ACRES Commercial Realty Corp.

Jonathan Cohen - President and Chief Executive Officer Purvi Kamdar - Vice President, Investor Relations David Bloom - Senior Vice President, Real Estate David Bryant - Chief Financial Officer

Steve Delaney - JMP Securities Ryan Tomasello - KBW

Thank you for joining the Resource Capital Corp earnings conference call for the third quarter ended September 30, 2013. I am Jonathan Cohen, President and CEO of Resource Capital Corp.

Before I begin, I would like to ask Purvi Kamdar, our Vice President of Investor Relations, to read the Safe Harbor Statement.

Thank you, Jonathan. When used in this conference call the words “believes,” “anticipates,” “expects,” and similar expressions are intended to identify forward-looking statements.

Although the company believes that these forward-looking statements are based on reasonable assumptions such statements are subject to certain risks and uncertainties, which could cause actual results to differ materially from these contained in the forward-looking statements. These risks and uncertainties are discussed in the company’s reports filed with the SEC including its reports on Forms 8-K, 10-Q, and 10-K, and in particular Item 1A on the Form 10-K report under the title “Risk Factors.”

Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The company undertakes no obligation to update any of these forward-looking statements.

And with that, I will turn it back to Jonathan.

Thank you, Purvi. First, a few highlights.

Adjusted funds from operations, AFFO, were $0.24 for the three months ended September 30, 2013. Book value to common shareholders was $5.55 per share at September 30, 2013.

We paid a $0.20 per common share dividend for the three months ended September 30, 2013. We originated almost $250 million of new commercial real estate loans during the nine months ended September 30, 2013.

With those highlights out of the way, I will now intrigue my colleagues. With me today are David Bloom, Senior Vice President in charge of Real Estate; David Bryant, our Chief Financial Officer; and Purvi Kamdar, our Vice President of Investor Relations.

With the end of 2013 insight, we are pleased with the return on one capital achieved during 2013 with an annualized return of approximately 15% net of expenses as determined by AFFO divided by book value. As we model our business into 2014, we are not – we are now happy to guide our shareholders and we currently expect to pay a $0.20 per quarter dividend throughout 2014 or $0.80 for the year.

These projections are based on our expectations of robust originations at our commercial real estate lending business and good capital allocation and returns from our other businesses. This guidance comes even in the face of the declining – severely declining might I add, revenue and profit from our syndicated loan business with the runoff of legacy CLOs.

This runoff has affected the second and third quarters and will affect the fourth quarter of 2013 as well. Two of our legacy CLOs Apidos I and Apidos III together have seen a decline of $143.3 million in investment assets combined since year end 2012.

This has reduced cash flow by $3.2 million versus the comparable nine months in 2012. Our Whitney CLO was called in early September 2013 and was substantially liquidated during Q3 and this sell-off will remove cash earnings of $1.3 million received over the nine-month period in 2013.

Lastly, Apidos VIII was called and liquidated in October 2013 and had net cash flow of $4 million during the first nine months of 2013. This business has been an excellent investment for RSO and its shareholders.

Our overall returns have stellar 15% to 25% in excess of that on some of the CLOs. And as we transitioned our corporate lending to a middle-market lending emphasis, we continue to seek opportunities to generate solid returns on quality credit-related products to supplement our commercial real estate lending business.

However, we expect to move past this negative trend during the first quarter of 2014 with the ramp up of our commercial finance business and its new middle-market loan focus as well as the ramp in commercial real estate business that I am about to discuss. It has been an exciting quarter for the Resource Capital Corp and we are actively driving our business forward.

We are now originating commercial real estate loans at approximately double the pace of last year. We expected to continue to grow.

Additionally, as repayments of existing loans slowdown, we can build up a larger portfolio faster. Although we always continue to maintain our most critical focus on credit quality, we have escalated our loan originations and are seeing a robust pipeline with lots of opportunity for Resource Capital Corp.

Also as previously discussed, Resource Capital is contemplating a non-recourse securitized term financing for a portion of our CRE commercial real estate whole loan portfolio and we anticipated completing this in the fourth quarter of 2013. We expect to take advantage of the ability to originate high-quality loans and hold them on our balance sheet a very competitive financing cost.

In September 2013, we sold a 504 unit multifamily property located in Texas for $37 million. We have purchased this in August 2011 for $18 million and invested another approximately $4 million in capital expenditures to improve the building.

This sale resulted in IRR of 75.6% for Resource Capital Corp. We are fortunate to have more equity investments on our books and we look forward to harvesting them in the future.

In October, we closed on a total of $150 million of senior convertible notes with a 6% coupon. This capital will allow us to fund our commercial real estate business pipeline rather inexpensively in our opinion.

As we look into 2014, we expect to originate between $600 million and $700 million in commercial real estate loans. This offering should allow us to efficiently fund those originations and grow our businesses without returning to the capital markets.

In commercial finance area, our leasing venture moved along nicely. LEAF Commercial Capital LLC joint venture with – between the Resource Capital Corp and Eos the private equity concern the small ticket lease – the small ticket leasing business in which the company has made a senior participating preferred investment continued to build its business at least in loan originations for the year-to-date through September 30, 2013 with $237.4 million compared to $180.2 million for the same period in 2012, a 31.7% increase.

Its lease and loan portfolio as of September 30, 2013 was $503.2 million compared to $340.7 million as of September 30, 2012, a 47.7% increase. On September 26, it closed its largest term securitization deal to-date for $325 million.

Led by Credit Suisse, this securitization was well received and had improved capital structure, lower loss proxy and reduced spread compared to the term deal that closed in 2012. Again, we expect to realize great value in our investment here when it matures.

Since the quarter ended we added another specialty finance investment. Last week we closed on the purchase of Primary Capital Advisors, a residential loan and mortgage origination business.

The purchase price is approximately $8.4 million, relatively small. This acquisition gives us the ability to leverage PCA’s expertise in the residential mortgage origination space which is growing.

This is the type of strategic new product development that we had discussed with a modest capital investment we have acquired a solid credit oriented real estate business that we can scale as opportunities present themselves. We have brought in a talented team led by Anthony Coniglio, a specialty finance and mortgage specialist, to run this business in conjunction with the current CEO of the business George Phelps and his team.

We look forward to growing this business and welcome aboard the team from PCA. Our credit quality continues to be very solid.

Our real estate watch list is shrinking. Our provision for loan losses was $541,000 as compared to $7.8 million during the nine months from a year ago, a significant reduction by all accounts.

Our liquidity remains outstanding we have approximately $250 million of unrestricted cash as of October 31 including the proceeds of the $150 million of convertible notes offering. We expect to end the year with approximately what was under $200 million of unrestricted cash.

Now I will ask Dave Bloom to review our real estate activities.

Thanks very much Jonathan. Resource Capital Corp’s commercial mortgage and CMBS portfolio has a current balance of approximately $1.25 billion in a diverse and granular pool.

RSO’s commercial and mortgage portfolio is comprised of 62 individual loans with an aggregate committed balance of approximately $911 million. The portfolio is in components as follows: 90% whole loans, 8% mezzanine loan and 2% B notes.

The underlying collateral base continues to be in geographically diverse markets spread across the major asset categories with the portfolio breakdown of 34% multi-family, 17% office, 18% hotel, 20% retail and 11% others such as mixed use and research and development. During the third quarter of 2013 through today RSO has closed eight new loans totaling $108 million with six more loans in process for fourth quarter closing totaling another $96 million.

In addition as there always year end transactions, we have the potential for an additional three to five loans totaling more than $75 million in advance stages of negotiations. All or some of which could close by year end as well.

RSO currently has applications issued for eight more loans totaling approximately $150 million is in negotiation on $310 million of new lending opportunities and is actively underwriting a forward pipeline in excess of $300 million, which has been the norm for several quarters running. Through today, RSO was closed $271 million of new loans in 2013 and with only the minimum anticipation of the $96 million in process for closing by year end, 2013 would represent an approximate 100% increase over our new loan originations in 2012.

The steady increase in lending opportunities that fit our credit profile continues to increase with loan production growing consistently on a quarter-over-quarter basis. Based on the number of loans in process and in advanced stages of negotiation, we are tracking towards annual loan production between $600 million and $700 million for 2014.

As demand for our floating rate bridge product and other customized financing solutions continues to be robust, we have been actively adding personnel and growing our long-established national direct origination platform. While we see many lending opportunities, we remain extremely focused on credit, value and deal structure.

And although we are lending on only lightly transitional properties, we continue to lend on properties with business plans that stand up to rigorous underwriting and verification and with day one cash flow coverage and meaningful sponsor equity. We are improving metrics across all asset classes with the majority of the property securing our loans realizing improved cash flow on a year-over-year basis and continuing to trend in upward direction.

In addition, we are pleased to see that the majority of the asset specific plans across the portfolio are well on track and progressing towards realization ultimately of the borrowers’ plans for value creation and the entire portfolio remains performing with no defaults. We are very particular about markets in which we lend, sponsor quality and asset-specific business plans and the resilience of the assets I just described is a daily reminder that validates our keen focus on credit first approach to our business.

To briefly address other real estate activities, RSO still maintains a CMBS portfolio that is now approximately $330 million in the aggregate. We continued to use moderate leverage to finance our CMBS portfolio that provides the opportunity to invest in AAA investments and earn returns of approximately 15%.

In addition to our whole loan origination and CMBS bond activities, we continue to optimize properties owned. RSO’s primary equity portfolio currently consist of four properties, two multi-family properties totaling 650 units, one 30,000 square foot office building and one full service hotel and resort, all of which continue to perform well and are expected to be sold for gains as we did this quarter in the disposition of the multi-family property that Jonathan described.

While continuing to expand its debt platform, RSO will also pursue opportunities to invest in both value-add and/or distressed real estate transactions that provide opportunities for significant capital appreciation and the ability to build book value. With that, I will turn it back to Jonathan and rejoin you for Q&A at the end of the call.

Thanks, David. Now, I will also review our corporate loan portfolio.

Resource Capital’s syndicated bank loan portfolio has a carrying value of approximately $939 million at amortized costs. Overall, our portfolios remain in excellent condition.

As of September 30, 2013, we have specific reserves of $1.9 million and general reserves of $1.1 million as compared to specific reserves of $3.4 million and general reserves of $936,000 for the second quarter of 2013. We continue to forecast a good outlook in corporate credit for the next couple of years.

The default rate for the last 12 months was under 1% at 0.46%. In addition to our portfolio of syndicated bank loans, we also collect management fees from our acquisition of the right to manage three other CLOs on which during the quarter we earned net fees of $1.2 million.

As I mentioned earlier, we are also beginning to make some direct investments in middle-market loans. We have now built up a portfolio of approximately $25 million and expect to originate our first direct loan within the next few weeks.

We hope to expand our allocation to middle market corporate lending going forward. Now, I will ask Dave Bryant, our Chief Financial Officer to discuss our financials.

Thank you, Jonathan. RSO’s board declared a cash dividend for the third quarter of $0.20 per common share or approximately $25.4 million.

Our adjusted funds from operations or AFFO for the third quarter was $30.8 million or $0.24 per common share diluted respectively. AFFO for the third quarter was impacted by several non-cash adjustments netting to $6.5 million and more importantly net cash inflows of approximately $16 million.

This represents a payout ratio of 83% for the quarter and 98% for the three and nine month periods respectively. We passed all of the interest coverage and overcollateralization tests in our two real estate CDOs and five bank loan CLOs as of September 2013.

Each of these financing structures performed well and generated strong cash flow to us in 2013. Through September the CRE CDOs produced approximately $43.3 million, which includes a return of principal $27.4 million from our ownership of the RREF 2006 senior note class which we intend to recycle into the new CRE loan originations described by Dave Bloom.

Bank loan CLOs generated approximately $29.6 million of cash flow during the nine months ended September 30. This improved cash flow reflects a very benign credit environment, as well as our ability to invest recycled capital.

As of September 30, we had in excess of $53.7 million of restricted cash in these structures comprised of approximately $53.3 million and $400,000 in our bank loans and real estate deals respectively. Of these balances $16.7 million is available for reinvestment in one of our CLOs which we expect will provide a significant spread over the very inexpensive cost of the associated debt.

The real estate CDO cash balance will be used to repay the senior notes on the two real estate CDOs. Since we own a meaningful amount of these notes, meaningful cash is returned to us when the underlying real estate collateral pays off.

I remind you that a portion of this cash returned represents realized gains on the extinguishment of the debt. Of course this capital becomes available for reinvestment as is the case with the $10.9 million returned to us this quarter.

During Q3, our investment in the Whitney CLO was called and the securitization was substantially liquidated. This reduced our bank loan assets and debt by over $100 million each.

And we expect to have our equity investment substantially return upon the final liquidation of the CLO. As a result of this liquidation, the accelerated original issued discount on the outstanding notes, which represented a non-cash interest expense of in excess of $2.5 million during 2013.

Also in October 2013, our investment in Apidos VIII was called and the securitization was fully liquidated. This will reduce our bank loan assets and debt by approximately $335 million and $318 million respectively in Q4.

As a result of this liquidation, we expect a non-cash loss on the deconsolidation of $2 million to $2.5 million after getting effect to an income tax benefit. More importantly, we have received all of our original $15 million investment plus $0.5 million cash profit on the liquidation of the assets at slightly above par.

Year-to-date from 2013, we’ve had a modest position to provision for loan losses of approximately $0.5 million of which $1.5 million is a reduction is related to provision for bank loans and $2 million was added for real estate loans for a previously impaired loan. Regarding our bank loan portfolio, we decreased reserves reflecting improved credit conditions on our general pool of loans partially offset by some increased reserves for positions sold for credit reasons.

Overall, real estate credit has been excellent and I characterize the bank loan portfolio credit as very benign. Three bank loans totaling $3.6 million are delinquent out of a portfolio of approximately $940 million and remarkably, all of our real estate loans are current and performing.

Our leverage stands at a very conservative 1.8 times at September 30. When we treat our trust issuances which have a remaining term of approximately 23 years as equity, our leverage is 1.6 times.

With regard to real estate leverage, we ended Q3 at 0.84 times on our entire real estate portfolio, which includes unrestricted cash earmarked for new real estate loan originations. Our overall leverage continue to decrease from 2012 year end primarily due to pay downs and runoffs of CLO debt and payoffs of CRE CDO debt and from a mortgage payoff from the associated sale of the underlying real estate property as well as from equity raised from our common stock offering in April and to a lesser extent our dividend reinvestment program.

We also used our at-the-market preferred stock program and sold 2.1 million shares at a weighted average price of $24.80 during the nine months ended September 30 for the total proceeds of $51.1 million at a weighted average rate of 8.25%. Overall, our weighted average effective cost on net proceeds from growth series preferred stock is 8.46%, an attractive cost of capital to RSO.

In terms of liquidity, after taking into account the proceeds from our mid-October convertible note offering with the coupon of 6% and paying the third quarter common and preferred stock dividends, we have $216 million of unrestricted cash as of October 31 with many real estate loan originations in process and intended to continue to invest this equity. We ended September 30 with GAAP book value of $5.56, up $0.01 from the $5.55 at June 30.

At September 30, our equity is allocated as follows: commercial real estate loans and CMBS, 78%; commercial finance, 18%; and 4% in other investments. With that, my formal remarks are completed.

And I turn the call back to Jonathan Cohen.

Thank you and thank you to all of our shareholders for supporting us during this quarter and to David and Purvi and to Dave Bryant for their comments. With that, I will open the call for any questions.

Thanks. Good morning everyone and congratulations folks on the progress that you are making.

It’s obvious that there is a transition underway, but you seem to have a vision of where you can be in a couple of quarters. Jon, a couple of things.

I am sorry could you repeat what you have stated you understand you sold the multi-family real estate property, could you repeat what you said about what your return on investment on that transaction was?

Thanks, Steve. It was around 75.5%.

Wow, okay. And I believe the comment that Dave Bloom may have said that the other four properties, did I get the impression that you are going to hold those try to find the right time to sell?

And are you suggesting that if those four were sold over the next year or two that they would likely be in a gain position as well?

Yes, we believe they are substantially in a gain position whether or not they get sold or not is not in our forecast.

Of course.

But it’s great for shareholders to know that they are sitting on things that are on their books for X [ph], but we all believe that they work a lot more.

Okay. And as far as the transition, I mean, it obviously you are making great progress in the CRE whole loans, but kind of fighting this headwind.

And if I heard things correctly, we have that $900 million of the syndicated bank loans at September 30, but $300 million some of those were held-for-sale, I guess pending one of the liquidations. And then I think Dave Bryant said that overall in the fourth quarter, we will go down by about something over $600 million.

So should we be thinking that by the end of this year that bank loan portfolio will be down to no more than about $300 million?

Actually Steve I think you are double counting the $335 million held for sale or $330 million or so held for sale at September 30 is the one loan that was liquidate in October. The other CLO was substantially liquidated by the end of September and there was just a little bit left that will go away in Q4 and we will get the rest of our equity back.

By the way just for historic states, the CLO that was liquidated Apidos VIII although from a GAAP perspective it was probably on it from where it was on our books it was probably not, it was a loss actually I think in the quarter. From a cash perspective it was a tremendous gain on the transaction I think in the 30% or 40% area.

I don’t have the exact number with me, but it was a tremendous return for the company over a three year period of time.

Okay so if I was double counting so I was suggesting that maybe bank loans at the end of the year would be – would be more around the $500 million level, I am just trying to just…

Yes but that doesn’t include the middle market product that we are originating which probably will be up about $100 million.

Okay got it. And that product, you are basically moving from syndicated – nationally syndicated bank loans which I assume is then a lot of the return has been just intermediated away.

And moving into the middle market is your expectation Jon that over time that could grow to something comparable to which you did in syndicated loans?

I think over a long period time it’s possible, but right now we are going to take one step at a time. But we clearly think that the returns in a unlevered self-originated product are slightly levered in some cases.

We will begin earn in the mid-teens, low to mid-teens. We think is much more from a credit and risk perspective more attractive at this point than 10% or 11% return off of the CLO equity where you are 11 times levered.

Got it, well that’s it. Thanks for the comments and good luck for the balance of the year.

Thank you.

Thank you. Steve.

Thank you.

Hi, yes. Thanks for taking my questions.

This is actually Ryan Tomasello on for Jade Rahmani. I was wondering if you could elaborate on where you are seeing incremental asset yields.

And also if you’ve seen a change in spreads in either first mortgage or mezzanine loans quarter-over-quarter?

I would say generally we have – and we actually just fund the asset, we had our weekly call yesterday with our originators. And I asked a similar question, because sometimes it’s hard to see the whole space.

And their answer was it’s been pretty much the same yield both on the first mortgages and mez probably for the last six months. It went up and down a little bit with interest rates in CMBS, but it’s basically in the same area.

And what I think is different though is the securitization market is open. We are seeing those rates drop and the structure is more conducive to long-term lending and higher IRRs for the equity holders.

Great and as a follow-up, can you elaborate a little bit more on you talked about acceleration of closings going into end of the year, you can just elaborate on that?

Yes, Dave Bloom?

Yes, certainly I mean this is a phenomenon that’s certainly new to us. It’s fairly been this way since ’05.

But the fourth quarter is generally there are a number of year end closings. So the acceleration is expected.

The sort of $115 million that we know will be closed this quarter as it’s in active documentation. I would say I am conservatively saying it could go up, it could be 190 because as there is pressure to move things at the end of the year and based on where we are in certain deals that acceleration happens we find ourselves at the end of the year doing three to six, 40 to – 30 to 45 day closings.

So it’s always a potential. I didn’t put it in the numbers, but it’s certainly there.

Great, thank you very much.

Thank you, Ryan.

Thank you, again and we appreciate the support. We look forward to speaking to you after the year end and of course into ‘14.

Thank you.