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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