Second quarter 2017 senior loan originations
increased to $154.7 millionCRE loan originations increased
to $274.7 million during the first six-months of
2017Compensation and G&A expense declined by 18.0% from
the second quarter of 2016Declared a second quarter 2017
dividend of $0.05 per common share
Execution on strategic transformation
continues
RAIT Financial Trust (“RAIT”) (NYSE: RAS) today announced its
final financial results for the second quarter of 2017, updating
RAIT’s August 3, 2017 announcement of its preliminary financial
results. The final results disclosed in this press release,
including the non-cash asset impairment charges primarily related
to an adjustment to the carrying value of certain legacy
properties, are consistent with the preliminary results and
estimated ranges that were included in RAIT’s previous
announcement. 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.
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 incurred non-cash asset and
goodwill impairment charges of $94.2 million for the quarter ended
June 30, 2017 primarily related to an adjustment to the carrying
value of certain legacy properties that RAIT is seeking to divest
in connection with its divestment of assets unrelated to its core
commercial real estate lending business. RAIT also recorded a
provision for loan losses against certain legacy CRE loans of $20.9
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.”
Financial Results
- GAAP loss per share of $(1.38) for the
quarter ended June 30, 2017, primarily caused by the non-cash asset
impairment charges and a provision for loan losses on legacy CRE
loans.
- RAIT incurred non-cash asset and
goodwill impairment charges of $94.2 million for the quarter ended
June 30, 2017 primarily related to an adjustment to the carrying
value of certain legacy properties. In connection with RAIT’s
transformation strategy to divest itself of assets unrelated to its
core commercial real estate lending business, 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 these asset and goodwill impairment charges
reduce RAIT’s reported results under GAAP, they are non-cash in
nature.
- RAIT recorded a provision for loan
losses against certain legacy CRE loans of $20.9 million for the
quarter ended June 30, 2017.
- GAAP loss per share of $(1.71) 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 certain
legacy CRE loans referenced above.
- CAD per share of $(0.04) for the
quarter ended June 30, 2017, compared to $0.12 per share for the
quarter ended June 30, 2016. CAD per share of $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 $0.00 per share and $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 compensation and G&A expense
declined by 18.0% for the quarter ended June 30, 2017 compared to
the quarter ended June 30, 2016. RAIT’s compensation and G&A
expense declined 14.0% for the six-months ended June 30, 2017
compared to the six months ended June 30, 2016. The 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, declined 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, declined by $384.4 million since
December 31, 2016 to a gross amount of $470.2 million. This 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 measures in this
release: funds from operations (“FFO”), CAD and net operating
income (“NOI”). A reconciliation of RAIT’s reported net income
(loss) allocable to common shares to its FFO and CAD is
included as Schedule IV to this release. See Schedule VI to
this release for management’s respective definitions and rationales
for the usefulness of each of these non-GAAP financial measures and
other definitions used in this release.
Supplemental Information
RAIT produces supplemental information that includes details
regarding the performance of the portfolio, financial information,
non-GAAP financial measures and other useful information for
investors. The supplemental information also contains
deconsolidating financial information. The supplemental information
is available via the Company's website, www.rait.com, through the
"Investor Relations" section.
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 of a
future or forward-looking nature. 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 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
expectation that it will continue to make further progress
executing on its strategic transformation throughout 2017; (ii)
RAIT’s expectations that volatility in its reported results will
continue in coming quarters; and (iii) any strategies that RAIT may
consider to support further growth in RAIT’s lending business,
create a more durable balance sheet and enhance long-term
shareholder value.
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) 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; (xxiv) increases to RAIT’s
leverage or decreases in total common equity resulting from such
determinations or revaluation; (xxv) the availability of financing
and capital, including through the capital and securitization
markets; (xxvi) whether the credit quality of RAIT’s post-financial
crisis loans and financing structures will continue to perform as
expected; (xxvii) whether RAIT will need to recognize further
non-cash asset and/or goodwill impairment charges in future
quarters and the effect of such charges, including with respect to
RAIT’s compliance with the financial covenants set forth in its
debt instruments; and (xxviii) 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
Selected Financial Information
(Dollars in thousands, except share and
per share amounts)
(unaudited)
($'s in 000's)
For the Three Months Ended
June 30,
2017
March 31,
2017
December 31,
2016
September 30,
2016
June 30,
2016
OPERATING DATA:
Lending:
Investments in loans $ 1,267,705 $ 1,315,539 $ 1,292,639 $
1,373,615 $ 1,495,343 Gross loan production $ 154,675 $ 120,040 $
67,540 $ 25,550 $ 23,185 Weighted average interest rate of loan
production (a) 5.7 % 5.6 % 5.6 % 5.7 % 6.7 %
Real estate
portfolio:
Gross real estate investments $ 470,249 $ 694,230 $ 854,646 $
965,362 $ 1,095,024 Property dispositions $ 73,153 $ 138,326 $
146,068 $ 125,900 $ 49,200 Property income $ 16,946 $ 20,065 $
23,501 $ 29,614 $ 29,666 Operating expenses $ 9,509 $ 10,634
$ 13,084 $ 14,635 $ 14,327 Net
operating income $ 7,437 $ 9,431 $ 10,417 $ 14,979 $ 15,339 NOI
margin 43.9 % 47.0 % 44.3 % 50.6 % 51.7 %
EARNINGS &
DIVIDENDS: Earnings (loss) per share from continuing operations
- diluted $ (1.38 ) $ (0.33 ) $ (0.37 ) $ (0.02 ) $ (0.15 )
Earnings (loss) per share from discontinued operations - diluted $
- $ - $ 0.54 $ 0.02 $ 0.07 Earnings (loss) per share -- diluted $
(1.38 ) $ (0.33 ) $ 0.17 $ - $ (0.08 ) FFO per share $ (0.54 ) $
(0.30 ) $ 0.05 $ 0.12 $ (0.04 ) CAD per share (b) $ (0.04 ) $ 0.06
$ 0.07 $ 0.12 $ 0.12 Dividends per share $ 0.05 $ 0.09 $ 0.09 $
0.09 $ 0.09 CAD payout ratio -125.0 % 150.0 % 128.6 % 75.0 % 75.0 %
RECOURSE DEBT REDUCTIONS: Reductions of recourse
debt, excluding warehouse facilities $ 14,500 $ 32,000 $ 2,000 $
2,000 $ 50,716
CAPITALIZATION AND COVERAGE RATIOS:
Recourse/Non-Recourse Debt: Recourse $ 328,858 $ 439,733 $ 365,921
$ 509,938 $ 479,608 Non-Recourse 1,218,329
1,142,815 1,361,246 1,441,510
1,620,777 Total Recourse/Non-Recourse debt 1,547,187
1,582,548 1,727,167 1,951,448 2,100,385 Preferred shares (par)
311,487 321,544 321,544 333,144 332,187 Common shares (market
capitalization) 203,902 296,669 310,113 311,550 288,540
Noncontrolling interests, at carrying value (c) 3,880
5,506 5,386 5,386
1,792 Total capitalization $ 2,066,456 $ 2,206,267 $
2,364,210 $ 2,601,528 $ 2,722,904 Total Liabilities/Total
Gross Assets 84.3 % 76.3 % 76.2 % 74.9 % 75.7 % Total Liabilities +
Preferred/Total Gross Assets 99.2 % 90.0 % 88.8 % 83.0 % 83.4 %
Interest Coverage (d) 0.96 x 1.34 x 1.40 x 1.85 x 1.87 x
Interest + Preferred Coverage (e) 0.68 x 0.94 x 1.00 x 1.46 x 1.50
x
OTHER KEY BENCHMARKS: Total Assets Under Management
(AUM) $ 3,170,495 $ 3,390,885 $ 3,575,224 $ 5,128,101 $ 5,491,448
Total Gross Assets $ 2,081,631 $ 2,347,452 $ 2,556,302 $ 4,118,215
$ 4,275,086 (a) At the time of loan origination. (b)
For the three months ended June 30, 2017, CAD includes the non-cash
effect of a $3,636 write-off of accrued interest receivable related
to a loan that was determined to be impaired during the period. CAD
would have been $0.00 per share without the effect of this non-cash
write-off. (c) Excludes noncontrolling interests associated with
discontinued operations. (d) For the three months ended June 30,
2017, Interest Coverage includes the non-cash effect of a $3,636
write-off of accrued interest receivable related to a loan that was
determined to be impaired during the period. Interest Coverage
would have been 1.19x without the effect of this non-cash
write-off. (e) For the three months ended June 30, 2017, Interest +
Preferred Coverage includes the non-cash effect of a $3,636
write-off of accrued interest receivable related to a loan that was
determined to be impaired during the period. Interest + Preferred
Coverage would have been 0.84x without the effect of this non-cash
write-off.
Schedule II
RAIT Financial Trust
Consolidated Balance Sheets
(Dollars in thousands, except share and
per share amounts)
(unaudited)
As ofJune 30,2017
As ofDecember
31,2016
Assets Investment in mortgages and loans: Commercial
mortgages, mezzanine loans, and preferred equity interests $
1,267,705 $ 1,292,639 Allowance for loan losses (23,514 )
(12,354 ) Total investment in mortgages and loans, at
amortized cost 1,244,191 1,280,285 Investments in real estate, net
of accumulated depreciation of $35,359 and $138,214, respectively
434,890 716,432 Cash and cash equivalents 89,317 110,531 Restricted
cash 193,580 190,179 Accrued interest receivable 32,141 36,271
Other assets 36,753 53,878 Intangible assets, net of accumulated
amortization of $8,776 and $22,230, respectively 10,901
19,267
Total assets $ 2,041,773
$ 2,406,843
Liabilities and Equity Indebtedness, net
of unamortized discount and deferred financing costs of $30,637 and
$36,892, respectively $ 1,588,067 $ 1,751,082 Accrued interest
payable 9,229 8,347 Accounts payable and accrued expenses 15,157
20,016 Borrowers' escrows 104,197 107,183 Deferred taxes and other
liabilities 37,535 60,864
Total
liabilities 1,754,185 1,947,492 Series D preferred stock 75,654
81,581
Equity: Shareholders’ equity: 7.75% Series A
Preferred shares 53 53 8.375% Series B Preferred shares 23 23
8.875% Series C Preferred shares 17 17 Common shares, $0.03 par
value per share 2,793 2,769 Additional paid in capital 2,093,270
2,093,257 Retained earnings (deficit) (1,888,102 )
(1,723,735 ) Total shareholders’ equity 208,054 372,384
Noncontrolling interests 3,880 5,386
Total equity 211,934 377,770
Total liabilities and equity $ 2,041,773 $ 2,406,843
Schedule III
RAIT Financial Trust
Consolidated Statements of Operations
(Dollars in thousands, except share and
per share amounts)
(unaudited)
Three Months EndedJune
30,
Six Months EndedJune 30,
2017 2016 2017
2016 Revenue: Net interest margin Investment interest
income $ 14,882 $ 23,519 $ 32,532 $ 49,321 Investment interest
expense (10,546 ) (9,125 ) (20,319 )
(18,445 ) Net interest margin 4,336 14,394 12,213 30,876 Property
income 16,946 29,666 37,011 59,721 Fee and other income
1,531 1,914 3,192 4,028 Total revenue 22,813
45,974 52,416 94,625
Expenses: Interest expense 8,883
13,967 19,026 29,837 Real estate operating expenses 9,509 14,327
20,143 29,175 Property management expenses 2,651 2,846 4,864 5,013
General and administrative expenses: Compensation expenses 3,529
3,862 7,016 7,487 Other general and administrative expenses
2,689 3,706 5,394 6,921 Total general and
administrative expenses 6,218 7,568 12,410 14,408 Acquisition and
integration expenses 67 70 239 179 Provision for loan losses 20,863
1,344 22,398 2,669 Depreciation and amortization expense 7,819
15,134 17,573 27,807 IRT internalization and management transition
expenses — — 736 — Shareholder activism expenses 1,615
— 2,309 — Total expenses 57,625
55,256 99,698 109,088
Operating Income (34,812
) (9,282 ) (47,282 ) (14,463 ) Other income (expense) (153 ) 39
(139 ) 100 Gains (loss) on assets 10,759 5,812 22,765 5,617 Asset
impairment (85,809 ) (3,864 ) (93,233 ) (7,786 ) Goodwill
impairment (8,342 ) — (8,342 ) — Gain (loss) on deconsolidation of
properties — — (15,947 ) — Gain (loss) on debt extinguishment
(1,598 ) 660 1,588 1,004 Change in fair value of financial
instruments 3,093 (1,592 ) 1,940 (5,680
)
Income (loss) before taxes (116,862 ) (8,227 ) (138,650 )
(21,208 ) Income tax benefit (provision) (22 ) 1,756
227 2,749
Income from continuing operations
(116,884 ) (6,471 ) (138,423 ) (18,459 )
Discontinued
operations: Income (loss) from discontinued operations —
32,876 — 34,361
Net income (loss)
(116,884 ) 26,405 (138,423 ) 15,902 Income allocated to preferred
shares (8,817 ) (8,615 ) (17,343 ) (17,135 ) (Income) loss
allocated to noncontrolling interests (56 ) (25,370 )
(76 ) (24,191 )
Net income (loss) available to
common shares $ (125,757 ) $ (7,580 ) $ (155,842 ) $ (25,424 )
Amount attributable to common shares: Net income (loss)
available to common shares from continuing operations $ (125,757 )
$ (14,115 ) $ (155,842 ) $ (33,478 ) Net income (loss) available to
common shares from discontinued operations - 6,535
— 8,054 Net income (loss) available to common shares
$ (125,757 ) $ (7,580 ) $ (155,842 ) $ (25,424 ) EPS -
BASIC: Earnings (loss) per share from continuing operations $ (1.38
) $ (0.15 ) $ (1.71 ) $ (0.37 ) Earnings (loss) per share from
discontinued operations — 0.07 — 0.09
Earnings per share - BASIC $ (1.38 ) $ (0.08 ) $ (1.71 ) $ (0.28 )
EPS - DILUTED: Earnings (loss) per share from continuing
operations $ (1.38 ) $ (0.15 ) $ (1.71 ) $ (0.37 ) Earnings (loss)
per share from discontinued operations — 0.07
— 0.09 Earnings per share - DILUTED $ (1.38 ) $ (0.08 ) $
(1.71 ) $ (0.28 ) Weighted-average shares outstanding - Basic
91,453,415 91,190,583 91,377,508 91,104,314 Weighted-average shares
outstanding - Diluted 91,453,415 91,190,583 91,377,508 91,104,314
Schedule IV
RAIT Financial Trust
Reconciliation of Net income (loss)
Allocable to Common Shares and
Cash Available for Distribution and Funds
From Operations (“FFO”)
(Dollars in thousands, except share and
per share amounts)
(unaudited)
Three-Months EndedJune
30,
Six-Months EndedJune 30,
2017
2016
2017
2016
FUNDS FROM OPERATIONS (FFO): Net Income (loss)
available to common shares $ (125,757 ) $ (7,580 ) $ (155,842 )
$
(25,424 ) Add-Back (Deduct): Depreciation 5,630 9,484 12,514 19,655
(Gains) Losses on the sale of real estate (10,759 ) (5,812 )
(22,765 ) (5,617 ) Asset impairment 81,444 3,864 88,868 7,786
Adjustments related to discontinued operations —
(3,832 ) — (3,007 )
FFO $ (49,442 ) $
(3,876 ) $ (77,225 )
$
(6,607 )
FFO per share--basic $ (0.54 ) $ (0.04 ) $ (0.85 )
$
(0.07 ) Weighted-average shares outstanding 91,453,415 91,190,583
91,377,508 91,104,314
CASH AVAILABLE FOR DISTRIBUTION
(CAD): Net Income (loss) available to common shares $ (125,757
) $ (7,580 ) $ (155,842 ) $ (25,424 ) Add-Back (Deduct):
Depreciation and amortization expense 7,819 15,134 17,573 27,807
Change in fair value of financial instruments (3,093 ) 1,592 (1,940
) 5,680 (Gains) losses on assets (10,759 ) (5,812 ) (22,765 )
(5,617 ) (Gains) losses on deconsolidation of properties — — 15,947
— (Gains) losses on debt extinguishment 1,598 (660 ) (1,588 )
(1,004 ) Deferred income tax (benefit) provision 22 (1,733 ) 22
(2,841 ) Straight-line rental adjustments 58 (142 ) 177 (560 )
Equity based compensation 710 954 1,054 2,022 Acquisition and
integration expenses 67 70 239 179 Origination fees and other
deferred items 8,476 5,911 20,164 12,842 Provision for loan losses
20,863 1,344 22,398 2,669 IRT internalization and management
transition expenses — — 736 — Asset impairment 85,809 3,864 93,233
7,786 Goodwill impairment 8,342 — 8,342 — Shareholder activism
expenses 1,615 — 2,309 — Net expenses associated with
deconsolidated properties — — — — Discontinued operations and
noncontrolling interest effect of certain adjustments 475
(2,405 ) 1,348 (123 )
CAD (a) $ (3,755
) $ 10,537 $ 1,407 $ 23,416
CAD per share (a) $ (0.04 ) $
0.12 $ 0.02 $ 0.26 Weighted-average shares outstanding 91,453,415
91,190,583 91,377,508 91,104,314 (a) For the three and six
months ended June 30, 2017, CAD includes the non-cash effect of a
$3,636 write-off of accrued interest receivable related to a loan
that was determined to be impaired during the period. For the three
and six months ended June 30, 2017, CAD would have been $(118) or
$0.00 per share and $5,044 or $0.06 per share, respectively,
without the effect of this non-cash write-off.
Schedule V
RAIT Financial Trust Reconciliation of NOI to Net income (loss)
(Dollars in thousands, except share and per share amounts)
(unaudited) ($'s in 000's)
For the
Three Months Ended For the Six Months Ended,
June 30,2017
March 31,2017
December 31,2016
September 30,2016
June 30,2016
June 30,2017
June 30,2016
Net operating income $ 7,437 $ 9,431 $ 10,417 $ 14,979 $ 15,339 $
16,868 $ 30,546 Net interest margin 4,336 7,877 10,844 11,677
14,394 12,213 30,876 Fee and other income 1,531 1,661 1,400 1,946
1,914 3,192 4,028 Interest expense (8,883 ) (10,143 ) (11,914 )
(13,298 ) (13,967 ) (19,026 ) (29,837 ) Compensation expenses
(3,529 ) (3,487 ) (6,275 ) (4,675 ) (3,862 ) (7,016 ) (7,487 )
General and administrative expenses (2,689 ) (2,705 ) (3,300 )
(3,052 ) (3,706 ) (5,394 ) (6,921 ) Property management expenses
(2,651 ) (2,213 ) (2,240 ) (2,226 ) (2,846 ) (4,864 ) (5,013 )
Acquisition and integration expenses (67 ) (172 ) (248 ) (197 ) (70
) (239 ) (179 ) Provision for loan losses (20,863 ) (1,535 ) (3,848
) (1,533 ) (1,344 ) (22,398 ) (2,669 ) Depreciation and
amortization expense (7,819 ) (9,754 ) (12,031 ) (11,466 ) (15,134
) (17,573 ) (27,807 ) IRT internalization and management transition
expenses - (736 ) (6,271 ) - - (736 ) - Shareholder activism
expenses (1,615 ) (694 ) - - - (2,309 ) - Other income (expense)
(153 ) 14 (457 ) (70 ) 39 (139 ) 100 Gains (loss) on assets 10,759
12,006 29,461 18,194 5,812 22,765 5,617 Gain (loss) on
deconsolidation of properties - (15,947 ) - - - (15,947 ) - Asset
impairment (85,809 ) (7,424 ) (11,127 ) (18,872 ) (3,864 ) (93,233
) (7,786 ) Goodwill impairment (8,342 ) - - - - (8,342 ) Gain
(loss) on debt extinguishment (1,598 ) 3,186 333 (6 ) 660 1,588
1,004 Change in fair value of financial instruments 3,093 (1,153 )
1,109 (1,375 ) (1,592 ) 1,940 (5,680 ) Income tax benefit
(provision) (22 ) 249 (20,601 ) 15,302 1,756 227 2,749 Income from
discontinued operations - - 1,671 4,112 32,876 - 34,361 Gain (loss)
on disposal of discontinued operations - -
47,808 - - - - Net income (loss) $
(116,884 ) $ (21,539 ) $ 24,731 $ 9,440 $ 26,405 $ (138,423 ) $
15,902
Schedule VI
RAIT Financial Trust Definitions
Assets Under Management
Assets under management, or AUM, is an operating measure
representing the total assets that we own or are managing for third
parties. While not all AUM generates fee income, it is an important
operating measure to gauge our asset growth, volume of
originations, size and scale of our operations and our performance.
AUM includes our total investment portfolio, assets associated with
unconsolidated securitizations for which we derive asset management
fees and real estate properties we manage on behalf of third
parties.
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.
Funds from Operations
We believe that funds from operations, or FFO, which is a
non-GAAP financial measure, is an additional appropriate measure of
the operating performance of a REIT. We compute FFO in accordance
with the standards established by the National Association of Real
Estate Investment Trusts, or NAREIT, as net income or loss
allocated to common shares (computed in accordance with GAAP),
excluding real estate-related depreciation expense, gains or losses
on sales of real estate, asset impairment and the cumulative effect
of changes in accounting principles. Our management utilizes FFO as
a measure of our operating performance. FFO is not an equivalent to
net income or cash generated from operating activities determined
in accordance with U.S. GAAP. Furthermore, FFO does not represent
amounts available for management’s discretionary use because of
needed capital replacement or expansion, debt service obligations
or other commitments or uncertainties. FFO should not be considered
as an alternative to 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.
Gross Real Estate Investments
Gross real estate investments equal investments in real estate,
net plus accumulated depreciation as it appears on the consolidated
balance sheet. The following table provides a reconciliation of
investments in real estate, net to total gross real estate
investments.
As of
June 30,2017
March 31,2017
December 31,2016
September 30,2016
June 30,2016
Investments in real estate, net $ 434,890 $ 580,051 $ 716,432 $
808,749 $ 930,987 Plus: Accumulated depreciation 35,359
114,179 138,214 156,613 164,037 Gross
real estate investments $ 470,249 $ 694,230 $ 854,646 $ 965,362 $
1,095,024
Net Operating Income
Net Operating Income (“NOI”), a non-GAAP financial measure, is a
useful measure of the operating performance of its real estate
portfolio. NOI is defined as total property revenue less total real
estate operating expenses, excluding depreciation and amortization
and interest expense. Other REITs may use different methodologies
for calculating NOI, and accordingly, our NOI may not be comparable
to other REITs. We believe that this measure provides an operating
perspective not immediately apparent from GAAP operating income or
net income. We use NOI to evaluate our real estate portfolio
performance on a same store and non-same store basis because NOI
measures the core operations of property performance by excluding
corporate level expenses and other items not related to property
operating performance and captures trends in rental rates and
property operating expenses.
Total Gross Assets
Total Gross Assets equals total assets plus accumulated
depreciation as these captions are reported on the consolidated
balance sheet. The following table provides a reconciliation of
total assets to total gross assets.
As of
June 30,2017
March 31,2017
December 31,2016
September 30,2016
June 30,2016
Total assets $ 2,041,773 $ 2,222,615 $ 2,406,843 $ 3,882,531 $
4,040,064 Plus: Accumulated depreciation (a) 35,359 114,179 138,214
209,437 209,096 Plus: Accumulated amortization (b) (c) 4,499
10,658 11,245 26,247 25,926 Total gross
assets $ 2,081,631 $ 2,347,452 $ 2,556,302 $ 4,118,215 $ 4,275,086
(a) Includes accumulated depreciation from discontinued
operations. (b) Includes accumulated amortization from discontinued
operations. (c) Represents accumulated amortization on real
estate-related intangible assets and liabilities.
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RAIT Financial TrustAndres Viroslav,
215-207-2100aviroslav@rait.com