RAIT Financial Trust Announces Fourth Quarter and Year End 2007 Results
PHILADELPHIA, PA — February 28, 2008 — RAIT Financial Trust (“RAIT”) (NYSE: RAS), a diversified real estate finance company, today reported results for the quarter and year ended December 31, 2007.
Summary
- - - - - - - - - - - - -
Economic book value of $10.52 per share at December 31, 2007 Book value of $6.78 per share at December 31, 2007 At January 1, 2008 book value of approximately $23.35 per share after adoption of FAS 159 Adjusted earnings per share of $0.47 for the quarter ended December 31, 2007 Total loss per share – diluted of $3.02 for the quarter ended December 31, 2007 $14.3 billion of assets under management at December 31, 2007 $11.1 billion of total consolidated assets at December 31, 2007
Daniel G. Cohen, RAIT’s CEO, said, “While the fourth quarter continued to see credit deterioration in our TruPS borrowers in the residential mortgage and homebuilder sectors, as reflected in our fourth quarter asset impairments, our portfolio was able to generate cash flow to pay a $0.46 common dividend. We ended the year with approximately $128.0 million of available cash, $298.4 million of restricted cash for our domestic lending programs, $528.4 million of restricted cash for our European lending programs and approximately $66.5 million of unused capacity under secured credit facilities. During the fourth quarter, we further reduced our exposure to short term repurchase agreements from $212.8 million at September 30, 2007 to $138.8 million at December 31, 2007. Due to the lack of liquidity in the market place we have focused on seeking capital through senior participations and commercial bank lines of credit. We expect to generate approximately $214.3 million of cash flows from the net investment income and asset management fees on our $14.3 billion of assets under management. Since December 31, 2007, we have and expect to continue to take advantage of lending opportunities in both our commercial real estate and European businesses with approximately $275.0 million of new investments funded.”
Economic Book Value, Book Value & Tangible Book Value
RAIT’s economic book value per common share outstanding, a non-GAAP measure, at December 31, 2007 was $10.52. Economic book value is computed by adding back to tangible book value any unrealized losses recognized in shareholders’ equity or through earnings that are in excess of RAIT’s value at risk, or RAIT’s retained investment. Under GAAP, RAIT is required to absorb unrealized losses on investments held by certain of its consolidated entities, primarily RAIT’s consolidated securitizations, even if those unrealized losses are in excess of RAIT’s risk of loss, or RAIT’s retained investment in those securitizations.
RAIT’s book value per common share outstanding as of December 31, 2007 was $6.78.
RAIT’s tangible book value per common share outstanding, as of December 31, 2007 was $5.86. Tangible book value is calculated by subtracting the liquidation value of RAIT’s cumulative redeemable preferred shares and unamortized intangible assets from total shareholders’ equity and dividing the result by the number of common shares outstanding at the end of the period.
A reconciliation of RAIT’s reported book value to tangible book value and economic book value as of December 31, 2007 including managements’ rationale for the usefulness of this non-GAAP measure is included as Schedule I to this release.
Assets Under Management, Invested Capital and Annualized Gross Cash Flow Summary
RAIT’s gross cash flow is comprised of net investment income and asset management fees we receive from $14.3 billion of assets under management as of December 31, 2007 and rental income from our owned real estate. Our net investment income represents the net spread on loans and other real estate related investments that we financed on a long-term, match funded basis which results in a positive interest spread to us. We also generate revenue from origination fees we earn on new investments in addition to the asset management fees from our commercial real estate, Taberna and European securitizations.
The following chart summarizes RAIT’s total assets under management, allocation of invested capital by portfolio and the annualized gross cash flows (yield and asset management fees) these portfolios expect to generate: (dollars in thousands).
Assets Under
Invested Capital(4)
Yield
Asset Management
Annualized Gross
Management
Fees
Cash Flow(1)
Commercial Real Estate Portfolio(3)
$
2,171,305
$
790,570
$
117,656
$
2,021
$
119,678
Residential mortgage portfolio
4,085,028
245,225
21,187
—
21,187
European Portfolio(2)(3)
1,682,447
50,574
6,274
7,350
13,624
Domestic TruPS portfolio:
Taberna I(2)
663,000
2,210
219
2,732
2,951
Taberna II(2)
983,000
0
—
1,966
1,966
Taberna III
745,000
3,905
—
1,490
1,490
Taberna IV
650,000
2,595
—
1,300
1,300
Taberna V(2)
700,000
0
—
1,400
1,400
Taberna VI
660,158
1,682
—
1,360
1,360
Taberna VII
592,635
27,720
994
1,279
2,273
Taberna VIII
603,813
81,565
16,276
2,985
19,260
Taberna IX(3)
566,769
121,600
24,369
2,250
26,619
Other investments
189,359
35,176
1,203
—
1,203
Total
$
14,292,514
$
1,362,822
$
188,178
$
26,133
$
214,311
(1)Annualized gross cash flow is based on cash flow received from our investments as of their most recent payment date. See “Forward-Looking Statements” below for risks and uncertainties that could cause our gross cash flow to differ materially from these amounts.
(2)European portfolios, Taberna I,II and V are not consolidated at 12/31/2007
(3)Includes securitizations currently in “ramp-up” and assumes rating agency affirmations of ratings at completion of the “ramp-up” period
(4)Represents the value at risk of RAIT’s retained interests at 12/31/2007 based on economic book value
Earnings Results
RAIT reported adjusted earnings, a non-GAAP financial measure, for the three-month period ended December 31, 2007 of $28.6 million, or $0.47 per diluted share based on 60.8 million weighted-average shares outstanding – diluted, as compared to adjusted earnings for the three-month period ended December 31, 2006 of $16.5 million, or $0.49 per diluted share based on 33.7 million weighted-average shares outstanding – diluted. RAIT reported adjusted earnings for the year ended December 31, 2007 of $166.9 million, or $2.75 per diluted share based on 60.6 million weighted-average shares outstanding – diluted, as compared to adjusted earnings for the year ended December 31, 2006 of $75.1 million, or $2.54 per diluted share based on 29.6 million weighted-average shares outstanding – diluted.
RAIT reported a GAAP net loss available to common shares for the three-month period ended December 31, 2007 of $183.5 million, or a total loss per share – diluted of $3.02 based on 60.8 million weighted-average shares outstanding – diluted, as compared to net income available to common shares for the three-month period ended December 31, 2006 of $13.1 million, or total earnings per share – diluted of $0.39 based on 33.7 million weighted-average shares outstanding – diluted. RAIT reported a GAAP net loss available to common shares for the year ended December 31, 2007 of $379.3 million, or a total loss per share – diluted of $6.26 based on 60.6 million weighted-average shares outstanding – diluted, as compared to net income available to common shares for the year ended December 31, 2006 of $67.8 million, or total earnings per share – diluted of $2.30 based on 29.6 million weighted-average shares outstanding – diluted.
A reconciliation of RAIT’s reported GAAP net income (loss) available to common shares to adjusted earnings for the three-month period and year ended December 31, 2007 and December 31, 2006 including managements’ rationale for the usefulness of this non-GAAP measure is included as Schedule II to this release.
Asset Impairments
The primary factors causing RAIT’s GAAP net loss for the three-month period and year ended December 31, 2007 were asset impairments. For the three-month period ended December 31, 2007, RAIT charged $174.5 million to earnings as asset impairments and for the year ended December 31, 2007 RAIT charged $517.5 million to earnings as asset impairments. Of the $517.5 million of asset impairments $85.8 million was allocated to minority interests. Asset impairments were comprised of $428.7 million of other than temporary impairment in our investments in securities, $13.2 million of impairment in certain intangible assets and $75.6 million of impairment in goodwill. Asset impairments on our investments in securities were attributable primarily to TruPS issued by companies in the residential mortgage or homebuilder sectors that collateralized securitizations we consolidate. These impairments resulted primarily from the broad disruption of the U.S. credit markets relating to the residential mortgage and homebuilder sectors that began in late July 2007. The withdrawal of virtually all sources of available liquidity for companies active in these sectors caused payment and covenant defaults and significant reductions in the fair value of securities issued by these companies. Furthermore, we recorded asset impairment charges on certain of our identified intangible assets and our goodwill as the events described above have negatively impacted the fair value of the reporting units in relation to their book value, and as a result, the recoverability of certain of our identified intangibles and goodwill. During the three-month period ended December 31, 2007, RAIT also increased its loan loss reserves relating to commercial mortgages and mezzanine loans by $7.9 million and relating to residential mortgages by $3.2 million. At December 31, 2007, RAIT’s allowance for losses relating to residential and commercial mortgages totaled $26.4 million compared to $5.3 million at December 31, 2006.
FAS 159 Adoption
Effective January 1, 2008, RAIT adopted FAS 159, “The Fair Value Option for Financial Assets and Financial Liabilities” which will result in reporting future changes in fair value of our Taberna CDO notes payable as a component of earnings. Upon adoption of FAS 159, we recognized an increase to retained earnings as of January 1, 2008 of approximately $1.0 billion or $16.57 per share. Going forward, any changes in the fair value of assets or liabilities reported under FAS 159 will be recorded in earnings. We expect that the changes in value of our assets and liabilities will correlate due to the match-funded non-recourse nature of these investments.
Liquidity
As of December 31, 2007, RAIT had approximately $128.0 million of available cash, $298.4 million of restricted cash and approximately $66.5 million of unused capacity under secured credit facilities. The restricted cash primarily relates to committed funds under our consolidated securitizations during their investment accumulation period available to obtain new investments for the securitization entity.This excludes approximately $528.4 million of restricted cash held to fund the completion of our two unconsolidated European securitizations.During the fourth quarter, repurchase agreements decreased by $74.0 million. As of December 31, 2007, RAIT had $138.8 million outstanding under its repurchase agreements and $146.9 million of secured credit facilities and other indebtedness outstanding.
Investment Portfolio Summary
The following chart summarizes RAIT’s investment portfolio at December 31, 2007 (dollars in millions):
Percentage
Weighted-
Amortized
Estimated
of Total
Average
Cost(1)
Fair Value(2)
Portfolio
Coupon(3)
Investments in Mortgages and Loans
Residential mortgages and mortgage-related receivables(4)
$
4,065
$
3,944
38.7
%
5.6
%
Commercial mortgages and mezzanine loans
2,205
2,234
21.9
%
8.7
%
Total investments in mortgages and loans
6,270
6,178
60.6
%
6.7
%
Investments in Securities:
TruPS and subordinated debentures
3,450
3,120
30.6
%
7.7
%
Unsecured REIT note receivables
368
347
3.4
%
6.0
%
CMBS receivables
213
174
1.7
%
5.9
%
Other securities
120
89
0.9
%
9.9
%
Total investments in securities
4,151
3,730
36.6
%
7.5
%
Investments in real estate interests
284
284
2.8
%
N/A
Total Portfolio/Weighted Average
$
10,705
$
10,192
100.0
%
7.0
%
(1)
Amortized cost reflects the cost incurred by us to acquire or originate the asset, net of origination discount.
(2)
The fair value of RAIT’s investments represents management’s estimate of the price that a willing buyer would pay a willing seller for such assets. Management bases this estimate on the underlying interest rates and credit spreads and, to the extent available, quoted market prices.
(3)
Weighted average coupon is calculated on the unpaid principal amount of the underlying instruments which does not necessarily correspond to amortized cost or estimated fair value.
(4)
RAIT’s investments in residential mortgages and mortgage-related receivables at December 31, 2007 consisted of investments in adjustable rate residential mortgages. These mortgages bear interest rates that are fixed for three, five, seven and ten year periods, respectively, and reset annually thereafter. RAIT has financed its investment in these assets through short-term repurchase agreements, long-term securitizations and its residual investments in repurchase agreements.
Commercial Mortgages, Mezzanine Loans & Other Loans
The following chart summarizes RAIT’s commercial real estate loan portfolio at December 31, 2007 (dollars in millions):
Amortized Cost
Weighted Average
Number of Loans
% of Total Loan
Coupon
Portfolio
Commercial mortgages
$
1,477
8.1
%
126
67.0
%
Mezzanine loans
544
10.6
%
168
24.7
%
Other loans
184
7.3
%
11
8.3
%
Total
$
2,205
8.7
%
305
100.0
%
The geographic and property type breakdown is as follows:
Property Type
Percent
Percent
Geographic Region
Multi-family
52.2
%
Central..........
33.6
%
Office
23.8
%
West.............
26.8
%
Retail
18.4
%
Southeast........
21.7
%
Other
5.6
%
Mid-Atlantic.....
13.7
%
Northeast........
4.2
%
Total
100.0
%
Total............
100.0
%
Residential Mortgage Loans
At December 31, 2007, RAIT’s residential mortgage loan portfolio consisted of 8,491 residential mortgage loans with an average interest rate of 5.6%. The portfolio had an average FICO score of 738 and has an amortized cost balance of $4.1 billion. Approximately 44.7% of the properties within the portfolio are located in California based on amortized cost. As of December 31, 2007, the portfolio had an average delinquency rate of 3.0%. Since the portfolios were originated, primarily in 2005, the portfolio has experienced $1.4 million in cumulative cash losses, including $980,000 of losses incurred since September 30, 2007.
TruPS and Subordinated Debentures
As of December 31, 2007, RAIT maintained investments of $3.1 billion in TruPS and subordinated debentures. RAIT’s portfolio had a weighted average interest rate of 7.7%. The issuers of these investments had a weighted average debt to total capitalization ratio of 77.0% and a weighted average interest coverage ratio of 1.9 times as of December 31, 2007. The following table provides a sector breakdown of these issuers as of December 31, 2007:
TruPS and Subordinated Debt Industry Sector
Percent
Commercial Mortgage
31.4
%
Office
17.7
%
Specialty Finance
15.2
%
Homebuilders
13.2
%
Residential Mortgage
9.4
%
Retail
6.9
%
Hospitality
3.7
%
Storage
2.5
%
100.0
%
Fees Generated
Total fees generated, a non-GAAP financial measure, were $9.8 million for the quarter ended December 31, 2007 as follows:
-
Asset management fees of $8.8 million for the quarter ended December 31, 2007 on assets under management of $14.3 billion as of December 31, 2007. A total of $5.8 million of asset management fees received from consolidated securitizations are eliminated for GAAP reporting.
-
Previously deferred origination fee income of $1.2 million recognized this quarter, net of $0.4 million of new origination fees generated for the quarter ended December 31, 2007 on originations of commercial real estate loans and TruPS which are recognized in interest income as an adjustment to yield.
Reported GAAP fee and other income were $4.8 million for the quarter ended December 31, 2007.
A reconciliation of the fee and other income reported in GAAP earnings to total fees generated is included in Schedule III to this release.
Dividends
On January 14, 2008, RAIT paid a quarterly dividend of $0.46 per common share to shareholders of record on December 17, 2007. On December 31, 2007, RAIT paid a quarterly cash dividend of $0.484375 per share on RAIT’s 7.75% Series A Cumulative Redeemable Preferred Shares, $0.5234375 per share on RAIT’s 8.375% Series B Cumulative Redeemable Preferred Shares and $0.5546875 per share on RAIT’s 8.875% Series C Cumulative Redeemable Preferred Shares to holders of record on December 3, 2007.
Conference Call
Interested parties can listen to the LIVE audio webcast of RAIT’s earnings conference call at 3:00 PM EST on Thursday, February 28, 2008 by clicking on the Webcast link on RAIT’s homepage at www.raitft.com. The conference call may also be listened to by dialing 866.713.8563 Domestic or 617.597.5311 International, using passcode 29095536. For those who are able to listen to the live broadcast, a replay of the webcast will be available following the live call on RAIT’s investor relations website and telephonically until Thursday, March 6, 2008 by dialing 888.286.8010, access code 85751563.
About RAIT Financial Trust
RAIT Financial Trust originates secured and unsecured debt instruments including bridge, mezzanine and whole commercial real estate loans, trust preferred securities and subordinated debt for private and corporate owners of commercial real estate, REITs and real estate operating companies throughout the United States and Europe. For more information, please visit www.raitft.com or call Investor Relations.
Forward-Looking Statements
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
Statements in this press release regarding RAIT’s business which are not historical facts are “forward-looking statements” that involve risks and uncertainties. These risks and uncertainties, which could cause actual results to differ materially from those contained in the forward looking statement, include those discussed in RAIT’s filings with the Securities and Exchange Commission, including its annual report on Form 10-K for the year ended December 31, 2006, its quarterly report on Form 10-Q for the quarterly period ended September 30, 2007, and its current report on Form 8-K filed January 10, 2007.
These risks and uncertainties also include the following factors: adverse market developments and credit losses have reduced, and may continue to reduce, the value of trust preferred securities, or TruPS, subordinated debentures and other debt instruments directly or indirectly held by RAIT; adverse market developments have reduced, and may continue to reduce, the value of other assets in RAIT’s investment portfolio; RAIT’s liquidity may be impaired by the reduced availability of short-term and long-term financing, including a reduction in the market for securities issued in securitizations and in the availability of repurchase agreements and warehouse facilities; RAIT’s liquidity may be adversely affected by margin calls; RAIT may be unable to obtain adequate capital at attractive rates or otherwise; payment delinquencies or failure to meet other collateral performance criteria in collateral underlying RAIT’s securitizations have restricted, and may continue to restrict RAIT’s ability to receive cash distributions from RAIT’s securitizations and have reduced, and may continue to reduce, the value of RAIT’s interests in these securitizations; failure of credit rating agencies to affirm their previously issued credit ratings for debt securities issued in RAIT’s securitizations seeking to go effective may restrict RAIT’s ability to receive cash distributions from those securitizations; covenants in RAIT’s financing arrangements may restrict RAIT’s business operations; fluctuations in interest rates and related hedging activities against such interest rates may affect RAIT’s earnings and the value of RAIT’s assets; borrowing costs may increase relative to the interest received on RAIT’s investments; RAIT may be unable to sponsor and sell securities issued in securitizations, and, even if RAIT is able to do so, RAIT may be unable to acquire eligible securities for securitization transactions on favorable economic terms; RAIT may experience unexpected results arising from litigation; RAIT and RAIT’s subsidiary, Taberna Realty Finance Trust, may fail to maintain qualification as real estate investment trusts, or REITs; RAIT may fail to maintain exemptions under the Investment Company Act of 1940; geographic concentrations in investment portfolios of residential mortgage loans could be adversely affected by economic factors unique to such concentrations; the market value of real estate that secures mortgage loans could diminish further due to factors outside of RAIT’s control; adverse governmental or regulatory policies may be enacted; management and other key personnel may be lost; competition from other REITs and other specialty finance companies may increase; and general business and economic conditions could impair credit quality and loan originations.
RAIT does not undertake to update forward-looking statements in this press release or with respect to matters described herein, except as may be required by law.
RAIT Financial Trust Contact
Andres Viroslav 215-243-9000 aviroslav@raitft.com
1
RAIT Financial Trust Consolidated Statements of Operations (Dollars in thousands, except share and per share information) (unaudited)
For the Three-Month
For the Year
Period Ended
Ended
December 31
December 31
2007
2006
2007
2006
Revenue:
Investment interest income
$
221,159
$
66,864
$
893,212
$
138,639
Investment interest expense
(171,520
)
(42,317
)
(698,347
)
(61,833
)
Provision for losses
(11,059
)
(2,499
)
(21,721
)
(2,499
)
Change in fair value of free-standing derivatives
(11,702
)
788
(4,987
)
788
Net investment income
26,878
22,836
168,157
75,095
Rental income
3,961
3,085
12,044
12,639
Fee and other income
4,836
2,685
25,725
14,387
Total revenue
35,675
28,606
205,926
102,121
Expenses:
Compensation expense
10,380
7,185
34,739
12,736
Real estate operating expense
2,980
2,720
11,691
9,198
General and administrative expense
7,022
2,516
26,099
5,675
Stock forfeitures
9,708
—
9,708
—
Depreciation expense
2,273
520
6,089
1,437
Amortization of intangible assets
15,218
3,175
61,269
3,175
Total expenses
47,581
16,116
149,595
32,221
Income (loss) before other income (expense), taxes and discontinued operations
(11,906
)
12,490
56,331
69,900
Interest and other income
(1,549
)
1,018
13,811
1,961
Losses on sales of assets
(99,560
)
(6
)
(109,889
)
(6
)
Gains on deconsolidation of VIEs
117,158
—
117,158
—
Unrealized gains (losses) on interest rate hedges
(5,184
)
1,925
(7,789
)
1,925
Equity in loss of equity method investments
1
(26
)
(56
)
(259
)
Asset impairments
(174,498
)
—
(517,452
)
—
Minority interest
(11,775
)
(2,650
)
69,707
(2,668
)
Income (loss) before taxes and discontinued operations
(187,313
)
12,751
(378,179
)
70,853
Income tax benefit
7,238
1,183
10,784
1,183
Income (loss) from continuing operations
(180,075
)
13,934
(367,395
)
72,036
Income (loss) from discontinued operations
—
1,651
(132
)
5,882
Net income (loss)
(180,075
)
15,585
(367,527
)
77,918
Income allocated to preferred shares
(3,414
)
(2,522
)
(11,817
)
(10,079
)
Net income (loss) available to common shares
$
(183,489
)
$
13,063
$
(379,344
)
$
67,839
Earnings (loss) per share—Basic:
Continuing operations
$
(3.02
)
$
0.34
$
(6.26
)
$
2.12
Discontinued operations
—
0.05
—
0.20
Total earnings (loss) per share—Basic
$
(3.02
)
$
0.39
$
(6.26
)
$
2.32
Weighted-average shares outstanding—Basic
60,789,508
33,433,154
60,633,833
29,294,642
Earnings (loss) per share—Diluted:
Continuing operations
$
(3.02
)
$
0.34
$
(6.26
)
$
2.10
Discontinued operations
—
0.05
—
0.20
Total earnings (loss) per share—Diluted
$
(3.02
)
$
0.39
$
(6.26
)
$
2.30
Weighted-average shares outstanding—Diluted
60,789,508
33,689,030
60,633,833
29,553,403
Distributions declared per common share
$
0.46
$
0.62
$
2.56
$
2.70
2
RAIT Financial Trust Consolidated Balance Sheets (Dollars in thousands, except share and per share information) (unaudited)
As of
As of
December 31, 2007
December 31, 2006
Assets
Investments in mortgages and loans, at amortized cost
Residential mortgages and mortgage-related receivables
$
4,065,083
$
4,676,950
Commercial mortgages, mezzanine loans and other loans
2,189,939
1,250,945
Allowance for losses
(26,389
)
(5,345
)
Total investments in mortgages and loans
6,228,633
5,922,550
Investments in securities
Available-for-sale securities
2,776,833
3,978,999
Security-related receivables
1,050,967
1,159,312
Total investments in securities
3,827,800
5,138,311
Investments in real estate interests
284,252
139,132
Cash and cash equivalents
127,987
99,367
Restricted cash
298,433
292,869
Accrued interest receivable
110,287
111,238
Warehouse deposits
31,576
44,618
Other assets
39,149
42,274
Deferred financing costs, net of accumulated amortization of $3,800 and $1,709, respectively
53,340
16,729
Intangible assets, net of accumulated amortization of $64,444 and $3,175, respectively
56,123
121,046
Goodwill
—
132,372
Total assets
$
11,057,580
$
12,060,506
Liabilities and shareholders’ equity
Indebtedness
Repurchase agreements
$
138,788
$
1,174,182
Secured credit facilities and other indebtedness
146,916
81,336
Mortgage-backed securities issued
3,801,959
3,697,291
Trust preferred obligations
450,625
643,639
CDO notes payable
5,093,833
4,855,743
Convertible senior notes
425,000
—
Total indebtedness
10,057,121
10,452,191
Accrued interest payable
65,947
67,393
Accounts payable and accrued expenses
19,197
22,930
Derivative liabilities
201,581
38,909
Deferred taxes, borrowers’ escrows and other liabilities
104,821
119,288
Distributions payable
28,068
39,118
Total liabilities
10,476,735
10,739,829
Minority interest
1,602
124,273
Shareholders’ equity
Preferred shares, $0.01 par value per share, 25,000,000 shares authorized; 7.75% Series A cumulative redeemable preferred shares, liquidation preference $25.00 per share, 2,760,000 shares issued and outstanding
28
28
8.375% Series B cumulative redeemable preferred shares, liquidation preference $25.00 per share, 2,258,300 shares issued and outstanding
23
23
8.875% Series C cumulative redeemable preferred shares, liquidation preference $25.00 per share, 1,600,000 shares issued and outstanding
16
—
Common shares, $0.01 par value per share, 200,000,000 shares authorized, 61,018,231 and 52,151,412 issued and outstanding, including 225,440 and 430,516 unvested restricted share awards, respectively
607
517
Additional paid in capital
1,575,979
1,218,667
Accumulated other comprehensive income (loss)
(440,039
)
(3,085
)
Retained earnings (deficit)
(557,371
)
(19,746
)
Total shareholders’ equity
579,243
1,196,404
Total liabilities and shareholders’ equity
$
11,057,580
$
12,060,506
3
RAIT Financial Trust Consolidated Statements of Other Comprehensive Income (Loss) (Unaudited and dollars in thousands)
For the Three-Month
For the
Period
Year Ended
Ended December 31
December 31
2007
2006
2007
2006
Net income (loss)
$
(180,075
)
$
15,585
$
(367,527
)
$
77,918
Other comprehensive income (loss)
Change in fair value of cash-flow hedges
(166,023
)
33,454
(201,029
)
32,249
Reclassification adjustments associated with unrealized losses (gains) from cash-flow hedges included in net income
5,184
(1,925
)
7,789
(1,925
)
Realized (gains) losses on cash-flow hedges reclassified to earnings
1,812
(1,327
)
(4,004
)
(1,327
)
Realized (gains) losses on available-for-sale securities, including asset impairments
59,917
—
348,005
—
Change in fair value of available-for-sale securities
(256,641
)
(34,710
)
(698,793
)
(34,710
)
Realized gain from deconsolidation of VIEs
80,722
—
80,722
—
Total other comprehensive loss before minority interest allocation
(275,029
)
(4,508
)
(467,310
)
(5,713
)
Allocation to minority interest
26,865
2,628
30,356
2,628
Total other comprehensive income (loss)
(248,164
)
(1,880
)
(436,954
)
(3,085
)
Comprehensive income (loss)
$
(428,239
)
$
13,705
$
(804,481
)
$
74,833
4
Schedule I RAIT Financial Trust Reconciliation of Shareholders’ Equity to Tangible Book Value and Economic Book Value (1) (Dollars in thousands, except share and per share amounts) As of December 31, 2007 (unaudited)
Amount
Per Share (2)
Shareholders’ equity, as reported
$
579,243
$
9.49
Add (deduct):
Liquidation value of preferred shares (3)
(165,458
)
(2.71
)
Book Value
413,785
6.78
Unamortized intangible assets
(56,123
)
(0.92
)
Tangible Book Value(4)
357,662
5.86
Add (deduct):
Unrealized losses recognized in excess of value at risk.
284,002
4.66
Economic Book Value
$
641,664
$
10.52
(1)
Management views economic book value as a useful and appropriate supplement to shareholders’ equity and book value per share. The measure serves as an additional measure of our value because it facilitates evaluation of us without the effects of unrealized losses on investments in excess of our value at risk. Under GAAP, we are required to absorb unrealized losses on investments of certain of our consolidated entities, primarily our consolidated securitizations, even if those unrealized losses are in excess of our maximum value at risk, or our investment in those securitizations. Unrealized losses recognized in our financial statements, prepared in accordance with GAAP, that are in excess of our maximum value at risk are added back to shareholders’ equity in arriving at economic book value. Economic book value should be reviewed in connection with shareholders’ equity as set forth in our consolidated balance sheets, to help analyze our value to investors. Economic book value is defined in various ways throughout the REIT industry. Investors should consider these differences when comparing our economic book value to that of other REITs.
(2)
Based on 61,018,231 common shares outstanding as of December 31, 2007
(3)
Based on 2,760,000 Series A preferred shares, 2,258,300 Series B preferred shares, and 1,600,000 Series C preferred shares, all of which have a liquidation preference of $25.00 per share.
(4)
Tangible book value per share is calculated by subtracting the liquidation value of RAIT’s cumulative redeemable preferred shares and net intangible assets from total shareholders’ equity and dividing the result by the number of common shares outstanding at the end of the period.
5
Schedule II RAIT Financial Trust Reconciliation of GAAP Net Income (Loss) Available to Common Shares to Adjusted Earnings (1) (Dollars in thousands, except share and per share amounts) (unaudited)
For the Year
For the Three-Month
Ended
Period Ended December 31
December 31
2007
2006
2007
2006
Net income (loss) available to common shares, as reported
$
(183,489
)
$
13,063
$
(379,344
)
$
67,839
Add (deduct):
Depreciation on real estate investments
2,426
1,089
6,242
2,006
Amortization of intangible assets
15,218
3,175
61,269
3,175
Provision for losses
11,059
2,499
21,721
2,499
Unrealized (gains) losses on interest rate hedges
5,184
(1,925
)
7,789
(1,925
)
Net gains on deconsolidation of VIEs
(17,471
)
—
(17,471
)
—
Asset impairments, net of minority interest
184,684
—
431,652
—
Share-based compensation
12,138
616
20,891
905
Write-off of unamortized deferred financing costs (2)
—
—
2,985
—
Fee income deferred (recognized)
(785
)
764
26,947
3,379
Deferred tax provision
(343
)
(2,812
)
(15,788
)
(2,812
)
Adjusted earnings
$
28,621
$
16,469
$
166,893
$
75,066
Weighted-average shares outstanding—Diluted
60,789,508
33,689,030
60,633,833
29,553,403
Adjusted earnings per diluted share
$
0.47
$
0.49
$
2.75
$
2.54
(1)
We measure our performance using adjusted earnings in addition to net income (loss). Adjusted earnings represents net income (loss) available to common shares, computed in accordance with GAAP, before depreciation, amortization of intangible assets, provision for losses, unrealized (gains) losses on hedges, asset impairments, net of minority interests, net gain on deconsolidation of VIEs, share-based compensation, write-off of unamortized deferred financing fees, deferred fee revenue and our deferred tax provisions. These items are recorded in accordance with GAAP and are typically non-cash items that do not impact our operating performance or dividend paying ability.
Management views adjusted earnings as a useful and appropriate supplement to GAAP net income (loss) because it helps us evaluate our performance without the effects of certain GAAP adjustments that may not have a direct financial impact on our current operating performance and our dividend paying ability. We use adjusted earnings to evaluate the performance of our investment portfolios, our ability to generate fees, our ability to manage our expenses and our dividend paying ability before the impact of non-cash adjustments recorded in accordance with GAAP. We believe this is a useful performance measure for investors to evaluate these aspects of our business as well. The most significant adjustments we exclude in determining adjusted earnings are amortization of intangible assets, provision for losses, asset impairments and share-based compensation. Management excludes all such items from its calculation of adjusted earnings because these items are not economic charges or losses which would impact our current operating performance. By excluding these significant items, adjusted earnings reduces an investor’s understanding of our operating performance by excluding: (i) management’s expectation of possible losses from our investment portfolio, (ii) the allocation of non-cash costs of generating fee revenue during the periods in which we are receiving such revenue, (iii) and share based compensation required to retain and incentivize our management team.
Adjusted earnings, as a non-GAAP financial measurement, does not purport to be an alternative to net income (loss) determined in accordance with GAAP, or a measure of operating performance or cash flows from operating activities determined in accordance with GAAP as a measure of liquidity. Instead, adjusted earnings should be reviewed in connection with net income (loss) and cash flows from operating, investing and financing activities in our consolidated financial statements to help analyze management’s expectation of potential future losses from our investment portfolio and other non cash matters that impact our financial results. Adjusted earnings and other supplemental performance measures are defined in various ways throughout the REIT industry. Investors should consider these differences when comparing our adjusted earnings to these other REITs.
(2) Represents the write-off of unamortized deferred financing costs resulting from our termination of a line of credit in April 2007.
6
Schedule III RAIT Financial Trust Reconciliation of Fee and Other Income to Total Fees Generated (1) (Dollars in thousands, except share and per share amounts) (unaudited)
For the three-months
For the year
ended December 31,
ended December 31,
2007
2006
2007
2006
Fees and other income, as reported
$
4,836
$
2,685
$
25,725
$
14,387
Add (deduct):
Asset management fees, eliminated
5,772
987
22,310
987
Deferred structuring fees
—
—
11,413
—
Deferred (recognized) origination fees, net of amortization
(785
)
764
15,534
3,379
Total fees generated
$
9,823
$
4,436
$
74,982
$
18,753
(1)
Total fees generated is a non-GAAP financial measurement and does not purport to be an alternative to fee and other income determined in accordance with GAAP as a measure of operating performance or to cash flows from operating as a measure of liquidity. RAIT believes the presentation of Total Fees Generated is useful to investors because it demonstrates RAIT’s ability to generate fees, which creates additional yield.
7
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