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RAIT Financial Trust Announces First Quarter 2012 Financial Results

First Quarter 2012 Results

RAIT reported AFFO, a non-GAAP financial measure, for the three-month period ended March 31, 2012 of $9.3 million, or $0.21 per share - diluted based on 44.2 million weighted-average shares outstanding – diluted, as compared to AFFO for the three-month period ended March 31, 2011 of $6.9 million, or $0.19 per share – diluted based on 37.0 million weighted-average shares outstanding – diluted. RAIT reported a net loss allocable to common shares for the three-month period ended March 31, 2012 of $107.0 million, or $2.42 total loss per share - diluted based on 44.2 million weighted-average shares outstanding – diluted, as compared to net income allocable to common shares for the three-month period ended March 31, 2011 of $5.8 million, or $0.16 total earnings per share – diluted based on 37.0 million weighted-average shares outstanding – diluted.

RAIT’s earnings in the first quarter of 2012 were reduced $115.1 million by non-cash mark-to-market increases in the fair value of non-recourse debt issued by RAIT’s consolidated securitizations, Taberna Preferred Funding VIII, Ltd. and Taberna Preferred Funding IX, Ltd. and associated interest rate hedges. This non-cash mark-to-market reduction to earnings was offset by $6.2 million of non-cash mark-to-market increases in the fair value of trading securities and security-related receivables. The net change in fair value of financial instruments as a result of these items was $108.9 million. Non-cash mark-to-market adjustments are excluded from the calculation of AFFO. GAAP book value at March 31, 2012 was $13.67 compared to $18.04 at December 31, 2011.

A reconciliation of RAIT's reported net income (loss) allocable to common shares to its AFFO, including management's rationale for the usefulness of this non-GAAP financial measure, is included as Schedule I to this release.

RAIT also reported the following:

  • Investments in Real Estate. As of March 31, 2012, RAIT had investments in real estate of $887.1 million as compared to $891.5 million at December 31, 2011. During the three-months ended March 31, 2012, RAIT did not convert any loans to owned real estate.
  • Average Occupancy. The average occupancy of RAIT’s portfolio of directly held investments in real estate increased to 85.0% at March 31, 2012 from 83.6% at December 31, 2011.
  • CRE CDO Coverage Tests. As of the most recent reporting date, RAIT CRE CDO I, Ltd’s overcollateralization test was passing at 126.3% with a trigger of 116.2% and RAIT Preferred Funding II, Ltd’s overcollateralization test was passing at 116.1% with a trigger of 111.7%.
  • Non-Accrual CRE Loans. The unpaid principal balance of RAIT’s non-accrual commercial real estate loan portfolio decreased to $56.1 million at March 31, 2012 as compared to $121.1 million at March 31, 2011.
  • Provision for losses. Provision for losses on RAIT’s commercial real estate loan portfolio decreased to $0.5 million for the quarter ended March 31, 2012 as compared to $2.0 million for the quarter ended March 31, 2011.
  • Dividends. On March 1, 2012, RAIT declared a first quarter common dividend of $0.08 per common share to shareholders of record on March 28, 2012 which was paid on April 27, 2012 and totaled $4.0 million. On May 1, 2012, RAIT’s Board of Trustees declared a second quarter 2012 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 preferred dividends are payable on July 2, 2012 to holders of record on June 1, 2012. On January 24, 2012, RAIT’s Board of Trustees declared a first quarter 2012 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 preferred dividends were paid on April 2, 2012 to holders of record on March 1, 2012 and totaled $3.4 million.
Key Statistics

(Unaudited and dollars in thousands, except per share information)

 

As of or For the Three-Month Periods Ended

                   

March 31, 2012

 

December 31, 2011

 

September 30, 2011

 

June 30, 2011

 

March 31, 2011

Financial Statistics:        
 
Assets under management $3,549,029 $3,517,684 $3,633,133 $3,753,290 $3,814,791
Total revenue $54,245 $56,923 $60,089 $58,863 $58,279
Earnings per share – diluted $(2.42) $(0.39) $(0.55) $(0.53) $0.16
Funds from Operations (“FFO”) per share $(2.25) $(0.20) $(0.36) $(0.34) $0.33
AFFO per share $0.21 $0.30 $0.23 $0.22 $0.19
Common dividend declared $0.08 $0.06 $0.06 $0.06 $0.09 (1)
 

Commercial Real Estate (“CRE”) Loan Portfolio:

CRE loans-- unpaid principal $990,321 $952,997 $1,064,946 $1,122,898 $1,149,169
Non-accrual loans -- unpaid principal

$56,113

$54,334 $89,023 $94,117 $121,054
Non-accrual loans as a % of reported loans 5.7% 5.7% 8.4% 8.4% 10.5%
Reserve for losses $35,527 $40,565 $50,609 $49,906 $58,809
Reserves as a % of non-accrual loans 63.3% 74.7% 56.8% 53.0% 48.6%
Provision for losses $500 $500 $500 $950 $1,950
 
CRE Property Portfolio:
Reported investments in real estate $887,130 $891,502 $849,232 $851,916 $859,983
Number of properties owned 56 56 48 48 48
Multifamily units owned 8,014 8,014 8,014 8,014 8,311
Office square feet owned 1,786,860 1,786,860 1,786,860 1,786,908 1,786,908
Retail square feet owned 1,358,257 1,358,257 1,114,250 1,116,171 1,116,063
Land 19.90 19.90 7.25 7.25 7.25
 
Average occupancy data:
Multifamily 90.4% 88.5% 89.8% 88.6% 88.0%
Office 70.7% 69.2% 68.5% 68.8% 70.7%
Retail 66.9%   68.0%   68.9%   62.0%   56.3%
Total 85.0% 83.6% 84.5% 83.1% 82.4%
 
Average Rent per Unit/Square Foot (2):
Multifamily (3) $691 $681 $671 $673 $659
Office (4) $21.53 $20.85 $20.50 $18.39 $17.88
Retail (4) $10.59 $9.73 $9.55 $6.69 $9.71
 
(1)   On January 10, 2011, RAIT declared a 2010 annual cash dividend on its common shares of $0.09 per common share, split adjusted. The dividends were paid on January 31, 2011 to holders of record on January 21, 2011.
(2) Based on properties owned as of March 31, 2012.
(3) Average effective rent is rent per unit per month.
(4) Average effective rent is rent per square foot per year.
 

Conference Call

All interested parties can listen to the live conference call webcast at 9:30 AM EDT on Thursday, May 3, 2012 from the home page of the RAIT Financial Trust website at www.raitft.com or by dialing 800.320.2978, access code 66935285. 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, May 10, 2012, by dialing 888.286.8010, access code 20606750.

About RAIT Financial Trust

RAIT Financial Trust manages a portfolio of real estate related assets, provides a comprehensive set of debt financing options to the real estate industry and invests in real estate-related assets. RAIT's management uses its experience, knowledge and relationship network to seek to generate and manage real estate related investment opportunities for RAIT and for outside investors. For more information, please visit www.raitft.com or call Investor Relations at 215.243.9000.

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," "will," "expect," "intend," "anticipate," "estimate," "believe," "continue," or other similar words. 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. These risks, uncertainties and contingencies include, but are not limited to, those disclosed in RAIT’s filings with the Securities and Exchange Commission. 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.

RAIT Financial Trust
Consolidated Statements of Operations
(Dollars in thousands, except share and per share information)
(unaudited)
 
For the Three-Month
Periods Ended
March 31
2012   2011
Revenue:  
Interest income $ 27,956 $ 33,558
Rental income 24,831 21,290
Fee and other income   1,458     3,431
Total revenue 54,245 58,279
Expenses:
Interest expense 19,348 23,367
Real estate operating expense 13,797 12,617
Compensation expense 5,738 6,544
General and administrative expense 3,825 4,968
Provision for loan losses 500 1,950
Depreciation and amortization   7,663     7,119
Total expenses 50,871 56,565
Operating income 3,374 1,714
Interest and other income (expense) 33 83
Gains (losses) on sale of assets 11 1,415
Gains (losses) on extinguishment of debt 1,574 (537)
Change in fair value of financial instruments   (108,923)     5,611
Income (loss) before taxes and discontinued operations (103,931) 8,286
Income tax benefit (provision)   267     54
Income (loss) from continuing operations (103,664) 8,340
Income (loss) from discontinued operations   -     791
Net income (loss) (103,664) 9,131
(Income) loss allocated to preferred shares (3,410) (3,414)
(Income) loss allocated to noncontrolling interests   55     50
Net income (loss) allocable to common shares $ (107,019)   $ 5,767
Earnings (loss) per share—Basic:
Continuing operations $ (2.42) $ 0.14
Discontinued operations   -     0.02
Total earnings (loss) per share—Basic $ (2.42)   $ 0.16
Weighted-average shares outstanding—Basic   44,150,924     36,618,910
Earnings (loss) per share—Diluted:
Continuing operations $ (2.42) $ 0.14
Discontinued operations   -     0.02
Total earnings (loss) per share—Diluted $ (2.42)   $ 0.16
Weighted-average shares outstanding—Diluted   44,150,924     36,968,120
 
RAIT Financial Trust
Consolidated Balance Sheets
(Dollars in thousands, except share and per share information)
(unaudited)
   
As of As of
March 31, December 31,
2012   2011
Assets
Investments in mortgages and loans, at amortized cost:
Commercial mortgages, mezzanine loans, other loans and preferred equity interests $ 1,032,844 $ 996,363
Allowance for losses   (39,715)     (46,082)
Total investments in mortgages and loans 993,129 950,281
Investments in real estate 887,130 891,502
Investments in securities and security-related receivables, at fair value 653,589 647,461
Cash and cash equivalents 53,841 29,720
Restricted cash 153,285 278,607
Accrued interest receivable 41,059 39,455
Other assets 42,648 39,771
Deferred financing costs, net of accumulated amortization of $12,687 and $11,613, respectively 22,156 23,178

Intangible assets, net of accumulated amortization of $2,477 and $2,337, respectively

  2,489     2,629
Total assets $ 2,849,326   $ 2,902,604
 
Liabilities and Equity
Indebtedness:
Recourse indebtedness $ 172,523 $ 169,107
Non-recourse indebtedness   1,592,448     1,579,167
Total indebtedness 1,764,971 1,748,274
Accrued interest payable 25,525 22,541
Accounts payable and accrued expenses 18,209 20,825
Derivative liabilities 170,997 181,499
Deferred taxes, borrowers’ escrows and other liabilities 11,046 9,481
Distributions payable   7,402     5,890
Total liabilities 1,998,150 1,988,510
Equity:
Shareholders’ equity:

Preferred shares, $0.01 par value per share, 25,000,000 shares authorized; 7.75% Series A cumulative redeemable preferred shares, liquidation preference $25.00 per share, 2,760,000 shares issued and outstanding

28

28

8.375% Series B cumulative redeemable preferred shares, liquidation preference $25.00 per share, 2,258,300 shares issued and outstanding

23

23
8.875% Series C cumulative redeemable preferred shares, liquidation preference $25.00 per share, 1,600,000 shares issued and outstanding

16

16
Common shares, $0.03 par value per share, 200,000,000 shares authorized, 49,899,392 and 41,289,566 issued and outstanding

1,489

1,236
Additional paid in capital 1,777,974 1,735,969
Accumulated other comprehensive income (loss) (112,284) (118,294)
Retained earnings (deficit)   (819,802)     (708,671)
Total shareholders’ equity 847,444 910,307
Noncontrolling interests   3,732     3,787
Total equity   851,176     914,094
Total liabilities and equity $ 2,849,326   $ 2,902,604
 
Schedule I
RAIT Financial Trust
Reconciliation of Net income (loss) Allocable to Common Shares and
Funds From Operations (“FFO”) and
Adjusted Funds From Operations (“AFFO”) (1)
(Dollars in thousands, except share and per share amounts)
(unaudited)
 
For the Three- Month Periods
Ended March 31
2012   2011
Funds From Operations (“FFO”):  
Net income (loss) allocable to common shares $ (107,019) $ 5,767
Adjustments:
Depreciation expense 7,459 6,570
(Gains) Losses on sale of real estate -   -
Funds from operations $ (99,560)   $ 12,337
Funds from Operations per share $ (2.25)   $ 0.33
Weighted-average shares - diluted 44,150,924   36,968,120
 
Adjusted Funds From Operations (“AFFO”):
Funds from Operations $ (99,560) $ 12,337
Adjustments:
Change in fair value of financial instruments 108,923 (5,611)
(Gains) Losses on debt extinguishment (1,574) 537
Capital expenditures, net of direct financing (248) (362)
Straight-line rental adjustments (306) (919)
Amortization of deferred items and intangible assets 1,526 673
Share-based compensation 557   259
Adjusted Funds from Operations $ 9,318   $ 6,914
Adjusted Funds from Operations per share $ 0.21   $ 0.19
Weighted-average shares - diluted 44,150,924   36,968,120
 
(1)   We believe that funds from operations, or FFO, and adjusted funds from operations, or AFFO, each of which are non-GAAP measures, are additional appropriate measures of the operating performance of a REIT and us in particular.
 
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 and amortization expense, gains or losses on sales of real estate and the cumulative effect of changes in accounting principles.
 
AFFO is a computation made by analysts and investors to measure a real estate company's cash flow generated by operations. We calculate AFFO by adding to or subtracting from FFO: change in fair value of financial instruments; gains or losses on debt extinguishment; capital expenditures, net of any direct financing associated with those capital expenditures; straight-line rental effects; amortization of various deferred items and intangible assets; and share-based compensation.
 
Our calculation of AFFO differs from the methodology used for calculating AFFO by certain other REITs and, accordingly, our AFFO may not be comparable to AFFO reported by other REITs. Our management utilizes FFO and AFFO as measures of our operating performance, and believes they are also useful to investors, because they facilitate an understanding of our operating performance after adjustment for certain non-cash items, such as real estate depreciation, share-based compensation and various other items required by GAAP that may not necessarily be indicative of current operating performance and that may not accurately compare our operating performance between periods. Furthermore, although FFO, AFFO and other supplemental performance measures are defined in various ways throughout the REIT industry, we also believe that FFO and AFFO may provide us and our investors with an additional useful measure to compare our financial performance to certain other REITs.
 
Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities determined in accordance with U.S. GAAP. Furthermore, FFO and AFFO do not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor AFFO should 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. References to “we”, “us”, and “our” refer to RAIT Financial Trust and its subsidiaries.




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