Attached files
file | filename |
---|---|
EX-32.2 - EX-32.2 - RAIT Financial Trust | ras-ex322_6.htm |
EX-31.1 - EX-31.1 - RAIT Financial Trust | ras-ex311_10.htm |
EX-32.1 - EX-32.1 - RAIT Financial Trust | ras-ex321_8.htm |
EX-31.2 - EX-31.2 - RAIT Financial Trust | ras-ex312_7.htm |
EX-12.1 - EX-12.1 - RAIT Financial Trust | ras-ex121_9.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x |
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the quarterly period ended March 31, 2016
or
¨ |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
Commission File Number 1-14760
RAIT FINANCIAL TRUST
(Exact name of registrant as specified in its charter)
Maryland |
23-2919819 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
|
|
Two Logan Square, 100 N. 18th Street, 23rd Floor, Philadelphia, PA |
19103 |
(Address of principal executive offices) |
(Zip Code) |
(215) 207-2100
(Registrant’s telephone number, including area code)
Cira Centre, 2929 Arch St., 17th Floor, Philadelphia, PA 19104
(Former name, former address and former fiscal year, if changed since last report)
_____________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
¨ |
Accelerated filer |
x |
|
|
|
|
Non-accelerated filer |
¨ (Do not check if a smaller reporting company) |
Smaller reporting company |
¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
A total of 91,870,571 common shares of beneficial interest, par value $0.03 per share, of the registrant were outstanding as of May 6, 2016.
TABLE OF CONTENTS
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Page |
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Item 1. |
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1 |
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Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015 |
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1 |
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Consolidated Statements of Operations for the Three Months Ended March 31, 2016 and 2015 |
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2 |
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3 |
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Consolidated Statement of Changes in Equity for the Three Months Ended March 31, 2016 |
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4 |
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Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2016 and 2015 |
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5 |
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6 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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38 |
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Item 3. |
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50 |
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Item 4. |
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50 |
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Item 1. |
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51 |
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Item 1A. |
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51 |
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Item 2. |
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51 |
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Item 6. |
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51 |
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52 |
RAIT Financial Trust
(Unaudited and dollars in thousands, except share and per share information)
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As of March 31, 2016 |
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As of December 31, 2015 |
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Assets |
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Investment in mortgages and loans: |
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Commercial mortgages, mezzanine loans, and preferred equity interests |
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$ |
1,612,632 |
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$ |
1,623,583 |
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Allowance for loan losses |
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(18,165 |
) |
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(17,097 |
) |
Total investment in mortgages and loans, net |
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1,594,467 |
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1,606,486 |
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Investments in real estate, net of accumulated depreciation of $209,421 and $198,326, respectively |
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2,278,213 |
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2,319,319 |
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Cash and cash equivalents |
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94,569 |
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125,886 |
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Restricted cash |
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200,166 |
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213,012 |
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Accrued interest receivable |
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49,987 |
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47,343 |
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Other assets |
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73,670 |
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71,207 |
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Intangible assets, net of accumulated amortization of $32,228 and $26,307, respectively |
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26,698 |
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32,675 |
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Total assets |
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$ |
4,317,770 |
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$ |
4,415,928 |
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Liabilities and Equity |
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Indebtedness, net of unamortized discount and deferred financing costs of $56,998 and $61,941, respectively |
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$ |
3,267,230 |
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$ |
3,328,082 |
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Accrued interest payable |
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13,160 |
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9,834 |
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Accounts payable and accrued expenses |
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29,989 |
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39,672 |
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Derivative liabilities |
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4,181 |
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4,727 |
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Deferred taxes, borrowers’ escrows and other liabilities |
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203,612 |
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203,477 |
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Total liabilities |
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3,518,172 |
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3,585,792 |
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Series D cumulative redeemable preferred shares, $0.01 par value per share, 4,000,000 shares authorized, 4,000,000 and 4,000,000 shares issued and outstanding, respectively |
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87,085 |
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85,395 |
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Equity: |
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Shareholders’ equity: |
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Preferred shares, $0.01 par value per share, 25,000,000 shares authorized; |
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7.75% Series A cumulative redeemable preferred shares, liquidation preference $25.00 per share, 8,069,288 shares authorized, 5,306,084 and 5,306,084 shares issued and outstanding, respectively |
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53 |
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53 |
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8.375% Series B cumulative redeemable preferred shares, liquidation preference $25.00 per share, 4,300,000 shares authorized, 2,340,969 and 2,340,969 shares issued and outstanding, respectively |
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23 |
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23 |
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8.875% Series C cumulative redeemable preferred shares, liquidation preference $25.00 per share, 3,600,000 shares authorized, 1,640,425 and 1,640,425 shares issued and outstanding, respectively |
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17 |
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17 |
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Series E cumulative redeemable preferred shares, $0.01 par value per share, 4,000,000 shares authorized |
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— |
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— |
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Common shares, $0.03 par value per share, 200,000,000 shares authorized, 91,870,571 and 91,586,767 issued and outstanding, respectively, including 770,536 and 742,764 unvested restricted common share awards, respectively |
|
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2,756 |
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2,748 |
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Additional paid in capital |
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2,087,913 |
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2,087,137 |
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Accumulated other comprehensive income (loss) |
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(2,434 |
) |
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(4,699 |
) |
Retained earnings (deficit) |
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(1,707,143 |
) |
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(1,680,751 |
) |
Total shareholders’ equity |
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381,185 |
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404,528 |
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Noncontrolling interests |
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331,328 |
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340,213 |
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Total equity |
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712,513 |
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744,741 |
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Total liabilities and equity |
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$ |
4,317,770 |
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$ |
4,415,928 |
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The accompanying notes are an integral part of these consolidated financial statements.
1
Consolidated Statements of Operations
(Unaudited and dollars in thousands, except share and per share information)
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For the Three Months Ended March 31, |
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2016 |
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2015 |
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Revenue: |
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Investment interest income |
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$ |
25,802 |
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$ |
23,248 |
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Investment interest expense |
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(7,896 |
) |
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(6,914 |
) |
Net interest margin |
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17,906 |
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16,334 |
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Property income |
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68,722 |
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53,274 |
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Fee and other income |
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2,852 |
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5,594 |
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Total revenue |
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89,480 |
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75,202 |
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Expenses: |
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Interest expense |
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27,006 |
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19,683 |
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Real estate operating expense |
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30,706 |
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25,277 |
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Compensation expense |
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7,075 |
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6,108 |
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General and administrative expense |
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5,063 |
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5,400 |
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Acquisition expense |
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269 |
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|
957 |
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Provision for loan losses |
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1,325 |
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2,000 |
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Depreciation and amortization expense |
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24,276 |
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19,024 |
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Total expenses |
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95,720 |
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78,449 |
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Operating (Loss) Income |
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(6,240 |
) |
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(3,247 |
) |
Interest and other income (expense), net |
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61 |
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(395 |
) |
Gains (losses) on assets |
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2,258 |
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— |
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Gain on IRT merger with TSRE |
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91 |
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— |
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Gains (losses) on extinguishments of debt |
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344 |
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— |
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Asset impairment |
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(3,922 |
) |
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— |
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Change in fair value of financial instruments |
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(4,088 |
) |
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4,490 |
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Income (loss) before taxes |
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(11,496 |
) |
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|
848 |
|
Income tax benefit (provision) |
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993 |
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(582 |
) |
Net income (loss) |
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(10,503 |
) |
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266 |
|
(Income) loss allocated to preferred shares |
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(8,520 |
) |
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(7,859 |
) |
(Income) loss allocated to noncontrolling interests |
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1,179 |
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|
496 |
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Net income (loss) allocable to common shares |
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$ |
(17,844 |
) |
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$ |
(7,097 |
) |
Earnings (loss) per share-Basic: |
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Earnings (loss) per share-Basic |
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$ |
(0.20 |
) |
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$ |
(0.09 |
) |
Weighted-average shares outstanding-Basic |
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91,018,160 |
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82,081,024 |
|
Earnings (loss) per share-Diluted: |
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Earnings (loss) per share-Diluted |
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$ |
(0.20 |
) |
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$ |
(0.09 |
) |
Weighted average shares outstanding-Diluted |
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91,018,160 |
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82,081,024 |
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The accompanying notes are an integral part of these consolidated financial statements.
2
Consolidated Statements of Comprehensive Income (Loss)
(Unaudited and dollars in thousands)
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For the Three Months Ended March 31, |
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2016 |
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2015 |
|
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Net income (loss) |
|
$ |
(10,503 |
) |
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$ |
266 |
|
Other comprehensive income (loss): |
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Change in fair value of interest rate hedges |
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(138 |
) |
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43 |
|
Realized (gains) losses on interest rate hedges reclassified to earnings |
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2,403 |
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4,967 |
|
Total other comprehensive income |
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2,265 |
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5,010 |
|
Comprehensive income (loss) before allocation to noncontrolling interests |
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(8,238 |
) |
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5,276 |
|
Allocation to noncontrolling interests |
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1,179 |
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|
496 |
|
Comprehensive income (loss) |
|
$ |
(7,059 |
) |
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$ |
5,772 |
|
The accompanying notes are an integral part of these consolidated financial statements.
3
Consolidated Statement of Changes in Equity
(Unaudited and dollars in thousands, except share information)
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Preferred Shares— Series A |
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Par Value Preferred Shares— Series A |
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Preferred Shares— Series B |
|
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Par Value Preferred Shares— Series B |
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Preferred Shares— Series C |
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Par Value Preferred Shares— Series C |
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Common Shares |
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Par Value Common Shares |
|
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Additional Paid In Capital |
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Accumulated Other Comprehensive Income (Loss) |
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Retained Earnings (Deficit) |
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Total Shareholders’ Equity |
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Noncontrolling Interests |
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Total Equity |
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Balance, December 31, 2015 |
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5,306,084 |
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$ |
53 |
|
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2,340,969 |
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|
$ |
23 |
|
|
1,640,425 |
|
|
$ |
17 |
|
|
91,586,767 |
|
|
$ |
2,748 |
|
|
$ |
2,087,137 |
|
|
$ |
(4,699 |
) |
|
$ |
(1,680,751 |
) |
|
$ |
404,528 |
|
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$ |
340,213 |
|
|
$ |
744,741 |
|
||||
Net income (loss) |
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— |
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— |
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— |
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— |
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— |
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— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
(9,324 |
) |
|
(9,324 |
) |
|
(1,179 |
) |
|
(10,503 |
) |
|||||
Preferred dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
(6,830 |
) |
|
(6,830 |
) |
|
|
— |
|
|
(6,830 |
) |
||||
Preferred Series D discount amortization |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
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|
(1,690 |
) |
|
(1,690 |
) |
|
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— |
|
|
(1,690 |
) |
||||
Common dividends declared |
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— |
|
|
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— |
|
|
|
— |
|
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— |
|
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— |
|
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— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
(8,548 |
) |
|
(8,548 |
) |
|
|
— |
|
|
(8,548 |
) |
||||
Other comprehensive income (loss), net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
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|
— |
|
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|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,265 |
|
|
|
— |
|
|
2,265 |
|
|
|
— |
|
|
2,265 |
|
|||
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,068 |
|
|
|
— |
|
|
|
— |
|
|
1,068 |
|
|
|
— |
|
|
1,068 |
|
|||
Issuance of noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
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|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
68 |
|
|
|
68 |
|
||
Distribution to noncontrolling interests |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
(7,774 |
) |
|
(7,774 |
) |
|||
Common shares issued for equity compensation |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
281,277 |
|
|
|
8 |
|
|
|
(292 |
) |
|
|
— |
|
|
|
— |
|
|
|
(284 |
) |
|
|
— |
|
|
(284) |
|
||
Common shares issued, net |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,527 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
— |
|
||
Balance, March 31, 2016 |
|
|
5,306,084 |
|
|
$ |
53 |
|
|
|
2,340,969 |
|
|
$ |
23 |
|
|
|
1,640,425 |
|
|
$ |
17 |
|
|
|
91,870,571 |
|
|
$ |
2,756 |
|
|
$ |
2,087,913 |
|
|
$ |
(2,434 |
) |
|
$ |
(1,707,143 |
) |
|
$ |
381,185 |
|
|
$ |
331,328 |
|
|
$ |
712,513 |
|
The accompanying notes are an integral part of these consolidated financial statements.
4
Consolidated Statements of Cash Flows
(Unaudited and dollars in thousands)
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
Operating activities: |
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(10,503 |
) |
|
$ |
266 |
|
Adjustments to reconcile net income (loss) to cash flow from operating activities: |
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
1,325 |
|
|
|
2,000 |
|
Share-based compensation expense |
|
|
1,273 |
|
|
|
1,348 |
|
Depreciation and amortization |
|
|
24,276 |
|
|
|
19,024 |
|
Amortization of deferred financing costs and debt discounts |
|
|
6,076 |
|
|
|
4,299 |
|
Accretion of discounts on investments |
|
|
(1,457 |
) |
|
|
(2,452 |
) |
Amortization of above/below market leases |
|
|
(424 |
) |
|
|
(134 |
) |
(Gains) losses on assets |
|
|
(2,258 |
) |
|
|
— |
|
(Gains) losses on extinguishment of debt |
|
|
(344 |
) |
|
|
— |
|
(Gains) on IRT merger with TSRE |
|
|
(91 |
) |
|
|
— |
|
Asset impairment |
|
|
3,922 |
|
|
|
— |
|
Change in fair value of financial instruments |
|
|
4,088 |
|
|
|
(4,490 |
) |
Provision (benefit) for deferred taxes |
|
|
(1,108 |
) |
|
|
(1,525 |
) |
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
(Increase) in accrued interest receivable |
|
|
(2,653 |
) |
|
|
(1,951 |
) |
(Increase) in other assets |
|
|
(3,701 |
) |
|
|
(13,112 |
) |
Increase in accrued interest payable |
|
|
3,486 |
|
|
|
2,620 |
|
(Decrease) in accounts payable and accrued expenses |
|
|
(9,453 |
) |
|
|
(6,473 |
) |
Increase in other liabilities |
|
|
4,907 |
|
|
|
5,166 |
|
Origination of conduit loans |
|
|
(8,800 |
) |
|
|
(128,670 |
) |
Sales of conduit loans |
|
|
— |
|
|
|
92,897 |
|
Net conduit loans (originated) sold |
|
|
(8,800 |
) |
|
|
(35,773 |
) |
Cash flows provided by (used in) operating activities |
|
|
8,561 |
|
|
|
(31,187 |
) |
Investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sales or repayments of other securities |
|
|
— |
|
|
|
31,241 |
|
Origination of loans for investment |
|
|
(35,591 |
) |
|
|
(91,359 |
) |
Principal repayments on loans |
|
|
55,052 |
|
|
|
17,148 |
|
Investments in real estate |
|
|
(7,521 |
) |
|
|
(4,239 |
) |
IRT's acquisition of TSRE, net of cash acquired |
|
|
91 |
|
|
|
|
|
Proceeds from the disposition of real estate |
|
|
23,286 |
|
|
|
— |
|
Decrease in restricted cash |
|
|
7,265 |
|
|
|
6,467 |
|
Cash flows provided by (used in) investing activities |
|
|
42,582 |
|
|
|
(40,742 |
) |
Financing activities: |
|
|
|
|
|
|
|
|
Repayments on secured credit facilities and loans payable on real estate |
|
|
(74,266 |
) |
|
|
(19,629 |
) |
Proceeds from secured credit facilities, term loans and loans payable on real estate |
|
|
53,476 |
|
|
|
22,900 |
|
Repayments and repurchase of CDO notes payable and floating rate transactions |
|
|
(84,065 |
) |
|
|
(19,855 |
) |
Repayments of senior secured notes |
|
|
(2,000 |
) |
|
|
(2,000 |
) |
Net proceeds related to conduit loan repurchase agreements |
|
|
4,049 |
|
|
|
39,723 |
|
Net proceeds related to floating rate loan repurchase agreements |
|
|
21,685 |
|
|
|
48,600 |
|
Proceeds from issuance of venture interests accounted for as indebtedness |
|
|
24,796 |
|
|
|
— |
|
Distribution to noncontrolling interests |
|
|
(7,774 |
) |
|
|
(4,907 |
) |
Issuance of noncontrolling interests |
|
|
68 |
|
|
|
— |
|
Payments for deferred costs |
|
|
(467 |
) |
|
|
(260 |
) |
Preferred share issuance, net of costs incurred |
|
|
— |
|
|
|
(21 |
) |
Common share issuance, net of costs incurred |
|
|
(489 |
) |
|
|
(652 |
) |
Distributions paid to preferred shareholders |
|
|
(8,955 |
) |
|
|
(6,296 |
) |
Distributions paid to common shareholders |
|
|
(8,518 |
) |
|
|
(14,743 |
) |
Cash flows (used in) provided by financing activities |
|
|
(82,460 |
) |
|
|
42,860 |
|
Net change in cash and cash equivalents |
|
|
(31,317 |
) |
|
|
(29,069 |
) |
Cash and cash equivalents at the beginning of the period |
|
|
125,886 |
|
|
|
121,726 |
|
Cash and cash equivalents at the end of the period |
|
$ |
94,569 |
|
|
$ |
92,657 |
|
The accompanying notes are an integral part of these consolidated financial statements.
5
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
NOTE 1: THE COMPANY
RAIT Financial Trust invests in and manages a portfolio of real estate-related assets, including direct ownership of real estate properties, and provides a comprehensive set of debt financing options to the real estate industry. References to “RAIT”, “we”, “us”, and “our” refer to RAIT Financial Trust and its subsidiaries, unless the context otherwise requires. RAIT is a self-managed and self-advised Maryland real estate investment trust, or REIT.
We finance a substantial portion of our investments through borrowing and securitization strategies seeking to match the maturities and terms of our financings with the maturities and terms of those investments, and to mitigate interest rate risk through derivative instruments.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Basis of Presentation
The accompanying unaudited interim consolidated financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles, or GAAP. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although we believe that the included disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2015 included in our Annual Report on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position and consolidated results of operations and cash flows are included. The results of operations for the interim periods presented are not necessarily indicative of the results for the full year.
Certain prior period amounts have been reclassified to conform with the current period presentation, including in 2015, reclassifying $695 from property income to real estate operating expense in the amount of $702 and to depreciation and amortization expense in the amount of $7 for the three months ended March 31, 2015.
The Consolidated Statement of Cash Flows for the three months ended March 31, 2015 includes the impact of correcting the reporting of certain activity that occurred in the three months ended March 31, 2015. Specifically, the correction eliminated the impact of a clerical error made in the determination of the amounts reported for the change in borrowers’ escrows within cash flows from operating activities and the related amounts reported for changes in restricted cash within cash flow from investing activities. The impact of this was a decrease to cash flows from operating activities and an increase to cash flows from investing activities of $18,194 for the three months ended March 31, 2015. This correction had no impact to cash and cash equivalents as of March 31, 2015, nor did it impact any other consolidated financial statement amounts as of March 31, 2015 or for the three months ended March 31, 2015.
We evaluated these error corrections and determined, based on quantitative and qualitative factors, the changes were not material to the consolidated financial statements taken as a whole for any previously filed consolidated financial statements.
b. Principles of Consolidation
The consolidated financial statements reflect our accounts and the accounts of our majority-owned and/or controlled subsidiaries. We also consolidate entities that are variable interest entities, or VIEs, where we have determined that we are the primary beneficiary of such entities. The portions of these entities that we do not own are presented as noncontrolling interests as of the dates and for the periods presented in the consolidated financial statements. All intercompany accounts and transactions have been eliminated in consolidation.
Under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 810, “Consolidation”, the determination of whether to consolidate a VIE is based on the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance together with either the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. We define the power to direct the activities that most significantly impact the VIE’s economic performance as the ability to buy, sell, refinance, or recapitalize assets or entities, and solely control other material operating events or items of the entity. For our commercial mortgages, mezzanine loans, and preferred equity investments, certain rights we hold are protective in nature and would preclude us from having the power to direct the activities that most significantly impact the VIE’s economic
6
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
performance. Assuming both criteria are met, we would be considered the primary beneficiary and would consolidate the VIE. We will continually assess our involvement with VIEs and consolidate the VIEs when we are the primary beneficiary. See Note 8 for additional disclosures pertaining to VIEs.
c. Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. The items that include significant estimates are fair value of financial instruments and allowance for loan losses. Actual results could differ from those estimates.
d. Cash and Cash Equivalents
Cash and cash equivalents include cash held in banks and highly liquid investments with maturities of three months or less when purchased. Cash, including amounts restricted, may at times exceed the Federal Deposit Insurance Corporation deposit insurance limit of $250 per institution. We mitigate credit risk by placing cash and cash equivalents with major financial institutions. To date, we have not experienced any losses on cash and cash equivalents.
e. Restricted Cash
Restricted cash consists primarily of tenant escrows and borrowers’ funds held by us to fund certain expenditures or to be released at our discretion upon the occurrence of certain pre-specified events, and to serve as additional collateral for borrowers’ loans. As of March 31, 2016 and December 31, 2015, we had $158,177 and $165,866, respectively, of tenant escrows and borrowers’ funds.
Restricted cash also includes proceeds from the issuance of securitization notes that are restricted for the purpose of funding additional investments in securities subsequent to the balance sheet date. As of March 31, 2016 and December 31, 2015, we had $41,989 and $47,146, respectively, of restricted cash held by securitizations.
f. Investments in Commercial Mortgages, Mezzanine Loans and Preferred Equity Interests
We invest in commercial mortgages, mezzanine loans, and preferred equity interests. We account for our investments in commercial mortgages, mezzanine loans and preferred equity interests at amortized cost. The carrying value of these investments is adjusted for origination discounts/premiums, nonrefundable fees and direct costs for originating loans which are amortized into income on a level yield basis over the terms of the loans.
g. Allowance for Loan Losses, Impaired Loans and Non-accrual Status
We maintain an allowance for loan losses on our investments in commercial mortgages, mezzanine loans and preferred equity interests. Management’s periodic evaluation of the adequacy of the allowance is based upon expected and inherent risks in the portfolio, the estimated value of underlying collateral, and current economic conditions. The credit quality of our loans is monitored via quantitative and qualitative metrics. Quantitatively we evaluate items such as the current debt service coverage ratio and annual net operating income of the underlying property. Qualitatively we evaluate items such as recent operating performance of the underlying property and history of the borrower’s ability to provide financial support. These items together are considered in developing our view of each loan’s risk rating which are categorized as either watchlist/impaired or satisfactory. Management reviews loans for impairment and establishes specific reserves when a loss is probable under the provisions of FASB ASC Topic 310, “Receivables.” A loan is impaired when it is probable that we may not collect all principal and interest payments according to the contractual terms. As part of the detailed loan review, we consider many factors about the specific loan, including payment history, asset performance, borrower’s financial capability and other characteristics. Management evaluates loans for non-accrual status each reporting period. A loan is placed on non-accrual status when the loan payment deficiencies exceed 90 days or if the collection of principal and interest in full is not probable. Payments received for non-accrual loans are applied to accrued interest receivable. Past due interest is recognized on non-accrual loans when they are removed from non-accrual status and are making current interest payments. The allowance for loan losses is increased by the provision for loan losses and decreased by charge-offs (net of recoveries). We charge off a loan when we determine that all commercially reasonable means of recovering the loan balance have been exhausted.
7
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
This may occur at a variety of times, including when we receive cash or other assets in a pre-foreclosure sale or take control of the underlying collateral in full satisfaction of the loan upon foreclosure. We consider circumstances such as these to indicate that the loan collection process has ceased and that a loan is uncollectible.
h. Investments in Real Estate
Investments in real estate are shown net of accumulated depreciation. We capitalize those costs that have been determined to improve the real property and depreciate those costs on a straight-line basis over the useful life of the asset. We depreciate real property using the following useful lives: buildings and improvements—30 to 40 years; furniture, fixtures, and equipment—5 to 10 years; and tenant improvements—shorter of the lease term or the life of the asset. Costs for ordinary maintenance and repairs are charged to expense as incurred.
Acquisitions of real estate assets and any related intangible assets are recorded initially at fair value under FASB ASC Topic 805, “Business Combinations.” Fair value is determined by management based on market conditions and inputs at the time the asset is acquired. The fair value of the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases and the value of tenant relationships, based in each case on their fair values. Purchase accounting is applied to assets and liabilities associated with the real estate acquired. Transaction costs and fees incurred related to acquisitions are expensed as incurred.
Upon the acquisition of properties, we estimate the fair value of acquired tangible assets (consisting of land, building and improvements) and identified intangible assets and liabilities (consisting of above and below-market leases, in-place leases and tenant relationships), and assumed debt at the date of acquisition, based on the evaluation of information and estimates available at that date. In determining the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the differences between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease. The capitalized above-market lease values and the capitalized below-market lease values are amortized as an adjustment to property income over the lease term.
The aggregate value of in-place leases is determined by evaluating various factors, including an estimate of carrying costs during the expected lease-up periods, current market conditions and similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses, and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs. The value assigned to this intangible asset is amortized over the assumed lease up period.
Management reviews our investments in real estate for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The review of recoverability is based on an estimate of the future undiscounted cash flows (excluding interest charges) expected to result from the long-lived asset’s use and eventual disposition. These cash flows consider factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a long-lived asset, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property.
i. Revenue Recognition
|
1) |
Interest income—We recognize interest income from investments in commercial mortgages, mezzanine loans, and preferred equity interests on a yield to maturity basis. Certain of our commercial mortgages, mezzanine loans and preferred equity interests provide for the accrual of interest at specified rates which differ from current payment terms. Interest income is recognized on such loans at the accrual rate subject to management’s determination that accrued interest and outstanding principal are ultimately collectible. Management will cease accruing interest on these loans when it determines that the interest income may not be collectible based on the ultimate value of the underlying collateral using discounted cash flow models and market based assumptions. The accrued interest receivable associated with these loans as of March 31, 2016 and December 31, 2015 was $35,977 and $34,132, respectively. These loans are considered to be impaired when the total amount owed exceeds the value of the underlying collateral. None of these loans were considered to be impaired as of March 31, 2016 and December 31, 2015. |
8
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
Origination fees and direct loan origination costs on our investments in commercial mortgages, mezzanine loans and preferred equity interests are deferred and amortized to investment interest income, using the effective interest method, over the contractual life of the underlying loan security or loan, in accordance with FASB ASC Topic 310, “Receivables.”
|
2) |
Property income—We generate property income from tenant rent and other tenant-related activities at our consolidated real estate properties. For multi-family real estate properties, property income is recorded when due from residents and recognized monthly as it is earned and realizable, under lease terms which are generally for periods of one year or less. For retail and office real estate properties, property income is recognized on a straight-line basis from the later of the date of the commencement of the lease or the date of acquisition of the property subject to existing leases, which averages minimum rents over the terms of the leases. For retail and office real estate properties, leases also typically provide for tenant reimbursement of a portion of common area maintenance and other operating expenses to the extent that a tenant’s pro rata share of expenses exceeds a base year level set in the lease. |
|
3) |
Fee and other income—We generate fee and other income through our various subsidiaries by (a) funding conduit loans for sale into unaffiliated commercial mortgage-backed securities, or CMBS, securitizations, (b) providing or arranging to provide financing to our borrowers, (c) providing ongoing asset management services to investment portfolios under cancelable management agreements, and (d) providing property management services to third parties. We recognize revenue for these activities when the fees are fixed or determinable, are evidenced by an arrangement, collection is reasonably assured and the services under the arrangement have been provided. While we may receive asset management fees when they are earned, we eliminate earned asset management fee income from securitizations while such securitizations are consolidated. During the three months ended March 31, 2016 and 2015, we received $402 and $315, respectively, of earned asset management fees, which were eliminated as they were associated with consolidated securitizations. |
|
Also, during the three months ended March 31, 2016 and 2015 we earned $1,631 and $1,001 of asset management fees, respectively, and $65 and $211 of incentive fees, respectively, related to our advisory agreement with IRT. During the three months ended March 31, 2016 and 2015 we also earned $1,262 and $755, respectively, of property management and leasing fees related to our property management agreements with IRT’s properties. As we consolidate IRT, these fees are eliminated in consolidation. |
j. Fair Value of Financial Instruments
In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity for disclosure purposes. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures” and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:
|
· |
Level 1: Valuations are based on unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date. The types of assets carried at Level 1 fair value generally are equity securities listed in active markets. As such, valuations of these investments do not entail a significant degree of judgment. |
|
· |
Level 2: Valuations are based on quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or for which all significant inputs are observable, either directly or indirectly. |
|
· |
Level 3: Inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. |
9
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of investment, whether the investment is new, whether the investment is traded on an active exchange or in the secondary market, and the current market condition. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3.
Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, our own assumptions are set to reflect those that management believes market participants would use in pricing the asset or liability at the measurement date. We use prices and inputs that management believes are current as of the measurement
date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be transferred from Level 1 to Level 2 or Level 2 to Level 3.
Many financial instruments have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that buyers in the market are willing to pay for an asset. Ask prices represent the lowest price that sellers in the market are willing to accept for an asset. For financial instruments whose inputs are based on bid-ask prices, we do not require that fair value always be a predetermined point in the bid-ask range. Our policy is to allow for mid-market pricing and adjusting to the point within the bid-ask range that results in our best estimate of fair value.
Fair value for certain of our Level 3 financial instruments is derived using internal valuation models. These internal valuation models include discounted cash flow analyses developed by management using current interest rates, estimates of the term of the particular instrument, specific issuer information and other market data for securities without an active market. In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, the impact of our own credit spreads is also considered when measuring the fair value of financial assets or liabilities, including derivative contracts. Where appropriate, valuation adjustments are made to account for various factors, including bid-ask spreads, credit quality and market liquidity. These adjustments are applied on a consistent basis and are based on observable inputs where available. Management’s estimate of fair value requires significant management judgment and is subject to a high degree of variability based upon market conditions, the availability of specific issuer information and management’s assumptions.
k. Investments in Securities
During the first quarter of 2015, we sold all our remaining investments in securities with an aggregate fair value of $31,412 and we had no investments in securities as of March 31, 2016 and December 31, 2015.
l. Transfers of Financial Assets
We account for transfers of financial assets under FASB ASC Topic 860, “Transfers and Servicing”, as either sales or financings. Transfers of financial assets that result in sales accounting are those in which (1) the transfer legally isolates the transferred assets from the transferor, (2) the transferee has the right to pledge or exchange the transferred assets and no condition both constrains the transferee’s right to pledge or exchange the assets and provides more than a trivial benefit to the transferor, and (3) the transferor does not maintain effective control over the transferred assets. If the transfer does not meet these criteria, the transfer is accounted for as a financing. Financial assets that are treated as sales are removed from our accounts with any realized gain (loss) reflected in earnings during the period of sale. Financial assets that are treated as financings are maintained on the balance sheet with proceeds received from the legal transfer reflected as securitized borrowings or security-related receivables.
m. Deferred Financing Costs
Costs incurred in connection with debt financing are deferred and classified within indebtedness and charged to interest expense over the terms of the related debt agreements, under the effective interest method.
n. Intangible Assets
10
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
Intangible assets on our consolidated balance sheets represent identifiable intangible assets acquired in business acquisitions. We amortize identified intangible assets to expense over their estimated lives using the straight-line method. We evaluate intangible assets for impairment as events and circumstances change, in accordance with FASB ASC Topic 360, “Property, Plant, and Equipment.” The gross carrying amount for our customer relationships was $19,149 as of March 31, 2016 and December 31, 2015. The gross carrying amount for our in-place leases, above market leases, and ground lease was $38,277 and $38,333 as of March 31, 2016 and December 31, 2015, respectively. The gross carrying amount for Urban Retail’s trade name was $1,500 as of March 31, 2016 and December 31, 2015, respectively. The accumulated amortization for our intangible assets was $32,228 and $26,307 as of March 31, 2016 and December 31, 2015, respectively. We recorded amortization expense of $5,920 and $3,931 for the three months ended March 31, 2016 and 2015, respectively. Based on the intangible assets identified above, we expect to record amortization expense of intangible assets of $5,141 for the remainder of 2016, $4,861 for 2017, $3,662 for 2018, $3,209 for 2019, $2,764 for 2020 and $7,062 thereafter.
o. Goodwill
Goodwill on our consolidated balance sheet represented the amounts paid in excess of the fair value of the net assets acquired from business acquisitions accounted for under FASB ASC Topic 805, “Business Combinations.” Pursuant to FASB ASC Topic 350, “Intangibles-Goodwill and Other”, goodwill is not amortized to expense but rather is analyzed for impairment. We evaluate goodwill for impairment on an annual basis and as events and circumstances change, in accordance with FASB ASC Topic 350. As of March 31, 2016 and December 31, 2015, we have $8,854 of goodwill that is included in Other Assets in the accompanying consolidated balance sheets. As of March 31, 2016, we have determined that no triggering events occurred that would indicate an impairment on our goodwill.
p. Recent Accounting Pronouncements
In May 2014, the FASB issued an accounting standard classified under FASB ASC Topic 606, “Revenue from Contracts with Customers”. This accounting standard generally replaces existing guidance by requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. This standard is currently effective for annual reporting periods beginning after December 15, 2017. Management is currently evaluating the impact that this standard may have on our consolidated financial statements.
In February 2015, the FASB issued an accounting standard classified under FASB ASC Topic 810, “Consolidation”. This accounting standard amends the consolidation analysis required under GAAP and requires management to reevaluate all previous consolidation conclusions. This standard considers limited partnerships to be VIEs, unless the limited partners have either substantive kick-out or participating rights. The presumption that a general partner should consolidate a limited partnership has also been eliminated. The standard amends the effect that fees paid to a decision maker or service provider have on the consolidation analysis, as well as amends how variable interests held by a reporting entity’s related parties affect the consolidation conclusion. This standard also clarifies how to determine whether equity holders as a group have power over an entity. This standard was effective for interim and annual reporting periods beginning on or after December 15, 2015, with early adoption permitted. The adoption of this accounting standard did not have an impact on our previous conclusions with respect to the entities consolidated in our consolidated financial statements.
In April 2015, the FASB issued an accounting standard classified under FASB ASC Topic 835, “Interest”. This accounting standard amends existing guidance to change reporting requirements for debt issuance costs by requiring debt issuance costs to be presented on the balance sheet as a direct deduction from the debt liability. This standard was effective for interim and annual reporting periods beginning on or after December 15, 2015, with an early adoption permitted. Retrospective application to prior periods is required. The adoption of this accounting standard resulted in the reclassification of $31,368 of deferred costs, net of $33,769 of accumulated amortization, as of December 31, 2015 to total indebtedness on our consolidated balance sheet.
In September 2015, the FASB issued an accounting standard classified under FASB ASC Topic 805, “Business Combinations”. This accounting standard amends existing guidance related to measurement period adjustments by requiring the adjustments to be recognized prospectively with disclosure of the impact of the adjustments had they been applied previously. This standard was effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. As this standard only applies to measurement period adjustments that occur after the effective date, this standard did not have a material impact on our consolidated financial statements.
11
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
In January 2016, the FASB issued an accounting standard classified under FASB ASC Topic 825, “Financial Instruments”. This accounting standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Among other things, the amendment (i) eliminates certain disclosure requirements for financial instruments measured at amortized cost; (ii) requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (iii) requires separate presentation, in other comprehensive income, of the change in fair value of a liability, when the fair value option has been elected, resulting from a change in the instrument-specific credit risk; and (iv) requires separate presentation of financial instruments by measurement category and form. This standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for the separate presentation of changes in fair value due to changes in instrument-specific credit risk. Management is currently evaluating the impact that this standard may have on our consolidated financial statements.
In February 2016, the FASB issued an accounting standard classified under FASB ASC Topic 842, “Leases”. This accounting standard amends lease accounting by requiring the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases on the balance sheet and disclosing key information about leasing arrangements. This standard is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in this standard is permitted Management is currently evaluating the impact that this standard may have on our consolidated financial statements.
In March 2016, the FASB issued an accounting standard classified under FASB ASC Topic 815, “Derivatives and Hedging”. This accounting standard clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. This standard is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Management does not expect this standard to have a significant impact on our consolidated financial statements.
In March 2016, the FASB issued an accounting standard classified under FASB ASC Topic 815, “Derivatives and Hedging”. This accounting standard clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. This accounting standard clarifies what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. This standard is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Management does not expect this standard to have a significant impact on our consolidated financial statements.
In March 2016, the FASB issued an accounting standard classified under FASB ASC Topic 606, “Revenue from Contracts with Customers”. This accounting standard clarifies the implementation guidance on principal versus agent considerations in Topic 606. This accounting standard clarifies the following: (i) an entity determines whether it is a principal or an agent for each specified good or service promised to the customer; (ii) an entity determines the nature of each specified good or service (for example, whether it is a good, a service, or a right to a good or service); (iii) when a principal obtains control of a good or right to service whether another party is involved in providing goods or services to a customer; and (iv) the indicators in the assessment of control may be more or less relevant to the control assessment and that one or more indicators may be more or less persuasive to the control assessment, depending on the facts and circumstances. This standard is effective for annual reporting periods beginning after December 15, 2017. Management is currently evaluating the impact that this standard may have on our consolidated financial statements.
In March 2016, the FASB issued an accounting standard classified under FASB ASC Topic 718, “Compensation – Stock Compensation”. This accounting standard simplifies several aspects of the accounting for share-based payment award transactions, including: (i) income tax consequences; (ii) classification of awards as either equity or liabilities; and (iii) classification on the statement of cash flows. This standard is effective for annual periods beginning after December 15, 2016, and interim period within those annual periods. Early adoption is permitted for any entity in any interim or annual period. Management is currently evaluating the impact that this standard may have on our consolidated financial statements.
In April 2016, the FASB issued an accounting standard classified under FASB ASC Topic 606, “Revenue from Contracts with Customers.” The amendments in this standard add further guidance on identifying performance obligations and clarifying the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606. This standard is
12
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
effective for annual periods beginning after December 15, 2017, including interim periods therein. Management is currently evaluating the impact that this standard may have on consolidated financial statements.
NOTE 3: INVESTMENTS IN LOANS
Investments in Commercial Mortgages, Mezzanine Loans, and Preferred Equity Interests
The following table summarizes our investments in commercial mortgages, mezzanine loans, and preferred equity interests as of March 31, 2016:
|
|
Unpaid Principal Balance |
|
|
Unamortized (Discounts) Premiums |
|
|
Carrying Amount |
|
|
Number of Loans |
|
|
Weighted- Average Coupon (1) |
|
|
Range of Maturity Dates (3) |
|||||
Commercial Real Estate (CRE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages (2) |
|
$ |
1,421,060 |
|
|
$ |
(1,001 |
) |
|
$ |
1,420,059 |
|
|
|
121 |
|
|
|
5.6 |
% |
|
Apr. 2016 to Jan. 2029 |
Mezzanine loans |
|
|
169,415 |
|
|
|
(218 |
) |
|
$ |
169,197 |
|
|
|
54 |
|
|
|
9.8 |
% |
|
May 2016 to May 2025 |
Preferred equity interests |
|
|
24,237 |
|
|
|
(1 |
) |
|
$ |
24,236 |
|
|
|
6 |
|
|
|
5.9 |
% |
|
Sept. 2016 to Aug. 2025 |
Total CRE |
|
|
1,614,712 |
|
|
|
(1,220 |
) |
|
$ |
1,613,492 |
|
|
|
181 |
|
|
|
6.0 |
% |
|
|
Deferred fees, net |
|
|
(860 |
) |
|
|
|
|
|
|
(860 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,613,852 |
|
|
$ |
(1,220 |
) |
|
$ |
1,612,632 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Weighted-average coupon is calculated on the unpaid principal balance, which does not necessarily correspond to the carrying amount. |
|
(2) |
Commercial mortgages includes seven conduit loans with an unpaid principal balance and carrying amount of $57,928, a weighted-average coupon of 4.9% and maturity dates ranging from December 2020 through February 2026. These commercial mortgages are accounted for as loans held for sale. |
(3) |
Does not include the maturity dates of five mezzanine loans all of which had maturity dates prior to March 31, 2016 and have been identified as impaired. Three of these loans are 90 days or more past due, one of these loans is 30 to 59 days past due and one of these loans is in the process of being restructured. |
The following table summarizes our investments in commercial mortgages, mezzanine loans, other loans and preferred equity interests as of December 31, 2015:
|
|
Unpaid Principal Balance |
|
|
Unamortized (Discounts) Premiums |
|
|
Carrying Amount |
|
|
Number of Loans |
|
|
Weighted- Average Coupon (1) |
|
|
Range of Maturity Dates (3) |
|||||
Commercial Real Estate (CRE) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages (2) |
|
$ |
1,427,328 |
|
|
$ |
(1,049 |
) |
|
$ |
1,426,279 |
|
|
|
124 |
|
|
|
5.2 |
% |
|
Mar. 2016 to Jan. 2029 |
Mezzanine loans |
|
|
169,556 |
|
|
|
(218 |
) |
|
|
169,338 |
|
|
|
57 |
|
|
|
10.0 |
% |
|
Jan. 2016 to May 2025 |
Preferred equity interests |
|
|
30,237 |
|
|
|
(1 |
) |
|
|
30,236 |
|
|
|
7 |
|
|
|
6.9 |
% |
|
Feb. 2016 to Aug. 2025 |
Total CRE |
|
|
1,627,121 |
|
|
|
(1,268 |
) |
|
|
1,625,853 |
|
|
|
188 |
|
|
|
6.1 |
% |
|
|
Deferred fees, net |
|
|
(2,270 |
) |
|
|
— |
|
|
|
(2,270 |
) |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,624,851 |
|
|
$ |
(1,268 |
) |
|
$ |
1,623,583 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Weighted-average coupon is calculated on the unpaid principal balance, which does not necessarily correspond to the carrying amount. |
|
(2) |
Commercial mortgages includes six conduit loans with an unpaid principal balance and carrying amount of $49,239, a weighted-average coupon of 4.8% and maturity dates ranging from December 2020 through January 2026. These commercial mortgages are accounted for as loans held for sale. |
|
(3) |
Does not include the maturity dates of three mezzanine loans that were 90 days or more past due which had contractual maturity date prior to December 31, 2015. |
13
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
The following table summarizes the delinquency statistics of our commercial real estate loans as of March 31, 2016 and December 31, 2015:
|
|
As of March 31, 2016 |
|
|||||||||||||||||||||||||
Delinquency Status |
|
Current |
|
|
30 to 59 days |
|
|
60 to 89 days |
|
|
90 days or more |
|
|
In foreclosure or bankruptcy proceedings (b) |
|
|
Total |
|
|
Non-accrual (a) |
|
|||||||
Commercial mortgages |
|
$ |
1,346,260 |
|
|
$ |
74,800 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,421,060 |
|
|
$ |
15,645 |
|
Mezzanine loans |
|
|
165,107 |
|
|
|
2,145 |
|
|
|
— |
|
|
|
1,163 |
|
|
|
1,000 |
|
|
|
169,415 |
|
|
|
12,098 |
|
Preferred equity interests |
|
|
24,237 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
24,237 |
|
|
|
7,946 |
|
Total |
|
$ |
1,535,604 |
|
|
$ |
76,945 |
|
|
$ |
— |
|
|
$ |
1,163 |
|
|
$ |
1,000 |
|
|
$ |
1,614,712 |
|
|
$ |
35,689 |
|
|
(1) |
Includes four loans that were current and two loans that were 30 days past due in accordance with their terms, however are on non-accrual due to uncertainty over full collection of principal and interest. |
|
(2) |
These loans were on non-accrual due to uncertainty over full collection of principal and interest. |
|
|
As of December 31, 2015 |
|
|||||||||||||||||||||||||
Delinquency Status |
|
Current |
|
|
30 to 59 days |
|
|
60 to 89 days |
|
|
90 days or more |
|
|
In foreclosure or bankruptcy proceedings (b) |
|
|
Total |
|
|
Non-Accrual (a) |
|
|||||||
Commercial mortgages |
|
$ |
1,427,328 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,427,328 |
|
|
$ |
15,645 |
|
Mezzanine loans |
|
|
167,145 |
|
|
|
— |
|
|
|
— |
|
|
|
1,163 |
|
|
|
1,248 |
|
|
|
169,556 |
|
|
|
12,346 |
|
Preferred equity interests |
|
|
30,237 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
30,237 |
|
|
|
7,946 |
|
Total |
|
$ |
1,624,710 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,163 |
|
|
$ |
1,248 |
|
|
$ |
1,627,121 |
|
|
$ |
35,937 |
|
|
(1) |
Includes six loans that were current in accordance with their terms, however are on non-accrual due to uncertainty over full collection of principal and interest. |
|
(2) |
These loans were on non-accrual due to uncertainty over full collection of principal and interest. |
As of March 31, 2016 and December 31, 2015, all of our commercial mortgages, mezzanine loans and preferred equity interests that were 90 days or more past due or in foreclosure were on non-accrual status. As of March 31, 2016 and December 31, 2015, $35,689 and $35,937, respectively, of our commercial real estate loans were on non-accrual status and had a weighted-average interest rate of 4.6% and 4.6%, respectively. Also, as of March 31, 2016 and December 31, 2015, three and two loans, respectively, with a unpaid principal balance of $25,871 and $13,002, respectively, and a weighted average interest rate of 12.9% and 11.6%, respectively, were recognizing interest on the cash basis. Additionally, as of March 31, 2016 and December 31, 2015, one loan, with an unpaid principal balance of $18,500, which had previously been restructured in a troubled debt restructuring, or TDR, does not accrue interest in accordance with its restructured terms as it has the option to be prepaid at par.
Allowance For Loan Losses And Impaired Loans
We closely monitor our loans which require evaluation for loan loss in two categories: satisfactory and watchlist/impaired. Loans classified as impaired are generally loans which have credit weaknesses or in which the credit quality of the collateral has deteriorated. This is determined by evaluating quantitative factors including debt service coverage ratios, net operating income of the underlying collateral and qualitative factors such as current performance of the underlying collateral. As of March 31, 2016 and December 31, 2015 we have classified our investment in loans by credit risk category as follows:
|
|
As of March 31, 2016 |
|
|||||||||||||
Credit Status |
|
Commercial Mortgages |
|
|
Mezzanine Loans |
|
|
Preferred Equity |
|
|
Total |
|
||||
Satisfactory |
|
$ |
1,330,615 |
|
|
$ |
135,817 |
|
|
$ |
16,291 |
|
|
$ |
1,482,723 |
|
Watchlist / Impaired |
|
|
90,445 |
|
|
|
33,598 |
|
|
|
7,946 |
|
|
$ |
131,989 |
|
Total |
|
$ |
1,421,060 |
|
|
$ |
169,415 |
|
|
$ |
24,237 |
|
|
$ |
1,614,712 |
|
14
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
|
|
As of December 31, 2015 |
|
|||||||||||||
Credit Status |
|
Commercial Mortgages |
|
|
Mezzanine Loans |
|
|
Preferred Equity |
|
|
Total |
|
||||
Satisfactory |
|
$ |
1,336,883 |
|
|
$ |
135,710 |
|
|
$ |
22,291 |
|
|
$ |
1,494,884 |
|
Watchlist / Impaired |
|
|
90,445 |
|
|
|
33,846 |
|
|
|
7,946 |
|
|
|
132,237 |
|
Total |
|
$ |
1,427,328 |
|
|
$ |
169,556 |
|
|
$ |
30,237 |
|
|
$ |
1,627,121 |
|
The following tables provide roll-forwards of our allowance for loan losses for our commercial mortgages, mezzanine loans and preferred equity interests for the three months ended March 31, 2016 and 2015:
|
|
For the Three Months Ended March 31, 2016 |
|
|||||||||||||
|
|
Commercial Mortgages |
|
|
Mezzanine Loans |
|
|
Preferred Equity |
|
|
Total |
|
||||
Beginning balance |
|
$ |
3,154 |
|
|
$ |
12,139 |
|
|
$ |
1,804 |
|
|
$ |
17,097 |
|
Provision for loan losses |
|
|
174 |
|
|
|
158 |
|
|
|
993 |
|
|
|
1,325 |
|
Charge-offs, net of recoveries |
|
|
— |
|
|
|
(257 |
) |
|
|
— |
|
|
$ |
(257 |
) |
Ending balance |
|
$ |
3,328 |
|
|
$ |
12,040 |
|
|
$ |
2,797 |
|
|
$ |
18,165 |
|
|
|
For the Three Months Ended March 31, 2015 |
|
|||||||||||||
|
|
Commercial Mortgages |
|
|
Mezzanine Loans |
|
|
Preferred Equity |
|
|
Total |
|
||||
Beginning balance |
|
$ |
— |
|
|
$ |
7,892 |
|
|
$ |
1,326 |
|
|
$ |
9,218 |
|
Provision for loan losses |
|
|
— |
|
|
|
2,000 |
|
|
|
— |
|
|
|
2,000 |
|
Charge-offs, net of recoveries |
|
|
— |
|
|
|
(421 |
) |
|
|
— |
|
|
|
(421 |
) |
Ending balance |
|
$ |
— |
|
|
$ |
9,471 |
|
|
$ |
1,326 |
|
|
$ |
10,797 |
|
Information related to those loans on our watchlist or considered to be impaired was as follows:
|
|
As of March 31, 2016 |
|
|||||||||||||
Watchlist/Impaired Loans |
|
Commercial Mortgages |
|
|
Mezzanine Loans |
|
|
Preferred Equity |
|
|
Total |
|
||||
Watchlist/Impaired loans expecting full recovery |
|
$ |
74,800 |
|
|
$ |
3,000 |
|
|
$ |
— |
|
|
$ |
77,800 |
|
Watchlist/Impaired loans with reserves |
|
|
15,645 |
|
|
|
30,598 |
|
|
|
7,946 |
|
|
|
54,189 |
|
Total Watchlist/Impaired Loans (1) |
|
$ |
90,445 |
|
|
$ |
33,598 |
|
|
$ |
7,946 |
|
|
$ |
131,989 |
|
Allowance for loan losses |
|
$ |
3,328 |
|
|
$ |
12,040 |
|
|
$ |
2,797 |
|
|
$ |
18,165 |
|
|
(1) |
As of March 31, 2016, this includes no unpaid principal relating to previously identified TDRs that are on accrual status. |
|
|
As of December 31, 2015 |
|
|||||||||||||
Watchlist/Impaired Loans |
|
Commercial Mortgages |
|
|
Mezzanine Loans |
|
|
Preferred Equity |
|
|
Total |
|
||||
Watchlist/Impaired loans expecting full recovery |
|
$ |
74,800 |
|
|
$ |
3,000 |
|
|
$ |
— |
|
|
$ |
77,800 |
|
Watchlist/Impaired loans with reserves |
|
|
15,645 |
|
|
|
30,846 |
|
|
|
7,946 |
|
|
|
54,437 |
|
Total Watchlist/Impaired Loans (1) |
|
$ |
90,445 |
|
|
$ |
33,846 |
|
|
$ |
7,946 |
|
|
$ |
132,237 |
|
Allowance for loan losses |
|
$ |
3,154 |
|
|
$ |
12,139 |
|
|
$ |
1,804 |
|
|
$ |
17,097 |
|
|
(1) |
As of December 31, 2015, this includes no unpaid principal relating to previously identified TDRs that are on accrual status. |
The average unpaid principal balance and recorded investment of total impaired loans was $132,113 and $80,903 during the three months ended March 31, 2016 and 2015, respectively. We recorded interest income of $1,262 and $582 on loans that were impaired for the three months ended March 31, 2016 and 2015, respectively.
15
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
We have evaluated restructurings of our commercial real estate loans to determine if the restructuring constitutes a TDR under FASB ASC Topic 310, “Receivables”. During the three months ended March 31, 2016, we have determined that a restructuring of one commercial real estate loan with an unpaid principal balance of $15,645 constituted a TDR as the interest payment rate was decreased, although interest will continue to accrue on the original contractual rate, subject to management’s determination that it is collectible, and will be owed upon maturity. During the three months ended March 31, 2015, there were no restructurings of our commercial real estate loans that constituted a TDR. As of March 31, 2016, there were no TDRs that subsequently defaulted for restructurings that had been entered into within the previous 12 months.
During the three months ended March 31, 2016, we did not convert any commercial real estate loans to owned real estate property.
NOTE 4: INVESTMENTS IN REAL ESTATE
The table below summarizes our investments in real estate:
|
|
Book Value |
|
|||||
|
|
As of March 31, 2016 |
|
|
As of December 31, 2015 |
|
||
Multi-family real estate properties (1) |
|
$ |
1,820,062 |
|
|
$ |
1,842,704 |
|
Office real estate properties |
|
|
387,537 |
|
|
|
395,224 |
|
Industrial real estate properties |
|
|
94,938 |
|
|
|
94,938 |
|
Retail real estate properties |
|
|
134,484 |
|
|
|
134,331 |
|
Parcels of land |
|
|
50,613 |
|
|
|
50,448 |
|
Subtotal |
|
|
2,487,634 |
|
|
|
2,517,645 |
|
Less: Accumulated depreciation and amortization (1) |
|
|
(209,421 |
) |
|
|
(198,326 |
) |
Investments in real estate (2) |
|
$ |
2,278,213 |
|
|
$ |
2,319,319 |
|
|
(1) |
As of March 31, 2016, includes properties owned by Independence Realty Trust, Inc., or IRT, with a book value of $1,357,338 and accumulated depreciation of $44,422. As of December 31, 2015, includes properties owned by IRT, with a book value of $1,372,015 and accumulated depreciation of $39,638. |
|
(2) |
As of March 31, 2016, four of our multifamily real estate properties, two of IRT’s multifamily real estate properties and one parcel of land were considered held-for-sale. The carrying amount of our multifamily properties was $36,301. The carrying amount of the IRT properties was $39,347. The carrying amount of the parcel of land was $1,470. |
As of March 31, 2016 and December 31, 2015, our investments in real estate were comprised of land of $408,755 and $415,707, respectively, and buildings and improvements of $2,078,878 and $2,101,938, respectively.
As of March 31, 2016, our investments in real estate of $2,278,213 were financed through $761,767 of mortgages or other debt held by third parties and $916,763 of mortgages held by our RAIT I and RAIT II CDO securitizations. As of December 31, 2015, our investments in real estate of $2,319,319 were financed through $815,745 of mortgages held by third parties and $889,786 of mortgages held by our RAIT I and RAIT II CDO securitizations. Together, along with commercial real estate loans held by RAIT I and RAIT II, these mortgages serve as collateral for the CDO notes payable issued by the RAIT I and RAIT II CDO securitizations. All intercompany balances and interest charges are eliminated in consolidation.
Acquisitions:
During the first quarter of 2016, IRT received additional information regarding estimates IRT had made for certain accrued expenses related to the TSRE merger that was completed on September 17, 2015. This information led to an increase in fair value of the net assets IRT acquired of $91, which IRT recognized during the three months ended March 31, 2016.
During the first quarter of 2016, we received additional information regarding estimates we had made for certain assets including cash related to tenant security deposits related to our October 2015 acquisition of 10 industrial properties through our conversion of a mezzanine loan to real estate owned property. This information led to an increase in fair value of the net assets acquired of $437, which we recognized within interest income, as the converted loan was on non-accrual and the fair value of the net assets acquired exceeded the amount of the converted loan plus previously accrued interest.
16
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
During the first quarter of 2016, we received additional information regarding estimates we had made as part of the purchase price allocation related to our December 2015 acquisition of Erieview Tower & Parking. This information, which related to an allocation of the estimated costs required to stabilize this property and an adjacent property to which we have rights to collateral secured by a first mortgage, led to an increase in fair value of the net assets acquired of $1,499. This was offset by a decrease of $1,499 to the previously discussed collateral which is reported within investment in mortgages, loans and preferred equity interests on our consolidated balance sheets. The $1,499 increase in the net assets acquired was related to an increase in investments in real estate of $3,351, a decrease in intangible assets of $57 and an increase in intangible liabilities of $1,795. The cumulative catch up effect of the allocation (based on the different useful lives) was an increase to net income of $11.
Dispositions:
During the three months ended March 31, 2016, we disposed of one multifamily real estate property and one office property. IRT also disposed of one multifamily real estate property. The below table summarizes these dispositions and also presents each property’s contribution to net income (loss) allocable to common shares, excluding the impact of the gain (loss) on sale:
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended March 31, 2016 |
|
|||||
Property Name |
|
Property Type |
|
Date of Sale |
|
Sale Price |
|
|
Gain (loss) on sale |
|
|
Net income (loss) allocable to common shares |
|
|||
Cumberland Glen |
|
IRT Multifamily |
|
2/18/2016 |
|
$ |
18,000 |
|
|
$ |
2,453 |
|
|
$ |
52 |
|
Mineral/Lincoln |
|
Office |
|
3/25/2016 |
|
|
7,949 |
|
|
|
(374 |
) |
|
|
5 |
|
Ventura |
|
Multifamily |
|
3/30/2016 |
|
|
8,750 |
|
|
|
120 |
|
|
|
37 |
|
Total |
|
|
|
|
|
$ |
34,699 |
|
|
$ |
2,199 |
|
|
$ |
94 |
|
In April 2016, IRT sold one multifamily real estate property for a sale price of $23,000. IRT will recognize a gain on the sale of this asset.
In April 2016, we sold one parcel of land for a sale price of $1,500. We will recognize a gain on the sale of this asset.
In May 2016, IRT sold one multifamily real estate property for a sale price of $47,000. IRT will recognize a gain on the sale of this asset.
Impairment:
During the three months ended March 31, 2016, we recognized an impairment of a real estate asset of $3,922 as it was more likely than not we would dispose of the asset before the end of its previously estimated useful life and a portion of our recorded investment in that asset was determined to not be recoverable.
17
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
We maintain various forms of short-term and long-term financing arrangements. Generally, these financing agreements are collateralized by assets within securitizations.
The following table summarizes our total recourse and non-recourse indebtedness as of March 31, 2016:
Description |
|
Unpaid Principal Balance |
|
|
Unamortized Discount and Debt Issuance Costs |
|
|
Carrying Amount |
|
|
Weighted- Average Interest Rate |
|
|
Contractual Maturity |
|
||||||||
Recourse indebtedness: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
7.0% convertible senior notes (1) |
|
$ |
30,048 |
|
|
$ |
(1,044 |
) |
|
$ |
29,004 |
|
|
|
7.0 |
% |
|
Apr. 2031 |
|
||||
4.0% convertible senior notes (2) |
|
|
141,750 |
|
|
|
(7,987 |
) |
|
|
133,763 |
|
|
|
4.0 |
% |
|
Oct. 2033 |
|
||||
7.625% senior notes |
|
|
60,000 |
|
|
|
(1,986 |
) |
|
|
58,014 |
|
|
|
7.6 |
% |
|
Apr. 2024 |
|
||||
7.125% senior notes |
|
|
71,905 |
|
|
|
(2,009 |
) |
|
|
69,896 |
|
|
|
7.1 |
% |
|
Aug. 2019 |
|
||||
Senior secured notes |
|
|
68,000 |
|
|
|
(6,153 |
) |
|
|
61,847 |
|
|
|
7.0 |
% |
|
Apr. 2017 to Apr. 2019 |
|
||||
Junior subordinated notes, at fair value (3) |
|
|
18,671 |
|
|
|
(8,886 |
) |
|
|
9,785 |
|
|
|
4.6 |
% |
|
Mar. 2035 |
|
||||
Junior subordinated notes, at amortized cost |
|
|
25,100 |
|
|
|
(213 |
) |
|
|
24,887 |
|
|
|
3.1 |
% |
|
Apr. 2037 |
|
||||
CMBS facilities |
|
|
122,801 |
|
|
|
(531 |
) |
|
|
122,270 |
|
|
|
2.5 |
% |
|
Jul. 2016 to Jan 2018 |
|
||||
Total recourse indebtedness |
|
|
538,275 |
|
|
|
(28,809 |
) |
|
|
509,466 |
|
|
|
5.0 |
% |
|
|
|
|
|||
Non-recourse indebtedness: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
Secured credit facilities (4) |
|
|
324,977 |
|
|
|
(4,122 |
) |
|
|
320,855 |
|
|
|
2.9 |
% |
|
September 2018 |
|
||||
Term Loans (5) |
|
|
90,216 |
|
|
|
(939 |
) |
|
|
89,277 |
|
|
|
5.4 |
% |
|
September 2016 |
|
||||
CDO notes payable, at amortized cost (6)(7) |
|
|
917,725 |
|
|
|
(12,495 |
) |
|
|
905,230 |
|
|
|
1.2 |
% |
|
2045 to 2046 |
|
||||
CMBS securitizations (8) |
|
|
666,947 |
|
|
|
(6,808 |
) |
|
|
660,139 |
|
|
|
2.6 |
% |
|
May 2031 to Dec. 2031 |
|
||||
Loans payable on real estate (9) |
|
|
761,767 |
|
|
|
(4,099 |
) |
|
|
757,668 |
|
|
|
4.4 |
% |
|
June 2016 to Apr. 2026 |
|
||||
Total non-recourse indebtedness |
|
|
2,761,632 |
|
|
|
(28,463 |
) |
|
|
2,733,169 |
|
|
|
2.8 |
% |
|
|
|
|
|||
Other indebtedness (10) |
|
|
24,321 |
|
|
|
274 |
|
|
|
24,595 |
|
|
|
— |
|
|
|
— |
|
|||
Total indebtedness |
|
$ |
3,324,228 |
|
|
$ |
(56,998 |
) |
|
$ |
3,267,230 |
|
|
|
3.1 |
% |
|
|
|
|
(1) |
Our 7.0% convertible senior notes are redeemable at par, at the option of the holder, in April 2016, April 2021, and April 2026. |
(2) |
Our 4.0% convertible senior notes are redeemable at par, at the option of the holder, in October 2018, October 2023, and October 2028. |
(3) |
Relates to liabilities which we elected to record at fair value under FASB ASC Topic 825. |
(4) Floating rate at 245 basis points over 1-month LIBOR. As of March 31, 2016, 1-month LIBOR was 0.43725%. Interest only payments are due monthly.
(5) |
Floating rate at 500 basis points over 1-month LIBOR. As of March 31, 2016, 1-month LIBOR was 0.43725%. Interest only payments are due monthly. |
(6) |
Excludes CDO notes payable purchased by us which are eliminated in consolidation |
(7) |
Collateralized by $1,358,687 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. |
(8) |
Excludes the RAIT FL2 junior notes, RAIT FL3 junior notes, RAIT FL4 junior notes and RAIT FL5 junior notes purchased by us which are eliminated in consolidation. Collateralized by $855,555 principal amount of commercial mortgages loans and participation 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. |
(9) |
Includes $495,253 of unpaid principal balance and $492,129 of carrying amount, respectively, of third party mortgage indebtedness that encumbers properties owned by IRT. The weighted-average interest rate is 3.8% and has a range of maturity dates from January 2021 to May 2025. |
18
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
required return or interest payment. The venture interests allocate the distributions on such junior notes and equity when made between the parties to the venture. |
The following table summarizes our total recourse and non-recourse indebtedness as of December 31, 2015:
Description |
|
Unpaid Principal Balance |
|
|
Unamortized Discount and Debt Issuance Costs |
|
|
Carrying Amount |
|
|
Weighted- Average Interest Rate |
|
|
Contractual Maturity |
||||
Recourse indebtedness: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.0% convertible senior notes (1) |
|
$ |
30,048 |
|
|
$ |
(1,180 |
) |
|
$ |
28,868 |
|
|
|
7.0 |
% |
|
Apr. 2031 |
4.0% convertible senior notes (2) |
|
|
141,750 |
|
|
|
(8,711 |
) |
|
|
133,039 |
|
|
|
4.0 |
% |
|
Oct. 2033 |
7.625% senior notes |
|
|
60,000 |
|
|
|
(2,048 |
) |
|
|
57,952 |
|
|
|
7.6 |
% |
|
Apr. 2024 |
7.125% senior notes |
|
|
71,905 |
|
|
|
(2,156 |
) |
|
|
69,749 |
|
|
|
7.1 |
% |
|
Aug. 2019 |
Senior secured notes |
|
|
70,000 |
|
|
|
(6,955 |
) |
|
|
63,045 |
|
|
|
7.0 |
% |
|
Apr. 2017 to Apr. 2019 |
Junior subordinated notes, at fair value (3) |
|
|
18,671 |
|
|
|
(8,167 |
) |
|
|
10,504 |
|
|
|
4.3 |
% |
|
Mar. 2035 |
Junior subordinated notes, at amortized cost |
|
|
25,100 |
|
|
|
(216 |
) |
|
|
24,884 |
|
|
|
2.7 |
% |
|
Apr. 2037 |
CMBS facilities |
|
|
97,067 |
|
|
|
(344 |
) |
|
|
96,723 |
|
|
|
2.4 |
% |
|
Jul. 2016 to Jan. 2018 |
Total recourse indebtedness |
|
|
514,541 |
|
|
|
(29,777 |
) |
|
|
484,764 |
|
|
|
5.1 |
% |
|
|
Non-recourse indebtedness: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured credit facilities (4) |
|
|
271,500 |
|
|
|
(4,345 |
) |
|
|
267,155 |
|
|
|
2.9 |
% |
|
Sep. 2018 |
Term Loans (5) |
|
|
120,000 |
|
|
|
(1,582 |
) |
|
|
118,418 |
|
|
|
5.4 |
% |
|
Sept. 2016 |
CDO notes payable, at amortized cost (6)(7) |
|
|
950,981 |
|
|
|
(13,412 |
) |
|
|
937,569 |
|
|
|
0.9 |
% |
|
Jun. 2045 to Nov. 2046 |
CMBS securitizations (8) |
|
|
717,255 |
|
|
|
(8,745 |
) |
|
|
708,510 |
|
|
|
2.4 |
% |
|
May 2031 to Dec. 2031 |
Loans payable on real estate (9) |
|
|
815,746 |
|
|
|
(4,080 |
) |
|
|
811,666 |
|
|
|
4.5 |
% |
|
Apr. 2016 to Apr. 2026 |
Total non-recourse indebtedness |
|
|
2,875,482 |
|
|
|
(32,164 |
) |
|
|
2,843,318 |
|
|
|
2.7 |
% |
|
|
Total indebtedness |
|
$ |
3,390,023 |
|
|
$ |
(61,941 |
) |
|
$ |
3,328,082 |
|
|
|
3.0 |
% |
|
|
(1) |
Our 7.0% convertible senior notes are redeemable at par, at the option of the holder, in April 2016, April 2021, and April 2026. |
(2) |
Our 4.0% convertible senior notes are redeemable at par, at the option of the holder, in October 2018, October 2023, and October 2028. |
(3) |
Relates to liabilities which we elected to record at fair value under FASB ASC Topic 825. |
(4) |
Floating rate at 245 basis points over 1-month LIBOR. As of December 31, 2015, 1-month LIBOR was 0.4295%. Interest only payments are due monthly. |
(5) |
Floating rate at 500 basis points over 1-month LIBOR. As of December 31, 2015, 1-month LIBOR was 0.4295%. Interest only payments are due monthly. |
(6) |
Excludes CDO notes payable purchased by us which are eliminated in consolidation. |
(7) |
Collateralized by $1,388,194 principal amount of commercial mortgages, mezzanine loans, other loans and preferred equity interests, $815,745 of which eliminates in consolidation. 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. |
(8) |
Excludes the RAIT FL2 junior notes, RAIT FL3 junior notes, RAIT FL4 junior notes and RAIT FL5 junior notes purchased by us which are eliminated in consolidation. Collateralized by $885,055 principal amount of commercial mortgage loans and participation 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. |
(9) |
Includes $545,956 of unpaid principal balance and $543,080 of carrying amount of third party mortgage indebtedness that encumbers properties owned by IRT. The weighted-average interest rate is 3.8% and has a range of maturity dates from April 2016 to May 2025. |
Recourse indebtedness refers to indebtedness that is recourse to our general assets, including the loans payable on real estate that are guaranteed by us. Non-recourse indebtedness consists of indebtedness of consolidated VIEs (e.g., securitization vehicles) and loans payable on real estate which is recourse only to specific assets pledged as collateral to the lenders. The creditors of each consolidated VIE have no recourse to our general credit.
19
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
The current status or activity in our financing arrangements occurring as of or during the three months ended March 31, 2016 is as follows:
Recourse Indebtedness
7.0% convertible senior notes. The 7.0% convertible senior notes are convertible at the option of the holder at a current conversion rate of 179.4009 common shares per $1 principal amount of 7.0% convertible senior notes (equivalent to a current conversion price of $5.57 per common share).
On April 1, 2016, we redeemed $29,177 of the 7.0% convertible senior notes at a redemption price equal to the principal amount plus accrued and unpaid interest. After this redemption, $871 of the 7.0% convertible notes remain outstanding.
4.0% convertible senior notes. The 4.0% convertible senior notes are convertible at the option of the holder at a current conversion rate of 108.5803 common shares per $1 principal amount of 4.0% convertible senior notes (equivalent to a current conversion price of $9.21 per common share).
7.625% senior notes. No activity other than recurring interest during the current period.
7.125% senior notes. No activity other than recurring interest during the current period.
Senior secured notes. During the three months ended March 31, 2016, we prepaid $2,000 of the senior secured notes. As of March 31, 2016 we have $68,000 of outstanding senior secured notes.
Junior subordinated notes, at fair value. At issuance, we elected to record the current $18,671 junior subordinated note at fair value under FASB ASC Topic 825, with all subsequent changes in fair value recorded in earnings. The fair value, or carrying amount, of this indebtedness was $9,785 as of March 31, 2016
Junior subordinated notes, at amortized cost. No activity other than recurring interest during the current period.
CMBS facilities. As of March 31, 2016, we had $5,475 of outstanding borrowings under the amended and restated master repurchase agreement, or the Amended MRA. The Amended MRA has a capacity of $200,000 with a limit of $100,000 for floating rate loans. As of March 31, 2016, we were in compliance with all financial covenants contained in the Amended MRA.
As of March 31, 2016, we had $35,496 of outstanding borrowings under the $150,000 CMBS facility. As of March 31, 2016, we were in compliance with all financial covenants contained in the $150,000 CMBS facility.
As of March 31, 2016, we had $40,179 of outstanding borrowings under the $75,000 commercial mortgage facility. As of March 31, 2016, we were in compliance with all financial covenants contained in the $75,000 commercial mortgage facility.
As of March 31, 2016, we had $26,131 of outstanding borrowings under the $150,000 commercial mortgage facility. As of March 31, 2016, we were in compliance with all financial covenants contained in the $150,000 commercial mortgage facility.
As of March 31, 2016, we had $15,520 of outstanding borrowings under the $150,000 commercial mortgage facility. As of March 31, 2016, we were in compliance with all financial covenants contained in the $150,000 commercial mortgage facility.
Non-Recourse Indebtedness
Secured credit facilities. On September 17, 2015, IROP entered into a credit agreement with respect to a $325,000 senior secured credit facility, or the KeyBank senior facility, which will mature on September 17, 2018. The KeyBank senior facility is available for additional loans, may be increased to $450,000 and at the option of IROP may be extended for two additional 12-month periods under certain circumstances. At March 31, 2016, amounts outstanding under the KeyBank secured facility bear interest at 245 basis points over 1-month LIBOR. As of March 31, 2016, there was $23 of availability under the revolver.
Term loans. On September 17, 2015, IROP entered into a credit agreement with respect to a $120,000 senior interim term loan facility, or the KeyBank interim facility, which will mature on September 16, 2016. The KeyBank interim facility may be extended at
20
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
the option of IROP for an additional six months under certain circumstances. The KeyBank interim facility requires monthly payments of interest only. IROP must apply 100% of all net proceeds from equity issuances, sales of assets, or refinancings of assets towards repaying the KeyBank interim facility. At March 31, 2016, the KeyBank interim facility bears interest at 500 basis points over 1-month LIBOR.
In April of 2016, IROP repaid $11,600 of the KeyBank interim facility subsequent to a property disposition.
In May of 2016, IROP repaid $18,400 of the KeyBank interim facility subsequent to a property disposition.
CDO notes payable, at amortized cost. CDO notes payable at amortized cost represent notes issued by consolidated CDO securitizations which are used to finance the acquisition of unsecured REIT notes, CMBS securities, commercial mortgages, mezzanine loans, and other loans in our commercial real estate portfolio. Generally, CDO notes payable are comprised of various classes of notes payable, with each class bearing interest at variable or fixed rates. Both RAIT I and RAIT II are meeting all of their over collateralization, or OC, and interest coverage, or IC, trigger tests as of March 31, 2016.
CMBS securitizations. As of March 31, 2016, our subsidiary, RAIT 2014-FL2 Trust, or RAIT FL2, had $134,725 of total collateral at par value, none of which is defaulted. RAIT FL2 had classes of investment grade senior notes with an aggregate principal balance outstanding of approximately $94,537 to investors. We currently own the unrated classes of junior notes, including a class with an aggregate principal balance of $40,188, and the equity, or the retained interests, of RAIT FL2. RAIT FL2 does not have OC triggers or IC triggers.
As of March 31, 2016, our subsidiary, RAIT 2014-FL3 Trust, or RAIT FL3, had $168,278 of total collateral at par value, none of which is defaulted. RAIT FL3 had classes of investment grade senior notes with an aggregate principal balance outstanding of approximately $130,892 to investors. We currently own the unrated classes of junior notes, including a class with an aggregate principal balance of $37,386, and the equity, or the retained interests, of RAIT FL3. RAIT FL3 does not have OC triggers or IC triggers.
As of March 31, 2016, our subsidiary, RAIT 2015-FL4 Trust, or RAIT FL4, had $219,284 of total collateral at par value, none of which is defaulted. RAIT FL4 had classes of investment grade senior notes with an aggregate principal balance outstanding of approximately $177,894 to investors. We currently own the unrated classes of junior notes, including a class with an aggregate principal balance of $41,390, and the equity, or the retained interests, of RAIT FL4. RAIT FL4 does not have OC triggers or IC triggers.
As of March 31, 2016, our subsidiary, RAIT 2015-FL5 Trust, or RAIT FL5, has $347,446 of total collateral at par value, none of which is defaulted. RAIT FL5 had classes of investment grade senior notes with an aggregate principal balance outstanding of approximately $263,624 to investors. Upon closing we retained $23,019 of investment grade notes and all of the unrated classes of junior notes and equity. In February 2016, we contributed the unrated classes of junior notes and equity of RAIT FL5 to a venture. We retained a 60% interest in the venture, and, as a result of our control, we consolidate the venture. We received approximately $24.8 million of proceeds as a result of this contribution. RAIT FL5 does not have OC triggers or IC triggers. In April 2016, we sold the $23,019 of investment grade notes.
Loans payable on real estate. As of March 30, 2016 and December 31, 2015, we had $761,767 and $815,746, respectively, of other indebtedness outstanding relating to loans payable on consolidated real estate. These loans are secured by specific consolidated real estate and commercial loans included in our consolidated balance sheets.
21
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
Generally, the majority of our indebtedness is payable in full upon the maturity or termination date of the underlying indebtedness. The following table displays the aggregate contractual maturities of our indebtedness on or before December 31 by year:
|
|
Recourse indebtedness |
|
|
Non-recourse indebtedness |
|
||
2016 |
|
$ |
82,622 |
|
|
$ |
182,762 |
|
2017 |
|
|
34,000 |
|
|
|
18,470 |
|
2018 |
|
|
57,179 |
|
|
|
370,299 |
|
2019 |
|
|
88,905 |
|
|
|
5,347 |
|
2020 |
|
|
- |
|
|
|
43,309 |
|
Thereafter (1) |
|
|
275,569 |
|
|
|
2,141,445 |
|
Total |
|
$ |
538,275 |
|
|
$ |
2,761,632 |
|
|
(1) |
Includes $30,048 of our 7.0% convertible senior notes which are redeemable at par at the option of the holder in April 2016, April 2021, and April 2026. Includes $141,750 of our 4.0% convertible senior notes which are redeemable at par at the option of the holder in October 2018, October 2023, and October 2028. |
NOTE 6: DERIVATIVE FINANCIAL INSTRUMENTS
We may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with our borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with our operating and financial structure as well as to hedge specific anticipated transactions. While these instruments may impact our periodic cash flows, they benefit us by minimizing the risks and/or costs previously described. The counterparties to these contractual arrangements are major financial institutions with which we and our affiliates may also have other financial relationships. In the event of nonperformance by the counterparties, we are potentially exposed to credit loss. However, because of the high credit ratings of the counterparties, we do not anticipate that any of the counterparties will fail to meet their obligations.
Interest Rate Swaps and Caps
We have entered into various interest rate swap contracts to hedge interest rate exposure on floating rate indebtedness. IRT has also entered into an interest cap contract to hedge its interest rate exposure on floating rate indebtedness.
We designate interest rate hedge agreements at inception and determine whether or not the interest rate hedge agreement is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. At designation, certain of these interest rate swaps had a fair value not equal to zero. However, we concluded, at designation, that these hedging arrangements were highly effective during their term using regression analysis and determined that the hypothetical derivative method would be used in measuring any ineffectiveness. At each reporting period, we update our regression analysis and, as of March 31, 2016, we concluded that these hedging arrangements were highly effective during their remaining term and used the hypothetical derivative method in measuring the ineffective portions of these hedging arrangements.
The following table summarizes the aggregate notional amount and estimated net fair value of our derivative instruments as of March 31, 2016 and December 31, 2015:
|
|
As of March 31, 2016 |
|
|
As of December 31, 2015 |
|
||||||||||||||||||
|
|
Notional |
|
|
Fair Value of Assets |
|
|
Fair Value of Liabilities |
|
|
Notional |
|
|
Fair Value of Assets |
|
|
Fair Value of Liabilities |
|
||||||
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
171,288 |
|
|
$ |
- |
|
|
$ |
(2,401 |
) |
|
$ |
243,816 |
|
|
$ |
— |
|
|
$ |
(4,672 |
) |
Interest rate cap |
|
|
200,000 |
|
|
|
6 |
|
|
|
- |
|
|
|
200,000 |
|
|
|
24 |
|
|
|
- |
|
Other interest rate swaps |
|
|
43,925 |
|
|
|
- |
|
|
|
(1,780 |
) |
|
|
37,325 |
|
|
|
182 |
|
|
|
(55 |
) |
Net fair value |
|
$ |
415,213 |
|
|
$ |
6 |
|
|
$ |
(4,181 |
) |
|
$ |
481,141 |
|
|
$ |
206 |
|
|
$ |
(4,727 |
) |
22
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
During the period April 1, 2016 through September 30, 2016, interest rate swap agreements relating to RAIT I and RAIT II with a notional amount of $171,288 and a weighted average strike rate of 4.8% as of March 31, 2016, will terminate in accordance with their terms.
Effective interest rate swaps and caps are reported in accumulated other comprehensive income and the fair value of these hedge agreements is included in other assets or derivative liabilities.
For interest rate swaps and caps that are considered effective hedges, we reclassified realized losses of $2,403 and $4,967, respectively, to earnings for the three months ended March 31, 2016 and 2015.
Changes in the fair value of our other interest rate swaps are reported in change in fair value of financial instruments in the Consolidated Statements of Operations.
NOTE 7: FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
FASB ASC Topic 825, “Financial Instruments” requires disclosure of the fair value of financial instruments for which it is practicable to estimate that value. The fair value of investments in mortgages and loans, investments in securities, CDO notes payable, convertible senior notes, junior subordinated notes, warrants and investor share appreciation rights, or SARs and derivative assets and liabilities is based on significant observable and unobservable inputs. The fair value of cash and cash equivalents, restricted cash, secured credit facilities, CMBS facilities, commercial mortgage facilities and other indebtedness approximates cost due to the nature of these instruments.
23
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
The following table summarizes the carrying amount and the fair value of our financial instruments as of March 31, 2016:
Financial Instrument |
|
Carrying Amount |
|
|
Estimated Fair Value |
|
||
Assets |
|
|
|
|
|
|
|
|
Commercial mortgages, mezzanine loans, and preferred equity interests |
|
$ |
1,594,467 |
|
|
$ |
1,538,346 |
|
Cash and cash equivalents |
|
|
94,569 |
|
|
|
94,569 |
|
Restricted cash |
|
|
200,166 |
|
|
|
200,166 |
|
Derivative assets |
|
|
6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Recourse indebtedness: |
|
|
|
|
|
|
|
|
7.0% convertible senior notes |
|
|
29,004 |
|
|
|
25,541 |
|
4.0% convertible senior notes |
|
|
133,763 |
|
|
|
113,754 |
|
7.625% senior notes |
|
|
58,014 |
|
|
|
47,712 |
|
7.125% senior notes |
|
|
69,896 |
|
|
|
65,807 |
|
Senior secured notes |
|
|
61,847 |
|
|
|
66,521 |
|
Junior subordinated notes, at fair value |
|
|
9,785 |
|
|
|
9,785 |
|
Junior subordinated notes, at amortized cost |
|
|
24,887 |
|
|
|
10,236 |
|
CMBS facilities |
|
|
122,270 |
|
|
|
122,801 |
|
Non-recourse indebtedness: |
|
|
|
|
|
|
|
|
Secured credit facilities |
|
|
320,855 |
|
|
|
324,977 |
|
Term loans |
|
|
89,277 |
|
|
|
90,216 |
|
CDO notes payable, at amortized cost |
|
|
905,230 |
|
|
|
741,480 |
|
CMBS securitizations |
|
|
660,139 |
|
|
|
657,753 |
|
Loans payable on real estate |
|
|
757,668 |
|
|
|
787,681 |
|
Other indebtedness |
|
|
24,595 |
|
|
|
24,321 |
|
Derivative liabilities |
|
|
4,181 |
|
|
|
4,181 |
|
Warrants and investor SARs |
|
|
29,100 |
|
|
|
29,100 |
|
24
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
The following table summarizes the carrying amount and the fair value of our financial instruments as of December 31, 2015:
Financial Instrument |
|
Carrying Amount |
|
|
Estimated Fair Value |
|
||
Assets |
|
|
|
|
|
|
|
|
Commercial mortgages, mezzanine loans, and preferred equity interests, net |
|
$ |
1,606,486 |
|
|
$ |
1,537,086 |
|
Cash and cash equivalents |
|
|
125,886 |
|
|
|
125,886 |
|
Restricted cash |
|
|
213,012 |
|
|
|
213,012 |
|
Derivative assets |
|
|
206 |
|
|
|
206 |
|
Liabilities |
|
|
|
|
|
|
|
|
Recourse indebtedness: |
|
|
|
|
|
|
|
|
7.0% convertible senior notes |
|
|
28,868 |
|
|
|
27,795 |
|
4.0% convertible senior notes |
|
|
133,039 |
|
|
|
104,184 |
|
7.625% senior notes |
|
|
57,952 |
|
|
|
46,560 |
|
7.125% senior notes |
|
|
69,749 |
|
|
|
62,471 |
|
Senior secured notes |
|
|
63,045 |
|
|
|
66,725 |
|
Junior subordinated notes, at fair value |
|
|
10,504 |
|
|
|
10,504 |
|
Junior subordinated notes, at amortized cost |
|
|
24,884 |
|
|
|
11,221 |
|
CMBS facilities |
|
|
96,723 |
|
|
|
97,067 |
|
Non-recourse indebtedness: |
|
|
|
|
|
|
|
|
Secured credit facilities |
|
|
267,155 |
|
|
|
271,500 |
|
Term loans |
|
|
118,418 |
|
|
|
120,000 |
|
CDO notes payable, at amortized cost |
|
|
937,569 |
|
|
|
801,289 |
|
CMBS securitizations |
|
|
708,510 |
|
|
|
709,001 |
|
Loans payable on real estate |
|
|
811,666 |
|
|
|
834,816 |
|
Derivative liabilities |
|
|
4,727 |
|
|
|
4,727 |
|
Warrants and investor SARs |
|
|
26,200 |
|
|
|
26,200 |
|
Fair Value Measurements
The following tables summarize information about our assets and liabilities measured at fair value on a recurring basis as of March 31, 2016, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:
Assets: |
|
Quoted Prices in Active Markets for Identical Assets (Level 1) (a) |
|
|
Significant Other Observable Inputs (Level 2) (a) |
|
|
Significant Unobservable Inputs (Level 3) (a) |
|
|
Balance as of March 31, 2016 |
|
||||
Derivative assets |
|
$ |
— |
|
|
$ |
6 |
|
|
$ |
— |
|
|
$ |
6 |
|
Total assets |
|
$ |
— |
|
|
$ |
6 |
|
|
$ |
— |
|
|
$ |
6 |
|
Liabilities: |
|
Quoted Prices in Active Markets for Identical Assets (Level 1) (a) |
|
|
Significant Other Observable Inputs (Level 2) (a) |
|
|
Significant Unobservable Inputs (Level 3) (a) |
|
|
Balance as of March 31, 2016 |
|
||||
Junior subordinated notes, at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
9,785 |
|
|
$ |
9,785 |
|
Derivative liabilities |
|
|
— |
|
|
|
4,181 |
|
|
|
— |
|
|
|
4,181 |
|
Warrants and investor SARs |
|
|
— |
|
|
|
— |
|
|
|
29,100 |
|
|
|
29,100 |
|
Total liabilities |
|
$ |
— |
|
|
$ |
4,181 |
|
|
$ |
38,885 |
|
|
$ |
43,066 |
|
(a) |
During the three months ended March 31, 2016, there were no transfers between Level 1 and Level 2, and there were no transfers into and/or out of Level 3. |
25
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
The following tables summarize information about our assets and liabilities measured at fair value on a recurring basis as of December 31, 2015, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:
Assets: |
|
Quoted Prices in Active Markets for Identical Assets (Level 1) (a) |
|
|
Significant Other Observable Inputs (Level 2) (a) |
|
|
Significant Unobservable Inputs (Level 3) (a) |
|
|
Balance as of December 31, 2015 |
|
||||
Derivative assets |
|
$ |
— |
|
|
$ |
206 |
|
|
$ |
— |
|
|
$ |
206 |
|
Total assets |
|
$ |
— |
|
|
$ |
206 |
|
|
$ |
— |
|
|
$ |
206 |
|
Liabilities: |
|
Quoted Prices in Active Markets for Identical Assets (Level 1) (a) |
|
|
Significant Other Observable Inputs (Level 2) (a) |
|
|
Significant Unobservable Inputs (Level 3) (a) |
|
|
Balance as of December 31, 2015 |
|
||||
Junior subordinated notes, at fair value |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
10,504 |
|
|
$ |
10,504 |
|
Derivative liabilities |
|
|
— |
|
|
|
4,727 |
|
|
|
— |
|
|
|
4,727 |
|
Warrants and investor SARs |
|
|
— |
|
|
|
— |
|
|
|
26,200 |
|
|
|
26,200 |
|
Total liabilities |
|
$ |
— |
|
|
$ |
4,727 |
|
|
$ |
36,704 |
|
|
$ |
41,431 |
|
(a) |
During the year ended December 31, 2015, there were no transfers between Level 1 and Level 2, and there were no transfers into and/or out of Level 3. |
When estimating the fair value of our Level 3 financial instruments, management uses various observable and unobservable inputs. These inputs include yields, credit spreads, duration, effective dollar prices and overall market conditions on not only the exact financial instrument for which management is estimating the fair value, but also financial instruments that are similar or issued by the same issuer when such inputs are unavailable. Generally, an increase in the yields, credit spreads or estimated duration will decrease the fair value of our financial instruments. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value, as determined by management, may fluctuate from period to period and any ultimate liquidation or sale of the investment may result in proceeds that may be significantly different than fair value.
For the fair value of our junior subordinated notes, at fair value, and warrant and investor SARs classified as Level 3 liabilities, we estimate the fair value of these financial instruments using significant unobservable inputs. For the junior subordinated notes, at fair value, we use a discounted cash flow model as the valuation technique and the significant unobservable inputs as of December 31, 2015 include discount rates ranging from 12.9% to 13.3% and as of March 31, 2016 include discount rates ranging from 13.0% to 13.4%. For the warrants and investor SARs, we utilized a third party valuation firm who used a binomial model as the valuation technique and the significant unobservable inputs as of March 31, 2016 and December 31, 2015 include 61.0% and 61.0%, respectively, for the annual volatility of our common shares of beneficial interest over the term of the warrants and investor SARs, 11.5% and 12.0%, respectively, for the credit adjusted discount rate on our unsecured debt issued that may be issued in satisfaction of the warrants and investor SARs, and 10.0% and 10.6%, respectively, for the dividend rate and future dividend rate on our common shares of beneficial interest.
The following table summarizes additional information about assets and liabilities that are measured at fair value on a recurring basis for which we have utilized level 3 inputs to determine fair value for the three months ended March 31, 2016:
Liabilities |
|
Warrants and investor SARS |
|
|
Junior Subordinated Notes, at Fair Value |
|
|
Total Level 3 Liabilities |
|
|||
Balance, as of December 31, 2015 |
|
$ |
26,200 |
|
|
$ |
10,504 |
|
|
$ |
36,704 |
|
Change in fair value of financial instruments |
|
|
2,900 |
|
|
|
(719 |
) |
|
|
2,181 |
|
Purchases |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Principal Repayments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Balance, as of March 31, 2016 |
|
$ |
29,100 |
|
|
$ |
9,785 |
|
|
$ |
38,885 |
|
26
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
Non-Recurring Fair Value Measurements
As of March 31, 2016, we measured a real estate asset at a fair value of $6,386 in our consolidated balance sheets as it was impaired. The fair value was based on an executed letter of intent to sell the real estate asset and was classified within Level 2 of the fair value hierarchy. The significant input was the purchase price derived by the potential buyer.
Our other non-recurring fair value measurements relate primarily to our commercial real estate loans that are considered impaired and for which we maintain an allowance for loss. In determining the allowance for losses, we estimate the fair value of the respective commercial real estate loan and compare that fair value to our total investment in the loan. When estimating the fair value of the commercial real estate loan, management uses discounted cash flow analyses and capitalization rates on the underlying property’s net operating income. The discounted cash flow analyses and capitalization rates are based on market information and comparable sales of similar properties. These methodologies are classified in Level 3 of the fair value hierarchy.
The following tables summarize the valuation technique and the level of the fair value hierarchy for financial instruments that are not fair valued in the accompanying consolidated balance sheets but for which fair value is required to be disclosed. The fair value of cash and cash equivalents, restricted cash, secured credit facilities, CMBS facilities, commercial mortgage facilities and other indebtedness approximates cost due to the nature of these instruments and are not included in the tables below.
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement |
|
|||||||||
|
|
Carrying Amount as of March 31, 2016 |
|
|
Estimated Fair Value as of March 31, 2016 |
|
|
Valuation Technique |
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|||||
Commercial mortgages, mezzanine loans, other loans and preferred equity interests |
|
$ |
1,594,467 |
|
|
$ |
1,538,346 |
|
|
Discounted cash flows |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,551,077 |
|
7.0% convertible senior notes |
|
|
29,004 |
|
|
|
25,541 |
|
|
Trading price |
|
|
25,506 |
|
|
|
— |
|
|
|
— |
|
4.0% convertible senior notes |
|
|
133,763 |
|
|
|
113,754 |
|
|
Trading price |
|
|
113,754 |
|
|
|
— |
|
|
|
|
|
7.625% senior notes |
|
|
58,014 |
|
|
|
47,712 |
|
|
Trading price |
|
|
47,712 |
|
|
|
— |
|
|
|
— |
|
7.125% senior notes |
|
|
69,896 |
|
|
|
65,807 |
|
|
Trading price |
|
|
65,807 |
|
|
|
— |
|
|
|
|
|
Senior secured notes |
|
|
61,847 |
|
|
|
66,521 |
|
|
Discounted cash flows |
|
|
— |
|
|
|
— |
|
|
|
66,521 |
|
Junior subordinated notes, at amortized cost |
|
|
24,887 |
|
|
|
10,236 |
|
|
Discounted cash flows |
|
|
— |
|
|
|
— |
|
|
|
10,236 |
|
CDO notes payable, at amortized cost |
|
|
905,230 |
|
|
|
741,480 |
|
|
Discounted cash flows |
|
|
— |
|
|
|
— |
|
|
|
741,480 |
|
CMBS securitizations |
|
|
660,139 |
|
|
|
657,753 |
|
|
Discounted cash flows |
|
|
— |
|
|
|
— |
|
|
|
657,753 |
|
Loans payable on real estate |
|
|
757,668 |
|
|
|
787,681 |
|
|
Discounted cash flows |
|
|
— |
|
|
|
— |
|
|
|
787,681 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement |
|
|||||||||
|
|
Carrying Amount as of December 31, 2015 |
|
|
Estimated Fair Value as of December 31, 2015 |
|
|
Valuation Technique |
|
Quoted Prices in Active Markets for Identical Assets (Level 1) |
|
|
Significant Other Observable Inputs (Level 2) |
|
|
Significant Unobservable Inputs (Level 3) |
|
|||||
Commercial mortgages, mezzanine loans, other loans and preferred equity interests |
|
$ |
1,606,486 |
|
|
$ |
1,537,086 |
|
|
Discounted cash flows |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,537,086 |
|
7.0% convertible senior notes |
|
|
28,868 |
|
|
|
27,795 |
|
|
Trading price |
|
|
27,795 |
|
|
|
— |
|
|
|
— |
|
4.0% convertible senior notes |
|
|
133,039 |
|
|
|
104,184 |
|
|
Trading price |
|
|
104,184 |
|
|
|
— |
|
|
|
— |
|
7.625% senior notes |
|
|
57,952 |
|
|
|
46,560 |
|
|
'Trading price |
|
|
46,560 |
|
|
|
— |
|
|
|
— |
|
7.125% senior notes |
|
|
69,749 |
|
|
|
62,471 |
|
|
Trading price |
|
|
62,471 |
|
|
|
— |
|
|
|
— |
|
Senior secured notes |
|
|
63,045 |
|
|
|
66,725 |
|
|
Discounted cash flows |
|
|
— |
|
|
|
— |
|
|
|
66,725 |
|
Junior subordinated notes, at amortized cost |
|
|
24,884 |
|
|
|
11,221 |
|
|
Discounted cash flows |
|
|
— |
|
|
|
— |
|
|
|
11,221 |
|
CDO notes payable, at amortized cost |
|
|
937,569 |
|
|
|
801,289 |
|
|
Discounted cash flows |
|
|
— |
|
|
|
— |
|
|
|
801,289 |
|
CMBS securitization |
|
|
708,510 |
|
|
|
709,001 |
|
|
Discounted cash flows |
|
|
— |
|
|
|
— |
|
|
|
709,001 |
|
Loans payable on real estate |
|
|
811,666 |
|
|
|
834,816 |
|
|
Discounted cash flows |
|
|
— |
|
|
|
— |
|
|
|
834,816 |
|
27
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
Change in Fair Value of Financial Instruments
The following table summarizes realized and unrealized gains and losses on assets and liabilities for which we elected the fair value option of FASB ASC Topic 825, “Financial Instruments” and derivatives as reported in change in fair value of financial instruments in the accompanying consolidated statements of operations:
|
|
For the Three Months Ended March 31, |
|
|||||
Description |
|
2016 |
|
|
2015 |
|
||
Change in fair value of trading securities and security-related receivables |
|
$ |
— |
|
|
$ |
(171 |
) |
Change in fair value of junior subordinated notes |
|
|
719 |
|
|
|
(81 |
) |
Change in fair value of derivatives |
|
|
(1,907 |
) |
|
|
(2,047 |
) |
Change in fair value of warrants and investors SARs |
|
|
(2,900 |
) |
|
|
6,789 |
|
Change in fair value of financial instruments |
|
$ |
(4,088 |
) |
|
$ |
4,490 |
|
The changes in the fair value for the trading securities and security-related receivables, and junior subordinated notes for which the fair value option was elected for the three months ended March 31, 2016 and 2015 was primarily attributable to changes in instrument specific credit risks. The changes in the fair value of derivatives for which the fair value option was elected for the three months ended March 31, 2016 and 2015 were mainly due to changes in interest rates. The changes in fair value of the warrants and investor SARs for the three months ended March 31, 2016 and 2015 were due to changes in the reference stock price and volatility.
28
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
NOTE 8: VARIABLE INTEREST ENTITIES
The determination of when to consolidate a VIE is based on the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance together with either the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. On January 1, 2016, we adopted a new accounting standard related to consolidation. Refer to NOTE 2: Summary of Significant Accounting Policies for further information. We evaluated our investments and determined that, as of March 31, 2016 and December 31, 2015, our consolidated VIEs were: RAIT I, RAIT II, IRT, and RAIT VIE Properties (Willow Grove, Cherry Hill, South Terrace, Cole’s Crossing, McDowell, and our ten industrial properties). Also, as of March 31, 2016, the venture described in Note 5: Indebtedness was determined to be a VIE (RAIT Venture VIE). The following table presents the assets and liabilities of our consolidated VIEs as of each respective date.
|
|
As of March 31, 2016 |
|
|||||||||||||||||
|
|
RAIT Securitizations |
|
|
IRT |
|
|
RAIT VIE Properties |
|
|
RAIT Venture VIE |
|
|
Total |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in mortgages and loans, at amortized cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages, mezzanine loans, other loans and preferred equity interests |
|
$ |
1,330,285 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
346,385 |
|
|
$ |
1,676,670 |
|
Allowance for losses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
0 |
|
Total investments in mortgages and loans |
|
|
1,330,285 |
|
|
|
— |
|
|
|
— |
|
|
|
346,385 |
|
|
|
1,676,670 |
|
Investments in real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in real estate |
|
|
— |
|
|
|
1,357,338 |
|
|
|
279,008 |
|
|
|
— |
|
|
|
1,636,346 |
|
Accumulated depreciation |
|
|
— |
|
|
|
(44,422 |
) |
|
|
(28,874 |
) |
|
|
— |
|
|
|
(73,296 |
) |
Total investments in real estate |
|
|
— |
|
|
|
1,312,916 |
|
|
|
250,134 |
|
|
|
— |
|
|
|
1,563,050 |
|
Cash and cash equivalents |
|
|
— |
|
|
|
21,924 |
|
|
|
1,761 |
|
|
|
722 |
|
|
|
24,407 |
|
Restricted cash |
|
|
11,295 |
|
|
|
7,015 |
|
|
|
3,290 |
|
|
|
3 |
|
|
|
21,603 |
|
Accrued interest receivable |
|
|
76,722 |
|
|
|
— |
|
|
|
— |
|
|
|
1,555 |
|
|
|
78,277 |
|
Other assets |
|
|
11,735 |
|
|
|
2,795 |
|
|
|
13,492 |
|
|
|
— |
|
|
|
28,022 |
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
— |
|
|
|
15,287 |
|
|
|
5,245 |
|
|
|
— |
|
|
|
20,532 |
|
Accumulated amortization |
|
|
— |
|
|
|
(15,287 |
) |
|
|
(2,196 |
) |
|
|
— |
|
|
|
(17,483 |
) |
Total intangible assets |
|
|
— |
|
|
|
— |
|
|
|
3,049 |
|
|
|
— |
|
|
|
3,049 |
|
Total assets |
|
$ |
1,430,037 |
|
|
$ |
1,344,650 |
|
|
$ |
271,726 |
|
|
$ |
348,665 |
|
|
$ |
3,395,078 |
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indebtedness |
|
$ |
1,146,378 |
|
|
$ |
940,336 |
|
|
$ |
273,548 |
|
|
$ |
307,704 |
|
|
$ |
2,667,966 |
|
Accrued interest payable |
|
|
456 |
|
|
|
1,175 |
|
|
|
15,935 |
|
|
|
613 |
|
|
|
18,179 |
|
Accounts payable and accrued expenses |
|
|
2 |
|
|
|
16,089 |
|
|
|
5,676 |
|
|
|
— |
|
|
|
21,767 |
|
Derivative liabilities |
|
|
2,401 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
2,401 |
|
Deferred taxes, borrowers’ escrows and other liabilities |
|
|
— |
|
|
|
6,078 |
|
|
|
22,194 |
|
|
|
630 |
|
|
|
28,902 |
|
Total liabilities |
|
|
1,149,237 |
|
|
|
963,678 |
|
|
|
317,353 |
|
|
|
308,947 |
|
|
|
2,739,215 |
|
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) |
|
|
(2,409 |
) |
|
|
(26 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,435 |
) |
RAIT investment |
|
|
118,291 |
|
|
|
75,542 |
|
|
|
17,887 |
|
|
|
38,628 |
|
|
|
250,348 |
|
Retained earnings (deficit) |
|
|
164,918 |
|
|
|
(23,090 |
) |
|
|
(62,768 |
) |
|
|
1,090 |
|
|
|
80,150 |
|
Total shareholders’ equity |
|
|
280,800 |
|
|
|
52,426 |
|
|
|
(44,881 |
) |
|
|
39,718 |
|
|
|
328,063 |
|
Noncontrolling Interests |
|
|
— |
|
|
|
328,546 |
|
|
|
(746 |
) |
|
|
— |
|
|
|
327,800 |
|
Total liabilities and equity |
|
$ |
1,430,037 |
|
|
$ |
1,344,650 |
|
|
$ |
271,726 |
|
|
$ |
348,665 |
|
|
$ |
3,395,078 |
|
29
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
|
|
As of December 31, 2015 |
|
|||||||||||||
|
|
RAIT Securitizations |
|
|
IRT |
|
|
RAIT VIE Properties |
|
|
Total |
|
||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in mortgages and loans, at amortized cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages, mezzanine loans, other loans and preferred equity interests |
|
$ |
1,358,497 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
1,358,497 |
|
Allowance for losses |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total investments in mortgages and loans |
|
|
1,358,497 |
|
|
|
— |
|
|
|
— |
|
|
|
1,358,497 |
|
Investments in real estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in real estate |
|
|
— |
|
|
|
1,372,015 |
|
|
|
278,774 |
|
|
|
1,650,789 |
|
Accumulated depreciation |
|
|
— |
|
|
|
(39,638 |
) |
|
|
(26,398 |
) |
|
|
(66,036 |
) |
Total investments in real estate |
|
|
— |
|
|
|
1,332,377 |
|
|
|
252,376 |
|
|
|
1,584,753 |
|
Cash and cash equivalents |
|
|
— |
|
|
|
38,301 |
|
|
|
1,589 |
|
|
|
39,890 |
|
Restricted cash |
|
|
12,718 |
|
|
|
5,413 |
|
|
|
2,859 |
|
|
|
20,990 |
|
Accrued interest receivable |
|
|
73,368 |
|
|
|
— |
|
|
|
— |
|
|
|
73,368 |
|
Other assets |
|
|
11,539 |
|
|
|
3,362 |
|
|
|
13,740 |
|
|
|
28,641 |
|
Intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets |
|
|
— |
|
|
|
15,287 |
|
|
|
5,245 |
|
|
|
20,532 |
|
Accumulated amortization |
|
|
— |
|
|
|
(11,551 |
) |
|
|
(1,446 |
) |
|
|
(12,997 |
) |
Total intangible assets |
|
|
— |
|
|
|
3,736 |
|
|
|
3,799 |
|
|
|
7,535 |
|
Total assets |
|
$ |
1,456,122 |
|
|
$ |
1,383,189 |
|
|
$ |
274,363 |
|
|
$ |
3,113,674 |
|
Liabilities and Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indebtedness |
|
$ |
1,178,794 |
|
|
$ |
966,611 |
|
|
$ |
273,766 |
|
|
$ |
2,419,171 |
|
Accrued interest payable |
|
|
445 |
|
|
|
1,239 |
|
|
|
13,997 |
|
|
|
15,681 |
|
Accounts payable and accrued expenses |
|
|
8 |
|
|
|
19,304 |
|
|
|
6,000 |
|
|
|
25,312 |
|
Derivative liabilities |
|
|
4,672 |
|
|
|
— |
|
|
|
— |
|
|
|
4,672 |
|
Deferred taxes, borrowers’ escrows and other liabilities |
|
|
— |
|
|
|
6,004 |
|
|
|
22,214 |
|
|
|
28,218 |
|
Total liabilities |
|
|
1,183,919 |
|
|
|
993,158 |
|
|
|
315,977 |
|
|
|
2,493,054 |
|
Equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive income (loss) |
|
|
(4,691 |
) |
|
|
(8 |
) |
|
|
— |
|
|
|
(4,699 |
) |
RAIT investment |
|
|
115,810 |
|
|
|
68,273 |
|
|
|
17,420 |
|
|
|
201,503 |
|
Retained earnings (deficit) |
|
|
161,084 |
|
|
|
(14,499 |
) |
|
|
(59,454 |
) |
|
|
87,131 |
|
Total shareholders’ equity |
|
|
272,203 |
|
|
|
53,766 |
|
|
|
(42,034 |
) |
|
|
283,935 |
|
Noncontrolling Interests |
|
|
— |
|
|
|
336,265 |
|
|
|
420 |
|
|
|
336,685 |
|
Total liabilities and equity |
|
$ |
1,456,122 |
|
|
$ |
1,383,189 |
|
|
$ |
274,363 |
|
|
$ |
3,113,674 |
|
The assets of the VIEs can only be used to settle obligations of the VIEs and are not available to our creditors. Certain amounts included in the table above are eliminated upon consolidation with our other subsidiaries that maintain investments in the debt or equity securities issued by these entities. We do not have any contractual obligation to provide the VIEs listed above with any financial support. We have not and do not intend to provide financial support to these VIEs that we were not previously contractually required to provide.
NOTE 9: SERIES D PREFERRED SHARES
On October 1, 2012, we entered into a Securities Purchase Agreement, or the purchase agreement, with ARS VI Investor I, LLC, or the investor, an affiliate of Almanac Realty Investors, LLC, or Almanac. During the period from the effective date of the purchase agreement through March 31, 2016, we sold to the investor on a private placement basis in four sales between October 2012 and March 2014 for an aggregate purchase price of $100,000, or the total commitment, the following securities, in the aggregate: (i) 4,000,000 Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share, of RAIT, or the
30
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
Series D Preferred Shares, (ii) common share purchase warrants, or the warrants, exercisable for 9,931,000 of our common shares, or the common shares which have subsequently adjusted to 11,014,048 shares), and (iii) common share appreciation rights, or the investor SARs, with respect to up to 6,735,667 common shares (which have subsequently adjusted to 7,470,241 shares).
In September 2015, we amended the Securities Purchase Agreement with Almanac related to the Series D Preferred Shares. This amendment changed two of the covenants therein. As consideration for this amendment, we paid Almanac $450. We accounted for this amendment as a modification of the Series D Preferred Shares.
The warrants and investor SARs had an initial strike price of $6.00 per common share, subject to adjustment. As of the filing of this report, the strike price has adjusted to $5.41.
The warrants and investor SARs were both determined to be classified as liabilities and had a combined fair value of $29,100 as of March 31, 2016. The initial fair value of the warrants and investor SARs are recorded as a liability and re-measured at each reporting period until the warrants and investor SARs are settled. Changes in fair value will be recorded in earnings as a component of the change in fair value of financial instruments in the consolidated statement of operations.
The following table summarizes the sales activity of the Series D Preferred Shares from the effective date of the agreement through March 31, 2016:
Aggregate purchase price |
|
|
|
|
|
$ |
100,000 |
|
Initial value of warrants and investor SARs issued to-date |
|
|
(21,805 |
) |
|
|
|
|
Costs incurred |
|
|
(6,834 |
) |
|
|
|
|
Total discount |
|
|
|
|
|
|
(28,639 |
) |
Discount amortization to-date |
|
|
|
|
|
|
15,724 |
|
Carrying amount of Series D Preferred Shares |
|
|
|
|
|
$ |
87,085 |
|
31
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
Preferred Shares
Dividends:
The following table summarizes the dividends we declared and paid on the preferred shares for the three months ended March 31, 2016:
|
|
March 31, 2016 |
|
|
Series A Preferred Shares |
|
|
|
|
Date declared |
|
2/16/2016 |
|
|
Record date |
|
3/1/2016 |
|
|
Date paid |
|
3/31/2016 |
|
|
Total dividend amount |
|
$ |
2,570 |
|
Series B Preferred Shares |
|
|
|
|
Date declared |
|
2/16/2016 |
|
|
Record date |
|
3/1/2016 |
|
|
Date paid |
|
3/31/2016 |
|
|
Total dividend amount |
|
$ |
1,225 |
|
Series C Preferred Shares |
|
|
|
|
Date declared |
|
2/16/2016 |
|
|
Record date |
|
3/1/2016 |
|
|
Date paid |
|
3/31/2016 |
|
|
Total dividend amount |
|
$ |
910 |
|
Series D Preferred Shares |
|
|
|
|
Date declared |
|
2/16/2016 |
|
|
Record date |
|
3/1/2016 |
|
|
Date paid |
|
3/31/2016 |
|
|
Total dividend amount |
|
$ |
2,125 |
|
At Market Issuance Sales Agreement (ATM):
On June 13, 2014, we entered into an At Market Issuance Sales Agreement, or the 2014 Preferred ATM agreement, with MLV & Co. LLC, or MLV, providing that, from time to time during the term of the 2014 Preferred ATM agreement, on the terms and subject to the conditions set forth therein, we may issue and sell through MLV up to $150,000 aggregate amount of preferred shares.
With respect to each series of preferred shares, the maximum amount issuable is as follows: 4,000,000 Series A Preferred Shares, 1,000,000 Series B Preferred Shares, and 1,000,000 Series C Preferred Shares. Unless the 2014 Preferred ATM agreement is earlier terminated by MLV or us, the 2014 Preferred ATM agreement automatically terminates upon the issuance and sale of all of the Series A Preferred Shares, Series B Preferred Shares, and Series C Preferred Shares.
As of March 31, 2016, 2,763,204 Series A Preferred Shares, 947,496 Series B Preferred Shares, and 999,675 Series C Preferred Shares remain available for issuance under the 2014 Preferred ATM agreement.
Common Shares
Dividends:
On March 14, 2016, the board of trustees declared a $0.09 dividend on our common shares to holders of record as of April 8, 2016. The dividend was paid on April 29, 2016 and totaled $8,200. During the three months ended March 31, 2016, we also paid $348 of dividends on restricted common share awards that vested in this period.
32
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
On February 23, 2016, the compensation committee awarded 168,776 common share awards, valued at $400 using our closing stock price of $2.37, to the board’s non-management trustees. These awards vested immediately. On February 22, 2016, the compensation committee awarded 367,000 restricted common share awards, valued at $873 using our closing stock price of $2.38, to our non-executive officer employees. These awards generally vest over a three-year period.
On February 22, 2016, the compensation committee awarded 895,000 stock appreciation rights, or SARs, valued at $206 based on a Black-Scholes option pricing model at the date of grant, to our non-executive officer employees. The SARs vest over a three-year period and may be exercised between the date of vesting and February 22, 2021, the expiration date of the SARs.
On March 31, 2015, the compensation committee adopted a 2015 Annual Incentive Compensation Plan, or the annual cash bonus plan, and made awards to three of our executive officers, or the eligible officers, setting forth the basis on which 2015 target cash bonus awards are earned. In addition, the compensation committee adopted a 2015 Long Term Incentive Plan, or the LTIP, and made awards, or the 2015 awards, to the eligible officers setting forth the basis on which the eligible officers could earn equity compensation for the years 2015 through 2018. Pursuant to the LTIP, each eligible officer was granted an initial long term equity award, consisting of both a performance share unit award for a three year performance period and an annual restricted share award vesting over a four year period. Three components of the performance share unit award have market conditions and had grant date fair values of $3.35, $3.26 and $2.17 per share. Both the annual cash bonus plan and the LTIP were adopted pursuant to our 2012 Incentive Award Plan. For the three months ended March 31, 2016, we recorded $122 of compensation expense related to the LTIP.
On April 22, 2016, the compensation committee made 2016 awards, or the 2016 awards, to the eligible executives pursuant to the annual cash bonus plan and the LTIP. The LTIP awards consist of both a performance share unit award for a three year performance period commencing January 1, 2016 and ending December 31, 2018 and an annual restricted share award vesting over a four year period.
The total compensation awarded under our new short term annual cash bonus plan is at-risk and tied to pre-determined performance criteria. For 2015, 75% of the target cash bonus awards is payable based on the following objective performance goals and weightings; cash available for distribution per share of 35%, adjusted book value per share of 20% and return on equity at 20%. The amounts are earned based on our annual performance relative to threshold, target and maximum performance goals for these objective measures, with 50% of target incentive opportunity payable based on threshold performance achieved, 100% based on target performance achieved and 150% based on maximum performance achieved. The remaining 25% of the target cash bonus award is based on the achievement of various individual performance criterion that may be earned based on individual performance factors deemed relevant by the compensation committee.
The long term incentive plan is an equity program whereby long-term performance awards are granted each year and earned based on our performance over a three year period. Compensation awarded under the long term equity plan is based on predefined performance for 75% of the award, performance measures and weighting for the performance component of the 2015-2017 awards are based on the following objective performance measures relating to the total shareholder return (stock price appreciation plus aggregate dividends or TSR); TSR as compared to a peer group of public companies over the same period at 40%, TSR as compared to the TSR for the NAREIT Mortgage Index at 20%, company’s absolute TSR at 20%, and strategic objective at 20%. The remaining 25% of the compensation award is time-based vesting over three years.
Independence Realty Trust, Inc.
On February 12, 2016, the compensation committee of IRT awarded 210,000 shares of IRT restricted common stock, valued at $1,306 using IRT’s closing stock price of $6.22, to persons affiliated with IRT’s advisor, including their executive officers. These awards generally vest over three-year periods.
Dividend Reinvestment and Share Purchase Plan (DRSPP):
We have a dividend reinvestment and share purchase plan, or DRSPP, under which we registered and reserved for issuance, in the aggregate, 10,500,000 common shares. During the three months ended March 31, 2016, we issued a total of 2,527 common shares
33
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
pursuant to the DRSPP at a weighted-average price of $2.56 per share and we received $6 of net proceeds. As of March 31, 2016, 7,759,195 common shares, in the aggregate, remain available for issuance under the DRSPP.
Capital on Demand™ Sales Agreement (COD):
On November 21, 2012, we entered into a Capital on Demand™ Sales Agreement, or the COD sales agreement, with JonesTrading Institutional Services LLC, or JonesTrading, pursuant to which we may issue and sell up to 10,000,000 of our common shares from time to time through JonesTrading acting as agent and/or principal, subject to the terms and conditions of the COD sales agreement. Unless the COD sales agreement is earlier terminated by JonesTrading or us, the COD sales agreement automatically terminates upon the issuance and sale of all of the common shares subject to the COD sales agreement. During the three months ended March 31, 2016, we did not issue any common shares pursuant to this agreement. As of March 31, 2016, 7,918,919 common shares, in the aggregate, remain available for issuance under the COD sales agreement.
Noncontrolling Interests
On September 17, 2015, IRT issued 15,110,994 shares of IRT common stock in connection with the TSRE merger. As of March 31, 2016 and December 31, 2015, we held 7,269,719 shares, of IRT common stock representing 15.4% and 15.5%, respectively, of the outstanding shares of IRT common stock. On September 17, 2015 IRT also issued 1,925,419 IROP units in connection with the TSRE merger. We consolidate IRT as it is a VIE and we are the primary beneficiary. See Note 8 for additional disclosures pertaining to VIEs.
NOTE 11: EARNINGS (LOSS) PER SHARE
The following table presents a reconciliation of basic and diluted earnings (loss) per share for the three months ended March 31, 2016 and 2015:
|
|
|
|
|||||
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
Net income (loss) |
|
$ |
(10,503 |
) |
|
$ |
266 |
|
(Income) loss allocated to preferred shares |
|
|
(8,520 |
) |
|
|
(7,859 |
) |
(Income) loss allocated to noncontrolling interests |
|
|
1,179 |
|
|
|
496 |
|
Net income (loss) allocable to common shares |
|
$ |
(17,844 |
) |
|
$ |
(7,097 |
) |
Weighted-average shares outstanding—Basic |
|
|
91,018,160 |
|
|
|
82,081,024 |
|
Dilutive securities |
|
|
— |
|
|
|
— |
|
Weighted-average shares outstanding—Diluted |
|
|
91,018,160 |
|
|
|
82,081,024 |
|
Earnings (loss) per share—Basic: |
|
|
|
|
|
|
|
|
Earnings (loss) per share—Basic |
|
$ |
(0.20 |
) |
|
$ |
(0.09 |
) |
Earnings (loss) per share—Diluted: |
|
|
|
|
|
|
|
|
Earnings (loss) per share—Diluted |
|
$ |
(0.20 |
) |
|
$ |
(0.09 |
) |
For the three months ended March 31, 2016 and 2015, securities convertible into 32,325,109 and 31,562,037 common shares, respectively, were excluded from the earnings (loss) per share computations because their effect would have been anti-dilutive.
NOTE 12: RELATED PARTY TRANSACTIONS
In the ordinary course of our business operations, we have ongoing relationships and have engaged in transactions with the related entities described below. All of these relationships and transactions were approved or ratified by our audit committee as being on terms comparable to those available on an arm’s-length basis from an unaffiliated third party or otherwise not creating a conflict of interest.
Andrew M. Silberstein serves as a trustee on our board of trustees, as designated pursuant to the purchase agreement. Mr. Silberstein is an equity owner of Almanac and an officer of the investor and holds indirect equity interests in the investor. The transactions pursuant to the purchase agreement are described above in Note 9.
34
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
NOTE 13: SUPPLEMENTAL DISCLOSURE TO STATEMENT OF CASH FLOWS
The following are supplemental disclosures to the statements of cash flows for the three months ended March 31, 2016 and 2015:
|
|
|
|
|||||
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
Cash paid for interest |
|
$ |
22,766 |
|
|
$ |
13,933 |
|
Cash paid for taxes |
|
|
120 |
|
|
|
57 |
|
Non-cash decrease in investments in real estate, intangible assets and other liabilities from conversion of loans |
|
|
(1,499 |
) |
|
|
— |
|
For a discussion of the non-cash decrease in investments in real estate, intangible assets and other liabilities that occurred during the three months ended March 31, 2016, see Note 4.
35
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
As a group, our executive officers act as the Chief Operating Decision Maker (“CODM”). The CODM reviews operating results of our reportable segments to make decisions about investments and resources and to assess performance for each of these reportable segments. We conduct our business through the following reportable segments:
|
· |
Our real estate lending, owning and managing segment concentrates on lending, owning and managing commercial real estate assets throughout the United States. The form of our investment may range from first mortgage loans to equity ownership of a commercial real estate property. We manage our investments in-house through our asset management and property management professionals. |
|
· |
Our IRT segment concentrates on the ownership of apartment properties in opportunistic markets throughout the United States. As of March 31, 2016, IRT owns properties totaling $1,357,338 in gross real estate investments, before accumulated depreciation. |
|
|
Real Estate Lending Owning and Management |
|
|
IRT |
|
|
Eliminations (a) |
|
|
Consolidated |
|
||||
Three-Month Period Ended March 31, 2016: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
$ |
18,171 |
|
|
$ |
- |
|
|
$ |
(265 |
) |
|
$ |
17,906 |
|
Property income |
|
|
30,056 |
|
|
|
38,666 |
|
|
|
— |
|
|
|
68,722 |
|
Fee and other income |
|
|
9,725 |
|
|
|
— |
|
|
|
(6,873 |
) |
|
|
2,852 |
|
Provision for losses |
|
|
1,325 |
|
|
|
— |
|
|
|
— |
|
|
|
1,325 |
|
Depreciation and amortization expense |
|
|
12,749 |
|
|
|
11,527 |
|
|
|
— |
|
|
|
24,276 |
|
Operating income |
|
|
(3,650 |
) |
|
|
(2,590 |
) |
|
|
— |
|
|
|
(6,240 |
) |
Change in fair value of financial instruments |
|
|
(4,088 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,088 |
) |
Income tax benefit (provision) |
|
|
993 |
|
|
|
— |
|
|
|
— |
|
|
|
993 |
|
Net income (loss) |
|
|
(9,148 |
) |
|
|
(46 |
) |
|
|
(1,309 |
) |
|
|
(10,503 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Month Period Ended March 31, 2015: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest margin |
|
$ |
16,572 |
|
|
$ |
- |
|
|
$ |
(238 |
) |
|
$ |
16,334 |
|
Property income |
|
|
31,617 |
|
|
|
21,657 |
|
|
|
— |
|
|
|
53,274 |
|
Fee and other income |
|
|
9,790 |
|
|
|
— |
|
|
|
(4,196 |
) |
|
|
5,594 |
|
Provision for losses |
|
|
2,000 |
|
|
|
— |
|
|
|
— |
|
|
|
2,000 |
|
Depreciation and amortization expense |
|
|
12,986 |
|
|
|
6,038 |
|
|
|
— |
|
|
|
19,024 |
|
Operating income |
|
|
(3,004 |
) |
|
|
(242 |
) |
|
|
(1 |
) |
|
|
(3,247 |
) |
Change in fair value of financial instruments |
|
|
4,490 |
|
|
|
— |
|
|
|
— |
|
|
|
4,490 |
|
Income tax benefit (provision) |
|
|
(582 |
) |
|
|
— |
|
|
|
— |
|
|
|
(582 |
) |
Net income (loss) |
|
|
1,817 |
|
|
|
(241 |
) |
|
|
(1,310 |
) |
|
|
266 |
|
(a) |
The transactions that occur between the reportable segments include advisory and property management services, as well as, providing commercial mortgages on our owned real estate. |
NOTE 15: COMMITMENTS AND CONTINGENCIES
We are involved from time to time in litigation on various matters, including disputes with tenants of owned properties, disputes arising out of agreements to purchase or sell properties and disputes arising out of our loan portfolio. Given the nature of our business activities, these lawsuits are considered routine to the conduct of our business. The result of any particular lawsuit cannot be predicted, because of the very nature of litigation, the litigation process and its adversarial nature, and the jury system. We do not expect that the liabilities, if any, that may ultimately result from such routine legal actions will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
36
RAIT Financial Trust
Notes to Consolidated Financial Statements
As of March 31, 2016
(Unaudited and dollars in thousands, except share and per share amounts)
On November 23, 2015, a shareholders’ derivative action, or the action, captioned Lobins v. Brown, et al., was filed in the Court of Common Pleas of Philadelphia County, or the court, (Civil Case No. 151103347) naming RAIT, as nominal defendant, and certain of our current and former executive officers and trustees as defendants, or the individual defendants. The complaint in the action alleges that the individual defendants breached their fiduciary duties in connection with certain restructuring fees paid to TCM. These restructuring fees were the subject of the investigation by the staff of the SEC, the settlement of which was concluded on September 3, 2015. RAIT and the individual defendants have denied and continue to deny each and all of the allegations made in the action.
On March 4, 2016, the court issued an order preliminary approving a proposed settlement of the action. The proposed settlement consists of the adoption by RAIT of additions to its Trust Governance Guidelines and the creation of a Board-level Risk Management Committee. The action is not a “class action” and no individual shareholder has the right to receive any direct recovery from the proposed settlement. The proposed settlement, if finally approved by the court, will fully and finally resolve the issues raised in the action. The court has scheduled a hearing on June 7, 2016 at which the court will consider: (i) whether to approve the proposed settlement as fair, reasonable, adequate and in the best interests of RAIT and its shareholders; (ii) whether to dismiss the action and whether the releases set forth in the related Stipulation and Agreement of Settlement should be made full and final; (iii) whether the notice provided to RAIT shareholders conformed with court rules and due process; and (iv) whether the court should approve plaintiff’s counsel’s request for attorneys’ fees and reimbursement of expenses in an aggregate amount no greater than $250,000, as well as such other matters as may properly come before the Court. At this juncture, we cannot guarantee that this approval will be forthcoming. Similarly, we cannot guarantee what the exact terms of any such final settlement or other resolution of this matter will be.
37
Forward-Looking Statements
In addition to historical information, this discussion and analysis contains forward-looking statements. These statements can be identified by the use of forward-looking terminology including “may,” “believe,” “will,” “expect,” “anticipate,” “estimate,” “seek,” “continue” or similar words. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. These risks and uncertainties include, without limitation, those set forth in our filings with the Securities and Exchange Commission, including those described in the “Forward Looking Statements” and “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2015, and that we cannot assure you that we will be able to successfully implement the property sales program or achieve the expected results described in the Overview below. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date hereof. We undertake no obligation to publicly revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this report, except as may be required by applicable law.
Overview
We are a multi-strategy commercial real estate company that is a self-managed and self-advised Maryland real estate investment trust, or REIT. We use our vertically integrated platform to originate commercial real estate loans, acquire commercial real estate properties and invest in, manage and service commercial real estate assets. We offer a comprehensive set of debt financing options to the commercial real estate industry and provide asset and property management services. We also own and manage a portfolio of commercial real estate properties and manage real estate assets for third parties. We believe this approach delivers diversification to our investment portfolio blending the higher-yielding lending business with the stability and recurring income stream from owning and managing properties.
In order to take advantage of market opportunities in the future, and to maximize shareholder value over time, we will continue to focus on:
|
• |
|
expanding RAIT’s commercial real estate revenue by investing in commercial real estate-related assets, managing and servicing investments for our own account or for others, and providing property management services; |
|
• |
|
creating value through investing in our commercial real estate properties and implementing cost savings programs to help maximize property value over time; |
|
• |
|
identifying opportunities to generate gains through the sale of commercial real estate properties; |
|
• |
|
maintaining and expanding our sources of liquidity; |
|
• |
|
managing our leverage to provide risk-adjusted returns for our shareholders; and |
|
• |
|
managing our investment portfolios to reposition under-performing assets to seek to increase our cash flows and the value of our assets over time. |
Our performance with respect to our commercial real estate lending business in the first quarter of 2016 was impacted by CMBS market conditions and other trends we have previously disclosed. Our level of origination and of conduit loans and bridge loans during the first quarter of 2016 was significantly lower than 2015 quarterly levels. We did not sell any conduit loans during the first quarter of 2016 and so did not generate any CMBS gain on sales after generating such gains each quarter in 2015. In addition, repayments of the loans underlying our securitizations and otherwise increased in the first quarter of 2016 as compared to the first quarter of 2015. Nonetheless, our net interest margin, or NIM, from our investments in loans increased $1.9 million in the first quarter of 2016 from the first quarter of 2015. Our performance with respect to our owned real estate business in the first quarter of 2016 reflected successful implementation of strategies to improve the operating results of our owned properties and, as Independence Realty Trust Inc.’s, or IRT’s, external advisor, managing IRT’s integration of its acquisition of TSRE. We began implementing our strategy and managing IRT’s strategy to recycle capital and reduce leverage by selling appropriate properties.
We will continue to seek to simplify our business and focus on our core strategy, commercial real estate lending. To do this we are accelerating the RAIT property sale program in order to recycle capital for reinvestment. We plan to sell a number of RAIT-owned properties over the next six months. We expect each of the sales to reduce leverage and enable us to reallocate a significant amount of capital into the higher yielding lending business.
38
Investors should read Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, or the Annual Report, for a detailed discussion of the following items:
|
• |
Trends relating to capital markets. |
|
• |
Trends relating to originating and financing conduit loans and bridge loans. |
|
• |
Trends relating to investments in real estate. |
|
• |
Interest rate environment. |
|
• |
Prepayment rates. |
|
• |
Commercial real estate performance. |
Our Investment Portfolio
Our consolidated investment portfolio is currently comprised of the following asset classes:
Commercial mortgages, mezzanine loans, and preferred equity interests. We originate and own senior long-term conduit mortgage loans, short-term bridge loans, subordinated, or “mezzanine,” financing and preferred equity interests. These assets are in most cases “non-recourse” or limited recourse loans secured by commercial real estate assets or real estate entities. This means that we look primarily to the assets securing the loan for repayment, subject to certain standard exceptions. We originate loans that are eligible to be sold to securitizations issuing commercial mortgage backed securities, or CMBS, which we refer to as conduit loans. We may from time to time acquire existing commercial real estate loans from third parties who have originated such loans, including banks, other institutional lenders or third-party investors. Where possible, we seek to maintain direct lending relationships with borrowers, as opposed to investing in loans controlled by third party lenders.
The tables below describe certain characteristics of our commercial mortgages, mezzanine loans, and preferred equity interests as of March 31, 2016 (dollars in thousands):
|
|
Carrying Value |
|
|
Weighted- Average Coupon |
|
|
Range of Maturities |
|
Number of Loans |
|
|||
Commercial Real Estate (CRE) Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial mortgages |
|
$ |
1,420,059 |
|
|
|
5.6% |
|
|
Apr. 2016 to Jan. 2029 |
|
|
121 |
|
Mezzanine loans |
|
|
169,197 |
|
|
|
9.8% |
|
|
May 2016 to May 2025 (1) |
|
|
54 |
|
Preferred equity interests |
|
|
24,236 |
|
|
|
5.9% |
|
|
Sep. 2016 to Aug. 2025 |
|
|
6 |
|
Total investments in loans |
|
$ |
1,613,492 |
|
|
|
6.0% |
|
|
|
|
|
181 |
|
|
(1) |
Does not include the maturity dates of five mezzanine loans all of which had maturity dates prior to March 31, 2016 and have been identified as impaired. Three of these loans are 90 days or more past due, one of these loans is 30 to 59 days past due and one of these loans is in the process of being restructured. |
During the three months ended March 31, 2016, we originated $40.5 million of CRE loans and received CRE loan repayments of $55.1 million, contributing to a net reduction in our loan portfolio of $11.0 million. We finance our consolidated CRE loans on a long-term basis through securitizations.
39
The charts below describe the property types and the geographic breakdown of our commercial mortgages, mezzanine loans, other loans, and preferred equity interests as of March 31, 2016:
(a) |
Based on carrying amount. |
Investments in real estate. We invest in real estate properties, primarily multi-family properties, throughout the United States. This asset class is held in our CRE and our IRT business lines. We manage substantially all of our properties through our property management subsidiaries. The table below describes certain characteristics of our investments in real estate as of March 31, 2016 (dollars in thousands):
|
|
Investments in Real Estate (a) |
|
|
Average Physical Occupancy |
|
|
Units/ Square Feet/ Acres |
|
|
Number of Properties |
|
||||
RAIT Multi-family real estate properties |
|
$ |
462,724 |
|
|
|
93.3% |
|
|
|
5,103 |
|
|
|
21 |
|
IRT Multi-family real estate properties |
|
|
1,357,338 |
|
|
|
93.5% |
|
|
|
13,502 |
|
|
|
48 |
|
Office real estate properties |
|
|
321,011 |
|
|
|
78.2% |
|
|
|
2,145,968 |
|
|
|
12 |
|
Industrial real estate properties |
|
|
94,938 |
|
|
|
82.0% |
|
|
|
1,615,473 |
|
|
|
10 |
|
Retail real estate properties |
|
|
122,501 |
|
|
|
71.3% |
|
|
|
1,378,171 |
|
|
|
5 |
|
Redevelopment real estate properties |
|
|
78,509 |
|
|
|
46.7% |
|
|
|
1,206,514 |
|
|
|
2 |
|
Parcels of land |
|
|
50,613 |
|
|
N/A |
|
|
|
14.2 |
|
|
|
8 |
|
|
Total |
|
$ |
2,487,634 |
|
|
|
— |
|
|
|
|
|
|
|
106 |
|
(a) |
Based on properties owned as of March 31, 2016. |
The charts below describe the property types and the geographic breakdown of our investments in real estate as of March 31, 2016:
(a) |
Based on book value. |
40
Overview. We have used securitizations to match fund the interest rates and maturities of our assets with the interest rates and maturities of the related financing. This strategy has helped us reduce interest rate and funding risks on our loan portfolios for the long-term. A securitization is a structure in which multiple classes of debt and equity are issued by a special purpose entity to finance a portfolio of assets. Cash flow from the portfolio of assets is used to repay the securitization liabilities sequentially, in order of seniority. The most senior classes of debt typically have credit ratings of “AAA” through “BBB–” and therefore can be issued at yields that are lower than the average yield of the loans collateralizing the securitization. The debt tranches are typically rated based on portfolio quality, diversification and structural subordination. The equity securities issued by the securitization are the “first loss” piece of the capital structure, but they are entitled to all residual amounts available for payment after the obligations to the debt holders have been satisfied. Our retained interests described below included in our investments in our consolidated securitizations are typically in such “first loss” position. Historically, the stated maturity of the debt issued by a securitization we have sponsored and consolidated has been between 15 and 17 years. However, we expect the weighted average life of such debt to be shorter than the stated maturity due to the financial condition of the borrowers on the underlying loans and the characteristics of such loans, including the existence and frequency of exercise of any permitted prepayment, the prevailing level of interest rates, the actual default rate and the actual level of any recoveries on any defaulted loans. Debt issued by these securitizations is non-recourse to RAIT and payable solely from the payments by the borrowers on the loans collateralizing these securitizations. These assets are in most cases “non-recourse” or limited recourse loans secured by commercial real estate assets or real estate entities. This means that we look primarily to the assets securing the loan for repayment, subject to certain standard exceptions.
As of March 31, 2016, we have sponsored six securitizations with varying amounts of retained or residual interests held by us which we consolidate in our financial statements as follows: RAIT I, RAIT II, RAIT 2014-FL2 Trust, or RAIT FL2, RAIT 2014-FL3 Trust, or RAIT FL3, RAIT 2014-FL4 Trust, or RAIT FL4, and RAIT 2015-FL5, or RAIT FL5. We refer to RAIT FL2, RAIT FL3 and RAIT FL4 and RAIT FL5 as the FL securitizations. We exercised our rights and unwound a seventh securitization we had sponsored, RAIT 2013-FL1 Trust, or RAIT FL1, in 2015. The assets and liabilities of these securitizations are presented at amortized cost in our consolidated financial statements. We originated substantially all of the loans collateralizing RAIT I, RAIT II and the FL securitizations. We serve as the collateral manager, servicer and special servicer on RAIT I and RAIT II and as servicer and special servicer for each of the FL securitizations.
Securitization Performance. RAIT I and RAIT II contain interest coverage triggers, or IC triggers, and over collateralization triggers, or OC triggers, which must be met in order for us to receive our subordinated management fees and our lower-rated debt or residual equity returns. If the IC triggers or OC triggers are not met in a given period, then the cash flows are redirected from lower rated tranches and used to repay the principal amounts to the senior tranches of CDO notes payable. These conditions and the re-direction of cash flow continue until the triggers are met by curing the underlying payment defaults, paying down the CDO notes payable or other actions permitted under the relevant securitization indenture. As of the most recent payment information, all applicable IC triggers and OC triggers are being met for our two commercial real estate securitizations, RAIT I and RAIT II, and we continue to receive all of our management fees, interest and residual returns from these securitizations. The FL securitizations do not have IC triggers and OC triggers.
Repayment of the loans collateralizing RAIT I and RAIT II outside their contractual maturities increased in the first quarter of 2016 and we expect it to continue to increase in the remainder of 2016 through 2019. This has reduced, and we expect it to continue to reduce, our returns from these securitizations. We are evaluating alternative strategies seeking to replace these returns. We expect to undertake a similar analysis for any securitization we sponsor as the notes issued by such securitization approach their respective weighted average lives.
If the CDO notes issued by RAIT I and RAIT II have not been redeemed in full prior to the distribution date occurring in November 2016, in the case of RAIT I, and June 2017, in the case of RAIT II, then an auction of the collateral assets of RAIT I or RAIT II, as relevant, will be conducted by the relevant trustee each month thereafter and, if certain conditions set forth in the relevant indenture are satisfied, such collateral assets will be sold at the auction and the relevant CDO notes will be redeemed, in whole, but not in part, on such distribution date.
41
A summary of the investments in our consolidated securitizations as of the most recent payment information is as follows:
|
• |
RAIT I—RAIT I has $787.8 million of total collateral at par value, of which $15.7 million is defaulted. The current overcollateralization, or OC, test is passing at 130.5% with an OC trigger of 116.2%. We currently own $41.3 million of the securities that were originally rated investment grade and $200.0 million of the non-investment grade securities issued by this securitization. We are currently receiving all distributions required by the terms of our retained interests in this securitization and are receiving all of our collateral management fees. We pledged $30.2 million of the securities we own issued by RAIT I as collateral for a senior secured note we issued. |
|
• |
RAIT II—RAIT II has $595.2 million of total collateral at par value, of which $19.5 million is defaulted. The current OC test is passing at 125.3% with an OC trigger of 111.7%. We currently own $91.8 million of the securities that were originally rated investment grade and $140.7 million of the non-investment grade securities issued by this securitization. We are currently receiving all distributions required by the terms of our retained interests in this securitization and are receiving all of our collateral management fees. We pledged $54.3 million of the securities we own issued by RAIT II as collateral for a senior secured note we issued. |
|
• |
RAIT FL2—RAIT FL2 has $117.9 million of total collateral at par value, of which there is no collateral that is in default. RAIT FL2 does not have OC triggers or IC triggers. RAIT FL2, has classes of investment grade senior notes with an aggregate principal balance outstanding of approximately $77.7 million to investors. We currently own the unrated classes of junior notes, including a class with an aggregate principal balance of $40.2 million, and the equity, or the retained interests, of RAIT FL2. We are evaluating whether or not to redeem the current aggregate principal balance outstanding of the investment grade senior notes issued by RAIT FL2 in accordance with their terms. |
|
• |
RAIT FL3—RAIT FL3 has $164.6 million of total collateral at par value, of which there is no collateral that is in default. RAIT FL3 does not have OC triggers or IC triggers. RAIT FL3, has classes of investment grade senior notes with an aggregate principal balance outstanding of approximately $127.2 million to investors. We currently own the unrated classes of junior notes, including a class with an aggregate principal balance of $37.4 million, and the equity, or the retained interests, of RAIT FL3. |
|
• |
RAIT FL4—RAIT FL4 has $196.5 million of total collateral at par value, of which there is no collateral that is in default. RAIT FL4 does not have OC triggers or IC triggers. RAIT FL4, has classes of investment grade senior notes with an aggregate principal balance outstanding of approximately $155.1 million. We currently own the unrated classes of junior notes, including a class with an aggregate principal balance of $41.4 million, and the equity, or the retained interests, of RAIT FL4. |
|
• |
RAIT FL5-RAIT FL5 has $347.4 million of total collateral at par value, of which there is no collateral that is in default. RAIT FL5 does not have OC triggers or IC triggers. RAIT FL5, has classes of investment grade senior notes with an aggregate principal balance outstanding of approximately $263.6 million. We originally owned $23.0 million investment grade notes and all of the below investment grade and unrated classes of junior notes, with an aggregate principal balance of $83.8 million, and the equity, or the retained interests, of RAIT FL5. In February 2016, we contributed our junior notes and equity of RAIT FL5 to a venture. We retained a 60% interest in the venture. We received approximately $24.8 million of capital as a result of this contribution. In April 2016, all $23.0 million of investment grade notes were sold for $22,559. |
Independence Realty Trust, Inc.
IRT common stock trades on the NYSE MKT under the symbol “IRT” with a closing price of $7.61 as of May 6, 2016. We currently hold 7,269,719 shares of IRT common stock representing 15.4% percent of the outstanding shares of IRT common stock as of May 6, 2016. We continue to consolidate IRT in our financial results as of March 31, 2016. For the three months ended March 31, 2016, we reflected IRT’s operating results in our financial results, including $38.7 million of revenue and $0.1 million of net loss. As of March 31, 2016, IRT owned 48 multi-family properties with 13,502 units and a book value of $1.4 billion which were reflected on our balance sheet. As of March 31, 2016, IRT had $940 million of indebtedness which was reflected on our balance sheet. For the three months ended March 31, 2016, we earned $1.7 million of fees from IRT under our advisory agreement with IRT and received $1.3 million of distributions declared on our IRT common stock, both of which are eliminated in consolidation. We characterize IRT as one of our operating segments and break out its financial performance in our financial statements.
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
42
originations, size and scale of our operations and our performance. AUM includes our total investment portfolio and assets associated with unconsolidated securitizations for which we derive asset management fees.
The table below summarizes our AUM as of March 31, 2016 and December 31, 2015 (dollars in thousands):
|
|
AUM as of March 31, 2016 |
|
|
AUM as of December 31, 2015 |
|
||
Commercial real estate loan portfolio (1) |
|
$ |
4,102,345 |
|
|
$ |
4,144,765 |
|
Property management (2) |
|
|
1,752,479 |
|
|
|
1,778,836 |
|
Total |
|
$ |
5,854,824 |
|
|
$ |
5,923,601 |
|
(1) |
As of March 31, 2016 and December 31, 2015, our commercial real estate portfolio was comprised of $540.7 million and $554.0 million, respectively, of assets collateralizing RAIT I and RAIT II and $1.1 billion and $1.1 billion, respectively, of investments in real estate of RAIT, $1.4 billion and $1.4 billion, respectively, of investments in real estate of IRT and $218.5 million and $188.0 million, respectively, of commercial mortgage loans, mezzanine loans and preferred equity interests that were not securitized. As of March 31, 2016 and December 31, 2015, our commercial real estate portfolio was also comprised of $855.6 million and $885.1 million, respectively, of assets collateralizing our floating rate securitizations. |
(2) |
In the fourth quarter of 2013, we exercised our rights under a preferred equity investment we had made in Urban Retail Properties, LLC, or Urban Retail, to assume control of Urban Retail. We completed our acquisition of the equity of Urban Retail in March 2014. Urban Retail manages 63 properties with 18,190,617 square feet in 24 states as of March 31, 2016. In addition, on July 1, 2015 we exercised our rights under the operating agreement for our subsidiary, RAIT Residential, to acquire the 25% of its equity held by unaffiliated investors, making RAIT Residential our wholly owned subsidiary. RAIT Residential provides property management services to apartment properties, including IRT’s properties. |
Non-GAAP Financial Measures
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. The compensation committee of our board used CAD as a performance metric in establishing performance-based compensation awards for 2015 for some of our executive officers. We also believe that CAD is useful because it adjusts for a variety of noncash items (such as depreciation and amortization, equity-based compensation, realized gain (loss) on assets, provision for loan losses and non-cash interest income and expense items).
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, straight-line rental income or expense, amortization of in place leases, amortization of deferred financing costs, amortization of discount on financings and 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; certain fee income eliminated in consolidation that is attributable to third parties; and one-time events pursuant to changes in GAAP and certain other non-recurring 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. We have amended our comparable prior period disclosures to conform with the current period presentation for this change.
CAD should not be considered as an alternative to net income (loss) or cash generated from operating activities, determined in accordance with 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 GAAP in Part I, Item 1. 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.
43
Set forth below is a reconciliation of CAD to net income (loss) allocable to common shares for the three months ended March 31, 2016 and 2015 (dollars in thousands, except share information):
|
|
For the Three Months Ended March 31, 2016 |
|
|
For the Three Months Ended March 31, 2015 |
|
||||||||||
|
|
Amount |
|
|
Per Share (1) |
|
|
Amount |
|
|
Per Share (2) |
|
||||
Cash Available for Distribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocable to common shares |
|
$ |
(17,844 |
) |
|
$ |
(0.20 |
) |
|
$ |
(7,097 |
) |
|
$ |
(0.09 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
24,276 |
|
|
|
0.28 |
|
|
|
19,024 |
|
|
|
0.24 |
|
Change in fair value of financial instruments |
|
|
4,088 |
|
|
|
0.04 |
|
|
|
(4,490 |
) |
|
|
(0.05 |
) |
(Gains) losses on assets |
|
|
(2,258 |
) |
|
|
(0.02 |
) |
|
|
— |
|
|
|
— |
|
(Gain) loss on IRT merger with TSRE |
|
|
(91 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
(Gains) losses on extinguishment of debt |
|
|
(344 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Straight-line rental adjustments |
|
|
(418 |
) |
|
|
— |
|
|
|
2 |
|
|
|
— |
|
Share-based compensation |
|
|
1,273 |
|
|
|
0.01 |
|
|
|
1,348 |
|
|
|
0.02 |
|
Acquisition and integration expenses |
|
|
269 |
|
|
|
— |
|
|
|
957 |
|
|
|
0.01 |
|
Origination fees and other deferred items |
|
|
6,714 |
|
|
|
0.07 |
|
|
|
7,426 |
|
|
|
0.09 |
|
Provision for losses |
|
|
1,325 |
|
|
|
0.01 |
|
|
|
2,000 |
|
|
|
0.02 |
|
Asset impairment |
|
|
3,922 |
|
|
|
0.04 |
|
|
|
— |
|
|
|
— |
|
Noncontrolling interest effect of certain adjustments |
|
|
(8,033 |
) |
|
|
(0.09 |
) |
|
|
(4,713 |
) |
|
|
(0.06 |
) |
Cash Available for Distribution |
|
$ |
12,879 |
|
|
$ |
0.14 |
|
|
$ |
14,457 |
|
|
|
0.18 |
|
(1) |
Based on 91,018,160 weighted-average shares outstanding for the three months ended March 31, 2016. |
(2) |
Based on 82,081,024 weighted-average shares outstanding for the three months ended March 31, 2015. |
As stated above, we changed our method of calculating CAD in the quarter ended March 31, 2016 to exclude the impact of real property sales. Set forth below is our reconciliation of CAD to net income (loss) allocable to common shares for the years ended December 31, 2015, 2014 and 2013 below (dollars in thousands, except share information) which reflects such new method and is intended to supersede the corresponding chart previously reported in our annual report:
|
|
For the Year Ended December 31, 2015 |
|
|
For the Year Ended December 31, 2014 |
|
|
For the Year Ended December 31, 2013 |
|
|||||||||||||||
|
|
Amount |
|
|
Per Share (1) |
|
|
Amount |
|
|
Per Share (2) |
|
|
Amount |
|
|
Per Share (3) |
|
||||||
Cash Available for Distribution: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocable to common shares |
|
$ |
7,158 |
|
|
$ |
0.08 |
|
|
$ |
(318,504 |
) |
|
$ |
(3.92 |
) |
|
$ |
(308,008 |
) |
|
$ |
(4.54 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization expense |
|
|
73,868 |
|
|
|
0.87 |
|
|
|
56,784 |
|
|
|
0.70 |
|
|
|
36,093 |
|
|
|
0.53 |
|
Change in fair value of financial instruments |
|
|
(11,638 |
) |
|
|
(0.14 |
) |
|
|
98,752 |
|
|
|
1.21 |
|
|
|
344,426 |
|
|
|
5.09 |
|
(Gains) losses on assets |
|
|
(43,514 |
) |
|
|
(0.51 |
) |
|
|
5,370 |
|
|
|
0.07 |
|
|
|
2,266 |
|
|
|
0.03 |
|
TSRE financing extinguishment and employee separation expenses |
|
|
27,508 |
|
|
|
0.32 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
(Gain) loss on IRT merger with TSRE |
|
|
(64,604 |
) |
|
|
(0.76 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
(Gains) losses on deconsolidation of VIEs |
|
|
— |
|
|
|
— |
|
|
|
215,804 |
|
|
|
2.66 |
|
|
|
— |
|
|
|
— |
|
(Gains) losses on extinguishment of debt |
|
|
— |
|
|
|
— |
|
|
|
(2,421 |
) |
|
|
(0.03 |
) |
|
|
1,275 |
|
|
|
0.02 |
|
T8 and T9 securitizations, net effect |
|
|
— |
|
|
|
— |
|
|
|
(26,931 |
) |
|
|
(0.33 |
) |
|
|
(33,268 |
) |
|
|
(0.49 |
) |
Straight-line rental adjustments |
|
|
95 |
|
|
|
— |
|
|
|
1,111 |
|
|
|
0.01 |
|
|
|
(1,322 |
) |
|
|
(0.02 |
) |
Share-based compensation |
|
|
4,466 |
|
|
|
0.05 |
|
|
|
4,407 |
|
|
|
0.05 |
|
|
|
3,441 |
|
|
|
0.05 |
|
Acquisition and integration expenses |
|
|
16,527 |
|
|
|
0.19 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Origination fees and other deferred items |
|
|
34,834 |
|
|
|
0.41 |
|
|
|
21,954 |
|
|
|
0.27 |
|
|
|
10,475 |
|
|
|
0.15 |
|
Provision for losses |
|
|
8,300 |
|
|
|
0.10 |
|
|
|
5,500 |
|
|
|
0.07 |
|
|
|
3,000 |
|
|
|
0.04 |
|
Asset impairment |
|
|
8,179 |
|
|
|
0.10 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Noncontrolling interest effect of certain adjustments |
|
|
4,967 |
|
|
|
0.06 |
|
|
|
(4,302 |
) |
|
|
(0.05 |
) |
|
|
(940 |
) |
|
|
(0.01 |
) |
Cash Available for Distribution |
|
$ |
66,146 |
|
|
$ |
0.77 |
|
|
$ |
57,524 |
|
|
$ |
0.71 |
|
|
$ |
57,438 |
|
|
$ |
0.85 |
|
44
(1) |
Based on 85,524,073 weighted-average shares outstanding for the year ended December 31, 2015. |
(2) |
Based on 81,328,129 weighted-average shares outstanding for the year ended December 31, 2014. |
(3) |
Based on 67,814,316 weighted-average shares outstanding for the year ended December 31, 2013. |
Funds from Operations
We believe that funds from operations, or FFO, which is a non-GAAP 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 and amortization expense, gains or losses on sales of real estate 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 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.
Set forth below is a reconciliation of FFO to net income (loss) allocable to common shares for the three months ended March 31, 2016 and 2015 (dollars in thousands, except share information):
|
|
For the Three Months Ended March 31, 2016 |
|
|
For the Three Months Ended March 31, 2015 |
|
||||||||||
|
|
Amount |
|
|
Per Share (1) |
|
|
Amount |
|
|
Per Share (2) |
|
||||
Funds From Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocable to common shares |
|
$ |
(17,844 |
) |
|
$ |
(0.20 |
) |
|
$ |
(7,097 |
) |
|
$ |
(0.09 |
) |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate depreciation and amortization |
|
|
11,374 |
|
|
|
0.12 |
|
|
|
11,205 |
|
|
|
0.14 |
|
(Gains) losses on the sale of real estate |
|
|
(183 |
) |
|
|
0.00 |
|
|
|
— |
|
|
|
— |
|
Funds From Operations allocable to common shares |
|
$ |
(6,653 |
) |
|
$ |
(0.07 |
) |
|
$ |
4,108 |
|
|
$ |
0.05 |
|
(1) |
Based on 91,018,160 weighted-average shares outstanding for the three months ended March 31, 2016. |
(2) |
Based on 82,081,024 weighted-average shares outstanding for the three months ended March 31, 2015. |
45
Three Months Ended March 31, 2016 Compared to the Three Months Ended March 31, 2015
The following table sets forth information regarding our consolidated results of operations for the three months ended March 31, 2016 and 2015.
|
|
For the Three Months Ended March 31, |
|
|||||||||||||
|
|
2016 |
|
|
2015 |
|
|
$ increase (decrease) |
|
|
% increase (decrease) |
|
||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment interest income |
|
$ |
25,802 |
|
|
$ |
23,248 |
|
|
$ |
2,554 |
|
|
|
11 |
% |
Investment interest expense |
|
|
(7,896 |
) |
|
|
(6,914 |
) |
|
|
(982 |
) |
|
|
14 |
% |
Net interest margin |
|
|
17,906 |
|
|
|
16,334 |
|
|
|
1,572 |
|
|
|
10 |
% |
Property income |
|
|
68,722 |
|
|
|
53,274 |
|
|
|
15,448 |
|
|
|
29 |
% |
Fee and other income |
|
|
2,852 |
|
|
|
5,594 |
|
|
|
(2,742 |
) |
|
|
-49 |
% |
Total revenue |
|
|
89,480 |
|
|
|
75,202 |
|
|
|
14,278 |
|
|
|
19 |
% |
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
27,006 |
|
|
|
19,683 |
|
|
|
7,323 |
|
|
|
37 |
% |
Real estate operating expense |
|
|
30,706 |
|
|
|
25,277 |
|
|
|
5,429 |
|
|
|
21 |
% |
Compensation expense |
|
|
7,075 |
|
|
|
6,108 |
|
|
|
967 |
|
|
|
16 |
% |
General and administrative expense |
|
|
5,063 |
|
|
|
5,400 |
|
|
|
(337 |
) |
|
|
-6 |
% |
Acquisition expense |
|
|
269 |
|
|
|
957 |
|
|
|
(688 |
) |
|
|
-72 |
% |
Provision for loan losses |
|
|
1,325 |
|
|
|
2,000 |
|
|
|
(675 |
) |
|
|
-34 |
% |
Depreciation and amortization expense |
|
|
24,276 |
|
|
|
19,024 |
|
|
|
5,252 |
|
|
|
28 |
% |
Total expenses |
|
|
95,720 |
|
|
|
78,449 |
|
|
|
17,271 |
|
|
|
22 |
% |
Operating (Loss) Income |
|
|
(6,240 |
) |
|
|
(3,247 |
) |
|
|
(2,993 |
) |
|
|
92 |
% |
Interest and other income (expense), net |
|
|
61 |
|
|
|
(395 |
) |
|
|
456 |
|
|
|
-115 |
% |
Gains (losses) on assets |
|
|
2,258 |
|
|
|
— |
|
|
|
2,258 |
|
|
N/M |
|
|
Gain on IRT merger with TSRE |
|
|
91 |
|
|
|
— |
|
|
|
91 |
|
|
N/M |
|
|
Gains (losses) on extinguishments of debt |
|
|
344 |
|
|
|
— |
|
|
|
344 |
|
|
N/M |
|
|
Asset impairment |
|
|
(3,922 |
) |
|
|
— |
|
|
|
(3,922 |
) |
|
N/M |
|
|
Change in fair value of financial instruments |
|
|
(4,088 |
) |
|
|
4,490 |
|
|
|
(8,578 |
) |
|
|
-191 |
% |
Income (loss) before taxes |
|
|
(11,496 |
) |
|
|
848 |
|
|
|
(12,344 |
) |
|
|
-1456 |
% |
Income tax benefit (provision) |
|
|
993 |
|
|
|
(582 |
) |
|
|
1,575 |
|
|
|
-271 |
% |
Net income (loss) |
|
|
(10,503 |
) |
|
|
266 |
|
|
|
(10,769 |
) |
|
|
-4048 |
% |
(Income) loss allocated to preferred shares |
|
|
(8,520 |
) |
|
|
(7,859 |
) |
|
|
(661 |
) |
|
|
8 |
% |
(Income) loss allocated to noncontrolling interests |
|
|
1,179 |
|
|
|
496 |
|
|
|
683 |
|
|
|
138 |
% |
Net income (loss) allocable to common shares |
|
$ |
(17,844 |
) |
|
$ |
(7,097 |
) |
|
$ |
(10,747 |
) |
|
|
151 |
% |
Revenue
Net interest margin. Net interest margin increased $1.6 million, or 10%, to $17.9 million for the three months ended March 31, 2016 from $16.3 million for the three months ended March 31, 2015. Investment interest income increased $2.6 million as a result of a 12% increase in the average investment in loans and increases in LIBOR. Investment interest expense increased $1.0 million due the RAIT FL4 and RAIT FL5 securitizations issued in May and December 2015, respectively, and increases in LIBOR partially offset by securitization notes repayments.
Property income. Property income increased $15.4 million to $68.7 million for the three months ended March 31, 2016 from $53.3 million for the three months ended March 31, 2015. The increase is attributable to $19.0 million of property income from 31 new properties acquired or consolidated since March 31, 2015, and $3.0 million of property income from improved occupancy and rental rates in 2016 as compared to 2015 in the remaining properties. The increase was partially offset by a $6.6 million decrease of property income related to fourteen properties disposed of or deconsolidated after March 31, 2015.
Fee and other income. Fee and other income decreased $2.7 million to $2.9 million for the three months ended March 31, 2016 from $5.6 million for the three months ended March 31, 2015. The decrease is primarily attributable to a decrease of $0.9 million of property management fee income due to the timing of leasing commissions and a decrease in CMBS income of $1.8 million during the three months ended March 31, 2016 as compared to the same period in 2015.
46
Interest expense. Interest expense increased $7.3 million, or 37%, to $27.0 million for the three months ended March 31, 2016 from $19.7 million for the three months ended March 31, 2015. The increase is primarily attributable to $1.8 million of interest expense from the increase in our loans payable on real estate that we acquired in 2015, $3.4 million of interest expense related to the debt incurred as part of the TSRE acquisition, and an increase of $0.9 million related to the amortization of deferred financing costs.
Real estate operating expense. Real estate operating expense increased $5.4 million to $30.7 million for the three months ended March 31, 2016 from $25.3 million for the three months ended March 31, 2015. The increase is attributable to $9.1 million of real estate operating expenses from 31 properties acquired since March 31, 2015. The increase was partially offset by a $3.8 million decrease of real estate operating expense related to fourteen properties disposed of or deconsolidated after March 31, 2015.
Compensation expense. Compensation expense increased $1.0 million to $7.1 million for the three months ended March 31, 2016 from $6.1 million for the three months ended March 31, 2015. This is primarily due to a decrease in deferred direct loan origination costs and an increase in stock compensation expense for the three months ended March 31, 2016 as compared to the same period in 2015.
General and administrative expense. General and administrative expense decreased $0.3 million to $5.1 million for the three months ended March 31, 2016 from $5.4 million for the three months ended March 31, 2015. This is due to a decrease in professional fees for the three months ended March 31, 2016 as compared to the same period in 2015
Acquisition expense. Acquisition expense decreased $0.7 million to $0.3 million for the three months ended March 31, 2016 from $1.0 million for the three months ended March 31, 2015. This was primarily attributable to a $0.5 million decrease in dead deal costs for the three months ended March 31, 2016 as compared to the same period in 2015.
Depreciation and amortization expense. Depreciation and amortization expense increased $5.3 million to $24.3 million for the three months ended March 31, 2016 from $19.0 million for the three months ended March 31, 2015. The increase is attributable to $10.4 million of depreciation and amortization expense from 31 new properties acquired or consolidated since March 31, 2015. The increase was partially offset by a decrease of $3.8 million of depreciation and amortization expense related to fourteen properties that were disposed of or deconsolidated after March 31, 2015 along with a decrease of $2.4 million of amortization expense in our same store portfolio due to intangible assets reaching their useful lives.
Other income (expense)
Gains (losses) on assets. During the three months ended March 31, 2016, two multi-family properties and one office building were sold resulting in a gain of $2,258.
Gain on extinguishment of debt. During the three months ended March 31, 2016, we recognized a $344 gain on the extinguishment of the mortgage indebtedness on one of our multi-family properties upon its sale as it was sold for less than its outstanding indebtedness.
Asset impairment. During the three months ended March 31, 2016, one office building was impaired resulting in the recognition of impairment of $3,922.
Change in fair value of financial instruments. During the three months ended March 31, 2016, the change in fair value of financial instruments decreased our net income by $4.1 million. The fair value adjustments we recorded were as follows (dollars in thousands):
Description |
|
For the Three Months Ended March 31, 2016 |
|
|
For the Three Months Ended March 31, 2015 |
|
||
Change in fair value of trading securities and security-related receivables |
|
$ |
— |
|
|
$ |
(171 |
) |
Change in fair value of CDO notes payable and trust preferred obligations |
|
|
719 |
|
|
|
(81 |
) |
Change in fair value of derivatives |
|
|
(1,907 |
) |
|
|
(2,047 |
) |
Change in fair value of warrants and investor SARs |
|
|
(2,900 |
) |
|
|
6,789 |
|
Change in fair value of financial instruments |
|
$ |
(4,088 |
) |
|
$ |
4,490 |
|
47
The changes in the fair value for the trading securities and security-related receivables, CDO notes payable, and other liabilities for which the fair value option was elected for the three months ended March 31 2015 was primarily attributable to changes in instrument specific credit risks. The changes in the fair value of the CDO notes payable for which the fair value option was elected was also due to required repayments at par of senior CDO notes due to OC failures when the CDO notes being repaid have a fair value of less than par. The changes in the fair value of derivatives for the three months ended March 31, 2016 and 2015 was mainly due to changes in interest rates. The change in fair value of the warrants and investor SARs was due to changes in the reference stock price and volatility.
Income tax benefit (provision). During the three months ended March 31, 2016, the income tax benefit was driven by a lack of gains on CMBS loan sales, which resulted in a taxable loss at that taxable REIT subsidiary. Conversely, during the three months ended March 31, 2015, the income tax (provision) was driven by gains on CMBS loan sales.
Liquidity and Capital Resources
Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay dividends and other general business needs.
We believe our available cash and restricted cash balances, other financing arrangements, and cash flows from operations will be sufficient to fund our liquidity requirements for the next 12 months and the foreseeable future. Due to volatility in the capital markets referenced above in “Overview,” we expect our ability to raise capital in the public markets through sales of our equity and debt securities to be limited this year. We expect to rely to a greater degree on the other sources of liquidity identified below.
Our primary cash requirements are as follows:
|
• |
to make investments and fund the associated costs; |
|
• |
to repay our indebtedness, including repurchasing, redeeming or retiring our debt such as the April 2016 redemption on our 7% convertible notes; |
|
• |
to pay our expenses, including compensation to our employees; |
|
• |
to pay U.S. federal, state, and local taxes of our taxable REIT subsidiaries; and |
|
• |
to distribute a minimum of 90% of our REIT taxable income and to make investments in a manner that enables us to maintain our qualification as a REIT. |
We intend to meet these liquidity requirements primarily through the following:
|
• |
the use of our cash and cash equivalent balances of $94.6 million as of March 31, 2016; |
|
• |
cash generated from operating activities, including net investment income from our investment portfolio, and fee income generated by our commercial real estate platform; |
|
• |
proceeds from the sales of assets; |
|
• |
proceeds from future borrowings, including our CMBS facilities and loan participations; |
|
• |
proceeds from alternative sources of financing, such as joint ventures; and |
|
• |
proceeds from future offerings of our securities, including those through our DRSPP and ATM programs. |
We are evaluating whether or not to redeem the current aggregate principal balance outstanding of the investment grade senior notes issued by RAIT FL2 in accordance with their terms.
Cash Flows
48
As of March 31, 2016 and 2015, we maintained cash and cash equivalents of approximately $94.6 million and $92.7 million, respectively. Our cash and cash equivalents were generated from the following activities (dollars in thousands):
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
Cash flow from operating activities |
|
$ |
8,561 |
|
|
$ |
(31,187 |
) |
Cash flow from investing activities |
|
|
42,582 |
|
|
|
(40,742 |
) |
Cash flow from financing activities |
|
|
(82,460 |
) |
|
|
42,860 |
|
Net change in cash and cash equivalents |
|
|
(31,317 |
) |
|
|
(29,069 |
) |
Cash and cash equivalents at beginning of period |
|
|
125,886 |
|
|
|
121,726 |
|
Cash and cash equivalents at end of period |
|
$ |
94,569 |
|
|
$ |
92,657 |
|
Cash flow from operating activities for the three months ended March 31, 2016, as compared to the same period in 2015, has increased primarily due to significantly less conduit loan origination volume partially offset by no sales of conduit loans during the three months ended March 31, 2016.
The cash inflow for investing activities for the three months ended March 31, 2016 was substantially due to proceeds from property dispositions of $23.3 million as well as loan repayments of $55.1 million outpacing new investments in loans of $35.6 million. The cash outflow for investing activities for the three months ended March 31, 2015 was substantially due to new investments in loans of $91.4 million which exceeded loan repayments and conduit loan sales of $17.1 million. We also had cash outflows of $4.2 million due to capital expenditures in our owned real estate assets for the three months ended March 31, 2015. These cash outflows were partially offset by payoffs we received for our investment in securities totaling $31.2 million for the three months ended March 31, 2015.
The cash outflow from our financing activities during the three months ended March 31, 2016 was primarily due to repayments of indebtedness of $160.3 million exceeding proceeds from the issuance of indebtedness $104.0 million. The cash inflow from our financing activities during the three months ended March 31, 2015 was primarily due to proceeds from debt issuance of $111.2 million exceeding repayments of indebtedness of $41.5 million and distributions to shareholders and noncontrolling interests of $25.7 million.
As a REIT, we evaluate our dividend coverage based on our cash flow from operating activities, excluding acquisition and integration expenses, the origination and sale of conduit loans, and changes in assets and liabilities. During the three months ended March 31, 2016, we paid distributions to our preferred shareholders, common shareholders, and non-controlling interests of $25.2 million and generated cash flows from operating activities, before acquisition expenses, origination and sale of conduit loans, and changes in assets and liabilities of $25.0 million. The $0.2 of excess distributions was funded through cash flows from the disposition of real estate assets, which is included in cash flows from investing activities in the consolidated statements of cash flows and totaled $23.3 million during the three months ended March 31, 2016.
Capitalization
Refer to Note 5: Indebtedness, Note 9: Series D Preferred Shares, and Note 10: Shareholders’ Equity in the Notes to Consolidated Financial Statements, for information regarding our capitalization.
Off-Balance Sheet Arrangements and Commitments
There have been no material changes in off-balance sheet arrangements or commitments during the three months ended March 31, 2016 from the disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2015.
Critical Accounting Estimates and Policies
Our Annual Report on Form 10-K for the year ended December 31, 2015 contains a discussion of our critical accounting policies. On January 1, 2016 we adopted three new accounting pronouncements and revised our accounting policies. See Note 2 in the Notes to Consolidated Financial Statements. Management discusses our critical accounting policies and management’s judgments and estimates with the audit committee of our board of trustees.
49
There have been no material changes in quantitative and qualitative market risks during the three months ended March 31, 2016 from the disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2015.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Under the supervision of our chief executive officer and chief financial officer and with the participation of our disclosure committee, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting or in other factors during the quarter ended March 31, 2016, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.
50
General
We are involved from time to time in litigation on various matters, including disputes with tenants of owned properties, disputes arising out of agreements to purchase or sell properties and disputes arising out of our loan portfolio. Given the nature of our business activities, these lawsuits are considered routine to the conduct of our business. The result of any particular lawsuit cannot be predicted, because of the very nature of litigation, the litigation process and its adversarial nature, and the jury system. We do not expect that the liabilities, if any, that may ultimately result from such routine legal actions will have a material adverse effect on our consolidated financial position, results of operations or cash flows.
On November 23, 2015, a shareholders’ derivative action, or the action, captioned Lobins v. Brown, et al., was filed in the Court of Common Pleas of Philadelphia County, or the court, (Civil Case No. 151103347) naming RAIT, as nominal defendant, and certain of our current and former executive officers and trustees as defendants, or the individual defendants. The information required by this Item regarding the Lobins action has been previously reported in our Annual Report on Form 10-K filed with the SEC on March 11, 2016.
There have not been any material changes from the risk factors previously disclosed in Item 1A—“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
We withheld the following common shares to satisfy tax withholding during the quarter ending March 31, 2016 arising from the vesting of restricted share awards made pursuant to the RAIT Financial Trust 2012 Incentive Award Plan. These common shares may be deemed to be “issuer purchases” of common shares that are required to be disclosed pursuant to the item.
Issuer Purchases of Equity Securities
Period |
|
Total Number of Shares Purchased |
|
|
Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
|
Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs |
|
||||
01/01/2016 to 01/31/2016 |
|
|
79,755 |
|
(1) |
$ |
2.56 |
|
(1) |
|
79,755 |
|
|
|
- |
|
02/01/2016 to 02/29/2016 |
|
|
35,632 |
|
(1) |
$ |
1.98 |
|
(1) |
|
35,632 |
|
|
|
- |
|
03/01/2016 to 03/31/2016 |
|
|
8,384 |
|
(1) |
$ |
3.14 |
|
(1) |
|
8,384 |
|
|
|
- |
|
Total |
|
|
123,771 |
|
(1) |
$ |
2.43 |
|
(1) |
|
123,771 |
|
|
|
- |
|
1
|
1) |
The price reported is the price paid per share using our closing stock price on the New York Stock Exchange on the vesting date of the relevant award. |
(a) |
Exhibits |
The exhibits filed as part of this quarterly report on Form 10-Q are identified in the exhibit index immediately following the signature page of this Report. Such Exhibit Index is incorporated herein by reference.
51
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
RAIT FINANCIAL TRUST (Registrant) |
|
|
|
|
|
Date: May 9, 2016 |
|
By: |
/s/ Scott F. Schaeffer |
|
|
|
Scott F. Schaeffer, Chairman of the Board and |
|
|
|
(On behalf of the registrant and as its Principal Executive Officer) |
|
|
|
|
Date: May 9, 2016 |
|
By: |
/s/ James J. Sebra |
|
|
|
James J. Sebra, Chief Financial Officer and Treasurer |
|
|
|
(On behalf of the registrant and as its Principal Financial Officer)
|
Date: May 9, 2016 |
|
By: |
/s/ Alfred J. Dilmore |
|
|
|
Alfred J. Dilmore, Chief Accounting Officer |
|
|
|
(On behalf of the registrant and as its Principal Accounting Officer)
|
52
Exhibit Number
|
Description of Documents
|
||
|
|
||
3.1.1 |
Amended and Restated Declaration of Trust of RAIT Financial Trust (“RAIT”). Incorporated by reference to RAIT’s Registration Statement on Form S-11 (Registration No. 333-35077). |
||
|
|
||
3.1.2 |
Articles of Amendment to Amended and Restated Declaration of Trust of RAIT. Incorporated by reference to RAIT’s Registration Statement on Form S-11 (Registration No. 333-53067). |
||
|
|
||
3.1.3 |
Articles of Amendment to Amended and Restated Declaration of Trust of RAIT. Incorporated by reference to RAIT’s Registration Statement on Form S-2 (Registration No. 333-55518). |
||
|
|
||
3.1.4 |
Certificate of Correction to the Amended and Restated Declaration of Trust of RAIT. Incorporated by reference to RAIT’s Form 10-Q for the Quarterly Period ended March 31, 2002 (File No. 1-14760). |
||
|
|
||
3.1.5 |
Articles of Amendment to Amended and Restated Declaration of Trust of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the Securities and Exchange Commission (“SEC”) on December 15, 2006 (File No. 1-14760). |
||
|
|
||
3.1.6 |
Articles of Amendment to Amended and Restated Declaration of Trust of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on July, 1 2011 (File No. 1-14760). |
||
|
|
||
3.1.7 |
Articles Supplementary (the “Series A Articles Supplementary”) relating to the 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series A Preferred Shares”) of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 18, 2004 (File No. 1-14760). |
||
|
|
||
3.1.8 |
Certificate of Correction to the Series A Articles Supplementary. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 18, 2004 (File No. 1-14760). |
||
|
|
||
3.1.9 |
Articles Supplementary relating to the 8.375% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, (the “Series B Preferred Shares”) of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 1, 2004 (File No. 1-14760). |
||
|
|
||
3.1.10 |
Articles Supplementary relating to the 8.875% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, (the “Series C Preferred Shares”) of RAIT. Incorporated by reference to RAIT’s Form 8-A as filed with the SEC on June 29, 2007 (File No. 1-14760). |
||
|
|
||
3.1.11 |
Articles Supplementary relating to Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on May 25, 2012 (File No. 1-14760). |
||
|
|
||
3.1.12 |
Certificate of Correction relating to Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares. Incorporated by reference to RAIT’s Form 10-Q for the quarterly period ended June 30, 2012 (File No. 1-14760). |
||
|
|
||
3.1.13 |
Articles Supplementary (the “Series D Articles Supplementary”) relating to the Series D Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series D Preferred Shares”) of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 4, 2012 (File No. 1-14760). |
||
|
|
||
3.1.14 |
Articles Supplementary relating to the Series E Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series E Preferred Shares”) of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 4, 2012 (File No.1-14760). |
||
|
|
||
3.1.15 |
Amendment dated November 30, 2012 to the Series D Articles Supplementary. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 4, 2012 (File No.1-14760). |
||
|
|
||
3.1.16 |
Articles Supplementary relating to the Series A Preferred Shares. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on June 13, 2014 (File No. 1-14760). |
||
|
|
||
3.2.1 |
By-laws of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 19, 2009 (File No. 1-14760). |
||
|
|
||
3.2.2 |
First Amendment to the Bylaws of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on April 6, 2015 (File No. 1-14760). |
||
|
|
||
4.1.1 |
Form of Certificate for Common Shares of Beneficial Interest. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on July 1, 2011 (File No. 1-14760). |
||
|
|
||
4.1.2 |
Form of Certificate for the Series A Preferred Shares. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 22, 2004 (File No. 1-14760). |
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Exhibit Number
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Description of Documents
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4.1.3 |
Form of Certificate for the Series B Preferred Shares. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 1, 2004 (File No. 1-14760). |
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4.1.4 |
Form of Certificate for the Series C Preferred Shares. Incorporated by reference to RAIT’s Form 8-A as filed with the SEC on June 29, 2007 (File No. 1-14760). |
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4.1.5 |
Form of Certificate for the Series D Preferred Shares. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 23, 2012 (File No. 1-14760). |
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4.1.6 |
Form of Certificate for the Series E Preferred Shares. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 23, 2012 (File No. 1-14760). |
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4.2.1 |
Base Indenture dated as of December 10, 2013 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 13, 2013 (File No. 1-14760). |
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4.2.2 |
Supplemental Indenture dated as of December 10, 2013 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 13, 2013 (File No. 1-14760). |
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4.2.3 |
Form of RAIT 4.00% Convertible Senior Note due 2033 (included in Exhibit 4.2.2). Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 13, 2013 (File No. 1-14760). |
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4.3.1 |
Base Indenture dated as of March 21, 2011 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 22, 2011 (File No. 1-14760). |
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4.3.2 |
Supplemental Indenture dated as of March 21, 2011 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 22, 2011 (File No. 1-14760). |
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4.4 |
Indenture dated as of October 5, 2011 between RAIT and Wilmington Trust, National Association, as trustee. Incorporated by reference to RAIT’s Form 10-Q for the quarterly period ended September 30, 2011 (File No. 1-14760). |
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4.5.1 |
Registration Rights Agreement dated as of October 1, 2012 by and among RAIT and ARS VI Investor I, LLC (“ARS VI”). Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 4, 2012 (File No. 1-14760). |
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4.5.2 |
Amendment No. 1 to Registration Rights Agreement dated as of April 25, 2014 by and among RAIT and ARS VI. Incorporated by reference to RAIT’s Registration Statement on Form S-3 (Registration No. 333-195547). |
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4.5.3 |
Common Share Purchase Warrant No.1 dated October 17, 2012 issued by RAIT to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 23, 2012 (File No. 1-14760). |
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4.5.4 |
Common Share Appreciation Right No.1 dated October 17, 2012 issued by RAIT to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 23, 2012 (File No. 1-14760). |
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4.5.5 |
Common Share Purchase Warrant No. 2 dated November 15, 2012 issued by RAIT to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on November 21, 2012 (File No.1-14760). |
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4.5.6 |
Common Share Appreciation Right No. 2 dated November 15, 2012 issued by RAIT to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on November 21, 2012 (File No.1-14760). |
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4.5.7 |
Common Share Purchase Warrant No. 3 dated December 18, 2012 issued by RAIT to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 18, 2012 (File No.1-14760). |
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4.5.8 |
Common Share Appreciation Right No. 3 dated December 18, 2012 issued by RAIT to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 18, 2012 (File No.1-14760). |
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4.5.9 |
Common Share Purchase Warrant No. 4 dated March 27, 2014 issued by RAIT Financial Trust to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 27, 2014 (File No. 1-14760). |
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4.5.10 |
Common Share Appreciation Right No. 4 dated March 27, 2014 issued by RAIT Financial Trust to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 27, 2014 (File No. 1-14760). |
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4.6.1 |
Base Indenture dated as of December 10, 2013 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 13, 2013 (File No. 1-14760). |
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