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RAIT Financial Trust Announces Second Quarter 2012 Financial Results

Stock quotes in this article: RAS

A reconciliation of RAIT's reported net income (loss) allocable to common shares to its AFFO is included as Schedule I to this release. A reconciliation of RAIT's total shareholders’ equity to its adjusted book value is included as Schedule II to this release. Schedule I and Schedule II also include management's respective rationales for the usefulness of each of these non-GAAP financial measures.

RAIT also reported the following:

  • Investments in Real Estate. As of June 30, 2012, RAIT had investments in real estate of $911.1 million as compared to $891.5 million at December 31, 2011. During the three-months ended June 30, 2012, RAIT converted two loans, with a carrying value of $25.1 million, to owned real estate.
  • Average Occupancy. The average occupancy of RAIT’s portfolio of investments in real estate increased to 85.2% at June 30, 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 126.4% with a trigger of 116.2% and RAIT Preferred Funding II, Ltd’s overcollateralization test was passing at 118.0% 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 $73.6 million at June 30, 2012 as compared to $94.1 million at June 30, 2011.
  • Provision for losses. Provision for losses on RAIT’s commercial real estate loan portfolio decreased to $0.5 million for the quarter ended June 30, 2012 as compared to $1.0 million for the quarter ended June 30, 2011.
  • Dividends. On June 21, 2012, RAIT declared a second quarter common dividend of $0.08 per common share to shareholders of record on July 11, 2012 and payable on July 31, 2012. 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 were paid on July 2, 2012 to holders of record on June 1, 2012.
         

Key Statistics

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

 

As of or For the Three-Month Periods Ended

                 
June 30, March 31, December September June 30,
2012   2012   31, 2011   30, 2011   2011
Financial Statistics:
 
Assets under management $3,642,189 $3,549,029 $3,517,684 $3,633,133 $3,753,290
Total revenue $56,347 $54,245 $56,923 $60,089 $58,863
Earnings per share – diluted $(0.14) $(2.42) $(0.39) $(0.55) $(0.53)
Funds from Operations (“FFO”) per share $0.01 $(2.25) $(0.20)

$(0.36)

$(0.34)
AFFO per share $0.25 $0.21 $0.30 $0.23 $0.22
Common dividend declared $0.08 $0.08 $0.06 $0.06 $0.06
 

Commercial Real Estate (“CRE”) Loan Portfolio:

CRE loans-- unpaid principal $1,072,655 $990,321 $952,997 $1,064,946 $1,122,898
Non-accrual loans -- unpaid principal $73,592 $56,113 $54,334 $89,023 $94,117
Non-accrual loans as a % of reported loans 6.9% 5.7% 5.7% 8.4% 8.4%
Reserve for losses $35,426 $35,527 $40,565 $50,609 $49,906
Reserves as a % of non-accrual loans 48.1% 63.3% 74.7% 56.8% 53.0%
Provision for losses $500 $500 $500 $500 $950
 
CRE Property Portfolio:
Reported investments in real estate $911,128 $887,130 $891,502 $849,232 $851,916
Net operating income $12,053 $11,034 $10,503 $9,072 $8,347
Number of properties owned 58 56 56 48 48
Multifamily units owned 8,014 8,014 8,014 8,014 8,014
Office square feet owned 2,015,524 1,786,860 1,786,860 1,786,860 1,786,908
Retail square feet owned 1,422,298 1,358,257 1,358,257 1,114,250 1,116,171
Land 19.90 19.90 19.90 7.25 7.25
 
Average occupancy data:
Multifamily 91.2% 90.4% 88.5% 89.8% 88.6%
Office 71.0% 70.7% 69.2% 68.5% 68.8%
Retail 70.0%   66.9%   68.0%   68.9%   62.0%
Total 85.2% 85.0% 83.6% 84.5% 83.1%
 
Average Effective Rent per Unit/Square Foot (1):
Multifamily (2) $695 $691 $681 $671 $673
Office (3) $19.07 $21.53 $20.85 $20.50 $18.39
Retail (3) $12.44 $10.59 $9.73 $9.55 $6.69
 

(1) Based on properties owned as of June 30, 2012.

(2) Average effective rent is rent per unit per month.

(3) Average effective rent is rent per square foot per year.

 

Conference Call

All interested parties can listen to the live conference call webcast at 9:00 AM EDT on Thursday, July 26, 2012 from the home page of the RAIT Financial Trust website at www.raitft.com or by dialing 866.356.3095, access code 47631703. For those who are not available to listen to the live call, the replay will be available shortly following the live call on RAIT’s website and telephonically until Thursday, August 2, 2012, by dialing 888.286.8010, access code 43131737.

About RAIT Financial Trust

RAIT Financial Trust is an internally-managed real estate investment trust that provides debt financing options to owners of commercial real estate and invests directly into commercial real estate properties located throughout the United States. In addition, RAIT is an asset and property manager of real estate-related assets. 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 For the Six-Month
Periods Ended Periods Ended
June 30 June 30
2012   2011 2012   2011
Revenue:    
Interest income $ 28,745 $ 34,483 $ 56,701 $ 68,041
Rental income 25,540 22,138 50,371 43,428
Fee and other income   2,062     2,242   3,520     5,673
Total revenue 56,347 58,863 110,592 117,142
Expenses:
Interest expense 19,238 22,328 38,586 45,695
Real estate operating expense 13,487 13,791 27,284 26,408
Compensation expense 5,246 5,737 10,984 12,281
General and administrative expense 3,783 4,431 7,608 9,399
Provision for loan losses 500 950 1,000 2,900
Depreciation and amortization   7,631     7,249   15,294     14,368
Total expenses 49,885 54,486 100,756 111,051
Operating income 6,462 4,377 9,836 6,091
Interest and other income (expense) (1,471) 67 (1,438) 150
Gains (losses) on sale of assets 2,518 564 2,529 1,979
Gains (losses) on extinguishment of debt - 3,706 1,574 3,169
Change in fair value of financial instruments   (11,169)     (25,727)   (120,092)     (20,116)
Income (loss) before taxes and discontinued operations (3,660) (17,013) (107,591) (8,727)
Income tax benefit (provision)   90     256   357     310
Income (loss) from continuing operations (3,570) (16,757) (107,234) (8,417)
Income (loss) from discontinued operations   -     6   -     797
Net income (loss) (3,570) (16,751) (107,234) (7,620)
(Income) loss allocated to preferred shares (3,419) (3,414) (6,829) (6,828)
(Income) loss allocated to noncontrolling interests   38     67   93     117
Net income (loss) allocable to common shares $ (6,951)   $ (20,098) $ (113,970)   $ (14,331)
Earnings (loss) per share—Basic:
Continuing operations $ (0.14) $ (0.53) $ (2.42) $ (0.40)
Discontinued operations   -     -   -     0.02
Total earnings (loss) per share—Basic $ (0.14)   $ (0.53) $ (2.42)   $ (0.38)
Weighted-average shares outstanding—Basic   49,902,247     38,055,234   47,026,586     37,340,755
Earnings (loss) per share—Diluted:
Continuing operations $ (0.14) $ (0.53) $ (2.42) $ (0.40)
Discontinued operations   -     0.00   -     0.02
Total earnings (loss) per share—Diluted $ (0.14)   $ (0.53) $ (2.42)   $ (0.38)
Weighted-average shares outstanding—Diluted   49,902,247     38,055,234   47,026,586     37,340,755
 
   

RAIT Financial Trust

Consolidated Balance Sheets

(Dollars in thousands, except share and per share information)

(unaudited)

 

As of June 30, 2012

 

As of December 31, 2011

Assets
Investments in mortgages and loans, at amortized cost:
Commercial mortgages, mezzanine loans, other loans and preferred equity interests $ 1,090,481 $ 996,363
Allowance for losses   (39,877)     (46,082)
Total investments in mortgages and loans 1,050,604 950,281
Investments in real estate 911,128 891,502
Investments in securities and security-related receivables, at fair value 657,783 647,461
Cash and cash equivalents 44,265 29,720
Restricted cash 101,347 278,607
Accrued interest receivable 43,143 39,455
Other assets 44,881 39,771
Deferred financing costs, net of accumulated amortization of $13,706 and $11,613, respectively 21,050 23,178

Intangible assets, net of accumulated amortization of $2,590 and $2,337, respectively

  2,376     2,629
Total assets $ 2,876,577   $ 2,902,604
 
Liabilities and Equity
Indebtedness:
Recourse indebtedness $ 184,230 $ 169,107
Non-recourse indebtedness   1,601,128     1,579,167
Total indebtedness 1,785,358 1,748,274
Accrued interest payable 24,619 22,541
Accounts payable and accrued expenses 23,956 20,825
Derivative liabilities 167,155 181,499
Deferred taxes, borrowers’ escrows and other liabilities 27,799 9,481
Distributions payable   7,384     5,890
Total liabilities 2,031,271 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, 2,787,931 and 2,760,000 shares issued and outstanding

28

28

8.375% Series B cumulative redeemable preferred shares, liquidation preference $25.00 per share, 2,271,620 and 2,258,300 shares issued and outstanding

23

23
8.875% Series C cumulative redeemable preferred shares, liquidation preference $25.00 per share, 1,621,430 and 1,600,000 shares issued and outstanding

16

16
Common shares, $0.03 par value per share, 200,000,000 shares authorized, 49,905,866 and 41,289,566 issued and outstanding

1,490

1,236
Additional paid in capital 1,779,514 1,735,969
Accumulated other comprehensive income (loss) (108,721) (118,294)
Retained earnings (deficit)   (830,738)     (708,671)
Total shareholders’ equity 841,612 910,307
Noncontrolling interests   3,694     3,787
Total equity   845,306     914,094
Total liabilities and equity $ 2,876,577   $ 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 June 30

 

For the Six-Month Periods Ended June 30

2012   2011   2012   2011
Funds From Operations (“FFO”):    
Net income (loss) allocable to common shares $ (6,951) $ (20,098) $ (113,970) $ (14,331)
Adjustments:
Depreciation expense 7,449 6,961 14,908 13,531
(Gains) Losses on sale of real estate   -     168     -     46
Funds from operations $ 498   $ (12,969)   $ (99,062)   $ (754)
Funds from Operations per share $ 0.01   $ (0.34)   $ (2.11)   $ (0.02)
Weighted-average shares - diluted   49,902,247     38,055,234     47,026,586     37,340,755
 
Adjusted Funds From Operations (“AFFO”):
Funds from Operations $ 498 $ (12,969) $ (99,062) $ (754)
Adjustments:
Change in fair value of financial instruments 11,169 25,727 120,092 20,116
(Gains) Losses on debt extinguishment - (3,706) (1,574) (3,169)
Capital expenditures, net of direct financing (535) (413) (783) (775)
Straight-line rental adjustments (785) (922) (1,091) (1,687)
Amortization of deferred items and intangible assets 1,516 763 3,042 1,436
Share-based compensation   549     58     1,106     317
Adjusted Funds from Operations $ 12,412   $ 8,538   $ 21,730   $ 15,484
Adjusted Funds from Operations per share $ 0.25   $ 0.22   $ 0.46   $ 0.41
Weighted-average shares - diluted   49,902,247     38,055,234     47,026,586     37,340,755
 
(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.
 
 

Schedule II

RAIT Financial Trust

Reconciliation of Shareholders’ Equity to Adjusted Book Value (1)

(Dollars in thousands, except share and per share amounts)

(unaudited)

 
 

As of June 30, 2012

Amount

 

Per Share (2)

Total Shareholders’ equity, as reported $ 841,612 $ 16.87
Subtract: Liquidation value of preferred shares (3)

(167,025)

(3.35)

RAIT Book Value 674,587 13.52
Adjustments:
Subtract: Taberna securitizations net effect (547,257) (10.97)
Add: CRE CDO derivative liabilities 79,816 1.60
Add: Accumulated depreciation and amortization 99,333 1.99

Add: Valuation of recurring collateral and property management fees

20,970

0.42

Total adjustments (347,138) (6.96)

Adjusted Book Value

$ 327,449

$ 6.56

 
(1)   Management views adjusted book value as a useful and appropriate supplement to shareholders’ equity and book value per share. The measure serves as an additional measure of our value because it facilitates evaluation of us without the effects of various items that we are required to record in accordance with GAAP but which have limited economic impact on our business. Those adjustments primarily reflect the effect of consolidated securitizations where we do not currently receive cash flows on our retained interests, accumulated depreciation and amortization, the valuation of long-term derivative instruments and a valuation of our recurring collateral and property management fees. Adjusted book value is a non-GAAP financial measurement, and does not purport to be an alternative to reported shareholders’ equity, determined in accordance with GAAP, as a measure of book value. Adjusted book value should be reviewed in connection with shareholders’ equity as set forth in our consolidated balance sheets, to help analyze our value to investors. Adjusted book value may be defined in various ways throughout the REIT industry. Investors should consider these differences when comparing our adjusted book value to that of other REITs.
 
(2) Based on 49,905,866 common shares outstanding as of June 30, 2012.
 
(3) Based on 2,787,931 Series A preferred shares, 2,271,620 Series B preferred shares, and 1,621,430 Series C preferred shares outstanding as of June 30, 2012, all of which have a liquidation preference of $25.00 per share.
 




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