Second quarter 2017 senior loan originations
increased to $154.7 million
CRE loan originations increased to $274.7
million during the first six-months of 2017
Compensation and G&A expense expected to
decline by approximately 18.0% from the second quarter of
2016
Declared a second quarter 2017 dividend of
$0.05 per common share
Execution on strategic transformation
continues
RAIT expects to release full quarterly
financial results on August 8, 2017
RAIT Financial Trust (“RAIT”) (NYSE:RAS) today announced certain
preliminary financial results for the second quarter of 2017. RAIT
also announced that it expects to incur non-cash asset impairment
charges primarily related to an adjustment to the carrying value of
certain legacy properties. In addition, on August 2, 2017, RAIT’s
Board of Trustees declared a second quarter 2017 dividend of $0.05
per common share payable on September 15, 2017 to common
shareholders of record on August 25, 2017. The Board also declared
a third quarter 2017 cash dividend of $0.484375 per share on RAIT’s
7.75% Series A Cumulative Redeemable Preferred Shares, $0.5234375
per share on RAIT’s 8.375% Series B Cumulative Redeemable Preferred
Shares and $0.5546875 per share on RAIT’s 8.875% Series C
Cumulative Redeemable Preferred Shares. The dividends will be paid
on October 2, 2017 to holders of record on September 1, 2017.
During the second quarter, as highlighted below, RAIT continued
making progress transforming into a pure play commercial real
estate lender. This previously announced strategy of transforming
RAIT into a more focused, cost-efficient and lower leverage
business began in early 2016 and RAIT expects to continue to make
further progress executing on its strategic transformation
throughout 2017.
All per share results in this press release are reported on a
diluted basis. In addition, all figures in this press release are
preliminary and remain subject to the completion of normal
quarter-end accounting procedures and adjustments, which could
result in changes to these preliminary results. RAIT intends to
provide additional information regarding its quarterly results when
it reports its second-quarter 2017 results on August 8, 2017.
Q2 2017 Key Business Highlights
- Senior loan originations of $154.7
million during the quarter ended June 30, 2017, which is an
increase from $23.2 million in senior loan originations during the
quarter ended June 30, 2016.
- Senior loan originations of $274.7
million during the six-month period ended June 30, 2017 surpassing
total loan originations for all of 2016, which totaled $156.8
million.
- RAIT sold 4 properties which generated
gross proceeds of $73.2 million and $10.8 million in GAAP gains
during the quarter ended June 30, 2017. From January 1, 2017
through June 30, 2017, RAIT divested $211.5 million of its
properties and reduced $173.6 million of its related
indebtedness.
- From January 1, 2016 through June 30,
2017, RAIT divested $549.4 million of its properties and reduced
$469.5 million of its related indebtedness.
- RAIT is currently on track to meet its
2017 targeted annual compensation and G&A expense goal of $25.0
million, which would represent a 21% decline over 2016.
- Total recourse debt, excluding RAIT’s
secured warehouse facilities, declined by $14.5 million, or 4.4%,
during the quarter ended June 30, 2017 and $103.2 million, or
24.7%, from January 1, 2016 through June 30, 2017. RAIT has no
remaining recourse debt maturities in 2017, excluding RAIT’s
secured warehouse facilities.
- RAIT expects to incur non-cash asset
and goodwill impairment charges of between $90.0 – $95.0 million
for the quarter ended June 30, 2017 primarily related to the
carrying value of certain legacy properties and expects to record a
provision for loan losses against certain legacy CRE loans of
between $20.0 – $23.0 million for the quarter ended June 30,
2017.
Scott Davidson, RAIT’s Chief Executive Officer said, “During the
quarter, RAIT’s lending business continued to perform well. Loan
originations increased while we maintained discipline around our
credit process and financing structures. We increased availability
on our floating rate commercial mortgage facilities and closed our
seventh floating-rate CMBS transaction, which increased the total
amount of floating rate loans originated and securitized in this
program to $1.7 billion. We’ve made meaningful progress executing
our transformational strategy to focus RAIT on its world-class
lending platform. As previously announced, the effects from
executing our plan are causing quarterly volatility in our reported
results and we expect that volatility to continue in coming
quarters.”
Michael Malter, RAIT’s Independent Chairman of the Board of
Trustees said, "We are pleased with the progress that management
has made towards transforming RAIT into a more focused,
cost-efficient and lower leverage business concentrated on its core
commercial real estate lending business. Our Board, as always,
continues to consider a range of strategies that are aligned with
the tenets of our simpler, more cost efficient and lower leverage
business model to support further growth in RAIT’s lending
business, create a more durable balance sheet and enhance long-term
shareholder value.”
Preliminary Financial Results
- Preliminary GAAP loss per share of
between $(1.32) – $(1.41) for the quarter ended June 30, 2017,
primarily caused by the estimated non-cash asset impairment charges
and a provision for loan losses on legacy CRE loans.
- RAIT expects to incur non-cash asset
and goodwill impairment charges of between $90.0 – $95.0 million
for the quarter ended June 30, 2017 primarily related to the
carrying value of certain legacy properties. RAIT changed its
investment approach to these properties and transferred them from
“held for investment” to “held for disposition” which resulted in
RAIT adjusting the carrying value of such properties. The charge
also reflects a reduction in the carrying value of RAIT’s retail
property management business, reflective of the challenging retail
environment. While this estimated impairment charge reduces RAIT’s
reported results under GAAP, it is non-cash in nature.
- RAIT expects to record a provision for
loan losses against legacy CRE loans of between $20.0 – $23.0
million for the quarter ended June 30, 2017.
- Preliminary GAAP loss per share of
between $(1.65) – $(1.74) for the six-months ended June 30, 2017
compared to loss per share of $(0.28) for the six-months ended June
30, 2016. The increase in GAAP loss per share was primarily caused
by the non-cash asset impairment charges and the provision for loan
losses on legacy CRE loans referenced above.
- Preliminary CAD per share of between
$(0.04) – $(0.05) for the quarter ended June 30, 2017, compared to
$0.12 per share for the quarter ended June 30, 2016. CAD per share
of between $0.01 – $0.02 for the six-months ended June 30, 2017,
compared to $0.26 per share for the six-months ended June 30, 2016.
For the three and six months ended June 30, 2017, CAD includes the
non-cash effect of a $3.6 million write-off of an accrued interest
receivable related to a legacy CRE loan that was determined to be
impaired during the period. CAD would have been between $0.00 –
$(0.01) per share and $0.05 – $0.06 per share without the effect of
this non-cash write-off for the three and six months ended June 30,
2017, respectively.
- RAIT’s preliminary compensation and
G&A expense is expected to decline by approximately 18.0% for
the quarter ended June 30, 2017 compared to the quarter ended June
30, 2016. RAIT’s compensation and G&A expense is expected to
decline approximately 13.0% for the six-months ended June 30, 2017
compared to the six months ended June 30, 2016. The expected
decline in compensation and G&A expense is primarily due to a
decrease in the number of employees and a decrease across multiple
types of general and administrative expenses as part of our
strategic transformation and transition to a simpler and more
cost-efficient business model.
- RAIT’s total indebtedness, based on
principal amount, is expected to decline by 2.2% or $35.7 million
during the quarter ended June 30, 2017, and 34% or $833.9 million,
since January 1, 2016.
Commercial Real Estate (“CRE”) Lending Business
- RAIT’s senior loan originations
increased 567% to $154.7 million during the quarter ended June 30,
2017 from $23.2 million in senior loans originated during the
quarter ended June 30, 2016. RAIT is also in the process of
aggregating loans for RAIT’s eighth floating-rate loan
securitization.
- RAIT increased total loan originations
331% to $274.7 million during the six-month period ended June 30,
2017 from $63.7 million in loans originated during the six-month
period ended June 30, 2016, surpassing total loan originations for
all of 2016, which totaled $156.8 million.
- On June 23, 2017, RAIT closed RAIT
2017-FL7, its seventh non-recourse, floating-rate Commercial
Mortgage Backed Securities (“CMBS”) transaction, collateralized by
assets totaling $342.4 million. The transaction involved the sale
by a RAIT subsidiary of non-recourse, investment grade notes with
an aggregate principal amount totaling approximately $276.9 million
with a weighted average cost of LIBOR plus 1.44%, which provided an
advance rate to the RAIT subsidiary of approximately 80.9%. RAIT
affiliates retained all of the below investment grade and un-rated
subordinated interests totaling approximately $65.5 million.
- CRE loan repayments were $184.4 million
and $274.3 million for the quarter and six-month period ended June
30, 2017, respectively.
- During the second quarter of 2017, RAIT
increased lending capacity 26.7% to $475 million under its
commercial mortgage facilities to finance first-mortgage,
floating-rate, CRE loan originations.
CRE Property Portfolio and Property Sales
- The gross amount of RAIT’s real estate
portfolio, as of June 30, 2017, is expected to decline by between
$380 million – $384 million since December 31, 2016 to a gross
amount of between $471 million – $475 million. This expected
decline is due to divestitures, depreciation and property
impairments on legacy properties.
- RAIT sold 4 properties which generated
gross proceeds of $73.2 million and $10.8 million in GAAP gains
during the quarter ended June 30, 2017. From January 1, 2017
through June 30, 2017, RAIT has divested $211.5 million of its
properties and reduced $173.6 million of its related
indebtedness.
Dividends
- On August 2, 2017, the Board declared a
second quarter 2017 cash dividend of $0.05 per common share. The
dividend is payable on September 15, 2017 to holders of record on
August 25, 2017.
- On August 2, 2017, the Board declared a
third quarter 2017 cash dividend of $0.484375 per share on RAIT’s
7.75% Series A Cumulative Redeemable Preferred Shares, $0.5234375
per share on RAIT’s 8.375% Series B Cumulative Redeemable Preferred
Shares and $0.5546875 per share on RAIT’s 8.875% Series C
Cumulative Redeemable Preferred Shares. The dividends will be paid
on October 2, 2017 to holders of record on September 1, 2017.
- On May 18, 2017, the Board declared a
second quarter 2017 cash dividend of $0.484375 per share on RAIT’s
7.75% Series A Cumulative Redeemable Preferred Shares, $0.5234375
per share on RAIT’s 8.375% Series B Cumulative Redeemable Preferred
Shares and $0.5546875 per share on RAIT’s 8.875% Series C
Cumulative Redeemable Preferred Shares. The dividends were paid on
June 30, 2017 to holders of record on June 1, 2017.
New Board Appointments
- On June 26, 2017, RAIT’s Board of
Trustees (the “Board”) increased the size of the Board by two to
eleven trustees and appointed two new independent Trustees to fill
the vacancies created by this increase, with these appointments
taking effect on July 9, 2017. These new Trustees are Nancy Jo
Kuenstner, an experienced strategic consultant with an extensive
banking and finance background and public company board experience,
and Justin P. Klein, a senior partner with the law firm of Ballard
Spahr LLP and a seasoned corporate counselor and practitioner in
the areas of securities law, mergers and acquisitions and corporate
governance.
Non-GAAP Financial Measures and Definitions
RAIT discloses the following non-GAAP financial measure in this
release: CAD. A reconciliation of RAIT’s reported net income
(loss) allocable to common shares to its CAD and management’s
respective definition and rationale for the usefulness of this
non-GAAP financial measure is included as Schedule I and II to
this release.
Conference Call to Discuss Preliminary Results for RAIT’s
Second Fiscal Quarter of 2017
RAIT will be conducting a conference call to discuss its
preliminary results for its second fiscal quarter of 2017 at 9:00
AM ET on Thursday, August 3, 2017. All interested parties can
listen to the live conference call webcast from the home page of
the RAIT Financial Trust website at www.rait.com or by dialing
1.844.775.2541, access code 51242232. For those who are not
available to listen to the live call, the replay will be available
shortly following the live call on RAIT’s website and
telephonically until Thursday, August 10, 2017, by dialing
855.859.2056, access code 51242232.
About RAIT Financial Trust
RAIT Financial Trust is an internally-managed real estate
investment trust focused on providing debt financing options to
owners of commercial real estate throughout the United States. For
more information, please visit www.rait.com or call Investor
Relations at 215.207.2100.
Forward-Looking Statements
This press release may contain certain forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. Such forward-looking statements can generally
be identified by our use of forward-looking terminology such as
“may,” “plan”, “should,” “expect,” “intend,” “anticipate,”
“estimate,” “believe,” “seek,” “opportunities,” “transform,”
“target”, “in the process” or other similar words or terms. RAIT’s
forward-looking statements in this press release include, but are
not limited to, statements regarding RAIT’s plans, initiatives and
expectations to (i) simplify its business model, (ii) focus on its
core commercial real estate lending business, (iii) increase loan
origination levels, when compared to prior periods, as capital from
non-lending related asset sales is re-deployed, (iv) reduce
indebtedness by using cash generated by asset sales to repay debt,
(v) divest and maximize the value of RAIT’s legacy REO portfolio
and existing property management operations and, ultimately,
minimize REO holdings, (vi) significantly reduce its total expense
base, (vii) continue to sell non-lending assets, (viii) enhance its
long-term prospects and create value for its shareholders and (ix)
aggregate loans for RAIT’s eighth floating-rate loan
securitization. Forward-looking statements in this press release
also include statements relating to (i) RAIT’s expectations that
volatility in its reported results will continue in coming
quarters; (ii) the effect of RAIT’s impairment charges on its
future operations, liquidity, cash flows from operating activities,
or with the financial covenants set forth in RAIT’s debt
instruments; and (iii) RAIT’s expected financial results for the
second quarter of 2017, which are based on the most current
information available to management and which may change as RAIT
completes its quarterly close and reporting processes.
Such forward-looking statements are based upon RAIT’s historical
performance and its current plans, estimates, predictions and
expectations and are not a representation that such plans,
estimates, predictions or expectations will be achieved. Because
such statements include risks, uncertainties and contingencies,
actual results may differ materially from the expectations,
intentions, beliefs, plans or predictions of the future expressed
or implied by such forward-looking statements.
Risks, uncertainties and contingencies that may affect the
results expressed or implied by RAIT’s forward-looking statements
include, but are not limited to: (i) whether RAIT will be able to
continue to execute on its strategy to transition RAIT to a more
lender focused, simpler, and more cost-efficient business model, to
reduce indebtedness and deleverage over time and to generate
enhanced returns for its shareholders; (ii) whether RAIT will be
able to continue to divest RAIT’s legacy REO portfolio and existing
property management operations and the majority of RAIT’s
non-lending assets, including whether the closing conditions
relating to properties RAIT has under contract to sell will be
satisfied or whether RAIT and the applicable buyers will otherwise
be able to complete such sales; (iii) whether anticipated cost
savings from the internalization of Independence Realty Trust, Inc.
will be achieved; (iv) whether the divestiture of RAIT’s commercial
real estate portfolio and other non-lending assets will lead to
lower asset management costs and lower expenses; (v) whether RAIT
will continue to be able to further reduce compensation and G&A
expenses and indebtedness, including whether RAIT will be able to
meet its 2017 targeted annual compensation and G&A expense goal
of $25.0 million; (vi) whether RAIT’s changes to its Board
composition and leadership and to its executive management team
will lead to enhanced value for shareholders; (vii) whether RAIT
will be able to create sustainable earnings and grow book value;
(viii) whether RAIT will be able to successfully redeploy capital
from non-lending related asset sales; (ix) whether RAIT will be
able to increase loan origination levels; (x) whether the
disposition of non-core assets, reductions in debt levels and
expected loan repayments will impact RAIT’s earnings and CAD; (xi)
whether RAIT will continue to pay dividends and the amount of such
dividends; (xii) whether RAIT will be able to organically increase
reliance on match-funded asset-level debt; (xiii) overall
conditions in commercial real estate and the economy generally;
(xiv) whether market conditions will enable us to continue to
implement our capital recycling and debt reduction plan involving
selling properties and repurchasing or paying down our debt; (xv)
whether we will be able to originate sufficient bridge loans; (xvi)
changes in the expected yield of our investments; (xvii) changes in
financial markets and interest rates, or to the business or
financial condition of RAIT or its business; (xviii) whether RAIT
will generate any CMBS gain on sale profits; (xix) whether our
management changes will be successfully implemented; (xx) whether
RAIT will be able to aggregate sufficient loans or whether market
conditions will permit RAIT to complete future securitizations of
floating rate loans, including RAIT’s currently contemplated eighth
floating-rate loan securitization; (xxi) whether and when RAIT will
be able to recognize a gain, which will offset the previously
reported non-cash loss on deconsolidation of its industrial real
estate portfolio; (xxii) whether RAIT will have any legal
obligations on the non-recourse debt on its industrial real estate
portfolio; (xxiii) that RAIT may not be able to recognize a gain,
which will offset the previously reported non-cash loss on
deconsolidation of its industrial real estate portfolio, until all
the properties in the industrial portfolio are sold and the timing
of such sales is controlled by the lender and other third parties
and that RAIT may recognize additional similar non-cash losses on
future sales of less than all of the remaining properties until all
of such properties are sold; (xxiv) final accounting determinations
on any losses realized in the event properties or other assets are
sold for prices below their carrying value or if property or other
asset valuations are reduced or impaired due to the revaluation
process undertaken when a property or other asset is characterized
as held for disposition or marketed for sale; (xxv) increases to
RAIT’s leverage or decreases in total common equity resulting from
such determinations or revaluation; (xxvi) the availability of
financing and capital, including through the capital and
securitization markets; (xxvii) whether the credit quality of our
post-financial crisis loans and financing structures will continue
to perform as expected; (xxviii) whether RAIT will need to
recognize further impairment charges in future quarters and the
effect of such charges on RAIT’s future operations, liquidity, cash
flows from operating activities, or compliance with the financial
covenants set forth in its debt instruments; and (xxix) other
factors described in RAIT’s Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q and other filings with the SEC. RAIT
undertakes no obligation to update these forward-looking statements
to reflect events or circumstances after the date hereof or to
reflect the occurrence of unanticipated events, except as may be
required by law.
Schedule I
RAIT Financial Trust Preliminary Reconciliation of Net income
(loss) Allocable to Common Shares and Cash Available for
Distribution (Dollars in thousands, except share and per share
amounts) (unaudited)
Three Months Ended June
30,
Six Months Ended June
30,
2017 2016 2017 2016
Preliminary Range Actual Preliminary Range
Actual CASH AVAILABLE FOR DISTRIBUTION (CAD) (1):
Net Income (loss) available to common shares $
(120,999 ) $ (129,499 ) $ (7,580 ) $ (151,084 ) $ (159,584 ) $
(25,424 ) Add-Back (Deduct): Depreciation and amortization expense
7,819 7,819 15,134 17,573 17,573 27,807 Change in fair value of
financial instruments (3,093 ) (3,093 ) 1,592 (1,940 ) (1,940 )
5,680 (Gains) losses on assets (10,759 ) (10,759 ) (5,812 ) (22,765
) (22,765 ) (5,617 ) (Gains) losses on deconsolidation of
properties — — — 15,947 15,947 — (Gains) losses on debt
extinguishment 1,598 1,598 (660 ) (1,588 ) (1,588 ) (1,004 )
Deferred income tax (benefit) provision 23 23 (1,733 ) 23 23 (2,841
) Straight-line rental adjustments 58 58 (142 ) 177 177 (560 )
Equity based compensation 710 710 954 1,054 1,054 2,022 Acquisition
and integration expenses 67 67 70 239 239 179 Origination fees and
other deferred items 8,476 8,476 5,911 20,164 20,164 12,842
Provision for loan losses 20,226 23,226 1,344 21,761 24,761 2,669
IRT internalization and management transition expenses — — — 736
736 — Asset and goodwill impairment 90,030 95,030 3,864 97,454
102,454 7,786 Shareholder activism expenses 1,615 1,615 — 2,309
2,309 — Net expenses associated with deconsolidated properties — —
— — — — Discontinued operations and noncontrolling interest effect
of certain adjustments 475 475 (2,405 )
1,348 1,348 (123 )
CAD $ (3,754 ) $ (4,254 ) $
10,537 $ 1,408 $ 908 $ 23,416
CAD per share $ (0.04 ) $
(0.05 ) $ 0.12 $ 0.02 $ 0.01 $ 0.26 Weighted-average shares
outstanding 91,453,415 91,453,415 91,190,583 91,377,508 91,377,508
91,104,314 (1) For the three and six months ended
June 30, 2017, CAD includes the non-cash effect of a $3.6 million
write-off of accrued interest receivable related to a legacy loan
that was determined to be impaired during the period. CAD would
have been $(0.1) - $(0.6) million or $0.00 – $(0.01) per share for
the three months ended June 30, 2017 and $4.5 - $5.0 million or
$0.05 - $0.06 per share for the six months ended June 30, 2017
without this non-cash write-off.
Schedule II
RAIT Financial Trust Definitions
Cash Available for Distribution
Cash available for distribution, or CAD, is a non-GAAP financial
measure. We believe that CAD provides investors and management with
a meaningful indicator of operating performance. Management also
uses CAD, among other measures, to evaluate profitability and our
board of trustees considers CAD in determining our quarterly cash
distributions. We also believe that CAD is useful because it
adjusts for a variety of noncash items (such as depreciation and
amortization, equity-based compensation, provision for loan losses
and non-cash interest income and expense items). In addition, the
compensation committee of our board of trustees used CAD as a
metric in establishing quantitative performance based awards for
certain of our executive officers beginning in 2015.
We calculate CAD by subtracting from or adding to net income
(loss) attributable to common shareholders the following items:
depreciation and amortization items including depreciation and
amortization expense, straight-line rental income or expense,
amortization of deferred financing costs, and amortization of
discounts on financings; origination fees; equity-based
compensation; changes in the fair value of our financial
instruments; realized gains (losses) on assets; provision for loan
losses; asset impairments; acquisition gains or losses and
transaction costs; deferred income tax benefit (provision); certain
fee income eliminated in consolidation that is attributable to
third parties; and one-time events pursuant to changes in U.S. GAAP
and certain other non-routine items. In the quarter ended March 31,
2016, we changed our method of calculating CAD to exclude the
impact of real property sales from CAD. We made this change in
response to investor feedback to focus CAD on our core business
activities. In addition, we provide guidance regarding our expected
CAD in future periods and this change removes variability resulting
from the ultimate timing of future property sales.
CAD should not be considered as an alternative to net income
(loss) or cash generated from operating activities, determined in
accordance with U.S. GAAP, as an indicator of operating
performance. For example, CAD does not adjust for the accrual of
income and expenses that may not be received or paid in cash during
the associated periods. Please refer to our consolidated financial
statements prepared in accordance with U.S. GAAP in our most recent
report on Form 10-K or Form 10-Q filed with the Securities and
Exchange Commission. In addition, our methodology for calculating
CAD may differ from the methodologies used by other comparable
companies, including other REITs, when calculating the same or
similar supplemental financial measures and may not be comparable
with these companies.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170803005601/en/
RAIT Financial TrustAndres Viroslav,
215-207-2100aviroslav@rait.com