News Column

RESOURCE CAPITAL CORP. - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

May 9, 2014

The following discussion provides information to assist you in understanding our financial condition and results of operations. This discussion should be read in conjunction with our consolidated financial statements and related notes appearing elsewhere in this report. This discussion contains forward-looking statements. Actual results could differ materially from those expressed in or implied by those forward-looking statements. Please see "Forward-Looking Statements" and "Risk Factors" in this report for a discussion of certain risks, uncertainties and assumptions associated with those statements. We are a diversified real estate investment trust that is primarily focused on originating, holding and managing commercial mortgage loans and other commercial real estate-related debt and equity investments. We also make other commercial finance investments. We are organized and conduct our operations to qualify as a real estate investment trust, or REIT, under Subchapter M of the Internal Revenue Code of 1986, as amended. Our objective is to provide our stockholders with total returns over time, including quarterly distributions and capital appreciation, while seeking to manage the risks associated with our investment strategies. We invest in a combination of real estate-related assets and, to a lesser extent, higher-yielding commercial finance assets. We have financed a substantial portion of our portfolio investments through borrowing strategies seeking to match the maturities and repricing dates of our financings with the maturities and repricing dates of those investments, and have sought to mitigate interest rate risk through derivative instruments. We are externally managed by Resource Capital Manager, Inc., or the Manager, an indirect wholly-owned subsidiary of Resource America, Inc. (NASDAQ: REXI), or Resource America, a specialized asset management company that uses industry-specific expertise to evaluate, originate, service and manage investment opportunities through its commercial real estate, financial fund management and commercial finance operating segments. As of December 31, 2013 Resource America managed approximately $17.3 billion of assets in these sectors. To provide its services, the Manager draws upon Resource America, its management team and their collective investment experience. We generate our income primarily from the spread between the revenues we receive from our assets and the cost to finance the purchase of those assets, from management of assets and from hedging interest rate risks. We generate revenues from the interest and fees we earn on our whole loans, A notes, B notes, mezzanine debt, commercial mortgage-backed securities, or CMBS, bank loans, middle market loans other asset-backed securities, or ABS, and structured note investments. We also generate revenues from the rental and other income from real properties we own, from management of externally originated bank loans, from our residential mortgage origination business (acquired in October 2013), and from our investment in an equipment leasing business. Historically, we have used a substantial amount of leverage to enhance our returns and we have financed each of our different asset classes with different degrees of leverage. The cost of borrowings to finance our investments is a significant part of our expenses. Our net income depends on our ability to control these expenses relative to our revenue. In our bank loan, CMBS and ABS portfolios, we historically have used warehouse facilities as a short-term financing source and collateralized debt obligations ("CDO") and collateralized loan obligations ("CLO"), and, to a lesser extent, other term financing as long-term financing sources. In our commercial real estate loan portfolio, we historically have used repurchase agreements as a short-term financing source, and CDOs and, to a lesser extent, other term financing as long-term financing sources. Our other term financing has consisted of long-term match-funded financing provided through long-term bank financing and asset-backed financing programs, depending upon market conditions and credit availability. During 2013, the economic environment continued to be more positive in the United States, which resulted in several positive operating developments for us. Our ability to access the capital markets continued to improve, as evidenced by our common stock offering in April 2013, resulting in proceeds to us of $114.5 million, and by the success of our dividend reinvestment and share purchase program, or DRIP, which raised $19.2 million. In addition, we supplemented our common equity issuances with issuances of preferred stock through an at-the-market program which resulted in proceeds of $56.8 million in 2013 and $15.8 million in the first three months of 2014. We also completed a 6.0% convertible notes offering in October 2013 with proceeds of $111.1 million. This brought our total proceeds raised through our capital markets efforts to $317.4 million in 2013 and 2014 to date, after underwriting discounts and commissions and other offering expenses. (Back to Index) 64



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Although economic conditions in the United States have improved, previous conditions in real estate and credit markets continue to affect both us and a number of our commercial real estate borrowers. Over a period of several years, we entered into loan modifications with respect to 17 of our outstanding commercial real estate loans. During the past three years, we have added to our provision for loan losses to reflect the effect of these conditions on our borrowers and have recorded both temporary and other than temporary impairments in the market valuation of CMBS and ABS in our investment portfolio. However, during 2012 and through December 31, 2013, the improved economic conditions led to a stabilization in the credit quality of our portfolio and, as a result, our provision for loan losses decreased significantly in 2013. We expensed provisions of $3.0 million for the year ended December 31, 2013 as compared to a provision of $16.8 million for the year ended December 31, 2012. This improving credit trend continued into 2014. In the first quarter ending March 31, 2014, we reversed provisions taken previously on the mezzanine portion of a loan secured by a hotel property as we project a full recovery of that position is now probable. Other comprehensive income saw a slight decline with respect to our available for sale securities portfolio and interest rate derivatives, a loss of $14.1 million at March 31, 2014 as compared to a loss of $14.0 million at December 31, 2013. While we believe we have appropriately valued the assets in our investment portfolio at March 31, 2013, we cannot assure you that further impairments will not occur or that our assets will otherwise not be adversely affected by market conditions. Beginning in 2011, we began to see a loosening of the credit markets and were able to take advantage of the situation by establishing several new financing arrangements, a trend that continued in 2012 when we closed two financing facilities totaling $250.0 million with Wells Fargo Bank and in 2013 when we closed a $200.0 million financing facility with Deutsche Bank AG, or DB. We continue to engage in discussions with potential financing sources about providing or expanding commercial real estate term financing to augment and cautiously grow our loan and security portfolio. We have expanded our borrowings with the use of term and additional repurchase agreements and are using them primarily to finance newly underwritten commercial real estate loans and the purchase of highly rated CMBS. We anticipate replacing these short-term borrowings with longer term financing in the form of securitization borrowings as we did with our newest commercial real estate, or CRE securitization, a $307.8 million CLO in December 2013. We expect to be able to continue the growth in our CRE portfolio to a critical amount required to access the securitization markets again during 2014. However, we caution investors that even as financing through the credit markets becomes more available, we may not be able to obtain economically favorable terms. In terms of our investments and investment portfolio growth, we continued to see increased opportunities to deploy our capital. During 2013 and through March 31, 2014, we have underwritten 29 new CRE loans for a total of $432.8 million. These loans were in part financed through our CRE term facilities, legacy CRE CDO's and our new CRE securitization. We also purchased 19 newly underwritten CMBS for $47.7 million during the same time period all of which were financed with a Wells Fargo facility. In addition, we purchased 20 CMBS bonds for $86.4 million that were financed by short-term repurchase agreements and also purchased 7 CMBS bonds for $43.1 million where no debt financing sources were utilized. We have used recycled capital in our bank loan CLO structures to make new investments at discounts to par. We expect that the reinvested capital and related discounts will produce additional income as the discounts are accreted into interest income. In addition, the purchase of these investments at discounts allows us to build collateral in the CLO structures since we receive credit in these structures for these investments at par. From net discounts of approximately $6.0 million at December 31, 2013, we recognized income of approximately $739,000 in our bank loan CLO portfolio in the first quarter of 2014 and expect to accrete approximately $1.0 million into income for the remainder of calendar year 2014. However, we have no further capacity in two of our bank loan collateralized loan obligation issuers, or CLOs, and two real estate CDOs have ended their reinvestment periods. We have limited reinvestment capacity in one bank loan CLO where the reinvestment period ends in May 2014. We intend to use the existing capacity in our CMBS and CRE term credit facilities with Wells Fargo of $57.0 million and $153.4 million, respectively, and with Deutsche Bank of $196.3 million, as of March 31, 2014 to help finance new CRE loans and CMBS investments. Conversely, we also saw a decline in our commercial finance assets, our bank loan portfolio as two of our CLOs were liquidated in 2013 and two or our CLOs have matured and as the collateral assets pay down, the proceeds are used to pay down the associated debt. This trend resulted in a substantial decline in our net interest income from bank loans in 2013, which continued into the first quarter of 2014. We began to mitigate this trend by investing in new CLOs in late 2013 and early 2014. We further expect to mitigate this trend by deploying capital into our middle-market lending business, which loans are similar in nature to bank loans, and in our growing commercial real estate lending platform. Due to these recent developments, our increased ability to access credit markets, our recent capital markets efforts and our investment of a significant portion of our available unrestricted and restricted cash balances during 2013, we expect to continue to modestly increase our net interest income into 2014. However, because we believe that economic conditions in the United States are fragile, and could be significantly harmed by occurrences over which we have no control, we cannot assure you that we will be able to meet our expectations, or that we will not experience net interest income reductions. (Back to



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On October 31, 2013, we, through RCC Residential, Inc., our newly-formed taxable REIT subsidiary, acquired a residential mortgage origination company, Primary Capital Advisors LC, or PCA, an Atlanta based firm for $7.6 million in cash. In addition, a key employee of PCA was granted approximately $800,000 in shares of our common stock that was subsequently accounted for as compensation. The shares of common stock were issued in a private transaction exempt from registration under Section 4(2) of the Securities Act of 1933, as amended. Of the $7.6 million cash consideration, $1.8 million was set aside in an escrow account as a contingency for potential purchase price adjustments. Our acquisition of PCA represents a return to the residential mortgage investment market, by providing us with our first residential mortgage origination platform. We intend to cautiously expand this business over the next 12 to 18 months while adding infrastructure, staff and new technology. In the latter half of 2013, we seeded a middle market lending operation operated by our Manager with funds to invest on our behalf. These funds were derived from proceeds of sales from a partial liquidation of our trading portfolio. Our first investments were in bank loans purchased in the secondary market; however, in December 2013, we closed on a self-originated loan. We made additional investments of $31.5 million in the first quarter of 2014, which is trend we expect to continue through 2014, which will also help mitigate the revenues lost as a result of the liquidation and run-off of several bank loan CLOs. As of March 31, 2014 we had invested 73% of our portfolio in CRE assets, 26% in commercial bank loans and 1% in other assets. As of December 31, 2013, we had invested 83% of our portfolio in CRE assets, 15% in commercial bank loans and 2% in other assets. Results of Operations Our net income allocable to common shares for the year ended March 31, 2014 was $15.1 million, or $0.12 per share (basic and diluted) as compared to net income allocable to common shares of $11.5 million, or $0.11 per share (basic and diluted) for the three months ended March 31, 2013. Interest Income The following tables set forth information relating to our interest income recognized for the periods presented (in thousands, except percentages): Three Months Ended March 31, 2014 2013 Interest income: Interest income from loans: Bank loans $ 6,843$ 17,844 Commercial real estate loans 13,386



9,968

Total interest income from loans 20,229



27,812

Interest income from securities:

CMBS-private placement 3,629 2,787 ABS 295 469 Corporate bonds 48 297 Residential mortgage-backed securities, or RMBS 32



89

Total interest income from securities 4,004



3,642

Interest income - other:

Preference payments on structured notes (1) 2,780 1,812 Temporary investment in over-night repurchase agreements 72 54 Total interest income - other 2,852 1,866 Total interest income $ 27,085$ 33,320 (Back to Index) 66



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(Back to Index) Three Months Ended Three Months Ended March 31, 2014 March 31, 2013 Weighted Average Weighted Average Yield Balance Yield Balance Interest income: Interest income from loans: Bank loans 4.95% $ 555,236 6.04% $ 1,180,873 Commercial real estate loans 5.90% $ 910,904 5.68%



$ 703,839

Interest income from securities:

CMBS-private placement 6.42% $ 226,105 5.14% $ 215,030 ABS 4.71% $ 24,971 6.91% $ 27,188 Corporate bonds 8.08% $ 2,359 3.46% $ 34,342 RMBS 1.41% $ 9,239 2.13% $ 16,722



Preference payments on structured notes 28.25% $ 39,359 17.45%

$ 41,524

The following tables summarize interest income for the years indicated (in thousands, except percentages):

Unamortized Net Coupon (Discount) Amortization/ Interest Fee Type of Security Interest Premium Accretion Income Income Total Three Months Ended March 31, 2014 Bank loans 4.36 % $ (2,741 ) $ 558 $ 6,036$ 249$ 6,843 Commercial real estate loans 5.61 % $ (82 ) 9



13,229 148 13,386

Total interest income from loans 567 19,265 397 20,229 CMBS-private placement 3.76 % $ (6,170 ) 592 3,037 - 3,629 RMBS - 32 - 32 ABS 1.87 % $ (2,174 ) 177 118 - 295 Corporate bonds 6.96 % $ (103 ) 7 41 - 48 Total interest income from securities 776 3,228 - 4,004 Preference payments on structured notes - 2,780 - 2,780 Other - 72 - 72 Total interest income - other - 2,852 - 2,852 Total interest income $ 1,343$ 25,345$ 397$ 27,085 Three Months Ended March 31, 2013 Bank loans 4.33 % $ (19,815 )$ 4,070$ 12,810$ 964$ 17,844 Commercial real estate loans 5.45 % $ (119 ) 9 9,470 489 9,968 Residential Mortgage Loans - % $ - - - - - Total interest income from loans 4,079 22,280 1,453 27,812 CMBS-private placement 3.72 % $ (7,567 ) 606 2,181 - 2,787 RMBS - 89 - 89 ABS 2.04 % $ (2,946 ) 190 279 - 469 Corporate bonds 3.54 % $ 425 (7 ) 304 - 297 Total interest income from securities 789 2,853 - 3,642 Preference payments on structured notes - 1,812 - 1,812 Other - 54 - 54 Total interest income - other - 1,866 - 1,866 Total interest income $ 4,868$ 26,999$ 1,453$ 33,320 (Back to Index) 67



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Three Months Ended March 31, 2014 as compared to Three Months Ended March 31, 2013 Aggregate interest income decreased $6.2 million (19%) to $27.1 million for the three months ended March 31, 2014, from $33.3 million for the three months ended March 31, 2013. We attribute this decrease to the following: Interest Income from Loans. Aggregate interest income from loans decreased $7.6 million (27%) to $20.2 million for the three months ended March 31, 2014 from $27.8 million for the three months ended March 31, 2013. Interest income on bank loans decreased $11.0 million (62%) to $6.8 million for the three months ended March 31, 2014 from $17.8 million for the three months ended March 31, 2013, which principally was the result of the following: a decrease in the weighted average loan balance of $625.6 million to



$555.2 million for the three months ended March 31, 2014 from $1.2

billion for the three months ended March 31, 2013, principally due to

the liquidation of two of our CLOs, Apidos CLO VIII and Whitney CLO I,

in September 2013 and October 2013, respectively. In addition, two of

our remaining CLOs (Apidos CLO I and Apidos CLO III) reached the end of

their reinvestment periods in prior years and, as a result, any

principal collected is used to pay down notes instead of being

reinvested in new assets. Since the end of their reinvestment periods

in July 2011 and 2012, respectively, Apidos CLO I and Apidos CLO III were paid down a total of $395.6 million par value of loans; and



a decrease in the weighted average yield to 4.95% for the three months

ended March 31, 2014 as compared to 6.04% for the three months ended

March 31, 2013, primarily as a result of the decrease in accretion

income from Apidos CLO VIII and Whitney CLO I as a result of their

liquidation, as well as a decrease in accretion income from Apidos CDO

I and Apidos CDO III resulting from decreasing asset and discount

balances.

Interest income on commercial real estate, or CRE, loans increased $3.4 million (34%) to $13.4 million for the three months ended March 31, 2014, as compared to $10.0 million for the three months ended March 31, 2013. This increase is a result of the following combination of factors: an increase of $207.1 million in the weighted average loan balance to



$910.9 million for the three months ended March 31, 2014 from $703.8

million for the three months ended March 31, 2013 as we began to

originate new loans financed by our Wells Fargo CRE credit facility,

coupled with new equity raised, and by a new CRE securitization in December 2013; and an increase in the weighted average yield to 5.9% during the three months ended March 31, 2014 from 5.68% during the three months ended March 31, 2013 as a result of newly originated real estate loans with higher stated interest rates than our legacy portfolio. Interest Income from Securities. Aggregate interest income from securities increased $362,000 (10%) to $4.0 million for the three months ended March 31, 2014 from $3.6 million for the three months ended March 31, 2013. The increase in interest income from securities resulted principally from the following: Interest income on CMBS-private placement increased $842,000 (30%) to $3.6 million for the three months ended March 31, 2014 as compared to $2.8 million for the three months ended March 31, 2013. The increase resulted from the following: an increase in the weighted average balance of assets of $11.1 million during the three months ended March 31, 2014 to $226.1 million from



$215.0 million for the three months ended March 31, 2013 primarily as a

result of the purchase of assets on our Wells Fargo CMBS facility

beginning in February 2011 and purchases using three short-term

repurchase agreements as well as proceeds from our common and preferred

stock offerings; and

an increase in the weighted average yield of assets to 6.42% for the

three months ended March 31, 2014 from 5.14% for the three months ended

March 31, 2013 primarily as a result of the collection of $730,000 in

interest shortfalls on an impaired bond.

Interest income from ABS decreased $174,000 (37%) to $295,000 for the three months ended March 31, 2014 from $469,000 or the three months ended March 31, 2013 as a result of a decrease of the following: a decrease in the weighted average yield during the three months ended



March 31, 2014 to 4.71% from 6.91% during the three months ended March

31, 2013 as a result of the paydowns during 2013, which accelerated

accretion income recognition; and a $2.2 million decrease in the weighted average loan balance to $25.0 million for the three months ended March 31, 2013, from $27.2 million for the year ended December 31, 2013, as a result of paydowns in 2013 and paydowns and sales in 2014. (Back to Index) 68



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Interest income from corporate bonds decreased $249,000 (84%) to $48,000 for the three months ended March 31, 2014 from $297,000 for the three months ended March 31, 2013 and was the result of our acquisition in October 2012 and in May 2013 of 66.6% and 1.7%, respectively, of the equity in Whitney CLO I which resulted in us consolidating this entity that held some corporate bonds. Whitney CLO I was subsequently liquidated in October 2013. Interest Income - Other. Aggregate interest income-other increased $1.0 million (53%) to $2.9 million for the three months ended March 31, 2014 as compared to $1.9 million for the three months ended March 31, 2013. Substantially all of this increase is related to the incremental interest income provided by our newly consolidated CLO, Moselle CLO. Interest Expense The following tables set forth information relating to our interest expense incurred for the periods presented by asset class (in thousands, except percentages): Three Months Ended March 31, 2014 2013 Interest expense: Bank loans $ 1,465$ 5,628 Commercial real estate loans 3,322 2,057 CMBS-private placement 302 215 Hedging instruments 1,626 1,650 Securitized borrowings - 879 Convertible senior notes 2,328 - General 594 736 Total interest expense $ 9,637$ 11,165 Three Months Ended Three Months Ended March 31, 2014 March 31, 2013 Weighted Average Weighted Average Yield Balance Yield Balance Interest expense: Bank loans 1.1 % $ 528,076 1.85 % $ 1,218,662 Commercial real estate loans 2.29 % $ 573,762 2.05 % $ 406,755 CMBS-private placement 2.53 % $ 49,001 1.87 % $ 43,700 Hedging instruments 5.3 % $ 122,681 5.23 % $ 124,902 Securitized borrowings (1) N/A N/A 13.84 % $ 25,268 6% Convertible senior notes (2) 8.10 % $ 115,000 N/A N/A General 4.57 % $ 51,548 4.55 % $ 65,148



(1) Third party equity holders interest is accounted for as interest expense in

our statements of income using an imputed interest rate on the underlying

subordinated debt.

(2) Yield on notes includes amortization of discount which is being amortized on

a straight-line basis through maturity, on December 1, 2018. (Back to Index) 69



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(Back to Index) Unamortized Coupon Deferred Debt Net Interest Type of Security Interest Expense Amortization Expense Other Total Three Months Ended March 31, 2014 Bank loans 0.93 % $ 103 $ 227 $ 1,238 $ - $ 1,465 Commercial real estate 3,322 loans 1.70 % $ 1,459 725 2,597 - CMBS-private placement 1.31 % $ - 12 290 - 302 Hedging 5.07 % $ 103 - 1,626 - 1,626 Securitized borrowings - % $ - - - - - Convertible senior notes 6.00 % $ - 603 1,725 2,328 General 4.19 % $ 494 49 545 594 Total interest expense $ 1,616$ 8,021 $ - $ 9,637 Three Months Ended March 31, 2013 Bank loans 1.35 % $ 6,439 $ 663 $ 4,965 $ - $ 5,628 Commercial real estate 1.36 % $ (179 ) 642 1,415 2,057 loans - CMBS-private placement 1.45 % $ 117 46 169 - 215 Hedging 4.97 % $ 877 - 1,650 - 1,650 Securitized borrowings 13.02 % $ - - 879 - 879 Convertible Senior Notes - % $ - - - - - General 4.43 % $ 687 48 688 - 736 Total interest expense $ 1,399$ 9,766 $ - $ 11,165 Three Months Ended March 31, 2014 as compared to Three Months Ended March 31, 2013 Aggregate interest expense decreased $1.5 million (14%) to $9.6 million for the three months ended March 31, 2014, from $11.2 million for the three months ended March 31, 2013. We attribute this decrease to the following: Interest expense on bank loans was $1.5 million for the three months ended March 31, 2014 as compared to $5.6 million for the three months ended March 31, 2013, a decrease of $4.2 million (74%). This decrease resulted from the following: a decrease in the weighted average balance of the related financings of $690.6 million to $528.1 million for the three months ended March 31, 2014 as compared to $1.2 billion for the three months ended March 31,



2013 principally due to the call and liquidation of Apidos CLO VIII and

Whitney CLO I in September 2013 and October 2013, respectively, which

resulted in the paydown of all outstanding notes. In addition, Apidos

CDO I and Apidos CDO III reached the end of their reinvestment periods

in prior years. During the year ended December 31, 2013, Apidos CDO I

paid down $245.7 million in principal amount of its CDO notes and

Apidos CDO III paid down $129.2 million in principal amount of its CDO

notes; and

a decrease in the weighted average yield to 1.10% for the three months

ended March 31, 2014 as compared to 1.85% for the three months ended

March 31, 2013 primarily due to a decrease in expense from the prior

year related to Apidos CLO VIII and Whitney CLO I which when they were

liquidated and to lesser extent as a result of the pay down of notes at

Apidos CDO I and Apidos CDO III.

Interest expense on CRE loans was $3.3 million for the three months ended March 31, 2014, as compared to $2.1 million for the three months ended March 31, 2013. an increase of $1.3 million (61%) as a result of the following: The increase of $167.0 million in the weighted average balance of debt of



to $573.8 million from $406.8 million for the three months ended March 31,

2013, primarily as a result of the consolidation of CRE Notes 2013, a

securitization that closed in December 2013. The increase from the closing

of CRE notes 2013 was partially offset by debt amortization of Resource

Real Estate Funding CDO 2006-1, or RREF CDO 2006-1, and Resource Real

Estate Funding CDO 2007-1, or RREF CDO 2007-1, as they reached the end of

their reinvestment periods in prior years. During the year ended 2013 and

the three months ended March 31, 2014, the CDOs paid down a total of

$160.1 million of notes; and

an increase in the weighted average yield to 2.29% for the three months

ended March 31, 2014 as compared to 2.05% for the three months ended March

31, 2013 which was due primarily to note paydowns of lower yield debt

which increased the weighted average cost of these borrowings. (Back to Index) 70



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Securitized borrowings expense decreased $879,000 to zero for the three months ended March 31, 2014. This interest expense was related to our subordinated investments in Apidos CLO VIII and Whitney CLO I which were called and liquidated in 2013. Interest expense on convertible senior notes was $2.3 million for the three months ended March 31, 2014. In October 2013, we closed and issued $115.0 million aggregate principal amount of our 6.00% convertible senior notes due 2018. The discount will be amortized on a straight-line basis as additional interest expense through maturity. Other Revenue The following table sets forth information relating to our other revenue incurred for the periods presented (in thousands): Three Months Ended March 31, 2014 2013 Other revenue: Rental income $ 5,152$ 6,174 Dividend income 136 16



Equity in net earnings (losses) of unconsolidated subsidiaries

2,014



(425 )

Fee income 2,756



1,410

Net realized gain on investment securities available-for-sale and loans 3,680



391

Net realized and unrealized (loss) gain on investment securities, trading

(1,560 )



1,116

Unrealized (loss) gain and net interest income on linked transactions, net 2,305 (259 ) Total other revenue $ 14,483$ 8,423 Three Months Ended March 31, 2014 as compared to Three Months Ended March 31, 2013 Rental income decreased $1.0 million (17%) to $5.2 million for the three months ended March 31, 2014 as compared to $6.2 million for the three months ended March 31, 2013. The decrease is primarily related to the sale of a multi-family apartment building in September 2013. Equity in net earnings (losses) of unconsolidated subsidiaries increased $2.4 million (574%) to earnings of $2.0 million during the three months ended March 31, 2014 from a loss of $425,000 for the three months ended March 31, 2013. The increase in earnings was related to the following: $834,000 from our investment in CVC Global Credit Opportunities Fund, L.P., which we made investments of $15.0 million beginning in May 2013; and $1.8 million from the sale of two properties in which we owned equity interests. Fee income increased $1.3 million (95%) to $2.8 million for the three months ended March 31, 2014 from $1.4 million for the three months ended March 31, 2013. This increase in income is primarily due to our October 2013 investment in PCA and the fees related to residential mortgage origination. Net realized gain on investment securities available-for-sale and loans increased $3.3 million (841%) to $3.7 million for for the three months ended March 31, 2014 from $391,000 for the three months ended March 31, 2013. The increase for the three months ended March 31, 2014 is primarily due to our recent investment in PCA and the gain on the sale of residential mortgage originations and to a lesser extent, the interest rate lock hedges in place on that portfolio. Net realized and unrealized (loss) gain on investment securities, trading decreased $2.7 million (240%) to a loss of $1.6 million during the three months ended March 31, 2014 as compared to a gain of $1.1 million during the three months ended March 31, 2013 primarily, as a result of pricing decreases, principally on one position which experienced larger than expected losses during the three months ended March 31, 2014. Realized gain (loss) and net interest income on linked transactions, net, increased $2.6 million (990%) to a gain of $2.3 million for three months ended March 31, 2014 from a loss of $259,000 for the three months ended March 31, 2013 principally as a result of pricing increases related to these positions. The amounts are related to our CMBS securities that are purchased with repurchase agreements with the same counterparty from whom the securities are purchased. These transactions are entered into contemporaneously or in contemplation of each other and are presumed not to meet sale accounting criteria. We account for these transactions on a net basis and record a forward purchase commitment to purchase securities (each, a "linked transaction") at fair value. (Back to



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Operating Expenses The following table sets forth information relating to our operating expenses incurred for the periods presented (in thousands): Three Months Ended March 31, 2014 2013 Operating expenses: Management fees - related party $ 3,080$ 2,978 Equity compensation - related party 1,667 3,591 Rental operating expense 3,396 3,937



General and administrative - Corporate (1) 2,831 3,481 General and administrative - PCA (1)

5,274 - Depreciation and amortization 836 1,138 Income tax (benefit) expense 16 1,762 Net impairment losses recognized in earnings - 21 (Benefit) provision for loan losses (3,960 ) 1,042 Total operating expenses $ 13,140$ 17,950



(1) Total general and administrative expense per the consolidated statements of

income was $8.1 million and $3.5 million for the three months ended March 31,

2014 and 2013, respectively.

Three Months Ended March 31, 2014 as compared to Three Months Ended March 31, 2013 Management fees - related party increased $102,000 (3%) to $3.1 million for the three months ended March 31, 2014 as compared to $3.0 million for the three months ended March 31, 2013. This expense represents compensation in the form of base management fees and incentive management fees pursuant to our management agreement as well as fees to the manager of our structured note portfolio. The changes are described below: Base management fees increased by $419,000 (17%) to $2.9 million for the three months ended March 31, 2014 as compared to $2.5 million for the three months ended March 31, 2013. This increase was due to increased stockholders' equity, a component in the formula by which base management fees are calculated, primarily as a result of the receipt of $19.3 million of proceeds from the sales of common stock through our Dividend Reinvestment and Stock Purchase Plan, or DRIP,



from January 1, 2013 through March 31, 2014 as well as the receipt of

$114.5 million from the proceeds of our April 2013 secondary common

stock offering. In addition, we issued approximately 196,000 and 2.9 million shares of Series A preferred stock and Series B preferred stock, respectively, from January 1, 2013 through March 31, 2014.



Incentive management fees related to our structured finance manager

decreased by $301,000 (100%) to zero for the three months ended March

31, 2014. The decrease in fees is primarily related to the decrease in

the pricing on these assets for the three months ended March 31, 2014.

Equity compensation - related party decreased $1.9 million (54%) to $1.7 million for the three months ended March 31, 2014 as compared to $3.6 million for the three months ended March 31, 2013. These expenses relate to the amortization of annual grants of restricted common stock to our non-employee independent directors, and annual and discretionary grants of restricted stock to employees of Resource America who provide investment management services to us through our Manager as well as to employees of our recently acquired residential mortgage company subsidiary. The decrease in expense was primarily the result of vestings during the three months ended March 31, 2014 as well as the decrease in our stock price and its impact on our quarterly remeasurement of the value of unvested stock of non-employees. Rental operating expense decreased $541,000 (14%) to $3.4 million for the three months ended March 31, 2014 as compared to $3.9 million for the three months ended March 31, 2013 and is primarily related to the sale of a multi-family apartment building in September 2013. (Back to



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General and administrative expense - Corporate decreased $650,000 (19%) to $2.8 million for the three months ended March 31, 2014 as compared to $3.5 million million for the three months ended March 31, 2013. The decrease is primarily the result of the following: a decrease of $278,000 related to legal expenses due to the timing of



when certain work was performed; and

a decrease of $244,000 in collateral management fees as a result of the

call and liquidation of Apidos CDO VIII in October 2013.

General and administrative expense - PCA was $5.3 million and is entirely related to the acquisition of PCA, a residential mortgage and servicing origination business in October 2013. Depreciation and amortization decreased $302,000 (27%) to $836,000 for the three months ended March 31, 2014 from $1.1 million three months ended March 31, 2013. The decrease is the result of the sale of a multi-family property in September 2013 and to a lesser extent, the classification of a hotel property to held-for-sale as of January 31, 2014 and the ceasing of depreciation of the asset at that time. Income tax expense decreased $1.7 million (99%) to $16,000 for the three months ended March 31, 2014 as compared to $1.8 million for the three months ended March 31, 2013 primarily due to the tax benefit from the loss generated on consolidation of Life Care Funding, LLC, or LCF, as a result of us obtaining a controlling interest during the three months ended March 31, 2014. Our provision for loan losses decreased $5.0 million (480%) to a benefit of $4.0 million for the three months ended March 31, 2014, as compared to a provision of $1.0 million for the three months ended March 31, 2013. The following table summarizes the information relating our loan losses for the periods presented (in thousands): Three Months Ended March 31, 2014 2013 CRE loan portfolio $ (4,572 )$ 1,261 Bank loan portfolio 612 (219 )



Total provision for loan losses $ (3,960 )$ 1,042

CRE Loan Portfolio Provision The principal reason for the decrease during the three months ended March 31, 2014 as compared to the three months ended March 31, 2013 was the reversal of $4.5 million of reserves on a mezzanine loan position, which we expect to recover in full. Bank Loan Portfolio Provision The bank loan provision increased by $831,000 for the three months ended March 31, 2014 to a provision $612,000 as compared to a benefit of $219,000 for the three months ended March 31, 2013. The principal reason for the increase was due to an increase for positions sold at a a loss for credit reasons for the three months ended March 31, 2014. Other Expense The following table sets forth information relating to our other revenue (expense) incurred for the periods presented (in thousands): Three Months Ended March 31, 2014 2013 Other Revenue (Expense) Other expense $ (1,262 ) $ - Loss on the extinguishment of debt (69 ) - Total other expenses $ (1,331 ) $ - Three Months Ended March 31, 2014 as compared to Three Months Ended March 31, 2013 Other expense of $1.3 million during the three months ended March 31, 2014 is related to the revaluation of our equity position in life settlement contracts. (Back to Index) 73



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Financial Condition Summary. Our total assets were $2.3 billion at March 31, 2014 and $2.2 billion at December 31, 2013. The increase in total assets was principally due to the increase in CRE and CMBS investments as well as the acquisition of a controlling interest in a CLO, which resulted in consolidation of its bank loans and ABS. Investment Portfolio. The table below summarizes the amortized cost and net carrying amount of our investment portfolio as of March 31, 2014 and December 31, 2013, classified by interest rate type. The following table includes both (i) the amortized cost of our investment portfolio and the related dollar price, which is computed by dividing amortized cost by par amount, and (ii) the net carrying amount of our investment portfolio and the related dollar price, which is computed by dividing the net carrying amount by par amount (in thousands, except percentages): Net carrying Amortized Net carrying amount less cost Dollar price amount Dollar price amortized cost Dollar price



March 31, 2014

Floating rate RMBS $ 1,909 20.68 % $ 438 4.74 % $ (1,471 ) (15.93 )% CMBS-private placement 27,138 91.99 % 15,508 52.57 % (11,630 ) (39.42 )% Structured notes, trading 8,057 34.49 % 9,549 40.88 % 1,492 6.39 % Structured notes - available-for-sale 12,841 100.00 % 12,841 100.00 % - - % Mezzanine loans (1) 12,467 99.06 % 12,365 98.25 % (102 ) (0.81 )% Whole loans (1) 833,853 99.56 % 828,664 98.94 % (5,189 ) (0.62 )% Bank loans (2) 687,154 99.56 % 686,413 99.45 % (741 ) (0.11 )% Loans held for sale (3) 272 22.08 % 272 22.08 % - - % ABS Securities 35,648 94.25 % 36,839 97.40 % 1,191 3.51 % Corporate bonds 2,603 96.23 % 2,580 95.38 % (23 ) (0.85 )% Total floating rate 1,621,942 97.88 % 1,605,469



96.89 % (16,473 ) (0.99 )%

Fixed rate CMBS-private placement 159,565 80.24 % 165,783 83.36 % 6,218 3.12 % CMBS-linked transactions 38,214 105.59 % 34,829 96.24 % (3,385 ) (9.40 )% B notes (1) 16,168 99.54 % 16,036 98.73 % (132 ) (0.81 )% Mezzanine loans (1) 51,832 100.05 % 51,410 99.24 % (422 ) (0.81 )% Residential mortgage loans 1,843 100.00 % 1,843 100.00 % - - % Loans held for sale (3) 15,117 100.00 % 15,117 100.00 % - - % Loans receivable-related party 6,498 100.00 % 6,498 100.00 % - - % Total fixed rate 289,237 88.57 % 291,516 89.27 % 2,279 0.70 % Other (non-interest bearing) Investment in real estate 19,971 100.00 % 19,971 100.00 % - - % Property available-for-sale 35,256 100.00 % 35,256 100.00 % - - % Investment in unconsolidated entities 62,053 100.00 % 62,053 100.00 % - - % Total other 117,280 100.00 % 117,280 100.00 % - - % Grand total $ 2,028,459 96.55 % $ 2,014,265 95.88 % $ (14,194 ) (0.68 )% (Back to Index) 74



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(Back to Index) Net carrying Amortized Net carrying amount less cost Dollar price amount Dollar price amortized cost Dollar price



December 31, 2013

Floating rate RMBS $ 1,919 20.76 % $ 451 4.88 % $ (1,468 ) (15.88 )% CMBS-private placement 27,138 92.39 % 16,496 56.16 % (10,642 ) (36.23 )% Structured notes, trading 8,057 34.49 % 11,107 47.55 % 3,050 13.06 % Mezzanine loans (1) 12,455 98.97 % 12,455 98.97 % - - % Whole loans (1) 745,789 99.56 % 736,106 98.27 % (9,683 ) (1.29 )% Bank loans (2) 555,173 99.28 % 551,782 98.67 % (3,391 ) (0.61 )% Loans held for sale (3) 6,850 94.82 % 6,850 94.82 % - - % ABS Securities 25,406 91.39 % 26,656 95.88 % 1,250 4.50 % Corporate bonds 2,517 29.32 % 2,463 28.69 % (54 ) (0.63 )% Total floating rate 1,385,304 96.71 % 1,364,366



95.25 % (20,938 ) (1.46 )%

Fixed rate CMBS-private placement 158,040 77.87 % 164,222 80.91 % 6,182 3.04 % CMBS-linked transactions 35,736 106.07 % 30,066 89.24 % (5,670 ) (16.83 )% B notes (1) 16,205 99.49 % 16,031 98.42 % (174 ) (1.07 )% Mezzanine loans (1) 51,862 100.06 % 51,303 98.98 % (559 ) (1.08 )% Residential mortgage 1,849 66.27 % 1,849 66.27 % - - % loans Loans held for sale (3) 15,066 100.00 % 15,066 100.00 % - - % Loans receivable-related party 6,966 100.00 % 6,966 100.00 % - - % Total fixed rate 285,724 86.69 % 285,503 86.62 % (221 ) (0.07 )% Other (non-interest bearing) Investment in real estate 29,778 100.00 % 29,778 100.00 % - - % Property available-for-sale 25,346 100.00 % 25,346 100.00 % - - % Investment in unconsolidated entities 74,438 100.00 % 74,438 100.00 % - - % Total other 129,562 100.00 % 129,562 100.00 % - - % Grand total $ 1,800,590 95.19 % $ 1,779,431 94.07 % $ (21,159 ) (1.12 )%



(1) Net carrying amount includes allowance for loan losses of $5.8 million at

March 31, 2014, allocated as follows: B notes $132,000, mezzanine loans

$524,000 and whole loans $5.2 million. Net carrying amount includes allowance

for loan losses of $10.4 million at December 31, 2013, allocated as follows:

B notes $174,000, mezzanine loans $559,000 and whole loans $9.7 million.

(2) Net carrying amount includes allowance for loan losses of $741,000 and $3.4

million at March 31, 2014 and December 31, 2013, respectively.

(3) Loans held for sale are carried at the lower of cost or market. Amortized

cost is equal to fair value.

Commercial Mortgage-Backed Securities-Private Placement. In the aggregate, we purchased our CMBS-private placement portfolio at a net discount. At March 31, 2014 and December 31, 2013, the remaining discount to be accreted into income over the remaining lives of the securities was $6.5 million and $7.2 million, respectively. At March 31, 2014 and December 31, 2013, the remaining premium to be amortized into income over the remaining lives of the securities was $377,000 and $645,000, respectively. These securities are classified as available-for-sale and, as a result, are carried at their fair value. During the three months ended March 31, 2014 and 2013, we recognized zero and $21,000 other-than-temporary impairment losses on positions that supported our CMBS investments. Securities classified as available-for-sale have increased on a net basis as of March 31, 2014 as compared to December 31, 2013 primarily due to new assets acquired through the consolidation of Moselle CLO. We perform an on-going review of third-party reports and updated financial data on the underlying property financial information to analyze current and projected loan performance. Rating agency downgrades are considered with respect to our income approach when determining other-than-temporary impairment and, when inputs are stressed, the resulting projected cash flows reflect a full recovery of principal. (Back to Index) 75



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The following table summarizes our CMBS-private placement at fair value (in thousands, except percentages):

Fair Value at Fair Value at December 31, MTM Change March 31, 2013 Net Purchases Upgrades/Downgrades Paydowns Same Ratings 2014 Moody's Ratings Category: Aaa $ 49,837 $ 2,350 $ (3,117 ) $ (7,156 )$ (5,579 )$ 36,335 Aa1 through Aa3 5,356 - - 103 5,459 A1 through A3 14,611 - - (400 ) 14,211 Baa1 through Baa3 38,711 - - 239 38,950 Ba1 through Ba3 13,738 8,645 - 559 22,942 B1 through B3 13,381 - 3,115 617 17,113 Caa1 through Caa3 14,744 - (4,118 ) (45 ) 10,581 Ca through C 8,614 - 1,003 (213 ) (1,193 ) 8,211 Non-Rated 21,726 6,340 3,117 (3,694 ) 27,489 Total $ 180,718$ 17,335 $



- $ (7,369 )$ (9,393 )$ 181,291

S&P Ratings Category: AAA $ 53,239 $ 631 $



- $ (7,156 )$ (9,241 )$ 37,473 A+ through A-

7,999 - - - (32 ) 7,967 BBB+ through BBB- 14,303 - 1,687 - 67 16,057 BB+ through BB- 32,795 9,958 (1,687 ) - (345 ) 40,721 B+ through B- 33,162 - - - 1,023 34,185 CCC+ through CCC- 12,176 4,602 (1,003 ) - 191 15,966 D 1,980 - 1,003 (213 ) (1,203 ) 1,567 Non-Rated 25,064 2,144 - - 147 27,355 Total $ 180,718$ 17,335 $ - $ (7,369 )$ (9,393 )$ 181,291



Investment Securities, Trading. The following table summarizes our structured notes and RMBS securities, which are classified as investment securities, trading, and are carried at fair value (in thousands):

Amortized Cost Unrealized Gains Unrealized Losses Fair Value March 31, 2014 Structured notes, trading $ 8,057 $ 3,082 $ (1,590 ) $ 9,549 RMBS 1,909 - (1,471 ) 438 Total $ 9,966 $ 3,082 $ (3,061 ) $ 9,987 December 31, 2013 Structured notes, trading $ 8,057 $ 4,050 $ (1,000 ) $ 11,107 RMBS 1,919 - (1,468 ) 451 Total $ 9,976 $ 4,050 $ (2,468 ) $ 11,558 We did not purchase or sell securities during the three months ended March 31, 2014. We held eight investment securities, trading as of both March 31, 2014 and December 31, 2013. (Back to Index) 76



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Real Estate Loans. The following table is a summary of the loans in our commercial real estate loan portfolio at the dates indicated (in thousands):

Contracted Description Quantity Amortized Cost Interest Rates Maturity Dates (3) March 31, 2014 LIBOR plus Whole loans, floating 55 $ 833,853 2.13% to rate (1) (4) (5) LIBOR plus April 2014 to 12.14% February 2019 B notes, fixed rate 1 16,168 8.68% April 2016 Mezzanine loans, floating 1 12,467 LIBOR plus April 2016 rate 15.32% Mezzanine loans, fixed 3 51,832 0.50% to 18.71% September 2014 to rate (7) September 2021 Total (2) 60 $ 914,320 December 31, 2013 LIBOR plus Whole loans, floating 2.68% to rate (1) (4) (6) LIBOR plus March 2014 to 51 $ 745,789 12.14% February 2019 B notes, fixed rate 1 16,205 8.68% April 2016 Mezzanine loans, floating 1 12,455 LIBOR plus April 2016 rate 15.32% Mezzanine loans, fixed 3 51,862 0.50% to 18.72% September 2014 to rate (7) September 2019 Total (2) 56 $ 826,311



(1) Whole loans had $23.1 million and $13.7 million in unfunded loan commitments

as of March 31, 2014 and December 31, 2013, respectively. These unfunded

commitments are advanced as the borrowers formally request additional funding

as permitted under the loan agreement and any necessary approvals have been

obtained.

(2) The total does not include an allowance for loan loss of $5.8 million and

$10.4 million as of March 31, 2014 and December 31, 2013, respectively.

(3) Maturity dates do not include possible extension options that may be

available to the borrowers.

(4) As of March 31, 2014, floating rate whole loans includes $783,000 and $12.6

million of mezzanine components of two whole loans, which have a fixed rate

of 15.0% and 12.0%, respectively.

(5) Floating rate whole loans include a $799,000 junior mezzanine tranche of a

whole loan that had a fixed rate of 10.0% as of March 31, 2014.

(6) Fixed rate mezzanine loans include a mezzanine loan that was modified into

two tranches, which both currently pay interest at 0.50%. In addition, the

subordinate tranche accrues interest at LIBOR plus 18.50% which is deferred

until maturity.

Bank Loans. At March 31, 2014, our consolidated securitizations, Apidos CDO I, Apidos CDO III, Apidos Cinco CDO, and Moselle CLO, as well as Resource TRS and RCC Commercial, held a total of $688.2 million of bank loans at fair value. The bank loans held by these entities secure the CDO notes they issued and are not available to satisfy the claims of our creditors. The aggregate fair value of bank loans held increased by $125.2 million over the fair value at December 31, 2013. This increase was primarily due to the acquisition through consolidation of Moselle CLO during the three months ended March 31, 2014. (Back to



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The following table summarizes our bank loan investments (in thousands):

March 31, 2014 December 31, 2013 Amortized cost Fair Value (1) Amortized cost Fair Value (1) Moody's ratings category: Baa1 through Baa3 $ 15,444 $ 15,485 $ 10,885 $ 10,936 Ba1 through Ba3 302,103 302,005 263,589 265,945 B1 through B3 243,915 244,373 216,995 217,517 Caa1 through Caa3 40,584 40,959 24,224 22,702 Ca 74 2 667 332 No rating provided 85,306 85,332 45,663 45,527 Total $ 687,426$ 688,156$ 562,023$ 562,959 S&P ratings category: BBB+ through BBB- $ 58,428 $ 58,682 $ 46,201 $ 46,562 BB+ through BB- 259,272 257,086 224,246 224,442 B+ through B- 253,696 256,040 228,707 231,135 CCC+ through CCC- 31,568 31,901 15,059 14,838 CC+ through CC- - - - - C+ through C- - - - - D - 2,251 723 No rating provided 84,462 84,447 45,559 45,259 Total $ 687,426$ 688,156$ 562,023$ 562,959 Weighted average rating factor 1,841 1,901 (1) The bank loan portfolio's fair value is determined using dealer quotes. (Back to Index) 78



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The following table provides information as to the lien position and status of our bank loans, which we consolidate (in thousands):

Amortized Cost Resource TRS Apidos I Apidos III Apidos Cinco Whitney CLO I LLC RCC Commercial Moselle Total March 31, 2014 Loans held for investment: First lien loans $ 67,604$ 110,090$ 278,665 $



- $ 6,666$ 27,445$ 143,240$ 633,710 Second lien loans

- 2,487 1,138 - 19,712 14,270 6,764 44,371

Third lien loans 3,024 - 4,485 - - - - 7,509 Defaulted first lien loans 674 675 214 - - - - 1,563 Defaulted second lien loans - - - - - - - - Total 71,302 113,252 284,502 - 26,378 41,715 150,004 687,153 First lien loans held for sale at fair value 98 175 - - - - - 273 Total $ 71,400$ 113,427$ 284,502 $

- $ 26,378$ 41,715$ 150,004$ 687,426 December 31, 2013 Loans held for investment: First lien loans $ 79,483$ 126,890$ 296,368 $



72 $ 21,724$ 10,250 $ - $ 534,787 Second lien loans

- - 1,139 - 7,805 - - 8,944

Third lien loans 3,020 2,475 2,463 - - - - 7,958 Defaulted first lien loans 1,206 1,124 486 - - - - 2,816 Defaulted second lien loans 334 334 - - - - - 668 Total 84,043 130,823 300,456

72 29,529 10,250 - 555,173 First lien loans held for sale at fair value 537 651 1,189 - 4,473 - - 6,850 Total $ 84,580$ 131,474$ 301,645 $ 72 $ 34,002$ 10,250 $ - $ 562,023 Asset-backed securities. In November 2011, the investment securities held-to-maturity portfolio was reclassified to investment securities available-for-sale since management no longer intended to hold these positions until maturity. These investments are now held at fair value with any unrealized gain or loss reported in the stockholder's equity section of the balance sheet. At March 31, 2014, we held a total of $36.8 million of ABS at fair value through Apidos CDO I, Apidos CDO III, Apidos Cinco CDO and Moselle, all of which secure the debt issued by these entities. At December 31, 2013, we held a total of $26.7 million of ABS at fair value through Apidos CDO I, Apidos CDO III and Apidos Cinco CDO, all of which secure the debt issued by these entities. The increase in total ABS was due to the acquisition and consolidation of Moselle CLO that occurred during the three months ended March 31, 2014. (Back to



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The following table summarizes our ABS at fair value (in thousands):

March 31, 2014



December 31, 2013

Amortized Cost Fair Value Amortized Cost Fair Value Moody's ratings category: Aaa $ 9,424 $ 10,344 $ 4,650 $ 5,058 Aa1 through Aa3 4,640 4,920 8,097 7,469 A1 through A3 2,524 2,843 1,263 3,801 Baa1 through Baa3 6,366 6,368 2,737 2,736 Ba1 through Ba3 12,694 12,364 8,021 6,981 B1 through B3 - - 638 611 Total $ 35,648$ 36,839 $ 25,406 $ 26,656 S&P ratings category: AA $ 73 $ 73 $ - $ - AA+ through AA- 12,651 13,729 8,030 7,259 A+ through A- 4,476 4,822 5,107 8,094 BBB+ through BBB- 8,466 8,466 - - BB+ through BB- 8,361 8,079 4,868 4,019 B+ through B- 737 690 1,577 1,578 No rating provided 884 980 5,824 5,706 Total $ 35,648$ 36,839 $ 25,406 $ 26,656 Weighted average rating factor 524 416 Corporate bonds. At March 31, 2014, our consolidated securitization, Apidos Cinco CDO, held a total of $2.6 million of corporate bonds at fair value, which secure the debt issued by this entity. These investments are held at fair value with any unrealized gain or loss reported in the stockholder's equity section of the balance sheet. The aggregate fair value of corporate bonds held increased by $117,000 over those held at December 31, 2013. The increase was primarily due to a purchase, partially offset by a sale, during the three months ended March 31, 2014. The following table summarizes our corporate bonds at fair value (in thousands): March 31, 2014



December 31, 2013

Amortized Cost Fair Value Amortized Cost Fair Value Moody's ratings category: B1 through B3 $ 713 $ 721 $ - $ - Caa1 through Caa3 952 968 1,582 1,598 No rating provided 938 891 935 865 Total $ 2,603 $ 2,580$ 2,517$ 2,463 S&P ratings category: B+ through B- $ 869 $ 873$ 869$ 873 CCC+ through CCC- 1,734 1,707 1,648 1,590 No rating provided - - - - Total $ 2,603 $ 2,580$ 2,517$ 2,463 Weighted average rating factor 4,770 6,500 (Back to Index) 80



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Investment in Unconsolidated Entities. The following table shows our investments in unconsolidated entities as of March 31, 2014 and December 31, 2013 and equity in net earnings (losses) of unconsolidated subsidiaries for the three months ended March 31, 2014 and 2013 (in thousands): For the three For the three months Balance as of Balance as of months ended ended March 31, December 31, March 31, March 31, Ownership % 2014 2013 2014 2013 Varde Investment Partners, L.P 7.5% $ 673 $ 674 $ (1 ) $ 24 RRE VIP Borrower, LLC 3% to 5% - - 866 (113 ) Investment in LCC Preferred Stock 27.5% 40,421 41,016 (594 ) (336 ) Investment in RCT I and II (1) 3% 1,548 1,548 (589 ) (593 ) Investment in Preferred Equity (2) various 2,400 8,124 1,228 239 Investment in CVC Global Opps Fund 34.4% 17,011 16,177 834 - Investment in Life Care Funding (3) 30% - 1.530 (75 ) - Total $ 62,053$ 69,069$ 1,669 $ (779 )



(1) For the three months ended March 31, 2014 and 2013, these amounts are

recorded in interest expense on our consolidated statements of income.

(2) For the three months ended March 31, 2014 and 2013, these amounts are

recorded in interest income on loans on our consolidated statements of

income.

(3) During the three months ended March 31, 2014, we recorded equity in net

earnings (losses) of unconsolidated subsidiaries on the consolidated

statements of income for two months before LCF was consolidated.

In May, June and July 2013, we invested $15.0 million in CVC Global Credit Opportunities Fund, L.P., or the Partnership, a Delaware limited partnership which generally invests in assets through a master-feeder fund structure, or the Master Fund. The General Partner of the Partnership and the Master Fund is CVC Global Credit Opportunities Fund GP, LLC, a Delaware limited liability company. The investment manager of the Partnership and the Master Fund is CVC Credit Partners, LLC. CVC Capital Partners SICAV-FIS, S.A., a Luxembourg company, together with its affiliates, and Resource America, own a majority and a significant minority, respectively, of the investment manager. The fund will pay the investment manager a quarterly management fee in advance calculated at the rate of 1.5% annually based on the balance of each limited partner's capital account. Our management fee was waived upon entering the agreement given that we are a related party of CVC Credit Partners, LLC. In January 2013, Long Term Care Conversion, Inc. ("LTCC ") invested $2.0 million into LCF for the purpose of originating and acquiring life settlement contracts. We began consolidating LCF during the three months ended March 31, 2013. On June 19, 2012, we entered into a joint venture with VÄrde Investment Partners, LP acting as lender, to purchase two condominium developments. We purchased a 7.5% equity interest in the venture. RREM, was appointed as the asset manager of the venture to perform lease review and approval, debt service collection, loan workout, foreclosure, disposition and permitting, as applicable. RREM is also responsible for engaging third parties to perform day-to-day property management, property leasing, rent collection, maintenance, and capital improvements. RREM receives an annual asset management fee equal to1% of outstanding contributions. For the three months ended March 31, 2014 and 2013, we paid RREM management fees of $0 and $16,000, respectively. All of the condominiums were sold as of December 31, 2013. On November 16, 2011, we, together with LEAF Financial Inc. and LEAF Commercial Capital, Inc. entered into a stock purchase agreement and related agreements, or collectively the SPA, with Eos. Our resulting interest is accounted for under the equity method. On December 1, 2009, we purchased a membership interest in RRE VIP Borrower, LLC (an unconsolidated VIE that holds an interest in a real estate joint venture) from Resource America at book value. RREM, an affiliate of Resource America, acts as asset manager of the venture and receives a monthly asset management fee equal to 1% of the combined investment calculated as of the last calendar day of the month. For the three months ended March 31, 2014 and 2013, we paid RREM management fees of $5,000 and $8,000, respectively. We have a 100% interest valued at $1.5 million in the common shares (3% of the total equity) in two trusts, Resource Capital Trust I, or RCT I, and RCC Trust II, or RCT II. We record our investments in RCT I and RCT II's common shares of $774,000 each as investments in unconsolidated trusts using the cost method and records dividend income upon declaration by RCT I and RCT II. For the three months ended March 31, 2014 and 2013, we recognized $589,000 and $593,000, respectively, of interest expense with respect to the subordinated debentures it issued to RCT I and RCT II which included $49,000 and $47,000, respectively, of amortization of deferred debt issuance costs. (Back to



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Financing Receivables The following tables show the allowance for loan losses and recorded investments in loans for the years indicated (in thousands): Loans Commercial Real Residential Receivable-Related Estate Loans Bank Loans Mortgage Loans Party Total As of March 31, 2014 Allowance for Loan Losses: Allowance for losses at January 1, 2014 $ 10,416$ 3,391 $ - $ - $ 13,807 Provision for loan loss (4,572 ) 612 - - (3,960 ) Loans charged-off - (3,262 ) - - (3,262 ) Allowance for losses at March 31, 2014 $ 5,844$ 741 $ - $ - $ 6,585 Ending balance: Individually evaluated for impairment $ - $ 441 $ - $ - $ 441 Collectively evaluated for impairment $ 5,844$ 300 $ - $ - $ 6,144 Loans acquired with deteriorated credit quality $ - $ - $ - $ - $ -



Loans:

Ending balance: Individually evaluated for impairment $ 196,883$ 1,566 $ - $ 6,498 $ 204,947 Collectively evaluated for impairment $ 717,437$ 685,248$ 16,960 $ - $ 1,419,645 Loans acquired with deteriorated credit quality $ - $ 612 $ - $ - $ 612 As of December 31, 2013 Allowance for Loan Losses: Allowance for losses at January 1, 2013 $ 7,986$ 9,705 $ - $ - $ 17,691 Provision for loan loss 2,686 334 - - 3,020 Loans charged-off (256 ) (6,648 ) - - (6,904 ) Allowance for losses at December 31, 2013 $ 10,416$ 3,391 $ - $ - $ 13,807 Ending balance: Individually evaluated for impairment $ 4,572$ 2,621 $ - $ - $ 7,193 Collectively evaluated for impairment $ 5,844$ 770 $ - $ - $ 6,614 Loans acquired with deteriorated credit quality $ - $ - $ - $ - $ -



Loans:

Ending balance: Individually evaluated for impairment $ 194,403$ 3,554 $ - $ 6,966 $ 204,923 Collectively evaluated for impairment $ 631,908$ 558,469$ 16,915 $ - $ 1,207,292 Loans acquired with deteriorated credit quality $ - $ - $ - $ - $ - Credit quality indicators Bank Loans We use a risk grading matrix to assign grades to bank loans. Loans are graded at inception and updates to assigned grades are made continually as new information is received. Loans are graded on a scale of 1-5 with 1 representing our highest rating and 5 representing our lowest rating. We consider such things as performance of the underlying company, liquidity, collectability of interest, enterprise valuation, default probability, ratings from rating agencies, and industry dynamics. Credit risk profiles of bank loans were as follows (in thousands): Rating 1 Rating 2 Rating 3 Rating 4 Rating 5 Held for Sale Total As of March 31, 2014 Bank loans $ 618,896$ 47,742$ 17,340$ 998$ 2,178 $ 272 $ 687,426 As of December 31, 2013 Bank loans $ 488,004$ 42,476$ 18,806$ 2,333$ 3,554 $ 6,850 $ 562,023 (Back to Index) 82



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All of our bank loans were performing with the exception of one loan with an amortized cost of $1.6 million as of March 31, 2014. During the three months ended March 31, 2014, due to the consolidation of Moselle CLO, we acquired five loans with deteriorated credit quality with an amortized cost of $612,000. As of December 31, 2013, all of our bank loans were performing with the exception of three loans with an amortized cost of $3.6 million, one of which defaulted as of 2012, one of which defaulted as of March 31, 2013 and one of which defaulted as of June 30, 2013. Commercial Real Estate Loans We use a risk grading matrix to assign grades to commercial real estate loans. Loans are graded at inception and updates to assigned grades are made continually as new information is received. Loans are graded on a scale of 1-4 with 1 representing our highest rating and 4 representing our lowest rating. We designate loans that are sold after the period end at the lower of our fair market value or cost, net of any allowances and costs associated with the loan sales. In addition to the underlying performance of the loan collateral, we consider such things as the strength of underlying sponsorship, payment history, collectability of interest, structural credit enhancements, market trends and loan terms in grading our commercial real estate loans. Credit risk profiles of commercial real estate loans were as follows (in thousands): Rating 1 Rating 2 Rating 3 Rating 4 Held for Sale Total As of March 31 2014 Whole loans $ 768,243$ 32,500$ 33,110 $ - $ - $ 833,853 B notes 16,168 - - - - 16,168 Mezzanine loans 51,832 12,467 - - - 64,299 $ 836,243$ 44,967$ 33,110 $ - $ - $ 914,320 As of December 31, 2013 Whole loans $ 680,718$ 32,500$ 32,571 $ - $ - $ 745,789 B notes 16,205 - - - - 16,205 Mezzanine loans 51,862 12,455 - - - 64,317 $ 748,785$ 44,955$ 32,571 $ - $ - $ 826,311 All of our commercial real estate loans were performing as of March 31, 2014 and December 31, 2013. Residential Mortgage Loans Residential mortgage loans are reviewed periodically for collectability in light of historical experience, the nature and amount of the loan portfolio, adverse situations that may affect the borrower's ability to repay, estimated value of any underlying collateral, and prevailing underlying conditions. We also record loans that are sold after the period end as being held for sale at the lower of their fair market value or cost. (Back to



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Loan Portfolios Aging Analysis The following table shows the loan portfolio aging analysis for the years indicated by their cost basis (in thousands):

Total Loans > Greater than Total Past Total Loans 90 Days and 30-59 Days 60-89 Days 90 Days Due Current Receivable Accruing March 31, 2014 Whole loans $ - $ - $ - $ - $ 833,853$ 833,853 $ - B notes - - - - 16,168 16,168 - Mezzanine loans - - - - 64,299 64,299 - Bank loans - - 612 612 686,814 687,426 - Residential mortgage loans 258 - - 258 16,702 16,960 - Loans receivable- related party - - - - 6,498 6,498 - Total loans $ 258 $ - $ 612$ 870$ 1,624,334$ 1,625,204 $ - December 31, 2013 Whole loans $ - $ - $ - $ - $ 745,789$ 745,789 $ - B notes - - - - 16,205 16,205 - Mezzanine loans - - - - 64,317 64,317 - Bank loans - - 3,554 3,554 558,469 562,023 - Residential mortgage loans 234 91 268 593 16,322 16,915 - Loans receivable- related party - - - - 6,966 6,966 - Total loans $ 234 $ 91 $ 3,822$ 4,147$ 1,408,068$ 1,412,215 $ - (Back to Index) 84



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Impaired Loans The following tables show impaired loans as of the dates indicated (in thousands): Unpaid Average Recorded Principal Specific Investment in Interest Income Balance Balance Allowance Impaired Loans Recognized March 31, 2014 Loans without a specific valuation allowance: Whole loans $ 158,811$ 158,811 $ - $ 156,694$ 12,103 B notes $ - $ - $ - $ - $ - Mezzanine loans $ 38,072$ 38,072 $ - $ 38,072$ 1,916 Bank loans $ 612$ 612 $ - $ - $ -



Residential mortgage loans $ - $ - $ -

$ - $ - Loans receivable - related party $ 5,372$ 5,372 $ - $ - $ - Loans with a specific valuation allowance: Whole loans $ - $ - $ - $ - $ - B notes $ - $ - $ - $ - $ - Mezzanine loans $ - $ - $ - $ - $ - Bank loans $ 1,566$ 1,566$ (441 ) $ - $ -



Residential mortgage loans $ - $ - $ -

$ - $ - Loans receivable - related party $ - $ - $ - $ - $ - Total: Whole loans $ 158,811$ 158,811 $ - $ 156,694$ 12,103 B notes - - - - - Mezzanine loans 38,072 38,072 - 38,072 1,916 Bank loans 2,178 2,178 (441 ) - - Residential mortgage loans - - - - - Loans receivable - related party 5,372 5,372 - - - $ 204,433$ 204,433$ (441 )$ 194,766$ 14,019 December 31, 2013 Loans without a specific valuation allowance: Whole loans $ 130,759$ 130,759 $ - $ 123,495$ 8,439 B notes $ - $ - $ - $ - $ - Mezzanine loans $ 38,072$ 38,072 $ - $ 38,072$ 1,615 Bank loans $ - $ - $ - $ - $ -



Residential mortgage loans $ 315$ 268 $ -

$ - $ - Loans receivable - related party $ 5,733$ 5,733 $ - $ - $ - Loans with a specific valuation allowance: Whole loans $ 25,572$ 25,572$ (4,572 )$ 24,748$ 1,622 B notes $ - $ - $ - $ - $ - Mezzanine loans $ - $ - $ - $ - $ - Bank loans $ 3,554$ 3,554$ (2,621 ) $ - $ -



Residential mortgage loans $ - $ - $ -

$ - $ - Loans receivable - related party $ - $ - $ - $ - $ - Total: Whole loans $ 156,331$ 156,331$ (4,572 )$ 148,243$ 10,061 B notes - - - - - Mezzanine loans 38,072 38,072 - 38,072 1,615 Bank loans 3,554 3,554 (2,621 ) - - Residential mortgage loans 315 268 - - - Loans receivable - related party 5,733 5,733 - - - $ 204,005$ 203,958$ (7,193 )$ 186,315$ 11,676 (Back to Index) 85



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Troubled-Debt Restructurings We had no troubled debt restructurings during the three months ended March 31, 2014. The following table shows the troubled debt restructurings in our loan portfolio during the three months ended March 31, 2013 (in thousands):



Pre-Modification Post-Modification

Outstanding Recorded Outstanding Recorded Number of Loans Balance Balance Whole loans 6 $ 153,958 $ 136,672 B notes - - - Mezzanine loans 1 38,072 38,072 Bank loans - - - Residential mortgage loans - - - Loans receivable - related party 1 7,797 7,797 Total loans 8 $ 199,827 $ 182,541 As of March 31, 2014 and December 31, 2013, there were no troubled-debt restructurings that subsequently defaulted. Investments in Real Estate The table below summarizes our investments in real estate (in thousands, except number of properties): As of March 31, 2014 As of December 31, 2013 Number of Number of Book Value Properties Book Value Properties Multi-family property $ 22,109 1 $ 22,107 1 Office property - - 10,273 1 Subtotal 22,109 32,380 Less: Accumulated depreciation (2,138 ) (2,602 ) Investments in real estate $ 19,971$ 29,778 During the three months ended March 31, 2014, we made no acquisitions. We had two assets classified as property available-for-sale on the consolidated balance sheets at March 31, 2014. We confirmed the intent and ability to sell our office property in its present condition during the three months ended March 31, 2014. This property qualified for held for sale accounting treatment upon meeting all applicable criteria on or prior to March 31, 2014, at which time depreciation and amortization were ceased. As such, the assets associated with this property, with a carrying value of $9.6 million, are separately classified and included in property available-for-sale on our consolidated balance sheets at March 31, 2014. However, the anticipated sale of this property did not qualify for discontinued operations and, therefore, the operations for all periods presented continue to be classified within continuing operations on our consolidated statements of income. We expect the sale to close in the next 12 months. The gain from the sale of this property will be recorded in gain on sale of real estate on our consolidated statements of income. Pre-tax earnings recorded on this property for the three months ended March 31, 2014 and 2013 were losses of $16,000 and $77,000, respectively. Our hotel property, which was classified as available-for-sale at March 31, 2014 and December 31, 2013, sold during the second quarter of 2014. During the year ended December 31, 2013, we made no acquisitions and sold one of our multi-family properties for a gain of $16.6 million, which was recorded in gain on sale of real estate on the consolidated statements of income. We also confirmed the intent and ability to sell one of our other investments in real estate. This asset has been reclassified to property available-for-sale on the consolidated balance sheets at December 31, 2013. Restricted Cash At March 31, 2014, we had restricted cash of $116.0 million, which consisted of $113.4 million of restricted cash held by our eight securitizations, $500,000 held in a margin account related to our swap portfolio, $890,000 held in restricted accounts at our investment properties and $1.2 million held primarily in a pledged account at our subsidiary, PCA. At December 31, 2013, we had restricted cash of $63.3 million, which consisted of $61.4 million of restricted cash on our eight securitizations, $771,000 held in a margin account related to our swap portfolio, $847,000 held in restricted accounts at our investment properties and $318,000 held primarily in a pledged account at our subsidiary, PCA. The increase of $52.7 million is primarily related to new loan settlements in our CDOs, which were a result of the use of restricted cash available for reinvestment prior to the expiration of the reinvestment period. (Back to



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Interest Receivable At March 31, 2014, we had interest receivable of $10.5 million, which consisted of $10.5 million of interest on our securities and loans and $6,000 of interest earned on escrow and sweep accounts. At December 31, 2013, we had interest receivable of $9.0 million, which consisted of $9.0 million of interest on our securities and loans and $6,000 of interest earned on escrow and sweep accounts. The increase resulted from an increase in interest receivable on mezzanine loans of $940,000 and a increase in interest receivable on structured notes of $747,000, partially offset by a decrease in interest receivables on CMBS of $44,000, and a decrease of $183,000 in interest receivable on bank loans. Prepaid Expenses The following table summarizes our prepaid expenses as of March 31, 2014 and December 31, 2013 (in thousands): March 31, December 31, 2014 2013 Prepaid taxes $ 2,589$ 2,004 Prepaid insurance 892 281 Other prepaid expenses 674 586 Total $ 4,155$ 2,871 Prepaid expenses increased $1.3 million to $4.2 million as of March 31, 2014 from $2.9 million as of December 31, 2013. The increase resulted primarily from an increase of $611,000 in prepaid insurance and an increase of $585,000 in prepaid taxes as a result of when these expenses are due and paid. Other Assets The following table summarizes our other assets as of March 31, 2014 and December 31, 2013 (in thousands): March 31, December 31, 2014 2013 Management fees receivable $ 1,315 $ 970 Other receivables 1,034 858 Preferred stock proceeds receivable 572 207 Fixed assets - non-real estate 1,351 1,069 Investment in life settlement contracts 1,654 1,107 Other assets 7,533 6,515 Total $ 13,459$ 10,726 Other assets increased $2.7 million to $13.5 million as of March 31, 2014 from $10.7 million as of December 31, 2013. This increase resulted from an increase of $1.0 million in other assets from our acquisition of PCA and $547,000 in life settlement contracts due to our investment in LCF. (Back to



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Hedging Instruments Our hedges at March 31, 2014 and December 31, 2013 were fixed-for-floating interest rate swap agreements whereby we swapped the floating rate of interest on the liabilities we hedged for a fixed rate of interest. With interest rates at historically low levels and the forward curve projecting steadily increasing rates as well as the scheduled maturity of two hedges and continued amortization of our swaps during 2014, we expect that the fair value of our hedges will modestly improve in 2014. We intend to continue to seek such hedges for our floating rate debt in the future. Our hedges at March 31, 2014 were as follows (in thousands): Notional Strike Effective Maturity Fair Benchmark rate value rate date date value CRE Swaps Interest rate swap 1 month LIBOR $ 29,474 4.13% 01/10/08 05/25/16 $ (1,504 ) Interest rate swap 1 month LIBOR 1,681 5.72% 07/12/07 10/01/16 (161 ) Interest rate swap 1 month LIBOR 1,880 5.68% 07/13/07 03/12/17 (266 ) Interest rate swap 1 month LIBOR 79,158 5.58% 06/26/07 04/25/17 (7,174 ) Interest rate swap 1 month LIBOR 1,726 5.65% 07/05/07 07/15/17 (184 ) Interest rate swap 1 month LIBOR 3,850 5.65% 07/26/07 07/15/17 (411 ) Interest rate swap 1 month LIBOR 4,023 5.41% 08/10/07 07/25/17 (407 ) Total CRE Swaps 121,792 (10,107 ) CMBS Swaps Interest rate swap 1 month LIBOR 2,235 1.93% 02/14/2011 05/01/2015 (41 ) Interest rate swap 1 month LIBOR 388 1.30% 07/19/2011 03/18/2016 (6 ) Interest rate swap 1 month LIBOR 1,696 1.95% 04/11/2011 03/18/2016 (45 ) Total CMBS Swaps 4,319 (92 ) Total Interest Rate Swaps $ 126,111 5.11% $ (10,199 ) Repurchase and Credit Facilities Borrowings under the repurchase agreements were guaranteed by us or one of our subsidiaries. The following table sets forth certain information with respect to the our borrowings at March 31, 2014 and December 31, 2013 (dollars in thousands): March 31, 2014 December 31, 2013 Weighted Weighted Number of Average Number of Average Outstanding Value of Positions



Interest Outstanding Value of Positions Interest

Borrowings Collateral as Collateral Rate Borrowings Collateral as Collateral Rate CMBS Term Repurchase Facility Wells Fargo Bank (1) $ 36,819$ 44,386 48 1.37% $ 47,601$ 56,949 44 1.38% CRE Term Repurchase Facilities Wells Fargo Bank (2) 96,140 148,312 7 2.62% 30,003 48,186 3 2.67% Deutsche Bank AG (3) 3,586 5,583 1 3.03% (300 ) - - -% Short-Term Repurchase Agreements - CMBS Deutsche Bank Securities, LLC 9,205 13,246 4 1.40% - - - -% Residential Mortgage Financing Agreements New Century Bank 10,275 11,145 72 4.19% 11,916 13,089 74 4.17% ViewPoint Bank, NA 4,411 5,584 25 4.46% 2,711 3,398 17 4.58% Totals $ 160,436$ 228,256$ 91,931$ 121,622



(1) The Wells Fargo CMBS term facility borrowing includes zero and $12,000, of

deferred debt issuance costs as of March 31, 2014 and December 31, 2013,

respectively.

(2) The Wells Fargo CRE term repurchase facility borrowing includes $577,000 and

$732,000 of deferred debt issuance costs as of March 31, 2014 and December 31, 2013, respectively. (Back to Index) 88



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(3) The Deutsche Bank term repurchase facility includes $166,000 and $300,000 of

deferred debt issuance costs as of March 31, 2014 and December 31, 2013,

respectively.

The assets in the following table are accounted for as linked transactions. These linked repurchase agreements are not included in borrowings on our consolidated balance sheets. March 31, 2014 December 31, 2013 Number Number Value of of Positions Weighted Average Value of of Positions Weighted Average Borrowings Collateral as Collateral Interest Rate Borrowings Collateral as Collateral



Interest Rate

Under Linked Under Linked Under Linked of Linked Under Linked Under Linked Under Linked of Linked Transactions (1) Transactions Transactions Transactions Transactions (1) Transactions Transactions

Transactions CMBS Term Repurchase Facility Wells Fargo Bank $ 6,156 $ 7,994 7 1.64% $ 6,506 $ 8,345 7 1.65% CRE Term Repurchase Facilities Wells Fargo Bank - - - -% - - - -% Short-Term Repurchase Agreements - CMBS JP Morgan Securities, LLC 12,006 18,342 4 0.83% 17,020 24,814 4 0.99% Wells Fargo Securities, LLC 19,621 27,982 8 1.19% 21,969 30,803 9 1.19% Deutsche Bank Securities, LLC 33,883 51,840 14 1.41% 18,599 29,861 9 1.43% Totals $ 71,666 $ 106,158 $ 64,094 $ 93,823 CMBS - Term Repurchase Facility In February 2011, our wholly-owned subsidiaries, RCC Real Estate and RCC Commercial, entered into a master repurchase agreements with Wells Fargo to be used as a warehouse facility to finance the purchase of highly-rated CMBS. The maximum amount of the facility is $100.0 million with a 0.25% structuring fee and an initial two year term that has been extended through January 31, 2015 and an interest rate equal to one-month LIBOR plus 1.00%. We guaranteed RCC Real Estate's and RCC Commercial's performance of its obligations under the repurchase agreement. CRE - Term Repurchase Facilities On February 27, 2012, RCC Real Estate entered into a master repurchase and securities agreement with Wells Fargo to finance the origination of commercial real estate loans. The facility has a maximum amount of $250.0 million with a maturity of February 27, 2015. We also have two one-year extension options at our discretion. We paid an origination fee of 37.5 basis points (0.375%). We guaranteed RCC Real Estate's performance of its obligations under the repurchase agreement. On July 19, 2013, RCC Real Estate's wholly-owned subsidiary, RCC Real Estate SPE 5 LLC, entered into a master repurchase and securities agreement with Deutsche Bank AG, Cayman Islands Branch to finance the origination of commercial real estate loans. The facility has a maximum amount of $200.0 million and an initial 12 month term, ending on July 19, 2014, with two one-year extensions at our option and subject further to our right to repurchase the assets held in the facility earlier. We paid a structuring fee of 0.25% of the maximum facility amount, as well as other closing costs. We guaranteed RCC Real Estate SPE 5's performance of its obligations under the facility. There were outstanding borrowings of $9.2 million and zero under this facility as of March 31, 2014 and December 31, 2013, respectively. The facility contains provisions allowing RCC Real Estate SPE 5, if certain credit events have occurred with respect to one or more assets financed on the facility, to either repay a portion of the advance on such asset(s) or repay such advance in full (by repurchase of such asset(s)). Depending on the nature of the credit event, such repayment may be required notwithstanding the availability of interest and principal payments from assets financed on the facility, or may only be required to the extent of the availability of such payments. (Back to Index) 89



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Short-Term Repurchase Agreements - CMBS On March 8, 2005, RCC Real Estate entered into a master repurchase and securities agreement with Deutsche Bank Securities Inc. to finance the purchase of CMBS and the origination commercial real estate loans. There is no stated maximum amount of the facility and the repurchase agreement has an initial 12 month term with monthly resets of interest rates. We guaranteed RCC Real Estate's performance of its obligations under the repurchase agreement. On February 14, 2012, RCC Real Estate entered into a master repurchase and securities agreement with Wells Fargo Securities, LLC to finance the purchase of CMBS. There is no stated maximum amount of the facility and the repurchase agreement has no stated maturity date with monthly resets of interest rates. We guaranteed RCC Real Estate's performance of its obligations under the repurchase agreement. On November 6, 2012, RCC Real Estate entered into a master repurchase and securities agreement with JP Morgan Securities LLC to finance the purchase of CMBS. There is no stated maximum amount of the facility and the repurchase agreement has no stated maturity. Interest rates reset monthly. Residential Mortgage Financing Agreements On February 17, 2011, PCA entered into a master repurchase agreement with New Century Bank d/b/a Customer's Bank to finance the acquisition of residential mortgage loans. The facility has a maximum amount of $30.0 million with a termination date of July 2, 2014. At March 31, 2014, PCA had borrowed $10.3 million under this facility. The facility bears interest at one month LIBOR plus 3.50%. PCA has a loan participation agreement with ViewPoint Bank, NA to finance the acquisition of residential mortgage loans. The facility has a maximum amount of $15.0 million and a termination date of December 30, 2014, which was amended from the original terms over the course of five amendments. At March 31, 2014, PCA had borrowed $4.4 million. The facility bears interest at one month LIBOR with a 4.00% floor. On August 1, 2011, we, through RCC Real Estate, purchased Whispertree Apartments, a 504 unit multi-family property located in Houston, Texas, for $18.1 million. The property was 95% occupied at acquisition. In conjunction with the purchase of the property, we entered into a seven year mortgage of $13.6 million with a lender. The mortgage bore interest at a rate of one-month LIBOR plus 3.95%. At December 31, 2013 there were no outstanding borrowings under this agreement as the property was sold and the underlying mortgage was repaid in 2013. Securitizations As of March 31, 2014, we had executed seven and retained equity in six securitizations as follows: In February 2014, we acquired the rights to manage the assets held by Moselle CLO S.A. We purchased 100% of the Class 1 Subordinated notes and 67.9% of the Class 2 Subordinated notes. All of the notes issued mature on January 6, 2020. We have the right to call the notes anytime after January 6, 2010 until maturity. The weighted average interest rate on all notes was 0.95% at March 31, 2014. The reinvestment period for Moselle CLO S.A. ended in January 2012.



In December 2013, we closed RCC CRE Notes 2013, a $307.8 million CRE

securitization transaction that provided financing for transitional CRE

loans. The investments held by RCC CRE Notes 2013 collateralized $260.8 million of senior notes issued by the securitization, of which RCC Real Estate, a subsidiary of ours, purchased 100% of the Class D senior notes, Class E senior notes, and Class F senior notes for $30.0 million



at closing. In addition, RCC CRE Notes 2013 Investor, LLC, a subsidiary

of RCC Real Estate, purchased a $16.9 million equity interest representing 100% of the outstanding preference shares. At March 31, 2014, the notes issued to outside investors, had a weighted average borrowing rate of 2.02%. There is no reinvestment period for RCC CRE Notes 2013, which will result in the sequential pay down of notes as



underlying collateral matures and pays down. As of March 31, 2014, none

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In June 2007, we closed RREF CDO 2007-1, a $500.0 million CDO

transaction that provided financing for commercial real estate loans.

The investments held by RREF CDO 2007-1 collateralized $458.8 million

of senior notes issued by the CDO vehicle, of which RCC Real Estate, a

subsidiary of ours, purchased 100% of the class H senior notes, class K

senior notes, class L senior notes and class M senior notes for $68.0

million at closing, $5.0 million of the Class J senior notes in

February 2008, an additional $2.5 million of the Class J senior notes

in November 2009, and $11.9 million of the Class E senior notes, $11.9

million of the Class F senior notes and $7.3 million of the Class G

senior notes in December 2009, $250,000 of the Class J senior notes in

January 2010, $5.0 million of the Class A-2 senior notes in August

2011, $5.0 million of the Class A-2 senior notes in September 2011 and

$50.0 million of the A1-R notes in June 2012. In addition, RREF 2007-1 CDO Investor, LLC, a subsidiary of RCC Real Estate, purchased a $41.3



million equity interest representing 100% of the outstanding preference

shares. At March 31, 2014, the notes issued to outside investors, net of repurchased notes, had a weighted average borrowing rate of 0.91%. The reinvestment period expired in June 2012 and the CDO has begun paying down the senior notes as principal is collected. As of March 31, 2014, $93.6 million of Class A-1 notes have been paid down and $50.0 million of the Class A-1R notes have been paid down. In May 2007, we closed Apidos Cinco CDO, a $350.0 million CDO



transaction that provided financing for bank loans. The investments

held by Apidos Cinco CDO collateralized $322.0 million of senior notes issued by the CDO vehicle. RCC Commercial II, a subsidiary of ours, holds a $28.0 million equity interest representing 100% of the



outstanding preference shares. At March 31, 2014, the notes issued to

outside investors had a weighted average borrowing rate of 0.74%.

In August 2006, we closed RREF CDO 2006-1, a $345.0 million CDO transaction that provided financing for commercial real estate loans. The investments held by RREF CDO 2006-1 collateralized $308.7 million of senior notes issued by the CDO vehicle. RCC Real Estate purchased 100% of the class J senior notes and class K senior notes for $43.1 million at closing and $7.5 million of the Class F senior notes in September 2009, $3.5 million of the Class E senior notes and $4.0 million of the Class F senior notes in September 2009, $20.0 million of the Class A-1 senior notes in February 2010, $4.3 million of the Class A-1 senior notes in May 2012 and $4.0 million of the Class C senior notes in May 2012. In addition, RREF 2006-1 CDO Investor, LLC, a subsidiary of RCC Real Estate, purchased a $36.3 million equity interest representing 100% of the outstanding preference shares. At March 31, 2014, the notes issued to outside investors, net of repurchased notes, had a weighted average borrowing rate of 1.86%. The reinvestment period expired in September 2011 and the CDO has begun paying down the senior notes as principal is collected. Through March 31, 2014, $110.7 million of the Class A-1 senior notes had been paid down. In May 2006, we closed Apidos CDO III, a $285.5 million CDO transaction that provided financing for bank loans. The investments held by Apidos CDO III collateralized $262.5 million of senior notes issued by the CDO vehicle. RCC Commercial purchased a $23.0 million equity interest representing 100% of the outstanding preference shares. At March 31, 2014, the notes issued to outside investors had a weighted average borrowing rate of 0.94%. The reinvestment period expired in June 2012 and the CDO has begun paying down the senior notes as principal is collected. Through March 31, 2014, 149.9 million of the Class A-1 senior notes had been paid down.



In August 2005, we closed Apidos CDO I, $350.0 million CDO transaction

that provided financing for bank loans. The investments held by Apidos CDO I collateralize $321.5 million of senior notes issued by the CDO vehicle. RCC Commercial originally purchased a $28.5 million equity interest representing 100% of the outstanding preference shares and during the three months ended June 30, 2012 sold 10% or $2.85 million to our subsidiary RSO Equity Co, LLC in connection with the sale of CVC Credit Partners, formerly Apidos Capital Management, by the



Manager. Our subsidiary, RCC Commercial II, repurchased $2.0 million of

the Class B notes in May 2012. At March 31, 2014, the notes issued to

outside investors had a weighted average borrowing rate of 1.66%. The reinvestment period expired in July 2011 and the CDO has begun paying down the senior notes as principal is collected. Through March 31, 2014, $245.7 million million of the Class A-1 senior notes had been paid down. 6.0% Convertible Senior Notes On October 21, 2013, we issued and sold in a public offering $115.0 million aggregate in principal amount of our 6.0% Convertible Senior Notes due 2018. After deducting the underwriting discount and the estimated offering costs, we received approximately $111.1 million of net proceeds. The discount of $4.9 million on the 6.0% Convertible Senior notes reflects the difference between the stated value of the debt and the fair value of the notes as if they were issued without a conversion feature and at a higher rate of interest that we estimated would have been applicable without the conversion feature. The discount will be amortized on a straight-line basis as additional interest expense through maturity on December 1, 2018. Interest on the 6.0% Convertible Senior Notes is paid semi-annually. Prior to December 1, 2018, the 6.0% Convertible Senior Notes are not redeemable at our option, except to preserve our status as a REIT. On or after December 1, 2018, we may redeem all or a portion of the 6.0% Convertible Senior Notes at a redemption price equal to the principal amount plus accrued and unpaid interest. (Back to Index) 91



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The 6.0% Convertible Senior Notes are convertible at the option of the holder at a current conversion rate of 150.1502 common shares per $1,000 principal amount of 6.0% Convertible Senior Notes (equivalent to a current conversion price of $6.66 per common share). Upon conversion of 6.0% Convertible Senior Notes by a holder, the holder will receive cash, our common shares or a combination of cash and our common shares, at our election. Trust Preferred Securities In May 2006 and September 2006, we formed RCT I and RCT II, respectively, for the sole purpose of issuing and selling capital securities representing preferred beneficial interests. Although we own $774,000 of the common securities of RCT I and RCT II, RCT I and RCT II are not consolidated into our consolidated financial statements because the we do not deem it to be the primary beneficiary of these entities. In connection with the issuance and sale of the capital securities, we issued junior subordinated debentures to RCT I and RCT II of $25.8 million each, representing our maximum exposure to loss. The debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II are included in borrowings and are being amortized into interest expense in the consolidated statements of income using the effective yield method over a ten year period. The debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II at March 31, 2014 were $236,000 and $258,000, respectively. The debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II at December 31, 2013, were $261,000 and $282,000, respectively. The rates for RCT I and RCT II, at March 31, 2014, were 4.18% and 4.19%, respectively. The rates for RCT I and RCT II, at December 31, 2013, were 4.20% and 4.19%, respectively. The rights of holders of common securities of RCT I and RCT II are subordinate to the rights of the holders of capital securities only in the event of a default; otherwise, the common securities' economic and voting rights are pari passu with the capital securities. The capital and common securities of RCT I and RCT II are subject to mandatory redemption upon the maturity or call of the junior subordinated debentures held by each. Unless earlier dissolved, RCT I will dissolve on May 25, 2041 and RCT II will dissolve on September 29, 2041. The junior subordinated debentures are the sole assets of RCT I and RCT II, mature on September 30, 2036 and October 30, 2036, respectively, and may be called at par by us at any time after September 30, 2011 and October 30, 2011, respectively. We record our investments in RCT I and RCT II's common securities of $774,000 each as investments in unconsolidated trusts and records dividend income upon declaration by RCT I and RCT II. Stockholders' Equity Stockholders' equity at March 31, 2014 was $780.2 million and gave effect to $10.7 million of unrealized losses on our cash flow hedges and $3.4 million of unrealized losses on our available-for-sale portfolio, shown as a component of accumulated other comprehensive loss. Stockholders' equity at December 31, 2013 was $773.9 million and gave the effect to $11.2 million of unrealized losses on cash flow hedges and $3.1 million of unrealized losses on our available-for-sale portfolio, shown as a component of accumulated other comprehensive income. The increase in stockholder's equity during the three months ended March 31, 2014 was principally due to the proceeds from the issuance by our at-the market offering of Series A and Series B 8.25% Preferred Stock as well as the issuance of our 6% Convertible Senior Notes. (Back to



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Funds from Operations We evaluate our performance based on several performance measures, including funds from operations, or FFO, and Adjusted Funds from Operations, or AFFO, in addition to net income. Historically, we have calculated distributions to our shareholders based on our estimate of REIT taxable income. Because of our investments in CRE and the resulting significant tax depreciation charges, we now compute and present FFO, and use AFFO, as our primary operating measures to determine distributions to shareholders, in addition to net income and REIT taxable income. We expect that our FFO will be greater than our net income under generally accepted accounting principles, or GAAP, primarily because real estate related depreciation and amortization and other non-cash charges are not deducted in the calculation of these measures. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts as net income (computed in accordance with GAAP), excluding gains or losses on the sale of depreciable real estate, the cumulative effect of changes in accounting principles, real estate-related depreciation and amortization, and after adjustments for unconsolidated/uncombined partnerships and joint ventures. AFFO is a computation made by analysts and investors to measure a real estate company's cash flow generated by operations. We calculate AFFO by adding or subtracting from FFO the non-cash impacts of the following: non-cash impairment losses resulting from fair value adjustments on financial instruments, provision for loan losses, equity investment gains and losses, straight-line rental effects, share based compensation, amortization of various deferred items and intangible assets, gains on sales of property that are wholly owned or through a joint venture in addition to the cash impact of capital expenditures that are related to our real estate owned. In addition, we calculate AFFO by adding and subtracting from FFO the cash impacts of the following: extinguishment of debt and sales of property. Management believes that FFO and AFFO are appropriate measures of our operating performance in that they are frequently used by analysts, investors and other parties in the evaluation of REITs. Management uses FFO and AFFO as measures of our operating performance, and believes they are also useful to investors, because they facilitate an understanding of our operating performance after adjustment for certain non-cash items, such as real estate depreciation, share-based compensation and various other items required by GAAP, and capital expenditures, that may not necessarily be indicative of current operating performance and that may not accurately compare our operating performance between periods. While our calculations of AFFO may differ from the methodology used for calculating AFFO by other REITs and our AFFO may not be comparable to AFFO reported by other REITs, we also believe that FFO and AFFO may provide us and our investors with an additional useful measure to compare our performance with some other REITs. Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities determined in accordance with GAAP. Furthermore FFO and AFFO do not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor AFFO should be considered as an alternative to GAAP net income as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity. (Back to Index) 93



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The following table reconciles GAAP net income to FFO and AFFO for the periods presented (in thousands): Three Months Ended March 31, 2014 2013 Net income allocable to common shares - GAAP $ 15,116 $



11,526

Adjustments:

Real estate depreciation and amortization 292 673 (Gains) losses on sale of property (1) (866 ) 22 Gains on sale of preferred equity (984 ) - FFO 13,558 12,221 Adjustments:



Non-cash items:

Adjust for impact of imputed interest on VIE accounting -



(1,090 )

(Benefit) provision for loan losses (125 )



194

Amortization of deferred costs (non real estate) and intangible assets 2,223 1,866 Equity investment losses 1,282 336 Share-based compensation 1,667 3,591 Impairment losses - 21



Unrealized gain on CMBS marks - linked transactions (1,763 )

-

Unrealized gain on trading portfolio 442



-

Straight line rental adjustments 2



2

Gain on the extinguishment of debt 69 - PCA expenses 300 - REIT tax planning adjustments 957 726 Cash items: Gains (losses) on sale of property (1) 866



(22 )

Gains on sale of preferred equity 984



-

Gain on the extinguishment of debt 4,532 3,585 Capital expenditures (13 ) (418 ) AFFO $ 24,981$ 21,012 Weighted average shares - diluted 126,668 105,327 AFFO per share - diluted $ 0.20$ 0.20



(1) Amount represents gains/losses on sales of joint venture real estate

interests that were recorded by us on an equity basis. (Back to Index) 94



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Liquidity and Capital Resources For the three months ended March 31, 2014, our principal sources of liquidity were proceeds from the sale of our 8.25% Series B Preferred Stock and 8.50% Series A Preferred Stock through our ATM program, funds available in existing CDO financings of $72.9 million and cash flow from operations. For the three months ended March 31, 2014, we received $15.7 million of preferred stock sales proceeds which are included in our $166.7 million of unrestricted cash at March 31, 2014. In addition, we had capital available through a CMBS term facility to help finance the purchase of CMBS securities of $57.0 million and two CRE term facilities for the origination of commercial real estate loans of $153.4 million and $196.3 million. As of December 31, 2013, our principal sources of current liquidity were proceeds from the sale of common stock through our DRIP, and proceeds from sales of our 8.5% Series A Preferred Stock and 8.25% Series B Preferred Stock through our ATM program, funds available in existing CDO financings of $78.5 million and cash flow from operations. For the year ended December 31, 2013, we received $73.0 million of DRIP proceeds and $43.1 million of preferred stock sales proceeds, the remainder of which are included in our $85.3 million of unrestricted cash at December 31, 2013. In addition, we had capital available through two CRE term facilities to help finance the purchase of CMBS securities and the origination of commercial real estate loans of $45.3 million and $90.9 million, respectively. In October 2013, we closed and issued $115.0 million aggregate principal amount of our 6.0% Convertible Senior Notes due 2018. We received net proceeds of approximately $111.1 million after payment of underwriting discounts and commissions and other offering expenses, all of which is included in our $166.7 million of unrestricted cash. Our on-going liquidity needs consist principally of funds to make investments, make debt repurchases, make distributions to our stockholders and pay our operating expenses, including our management fees. Our ability to meet our on-going liquidity needs will be subject to our ability to generate cash from operations and, with respect to our investments, our ability to maintain and/or obtain additional debt financing and equity capital together with the funds referred to above. Historically, we have financed a substantial portion of our portfolio investments through CDOs that essentially match the maturity and repricing dates of these financing vehicles with the maturities and repricing dates of our investments. We derive substantial operating cash from our equity investments in our CDOs which, if the CDOs fail to meet certain tests, will cease. Through March 31, 2014, we have not experienced difficulty in maintaining our existing CDO financing and have passed all of the critical tests required by these financings. However, we cannot assure you that we will continue to meet all such critical tests in the future. If we are unable to renew, replace or expand our sources of existing financing on substantially similar terms, we may be unable to implement our investment strategies successfully and may be required to liquidate portfolio investments. If required, a sale of portfolio investments could be at prices lower than the carrying value of such assets, which would result in losses and reduced income. The following table sets forth the distributions made and coverage test summaries for each of our securitizations for the periods presented (in thousands): Annualized Interest Cash Distributions Coverage Cushion Overcollateralization Cushion Three Months Ended March Year Ended Three Months Ended Three Months Ended 31, December 31, March 31, March 31, As of Initial Name 2014 (1) 2013 (1) 2014 (2) (3) 2014 (4) Measurement Date Apidos CDO I (5) $ 532 $ 4,615 $ 1,512 $ 11,272 $ 17,136 Apidos CDO III (6) $ 1,170 $ 6,495 $ 3,225 $ 8,853 $ 11,269 Apidos Cinco CDO (7) $ 2,764 $ 12,058 $ 5,451 $ 19,639 $ 17,774 RREF 2006-1 (8) $ 1,770 $ 36,828 $ 5,272 $ 67,336 $ 24,941 RREF 2007-1 (9) $ 2,433 $ 10,880 $ 9,022 $ 39,703 $ 26,032 RCC CRE Notes 2013 (10) $ 2,398 N/A N/A N/A N/A * The above table does not include new CLO investments made in the quarter ended March 31, 2014, as cash distributions were received subsequent to period end. In addition, the above table does not include Apidos CLO VIII or Whitney CLO I, as these CLOs were previously called and were substantially liquidated as of March 31, 2014.



(1) Distributions on retained equity interests in CDOs (comprised of note

investments and preference share ownership) and principal paydowns on notes

owned; RREF CDO 2006-1 includes $231,000 and $28.1 million of paydowns

during the three months ended March 31, 2014 and the year ended December 31,

2013, respectively. (2) Interest coverage includes annualized amounts based on the most recent trustee statements.



(3) Interest coverage cushion represents the amount by which annualized interest

income expected exceeds the annualized amount payable on all classes of CDO

notes senior to our preference shares. (Back to Index) 95



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(4) Overcollateralization cushion represents the amount by which the value of

the collateral held by the CDO issuer exceeds the maximum amount required.

(5) Apidos CDO I's reinvestment period expired in July 2011.

(6) Apidos CDO III's reinvestment period expired in June 2012.

(7) Apidos Cinco CDO's reinvestment period ends in May 2014.

(8) RREF CDO 2006-1's reinvestment period expired in September 2011.

(9) RREF CDO 2007-1's reinvestment period expired in June 2012.

(10) RCC CRE Notes 2013 closed on December 31, 2013; the first distribution was

in January 2014. There is no reinvestment period for the securitization.

Additionally, the indenture contains no coverage tests.

At April 30, 2014, after paying our first quarter 2014 common and preferred stock dividends, our liquidity is derived from three primary sources: unrestricted cash and cash equivalents of $156.1 million, restricted

cash of $500,000 in margin call accounts and $2.1 million in the form of real estate escrows, reserves and deposits;



capital available for reinvestment in our nine securitizations of $40.3

million, of which $4.9 million is designated to finance future funding

commitments on CRE loans; and

loan principal repayments that will pay down outstanding CLO notes by

$9.3 million and interest collections of $4.7 million in interest.

In addition, we have funds available through three term financing facilities to finance the origination of CRE loans of $130.6 million and $194.3 million, respectively, and to finance the purchase of CMBS of $61.1 million. Our leverage ratio may vary as a result of the various funding strategies we use. As of March 31, 2014 and December 31, 2013, our leverage ratio was 1.7 times and 1.7 times, respectively. While we had repayments of CDO notes and received equity offering proceeds through our ATM program, which would reduce our leverage ratios, these were offset by borrowings under our Wells Fargo CRE, Deutsche Bank CRE repurchase facilities and Deutsche Bank CMBS short-term repurchase agreements. Distributions In order to maintain our qualification as a REIT and to avoid corporate-level income tax on the income we distribute to our stockholders, we intend to make regular quarterly distributions of all or substantially all of our net taxable income to holders of our common stock. This requirement can impact our liquidity and capital resources. The following tables presents dividends declared (on a per share basis) for the three months ended March 31, 2014. Common Stock Total Dividend Date Paid Dividend Paid Per Share (in thousands) 2014 March 31 April 28 $ 25,663$ 0.20 Preferred Stock Series A Series B Total Dividend Total Dividend Date Paid Dividend Paid Per Share Date Paid Dividend Paid Per Share (in thousands) (in thousands) 2014 2014 March 31 April 30 $ 463 $ 0.53125 March 31 April 30 $ 2,057 $ 0.515625 (Back to Index) 96



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Contractual Obligations and Commitments

Contractual Commitments (dollars in thousands) Payments due by Period Less than More than Total 1 year 1 - 3 years 3 - 5 years 5 years CDOs (1) $ 926,602 $ - $ - $ - $ 926,602 CRE Securitization 256,866 - - - 256,866

Repurchase Agreements (2) 160,436 160,436 - - - Unsecured junior subordinated debentures (3) 51,054 - - - 51,054 6.0% Convertible Senior Notes (4) 107,130 - - - 107,130 Joint ventures (5) 176 - 176 - - Unfunded commitments on CRE loans (6) 23,072 - 23,072 - - Revolver draws available on Middle Market loans (7) 14,700 - 14,700 - Base management fees (8) 11,915 11,915 - - - Total $ 1,551,951$ 172,351$ 37,948

$ - $ 1,341,652



(1) Contractual commitments do not include $865,000, $3.5 million, $1.4 million,

$5.5 million, and $8.3 million of interest expense payable through the stated

maturity dates of July 2014, May 2015, May 2015, August 2016, and June 2017,

respectively, on Apidos CDO I, Apidos Cinco CDO, Apidos CDO III, RREF 2006-1,

and RREF 2007-1. The maturity date represents the time at which the CDO

assets can be sold, resulting in repayment of the CDO notes.

(2) Contractual commitments include $119,000 of interest expense payable through

the maturity date of January 20, 2014 on our repurchase agreements.

(3) Contractual commitments do not include $45.3 million and $46.2 million of

estimated interest expense payable through the maturity dates of June 2036

and October 2036, respectively, on our trust preferred securities.

(4) Contractual commitments do not include $32.7 million of interest expense

payable through the maturity date of December 1, 2018 on our 6.0% convertible

senior notes.

(5) The joint venture agreement requires us to contribute 3% to 5% (depending on

the terms of the agreement pursuant to which the particular asset is being

acquired) of the total funding required for each asset acquisition as needed, up to a specified amount. We expect that all remaining assets will be sold within two years.



(6) Unfunded commitments on CRE loans generally fall into two categories:

(1) pre-approved capital improvement projects; and (2) new or additional

construction costs subject, in each case, to the borrower meeting specified

criteria. Upon completion of the improvements or construction, we would

receive additional loan interest income on the advanced amount.

(7) The financing or credit agreements on our originated middle market loans, in

some cases, allow for subsequent advances. All advances require compliance

with the contractual criteria and terms as specifically described in the

individual financing or credit agreement, and therefore are subject to the

approval of the appropriate portfolio manager. Loans earn income, typically

in the form of interest and fees, as specifically outlined in the

documentation of each loan.

(8) Calculated only for the next 12 months based on our current equity, as

defined in our management agreement. Our management agreement also provides

for an incentive fee arrangement that is based on operating performance. Because the incentive fee is not a fixed and determinable amount, it is not included in this table. At March 31, 2014, we had 10 interest rate swap contracts with a notional value of $126.1 million. These contracts are fixed-for-floating interest rate swap agreements under which we contracted to pay a fixed rate of interest for the term of the hedge and will receive a floating rate of interest. As of March 31, 2014, the average fixed pay rate of our interest rate hedges was 5.11% and our receive rate was one-month LIBOR, or 0.15%. (Back to



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Off-Balance Sheet Arrangements General As of March 31, 2014, we did not maintain any relationships with unconsolidated entities or financial partnerships that were established for the purpose of facilitating off-balance sheet arrangements or contractually narrow or limited purposes, although we do have interests in unconsolidated entities not established for those purposes. Except as set forth below, as of March 31, 2014, we had not guaranteed obligations of any such unconsolidated entities or entered into any commitment or letter of intent to provide additional funding to any such entities. Unfunded Loan Commitments In the ordinary course of business, we make commitments to borrowers whose loans are in our commercial real estate loan portfolio to provide additional loan funding in the future. These commitments generally fall into two categories: (1) pre-approved capital improvement projects; and (2) new or additional construction costs. Disbursement of funds pursuant to these commitments is subject to the borrower meeting pre-specified criteria. Upon disbursement of funds, we receive loan interest income on any such advanced funds. As of March 31, 2014, we had 19 loans with unfunded commitments totaling $23.1 million, of which $4.8 million will be funded by restricted cash in RCC CRE Notes 2013 and $250,000 will be funded by restricted cash in RREF CDO 2007-1; we intend to fund the remaining $18.0 million through cash flow from normal operating activities and principal repayments on other loans in our portfolio. These commitments are subject to the same underwriting requirements and ongoing portfolio maintenance as are the on-balance sheet financial instruments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.


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