A $776 million residential mortgage-backed securities portfolio has traded hands.
Resource Capital Corp. announced it completed the sale of its entire RMBS agency portfolio. The move was made because the company shifted its focus to its commercial mortgage loan business.
In addition to the $775.7 million sale, the specialty finance company terminated the related interest rate swap contract to redeploy equity of approximately $53.3 million into its growing and higher yielding commercial mortgage loan platform.
"This repositioning of significant capital should allow RCC to achieve higher returns than it would have otherwise achieved, and should meaningfully increase earnings and dividend prospects for the balance of 2006 and continuing into 2007," said Jonathan Cohen, chief executive and president, in the written statement.
But a loss of approximately $8.5 million, net of hedging activities, will be realized on the sale as the portfolio had corresponding repurchase agreement debt of $719.8 million that is to be paid down with the proceeds of the sale, according to the real estate investment trust. The loss will be reflected in the income statement for the three and nine months ending Sept. 30, 2006.
"We chose to realize the loss today and redeploy our capital because we believe that the opportunity to increase our return on equity from this capital is significant," Cohen explained. "Our Agency portfolio was only yielding approximately 4% on a leveraged basis. RCC has continued to develop its commercial real estate lending capabilities and has built a large pipeline of commercial real estate loans which it expects to finance in the next three to six months."
The New York-based company added that if it has a net capital loss at year-end, it may carry it over to each of the five taxable years succeeding the loss.