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Resource Capital Corp. Message Board

sonnenwayne 54 posts  |  Last Activity: Aug 16, 2014 8:46 PM Member since: Sep 26, 2009
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  • Reply to

    Underwriters own FSFR @ $12.13

    by njaoldude Aug 14, 2014 7:14 PM
    sonnenwayne sonnenwayne Aug 16, 2014 8:46 PM Flag

    Exactly: The offering just lowered NAV by a little over $2 per share. Shareholders recently agreed to allow management to sell stock for as low as 20% below NAV. I hope they are happy. (Legally, shareholders just gave explicit consent for mgmt, the fiduciaries, to profit from their relationship with shareholders, the principals. Sure it is a conflict of interest, but that "risk" was already stated in the proxy.)

    FSFR was barely earning its dividend, and the recent dividend increase was a misleading tool to get the pps up a little to slam it with a huge offering. Previously, there were only about 6 million shares outstanding. Selling an additional 22.8 (plus?) at a full $2 below NAV is outright greed on the part of mgmt to increase AUM.

    FSFR was trading at a discount to NAV, so it's not as bad as a drop in pps from $15 to $12.5. Nevertheless, given the current NAV is just over $13 and that they will have a hard time covering the new dividends means, IMO, the pps is not going to move above $12.5 anytime soon.

    I feel sorry for previous owners of FRFR. To add insult to injury, they canceled their earning conference call -- on the same day as the offering. Wow! They don't want to explain why they needed to raise that much cash? I hope their joint venture deals work out.

    Tannenbaum is going to drop $2 and buy FSFR stock? That is a joke. He'll make over $2 million per year on the additional management fees from the increased AUM. (The stock offering brought in over $280 million; mgmt fee is over 4% -- over $11 per year. Tannenbaum is not going to lose money...)

    At least with FSC, they cannot sell below NAV. Unfortunately, it's the same mgmt. Talk about an eye opener! Small wonder that FSC traded down the past two days. (FSC is also doing JVs.)

    IMO: I would not feel bad if Tannenbaum took a trip to Iraq and got his hands cut off for stealing.

  • Reply to


    by thewisejman Aug 14, 2014 3:50 PM
    sonnenwayne sonnenwayne Aug 15, 2014 7:40 PM Flag

    On 10 July 2014, FSFR held a special meeting of stockholders where they approved a proposal that allowed the company to sell shares of its common stock at a price up to (25%) below NAV.
    NAV was reported (13 August 2014) as $15.15. NII barely covered the dividends, but they nevertheless increased the dividends going forward. On 14 August 2014, they sold stock -- 22.8 million, plus over-allotment option of an additional 3.4 million. Price was not disclosed, but judging from the pps of $12.40, it's a good bet that the offering price was no more than $12.50 -- A full 10% below NAV. (They needed the money for investment in a JV. But selling stock at 10% discount to NAV is a killer!! The number of outstanding shares was only 6.8 million. Selling another 22.8 million at $12.50 means NAV immediately drops to (6.8 * 15.15 + 22.8 * 12.5) / (6.8 + 22.8) = $13.10. Less yet if they sell more than 22.8 million shares.)

    On top of this, they canceled their earnings call. That makes me feel warm and fuzzy -- not!!

    Nevertheless, it's probably good deal for a quick trade. But this is not the kind of company that I like to invest in. What happens if NAV remains at $13 and they decide to sell more stock? Do they sell at $11.5 or $12 next time, then lower again later?

    There were only 6.8 million shares that voted at the shareholder meeting. Now those votes just killed policy for 30 million shares. I doubt you'll see a proposal next year to not allow the company to sell below NAV.

    Like I said, it's probably good for a quick trade. But my rule is never buy something that I am not willing to hold long-term. Maybe I'm missing something, but I don't see anything positive about FSFR. With a new NAV of $13 and a history of trading below NAV, I don't see it going much past $12.50 or $12.75 anytime soon. As a long-term investment, I don't like what I see there. (That may change if they prove themselves. But that would take at least a few quarters.)

  • Reply to

    Keep the faith

    by hopefully_right Aug 13, 2014 8:21 AM
    sonnenwayne sonnenwayne Aug 13, 2014 9:28 AM Flag

    It's not as easy as that. First, I trust the management in that they know what they are doing and that they will make money for themselves, as well as me. But let's not be blind to the fact that they look out for themselves first. To them, this means more AUM -- period. Likely the senior housing will come from a FIG holding.

    The point of the offering, as stated in the press release, was to have cash for senior housing acquisitions. Clearly they need to have cash on hand to bid. In this market, it would be too risky to bid with the condition that they will sell equity later... They will need about 25-30% down payment, and a bank (mortage) wants cash.

    40 million shares at $4.50 means about $180 million cash. At the high end, they put down 30% and do a deal for $600 million. Suppose the deal is triple-net lease, the initial rent is 6%, and the mortgage is 4%. Shareholders then see $600 * 0.06 - ($420 * 0.04) = $19.2 million per year; or 10.7% yield on the $180 million. Mortage may be higher, but then so would the initial rent. This is my low estimate; spreads higher than this are likely since NCT should be trageting yields closer to $13%. You could also get a little more if you used only 25% down payment; but 30% is what I am thinking.

  • Reply to

    Stock buyback

    by jamlsher99 Aug 8, 2014 7:55 AM
    sonnenwayne sonnenwayne Aug 8, 2014 9:19 AM Flag

    Most companies have one in place, but few actually buy back any stock. I've see a little buying back in things like AGNC, but not much. The advantage is that you can improve (or maintain) good credit ratings if you can buy back your own stock at a significant discount. The keyword here is "significant" -- it would have to be economically meaningful. Anything that helps get NII at or above dividends paid benefits the credit raating (ability to pay debt).

    It's really nothing more than an insurance policy. Something very strange would have to occur for the pps to fall well below NAV. Usually these move more-or-less in sync (along with market-adjusted premiums or discounts). It does not cost anything for this insurance and they should renew the plan.

  • Reply to

    DOW futures down 77 @1:45 AM Eastern...

    by keltus1952 Aug 8, 2014 2:04 AM
    sonnenwayne sonnenwayne Aug 8, 2014 8:01 AM Flag

    Just to clarify my position: I'm okay with helping Iraq, but Iraq must first be willing to help itself -- i.e. "united we stand, divided we fall..." They must choose.. For starters, they need a new PM and they need that within a day or two.

  • Reply to

    DOW futures down 77 @1:45 AM Eastern...

    by keltus1952 Aug 8, 2014 2:04 AM
    sonnenwayne sonnenwayne Aug 8, 2014 7:53 AM Flag

    Obama gave a good speech and I agree with what he said. Whether or not there was enough truth in what he said remains to be seen. Nevertheless, I was comfortable with air strikes over Iraq; someone has to help stop ISIS.

    I don't see this as impacting the market. Iraq's oil mostly comes from the south, not the northern part that is under ISIS attack.

  • Reply to

    NRZ rose 4.5% today

    by thewisejman Aug 6, 2014 3:04 PM
    sonnenwayne sonnenwayne Aug 7, 2014 6:58 PM Flag

    NRZ had good earnings. This is especially true when you consider that they did an equity offering at the beginning of the quarter. They paid a special dividend of 7.5 cents in both December and this last quarter; surely that's a good indicator that mgmt thinks the dividend is solid. Further, the value of their portfolio rose. Two years ago when it was still part of NCT, they were buying MSRs (actually excess MSRs); they started buying non-performing residential loans about a year ago, which have risen in value as house prices rose. They have good relations with NSM (NRZ and NSM are both managed by FIG), as well as Springleaf Holdings (LEAF).

    I have not checked the details (and won't have time until the weekend), but the 1-for-2 reverse split is not why NRZ is up. I'd say it's a combination of things. And if a big deal is coming via LEAF, that alone might explain it. The reverse split, might open doors to some funds, but I don't see it as driving any price movements.

    FYI: My other residential hybrid mREITs include NYMT and TWO. There are probably a few other good ones out there, but I like these. They are opportunistic and if house prices fell, these would also fall. (That's like saying BDCs would fall if the economy started to falter...)

  • sonnenwayne sonnenwayne Aug 7, 2014 9:00 AM Flag

    I agree that they cannot repeat this since the "market' would not appreciate it. However, they now seem to have put themselves in a position where they need to increase NII from 25 cents (which they are earning) to closer to 28 cents within the next two quarters. I'm sure that they thought about this before agreeing to a dividend increase. If they cannot get NII up, they would have been better off keeping the dividend where it was. They did a capital raise last year, then cut the dividend within one quarter. They cannot afford to repeat that.

    As it stands, the dividend increase was premature. However, they needed to raise cash and took advantage ot market conditions. Net orginations this quarter were not much, and it will be difficult to maintain NII of 25 cents, much less increase it a little. I'm sure they'll talk about a plan for increasing NII, but spreads are very low and I cannot see them doing that without taking on more risk.

    At least shareholders are smart enough to NOT allow them to sell stock below NAV. (Unlike FSFR which is already trading below NAV and will need to raise capital. Talk about getting burned...)

  • Reply to

    Thanks to Clrodrick for NRF

    by thewisejman Aug 5, 2014 12:37 PM
    sonnenwayne sonnenwayne Aug 6, 2014 10:57 PM Flag

    Really? Who recommended NRF on this board when it was still under $6?

  • Reply to

    NRF yield

    by dar200 Aug 6, 2014 4:59 PM
    sonnenwayne sonnenwayne Aug 6, 2014 7:47 PM Flag

    NRF is not 100% equity REIT, but it's healthcare portfolio is large enough to stand alone (especially after acquiring Griffin). Spinning off the health care stuff into an equity REIT would make a lot of sense. Whether or not NRF would toss in other equity REIT parts (e.g. manufactured housing) is a question mark. Nevertheless, seperating the equity REIT stuff from comercial loans, CDOs, etc. would make a lot of sense. First, the borrowing of money against the equity REIT would be much less -- as opposed to the hybrid that they now have. It would also make it easier to acquire other equity REITs. (I expect to see a lot of consolidation over the next few years.)

    One downside of such a spinoff to current stock holders is that it may be taxable. IMO: A spinoff within the next year is almost certain.

  • Reply to

    So far pre market

    by bacon2bacon Aug 6, 2014 8:54 AM
    sonnenwayne sonnenwayne Aug 6, 2014 9:20 AM Flag

    I'm not too worried about the short-term price. The earnings was good (core earning is above the 17 cent dividend), and if house prices continue to advance year-over-year, then the distressed loans that NRZ has been buying will pay off big time. (Similar to say TWO buying subprime bonds back in 2010.) I don't see any reason not to expect another 17 cent dividend (or 34 cents of reverse spit happens that quickly). Frankly, considering the recent stock offering, which occured one month into Q2, the 20 cent core earnings is that much more impressive. (It's weighted, but the extra shares were counted in 2 of those months.)

    The 2-for-1 reverse split may bring in a few funds, but all else being equal, this means nothing to me. Why some funds refuse to buy anything below say $5 is actually foolish. I'd rather look at market cap, income to debt, and risk (e.g. volatility in market-to-market value of what is in the portfolio).

  • Reply to

    NSAM should skyrocket

    by dar200 Aug 5, 2014 9:27 AM
    sonnenwayne sonnenwayne Aug 5, 2014 9:47 AM Flag

    The number of NRF shares is variable: If NorthStar Realty's stock price at closing is between $16.00 and $20.17 per share, Griffin shareholders will receive a number of NorthStar Realty shares between 0.1859 and 0.2344, equal to $3.75 in value.

    Griffin's debt to equity is only about 20%. That leaves room for additional debt, or less cash to complete the transaction. If there is an equity offering, I would think that NRF would wait until after the deal closes -- if possible. Maybe NSAM has some cash to help close this? (We know they do.)

    Griffin was paying dividends of about 6.7%. I'm not too worried if NRF simply maintains about 38 cents/share going forward, with inflation-adjusted increases down the road.

  • Reply to

    Prospect Capital Exits AirMal

    by sonnenwayne Aug 4, 2014 7:42 AM
    sonnenwayne sonnenwayne Aug 4, 2014 9:12 AM Flag

    Exactly. Employee unions have political influence which can impact contracts -- such as not being able to expand into other air ports. However, with tighter TSA rules, the fast food business that they owned was in a good place -- especially with improving airport traffic. All said and done, I think PSEC got a very good deal to exit this at 1.6x cash-on-cash.

    Hopefully they can exit things like Glaicer (?) and Ajax Rolling at similar terms. (Ajax expanded it operations two years ago, but because of lower sales, the BV was written down. Nevertheless, they are one of a few places in the world who can supply some needed parts for drilling. In an expanding economy, they should bounce back.) I'm not too keen on ice or bottled water... but stuff happens (e.g. Ohio water) and Glaicer may be worth something to someone.

  • "Prospect Capital Exits AirMall at a Gross 16.7% Internal Rate of Return and 1.61x Cash-on-Cash Return"

    I have not looked at the details yet, but I am happy to learn that they exited one of their larger equity positions and will be able to use the money to invest in income-producing loans. The one-time capital gains from this sale should add to their undistributed income; nothing wrong about that.

  • Reply to

    Eyse C's a lot of Red today

    by jfnh1 Jul 31, 2014 6:08 PM
    sonnenwayne sonnenwayne Jul 31, 2014 8:56 PM Flag

    FSC: I own it too, and I hope their dividend increase is supported by NII. Moody's just put their BBB- on negative watch; the reason was largely that they were skeptical that dividends would be supported by NII, or that FSC would take on too much leverage.

  • I just received this email (I am a Seeking Alpha member): As of next Monday Yahoo Finance will no longer be displaying Seeking Alpha headlines on its website.

    You can search for the reason, but basically they don't want to pay Yahoo Finance for traffic. (They cite other reason such as they want to cater toward serious investors, where as Yahoo is focused too much on the "populist, personal finance and general-interest content.")

  • Reply to

    FSC at $11

    by jack044 Jul 26, 2014 10:57 AM
    sonnenwayne sonnenwayne Jul 27, 2014 6:50 PM Flag

    I doubt FSC will trade much above its NAV anytime soon. Last year they cut the dividend within one quarter of doing an offering. Recently, they announced a dividend increase, but immediately followed up by doing an offering. These were not shareholder-friendly actions, and I think they need to rebuild any "good standing" that they had with investors and analysts.

    We need to see a few things here before FSC trades much above NAV. First, we need to see that they are earning the dividend. They would not have raised it if they were far off, and they certainly don't want to have to cut it. Second, we need to see continued improvements in the US economy. Like every other BDC, we don't want to worry about defaults. JMO.

    As long as the dividend is safe and defaults are under control, I'm comfortable holding. (I've been holding for almost four years now. Albeit, I did have to buy/sell on a few occasions to get my cost basis down from over $12 to about $10.50. But most of that trading was done in 2011 just after the S&P downgrade.)

  • Reply to

    nct spin off snr

    by wilson.tjhia Jul 10, 2014 1:52 AM
    sonnenwayne sonnenwayne Jul 23, 2014 9:29 AM Flag

    "How many snr stock will we get if we are holding NCT?"

    Does it really matter? Immediately after the spin and split, the total dollars will equal what you have before the spin and split. And unlike the spinoff of NRZ which has a lot of MSRs, this spinoff may not be taxable. NCT has owned real estate for a number of years. If it is not taxable, then the only affect you see is a cost-basis adjustment.

    The next earnings CC is just around the corner. We'll get a better idea directly from the hourse's mouth then. Personally, I think there is a chance that NCT decides to liquidate its CDOs over time and accumulate senior housing with the proceeds; that was the initial and preferred plan. The spin off was plan-B.

  • Reply to

    Not quite dead

    by coochy.cooty Jul 16, 2014 4:07 PM
    sonnenwayne sonnenwayne Jul 16, 2014 6:48 PM Flag

    RSO "will retain the subordinated notes and the preferred shares in the transaction, which is expected to close on or about July 30, subject to the satisfaction of customary closing conditions..."
    RSO's skin in the game is $354 - $235 = $119 million. RSO's effective yield depends on the spread of the underlying mortgages. If the spread is 5%, then counting mgmt fees, RSO will get about 15% on its $119 million investment.

  • Reply to

    Get your buy orders in for ARCC - SPO!!!

    by thewisejman Jul 15, 2014 8:08 PM
    sonnenwayne sonnenwayne Jul 16, 2014 9:00 AM Flag

    I already own my limit, but I would have preferred that they waited for a better price. There is no reason for NAV to have changed much. Obviously the "market" is not willing to pay the 5-8% premium, and like FSC, they need to keep leverage within target ranges, so here we are doing an offering at 2-3% above NAV. Selling 13.5 million won't be a problem and I seriously doubt a price of $16.90 would last long. (ARCC has something like $1 undistributed income; their dividend is no no way shape or form at risk of being cut.)

    There are plenty of positive things about ARCC. The one negative is that they recemtly IPO'd the asset management business; that may put some pressure on them to do more offerings like this. The asset management business has several new owners and to increase eps, they need more AUM. This is the first one since the IPO, but that is worth watching. If they don't look out for ARCC shareholders, nobody will pay much of a premium over NAV.

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