Resource America Compensation Question

1. Resource Financial Fund Management (RFFM): RFFM executes and manages collateralized debt obligations (CDO’s) in the trust preferred, asset-backed securities, and leveraged loan markets. RFFM currently manages $9 billion in approximately 18 different CDO’s. RFFM derives management fees ranging from 25-50 bps as well as structuring fees which vary.

RFFM has also recently launched a $30 mm hedge fund focused on structured credit opportunities as well as a $50 mm private equity fund focused on small cap and de novo banks. Both funds are 2% management fee and 20% carry.

2. LEAF Financial Corporation (LEAF): LEAF originates and manages small-ticket equipment leases in the medical, computer, and industrial markets among others. LEAF does not use its own balance sheet to originate and hold these leases to maturity. 3rd party equity is raised through partnerships to provide the capital to own the leases originated. LEAF derives fees from managing these assets (110 bps), originating the leases (200 bps), and providing the capital to hold the leases until they are sold into the partnerships (200 bps). LEAF currently manage $550 mm of leases and is originating new leases at a $500 mm and growing run-rate.

While management has run the company since 1983, LEAF’s current incarnation as a manager of outside capital began in late 2001. In our opinion they now have the best business model of any independent leasing company in the industry as their growth will not be constrained by having enough balance sheet to support the leases they originate. In fact, LEAF has been able to acquire additional leases from other smaller independent leasing companies (and entire leasing companies) that could not hold all the leases they originated due to lack of equity capital.
LEAF recently relocated to a new building and is now operating independent of the Resource America parent. This business could easily be spun-off into its own publicly-traded company if management decides this is the best way to maximize shareholder value.

3. Resource Real Estate (RRE): RRE manages real estate investment partnerships and tenant-in-common (TIC) programs to acquire multi-family real estate for yield-oriented investors. Approximately $100 mm of equity capital is currently invested in $314 mm of assets (16 different properties). RRE derives fees from the acquisition (175 bps), debt placement (175 bps), property management (100 bps), and investment management (100 bps) of these assets. Incentive fees of 25% over an 8% hurdle are also earned (the partnerships have compounded at 12% IRR’s after fees to-date). RRE is also building out its real estate debt securitization business in which they have completed and now manage their first CDO.

4. Resource Capital Corporation (RSO): REXI is the general partner of Resource Capital Corporation (RSO) which is a publicly-traded Mortgage REIT on the NYSE under ticker RSO. RSO currently manages $225 mm of equity in $2.2 billion of real estate and commercial finance assets composed of mostly RMBS, CMBS, and bank loans. As the general partner of RSO, REXI derives a management fee equal to 1.5% of the equity of RSO as well as an incentive fee of 25% of any profits over an 8% hurdle rate. REXI owns 1.9 mm shares of RSO.