Why Shares of Resource Capital Corp. Dropped 10%
What: Shares of Resource Capital Corp. are trading lower by more than 10% today as the company posted weaker than expected total interest income and adjusted funds from operations (AFFO).
So what: The beleaguered Resource Capital Corp. reported AFFO of $0.15 per share, missing expectations by $0.02 per share for the second quarter. The weak quarter came on the back of a GAAP net loss of $0.24 per share due to the impairment of a mezzanine loan made to a luxury hotel in Puerto Rico.
The loan's impact was sizable relative to the company's total balance sheet. It fully reserved against the loan principal for an amount of $38.1 million, and reversed accrued interest of $3 million, for a total impact of $41.1 million, or $0.31 per share.
Book value per common share now stands at $4.56, down from $5.00 last quarter, and $5.07 at the end of 2014.
Now what: In the earnings release, the company also announced a one-for-four reverse split, which take place on August 31. Though a reverse split says nothing about the total valuation of the business -- the result is fewer shares at a proportionately higher price per share -- it may offer an ominous sign about future impairments to the company's loan portfolio.
The company announced that its Board of Directors approved a $50 million plan to repurchase outstanding equity and debt securities. However, given the company's current leverage is in line with its debt-to-equity ratio over the last several quarters, it seems likely that the bulk of its repurchasing firepower, if used, will go to repurchasing debt, not common stock.
The article Why Shares of Resource Capital Corp. Dropped 10% originally appeared on Fool.com.
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