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PHILADELPHIA--(BUSINESS WIRE)-- RAIT Financial Trust ("RAIT") (NYSE: RAS) today announced results for the third quarter ended September 30, 2009.
Summary
-- Net loss allocable to common sharesof $24.7 million, or $0.38 total loss
per share - diluted for the three months endedSeptember 30, 2009 and
$456.8 million, or $7.03 total loss per share - diluted for the nine
months ended September 30, 2009
-- Estimated REIT taxable income, a non-GAAP financial measure of $44.8
million, or $0.69 per share - diluted for the three months ended
September 30, 2009 and estimated REIT taxable loss of $26.2 million, or
$0.40 per share - diluted for the nine months ended September 30, 2009
-- Debt to equity ratio improved to 3.3 times at September 30, 2009 as
compared to 5.4 times at December 31, 2008
-- Launched fixed income securities and commercial real estate advisory
businesses
-- Book value was $8.57 per common share at September 30, 2009
Third Quarter 2009 Results
RAIT reported net loss allocable to common shares for the three-month period ended September 30, 2009 of $24.7 million, or $0.38 total loss per share - diluted based on 65.0 million weighted-average shares outstanding - diluted, as compared to net loss allocable to common shares for the three-month period ended September 30, 2008 of $181.8 million, or total loss per share - diluted of $2.82 based on 64.5 million weighted-average shares outstanding - diluted. RAIT reported net loss allocable to common shares for the nine-month period ended September 30, 2009 of $456.8 million, or $7.03 total loss per share - diluted based on 65.0 million weighted-average shares outstanding - diluted, as compared to net income allocable to common shares for the nine-month period ended September 30, 2008 of $62.6 million, or $1.00 total earnings per share - diluted based on 62.9 million weighted-average shares outstanding - diluted.
RAIT's net losses for the three-month and nine-month periods ended September 30, 2009 were primarily caused by the following:
Gains (losses) on sales of assets. During the nine-month period ended September 30, 2009, we sold all of our equity and a portion of our non-investment grade notes in the Taberna III, Taberna IV, Taberna VI and Taberna VII securitizations to a non-affiliated party and all of our interests in our six residential mortgage securitizations. Upon completion of these sales, we deconsolidated these securitizations and removed the associated assets and liabilities from our consolidated balance sheet. The deconsolidation of the Taberna securitizations on June 25, 2009 resulted in a loss of $313.8 million and the deconsolidation of the residential mortgage securitizations on July 16, 2009 resulted in a loss of $61.8 million.
Provision for losses. The provision for losses recorded during the three-month and nine-month periods ended September 30, 2009 was $18.5 million and $204.1 million, respectively, and resulted from increased delinquencies in our residential mortgage loans and additional non-performing loans in our commercial real estate portfolios.
Asset impairments. We recorded asset impairments of $46.0 million during the nine-month period ended September 30, 2009. These asset impairments were comprised of investments in securities, primarily our equity investments in our Taberna Europe I and Taberna Europe II securitizations, whose market values were reduced due to credit conditions or because of increased delinquencies of the underlying collateral. No asset impairment expense was recorded during the three-month period ended September 30, 2009.
Balance Sheet
The balance sheet at September 30, 2009 reflected substantial changes from our balance sheet at December 31, 2008 due to the sales of our interests in the Taberna securitizations and residential mortgage securitizations described above. Assets of $4.5 billion and liabilities of $4.0 billion were removed from our balance sheet as a result of the deconsolidation of these securitizations due to these sales, representing a reduction of 54.9% of our assets and 57.4% of our liabilities since December 31, 2008. Our shareholders' equity was reduced $351.2 million or 32.5% from December 31, 2008 to September 30, 2009 in connection with these transactions.
Assets Under Management and Gross Cash Flow Summary
RAIT's gross cash flow is comprised of net investment income, net rental income and asset management fees we received from $10.4 billion of assets under management as of September 30, 2009. Our net investment income represents the positive difference between the income we earn on our investment portfolio and the cost of financing our investment portfolio.
The following chart summarizes RAIT's total assets under management at September 30, 2009 and September 30, 2008 and the gross cash flows generated by our investment portfolios for the three-month and nine-month periods ended September 30, 2009 and 2008 (dollars in thousands):
Gross Cash Gross Cash
Assets Under Flow for the Flow for the
Investment Portfolio Management Three-Month Nine-Month
Description As of September 30, Period Ended Period Ended
2009 September 30, September 30,
2009 (1)
2009 (1)
Commercial real estate $ 2,103,792 $ 16,322 $ 55,778
portfolio (2)
Residential mortgage - 1,433 10,406
portfolio (3)
European portfolio 1,862,785 876 3,472
U.S. TruPS portfolio (4) 6,407,137 2,699 9,250
Other investments 777 144 479
Total $ 10,374,491 $ 21,474 $ 79,385
Gross Cash Gross Cash
Assets Under Flow for the Flow for the
Investment Portfolio Management Three-Month Nine-Month
Description As of Period Ended Period Ended
September September 30, September
30, 2008 30, 2008 (1)
2008 (1)
Commercial real estate $ 2,104,833 $ 23,137 $ 76,034
portfolio (2)
Residential mortgage 3,694,875 4,778 14,840
portfolio (3)
European portfolio 1,945,487 4,264 11,331
U.S. TruPS portfolio (4) 6,512,275 11,952 32,975
Other investments 720 210 811
Total $ 14,258,190 $ 44,341 $ 135,991
(1) Gross cash flows for the three-month and nine-month periods ended September 30, 2009 and 2008 may not be indicative of cash flows for subsequent periods. See "Forward-looking Statements" and "Risk Factors" sections included in our Annual Report on Form 10-K for the year ended December 31, 2008 for the risks and uncertainties that could cause our gross cash flow for subsequent annual periods to differ materially from these amounts.
(2) As of September 30, 2009 and 2008, our commercial real estate portfolio was comprised of $1.3 billion and $1.6 billion, respectively, of assets collateralizing RAIT CRE CDO I and RAIT Preferred Funding II securitizations, $645.5 million and $270.6 million, respectively, of investments in real estate interests and $118.8 million and $248.8 million, respectively, of commercial mortgages, mezzanine loans and preferred equity interests that were not securitized.
(3) On July 16, 2009, we sold our retained interests in the securitizations collateralized by our residential mortgage portfolio and these assets are not included in our assets under management after that date.
(4) Our U.S. TruPS portfolio is comprised of assets collateralizing Taberna I through Taberna IX securitizations and includes TruPS and subordinated debentures, unsecured REIT note receivables, CMBS receivables, other securities, commercial mortgages and mezzanine loans. We continue to serve as the collateral manager for these securitizations and so continue to include these assets in our assets under management regardless of whether we consolidate these securitizations.
Liquidity
As of September 30, 2009, RAIT had $39.9 million of cash and cash equivalents and $36.6 million of unused capacity in our two CRE securitizations to invest in commercial real estate assets. At September 30, 2009 RAIT had carrying amounts of $416.2 million of recourse indebtedness and $1.7 billion of non-recourse indebtedness as compared to $494.9 million and $5.6 billion at December 31, 2008.
We maintain various forms of short-term and long-term financing arrangements. Generally, these financing agreements are collateralized by assets within CDOs or mortgage securitizations. The following table summarizes our total recourse and non-recourse indebtedness as of September 30, 2009 (dollars in thousands):
Unpaid Carrying Weighted- Contractual
Description Principal Amount Average Maturity
Balance Interest Rate
Recourse
indebtedness:
Convertible senior $ 280,363 $ 279,638 6.9 % 2027
notes (1)
Secured credit 51,494 51,494 3.9 % Dec. 2009 to Feb.
facilities 2011
Senior secured notes 43,000 43,000 12.5 % Apr. 2014
Junior subordinated Mar. 2015 to Mar.
notes, at fair value 38,052 17,004 8.7 % 2035
(2)
Junior subordinated
notes, at amortized 25,100 25,100 7.7 % Apr. 2037
cost
Total recourse 438,009 416,236 7.3 %
indebtedness
Non-recourse
indebtedness:
CDO notes
payable--amortized 1,399,250 1,399,250 0.7 % 2036 to 2045
cost (3)(4)
CDO notes
payable--fair value 1,186,887 143,054 1.1 % 2035 to 2038
(2)(3)(5)
Loans payable on Aug. 2010 to Aug.
real estate 84,446 84,446 5.4 % 2016
interests
Trust preferred
obligations, at fair 70,621 70,621 1.9 % 2036
value (2)
Other indebtedness 55 55 5.4 % Nov. 2009
Total non-recourse 2,741,259 1,697,426 1.0 %
indebtedness
Total indebtedness $ 3,179,268 $ 2,113,662 1.9 %
(1) Our convertible senior notes are redeemable, at the option of the holder, in April 2012.
(2) Relates to liabilities which we elected to record at fair value under FASB ASC Topic 825, "Financial Instruments" (formerly referenced as SFAS No. 159).
(3) Excludes CDO notes payable purchased by us which are eliminated in consolidation.
(4) Collateralized by $1,775,929 principal amount of commercial mortgages, mezzanine loans, other loans and preferred equity interests. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.
(5) Collateralized by $1,443,661 principal amount of investments in securities and security-related receivables and loans, before fair value adjustments. The fair value of these investments as of September 30, 2009 was $821,791. These obligations were issued by separate legal entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.
Investment Portfolio Summary
The following table summarizes RAIT's consolidated investment portfolio at September 30, 2009 (dollars in thousands):
Percentage Weighted-
Carrying Amount(1) of Total Average
Portfolio Coupon(2)
Commercial mortgages, mezzanine
loans, other loans and preferred $ 1,577,371 54.2 % 8.0 %
equity interests
Investments in real estate interests 645,484 22.2 % N/A
Investments in securities
TruPS and subordinated debentures 541,701 18.7 % 4.7 %
Unsecured REIT note receivables 82,311 2.8 % 6.9 %
CMBS receivables 59,034 2.0 % 2.3 %
Other securities 1,790 0.1 % 3.0 %
Total investments in securities 684,836 23.6 % 4.7 %
Total $ 2,907,691 100.0 % 7.0 %
(1) Reflects the carrying amount of the respective assets classes, as they appear in our consolidated financial statements as of September 30, 2009.
(2) Weighted-average coupon is calculated on the unpaid principal amount of the underlying instruments which does not necessarily correspond to the carrying amount.
Credit Summary
The following table summarizes RAIT's carrying value of investments, non-accrual status investments and allowance for losses at September 30, 2009 (dollars in thousands):
Number of Carrying Percentage
Carrying Non- Amount of of Asset Allowance
Amount (1) Accrual Non-Accrual Class(es) for Losses
Investments Investments
Commercial
mortgages,
mezzanine loans, $ 1,577,371 35 $ 246,029 15.6 % $ 85,620
other loans and
preferred equity
interests
Investments in
securities and 684,836 15 17,691 2.6 % N/A(3)
security-related
receivables (2)
Total $ 2,262,207 50 $ 263,720 11.7 % $ 85,620
(1) Reflects the carrying amount of the respective assets classes, as they appear in our consolidated financial statements as of September 30, 2009.
(2) Investments in securities and security-related receivables are recorded at fair value in our consolidated balance sheet in accordance with GAAP. The unpaid principal value of these investments as of September 30, 2009 is $1.4 billion. The unpaid principal balance of the non-accrual investments in this category is $117.6 million, or 8.5% of the total unpaid principal balance.
(3) An allowance for losses is not applicable for investments in securities and security-related receivables, including our investments in U.S. TruPS and other securities, as these items are carried at fair value in our consolidated financial statements. The estimated fair value adjustment for our U.S. TruPS portfolio is recorded as a component of GAAP net income. While we believe the estimated fair values of these asset classes are affected by any related credit quality issues, under GAAP, no separate allowance for losses is established.
Portfolio Statistics
Commercial Mortgages, Mezzanine Loans, Other Loans and Preferred Equity Interests
The following table summarizes RAIT's commercial mortgages, mezzanine loans, other loans and preferred equity interests at September 30, 2009 (dollars in thousands):
Carrying Weighted-Average Number of % of Total Loan
Amount (1) Coupon (2) Loans Portfolio
Commercial mortgages $ 926,722 7.2 % 61 58.8 %
Mezzanine loans 425,086 9.9 % 130 26.9 %
Other loans 125,116 5.2 % 9 7.9 %
Preferred equity 100,447 11.0 % 26 6.4 %
interests
Total $ 1,577,371 8.0 % 226 100.0 %
(1) Reflects the carrying amount of the respective assets classes, as they appear in our consolidated financial statements as of September 30, 2009.
(2) Weighted-average coupon is calculated on the unpaid principal amount of the underlying instruments which does not necessarily correspond to the carrying amount.
Investments in Real Estate Interests
The following table summarizes RAIT's investments in real estate interests at September 30, 2009 and December 31, 2008 (dollars in thousands):
As of As of
September 30, December 31,
2009 2008
(As revised)
Multi-family real estate properties $ 467,612 $ 225,054
Office real estate properties 139,345 131,285
Retail real estate property 36,402 -
Parcels of land 22,208 614
Subtotal 665,567 356,953
Plus: Escrows and reserves 535 4,091
Less: Accumulated depreciation and amortization (20,618 ) (10,557 )
Investments in real estate interests $ 645,484 $ 350,487
As of September 30, 2009, RAIT had investments in real estate interests of $645.5 million. During the third quarter of 2009, RAIT took title to 4 properties that served as collateral on its loans, resulting in $5.3 million of charge-offs against RAIT's allowance for losses. Our allowance for losses decreased to $85.6 million as of September 30, 2009 from $172.0 million as of December 31, 2008 primarily as a result of our taking ownership of properties underlying loans in restructuring transactions which required us to apply any allowance for losses relating to those loans.
The following table summarizes the property types and geographic breakdown for commercial mortgages, mezzanine loans, other loans and preferred equity interests at September 30, 2009 (based on amortized cost):
Property Type Percent U.S. Geographic Region Percent
Multi-family 49.1 % Central 34.1 %
Office 29.7 % West 25.7 %
Retail 16.0 % Southeast 17.9 %
Other 5.2 % Mid-Atlantic 14.1 %
Northeast 8.2 %
Total 100.0 % Total 100.0 %
TruPS and Subordinated Debentures
As of September 30, 2009, through its investments in Taberna VIII and Taberna IX securitizations, RAIT maintained investments of $541.7 million (at estimated fair value) in TruPS and subordinated debentures. RAIT's portfolio had a weighted-average coupon of 4.7%. The issuers of these investments had a weighted-average debt to total capitalization ratio of 76.7% and a weighted-average interest coverage ratio of 1.3 times based on the most recent information available to management as provided by our TruPS issuers or through public filings.
The following table summarizes our investments by industry sector in TruPS and subordinated debentures as of September 30, 2009 (dollars in thousands):
TruPS and Subordinated Debt Industry Sector Estimated Fair Value (1) Percent Commercial Mortgage $ 158,277 29.2 % Office 131,435 24.3 % Residential Mortgage 72,351 13.4 % Specialty Finance 53,758 9.9 % Homebuilders 44,039 8.1 % Retail 37,149 6.8 % Hospitality 24,888 4.6 % Storage 19,804 3.7 % Total $ 541,701 100.0 %
(1) Reflects the estimated fair value of the respective assets classes, as they appear in our consolidated financial statements as of September 30, 2009.
Dividends
On May 5, 2009, RAIT's Board of Trustees (the "Board") decided that its review and determination of dividends on RAIT's common shares for 2009 will be made when a full year of REIT taxable income is available. The Board will continue to monitor RAIT's estimated REIT taxable income during 2009 and intends to declare a dividend, if any, in at least the amount necessary to meet REIT distribution requirements. In making this decision, the Board considered the difficulty in predicting annual results on a quarterly basis in an uncertain market with unprecedented macro-economic trends and conditions, and the Board's desire to provide management with flexibility to navigate through these market conditions. The Board's review will include analyzing whether RAIT should use IRS Revenue Procedure 2009-15 which permits publicly-traded REITs to distribute stock to satisfy their REIT distribution requirements if stated conditions are met, including that at least 10% of the aggregate declared distribution be paid in cash and that shareholders be permitted to elect whether to receive cash or stock subject to the limit set by the REIT on the cash to be distributed in the aggregate to all shareholders. The Board expects to continue to review and determine the dividends on RAIT's preferred shares on a quarterly basis.
To qualify as a REIT, RAIT is required to make distributions to shareholders, first to preferred shareholders and then to common shareholders, in an amount at least equal to 90% of RAIT's annual REIT taxable income. RAIT's REIT taxable income for any period may vary materially from RAIT's reported GAAP earnings for that period.
On October 27, 2009, the Board declared a fourth quarter 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 to be paid on December 31, 2009 to holders of record on December 1, 2009.
On September 30, 2009, RAIT paid a third quarter 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 to holders of record on September 1, 2009 totaling $3.4 million.
On June 30, 2009, RAIT paid a second quarter 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 to holders of record on June 1, 2009 totaling $3.4 million.
On March 31, 2009, RAIT paid a first quarter 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 to holders of record on March 2, 2009 totaling $3.4 million.
A reconciliation of RAIT's reported net income (loss) available to common shares and earnings per share to estimated REIT taxable income and estimated REIT taxable income per share, including management's rationale for the usefulness of these non-GAAP financial measures, is included as Schedule I to this release.
Recent Accounting Pronouncements
On January 1, 2009, RAIT adopted Statement of Financial Accounting Standards No. 160, "Noncontrolling Interests in Consolidated Financial Statements - an amendment of Accounting Research Bulletin No. 51", FASB Staff Position, or FSP, Accounting Principles Board 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" and FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payments Transactions are Participating Securities". The adoption of these standards required the retrospective application of the requirements to all prior periods presented. As a result, these columns are now labeled "as revised". Further information and disclosures will be presented in RAIT's Form 10-Q for the quarterly period ended September 30, 2009.
Conference Call
Interested parties can listen to the LIVE audio webcast of RAIT's earnings conference call at 10:00 AM EST on Wednesday, November 4, 2009 by clicking on the Webcast link on RAIT's homepage at www.raitft.com. The conference call may also be listened to by dialing 866.783.2144 Domestic or 857.350.1603 International, using passcode 88554240. For those who are unable to listen to the live broadcast, a replay of the webcast will be available following the live call on RAIT's investor relations website and telephonically until Wednesday, November 11, 2009 by dialing 888.286.8010, access code 52282533.
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 their experience, knowledge and relationship network to seek to generate and manage real estate related investment opportunities for RAIT and for outside investors. Our objective is to provide our shareholders with total returns over time while managing the risks associated with our investment strategy. For more information, please visit www.raitft.com or call Investor Relations at 215.243.9000.
References to "RAIT", "we", "us", and "our" refer to RAIT Financial Trust and its subsidiaries, unless the context otherwise requires.
Forward-Looking Statements
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
Statements in this press release regarding RAIT's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. These risks and uncertainties, which could cause actual results to differ materially from those contained in the forward looking statement, include those discussed in RAIT's filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2008.
These risks and uncertainties also include the following factors: global recessionary economic conditions and adverse developments in the credit markets have had, and we expect will continue to have, an adverse effect on our investments and our operating results, including causing significant reduction in the availability of financing to us and for refinancing to our borrowers, increases in payment defaults and other credit risks in our investments, decreases in the fair value of our assets and decreases in the cash flow we receive from our investments ; adverse governmental or regulatory policies may be enacted; our current liquidity and our access to additional liquidity have been, and may continue to be, reduced by the reduced availability of short-term and long-term financing, including a significant curtailment in the market for securities issued in securitizations and in the market for our securities and a significant reduction of the availability of repurchase agreements, warehouse facilities and bank financing; payment delinquencies or failures to meet other collateral performance criteria in collateral underlying our securitizations have restricted, and may continue to restrict our ability to receive cash distributions from our securitizations which reduces our liquidity; our ability to originate and finance investments has been, and may continue to be, decreased by our reduced access to liquidity; the fair value of our assets that we record at their fair value on our financial statements has declined, and may continue to decline, substantially, which has had a material adverse effect on our financial performance, and the fair value of our liabilities that we record at their fair value on our financial statements may increase, which may have a material adverse effect on our financial performance; payment defaults and other credit risks in our investment portfolio have substantially increased, and may continue to increase, in all categories of our investment portfolio, which has reduced, and may continue to reduce, our cash flow, net income and ability to make distributions: our investment portfolio may have material geographic, sector, property-type and sponsor concentrations which could be adversely affected by economic factors unique to such concentrations; our borrowing costs may increase relative to the interest received on our investments, thereby reducing our net investment income; our increased use of different methods of financing our investments from our historical methods may reduce our rate of return on our investments from historical levels; our financing arrangements contain covenants that restrict our operations, and any default under these arrangements would inhibit our ability to grow our business, increase revenue and pay distributions to our shareholders; we and our subsidiary, Taberna Realty Finance Trust, or Taberna, may fail to maintain qualification as real estate investment trusts, or REITs; we and Taberna may fail to maintain exemptions under the Investment Company Act of 1940; management and other key personnel may be lost; our hedging transactions may not completely insulate us from interest rate risk, which could cause volatility in our earnings; and competition from other REITs and other specialty finance companies may increase.
RAIT does not undertake to update forward-looking statements in this press release or with respect to matters described herein, 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 Nine-Month
Periods Ended Periods Ended
September 30 September 30
2009 2008 2009 2008
Revenue: (As revised) (As revised)
Investment interest $ 56,370 $ 168,387 $ 337,851 $ 530,995
income
Investment interest (35,326 ) (116,096 ) (230,206 ) (369,123 )
expense
Net interest margin 21,044 52,291 107,645 161,872
Rental income 13,780 4,139 37,664 10,745
Fee and other income 8,741 5,128 20,240 17,131
Total revenue 43,565 61,558 165,549 189,748
Expenses:
Compensation expense 7,809 7,085 19,469 23,690
Real estate 11,685 3,166 32,558 8,769
operating expense
General and
administrative 5,365 4,733 14,894 16,456
expense
Provision for losses 18,467 14,992 204,067 50,575
Depreciation expense 5,899 1,449 15,538 3,799
Amortization of 371 2,883 1,038 16,048
intangible assets
Total expenses 49,596 34,308 287,564 119,337
Income (loss) before
other income
(expense), taxes and (6,031 ) 27,250 (122,015 ) 70,411
discontinued
operations
Interest and other 1,316 (87 ) 3,603 1,085
income
Gains (losses) on (61,846 ) 912 (375,604 ) 770
sale of assets
Gains on
extinguishment of 47,858 -- 95,414 8,662
debt
Change in fair value
of free-standing -- -- -- (37,203 )
derivatives
Change in fair value
of financial (3,808 ) (302,245 ) (12,256 ) 50,661
instruments
Unrealized gains
(losses) on interest 15 (290 ) (471 ) (275 )
rate hedges
Equity in income
(loss) of equity (3 ) (9 ) (11 ) 935
method investments
Asset impairments -- (18,038 ) (46,015 ) (38,361 )
Income (loss) before
taxes and (22,499 ) (292,507 ) (457,355 ) 56,685
discontinued
operations
Income tax benefit 216 (173 ) (441 ) 2,261
(provision)
Income (loss) from
continuing (22,283 ) (292,680 ) (457,796 ) 58,946
operations
Income (loss) from
discontinued 494 (532 ) (1,668 ) (1,603 )
operations
Net income (loss) (21,789 ) (293,212 ) (459,464 ) 57,343
(Income) loss
allocated to (3,406 ) (3,406 ) (10,227 ) (10,227 )
preferred shares
(Income) loss
allocated to 503 114,837 12,900 15,490
noncontrolling
interests
Net income (loss)
allocable to common $ (24,692 ) $ (181,781 ) $ (456,791 ) $ 62,606
shares
Earnings (loss) per
share--Basic:
Continuing $ (0.39 ) $ (2.81 ) $ (7.00 ) $ 1.03
operations
Discontinued 0.01 (0.01 ) (0.03 ) (0.03 )
operations
Total earnings
(loss) per $ (0.38 ) $ (2.82 ) $ (7.03 ) $ 1.00
share--Basic
Weighted-average
shares 65,025,946 64,523,681 64,990,708 62,845,850
outstanding--Basic
Earnings (loss) per
share--Diluted:
Continuing $ (0.39 ) $ (2.81 ) $ (7.00 ) $ 1.03
operations
Discontinued 0.01 (0.01 ) (0.03 ) (0.03 )
operations
Total earnings
(loss) per $ (0.38 ) $ (2.82 ) $ (7.03 ) $ 1.00
share--Diluted
Weighted-average
shares 65,025,946 64,523,681 64,990,708 62,878,007
outstanding--Diluted
Distributions
declared per common $ -- $ -- $ -- $ 0.92
share
RAIT Financial Trust
Consolidated Balance Sheets
(Dollars in thousands, except share and per share information)
(unaudited)
As of As of
September 30, December 31,
2009 2008
Assets (As revised)
Investments in mortgages and loans, at amortized
cost:
Commercial mortgages, mezzanine loans, other loans $ 1,574,631 $ 2,041,112
and preferred equity interests
Residential mortgages and mortgage-related - 3,598,925
receivables
Allowance for losses (85,620 ) (171,973 )
Total investments in mortgages and loans 1,489,011 5,468,064
Investments in securities and security-related 684,836 1,920,883
receivables, at fair value
Investments in real estate interests 645,484 350,487
Cash and cash equivalents 39,906 27,463
Restricted cash 163,250 197,366
Accrued interest receivable 38,853 99,609
Other assets 32,579 46,716
Deferred financing costs, net of accumulated 25,181 30,875
amortization of $6,603 and $5,781, respectively
Intangible assets, net of accumulated amortization 10,547 9,987
of $82,560 and $81,522, respectively
Total assets $ 3,129,647 $ 8,151,450
Liabilities and Equity
Indebtedness ($230,679 and $755,021 at fair value, $ 2,113,662 $ 6,102,890
respectively)
Accrued interest payable 22,010 80,035
Accounts payable and accrued expenses 22,656 19,446
Derivative liabilities 223,140 613,852
Deferred taxes, borrowers' escrows and other 22,638 65,886
liabilities
Total liabilities 2,404,106 6,882,109
Equity:
Shareholders' equity:
Preferred shares, $0.01 par value per share,
25,000,000 shares authorized;
28 28
7.75% Series A cumulative redeemable preferred
shares, liquidation preference $25.00 per share,
2,760,000 shares issued and outstanding
8.375% Series B cumulative redeemable preferred
shares, liquidation preference $25.00 per share, 23 23
2,258,300 shares issued and outstanding
8.875% Series C cumulative redeemable preferred
shares, liquidation preference $25.00 per share, 16 16
1,600,000 shares issued and outstanding
Common shares, $0.01 par value per share,
200,000,000 shares authorized, 64,963,850 and
64,842,571 issued and outstanding, including 650 648
27,731 and 76,690 unvested restricted share
awards, respectively
Additional paid in capital 1,616,757 1,613,853
Accumulated other comprehensive income (loss) (134,521 ) (231,425 )
Retained earnings (deficit) (760,850 ) (304,059 )
Total shareholders' equity 722,103 1,079,084
Noncontrolling interests 3,438 190,257
Total equity 725,541 1,269,341
Total liabilities and equity $ 3,129,647 $ 8,151,450
RAIT Financial Trust
Reconciliation of Net Income (Loss) Allocable to Common Shares and Total Taxable
Income (Loss) and
Estimated REIT Taxable Income (Loss) (1)
(Dollars in thousands, except share and per share amounts)
(unaudited)
For the Three-Month For the Nine-Month
Periods Ended September 30 Periods Ended September 30
2009 2008 2009 2008
Net income (loss)
allocable to common $ (24,692 ) $ (181,781 ) $ (456,791 ) $ 62,606
shares, as reported
Add (deduct):
Provision for losses 18,467 14,992 204,067 50,575
Charge-offs on (2,757 ) (4,701 ) (122,013 ) (10,862 )
allowance for losses
Domestic TRS
book-to-total
taxable income
differences:
Income tax (benefit) (216 ) 173 441 (2,261 )
provision
Fees received and
deferred in -- -- -- 307
consolidation
Stock compensation
and other temporary 1,107 953 173 1,820
tax differences
Capital losses not
offsetting capital
gains and other -- -- -- 32,059
temporary tax
differences
Asset impairments -- 18,038 46,015 38,361
Capital losses not
offsetting capital 61,841 -- 375,649 --
gains
Change in fair value
of financial
instruments, net of 3,808 183,942 (10,002 ) (78,409 )
allocation to
noncontrolling
interests (2)
Amortization of 371 2,883 1,038 16,048
intangible assets
CDO investments
aggregate
book-to-taxable (12,705 ) (17,509 ) (62,657 ) (52,012 )
income differences
(3)
Accretion of -- 972 (211 ) 3,243
(premiums) discounts
Other book to tax 85 307 142 6
differences
Total taxable income 45,309 18,269 (24,149 ) 61,481
(loss)
Less: Taxable income
attributable to (473 ) (3,143 ) (7,114 ) (907 )
domestic TRS
entities
Plus: Dividends paid
by domestic TRS 13 -- 5,038 12,000
entities
Estimated REIT
taxable income
(loss), prior to $ 44,849 $ 15,126 $ (26,225 ) $ 72,574
deduction for
dividends paid
Estimated REIT
taxable income $ 0.69 $ 0.23 $ (0.40 ) $ 1.15
(loss) per diluted
share
Weighted-average
shares 65,025,946 64,523,681 64,990,708 62,878,007
outstanding--Diluted
(1) Total taxable income (loss) and REIT taxable income (loss) are non-GAAP financial measurements, and do not purport to be an alternative to reported net income determined in accordance with GAAP as a measure of operating performance or to cash flows from operating activities determined in accordance with GAAP as a measure of liquidity. Our total taxable income (loss) represents the aggregate amount of taxable income (loss) generated by us and by our domestic and foreign TRSs. REIT taxable income (loss) is calculated under U.S. federal tax laws in a manner that, in certain respects, differs from the calculation of net income pursuant to GAAP. REIT taxable income (loss) excludes the undistributed taxable income of our domestic TRSs, which is not included in REIT taxable income (loss) until distributed to us. Subject to TRS value limitations, there is no requirement that our domestic TRSs distribute their earnings to us. REIT taxable income (loss), however, generally includes the taxable income of our foreign TRSs because we will generally be required to recognize and report our taxable income on a current basis. Since we are structured as a REIT and the Internal Revenue Code requires that we distribute substantially all of our net taxable income in the form of distributions to our shareholders, we believe that presenting the information management uses to calculate our REIT taxable income (loss) is useful to investors in understanding the amount of the minimum distributions that we must make to our shareholders so as to comply with the rules set forth in the Internal Revenue Code. Because not all companies use identical calculations, this presentation of total taxable income (loss) and REIT taxable income (loss) may not be comparable to other similarly titled measures as determined and reported by other companies.
(2) Change in fair value of financial instruments is reported net of allocation to noncontrolling interests of $0 and $(118,303) for the three-month periods ended September 30, 2009 and 2008 and $(22,258) and $(27,748) for the nine-month periods ended September 30, 2009 and 2008, respectively.
(3) Amounts reflect the aggregate book-to-taxable income differences and are primarily comprised of (a) unrealized gains on interest rate hedges within CDO entities that Taberna consolidated, (b) amortization of original issue discounts and debt issuance costs and (c) differences in tax year-ends between Taberna and its CDO investments.
Source: RAIT Financial Trust
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