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RAIT Financial Trust (NYSE:RAS)

Q42010 Earnings Call

February 10, 2011 10:00 am ET

Executives

Andres ViroslavInvestor Relations

Scott F. Schaeffer – Chief Executive Officer

Jack E. Salmon – Chief Financial Officer and Treasurer

Analysts

David J. Chiaverini – BMO Capital Markets

Rob Schwartzberg – Compass Point

Gabriel Poggi – FBR Capital Markets & Co.

Jonathan R. Evans – Edmunds White Partners

Operator

Good day, ladies and gentlemen, and welcome to the Q4 2010 RAIT Financial Trust Earnings Conference Call. My name is Steve and I’ll be your operator for today. At this time, all participants are in a listen-only mode. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I’d now like to turn the conference over to your host for today, Mr. Andres Viroslav, Senior Vice President and Director of Corporate Communications. Please proceed, sir.

Andres Viroslav

Thank you, Steve, and good morning to everyone. Thank you for joining us today to review RAIT Financial Trust’s fourth quarter and fiscal 2010 financial results. On the call with me today are Scott Schaeffer, Chief Executive Officer; and Jack Salmon, RAIT’s Chief Financial Officer.

This morning’s call is being webcast on our website at www.raitft.com. There will be a replay of the call available via webcast on the website and telephonically beginning at approximately 1 PM Eastern Time today. The dial-in for the replay is 888-286-8010, with a confirmation code of 87219017.

Before I turn the call over to Scott, I’d like to remind everyone that there may be forward-looking statements made in this call. These forward-looking statements reflect RAIT’s current views with respect to future events and financial performance. Actual results could differ substantially and materially from what RAIT has projected. Such statements are made in good faith pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Please refer to RAIT’s press release and filings with the SEC for factors that could affect the accuracy of our expectations or cause our future results to differ materially from those expectations.

Participants may discuss non-GAAP financial measures in this call. A copy of RAIT’s press release containing financial information, other statistical information and a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measure is attached to RAIT’s most recent current report on Form 8-K, available at RAIT’s website, www.raitft.com, under Investor Relations. RAIT’s other SEC filings are also available through this link. RAIT does not undertake to update forward-looking statements in this call or with respect to matters described herein, except as may be required by law.

Now I’d like to turn the call over to RAIT’s Chief Executive Officer, Scott Schaeffer. Scott?

Scott F. Schaeffer

Thank you very much, Andres, and thank all of you for joining us this morning as we present RAIT’s fourth quarter and fiscal 2010 results.

Let’s get right to it. We are seeing clear signs of improvement in the commercial real estate market, which has had a positive impact on the quality of RAIT’s earnings and the continued improvement in the credit and operating performance of the assets within our portfolios. Quarterly earnings continue to show improvement, driven by increase in rental income combined with decrease in operating costs and credit reserves.

GAAP earnings of $1.11 per diluted share and REIT taxable income of $11.3 million for the year, both showed dramatic improvement over 2009 and supported not only of preferred dividend distributions in 2010, but also an annual common dividend of $0.03 per common share, our first common dividend in over two years.

Operating income came in at $1.9 million, the first operating profit for RAIT since the third quarter of 2008. The drivers of revenue growth during the quarter came from increase in rental income, as well as occupancy and RAIT levels headed in the right direction and declines in property operating expenses as Jupiter Communities and CRP Commercial Services. RAIT’s internal property managers continue to do an excellent job managing our own portfolio.

In addition, we continue to generate gains and reduce interest expense throughout 2010 from repurchasing both our recourse and non-recourse debt at a discount. Also worth noting, corporate G&A expenses declined quarter-over-quarter and year-over-year as we began to realize the benefits of various cost-cutting strategies.

The credit environment continues to improve our stability in the loan portfolio, resulted in a reduction of the quarterly provision for loan loss. At year-end, we feel we are adequately reserved for potential future losses with a 51% reserve against our loans on non-accrual status. We are also seeing an increase in loan repayments as liquidity returns to the commercial real estate market.

We continue to make progress deleveraging the balance sheet. In 2010, we reduced our total indebtedness by $239 million and ended the year with $294 million of recourse indebtedness. We repurchased $55 million of our CRE CDO debt at substantial discounts during the year. We paid $13.5 million on our secured credit facility and retired approximately $102.5 million of our senior convertible notes in 2010.

Now on the new business initiatives. First, in response to the revival in the securitization market, I’m pleased to announce that we recently formed a CMBS lending business, utilizing our existing platform and internal expertise. We have begun quoting loans to perspective borrowers and will rate loans of $5 million to $30 million on stable office, retail, multi-family and light industrial properties on a nationwide basis. The CMBS business will be funded with our own capital and that of an outside investor through a joint venture relationship.

Secondly, we received – we recently announced the acquisition of a development stage, non-traded public REIT, which we have renamed Independence Realty Trust. We plan to position Independence Realty Trust to be a multifamily focused equity REIT externally managed by REIT. So Independence Realty Trust is a separate public company, information concerning its activities will be provided through its SEC filings. We look to build on these initiatives throughout 2011.

At this point, I’d like to turn the call over to Jack.

Jack E. Salmon

Thank you, Scott. The financial highlights for the period ended December 31, 2010 include capital earnings per share diluted from continuing operations of $29.5 million or $0.29 per common share for the quarter and $98.2 million or $1.11 per share for the year then ended. $5 million of retaxable income was generated during the quarter and $11.3 million was generated for the full year. And $41 million reduction has been total debt outstanding this quarter, results from cumulative debt reductions of $239 million since December 31 of 2009.

I’m going to comment on our consolidated results of operations, which have shown significant improvement for the fourth quarter and in comparison to the prior quarter or the prior year as follows. Total revenue this quarter was $37.1 million, an increase of 1.7% over the third quarter of 2010. In total, 54% of our revenue was derived from rental income, 38% from net interest margin and 8% from fee and other income.

Changes in our net interest margin this year reflects higher income, partly due to the return of net interest received on $49 million of loans formally on a non-accrual status. This was offset by lower interest income from the $249 million reduction in CRE loans outstanding due to $108 million of loan repayments during the year and $141 million of loan conversions during 2010.

This past year, we increased our directly owned real estate by $103 million with 47 own properties that are generating $20.2 million of rental income this quarter, an increase of $1.7 million, which is 9% higher than the third quarter of 2010 and a 50% increase over the comparable fourth quarter of 2009.

Our net rental income, plus the related real estate operating expenses increased to $6.2 million this quarter, more than double the return from the prior quarter and more than 15 times the net operating income generated through the fourth quarter of 2009.

Turning to our provision for loan losses. As Scott mentioned, we recorded the lower provision of CRE loan losses of $2.5 million this quarter as compared to $10.8 million last quarter and $22.5 million in the fourth quarter of 2009. Our allowance for CRE loan losses of $62 million represents approximately 51% of the non-performing loan balance at year-end.

During the fourth quarter, we charged off $30 million against this reserve, the loans that we no longer own. We also converted two CRE loans, one of which was on a non-performing basis with a combined carrying value of approximately $30 million into our own real estate portfolio.

As a result of these changes, our total CRE loans on non-accrual status have been reduced by $21 million during this quarter to $122 million or approximately 10.4% of the (inaudible). For the full year, we converted nine loans, with a carrying value of a $141 million into owned real estate and charged off $80 million against the previously established loan loss reserves to be loss.

Turning to our other operating expenses, we also continue to trend low throughout 2010. Compared to the same quarter last year, compensation expenses lowered by $1.1 million, a 30% decrease, G&A expense is already $3.2 million lower, a 47% decrease and depreciation and amortization expenses are approximately $1.6 million higher, which reflect the growth in our directly owned real estate portfolio.

Together, with the significant improvements in our loan loss provision, these cost savings result are now reporting $1.9 million of operating income in the fourth quarter before other income, gain, factors and income we brought up in this particular operations.

And looking at our corporate interest expense, during the quarter we reduced total debt outstanding by $41 million. We repurchased $28.5 million of our CRE CDO non-recourse debt for $8.2 million in cash. This generated gains on debt extinguishment of $20.3 million.

On a cumulative basis, we’ve reduced the amount of convertible debt outstanding from $246 million at year end 2009 to $143 million at the end of 2010. This was – this generated $30 million in gains on debt extinguishment for the year. These reductions will save approximately $5 million of net annual interest expense going forward compared to our run rate of annual interest expense at the beginning of the year.

The portfolio thereafter the value adjustments, the March this quarter include adjustment of $10.7 million, which represented a $3 million improvement in the estimated credit quality of the underlying debt offset by a $26 million increase in the corresponding non-recourse debt and a $34 million decrease in the interest rate hedge liabilities, which reflect changes in long-term interest rates.

Now, the increase in the debt marks was attributable to an unexpected prepayment by a single issuer at PAR that was used to pay down the highest rate of debt tranche on a dollar-for-dollar basis.

Our discontinued ops, as of September 30, were established when we identified three multi-family properties as assets held for sale. Including an income from discontinued operations in the fourth quarter are $900,000 of net gains from the sale of two of these assets and a $1 million of net income related to the operations of the assets were classified as assets held for sale.

At year end we have approximately $41 million of recourse debt maturities coming due within the next year. This is primarily associated with our two secured bank credit facilities. We expect to either repay or expand these corporate obligations in the normal course of business this year. And our total debt equity ratio was 2.3 times at year end, compared to our ratio of three times at December 31, 2009.

Next I would like to talk about a significant recent development. During 2010, we recorded income tax provisions of $1.6 million, solely related to our taxable REIT subsidiaries. The I.R.S. has examined the tax returns to Taberna Capital Management, one of our taxable subsidiaries for the years 2006 to 2008. The service have been challenging in certain tax deductions related to our transfer pricing methodology during these years. Recently we have reached an agreement that resolve all three years under exam for a net cash payment of approximately $325,000.

Next I’ll briefly highlight some of the changes in our investment portfolios. Our CRE loan portfolio has $1.3 billion of loans, outstanding representing 41% of our consolidated assets. These are securitized by long-term match-funded non-recourse financing. The two CRE loan securitizations, CRE 1 and CRE 2, currently are meeting all of their interest coverage and over-collateralization requirements. As of the most recent payment cycle, the most stringent OC test was at 123.7%, versus a trigger of 116.2% in CRE 1, and at 113.5%, versus a trigger of 111.7% in CRE 2.

During the fourth quarter, we converted two multi-family loans, with a carrying value of $31 million into owned real estate, and we received $26 million of loan payoffs and repayments, thereby reducing our total loan portfolio by about $55 billion The lower outstanding loan balance has the effect, in the short term of reducing our net interest margin, until those proceeds are fully redeployed and reinvested. As we continue to recycle capital obtained from loan repayments we expect to reinvest these proceeds to fund new CRE loans in 2011.

Our second portfolio is our CRE owned portfolio, which has $841 million of assets representing approximately 28% of our consolidated assets. We have designated one multi-family asset which has held for sale at December 31st, 2010, which has been removed from the associated rental income, related operating expenses and reflected in the results of discontinued operations. At year-end we owned 47 properties the 68% of the total dollar value represented by multi-family properties, 24% in office, 5% in retail and 3% in other property types.

Our third portfolio is our debt securities portfolio, which represents 24% of our consolidated assets and it’s comprised primarily of trust preferred securities and other debt securities, owned by Taberna 8 and Taberna 9.

Close to $705 million of investments and the $148 million of related non-recourse debt financing are reported under fair value of accounting methods. Most of the quarterly cash flows applied currently are being used to pay down the highest rated senior debt tranches. We did received $25 million of principle payments in the fourth quarter and $38 million of repayments for the full year. All of these have been used to repay the debt holders of the most senior rated debt tranches. RAIT continues to receive only the senior portion of our collateral management fees on this portfolio.

Lastly, I’ll address our REIT status and the REIT taxable income for 2010. As a REIT, we are required to make distributions at least 90% of our annually taxable income. We are reporting today estimated REIT taxable income of approximately $5 million for the fourth quarter, which resulted in positive REIT taxable income of $11.3 million for all of 2010.

This REIT taxable income already reflects the deductions taken for the preferred dividends of $3.4 million for quarter and $13.6 million for the year. Our Board met in January 2011 to review these results for the full year, and they determined to declare $0.03 per share of common dividend attributable to our annual results for all of 2010.

The common dividend, which amounted to $3.2 million was paid in January 2011. The remaining REIT taxable income will be reduced by $8.1 million of available tax NOLs, so that we retain our REIT status. We plan to utilize remaining $27.5 million of tax NOL carry forwards to offset future REIT taxable income arising from expected on cash gains.

With that, I’d like to turn the call back to Scott.

Scott F. Schaeffer

Thanks very much for that full report Jack. There are still some challenges ahead. First is employment. The national employment picture remains weak, which negatively impacts the housing market and could easily slow the economic recovery. On the plus side however this weak housing market has increased demand for apartments and RAIT is benefiting from this trend. RAIT’s multi-family portfolio ended the year at 86% average occupancy compared to 78% at December 31, 2009.

Many so-called experts are predicting the 2011 to 2012 will be two of the best years ever for multi-family properties as demand outpaces supply. We are also seeing increased leasing activity within our office portfolio as tenants renew leases and lockup additional space as confidence growth and the sustainability of the economic recovery. Also, access to capital remains limited, but as the economic recovery continues we expect capital to become more readily available to invest in commercial real estate assets. As a result, as more and more of our existing loans repay, RAIT will benefit since we have reinvestment rights in both of our managed CRE loan securitizations and therefore more opportunities to originate new match funded commercial real estate loans.

I think at this time, Steve I’d like to open up the call for questions?

Question-and-Answer Session

Operator

Certainly, sir. (Operator Instructions) And your first question comes from the line of David Chiaverini with BMO Capital Markets.

David J. Chiaverini – BMO Capital Markets

Good morning, guys. Couple of questions for you. First on the CDO debt repurchases, does that count towards taxable income, the gain from that?

Jack E. Salmon

Yeah, sure Dave, that’s – it’s a taxable income in the year of the debt repurchase and cancellations.

David J. Chiaverini – BMO Capital Markets

Okay. And are you continuing to cancel the debt that’s repurchased?

Jack E. Salmon

No. David, we have not. We did about one-time, but the additional debt that we repurchased, we continue to hold.

David J. Chiaverini – BMO Capital Markets

Okay.

Jack E. Salmon

And I just want to point out one more thing relative to that, these gains are non-cash gains of course. And in 2009 and 2010 we had the ability to defer those non-cash gains, instead of counting the net income for dividend distribution. Going forward, we don’t have that option and that’s one of the considerations of keeping some of the NOLs available.

David J. Chiaverini – BMO Capital Markets

And as it relates to the NOLs, you mentioned about $28 million carry-forward. So you can use that offset taxable income and I was wondering how come you didn’t use some of those NOLs to offset some of the taxable income from last year in which you paid that $0.03 dividend?

Scott F. Schaeffer

Dave, as I’ve commented, we did use about $8 million of NOLs to offset 2010 taxable income, but also given the trends that we just described, the Board felt confident that a dividend should be paid to the common shareholders given that we’ve always paid dividends to the preferred shareholders throughout this period.

David J. Chiaverini – BMO Capital Markets

Okay. Okay. And you mentioned about an increase in held liquidity is coming back to the commercial real estate market in that you’re seeing an increase in loan repayments. Do you have at your fingertips what – the quarterly trend of repayments in the CRE portfolio over the past two or three quarters?

Scott F. Schaeffer

It’s still very lumpy, but we are seeing – as I’ve said, we are seeing more and more and many of our loans, I should say all of our loans, require advanced notice on repayment. So borrowers have been inquiring as to that time frame and giving us an idea that they are actively in the market to refinance their properties, indicating that we will be getting more repayments.

David J. Chiaverini – BMO Capital Markets

Okay. And do you have at your fingertips how much was in the fourth quarter of loan repayment?

Jack E. Salmon

The fourth quarter was $26 million in loan repayment compared to $108 million for the year as a whole. It wasn’t that evenly distributed.

David J. Chiaverini – BMO Capital Markets

Okay, okay. And then my last question relates to Independence Realty Trust. How much in assets does that have? Is it – or is it currently in the formation phase?

Scott F. Schaeffer

The company we bought basically had – made no direct investments at the time we purchased them. So purchase price of $2 million really represents the start-up costs associated with formation of the entities. And it has a registered offering that we’ll be in the process of updating.

David J. Chiaverini – BMO Capital Markets

I see. So you’re in the process of raising money for that now?

Scott F. Schaeffer

Well, first we have to update the filings post our acquisition.

David J. Chiaverini – BMO Capital Markets

Okay, great. Thank you.

Scott F. Schaeffer

Thank you, Dave.

Operator

And the next question comes from the line of Robert Schwartzberg with Compass Point.

Robert Schwartzberg – Compass Point

Good morning. I had a question…

Scott F. Schaeffer

Good morning, Rob.

Robert Schwartzberg – Compass Point

…about the joint venture, which you are trying to get off the ground, the CMBS lending joint venture, do you have any targets and do you have any discussion about where the financing would come for that?

Scott F. Schaeffer

We have an agreement with a joint venture partner in order to fund this business along with RAIT. And our originators are actively quoting loans and together with our partner we’re seeking a warehouse line to expand capacity.

Robert Schwartzberg – Compass Point

So there’d be that they’re bringing the money and you’re bringing the origination platform and you own some part of the joint venture?

Scott F. Schaeffer

That’s correct. And we’re bringing some money as well

Robert Schwartzberg – Compass Point

Do you have any guidance as to when we might hear something more definitive?

Scott F. Schaeffer

No, I don’t have any guidance. We are out quoting loans, we will be quoting – we will be closing loans and I think that’s what we’ll see. And then, we’ll be taking them to the securitization market and you’ll also see and hear about that.

Robert Schwartzberg – Compass Point

Okay, well, great. Well, thank you very much.

Scott F. Schaeffer

Thank you.

Operator

And your next question comes from the line of Gabe Poggi with FBR.

Gabriel Poggi – FBR Capital Markets & Co.

Hey, good morning guys. Congrats on positive operating income.

Scott F. Schaeffer

Thanks, Gabe.

Gabriel Poggi – FBR Capital Markets & Co.

A couple of questions for you. Kind of a follow-up on Rob’s question about the CMBS lending business. Do you guys have a target origination side, you said $5 million to $30 million per loan, is there a – for the year, a target number that you guys think you can close on? And then what are your expected returns on whatever your invested equity may be, what kind of returns do you think you can generate from that business?

Jack E. Salmon

The plan is to turn the pool three times a year in the first year that would equate with some warehouse financing that would equate to 500, up to $1 billion of loan production. And I think at this point, however, it’s a little too soon to determine what the profitability on the equity investment would be because the spreads fluctuate daily and we’re just building the first (warehouse) and really don’t know what the profitability will be when you go to securitize it. I will tell you that most people in this space are targeting returns in the high teens to low 20s.

Gabriel Poggi – FBR Capital Markets & Co.

Got you. Okay, that’s helpful. And then, do you guys have from your core, for lack of a better word, legacy business, do you have a trajectory or sense that operating earnings can continue to climb over the course of the year based on what you guys are seeing inside your CRE CDOs from a credit perspective?

Jack E. Salmon

Are you asking on the loan portfolio, Gabe, or on the own portfolio?

Gabriel Poggi – FBR Capital Markets & Co.

The loan portfolio, actually really a combination of both, quite frankly.

Scott F. Schaeffer

Okay. Well, the loan portfolio is going through some regeneration – redeployment of capital. So as loans pay off at the old rate – new loans in place at current rates.

Gabriel Poggi – FBR Capital Markets & Co.

Right.

Jack E. Salmon

And spreads are driving out a little bit on that portfolio. So the key there is that our cost of fund is already fixed because of the legacy debt financing we have in place, the ability to refinance and place new loans against that financing capability. On the loan portfolio as I reported, I think Scott has said in previous calls, it takes time from the time you take over an asset to get it stabilized. And our core portfolios are showing times of strong occupancy in – once we’re occupant to that stabilized level, we’re able to increase rent. So our hopes are that the costs are coming down and the rents will increase again, given the various market positions as Scott alluded to so that we are able to build improving trends into 2011.

Gabriel Poggi – FBR Capital Markets & Co.

Have repayments or prepayments in the loan book been by and large at or close to par?

Scott F. Schaeffer

Yes. And in some instances, north of par where there were equities.

Gabriel Poggi – FBR Capital Markets & Co.

Okay. Thanks Scott. It’s helpful.

Scott F. Schaeffer

Thank you, Gabe.

Operator

The next question comes from the line of John Evans with Edmunds White Partners.

Jack E. Salmon

Hi, John.

Jonathan R. Evans – Edmunds White Partners

Could you talk to – hey, how are you today? Could you talk a little bit about – you guys have done a great job really deleveraging the company. First of all, I don’t think you mentioned in the script, but you have that ability to sell stock in the open market. Did you sell any stock in the open market? Did you sell any stock this quarter or do we have to wait for the K files?

Jack E. Salmon

We'll have more disclosure in the K, it will be filed in a month’s time, but yes, we did sell or raise some equity through our ATM program in the fourth quarter.

Jonathan R. Evans – Edmunds White Partners

Okay. And you can’t disclose it until it comes out in the K or…?

Jack E. Salmon

Well, we issued roughly eight million shares during the fourth quarter.

Jonathan R. Evans – Edmunds White Partners

Got it.

Jack E. Salmon

Okay. That capital was used to retire the debt that we described on our CRE CDO debt.

Jonathan R. Evans – Edmunds White Partners

Right. You’ve done a great job on convertibles. Can you talk a little bit about your strategy because the next time you report, it’ll be pretty close to going current or they will be going current. Can you talk about your thought process to refinancing those or doing different terms with the holders or how do you plan to get to the other side there?

Scott F. Schaeffer

Obviously we’re focused on this issue as well. We’ve had a lot of success in 2010. So we’re going to continue through 2011 or the end of 2011 was more of the same that we did in 2010. But we are also pursuing a number of additional strategies in addition to just doing straight equity exchanges. But we feel confident that we’re going to get there.

Jonathan R. Evans – Edmunds White Partners

You feel confident that you’ll be able to refinance?

Scott F. Schaeffer

We feel confident that we will be able to retire and to our refinance the converts prior to the put date in April 2012.

Jonathan R. Evans – Edmunds White Partners

Okay. May I ask you one last question, obviously what you bought in the CRE was a much better deal from a return on invested capital. But your – I guess, why did you choose that as opposed to buying more the converts? And I know it wouldn’t have been a good return, but the CRE is kind of after the date. And it seems like if you get this overhang of the covert over your – off the books to a degree, it seems like that’s going to have a really positive ramifications for your stock especially since, we’re seeing the metrics really start to turn. So can you just help us understand your insight into why you chose the CRE?

Scott F. Schaeffer

One is that the resources that were available at that time. We have been retiring the converts on a basis whereby the convert holders have been coming to us and offering us the debt. The debt that was offered us, the convert debt that was offered to us in the fourth quarter, was not as attractive of purchases, as was the CRE CDO debt. We have a long-term view of the company, and we felt that retiring or repurchasing the CDO debt at the levels that was available was a better purchase at that moment.

Jonathan R. Evans – Edmunds White Partners

Okay. Got it. And then can you just help me understand I guess lastly, so and this goes back to issue one of the other callers asked about I guess, I’m really surprised that you didn’t shelter all the income and not paid the dividend. So I guess it was the dividend more a symbolic thing from the board just saying hey we’ve made it to the other side and we’re going to start to have a dividend policy going forward or what were you trying to show there, since you could have basically sheltered that entire amount because of the NOLs?

Scott F. Schaeffer

It was not symbolic. There was careful consideration made of the cash position of the company, the REIT taxable income that the company had generated with an – our eye towards – and this is what I tried to say earlier in response to the question. With an eye towards the non-cash gain that we expect to generate going forward. The non-cash gains obviously we'll not be generating any cash that will be available to pay a dividend. So we’re focused on how do we handle those non-cash gains in the future. All of the debt retirement gains in 2009 and 2010 we had the option to extend or differ I should say the dividend requirement related to those gains for five years. That option ended at December 31. So any non-cash gains generated in 2011 and beyond we'll need shelter or we’ll have to be covered through a dividend payment. So we along with the board actually again carefully considered what those gains might be going forward. And look at the – the losses that we wanted to maintain in order to help cover them.

Jonathan R. Evans – Edmunds White Partners

Okay. And then one – the clarification or what I was hoping to understand, you do a great job just putting your occupancy debt in here on a quarterly basis and we’ve really saw a marked improvement on the total that was driven obviously by multi-family continuing to go up, but you saw a big jump in office. And I guess can you give us a sense on kind of what you are seeing in the office market, do you think that occupancy data continues to get better. And then the other question on the multi-family side usually when you get to above 85% kind of occupancy in markets you have the ability to start to push price. And I am wondering, if you are able to start to push rents and if you are when should we start to see that flow through the P&L?

Scott F. Schaeffer

I am going to take your second part of the question first, because it’s the answer that I'm most excited about. I agree with you, I’ve always maintained that the number is 90% that when you get the 90% occupancy it means that your rents are probably a little bit too low. Some people like you say 85%, but yes, we are at the point now where the properties that we’ve brought to stabilization and there are many of them that we can actively start pushing rent going forward and we are. As far as the office occupancy goes – first of all, it’s a little more lumpy than multi-family because they’re bigger leases, and so, it will go up and go down instead of a – more of a gradual increase. But we are seeing an increased demand for office space and retail space as well.

Jonathan R. Evans – Edmunds White Partners

Okay.

Scott F. Schaeffer

And I think that there are a lot of tenants out there that are looking at their needs going forward relative to the price of the space today because rents are lower and they’re going to walk-in today’s rent to meet their future needs. So we’ve seen more tenants renew their leases, but we are also seeing more and more new tenants coming to look at space and hopefully we too going forward.

Jonathan R. Evans – Edmunds White Partners

Got it. So just a follow-up on your excitement about the multi-family, so I know, it’s a portfolio in multi-family is a very market-by-market centric thing, but can you give us some kind of statistic or can you think about how you get articulate this going forward about maybe how much you’ve pushed average price by or we can see that because I assume that’s going to be a lag in your numbers and that price should go 80% or 90% to just EBITDA, right. Is that correct?

Jack E. Salmon

Your theory is correct. In terms of the information, well all the information on 10-K that will show the average rental per unit in our multi-family and it will be a comparative table. So you’ll be able to see the percentage increase as they were generating relative to the percentage of occupancies that we’ve disclosed in the press release. I think that will give you the data you are looking for.

Jonathan R. Evans – Edmunds White Partners

Great, super. And then the last question I have for you is just relative, you’ve done a great job getting out of this debt, et cetera. Can you talk though – do you feel like you’re at a point in the cycle where the liquidity in the markets are starting to open up and you can extend maturities, et cetera and you don’t have to dilute shareholders as much from here, or can you just give us your thought process relative to that?

Scott F. Schaeffer

Well, yeah.

Jonathan R. Evans – Edmunds White Partners

But you diluted shareholders by buying the converts back with stock. I mean obviously they were great returns, but I’m just curious about that.

Scott F. Schaeffer

Yeah, and we’re not interested in diluting shareholders any more than what we believe is necessary in order to retire this debt and to fund the company operations obviously, all REITs are capital intensive businesses.

Jonathan R. Evans – Edmunds White Partners

Sure.

Scott F. Schaeffer

And then you have to raise capital somehow someway. But we do have other, as I said before, we do have other strategies going forward, but do not all include equity exchanges, and – but it’s premature and also I think probably inappropriate for me to get into the strategies on the call here. But we are confident that we are going to be able to attack this 2012 put date without issuing share dollar, it’s the dollar that reduce the debt. So there are other strategies that we’re working on and we’ll have to see how they play out. But I don’t think it would be the level of dilution going forward as we’ve seen in the past.

Jonathan R. Evans – Edmunds White Partners

Okay. Thank you for your time. I really appreciate it.

Jack E. Salmon

Thank you.

Scott F. Schaeffer

Thank you.

Operator

And that concludes the Q&A portion of today’s conference. I’d like to turn the presentation back over to RAIT’s Chief Executive Officer, Mr. Scott Schaeffer for closing remarks.

Scott F. Schaeffer

Well, thank you very much for joining us today. We’re excited about the progress that we’ve made. We’re going to continue to reposition and rebuild this company. Thank you and we look forward to talking with you in three months time.

Operator

And thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.

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Source: RAIT Financial Trust CEO Discusses Q4 2010 Earnings Conference Call Transcript

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