RAIT Financial Trust's CEO Discusses Q2 2012 Results - Earnings Call Transcript

RAIT Financial Trust (RAS)

Q2 2012 Earnings Call

July 26, 2012 9:00 AM ET

Executives

Andres Viroslav – VP, Director, Corporate Communications

Scott Schaeffer – CEO

Jim Sebra – CFO

Analysts

Gabe Poggi – FBR

Jason Stewart – Compass Point

Brian Gonick – Sunvest

Presentation

Operator

Good day ladies and gentlemen and welcome to the Second Quarter 2012 RAIT Financial Trust Earnings Conference Call. My name is Ann and I will be your coordinator for today’s call.

As a reminder, this conference is being recorded for replay purposed. At this time all participants are in listen-only mode. If you require assistance at any time during the call, please press star followed by zero and an operator will be very happy to assist you.

We will be facilitating a question-and-answer session following the presentation. I would now like to turn the presentation over to your host for today’s call, Mr. Andres Viroslav, Vice President, Director, Corporate Communications. Please proceed, sir.

Andres Viroslav

Thanks and good morning to everyone. Thank you for joining us today to our RAIT Financial Trust second quarter 2012 financial results. On the call with me today are Scott Schaeffer, Chief Executive Officer and Jim Sebra, RAIT’s Chief Financial Officer.

This morning 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 11.00 am Eastern Time today. The dial in for the replay is 888-286-8010 with a confirmation code of 431-317-37.

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

Thanks, Andres. And thank you all for joining our call today. We are pleased to report solid results for the second quarter as we benefit from growth in both our loan book and owned-real estate portfolios.

AFFO rose to $0.25 per share, an increase of $0.04 per share on the linked quarter basis. Operating income increased to 6.4 million or 92% from the first quarter and the balance sheet remains stable.

We’ve had strong loan originations during the first half of the year. As expected we funded over 170 million of new loans during the quarter and 243 million during the first six months of the year.

We redeployed all loan repayments received during the quarter and expect to receive minimal loan repayments during the second half of 2012.

Interest income improved and should continue to rise in the third quarter as we receive a full quarter of interest income on newly funded loan. At this point, all available funds in RAIT’s CRE CDO too [ph] have been deployed and the reinvestment period has ended.

Our CMBS loan business is ramping nicely. During the quarter we closed and funded 32 million of small balanced CMBS loans and contributed loans into two recent securitizations.

Our warehousing agreements with two banking partners enable us to continually close and associate CMBS loans into their securitization. Having multiple securitizations partner shortens the holding period of our loans thereby increasing the turnover of our capital and reducing our overall risk.

The CMBS pipeline continues to grow as we add to our origination team and looking forward, we expect to be selling loans every quarter. Our portfolio of directly held real estate also continues to improve.

Rental income as well as occupancy and NOI had increased as we raised rents, lease additional office and retail space also as property operating expenses remains stable and actually declines slightly during the second quarter.

Multi-family properties remain our favorite property type in this environment and represent the majority of our directly owned portfolio. We remained focused on growing the NOI of the entire portfolio which will increase cash flow and the value of rates equity investment in these properties.

With that overview I’d like to turn the call over to Jim. Jim?

Jim Sebra

Thank you, Scott. The key drivers of our second quarter 2012 financial performance were as follows. First, asset growth, during the second quarter, we had growth loan production of 170 million and pay off totaling 86 million resulting a net loan growth of 84 million.

This loan growth was the primary contributor to the increase of our interest income of $800,000 on the linked quarter basis. We expect that our interest income will increase in the third quarter as the loans responded in the second quarter have been outstanding for a full quarter.

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