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RAIT Financial Trust Reports Operating Results (10-Q)

May 11, 2009 | About:

RAIT Financial Trust (RAS) filed Quarterly Report for the period ended 2009-03-31.

RAIT Financial Trust a real estate investment trust originates secured and unsecured credit facilities including bridge and mezzanine loans preferred equity investments trust preferred securities and subordinated debt for private and corporate owners of commercial real estate REITs and real estate operating companies and their intermediaries throughout the United States. It is a leading diversified real estate finance company focused on the commercial real estate industry. RAIT originates secured and unsecured product including bridge and mezzanine loans preferred equity investments trusts preferred securities and subordinated debt for private and corporate owners of commercial real estate REIT's and real estate operating companies and their intermediaries throughout the United States. RAIT Financial Trust has a market cap of $112.8 million; its shares were traded at around $1.74 with a P/E ratio of 1.1 and P/S ratio of 0.5.

Highlight of Business Operations:

During the three-month periods ended March 31, 2009 and 2008, we generated adjusted earnings per diluted share of $0.27 and $0.52, respectively, total earnings (loss) per diluted share of $(2.22) and $2.12, respectively, and gross cash flow of $30.5 million and $45.9 million, respectively. A reconciliation of RAITs reported generally accepted accounting principles, or GAAP, net income (loss) allocable to common shares to adjusted earnings is set forth below. See Performance Measures-Adjusted Earnings. RAITs GAAP net loss for the three-month period ended March 31, 2009 was primarily caused by the following:

our noncontrolling interests. This change was comprised of a decrease in the fair value of our financial assets totaling $190.7 million, a decrease in the fair value of our financial liabilities totaling $82.6 million and a decrease in the fair value of our interest rate derivatives totaling $8.3 million. Due to the volatility of the financial markets, we are unable to predict with any level of certainty the future changes in the fair value of our financial instruments.

Our commercial real estate loans are our primary investment portfolio generating $20.3 million, or 66.6%, and $25.1 million, or 54.8%, of our gross cash flow during the quarters ended March 31, 2009 and 2008, respectively. Current economic conditions have subjected borrowers under our commercial real estate loans to financial stress, which has increased the number of loans on non-accrual and caused us to increase our allowance for losses. Where it is likely to enhance our returns, we consider restructuring loans or foreclosing on the underlying property. During the quarter ended March 31, 2009, we took title to eleven properties that served as collateral on our commercial real estate loans. In April 2009, we took title to seven properties that served as collateral on our commercial real estate loans. We expect we will continue to engage in workout activity with respect to our commercial real estate loans that may result in the conversion of the property collateralizing those loans. The effect of these workouts generally would decrease the amount of our commercial real estate loans and increase the amount of investments in real estate interests we hold. Under GAAP, we may take a non-cash charge to earnings at the time of any foreclosure to the extent the amount of our loan, reduced by any allowance for losses and certain other expenses, exceeds the fair value of the property at the time of the conversion. We plan to improve the performance of properties we convert through workout activity and so have expanded our commercial property management capabilities. Effective May 1, 2009, we formed a joint venture, referred to as Jupiter Communities, with the owners of an established property management firm specializing in managing multi-family properties. We have a 75% interest in the joint venture and paid a $1.3 million capital contribution to the joint venture on May 1, 2009. On May 1, 2009, the joint venture acquired the contracts and employees of the predecessor entity. We expect this enhanced management capability to generate fee income, partially offset by increased general and administrative expense related to Jupiter Communities.

Our portfolio of residential mortgages generated $4.5 million, or 14.8%, and $5.1 million, or 11.1%, of our gross cash flow during the quarters ended March 31, 2009 and 2008, respectively. We have seen the delinquency rates in our residential mortgage portfolio increase, which resulted in increases in our loan loss reserves and the number and amount of loans on non-accrual status.

Our portfolio of trust preferred securities, or TruPS, generated $3.8 million, or 12.3%, and $11.9 million, or 25.8%, of our gross cash flow during the quarters ended March 31, 2009 and 2008, respectively. We continue to experience credit deterioration of TruPS issuers. This credit deterioration adversely affects the cash flow we receive from our securitizations and the fair value of their collateral. We continue to seek remedies and other means of restructuring our TruPS so as to improve the overall recovery in future periods.

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