RAIT continues making progress with its
strategic transformation into a more focused, cost-efficient, pure
play commercial real estate lender
RAIT Financial Trust (“RAIT”) (NYSE: RAS) — today announced its
financial results for the third quarter of 2017. All per share
results in this press release are reported on a diluted basis.
Q3 2017 Key Highlights
- Net loss available to common shares of
$(24.2) million, $(0.26) loss per share-diluted, and cash available
for distribution (“CAD”) of $(1.3) million, or $(0.01) per common
share, during the quarter ended September 30, 2017.
- Senior loan originations of $100.6
million during the quarter ended September 30, 2017, which is an
increase from $25.6 million in senior loan originations during the
quarter ended September 30, 2016.
- Senior loan originations of $375.3
million during the nine-month period ended September 30, 2017,
surpassing total loan originations for all of 2016, which totaled
$156.8 million.
- RAIT sold three properties and divested
seven properties totaling $63.3 million, in the aggregate, during
the quarter ended September 30, 2017 and subsequently sold three
additional properties totaling $65.3 million through November 1,
2017. From January 1, 2017 through November 1, 2017, RAIT sold or
divested $339.8 million of its properties and reduced $275.9
million of its related indebtedness. Since the beginning of 2016,
RAIT has sold or divested $677.7 million of its properties and
reduced $571.8 million of its related indebtedness.
- Total recourse debt, excluding RAIT’s
secured warehouse facilities, declined by $10.2 million, or 3.2%,
during the quarter ended September 30, 2017 and has declined $113.4
million, or 27.2%, since January 1, 2016. RAIT has no remaining
recourse debt maturities in 2017, excluding RAIT’s secured
warehouse facilities.
- On September 7, 2017, the Board of
Trustees of RAIT (the “Board”) formed a special committee to
explore strategic and financial alternatives to enhance shareholder
value and capitalize on RAIT’s real estate lending platform.
- On November 1, 2017, the Board declared
fourth quarter dividends on RAIT’s preferred shares and suspended
dividends on RAIT’s common shares.
Scott Davidson, RAIT’s Chief Executive Officer said, “During the
quarter, we continued to make meaningful progress on our strategic
transformation and focusing RAIT on its lending activities. Though
our reported results continue to be impacted by the short-term
effects from executing on our strategic plan, our lending business
performed well, we continued making headway selling our property
portfolio and we made further progress reducing our debt. We remain
focused on growing our lending activities over the long term and,
in the near term, on aggregating loans for our eighth floating-rate
CMBS transaction.”
Financial Results
- GAAP loss per share of $(0.26) for the
quarter ended September 30, 2017, compared to loss per share of
$(0.00) for the quarter ended September 30, 2016. The GAAP loss per
share for the quarter ended September 30, 2017 includes a $(0.04)
per share, non-cash loss on deconsolidation of seven properties
which RAIT expects to be offset by a gain on deconsolidation in
future periods. RAIT incurred a provision for loan losses against
certain legacy CRE loans of $5.5 million and non-cash asset
impairment charges of $3.1 million for the quarter ended September
30, 2017.
- GAAP loss per share of $(1.97) for the
nine months ended September 30, 2017 compared to loss per share of
$(0.28) for the nine months ended September 30, 2016. The increase
in GAAP loss per share for the stated nine-month period was
primarily caused by the previously announced non-cash asset
impairment charges and provision for loan losses on certain legacy
CRE loans.
- CAD per share of $(0.01) for the
quarter ended September 30, 2017, compared to $0.12 per share for
the quarter ended September 30, 2016.
- CAD per share of $0.00 for the nine
months ended September 30, 2017, compared to $0.37 per share for
the nine months ended September 30, 2016.
- RAIT’s compensation and G&A expense
declined by 16.8% for the quarter ended September 30, 2017 compared
to the quarter ended September 30, 2016. RAIT’s compensation and
G&A expense declined 14.9% for the nine months ended September
30, 2017 compared to the nine months ended September 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 10.0%, or $161.7 million, during the
quarter ended September 30, 2017, and 40.6%, or $995.6 million,
from January 1, 2016 to September 30, 2017.
- RAIT reported a loss on deconsolidation
of properties of $(20.0) million or $(0.22) per common share for
the nine months ended September 30, 2017. RAIT expects this loss on
deconsolidation to be offset by a gain on deconsolidation in future
periods.
- RAIT expects to recognize a $5.5
million gain in its fourth quarter 2017 financial results related
to the purchase by RAIT for $20.5 million of common share purchase
warrants (the “Warrants”) and common share appreciation rights (the
“SARs”) pursuant to the exercise by the holder of a put right with
respect to the Warrants and SARs. RAIT had classified both Warrants
and SARs as liabilities and included their combined fair value in
RAIT’s liabilities. This gain would represent the excess of this
fair value over the purchase price.
Commercial Real Estate (“CRE”) Lending Business
- RAIT’s senior loan originations
increased 294% to $100.6 million during the quarter ended September
30, 2017 from $25.6 million in senior loans originated during the
quarter ended September 30, 2016. RAIT is also in the process of
aggregating loans for RAIT’s eighth floating-rate loan
securitization.
- RAIT increased total loan originations
321% to $375.3 million during the nine-month period ended September
30, 2017 from $89.2 million in loans originated during the
nine-month period ended September 30, 2016, surpassing total loan
originations for all of 2016, which totaled $156.8 million.
- CRE loan repayments were $110.0 million
and $384.6 million for the quarter and nine-month period ended
September 30, 2017, respectively.
CRE Property Portfolio and Property Sales
- The gross carrying amount of RAIT’s
real estate portfolio, as of September 30, 2017, declined by $453.8
million since December 31, 2016 to a gross carrying amount of
$399.7 million. This decline is due to sales, divestitures,
depreciation and property impairments on legacy properties.
- Subsequent to September 30, 2017, RAIT
sold three properties totaling $65.3 million, reducing the gross
carrying amount of RAIT’s real estate portfolio to approximately
$336 million at November 1, 2017.
- As of September 30, 2017, RAIT had 24
properties with a gross carrying amount of $399.7 million. Due to
the subsequent property sales described above, at November 1, 2017,
RAIT had 21 properties with a gross carrying amount of
approximately $336 million consisting of 15 properties with a gross
carrying amount of approximately $238 million in various stages of
the selling process and six properties with a gross carrying amount
of $97.7 million classified as held for investment.
Other Developments
Dividends
- On November 1, 2017, the Board declared
a fourth 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 January 2, 2017 to holders of record on
December 1, 2017.
- On November 1, 2017, the Board decided
to suspend the dividend on RAIT’s common shares. The Board expects
to consider whether to reinstate a dividend on RAIT’s common shares
after RAIT completes its previously announced strategic
transformation and exploration of strategic and financial
alternatives.
Strategic and Financial Alternatives
- RAIT previously announced the formation
of a committee of independent members of the Board (the “Special
Committee”) to explore and evaluate strategic and financial
alternatives to enhance shareholder value. The Special Committee
continues to work diligently with Barclays and UBS Investment Bank
on this process. Expressions of interest have been received from,
and discussions are advancing with, multiple parties with respect
to a potential transaction involving RAIT. There can be no
assurance that any transaction will result from this process or as
to the timing or nature of such potential transaction.
NYSE Notice
- As previously disclosed, effective
September 21, 2017, RAIT received written notification (the
“Notice”) from the New York Stock Exchange (the “NYSE”) that RAIT
was not in compliance with the continued listing standard set forth
under Rule 802.01C of the NYSE Listed Company Manual because the
average closing price of RAIT’s common shares fell below $1.00 over
a consecutive 30 trading-day period ending September 15, 2017. Upon
receipt of the Notice, RAIT became subject to the procedures set
forth in Rule 802.01C of the NYSE Listed Company Manual, and in
accordance with such procedures, RAIT acknowledged receipt of the
Notice and notified the NYSE of its intention to seek to cure the
deficiency set forth therein. RAIT is considering various options
it may take in an effort to cure this deficiency and regain
compliance with Rule 802.01C of the NYSE Listed Company
Manual.
Non-GAAP Financial Measures and Definitions
RAIT discloses the following non-GAAP financial measures in this
release: funds from operations (“FFO”) and CAD. 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,
FFO, CAD and other non-GAAP financial measures and other useful
information for investors. Reconciliations of these non-GAAP
financial measures to their respective most directly comparable
GAAP measures are also included in this supplemental information.
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.
Conference Call to Discuss Results for RAIT’s Third Fiscal
Quarter of 2017
RAIT will be conducting a conference call to discuss its
financial results for its third fiscal quarter of 2017 at 9:00 AM
ET on Thursday, November 2, 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 95365064. 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, November 9, 2017, by dialing
855.859.2056, access code 95365064.
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” “transformation,” “focus,” “progress,”
‘on-track,” 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
(i) RAIT’s review of its strategic and financial alternatives, (ii)
RAIT’s initiatives to further simplify its business to focus on its
commercial real estate lending business, reduce costs, reduce
indebtedness and enhance value and returns for shareholders, (iii)
RAIT’s actions taken or contemplated to enhance its long-term
prospects and create value for its shareholders, (iv) RAIT’s
suspension of the dividend on RAIT’s common shares and any
potential future reinstatement thereof, (v) RAIT’s intention to
cure the deficiency set forth in the Notice, (vi) any options RAIT
may take in an effort to cure this deficiency and possible
consequences to RAIT of the Notice, (vii) RAIT’s aggregating loans
for RAIT’s eighth floating-rate loan securitization, including the
anticipated closing date of such transaction, and (viii) RAIT’s
expectation that it will continue to make further progress
executing on its strategic transformation throughout 2017. 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) the effect of the announcement of RAIT’s review of, or any
implementation of, strategic and financial alternatives on RAIT’s
business, including its financial and operating results and its
employees, capital sources and customers, (ii) RAIT’s ability to
implement any new strategic and financial alternatives or continue
its previously announced transition to a more focused,
cost-efficient and lower leverage business, (iii) RAIT’s ability to
continue to sell properties and repay the related debt, (iv) final
accounting determinations on gains or losses realized in the event
properties or other assets are sold or liabilities repurchased for
prices that differ from their carrying value or if property
valuations are adjusted in the process of revaluating properties
when they are characterized as held for disposition or sale, (v)
whether and, if so, when, the Board would determine to resume
declaring a dividend on RAIT’s common shares and whether the Board
will continue to declare a dividend on RAIT’s preferred shares,
(vi) whether RAIT will be able to regain compliance with NYSE
listing requirements or maintain compliance with the other
continued listing requirements set forth in the NYSE Listed Company
Manual; (vii) 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;
(viii) whether anticipated cost savings from the internalization of
Independence Realty Trust, Inc. will be achieved; (ix) 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; (x) whether RAIT will continue to be able to
further reduce compensation and G&A expenses and indebtedness;
(xi) whether RAIT’s changes to its Board composition and leadership
and to its executive management team will lead to enhanced value
for shareholders; (xii) whether RAIT will be able to create
sustainable earnings and grow book value; (xiii) whether RAIT will
be able to successfully redeploy capital from non-lending related
asset sales; (xiii) whether RAIT will be able to increase loan
origination levels; (xiv) whether the disposition of non-core
assets, reductions in debt levels and expected loan repayments will
impact RAIT’s earnings and CAD; (xv) whether RAIT will be able to
organically increase reliance on match-funded asset-level debt;
(xvi) overall conditions in commercial real estate and the economy
generally; (xvii) 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; (xviii) whether we will be able to originate sufficient
bridge loans; (xix) changes in the expected yield of our
investments; (xx) changes in financial markets and interest rates,
or to the business or financial condition of RAIT or its business;
(xxi) whether RAIT will generate any CMBS gain on sale profits;
(xxii) whether our management changes will be successfully
implemented; (xxiii) 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; (xxiv) 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; (xxv) whether RAIT will have any legal obligations on
the non-recourse debt on its industrial real estate portfolio;;
(xxvi) increases to RAIT’s leverage or decreases in total common
equity resulting from such determinations or revaluation; (xxvii)
the availability of financing and capital, including through the
capital and securitization markets; (xxviii) whether the credit
quality of RAIT’s post-financial crisis loans and financing
structures will continue to perform as expected; (xxix) 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; (xxx)
whether RAIT will be able to recognize a gain upon the redemption
of the Warrants and SARs and, if so, the amount thereof; (xxxi)
whether any expressions of interest received by RAIT or discussions
RAIT has engaged in relating to RAIT’s strategic and financial
alternatives will result in any transaction or the timing or nature
of any such transaction; and (xxxii) other factors described in
RAIT’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q
and other filings with the SEC. If RAIT’s common shares ultimately
were to be suspended from trading on, and delisted from, the NYSE
for any reason, it could have material adverse consequences on RAIT
including, among others: triggering the right of holders of our
secured notes and convertible notes to require us to repurchase
their notes, satisfying one condition which, if all other relevant
conditions were satisfied, would trigger an increased dividend rate
on RAIT’s series C preferred shares, possibly triggering
non-compliance with covenants applicable to RAIT’s series D
preferred shares and would likely result in the delisting of our
preferred shares and senior notes currently listed on the NYSE.
Delisting of RAIT’s common shares could also negatively affect
RAIT’s ability to implement any new strategic and financial
alternatives or continue its previously announced transition to a
more focused, cost-efficient and lower leverage business, lower
demand and market price for RAIT’s common shares, reduce interest
in RAIT from investors, analysts and other market participants
and/or adversely affect RAIT’s ability to raise additional capital,
complete future securitizations of floating rate loans and attract
and retain employees by means of equity compensation. 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
September 30,
2017
June 30,
2017
March 31,
2017
December 31,
2016
September 30,
2016
OPERATING DATA:
Lending:
Investments in loans $ 1,260,346 $ 1,267,705 $ 1,315,539 $
1,292,639 $ 1,373,615 Gross loan production $ 100,585 $ 154,675 $
120,040 $ 67,540 $ 25,550 Weighted average interest rate of loan
production (a) 5.4 % 5.7 % 5.6 % 5.6 % 5.7 % CMBS income $ 25 $ 5 $
16 $ 20 $ 305 CMBS loans sold $ - $ - $ - $ - $ 13,800 Average CMBS
Gain on Sale (points) - - - - 2.2
Real estate
portfolio:
Gross real estate investments $ 399,674 $ 470,249 $ 694,230 $
854,646 $ 965,362 Property dispositions $ 63,260 $ 73,153 $ 138,326
$ 146,068 $ 125,900 Property income $ 15,012 $ 16,946 $ 20,065 $
23,501 $ 29,614 Operating expenses $ 8,313 $ 9,509 $ 10,634 $
13,084 $ 14,635 Net operating income $ 6,699 $ 7,437 $ 9,431 $
10,417 $ 14,979 NOI margin 44.6 % 43.9 % 47.0 % 44.3 % 50.6 %
EARNINGS & DIVIDENDS: Earnings (loss) per share
from continuing operations - diluted $ (0.26 ) $ (1.38 ) $ (0.33 )
$ (0.37 ) $ (0.02 )
Earnings (loss) per share from
discontinued operations -diluted
$ - $ - $ - $ 0.54 $ 0.02 Earnings (loss) per share -- diluted $
(0.26 ) $ (1.38 ) $ (0.33 ) $ 0.17 $ - FFO per share $ (0.18 ) $
(0.54 ) $ (0.30 ) $ 0.05 $ 0.12 CAD per share (b) $ (0.01 ) $ (0.04
) $ 0.06 $ 0.07 $ 0.12 Dividends per share $ - $ 0.05 $ 0.09 $ 0.09
$ 0.09 CAD payout ratio 0.0 % -125.0 % 150.0 % 128.6 % 75.0 %
RECOURSE DEBT REDUCTIONS: Reductions of recourse
debt, excluding warehouse facilities $ 10,160 $ 14,500 $ 32,000 $
2,000 $ 2,000
CAPITALIZATION AND COVERAGE RATIOS:
Recourse/Non-Recourse Debt: Recourse $ 410,042 $ 328,858 $ 439,733
$ 365,921 $ 509,938 Non-Recourse 976,996 1,218,329
1,142,815 1,361,246 1,441,510 Total
Recourse/Non-Recourse debt 1,387,038 1,547,187 1,582,548 1,727,167
1,951,448 Preferred shares (par) 311,487 311,487 321,544 321,544
333,144 Common shares (market capitalization) 67,924 203,902
296,669 310,113 311,550 Noncontrolling interests, at carrying value
(c) 3,880 3,880 5,506 5,386
5,386 Total capitalization $ 1,770,329 $ 2,066,456 $ 2,206,267 $
2,364,210 $ 2,601,528 Total Liabilities/Total Gross Assets
84.4 % 84.3 % 76.3 % 76.2 % 74.9 % Total Liabilities +
Preferred/Total Gross Assets 100.8 % 99.2 % 90.0 % 88.8 % 83.0 %
Interest Coverage (d) 1.20 x 0.96 x 1.34 x 1.40 x 1.85 x
Interest + Preferred Coverage (e) 0.85 x 0.68 x 0.94 x 1.00 x 1.46
x
OTHER KEY BENCHMARKS: Total Assets Under Management
(AUM) $ 2,929,378 $ 3,170,495 $ 3,390,885 $ 3,575,224 $ 5,128,101
Total Gross Assets $ 1,902,295 $ 2,081,631 $ 2,347,452 $ 2,556,302
$ 4,118,215 (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 $3,636
write-off of accrued interest receivable related to a loan that was
determined to be impaired during the period. Interest + Preferred
Coverage would have been 0.84x without the effect of this non-cash
write-off.
Schedule II
RAIT Financial Trust
Consolidated Balance Sheets
(Dollars in thousands, except share and
per share amounts)
(unaudited)
($'s in 000's)
As of
September 30,
2017
June 30,
2017
March 31,
2017
December 31,
2016
September 30,
2016
Assets Investments in loans: Investment in loans $ 1,260,346
$ 1,267,705 $ 1,315,539 $ 1,292,639 $ 1,373,615 Allowance for loan
losses (25,140 ) (23,514 ) (13,531 )
(12,354 ) (18,655 ) Investments in loans, net 1,235,206
1,244,191 1,302,008 1,280,285 1,354,960 Investments in real estate:
Investments in real estate at cost 399,674 470,249 694,230 854,646
965,362 Accumulated depreciation (30,974 ) (35,359 )
(114,179 ) (138,214 ) (156,613 ) Investments
in real estate, net 368,700 434,890 580,051 716,432 808,749 Cash
and cash equivalents 46,019 89,317 96,432 110,531 36,019 Restricted
cash 142,489 193,580 141,610 190,179 229,957 Accrued interest
receivable 32,307 32,141 36,176 36,271 41,603 Other assets 34,905
36,753 49,080 53,878 81,546 Intangible assets, net 8,062 10,901
17,258 19,267 23,165 Assets of discontinued operations -
- - - 1,306,532
Total assets $
1,867,688 $ 2,041,773 $ 2,222,615 $ 2,406,843 $ 3,882,531
Liabilities and Equity Indebtedness, net $ 1,427,947 $
1,588,067 $ 1,623,133 $ 1,751,082 $ 1,975,863 Accrued interest
payable 10,780 9,229 9,591 8,347 10,464 Accounts payable and
accrued expenses 15,201 15,157 14,033 20,016 20,082 Derivative
liabilities - - - - 1,748 Borrowers' escrows 113,996 104,197
101,805 107,183 112,255 Deferred taxes and other liabilities 38,217
37,535 43,572 60,864 56,437 Liabilities of discontinued operations
- - - - 906,225
Total
liabilities 1,606,141 1,754,185 1,792,134 1,947,492 3,083,074
Series D preferred stock 77,653 75,654 83,505 81,581 90,728
Equity: Shareholders' Equity: 7.75% Series A
Preferred shares 53 53 53 53 53 8.375% Series B Preferred shares 23
23 23 23 23 8.875% Series C Preferred shares 17 17 17 17 17 Common
shares, $0.03 par value per share 2,791 2,793 2,781 2,769 2,766
Additional paid in capital 2,094,035 2,093,270 2,092,695 2,093,257
2,090,210 Accumulated other comprehensive income (loss) - - - -
(112 ) Retained earnings (deficit) (1,916,905 )
(1,888,102 ) (1,754,099 ) (1,723,735 )
(1,731,141 ) Total shareholders' equity 180,014 208,054 341,470
372,384 361,816 Noncontrolling interests - continuing operations
3,880 3,880 5,506 5,386 5,386 Noncontrolling interests -
discontinued operations - - - -
341,527 Total noncontrolling interests 3,880 3,880
5,506 5,386 346,913
Total equity
183,894 211,934 346,976 377,770 708,729
Total liabilities and equity $ 1,867,688 $ 2,041,773 $
2,222,615 $ 2,406,843 $ 3,882,531
Schedule III
RAIT Financial Trust
Consolidated Statements of Operations
(Dollars in thousands, except share and
per share amounts)
(unaudited)
For the Three Months Ended September
30, For the Nine Months Ended September
30, 2017 2016 2017
2016 Revenue: Net interest margin Investment
interest income $ 18,115 $ 20,189 $ 50,647 $ 69,510 Investment
interest expense (10,236 ) (8,512 ) (30,555 )
(26,957 ) Net interest margin 7,879 11,677 20,092 42,553
Property income 15,012 29,614 52,023 89,335 Fee and other income
1,712 1,946 4,904 5,974 Total revenue
24,603 43,237 77,019 137,862
Expenses: Interest
expense 8,656 13,298 27,682 43,135 Real estate operating expenses
8,313 14,635 28,456 43,810 Property management expenses 1,908 2,226
6,772 7,239 General and administrative expenses: Compensation
expenses 3,194 4,675 10,210 12,162 Other general and administrative
expenses 3,233 3,052 8,627 9,973 Total
general and administrative expenses 6,427 7,727 18,837 22,135
Acquisition and integration expenses 57 197 296 376 Provision for
loan losses 5,516 1,533 27,914 4,202 Depreciation and amortization
expense 6,139 11,466 23,712 39,273 IRT internalization and
management transition expenses — — 736 — Shareholder activism
expenses 155 — 2,464 — Employee separation expenses 575
— 575 — Total expenses 37,746
51,082 137,444 160,170
Operating Income
(13,143 ) (7,845 ) (60,425 ) (22,308 ) Other income (expense) 283
(70 ) 144 30 Gains (loss) on assets 30 18,194 22,795 23,811 Asset
impairment (3,121 ) (18,872 ) (96,354 ) (26,658 ) Goodwill
impairment - — (8,342 ) — Gain (loss) on deconsolidation of
properties (4,035 ) — (19,982 ) — Gain (loss) on debt
extinguishment (644 ) (6 ) 944 998 Change in fair value of
financial instruments 4,753 (1,375 ) 6,693
(7,055 )
Income (loss) before taxes (15,877 ) (9,974
) (154,527 ) (31,182 ) Income tax benefit (provision) 34
15,302 261 18,051
Income from continuing
operations (15,843 ) 5,328 (154,266 ) (13,131 )
Discontinued
operations: Income (loss) from discontinued operations —
4,112 — 38,473
Net income (loss)
(15,843 ) 9,440 (154,266 ) 25,342 Income allocated to preferred
shares (8,387 ) (8,715 ) (25,730 ) (25,850 ) (Income) loss
allocated to noncontrolling interests - (729 )
(76 ) (24,920 )
Net income (loss) available to common
shares $ (24,230 ) $ (4 ) $ (180,072 ) $ (25,428 )
Amount attributable to common shares: Net income (loss) available
to common shares from continuing operations $ (24,230 ) $ (2,048 )
$ (180,072 ) $ (35,526 ) Net income (loss) available to common
shares from discontinued operations - 2,044 —
10,098 Net income (loss) available to common shares $
(24,230 ) $ (4 ) $ (180,072 ) $ (25,428 ) EPS - BASIC:
Earnings (loss) per share from continuing operations $ (0.26 ) $
(0.02 ) $ (1.97 ) $ (0.39 ) Earnings (loss) per share from
discontinued operations — 0.02 — 0.11
Earnings per share - BASIC $ (0.26 ) $ - $ (1.97 ) $ (0.28 )
EPS - DILUTED: Earnings (loss) per share from continuing operations
$ (0.26 ) $ (0.02 ) $ (1.97 ) $ (0.39 ) Earnings (loss) per share
from discontinued operations — 0.02 —
0.11 Earnings per share - DILUTED $ (0.26 ) $ - $ (1.97 ) $ (0.28 )
Weighted-average shares outstanding - Basic 91,559,636 91,201,784
91,438,884 91,137,041 Weighted-average shares outstanding - Diluted
91,559,636 91,201,784 91,438,884 91,137,041
FUNDS FROM
OPERATIONS (FFO): Net Income (loss) available to common shares
$ (24,230 ) $ (4 ) $ (180,072 ) $ (25,428 ) Add-Back (Deduct):
Depreciation 4,657 8,884 17,171 28,539 (Gains) Losses on the sale
of real estate (30 ) (18,194 ) (22,795 ) (24,301 ) Asset impairment
3,121 18,872 91,989 26,658 Adjustments related to discontinued
operations — 1,195 — (1,322 )
FFO $ (16,482 ) $ 10,753 $ (93,707 ) $ 4,146
FFO per
share--basic $ (0.18 ) $ 0.12 $ (1.02 ) $ 0.05 Weighted-average
shares outstanding 91,559,636 91,201,784 91,438,884 91,137,041
CASH AVAILABLE FOR DISTRIBUTION (CAD): Net Income
(loss) available to common shares $ (24,230 ) $ (4 ) $ (180,072 ) $
(25,428 ) Add-Back (Deduct): Depreciation and amortization expense
6,139 11,466 23,712 39,273 Change in fair value of financial
instruments (4,753 ) 1,375 (6,693 ) 7,055 (Gains) losses on assets
(30 ) (18,194 ) (22,795 ) (23,811 ) (Gains) losses on
deconsolidation of properties 4,035 — 19,982 — (Gains) losses on
debt extinguishment 644 6 (944 ) (998 ) Deferred income tax
(benefit) provision — (15,249 ) 22 (18,090 ) Straight-line rental
adjustments (463 ) (622 ) (286 ) (1,182 ) Equity based compensation
779 819 1,833 2,841 Acquisition and integration expenses 57 197 296
376 Origination fees and other deferred items 6,490 8,536 26,654
21,377 Provision for loan losses 5,516 1,533
27,914
4,202 IRT internalization and management transition expenses — —
736 — Asset impairment 3,121 18,872 96,354 26,658 Goodwill
impairment — — 8,342 — Shareholder activism expenses 155 — 2,464 —
Employee separation expenses 575 — 575 — Net expenses associated
with deconsolidated properties 689 — 2,037 — Discontinued
operations and noncontrolling interest effect of certain
adjustments — 1,885 — 1,762
CAD
(a) $ (1,276 ) $ 10,619 $
131
$ 34,035
CAD per share (a) $ (0.01 ) $ 0.12 $
0.00
$ 0.37 Weighted-average shares outstanding 91,559,636 91,201,784
91,438,884 91,137,041 (a) For the nine months ended
September 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 second quarter. For the nine
months ended September 30, 2017, CAD would have been $3,767 or
$0.04 per share, without the effect of this non-cash write-off.
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)
For the Three Months Ended September
30,
For the Nine Months Ended September 30,
2017
2016
2017 2016 FUNDS FROM
OPERATIONS (FFO): Net Income (loss) available to common shares
$ (24,230 ) $ (4 ) $ (180,072 ) $ (25,428 ) Add-Back (Deduct):
Depreciation 4,657 8,884 17,171 28,539 (Gains) Losses on the sale
of real estate (30 ) (18,194 ) (22,795 ) (24,301 ) Asset impairment
3,121 18,872 91,989 26,658 Adjustments related to discontinued
operations — 1,195 — (1,322 )
FFO $ (16,482 ) $ 10,753 $ (93,707 ) $ 4,146
FFO per
share--basic $ (0.18 ) $ 0.12 $ (1.02 ) $ 0.05 Weighted-average
shares outstanding 91,559,636 91,201,784 91,438,884 91,137,041
CASH AVAILABLE FOR DISTRIBUTION (CAD): Net Income (loss)
available to common shares $ (24,230 ) $ (4 ) $ (180,072 ) $
(25,428 ) Add-Back (Deduct): Depreciation and amortization expense
6,139 11,466 23,712 39,273 Change in fair value of financial
instruments (4,753 ) 1,375 (6,693 ) 7,055 (Gains) losses on assets
(30 ) (18,194 ) (22,795 ) (23,811 ) (Gains) losses on
deconsolidation of properties 4,035 — 19,982 — (Gains) losses on
debt extinguishment 644 6 (944 ) (998 ) Deferred income tax
(benefit) provision — (15,249 ) 22 (18,090 ) Straight-line rental
adjustments (463 ) (622 ) (286 ) (1,182 ) Equity based compensation
779 819 1,833 2,841 Acquisition and integration expenses 57 197 296
376 Origination fees and other deferred items 6,490 8,536 26,654
21,377 Provision for loan losses 5,516 1,533 27,914 4,202 IRT
internalization and management transition expenses — — 736 — Asset
impairment 3,121 18,872 96,354 26,658 Goodwill impairment — — 8,342
— Shareholder activism expenses 155 — 2,464 — Employee separation
expenses 575 — 575 — Net expenses associated with deconsolidated
properties 689 — 2,037 — Discontinued operations and noncontrolling
interest effect of certain adjustments — 1,885
— 1,762
CAD (a) $ (1,276 ) $ 10,619 $
131
$ 34,035
CAD per share (a) $ (0.01 ) $ 0.12 $
0.00
$ 0.37 Weighted-average shares outstanding 91,559,636 91,201,784
91,438,884 91,137,041 (a) For the nine months ended
September 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 second quarter. For the nine
months ended September 30, 2017, CAD would have $3,767 or $0.04 per
share, without the effect of this non-cash write-off.
Schedule V
RAIT Financial Trust
Reconciliation of NOI to Net income
(loss)
(Dollars in thousands, except share and
per share amounts)
(unaudited)
($'s in 000's)
For the Three Months
Ended For the Nine Months Ended
September 30,
2017
June 30,
2017
March 31,
2017
December 31,
2016
September 30,
2016
September 30, 2017
September 30, 2016
Net operating income $ 6,699 $ 7,437 $ 9,431 $ 10,417 $ 14,979 $
23,567 $ 45,525 Net interest margin 7,879 4,336 7,877 10,844 11,677
20,092 42,553 Fee and other income 1,712 1,531 1,661 1,400 1,946
4,904 5,974 Interest expense (8,656 ) (8,883 ) (10,143 ) (11,914 )
(13,298 ) (27,682 ) (43,135 ) Compensation expenses (3,194 ) (3,529
) (3,487 ) (6,275 ) (4,675 ) (10,210 ) (12,162 ) General and
administrative expenses (3,233 ) (2,689 ) (2,705 ) (3,300 ) (3,052
) (8,627 ) (9,973 ) Property management expenses (1,908 ) (2,651 )
(2,213 ) (2,240 ) (2,226 ) (6,772 ) (7,239 ) Acquisition and
integration expenses (57 ) (67 ) (172 ) (248 ) (197 ) (296 ) (376 )
Provision for loan losses (5,516 ) (20,863 ) (1,535 ) (3,848 )
(1,533 ) (27,914 ) (4,202 ) Depreciation and amortization expense
(6,139 ) (7,819 ) (9,754 ) (12,031 ) (11,466 ) (23,712 ) (39,273 )
IRT internalization and management transition expenses - - (736 )
(6,271 ) - (736 ) - Shareholder activism expenses (155 ) (1,615 )
(694 ) - - (2,464 ) - Employee separation expenses (575 ) - - - -
(575 ) - Other income (expense) 283 (153 ) 14 (457 ) (70 ) 144 30
Gains (loss) on assets 30 10,759 12,006 29,461 18,194 22,795 23,811
Gain (loss) on deconsolidation of properties (4,035 ) - (15,947 ) -
- (19,982 ) - Asset impairment (3,121 ) (85,809 ) (7,424 ) (11,127
) (18,872 ) (96,354 ) (26,658 ) Goodwill impairment - (8,342 ) - -
- (8,342 ) - Gain (loss) on debt extinguishment (644 ) (1,598 )
3,186 333 (6 ) 944 998 Change in fair value of financial
instruments 4,753 3,093 (1,153 ) 1,109 (1,375 ) 6,693 (7,055 )
Income tax benefit (provision) 34 (22 ) 249 (20,601 ) 15,302 261
18,051 Income from discontinued operations - - - 1,671 4,112 -
38,473 Gain (loss) on disposal of discontinued operations -
- - 47,808 - - - Net
income (loss) $ (15,843 ) $ (116,884 ) $ (21,539 ) $ 24,731 $ 9,440
$ (154,266 ) $ 25,342
Schedule VIRAIT Financial
TrustDefinitions
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
September 30,
2017
June 30,
2017
March 31,
2017
December 31,
2016
September 30,
2016
Investments in real estate, net $ 368,700 $ 434,890 $ 580,051 $
716,432 $ 808,749 Plus: Accumulated depreciation 30,974
35,359 114,179 138,214 156,613 Gross
real estate investments $ 399,674 $ 470,249 $ 694,230 $ 854,646 $
965,362
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
September 30,
2017
June 30,
2017
March 31,
2017
December 31,
2016
September 30,
2016
Total assets $ 1,867,688 $ 2,041,773 $ 2,222,615 $ 2,406,843 $
3,882,531 Plus: Accumulated depreciation (a) 30,974 35,359 114,179
138,214 209,437 Plus: Accumulated amortization (b) (c) 3,633
4,499 10,658 11,245 26,247 Total gross
assets $ 1,902,295 $ 2,081,631 $ 2,347,452 $ 2,556,302 $ 4,118,215
(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