Jonathan Cohen – President and CEO Purvi Kamdar – Vice President, Investor Relations Dave Bloom – Head, Real Estate Dave Bryant – Chief Financial Officer.

Steve DeLaney – JMP Securities Ryan Tomasello – KBW Richard Eckert – MLV & Company Matthew Stolzar – Pyrrho Capital.

Good day, ladies and gentlemen, and welcome to the Third Quarter 2014 Resource Capital Corp. Earnings Conference Call. My name is Adrian, and I will be your operator for today. At this time, all participants are in listen-only mode. We’ll 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 Jonathan Cohen, President and CEO of Resource Capital Corp. Please go ahead..

Thank you, and thank you for joining the Resource Capital Corp. earnings conference call for the third quarter ended September 30, 2014. I am Jonathan Cohen, President and CEO of Resource Capital Corp. Before I begin, I would like to ask Purvi Kamdar, our Vice President 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 titled 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 those forward-looking statements. And with that, I’ll turn it back to Jonathan..

Thank you, Purvi. First a few highlights from the quarter. Adjusted funds from operations, AFFO, were $0.18 per share. Book value per share was $5.21 as of September 30, 2014.

Through October 31, 2014, we have originated over $641 million of commercial real estate loans, inclusive of future funding commitments, an increase of approximately 150%, $256 million of 2013 originations through 10/31 from last year.

In addition there are approximately $95 million of loans in process that are anticipated to close in the coming weeks, which will bring total originations for 2014 to $735 million.

To help fuel this growth in loan originations, on October 31, 2014 we modified and upsized our Wells Fargo commercial real estate term facility to $400 million from $250 million and also extended the current term to August 2016, while maintaining two one year extensions at our option, which carries the final maturity of the Wells Fargo facility to August of 2018.

On September 18, 2014 our middle market lending group, Northport Capital, closed its syndicated credit facility with 125 million of commitments in place as of September 30, 2014, which will help us increase volume and return on equity of that portfolio.

This business, which is approximately one year old, has originated $169 million of loans year-to-date. Our increased originations helped increase our net interest income by 11% sequentially over the quarter ended June 30, 2014 and 33% year-to-year over the quarter ended September 30, 2013. We paid a dividend of $0.20 per share for the quarter.

We currently anticipate that 2015 AFFO will be approximately $0.70 to $0.80 per share. 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 Vice President of Investor Relations.

In the third quarter, we earned $0.18 of AFFO, closely matching our dividend of $0.20. Our book value was $5.21 virtually unchanged from June 30, 2014..

Our real estate team has done a tremendous job in both growing commercial real estate loan origination and accessing the securitization market at substantially lower spreads than have been previously seen in this market. Our most recent securitization closed in July with a weighted average cost of funds at LIBOR plus 129 basis points.

Our ability to access the securitization market and secure low rate term financing has enabled us to continue to generate solid mid-teens returns on equity on our CRE lending. We are well on our way to exceeding the high end of our 2014 guidance of $600 million to $700 million, including commitments of commercial real estate loans closed in 2014.

That would reflect over 100% increase over 2013 originations, and approximately 300% more than we originated in 2012. we have accomplished this impressive growth without sacrificing credit quality, which remains excellent as confirmed by our stellar securitization results.

As I mentioned earlier, we have also seen a terrific launch of Northport Capital. Just about a year ago we started to focus our commercial finance business on the middle market corporate segment.

In that period of time, we have already originated almost $230 million of loans and expect to fund at least another $60 million by the end of the year, and we have over $350 million in our pipeline. While growth is important, we are even more focused on maintaining credit quality, and we have done so. Our real estate watch list is shrinking.

We currently maintain a general reserve of $4 million. This is in line with our recent [charge-off history 23%] on trailing three years and reflects our strong focus on originating commercial real estate loans with very strong credit profile. Our liquidity remained strong. We had approximately $163 million of unrestricted cash as of September 30.

Now I will ask Dave Bloom, Head of Real Estate, 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 $1.6 billion in a diverse and granular pool.

The underlying collateral base securing RSO's commercial mortgage portfolio continues to be spread across the major asset categories in geographically diverse markets with the portfolio breakdown of 41% multi-family, 18% office, 20% hotel, 16% retail and 5% other, such as mixed use properties.

The commercial mortgage portfolio is comprised of 70 individual loan positions, with an aggregate committed balance of approximately $1.3 billion and is comprised of 94% self-originated whole loans, 5% mezzanine loans and 1% B-notes.

During the third quarter of 2014, RSO closed new loans with commitments totaling $144.3 million bringing total new loan originations through the third quarter of 2014 to $475 million. In addition, in October alone we closed new loans with commitments totaling $166.7 million.

The aggregate balance of RSOs 2014 new loan originations through today is over $641 million, inclusive of future funding commitments.

We’re also in the process of closing additional new loans with an aggregate committed balance of approximately $95 million, and provided that everything in process closes, RSO's new loan production activity through the first 10 months in 2014 will stand at $735 million as we begin November, which has historically been our top month for loan production.

RSOs origination activity to date of $735 million compares to $348 million for all of 2013, which is 111% increase over that full year. We are well on track to exceed the high range of our initial new loan origination guidance for 2014, which was between $600 million and $700 million.

As we look to our forward pipeline it remains strong and continues to grow. We currently have approximately $500 million of new lending opportunities with applications issued and under negotiations, quoted or through preliminary screening and in underwriting and structuring.

While we have seen significant growth in our new loan production, we remain extremely focused on credit and property values and are holding to the strict valuation metrics, sponsor experience, asset quality and diversity standard that have been the hallmark of our traditional bridge lending program.

As Jonathan mentioned, we continued to support the growth in our new loan originations. Last Friday we closed an upsized extension and modification of our term financing facility with Wells Fargo Bank.

The size of the facility was increased from $250 million to $400 million, the current term was extended through August of 2016 with two one year extensions at RSO’s option, and our borrowing cost and debt yield requirements were reduced to reflect our cost of funds in our two securitizations and the market in general.

Our Wells Fargo term facility now has a fully extended maturity date in August 2018, which in addition to our $200 million term facility will Deutsche Bank provides RSO with $600 million of term facilities issued by our banking partners.

In addition to financing new loan originations, we will also continue to utilize our lines of credit to leverage the approximate future funding obligations of our loans.

Optimal match funding of our loans and maximum returns on invested equity are realized when the commercial real estate – when we access the commercial real estate CLO market, as we did in December of 2013 and again in July of this year.

Given the velocity of our new loan originations and the broad acceptance that RSO has gained as an issuer, we anticipate accessing the CLO loan market more frequently.

As demand for our floating rate bridge product and other customized financing solutions continues to be robust, we have been adding personnel and growing our long established national direct origination platform.

In addition, we continue to look at adding other products to our platform as we continue to expand and look to be a total solution debt provider for our borrowers. We continue to see improving metrics across all asset classes with the majority of the properties securing our loans continuing to trend in a positive direction.

The upward performance of our portfolio is a daily reminder that validates our keen focus on the credit first and market centric approach we apply to our origination process.

We are very particular about the markets in which we lend and while additional markets continue to recover the debt and breadth of the given market, sponsor experience and asset specific business plans all play heavily in our underwriting process. In addition, we are lending on lightly transitional properties.

We still continue to target properties with stabilized projections that stand up to rigorous stressed underwriting and verification, day one cash flow coverage and meaningful sponsor equity. We note improving credit metrics in all asset classes represented in our commercial loan portfolio.

The majority of the properties securing our loans are continuing to realize improved cash flow with borrowers’ plans for value creation well on track. I’m once again pleased to report that the entire commercial real estate portfolio is performing with no defaults. With that, I'll turn it back to Jonathan and rejoin for Q&A at the end of the call.

Thank you..

Thank you, Dave. Now I will ask Dave Bryant, our CFO to discuss our financials..

Thank you, Jonathan. Resource Capital Corp. declared and paid a cash dividend for the third quarter of $0.20 per common share, bringing the year-to-date total to $0.60 per share. Our adjusted funds from operations or AFFO for the quarter was $24.3 million or $0.18 per common share diluted.

In determining AFFO for the third quarter, there were several non-cash adjustments that net to approximately $9.6 million and cash adjustments of $8.1 million. Year-to-date our AFFO comes in at $0.57 per share diluted.

We passed all of the interest coverage and over collateralization tests in each of our securitizations that require such tests, including two legacy real estate CDOs and three bank loan CLOs. Please note our two most recent real estate securitizations are not subject to such tests.

Each of our financing structures performed well and generated strong cash flow to us in the third quarter. We had one and expect a second legacy CLO to liquidate in Q4 and early 2015 respectively. The capital returned to us will be recycled into newly underwritten loans.

We closed our latest real estate CLO in July and fully paid off our CRE term facilities, and we ended Q3 with approximately $56 million of real estate loans on our term facilities.

The expansion of a real estate term facility from $250 million to $400 million was enhanced by a simultaneous rate reduction of approximately 25 basis points on most of this credit facility’s borrowings.

This increase in borrowing capacity will provide plenty of runway for our real estate loan pipeline as outlined by Dave Bloom and the rate reduction will help fuel our net interest income and cash flow from real estate operations. In Q3 2014, we had a net increase of $1.4 million in provisions for loan losses.

There was $803,000 taken on real estate loans, approximately $600,000 of which was for a legacy loan where the underlying collateral sold at a loss. The balance was taken on a mezzanine position that has been previously impaired but remains current with respect to debt service.

We also took a 236,000 provision on a loan related to a leasing fund that we took a preemptive write-down on, and provisions of $427,000 on bank loans. We ended the period with $4 million in real estate allowances, $464,000 in bank loan allowances and $936,000 on commercial finance loans.

Overall credit has been excellent and I continue to characterize our loan portfolio credit as very benign. Two bank loans for $2.3 million are delinquent out of a portfolio of $712 million, just 32 basis points, and all of our 65 real estate loans totaling $1.1 billion are current. Our leverage stands at 1.7 times at September 30, 2014.

When we treat our TruPS issuances which have a remaining term of approximately 22 years as equity, our leverage is 1.6 times. With regard to real estate leverage, we ended Q3 at 1.77 times on our entire real estate portfolio, which includes cash earmarked for new real estate loan originations.

Although our leverage came in at 1.7 times overall for both September 30 and December 31 of last year, we saw changes in the components of leverage. Net borrowings increased from our new real estate securitizations, and real estate term facilities that helped fund that loan origination business.

We also had increased borrowings from the consolidation of a new CLO, our new middle market syndicated credit facility and to a lesser extent from borrowings for our CMBS and RMBS assets. These increases to leverage were offset partially by pay downs and runoff of legacy CLO debt, legacy real estate CDO debt, and our 2013 real estate securitization.

In terms of equity, we continue to put to work the $116.2 million of net proceeds from our preferred C offering in June. Overall our weighted average effective cost on our three series of preferred stock is 8.75%.

Overall our weighted average cost of capital as of September 30 and all sources of capital including borrowings, derivatives, preferred and common stock, came in at 6.69%. In terms of liquidity, after paying the third quarter common and preferred stock dividends in late October, we have approximately $80 million of unrestricted cash as of October 31.

We also have approximately $90 million available to fund our middle market investments in the queue and after expanding the real estate origination facility to $400 million, we have in excess of $470 million of financing available to fund a very [strong] pipeline of real estate loan originations that are in process.

We ended September 30 with GAAP book value $5.21 per share, down slightly from $5.24 per share at June 30. At September 30, our equity is allocated as follows, commercial real estate loans and CMBS 61%, commercial finance 38% and 1% in other investments.

I note that we expect our real estate and CMBS equity allocation to rebalance next year to a range of 70% to 75%, which is our historical benchmark for that portfolio. As we have had one of our legacy CLOs liquidated last week, expect another to liquidate in December and another in 2015.

That continued with the continued ramp up of our real estate lending platform will increase our net equity allocated to that portfolio. With that, I’ll turn the call back to Jonathan Cohen..

Thanks, Dave, and thank you all. As 2014 is winding up with two more months left, we believe that it has been a year in which we have accomplished our principal business objectives.

First, to grow our real estate debt origination business, while also maintaining excellent credit quality thus generating a strong return on equity that provides our shareholders with a solid dividend and a total return.

We continue to seek opportunities to generate solid returns on quality credit related products to supplement our principal commercial real estate lending businesses. With that, I will open the call for any questions..

(Operator instructions) Please standby for the first question, which comes from the line of Steve DeLaney of JMP Securities. Please go ahead..

Thanks. Good morning everyone and thank you for taking the question..

Good morning Steve..

Jonathan, I would like – thanks. I would like to start on the Northport middle market lending activity.

On page 2 in the table, you show your originations, you also show loan sales of $16 million, and educate me if you would, we are familiar with like some of the SBA programs, were you originate and then maybe sell off a guaranteed portion, is that what is going on here, can you help me understand just sort of the aspects of sales out of the middle market portfolio? Thanks..

Sure, sure, and there will be fewer and fewer sales as we go on.

Just in starting the business, those are broadly syndicated loans, mostly wider margin first liens as well as some second liens that we buy in the syndicated market, and occasionally if prices rise or occasionally if we want to be defensive, we will sell those loans and that is – all of that really refers to.

As we get bigger, most of our origination is self originated direct loans, and those will be held to maturity..

Got it, and of course your new $125 million facility also helps in that regard too I would expect..

Yes, absolutely Steve..

The bigger picture on Northport, you guys had a great run with the syndicated bank loan market for many years, as you are creating this business with your new operating team there, is it your vision Jonathan that this operation will stay within RSO for the long term or is it possible that it will gain such scale that it would make sense for that to be a freestanding entity?.

Sure Steve. Well, first of all, it is not so new. We have been doing it with this team for well over a year now and the team is first-class by all regards. Second, we will see inventory as this thing grows, if it needs its own identity and its own balance sheet it may do better on its own.

It also may do better within the context of a bigger specialty finance REIT..

Yes, okay. So we will still –.

We are certainly excited about it given – especially given what is going on in CLOs where we think the new rules as it takes place – as they take hold over the next 18 months to 2 years will create a lot of opportunity for these types of companies..

Well that is a great segue to my next question, so you put the – you put your $125 million syndicated facility in on the middle market just like you have Wells supporting you on an interim basis for CRE, is there and I think you may have answered it, I was going to ask if there was a ABS or some type of securitization long-term take out for these middle market credits?.

I mean typically we are only going to these things 30% to 50%..

Okay..

So typically we will keep them on a line. The line will grow as we grow, and then eventually we will access, for instance, the longer term yield market..

Got it, okay. Just from a corporate – just from a corporate financing standpoint, got you, okay. And then lastly, thank you for the – you gave us some 2015 outlook for AFFO….

Yes..

I am just curious if you can say anything about given the structure there, the $0.70 to $0.80, is there anything that you can say about the board’s view with respect to the current $0.20 dividend rate?.

Not really, but we will be providing dividend guidance in December as of as 2015 becomes even clearer..

Okay..

Jonathan Cohen:.

:.

That is great. Jonathan, thank you for the color..

Thank you Steve..

Your next question comes from the line of Jade Rahmani of KBW. Please go ahead..

Hi, yes, this is actually Ryan Tomasello for Jade. Thanks for taking my question..

Hi, Ryan..

Hi.

I was wondering if you guys could discuss the recent market volatility, the competitive outlook, and whether you have seen any spread widening or increasing yields and all in if you view this as an opportunity that RSO can take advantage of?.

I’m going to let Dave Bloom address that from the real estate standpoint..

The recent spread widening there was two weeks of fairly significant uncertainty not impacting the floating rate market as much.

We always get the best spread that we possibly can, we are not in a position where because everything floats where we are going to adjust as rapidly, but yes, we did see a pullback from CMBS and we did see a tick-up in people coming to us based on that volatility, things have settled down.

I think in the secondary market those – that ripple effect hasn’t really taken place yet. But things appear to be a lot more stable that we are still seeing record transactions volumes and keeping our spread relatively high compared to peers..

I just might add to that that I would say our lending is really a very safe, senior secured high quality property lending kind of lightly transactional, therefore and with some size, so we do compete against a couple of people, but we have incredibly good relationships with borrowers where we been with them for five years, ten years, three years, on five properties, two properties, one property etcetera.

So we are not – they are not necessarily nickel and dimming on us on the direct side so it's a very happy place to be. At the same time we have had a lot of support and Dave Bloom and his team for their great relationship given with Wells Fargo and others because we did see rates on the Wells Fargo line come in about 25 basis points.

So that’s all and of course, we were rewarded in the securitization market by having rates come in significantly from our first securitization, or second securitization and I think we are going to continue to see that..

Okay great. Thanks. That’s really helpful.

And then switching gears, in the past few periods, you have reported some paper gains from the reissuance of debt that you bought back over the past few periods and I was wondering if you could give any color as far as how much more debt that there still is to be sold if how we should think about forecast any additional gains coming from that?.

Well, you really should think about it in the terms of when we get repaid loans from that payback bonds that we bought in our securitization which we previously took in the GAAP income so they are in our net income. They are in booked value. They simply at that point recognized as cash gains.

So I don't know how much is slated for 2015 but I would assume coming there maybe $5 million, yes –.

It's not a huge number..

It might not be a huge number next year unless there is an opportunity..

And is that – is that thinking already baked into your AFFO guidance or?.

Yes, the natural payout, so for instance the loan that in RREF, CDO 2006 and we have bonds that we know will be paid off because of that loan and we get a certain amount of that’s baked in and I think it's relatively the minimalist number at this point. .

Okay. Great. Thanks for that color and then just one last question.

I know you guys walked through the increase in the provisions this quarter but I am just wondering if you can quickly touch on that again and would you guys expect an increase in the provision going forward due to any more assets that are on watch list?.

We don't really have that sort of expectation Ryan. The one big adjustment this quarter was we had written down a loan last quarter that settled in Q3 and when it settled, it settles for slightly less than we thought it would.

There were some cost of the property actually transacting and that collateral came in at about $600,000 less than we had expected. We had no other such loans that are slated to be liquidated losses.

We did take some provisions on bank loans where one of the legacy sellers that liquidated and prices came in slightly less than on our books where – but we have no definite expectation there or are looking at loans where we are worried about collaterally. .

Okay. Great. Thanks. .

Hey Ryan I just wanted to add just on the what’s included in 2015 we have not included any of our sales of what we call book builders, things that we move out to the equity and we have funded a business or we have funded a specialty finance portfolio where we think we have gained.

So those are not embedded in those numbers so we expect those numbers to come through not only AFFO but also through net income. But as of now they are not embedded in what I gave you..

Okay. Great. Thank you. .

Thank you..

Your next question comes from the line of Richard Eckert of MLV. Please go ahead..

Thank you for taking my call.

Just a quick question, the allocation to the commercial real estate 61% things needed well below your targeted range and if I recall correctly that was 80% to 85% and now you are talking 70% to 75% for next year, does this mark some kind of shift in the strategy or shift in thinking?.

No. and I think that we are probably being pretty conservative being at the 70% to 75% I would think it would be closer to 80% plus and it just maybe the shift of when assets come on that are changing that number. So it's not a shift in the strategy at all. .

Okay.

So when do we – when can be expect to see it tilt back towards commercial real estate first quarter?.

I think it's already tilting and for instance in the first month of October, we put on I think close to 160 of new real estate. So –.

That’s actually been funded?.

Yes. that’s actually been funded in October. October is over. .

Okay so it's funded back, we just really had to do with the quarter end and where we ended but I would expect that number to be north of 75% with the hope in north of 80%..

Okay. Thank you very much..

Thank you..

Our next question comes from the line of Matthew Stolzar of Pyrrho Capital Management. Please go ahead..

Hey guys, great job on the origination front. .

Thank you..

So it seems like given your robust origination levels, it would be favorable to adjust your dividend payout ratios so that you have increased capital to fund this origination growth.

What are your thoughts on this?.

Well as I mentioned before, Matthew, I think the board will be looking at this over the next two months as we get closer in 2015 and if we need capital then that will be certainly part of the discussion..

Okay. Because it seems like your 2015 AFFO guidance as you sort of alluded to you could still pay an attractive dividend relative to your peers while retaining some cash to grow.

That would be our take?.

Yes that’s correct. .

Okay. Great. Well thank you guys. I appreciate it..

Okay. Thank you very much. .

[Operator Instructions] So we have no more questions at this time. So I would now like to turn the call back over to Jonathan for closing remarks..

Okay. Thank you very much and we really appreciate the support. Let us know if you have any questions and we will be available..

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect..