market and the economic landscape in which we operate. There are global economic headwinds that impact the United States, but the real estate market remained in our opinion generally strong, demand remains robust and our occupancy is at least in our portfolio remain high. Our core real estate lending business is doing quite well. Our real estate team has done a tremendous job, both in growing commercial real estate loan originations and accessing term financing in various forms. We have accomplished this impressive growth without sacrificing credit quality which remains excellent in this portfolio. Our commercial real estate business help drive an increase in our net interest income by over 26% in comparison to the year ended December 31, 2014. Sequentially, commercial real estate lending had total net interest income of $20 million for the fourth quarter, a 19% increase over the third quarter of 2015. We also grew assets under management in our commercial real estate loan portfolio by 23% year-over-year even after record payoffs of $381.6 million, I meant to just say assets in our commercial real estate loan portfolio. Our normalized AFFO was $0.49 and our adjusted net income was $0.43 for the fourth quarter, $0.35 of our normalized AFFO was contributed by our CRE, commercial real estate lending business, adjusted net income in normalized AFFO reflect in our opinion a transparent look at what the quarters net income and AFFO would have been if not for certain items, almost all of which were unrelated to our commercial real estate business and do not represent our expected ongoing operations. As we have previously indicated, we believe that Northport, our middle market lending business is ultimately not optimized by being a REIT subsidiary. The business continues to perform well and we are proud of the profitable growth to scale in just over 2 years. We are continuing to explore several ways in which we can give it a better structure outside of REITs. When we do that the capital currently allocated to Northport will be redeployed into our core commercial real estate business. I will also note that our quarter and year were negatively impacted by PCM, our residential mortgage business. We have made substantial investment in growing PCM, their footprint and upgrading its infrastructure. These investments impacted our income and AFFO negatively. However, that is largely complete and we do expect PCM to be profitable in 2016. Commercial real estate lending has always been the principal business of Resource Capital Corp. As we move ahead, we intend to emphasize that even more. Ultimately we expect the capital currently allocated to non-real estate credit will be largely re-allocated to commercial real estate lending. As primary capital achieve scale and profitability it will be well positioned to be viewed on its own. We think that the clarity and focus will greatly benefit Resource Capital Corp. and helps to narrow or eliminate the difference between actual value of the company and the value the market has placed on it. Today we repurchased over $30 million of common stock since mid-August. We reiterate our target of purchasing at least $40 million more of corporate securities during 2016. Our book value is $17.63 per share. We originated approximately $255 million of commercial real estate loans for the quarter, $744 million for the year, over $1.5 billion during the last two years and net growth of our commercial real estate loan portfolio of $872 million over the last two years. We ended the quarter with $119 million of liquidity. We remain steadfast in our commitment to maximizing shareholder value. Please note that between dividends and share repurchases we returned over $102 million to our shareholders during 2015. We are also reiterating our guidance of at least $2.65 per share of AFFO and at least [$1.60] [ph] per share of GAAP net income for 2016. Now, I will ask Dave Bloom to review our real estate activities.

Thanks very much, Jonathan. Resource Capital Corp.’s committed commercial mortgage and CMBS portfolio has a current balance in excess of $1.95 billion and a diverse and granular pool. RSO’s commercial mortgage portfolios is comprised of 88 individual loans with an aggregate committed balance of approximately $1.8 billion and is comprised of 99% self-originated whole loans and 1% mezzanine loans. 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 42% multifamily, 21% office, 19% retail, 16% hotel and 2% other such as mixed use deals. During 2015, RSO originated $744.2 million of new loans, inclusive of future funding commitments across 36 separate loans. In the fourth quarter we closed $255.1 million of new loans. The vast majority of which were put under application by about October 1. I note the third quarter cut off for the majority of our origination activity last year because by that time we noticed a significant mis-pricing of risk in the market, and chose to take a much more measured approach to new loan originations as the market recalibrated. Over the summer of 2015, the CMBS market, following high yield and other credit markets began widening in an impactful way. Despite real estate fundamentals remaining in general, largely in check, the CMBS market remains volatile and for any number of reasons spreads continue to increase. To be very clear, we do not originate loans that are intended for a CMBS exit, but we do term finance our portfolio through lines of credit from our commercial banking partners, as well as through the issuance of CRE, CLOs. While CRE, CLOs are very different from CMBS transactions, the AAA tranches of both types of deals are compared to each other and the dislocation in the CMBS market has impacted the CRE, CLO market as well. To date, we have term financed approximately $1.5 billion of collateral and four separate CRE, CLO transactions since December of 2013. Our most recent transaction in this market RSO 2015-CRE4 closed in August of 2015 in the midst of the CMBS widening, but pricing in line with our February 2015 transaction. Our CRE CLOs have weighted average cost of LIBOR plus 170 and weighted average leverage of 76%. It is also of note, that RSO’s offerings into this market have been very well received with consistently market leading pricing and 38 different investors having participated in our offerings. Regardless of the state of the CRE, CLO market, we have ample term financing capacity and very strong relationships with our commercial banking partners. These term financing vehicles are not subject to general capital markets, based margin calls or repricing risk. RSO originates, underwrites and asset managers all of our own loans and we are not dependent on the capital markets execution to match fund our collateral. While we have confidence that are – that the CRE, CLO market will again start to function efficiently, until such time we will continue to originate new loans and term finance this loan production on our bank issue term financing facilities. The general pullback in the commercial mortgage market has provided pricing power to well established, national bridge lending platforms such as ours. Since our conscious decision to pause in the fourth quarter of last year, the commercial mortgage market has broadly reset. While we have always remained keenly focused on credit and priced above many other market participants, our locked in term financing facilities provide us with an opportunity to remain in the market and take advantage of wider spreads and even stricter assets specific metrics and structures. We continue to see a great deal of new lending opportunities, but are being extremely selective about new originations and are pacing to close the current quarter with between $60 million and $100 million of new loans, while we anticipate ramping up as the year continues. Having recognized peak production levels in our origination efforts, over 2014 and 2015 we have grown our commercial mortgage portfolio and net interest margins generated there from in a meaningful way. Our primary focus remains as always on credit. Our core lending philosophy still places the ultimate premium on asset quality location and business plan with a significant focus on sponsor experience and financial strength. This quarter I am again pleased to report that the entire commercial real estate loan portfolio is performing with no defaults. The positive performance of our portfolio is a daily reminder that validates this - the credit first approach to our lending and the selectivity we apply to markets, asset classes and sponsors in our origination process. We remain cautiously optimistic about fundamentals that are constantly studying markets sand asset classes and remain on a lookout for markets and transactions that we feel are out passing normal sustainable growth. With that, I'll turn it back to Jonathan, and rejoin you for Q&A at the end of the call.

Thank you, Mr. Bloom. Now, I'll 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 fourth quarter a $0.42 per common share, bringing the 2015 total to $2.34. Our adjusted funds from operations or AFFO for the quarter was $11.3 million or $0.36 per share. In determining AFFO for the fourth quarter, there were several non-cash adjustments that netted to approximately $10.4 million and cash adjustments of 415,000. Also as Jonathan mentioned, we present a reconciliation from net income to adjusted net income to reflect what we perceive as our on going operating results. The adjustments included, provisions and mark-to-market adjustments in our middle market loan segment, provisions and impairments in our legacy CLO and commercial finance segment, loan indemnifications and aged receivables write-offs in our residential mortgage lending segment; and mark-to-market adjustments related to share-based compensation. As a reminder, all per share amounts stated take into account the one-for-four reverse stock split effective on August 31, as though were in effect for the full year in all periods presented. We passed all of the interest coverage and over collateralization tests in each of our securitizations that require such tests, including our two legacy real estate CDOs and one remaining bank loan CLO. Our three most recent securitizations in real estate are subject only to two over collateralization tests, which we have passed. Each of these structured financial vehicles did very well and produced healthy cash flow to us in Q4. We now have total capacity of 650 million on our real estate term facilities, and availability of $425 million at December 31. We saw a robust new home owned production from our origination team continue in Q4, again totaling $255 million for the 12 months for the quarter - I am sorry, and $744 million on a trailing 12 months basis, and $1.5 billion on a trailing 24 months basis. And this core business is providing us with certain benefits. First, we have a strong track record with the credit quality on our originated commercial real estate loans, which now comprise 99% of our current portfolio. Second, we have weighted average LIBOR floors of 0.36% on $1.5 billion of loans of which $1.1 billion are in our four real estate securitizations and have terms remaining of – ranging from 2 to 4, 5 years and have a weighted average floor of 30 basis points. This means that incremental increases in LIBOR do not have a negative effect on earnings and any potential new LIBOR increases are in fact accretive to earnings. In Q4 we booked provisions for loan losses of 6.1 million. Virtually all of this charge is a result of increased provisions on our commercial finance and middle market segments. Its worth noting that our directly originated middle market loans have been performing well and the vast majority of this adjustment was related to secondary syndicated bank loan purchases. And we ended the period with $41.8 million in commercial real estate loan allowances, $1.7 million in commercial finance allowances, and $3.9 million in middle market allowances. In terms of delinquencies, only one bank loan in our commercial finance segment, $1.5 million is delinquent out of a portfolio of a $136 million. All of our $379 million of middle market loans are current and as Bloom mentioned each of our 90 real estate loans are current with respect to debt service payment due. Our leverage increased modestly to 2.3 times at December 31. When we treat our trust [ph] issuances which have a remaining term of 21 years as equity, our leverage is 2.1 times. With regard specifically to real estate leverage, we ended Q4 at 2.5 times on our entire portfolio, which includes cash earmarked for new real estate loan originations. We continue to focus on getting our real estate equity allocation increased to a minimum of 75%. Overall, weighted average cost of capital from all sources was 5.09% as of December 31. We ended the December quarter with GAAP book value of $17.63, down from $17.95 per share at September 30. We had earnings of $0.03 and saw an accretive benefit of $0.13 per share from our share repurchase plan. We paid dividends of $0.42 per share and lost a $0.11 due to declines in securities mark-to-market and picked up $0.05 from marks on our interest rate hedges. With respect to the securities buyback program, we used nearly half of the $50 million authorized by the RSO Board by year end. In January and February, we have since purchased 356,000 common shares at a weighted average price of $11.27 and this early 2016 activity is approximately $0.07 accretive to book value since year end. Our real estate lending platform remains centered on underwriting and originating high quality credit, which is combined with conservative use of leverage. We look forward to further implementing the stock buyback plan in 2016 as liquidity allows us and as we continue to trade well below book value on our common and preferred stock. We had relatively low leverage, and are substantially match funded with non-recourse floating rate term financing on the vast majority of our lending platform. We anticipate recycling capital from our legacy real estate CDOs and one legacy bank loan CLO over the next 12 months, each of which will provide a substantial cash on liquidation. We can deploy these proceeds into higher return on equity investments as the CLOs have been substantially delevered. Our selective use of this recycle capital is helping us to cautiously grow our real estate portfolio and improve core earnings quality with the utmost focus on credit. With that my formal remarks are completed. And I hand the call back to Jonathan Cohen.

Thank you, Dave. We understand that this is a turbulent market but we have always maintained a consistent focus on credit quality, higher underwriting standards, and vigilant management of our investments. Our leverage remains low, and we have an experienced and dedicated management team that will careful monitor our risk, while continuing to look forward to stable dividends. We thank you for your continued support. And with that, I will open the call to any questions.

[Operator Instructions] And our first question comes from the line of Jade Rahmani of KBW. Your line is now open

Yes, hi. I was wondering on the current environment if you can comment on how its impacting borrowers. Are you seeing any increased urgency to lock in financing at available terms or are you seeing increased caution from borrowers?

This is Dave Bloom. It’s very interesting. We are seeing borrowers certainly with increased urgency but realizing some of the market volatility and putting a premium on certainty of close, which is I think one of the points that I've focused on before, and certainly willing to pay for that. So we are – I think we're net beneficiaries of urgency there and there are others who are I think pausing, but as loans are coming due, there are people who are steering clear of the CMBS market, who will be – we're also looking at a number of very stable assets that are pricing at today's wider levels. So I think that there is an active lending market, and we continue to be very selective notwithstanding urgency put out by borrowers.

Can you quantify the magnitude to which you've adjusted pricing and also on the borrower side, can you comment on the magnitude of any cap rate changes that you’ve underwritten or you think that borrowers are incorporating?

I'd rather not comment on how much we've increased our spread because it’s sort of competitive world out there for the kind of assets that we're looking at and hopeful to lend against, but I can say it’s definitely widening and I think you're seeing that across the whole market and – but I don’t feel comfortable talking about quantities at this point. I am sorry, what was the second part of your question?

On cap rates, are you either in the loans or doing underwriting higher cap rates and can you quantify the magnitude or are borrowers pricing in - maybe you can quantify the extent to which you think cap rates are rising?

You know, again, it’s absolutely market specific, I mean, there is – we are – we always model deals for refinancing. So what we're finding is that we are stressing cap rates in a fairly healthy way to make sure that we are absolutely covered to our attachment point. And it’s certainly taken sponsors sometime to adjust to it, but in loan sizing they are certainly in these situations, cash and refinancings, which is really what we would anticipate they continue for a while.

And I would also add just globally from our entire real estate business, including our equity business that sellers, not us, in this case, but anecdotally sellers that have not adjusted their cap rate, that has not happened yet and it’s still a incredibly competitive marketplace.

Can you just comment on quarter-over-quarter commercial real estate credit quality in the portfolio? Are there any changes in perhaps your watch list, just how did the risk rating migration change sequentially and are you seeing any evidence of a pickup in credit deterioration?

Quite to the contrary, the fourth quarter we saw record payoffs, things are transacting. It was a – the market was certainly choppy, things you know, we saw deals go at incredibly tight cap rates and so our watch list has remained exactly the same, but we have seen sponsors continuing to hit their plans. As we talk about isolated dislocation in the CMBS market, there are other drivers there. There is people trying to ramp risk – pools compliant with risk retention, Reg A – AB2 issues that are starting to be anticipated. Real estate fundamentals as we're seeing them like I said remain largely in-check and that record amount of payoffs we saw in Q4 bears that out.

Thanks. And just one last one, turning to profitability I think you guys introduced two new earnings metrics, taking a step back if you were to factor in deferred financing costs, a reasonable expectation for normalized loan losses, what kind of core ROE do think that the book, the overall portfolio or perhaps just the commercial real estate finance portfolio is generating after factoring in interest expense management fees and corporate expenses?

Well, I think that if you allocate the capital from our other businesses which we're in the process of doing over the commercial real estate, you would get to that net income number but you know, at least a [$1.60] [ph].

Okay. Thanks a lot for taking my questions.

Okay. Because – Jade, just to remind you, the deferred financing is only in the AFFO, not in the net income.

Right.

Okay. Thank you.

Thank you. And our next question comes from Steve Delaney of JMP Securities. Your line is now open.

Thanks. Good morning, everyone. Thanks for taking the questions. There were a number of what we hear, you know, credits holding up very well in the CRE book, and there were a number of credit charges in the fourth quarter. You outlined them pretty clearly in the press release and remarks. I am a little confused and would ask for your help in understanding a little more about the nature of the $2.7 million provisions and impairments in commercial finance. Could you help break that down as to exactly what types of assets those charges were against? Hello?

Yes, sorry about that.

I am sorry.

Steve?

Yes, David...

Hi, how are you?

Good.

So you're talking about the provision that we took in the quarter, let me just give you a complete general breakdown of the total, okay, so that we don’t miss anything.

Okay.

He is talking about the…

We had – okay, so there was $6 million in the period, about $4.7 million of that came from our middle market segment, $3.9 million of which was an election to go to lower of cost or market on that portfolio. And…

Okay. You went from cost to market it sounds like?

Yes. On most of that, right, so 3.9….

Yes.

Right, and then there was $1 million charge in our legacy bank loan portfolio for one position that went bankrupt and into default and then there was approximately 300,000 of miscellaneous charges in a legacy leasing portfolio that we have.

Okay. So trying to get to this $2.7 million in commercial finance. I am missing something. I got all the middle-market. So I guess commercial finance, the $2.7 million would have included the $1 million write off of a legacy bank loan, right?

Right.

And what else would have been in there? You mentioned something about legacy CLOs I think in your comments.

Yes. There was a charge in our legacy CLOs, but that’s what we just talked about in terms of the $1 million that was the one bank loan.

The one bank loan, okay, got it.

Yes. And then there was a charge, an impairment charge of $1.5 million that was taken on our legacy CLO management business. So basically I think the 2.7 is combining those items.

Okay. That helps. That’s the piece we were missing right there. Okay, that’s helpful.

And what happened there was one of these CLOs that we manage was called early and the intangible asset had to be accelerated.

Okay. Thank you, David.

Okay.

So, Jonathan, we all know the primary capital residential investment, I mean that business can be extremely profitable and we may see a little bit of a refinancing wave here in the first part of 2016. I guess, the issue with that is, you are trying to present yourself primarily as a commercial real estate finance company and because that’s consolidated, it does add a lot of noise. And you're consolidated because you are assumed the majority owner? I mean, any thoughts to add partners or restructure that in a way that you would be able to account for it on say the equity method, which would leave you with an economic interest but would really clean up your financials, any process as to where that’s going long term?

Yes. Thanks, Steve. As I said in my comments, you know, we think that it’s very close to standing on its own and I think I quote, unquote said it will be well positioned to be viewed on its own. I think that as we get into profit - back to profitability which were profitable about nine months ago, we added a lot of people to expand operation, markets changed a little bit, we're getting back to that profitability, as it is profitable which we expect in the next, in fact it may have been profitability, in February we don’t know. But given the amount of activity it did. But really on an ongoing basis starting in June, we will be looking to have a viewed on its own and we don’t want to really expand on that much. But you take from that what you will.

Okay. That’s helpful. Thank you. And my final thing, I just – I look at the guidance for AFFO that you affirmed today of 265 and obviously that will probably be incrementally increasing quarter-to-quarter, but it would average about $0.66 which is 35% higher than the normalized AFFO of 49 in the fourth quarter. How do we think about that as far as the two or three key drivers that are going to cause AFFO to go up so much in 2016? I recognize…

I am sorry, you have to remember that in there is some cash gains on the extinguishment of debt that’s flowing through. So I really wouldn’t look at it, although it will be 265, it will be a number probably north of $2, but not 265, there will be other gains in there. That will be…

Okay…

Although they'll go on for a while, there will be – so we really look at it that we've keyed our dividend to be somewhere right around net income.

Okay. That’s help, Jonathan. So while 265 is projected to be the number, I think I'm hearing you say there are going to be some special recognitions that you would not consider normal, so 66 average is not necessarily normal run rate?

Yes, and that’s why we set the dividend to $1.68. We feel good about that, it maintains book value, while given us the ability to buy back our shares at a massive discount. We should grow book value and increase profitability for those who remain in stock.

That’s very helpful. Thank you for you comments.

Thank you. You're welcome.

Thank you. And our next question comes from Dan Altscher of FBR. Your line is now open.

Thanks. And good morning, everyone. I just wanted to clarify just quickly on Steve's last question regarding the guidance, the $1.60 and the $1.65, those guidance is based upon the new adjusted EPS and the normalized AFFO or are those kind of a stated?

I am sorry, that’s actually EPS.

So the $1.60 is the GAAP expected EPS?

Yes, that’s your just normal GAAP EPS. The reason we normalize them, you know, we just felt like there were so many one time accounting issues that had come up, that were hitting the business that were in core. We wanted to be transparent to the marketplace. It’s not our intent at this point to have that as a new metric that we use.

Okay. So the adjusted is not a new metric, it is just kind of a one-time, we'll see it today but not going to see it next quarter?

Exactly. Unless there is something that we feel that we have to tell you about on the positive or the negative side, so that you can get a sense of what our core recurring business is.

Got it. Okay. And similarly with the AFFO guidance of 265 that’s the stated AFFO and not the normalized, which is also one of these things where we have a normalized number this quarter but we're not going see again next quarter?

Exactly, that’s a state - that’s the stated AFFO.

Okay. Got it. That’s helpful. Related to maybe something that you mentioned the PCM, I think there was in the press or in the script something about Northport also, about maybe achieving some shrinkage there or monetization or having a kind of wind down. Can you just give us a little bit more color as to what that is or what you mean by that and when that might really be achieved?

Yes, I mean, we are seeing that book shrink a little bit so far and it will in our plan shrink more over the next – what I'll call one month to six months, you'll see a continued shrinkage of that book in our plan.

Okay. And this is probably a question for Dave Bloom, can you just give us an update on your tax exposure, particularly the – I guess, the multifamily that's out in Houston and if there are any updates on I guess, at the property level on occupancy or rental growth or anything that’s relevant there?

All the properties are performing above pro forma and we had a sale – one of the properties traded in the fourth quarter paying us minimum interest and an exit fee. Again, the type of properties that we've focused on there and certainly its held up, has been in-fill, value add, B multi family deals, where there is still significant demand for people to work in the medical center or in other service to businesses where we're certainly not talking about anything else, but these are very nice communities and they are performing very well.

Okay. Also maybe just an update, you mentioned also in the script some commentary about the CMBS and CLO market. I was wondering if you maybe had a sense, I guess, if the market is open to day to you if you wanted to go out there and issue a financing, would that be open, what maybe an all-in financing cost or maybe just the AAA's might look like right now?

I would be reticent to speculate in that regard. Its one of the ways that we finance our portfolio, but we have a history dating back since inception to make sure that we have more than adequate term financing from banks as well. So we're not dependent on capital markets. There is – those who have gone have needed to go, because they've had 364 [ph] day facilities that – and they were forced into the market. As I said, there is a correlation between AAAs in both. We're seeing stability in CMBS AAAs which over time we'll give us a level. But it’s clearly not a market that we feel forced to go out and test.

So, okay. So I guess maybe the running assumption right now is that we should be expecting to use the term facilities as a financing mechanism for now while the market remains kind of not there?

Yes, I would say we're wary of the market, that we could always use the market if we wanted to use it, but we don’t see any need and I would say that would be a good assumption, probably we'll reevaluate that on an ongoing basis and it maybe different in March it maybe different in April, May, June, July and we may see a good opportunity and take it.

Okay. Great, thanks so much.

Thank you.

Thank you.

Thank you. And our next question comes from George Bahamondes of Deutsche Bank. Your line is now open.

Hi, good morning. May I just say G&A jumped about $3 million quarter-over-quarter, can you touch on why that happened?

Sure. We had some charges that took place in our residential mortgage lending segment that are in a sense non-recurring and they were in their reconciliation that we presented from net income to adjusted net income. They totaled about $2.3 million and then we had some additional charges in our corporate portfolio that were seasonal, and then some also some legal fees there as well, a few hundred thousand.

Okay. Great, thank you.

Okay.

Thank you. And our next question comes from Jade Rahmani of KBW. Your line is now open

Yes, hi. I was wondering if you could comment on REXI's having said its exploring strategic alternatives, specifically as one option that management might consider a potential internalization transaction with RSO?

Our lawyers have told us we cannot comment on that. So I apologize about that, but we are just not allowed. But I will – I just want to make sure that the audiences knows that the impairments that we've had in dribs and drabs were all in the non-commercial real estate business and were isolated to small positions that unfortunately due to accounting or due to other reasons had to be marked down. And Jade, I am sorry I can't comment on that.

Thanks very much.

Thank you.

Thank you. And our next question comes from Jennifer Huang of LDR Capital Management. Your line is now open.

Hi. Thank you for taking the questions. We see that - and appreciate that you’ve been actively buying back the common shares, just wanted to hear your thoughts on your - on what you would like to do with your preferreds which are also trading at pretty big discounts to your par value?

Sure. We actually didn’t buy back as much as we wanted to in the fourth quarter and that’s due to the fact that a lot of people set on loans that we had already committed to before the end of the year in all of our businesses, that’s a traditional thing that happened. And so, you will see us as we said buying back $40 million – at least $40 million in our plan today subject to liquidity et cetera. In corporate securities they may or may not include preferred stock. We obviously feel like that is an area that is super cheap as well, as our common stock.

Okay. Got it. Thank you.

Thank you.

Thank you. And I am showing no further questions at this time. I’d like to turn the conference back over to Mr. Cohen for closing remarks.

Thank you very much for you support. We really appreciate it. And any questions that one might have please contact Purvi Kamdar at the company. And we're happy to answer accordingly. Thank you.