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March 28, 2011
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Resource Capital Corp. (RSO), a real estate investment trust (REIT) that invests in commercial real estate debt and other commercial finance assets, has recently announced an equity offer of 6 million shares at $6.90 each to raise cash and increase its liquidity. The company has also grant the underwriters an option to purchase an additional 0.9 million shares to cover any over-allotments.
Resource Capital anticipates raising gross proceeds of approximately $41.4 million from the secondary offering. Deutsche Bank Securities Inc. – the U.S. investment banking and securities arm of Deutsche Bank AG (DB) is acting as the sole book-running manager for the offering.
The investment strategy of Resource Capital concentrates on commercial real estate assets and commercial finance assets. Commercial real estate assets include mortgage loans, mezzanine debt, CMBS (commercial mortgage backed securities) and A-Notes. Commercial finance assets include senior corporate loans, asset-backed securities, equipment leases, CDOs (collateralized debt obligations) and private equity investments.
Resource Capital earns the spread between revenues from assets and the cost to finance those assets. The company is externally managed by Resource Capital Manager Inc., an indirect wholly-owned subsidiary of Resource America Inc., an asset management company involved in financial fund management, real estate and commercial finance.
The commercial mortgage market in the U.S. has experienced a certain amount of volatility and liquidity concerns in the recent past. These factors have impacted investor perception of the risk associated with real estate related assets. Increased volatility and deterioration in the mortgage markets may also adversely affect the performance of Resource Capital in the coming quarters.
Consequently, we remain cautious on the stock and have a ‘Neutral’ recommendation on Resource Capital, which presently has a Zacks #3 Rank that indicates a short-term ‘Hold’ rating.
Read the full analyst report on "DB"
Read the full analyst report on "RSO"
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