NOTE 5: INDEBTEDNESS

We maintain various forms of short-term and long-term financing arrangements. Generally, these financing agreements are collateralized by assets within securitizations.

The following table summarizes our total recourse and non-recourse indebtedness as of June 30, 2016:

Description	Unpaid Principal Balance		Unamortized Discount and Debt Issuance Costs			Carrying Amount		Weighted- Average Interest Rate			Contractual Maturity
Recourse indebtedness:
7.0% convertible senior notes (1)	$	871	$	(28	)	$	843		7.0	%	Apr. 2031
4.0% convertible senior notes (2)		126,098		(6,624	)		119,474		4.0	%	Oct. 2033
7.625% senior notes		57,287		(1,837	)		55,450		7.6	%	Apr. 2024
7.125% senior notes		70,731		(1,832	)		68,899		7.1	%	Aug. 2019
Senior secured notes		66,000		(5,355	)		60,645		7.0	%	Apr. 2017 to Apr. 2019
Junior subordinated notes, at fair value (3)		18,671		(7,882	)		10,789		4.6	%	Mar. 2035
Junior subordinated notes, at amortized cost		25,100		(210	)		24,890		3.1	%	Apr. 2037
CMBS facilities		138,977		(359	)		138,618		2.6	%	Jul. 2016 to Jan 2018
Total recourse indebtedness		503,735		(24,127	)		479,608		4.8	%
Non-recourse indebtedness:
Secured credit facilities (4)		247,335		(3,731	)		243,604		2.9	%	September 2018
Term Loans (5)		40,000		(441	)		39,559		4.5	%	September 2018
CDO notes payable, at amortized cost (6)(7)		776,102		(10,803	)		765,299		1.3	%	2045 to 2046
CMBS securitizations (8)		592,768		(5,791	)		586,977		2.9	%	Jan 2031 to Dec. 2031
Loans payable on real estate (9)		870,716		(5,025	)		865,691		4.3	%	June 2016 to June 2026
Total non-recourse indebtedness		2,526,921		(25,791	)		2,501,130		2.9	%
Other indebtedness (10)		24,796		(275	)		24,521		—			—
Total indebtedness	$	3,055,452	$	(50,193	)	$	3,005,259		3.2	%

(1)	Our 7.0% convertible senior notes are redeemable at par, at the option of the holder, in April 2021, and April 2026.

(2)	Our 4.0% convertible senior notes are redeemable at par, at the option of the holder, in October 2018, October 2023, and October 2028.

(3)	Relates to liabilities which we elected to record at fair value under FASB ASC Topic 825.

(4) Floating rate at 245 basis points over 1-month LIBOR.

(5)	Floating rate at 400 basis points over 1-month LIBOR.

(6)	Excludes CDO notes payable purchased by us which are eliminated in consolidation

(7)

Collateralized by $1,219,408 principal amount of commercial mortgages, mezzanine loans, other loans and preferred equity interests. 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.

(8)	Collateralized by $772,557 principal amount of commercial mortgage loans and participation interests. 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.

(9)	Includes $601,047 of unpaid principal balance and $597,125 of carrying amount, respectively, of third party mortgage indebtedness that encumbers properties owned by IRT. The weighted-average interest rate is 3.8% and has a range of maturity dates from January 2021 to June 2026.

(10)

Represents a 40% interest issued to an unaffiliated third party in a venture to which we contributed the junior notes and equity of a floating rate securitization. We retained a 60% interest in this venture, and, as a result of our controlling financial interest, we consolidated the venture. We received $24,796 of proceeds as a result of issuing this 40% interest and incurred $275 of costs with third parties. This 40% interest has no stated maturity date and does not provide for its mandatory redemption or any required return or interest payment. The venture interests allocate the distributions on such junior notes and equity when made between the parties to the venture.

The following table summarizes our total recourse and non-recourse indebtedness as of December 31, 2015:

Description	Unpaid Principal Balance		Unamortized Discount and Debt Issuance Costs			Carrying Amount		Weighted- Average Interest Rate			Contractual Maturity
Recourse indebtedness:
7.0% convertible senior notes (1)	$	30,048	$	(1,180	)	$	28,868		7.0	%	Apr. 2031
4.0% convertible senior notes (2)		141,750		(8,711	)		133,039		4.0	%	Oct. 2033
7.625% senior notes		60,000		(2,048	)		57,952		7.6	%	Apr. 2024
7.125% senior notes		71,905		(2,156	)		69,749		7.1	%	Aug. 2019
Senior secured notes		70,000		(6,955	)		63,045		7.0	%	Apr. 2017 to Apr. 2019
Junior subordinated notes, at fair value (3)		18,671		(8,167	)		10,504		4.3	%	Mar. 2035
Junior subordinated notes, at amortized cost		25,100		(216	)		24,884		2.7	%	Apr. 2037
CMBS facilities		97,067		(344	)		96,723		2.4	%	Jul. 2016 to Jan. 2018
Total recourse indebtedness		514,541		(29,777	)		484,764		5.1	%
Non-recourse indebtedness:
Secured credit facilities (4)		271,500		(4,345	)		267,155		2.9	%	Sep. 2018
Term Loans (5)		120,000		(1,582	)		118,418		5.4	%	Sept. 2016
CDO notes payable, at amortized cost (6)(7)		950,981		(13,412	)		937,569		0.9	%	Jun. 2045 to Nov. 2046
CMBS securitizations (8)		717,255		(8,745	)		708,510		2.4	%	May 2031 to Dec. 2031
Loans payable on real estate (9)		815,746		(4,080	)		811,666		4.5	%	Apr. 2016 to Apr. 2026
Total non-recourse indebtedness		2,875,482		(32,164	)		2,843,318		2.7	%
Total indebtedness	$	3,390,023	$	(61,941	)	$	3,328,082		3.0	%

(1)	Our 7.0% convertible senior notes are redeemable at par, at the option of the holder, in April 2016, April 2021, and April 2026.

(2)	Our 4.0% convertible senior notes are redeemable at par, at the option of the holder, in October 2018, October 2023, and October 2028.

(3)	Relates to liabilities which we elected to record at fair value under FASB ASC Topic 825.

(4)	Floating rate at 245 basis points over 1-month LIBOR.

(5)	Floating rate at 500 basis points over 1-month LIBOR.

(6)	Excludes CDO notes payable purchased by us which are eliminated in consolidation.

(7)

Collateralized by $1,388,194 principal amount of commercial mortgage loans, mezzanine loans, other loans and preferred equity interests, $815,745 of which eliminates in consolidation. 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.

(8)	Collateralized by $885,055 principal amount of commercial mortgage loans and participation interests. 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.

(9)	Includes $545,956 of unpaid principal balance and $543,080 of carrying amount of third party mortgage indebtedness that encumbers properties owned by IRT. The weighted-average interest rate is 3.8% and has a range of maturity dates from April 2016 to May 2025.

Recourse indebtedness refers to indebtedness that is recourse to our general assets, including the loans payable on real estate that are guaranteed by us. Non-recourse indebtedness consists of indebtedness of consolidated VIEs (e.g., securitization vehicles) and loans payable on real estate which is recourse only to specific assets pledged as collateral to the lenders. The creditors of each consolidated VIE have no recourse to our general credit.

The current status or activity in our financing arrangements occurring as of or during the six months ended June 30, 2016 is as follows:

Recourse Indebtedness

7.0% convertible senior notes. The 7.0% convertible senior notes are convertible at the option of the holder at a current conversion rate of 184.9115 common shares per $1 principal amount of 7.0% convertible senior notes (equivalent to a current conversion price of $5.41 per common share).

On April 1, 2016, we redeemed $29,177 of the 7.0% convertible senior notes at a redemption price equal to the principal amount plus accrued and unpaid interest. After this redemption, $871 of the 7.0% convertible notes remain outstanding.

4.0% convertible senior notes. The 4.0% convertible senior notes are convertible at the option of the holder at a current conversion rate of 108.5803 common shares per $1 principal amount of 4.0% convertible senior notes (equivalent to a current conversion price of $9.21 per common share).

During the second quarter of 2016, we repurchased $15,652 in principal amount of the 4.0% convertible senior notes for $14,075. As of June 30, 2016, $126,098 of the 4.0% convertible senior notes remain outstanding.

7.625% senior notes. During the second quarter of 2016, we repurchased $2,713 in principal amount of the 7.625% senior notes for $2,172. As of June 30, 2016, $57,287 of the 7.625% senior notes remain outstanding.

7.125% senior notes. During the second quarter of 2016, we repurchased $1,174 in principal amount of the 7.125% senior notes for $1,081. As of June 30, 2016, $70,731 of the 7.125% senior notes remain outstanding.

Senior secured notes. During the six months ended June 30, 2016, we prepaid $4,000 of the senior secured notes. As of June 30, 2016, we have $66,000 of outstanding senior secured notes.

Junior subordinated notes, at fair value. At issuance, we elected to record the current $18,671 junior subordinated note at fair value under FASB ASC Topic 825, with all subsequent changes in fair value recorded in earnings. As of June 30, 2016, the fair value, or carrying amount, of this indebtedness was $10,789.

Junior subordinated notes, at amortized cost. There was no activity other than recurring interest during the current period.

CMBS facilities. As of June 30, 2016, we had $3,285 of outstanding CMBS borrowings and 26,131 of outstanding commercial mortgage borrowings under the amended and restated master repurchase agreement, or the Amended MRA. The Amended MRA had a capacity of $200,000 with a limit of $100,000 for floating rate loans. In July of 2016, this facility was amended decreasing the capacity to $150,000 and extending the maturity date to July of 2018. As of June 30, 2016, we were in compliance with all financial covenants contained in the Amended MRA.

As of June 30, 2016, we had $23,142 of outstanding borrowings under the $150,000 CMBS facility. As of June 30, 2016, we were in compliance with all financial covenants contained in the $150,000 CMBS facility.

As of June 30, 2016, we had $49,179 of outstanding borrowings under the $75,000 commercial mortgage facility. As of June 30, 2016, we were in compliance with all financial covenants contained in the $75,000 commercial mortgage facility.

As of June 30, 2016, we had $37,240 of outstanding borrowings under the $150,000 commercial mortgage facility. As of June 30, 2016, we were in compliance with all financial covenants contained in the $150,000 commercial mortgage facility.

Non-Recourse Indebtedness

Secured credit facilities. On September 17, 2015, IROP entered into a credit agreement with respect to a $325,000 senior secured credit facility, or the secured credit facility, which will mature on September 17, 2018. The secured credit facility is available for additional loans, may be increased to $450,000 and/or extended for two 12-month terms. At June 30, 2016, amounts outstanding under the secured credit facility bear interest at 245 basis points over 1-month LIBOR. As of June 30, 2016, there was $77,665 of availability under the revolver bearing interest at 0.25000%.

In March of 2016, IROP drew down $8,000 on the secured credit facility, which was used to repay $6,000 of the Key Bank interim facility, discussed below.

In March of 2016, IROP drew down $45,476 on the secured credit facility, which was used to satisfy the existing mortgages and closing costs relating to the Oklahoma City portfolio of properties we acquired in 2014.

In May of 2016, IROP repaid $77,665 on the secured credit facility with the proceeds received from entering into permanent financing of three properties which were all acquired in 2015.

Term loans. On September 17, 2015, IROP entered into a credit agreement with respect to a $120,000 senior interim term loan facility, or the interim facility. The interim facility was amended and restated to replace the interim facility with a $40,000 senior secured term loan, as described below.

In January and February of 2016, IROP repaid $23,784 of the interim facility subsequent to two property dispositions.

In April and May of 2016, IROP repaid $30,000 of the interim facility subsequent to two property dispositions.

In May of 2016, IROP repaid $26,704 of the interim facility subsequent to the permanent financing of two properties with seven and ten year fixed-rate mortgages.

As noted above, the interim facility was amended and restated to provide for a $40,000 senior secured term loan, or the term loan, on June 24, 2016. Upon entering into the term loan, IROP borrowed $40,000, using $416 to pay closing costs and $33,512 to repay the remaining balance under the interim facility. The maturity date of the term loan is September 17, 2018, subject to acceleration upon customary events of default. The term loan requires monthly payments of interest only through June 30, 2017. IROP is required to reduce the principal amount outstanding under the term loan by $100 per month beginning July 2017 and must apply 50% of all net proceeds from equity issuances, sales of assets, or refinancings of assets towards repaying the amended term loan. At IROP’s option, borrowings under the term loan will bear interest at a rate equal to either (i) the LIBOR rate plus a margin of 400 basis points, or (ii) a base rate plus a margin of 300 basis points. IROP may prepay the term loan, in whole or in part, at any time without fee or penalty, except for breakage costs associated with LIBOR borrowings. At June 30, 2016, the term loan bears interest at 400 basis points over 1-month LIBOR and the balance is $40,000.

CDO notes payable, at amortized cost. CDO notes payable at amortized cost represent notes issued by consolidated CDO securitizations which are used to finance the acquisition of unsecured REIT notes, CMBS securities, commercial mortgage loans, mezzanine loans, and other loans in our commercial real estate portfolio. Generally, CDO notes payable are comprised of various classes of notes payable, with each class bearing interest at variable or fixed rates. Both RAIT I and RAIT II are meeting all of their over collateralization, or OC, and interest coverage, or IC, trigger tests as of June 30, 2016.

CMBS securitizations. As of June 30, 2016, our subsidiary, RAIT 2014-FL2 Trust, or RAIT FL2, had $110,425 of total collateral at par value, none of which is defaulted. RAIT FL2 had classes of investment grade senior notes with an aggregate principal balance outstanding of approximately $70,234 to investors. We currently own the unrated classes of junior notes, including a class with an aggregate principal balance of $40,191, and the equity, or the retained interests, of RAIT FL2. RAIT FL2 does not have OC triggers or IC triggers.

As of June 30, 2016, our subsidiary, RAIT 2014-FL3 Trust, or RAIT FL3, had $125,878 of total collateral at par value, none of which is defaulted. RAIT FL3 had classes of investment grade senior notes with an aggregate principal balance outstanding of approximately $88,491 to investors. We currently own the unrated classes of junior notes, including a class with an aggregate principal balance of $37,387, and the equity, or the retained interests, of RAIT FL3. RAIT FL3 does not have OC triggers or IC triggers.

As of June 30, 2016, our subsidiary, RAIT 2015-FL4 Trust, or RAIT FL4, had $189,504 of total collateral at par value, none of which is defaulted. RAIT FL4 had classes of investment grade senior notes with an aggregate principal balance outstanding of approximately $148,114 to investors. We currently own the unrated classes of junior notes, including a class with an aggregate principal balance of $41,390, and the equity, or the retained interests, of RAIT FL4. RAIT FL4 does not have OC triggers or IC triggers.

As of June 30, 2016, our subsidiary, RAIT 2015-FL5 Trust, or RAIT FL5, has $346,728 of total collateral at par value, none of which is defaulted. RAIT FL5 had classes of investment grade senior notes with an aggregate principal balance outstanding of approximately $285,924 to investors. Upon closing, we retained $23,019 of investment grade notes and all of the unrated classes of junior notes and equity. In February 2016, we contributed the unrated classes of junior notes and equity of RAIT FL5 to a venture. We retained a 60% interest in the venture, and, as a result of our control, we consolidate the venture. We received approximately $24,796 of proceeds as a result of this contribution. RAIT FL5 does not have OC triggers or IC triggers. In April 2016, we sold the $23,019 of investment grade notes.

Loans payable on real estate. As of June 30, 2016 and December 31, 2015, we had $870,716 and $815,746, respectively, of other indebtedness outstanding relating to loans payable on consolidated real estate. These loans are secured by specific consolidated real estate and commercial loans included in our consolidated balance sheets.

In February of 2016, we repaid $6,659 of mortgage indebtedness as part of a property disposition.

In March of 2016, we repaid $43,694 of mortgage indebtedness related to the Oklahoma City portfolio of properties we acquired in 2014 through a refinancing whereby IROP drew down on the secured credit facility.

In May of 2016, IRT obtained three first mortgages on its investments in real estate from third party lenders that have aggregate principal balances of $25,050, $31,250, and $49,680, maturity dates of June 2023, June 2023 and June 2026 respectively, and interest rates of 3.40%, 3.28%, and 3.70%, respectively.

Maturity of Indebtedness

Generally, the majority of our indebtedness is payable in full upon the maturity or termination date of the underlying indebtedness. The following table displays the aggregate contractual maturities of our indebtedness on or before December 31 by year:

	Recourse indebtedness		Non-recourse indebtedness
2016	$	89,798	$	92,202
2017		33,000		37,400
2018		65,679		331,538
2019		87,231		6,236
2020		-		38,855
Thereafter (1)		228,027		2,020,690
Total	$	503,735	$	2,526,921

(1)	Includes $871 of our 7.0% convertible senior notes which are redeemable at par at the option of the holders in April 2021, and April 2026. Includes $126,098 of our 4.0% convertible senior notes which are redeemable at par at the option of the holders in October 2018, October 2023, and October 2028.