MLV & Co Sees Muddy Waters, New Headwinds Delay Projected Sustainability Date For Resource Capital

In a report published Thursday, MLV & Co analyst Richard Eckert reiterated a Hold rating and $6.00 price target on

. In the report, MLV & Co noted, “Last Tuesday, after the market close, RSO reported another muddy quarter. 2Q14 AFFO/Share of 19¢ was just a penny below consensus and our own estimate. However, if all the one-time items and fair value adjustments were excluded--and we assumed no tax liability/benefit--that measure would have fallen to 11¢, 5¢ shy of our estimate when it too is adjusted for non-recurring items. "Although the largest variance, rental income, amounted to a timing issue, we have identified what we believe are three permanent drags on AFFO, at least through our forecast horizon. These are: 1) the dividends on RSO's Series C preferred shares, issued in June; 2) ongoing losses at Primary Capital Mortgage (PCM), a residential mortgage originator acquired by RSO last October; and 3) pressure on the company's net interest spread. As a result, we now calculate that RSO will not cover its dividend on a recurring AFFO basis until 2Q15--and, on a recurring GAAP basis, not until 4Q15. Previously, we had projected the company would do so by 4Q14 and 3Q15, respectively. Pushing out the expected dates of a sustainable dividend just reinforces our prior conclusions. Therefore, our position remains the same and we continue to rate RSO shares a Hold.” Resource Capital closed on Wednesday at $5.38.