10-Q 1 w65461e10vq.txt FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2002 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 September 30, 2002 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.) 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) ________________________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) 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. Yes [ X ] No [ ] As of November 12, 2002, 18,735,147 common shares of beneficial interest, par value $0.01 per share, of the registrant were outstanding. RAIT INVESTMENT TRUST and Subsidiaries Index to Quarterly Report on Form 10-Q PART I. FINANCIAL INFORMATION
PAGE ---- ITEM 1. FINANCIAL STATEMENTS 1 Consolidated Balance Sheets at September 30, 2002 (unaudited) and December 31, 2001 1 Consolidated Statements of Income (unaudited) for the three and nine months ended September 20, 2002 and 2001 2 Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2002 and 2001 3 Notes to Consolidated Financial Statements - September 30, 2002 (unaudited) 4 Report of Independent Certified Public Accountants 11 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANICIAL CONDITION AND RESULTS OF OPERATIONS 12 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16 ITEM 4. CONTROLS AND PROCEDURES 16
PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 17 SIGNATURES 18 CERTIFICATIONS 19 EXHIBIT INDEX 21
PART I FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RAIT INVESTMENT TRUST and Subsidiaries Consolidated Balance Sheets
September 30, 2002 December 31, 2001 ------------- ------------- (unaudited) ASSETS Cash and cash equivalents $ 22,755,791 $ 18,064,909 Restricted cash 7,533,564 4,569,708 Tenant escrows 418,192 289,435 Accrued interest receivable 6,815,955 4,412,829 Investments in real estate loans, net 266,167,865 197,255,782 Investments in real estate, net 132,694,217 104,889,208 Furniture, fixtures and equipment, net 609,306 326,335 Prepaid expenses and other assets 6,969,981 3,907,157 Goodwill, net 887,143 887,143 ------------- ------------- Total assets $ 444,852,014 $ 334,602,506 ============= ============= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities $ 484,405 $ 1,437,054 Accrued interest payable 704,829 584,045 Tenant security deposits 664,261 812,317 Borrowers' escrows 7,091,625 5,812,737 Dividends payable 10,908,366 -- Deferred income 709,394 1,436,201 Senior indebtedness secured by real estate underlying the Company's loans 43,502,603 36,843,180 Long-term debt secured by real estate owned 76,912,484 72,091,483 Secured lines of credit 35,000,000 2,000,000 ------------- ------------- Total liabilities 175,977,967 121,017,017 Minority interest 2,391,374 2,560,525 Shareholders' equity: Preferred Shares, $.01 par value; 25,000,000 authorized shares -- -- Common Shares, $.01 par value; 200,000,000 authorized shares; issued and outstanding 18,180,611 shares and 14,947,197 shares respectively 181,806 149,472 Additional paid-in-capital 262,357,828 206,344,662 Loans for stock options exercised (1,068,972) -- Retained earnings 5,012,011 4,530,830 ------------- ------------- Total shareholders' equity 266,482,673 211,024,964 ------------- ------------- Total liabilities and shareholders' equity $ 444,852,014 $ 334,602,506 ============= =============
The accompanying notes are an integral part of these consolidated financial statements 1 RAIT INVESTMENT TRUST and Subsidiaries Consolidated Statements of Income (unaudited)
For the three months For the nine months ended September 30, ended September 30, -------------------------------- -------------------------------- 2002 2001 2002 2001 ----------- ----------- ----------- ----------- REVENUES Interest income $ 8,369,948 $ 5,877,477 $24,257,745 $16,180,248 Rental income 6,175,076 5,701,081 19,305,057 16,049,715 Fee income and other 910,754 2,588,282 4,610,134 4,745,642 Investment income 681,589 139,217 1,208,227 276,410 Gain on sale of loan -- -- 947,974 -- Income from loan satisfaction 3,181,670 -- 3,181,670 -- ----------- ----------- ----------- ----------- Total revenues 19,319,037 14,306,057 53,510,807 37,252,015 COSTS AND EXPENSES Interest 2,570,182 2,592,566 6,787,724 8,485,720 Property operating expenses 3,291,188 3,439,836 9,426,034 8,888,646 Salaries and related benefits 751,568 521,125 1,654,652 1,753,418 General and administrative 492,645 330,195 1,167,795 1,062,858 Depreciation and amortization 908,461 799,322 2,673,264 2,450,640 ----------- ----------- ----------- ----------- Total costs and expenses 8,014,044 7,683,044 21,709,469 22,641,282 ----------- ----------- ----------- ----------- Net Income before minority interest and extraordinary gain 11,304,993 6,623,013 31,801,338 14,610,733 Minority interest 128,553 26,831 18,599 50,262 Extraordinary gain -- consolidated extinguishment of indebtedness underlying investment in real estate -- -- -- 4,633,454 ----------- ----------- ----------- ----------- Net income $11,433,546 $ 6,649,844 $31,819,937 $19,294,449 =========== =========== =========== =========== Net income before minority interest and extraordinary gain $ .62 $ .56 $ 1.86 $ 1.60 Minority interest .01 .01 -- -- Extraordinary gain -- -- -- .51 ----------- ----------- ----------- ----------- Net income per common share-basic $ .63 $ .57 $ 1.86 $ 2.11 =========== =========== =========== =========== Weighted average common shares outstanding-basic 18,149,478 11,750,828 17.126,868 9,155,629 =========== =========== =========== =========== Net income minority interest and extraordinary gain $ .62 $ .56 $ 1.85 $ 1.58 Minority interest .01 -- -- .01 Extraordinary gain -- -- -- .50 ----------- ----------- ----------- ----------- Net income per common share-diluted $ .63 $ .56 $ 1.85 $ 2.09 =========== =========== =========== =========== Weighted average common shares outstanding- diluted 18,265,344 11,868,432 17.230,431 9,226,517 =========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements 2 RAIT INVESTMENT TRUST and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended September 30, ------------------------------------- 2002 2001 ------------- ------------- Cash flows from operating activities Net Income $ 31,819,937 $ 19,294,449 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest (18,599) (50,262) Non cash income from loan satisfaction (999,110) -- Gain on extinguishment of debt -- (4,633,454) Depreciation and amortization 2,673,264 2,450,640 Accretion of loan discount (201,463) -- Increase in security deposit escrows (128,757) (44,599) Increase in accrued interest receivable (2,403,126) (1,004,511) Increase in prepaid expenses and other assets (2,140,549) (1,968,549) (Decrease) increase in accounts payable and accrued liabilities (648,903) 685,223 Increase (decrease) in accrued interest payable 120,784 (550,036) (Decrease) increase in tenant security deposits (148,056) 292,457 (Decrease) increase in deferred income (726,807) 459,292 Decrease in borrowers' escrows (1,684,968) (521,964) ------------- ------------- Net cash provided by operating activities 25,513,647 14,408,686 ------------- ------------- Cash flows from investing activities Purchase of furniture, fixtures and equipment (630,585) (317,549) Real estate loans purchased (1,807,783) -- Real estate loans originated (137,480,556) (98,181,757) Principal repayments of loans 61,389,834 54,333,947 Real estate purchases and improvements (22,592,382) (1,017,722) Proceeds from sale of loan 1,237,167 -- Utilization of reserves held by mortgagee to pay taxes (195,654) (93,698) ------------- ------------- Net cash used in investing activities (100,079,959) (45,276,779) ------------- ------------- Cash flows from financing activities Advances (repayments) on secured lines of credit 33,000,000 (20,000,000) Issuance of common shares, net 54,976,528 81,747,305 Payment of dividends (20,429,704) (8,237,289) Principal repayments on senior indebtedness (6,905,971) (10,457,020) Principal repayments on long-term debt (583,659) (577,830) Proceeds of senior indebtedness underlying Company's loans 19,200,000 6,800,000 Proceeds of long-term debt secured by real estate owned -- 2,275,000 Extinguishment of debt -- (20,248,435) ------------- ------------- Net cash provided by financing activities 79,257,194 31,301,731 ------------- ------------- Net change in cash and cash equivalents 4,690,882 433,638 ------------- ------------- Cash and cash equivalents, beginning of period $ 18,064,909 $ 7,407,988 ------------- ------------- Cash and cash equivalents, end of period $ 22,755,791 $ 7,841,626 ============= =============
The accompanying notes are an integral part of these consolidated financial statements 3 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (Unaudited) NOTE 1 - BASIS OF PRESENTATION In the opinion of management, these unaudited financial statements contain all disclosures which are necessary to present fairly the Company's consolidated financial position at September 30, 2002, the results of operations for the three and nine months ended September 30, 2002 and 2001 and the cash flows for the nine months ended September 30, 2002 and 2001. 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 operation 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, as amended, for the year ended December 31, 2001. NOTE 2 - CONSOLIDATED STATEMENT OF CASH FLOWS Long-term debt assumed in conjunction with the Company's acquisition of interests in real estate was $5.4 million for the nine months ended September 30, 2002. 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 - INVESTMENTS IN REAL ESTATE LOANS The Company's portfolio of real estate loans consisted of the following at September 30, 2002:
Long-term first mortgages and senior loan participations $ 594,772 Mezzanine (including wraparound) loans 128,607,755 Short-term bridge loans 137,119,500 Loan costs 71,995 Less: Provision for loan losses (226,157) ----------- Investments in real estate loans 266,167,865 Less: Senior indebtedness secured by real estate underlying the Company's loans (43,502,603) ----------- Net investments in real estate loans $ 222,665,262 ===========
4 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (Unaudited) The following is a summary description of the Company's portfolio of real estate loans at September 30, 2002:
AVERAGE NUMBER OF LOAN-TO RANGE OF TYPE OF LOAN LOANS VALUE YIELD RANGE MATURITIES ------------ ----- ----- ----------- ---------- Long-term first mortgages and senior loan participations 1 99% 12% 7/31/03 Mezzanine (including wraparound) loans 29 88% 11.7%-21.4%(1) 10/1/03-5/1/21 Short term bridge loans 19 80% 8.0%-23.4%(1) 11/23/02-7/26/05
(1) Includes points charged. Approximately $146.2 million of the loans are secured by multi-family residential properties and $120.1 million of the loans are secured by commercial properties. As of September 30, 2002, senior indebtedness secured by real estate underlying the Company's loans consisted of the following: Loan payable, secured by real estate, monthly installments of $28,090, including interest at 6.82%, remaining principal due November 1, 2008 $ 4,108,110 Loan payable, secured by real estate, monthly installments of $72,005, including interest at 7.55%, remaining principal due December 1 2008 9,464,066 Loan payable, secured by real estate, monthly installments of principal and interest based on an amortization schedule of 25 years, including interest at LIBOR (London interbank offered rate) plus 135 basis points (3.17% at September 30, 2002), remaining principal due September 15, 2007; the interest rate is subject to an interest rate swap agreement entered into by the borrower, which provides for a fixed rate of 8.68% 10,730,427 Senior loan participation, secured by Company's interest in short-term bridge loan of $8,160,000, interest only at LIBOR plus 275 basis points (4.57% at September 30, 2002) due monthly, principal balance due March 5, 2004 2,950,000 Senior loan participation, secured by Company's interest in short-term bridge loan of $32,000,000, interest only at LIBOR plus 275 basis points (4.57% at September 30, 2002) due monthly, principal balance due December 27, 2002; the interest rate is subject to an interest rate swap agreement entered into by the Company, which provides for a fixed rate of 4.89% 16,250,000 ---------- $ 43,502,603 ==========
5 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (Unaudited) As of September 30, 2002 the senior indebtedness secured by real estate underlying the Company's loans maturing in the remainder of 2002, over the next four years, and the aggregate indebtedness maturing thereafter is as follows: 2002 $16,339,037 2003 374,218 2004 3,354,915 2005 438,152 2006 474,139 Thereafter 22,522,142 ----------- $43,502,603 ===========
In the three months ended September 30, 2002, the Company generated $3.2 million in income from loan satisfaction. This related to the repayment of two loans (total net book value of $2.3 million) with cash of $2.5 million and preferred interests in the entities which own the real estate underlying the loans. The Company recorded the two property interests at their current fair value based upon discounted cash flows. NOTE 5 - INVESTMENTS IN REAL ESTATE Investments in real estate are comprised of the following at September 30, 2002: Land $ 613,519 Commercial properties (1) 83,272,666 Residential properties (2) 59,710,479 ----------- Subtotal 143,596,664 Less: Accumulated depreciation (10,902,447) ----------- Investment in real estate, net $132,694,217 ===========
(1) Includes a $10.0 million investment in a limited liability company that owns an office building and a $1.6 million investment in a limited partnership that owns an office building. Also includes escrow balances totaling $1.5 million at September 30, 2002, which represent escrows for real estate taxes, insurance premiums, repair and replacement, tenant improvements and leasing commissions reserves. (2) Includes $8.0 million invested in two limited liability companies that each own apartment buildings and a $1.6 million investment in an entity which is the beneficiary of a trust that owns an apartment building. Also includes escrow balances totaling $1.1 million at September 30, 2002, which represent escrows for real estate taxes, insurance premiums and repair and replacement. 6 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (Unaudited) At September 30, 2002, long-term debt secured by the Company's real estate investments consisted of the following: Loan payable, secured by real estate, monthly installments of $8,008, including interest at 7.33%, remaining principal due August 1, 2008 $ 1,032,222 Loan payable, secured by real estate, monthly installments of $288,314, including interest at 6.85%, remaining principal due August 1, 2008 42,114,250 Loan payable, secured by real estate, monthly installments of $107,255, including interest at 7.73%, remaining principal due December 1, 2009(1) 14,610,544 Loan payable, secured by real estate, monthly installments of $15,396, including interest at 7.17%, remaining principal due March 1, 2012(1) 2,240,841 Loan payable, secured by real estate, monthly installments of $37,697, including interest at 7.27%, remaining principal due January 1, 2010 5,364,183 Loan payable, secured by real estate, monthly payments of $87,960, including interest at 8.367%, remaining principal due March 11, 2028(2) 11,550,444 ---------- $76,912,484 ==========
(1) These loans related to a single investment in real estate. (2) As an inducement to pay interest at 8.36% from April 11, 1998 onward, rather than at 7.89%, the Company received a buy-up premium of $418,482 (balance of $359,594 at September 30, 2002) which is amortized over the term of the underlying debt. As of September 30, 2002, the amount of long-term debt secured by the Company's real estate investments maturing in the remainder of 2002, over the next four years, and the aggregate indebtedness maturing thereafter, is as follows: 2002................. $ 233,548 2003................. 966,320 2004................. 1,038,373 2005................. 1,115,904 2006................. 1,199,317 Thereafter.......... 72,359,022 ---------- $76,912,484 ==========
7 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (Unaudited) NOTE 6 - LINES OF CREDIT In March 2002, the Company obtained a $5 million line of credit secured by a pledge of a $7.5 million first priority mortgage loan in its portfolio. The line of credit bears interest at either 30-day LIBOR plus 2.5% or the prime rate as published in the "Money Rates" section of The Wall Street Journal, at the Company's election, with a floor of 5.5%. The line terminates in September 2003. As of September 30, 2002, there was $5.0 million outstanding under this line of credit. In April 1999, the Company obtained a $20.0 million line of credit (the "1999 Line"). The 1999 Line bears interest at The Wall Street Journal prime rate described above. Each draw on the 1999 Line must be secured by a pledge of a loan or loans in the Company's portfolio. At September 30, 2002, there was $20.0 million outstanding under the 1999 Line. In September 2002, the Company borrowed $10.0 million evidenced by a note with a maturity date of October 1, 2002 bearing interest at The Wall Street Journal prime rate described above. This $10.0 million loan remained outstanding at September 30, 2002. On October 1, 2002, the Company entered into a $20.0 million line of credit and repaid the $10.0 million loan with the proceeds of a drawdown under the $20.0 million line of credit (See Note 11 - Subsequent Events). NOTE 7 - RELATED PARTY TRANSACTIONS Resource America, Inc. ("RAI") was the sponsor of the Company and holds approximately 7.7% of the Company's outstanding common shares based on the most recent information available to the Company from RAI. The Chairman and Chief Executive Officer of the Company, Betsy Z. Cohen, is (i) the spouse of Edward E. Cohen, the Chairman, Chief Executive Officer and President of RAI, (ii) the parent of D. Gideon Cohen, who was, until October 2002, a director of RAI and (iii) the parent of Jonathan Z. Cohen, the Chief Operating Officer and a director of RAI. Jonathan Cohen is also a Trustee and the Secretary of the Company. The President and Chief Operating Officer of the Company, Scott F. Schaeffer, was, until October 2002, a director of RAI. Brandywine Construction & Management, Inc. ("Brandywine"), an affiliate of RAI, provided real estate management services to two properties owned by the Company and 13 properties underlying the Company's loans at September 30, 2002. Management fees in the amount of $283,000 and $814,000 were paid to Brandywine for the three and nine months ended September 30, 2002, respectively, relating to the properties owned by the Company. Betsy Z. Cohen is the Chief Executive Officer and a director of The Bancorp, Inc. ("Bancorp"). D. Gideon Cohen is the Chairman of the Board of Bancorp. The Company places a portion of its temporary excess cash and restricted cash in short-term money market instruments with Bancorp's bank subsidiary. As of September 30, 2002, the Company had $5.5 million on deposit, of which approximately $5.4 million is over the Federal Deposit Insurance Corporation insurance limit. In February and April 2002, the Company granted to its employees, executive officers and trustees options to purchase 61,100 common shares, in the aggregate, under the Amended and Restated RAIT Investment Trust 1997 Stock Option Plan. 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 all of these exercises are restricted as to their transferability. These restrictions lapse as to 25% of the common shares annually on the anniversary date of the grants for each of the next four years. At the time of exercise, the Company provided loans to each person in the amount necessary to exercise such options. The loans are evidenced by promissory notes. The principal amount of these promissory notes bears interest at a rate of 6% per annum and was equal to $1.1 million, in the aggregate, at September 30, 2002. Interest on the outstanding principal amount is payable quarterly and 25% of the original principal amount of each promissory note is payable on each of the first four anniversaries of the date of the promissory note. The notes must be fully paid on the fourth anniversary of their issuance date. The common shares that were acquired pursuant to the option exercise secure each note and the maker of such note is personally liable for 25% of the outstanding balance due. Any payments of principal are deemed to first reduce the amount of the maker's personal liability and the Company agrees to accept as full satisfaction of amounts due under the promissory note for which the maker is not personally liable the return of all common shares purchased by maker with the proceeds of the promissory note. In March 2002, the Company provided, as part of a single transaction, three mortgage loans aggregating $18.6 million to finance the acquisition of three commercial properties in Philadelphia, Pennsylvania. Each loan was made 8 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (Unaudited) to a separate borrower to finance the purchase of a separate property. All three borrowers were limited partnerships in which Resource Properties, Inc., a wholly owned subsidiary of RAI, was the general partner. At September 30, 2002, $1.0 million remained outstanding under these loans. These loans have been repaid in full as of October 7, 2002. In March 2002, the Company sold its interest in one loan with a book value of $1.2 million for a price of $2.2 million to a partnership whose general partner is D. Gideon Cohen. The Company recognized a gain on sale of approximately $948,000. In June 2002, the Company purchased from RAI a loan with an outstanding balance (including accrued interest) of approximately $2.0 million for a purchase price of approximately $1.8 million. The loan relates to an apartment complex in Bensalem, Pennsylvania. NOTE 8 - SHAREHOLDERS' EQUITY In January 2002 the Company issued 375,000 common shares pursuant to the exercise of an over-allotment option by the underwriter of the Company's December 2001 offering. The exercise price was $16.00 per share, resulting in receipt by the Company, after discounts and commissions, of total net proceeds of $5.7 million. In March 2002, the Company issued 1.2 million common shares in a public offering at an offering price of $18.05 per share. After offering costs, including underwriters' commissions, of approximately $1.1 million, the Company received approximately $20.6 million of net proceeds. On March 18, 2002 the Company issued an additional 180,000 common shares pursuant to the underwriter's exercise of its over-allotment option. The exercise price was $18.05 per share, resulting in receipt by the Company total net proceeds, after discounts and commissions, of $3.1 million. On March 15, 2002 the Board of Trustees of the Company declared a cash dividend of $0.58 per common share payable on April 16, 2002 to shareholders of record on April 3, 2002. In May 2002, the Company issued 1.0 million common shares in a public offering at an offering price of $20.50 per share. After offering costs, including underwriters' commissions, of approximately $1.0 million, the Company received approximately $19.5 million of net proceeds. On May 8, 2002 the Company issued an additional 150,000 common shares pursuant to the underwriter's exercise of its over-allotment option. The exercise price was $20.50 per share, resulting in receipt by the Company total net proceeds, after discounts and commissions, of $2.8 million. On May 21, 2002 and April 11, 2002, Friedman Billings Ramsey ("FBR") acquired 1,190 and 103,455 common shares, respectively, pursuant to partial exercises of its warrant (the "FBR Warrant") to purchase 141,667 of the Company's common shares. The FBR Warrant was issued in connection with the Company's initial public offering in January 1998 with an exercise price of $15.00 per common share. The Company received proceeds of $17,850 and $1.5 million, respectively, from these exercises. On June 12, 2002 the Board of Trustees of the Company declared a cash dividend of $0.59 per common share payable on July 15, 2002 to shareholders of record on June 28, 2002. On August 1, 2002, FBR acquired 1,984 common shares pursuant to a partial exercise of the FBR Warrant. The Company received proceeds of $29,760 from this exercise. On September 3, 2002, the Board of Trustees of the Company declared a cash dividend of $0.60 per common share payable on October 15, 2002 to shareholders of record on September 13, 2002. NOTE 10- GOODWILL Statement of Financial Accounting Standard ("SFAS") No. 141, Business Combinations ("SFAS No. 141"), and SFAS No. 142, Goodwill and Intangible Assets ("SFAS No. 142") were issued in June 2001. These statements resulted in significant modifications relative to the Company's accounting for goodwill and other intangible assets. SFAS No. 142 modifies the accounting for all purchased goodwill and intangible assets. SFAS No. 142 includes 9 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2002 (Unaudited) requirements to test goodwill and indefinite lived intangible assets for impairment rather than amortize them. The Company adopted the provisions of SFAS No. 142 as of January 1, 2002. Therefore, acquired goodwill is no longer amortized. Amortization of goodwill for the three and nine months ended September 30, 2001 was $16,000 and $76,000, respectively, which did not have a material effect on earnings per share. As of September 30, 2002, the Company has completed the transitional testing of its intangible assets, including goodwill. The Company did not identify any impairment of its outstanding goodwill. NOTE 11 - SUBSEQUENT EVENTS In October 2002, the Company obtained a $20.0 million line of credit. Each draw on the line of credit must be secured by a pledge of a loan or loans in the Company's portfolio. As of November 1, 2002, approximately $10.0 million had been outstanding under this line of credit and was secured by two of the Company's investments in real estate loans. The line of credit currently bears interest at either 30-day LIBOR plus 2.5% or the prime rate as published in the "Money Rates" section of The Wall Street Journal, at our election. The minimum interest rate is 4.75%. Absent any renewal, the line of credit will terminate in October 2003 and any principal then outstanding must be paid by October 2004. In November 2002, the Company issued 550,000 common shares in a public offering at a offering price of $20.70 per share. After offering costs, including underwriters' commissions, of approximately $561,500, the Company received approximately $10.8 million of net proceeds. 10 Report Of Independent Certified Public Accountants Board of Trustees and Shareholders RAIT Investment Trust We have reviewed the accompanying consolidated balance sheet, consolidated statements of income and consolidated statements of cash flows of RAIT Investment Trust and subsidiaries as of September 30, 2002, and for the three-month and nine-month periods ended September 30, 2002 and 2001. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, 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 review, 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 auditing standards generally accepted in the United States of America, the consolidated balance sheet as of December 31, 2001, 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 January 23, 2002 (except for note 16(a), as to which the date is March 13, 2002 and note 16(b), as to which the date is March 18, 2002), 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, 2001, 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 November 14, 2002 11 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 Annual Report on Form 10-K, as amended, for the year ended December 31, 2001 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 began investment operations in January 1998. Our principal business objective is to generate income for distribution to our shareholders from a combination of interest, rents and distributions in respect to rents where we own an equity interest in a real property, and proceeds from the sale of portfolio investments. Through September 30, 2002, we completed seven public offerings of our common shares: two during 1998, three in 2001, one in the first quarter of 2002 and one in the second quarter of 2002. In November 2002 we completed an eighth public offering of our common shares. We have used the proceeds of these offerings, combined with the repayment and refinancing of our loans and property interests and borrowings, including draws on our lines of credit, to build our investment portfolio. LIQUIDITY AND CAPITAL RESOURCES The principal sources of our capital from our commencement through September 30, 2002 were the seven public offerings of our common shares. After offering costs and underwriting discounts and commissions, we obtained net offering proceeds of $258.8 million. In November 2002, we completed our eighth public offering of our common shares which resulted in net offering proceeds to us of approximately $10.8 million after offering costs and underwriting discounts and commissions. We also maintain liquidity through our lines of credit and loans. Through September 30, 2002, we had obtained a $5.0 million line of credit, a $20.0 million line of credit and borrowed $10.0 million on a short term basis. We obtained the $5 million line of credit during the quarter ended March 31, 2002. The $5.0 million line of credit bears interest at 30-day LIBOR plus 2.5%, with a floor of 5.5%. We obtained the $20.0 million line of credit in April 1999 (the "1999 line") which bears interest at the prime rate as published in the "Money Rates" section of The Wall Street Journal. The 1999 line has a current term running through April 2004 with annual one-year extension options and an 11-month non-renewal notice requirement. Each draw on the 1999 line is secured by a pledge of a loan or loans in our portfolio. In September 2002, we borrowed $10.0 million evidenced by a note with a maturity date of October 1, 2002 bearing interest at The Wall Street Journal prime rate described above. At September 30, 2002, both of these lines of credit were fully drawn and the $10.0 million loan was outstanding. On October 1, 2002, we repaid the $10.0 million loan from the $20.0 million line of credit discussed in the next paragraph. In October 2002, we obtained a $20.0 million line of credit. Each draw on the line of credit must be secured by a pledge of a loan or loans in our portfolio. As of November 1, 2002, approximately $10.0 million had been outstanding under this line of credit and was secured by two of our investments in real estate loans. The line of credit currently bears interest at either 30-day LIBOR plus 2.5% or The Wall Street Journal prime rate described above, at our election. The minimum interest rate is 4.75%. Absent any renewal, the line of credit will terminate in October 2003 and any principal then outstanding under the line of credit must be paid by October 2004. Another source of capital resources for us are principal payments on, refinancings of, and sales of loans in our portfolio as well as refinancings of our property interests. These resources aggregated $31.5 million and $83.0 million for the 12 three and nine months ended September 30, 2002 and $30.9 million and $63.4 million for the three and nine months ended September 30, 2001. We also receive funds from interest payments on our loans and operating income from our property interests. However, as required by the Internal Revenue Code, we use these funds, to the extent of not less than 90% of our taxable income, to pay distributions to our shareholders. For the quarters ended September 30, 2002 and 2001, we declared dividends of $10.9 million (paid October 15, 2002) and $6.5 million (paid October 12, 2001), respectively and for the nine months ended September 30, 2002, and 2001, we declared dividends of $31.3 million and $14.7 million, respectively. We use our capital resources principally for originating and purchasing loans and acquiring property interests. During the three months ended September 30, 2002, we originated or purchased 11 loans in the amount of $60.5 million and during the nine months ended September 30, 2002, we originated or purchased 25 loans in the amount of $139.3 million. In the corresponding periods of our prior fiscal year, we originated or purchased seven loans in the amount of $42.3 million during the three months ended September 30, 2001 and 16 loans in the amount of $98.2 million during the nine months ended September 30, 2001. During the three months ended September 30, 2002, we did not acquire any property interests and, during the nine months ended September 30, 2002, we acquired three property interests in the amount of $22.6 million and also assumed a $5.4 million mortgage loan payable. We did not acquire any property interests during the three and nine months ended September 30, 2001. However, during the nine months ended September 30, 2001 we also used our capital resources to fully repay the $20.0 million outstanding on our 1999 line, to repay $11.0 million of debt underlying our loans and property interests and we extinguished debt in the amount of $20.2 million. Our receipt and investment of approximately $55.0 million in net proceeds from our public offerings in the nine months ended September 30, 2002 have resulted in substantial increases in our net investments in real estate loans and net investments in real estate in the period from December 31, 2001 to September 30, 2002. Our receipt of these net proceeds was also primarily responsible for the substantial increase in our additional paid-in-capital in this period. Our total liabilities increased from $121.0 million at December 31, 2001 to $176.0 million at September 30, 2002. This is due primarily to draws on our lines of credit and short term borrowings, a dividend payable relating to the dividend we paid in October 2002 and increases in the amount of long-term debt secured by real estate we own and in the amount of senior indebtedness secured by real estate underlying our loans. In order to maintain our liquidity, we pursue the following strategies: - providing shorter-term financing to our borrowers (generally in the form of bridge financing) to increase the turnover of our investments, and - pursuing borrower refinancing of portions of our loans through senior lenders, while we retain junior interests. We anticipate that we will continue to provide shorter-term financing and obtain senior lien refinancing of our investments in loans and properties, in order to maintain liquidity. However, we anticipate that from time to time, we may provide longer-term financings as such opportunities arise. We do not currently experience material difficulties in originating shorter-term financings or obtaining senior loan refinancings on acceptable terms. However, we could encounter difficulties in the future, depending upon the development of conditions in the credit markets. At September 30, 2002, after excluding funds needed to pay our dividend on October 15, 2002, we had $11.9 million available for investment. Since September 30, 2002, we have used these funds along with approximately $39.0 million of funds received from loan repayments and refinancings to fund $28.1 million of investments. On November 6, 2002, we received approximately $10.8 million of proceeds, net of the underwriting discounts and offering expenses, from our public offering. We expect that these funds, together with our cash on hand of approximately $18.8 million on November 6, 2002 and $14.0 million of availability on our credit facilities, will provide us with the necessary amounts to fund our currently anticipated investments. We expect to continue to use cash provided by operations to meet our short-term capital needs including general and administrative expenses and 13 dividend requirements. Factors that could impair our ability to generate cash from operations in the future include the following: - A decline in the real estate market or economic conditions could occur in the Mid-Atlantic region of the United States and Florida, where there is a large concentration of properties that collateralize our loans. - An increase in the vacancy rates in the national commercial property market may result in some of our borrowers experiencing a decline in market rents or in the overall revenue of their properties which collateralize our loans. This may reduce the overall cash flow available to service the total debt on these properties, including payments due on our loans. - Our borrowers and we may not be able to refinance our existing indebtedness on terms as favorable as the terms of our existing indebtedness, which would result in higher interest expense. - Although we believe that the properties that collateralize our loans are adequately insured, we are subject to the risk that the insurance may not cover all of the costs to restore a property, which is damaged by a fire or other catastrophic event. We historically have financed our long-term capital needs through a combination of the following: - principally, from proceeds of offerings of our common shares; - cash from operations; - borrowings from our secured lines of credit; - proceeds from repayments of loans; - refinancing of loans and property interests; and - sales of loans. We expect to continue to use these sources to meet our long-term capital needs. We may also seek to develop other sources of capital, including, without limitation, long-term borrowings, offerings of our preferred shares and issuances of our debt securities. Factors that could negatively impact our ability to finance our long-term capital needs in the future include the following: - As a REIT, we must distribute 90% of our annual taxable income, which limits the amount of cash we have available for other business purposes, including amount to fund our long-term capital needs. - Much of our ability to raise capital through issuance of our common shares is dependent upon the value of our common shares. As is the case with any publicly traded securities, certain factors outside of our control could influence the value of these shares. RESULTS OF OPERATIONS Our interest income from loans was $8.4 million and $5.9 million for the three months ended September 30, 2002 and 2001, respectively. The $2.5 million increase in interest income was due an additional $5.2 million of interest generated by the origination of 39 loans totaling $230.4 million from the beginning of the third quarter of 2001 through the end of the third quarter of 2002, partially offset by a $2.8 million reduction of interest due to the repayment of 22 loans totaling $81.9 million during the same period. Our interest income from loans was $24.3 million and $16.2 million for the nine months ended September 30, 2002 and 2001, respectively. The $8.1 million increase was due to an additional $14.0 million of interest generated by the origination of 42 loans totaling $237.8 million from the beginning of the third quarter of 2001 through the end of the third quarter of 2002, partially offset by a $6.3 million reduction of interest due to the repayment of 24 loans totaling $141.5 million during the same period 14 We received $6.2 million and $19.3 million from rents from our property interests for the three and nine months ended September 30, 2002, respectively, compared to $5.7 million and $16.0 million for the three and nine months ended September 30, 2001, respectively. The rental income increase from the three and nine months ended September 30, 2001 to the corresponding periods in 2002 was due to the acquisition of a residential property in January 2002 and to our origination of two master lease financing transactions in April 2001, the revenues from which we record as rental income. We earned fee and other income of $911,000 and $4.6 million for the three and nine months ended September 30, 2002, respectively, as compared to $2.6 million and $4.7 million for the three and nine months ended September 30, 2001, respectively. Included in fee and other income are financial consulting fees of $3.4 million, in the aggregate, generated by four transactions in the nine months ended September 30, 2002, as compared to financial consulting fees of $2.4 million generated by four transactions and a $1.0 million exit fee generated by one transaction in the nine months ended September 30, 2001. Investment income was $682,000 and $1.2 million for the three and nine months ended September 30, 2002, respectively, compared to $139,000 and $276,000 for the same periods in 2001. The increase in investment income from the three and nine months ended September 30, 2001 to the corresponding periods in 2002 is due to the inclusion, in 2002, of income from two of our investments in real estate which are structured as preferred equity interests. As such, we classified the income generated by these two investments as investment income rather than as rental income. In the nine months ended September 30, 2002, we sold our interest in one loan with a book value of $1.2 million to a partnership whose general partner is the son of our chairman and chief executive officer. The buyer paid $2.2 million and we recognized a gain on the sale of approximately $948,000. In the three months ended September 30, 2002, we generated $3.2 million in income from loan satisfaction. This related to the repayment of two loans (total net book value of $2.3 million) with cash of $2.5 million and preferred interests in the entities which own the real estate underlying the loans. We recorded the two property interests at their current fair value based upon discounted cash flows. During the three and nine months ended September 30, 2002, we incurred expenses of $8.0 million and $21.7 million, respectively, as compared to $7.7 million and $22.6 million for the three and nine months ended September 30, 2001, respectively. The expenses consisted of interest expense, operating expenses relating to our property interests, salaries and related benefits, general and administrative expenses, and depreciation and amortization. Interest expense was $2.6 million and $6.8 million for the three and nine months ended September 30, 2002, respectively, as compared to $2.6 million and $8.5 million for the three and nine months ended September 30, 2001, respectively. Interest expense consists of interest payments made on senior indebtedness on properties underlying our wraparound loans and property interests, and interest payments made on our lines of credit. The decrease in interest expense from the nine months ended September 30, 2001 to the corresponding periods in 2002 resulted from a decrease in the interest rate on our 1999 line from an average of 7.52% in the nine months ended September 30, 2001 to an average of 4.75% in the nine months ended September 30, 2002 as general market rates of interest decreased. Property operating expenses were $3.3 million and $9.4 million for the three and nine months ended September 30, 2002, respectively, compared to $3.4 million and $8.9 million for the three and nine months ended September 30, 2001, respectively. Depreciation and amortization was $908,000 and $2.7 million for the three and nine months ended September 30, 2002, respectively, compared to $799,000 and $2.5 million for the three and nine months ended September 30, 2001, respectively. The increases in property operating expenses, depreciation and amortization from the nine months ended September 30, 2001 and the increases in depreciation and amortization from the three months ended September 30, 2001 to the corresponding periods in 2002 were due to the increased number of property interests in our portfolio. Salaries and related benefits were $752,000 and $1.7 million for the three and nine months ended September 30, 2002, respectively, as compared to $521,000 and $1.8 million for the three and nine months ended September 30, 2001, respectively. General and administrative expenses were $493,000 and $1.2 million for the three and nine months ended September 30, 2002, respectively, as compared to $330,000 and $1.1 million for the three and nine 15 months ended September 30, 2001, respectively. The slight decrease in general and administrative expenses from the three and nine months ended September 30, 2001 to the corresponding periods in 2002 was due to periodically recurring expenses that were incurred in different periods in 2001 and 2002. We have a reserve for loan losses of $226,000. 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 September 30, 2002. We will continue to analyze the adequacy of this reserve on a quarterly basis. 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 our presentation in the our Annual Report on Form 10-K, as amended, for the year ended December 31, 2001. ITEM 4. CONTROLS AND PROCEDURES Our chief executive officer and chief financial officer are responsible for establishing and maintaining disclosure controls and procedures as defined in Rules 13a-14 and 15d-14 under the Securities Exchange Act of 1934, as amended. Within the 90 days prior to the date of this report, we carried out an evaluation under the supervision of the chief executive officer and chief financial officer and with the participation of our disclosure committee appointed by such officers of the effectiveness of our disclosure controls and procedures. As a result of that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective. Subsequent to the date of this evaluation, the audit committee of our board of trustees further strengthened our risk management program by engaging an independent third party to perform independent internal audit and risk management procedures. There have been no other significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of this evaluation. 16 PART II OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The information provided in answer to this Item is incorporated by reference to Item 4 of Part II of our Form 10-Q for the quarterly period ended June 30. 2002. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (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. (b) Reports on Form 8-K We filed one report on Form 8-K during the quarter ending September 30, 2002. This report on Form 8-K was dated July 9, 2002 and was filed as of July 9, 2002. Pursuant to Item 5- Other Events, we disclosed that we had issued a press release regarding our earnings for the three and nine months ended June 30, 2002. 17 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. November 14, 2002 /s/ Ellen J. DiStefano ----------------- ----------------------------------- DATE Ellen J. DiStefano Chief Financial Officer (On behalf of the registrant and as its principal financial officer) 18 CERTIFICATIONS I, Betsy Z. Cohen, certify that: 1. I have reviewed this quarterly report on Form 10-Q of RAIT Investment Trust; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Betsy Z. Cohen -------------------------------- Title: Chief Executive Officer 19 CERTIFICATIONS I, Ellen J. DiStefano, certify that: 1. I have reviewed this quarterly report on Form 10-Q of RAIT Investment Trust; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and c) Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: November 14, 2002 /s/ Ellen J. DiStefano -------------------------------- Title: Chief Financial Officer 20 EXHIBIT INDEX Exhibit Number Description ------- ----------- 3.i.1(1) Amended and Restated Declaration of Trust. 3.i.2(2) Articles of Amendment of Amended and Restated Declaration of Trust. 3.i.3(3) Articles of Amendment of Amended and Restated Declaration of Trust. 3.i.4(4) Certificate of Correction to the Amended and Restated Declaration of Trust 3.ii.1(1) Bylaws, as amended. 15.1 Awareness Letter from Independent Accountants. 99.1(5) Item 4 of Part II of RAIT Investment Trust's Form 10-Q for the Quarterly Period ended June 30, 2002. (1) Incorporated herein by reference to RAIT Investment Trust's Registration Statement on Form S-11 (File No. 333-35077), as amended. (2) Incorporated herein by reference RAIT Investment Trust's Registration Statement on Form S-11 (File No. 333-53067), as amended. (3) Incorporated herein by reference to RAIT Investment Trust's Regulation Statement on Form S-2 (File No. 333-55518), as amended. (4) Incorporated herein by reference to RAIT Investment Trust's Form 10-Q for the Quarterly Period ended March 31, 2002 (File No. 1-14760). (5) Incorporated herein by reference to Item 4 of Part II of RAIT Investment Trust's Form 10-Q for the Quarterly Period ended June 30, 2002 (File No. 1-14760). 21