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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 JUNE 30, 2006
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 INVESTMENT TRUST
(Exact name of registrant as specified in its charter)
MARYLAND 23-2919819
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o RAIT PARTNERSHIP, L.P.
1818 MARKET STREET, 28TH FLOOR, PHILADELPHIA, PA 19103
(Address of principal executive offices) (Zip Code)
(215) 861-7900
(Registrant's telephone number, including area code)
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 is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large accelerated filer [X] Accelerated filer [ ] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of August 7, 2006, 28,120,398 common shares of beneficial interest, par value
$0.01 per share, of the registrant were outstanding.
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RAIT INVESTMENT TRUST
AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT
ON FORM 10-Q
PAGE
----
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS....................................... 3
Consolidated Balance Sheets at June 30, 2006 (unaudited) and
December 31, 2005............................................ 3
Consolidated Statements of Income (unaudited) for the three
and six months ended June 30, 2006 and 2005.................. 4
Consolidated Statements of Cash Flows (unaudited) for the six
months ended June 30, 2006 and 2005.......................... 5
Notes to Consolidated Financial Statements - June 30, 2006
(unaudited).................................................. 6
Report of Independent Registered Public Accounting
Firm......................................................... 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................ 21
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK....................................................... 29
ITEM 4. CONTROLS AND PROCEDURES.................................... 29
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.......................................... 30
ITEM 1A. RISK FACTORS.............................................. 30
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS............ 30
ITEM 6. EXHIBITS................................................... 31
SIGNATURES............................................................ 32
EXHIBIT INDEX......................................................... 33
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RAIT INVESTMENT TRUST
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
-------------- --------------
ASSETS
Cash and cash equivalents ......................................... $ 15,229,266 $ 71,214,083
Restricted cash ................................................... 35,669,786 20,892,402
Accrued interest receivable ....................................... 14,475,190 13,127,801
Real estate loans, net ............................................ 870,876,459 714,428,071
Unconsolidated real estate interests .............................. 41,966,842 40,625,713
Consolidated real estate interests ................................ 57,461,772 55,054,558
Consolidated real estate interests held for sale .................. -- 94,106,721
Furniture, fixtures and equipment, net ............................ 606,009 590,834
Prepaid expenses and other assets ................................. 14,064,128 13,657,244
Goodwill .......................................................... 887,143 887,143
-------------- --------------
Total assets ................................................... $1,051,236,595 $1,024,584,570
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued liabilities .......................... $ 5,980,980 $ 3,259,360
Accrued interest payable .......................................... 2,291,990 2,213,639
Tenant security deposits .......................................... 4,185 3,185
Dividends payable ................................................. 17,428,889 --
Borrowers' escrows ................................................ 28,284,368 15,981,762
Senior indebtedness relating to loans ............................. 64,000,000 66,500,000
Long-term debt secured by consolidated real estate interests ...... 38,025,731 8,118,511
Liabilities underlying consolidated real estate interests held
for sale ....................................................... -- 56,413,644
Unsecured line of credit .......................................... 267,000,000 240,000,000
Secured lines of credit ........................................... 13,000,000 22,400,000
-------------- --------------
Total liabilities ............................................. $ 436,016,143 $ 414,890,101
Minority interest ................................................... 449,303 459,684
Shareholders' equity:
Preferred shares, $.01 par value; 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 ......................................... 27,600 27,600
8.375% Series B cumulative redeemable preferred shares,
liquidation preference $25.00 per share; 2,258,300 shares
issued and outstanding ......................................... 22,583 22,583
Common shares, $.01 par value; 200,000,000 authorized shares;
issued and outstanding 28,111,111 and 27,899,065 shares ........ 281,111 278,991
Additional paid-in-capital ........................................ 606,277,814 602,919,108
Retained earnings ................................................. 8,162,041 6,250,150
Loans for stock options exercised ................................. -- (263,647)
-------------- --------------
Total shareholders' equity ..................................... $ 614,771,149 $ 609,234,785
-------------- --------------
Total liabilities and shareholders' equity ..................... $1,051,236,595 $1,024,584,570
============== ==============
The accompanying notes are an integral part of these consolidated
financial statements.
3
RAIT INVESTMENT TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
REVENUES
Interest income ..................................... $22,463,584 $19,634,961 $42,033,966 $38,610,151
Rental income ....................................... 3,488,833 3,438,948 7,369,968 6,846,490
Fee income and other ................................ 2,225,537 2,085,676 7,886,761 2,997,108
Investment income ................................... 1,418,732 1,861,759 2,962,490 3,180,407
----------- ----------- ----------- -----------
Total revenues ................................... 29,596,686 27,021,344 60,253,185 51,634,156
----------- ----------- ----------- -----------
COSTS AND EXPENSES
Interest ............................................ 7,063,945 3,379,475 12,558,697 5,081,178
Property operating expenses ......................... 1,806,099 1,813,721 3,885,190 3,717,321
Salaries and related benefits ....................... 1,793,466 1,244,207 3,671,452 2,494,556
General and administrative .......................... 891,522 1,258,783 2,063,218 2,119,839
Depreciation and amortization ....................... 372,485 361,732 742,169 719,061
----------- ----------- ----------- -----------
Total costs and expenses ......................... 11,927,517 8,057,918 22,920,726 14,131,955
----------- ----------- ----------- -----------
Net income before minority interest ................. $17,669,169 $18,963,426 $37,332,459 $37,502,201
Minority interest ................................... (5,425) (5,266) (10,139) (15,255)
----------- ----------- ----------- -----------
Net income from continuing operations ............... 17,663,744 18,958,160 37,322,320 37,486,946
Gain from discontinued operations ................... 2,788,663 -- 2,788,663 --
Net income from discontinued operations ............. 376,194 251,287 1,287,657 611,634
----------- ----------- ----------- -----------
Net income .......................................... $20,828,601 $19,209,447 $41,398,640 $38,098,580
Dividends attributed to preferred shares ............ 2,518,955 2,518,955 5,037,910 5,037,910
----------- ----------- ----------- -----------
Net income available to common shareholders ......... $18,309,646 $16,690,492 $36,360,730 $33,060,670
=========== =========== =========== ===========
Net income per common share basic ................... $ 0.66 $ 0.65 $ 1.30 $ 1.29
=========== =========== =========== ===========
Net income per common share diluted ................. $ 0.65 $ 0.65 $ 1.30 $ 1.28
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
4
RAIT INVESTMENT TRUST
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE SIX MONTHS
ENDED JUNE 30,
------------- -------------
2006 2005
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................................................................... $ 41,398,640 $ 38,098,580
Adjustments to reconcile net income to net cash provided by operating activities:
Minority interest ............................................................... 10,139 15,255
Gain from discontinued operations ............................................... (2,788,663) --
Depreciation and amortization ................................................... 737,511 2,112,070
Accretion of loan discounts ..................................................... (12,388) (5,863,556)
Amortization of debt costs ...................................................... 797,587 317,031
Deferred compensation ........................................................... 75,514 263,124
Employee bonus shares ........................................................... -- 21,895
Decrease in tenant escrows ...................................................... -- 44,332
Increase in accrued interest receivable ......................................... (2,321,445) (7,007,574)
Increase in prepaid expenses and other assets ................................... (1,906,491) (2,370,719)
Increase (decrease) in accounts payable and accrued liabilities ................. 2,721,620 (1,179,142)
Increase in accrued interest payable ............................................ 78,351 1,003,263
Increase (decrease) in tenant security deposits ................................. 1,000 (7,866)
(Increase) decrease in borrowers' escrows ....................................... (2,474,778) 24,234
------------- -------------
Net cash provided by operating activities .................................... 36,316,597 25,470,928
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture, fixtures and equipment ................................... (87,819) (36,651)
Real estate loans purchased ..................................................... (30,280,646) (4,250,000)
Real estate loans originated .................................................... (386,701,808) (223,487,652)
Principal repayments from real estate loans ..................................... 255,706,989 110,812,056
Repayments from unconsolidated real estate interests ............................ 65,537 8,000,000
Release (deposit) of escrows held to fund expenditures for consolidated real
estate interests ............................................................. 498,361 (184,585)
Investment in consolidated real estate interests ................................ (3,562,746) (431,061)
Distributions paid by consolidated real estate interests ........................ (20,520) (30,780)
Investment in unconsolidated real estate interests .............................. (31,666) (8,025,913)
Investment in consolidated real estate interests held for sale .................. -- (2,865,157)
Proceeds from disposition of consolidated real estate interests held for sale ... 45,515,539 --
------------- -------------
Net cash used in investing activities ........................................ (118,898,779) (120,499,743)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Principal repayments on senior indebtedness ..................................... (2,500,540) (91,293)
Principal repayments on long-term debt .......................................... (92,781) (529,226)
Proceeds of senior indebtedness ................................................. -- 96,500,000
Proceeds of long term debt ...................................................... 30,000,000 --
(Repayments) advances on secured lines of credit ................................ (9,400,000) 25,424,447
Advances on unsecured lines of credit ........................................... 27,000,000 --
Payment of preferred dividends .................................................. (5,037,910) (5,037,910)
Payment of common dividends ..................................................... (16,920,363) (15,272,439)
Issuance of common shares, net .................................................. 3,285,312 151,245
Principal payments on loans for stock options exercised ......................... 263,647 237,637
------------- -------------
Net cash provided by financing activities .................................... 26,597,365 101,382,461
------------- -------------
NET CHANGE IN CASH AND CASH EQUIVALENTS ............................................... (55,984,817) 6,353,646
------------- -------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ........................................ 71,214,083 13,331,373
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .............................................. $ 15,229,266 $ 19,685,019
============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
5
RAIT INVESTMENT TRUST
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2006
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
In the opinion of management, these unaudited financial statements contain
all disclosures which are necessary to present fairly RAIT Investment Trust's
(the "Company") consolidated financial position at June 30, 2006, its results of
operations for the three and six months ended June 30, 2006 and 2005 and its
cash flows for the six months ended June 30, 2006 and 2005. The financial
statements include all adjustments (consisting only of normal recurring
adjustments) which in the opinion of management are necessary in order to
present fairly the financial position and results of operations for the interim
periods presented. Certain information and footnote disclosures normally
included in financial statements under accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. These financial
statements should be read in conjunction with the financial statements and notes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2005 as updated by the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on July 17, 2006. Certain
reclassifications have been made to the consolidated financial statements as of
December 31, 2005 and for the three and six months ended June 30, 2005 to
conform to the presentation as of and for the three and six months ended June
30, 2006.
SHARE BASED COMPENSATION
Effective January 1, 2006, the Company has adopted FASB Statement No. 123
(R), "Share-Based Payment". Statement 123 (R) requires that compensation cost
relating to share-based payment transactions be recognized in financial
statements. The cost is measured based on the fair value of the equity or
liability instruments issued.
Statement 123 (R) replaces FASB Statement No. 123, "Accounting for
Stock-Based Compensation" and supersedes APB Opinion No. 25, "Accounting For
Stock Issued to Employees". Statement 123, as originally issued in 1995,
established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, that Statement
permitted entities the option of continuing to apply the guidance in Opinion 25,
as long as the footnotes to financial statements disclosed what net income would
have been had the preferable fair-value-based method been used. The impact of
Statement 123 (R), if it had been in effect, on the net earnings and related per
share amounts for the years ended December 31, 2005, 2004 and 2003 was disclosed
in the Company's Form 10-K for the fiscal year ended December 31, 2005.
Because the Company adopted Statement 123 (R) using the modified
prospective transition method, prior periods have not been restated. Under this
method, the Company is required to record compensation expense for all awards
granted after the date of adoption and for the unvested portion of previously
granted awards that remain outstanding as of the beginning of the period of
adoption. The Company measured share-based compensation cost using the
Black-Scholes option pricing model for stock option grants prior to January 1,
2006 and anticipates using this pricing model for future grants. The Company did
not grant options in the three or six months ended June 30, 2006.
Share-based compensation of $5,500 and $11,000 (less than $.01 per share)
was recognized for the three and six months ended June 30, 2006, which related
to the unvested portion of options to acquire the Company's common shares of
beneficial interest (the "Common Shares") granted prior to January 1, 2006.
Reported net income, adjusting for share-based compensation that would have been
recognized in the three and six months ended June 30, 2005 if Statement 123 (R)
had been followed in that quarter is presented in the following table:
<Table>
<Caption>
FOR THE FOR THE
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------ -----------
2005 2005
------------ -----------
Net income, as reported............................................ $16,690,000 $33,061,000
Less: stock based compensation determined under fair value based
method for all awards............................................ (7,000) (14,000)
------------ -----------
Pro forma net income............................................... $16,683,000 $33,047,000
============ ===========
Net income per share -- basic...................................... $ 0.65 $ 1.29
as reported pro forma............................................ $ 0.65 $ 1.29
Net income per share -- diluted.................................... $ 0.65 $ 1.28
as reported pro forma............................................ $ 0.65 $ 1.28
</Table>
The adoption of Statement 123 (R) did not change the way that the Company
has accounted for stock awards in prior periods and therefore no such change is
reflected in the pro forma table above. The Company expenses the fair value of
stock awards determined at the grant date on a straight-line basis over the
vesting period of the award.
6
VARIABLE INTEREST ENTITIES
The Company has adopted Financial Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" and revised FIN 46 ("FIN 46(R)").
In doing so, the Company has evaluated its various interests to determine
whether they are in variable interest entities. These variable interests are
primarily subordinated financings in the form of mezzanine loans or
unconsolidated real estate interests. The Company has identified 23 and 24
variable interests having an aggregate book value of $130.1 million and $180.8
million that it held as of June 30, 2006 and December 31, 2005, respectively.
For one of these variable interests, with a book value of $41.1 million at June
30, 2006, the Company determined that the Company is the primary beneficiary and
such variable interest is included in the Company's consolidated financial
statements.
The variable interest entity consolidated by the Company is the borrower
under a first mortgage loan secured by a 594,000 square foot office building in
Milwaukee, Wisconsin. The Company purchased the first mortgage loan in June 2003
(face value and underlying collateral value are both in excess of $40.0 million)
for $26.8 million. At the time the Company purchased the loan, the Company
determined that the entity that owned the property was not a variable interest
entity.
Prior to the loan's maturity date, in August 2004, the Company entered into
a forbearance agreement with the borrower that provided that the Company will
take no action with regard to foreclosure or sale of the building for a period
of three years, with two one-year extension options, subject to the Company's
approval. The agreement also gives the Company operational and managerial
control of the property with the owner relinquishing any right to participate.
The Company also agreed to make additional loan advances to fund certain
outstanding fees and commissions (some of which fees are owed to an affiliate of
the owner), and to fund shortfalls in operating cash flow, if necessary, during
the forbearance period. The loan remains outstanding in its full amount and,
aside from extending the maturity date of the loan, no other terms were
adjusted.
The Company concluded that entering into the forbearance agreement is a
triggering event under FIN 46(R) and thus the variable interest must be
reconsidered. Because the actual owner of the property no longer had a
controlling financial interest in the property and the Company had the
obligation to make additional advances under the Company's loan to fund any
potential losses, the Company determined that the borrower is a variable
interest entity and that the Company is the primary beneficiary due to the
Company absorbing the majority of the probability weighted expected losses, as
defined in FIN 46(R). The Company continues to hold a valid and enforceable
first mortgage and the value of the property exceeds the Company's carrying
value of the loan. However, as the primary beneficiary, the Company is required
to consolidate this variable interest entity pursuant to FIN 46(R).
The Company's consolidated financial statements as of and for the three and
six months ended June 30, 2006 include the assets, liabilities, and results of
operations of the variable interest entity, which are summarized below:
AS OF AND AS OF AND
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, 2006 ENDED JUNE 30, 2006
-------------------- -------------------
Total assets ....... $50,396,161 $50,396,161
=========== ===========
Total liabilities .. $ 556,424 $ 556,424
=========== ===========
Total income ....... $ 2,296,675 $ 4,969,486
Total expense ...... 1,629,544 3,135,468
----------- -----------
Net income ...... $ 667,131 $ 1,834,018
=========== ===========
7
NOTE 2 - CONSOLIDATED STATEMENT OF CASH FLOWS
For the purpose of reporting cash flows, cash and cash equivalents include
non-interest earning deposits and interest earning deposits. Cash paid for
interest was $15.5 million and $6.0 million for the six months ended June 30,
2006 and 2005, respectively.
Dividends declared during the second quarter of 2006 and 2005, but not paid
until July 2006 and 2005, were $17.4 million and $15.6 million, respectively.
NOTE 3 - RESTRICTED CASH AND BORROWERS' ESCROWS
Restricted cash and borrowers' escrows represent borrowers' funds held by
the Company to fund certain expenditures or to be released at the Company's
discretion upon the occurrence of certain pre-specified events, and to serve as
additional collateral for borrowers' loans.
NOTE 4 - REAL ESTATE LOANS
The Company's portfolio of real estate loans consisted of the following at
June 30, 2006 and December 31, 2005:
June 30, 2006 December 31,
(unaudited) 2005
------------- --------------
First mortgages ................................... $551,667,857 $424,098,275
Mezzanine loans ................................... 321,052,788 291,158,720
------------ ------------
Subtotal .......................................... 872,720,645 715,256,995
Unearned fees ..................................... (1,618,029) (602,767)
Less: Allowance for loan losses ................... (226,157) (226,157)
------------ ------------
Real estate loans, net ......................... 870,876,459 714,428,071
Less: Senior indebtedness related to loans ........ (64,000,000) (66,500,000)
------------ ------------
Real estate loans, net of senior indebtedness .. $806,876,459 $647,928,071
============ ============
The following is a summary description of the assets contained in the
Company's portfolio of real estate loans as of June 30, 2006:
AVERAGE
NUMBER LOAN TO RANGE OF LOAN
TYPE OF LOAN OF LOANS VALUE (1) YIELDS (2) RANGE OF MATURITIES
- ------------------ -------- --------- -------------- -------------------
First mortgages 37 77% 7.0% -- 17.0% 8/10/06 -- 7/18/09
Mezzanine loans 93 84% 10.0% -- 17.0% 9/16/06 -- 5/1/21
- ----------
(1) Calculated as the sum of the outstanding balance of the Company's loan and
senior loan (if any) divided by the current appraised value of the
underlying collateral.
(2) The Company's calculation of loan yield includes points charged.
The properties underlying the Company's portfolio of real estate loans
consisted of the following types as of June 30, 2006 and December 31, 2005:
JUNE 30, 2006 DECEMBER 31, 2005
--------------------------- ---------------------------
PRINCIPAL PRINCIPAL
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
-------------- ---------- -------------- ----------
Multi-family ......... $411.4 million 47% $351.0 million 49%
Office ............... 181.4 million 21% 146.2 million 20%
Retail and other ..... 279.9 million 32% 218.0 million 31%
-------------- --- -------------- ---
Total ................ $872.7 million 100% $715.2 million 100%
============== === ============== ===
As of June 30, 2006, the maturities of the Company's real estate loans in
the remainder of 2006, in each year through 2010, and the aggregate maturities
thereafter are as follows:
2006 ............................................................... $279,756,538
2007 ............................................................... 224,029,988
2008 ............................................................... 99,137,524
8
2009 ........ 38,106,886
2010 ........ 11,530,169
Thereafter .. 220,159,540
------------
Total ....... $872,720,645
============
Senior indebtedness relating to loans arises when the Company sells a
participation or other interest in one of its first mortgages or mezzanine loans
to another lender. These participations and interests rank senior to the
Company's right to repayment under the relevant mortgage or loan in various
ways. As of June 30, 2006 and December 31, 2005, senior indebtedness relating to
loans consisted of the following:
June 30, 2006 December 31,
(unaudited) 2005
------------- ------------
Senior loan participation, secured by Company's interest in a
first mortgage loan with a book value of $12,786,014 and
$12,782,840 at June 30, 2006 and December 31, 2005,
respectively, payable interest only at LIBOR plus 250
basis points (7.86% at June 30, 2006) due monthly, principal
balance due October 31, 2006 .................................. $ 5,000,000 $ 5,000,000
Term loan payable, secured by Company's interest in a first
mortgage loan with a principal balance of $9,000,000 at
June 30, 2006 and December 31, 2005, payable interest only
at 4.5% due monthly, principal balance due
September 29, 2006 (1) ........................................ 6,500,000 6,500,000
Term loan payable, secured by Company's interest in a first
mortgage loan with a principal balance of $9,000,000 at
June 30, 2006 and December 31, 2005, payable interest
only at 5.5% due monthly, principal balance due
September 29, 2006 (1) ........................................ 1,500,000 1,500,000
Senior loan participation, secured by Company's interest in a
first mortgage loan with a principal balance of $15,500,000
at June 30, 2006 and December 31, 2005, payable interest
only at 5.0% due monthly, principal balance due
October 15, 2006 .............................................. 11,000,000 11,000,000
Senior loan participation, secured by Company's interest
in a mezzanine loan with a book value of $12,168,169 and
$19,468,759 at June 30, 2006 and December 31, 2005,
respectively, payable interest only at the bank's
prime rate (8.25% at June 30, 2006) due quarterly,
principal balance due April 30, 2007 .......................... -- 2,500,000
Senior loan participation, secured by Company's interest in a
first mortgage loan with a principal balance of
$50,662,317 and $45,252,334 at June 30, 2006 and
December 31, 2005, respectively, payable interest
only at 6.0% due monthly, principal balance due
February 25, 2007 ............................................. 35,000,000 35,000,000
Senior loan participation, secured by Company's interest
in a first mortgage loan with a principal balance of
$8,000,000 at June 30, 2006 and December 31, 2005,
payable interest only at LIBOR plus 200 basis
points (7.36% at June 30, 2006) due monthly,
principal balance due September 1, 2007 ....................... 5,000,000 5,000,000
----------- -----------
Total ............................................................ $64,000,000 $66,500,000
=========== ===========
- ----------
(1) Effective August 4, 2006 these loans, which are secured by the same first
mortgage, were combined into one $8.0 million loan. Interest only is
payable monthly at 6.75% and the principal balance is due September 29,
2009. In July 2006, the first mortgage securing these loans was increased
to $9,750,000. The table below reflects the maturity date of this debt as
September 29, 2009.
As of June 30, 2006, the senior indebtedness relating to loans maturing in
the remainder of 2006, over the next four years, and the aggregate indebtedness
maturing thereafter, is, as follows:
2006 ............................................................................... $16,000,000
2007 ............................................................................... 40,000,000
2008 ............................................................................... --
2009 ............................................................................... 8,000,000
2010 ............................................................................... --
Thereafter ......................................................................... --
-----------
Total ........................................................................... $64,000,000
===========
9
As of June 30, 2006 and December 31, 2005, $123.1 million and $138.8
million, respectively, in principal amount of loans were pledged as collateral
for amounts outstanding on the Company's secured lines of credit and senior
indebtedness relating to loans.
NOTE 5 - CONSOLIDATED REAL ESTATE INTERESTS
As of June 30, 2006 and December 31, 2005, the Company owned the following
controlling interests in entities that own real estate. These interests are
accounted for on a consolidated basis:
- 100% limited and general partnership interest in a limited
partnership that owns an office building in Rohrerstown,
Pennsylvania with 12,630 square feet on 2.93 acres used as a
diagnostic imaging center. The Company acquired this interest for
$1.7 million. After acquisition, the Company obtained
non-recourse financing of $1.1 million ($946,556 and $959,442 at
June 30, 2006 and December 31, 2005, respectively), which bears
interest at an annual rate of 7.33% and is due on August 1, 2008.
The book value of this property at both June 30, 2006 and
December 31, 2005 was $1.2 million.
- 84.6% membership interest in a limited liability company that
owns a 44,517 square foot office building in Rockville, Maryland.
In October 2002, the Company acquired 100% of the limited
liability company for $10.7 million and simultaneously obtained
non-recourse financing of $7.6 million ($7.1 million and $7.2
million at June 30, 2006 and December 31, 2005, respectively).
The loan bears interest at an annual rate of 5.73% and is due
November 1, 2012. In December 2002, the Company sold a 15.4%
interest in the limited liability company to a partnership whose
general partner is a son of the Company's chairman and chief
executive officer. The buyer paid $513,000, which approximated
the book value of the interest being purchased. No gain or loss
was recognized on the sale. The book value of this property at
both June 30, 2006 and December 31, 2005 was $10.0 million.
- Also included in the Company's consolidated real estate interests
is a first mortgage with a carrying amount of $40.8 million
secured by a 594,000 square foot office building in Milwaukee,
Wisconsin. In June 2003, the Company purchased the loan, which
had a face value in excess of $40.0 million, for $26.8 million.
Upon entering into a forbearance agreement with the owner of the
property in August 2004, the Company determined that the
borrowing entity was a variable interest entity (as defined in
FIN 46) of which the Company was the primary beneficiary. See
Note 1, "Basis of Presentation -- Variable Interest Entities."
The book value of this consolidated interest (including
construction in progress) at June 30, 2006 and December 31, 2005
was $45.6 million and $42.6 million, respectively. In April 2006,
the Company obtained non-recourse financing secured by this real
estate interest in the amount of $30.0 million ($30.0 million at
June 30, 2006). The loan bears interest at LIBOR plus 175 points
(6.9375% at June 30, 2006) and is due April 17, 2008.
- Two parcels of land located in Willow Grove, Pennsylvania with an
aggregate book value of $613,500 at both June 30, 2006 and
December 31, 2005.
The Company's consolidated real estate interests consisted of the following
property types at June 30, 2006 and December 31, 2005. Escrows and reserves
represent amounts held for payment of real estate taxes, insurance premiums,
repair and replacement costs, tenant improvements, and leasing commissions.
JUNE 30, 2006
(UNAUDITED) DECEMBER 31, 2005
BOOK VALUE % BOOK VALUE %
------------- --- ----------------- ---
Office .............................. 59,901,372 99% 56,338,627 99%
Retail and other .................... 613,519 1% 613,519 1%
----------- --- ----------- ---
Subtotal ......................... 60,514,891 100% 56,952,146 100%
Plus: Escrows and reserves .......... 154,465 652,826
Less: Accumulated depreciation ...... (3,207,584) (2,550,414)
----------- -----------
Consolidated real estate interests .. $57,461,772 $55,054,558
=========== ===========
As of June 30, 2006 and December 31, 2005, non-recourse, long-term debt
secured by the Company's consolidated real estate interests consisted of the
following:
10
JUNE 30, 2006 DECEMBER 31,
(UNAUDITED) 2005
------------- ------------
Loan payable, secured by real estate, monthly installments of $8,008,
including interest at 7.33%, remaining principal due August 1, 2008 .... $ 946,556 $ 959,442
Loan payable, secured by real estate, monthly installments of $47,720,
including interest at 5.73%, remaining principal due November 1, 2012 .. 7,079,175 7,159,069
Loan payable, secured by real estate, payable interest only at LIBOR
plus 175 points (6.9375% at June 30, 2006) due monthly, principal
due April 17, 2008 ..................................................... 30,000,000 --
----------- ----------
Total ..................................................................... $38,025,731 $8,118,511
=========== ==========
As of June 30, 2006, the amount of long-term debt secured by the Company's
consolidated real estate interests that mature over the remainder of 2006, the
next four years, and the aggregate indebtedness maturing thereafter, is as
follows:
2006 ...................................................................................... $ 91,777
2007 ...................................................................................... 198,066
2008 ...................................................................................... 31,088,058
2009 ...................................................................................... 191,497
2010 ...................................................................................... 202,924
Thereafter ................................................................................ 6,253,409
-----------
Total .................................................................................. $38,025,731
===========
Expenditures for repairs and maintenance are charged to operations as
incurred. Significant renovations are capitalized. Fees and costs incurred in
the successful negotiation of leases are deferred and amortized on a
straight-line basis over the terms of the respective leases. Unamortized fees as
of June 30, 2006 and December 31, 2005 were $6,150 and $6,364, respectively.
Rental revenue is reported on a straight-line basis over the terms of the
respective leases. Depreciation expense relating to the Company's real estate
investments for the three months ended June 30, 2006 and 2005 was $329,289 and
$322,581, respectively. Depreciation expense relating to the Company's real
estate investments for the six months ended June 30, 2006 and 2005 was $657,168
and $642,948, respectively. The Company leases space in the buildings it owns to
several tenants. Approximate future minimum lease payments under noncancellable
lease arrangements as of June 30, 2006 are as follows:
2006 ...................................................................................... $ 2,308,412
2007 ...................................................................................... 3,352,317
2008 ...................................................................................... 3,053,221
2009 ...................................................................................... 2,980,836
2010 ...................................................................................... 2,746,110
Thereafter ................................................................................ 5,666,438
-----------
Total .................................................................................. $20,107,334
===========
NOTE 6 -- CONSOLIDATED REAL ESTATE INTERESTS HELD FOR SALE -- DISCONTINUED
OPERATIONS
As of October 3, 2005, the Company classified as "held for sale" a
consolidated real estate interest consolidated investments in real estate held
for sale, consisting of an 89% general partnership interest in a limited
partnership that owns a building in Philadelphia, Pennsylvania with 456,000
square feet of office/retail space. As of March 31, 2006, the Company classified
as "held for sale" a consolidated real estate interest consisting of a 110,421
square foot shopping center in Norcross, Georgia. As of May 11, 2006, the
Company classified as "held for sale" a consolidated real estate interest
consisting of a 216-unit apartment complex and clubhouse in Watervliet, New
York. In accordance with SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets", the assets and liabilities of these real estate
interests have been separately classified on the Company's balance sheet as of
December 31, 2005, and the results of operations attributable to these interests
have been reclassified, for all periods presented, to "discontinued operations".
Additionally, depreciation expense was no longer recorded for these assets once
they were classified as "held for sale".
11
The following is a summary of the aggregate results of operations for the
three buildings classified as "held for sale" for the three and six months ended
June 30, 2006 and 2005, which have been reclassified to discontinued operations
in the Company's consolidated statement of income:
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
Rental income ........................ $2,318,526 $3,980,034 $6,433,916 $8,053,587
Less:
Operating expenses ................ 1,329,377 2,056,415 3,418,328 4,119,153
Interest expense .................. 575,730 966,740 1,524,597 1,929,790
Depreciation and amortization ..... 37,225 705,592 203,334 1,393,010
---------- ---------- ---------- ----------
Income from discontinued operations .. $ 376,194 $ 251,287 $1,287,657 $ 611,634
========== ========== ========== ==========
The Company sold the Philadelphia, Pennsylvania office building in May 2006
for approximately $74.0 million. The Norcross, Georgia shopping center and the
Watervliet, New York apartment complex were both sold in June 2006 for $13.0
million and $11.0 million, respectively. The Company recognized a net gain of
$2.8 million on the sale of these interests.
NOTE 7 - UNCONSOLIDATED REAL ESTATE INTERESTS
Unconsolidated real estate interests include the Company's non-controlling
interests in limited partnerships accounted for under the cost method of
accounting, unless such interests meet the requirements of EITF:D-46 "Accounting
for Limited Partnership Investments" to be accounted for under the equity method
of accounting. In accordance with EITF 03-16, "Accounting for Investments in
Limited Liability Companies," the Company accounts for its non-controlling
interests in limited liability companies the same way that it accounts for its
non-controlling interests in limited partnerships.
At June 30, 2006 and December 31, 2005, the Company's unconsolidated real
estate interests consisted of the following:
- 20% beneficial interest in a trust that owns a 58-unit apartment
building in Philadelphia, Pennsylvania and a 20% partnership
interest in a general partnership that owns an office building
with 31,507 square feet in Alexandria, Virginia. In September
2002, the Company received these interests, together with a cash
payment of $2.5 million, in repayment of two loans with a
combined net book value of $2.3 million. The Company recorded
these interests at their current fair value based upon discounted
cash flows and recognized income from loan satisfaction in the
amount of $3.2 million. As of June 30, 2006 and December 31,
2005, the Pennsylvania property is subject to non-recourse
financing of $2.9 million bearing interest at 6.04% and maturing
on February 1, 2013. The Virginia property is subject to
non-recourse financing of $3.4 million at both June 30, 2006 and
December 31, 2005, bearing interest at 6.75% and maturing on
March 1, 2013.
- Class B limited partnership interest in a limited partnership
that owns a 363-unit multifamily apartment complex in Pasadena
(Houston), Texas. The Company acquired its interest in September
2003 for $1.9 million. In July 2004, the Company contributed an
additional $600,000 to the limited partnership. The property is
subject to non-recourse financing of $8.0 million at June 30,
2006 and December 31, 2005, which bears interest at the 30-day
London interbank offered rates, or LIBOR, plus 3.0% (8.33438% at
June 30, 2006, but limited by an overall interest rate cap of
6.0%) with a LIBOR floor of 2.0%, and is due on October 9, 2006.
- 3% membership interest in a limited liability company that has a
99.9% limited partnership interest in a limited partnership that
owns a 504-unit multifamily apartment complex in Sugarland
(Houston), Texas. The Company acquired its interest in April 2004
for $5.6 million. The property is subject to non-recourse
financing of $14.2 million and $14.3 million at June 30, 2006 and
December 31, 2005, respectively, which bears interest at an
annual rate of 4.84%, and is due on November 1, 2009.
- 0.1% Class B membership interest in an limited liability company
that has an 100% interest in a limited liability company
12
that has an 89.94% beneficial interest in a trust that owns a
737,308 square foot 35-story urban office building in Chicago,
Illinois. The Company acquired its interest in December 2004 for
$19.5 million. The property is subject to non-recourse financing
of $91.0 million at both June 30, 2006 and December 31, 2005,
which bears interest at an annual rate of 5.3% and is due January
1, 2015.
- Class B membership interests in each of two limited liability
companies which together own a 231-unit multifamily apartment
complex in Wauwatosa, Wisconsin. The Company acquired its
interest in December 2004 for $2.9 million. The property is
subject to non-recourse financing of $18.0 million at both June
30, 2006 and December 31, 2005, which bears interest at 5.3% and
is due January 1, 2014.
- Class B membership interests in each of two limited liability
companies, one which owns a 430-unit multifamily apartment
complex in Orlando, Florida and the other which owns a 264-unit
multifamily apartment complex in Bradenton, Florida. The Company
acquired its membership interests in May 2005 for an aggregate
amount of $9.5 million. As of both June 30, 2006 and December 31,
2005, the Orlando property is subject to non-recourse financing
of $23.5 million bearing interest at 5.31% and maturing on June
1, 2010. At both June 30, 2006 and December 31, 2005 the
Bradenton property is subject to non-recourse financing of $14.0
million bearing interest at 5.31% and maturing on June 1, 2010.
- A 20% residual interest in the net sales proceeds resulting from
any future sale of a 27-unit apartment building located in
Philadelphia, Pennsylvania. The property had been part of the
collateral underlying one of the Company's mezzanine loans until
the loan was repaid in full in December 2005. The book value of
the Company's interest at both June 30, 2006 and December 31,
2005, $883,600, is computed using an assumed sale price that is
based upon a third-party appraisal.
- Class B membership interests in each of two limited liability
companies, one which owns a 115,747 square foot shopping center
in Austin, Texas and the other which owns a 77,352 square foot
shopping center in Austin, Texas. The Company acquired its
membership interests in June 2006 for an aggregate amount of $1.4
million. As of June 30, 2006 the first property is subject to
non-recourse financing of $11.0 million bearing interest at 6.23%
and maturing on July 5, 2016. At June 30, 2006 the second
property is subject to non-recourse financing of $9.6 million
bearing interest at 6.2% and maturing on July 5, 2016.
The Company's unconsolidated real estate interests consisted of the
following property types at June 30, 2006:
JUNE 30, 2006
(UNAUDITED) DECEMBER 31, 2005
----------------- -----------------
BOOK VALUE % BOOK VALUE %
----------- --- ----------- ---
Multi-family .......................... $19,495,518 46% $19,530,016 48%
Office ................................ 21,096,324 51% 21,095,697 52%
Retail ................................ 1,375,000 3% -- --
----------- --- ----------- ---
Unconsolidated real estate interests .. $41,966,842 100% $40,625,713 100%
=========== === =========== ===
13
NOTE 8 --LINES OF CREDIT
At June 30, 2006 the Company had an unsecured line of credit with $335.0
million of maximum possible borrowings ($267.0 million outstanding) and two
secured lines of credit, one of which has $30.0 million of maximum possible
borrowings and one which has $50.0 million of maximum possible borrowings.
The following is a description of the Company's unsecured and secured lines
of credit at June 30, 2006:
UNSECURED LINE OF CREDIT
The Company is party to a revolving credit agreement that, as of June 30,
2006, provides for a senior unsecured line of credit in an amount up to $335.0
million, with the right to request an increase in the facility of up to a
maximum of $350.0 million. Borrowing availability under the unsecured line of
credit is based on specified percentages of the value of eligible assets. The
unsecured line of credit will terminate on October 24, 2008, unless the Company
extends the term an additional year upon the satisfaction of specified
conditions.
Amounts borrowed under the unsecured line of credit bear interest at a rate
equal to, at the Company's option:
- LIBOR (30-day, 60-day, 90-day or 180-day interest periods, at the
Company's option) plus an applicable margin of between 1.35% and 1.85%
or
- an alternative base rate equal to the greater of: (i) the prime rate
of the bank serving as administrative agent, or (ii) the federal funds
rate plus 50 basis points, plus an applicable margin of between 0% and
0.35%.
The applicable margin is based on the ratio of the Company's total
liabilities to total assets which is calculated on a quarterly basis. The
Company is obligated to pay interest only on the amounts borrowed under the
unsecured line of credit until the maturity date of the unsecured line of
credit, at which time all principal and any interest remaining unpaid is due.
The Company pays a commitment fee quarterly on the difference between the
aggregate amount of the commitments in effect from time to time under the
unsecured line of credit and the outstanding balance under the unsecured line of
credit. The commitment fee is equal to fifteen basis points (twenty five basis
points if this difference is greater than 50% of the amount of the unsecured
line of credit) per annum of this difference.
The Company's ability to borrow under the unsecured line of credit is
subject to its ongoing compliance with a number of financial and other
covenants, including a covenant that the Company not pay dividends in excess of
100% of its adjusted earnings, to be calculated on a trailing twelve-month
basis, provided however, dividends may be paid to the extent necessary to
maintain its status as a real estate investment trust. The unsecured line of
credit also contains customary events of default, including a cross default
provision. If an event of default occurs, all of the Company's obligations under
the unsecured line of credit may be declared immediately due and payable. For
events of default relating to insolvency and receivership, all outstanding
obligations automatically become due and payable.
At June 30, 2006, the Company had $267.0 million outstanding under the
unsecured line of credit, of which $122.0 million bore interest at 6.95219%,
$125.0 million bore interest at 6.73%, and $20.0 million bore interest at
6.77563%. Based upon the Company's eligible assets as of August 7, 2006, the
Company had approximately $30.0 million of availability under the unsecured line
of credit.
SECURED LINES OF CREDIT
At June 30, 2006, the Company had no amounts outstanding under its $30.0
million line of credit. This line of credit bears interest at either: (a) the
30-day LIBOR, plus 2.5%, or (b) the prime rate as published in the "Money Rates"
section of The Wall Street Journal, at the Company's election. Absent any
renewal, the line of credit will terminate in October 2007 and any principal
then outstanding must be paid by October 2008. The lender has the right to
declare any advance due and payable in full two years after the date of the
advance.
At June 30, 2006, the Company had $13.0 million outstanding under its $50.0
million line of credit. In February 2006, this credit line was increased from
$25.0 million at December 31, 2005 to $50.0 million. This line of credit bears
interest at the 30-day LIBOR plus 2.25%. The current interest rate is 7.65%.
Absent any renewal, the line of credit will terminate in February 2007 and any
principal then
14
outstanding must be paid by February 2008.
NOTE 9 - EARNINGS PER SHARE
The Company's calculation of earnings per share for the three and six
months ended June 30, 2006 and 2005 in accordance with SFAS No. 128 is as
follows:
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------ ------------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Numerator:
Net income from continuing operations $17,663,744 $18,958,160 $37,322,320 $37,486,946
Net income from discontinued operations 376,194 251,287 1,287,657 611,634
Gain from discontinued operations 2,788,663 -- 2,788,663 --
----------- ----------- ----------- -----------
Net income $20,828,601 $19,209,447 $41,398,640 $38,098,580
Dividends attributable to preferred shares (2,518,955) (2,518,955) (5,037,910) (5,037,910)
----------- ----------- ----------- -----------
Net income available to common shareholders $18,309,646 $16,690,492 $36,360,730 $33,060,670
=========== =========== =========== ===========
Denominator:
Weighted average common shares outstanding - basic 27,909,145 25,591,644 27,904,735 25,587,366
Add: effect of options 71,257 185,213 74,585 175,859
Add: effect of phantom units 69,454 3,692 61,375 3,221
Weighted average common shares outstanding - diluted 28,049,856 25,780,549 28,040,695 25,766,446
Basic earnings per share:
Net income $ 0.55 $ 0.64 $ 1.15 $ 1.27
Net income from discontinued operations 0.01 0.01 0.05 0.02
Gain from discontinued operations 0.10 -- 0.10 --
Net income available to common shareholders $ 0.66 $ 0.65 $ 1.30 $ 1.29
Diluted earnings per share:
Net income $ 0.54 $ 0.64 $ 1.15 $ 1.26
Net income from discontinued operations 0.01 0.01 0.05 0.02
Gain from discontinued operations 0.10 -- 0.10 --
Net income available to common shareholders $ 0.65 $ 0.65 $ 1.30 $ 1.28
</Table>
NOTE 10 -- STOCK BASED COMPENSATION
The Company maintains the RAIT Investment Trust 2005 Equity Compensation
Plan (the "Equity Compensation Plan"). The maximum aggregate number of Common
Shares that may be issued pursuant to the Equity Compensation Plan is 2,500,000.
The Company has granted to its officers, trustees and employees phantom
shares pursuant to the RAIT Investment Trust Phantom Share Plan and phantom
units pursuant to the Equity Compensation Plan. Both phantom shares and phantom
units are redeemable for Common Shares issued under the Equity Compensation
Plan. Redemption occurs after a period of time after vesting set by the
Compensation Committee. All outstanding phantom shares were issued to
non-management trustees, vested immediately, have dividend equivalent rights and
will be redeemed upon separation from service from the Company. Phantom units
granted to non-management trustees vest immediately, have dividend equivalent
rights and will be redeemed upon the earliest to occur of (i) the first
anniversary of the date of grant, or (ii) a trustee's termination of service
with the Company. Phantom units granted to officers and employees vest in
varying percentages set by the Compensation Committee over four years, have
dividend equivalent rights and will be redeemed between one to two years after
vesting as set by the Compensation Committee. The Company has been accounting
for grants of phantom shares and phantom units in accordance with SFAS No. 123,
which requires the recognition of compensation expenses on the date of grant.
The Company did not grant any phantom shares during the three and six
months ended June 30, 2006. The Company granted 1,392 phantom shares during both
the three and six months ended June 30, 2005. There were 4,136 phantom shares
outstanding at June 30, 2006. During the three months ended June 30, 2006 and
2005, the Company recognized $0 and $13,000, respectively, in compensation
expense relating to phantom shares issued under this plan. During the six months
ended June 30, 2006 and 2005, the
15
Company recognized $0 and $25,000, respectively, in compensation expenses
relating to phantom shares issued under this plan.
The Company granted 0 and 54,002 phantom units during the three and six
months ended June 30, 2006, respectively. There were 65,318 and 0 phantom units
outstanding at June 30, 2006 and 2005, respectively. During the three months
ended June 30, 2006 and 2005, the Company recognized $163,454 and $0,
respectively, in compensation expenses relating to phantom units issued under
this plan. During the six months ended June 30, 2006 and 2005, the Company
recognized $300,000 and $0, respectively, in compensation expenses relating to
phantom units issued under this plan.
STOCK OPTIONS
In February and April 2002, the Company granted to its employees, executive
officers and trustees options to purchase 61,100 Common Shares at the fair
market value on the date of grant. These options, which were exercised in March
through May 2002, had exercise prices of $16.92 and $19.85, respectively, per
Common Share. The Common Shares issued pursuant to these exercises were subject
to restrictions that had lapsed as of the fourth anniversary date of the grants.
At the time of exercise, the Company provided loans to each person in the amount
necessary to exercise such options. Each of these loans bore interest at a rate
of 6% per annum. The aggregate principal amount of these loans was $0 and
$263,647 at June 30, 2006 and December 31, 2005, respectively. Interest on the
outstanding principal amount was payable quarterly and 25% of the original
principal amount of each loan was payable on each of the first four
anniversaries. The final payments on the remaining loans outstanding were made
by April 30, 2006.
From its inception through 2004, the Company has granted to its officers,
trustees and employees options to acquire Common Shares. The vesting period is
determined by the Compensation Committee and the option term is generally ten
years after the date of grant. At June 30, 2006 and December 31, 2005 there were
276,183 and 477,360 options outstanding, respectively.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
LITIGATION
As part of the Company's business, the Company acquires and disposes of
real estate investments and, as a result, expects that it will engage in routine
litigation in the ordinary course of that business. Management does not expect
that any such litigation will have a material adverse effect on the Company's
consolidated financial position or results of operations.
DELEGATED UNDERWRITING PROGRAM
In 2005 and 2006 the Company has entered into program agreements with eight
mortgage lenders that provide that the mortgage lender will locate, qualify, and
underwrite both a first mortgage loan and a mezzanine loan and then sell the
mezzanine loan to the Company. The mezzanine loans must conform to the business,
legal and documentary parameters in the program agreement and be in the range of
$250,000 to $2.5 million. In most cases, the Company expects to acquire the
mezzanine loan from the mortgage lender at the closing of the mezzanine loan. In
general, if any variations are identified or any of the required deliveries are
not received, the Company has a period of time to notify the mortgage lender of
its election to either waive the variations or require the mortgage lender to
repurchase the mezzanine loan. Each of the eight program agreements provides
that the Company will fund up to $50.0 million per calendar quarter of loans
that fit the pre-defined underwriting parameters. In the three and six months
ended June 30, 2006, the Company funded five and nine mezzanine loans totaling
$2.5 million and $7.4 million, respectively, through the delegated underwriting
program.
16
GUIDANCE LINES
In June 2005, the Company entered into an agreement with a borrower
establishing financial and underwriting parameters under which the Company would
consider first mortgage bridge loans sourced by the borrower, up to an aggregate
of $150.0 million, with no individual loan in an amount greater than $50.0
million. The Company expects that the credit and market risk of the potential
loans will not differ from those of the loans in the Company's current
portfolio.
In March 2006, the Company entered into an agreement with another borrower
establishing financial and underwriting parameters under which the Company would
consider first mortgage bridge loans sourced by the borrower, up to an aggregate
of $50.0 million, with no individual loan in an amount greater than $30.0
million. The Company expects that the credit and market risk of the potential
loans will not differ from those of the loans in the Company's current
portfolio.
LEASE OBLIGATIONS
The Company sub-leases both its downtown and suburban Philadelphia office
locations. The annual minimum rent due pursuant to the subleases for the
remainder of 2006, each of the next four years and thereafter is estimated to be
as follows as of June 30, 2006:
2006 .............................................................. $ 203,044
2007 .............................................................. 395,352
2008 .............................................................. 395,352
2009 .............................................................. 395,352
2010 .............................................................. 263,568
Thereafter ........................................................ --
----------
Total .......................................................... $1,652,668
==========
The Company sub-leases a portion of its downtown Philadelphia office space
under an operating lease with Bancorp Inc., at an annual rental based upon the
amount of square footage the Company occupies. The sub-lease expires in August
2010 with two five-year renewal options. Rent paid to Bancorp Inc. was
approximately $84,000 and $168,000 for the three and six months ended June 30,
2006, respectively. Rent paid to Bancorp Inc. was approximately $83,000 and
$145,000 for the three and six months ended June 30, 2005, respectively. The
Company's affiliation with Bancorp Inc. is described in Note 12.
The Company sub-leases the remainder of its downtown Philadelphia office
space under an operating lease with The Richardson Group, Inc. ("Richardson").
The annual rental is based upon the amount of square footage the Company
occupies. The sub-lease expires in August 2010 with two five-year renewal
options. Rent paid to Richardson was approximately $11,400 and $11,000 for the
three months ended June 30, 2006 and 2005, respectively. Rent paid to Richardson
was approximately $22,800 and $23,000 for the six months ended June 30, 2006 and
2005, respectively. Effective April 1, 2005, Richardson relinquished to the
landlord its leasehold on a portion of the space they had subleased to the
Company. Simultaneously, Bancorp entered into a lease agreement with the
landlord for that space. The Company then entered into a new sublease with
Bancorp for that space at annual rentals based upon the amount of square footage
the Company occupies. The rent paid for this space is included in the amounts
disclosed above. The Company's affiliation with Richardson is described in Note
12.
The Company sub-leases suburban Philadelphia, Pennsylvania office space at
an annual rental of $15,600. This sublease currently terminates in February 2007
but renews automatically each year for a one year term unless prior notice of
termination of the sublease is sent by either party to the sublease to the other
party thereto.
EMPLOYMENT AGREEMENTS
The Company is party to employment agreements with Betsy Z. Cohen, Chairman
and Chief Executive Officer of the Company, and Scott F. Schaeffer, President
and Chief Operating Officer of the Company, that provide for compensation and
certain other benefits. The agreements also provide for severance payments under
certain circumstances.
In connection with the proposed merger involving the Company described in
Note 14, Mrs. Cohen and Mr. Schaeffer waived their rights to terminate their
existing employment agreements with the Company for "good reason," subject to
entering into amended employment agreements with RAIT.
17
NOTE 12 - TRANSACTIONS WITH AFFILIATES
Brandywine Construction & Management, Inc. ("Brandywine"), is an affiliate
of the spouse of Betsy Z. Cohen, the Chairman and Chief Executive Officer of the
Company. Brandywine provided real estate management services to eleven
properties underlying the Company's real estate interests at both June 30, 2006
and 2005. Management fees in the following amounts were paid to Brandywine
relating to these interest; $121,000 and $341,000 for the three and six months
ended June 30, 2006, respectively, and $207,000 and $454,000 for the three and
six months ended June 30, 2005, respectively. The Company believes that the
management fees charged by Brandywine are comparable to those that could be
obtained from unaffiliated third parties. The Company expects to continue to use
Brandywine to provide real estate management services to properties underlying
the Company's investments.
Betsy Z. Cohen has been the Chairman of the Board of The Bancorp Bank
("Bancorp"), a commercial bank, since November 2003 and a director of The
Bancorp, Inc. ("Bancorp Inc"), a registered financial holding company for
Bancorp, since September 2000 and the Chief Executive Officer of both Bancorp
and Bancorp Inc. since September 2000. Daniel G. Cohen, Mrs. Cohen's son, (a)
has been the Vice-Chairman of the Board of Bancorp since November 2003, was the
Chairman of the Board of Bancorp from September 2000 to November 2003, was the
Chief Executive Officer of Bancorp from July 2000 to September 2000 and has been
Chairman of the Executive Committee of Bancorp since 1999 and (b) has been the
Chairman of the Board of Bancorp Inc. and Chairman of the Executive Committee of
Bancorp Inc. since 1999. The Company maintains most of its checking, demand
deposit, and restricted cash accounts at Bancorp. As of June 30, 2006 and
December 31, 2005, the Company had approximately $42.8 million and $84.2
million, respectively, on deposit, of which approximately $42.7 million and
$84.1 million, respectively, is over the FDIC insurance limit. The Company pays
a fee of $5,000 per month to Bancorp for information system technical support
services. The Company paid $15,000 for these services for each of the three
month periods ended June 30, 2006 and 2005. The Company paid $30,000 for these
services for each of the six month periods ended June 30, 2006 and 2005.
The Company subleases a portion of its downtown Philadelphia office space
under an operating lease with Bancorp Inc. A portion of this space is sublet to
Richardson whose Chairman is Jonathan Z. Cohen, the Vice-Chairman, a trustee and
Secretary of the Company, and a son of the Chairman and Chief Executive Officer
of the Company. The Company sub-leases the remainder of its downtown
Philadelphia office space under an operating lease with Richardson. For a
description of these operating leases, see Note 11 - "Commitments and
Contingencies - Lease Obligations".
NOTE 13 - DIVIDENDS
Common Shares
In order to maintain its election to qualify as a REIT, the Company must
currently distribute, at a minimum, an amount equal to 90% of its taxable
income. Because taxable income differs from cash flow from operations due to
non-cash revenues or expenses (such as depreciation), in certain circumstances,
the Company may generate operating cash flow in excess of its dividends or,
alternatively, may be required to borrow to make sufficient dividend payments.
On each declaration date set forth below, the Board of Trustees of the
Company declared a cash dividend in an amount per Common Share, in the aggregate
dividend amount and payable on the payment date to holders of Common Shares on
the record date opposite such declaration date.
AGGREGATE
DECLARATION DATE RECORD DATE PAYMENT DATE DIVIDEND PER SHARE DIVIDEND AMOUNT
- ---------------- ----------- ------------ ------------------ ---------------
06/19/06 07/06/06 07/17/06 $0.62 $17,428,889
03/24/06 04/05/06 04/14/06 $0.61 $17,019,949
Series A Preferred Shares
On each declaration date set forth below, the Board of Trustees of the
Company declared a cash dividend of $0.484375 per share on the Company's 7.75%
Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (the
"Series A Preferred Shares") in the aggregate dividend amount and payable on the
payment date to holders of Series A Preferred Shares on the record date opposite
such declaration date.
AGGREGATE
DECLARATION DATE RECORD DATE PAYMENT DATE DIVIDEND AMOUNT
- ---------------- ----------- ------------ ---------------
07/25/06 09/01/06 10/02/06 $1,336,875
05/08/06 06/01/06 06/30/06 $1,336,875
01/24/06 03/01/06 03/31/06 $1,336,875
18
Series B Preferred Shares
On the declaration date set forth below, the Board of Trustees of the
Company declared a cash dividend of $0.5234375 per share on the Company's 8.375%
Series B Cumulative Redeemable Preferred Shares of Beneficial Interest (the
"Series B Preferred Shares") in the aggregate dividend amount and payable on the
payment date to holders of Series B Preferred Shares on the record date opposite
such declaration date.
AGGREGATE
DECLARATION DATE RECORD DATE PAYMENT DATE DIVIDEND AMOUNT
- ---------------- ----------- ------------ ---------------
07/25/06 09/01/06 10/02/06 $1,182,080
05/08/06 06/01/06 06/30/06 $1,182,080
01/24/06 03/01/06 03/31/06 $1,182,080
NOTE 14 -- PROPOSED MERGER WITH TABERNA
On June 8, 2006, the Company and Taberna Realty Finance Trust ("Taberna")
entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant
to which a newly formed subsidiary of the Company will, subject to the terms and
conditions of the Merger Agreement, merge with and into Taberna (the "Merger"),
as a result of which the Company will own all of the common shares of beneficial
interest of Taberna ("Taberna Common Shares").
Subject to the terms and conditions of the Merger Agreement, which has been
unanimously approved by the boards of trustees of both companies, upon the
completion of the Merger each issued and outstanding Taberna Common Share will
be converted into 0.5389 Common Shares of the Company, with cash to be paid in
lieu of fractional Common Shares.
The Merger Agreement contains customary representations, warranties and
covenants of the Company and Taberna, including, among others, covenants (i) to
conduct their respective businesses in the ordinary course during the period
between the execution of the Merger Agreement and consummation of the Merger and
(ii) not to engage in certain kinds of transactions during such period. The
board of trustees of each company has adopted a resolution approving and
declaring advisable the Merger, and recommending that its shareholders, with
respect to Taberna, approve the Merger, and with respect to the Company, approve
the issuance of Common Shares in the Merger, and each party has agreed to hold a
shareholder meeting to put these matters before their shareholders for their
consideration. Each party has also agreed not to (i) solicit proposals relating
to alternative business combination transactions or (ii) subject to certain
exceptions, enter into discussions or negotiations or provide confidential
information in connection with any proposals for alternative business
combination transactions.
Consummation of the Merger is subject to various conditions, including,
among others, (i) requisite approvals of the shareholders of the Company and
Taberna, (ii) the absence of any law or order prohibiting the consummation of
the Merger, and (iii) effectiveness of the Form S-4 registration statement
relating to the Common Shares to be issued in the Merger and listing of the
Common Shares to be issued in the Merger on the New York Stock Exchange. In
addition, each party's obligation to consummate the Merger is subject to certain
other conditions, including, among others, (i) subject to the standards set
forth in the Merger Agreement, the accuracy of the representations and
warranties of the other party, (ii) compliance of the other party with its
covenants in all material respects, (iii) the delivery of opinions from counsel
to the Company and counsel to Taberna relating to the U.S. federal income tax
code treatment of the Merger and the real estate investment trust status of both
parties and (iv) there shall not have occurred any event, change, effect or
circumstance that has had or is reasonably likely to have a material adverse
effect on the other party.
The Merger Agreement contains certain termination rights for both the
Company and Taberna.
No assurance can be given that all closing conditions will be satisfied or
waived, or that the Merger will in fact be consummated.
19
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Trustees and Shareholders
RAIT Investment Trust
We have reviewed the accompanying consolidated balance sheet of RAIT
Investment Trust and Subsidiaries as of June 30, 2006 and the related
consolidated statements of income and cash flows for the three-month and
six-month periods ended June 30, 2006 and 2005. These interim financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board (United States), the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheet as of December 31, 2005, and the related consolidated statements of
income, shareholders' equity and cash flows for the year then ended (not
presented herein); and in our report dated March 1, 2006 (except for Note 6 as
to which the date is July 13, 2006) we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 2005 is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
/s/ GRANT THORNTON LLP
Philadelphia, Pennsylvania
August 8, 2006
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
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," "continue" or similar words. These forward-looking
statements are subject to risks and uncertainties, as more particularly set
forth in our filings with the Securities and Exchange Commission, including
those described in the "Risk Factors" section of our Annual Report on Form 10-K
for the year ended December 31, 2005, that could cause actual results to differ
materially from those projected in the forward-looking statements. 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.
OVERVIEW
We are a real estate investment trust, or REIT, formed under Maryland law.
We make investments in real estate primarily by making real estate loans,
acquiring real estate loans and acquiring interests in real estate. Our
principal business objective is to generate income for distribution to our
shareholders from a combination of interest and fees on loans, rents and other
income from our interests in real estate.
Our revenues increased 9.5% from $27.0 million for the three months ended
June 30, 2005 to $29.6 million for the three months ended June 30, 2006, while
our net income available to common shareholders increased 9.7% to $18.3 million
for the three months ended June 30, 2006 from $16.7 million for the three months
ended June 30, 2005. Our revenues increased 16.7% from $51.6 million for the six
months ended June 30, 2005 to $60.3 million for the six months ended June 30,
2006, while our net income available to common shareholders increased 10% to
$36.4 million for the six months ended June 30, 2006 from $33.1 million for the
six months ended June 30, 2005. Due to the sale of three consolidated
investments in real estate during the second quarter of 2006, our total assets
grew only 2.6% to $1.1 billion at June 30, 2006 from $1.0 billion at December
31, 2005. However, our real estate loans, net, grew 21.9% from $714.4 million at
December 31, 2005 to $870.9 million at June 30, 2006.
We believe the principal reasons for this growth were:
- Increased mezzanine and bridge loans-- we continued to grow our
core business of making mezzanine and bridge loans in 2006. We
originated, purchased or acquired $417.0 million, in the
aggregate, of mezzanine and bridge loans in the six months ended
June 30, 2006 as compared to $227.7 million in the six months
ended June 30, 2005.
- Increased use of leverage -- Throughout 2005 and continuing
through August 2006 we leveraged our asset base by investing over
$375.0 million we have obtained by establishing new sources of
debt financing.
We have been seeking to increase the return on our investments in
appropriate cases by increasing our use of debt to leverage our investments
while seeking to minimize the cost of this debt. While the unsecured line of
credit described below under "Liquidity and Capital Resources" has enabled us to
borrow increasing amounts at lower interest rates than those available under our
secured lines of credit, we have found that the cost of the funds we borrow
under all our lines of credit has been increasing as interest rates generally
rise. To further reduce our cost of funds, we are exploring ways to use
collateralized debt obligations, or CDOs, to finance our investments. CDOs are
securities supported by a pool of debt assets. We believe aggregating pools of
our investments to support CDOs may enable us to reduce our related cost of
funds. We may need to obtain waivers or amendments under, or otherwise replace,
our unsecured and secured lines of credit in order to carry out our CDO
strategy. We cannot assure you that we will be able to carry out this CDO
strategy or that we will be able to achieve our goals with respect to our CDO
strategy. As described below under "Liquidity and Capital Resources," we are in
the process of negotiating a warehouse line of credit that we anticipate will
provide us with up to $200.0 million of availability in the third quarter of
2006 and enable us to structure a CDO or other securitization thereafter which
we believe will lower our borrowing costs. In addition, we believe our ability
to carry out this CDO strategy will be enhanced if we are able to consummate the
merger described below under "Proposed Merger With Taberna."
PROPOSED MERGER WITH TABERNA
21
On June 8, 2006, we and Taberna Realty Finance Trust, or Taberna, entered
into an agreement and plan of merger, pursuant to which our newly formed
subsidiary will, subject to the terms and conditions of the merger agreement,
merge with and into Taberna, as a result of which we will own all of the common
shares of beneficial interest of Taberna. See note 14 of our consolidated
financial statements. We have filed with the Securities and Exchange Commission,
or SEC, a registration statement on Form S-4 (registration no. 333-136197) that
includes a preliminary joint proxy statement/prospectus of us and Taberna and we
may file other relevant documents concerning the proposed merger with the SEC.
Once finalized, a definitive joint proxy statement/prospectus will be sent to
our shareholders and Taberna's shareholders seeking approvals related to the
proposed transaction. Our shareholders and Taberna's shareholders and other
investors are urged to read the registration statement and the definitive joint
proxy statement/prospectus when it becomes available and any other materials
filed by us with the SEC, as well as any amendments or supplements to those
documents. These documents contain important information, which should be read
carefully before any decision is made with respect to the merger. Documents
filed with the SEC are available for free at the SEC's website
(http://www.sec.gov). These documents are also available for free by accessing
our website (http://www.raitinvestmenttrust.com).
We, Taberna and certain of our and Taberna's trustees, executive officers,
members of management and employees, may be deemed to be participants in the
solicitation of proxies in connection with the proposed merger. Information
regarding the persons who may, under the rules of the SEC, be considered to be
participants in the solicitation of shareholders in connection with the proposed
merger, including any interest they have in the merger, is set forth in the
joint proxy statement/prospectus filed with the SEC.
This filing shall not constitute an offer to sell or the solicitation of an
offer to buy any securities, nor shall there be any sale of securities in any
jurisdiction in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such
jurisdiction. No offering of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the U.S. Securities Act of
1933, as amended.
LIQUIDITY AND CAPITAL RESOURCES
The principal sources of our liquidity and capital resources from our
commencement in January 1998 through June 30, 2006 were our public offerings of
common shares, 7.75% Series A cumulative redeemable preferred shares and 8.375%
Series B cumulative redeemable preferred shares. After offering costs and
underwriting discounts and commissions, these offerings have allowed us to
obtain net offering proceeds of $594.2 million. We expect to continue to rely on
offerings of our securities as a principal source of our liquidity and capital
resources.
We issued 2,760,000 Series A preferred shares in March and April 2004 for
net proceeds of $66.6 million. Our Series A preferred shares accrue cumulative
cash dividends at a rate of 7.75% per year of the $25.00 liquidation preference,
equivalent to $1.9375 per year per share. Dividends are payable quarterly in
arrears at the end of each March, June, September and December. The Series A
preferred shares have no maturity date and we are not required to redeem the
Series A preferred shares at any time. We may not redeem the Series A preferred
shares before March 19, 2009, except in limited circumstances relating to the
ownership limitations necessary to preserve our tax qualification as a real
estate investment trust. On or after March 19, 2009, we may, at our option,
redeem the Series A preferred shares, in whole or part, at any time and from
time to time, for cash at $25.00 per share, plus accrued and unpaid dividends,
if any, to the redemption date. For each of the six month periods ended June 30,
2006 and 2005, we paid dividends on our Series A preferred shares of $2.6
million, in the aggregate.
We issued 2,258,300 Series B preferred shares in October and November 2004
for net proceeds of $54.4 million. Our Series B preferred shares accrue
cumulative cash dividends at a rate of 8.375% per year of the $25.00 liquidation
preference, equivalent to $2.09375 per year per share. Dividends are payable
quarterly in arrears at the end of each March, June, September and December. The
Series B preferred shares have no maturity date and we are not required to
redeem the Series B preferred shares at any time. We may not redeem the Series B
preferred shares before October 5, 2009, except in limited circumstances
relating to the ownership limitations necessary to preserve our tax
qualification as a real estate investment trust. On or after October 5, 2009, we
may, at our option, redeem the Series B preferred shares, in whole or part, at
any time and from time to time, for cash at $25.00 per share, plus accrued and
unpaid dividends, if any, to the redemption date. For each of the six month
periods ended June 30, 2006 and 2005, we paid dividends on our Series B
preferred shares of $2.4 million, in the aggregate. Our Series A preferred
shares and Series B preferred shares rank on a parity with respect to dividend
rights, redemption rights and distributions upon liquidation.
We also maintain liquidity through our unsecured line of credit and our
secured lines of credit. At June 30, 2006, our unsecured line of credit provided
for $335.0 million of maximum possible borrowings (we have the right to request
an increase in the unsecured
22
line of credit of up to an additional $15.0 million, to a maximum of $350.0
million, subject to certain pre-defined requirements) and two secured lines of
credit, one of which has $30.0 million of maximum possible borrowings, and the
second of which has $50.0 million of maximum possible borrowings.
The following are descriptions of our unsecured and secured lines of credit
at June 30, 2006:
UNSECURED LINE OF CREDIT
We are party to a revolving credit agreement that, as of June 30, 2006,
provides for a senior unsecured line of credit in an amount up to $335.0
million, with the right to request an increase in the unsecured line of credit
of up to a maximum of $350.0 million. Borrowing availability under the unsecured
line of credit is based on specified percentages of the value of eligible
assets. The unsecured line of credit will terminate on October 24, 2008, unless
we extend the term an additional year upon the satisfaction of specified
conditions.
Amounts borrowed under the unsecured line of credit bear interest at a rate
equal to, at our option:
- LIBOR (30-day, 60-day, 90-day or 180-day interest periods, at our
option) plus an applicable margin of between 1.35% and 1.85% or
- an alternative base rate equal to the greater of:
- the prime rate of the bank serving as administrative agent
or
- the Federal Funds rate plus 50 basis points,
plus an applicable margin of between 0% and 0.35%.
The applicable margin is based on the ratio of our total liabilities to
total assets which is calculated on a quarterly basis. We are obligated to pay
interest only on the amounts borrowed under the unsecured line of credit until
the maturity date of the unsecured line of credit, at which time all principal
and any interest remaining unpaid is due. We pay a commitment fee quarterly on
the difference between the aggregate amount of the commitments in effect from
time to time under the unsecured line of credit and the outstanding balance
under the unsecured line of credit. This commitment fee is equal to fifteen
basis points (twenty five basis points if this difference is greater than 50% of
the amount of the unsecured line of credit) per annum of this difference.
Our ability to borrow under the unsecured line of credit is subject to our
ongoing compliance with a number of financial and other covenants, including a
covenant that we not pay dividends in excess of 100% of our adjusted earnings,
to be calculated on a trailing twelve-month basis, provided however, dividends
may be paid to the extent necessary to maintain our status as a real estate
investment trust. The unsecured line of credit also contains customary events of
default, including a cross default provision. If an event of default occurs, all
of our obligations under the unsecured line of credit may be declared
immediately due and payable. For events of default relating to insolvency and
receivership, all outstanding obligations automatically become due and payable.
At June 30, 2006, we had $267.0 million outstanding under the unsecured
line of credit, of which $122.0 million bore interest at 6.95219%, $125.0
million bore interest at 6.73%, and $20.0 million bore interest at 6.77563%.
Based upon our eligible assets as of August 7, 2006, we had $30.0 million of
availability under the unsecured line of credit.
SECURED LINES OF CREDIT
At June 30, 2006, we had $30.0 million of availability under our $30.0
million line of credit. This line of credit bears interest at either:
- the 30-day London interbank offered rate, or LIBOR plus 2.5% or
- the prime rate as published in the "Money Rates" section of The
Wall Street Journal, at our election.
Absent any renewal, the line of credit will terminate in October 2007 and any
principal then outstanding must be repaid by October 2008. The lender has the
right to declare any advance due and payable in full two years after the date of
the advance.
23
At June 30, 2006, we had $37.0 million of availability under our $50.0
million line of credit. In February 2006, the credit line was increased from
$25.0 million at December 31, 2005 to $50.0 million. This line of credit bears
interest at the 30-day LIBOR plus 2.25%. Absent any renewal, the line of credit
will terminate in February 2007 and any principal then outstanding must be paid
by February 2008.
Our other sources of liquidity and capital resources include principal
payments on, refinancings of, and sales of senior participations in loans in our
portfolio as well as refinancings and the proceeds of sales and other
dispositions of our interests in real estate. These resources aggregated $240.8
million and $331.8 million for the three and six months ended June 30, 2006,
respectively, as compared to $160.0 million and $215.9 million for the three and
six months ended June 30, 2005, respectively.
We also receive funds from a combination of interest and fees on our loans,
rents and income from our real estate interests and consulting fees. As required
by the Internal Revenue Code, we use this income, to the extent of not less than
90% of our taxable income, to pay distributions to our shareholders. The
dividend distribution for the quarters ended June 30, 2006 and 2005 (paid on
July 17, 2006 and July 15, 2005, respectively), was $17.4 million and $15.6
million, respectively, of which $17.3 million and $15.5 million, respectively,
was in cash and $138,700 and $86,700, respectively, was in additional common
shares issued through our dividend reinvestment plan. We also paid $5.0 million
of dividends, in the aggregate, on our Series A and Series B preferred shares
for both six month periods ended June 30, 2006 and 2005. We expect to continue
to use funds from these sources to meet these needs.
We use our capital resources principally for originating and purchasing
loans and acquiring real estate interests. For the three months ended June 30,
2006, we originated or purchased 23 loans in the aggregate amount of $190.0
million, as compared to ten loans in the aggregate amount of $119.3 million for
the three months ended June 30, 2005. For the six months ended June 30, 2006 we
originated 46 loans in the aggregate amount of $417.0 million, as compared to 19
loans in the aggregate amount of $227.7 million for the six months ended June
30, 2005.
At June 30, 2006, we had approximately $15.2 million of cash on hand which,
when combined with $65.8 million of loan repayments we received through August
7, 2006, and $42.0 million drawn on our lines of credit, provided for $11.5
million of loans originated through August 7, 2006 and to fund our second
quarter dividend payments. We anticipate that we will use the remaining $94.2
million to fund investments that we expect to make through August 15, 2006.
We are in the process of negotiating a warehouse line of credit that we
anticipate will provide us with up to $200.0 million of availability in the
third quarter of 2006. We anticipate that we will use this warehouse line of
credit to make investments and then, once we have accumulated a sufficient
amount of suitable investments under this warehouse line of credit, structure
a CDO or other securitization using these and other of our investments. We
anticipate that a CDO or other securitization will lower our borrowing costs
with respect to the underlying investments from those related to the warehouse
line of credit and therefore increase our return from these investments.
We believe that our anticipated and existing sources of funds will be
adequate for purposes of meeting our liquidity and capital needs. We do not
currently experience material difficulties in maintaining and accessing these
resources. However, we could encounter difficulties in the future, depending
upon the development of conditions in the credit markets and the other risks and
uncertainties described in our filings with the Securities and Exchange
Commission, including those described in the "Risk Factors" section of our
Annual Report on Form 10-K for the year ended December 31, 2005.
We may also seek to develop other sources of capital, including, without
limitation, long-term borrowings, offerings of our warrants, issuances of our
debt securities and the securitization and sale of pools of our loans. Our
ability to meet our long-term, that is, beyond one year, liquidity and capital
resources requirements is subject to obtaining additional debt and equity
financing. Any decision by our lenders and investors to enter into such
transactions with us will depend upon a number of factors, such as our financial
performance, compliance with the terms of our existing credit arrangements,
industry or market trends, the general availability of and rates applicable to
financing transactions, such lenders' and investors' resources and policies
concerning the terms under which they make such capital commitments and the
relative attractiveness of alternative investment or lending opportunities. In
addition, as a REIT, we must distribute at least 90% of our annual taxable
income, which limits the amount of cash from operations we can retain to fund
our capital needs.
The following schedule summarizes our currently anticipated contractual
obligations and commercial commitments as of June 30, 2006:
24
PAYMENTS DUE BY PERIOD
-------------------------------------------------------------------
LESS THAN ONE TO THREE TO MORE THAN
CONTRACTUAL OBLIGATIONS ONE YEAR THREE YEARS FIVE YEARS FIVE YEARS TOTAL
- ----------------------- ----------- ------------ ---------- ---------- ------------
Operating leases ........................ $ 203,044 $ 790,704 $ 658,920 $ -- $ 1,652,668
Indebtedness secured by real estate(1) .. 16,091,777 71,286,124 8,394,421 6,253,409 102,025,731
Secured line of credit .................. -- 13,000,000 -- -- 13,000,000
Unsecured line of credit ................ -- 267,000,000 -- -- 267,000,000
Deferred compensation(2) ................ -- 1,647,268 -- -- 1,647,268
----------- ------------ ---------- ---------- ------------
$16,294,821 $353,724,096 $9,053,341 $6,253,409 $385,325,667
=========== ============ ========== ========== ============
- ----------
(1) Indebtedness secured by real estate consists of senior indebtedness
relating to loans, and long-term debt secured by consolidated real estate
interests.
(2) Represents amounts due to fund our supplemental executive retirement plan
or SERP. See note 10 of our consolidated financial statements, Item 8 of
our Annual Report on Form 10-K for the year ended December 31, 2005.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that we believe have had,
or are reasonably likely to have, a current or future effect on our financial
condition, revenues, expenses, results of operations, liquidity, capital
expenditures or capital resources, that is material to investors.
CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES
Refer to our Annual Report on Form 10-K for the year ended December 31,
2005 for a discussion of our critical accounting policies. During the three and
six months ended June 30, 2006, there were no material changes to these
policies, except for the update described below.
25
Reserve for Loan Losses. We had a reserve for loan losses of $226,000 at
June 30, 2006 and 2005. This reserve is a general reserve and is not related to
any individual loan or to an anticipated loss. In accordance with our policy, we
determined that this reserve was adequate as of June 30, 2006, based upon our
credit analysis of each of the loans in our portfolio. If that analysis were to
change, we may be required to increase our reserve, and such an increase,
depending upon the particular circumstances, could be substantial. Any increase
in reserves will constitute a charge against income. We will continue to analyze
the adequacy of this reserve on a quarterly basis. During the three and six
months ended June 30, 2006 and 2005, the loans in our portfolio performed in
accordance with their terms.
RESULTS OF OPERATIONS
Interest Income. Interest income is comprised primarily of interest accrued
on our loans. In addition, certain of our loans provide for additional interest
payable to us based on the operating cash flow or appreciation in value of the
underlying real estate. We recognize this additional interest or "accretable
yield" over the remaining life of the loan, such that the return yielded by the
loan remains at a constant level for its remaining life. Our interest income was
$22.5 million for the three months ended June 30, 2006 compared to $19.6 million
for the three months ended June 30, 2005. The $2.9 million increase was
primarily due to the following:
- an additional $13.6 million of interest accruing on 98 loans
totaling $745.2 million originated between April 1, 2005 and June
30, 2006, partially offset by a $10.0 million reduction of
interest due to the repayment of 40 loans totaling $300.8 million
during the same period,
- a decrease of $925,000 in accretable yield included in our
interest income from the three months ended June 30, 2005 to the
same period in 2006.
Our interest income was $42.0 million for the six months ended June 30,
2006 compared to $38.6 million for the six months ended June 30, 2005. The $3.4
million increase was primarily due to the following:
- an additional $25.4 million of interest accruing on 105 loans
totaling $790.7 million originated between January 1, 2005 and
June 30, 2006, partially offset by a $19.5 million reduction of
interest due to the repayment of 58 loans totaling $354.0 million
during the same period,
- a decrease of $2.5 million in accretable yield included in our
interest income from the six months ended June 30, 2005 to the
same period in 2006.
Rental Income. We received rental income of $3.5 million and $7.4 million
for the three and six months ended June 30, 2006, respectively, compared to $3.4
million and $6.8 million for the three and six months ended June 30, 2005,
respectively. The $600,000 increase from the six months ended June 30, 2005 to
the corresponding period in 2006 was primarily the result of one property's
annual reconciliation of amounts due from a major tenant for the portion of
property operations expenses for which they are financially responsible,
pursuant to their lease.
Fee Income and Other. Revenues generated by our wholly owned subsidiary,
RAIT Capital Corp d/b/a Pinnacle Capital Group, are generally reported in this
income category. Pinnacle provides, or arranges for another lender to provide,
first-lien conduit loans to our borrowers. This service often assists us in
offering the borrower a complete financing package, including our mezzanine or
bridge financing. Where we have made a bridge loan to a borrower, we may be able
to assist our borrower in refinancing our bridge loan, for which we will earn
related fee income through Pinnacle. We also include financial consulting fees
in this income category. Financial consulting fees are generally negotiated on a
transaction by transaction basis and, as a result, the sources of such fees for
any particular period are not generally indicative of future sources and
amounts. We earned fee and other income of $2.2 million and $7.9 million for the
three and six months ended June 30, 2006, respectively, as compared to $2.1
million and $3.0 million earned in the three and six months ended June 30, 2005,
respectively. Consulting fees included in fee and other income were $890,000 and
$4.5 million for the three and six months ended June 30, 2006, respectively, and
were $500,000 for both the three and six months ended June 30, 2005. Revenue
generated by Pinnacle included in fee and other income was $1.2 million and $3.2
million for the three and six months ended June 30, 2006, respectively, and was
$1.5 million and $2.4 million for the three and six months ended June 30, 2005,
respectively. If we implement the CDO strategy referred to above in "Overview",
we anticipate that we will seek to increase fee income resulting from
investments intended to support our CDOs, which may shift some income previously
characterized as interest income to fee income.
Investment Income. We derived our investment income from the return on our
unconsolidated real estate interests and from
26
interest earned on cash held in bank accounts. We received investment income of
$1.4 million for the three months ended June 30, 2006, compared to $1.9 million
for the three months ended June 30, 2005. The $500,000 decrease from the three
months ended June 30, 2005 to the corresponding period in 2006 was primarily due
to repayment of two unconsolidated real estate interests, in accordance with
their agreed upon terms.
We received investment income of $3.0 million for the six months ended June
30, 2006, compared to $3.2 million for the six months ended June 30, 2005. The
$200,000 decrease in investment income from the six months ended June 30, 2005
to the corresponding period in 2006 was primarily due to the two repayments
described above.
Interest Expense. Interest expense consists of interest payments made on
senior indebtedness relating to loans, long term debt secured by consolidated
real estate interests and interest payments made on our unsecured and secured
lines of credit. We anticipate our interest expense will increase as we increase
our use of leverage to enhance our return on our investments. Interest expense
was $7.1 million and $12.6 million for the three and six months ended June 30,
2006, respectively as compared to $3.4 million and $5.1 million for the three
and six months ended June 30, 2005, respectively. The increases in interest
expense from the three and six months ended June 30, 2005 to the corresponding
periods in 2006 were attributable to the establishment and utilization of up to
$335.0 million in additional borrowing capability from our new unsecured line
of credit and $30.0 million in additional long term debt secured by a
consolidated real estate interest.
Property Operating Expenses; Depreciation and Amortization. Property
operating expenses were $1.8 million for the both the three months ended June
30, 2006 and 2005. Depreciation and amortization was $372,000 for the three
months ended June 30, 2006 as compared to $362,000 for the three months ended
June 30, 2005. Property operating expenses were $3.9 million for the six months
ended June 30, 2006 as compared to $3.7 million for the six months ended June
30, 2005. Depreciation and amortization was $742,000 for the six months ended
June 30, 2006 as compared to $719,000 for the six months ended June 30, 2005.
Included in property operating expenses are management fees paid to Brandywine
Construction & Management, Inc., an affiliate of the spouse of our chairman and
chief executive officer, for providing real estate management services for the
real estate underlying our real estate interests. Brandywine provided real
estate management services to four properties underlying our consolidated real
estate interests at both June 30, 2006 and 2005. We paid management fees of
$58,000 and $191,000 to Brandywine for the three and six months ended June 30,
2006, respectively. We paid management fees of $115,000 and $270,000 to
Brandywine for the three and six months ended June 30, 2005, respectively. In
addition, at both June 30, 2006, and 2005, Brandywine provided real estate
management services for real estate underlying seven of our unconsolidated real
estate interests (whose results of operations are not included in our
consolidated financial statements). We anticipate that we will continue to use
Brandywine to provide real estate management services.
Salaries and Related Benefits; General and Administrative Expense. Salaries
and related benefits were $1.8 million and $3.7 million for the three and six
months ended June 30, 2006, respectively, as compared to $1.2 million and $2.5
million for the three and six months ended June 30, 2005, respectively. General
and administrative expenses were $892,000 and $1.3 million for the three months
ended June 30, 2006 and 2005, respectively. The increase in salaries and related
benefits expense was due to increased costs of employee benefits including those
of our supplemental executive retirement plan. The decrease in general and
administrative expenses for the three months ended June 30, 2005 to the
corresponding period in 2006 reflects a timing difference between the six month
periods ending June 30, 2006 and 2005, in the recognition of certain expenses in
either the first or second quarter of each year. Accordingly, general and
administrative expenses are the same for the six month periods ending June 30,
2006 and 2005.
Included in general and administrative expense is rental expense relating
to our downtown Philadelphia office space. We sublease these offices pursuant to
two operating leases that provide for annual rentals based upon the amount of
square footage we occupy. The sub-leases expire in August 2010 and both contain
two five-year renewal options. One sub-lease is with The Bancorp, Inc. We paid
rent to Bancorp in the amount of $84,000 and $83,000 the three months ended June
30, 2006 and 2005, respectively. We paid rent to Bancorp in the amount of
$168,000 and $145,000 the six months ended June 30, 2006 and 2005, respectively.
The other sublease is with The Richardson Group, Inc. We paid rent to Richardson
in the amount of $11,400 and $11,000 for the three months ended June 30, 2006
and 2005, respectively. We paid rent to Richardson in the amount of $22,800 and
$23,000 for the six months ended June 30, 2006 and 2005, respectively. Also
included in general and administrative expenses is $15,000 that we paid in both
three month periods ended June 30, 2006 and 2005 to Bancorp for technical
support services provided to us. Our relationships with Bancorp and Richardson
are described in note 12 to our consolidated financial statements.
Gain from discontinued operations. As of October 3, 2005, we classified as
"held for sale" one of our consolidated real estate interests, consisting of an
89% general partnership interest in a limited partnership that owns a building
in Philadelphia, Pennsylvania with 456,000 square feet of office/retail space.
As of March 31, 2006 we classified as "held for sale" another consolidated real
estate interest consisting of a 110,421 square foot shopping center in Norcross,
Georgia. As of May 11, 2006, the we classified as "held for sale" a consolidated
real estate interest consisting of a 216-unit apartment complex and clubhouse in
Watervliet, New York. The results of operations attributable to these interests
have been reclassified, for all periods presented, to "discontinued operations".
Additionally, depreciation expense was no longer recorded for these assets once
they were
27
classified as "held for sale".
The following is a summary of the aggregate results of operations of our
investments which were classified as "held for sale" for the three and six
months ended June 30, 2006 and 2005, which have been reclassified to
discontinued operations in our consolidated statements of income for all periods
presented:
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------- -----------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
Rental income ........................ $2,318,526 $3,980,034 $6,433,916 $8,053,587
Less: Operating expenses ............. 1,329,377 2,056,415 3,418,328 4,119,153
Interest expense .................. 575,730 966,740 1,524,597 1,929,790
Depreciation and amortization ..... 37,225 705,592 203,334 1,393,010
---------- ---------- ---------- ----------
Income from discontinued operations .. $ 376,194 $ 251,287 $1,287,657 $ 611,634
========== ========== ========== ==========
We sold the Philadelphia, Pennsylvania office building in May 2006 for
approximately $74.0 million. The Norcross, Georgia shopping center and the
Watervliet, New York apartment complex were both sold in June 2006 for $13.0
million and $11.0 million, respectively. We recognized a net gain of $2.8
million on the sale of these interests.
28
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in our assessment of our sensitivity to market
risk since the presentation in our Annual Report on Form 10-K for the year ended
December 31, 2005, as updated by our Current Report on Form 8-K filed with the
Securities and Exchange Commission on July 17, 2006.
ITEM 4. CONTROLS AND PROCEDURES
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 (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
that occurred during the three months ended June 30, 2006 that has materially
affected, or is reasonably likely to materially affect, our internal control
over financial reporting.
29
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As part of our business, we acquire and dispose of real estate investments
and, as a result, expect that we will engage in routine litigation in the
ordinary course of that business. Management does not expect that any such
litigation will have a material adverse effect on our consolidated financial
position or results of operations.
ITEM 1A. RISK FACTORS
Set forth below are risk factors relating to our proposed merger with
Taberna supplementing the risk factors disclosed in Item 1A of Part 1 of our
Annual Report on Form 10-K for the year ended December 31, 2005.
We expect to incur costs and expenses in connection with the merger.
We expect to incur costs and expenses of approximately $6.1 million in
connection with the merger. These costs and expenses include insurance costs,
investment banking, legal and accounting fees, printing expenses and other
related charges incurred and expected to be incurred by us. We cannot assure you
that the costs incurred by us in connection with the merger will not be higher
than expected or that the combined company will not incur additional
unanticipated costs and expenses in connection with the merger.
Failure to complete the merger could negatively impact the price of RAIT common
shares and future business and operations.
The merger is subject to customary conditions to closing, including the
receipt of required approvals from our shareholders and the shareholders of
Taberna. If any condition to the merger is not satisfied or, if permissible,
waived, the merger will not be completed. In addition, we and Taberna may
terminate the merger agreement in certain circumstances. If we and Taberna do
not complete the merger, the market price of RAIT common shares may fluctuate to
the extent that the current market price of RAIT common shares reflects a market
assumption that the merger will be completed. RAIT and Taberna also have paid,
and will be obligated to pay, certain fees and expenses in connection with the
merger, even if the merger is not completed. RAIT has to date paid fees of
$244,000 in connection with the merger. In addition, RAIT has diverted
significant management resources in an effort to complete the merger and is
subject to restrictions contained in the merger agreement on the conduct of its
business. If the merger is not completed for any reason, we will have incurred
costs including the diversion of management resources, for which we will have
received little or no benefit.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At our Annual Meeting of Shareholders held on May 23, 2006, pursuant to the
Notice of Annual Meeting of Shareholders and Proxy Statement dated April 12,
2006, the voting results were as follows:
(a) Each of the following nominees was elected to the Board of Trustees as
follows:
TRUSTEE VOTES FOR VOTES WITHHELD VOTES ABSTAIN BROKER NON-VOTE
------- ---------- -------------- ------------- ---------------
Betsy Z. Cohen 23,625,872 613,571 0 0
Edward S. Brown 24,120,380 119,063 0 0
Jonathan Z. Cohen 18,932,412 5,307,031 0 0
S. Kristin Kim 24,089,804 149,639 0 0
Arthur Makadon 23,964,800 274,642 0 0
Joel R. Mesznik 24,094,782 144,661 0 0
Daniel Promislo 24,089,595 149,848 0 0
R. Randle Scarborough 24,082,436 157,007 0 0
(b) The proposal to approve the selection of Grant Thornton LLP as our
independent public accountants for the fiscal year ending December 31, 2006
was approved as follows:
VOTES FOR VOTES AGAINST VOTES ABSTAIN BROKER NON-VOTE
- --------- ------------- ------------- ---------------
24,102,500 83,710 53,229 0
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ITEM 6. EXHIBITS
(a) Exhibits
The Exhibits furnished 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.
31
SIGNATURES
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 INVESTMENT TRUST
(Registrant)
August 9, 2006 /s/ Ellen J. DiStefano
DATE ----------------------------------------
Ellen J. DiStefano
Chief Financial Officer
(On behalf of the registrant and as its
principal financial officer)
32
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 Agreement and Plan of Merger dated as of June 8, 2006 among RAIT
Investment Trust, RT Sub Inc. and Taberna Realty Finance Trust (1).
3.1 Amended and Restated Declaration of Trust of RAIT Investment Trust
(2).
3.1.1 Articles of Amendment to Amended and Restated Declaration of Trust of
RAIT Investment Trust (3).
3.1.2 Articles of Amendment to Amended and Restated Declaration of Trust of
RAIT Investment Trust (4).
3.1.3 Certificate of Correction to the Amended and Restated Declaration of
Trust of RAIT Investment Trust (5).
3.1.4 Articles Supplementary relating to the 7.75% Series A Cumulative
Redeemable Preferred Shares of Beneficial Interest (the "Series A
Articles Supplementary") (6).
3.1.5 Certificate of Correction to the Series A Articles Supplementary (6).
3.1.6 Articles Supplementary relating to the 8.375% Series B Cumulative
Redeemable Preferred Shares of Beneficial Interest (7).
3.2 By-laws of RAIT Investment Trust, as amended (2).
3.3 Articles of Incorporation of RAIT General, Inc. (2).
3.4 By-laws of RAIT General, Inc.(2).
3.5 Articles of Incorporation of RAIT Limited, Inc. (2).
3.6 By-laws of RAIT Limited, Inc. (2).
3.7 Certificate of Limited Partnership of RAIT Partnership, L.P. (2).
3.8 Limited Partnership Agreement of RAIT Partnership, L.P. (2).
3.8.1 Amendment to Limited Partnership Agreement of RAIT Partnership,
L.P.(1).
4.1 Form of Certificate for Common Shares of Beneficial Interest (4).
4.2 Form of Certificate for 7.75% Series A Cumulative Redeemable Preferred
Shares of Beneficial Interest (8).
4.3 Form of Certificate for 8.375% Series B Cumulative Redeemable
Preferred Shares of Beneficial Interest (7).
10.1 Letter Waiver dated June 8, 2006 among RAIT Investment Trust, Taberna
Realty Finance Trust and Betsy Z. Cohen to the Employment Agreement
dated January 23, 2002 between Betsy Z. Cohen and RAIT Investment
Trust (1).
10.2 Letter Waiver dated June 8, 2006 among RAIT Investment Trust, Taberna
Realty Finance Trust and Scott F. Schaeffer to the Employment
Agreement dated January 23, 2002 between Scott F. Schaeffer and RAIT
Investment Trust (1).
10.3 Employment Agreement dated as of June 8, 2006 by and between RAIT
Investment Trust, Daniel G. Cohen and, as to Section 7.14 thereof,
Taberna Realty Finance Trust (1).
10.4 Employment Agreement dated as of June 8, 2006 by and between RAIT
Investment Trust, Jack E. Salmon and, as to Section 7.14 thereof,
Taberna Realty Finance Trust (1).
10.5 Employment Agreement dated as of June 8, 2006 by and between RAIT
Investment Trust, Plamen Mitrikov and, as to Section 7.14 thereof,
Taberna Realty Finance Trust (1).
10.6 Employment Agreement dated as of June 8, 2006 by and between RAIT
Investment Trust, Raphael Licht and, as to Section 7.14 thereof,
Taberna Realty Finance Trust (1).
10.7 Amendment No. 1 dated as of June 8, 2006 among Mitchell Kahn, Taberna
Realty Finance Trust and RAIT Investment Trust to the Employment
Agreement dated as of April 28, 2005 between Mitchell Kahn and Taberna
Realty Finance Trust (1).
15.1 Awareness Letter from Independent Accountants.
31.1 Rule 13a-14 (a) Certification by the Chief Executive Officer of RAIT
Investment Trust.
31.2 Rule 13a-14 (a) Certification by the Chief Financial Officer of RAIT
Investment Trust.
33
32.1 Section 1350 Certification by the Chief Executive Officer of RAIT
Investment Trust.
32.2 Section 1350 Certification by the Chief Financial Officer of RAIT
Investment Trust.
- ----------
(1) Incorporated herein by reference to RAIT Investment Trust's Form 8-K as
filed with the Securities and Exchange Commission on June 13, 2006 (File
No. 1-14760).
(2) Incorporated herein by reference to RAIT Investment Trust's Registration
Statement on Form S-11 (File No. 333-35077).
(3) Incorporated herein by reference RAIT Investment Trust's Registration
Statement on Form S-11 (File No. 333-53067).
(4) Incorporated herein by reference to RAIT Investment Trust's Registration
Statement on Form S-2 (File No. 333-55518).
(5) Incorporated herein by reference to RAIT Investment Trust's Form 10-Q for
the Quarterly Period ended March 31, 2002 (File No. 1-14760).
(6) Incorporated herein by reference to RAIT Investment Trust's Form 8-K as
filed with the Securities and Exchange Commission on March 18, 2004 (File
No. 1-14760).
(7) Incorporated herein by reference to RAIT Investment Trust's Form 8-K as
filed with the Securities and Exchange Commission on October 1, 2004 (File
No. 1-14760).
(8) Incorporated herein by reference to RAIT Investment Trust's Form 8-K as
filed with the Securities and Exchange Commission on March 22, 2004 (File
No. 1-14760).
34