Resource Capital

Buy Price
Holding Type
Investment Theme
Beaten Up
Trade Date
December 1, 2016

I purchased this at $8.35 per share. This is a mortgage REIT which owns CRE loans, middle market loans, and residential mortgage pools, and other assets. The assets are unfocused and the business model is therefore confusing to investors.

The stock got hammered in early November as the company cut the dividend, impaired assets, and reset the expectations bar. There is a new external manager and CEO involved here. New management intends to sell non-core assets and reinvest into the core CRE business.

Total assets are $2.2bn with $433m in equity (~20% equity-to-assets = decent capital position). Book value is $14 per share so roughly 0.6x P/B. Non-core asset sales expected to free up $0.5bn (~22% of total assets). If redeployed into core business at 12-14% ROEs (assuming 23% equity/asset ratio) would mean $14-16m in earnings or $0.45-0.52/share. Throw in earnings on the legacy CRE business and earnings could be north of $1/share.

A slight (i.e. 10%) discount to book value would mean a $12 price target for 44% upside from here. I expect this could happen sooner rather than later as assets are sold for reasonable prices. This thesis has some similarities to Altisource Residential (RESI) in that it is an asset recycling play.

UPDATE: Sold this entire position for $12.01/sh on 8/15/18. This wound up hitting my price target in ~20 months for a 24% IRR. Sold the position