Exhibit 99.2

 

 

 

 

 

 

 

 

 

 

Third Quarter 2017

Supplemental Information

 

 

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TABLE OF CONTENTS

 

 

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RAIT Financial Trust

September 30, 2017

 

Company Information:

RAIT Financial Trust is an internally-managed real estate investment trust focused on providing debt financing options to owners of commercial real estate throughout the United States.

 

 

 

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Common and Preferred Stock Information:

 

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Forward-Looking Statements

This supplement may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “plan”, “should,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “seek,” “opportunities,” “transform,” “target”, “in the process” “transformation,” “focus,” “progress,” ‘on-track,” or other similar words or terms of a future or forward-looking nature.  RAIT’s forward-looking statements in this press release include, but are not limited to, statements regarding (i) RAIT’s review of its strategic and financial alternatives, (ii) RAIT’s initiatives to further simplify its business to focus on its commercial real estate lending business, reduce costs, reduce indebtedness and enhance value and returns for shareholders, (iii) RAIT’s actions taken or contemplated to enhance its long-term prospects and create value for its shareholders, (iv) RAIT’s suspension of the dividend on RAIT’s common shares and any potential future reinstatement thereof, (v) RAIT’s intention to cure the deficiency set forth in the Notice, (vi) any options RAIT may take in an effort to cure this deficiency and possible consequences to RAIT of the Notice, (vii) RAIT’s aggregating  loans for RAIT’s eighth floating-rate loan securitization, including the anticipated closing date of such transaction, and (viii) RAIT’s expectation that it will continue to make further progress executing on its strategic transformation throughout 2017.  Such forward-looking statements are based upon RAIT’s historical performance and its current plans, estimates, predictions and expectations and are not a representation that such plans, estimates, predictions or expectations will be achieved. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements.  Risks, uncertainties and contingencies that may affect the results expressed or implied by RAIT’s forward-looking statements  include, but are not limited to: (i) the effect of the announcement of RAIT’s review of, or any implementation of, strategic and financial alternatives on RAIT’s business, including its financial and operating results and its employees, capital sources and customers, (ii) RAIT’s ability to implement any new strategic and financial alternatives or continue its previously announced transition to a more focused, cost-efficient and lower leverage business, (iii) RAIT’s ability to continue to sell properties and repay the related debt, (iv) final accounting determinations on gains or losses realized in the event properties or other assets are sold or liabilities repurchased for prices that differ from their carrying value or if property valuations are adjusted in the process of revaluating properties when they are characterized as held for disposition or sale, (v) whether and, if so, when, the Board would determine to resume declaring a dividend on RAIT’s common shares and whether the Board will continue to declare a dividend on RAIT’s preferred shares, (vi) whether RAIT will be able to regain compliance with NYSE listing requirements or maintain compliance with the other continued listing requirements set forth in the NYSE Listed Company Manual; (vii) whether RAIT will be able to continue to divest  RAIT’s legacy REO portfolio and existing property management operations and the majority of RAIT’s non-lending assets, including whether the closing conditions relating to properties RAIT has under contract to sell will be satisfied or whether RAIT and the applicable buyers will otherwise be able to complete such sales; (viii) whether anticipated cost savings from the internalization of Independence Realty Trust, Inc. will be achieved; (ix) whether the divestiture of RAIT’s commercial real estate portfolio and other non-lending assets will lead to lower asset management costs and lower expenses; (x) whether RAIT will continue to be able to further reduce compensation and G&A expenses and indebtedness; (xi) whether RAIT’s changes to its Board composition and leadership and to its executive management team will lead to enhanced value for shareholders; (xii) whether RAIT will be able to create sustainable earnings and grow book value; (xiii) whether RAIT will be able to successfully redeploy capital from non-lending related asset sales; (xiii) whether RAIT will be able to increase loan origination levels; (xiv) whether the disposition of non-core assets, reductions in debt levels and expected loan repayments will impact RAIT’s earnings and CAD; (xv) whether RAIT will be able to organically increase reliance on match-funded asset-level debt; (xvi) overall conditions in commercial real estate and the economy generally; (xvii) whether market conditions will enable us to continue to implement our capital recycling and debt reduction plan involving selling properties and repurchasing or paying down our debt; (xviii) whether we will be able to originate sufficient bridge loans; (xix) changes in the expected yield of our investments; (xx) changes in financial markets and interest rates, or to the business or financial condition of RAIT or its business; (xxi) whether RAIT will generate any CMBS gain on sale profits; (xxii) whether our management changes will be successfully implemented; (xxiii) whether RAIT will be able to aggregate sufficient loans or whether market conditions will permit RAIT to complete future securitizations of floating rate loans, including RAIT’s currently contemplated eighth floating-rate loan securitization; (xxiv) whether and when RAIT will be able to recognize a gain, which will offset the previously reported non-cash loss on deconsolidation of its industrial real estate portfolio; (xxv) whether RAIT will have any legal obligations on the non-recourse debt on its industrial real estate portfolio;; (xxvi) increases to RAIT’s leverage or decreases in total common equity resulting from such determinations or revaluation; (xxvii) the availability of financing and capital, including through the capital and securitization markets; (xxviii) whether the credit quality of RAIT’s post-financial crisis loans and financing structures will continue to perform as expected;  (xxix) whether RAIT will need to recognize further non-cash asset and/or goodwill impairment charges in future quarters and the effect of such charges, including with respect to RAIT’s compliance with the financial covenants set forth in its debt instruments; (xxx) whether RAIT will be able to recognize a gain upon the redemption of the Warrants and SARs and, if so, the amount thereof; (xxxi) whether any expressions of interest received by RAIT or discussions RAIT has engaged in relating to RAIT’s strategic and financial alternatives will result in any transaction or the timing or nature of any such transaction; and (xxxii) other factors described in RAIT’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other filings with the SEC. If RAIT’s common shares ultimately were to be suspended from trading on, and delisted from, the NYSE for any reason, it could have material adverse consequences on RAIT including, among others: triggering the right of holders of our secured notes and convertible notes to require us to repurchase their notes, satisfying one condition which, if all other relevant conditions were satisfied, would trigger an increased dividend rate on RAIT’s series C preferred shares, possibly triggering non-compliance with covenants applicable to RAIT’s series D preferred shares and would likely result in the delisting of our preferred shares and senior

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notes currently listed on the NYSE. Delisting of RAIT’s common shares could also negatively affect RAIT’s ability to implement any new strategic and financial alternatives or continue its previously announced transition to a more focused, cost-efficient and lower leverage business, lower demand and market price for RAIT’s common shares, reduce interest in RAIT from investors, analysts and other market participants and/or adversely affect RAIT’s ability to raise additional capital, complete future securitizations of floating rate loans and attract and retain employees by means of equity compensation.  RAIT undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as may be required by law.

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RAIT Financial Trust Announces Third Quarter 2017 Financial Results

 

 

RAIT continues making progress with its strategic transformation into a more focused, cost-efficient, pure play commercial real estate lender

 

PHILADELPHIA, PA — November 2, 2017 — RAIT Financial Trust (“RAIT”) (NYSE: RAS) — today announced its financial results for the third quarter of 2017. All per share results in this press release are reported on a diluted basis.

  

Q3 2017 Key Highlights

 

 

 

 

 

 

 

 

Scott Davidson, RAIT’s Chief Executive Officer said, “During the quarter, we continued to make meaningful progress on our strategic transformation and focusing RAIT on its lending activities.  Though our reported results continue to be impacted by the short-term effects from executing on our strategic plan, our lending business performed well, we continued making headway selling our property portfolio and we made further progress reducing our debt.  We remain focused on growing our lending activities over the long term and, in the near term, on aggregating loans for our eighth floating-rate CMBS transaction.”

 

Financial Results

 

 

 

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Commercial Real Estate (“CRE”) Lending Business

 

 

 

CRE Property Portfolio and Property Sales

 

 

 

 

Other Developments

 

Dividends

 

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Strategic and Financial Alternatives

 

 

NYSE Notice

 

 

Non-GAAP Financial Measures and Definitions

 

RAIT discloses the following non-GAAP financial measures in this release: funds from operations (“FFO”) and CAD.  A reconciliation of RAIT’s reported net income (loss) allocable to common shares to its FFO and CAD is included as Schedule IV to this release. See Schedule VI to this release for management’s respective definitions and rationales for the usefulness of each of these non-GAAP financial measures and other definitions used in this release.

 

Supplemental Information

 

RAIT produces supplemental information that includes details regarding the performance of the portfolio, financial information, FFO, CAD and other non-GAAP financial measures and other useful information for investors. Reconciliations of these non-GAAP financial measures to their respective most directly comparable GAAP measures are also included in this supplemental information.  The supplemental information also contains deconsolidating financial information. The supplemental information is available via the Company's website, www.rait.com, through the "Investor Relations" section.

 

Conference Call to Discuss Results for RAIT’s Third Fiscal Quarter of 2017

 

RAIT will be conducting a conference call to discuss its financial results for its third fiscal quarter of 2017 at 9:00 AM ET on Thursday, November 2, 2017.  All interested parties can listen to the live conference call webcast from the home page of the RAIT Financial Trust website at www.rait.com or by dialing 1.844.775.2541, access code 95365064.  For those who are not available to listen to the live call, the replay will be available shortly following the live call on RAIT’s website and telephonically until Thursday, November 9, 2017, by dialing 855.859.2056, access code 95365064.

 

About RAIT Financial Trust

 

RAIT Financial Trust is an internally-managed real estate investment trust focused on providing debt financing options to owners of commercial real estate throughout the United States.  For more information, please visit www.rait.com or call Investor Relations at 215.207.2100.

 

Forward-Looking Statements

This press release may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “plan”, “should,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “seek,” “opportunities,” “transform,” “target”, “in the process” “transformation,”

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“focus,” “progress,” ‘on-track,” or other similar words or terms of a future or forward-looking nature.  RAIT’s forward-looking statements in this press release include, but are not limited to, statements regarding (i) RAIT’s review of its strategic and financial alternatives, (ii) RAIT’s initiatives to further simplify its business to focus on its commercial real estate lending business, reduce costs, reduce indebtedness and enhance value and returns for shareholders, (iii) RAIT’s actions taken or contemplated to enhance its long-term prospects and create value for its shareholders, (iv) RAIT’s suspension of the dividend on RAIT’s common shares and any potential future reinstatement thereof, (v) RAIT’s intention to cure the deficiency set forth in the Notice, (vi) any options RAIT may take in an effort to cure this deficiency and possible consequences to RAIT of the Notice, (vii) RAIT’s aggregating  loans for RAIT’s eighth floating-rate loan securitization, including the anticipated closing date of such transaction, and (viii) RAIT’s expectation that it will continue to make further progress executing on its strategic transformation throughout 2017.  Such forward-looking statements are based upon RAIT’s historical performance and its current plans, estimates, predictions and expectations and are not a representation that such plans, estimates, predictions or expectations will be achieved. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements.  Risks, uncertainties and contingencies that may affect the results expressed or implied by RAIT’s forward-looking statements  include, but are not limited to: (i) the effect of the announcement of RAIT’s review of, or any implementation of, strategic and financial alternatives on RAIT’s business, including its financial and operating results and its employees, capital sources and customers, (ii) RAIT’s ability to implement any new strategic and financial alternatives or continue its previously announced transition to a more focused, cost-efficient and lower leverage business, (iii) RAIT’s ability to continue to sell properties and repay the related debt, (iv) final accounting determinations on gains or losses realized in the event properties or other assets are sold or liabilities repurchased for prices that differ from their carrying value or if property valuations are adjusted in the process of revaluating properties when they are characterized as held for disposition or sale, (v) whether and, if so, when, the Board would determine to resume declaring a dividend on RAIT’s common shares and whether the Board will continue to declare a dividend on RAIT’s preferred shares, (vi) whether RAIT will be able to regain compliance with NYSE listing requirements or maintain compliance with the other continued listing requirements set forth in the NYSE Listed Company Manual; (vii) whether RAIT will be able to continue to divest  RAIT’s legacy REO portfolio and existing property management operations and the majority of RAIT’s non-lending assets, including whether the closing conditions relating to properties RAIT has under contract to sell will be satisfied or whether RAIT and the applicable buyers will otherwise be able to complete such sales; (viii) whether anticipated cost savings from the internalization of Independence Realty Trust, Inc. will be achieved; (ix) whether the divestiture of RAIT’s commercial real estate portfolio and other non-lending assets will lead to lower asset management costs and lower expenses; (x) whether RAIT will continue to be able to further reduce compensation and G&A expenses and indebtedness; (xi) whether RAIT’s changes to its Board composition and leadership and to its executive management team will lead to enhanced value for shareholders; (xii) whether RAIT will be able to create sustainable earnings and grow book value; (xiii) whether RAIT will be able to successfully redeploy capital from non-lending related asset sales; (xiii) whether RAIT will be able to increase loan origination levels; (xiv) whether the disposition of non-core assets, reductions in debt levels and expected loan repayments will impact RAIT’s earnings and CAD; (xv) whether RAIT will be able to organically increase reliance on match-funded asset-level debt; (xvi) overall conditions in commercial real estate and the economy generally; (xvii) whether market conditions will enable us to continue to implement our capital recycling and debt reduction plan involving selling properties and repurchasing or paying down our debt; (xviii) whether we will be able to originate sufficient bridge loans; (xix) changes in the expected yield of our investments; (xx) changes in financial markets and interest rates, or to the business or financial condition of RAIT or its business; (xxi) whether RAIT will generate any CMBS gain on sale profits; (xxii) whether our management changes will be successfully implemented; (xxiii) whether RAIT will be able to aggregate sufficient loans or whether market conditions will permit RAIT to complete future securitizations of floating rate loans, including RAIT’s currently contemplated eighth floating-rate loan securitization; (xxiv) whether and when RAIT will be able to recognize a gain, which will offset the previously reported non-cash loss on deconsolidation of its industrial real estate portfolio; (xxv) whether RAIT will have any legal obligations on the non-recourse debt on its industrial real estate portfolio;; (xxvi) increases to RAIT’s leverage or decreases in total common equity resulting from such determinations or revaluation; (xxvii) the availability of financing and capital, including through the capital and securitization markets; (xxviii) whether the credit quality of RAIT’s post-financial crisis loans and financing structures will continue to perform as expected;  (xxix) whether RAIT will need to recognize further non-cash asset and/or goodwill impairment charges in future quarters and the effect of such charges, including with respect to RAIT’s compliance with the financial covenants set forth in its debt instruments; (xxx) whether RAIT will be able to recognize a gain upon the redemption of the Warrants and SARs and, if so, the amount thereof; (xxxi) whether any expressions of interest received by RAIT or discussions RAIT has engaged in relating to RAIT’s strategic and financial alternatives will result in any transaction or the timing or nature of any such transaction; and (xxxii) other factors described in RAIT’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and other filings with the SEC. If RAIT’s common shares ultimately were to be suspended from trading on, and delisted from, the NYSE for any reason, it could have material adverse consequences on RAIT including, among others: triggering the right of holders of our secured notes and convertible notes to require us to repurchase their notes, satisfying one condition which, if all other relevant conditions were satisfied, would trigger an increased dividend rate on RAIT’s series C preferred shares, possibly triggering non-compliance with covenants applicable to RAIT’s series D preferred

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shares and would likely result in the delisting of our preferred shares and senior notes currently listed on the NYSE. Delisting of RAIT’s common shares could also negatively affect RAIT’s ability to implement any new strategic and financial alternatives or continue its previously announced transition to a more focused, cost-efficient and lower leverage business, lower demand and market price for RAIT’s common shares, reduce interest in RAIT from investors, analysts and other market participants and/or adversely affect RAIT’s ability to raise additional capital, complete future securitizations of floating rate loans and attract and retain employees by means of equity compensation.  RAIT undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as may be required by law.

 

RAIT Financial Trust Contact

Andres Viroslav

215-207-2100

aviroslav@rait.com

 

 

 

 

 

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FINANCIAL HIGHLIGHTS

 

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BALANCE SHEETS

CONSOLIDATED, by quarter

 

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STATEMENTS OF OPERATIONS, FFO & CAD

CONSOLIDATED – THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2017

 

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STATEMENT OF OPERATIONS, FFO & CAD

CONSOLIDATED – by quarter

 

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FEE AND OTHER INCOME

TRAILING 5 QUARTERS

 

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RECONCILIATION OF NET INCOME TO ADJUSTED EBITDA AND COVERAGE RATIOS

 

 

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LOAN PORTFOLIO DATA

 

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REAL ESTATE PORTFOLIO DATA

 

 

(a)      Average occupancy represents the daily average occupancy for the three-month period ended September 30, 2017.

 

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REAL ESTATE PORTFOLIO

CHANGES IN THE PORTFOLIO – YEAR-TO-DATE SEPTEMBER 30, 2017:

 

 

 

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Indebtedness oVERVIEW

As of SEPTEMBER 30, 2017

Recourse               Non-recourse

 

 

 

                                                       

 

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DEFINITIONS

 

Adjusted EBITDA

Adjusted Earnings before Interest, Taxes, Depreciation and Amortization, is a non-GAAP financial measure.  We calculate Adjusted EBITDA as Net Income, before the effects of investment interest expense, interest expense, acquisition and integration expenses, depreciation and amortization, provision for loan losses (gains) losses on assets, asset impairments, (gains) losses on debt extinguishments, change in fair value of financial instruments, and income tax (benefit) provision as well as similar items and other non-recurring items such as (gains) losses on acquisitions related to discontinued operations.  We believe Adjusted EBITDA provides useful information to investors to ascertain our interest coverage and interest plus preferred dividends coverage ratios.

 

Assets Under Management

Assets under management, or AUM, is an operating measure representing the total assets that we own or are managing for third parties. While not all AUM generates fee income, it is an important operating measure to gauge our asset growth, volume of originations, size and scale of our operations and our performance. AUM includes our total investment portfolio, assets associated with unconsolidated securitizations for which we derive asset management fees and real estate properties we manage on behalf of third parties.

 

Cash Available for Distribution

Cash available for distribution, or CAD, is a non-GAAP financial measure. We believe that CAD provides investors and management with a meaningful indicator of operating performance. Management also uses CAD, among other measures, to evaluate profitability and our board of trustees considers CAD in determining our quarterly cash distributions. We also believe that CAD is useful because it adjusts for a variety of noncash items (such as depreciation and amortization, equity-based compensation, provision for loan losses and non-cash interest income and expense items). In addition, the compensation committee of our board of trustees used CAD as a metric in establishing quantitative performance based awards for certain of our executive officers beginning in 2015.  

 

We calculate CAD by subtracting from or adding to net income (loss) attributable to common shareholders the following items: depreciation and amortization items including depreciation and amortization expense, straight-line rental income or expense, amortization of deferred financing costs, and amortization of discounts on financings; origination fees; equity-based compensation; changes in the fair value of our financial instruments; realized gains (losses) on assets; provision for loan losses; asset impairments; acquisition gains or losses and transaction costs; deferred income tax benefit (provision); certain fee income eliminated in consolidation that is attributable to third parties; and one-time events pursuant to changes in U.S. GAAP and certain other non-routine items.

 

CAD should not be considered as an alternative to net income (loss) or cash generated from operating activities, determined in accordance with U.S. GAAP, as an indicator of operating performance. For example, CAD does not adjust for the accrual of income and expenses that may not be received or paid in cash during the associated periods. Please refer to our consolidated financial statements prepared in accordance with U.S. GAAP in our most recent report on Form 10-K or Form 10-Q filed with the Securities and Exchange Commission. In addition, our methodology for calculating CAD may differ from the methodologies used by other comparable companies, including other REITs, when calculating the same or similar supplemental financial measures and may not be comparable with these companies.

 

Funds from Operations

We believe that funds from operations, or FFO, which is a non-GAAP financial measure, is an additional appropriate measure of the operating performance of a REIT. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT, as net income or loss allocated to common shares (computed in accordance with GAAP), excluding real estate-related depreciation expense, gains or losses on sales of real estate, asset impairment and the cumulative effect of changes in accounting principles. Our management utilizes FFO as a measure of our operating performance. FFO is not an equivalent to net income or cash generated from operating activities determined in accordance with U.S. GAAP. Furthermore, FFO does not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. FFO should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.

 

 

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Gross Real Estate Investments

 

Gross real estate investments equal investments in real estate, net plus accumulated depreciation as it appears on the consolidated balance sheet.  The following table provides a reconciliation of investments in real estate, net to total gross real estate investments.

 

 

Interest Coverage

Interest coverage is computed as Adjusted EBITDA divided by interest costs (excluding amortization of deferred financing costs and debt discounts)

 

Interest + Preferred Coverage

Interest + Preferred coverage is computed as Adjusted EBITDA divided by the sum of interest costs (excluding amortization of deferred financing costs and debt discounts) and preferred costs (excluding amortization of preferred share discounts).

 

Net Operating Income

Net Operating Income (“NOI”), a non-GAAP financial measure, is a useful measure of the operating performance of its real estate portfolio. NOI is defined as total property revenue less total property operating expenses, excluding depreciation and amortization and interest expense. Other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to other REITs. We believe that this measure provides an operating perspective not immediately apparent from GAAP operating income or net income. We use NOI to evaluate our real estate portfolio performance on a same store and non-same store basis because NOI measures the core operations of property performance by excluding corporate level expenses and other items not related to property operating performance and captures trends in rental rates and property operating expenses. A reconciliation of our net operating income to net income is as follows for each of the periods presented below:

 

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Total Gross Assets

 

Total gross assets equals total assets plus accumulated depreciation as these captions are reported on the consolidated balance sheet.  The following table provides a reconciliation of total assets to total gross assets.

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