Business Context and Reporting Period
This Form 8-K filing by Resource Capital Corp. (not ACRES Commercial Realty Corp. as indicated in metadata) covers events occurring on December 14, 2017, and December 18, 2017. The report details the entry into a material definitive management agreement and the announcement of a preferred stock redemption.
Key Financial Metrics and Agreements
- Management Fee: A fixed Base Management Fee of $937,500 per calendar month for 15 months beginning October 1, 2017.
- Incentive Compensation: Quarterly incentive is calculated as 20% of the amount by which Core Earnings exceed a hurdle rate based on book value and share price, multiplied by the weighted average shares outstanding.
- Preferred Stock Redemption:
- Series A: All outstanding 8.50% Series A Cumulative Redeemable Preferred Stock to be redeemed.
- Series B: 930,983 shares of 8.25% Series B Cumulative Redeemable Preferred Stock to be redeemed.
- Redemption Price: $25.00 per share.
- Redemption Date: January 31, 2017 (Note: The filing text states this date, though the announcement was made in December 2017).
- Underwriting Fees: The Company will pay the Manager a per loan underwriting and review fee for subordinate commercial mortgage pass-through certificates, subject to Independent Director approval.
Material Changes
The filing represents a material change in the Company's governance and capital structure:
- Management Agreement: The Third Amended and Restated Management Agreement replaces the Second Amended Management Agreement, altering fee structures and conflict of interest policies.
- Capital Structure: The redemption will remove all Series A Preferred Stock and a portion of Series B Preferred Stock from the Company's capital structure, terminating associated rights upon the redemption date.
- Delisting: Series A Preferred Stock will be delisted from the New York Stock Exchange upon redemption.
Outlook, Risks, and Contingencies
The filing does not provide specific forward-looking financial guidance or revenue projections. Key contingencies and operational changes include:
- Investment Allocation: Investments appropriate for both the Company and the Manager/related parties will now be allocated according to Resource America, Inc.'s (RAI) policies.
- Fee Variability: Incentive compensation is contingent on Core Earnings performance relative to a specific hurdle rate involving the Ten Year Treasury Rate.
- Director Approval: Specific underwriting fees require approval by a majority of Independent Directors.
Investor Verification Checklist
- Verify the exact redemption date for the preferred stock, as the text cites January 31, 2017, while the filing date is December 2017.
- Confirm the total number of Series A shares outstanding to calculate the total cash outflow for the full redemption.
- Review the attached Exhibit 10.1 for the complete terms of the Third Amended Management Agreement.
- Assess the impact of the $937,500 monthly fixed fee on the Company's operating expenses for the 15-month period.
- Clarify the "Core Earnings" definition used in the incentive compensation formula.