RAIT Financial Trust ( RAS)

Q3 2011 Earnings Call

October 28, 2011 9:30 AM ET


Andres Viroslav – IR

Scott Schaeffer – CEO

Jack Salmon – CFO


Gabe Poggi – FBR

Amy DeBone – Compass Point Research & Trading

Brian Gonick – Senvest



Good day ladies and gentlemen and welcome to the Third Quarter RAIT Financial Trust Earnings Conference Call. My name is Jeff and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Later we will facilitate a question-and-answer session (Operator Instructions). As reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today Mr. Andres Viroslav, Director of Corporate Communications. And, you have the floor, sir.

Andres Viroslav

Thank you, Jeff and good morning to everyone. Thank you for joining us today to review RAIT Financial Trust’s third quarter 2011 financial results. On the call with me today are Scott Schaeffer, RAIT’s Chief Executive Officer; and Jack Salmon, RAIT’s Chief Financial Officer.

This morning’s call is being webcast on our website at www.raitft.com. There will be a replay of the call available via webcast on our website and telephonically beginning at approximately 12:30 PM Eastern Time today. The dial-in for the replay is 888-286-8010, with a confirmation code of 52503337.

Before I turn the call over to Scott, I would like to remind everyone that there may be forward-looking statements made in this call. These forward-looking statements reflect RAIT’s current views with respect to future events and financial performance. Actual results could differ substantially and materially from what RAIT has projected. Such statements are made in good faith pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Please refer to RAIT’s press releases and filings with the SEC for factors that could affect the accuracy of our expectations or cause our future results to differ materially from those expectations.

Participants may discuss non-GAAP financial measures in this call. A copy of RAIT’s press release containing financial information, other statistical information and a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure is attached to RAIT’s most recent current report on Form 8-K, available at RAIT’s website, www.raitft.com, under Investor Relations. RAIT’s other SEC filings are also available through this link. RAIT does not undertake to update forward-looking statements in this call or with respect to matters described herein, except as may be required by law.

Now I’d like to turn the call over to RAIT’s Chief Executive Officer, Scott Schaeffer. Scott?

Scott Schaeffer

Thank you very much Andres. And thank all of you for joining us this morning as we present RAIT’s third quarter 2011 results. It’s been a busy quarter. We are pleased to report our fourth consecutive quarter of positive operating income as well $0.23 per share of AFFO which is supported our quarterly common dividend of $0.06 per share.

During the quarter, RAIT’s total revenue increased, our rent income increase, property NOI increased and our occupancy in our own portfolio continues to increase, while our provision for losses and non-accrual loans decreased. Jack will discuss our operating results in more details shortly.

We’ve made significant progress towards reaching our main goals for 2011. Since the end of the second quarter, we retired and were extended $104 million of RAIT’s recourse debt through multiple transactions. These transactions strengthened RAIT’s balance sheet and cash flows by eliminating our highest cost recourse debt and substantially reducing the recourse debt that matures or can be redeemed within the next four years. To be clear, as of today, we have less than $5 million in total debt obligations that are redeemed bulk or mature prior to October 2015.

In addition, we completed the sale of $61 million of loans into a third party CMBS securitization and entered into a $100 million facility with the money center bank to warehouse new CMBS eligible loans which we will originate for sale into future CMBS securitizations. The CMBS business is a natural extension of our core, bridge and mezzanine lending platforms.

Also, we have $91 million of lending capacity within our existing CRE securitizations and a healthy pipeline of new bridge and mezzanine loans.

And finally, at Independence Realty Trust, we continue to make progress. So, we are limited on what we can say because Independence has an offering in the market. We recently executed our first selling agreement with an independent broker dealer.

At this point, I would like to turn the call over to Jack to run through the details. Jack?

Jack Salmon

Thank you, Scott and good morning. The financial highlights for the quarter ended September 30, improved the following. Our GAAP net loss of $21.2 million which was primarily caused by $35 million of net changes in the fair value of our financial instruments this quarter, second, operating income of $4.1 million as compared to an operating loss of $8.4 million last year for the third quarter. And third $8.9 million or $0.23 per common share of adjusted funds from operations, which is an increase of $0.32 per share over the third quarter last year, we have generated positive operating income now for four consecutive quarters. Moreover, the $0.23 of AFFO this quarter represents our fourth consecutive increase in quarterly AFFO.

I’d now like to summarize some of the operating income trends which continued to improve as follows. Our total revenue has increased with rental revenue of $23.6 million, up 28% over the $18.4 million for the third quarter last year. .Rents grew by approximately $1.5 million compared to the second quarter of 2011, a link quarter with half the increase arising in our office in retail portfolio and the balance in our multifamily portfolio. Now after deducting real estate operating expenses of $14.5 million, we generated $9.1 million of net operating income from our own properties, a link quarterly increase of approximately 8%.

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