-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PghQIxnALa6QRYvD61cmcCa+SKYx4UiXTpyhB8MU6IKbBVXki+wVqsR6SMotbOLa Yf6uI9FZpsNITjuDYnMoGQ== 0000893220-04-001523.txt : 20040730 0000893220-04-001523.hdr.sgml : 20040730 20040730172123 ACCESSION NUMBER: 0000893220-04-001523 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040730 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RAIT INVESTMENT TRUST CENTRAL INDEX KEY: 0001045425 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 232919819 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14760 FILM NUMBER: 04943122 BUSINESS ADDRESS: STREET 1: 1818 MARKET ST STREET 2: 28TH FL CITY: PHILADELPHIA STATE: PA ZIP: 19103 BUSINESS PHONE: 2155465119 MAIL ADDRESS: STREET 1: 1521 LOCUST ST STREET 2: 6TH FL CITY: PHILADELPHIA STATE: PA ZIP: 19102 FORMER COMPANY: FORMER CONFORMED NAME: RESOURCE ASSET INVESTMENT TRUST DATE OF NAME CHANGE: 19970904 10-Q 1 w99392e10vq.txt RAIT INVESTMENT TRUST SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2004 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number: 1-14760 RAIT INVESTMENT TRUST ------------------------------------------------------- (Exact name of registrant as specified in its charter) MARYLAND 23-2919819 ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) c/o RAIT PARTNERSHIP, L.P. 1818 MARKET STREET, 28TH FLOOR, PHILADELPHIA, PA 19103 ------------------------------------------------------ (Address of principal executive offices) (Zip Code) (215) 861-7900 ----------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [X] Yes [ ] No As of July 28, 2004, 25,525,682 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
PAGE ---- PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets at June 30, 2004 (unaudited) and December 31, 2003 3 Consolidated Statements of Income (unaudited) for the three and six months ended June 30, 2004 and 2003 4 Consolidated Statements of Cash Flows (unaudited) for the six months ended June 30, 2004 and 2003 5 Notes to Consolidated Financial Statements - June 30, 2004 (unaudited) 6 Report of Independent Registered Public Accountants 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 17 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 23 ITEM 4. CONTROLS AND PROCEDURES 23 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 24 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 24 SIGNATURES 25 EXHIBIT INDEX 26
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS RAIT INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
June 30, 2004 (Unaudited) December 31, 2003 ------------- ----------------- ASSETS Cash and cash equivalents $ 51,235,982 $ 14,758,876 Restricted cash 19,701,185 7,660,835 Tenant escrows 232,454 204,772 Accrued interest receivable 11,946,676 12,731,283 Investments in real estate loans, net 451,659,558 344,499,320 Investments in real estate, net 118,437,733 137,540,199 Furniture, fixtures and equipment, net 696,676 621,501 Prepaid expenses and other assets 6,924,811 15,650,821 Goodwill, net 887,143 887,143 ------------- ----------------- Total assets $ 661,722,218 $ 534,554,750 ============= ================= LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Accounts payable and accrued liabilities $ 1,004,892 $ 875,712 Accrued interest payable 544,344 518,527 Tenant security deposits 293,616 446,248 Borrowers' escrows 18,093,103 11,118,564 Dividends payable 13,932,458 - Senior indebtedness relating to loans 55,392,550 55,376,280 Long-term debt secured by real estate owned 63,940,052 75,705,723 Secured lines of credit 30,500,000 23,903,760 ------------- ----------------- Total liabilities $ 183,701,015 $ 167,944,814 Minority interest 486,556 3,208,436 Shareholders' equity: Preferred shares, $.01 par value; 25,000,000 shares authorized; 7.75% Series A cumulative redeemable preferred shares, liquidation preference $25.00 per share; 2,760,000 and no shares, respectively, issued and outstanding 27,600 - Common shares, $.01 par value; 200,000,000 shares authorized; 25,220,763 and 23,207,138 shares, respectively, issued and outstanding 252,208 232,072 Additional paid-in-capital 478,451,474 365,349,647 Retained earnings 129,816 (453,000) Loans for stock options exercised (511,320) (776,349) Deferred compensation (815,131) (950,870) ------------- ----------------- Total shareholders' equity 477,534,647 363,401,500 ------------- ----------------- Total liabilities and shareholders' equity $ 661,722,218 $ 534,554,750 ============= =================
The accompanying notes are an integral part of these consolidated financial statements. 3 RAIT INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
For the three months ended For the six months ended June 30, June 30, -------------------------------- ------------------------------- 2004 2003 2004 2003 ------------- ------------- ------------- --------------- REVENUES Interest income $ 15,145,385 $ 8,479,137 $ 28,459,870 $ 17,019,794 Rental income 6,641,154 5,426,080 12,708,352 12,272,415 Fee income and other 579,419 943,428 3,066,627 1,475,608 Investment income 1,123,493 448,684 1,955,387 2,805,555 Gain on sale of property interests 2,402,639 -- 2,402,639 2,372,220 ------------- ------------- ------------- --------------- Total revenues $ 25,892,090 $ 15,297,329 $ 48,592,875 $ 35,945,592 ------------- ------------- ------------- --------------- COSTS AND EXPENSES Interest 2,593,314 1,692,437 5,059,441 3,910,433 Property operating expenses 3,419,697 2,787,652 6,449,720 6,588,996 Salaries and related benefits 1,394,757 918,142 2,546,414 1,622,328 General and administrative 1,760,179 778,200 2,727,694 1,327,944 Depreciation and amortization 915,331 826,810 1,860,801 1,804,189 ------------- ------------- ------------- --------------- Total costs and expenses 10,083,278 7,003,241 18,644,070 15,253,890 ------------- ------------- ------------- --------------- Net income before minority interest $ 15,808,812 $ 8,294,088 $ 29,948,805 $ 20,691,702 Minority interest 1,248 32,994 (18,228) 56,706 ------------- ------------- ------------- --------------- Net income $ 15,810,060 $ 8,327,082 $ 29,930,577 $ 20,748,408 ------------- ------------- ------------- --------------- Dividends attributed to preferred shares 1,336,875 -- 1,486,875 -- ------------- ------------- ------------- --------------- Net income available to common shareholders $ 14,473,185 $ 8,327,082 $ 28,443,702 $ 20,748,408 ============= ============= ============= =============== Net income per common share basic $ 0.62 $ 0.40 $ 1.22 $ 1.02 ============= ============= ============= =============== Net income per common share diluted $ 0.62 $ 0.40 $ 1.21 $ 1.01 ============= ============= ============= ===============
The accompanying notes are an integral part of these consolidated financial statements. 4 RAIT INVESTMENT TRUST AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 2004 2003 ------------- ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 29,930,577 $ 20,748,408 Adjustments to reconcile net income to net cash provided by operating activities: Minority interest 18,228 (56,706) Gain on sale of property interest (2,402,639) -- Depreciation and amortization 1,860,800 1,804,189 Accretion of loan discounts (5,781,228) (433,992) Deferred compensation 135,739 116,716 (Increase) decrease in tenant escrows (27,682) 258,238 Increase in accrued interest receivable (1,220,511) (2,705,039) Decrease (increase) in prepaid expenses and other assets 8,171,762 (891,306) Increase in accounts payable and accrued liabilities 129,180 224,900 Increase (decrease) in accrued interest payable 25,817 (219,656) Decrease in tenant security deposits (152,632) (249,405) Decrease in borrowers' escrows (5,065,811) (6,932,872) ------------- ------------ Net cash provided by operating activities 25,621,600 11,663,475 ------------- ------------ CASH FLOWS FROM INVESTING ACTIVITIES Purchase of furniture, fixtures and equipment (147,291) (89,583) Real estate loans purchased -- (34,768,223) Real estate loans originated (159,178,567) (80,839,074) Principal repayments from real estate loans 66,722,953 63,718,815 Investment in real estate and improvements (11,984,207) (10,990,998) Proceeds from disposition of real estate interests 11,377,192 10,136,822 ------------- ------------ Net cash used in investing activities (93,209,920) (52,832,241) ------------- ------------ CASH FLOWS FROM FINANCING ACTIVITIES Principal repayments on senior indebtedness (10,083,730) (13,597,924) Principal repayments on long-term debt (546,373) (464,035) Principal repayments on notes underlying deferred compensation 265,029 241,863 Proceeds of senior indebtedness underlying real estate loans 10,100,000 16,100,000 Advances on secured lines of credit 6,596,240 11,836,845 Issuance of preferred shares, net 66,574,578 -- Payment of preferred dividends (1,486,875) (12,857,200) Payment of common dividends (13,928,428) -- Issuance of common shares, net 46,574,985 40,102,634 ------------- ------------ Net cash provided by financing activities 104,065,426 41,362,183 ------------- ------------ NET CHANGE IN CASH AND CASH EQUIVALENTS 36,477,106 193,417 ------------- ------------ CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD $ 14,758,876 $ 19,666,189 ------------- ------------ CASH AND CASH EQUIVALENTS, END OF PERIOD $ 51,235,982 $ 19,859,606 ============= ============
The accompanying notes are an integral part of these consolidated financial statements. 5 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 (UNAUDITED) NOTE 1 - BASIS OF PRESENTATION In the opinion of management, these unaudited financial statements contain all disclosures which are necessary to present fairly RAIT Investment Trust's (the "Company") consolidated financial position at June 30, 2004, its results of operations for the three and six months ended June 30, 2004 and 2003 and its cash flows for the six months ended June 30, 2004 and 2003. The financial statements include all adjustments (consisting only of normal recurring adjustments) which in the opinion of management are necessary in order to present fairly the financial position and results of operations for the interim periods presented. Certain information and footnote disclosures normally included in financial statements under accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2003. Certain reclassifications have been made to the consolidated financial statements as of and for the three and six months ended June 30, 2003 to conform to the presentation for the three and six months ended June 30, 2004. STOCK BASED COMPENSATION On March 31, 2004, the Financial Accounting Standards Board ("FASB") issued a proposed Statement, "Share-Based Payment an Amendment of FASB Statements No. 123 and APB No. 95," that addresses the accounting for share-based payment transactions in which an enterprise receives employee services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair value of the enterprise's equity instruments or that may be settled by the issuance of such equity instruments. Under the FASB's proposal, all forms of share-based payments to employees, including employee stock options, would be treated the same as other forms of compensation by recognizing the related cost in the income statement. The expense of the award would generally be measured at fair value at the grant date. Current accounting guidance requires that the expense relating to so-called fixed plan employee stock options only be disclosed in the footnotes to the financial statements. The proposed Statement would eliminate the ability to account for share-based compensation transactions using APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company is currently evaluating this proposed statement and its effects on its results of operations. The Company accounts for its stock option grants under the provisions of FASB No. 123, "Accounting for Stock-Based Compensation," which contains a fair value-based method for valuing stock-based compensation that entities may use, and measures compensation cost at the grant date based on the fair value of the award. Compensation is then recognized over the service period, which is usually the vesting period. Alternatively, the standard permits entities to continue accounting for employee stock options and similar instruments under Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." At June 30, 2004, the Company had a stock-based employee compensation plan. The Company accounts for that plan under the recognition and measurement principles of APB No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Stock-based employee compensation costs are not reflected in net income, as all options granted under the plan had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," to stock-based employee compensation. 6 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED JUNE 30, JUNE 30, 2004 2003 2004 2003 ------------ ----------- ------------ ------------ Net income available to common shareholders as reported $ 14,473,000 $ 8,327,000 $ 28,444,000 $ 20,748,000 Less: stock based compensation determined under fair value based method for all awards (14,000) (3,600) (26,000) (7,600) ------------ ----------- ------------ ------------ Pro forma net income available to common shareholders $ 14,459,000 $ 8,323,400 $ 28,418,000 $ 20,740,400 Net income per share-basic, as reported $ 0.62 $ 0.40 $ 1.22 $ 1.02 Net income per share-basic, pro forma $ 0.62 $ 0.40 $ 1.22 $ 1.02 Net income per share-diluted, as reported $ 0.62 $ 0.40 $ 1.21 $ 1.01 Net income per share-diluted, pro forma $ 0.62 $ 0.40 $ 1.21 $ 1.01
The Company granted options to purchase 0 and 18,250 common shares during the three and six months ended June 30, 2004, respectively. The Company granted options to purchase 0 and 24,850 common shares during the three and six months ended June 30, 2003, respectively. The fair value of each option grant is estimated on the date of grant using the Black-Scholes options-pricing model with the following weighted average assumptions used for grants in 2004 and 2003, respectively: dividend yield of 8.3% and 9.6%; expected volatility of 19% and 17%; risk-free interest rate of 4.0% and 4.9% and expected lives of 8.8 and 9.5 years. The Company adopted a Phantom Share Plan for Non-Employee Trustees on January 29, 2004. On January 29, 2004, the Company granted 482 phantom shares to each of two non-employee Trustees, or 964 phantom shares in the aggregate. On March 24, 2004, the Company granted 173 phantom shares to each of five non-employee Trustees, or 865 phantom shares, in the aggregate. Under current accounting rules, grants under this Plan result in variable accounting, which results in continuing compensation expenses from the date of grant to the date the phantom shares are actually paid to the participant. During the three and six months ended June 30, 2004, the Company recognized $50,000 and $50,000, respectively, in compensation expenses relating to phantom shares issued under this plan. On July 20, 2004, the Company amended this Phantom Share Plan to expand the persons eligible to receive phantom shares to all Trustees and employees and renamed this Plan as the Phantom Share Plan. VARIABLE INTEREST ENTITIES In January 2003, the FASB issued Financial Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest Entities." FIN 46 clarifies the application of Accounting Research Bulletin 51, "Consolidated Financial Statements", to certain entities in which voting rights are not effective in identifying the investor with the controlling financial interest. An entity is subject to consolidation under FIN 46 if the investors either do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support, are unable to direct the entity's activities, or are not exposed to the entity's losses or entitled to its residual returns. These entities are referred to as variable interest entities. Variable interest entities within the scope of FIN 46 will be required to be consolidated by their primary beneficiary. The primary beneficiary is the party that absorbs a majority of the variable interest entities' expected losses and/or receives a majority of the expected residual returns. In December 2003, the FASB revised FIN 46 ("FIN 46(R)"), delaying the effective date for certain entities created before February 1, 2003 and making other amendments to clarify the application of the guidance. FIN 46(R) is effective no later than the end of the first interim or annual period ending after December 15, 2003 for entities created after January 31, 2003 and for entities created before February 1, 2003, no later than the end of the first interim or annual period ending after March 15, 2004. As required, the Company adopted the guidance of FIN 46(R) accordingly. In adopting FIN 46 and FIN 46(R), the Company has evaluated its various variable interests to determine whether they are in variable interest entities. These variable interests are primarily subordinated 7 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 (UNAUDITED) financings in the form of mezzanine loans or preferred equity investments. The Company has identified 17 variable interests totaling $74.6 million that it holds as of June 30, 2004. For these variable interests, it was determined that the Company was not the primary beneficiary and such variable interest entities should not be consolidated in the Company's financial statements. REIT STATUS The Company qualifies and has elected to be taxed as a real estate investment trust ("REIT") under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, commencing with its taxable year ending December 31, 1999. If the Company qualifies for taxation as a REIT, it generally will not be subject to federal corporate income tax on its taxable income that is distributed to its shareholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its annual taxable income. NOTE 2 - CONSOLIDATED STATEMENT OF CASH FLOWS For the purpose of reporting cash flows, cash and cash equivalents include non-interest earning deposits and interest earning deposits. Cash paid for interest was $2.5 million and $5.3 million for the six months ended June 30, 2004 and 2003, respectively. Investments in real estate received in conjunction with the Company's disposition of certain investments in real estate totaled $0 and $8.2 million for the three and six months ended June 30, 2004, respectively, and $1.9 million and $0 for the three and six months ended June 30, 2003, respectively. Dividends declared during the six month periods ending June 30, 2004 and 2003, but not paid until July 2004 and 2003, were $13.9 million and $12.9 million, respectively. NOTE 3 - RESTRICTED CASH AND BORROWERS' ESCROWS Restricted cash and borrowers' escrows represent borrowers' funds held by the Company to fund certain expenditures or to be released at the Company's discretion upon the occurrence of certain pre-specified events, and to serve as additional collateral for borrowers' loans. NOTE 4 - INVESTMENTS IN REAL ESTATE LOANS The Company's portfolio of real estate loans consisted of the following at June 30, 2004: First mortgages $ 235,120,875 Mezzanine loans 215,957,675 Unearned fees, net 807,165 Less: Allowance for loan losses (226,157) ---------------- Investments in real estate loans 451,659,558 Less: Senior indebtedness relating to loans (55,392,550) ---------------- Net investments in real estate loans $ 396,267,008 ================
The following is a summary description of the Company's portfolio of real estate loans as of June 30, 2004:
AVERAGE NUMBER LOAN TO RANGE OF LOAN RANGE OF TYPE OF LOAN OF LOANS VALUE(1) YIELDS(2) MATURITIES - ------------------- ----------- ----------- ------------------ ----------------- First mortgages 21 65% 6.2% - 22% 8/26/04 - 6/18/07 Mezzanine loans 43 82% 10% - 21% 7/29/04 - 4/30/21
(1) Calculated as the sum of the outstanding balance of the Company's loan and senior loan (if any) divided by the current appraised value of the underlying collateral. (2) All the Company's loans are at fixed rates. The Company's calculation of loan yield includes points 8 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 (UNAUDITED) charged and costs deferred. The property type of the Company's portfolio of real estate loans consisted of the following as of June 30, 2004:
PRINCIPAL AMOUNT PERCENTAGE ---------------------- ---------- Multi-family $ 183.3 million 41% Office 129.8 million 29% Retail and other 138.0 million 30% ---------------------- ---------- Total $ 451.1 million 100% ====================== ==========
Senior indebtedness relating to loans arises when the Company sells a participation or other interest in one of its first mortgages or mezzanine loans to another lender. These participations and interests rank senior to the Company's right to repayment under the relevant mortgage or loan in various ways. As of June 30, 2004, this senior indebtedness consisted of the following: Loan payable, secured by real estate, monthly installments of principal and interest based on an amortization schedule of 25 years, including interest at a specified London interbank offered rate ("LIBOR") plus 135 basis points (2.58875% at June 30, 2004), 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% $ 10,452,550 Senior loan participation, secured by Company's interest in a first mortgage loan with a principal balance of $6,440,000, payable interest only at 4.5% due monthly, principal balance due May 1, 2005 3,000,000 Senior loan participation, secured by Company's interest in a first mortgage loan with a principal balance of $10,469,217, payable interest only at LIBOR plus 275 basis points (3.88% at June 30, 2004) due monthly, principal balance due September 30, 2004 5,000,000 Senior loan participation, secured by Company's interest in a first mortgage loan with a book value of $8,000,000, payable interest only at LIBOR plus 250 basis points (3.67% at June 30, 2004) due monthly, principal balance due October 1, 2004 5,000,000 Senior loan participation, secured by Company's interest in a first mortgage loan with a principal balance of $3,369,233, payable interest only at LIBOR plus 275 basis points (3.85% at June 30, 2004) due monthly, principal balance due March 29, 2005 2,640,000 Senior loan participation, secured by Company's interest in a first mortgage loan with a principal balance of $2,550,000, payable interest only at 5.0% due monthly, principal balance due July 26, 2005 1,800,000 Term loan payable, secured by Company's interest in a first mortgage loan with a principal balance of $7,500,000, payable interest only at 4.5% due monthly, principal balance due June 23, 2006 6,500,000 Senior loan participation, secured by Company's interest in a first mortgage loan with a principal balance of $15,500,000, payable interest only at 5.0% due monthly, principal balance due October 15, 2006 11,000,000 Senior loan participation, secured by Company's interest in a first mortgage loan with a book value of $8,988,918, payable interest only at the prime rate as published in the "Money Rates" section of The Wall Street Journal (4.0% at June 30, 2004) due monthly, principal balance due June 10, 2005 2,500,000 Senior loan participation, secured by Company's interest in a first mortgage loan with a book value of $7,559,569, payable interest only at the prime rate as published in the "Money Rates" section of The Wall Street Journal (4.0% at June 30, 2004) due monthly, principal balance due June 10, 2005 2,500,000 Senior loan participation, secured by Company's interest in a first mortgage loan with a book value of $9,139,126, payable interest only at the prime rate as published in the "Money Rates" section of The Wall Street Journal (4.0% at June 30, 2004) due monthly, 2,500,000
9 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 (UNAUDITED) principal balance due June 10, 2009. Senior loan participation, secured by Company's interest in a first mortgage loan with a book value of $18,724,896, payable interest only at the prime rate as published in the "Money Rates" section of The Wall Street Journal (4.0% at June 30, 2004) due monthly, principal balance due January 30, 2006 2,500,000 ------------ $ 55,392,550 ============
As of June 30, 2004, the senior indebtedness relating to the Company's loans maturing in the remainder of 2004 and over the next four years and the aggregate indebtedness thereafter, is as follows: 2004 $ 5,087,430 2005 20,126,622 2006 20,203,481 2007 9,975,017 2008 -- Thereafter -- -------------- $ 55,392,550 ==============
NOTE 5 - INVESTMENTS IN REAL ESTATE The Company's investments in real estate are comprised of real estate that the Company owns through consolidated subsidiaries and the Company's equity investments in unconsolidated entities owning real estate, together with related escrows. Investments in real estate are comprised of the following types of properties at June 30, 2004:
Book Value Percentage ---------------- ---------- Multi-family (1) $ 22,580,104 17% Office (2) 91,385,339 70% Retail and other (3) 16,925,470 13% ---------------- ---------- Subtotal 130,890,913 100% ========== Less: Accumulated depreciation (12,453,180) ---------------- Investment in real estate, net $ 118,437,733 ================
(1) Includes $7.6 million invested in two limited liability companies that each own apartment buildings, $3.9 million invested in two limited partnerships that each own apartment buildings and $1.8 million invested in an entity, which is the beneficiary of a trust, that owns an apartment building. Also includes escrows totaling $161,000 at June 30, 2004 which are held for payment of real estate taxes, insurance premiums and repair and replacement costs. (2) Includes $1.5 million invested in a general partnership that owns an office building, and $6.0 million invested in a limited liability company that owns an office building. Also includes escrows totaling $1.4 million at June 30, 2004 which are held for payment of real estate taxes, insurance premiums, repair and replacement costs, tenant improvements and leasing commissions. (3) Includes $3.2 million invested in a limited liability company that owns a retail center. Also includes escrows totaling $225,000 at June 30, 2004 which are held for payment of real estate taxes, insurance premiums, repair and replacement costs, tenant improvements and leasing commissions. Long-term debt secured by real estate owned by the Company arises when the Company borrows money secured by real estate owned by a consolidated subsidiary of the Company or by an entity in which the Company holds an unconsolidated equity interest. As of June 30, 2004, long-term debt secured by real 10 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 (UNAUDITED) estate owned by the Company 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. $ 996,164 Loan payable, secured by real estate, monthly installments of $288,314,including interest at 6.85%, remaining principal due August 1, 2008. 41,123,634 Loan payable, secured by real estate, monthly installments of $37,697, including interest at 7.27%, remaining principal due January 1, 2010. 5,248,132 Loan payable, secured by real estate, monthly installments of $47,720, including interest at 5.73%, remaining principal due November 1, 2012. 7,383,134 Loan payable, secured by real estate, monthly installments of $72,005, including interest at 7.55%, remaining principal due December 1, 2008 9,188,988 -------------- $ 63,940,052 ==============
As of June 30, 2004, the amount of long-term debt secured by real estate owned by the Company that matures over the remainder of 2004, over the next four years and the aggregate indebtedness maturing thereafter, is as follows: 2004 $ 507,984 2005 1,079,793 2006 1,156,961 2007 1,239,675 2008 40,155,934 Thereafter 19,799,705 ------------- $ 63,940,052 =============
Expenditures for repairs and maintenance are charged to operations as incurred. Significant renovations are capitalized. Fees and costs incurred in the successful negotiation of leases are deferred and amortized on a straight-line basis over the terms of the respective leases. Unamortized fees as of June 30, 2004 were $624,000. Rental revenue is reported on a straight-line basis over the terms of the respective leases. Depreciation expense relating to the Company's real estate investments for the three months ended June 30, 2004 was $844,000. NOTE 6 - LINES OF CREDIT At June 30, 2004, the Company had four lines of credit, two of which have $30.0 million of maximum possible borrowings, one of which has $25.0 million of maximum possible borrowings and a fourth of which has $10.0 million of maximum permissible borrowings. The aggregate amount of indebtedness outstanding under these lines of credit was $30.5 million at June 30, 2004. As of June 30, 2004, $122.3 million in principal amount of the Company's loans were pledged as collateral for amounts outstanding under these lines of credit. The following is a description of the Company's lines of credit at June 30, 2004: At June 30, 2004, the Company had $0 outstanding under the first of the Company's two $30.0 million lines of credit. This line of credit bears interest at either: (a) the 30-day London interbank offered rate, or LIBOR, plus 2.5%, or (b) the prime rate as published in the "Money Rates" section of The Wall Street Journal, at the Company's election. The minimum interest rate is 4.0%. The current interest rate is 4.0%. Absent any renewal, the line of credit will terminate in October 2005 and any principal then outstanding must be paid by October 2006. The lender has the right to declare any advance due and payable in full two years after the date of the advance. 11 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 (UNAUDITED) At June 30, 2004, the Company had $4.0 million outstanding under the second of the Company's two $30.0 million lines of credit. During June 2004, the Company amended the terms of this line of credit to increase the maximum amount available to borrow from $20.0 million to $30.0 million. This line of credit bears interest at the prime rate as published in the "Money Rates" section of The Wall Street Journal. The current interest rate is 4.25%. This line of credit has a current term running through April 2005 with annual one-year extension options and an 11-month non-renewal notice requirement. Approximately $442,000 of availability under this line of credit is reserved in the event we are required to make any payments under a letter of credit described in Note 8 below. At June 30, 2004, the Company had $19.0 million outstanding under the Company's $25.0 million line of credit. This line of credit bears interest, at the Company's election, at either: (a) one, two or three month LIBOR, plus 2.25% or (b) a daily base rate equal to the higher of (i) the bank's announced prime rate plus 1% or (ii) the federal funds rate, as published by the Federal Reserve Bank of New York, plus 2%. The current interest rate is 3.625%. Absent any renewal, this line of credit will terminate in February 2006 and any principal then outstanding must be repaid at that time. At June 30, 2004, the Company had $7.5 million outstanding under the Company's $10.0 million line of credit. This line of credit bears interest at either: (a) three month LIBOR plus 3.0% or (b) the prime rate as published in the "Money Rates" section of The Wall Street Journal, at the Company's election. The current interest rate is 4.6%. Absent any renewal, this line will terminate in July 2005 and any principal then outstanding must be repaid by July 2009. NOTE 7 - TRANSACTIONS WITH AFFILIATES Resource America, Inc. ("Resource America) was the sponsor of the Company. Resource America had the right to nominate one person for election to the Board of Trustees of the Company until its ownership of the outstanding Common Shares fell below 5%, which occurred in June 2003. The Chairman and Chief Executive Officer of the Company, Betsy Z. Cohen, is (i) the spouse of Edward E. Cohen, the Chairman of the Board of Resource America, and (ii) the parent of Jonathan Z. Cohen, the Chief Executive Officer, President and a director of Resource America. Jonathan Cohen is also the Vice-Chairman, a Trustee and the Secretary of the Company and served as Resource America's nominee to the Board of Trustees of the Company. The President and Chief Operating Officer of the Company, Scott F. Schaeffer, was, until October 2002, a director of Resource America. In December 2003, the Company was paid $100,000 for facilitating an acquisition by an unrelated third party financial institution of a $10.0 million participation in a loan owned by Resource America. The Company had previously owned the participation from March 1999 until June 2002 and in order for another party to acquire it, the Company had to reacquire it and then sell it to them. The transaction was completed in January 2004, at which time the Company earned an additional $23,000 representing interest for the eight days the Company had funded the participation. The transaction was reviewed and approved by the Independent Trustees (as defined in the declaration of trust of the Company) of the Board of Trustees of the Company and determined not to create a conflict of interest. The Company anticipates that it will purchase and sell additional loans and lien interests in loans to and from Resource America, and participate with it in other transactions. Brandywine Construction & Management, Inc. ("Brandywine"), is an affiliate of the spouse of Betsy Z. Cohen, the Chairman and Chief Executive Officer of the Company. Brandywine provided real estate management services to five properties underlying the Company's investments in real estate at June 30, 2004. Management fees in the amount of $206,000 and $442,000 were paid to Brandywine for the three and six months ended June 30, 2004, respectively, for real estate management services. The Company believes that the management fees charged by Brandywine are comparable to those that could be obtained 12 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 (UNAUDITED) from unaffiliated third parties. The Company continues to use Brandywine to provide real estate management services to properties underlying the Company's investments. Betsy Z. Cohen has been the Chairman of the Board of The Bancorp Bank ("Bancorp"), a commercial bank, since November 2003 and a director of The Bancorp, Inc. ("Bancorp Inc."), a registered bank holding company that owns an interest of approximately 33% in Bancorp, since September 2000 and the Chief Executive Officer of both Bancorp and Bancorp Inc. since September 2000. Daniel G. Cohen, Mrs. Cohen's son, (a) has been the Vice-Chairman of the Board of Bancorp since November 2003, was the Chairman of the Board of Bancorp before November 2003 and has been Chairman of the Executive Committee of Bancorp since 1999 and (b) has been the Chairman of the Board of Bancorp Inc. and Chairman of the Executive Committee of Bancorp Inc. since 1999. The Company maintains most of its checking and demand deposit accounts at Bancorp. Bancorp and Bancorp, Inc. are contemplating a reorganization and merger whereby Bancorp will become a wholly-owned subsidiary of Bancorp, Inc. and the shareholders of Bancorp will become shareholders of Bancorp, Inc. As of June 30, 2004, the Company had approximately $32.2 million on deposit, of which approximately $32.1 million is over the FDIC insurance limit. The Company pays a fee of $5,000 per month to Bancorp for information system technical support services. The Company paid $15,000 and $30,000 for these services for the three and six months ended June 30, 2004, respectively. The Company subleases a portion of its downtown Philadelphia office space under an operating lease with Bancorp Inc. The Company's annual rental is an apportionment of the rental paid by Bancorp Inc. based upon the amount of square footage the Company occupies. The sub-lease expires in August 2010 with two five-year renewal options. Rent paid to Bancorp Inc. was approximately $62,000 and $124,000 for the three and six months ended June 30, 2004, respectively. The Company sub-leases the remainder of its downtown Philadelphia office space under an operating lease with The Richardson Group, Inc. ("Richardson") whose Chairman is Jonathan Z. Cohen, the Vice-Chairman, a Trustee and Secretary of the Company, and a son of the Chairman and Chief Executive Officer of the Company. The Senior Vice President and Chief Operating Officer of Richardson is the spouse of Ellen J. DiStefano, the Executive Vice President and Chief Financial Officer of the Company. The Company's annual rental is an apportionment of the rental paid by Richardson based upon the amount of square footage the Company occupies. The sub-lease expires in August 2010 with two five-year renewal options. Rent paid to Richardson was approximately $14,000 and $28,000 for the three and six months ended June 30, 2004, respectively. Daniel G. Cohen is the beneficial owner of the corporate parent of Cohen Brothers & Company ("Cohen Brothers"), a registered broker-dealer of which Mr. Cohen is President and Chief Executive Officer. In March 2003, Jonathan Z. Cohen sold his 50% equity interest in this corporate parent to Daniel G. Cohen. Cohen Brothers has acted as a dealer in the public offering the Company made of its 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest ("Series A Preferred Shares") in March 2004. In the March 2004 offering, Cohen Brothers was allocated 60,000 Series A Preferred Shares at the public offering price less a standard dealer's concession of $0.50 per share. NOTE 8 - COMMITMENTS AND CONTINGENCIES At June 30, 2004, the Company has outstanding two letters of credit totaling $2.4 million as follows: On February 20, 2003, a $1.0 million letter of credit was posted in connection with the Company's sale of a property interest to support the Company's guaranteed rate of return to the buyer of up to a maximum of $800,000 over a three-year period and capital improvements of $200,000. In November 2003 the letter of credit was reduced to approximately $442,000 when the Company funded $489,000 of the guaranteed return and $69,000 of capital improvements. $442,000 of availability under the second of the Company's two $30.0 million lines of credit described in Note 6 above is reserved in the event the Company is required 13 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 (UNAUDITED) to make additional payments under this letter of credit. As of July 28, 2004, the Company had funded an additional $311,000 of the guaranteed return and $67,000 of capital improvements, thus reducing the letter of credit requirement to $64,000. On March 31, 2003, on behalf of a borrower, the Company extended a $2.0 million letter of credit as a guarantee of a portion of the senior indebtedness underlying one of the Company's loans. This letter of credit expires in March 2005, but automatically extends for an additional year unless the Company gives prior notice that it elects not to extend the expiration date. The principals of the borrower have guaranteed repayment of any amounts the Company pays under this letter of credit. NOTE 9 - SHAREHOLDERS' EQUITY On June 25, 2004, the Company issued 2.0 million common shares in a public offering at an offering price of $24.25 per share. After offering costs, including the underwriter's discount and expenses of approximately $2.3 million, the Company received approximately $46.2 million of net proceeds. On July 6, 2004, the Company issued an additional 300,000 common shares pursuant to the underwriter's exercise of its over-allotment option. The exercise price was $24.25 per share, resulting in receipt by the Company of net proceeds of approximately $6.9 million. On March 19, 2004, the Company issued 2.4 million Series A Preferred Shares in a public offering at an offering price of $25.00 per share with respect to 2,350,150 shares and $24.50 with respect to 49,850 shares sold to certain of the Company's Trustees, officers and employees, together with their relatives and friends. After offering costs, including the underwriter's discount, and expenses of approximately $2.0 million, the Company received approximately $58.0 million of net proceeds. On April 6, 2004, the Company issued an additional 360,000 Series A Preferred Shares pursuant to the underwriter's exercise of its over-allotment option. The exercise price was $25.00 per share, resulting in receipt by the Company of net proceeds of approximately $8.7 million. 14 RAIT INVESTMENT TRUST NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2004 (UNAUDITED) NOTE 10 - EARNINGS PER SHARE The Company's calculation of earnings per share for the three and six months ended June 30, 2004 and 2003 in accordance with SFAS No. 128 is as follows:
THREE MONTHS ENDED JUNE 30, 2004 SIX MONTHS ENDED JUNE 30, 2004 ----------------------------------------------- -------------------------------------- INCOME SHARES PER SHARE INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT ------------- ------------- ------------- ------------ ------------- --------- Basic earnings per share Net income available to common shareholders $ 14,473,184 23,328,323 $ 0.62 $ 28,443,701 23,268,603 $ 1.22 Effect of dilutive securities Options -- 165,170 -- -- 180,213 (.01) Phantom Shares - 1,829 -- - 1,276 -- ------------- ------------- ------------- ------------ ------------- --------- Net income available to common shareholders plus assumed conversions $ 14,473,184 23,495,322 $ 0.62 $ 28,443,701 23,450,092 $ 1.21 ============= ============= ============= ============ ============= =========
THREE MONTHS ENDED JUNE 30, 2003 SIX MONTHS ENDED JUNE 30, 2003 ----------------------------------------------- -------------------------------------- INCOME SHARES PER SHARE INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT ------------- ------------- ------------- ------------ ------------- --------- Basic earnings per share Net income available to common shareholders $ 8,327,082 20,845,820 $ 0.40 $ 20,748,408 20,410,801 $ 1.02 Effect of dilutive securities Options -- 167,150 -- -- 152,495 (.01) ------------- ------------- ------------- ------------ ------------- --------- Net income available to common shareholders plus assumed conversions $ 8,327,082 21,012,970 $ 0.40 $ 20,748,408 20,563,296 $ 1.01 ============= ============= ============= ============ ============= =========
NOTE 11 - DIVIDENDS In order to maintain its election to qualify as a REIT, the Company must currently distribute, at a minimum, an amount equal to 90% of its taxable income. Because taxable income differs from cash flow from operations due to non-cash revenues or expenses (such as depreciation), in certain circumstances, the Company may generate operating cash flow in excess of its dividends or, alternatively, may be required to borrow to make sufficient dividend payments. On March 23, 2004 the Board of Trustees of the Company declared a cash dividend of $0.60 per common share payable on April 15, 2004 to shareholders of record on April 5, 2004. On June 10, 2004 the Board of Trustees of the Company declared a cash dividend of $0.60 per common share payable on July 15, 2004 to shareholders of record on June 21, 2004. Total dividends declared by the Company on the common shares aggregated $13.9 million and $27.9 million for the three and six months ended June 30, 2004, respectively. On March 18, 2004 the Board of Trustees of the Company declared a pro-rated cash dividend on the Series A Preferred Shares aggregating $150,000 for the period from March 19, 2004 (date of issuance) through March 31, 2004 payable on March 31, 2004 to shareholders of record on March 24, 2004. On April 27, 2004, the Board of Trustees of the Company declared a cash dividend on the Series A Preferred Shares for the three months ended June 30, 2004 aggregating $1.3 million payable on June 30, 2004 to holders of record on June 1, 2004. On July 27, 2004, the Board of Trustees of the Company declared a cash dividend on the Series A Preferred Shares for the three months ended September 30, 2004 aggregating $1.3 million payable on September 30, 2004 to holders of record on September 1, 2004. As of July 28, 2004, there are no dividend arrearages on the Series A Preferred Shares. Holders of Series A Preferred Shares are entitled to receive, when and as declared by the Board of Trustees, out of funds legally available for the payment of dividends, cumulative preferential cash dividends at the rate of 7.75% per annum of the $25.00 liquidation preference, equivalent to a fixed annual rate of $1.9375 per share. Dividends are cumulative from the date of original issue and are payable quarterly in arrears on the last day of each March, June, September and December or, if not a business day, the next succeeding business day. Any dividend payable on the Series A Preferred Shares for any partial dividend period will be computed on the basis of a 360-day year consisting of twelve 30-day months. Dividends will be payable to holders of record as of the close of business on the first day of the calendar month in which the applicable dividend payment date falls or on another date designated by the Board of Trustees of the Company for the payment of dividends that is not more than 30 nor less than ten days prior to the dividend payment date. 15 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS Board of Trustees and Shareholders RAIT Investment Trust We have reviewed the accompanying consolidated balance sheet of RAIT Investment Trust and Subsidiaries as of June 30, 2004 and the related consolidated statements of income and cash flows for the three-month and six-month periods ended June 30, 2004 and 2003. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures 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 the standards of the Public Company Accounting Oversight Board, 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, 2003, 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 21, 2004 (except for Note 16 as to which the date is February 23, 2004). 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, 2003 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 July 30, 2004 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD-LOOKING STATEMENTS In addition to historical information, this discussion and analysis contains forward-looking statements. These statements can be identified by the use of forward-looking terminology including "may," "believe," "will," "expect," "anticipate," "estimate," "continue" or similar words. These forward-looking statements are subject to risks and uncertainties, as more particularly set forth in our filings with the Securities and Exchange Commission, including those described in the "Risk Factors" section of our Registration Statement No. 333-103618 and our Annual Report on Form 10-K for the year ended December 31, 2003, 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. We are a real estate investment trust, or REIT, formed under Maryland law. We make investments in real estate primarily by making real estate loans, acquiring real estate loans and acquiring interests in real estate. Our principal business objective is to generate income for distribution to our shareholders from investments in real estate generating a combination of interest and fees on loans, rents and other income from our interests in real estate, and proceeds from the sale of portfolio investments. During the three and six months ended June 30, 2004 we achieved significant growth in our revenues, net income and total assets as compared to the three and six months ended June 30, 2003. Our revenues grew 69.3% and 35.2% to $25.9 million and $48.6 million for the three and six months ended June 30, 2004, respectively, from the corresponding periods in 2003, while our net income available to common shareholders increased 73.8% and 37.1% to $14.5 million and $28.4 million for the three and six months ended June 30, 2004, respectively, from the corresponding periods in 2003. Total assets grew 36.9% to $661.7 million at June 30, 2004 from $483.2 million at June 30, 2003. We attribute this growth to the following principal factors: - our ability to generate an increasing number of attractive real estate investment opportunities in a national environment of low interest rates as well as to leverage our investments with debt financing in appropriate circumstances; and - our ability to obtain additional capital through offerings of both our common and preferred shares. LIQUIDITY AND CAPITAL RESOURCES The principal sources of our liquidity and capital resources from our commencement in January 1998 through July 30, 2004 were our public offerings of common shares and 7.75% Series A cumulative redeemable preferred shares. After offering costs and underwriting discounts and commissions, these offerings have allowed us to obtain net offering proceeds of $477.2 million. We issued 2,760,000 Series A preferred shares in March and April 2004 for net proceeds of $66.6 million. Our Series A preferred shares accrue cumulative cash dividends at a rate of 7.75% per year of the $25.00 liquidation preference, equivalent to $1.9375 per year per share. Dividends are payable quarterly in arrears on the last calendar day of each March, June, September and December or, if not a business day, the next succeeding business day. The Series A preferred shares have no maturity date and we are not required to redeem the Series A preferred shares at any time. We may not redeem the Series A preferred shares before March 19, 2009, except in limited circumstances relating to the ownership limitations necessary to preserve our tax qualification as a real estate investment trust. On or after March 19, 2009, we may, at our 17 option, redeem the Series A preferred shares, in whole or part, at any time and from time to time, for cash at $25.00 per share, plus accrued and unpaid dividends, if any, to the redemption date. In March 2003, we filed a shelf registration statement to allow us to sell any combination of our common or preferred shares, warrants for our preferred or common shares or one or more series of debt securities up to a total amount of $300.0 million, of which $122.9 million remains available. We also maintain liquidity through the lines of credit we have established with four different lending institutions, as described below: At June 30, 2004 and July 28, 2004, we had $30 million and $15.0 million, respectively, of availability under the first of our two $30.0 million lines of credit. This line of credit bears interest at either 30-day London interbank offered rate, or LIBOR, plus 2.5% or the prime rate as published in the "Money Rates" section of The Wall Street Journal, at our election. The minimum interest rate is 4.0%. The current interest rate is 4.0%. Absent any renewal, the line of credit will terminate in October 2005 and any principal then outstanding must be repaid by October 2006. The lender has the right to declare any advance due and payable in full two years after the date of the advance. At both June 30, 2004 and July 28, 2004, we had $25.6 million of availability under the second of our $30.0 million lines of credit. During June 2004, we amended the terms of this line of credit to increase the maximum amount available to borrow from $20.0 million to $30.0 million. This line of credit bears interest at the prime rate as published in the "Money Rates" section of The Wall Street Journal. The current interest rate is 4.25%. This line of credit has a current term running through April 2005 with annual one-year extension options at the lender's option and an 11-month non-renewal notice requirement. Approximately $64,000 of availability under this line of credit is reserved in the event we are required to make any payments under a letter of credit described in Note 8 to our financial statements, Item 1 of this quarterly report on Form 10-Q. At both June 30, 2004 and July 28, 2004, we had $6.0 million of availability under our $25.0 million line of credit. This line of credit bears interest at either, at our election, (a) one, two or three month LIBOR, plus 2.25% or (b) a daily base rate equal to the higher of (i) the bank's announced prime rate plus 1% or (ii) the federal funds rate, as published by the Federal Reserve Bank of New York, plus 2%. The current interest rate is 3.625%. Absent any renewal, this line of credit will terminate in February 2006 and any principal then outstanding must be repaid at that time. At both June 30, 2004 and July 28, 2004, we had $2.5 million of availability under our $10.0 million line of credit. This line of credit bears interest either at three month LIBOR plus 3.0% or at the prime rate as published in the "Money Rates" section of The Wall Street Journal, at our election. The current interest rate is 4.6%. Absent any renewal, this line will terminate in July 2005 and any principal then outstanding must be repaid by July 2009. Our other sources of liquidity and capital resources include principal payments on, refinancings of, and sales of senior participations in loans in our portfolio as well as refinancings and the proceeds of sales and other dispositions of our interests in real estate. These resources aggregated $35.8 million and $88.2 million for the three and six months ended June 30, 2004, respectively, and $71.8 million and $90.0 million for the three and six months ended June 30, 2003, respectively. We also receive funds from a combination of interest and fees on our loans, rents and income from our interests in real estate, gains on sales of loans and interests in real estate and consulting fees. As required by the Internal Revenue Code, we use this income, to the extent of not less than 90% of our taxable income, to pay distributions to our common shareholders. For the three and six months ended June 30, 2004, we declared dividends on our common shares of $13.9 million and $27.9 million, respectively, of which $13.8 million and $27.7 million, respectively, was in cash and $85,200 and $169,900, respectively, was in additional common shares issued through our dividend reinvestment plan. For the three and six months ended June 30, 2003, we declared dividends on our common shares of $12.9 million and $25.8 million, respectively, of which $13.8 million and $12.8 million, respectively, was in cash and $84,700 and $64,200, respectively, was in additional common shares issued through our dividend reinvestment plan. 18 We use our capital resources principally for originating and purchasing loans and acquiring interests in real estate. For the three months and six months ended June 30, 2004, we originated or purchased ten loans and 18 loans in the aggregate amount of $78.9 million and $159.2 million, respectively, as compared to eight loans and thirteen loans in the aggregate amount of $74.8 million and $115.6 million for the three and six months ended June 30, 2003, respectively. For the three and six months ended June 30, 2004, we acquired one interest and two interests in real estate totaling $6.0 million and $12.0 million, respectively, as compared to two and three interests in real estate in the aggregate amount of $10.5 million and $11.0 million for the three and six months ended June 30, 2003, respectively. At June 30, 2004, we had approximately $51.2 million of cash on hand. These funds, combined with $6.9 million of net proceeds from the exercise in July 2004 of the over allotment option relating to our public offering of common shares, and $15.0 million drawn on one of our two $30.0 million lines of credit, provided for $60.2 million of new loan originations from July 1 through July 28, 2004. We also used our cash on hand to pay our $13.9 million second quarter dividend on our common shares. We anticipate utilizing the loan repayments of $24.4 million that we received from July 1 through July 28, 2004, combined with the $49.1 million of availability on our lines of credit, primarily for the origination of additional investments in the balance of the third quarter of 2004. We believe that our existing sources of funds will be adequate for purposes of meeting our liquidity and capital needs. We do not currently experience material difficulties in maintaining and accessing these resources. However, we could encounter difficulties in the future, depending upon the development of conditions in the credit markets and the other risks and uncertainties described in our filings with the Securities and Exchange Commission, including those described in the "Risk Factors" section of our Registration Statement No. 333-103618 and our Annual Report on Form 10-K for the year ended December 31, 2003. We may also seek to develop other sources of capital, including, without limitation, long-term borrowings, offerings of our warrants, issuances of our debt securities and the securitization and sale of pools of our loans. Our ability to meet our long-term, that is, beyond one year, liquidity and capital resources requirements is subject to obtaining additional debt and equity financing. Any decision by our lenders and investors to enter into such transactions with us will depend upon a number of factors, such as our financial performance, compliance with the terms of our existing credit arrangements, industry or market trends, the general availability of and rates applicable to financing transactions, such lenders' and investors' resources and policies concerning the terms under which they make such capital commitments and the relative attractiveness of alternative investment or lending opportunities. Our financial performance and the value of our securities are subject to a number of risks described in our filings with the Securities and Exchange Commission, including those described in the "Risk Factors" section of our Registration Statement No. 333-103618 and our Annual Report on Form 10-K for the year ended December 31, 2003. In addition, as a REIT, we must distribute at least 90% of our annual taxable income, which limits the amount of cash from operations we can retain to fund our capital needs. The following schedule summarizes our currently anticipated contractual obligations and commercial commitments as of June 30, 2004:
PAYMENTS DUE BY PERIOD ------------------------------------------------------------------------- CONTRACTUAL LESS THAN ONE TO THREE FOUR TO FIVE AFTER FIVE OBLIGATIONS ONE YEAR YEARS YEARS YEARS TOTAL - ----------- ------------ ------------ ------------ ----------- ------------ Operating leases $ 314,850 $ 640,229 $ 646,986 $ 377,409 $ 1,979,474 Secured lines of credit - 23,000,000 7,500,000 - 30,500,000 Indebtedness secured by real estate (1) 5,595,410 42,566,856 51,370,627 19,799,709 119,332,602 Deferred compensation - 876,335 - - 876,335 ------------ ----------- ------------ ----------- ------------ Total $ 5,910,260 $67,083,420 $ 59,517,613 $20,177,118 $152,688,411 ============ =========== ============ =========== ============
(1) Indebtedness secured by real estate consists of our non-recourse senior indebtedness relating to loans and long term debt secured by real estate underlying our investments in real estate. 19 OFF-BALANCE SHEET ARRANGEMENTS Refer to Note 8 to our financial statements, Item 1 of this quarterly report on Form 10-Q for a discussion of our off-balance sheet arrangements. We do not believe these arrangements have had or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES Refer to our Annual Report on Form 10-K for the year ended December 31, 2003 for a discussion of our critical accounting policies. During the six months ended June 30, 2004, there were no material changes to these policies, except for the updates described below. FIN 46. In January 2003, the FASB issued Financial Interpretation No. 46, or FIN 46, "Consolidation of Variable Interest Entities." FIN 46 clarifies the application of Accounting Research Bulletin 51, "Consolidated Financial Statements", to certain entities in which voting rights are not effective in identifying the investor with the controlling financial interest. An entity is subject to consolidation under FIN 46 if the investors either do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support, are unable to direct the entity's activities, or are not exposed to the entity's losses or entitled to its residual returns. These entities are referred to as variable interest entities. Variable interest entities within the scope of FIN 46 will be required to be consolidated by their primary beneficiary. The primary beneficiary is the party that absorbs a majority of the variable interest entities' expected losses and/or receives a majority of the expected residual returns. In December 2003, the FASB revised FIN 46, or FIN 46(R), delaying the effective date for certain entities created before February 1, 2003 and making other amendments to clarify the application of the guidance. FIN 46(R) is effective no later than the end of the first interim or annual period ending after December 15, 2003 for entities created after January 31, 2003 and for entities created before February 1, 2003, no later than the end of the first interim or annual period ending after March 15, 2004. We have adopted the guidance of FIN 46(R) accordingly. In adopting FIN 46 and FIN 46(R), we have evaluated our various variable interests to determine whether they are in variable interest entities. These variable interests are primarily subordinated financings in the form of mezzanine loans or preferred equity investments. We have identified 21 variable interests totaling $102.9 million that we hold as of June 30, 2004. For these variable interests we have determined that we are not the primary beneficiary and such variable interest entities should not be consolidated in our financial statements. Allowance for Loan Losses. 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 June 30, 2004 based upon our credit analysis of each of the loans in our portfolio. If that analysis were to change, we may be required to increase our reserve, and such an increase, depending upon the particular circumstances, could be substantial. Any increase in reserves will constitute a charge against income. We will continue to analyze the adequacy of this reserve on a quarterly basis. During the six months ended June 30, 2004, the loans in our portfolio performed in accordance with their terms and were current as to payments. RESULTS OF OPERATIONS Interest Income. Our interest income was $15.1 million for the three months ended June 30, 2004 compared to $8.5 million for the three months ended June 30, 2003. The $6.6 million increase was primarily due to an additional $10.1 million of interest accruing in the three months ended June 30, 2004 on 36 loans totaling $291.5 million originated between April 1, 2003 and June 30, 2004, partially offset by a $3.2 million reduction of interest due to the repayment of 18 loans totaling $120.2 million during the same period. 20 Included in the additional $10.1 million in interest income discussed above is $3.7 million of accretable yield relating to the purchase, in June 2003, of a loan with a face value in excess of $40.0 million, secured by a property with an appraised value also in excess of $40.0 million, for a cost of approximately $26.8 million. Certain of our loans have expected future cash flows in excess of the scheduled, contractual interest and principal payments reflected in the loan documents. We recognize this excess, or "accretable yield" over the remaining life of the loan, such that the return yielded by the loan remains at a constant level for its remaining life. The loan matures in September 2004, thus the large accretable yield must be recognized over the 15-month period between loan purchase and loan maturity. Our interest income was $28.5 million for the six months ended June 30, 2004 compared to $17.0 million for the six months ended June 30, 2003. The $11.5 million increase was primarily due to an additional $18.5 million of interest accruing in the six months ended June 30, 2004 on 39 loans totaling $293.6 million that were purchased or originated between January 1, 2003 and June 30, 2004, partially offset by a $7.0 million reduction of interest due to the repayment of 27 loans during the same period totaling $176.9 million. Included in the additional $18.5 million in interest income discussed above is $7.7 million of accretable yield relating to the loan purchased in June 2003 that we discussed in relation to the increase in interest income from the quarter ended June 30, 2003 to the corresponding period in 2004. Rental Income. Our rental income increased $1.2 million and $400,000 to $6.6 million and $12.7 million for the three and six months ending June 30, 2004, respectively, from the corresponding periods in 2003. The most significant portion of the increases resulted from our acquisition of a retail property in July 2003. However, for the six month periods ending June 30, 2004 and 2003, the positive effect of this acquisition was partially offset by the sale of a multi-family property in March 2003. Fee Income and Other. We earned fee and other income of $579,000 for the three months ended June 30, 2004 as compared to $943,000 earned in the three months ended June 30, 2003. Included in fee and other income for the three months ended June 30, 2004 and 2003 were revenues of $413,000 and $909,000, respectively, from RAIT Capital Corp. We earned fee and other income of $3.1 million for the six months ended June 30, 2004 as compared to $1.5 million for the six months ended June 30, 2003. Included in fee and other income for the six months ending June 30, 2004 and 2003 were revenues of $1.3 million and $1.4 million, respectively, from RAIT Capital Corp. Also included in fee and other income for the six months ended June 30, 2004 were consulting fees of $1.4 million while there were no consulting fees earned in the first six months of 2003. Fee and other income is usually negotiated on a transaction by transaction basis and, as a result, the sources and amounts for any particular period are not generally indicative of future sources and amounts. Investment Income. We received investment income of $1.1 million for the three months ended June 30, 2004, compared to $449,000 for the three months ended June 30, 2003. We derive our investment income from three primary sources: - return on unconsolidated investments in real estate - appreciation interests in the cash flow, assets or both, underlying our loans, and - interest earned on cash held in bank accounts. Approximately $616,000 of the $675,000 increase in investment income from the three months ended June 30, 2003 to the three months ended June 30, 2004 related to our six unconsolidated investments in real estate generating $978,000 of investment income for the three months ended June 30, 2004 as compared to four unconsolidated investments in real estate generating $361,000 of investment income during the three months ended June 30, 2003. Cash held in bank accounts generated investment income of $134,000 for the three months ended June 30, 2004, compared to $74,000 for the three months ended June 30, 2003. Most of this investment income was generated from our bank accounts with The Bancorp Bank. Our relationship with The Bancorp Bank is described in Note 7 to our financial statements, Item 1 of this quarterly report on Form 10-Q. 21 We received investment income of $2.0 million for the six months ended June 30, 2004 compared to $2.8 million for the six months ended June 30, 2003. The decrease of $850,000 in investment income from the six months ended June 30, 2003 to the corresponding period in 2004 was primarily due to the recognition in 2003 of $1.1 million relating to our appreciation interests. Except as described below in "Gain on Sale of Property Interest", we did not recognize any income relating to our appreciation interests in the six months ended June 30, 2004. The decrease in investment income relating to our appreciation interests was partially offset by an increase of $167,000 related to our seven unconsolidated investments in real estate generating $1.7 million of investment income for the six months ended June 30, 2004 as compared to five unconsolidated investments in real estate generating $1.5 million of investment income during the six months ended June 30, 2003. Gain On Sale of Property Interest. In June 2004 we recognized $2.4 million relating to our appreciation interest in one of our investments. Because we had a controlling interest in the entity that owned the real estate, we accounted for our equity interest on a consolidated basis. Accordingly, when our appreciation interest was realized (with the economic intent of generating additional interest income), the generally accepted accounting policy was to recognize this income as gain on sale of property interest. As of June 30, 2004 we restructured this investment into a mezzanine loan, and are no longer accounting for it on a consolidated basis. In March 2003, we sold a 40% limited partnership interest and sole general partnership interest in a limited partnership that owns a property to an unrelated party. We retained an 11% limited partnership interest. The partnership interests we sold had a negative book value of $1.4 million. The buyer paid $900,000 and we recognized a gain of $2.3 million. Interest Expense. Interest expense was $2.6 million for the three months ended June 30, 2004 as compared to $1.7 million for the three months ended June 30, 2003. The $901,000 increase was attributable to two items: - $473,000 increase due to an average outstanding balance of $43.0 million on our lines of credit during the three months ended June 30, 2004 compared to an average outstanding balance of $21.0 million during the three months ended June 30, 2003. - $352,000 increase due to an additional $39.3 million of senior indebtedness relating to loans booked between April 1, 2003 and June 30, 2004. Interest expense was $5.1 million for the six months ended June 30, 2004 as compared to $3.9 million for the six months ended June 30, 2003. The $1.1 million increase was attributable to two items: - $627,000 increase due to an average outstanding balance of $36.5 million on our lines of credit during the six months ended June 30, 2004 compared to an average outstanding balance of $24.1 million during the six months ended June 30, 2003. - $471,000 net increase due to an additional $27.6 million net of senior indebtedness relating to loans booked between January 1, 2003 and June 30, 2004. Interest expense consists of interest payments made on senior indebtedness on properties underlying our loans and interests in real estate, and interest payments made on our lines of credit. Property Operating Expenses; Depreciation and Amortization. Property operating expenses were $3.4 million and $6.4 million for the three and six months ended June 30, 2004, respectively, compared to $2.8 million and $6.6 million for the three and six months ended June 30, 2003, respectively. Depreciation and amortization was $915,000 and $1.9 million for the three and six months ended June 30, 2004, respectively, as compared to $827,000 and $1.8 million for the three and six months ended June 30, 2003, respectively. The slight increases in property operating expenses, depreciation and amortization from the three months ended June 30, 2003 to the three months ended June 30, 2004 were due to the acquisition of a retail property interest in July 2003. The changes in property operating expenses, depreciation and amortization from the six months ended June 30, 2003 to the six months ended June 30, 2004 were also attributable to this acquisition, however its effect on these expenses was partially offset by the sale of a multi-family property interest in March 2003. Included in property operating expenses are management fees paid to Brandywine Construction & Management, Inc., an affiliate of the spouse of our chairman and chief executive officer, for providing real estate management services for the real estate underlying our interests in real estate. Brandywine provided real estate management services to five and five properties underlying our investments in real estate at June 30, 2004 and 2003, respectively. We paid management fees of $206,000 and $442,000 to Brandywine for the three and six months ended June 30, 2004, respectively, as compared to $77,000 and $247,000 for the three and six months ended June 30, 2003, respectively. In addition, at June 30, 2004 and 2003, Brandywine provided real estate management services for real estate underlying eight and ten, respectively, of our investments in real estate whose operations are not included in our consolidated financial statements. We anticipate that we will continue to use Brandywine to provide real estate management services. 22 Salaries and Related Benefits; General and Administrative Expense. Salaries and related benefits were $1.4 million and $2.5 million for the three and six months ended June 30, 2004, respectively, as compared to $918,000 and $1.6 million for the three and six months ended June 30, 2003, respectively. General and administrative expenses were $1.8 million and $2.7 million for the three and six months ended June 30, 2004, respectively, as compared to $778,000 and $1.3 million for the three and six months ended June 30, 2003, respectively. The increases in salaries and related benefits and in general and administrative expenses were due to: - increased personnel and occupancy expenses which reflect the expansion of our staff to support the increased size of our portfolio, due to the significant infusion of new capital, primarily from our public offerings, - increased compliance costs relating to new regulatory requirements and - increased costs for directors' and officers' liability insurance. Included in general and administrative expense is rental expense relating to our downtown Philadelphia office space. We sublease these offices pursuant to two operating leases that provide for annual rentals based upon the amount of square footage we occupy. The sub-leases expire in August 2010 and both contain two five-year renewal options. One sub-lease is with The Bancorp, Inc. We paid rent to Bancorp in the amount of $62,000 and $124,000 for the three and six months ended June 30, 2004, respectively, as compared to $61,000 and $122,000 for the three and six months ended June 30, 2003, respectively. The other sublease is with The Richardson Group, Inc. We paid rent to Richardson in the amount of $14,000 and $28,000 for the three and six months ended June 30, 2004, respectively, as compared to $13,000 and $27,000 for the three and six months ended June 30, 2003, respectively. Also included in general and administrative expenses is $15,000 and $30,000 that we paid in both the three and six months ended June 30, 2004 and 2003, respectively, to Bancorp for technical support services provided to us. Our relationships with Bancorp and Richardson are described in Note 7 to our financial statements, Item 1 of this quarterly report on Form 10-Q. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no material change in our assessment of our sensitivity to market risk since the presentation in our Annual Report on Form 10-K for the year ended December 31, 2003. ITEM 4. CONTROLS AND PROCEDURES We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act of 1934 reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Under the supervision of our chief executive officer and chief financial officer and with the participation of our disclosure committee appointed by such officers, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective. There has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting during our most recent fiscal quarter. 23 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS At our Annual Meeting of Shareholders held on May 10, 2004, pursuant to the Notice of Annual Meeting of Shareholders and Proxy Statement dated April 5, 2004, the voting results were as follows: (a) Each of the following nominees was elected to the Board of Trustees as follows:
VOTES VOTES VOTES FOR WITHHELD ABSTAINED UNVOTED ---------- ------- --------- ------- Betsy Z. Cohen 22,047,688 264,735 0 0 Edward S. Brown 22,198,378 114,046 0 0 Jonathan Z. Cohen 22,167,386 145,038 0 0 S. Kristin Kim 22,197,101 115,323 0 0 Arthur Makadon 21,543,477 768,947 0 0 Joel R. Mesznik 22,197,813 114,610 0 0 Daniel Promislo 22,197,802 114,622 0 0
(b) The ratification of the selection of Grant Thornton LLP as our independent public accountants for the fiscal year ending December 31, 2004 was approved as follows:
VOTES VOTES VOTES FOR WITHHELD ABSTAINED UNVOTED - ---------- -------- --------- ------- 22,136,884 119,628 55,907 6
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 three reports on Form 8-K during the three months ended June 30, 2004. 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. RAIT INVESTMENT TRUST (Registrant) July 30, 2004 /s/ Ellen J. DiStefano - ---------------------- ----------------------------------------- DATE Ellen J. DiStefano Chief Financial Officer (On behalf of the registrant and as its principal financial officer) 25 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION - --------- ---------------------------------------------------------------------------------------------------------- 3.1.1 (1) Amended and Restated Declaration of Trust. 3.1.2 (2) Articles of Amendment of Amended and Restated Declaration of Trust. 3.1.3 (3) Articles of Amendment of Amended and Restated Declaration of Trust. 3.1.4 (4) Certificate of Correction to the Amended and Restated Declaration of Trust. 3.1.5 (5) Articles Supplementary relating to the 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest(the "Series A Articles Supplementary"). 3.1.6 (5) Certificate of Correction to the Series A Articles Supplementary. 3.2.1 (1) Bylaws, as amended. 4.1 (3) Form of Certificate for Common Shares of Beneficial Interest. 4.2 (6) Form of Certificate for 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest. 10.1 RAIT Investment Trust Phantom Share Plan (As Amended and Restated, Effective July 20, 2004). 15.1 Awareness Letter from Independent Accountants. 31.1 Rule 13a-14(a) Certification by the Chief Executive Office of RAIT Investment Trust. 31.2 Rule 13a-14(a) Certification by the Chief Financial Officer of RAIT Investment Trust. 32.1 Section 1350 Certification by the Chief Executive Officer of RAIT Investment Trust. 32.2 Section 1350 Certification by the Chief Financial Officer of RAIT Investment Trust.
(1) Incorporated herein by reference to RAIT Investment Trust's 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 Registration 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 RAIT Investment Trust's Form 8-K as filed with the Securities and Exchange Commission on March 18, 2004 (File No. 1-14760). (6) Incorporated herein by reference to RAIT Investment Trust's Form 8-K as filed with the Securities and Exchange Commission on March 22, 2004 (File No. 1-14760). 26 EX-10.1 2 w99392exv10w1.txt RAIT INVESTMENT TRUST PHANTOM SHARE PLAN RAIT INVESTMENT TRUST PHANTOM SHARE PLAN (AS AMENDED AND RESTATED, EFFECTIVE JULY 20, 2004) I. PURPOSE. The purpose of the Plan is to provide a means whereby RAIT may grant equivalent rights relating to the Shares of RAIT to Employees and Trustees. These rights are structured to attract, reward and retain selected Employees and Trustees who are responsible for shaping and carrying out the long-range plans of RAIT. The Plan is designed to reward designated Employees and Trustees for their efforts on behalf of RAIT and to align the economic interests of such individuals with those of RAIT's shareholders. II. DEFINITIONS. The following definitions shall apply for all purposes of the Plan: 2.01 "ACCOUNT" means a bookkeeping account established on RAIT's books pursuant to Section 5.02. The Account reflects the number of Phantom Shares that shall be credited to the Participant following an award under Section 5.01. 2.02 "BENEFICIARY" means the person(s) designated in writing by a Participant to receive any benefits payable under this Plan subsequent to the Participant's death. RAIT shall provide a form for this purpose. In the event a Participant has not filed a Beneficiary designation with RAIT, or no Beneficiary survives the Participant, the Beneficiary shall be the Participant's estate. 2.03 "BOARD" means the Board of Trustees of RAIT. 2.04 "CODE" means the Internal Revenue Code of 1986, as amended, and its corresponding regulations. 2.05 "COMMITTEE" means the committee appointed by the Board to administer the Plan. 2.06 "DEFERRAL ACCOUNT" means a bookkeeping account established on RAIT's books pursuant to Section 8.03. The Deferral Account reflects the number of Phantom Shares that have been credited to the Participant following a deferral under Article VIII. 2.07 "EMPLOYEE" means an employee of the Employer (including an officer or director who is also an employee of the Employer). 2.08 "EMPLOYER" means RAIT, and any subsidiary or affiliate of RAIT, including RAIT Partnership, L.P. 2.09 "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. 2.10 "FAIR MARKET VALUE" shall mean, per Share, the average of the highest and lowest price of a Share on the New York Stock Exchange, or such other national securities exchange as may be designated by the Committee, on the applicable date, or, if there are no sales of Shares on such date, then the average of the highest and lowest price of the Shares on the last previous day on which a sale is reported. 2.11 "GRANT AGREEMENT" means a written document issued by the Committee to a Participant that shall specify the award of Phantom Shares to the Participant as described in Section 5.01 and such other terms and conditions to which the grant is subject. 2.12 "MANAGEMENT EMPLOYEE" means an Employee who is a member of a select group of management or highly compensated employees of the Employer and is designated by the Committee as a Management Employee. 2.13 "PARTICIPANT" means any Trustee or Employee who is designated by the Committee as eligible to participate in the Plan under Section 4.01 and receives an award of Phantom Shares. In the event of the death of a Participant, the term shall mean his or her Beneficiary. In the event of the incompetency of a Participant, the term shall mean his or her personal representative or guardian. 2.14 "PHANTOM SHARES" means a phantom interest in RAIT that is awarded to a Participant to reflect Shares as provided in this Plan. 2.15 "PHANTOM SHARE VALUE" means the value of a Phantom Share as of a particular date based on the Fair Market Value of a Share on such date. 2.16 "PLAN" means the RAIT Investment Trust Phantom Share Plan as the same is set forth herein and as it may be amended from time to time. Prior to this amendment and restatement, the Plan was known as the RAIT Investment Trust Phantom Share Plan for Non-Employee Trustees. 2.17 "PLAN YEAR" means the calendar year. 2.18 "RAIT" means RAIT Investment Trust, a Maryland real estate investment trust. 2.19 "SEPARATION FROM SERVICE" means the Employee's or Trustee's separation from employment or service with the Employer for any reason, including death, disability, voluntary termination, retirement, and termination by the Employer for cause or without cause. Except as otherwise provided herein, a "Separation from Service" shall be deemed to have occurred on the last day of the Employee's or Trustee's actual employment or service with the Employer. 2.20 "SHARES" means common shares of beneficial interest, par value $0.01, of RAIT. 2.21 "TRUSTEE" means a non-employee member of the Board. III. ADMINISTRATION AND DISCRETION. The Committee shall determine which Employees and Trustees will receive grants of Phantom Shares. Further, the Committee shall have full power and authority to interpret the Plan, to prescribe, amend and rescind any rules, forms and procedures as it deems necessary or appropriate for the proper administration of the Plan, to make any other determinations, including factual determinations, and to take such other actions as it deems necessary or advisable in carrying out its duties under the Plan. All decisions and determinations by the Committee shall be final and binding on the Participants, the Beneficiaries, 2 RAIT, the Employers and any other persons having or claiming an interest under the Plan. All decisions, actions and interpretations of the Committee required under the Plan shall be in its sole discretion, not in a fiduciary capacity and need not be uniformly applied to similarly situated individuals. No member of the Committee shall be personally liable for any action taken with respect to the Plan, and RAIT shall defend, indemnify, and hold each such individual harmless, unless circumstances indicate the individual acted with gross negligence or willful misconduct. The expenses incurred by the Committee in administering the Plan shall be borne by RAIT. IV. PARTICIPATION. 4.01 IN GENERAL. The Committee shall have the sole authority, in its sole discretion, to determine, within the limitations of the Plan, each Employee and Trustee who shall become a Participant and who shall be granted Phantom Shares in any Plan Year, the number of such Phantom Shares and such other terms and conditions relating to the Phantom Shares if not otherwise specified in the Plan. A Phantom Share award granted to an Employee or Trustee in one Plan Year does not mean that the Employee or Trustee will receive a Phantom Share award in another year or that the Employee or Trustee will receive the same number or value of Phantom Shares. Participation in the Plan is conditional upon the Participant's acknowledgement, in writing or by acceptance of any Phantom Share award, that all decisions and determinations of the Committee shall be final and binding on the Participant, his or her Beneficiaries and any other person having or claiming an interest under the Plan on behalf of the Participant. 4.02 FACTORS TO BE CONSIDERED. In determining whether an individual may become a Participant under the Plan, the Committee shall take into consideration the Employee's or the Trustee's present and potential contribution to the success of RAIT and his or her Employer and such other factors as the Committee may deem proper and relevant. V. AWARD OF PHANTOM SHARES. 5.01 AWARD OF PHANTOM SHARES. For each Plan Year, the Committee shall notify those Participants who the Committee has designated to receive an award of Phantom Shares and inform such Participants of the number of Phantom Shares each has been awarded. The award of Phantom Shares to a Participant shall be evidenced by a Grant Agreement that shall provide the number of Phantom Shares awarded and the terms and conditions related to the Phantom Shares so awarded. Such awarded Phantom Shares shall be credited to each Participant's Account as specified in Section 5.02. No Account shall be credited with a fractional Phantom Share. 5.02 INTERESTS OF A PARTICIPANT. RAIT shall credit an Account with the number of Phantom Shares credited to each Participant; provided, however, that no Participant or any other person shall under any circumstance acquire any property interest in any specific asset of RAIT. In the event a dividend is declared with respect to the Shares, a cash payment shall be made to the Participant by RAIT equal to the amount of the dividend that would have been distributed if those Phantom Shares credited to the Participant's Account been Shares, irrespective of whether the Participant's Phantom Shares have vested, unless the Committee determines otherwise. Nothing contained in this Plan and no action taken pursuant hereto shall create or be construed to create a fiduciary relationship between RAIT or the Committee and any Participant or any other person. To the extent that any person acquires a right to receive payment from RAIT hereunder, such right shall be no greater than the right of any unsecured general creditor of RAIT. 3 5.03 REPORT TO PARTICIPANTS. The Committee shall annually provide each Participant with a statement as to the Phantom Share Value of the Phantom Shares credited to the Participant's Account as of the last day of the immediately preceding Plan Year. VI. VESTING. 6.01 VESTING FOR EMPLOYEES. All Phantom Shares awarded to an Employee will vest according to the schedule determined by the Committee on the date of grant and set forth in the Employee's Grant Agreement. If an Employee incurs a Separation from Service prior to fully vesting in his or her Phantom Shares, the unvested Phantom Shares shall be immediately forfeited, unless the Committee determines otherwise. The Committee, in its sole discretion, may accelerate the vesting of Phantom Shares granted to an Employee at any time for any reason. 6.02 VESTING FOR TRUSTEES. All Phantom Shares awarded to Trustees will be fully vested on the date of grant. VII. REDEMPTION OF PHANTOM SHARES. 7.01 REDEMPTIONS OF EMPLOYEES' PHANTOM SHARES. Except as otherwise provided in Article VIII, the Committee shall specify in the Grant Agreement for an Employee the time when vested Phantom Shares credited to the Employee's Account will be redeemed. The redemption will be based on the Phantom Share Value of such Phantom Shares as of the date the Committee designates as the redemption date in the Grant Agreement. Any such redemptions shall be paid within the forty-five (45) day period following the redemption date in a lump sum in cash. Notwithstanding the immediately preceding sentence, if RAIT's shareholders authorize the issuance of Shares under the Plan, the Committee may determine, in its sole discretion, that the redemption paid to an Employee will be paid in Shares not cash. 7.02 REDEMPTIONS OF TRUSTEES' PHANTOM SHARES. RAIT shall redeem Phantom Shares credited to a Trustee's Account upon a Trustee's Separation from Service for any reason. The redemption shall apply to all of the Phantom Shares then credited to the Trustee's Account based on the Phantom Share Value of such Phantom Shares as of the date of the Trustee's Separation from Service. Any such redemption shall be paid within the forty-five (45) day period following the date of the Trustee's Separation from Service in a lump sum in cash. Notwithstanding the immediately preceding sentence, if RAIT's shareholders authorize the issuance of Shares under the Plan, the Committee may determine, in its sole discretion, that the redemption paid to the Trustee after the Trustee's Separation from Service will be paid in Shares not cash. VIII. DEFERRALS 8.01 DEFERRALS. The Committee may permit a Participant who is a Management Employee to defer receipt of the redemption of any Phantom Shares that would otherwise be due to the Participant under the Plan. If any such deferral election is permitted, the rules and procedures for such deferral shall be as set forth in this Article VIII or as otherwise determined by the Committee, in its sole discretion. 8.02 DEFERRAL ELECTION. If the Grant Agreement permits deferral of Phantom Shares, a Management Employee may irrevocably elect to defer all or part of his or her Phantom Shares 4 until a date after the redemption date initially designated by the Committee in the Grant Agreement. Deferral elections must be made in a form and manner determined by the Committee and must be filed with the Committee during the first thirty (30) days following the date of grant, or within such other time or times prescribed by the Committee. Failure to make an effective election by the date prescribed by the Committee will preclude a Management Employee from making a deferral. In no event may a Management Employee change a deferral election once made. The Committee will provide deferral election forms and instructions for making a deferral election. 8.03 DEFERRAL ACCOUNT. If a Management Employee elects to defer all or a part of the Phantom Shares, the Phantom Shares that the Management Employee elected to defer will be credited to a Deferral Account as of the date the Phantom Shares would have otherwise been redeemed pursuant to Section 7.01. No actual Shares or other assets will be held in the Deferral Account for the Participant's benefit. As of the date the Phantom Shares are credited to the Participant's Deferral Account, the Participant's Phantom Shares are considered earned and are non-forfeitable. 8.04 VALUE OF DEFERRAL ACCOUNT. The value of the Participant's Deferral Account will be based upon the Phantom Share Value. As the Phantom Share Value increases or decreases, the value of the Participant's Deferral Account will increase or decrease accordingly. 8.05 DIVIDEND EQUIVALENTS. When dividends are declared and paid on Shares, a cash payment shall be made to the Participant by RAIT equal to the amount of the dividend that would have been distributed if those Phantom Shares credited to the Participant's Deferral Account had been Shares. 8.06 REDEMPTION OF DEFERRED AMOUNTS. If the Management Employee makes a deferral election pursuant to this Article VIII, the Management Employee will be entitled to receive a redemption of all of the Phantom Shares then credited to the Management Employee's Deferral Account based on the Phantom Share Value of such Phantom Shares as of the date designated by the Management Employee in his or her deferral election. The Management Employee may elect to receive such redemption in a single payment or in equal annual installments over a period of no longer than five years (or within such other period of time as may be specified by the Committee), subject to such rules and restrictions that the Committee determines in its sole discretion. Any such redemption shall be paid within the forty-five (45) day period following the date(s) selected by the Management Employee in a lump sum in cash. Notwithstanding the immediately preceding sentence, if RAIT's shareholders authorize the issuance of Shares under the Plan, the Committee may determine, in its sole discretion, that the redemption paid to the Management Employee pursuant to the deferral election will be paid in Shares not cash. 8.07 HARDSHIP DISTRIBUTIONS. At any time prior to the redemption, if the Management Employee incurs an "unforeseeable emergency," the Management Employee may submit a written request to the Committee for a hardship distribution of all or part of the amount then credited to the Management Employee's Deferral Account. For purposes of this Section 8.07, an "unforeseeable emergency" means severe financial hardship resulting from a sudden and unexpected illness or accident involving the Management Employee, the Management Employee's spouse or a member of the Management Employee's immediate family, loss of the Management Employee's property due to casualty, or other similar extraordinary and 5 unforeseeable circumstance arising as a result of events beyond the Management Employee's control. A distribution will not be made if the hardship is or may be relieved through reimbursement or compensation by insurance or otherwise, or by liquidation of the Management Employee's assets (to the extent such liquidation would not itself cause severe financial hardship). The Committee will determine whether an unforeseeable emergency has occurred based on the regulations set forth in Treasury Regulation section 1.457-6(c)(2), in its sole discretion. 8.08 CLAIMS PROCEDURE. (a) CLAIM FOR BENEFITS. The Committee will advise each Management Employee and Beneficiary of any benefits to which such person is entitled under this Article VIII. If any such person believes that the Committee has failed to advise them of any benefit to which such person is entitled, such person may file a written claim with the Committee. The claim will be reviewed, and a response provided, within a reasonable time after receiving the claim. Any claimant who is denied a claim for benefits will be provided with written notice setting forth (i) the specific reason or reasons for the denial; (ii) specific reference to pertinent provisions of the Plan on which the denial is based; (iii) a description of any additional material or information necessary for the claimant to perfect the claim; (iv) an explanation of the claims review procedure; and (v) an explanation of the claimant's right to bring an action under section 502(a) of ERISA after an adverse benefit determination on review. (b) APPEAL. Within sixty (60) days after receipt by a claimant of a notice denying a claim under the Plan, the claimant or a duly authorized representative may request in writing a full and fair review of the claim by the Committee. The Committee may extend the sixty (60) day period where the nature of the benefit involved or other attendant circumstances make such extension appropriate. In connection with such review, the claimant or a duly authorized representative may review pertinent documents and may submit issues and comments in writing. The Committee will make a decision promptly, and not later than sixty (60) days after the Committee's receipt of a request for review, unless special circumstances (such as the need to hold a hearing, if the Committee deems one necessary) require an extension of time for processing, in which case a decision will be rendered as soon as possible, but not later than one hundred and twenty (120) days after receipt of a request for review. The decision on review will be in writing and will include specific reasons for the decision, written in a manner calculated to be understood by the claimant, specific references to the pertinent provisions of the Plan on which the decision is based, and an explanation of the claimant's right to bring an action under section 502(a) of ERISA. 8.09 FUNDING. The deferrals permitted pursuant to this Article VIII are intended to be made pursuant to a "top hat" plan, exempt from the substantive requirements of ERISA. The sole interest of each Management Employee under this Article VIII is to receive the benefits provided under this Article VIII as and when they become due and payable in accordance with the terms of this Article VIII. Neither RAIT nor the Employer need maintain any separate fund or account to provide any benefits provided under this Article VIII. Management Employees and persons claiming under or through Management Employees will have no right, title, or interest in or to any of the assets of RAIT or the Employer and will have only general unsecured creditor status with respect to benefits redeemable under this Article VIII. 6 IX. MISCELLANEOUS. 9.01 TRANSFERABILITY. No Phantom Share issued under this Plan shall be transferred, assigned, pledged, encumbered or exercised by the Participant, and a Phantom Share may be redeemed during the lifetime of a Participant only by the Participant. 9.02 NO RIGHTS AS SHAREHOLDER. No Participant shall have any rights as a shareholder of RAIT (or any subsidiary or affiliate), including the right to any cash dividends (except as provided in Sections 5.02 and 8.05), or the right to vote, as a result of the award. 9.03 ADJUSTMENT TO PHANTOM SHARES. Unless determined otherwise by the Committee, in the event of a share split, share dividend, reclassification, reorganization, or other capital adjustment of Shares, the number of Phantom Shares which have been issued under the Plan shall be adjusted in the same manner as the Shares are adjusted. 9.04 NO RIGHTS TO CONTINUED EMPLOYMENT OR SERVICE. Nothing in this Plan, and no action taken pursuant hereto, shall confer upon any Participant the right to continue in employment or service with the Employer, or affect the right of an Employer to terminate the Participant's employment or service at any time for any reason. 9.05 WITHHOLDING TAX. Notwithstanding any other provision of this Plan, if required, the Employer shall be entitled to withhold from, or in respect of, any payment to be made upon the vesting and/or redemption of Phantom Shares, an amount sufficient to satisfy all federal, state and local tax withholding requirements (including FICA and Medicare taxes) relating thereto. Such withholding may also be made from other amounts due from the Employer to the Participant or upon the occurrence of any other event that would cause the Phantom Shares to be deemed taxable compensation to the Participant. 9.06 NOTICES. Any notice hereunder to be given to RAIT or the Committee shall be in writing and shall be delivered in person to the Secretary of RAIT, or shall be sent by registered mail, return receipt requested, to the Secretary of RAIT at RAIT's executive offices, and any notice hereunder to be given to the Participant shall be in writing and shall be delivered in person to the Participant, or shall be sent by registered mail, return receipt requested, to the Participant at the Participant's last address as shown in the employment records of RAIT. Any notice duly mailed in accordance with the preceding sentence shall be deemed provided on the date postmarked. 9.07 TERMINATION AND AMENDMENT OF THE PLAN/MODIFICATION OF PHANTOM SHARES. The Plan may be terminated, modified or amended by the Committee at any time, except with respect to any Phantom Shares then outstanding under the Plan; provided, however, that the Committee may accelerate the redemption of any Phantom Shares then outstanding as if a redemption were then being made under Article VII. Notwithstanding the immediately preceding sentence or anything in the Plan or a Grant Agreement to the contrary, the Committee may amend the Plan or the terms of an outstanding Phantom Share awarded under the Plan without the consent of any Participant (including as to any Phantom Shares credited to a Deferral Account pursuant to Article VIII) to reflect changes or clarifications in the law, the Code or guidance issued by the Internal Revenue Service relating to the taxation of Phantom Shares issued under the Plan or the deferral of such Phantom Shares, irrespective of whether any such amendment may adversely impact the prior treatment of Phantom Shares awarded or deferred 7 under the Plan. Nothing contained in the Plan shall preclude RAIT from entering into any type of transaction such as a reorganization, merger or recapitalization, or other change in its capital structure and any such transaction shall not require the acceleration of payment under this Plan except to the extent expressly provided in this Plan. 9.08 OTHER BENEFITS. Payments under this Plan shall not be taken into account as compensation in determining or calculating other benefits under any other plan or program of the Employer which bases a benefit on compensation. 9.09 EFFECTIVE DATE OF PLAN. The Plan, as hereby amended and restated, shall be effective as of July 20, 2004. The original effective date of the Plan was January 29, 2004. 9.10 MISCELLANEOUS. (a) If RAIT shall find that any person to whom any payment is payable under this Plan is unable to care for such person's affairs because of illness or accident, or is a minor, any payment due (unless a prior claim therefor shall have been made by a duly appointed guardian, committee or other legal representative) may be paid to the spouse, a child, a parent, or a brother or sister, or to any person deemed by RAIT to have incurred expense for such person otherwise entitled to payment, in such manner and proportions as RAIT may determine. Any such payment shall be a complete discharge of the liabilities of RAIT under this Plan. (b) This Plan shall be binding upon and inure to the benefit of RAIT, its successors and assigns and the Participant and the Participant's heirs, executors, administrators and legal representatives. (c) This Plan shall be construed in accordance with, and governed by, the laws of the State of Maryland. 8 EX-15.1 3 w99392exv15w1.txt AWARENESS LETTER FROM INDEPENDENT ACCOUNTANTS EXHIBIT 15.1 RAIT Investment Trust 1818 Market Street Philadelphia, Pennsylvania 19103 We have reviewed, in accordance with standards of the Public Company Accounting Oversight Board (United States), the unaudited interim consolidated financial information of RAIT Investment Trust and subsidiaries for the periods ended June 30, 2004 and 2003 as indicated in our report dated July 30, 2004; because we did not perform an audit, we expressed no opinion on that information. We are aware that our report referred to above, which is included in your Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 is incorporated by reference in the Registration Statements on Form S-3 (File No. 333-103618, effective on March 14, 2003; File No. 333-69366, effective on October 18, 2001; and File No. 333-78519, effective May 14, 1999) and Form S-8 (File No. 333-109158, effective on September 26, 2003; File No. 333-100766, effective on October 25, 2002; and File No. 333-67452, effective on August 14, 2001). We are also aware that the aforementioned report, pursuant to Rule 436(c) under the Securities Act of 1933, is not considered a part of a Registration Statement prepared or certified by an accountant or a report prepared or certified by an accountant within the meaning of Sections 7 and 11 of that Act. /s/ GRANT THORNTON LLP Philadelphia, Pennsylvania July 30, 2004 EX-31.1 4 w99392exv31w1.txt RULE 13A-14(A) CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER OF RAIT INVESTMENT TRUST. EXHIBIT 31.1 CERTIFICATION I, Betsy Z. Cohen, certify that: 1. I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2004 of RAIT Investment Trust; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [Omission in accordance with SEC Release Nos. 33-8238, 34-47986 and IC-26068 (June 5, 2003)] for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) [Omitted in accordance with SEC Release Nos. 33-8238, 34-47986 and IC-26068 (June 5, 2003)]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 30, 2004 /s/ Betsy Z. Cohen ----------------------------------------- Name: Betsy Z. Cohen Title: Chief Executive Officer EX-31.2 5 w99392exv31w2.txt RULE 13A-14(A) CERTIFICATION BY THE CHIEF FINANCIAL OFFICER OF RAIT INVESTMENT TRUST. EXHIBIT 31.2 CERTIFICATION I, Ellen J. DiStefano, certify that: 1 I have reviewed this quarterly report on Form 10-Q for the quarterly period ended June 30, 2004 of RAIT Investment Trust; 2. Based on my knowledge, this 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 report; 3. Based on my knowledge, the financial statements, and other financial information included in this 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 report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) [Omission in accordance with SEC Release Nos. 33-8238, 34-47986 and IC-26068 (June 5, 2003)] for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, 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 report is being prepared; (b) [Omitted in accordance with SEC Release Nos. 33-8238, 34-47986 and IC-26068 (June 5, 2003)]; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: July 30, 2004 /s/ Ellen J. DiStefano ----------------------------------------- Name: Ellen J. DiStefano Title: Chief Financial Officer EX-32.1 6 w99392exv32w1.txt SECTION 1350 CERTIFICATION BY THE CHIEF EXECUTIVE OFFICER OF RAIT INVESTMENT TRUST. EXHIBIT 32.1 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of RAIT Investment Trust (the "Company") on Form 10-Q for the quarterly period ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Betsy Z. Cohen, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Betsy Z. Cohen ----------------------------------------- Betsy Z. Cohen Chief Executive Officer July 30, 2004 EX-32.2 7 w99392exv32w2.txt SECTION 1350 CERTIFICATION BY THE CHIEF FINANCIAL OFFICER OF RAIT INVESTMENT TRUST. EXHIBIT 32.2 CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of RAIT Investment Trust (the "Company") on Form 10-Q for the quarterly period ended June 30, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Ellen J. DiStefano, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Ellen J. DiStefano ----------------------------------------- Ellen J. DiStefano Chief Financial Officer July 30, 2004 -----END PRIVACY-ENHANCED MESSAGE-----