8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of Earliest Event Reported): December 2, 2008

RAIT Financial Trust

(Exact name of registrant as specified in its charter)

Maryland	1-14760	23-2919819
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

Cira Centre, 2929 Arch Street, 17th Floor, Philadelphia, Pennsylvania	19104
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (215) 243-9000

Not Applicable

Former name or former address, if changed since last report

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

The slide presentation attached hereto as Exhibit 99.1, and incorporated herein by reference, will be presented by RAIT Financial Trust at the FBR Capital Markets Fall Investor Conference in New York City on December 2, 2008 and may be used by RAIT Financial Trust in various other presentations to investors. The information in this Current Report, including the exhibit hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.

Item 7.01 Regulation FD Disclosure.

The slide presentation attached hereto as Exhibit 99.1, and incorporated herein by reference, will be presented by RAIT Financial Trust at the FBR Capital Markets Fall Investor Conference in New York City on December 2, 2008 and may be used by RAIT Financial Trust in various other presentations to investors. The information in this Current Report, including the exhibit hereto, is being furnished and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section. The information in this Current Report shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

The exhibit furnished as part of this Current Report on Form 8-K is identified in the Exhibit Index immediately following the signature page of this report. Such Exhibit Index is incorporated herein by reference.

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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 hereunto duly authorized.

	RAIT Financial Trust
Date: December 2, 2008	By:	/s/    Jack E. Salmon
	Name:	Jack E. Salmon
	Title:	Chief Financial Officer and Treasurer

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Exhibit Index

Exhibit No.	Description
99.1	Slide Presentation

EX-99.1

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A Diversified Real Estate Finance REIT

FBR Capital Markets Fall Investor Conference

December 2, 2008

Exhibit 99.1

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Forward Looking Disclosure and Use of Non-

GAAP Financial Measures

This document and the related presentation may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These 

forward-looking statements include, but are not limited to, statements about RAIT Financial Trust’s (“RAIT”) plans, objectives, expectations and intentions with

respect to future operations, products and services and other statements that are not historical facts. These forward-looking statements are based upon the current

beliefs and expectations of RAIT's management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of

which are difficult to predict and generally not within RAIT’s control. In addition, these forward-looking statements are subject to assumptions with respect to future

business strategies and decisions that are subject to change. Actual results may differ materially from the anticipated results discussed in these forward-looking

statements. 

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking

statements: the risk factors discussed and identified in filings by RAIT with the Securities and Exchange Commission; adverse market developments and credit losses

have reduced, and may continue to reduce, the value of trust preferred securities (“ TruPS”), subordinated debentures and other debt instruments directly or

indirectly held by RAIT; adverse market developments and credit losses have reduced, and may continue to reduce, the value of other assets in RAIT’s investment

portfolio; RAIT’s liquidity may be adversely affected by the reduced availability of short-term and long-term financing, including a significant curtailment of the

market for securities issued in securitizations and of the availability of repurchase agreements and warehouse facilities; RAIT’s liquidity may be adversely affected by

margin calls; RAIT may be unable to obtain adequate capital at attractive rates or otherwise; payment delinquencies or failure to meet other collateral performance

criteria in collateral underlying RAIT’s securitizations have restricted, and may continue to restrict, RAIT’s ability to receive cash distributions from RAIT’s

securitizations and have reduced, and may continue to reduce, the value of RAIT’s interests in these securitizations; failure of credit rating agencies to confirm their

previously issued credit ratings for debt securities issued in RAIT’s securitizations seeking to go effective may restrict RAIT’s ability to receive cash distributions from

those securitizations; covenants in RAIT’s financing arrangements may restrict RAIT’s business operations; fluctuations in interest rates and related hedging activities

against such interest rates may affect RAIT’s earnings and the value of RAIT’s assets; borrowing costs may increase relative to the interest received on RAIT’s

investments, thereby reducing RAIT’s net investment income; RAIT may be unable to sponsor and sell securities issued in securitizations, and, even if RAIT is able to

do so, RAIT may be unable to acquire eligible securities for securitization transactions on favorable economic terms; RAIT may experience unexpected results arising

from litigation that is currently pending or may arise in the future; RAIT and RAIT’s subsidiary, Taberna Realty Finance Trust (“ Taberna”), may fail to maintain

qualification as real estate investment trusts (“REITs”); RAIT and Taberna may fail to maintain exemptions under the Investment Company Act of 1940; investment

portfolios with geographic concentrations of residential mortgage loans could be adversely affected by economic factors unique to such concentrations; the market

value of real estate that secures mortgage loans could diminish further due to factors outside of RAIT’s control; adverse governmental or regulatory policies may be

enacted; management and other key personnel may be lost; competition from other REITs and other specialty finance companies may increase; and general business

and economic conditions could impair the credit quality of our investments and reduce our ability to originate and finance investments.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this presentation. All subsequent written and

oral forward-looking statements attributable to RAIT or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained

or referred to in this document and the related presentation. Except to the extent required by applicable law or regulation, RAIT undertakes no obligation to update

these forward-looking statements to reflect events or circumstances after the date of this presentation or to reflect the occurrence of unanticipated events.

This document contains, and the related presentation may contain, non-U.S. generally accepted accounting principles (“GAAP”) financial measures.  A reconciliation

of these non-GAAP financial measures to the most directly comparable GAAP financial measure is included in this document which is available on RAIT’s website at

www.raitft.com.

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RAIT is a specialty finance REIT that provides a comprehensive set of debt financing options to the

real estate

industry,

including

investors

in

commercial

real

estate,

REITs

and

real

estate

operating

companies and

their

intermediaries,

throughout

the

United

States

and

Europe.

RAIT

manages

and

invests in commercial mortgages, including whole and mezzanine loans, commercial real estate

investments, preferred equity interests, residential mortgage loans, trust preferred securities and

subordinated debentures. RAIT generates income for distribution from its portfolio of investments

and assets under management.

Diversified Real Estate Finance REIT

Assets

under

management

at

9/30/08

-

$14.3

billion

Commercial real

estate

portfolio

-

$2.1

billion

Residential mortgage

securitized

portfolio

-

$3.7

billion

European portfolio

–European

real

estate

assets

-

$1.9

billion

Domestic TruPS

and

subordinated

debt

-

$6.5

billion

Other investments -

$0.7 million

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Experienced Management Team

OfficerPosition

Betsy Z. Cohen

Chairman of the Board

Daniel G. Cohen

Chief Executive Officer

Scott F. Schaeffer

President & Chief Operating Officer

Jack E. Salmon

Chief Financial Officer & Treasurer

Ken R. Frappier

Executive Vice President-Risk Management

Raphael Licht

Chief Legal Officer & Chief Administrative Officer

James J. Sebra

Senior Vice President & Chief Accounting Officer

Plamen

M. Mitrikov

Executive Vice President –

Asset Management (Europe)

Samuel J. Greenblatt

Executive Vice President, Director of Originations (CRE)

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Current Business Conditions

International recessionary market conditions

Weak real estate markets

Capital constraints

Securitization market frozen

Banks hesitant to lend

Volatile capital markets

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Business Strategy

Position RAIT in the short term to take advantage of long term recovery in

the face of challenging and unprecedented market conditions

Continue to focus on:

Generating adjusted earnings for our investors

Originating new, risk-adjusted, good performing assets, and earning fees

Enhancing cash flows from our investment portfolios

Repositioning non-performing assets

Maintain adequate liquidity by using financing strategies to preserve capital

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Looking Ahead….

Market opportunities

Market dislocation = opportunities

Risk-reward opportunities

Strong management team

Leverage experience, knowledge and business relationships

Potential sources of capital

Joint venture capital

Opportunity funds

Institutional capital

Asset re-positioning

Experience

Strong platform

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Portfolio Gross Cash Flow Performance

(1)

Quarterly cash flows may not be indicative of cash flows for subsequent quarterly or annual periods.  See “Forward-Looking Disclosure and

Use of Non-GAAP Financial Measures” above for risks and uncertainties that could cause our gross cash flow for subsequent quarterly or

annual periods to differ materially from these amounts.

(2)

Our commercial real estate portfolio is comprised of $1.6 billion of assets collateralizing our commercial real estate securitizations (the “CRE

Securitizations”), $311.2 million of investments in real estate interests and $240.3 million of commercial mortgages and mezzanine loans all of

which are included on our consolidated balance sheet as of September 30, 2008.

(3)

Our European portfolio is comprised of residual interests in our unconsolidated European securitizations.

(4)

Our U.S. TruPS portfolio is comprised of assets collateralizing our consolidated securitizations (other than CRE Securitizations) and interests in

our unconsolidated securitizations (other than our European securitizations) and includes TruPS and subordinated debentures, unsecured

REIT note receivables, CMBS receivables, other securities, commercial mortgages and mezzanine loans. 

The following chart summarizes RAIT’s total assets under management at September 30, 2008

and quarterly gross cash flow by portfolio (excluding origination fees) for the three-month periods ended

March 31, 2008, June 30, 2008 and September 30, 2008 and for the nine-month period ended September

30, 2008 (dollars in thousands):   

Gross Cash Flow

Assets Under

Management at

September 30,

2008

Three

-Month

Period Ended

March 31,

2008

(1)

Three

-Month

Period Ended

June 30,

2008

(1)

Three

-Month

Period Ended

September 30,

2008

(1)

Nine-Month

Period Ended

September 30,

2008

(1)

Commercial real estate

portfolio (2)

$  2,104,833

$ 25,137

$ 27,760

$ 23,137

$ 76,034

Residential mortgage portfolio

3,694,875

5,104

4,958

4,778

14,840

European portfolio (3)

1,945,487

3,461

3,606

4,264

11,331

U.S. TruPS

portfolio (4)

6,512,275

11,850

9,173

11,952

32,975

Other investments

720

349

252

210

811

Total

$ 14,258,190

$ 45,901

$ 45,749

$ 44,341

$ 135,991

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Credit Performance Measures

Note:  As of 9/30/08

(1)

Carrying value represents the value at which the respective asset class is recorded on our balance sheet in accordance with GAAP.

(2)

Pertains to 13 loans with a $182.0 million aggregate unpaid principal balance. 

(3)

Includes loans delinquent over 60 days, in foreclosure, bankrupt or real estate owned as of September 30, 2008. 

(4)

Investments in securities are recorded at fair value in our consolidated balance sheet in accordance with GAAP. The unpaid principal value of

these investments as of September 30, 2008 is $4.3 billion. The unpaid principal balance of the non-accrual investments in this category is $475.6

million, or 11.1% of the total unpaid principal balance.

(5)

Loan loss reserves are not applicable for investments in securities and security related receivables, including our investments in European, U.S.

TruPS or other securities, as these items are carried at fair value in our consolidated financial statements. The estimated fair value adjustment for

our U.S. TruPS portfolio is recorded as a component of GAAP net income. The estimated fair value adjustments for our investments in European

securitizations and other securities are recorded as a component of accumulated other comprehensive income within shareholders’ equity. A

charge to GAAP net income is recorded only if an other than temporary impairment is identified within our European portfolio or other investments.

While RAIT believes the estimated fair values of these asset classes are affected by any related credit quality issues, under GAAP, no separate

loan loss reserve is established. 

Portfolio

Carrying Value

of Investments

(1)

# of Non-

Accrual

Investments

Loans

Carrying

Value of Non-

Accrual

Investments

Percentage

of Asset

Class(es)

Loan Loss

Reserves

9/30/2008

Commercial mortgages, mezzanine loans,

investments in real estate interests and other loans

2,412,397

$         

11

146,315

$        

6.1%

$      46,250

(2)

Residential mortgages and mortgage related

receivables

3,680,672

435

169,734

(3)

4.6%

19,515

Investments in securities

(4)

(TruPS)

2,524,695

14

37,281

1.5%

N/A

(5)

Total

8,617,764

$         

460

353,330

$        

4.1%

65,765

$      

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$2.1 billion CRE assets under management at

9/30/08:

-

Originating and underwriting commercial real

estate loans since 1998

-

$55.6 million unused revolver capacity in CRE

securitizations at 9/30/08

Programs:

Commercial Mortgage Loan Program

Senior whole loans, short-term bridge loans

$5 million -

$20 million

Commercial Real Estate Profile

Extensive origination platform:

-

referral network and repeat borrowers

$186 million of loan originations for nine

months ended September 30, 2008

Strong CRE credit history

Asset repositioning expertise

Q3 2008 Cash flow (1)

($ in thousands)

Target Yields

$23,137

14%-20%

1)

Excludes loan origination fees during the quarter ended September 30, 2008

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Commercial Real Estate Portfolio: Loan

Characteristics

Property Types

Geographic U.S. Regions

Note:  As of 9/30/08

($ in thousands)

Amortized

Cost

Weighted

Average

Coupon

Number

of Loans

% of

Total

Loan

Portfolio

Commercial

mortgages

$  1,423,744

7.7%

118

67.8%

Mezzanine loans

502,560

10.4%

154

23.9%

Other loans

174,879

6.1%

11

8.3%

Total

$  2,101,183

8.2%

283

100%

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Residential Mortgage Loan Portfolio Summary

Geographic Distribution by State

($ in thousands)

Portfolio by FICO Score (1) (2)

Q3 2008 Cash Flow

($ in thousands)

$4,778

Target Yields

6%-8%

Carrying

Amount at

03/31/08

Average

Interest

Rate

Average

Next

Adjustmen

Date

Numbe

of 

Loans

% of

Portfolio

3/1 ARM............................

$ 93,098

5.6%

Nov. 2008

248

2.5%

5/1 ARM............................

3,019,721

5.6%

Sept. 2010

6,295

82.1%

7/1 ARM............................

511,174

5.7%

July 2012

1,127

13.9%

10/1 ARM

..........................

56,679

5.7%

June 2015

67

1.5%

Total .................................

$3,680,672

5.6%

7,737

100.0%

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$1.9 billion unconsolidated European assets

under management:

-

Managed portfolio

-

Generating fee income and investment yield

European Portfolio Profile

Note:  As of 9/30/08

Credit:

As of 9/30/08:

-

Experienced two defaults during the quarter

-

Expected $800,000 decrease in Q4 2008 cash

flow

Q3 2008 Cash Flow

($ in thousands)

$4,264

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$6.5 billion assets under management

-

$2.5 billion –

consolidated assets at fair value

Fees:

-

Asset management fees

Current market conditions

-

Assets and liabilities reported under fair value

accounting in 2008.

-

No new production

-

Defaults in certain securitizations collateralized by

TruPS

has caused redirection of cash flow to prepay

senior debt

Domestic TruPS

Profile

Q3 2008 Cash Flow (1)

($ in thousands)

$11,952

TruPS

Issuer Types (1)

Note:  As of 9/30/08

(1) Based on estimated fair value

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Liquidity & Capital Resources at 9/30/08

$38.4 million of cash on hand

$55.6 million of unused capacity under our two commercial real

estate securitizations

$36.5 million of available capacity under existing commercial

bank facilities

No short term repurchase agreement margin call risk

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Debt Capital Terms

($ in thousands)

Note:  As of 9/30/08

Description

Unpaid

Principal

Balance

Carrying

Amount

Interest

Rate

Terms

Current

Weighted-

Average

Interest

Rate

Contractual Maturity

Secured credit facilities and other indebtedness

........

$

207,182

$

205,966

4.5%

to

13.0%

6.9%

Nov.

2008

to

2037

Mortgage

-backed securities issued

(1)(2)(3)

..................

3,464,774

3,438,431

4.6%

to

5.8%

5.1%

2035

Trust preferred obligations

(4)

......................................

362,500

208,916

5.5%

to

10.1%

7.0%

2035

CDO notes payable –

amortized cost

(1)(5)

...................

1,431,250

1,431,250

3.5%

to

7.2%

3.9%

2036

to

2045

CDO notes payable –

fair value

(1)(4)(6)

........................

3,615,691

841,546

3.1%

to

10.0%

3.8%

2035

to

2038

Convertible senior notes

.............................................

404,000

404,000

6.9%

6.9%

2027

Total

indebtedness

.....................................................

$

9,485,397

$

6,530,109

4.6%

(1)

Excludes mortgage-backed securities and CDO notes payable purchased by us which are eliminated in consolidation.

(2)

Collateralized by $3,694,874 principal amount of residential mortgages and mortgage-related receivables. These obligations were issued by separate legal

entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(3)

Rates generally follow the terms of the underlying mortgages, which are fixed for a period of time and variable thereafter.

(4)

Relates to liabilities for which we elected to record at fair value under SFAS No.159.

(5)

Collateralized by $1,714,492 principal amount of commercial mortgages, mezzanine loans and other loans. These obligations were issued by separate legal

entities and consequently the assets of the special purpose entities that collateralize these obligations are not available to our creditors.

(6)

Collateralized by $4,122,412 principal amount of investments in securities and security-related receivables and loans, before fair value adjustments. The fair

value of these investments

as of September

30, 2008 was $2,583,272. These obligations were issued by separate legal entities and consequently the assets of

the special purpose entities that collateralize these obligations are not available to our creditors.

Wemaintainvariousformsofshort-termandlong-termfinancingarrangements.Generally,thesefinancingagreementsarecollateralizedbyassetswithin

CDOs or mortgage securitizations. The following  table summarizes our indebtedness as of September 30, 2008:

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Selected GAAP Financial Data

(1) Declared a $0.35 dividend per common share on October 10, 2008 payable December 5, 2008 to holders of record on October 31, 2008

2008

2007

2008

2007

Operating Data:

Net investment income

$            37,390

$        39,962

$     111,567

$       134,564

Total revenue

47,239

54,346

141,127

163,536

Total expenses

20,430

40,046

72,049

102,014

Change in fair value of financial

instruments

(302,245)

—

50,661

—

Asset impairments

(18,038)

(342,954)

(38,361)

(342,954)

Net income (loss) available to common

shares

(181,690)

(243,591)

62,876

(195,855)

Earnings (loss) per share:

Basic

$              (2.83)

$          (4.02)

$          1.01

$           (3.23)

Diluted

$              (2.83)

$          (4.02)

$          1.01

$           (3.23)

Common dividends declared per share(1)

$                     -

$           0.46

$          0.92

$             2.10

As of           

September 31,

As of

December 31,

2008

2007

Balance Sheet Data:

Investments in mortgages and loans

$      5,706,273

$   6,228,633

Investments in securities

2,524,695

3,827,800

Total assets

8,973,414

11,057,580

Total indebtedness

6,530,109

10,057,121

Total liabilities

6,930,087

10,476,735

Minority interest

361,875

1,602

Total

shareholders’

1,681,452

579,243

Book value per share

$           23.40

$          6.78

Shares outstanding

64,783,126

61,018,231

As of and for the three months

ended September 30,

As of and for the nine months

ended September 30,

equity

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Adjusted Earnings

Reconciliation of Reported GAAP Net Income Available to Common Shares to Adjusted Earnings (1)

Performance Measures –

Adjusted Earnings

For the Three-Month

For the Nine-Month

2008

2007

2008

2007

Net income (loss) available to common shares, as reported

$ 

(181,690)

$

(243,591)

$ 

62,876

$    (195,855)

Add (deduct):

Provision for losses

1

4,992

6,099

50,575

10,662

Depreciation expense 

1,665

1,945

4,431

3,816

Amortization of intangible assets

2,883

17,473

16,048

46,051

(Gains) losses on sale of assets

(2)

(770)

7,569

(770)

10,329

(Gains) losses on

extinguishment

of debt

—

—

(8,662)

—

Change in fair value of financial instruments, net

of allocation to minority interest of $(118,303)

and $(27,748)

for the three-month

and nine-

month periods

ended

September 30, 2008,

respectively

183,942

—

(78,409)

—

Unrealized (gains) losses on interest rate hedges

290

3,122

275

2,605

Interest cost of hedges, net of allocation to

minority interest of $3,850 and $10,201 for the

three-month

and nine-month periods ended

September 30

, 2008, respectively

(11,238)

—

29,144

—

Capital

losses (3

)

—

—

32,059

—

Asset impairments, net of allocation to minority

interest of $95,986 for the three

-month and

nine-month periods ended

September

30,

2008

18,038

246,968

38,361

246,968

Share-based compensation

1,

237

3,016

5,535

8,753

rite-off of unamortized deferred financing costs

—

—

—

2,985

Fee income deferred (recognized)

257

(5,263)

446

27,732

Deferred

tax provision (benefit)

17

3,245

1,2

40

(15,445)

Adjusted earnings

$   

29,623

$   

40,583

$   

94,861

$   

148,601

eighted-average shares outstanding

—Diluted

64,176,083

60,

664,698

62,492,475

60,

581,559

Adjusted earnings per diluted share

$        0.

46

$      

0.

67

$       

1.52

$      

2.45

W

W

Period

Ended

September

Period

Ended

September

30

30

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Performance Measures –

Adjusted Earnings

(Continued)

(1)

We measure our performance using adjusted earnings in addition to GAAP net income (loss). Adjusted earnings represents net income (loss) available to common shares,

computed in accordance with GAAP, before provision for losses, depreciation expense, amortization of intangible assets, (gains) losses on sale of assets, (gains) losses on

extinguishment of debt, change in fair value of financial instruments, net of allocation to minority interest, unrealized (gains) losses on interest rate hedges, interest cost of

hedges, net of allocation to minority interest, capital (gains) losses, asset impairments, net of allocation to minority interest, net (gains) losses on deconsolidation of VIEs,

share-based compensation, write-off of unamortized deferred financing costs, fee income deferred (recognized) and our deferred tax provision (benefit). These items are

recorded in accordance with GAAP and are typically non-cash items that do not impact our operating performance or dividend paying ability.

Management views adjusted earnings as a useful and appropriate supplement to GAAP net income (loss) because it helps us evaluate our performance without the effects of

certain GAAP adjustments that may not have a direct financial impact on our current operating performance and our dividend paying ability. We use adjusted earnings to

evaluate the performance of our investment portfolios, our ability to generate fees, our ability to manage our expenses and our dividend paying ability before the impact of

non-cash adjustments recorded in accordance with GAAP. We believe this is a useful performance measure for investors to evaluate these aspects of our business as well. The

most significant adjustments we exclude in determining adjusted earnings are provision for losses, amortization of intangible assets, change in fair value of financial

instruments, capital (gains) losses, asset impairments and share-based compensation. Management excludes all such items from its calculation of adjusted earnings because

these items are not charges or losses which would impact our current operating performance or dividend paying ability. By excluding these significant items, adjusted earnings

reduces an investor’s understanding of our operating performance by excluding: (i) management’s expectation of possible losses from our investment portfolio or non-

performing assets that may impact future operating performance or dividend paying ability, (ii) the allocation of non-cash costs of generating fee revenue during the periods in

which we are receiving such revenue, and (iii) share-based compensation required to retain and incentivize our management team.

Adjusted earnings, as a non-GAAP financial measurement, does not purport to be an alternative to net income (loss) determined in accordance with GAAP, or a measure of

operating performance or cash flows from operating activities determined in accordance with GAAP as a measure of liquidity. Instead, adjusted earnings should be reviewed in

connection with net income (loss) and cash flows from operating, investing and financing activities in our consolidated financial statements to help analyze management’s

expectation of potential future losses from our investment portfolio and other non-cash matters that impact our financial results. Adjusted earnings and other supplemental

performance measures are defined in various ways throughout the REIT industry. Investors should consider these differences when comparing our adjusted earnings to these

other REITs.

(2)

During the nine-month period ended September 30, 2008, we revised our definition of adjusted earnings to exclude capital (gains) losses and gains (losses) on sale of assets.

Capital (gains) losses and gains (losses) on sale of assets, while economic gains or losses, do not currently impact operating performance or dividend paying ability. This revision

resulted in an increase of $7.6 million and $10.3 million to the computation of adjusted earnings for the three-month and nine-month periods ended September 30, 2007,

respectively.

(3)

During the nine-month period ended September 30, 2008, all of our warehouse arrangements were terminated.  We have recorded the estimated loss of our warehouse deposits

as a component of the change in fair value of free-standing derivatives in our consolidated statement of operations.

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Performance Measures –

Economic Book Value

Economic Book Value (1)

-

We define

Economic

Book

Value

as

shareholders’

equity,

determined

in

accordance

with

GAAP,

adjusted

for the

following items: liquidation value of preferred shares, unamortized intangible assets, goodwill, and (gains) losses recognized in excess of our

investments at risk.

As of

September 30, 2008

As of

December 31, 2007

Amount

Per Share (2)

Amount

Per Share (2)

Shareholders’

equity,

as

reported

.................................................................................

1,681,452

$ 

25.95

$ 579,243

$  9.49

Add (deduct):

Liquidation value of preferred shares (3)

....................................................................

(165,458)

(2.55)

(165,458)

(2.71)

Book Value

.....................................................................................................................

1,515,994

23.40

413,785

6.78

Unamortized intangible assets

...................................................................................

(22,037)

(0.34)

(56,123)

(0.92)

Tangible Book Value

(4)

..................................................................................................

1,493,957

23.06

357,662

5.86

Add (deduct):

Unrealized

(gains)

losses

recognized

in

excess

of

value

at

risk

..

(600,032)

(9.26)

284,002

4.66

Economic Book Value

.....................................................................................................

$893,925

$  

13.80

$ 641,664

$ 10.52

$

...............................

(1)

Management views

economic

book

value

as

a

useful

and

appropriate

supplement

to

shareholders’

equity,

book

value

and

tangible

book

value

per

share.

The

measure

serves

as

an

additional measure of our value because it facilitates evaluation of us without the effects of realized or unrealized (gains) losses on investments in excess of our total investment in that

securitization, which is our maximum value at risk. Under GAAP, we record certain of our assets, liabilities and derivatives of our consolidated entities, primarily our consolidated

securitizations,

at

fair

value.

The

net

fair

value

adjustments

recognized

in

our

financial

statements

that

reduced

our

total

investment

below

zero

are

added

back

to

shareholders’

equity

in

arriving

at

economic

book

value

and

the

net

fair

value

adjustments

recognized

in

our

financial

statements

that

are

in

excess

of

our

total

investment

are

deducted

from shareholders’

equity in arriving at economic book value. In performing these computations, we exclude the impact of unrealized fair value adjustments associated with derivatives on economic book

value.

Economic book

value

is

a

non-GAAP

financial

measurement,

and

does

not

purport

to

be

an

alternative

to

reported

shareholders’

equity,

determined

in

accordance

with

GAAP,

as a

measure of

book

value.

Economic

book

value

should

be

reviewed

in

connection

with

shareholders’

equity

as

set

forth

in

our

consolidated

balance

sheets,

to

help

analyze

our

value

to

investors. Economic book value is defined in various ways throughout the REIT industry. Investors should consider these differences when comparing our economic book value to

that

of

other

REITs.

We

do

not

intend

economic

book

value

to

represent

the

fair

value

of

our

retained

interests

in

our

securitizations

or

the

fair

value

of

our

shareholders’

equity

available to common shareholders.

(2)

Based on 64,783,126 and 61,018,231 common shares outstanding as of September 30, 2008 and December 31, 2007, respectively.

(3)

Based on

2,760,000

Series

A

preferred

shares,

2,258,300

Series

B

preferred

shares,

and

1,600,000

Series

C

preferred

shares,

all

of

which

have

a

liquidation

preference

of

$25.00 per

share.

(4)

Tangible book value per share is calculated by subtracting the liquidation value of RAIT’s cumulative redeemable preferred shares and net intangible assets from total shareholders’

equity and dividing the result by the number of common shares outstanding at the end of the period.

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Summary

Position RAIT to take advantage of opportunities once market conditions

improve and to maximize shareholder value over time

Management is focused on:

Monitoring credit performance of our portfolios

Generating adjusted earnings

Enhancing cash flows and liquidity