ras-10q_20160630.htm

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No

A total of 92,187,313 common shares of beneficial interest, par value $0.03 per share, of the registrant were outstanding as of August 3, 2016.

	As of June 30, 2016			As of December 31, 2015
Assets
Investment in mortgages and loans:
Commercial mortgages, mezzanine loans, and preferred equity interests	$	1,495,343			$	1,623,583
Allowance for loan losses		(18,237	)			(17,097	)
Total investment in mortgages and loans, net (including $1,272,536 and $1,428,961 held by consolidated VIEs, respectively)		1,477,106				1,606,486
Investments in real estate, net of accumulated depreciation of $209,096 and $198,326, respectively (including $1,514,258 and $1,584,753 held by consolidated VIEs, respectively)		2,200,043				2,319,319
Cash and cash equivalents		66,885				125,886
Restricted cash		159,429				213,012
Accrued interest receivable		42,139				47,343
Other assets		68,794				71,207
Intangible assets, net of accumulated amortization of $34,876 and $26,307, respectively		25,668				32,675
Total assets	$	4,040,064			$	4,415,928
Liabilities and Equity
Indebtedness, net of unamortized discount and deferred financing costs of $50,193 and $61,941, respectively (including $2,691,070 and $3,173,073 held by consolidated VIEs, respectively)		3,005,259			$	3,328,082
Accrued interest payable		11,102				9,834
Accounts payable and accrued expenses		32,483				39,672
Derivative liabilities		3,972				4,727
Deferred taxes, borrowers’ escrows and other liabilities		182,324				203,477
Total liabilities		3,235,140				3,585,792
Series D cumulative redeemable preferred shares, $0.01 par value per share, 4,000,000 shares authorized, 4,000,000 and 4,000,000 shares issued and outstanding, respectively		88,861				85,395
Equity:
Shareholders’ equity:
Preferred shares, $0.01 par value per share, 25,000,000 shares authorized;
7.75% Series A cumulative redeemable preferred shares, liquidation preference $25.00 per share, 8,069,288 shares authorized, 5,306,084 and 5,306,084 shares issued and outstanding, respectively		53				53
8.375% Series B cumulative redeemable preferred shares, liquidation preference $25.00 per share, 4,300,000 shares authorized, 2,340,969 and 2,340,969 shares issued and outstanding, respectively		23				23
8.875% Series C cumulative redeemable preferred shares, liquidation preference $25.00 per share, 3,600,000 shares authorized, 1,640,425 and 1,640,425 shares issued and outstanding, respectively		17				17
Series E cumulative redeemable preferred shares, $0.01 par value per share, 4,000,000 shares authorized		—				—
Common shares, $0.03 par value per share, 200,000,000 shares authorized 92,185,242 and 91,586,767 issued and outstanding, respectively, including 973,687 and 742,764 unvested restricted common share awards, respectively		2,766				2,748
Additional paid in capital		2,088,781				2,087,137
Accumulated other comprehensive income (loss)		(972	)			(4,699	)
Retained earnings (deficit)		(1,722,936	)			(1,680,751	)
Total shareholders’ equity		367,732				404,528
Noncontrolling interests		348,331				340,213
Total equity		716,063				744,741
Total liabilities and equity	$	4,040,064			$	4,415,928

The accompanying notes are an integral part of these consolidated financial statements.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Revenue:
Investment interest income	$	23,519		$	24,107		$	49,321		$	47,355
Investment interest expense		(9,125	)		(7,582	)		(18,445	)		(14,496	)
Net interest margin		14,394			16,525			30,876			32,859
Property income		67,898			55,534			136,620			108,808
Fee and other income		2,775			7,629			5,627			13,223
Total revenue		85,067			79,688			173,123			154,890
Expenses:
Interest expense		22,890			19,673			48,472			39,356
Real estate operating expense		29,950			26,630			60,656			51,907
Compensation expense		7,922			6,568			14,997			12,676
General and administrative expense		5,585			5,065			10,648			10,465
Acquisition expense		229			985			498			1,942
Provision for loan losses		1,344			2,000			2,669			4,000
Depreciation and amortization expense		22,806			17,007			47,082			36,031
Total expenses		90,726			77,928			185,022			156,377
Operating (Loss) Income		(5,659	)		1,760			(11,899	)		(1,487	)
Interest and other income (expense), net		39			(241	)		100			(636	)
Gains (losses) on assets		35,623			17,281			37,881			17,281
Gain on IRT merger with TSRE		—			—			91			—
Gains (losses) on extinguishments of debt		102			—			446			—
Asset impairment		(3,864	)		—			(7,786	)		—
Change in fair value of financial instruments		(1,592	)		8,356			(5,680	)		12,846
Income (loss) before taxes		24,649			27,156			13,153			28,004
Income tax benefit (provision)		1,756			(715	)		2,749			(1,297	)
Net income (loss)		26,405			26,441			15,902			26,707
(Income) loss allocated to preferred shares		(8,615	)		(8,221	)		(17,135	)		(16,080	)
(Income) loss allocated to noncontrolling interests		(25,370	)		736			(24,191	)		1,232
Net income (loss) allocable to common shares	$	(7,580	)	$	18,956		$	(25,424	)	$	11,859
Earnings (loss) per share-Basic:
Earnings (loss) per share-Basic	$	(0.08	)	$	0.23		$	(0.28	)	$	0.14
Weighted-average shares outstanding-Basic		91,190,583			82,150,475			91,104,314			82,115,941
Earnings (loss) per share-Diluted:
Earnings (loss) per share-Diluted	$	(0.08	)	$	0.22		$	(0.28	)	$	0.14
Weighted average shares outstanding-Diluted		91,190,583			89,268,462			91,104,314			84,134,040

The accompanying notes are an integral part of these consolidated financial statements.

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Net income (loss)	$	26,405		$	26,441		$	15,902		$	26,707
Other comprehensive income (loss):
Change in fair value of interest rate hedges		(1,205	)		(225	)		(1,343	)		(182	)
Realized (gains) losses on interest rate hedges reclassified to earnings		1,656			4,398			4,059			9,365
Total other comprehensive income		451			4,173			2,716			9,183
Comprehensive income (loss) before allocation to noncontrolling interests		26,856			30,614			18,618			35,890
Allocation to noncontrolling interests - net (income) loss		(25,370	)		736			(24,191	)		1,232
Allocation to noncontrolling interests - other comprehensive (income) loss		1,011		—				1,011		—
Comprehensive income (loss)	$	2,497		$	31,350		$	(4,562	)	$	37,122

The accompanying notes are an integral part of these consolidated financial statements.

	Preferred Shares— Series A		Par Value Preferred Shares— Series A		Preferred Shares— Series B		Par Value Preferred Shares— Series B		Preferred Shares— Series C		Par Value Preferred Shares— Series C		Common Shares		Par Value Common Shares		Additional Paid In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Deficit)			Total Shareholders’ Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2015		5,306,084	$	53		2,340,969	$	23		1,640,425	$	17		91,586,767	$	2,748	$	2,087,137		$	(4,699	)	$	(1,680,751	)	$	404,528		$	340,213		$	744,741
Net income (loss)	—		—		—		—		—		—		—		—		—			—				(8,289	)		(8,289	)		24,191			15,902
Preferred dividends	—		—		—		—		—		—		—		—		—			—				(13,669	)		(13,669	)	—				(13,669	)
Preferred Series D discount amortization	—		—		—		—		—		—		—		—		—			—				(3,466	)		(3,466	)	—				(3,466	)
Common dividends declared	—		—		—		—		—		—		—		—		—			—				(16,761	)		(16,761	)	—				(16,761	)
Other comprehensive income (loss), net	—		—		—		—		—		—		—		—		—				3,727		—				3,727			(1,011	)		2,716
Share-based compensation	—		—		—		—		—		—		—		—			2,022		—			—				2,022		—				2,022
Issuance of noncontrolling interests	—		—		—		—		—		—		—		—		—			—			—			—				448			448
Distribution to noncontrolling interests	—		—		—		—		—		—		—		—			—		—			—				—			(15,510	)		(15,510	)
Common shares issued for equity compensation	—		—		—		—		—		—			593,817		18		(378	)	—			—				(360	)	—				(360	)
Common shares issued, net	—		—		—		—		—		—			4,658		—		—		—			—				—		—				—
Balance, June 30, 2016		5,306,084	$	53		2,340,969	$	23		1,640,425	$	17		92,185,242	$	2,766	$	2,088,781		$	(972	)	$	(1,722,936	)	$	367,732		$	348,331		$	716,063

The accompanying notes are an integral part of these consolidated financial statements.

	For the Six Months Ended June 30,
	2016			2015
Operating activities:
Net income (loss)	$	15,902		$	26,707
Adjustments to reconcile net income (loss) to cash flow from operating activities:
Provision for loan losses		2,669			4,000
Share-based compensation expense		2,607			2,394
Depreciation and amortization		47,082			36,031
Amortization of deferred financing costs and debt discounts		11,070			9,458
Deferral of loan origination costs, net		(2,059	)		(1,682	)
Amortization of above/below market leases		(803	)		(317	)
(Gains) losses on assets		(37,881	)		(17,281	)
(Gains) losses on extinguishment of debt		(446	)		—
(Gains) on IRT merger with TSRE		(91	)		—
Asset impairment		7,786			—
Change in fair value of financial instruments		5,680			(12,846	)
Provision (benefit) for deferred taxes		(2,841	)		(897	)
Changes in assets and liabilities:
Decrease (increase) in accrued interest receivable		5,195			(2,956	)
(Increase) in other assets		(902	)		(2,649	)
Increase in accrued interest payable		2,561			2,459
(Decrease) in accounts payable and accrued expenses		(7,164	)		(1,609	)
Increase in other liabilities		1,807			1,175
Origination of conduit loans		(13,800	)		(251,959	)
Sales of conduit loans		21,377			223,298
Net conduit loans (originated) sold		7,577			(28,661	)
Cash flows provided by (used in) operating activities		57,749			13,326
Investing activities:
Proceeds from sales or repayments of other securities		—			31,241
Origination of loans for investment		(55,584	)		(191,892	)
Principal repayments on loans		175,016			130,504
Investments in real estate		(15,250	)		(37,500	)
IRT's acquisition of TSRE, net of cash acquired		91			—
Proceeds from the disposition of real estate		127,405			20,596
(Increase) decrease in restricted cash		30,650			(21,562	)
Cash flows provided by (used in) investing activities		262,328			(68,613	)
Financing activities:
Repayments on secured credit facilities and loans payable on real estate		(242,755	)		(20,640	)
Proceeds from secured credit facilities, term loans and loans payable on real estate		199,480			58,275
Repayments and repurchase of CDO notes payable and floating rate transactions		(322,887	)		(120,194	)
Proceeds from issuance of senior notes from floating rate CMBS transactions		22,559			181,215
Repurchase of convertible notes and senior notes		(47,614	)		—
Repayments of senior secured notes		(4,000	)		(4,000	)
Net proceeds (repayments) related to conduit loan repurchase agreements		(10,495	)		7,277
Net proceeds (repayments) related to floating rate loan repurchase agreements		52,405			(14,587	)
Proceeds from issuance of joint venture interests accounted for as indebtedness		24,796			—
Distribution to noncontrolling interests		(15,507	)		(9,694	)
Issuance of noncontrolling interests		448			—
Payments for deferred costs and convertible senior note hedges		(2,040	)		(4,466	)
Financing commitment fee		—			(4,000	)
Preferred share issuance, net of costs incurred		—			12,676
Common share issuance, net of costs incurred		(945	)		(1,140	)
Distributions paid to preferred shareholders		(15,795	)		(12,872	)
Distributions paid to common shareholders		(16,728	)		(29,517	)
Cash flows (used in) provided by financing activities		(379,078	)		38,333
Net change in cash and cash equivalents		(59,001	)		(16,954	)
Cash and cash equivalents at the beginning of the period		125,886			121,726
Cash and cash equivalents at the end of the period	$	66,885		$	104,772

The accompanying notes are an integral part of these consolidated financial statements.

RAIT Financial Trust invests in and manages a portfolio of real estate-related assets, including direct ownership of real estate properties, and provides a comprehensive set of debt financing options to the real estate industry. References to “RAIT”, “we”, “us”, and “our” refer to RAIT Financial Trust and its subsidiaries, unless the context otherwise requires. RAIT is a self-managed and self-advised Maryland real estate investment trust, or REIT.

We finance a substantial portion of our investments through borrowing and securitization strategies seeking to match the maturities and terms of our financings with the maturities and terms of those investments, and to mitigate interest rate risk through derivative instruments.

The accompanying unaudited interim consolidated financial statements have been prepared by management in accordance with U.S. generally accepted accounting principles, or GAAP. Certain information and footnote disclosures normally included in annual consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations, although we believe that the included disclosures are adequate to make the information presented not misleading. The unaudited interim consolidated financial statements should be read in conjunction with our audited financial statements as of and for the year ended December 31, 2015 included in our Annual Report on Form 10-K. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary to present fairly our consolidated financial position and consolidated results of operations and cash flows are included. The results of operations for the interim periods presented are not necessarily indicative of the results for the full year.

Certain prior period amounts have been corrected to conform with the current period presentation. For the six months ended June 30, 2015, we reclassified (1) $634 from property income to fee and other income in the amount of $214 and to real estate operating expense in the amount of $420, and (2) $9 from real estate operating expense to depreciation and amortization expense. For the three months ended June 30, 2015, we reclassified (1) $61 from property income to fee and other income in the amount of $214 and to real estate operating expense in the amount of $(275), and (2) $2 from real estate operating expense to depreciation and amortization expense.

The Consolidated Statement of Operations for the six-month period ended June 30, 2016 includes the impact of correcting the reporting of certain activity that occurred in the three-month period ended March 31, 2016. Specifically, the correction adjusts a clerical error made in the determination of the amount of investment interest expense by increasing investment interest expense and decreasing interest expense by $1,424 for the three-month period ended March 31, 2016. This correction had no impact to any other periods. We will also correct this error in our Consolidated Statement of Operations for the three months ended March 31, 2016 when it is presented in our filing on Form 10-Q for the quarter ended March 31, 2017.

The Consolidated Statement of Cash Flows for the six months ended June 30, 2015 includes the impact of correcting the reporting of certain activity that occurred in the six months ended June 30, 2015 and the three months ended March 31, 2015. Specifically, the correction eliminated the impact of a clerical error made in the determination of the amounts reported for the change in borrowers’ escrows within cash flows from operating activities and the related amounts reported for changes in restricted cash within cash flow from investing activities. The impact of this was a decrease to cash flows from operating activities and an increase to cash flows from investing activities of $69,028 for the six months ended June 30, 2015 ($18,194 of which related to the three months ended March 31, 2015). This correction had no impact on cash and cash equivalents as of June 30, 2015, nor did it impact any other consolidated financial statement amounts as of June 30, 2015 or for the six months ended June 30, 2015 (or the three months ended June 30, 2015).

We evaluated these corrections and determined, based on quantitative and qualitative factors, that the changes were not material to the consolidated financial statements taken as a whole for any previously filed consolidated financial statements.

The consolidated financial statements reflect our accounts and the accounts of our majority-owned and/or controlled subsidiaries. We also consolidate entities that are variable interest entities, or VIEs, where we have determined that we are the primary beneficiary of such entities. The portions of these entities that we do not own are presented as noncontrolling interests as of the dates and for the periods presented in the consolidated financial statements. All intercompany accounts and transactions have been eliminated in consolidation.

Under Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 810, “Consolidation”, the determination of whether to consolidate a VIE is based on the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance together with either the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. We define the power to direct the activities that most significantly impact the VIE’s economic performance as the ability to buy, sell, refinance, or recapitalize assets or entities, and solely control other material operating events or items of the entity. For our commercial mortgages, mezzanine loans, and preferred equity investments, certain rights we hold are protective in nature and would preclude us from having the power to direct the activities that most significantly impact the VIE’s economic performance. Assuming both criteria are met, we would be considered the primary beneficiary and would consolidate the VIE. We will continually assess our involvement with VIEs and consolidate the VIEs when we are the primary beneficiary. During the second quarter of 2016, we began presenting our floating rate securitizations as VIEs and corrected the prior period disclosure. In addition, we began presenting assets and liabilities of consolidated VIEs in a parenthetical disclosure on the consolidated balance sheets. See Note 8 for additional disclosures pertaining to VIEs.

For entities that we do not consolidate, we account for our investment in them either under the equity method pursuant to ASC Topic 323, “Investments-Equity Method and Joint Ventures” or cost method pursuant to ASC Topic 325, “Investments – Other”. During the three and six months ended June 30, 2016, we wrote off $864 of our retail property management subsidiary’s investment in an entity because they no longer held the investment. The charge was reported in asset impairment in the consolidated statements of operations.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. The items that include significant estimates are fair value of financial instruments and allowance for loan losses. Actual results could differ from those estimates.

Cash and cash equivalents include cash held in banks and highly liquid investments with maturities of three months or less when purchased. Cash, including amounts restricted, may at times exceed the Federal Deposit Insurance Corporation deposit insurance limit of $250 per institution. We mitigate credit risk by placing cash and cash equivalents with major financial institutions. To date, we have not experienced any losses on cash and cash equivalents.

Restricted cash consists primarily of tenant escrows and borrowers’ funds held by us to fund certain expenditures or to be released at our discretion upon the occurrence of certain pre-specified events, and to serve as additional collateral for borrowers’ loans. As of June 30, 2016 and December 31, 2015, we had $144,947 and $165,866, respectively, of tenant escrows and borrowers’ funds.

Restricted cash also includes proceeds from the issuance of securitization notes that are restricted for the purpose of funding additional investments in securities subsequent to the balance sheet date. As of June 30, 2016 and December 31, 2015, we had $14,482 and $47,146, respectively, of restricted cash held by securitizations.

f. Investments in Commercial Mortgage Loans, Mezzanine Loans and Preferred Equity Interests

We invest in commercial mortgage loans, mezzanine loans, and preferred equity interests. We account for our investments in commercial mortgages, mezzanine loans and preferred equity interests at amortized cost. The carrying value of these investments is adjusted for origination discounts/premiums, nonrefundable fees and direct costs for originating loans which are amortized into income on a level yield basis over the terms of the loans.

We maintain an allowance for loan losses on our investments in commercial mortgage loans, mezzanine loans and preferred equity interests. Management’s periodic evaluation of the adequacy of the allowance is based upon expected and inherent risks in the portfolio, the estimated value of underlying collateral, and current economic conditions. The credit quality of our loans is monitored via quantitative and qualitative metrics. Quantitatively we evaluate items such as the current debt service coverage ratio and annual net operating income of the underlying property. Qualitatively we evaluate items such as recent operating performance of the underlying property and history of the borrower’s ability to provide financial support. These items together are considered in developing our view of each loan’s risk rating which are categorized as either watchlist/impaired or satisfactory. Management reviews loans for impairment and establishes specific reserves when a loss is probable under the provisions of FASB ASC Topic 310, “Receivables.” A loan is impaired when it is probable that we may not collect all principal and interest payments according to the contractual terms. As part of the detailed loan review, we consider many factors about the specific loan, including payment history, asset performance, borrower’s financial capability and other characteristics. Management evaluates loans for non-accrual status each reporting period. A loan is placed on non-accrual status when the loan payment deficiencies exceed 90 days unless it is well secured and in the process of collection, or if the collection of principal and interest in full is not probable. Payments received for non-accrual loans are applied to accrued interest receivable. Past due interest is recognized on non-accrual loans when they are removed from non-accrual status and are making current interest payments. The allowance for loan losses is increased by the provision for loan losses and decreased by charge-offs (net of recoveries). We charge off a loan when we determine that all commercially reasonable means of recovering the loan balance have been exhausted. This may occur at a variety of times, including when we receive cash or other assets in a pre-foreclosure sale or take control of the underlying collateral in full satisfaction of the loan upon foreclosure. We consider circumstances such as these to indicate that the loan collection process has ceased and that a loan is uncollectible.

Investments in real estate are shown net of accumulated depreciation. We capitalize those costs that have been determined to improve the real property and depreciate those costs on a straight-line basis over the useful life of the asset. We depreciate real property using the following useful lives: buildings and improvements—30 to 40 years; furniture, fixtures, and equipment—5 to 10 years; and tenant improvements—shorter of the lease term or the life of the asset. Costs for ordinary maintenance and repairs are charged to expense as incurred.

Acquisitions of real estate assets and any related intangible assets are recorded initially at fair value under FASB ASC Topic 805, “Business Combinations.” Fair value is determined by management based on market conditions and inputs at the time the asset is acquired. The fair value of the real estate acquired is allocated to the acquired tangible assets, consisting of land, building and tenant improvements, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases for acquired in-place leases and the value of tenant relationships, based in each case on their fair values. Purchase accounting is applied to assets and liabilities associated with the real estate acquired. Transaction costs and fees incurred related to acquisitions are expensed as incurred.

Upon the acquisition of properties, we estimate the fair value of acquired tangible assets (consisting of land, building and improvements) and identified intangible assets and liabilities (consisting of above and below-market leases, in-place leases and tenant relationships), and assumed debt at the date of acquisition, based on the evaluation of information and estimates available at that date. In determining the fair value of the identified intangible assets and liabilities of an acquired property, above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the differences between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management’s estimate of fair market lease rates for the corresponding in-place leases, measured over a period equal to the remaining term of the lease. The capitalized above-market lease values and the capitalized below-market lease values are amortized as an adjustment to property income over the lease term.

The aggregate value of in-place leases is determined by evaluating various factors, including an estimate of carrying costs during the expected lease-up periods, current market conditions and similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses, and estimates of lost rental revenue during the expected lease-up periods based on current market demand. Management also estimates costs to execute similar leases including leasing commissions, legal and other related costs. The value assigned to this intangible asset is amortized over the assumed lease up period.

Management reviews our investments in real estate for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The review of recoverability is based on an estimate of the future undiscounted cash flows (excluding interest charges) expected to result from the long-lived asset’s use and eventual disposition. These cash flows consider factors such as expected future operating income, trends and prospects, as well as the effects of leasing demand, competition and other factors. If impairment exists due to the inability to recover the carrying value of a long-lived asset, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property.

Origination fees and direct loan origination costs on our investments in commercial mortgages, mezzanine loans and preferred equity interests are deferred and amortized to investment interest income, using the effective interest method, over the contractual life of the underlying loan security or loan, in accordance with FASB ASC Topic 310, “Receivables.”

Also, during the three and six months ended June 30, 2016 we earned $1,783 and $3,414 of asset management fees, respectively, and $79 and $144 of incentive fees, respectively, related to our advisory agreement with IRT. During the three and six months ended June 30, 2015 we earned $1,046 and $2,047 of asset management fees, respectively, and $214 and $437 of incentive fees, respectively, related to our advisory agreement with IRT. During the three and six months ended June 30, 2016 we also earned $1,229 and $2,491, respectively, of property management and leasing fees related to

our property management agreements with IRT’s properties. During the three and six months ended June 30, 2015 we also earned $764 and $1,519, respectively, of property management and leasing fees related to our property management agreements with IRT’s properties. As we consolidate IRT, these fees are eliminated in consolidation.

In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity for disclosure purposes. Assets and liabilities recorded at fair value in the consolidated balance sheets are categorized based upon the level of judgment associated with the inputs used to measure their value. Hierarchical levels, as defined in FASB ASC Topic 820, “Fair Value Measurements and Disclosures” and directly related to the amount of subjectivity associated with the inputs to fair valuations of these assets and liabilities, are as follows:

The availability of observable inputs can vary depending on the financial asset or liability and is affected by a wide variety of factors, including, for example, the type of investment, whether the investment is new, whether the investment is traded on an active exchange or in the secondary market, and the current market condition. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by us in determining fair value is greatest for instruments categorized in Level 3.

Fair value is a market-based measure considered from the perspective of a market participant who holds the asset or owes the liability rather than an entity-specific measure. Therefore, even when market assumptions are not readily available, our own assumptions are set to reflect those that management believes market participants would use in pricing the asset or liability at the measurement date. We use prices and inputs that management believes are current as of the measurement

date, including during periods of market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an instrument to be transferred from Level 1 to Level 2 or Level 2 to Level 3.

Many financial instruments have bid and ask prices that can be observed in the marketplace. Bid prices reflect the highest price that buyers in the market are willing to pay for an asset. Ask prices represent the lowest price that sellers in the market are willing to accept for an asset. For financial instruments whose inputs are based on bid-ask prices, we do not require that fair value always be a predetermined point in the bid-ask range. Our policy is to allow for mid-market pricing and adjusting to the point within the bid-ask range that results in our best estimate of fair value.

Fair value for certain of our Level 3 financial instruments is derived using internal valuation models. These internal valuation models include discounted cash flow analyses developed by management using current interest rates, estimates of the term of the particular instrument, specific issuer information and other market data for securities without an active market. In accordance with FASB ASC Topic 820, “Fair Value Measurements and Disclosures”, the impact of our own credit spreads is also considered when measuring the fair value of financial assets or liabilities, including derivative contracts. Where appropriate, valuation adjustments are made to account for various factors, including bid-ask spreads, credit quality and market liquidity. These adjustments are applied on a consistent basis and are based on observable inputs where available. Management’s estimate of fair value requires significant management judgment and is subject to a high degree of variability based upon market conditions, the availability of specific issuer information and management’s assumptions.

During the first quarter of 2015, we sold all our remaining investments in securities with an aggregate fair value of $31,412 and we had no investments in securities as of June 30, 2016 and December 31, 2015.

We account for transfers of financial assets under FASB ASC Topic 860, “Transfers and Servicing”, as either sales or financings. Transfers of financial assets that result in sales accounting are those in which (1) the transfer legally isolates the transferred assets from the transferor, (2) the transferee has the right to pledge or exchange the transferred assets and no condition both constrains the transferee’s right to pledge or exchange the assets and provides more than a trivial benefit to the transferor, and (3) the transferor does not maintain effective control over the transferred assets. If the transfer does not meet these criteria, the transfer is accounted for as a financing. Financial assets that are treated as sales are removed from our accounts with any realized gain (loss) reflected in earnings during the period of sale. Financial assets that are treated as financings are maintained on the balance sheet with proceeds received from the legal transfer reflected as securitized borrowings or security-related receivables.

Costs incurred in connection with debt financing are deferred and classified within indebtedness and charged to interest expense over the terms of the related debt agreements, under the effective interest method.

Intangible assets on our consolidated balance sheets represent identifiable intangible assets acquired in business acquisitions. We amortize identified intangible assets to expense over their estimated lives using the straight-line method. We evaluate intangible assets for impairment as events and circumstances change, in accordance with FASB ASC Topic 360, “Property, Plant, and Equipment.” The gross carrying amount for our customer relationships was $14,997 and $19,149 as of June 30, 2016 and December 31, 2015, respectively. The gross carrying amount for our customer relationships has decreased as $4,151 of these assets became fully amortized during the three months ended June 30, 2016, $2,552 of which was due to the acceleration of amortization as a result of the cancellation of two customer relationships. The gross carrying amount for our in-place leases, above market leases, and ground lease was $42,443 and $38,333 as of June 30, 2016 and December 31, 2015, respectively. The gross carrying amount for Urban Retail’s trade name was $1,500 as of June 30, 2016 and December 31, 2015. The accumulated amortization for our intangible assets was $34,876 and $26,307 as of June 30, 2016 and December 31, 2015, respectively. We recorded amortization expense of $5,468 and $3,299 for the three months ended June 30, 2016 and 2015, respectively, and $11,584 and $7,409 for the six months ended June 30, 2016 and 2015, respectively. Based on the intangible assets identified above, we expect to record amortization expense of intangible assets of $4,694 for the remainder of 2016, $5,541 for 2017, $4,198 for 2018, $3,600 for 2019, $3,022 for 2020 and $7,145 thereafter.

Goodwill on our consolidated balance sheet represented the amounts paid in excess of the fair value of the net assets acquired from business acquisitions accounted for under FASB ASC Topic 805, “Business Combinations.” Pursuant to FASB ASC Topic 350, “Intangibles-Goodwill and Other”, goodwill is not amortized to expense but rather is analyzed for impairment. We evaluate goodwill for impairment on an annual basis and as events and circumstances change, in accordance with FASB ASC Topic 350. As of June 30, 2016 and December 31, 2015, we have $8,854 of goodwill that is included in Other Assets in the accompanying consolidated balance sheets.

In February 2015, the FASB issued an accounting standard classified under FASB ASC Topic 810, “Consolidation”. This accounting standard amends the consolidation analysis required under GAAP and requires management to reevaluate all previous consolidation conclusions. This standard considers limited partnerships to be VIEs, unless the limited partners have either substantive kick-out or participating rights. The presumption that a general partner should consolidate a limited partnership has also been eliminated. The standard amends the effect that fees paid to a decision maker or service provider have on the consolidation analysis, as well as amends how variable interests held by a reporting entity’s related parties affect the consolidation conclusion. This standard also clarifies how to determine whether equity holders as a group have power over an entity. This standard was effective for interim and annual reporting periods beginning on or after December 15, 2015, with early adoption permitted. The adoption of this accounting standard did not have an impact on our previous conclusions with respect to the entities consolidated in our consolidated financial statements.

In April 2015, the FASB issued an accounting standard classified under FASB ASC Topic 835, “Interest”. This accounting standard amends existing guidance to change reporting requirements for debt issuance costs by requiring debt issuance costs to be presented on the balance sheet as a direct deduction from the debt liability. This standard was effective for interim and annual reporting periods beginning on or after December 15, 2015, with an early adoption permitted. Retrospective application to prior periods is required. The adoption of this accounting standard resulted in the reclassification of $31,368 of deferred costs, net of $33,769 of accumulated amortization, as of December 31, 2015 to total indebtedness on our consolidated balance sheet.

In September 2015, the FASB issued an accounting standard classified under FASB ASC Topic 805, “Business Combinations”. This accounting standard amends existing guidance related to measurement period adjustments by requiring the adjustments to be recognized prospectively with disclosure of the impact of the adjustments had they been applied previously. This standard was effective for interim and annual reporting periods beginning after December 15, 2015, with early adoption permitted. As this standard only applies to measurement period adjustments that occur after the effective date, this standard did not have a material impact on our consolidated financial statements.

In May 2014, the FASB issued an accounting standard classified under FASB ASC Topic 606, “Revenue from Contracts with Customers”. This accounting standard generally replaces existing guidance by requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers.

In March 2016, the FASB issued an accounting standard classified under FASB ASC Topic 606, “Revenue from Contracts with Customers”. This accounting standard clarifies the implementation guidance on principal versus agent considerations in Topic 606. This accounting standard clarifies the following: (i) an entity determines whether it is a principal or an agent for each specified good or service promised to the customer; (ii) an entity determines the nature of each specified good or service (for example, whether it is a good, a service, or a right to a good or service); (iii) when a principal obtains control of a good or right to service whether another party is involved in providing goods or services to a customer; and (iv) the indicators in the assessment of control may be more or less relevant to the control assessment and that one or more indicators may be more or less persuasive to the control assessment, depending on the facts and circumstances.

In April 2016, the FASB issued an accounting standard classified under FASB ASC Topic 606, “Revenue from Contracts with Customers”. The amendments in this standard add further guidance on identifying performance obligations and clarifying the licensing implementation guidance. The amendments do not change the core principle of the guidance in Topic 606.

In May 2016, the FASB issued an accounting standard classified under FASB ASC Topic 606, “Revenue from Contracts with Customers”. The amendments in this standard provide clarification on assessing the collectability criterion, presentation of sales taxes, measurement date for noncash consideration and completed contracts at transition. The amendments also provide a practical expedient for contract modifications.

These standards amending FASB ASC Topic 606 are currently effective for annual reporting periods beginning after December 15, 2017. Management is currently evaluating the impact that these standards may have on our consolidated financial statements.

In January 2016, the FASB issued an accounting standard classified under FASB ASC Topic 825, “Financial Instruments”. This accounting standard addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Among other things, the amendment (i) eliminates certain disclosure requirements for financial instruments measured at amortized cost; (ii) requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (iii) requires separate presentation, in other comprehensive income, of the change in fair value of a liability, when the fair value option has been elected, resulting from a change in the instrument-specific credit risk; and (iv) requires separate presentation of financial instruments by measurement category and form. This standard is effective for annual periods beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for the separate presentation of changes in fair value due to changes in instrument-specific credit risk. Management is currently evaluating the impact that this standard may have on our consolidated financial statements.

In February 2016, the FASB issued an accounting standard classified under FASB ASC Topic 842, “Leases”. This accounting standard amends lease accounting by requiring the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases on the balance sheet and disclosing key information about leasing arrangements. This standard is effective for annual periods beginning after December 15, 2018, including interim periods within those fiscal years. Early application of the amendments in this standard is permitted. Management is currently evaluating the impact that this standard may have on our consolidated financial statements.

In March 2016, the FASB issued an accounting standard classified under FASB ASC Topic 815, “Derivatives and Hedging”. This accounting standard clarifies that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. This standard is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Management does not expect this standard to have a significant impact on our consolidated financial statements.

In March 2016, the FASB issued an accounting standard classified under FASB ASC Topic 815, “Derivatives and Hedging”. This accounting standard clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. This accounting standard clarifies what steps are required when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts, which is one of the criteria for bifurcating an embedded derivative. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. This standard is effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. Management does not expect this standard to have a significant impact on our consolidated financial statements.

In March 2016, the FASB issued an accounting standard classified under FASB ASC Topic 718, “Compensation – Stock Compensation”. This accounting standard simplifies several aspects of the accounting for share-based payment award transactions, including: (i) income tax consequences; (ii) classification of awards as either equity or liabilities; and (iii) classification on the statement of cash flows. This standard is effective for annual periods beginning after December 15, 2016, and interim period within

those annual periods. Early adoption is permitted for any entity in any interim or annual period. Management is currently evaluating the impact that this standard may have on our consolidated financial statements.

In June 2016, the FASB issued an accounting standard classified under FASB ASC Topic 326, “Financial Instruments-Credit Losses”. The amendments in this standard provide an approach based on expected losses to estimate credit losses on certain types of financial instruments. The amendments also modify the impairment model for available for sale debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The amendments in this standard expand the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for loan and lease losses. In addition, public business entities will need to disclose the amortized cost balance for each class of financial asset by credit quality indicator, disaggregated by the year of origination. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early application of the guidance will be permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Management is currently evaluating the impact that this standard will have on our consolidated financial statements.

Investments in Commercial Mortgage Loans, Mezzanine Loans, and Preferred Equity Interests

The following table summarizes our investments in commercial mortgage loans, mezzanine loans, and preferred equity interests as of June 30, 2016:

	Unpaid Principal Balance			Unamortized (Discounts) Premiums			Carrying Amount			Number of Loans		Weighted- Average Coupon (1)			Range of Maturity Dates (2)
Commercial Real Estate (CRE)
Commercial mortgage loans (3)	$	1,315,301			(952	)	$	1,314,349			109		5.7	%	Jul. 2016 to Jan. 2029
Mezzanine loans		142,582			(218	)		142,364			42		9.6	%	Sep. 2016 to Jan. 2029
Preferred equity interests		38,938			(1	)		38,937			15		7.5	%	Sep. 2016 to Aug. 2025
Total CRE		1,496,821			(1,171	)		1,495,650			166		6.1	%
Deferred fees, net		(307	)					(307	)
Total	$	1,496,514			(1,171	)	$	1,495,343

The following table summarizes our investments in commercial mortgages, mezzanine loans, other loans and preferred equity interests as of December 31, 2015:

	Unpaid Principal Balance			Unamortized (Discounts) Premiums			Carrying Amount			Number of Loans		Weighted- Average Coupon (1)			Range of Maturity Dates (2)
Commercial Real Estate (CRE)
Commercial mortgage loans (3)	$	1,427,328		$	(1,049	)	$	1,426,279			124		5.2	%	Mar. 2016 to Jan. 2029
Mezzanine loans		169,556			(218	)		169,338			57		10.0	%	Jan. 2016 to May 2025
Preferred equity interests		30,237			(1	)		30,236			7		6.9	%	Feb. 2016 to Aug. 2025
Total CRE		1,627,121			(1,268	)		1,625,853			188		6.1	%
Deferred fees, net		(2,270	)		—			(2,270	)
Total	$	1,624,851		$	(1,268	)	$	1,623,583

The following table summarizes the delinquency statistics of our commercial real estate loans as of June 30, 2016 and December 31, 2015:

	As of June 30, 2016
Delinquency Status	Current		30 to 59 days		60 to 89 days (1)		90 days or more		In foreclosure or bankruptcy proceedings (2)		Total		Non-Accrual (3)
Commercial mortgage loans	$	1,309,101	$	6,200	$	74,800	$	—	$	—	$	1,315,301	$	17,235
Mezzanine loans		65,620		—		—		1,162		1,000		142,582	$	10,553
Preferred equity interests		38,938		—		—		—		—		38,938	$	7,914
Total	$	1,413,659	$	6,200	$	74,800	$	1,162	$	1,000	$	1,496,821	$	35,702

	As of December 31, 2015
Delinquency Status	Current		30 to 59 days		60 to 89 days		90 days or more		In foreclosure or bankruptcy proceedings (1)		Total		Non-Accrual (2)
Commercial mortgage loans	$	1,427,328	$	—	$	—	$	—	$	—	$	1,427,328	$	15,645
Mezzanine loans		167,145		—		—		1,163		1,248		169,556		12,346
Preferred equity interests		30,237		—		—		—		—		30,237		7,946
Total	$	1,624,710	$	—	$	—	$	1,163	$	1,248	$	1,627,121	$	35,937

As of June 30, 2016 and December 31, 2015, all of our commercial mortgage loans, mezzanine loans and preferred equity interests that were 90 days or more past due or in foreclosure were on non-accrual status. As of June 30, 2016 and December 31, 2015, $35,702 and $35,937, respectively, of our commercial real estate loans were on non-accrual status and had a weighted-average interest rate of 4.3% and 4.6%, respectively. Also, as of June 30, 2016 and December 31, 2015, four and two loans, respectively, with a unpaid principal balance of $28,933 and $13,002, respectively, and a weighted average interest rate of 12.6% and 11.6%, respectively, were recognizing interest on the cash basis. Additionally, as of June 30, 2016 and December 31, 2015, one loan, with an unpaid principal balance of $18,500, which had previously been restructured in a troubled debt restructuring, or TDR, did not accrue interest in accordance with its restructured terms as it has the option to be prepaid at par.

We closely monitor our loans which require evaluation for loan loss in two categories: satisfactory and watchlist/impaired. Loans classified as impaired are generally loans which have credit weaknesses or in which the credit quality of the collateral has deteriorated. This is determined by evaluating quantitative factors including debt service coverage ratios, net operating income of the underlying collateral and qualitative factors such as current performance of the underlying collateral. As of June 30, 2016 and December 31, 2015 we have classified our investment in loans by credit risk category as follows:

The following tables provide roll-forwards of our allowance for loan losses for our commercial mortgage loans, mezzanine loans and preferred equity interests for the three months ended June 30, 2016 and 2015:

The following tables provide roll-forwards of our allowance for loan losses for our commercial mortgages, mezzanine loans and preferred equity interests for the six months ended June 30, 2016 and 2015:

Information related to those loans on our watchlist or considered to be impaired was as follows:

The average unpaid principal balance and recorded investment of total watchlist/impaired loans was $130,496 and $85,877 during the three months ended June 30, 2016 and 2015, respectively, and $131,076 and $84,291 during the six months ended June 30, 2016 and 2015, respectively. We recorded interest income of $1,134 and $634 on loans that were watchlist/impaired for the three months ended June 30, 2016 and 2015, respectively. We recorded interest income of $2,522 and $685 on loans that were watchlist/impaired for the six months ended June 30, 2016 and 2015, respectively.

We have evaluated restructurings of our commercial real estate loans to determine if the restructuring constitutes a TDR under FASB ASC Topic 310, “Receivables”. During the six months ended June 30, 2016, we have determined that a restructuring of one commercial real estate loan with an unpaid principal balance of $15,645 constituted a TDR as the interest payment rate was decreased, although interest will continue to accrue on the original contractual rate, subject to management’s determination that it is collectible, and will be owed upon maturity. During the six months ended June 30, 2015, there were no restructurings of our commercial real estate loans that constituted a TDR. As of June 30, 2016, there were no TDRs that subsequently defaulted for restructurings that had been entered into within the previous 12 months.

In April 2016, we completed the conversion of one mezzanine loan with a carrying value of $332 to real estate owned property. The conversion resulted in approximately $18,380 of real estate-related assets and $17,696 of debt being reflected on our consolidated balance sheets. We recognized a charge-off of $1,203 upon the conversion.

As of June 30, 2016 and December 31, 2015, our investments in real estate were comprised of land of $391,927 and $415,707, respectively, and buildings and improvements of $2,017,212 and $2,101,938, respectively.

As of June 30, 2016, our investments in real estate of $2,200,043 were financed through $870,716 of mortgages or other debt held by third parties and $837,315 of mortgages held by our RAIT I and RAIT II CDO securitizations. As of December 31, 2015, our investments in real estate of $2,319,319 were financed through $815,745 of mortgages held by third parties and $889,786 of mortgages held by our RAIT I and RAIT II CDO securitizations. Together, along with commercial real estate loans held by RAIT I and RAIT II, these mortgages serve as collateral for the CDO notes payable issued by the RAIT I and RAIT II CDO securitizations. All intercompany balances and interest charges are eliminated in consolidation.

During the first quarter of 2016, IRT received additional information regarding estimates IRT had made for certain accrued expenses related to the TSRE merger that was completed on September 17, 2015. This information led to an increase in fair value of the net assets IRT acquired of $91, which IRT recognized during the three months ended March 31, 2016.

During the first quarter of 2016, we received additional information regarding estimates we had made for certain assets including cash related to tenant security deposits related to our October 2015 acquisition of 10 industrial properties through our conversion of a mezzanine loan to real estate owned property. This information led to an increase in fair value of the net assets

acquired of $437, which we recognized within interest income, as the converted loan was on non-accrual and the fair value of the net assets acquired exceeded the amount of the converted loan plus previously accrued interest.

During the first quarter of 2016, we received additional information regarding estimates we had made as part of the purchase price allocation related to our December 2015 acquisition of Erieview Tower & Parking. This information, which related to an allocation of the estimated costs required to stabilize this property and an adjacent property to which we have rights to as collateral secured by a first mortgage, led to an increase in fair value of the net assets acquired of $1,499. This was offset by a decrease of $1,499 to the previously discussed collateral which is reported within investment in mortgages, loans and preferred equity interests on our consolidated balance sheets. The $1,499 increase in the net assets acquired was related to an increase in investments in real estate of $3,351, a decrease in intangible assets of $57 and an increase in intangible liabilities of $1,795. The cumulative catch up effect of the allocation (based on the different useful lives) was an increase to net income of $11.

As discussed in Note 3, we completed the conversion of one mezzanine loan with a carrying value of $332 to real estate owned property in April 2016. The conversion resulted in approximately $18,380 of real estate assets and $17,696 of debt being reflected on our consolidated balance sheets. We have performed fair value analyses for the assets acquired and liabilities assumed. We expect to complete the purchase accounting process as soon as practicable, but no later than one year from the date of acquisition.

The following table summarizes the aggregate estimated fair value of the assets and liabilities associated with the properties acquired during the six months ended June 30, 2016, on the date of acquisition, for the real estate accounted for under FASB ASC Topic 805.

The following table summarizes the consideration transferred to acquire the real estate properties and the amounts of identified assets acquired and liabilities assumed at the respective acquisition date:

The table below presents the revenue and net income (loss) for the properties acquired during the six months ended June 30, 2016 as reported in our consolidated financial statements.

The tables below present the revenue, net income and earnings per share effect of the acquired properties on a pro forma basis as if the acquisitions occurred on January 1, 2015. These pro forma results are not necessarily indicative of the results which actually would have occurred if the acquisition had occurred on the first day of the periods presented, nor does the pro forma financial information purport to represent the results of operations for future periods.

During the six months ended June 30, 2016, we disposed of six multifamily real estate properties, one office property and one parcel of land. IRT also disposed of three multifamily real estate properties. We also recognized $18 of gain on sale related to properties sold in the prior year as we settled remaining amounts with the buyers. The below table summarizes the current year dispositions and also presents each property’s contribution to net income (loss) allocable to common shares, excluding the impact of the gain (loss) on sale:

								Net income (loss) allocable to common shares
Property Name	Property Type	Date of Sale	Sale Price		Gain (loss) on sale			For the Three Months Ended June 30, 2016		For the Six Months Ended June 30, 2016
Cumberland Glen	IRT Multifamily	02/18/2016	$	18,000	$	2,454		$	—	$	99
Mineral/Lincoln	Office	03/25/2016		7,949		(374	)		—		(1	)
Ventura	Multifamily	03/30/2016		8,750		119			—		36
Saxony	Land	04/06/2016		1,500		(14	)		—		(4	)
Belle Creek	IRT Multifamily	04/07/2016		23,000		14,401			31	377
Tresa	IRT Multifamily	05/05/2016		47,000		15,414			217	686
Desert Wind (1)	Multifamily	05/18/2016		8,750		(2,032	)		45	50
Las Vistas (1)	Multifamily	05/18/2016		10,500		(60	)		76	113
Penny Lane (1)	Multifamily	05/18/2016		10,000		3,248			52	90
Sandal Ridge (1)	Multifamily	05/18/2016		12,250		3,482			75	133
Silversmith	Multifamily	06/03/2016		6,200		1,227			50	98
Total			$	153,899	$	37,865		$	546	$	1,677

During the three and six months ended June 30, 2016, we recognized impairment of real estate assets of $1,297 and $5,219, respectively, as it was more likely than not we would dispose of the assets before the end of their previously estimated useful lives and a portion of our recorded investment in these assets were determined to not be recoverable. During the three and six months ended June 30, 2016, we expensed tenant improvements and straight-line rent receivables aggregating $1,703 associated with tenants who vacated our properties early. These amounts were reported within asset impairment on the consolidated statement of operations.

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	%

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	%

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:

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.

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.

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:

We may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with our borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with our operating and financial structure as well as to hedge specific anticipated transactions. While these instruments may impact our periodic cash flows, they benefit us by minimizing the risks and/or costs previously described. The counterparties to these contractual arrangements are major financial institutions with which we and our affiliates may also have other financial relationships. In the event of nonperformance by the counterparties, we are potentially exposed to credit loss. However, because of the high credit ratings of the counterparties, we do not anticipate that any of the counterparties will fail to meet their obligations.

We have entered into various interest rate swap contracts to hedge interest rate exposure on floating rate indebtedness. IRT has also entered into an interest cap contract to hedge its interest rate exposure on floating rate indebtedness.

We designate interest rate hedge agreements at inception and determine whether or not the interest rate hedge agreement is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. At designation, certain of these interest rate swaps had a fair value not equal to zero. However, we concluded, at designation, that these hedging arrangements were highly effective during their term using regression analysis and determined that the hypothetical derivative method would be used in measuring any ineffectiveness. At each reporting period, we update our regression analysis and, as of June 30, 2016, we concluded that these hedging arrangements were highly effective during their remaining term and used the hypothetical derivative method in measuring the ineffective portions of these hedging arrangements.

During the three months ended June 30, 2016, IRT entered into an interest rate swap contract with a notional value of $150 million, a strike rate of 1.145% and a maturity date of June 17, 2021. IRT designated this interest rate swap as a cash flow hedge at inception and determined that the hedge is highly effective in offsetting interest rate fluctuations associated with the identified indebtedness. IRT concluded that this hedging relationship was and will continue to be highly effective, and using the hypothetical derivative method, did not recognize any ineffectiveness. During the three months ended June 30, 2016, IRT de-designated its interest rate cap, which was highly effective through the de-designation date. As of June 30, 2016, this interest rate cap is accounted for as a freestanding derivative. The change in fair value of this interest cap was less than $1 during the three months ended June 30, 2016.

The following table summarizes the aggregate notional amount and estimated net fair value of our derivative instruments as of June 30, 2016 and December 31, 2015:

	As of June 30, 2016							As of December 31, 2015
	Notional		Fair Value of Assets		Fair Value of Liabilities			Notional		Fair Value of Assets		Fair Value of Liabilities
Cash flow hedges:
Interest rate swaps	$	247,900	$	—	$	(1,950	)	$	243,816	$	—	$	(4,672	)
Interest rate cap		—		—		—			200,000		24		—
Other interest rate swaps & caps		260,235		53		(2,022	)		37,325		182		(55	)
Net fair value	$	508,135	$	53	$	(3,972	)	$	481,141	$	206	$	(4,727	)

During the period July 1, 2016 through September 30, 2016, interest rate swap agreements relating to RAIT I and RAIT II with a notional amount of $97,900 and a weighted average strike rate of 4.7% as of June 30, 2016, will terminate in accordance with their terms.

Effective interest rate swaps and caps are reported in accumulated other comprehensive income and the fair value of these hedge agreements is included in other assets or derivative liabilities.

For interest rate swaps and caps that are considered effective hedges, we reclassified realized losses of $1,656 and $4,398, respectively, to earnings for the three months ended June 30, 2016 and 2015 and $4,059 and $9,365 for the six months ended June 30, 2016.

Changes in the fair value of our other interest rate swaps and caps are reported in change in fair value of financial instruments in the Consolidated Statements of Operations.

FASB ASC Topic 825, “Financial Instruments” requires disclosure of the fair value of financial instruments for which it is practicable to estimate that value. The fair value of investments in mortgages and loans, investments in securities, CDO notes payable, convertible senior notes, junior subordinated notes, warrants and investor share appreciation rights, or SARs and derivative assets and liabilities is based on significant observable and unobservable inputs. The fair value of cash and cash equivalents, restricted cash, secured credit facilities, CMBS facilities, commercial mortgage facilities and other indebtedness approximates cost due to the nature of these instruments.

The following table summarizes the carrying amount and the fair value of our financial instruments as of June 30, 2016:

Financial Instrument	Carrying Amount		Estimated Fair Value
Assets
Total investment in mortgages and loans, net	$	1,477,106	$	1,437,291
Cash and cash equivalents		66,885		66,885
Restricted cash		159,429		159,429
Derivative assets		53		53

Liabilities
Recourse indebtedness:
7.0% convertible senior notes		843		935
4.0% convertible senior notes		119,474		116,452
7.625% senior notes		55,450		50,435
7.125% senior notes		68,899		69,486
Senior secured notes		60,645		66,851
Junior subordinated notes, at fair value		10,789		10,789
Junior subordinated notes, at amortized cost		24,890		11,318
CMBS facilities		138,618		138,977
Non-recourse indebtedness:
Secured credit facilities		243,604		247,335
Term loans		39,559		40,000
CDO notes payable, at amortized cost		765,299		633,692
CMBS securitizations		586,977		585,918
Loans payable on real estate		865,691		910,275
Other indebtedness		24,521		24,796
Derivative liabilities		3,972		3,972
Warrants and investor SARs		29,300		29,300

The following table summarizes the carrying amount and the fair value of our financial instruments as of December 31, 2015:

Financial Instrument	Carrying Amount		Estimated Fair Value
Assets
Total investment in mortgages and loans, net	$	1,606,486	$	1,537,086
Cash and cash equivalents		125,886		125,886
Restricted cash		213,012		213,012
Derivative assets		206		206
Liabilities
Recourse indebtedness:
7.0% convertible senior notes		28,868		27,795
4.0% convertible senior notes		133,039		104,184
7.625% senior notes		57,952		46,560
7.125% senior notes		69,749		62,471
Senior secured notes		63,045		66,725
Junior subordinated notes, at fair value		10,504		10,504
Junior subordinated notes, at amortized cost		24,884		11,221
CMBS facilities		96,723		97,067
Non-recourse indebtedness:
Secured credit facilities		267,155		271,500
Term loans		118,418		120,000
CDO notes payable, at amortized cost		937,569		801,289
CMBS securitizations		708,510		709,001
Loans payable on real estate		811,666		834,816
Derivative liabilities		4,727		4,727
Warrants and investor SARs		26,200		26,200

The following tables summarize information about our assets and liabilities measured at fair value on a recurring basis as of June 30, 2016, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:

The following tables summarize information about our assets and liabilities measured at fair value on a recurring basis as of December 31, 2015, and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value:

When estimating the fair value of our Level 3 financial instruments, management uses various observable and unobservable inputs. These inputs include yields, credit spreads, duration, effective dollar prices and overall market conditions on not only the exact financial instrument for which management is estimating the fair value, but also financial instruments that are similar or issued by the same issuer when such inputs are unavailable. Generally, an increase in the yields, credit spreads or estimated duration will decrease the fair value of our financial instruments. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value, as determined by management, may fluctuate from period to period and any ultimate liquidation or sale of the investment may result in proceeds that may be significantly different than fair value.

For the fair value of our junior subordinated notes, at fair value, and warrant and investor SARs classified as Level 3 liabilities, we estimate the fair value of these financial instruments using significant unobservable inputs. For the junior subordinated notes, at fair value, we use a discounted cash flow model as the valuation technique and the significant unobservable inputs as of December 31, 2015 include discount rates ranging from 12.9% to 13.3% and as of June 30, 2016 include discount rates ranging from 11.3% to 11.7%. For the warrants and investor SARs, we utilized a third party valuation firm who used a binomial model as the valuation technique and the significant unobservable inputs as of June 30, 2016 and December 31, 2015 include 55.0% and 61.0%, respectively, for the annual volatility of our common shares of beneficial interest over the term of the warrants and investor SARs, 10.0% and 12.0%, respectively, for the credit adjusted discount rate on our unsecured debt issued that may be issued in satisfaction of the warrants and investor SARs, and 10.1% and 10.6%, respectively, for the dividend rate and future dividend rate on our common shares of beneficial interest.

The following table summarizes additional information about assets and liabilities that are measured at fair value on a recurring basis for which we have utilized level 3 inputs to determine fair value for the six months ended June 30, 2016:

As of March 31, 2016, we measured a real estate asset at a fair value of $6,386 in our consolidated balance sheets as it was impaired. The fair value was based on an executed letter of intent to sell the real estate asset and was classified within Level 2 of the fair value hierarchy. The significant input was the purchase price derived by the potential buyer.

As of June 30, 2016, we measured a real estate asset at a fair value of $43,313 in our consolidated balance sheets as it was impaired. The fair value was based on an executed purchase and sale agreement and was classified within Level 2 of the fair value hierarchy. The significant input was the purchase price included in the purchase and sale agreement.

Our other non-recurring fair value measurements relate primarily to our commercial real estate loans that are considered impaired and for which we maintain an allowance for loss. In determining the allowance for losses, we estimate the fair value of the respective commercial real estate loan and compare that fair value to our total investment in the loan. When estimating the fair value of the commercial real estate loan, management uses discounted cash flow analyses and capitalization rates on the underlying property’s net operating income. The discounted cash flow analyses and capitalization rates are based on market information and comparable sales of similar properties. These methodologies are classified in Level 3 of the fair value hierarchy.

The following tables summarize the valuation technique and the level of the fair value hierarchy for financial instruments that are not fair valued in the accompanying consolidated balance sheets but for which fair value is required to be disclosed. The fair value of cash and cash equivalents, restricted cash, secured credit facilities, CMBS facilities, commercial mortgage facilities and other indebtedness approximates cost due to the nature of these instruments and are not included in the tables below.

Carrying Amount

as of June 30, 2016

Estimated Fair

Value as of June 30, 2016

Valuation

Technique

Level in Fair Value Hierarchy

Total investment in mortgages and loans, net

1,477,106

1,437,291

Discounted cash flows

Three

7.0% convertible senior notes

843

935

Trading price

One

4.0% convertible senior notes

119,474

116,452

Trading price

One

7.625% senior notes

55,450

50,435

Trading price

One

7.125% senior notes

68,899

69,486

Trading price

One

Senior secured notes

60,645

66,851

Discounted cash flows

Three

Junior subordinated notes, at amortized cost

24,890

11,318

Discounted cash flows

Three

CDO notes payable, at amortized cost

765,299

633,692

Discounted cash flows

Three

CMBS securitizations

586,977

585,918

Discounted cash flows

Three

Loans payable on real estate

865,691

910,275

Discounted cash flows

Three

Carrying Amount

as of December 31, 2015

Estimated Fair

Value as of December 31, 2015

Valuation

Technique

Level in Fair Value Hierarchy

Total investment in mortgages and loans, net

1,606,486

1,537,086

Discounted cash flows

Three

7.0% convertible senior notes

28,868

27,795

Trading price

One

4.0% convertible senior notes

133,039

104,184

Trading price

One

7.625% senior notes

57,952

46,560

Trading price

One

7.125% senior notes

69,749

62,471

Trading price

One

Senior secured notes

63,045

66,725

Discounted cash flows

Three

Junior subordinated notes, at amortized cost

24,884

11,221

Discounted cash flows

Three

CDO notes payable, at amortized cost

937,569

801,289

Discounted cash flows

Three

CMBS securitization

708,510

709,001

Discounted cash flows

Three

Loans payable on real estate

811,666

834,816

Discounted cash flows

Three

The following table summarizes realized and unrealized gains and losses on assets and liabilities for which we elected the fair value option of FASB ASC Topic 825, “Financial Instruments” and derivatives as reported in change in fair value of financial instruments in the accompanying consolidated statements of operations:

The changes in the fair value for the trading securities and security-related receivables, and junior subordinated notes for which the fair value option was elected for the three and six months ended June 30, 2016 and 2015 was primarily attributable to changes in instrument specific credit risks. The changes in the fair value of derivatives for which the fair value option was elected for the three and six months ended June 30, 2016 and 2015 were mainly due to changes in interest rates. The changes in fair value of the warrants and investor SARs for the three and six months ended June 30, 2016 and 2015 were due to changes in the reference stock price and volatility.

The determination of when to consolidate a VIE is based on the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance together with either the obligation to absorb losses or the right to receive benefits that could be significant to the VIE. On January 1, 2016, we adopted a new accounting standard related to consolidation. Refer to NOTE 2: Summary of Significant Accounting Policies for further information. We evaluated our investments and determined that, as of June 30, 2016 and December 31, 2015, our consolidated VIEs were: RAIT I, RAIT II, our floating rate securitizations, IRT, and RAIT VIE Properties (Willow Grove, Cherry Hill, South Terrace, Cole’s Crossing, McDowell, and our ten industrial properties). Previously, we had not disclosed our floating rate securitizations as VIEs and have corrected the prior period disclosure. Also, as of June 30, 2016, the venture described in Note 5: Indebtedness was determined to be a VIE (RAIT Venture VIE).

We consolidate the securitizations that we sponsor as we have retained interests in these entities and control the significant decisions regarding the collateral in these entities, such as the approval of loan workouts. We consolidate IRT as we own 15.4% of IRT’s common stock and control the significant decisions of IRT through our advisory agreement. We consolidate the VIE properties as we own a majority of these entities and control the significant capital and operating decisions regarding the properties. We consolidate the Venture VIE (which consolidates a floating rate securitization) as we own a majority of this entity and control a majority of the significant decisions regarding the collateral in this entity, such as the approval of loan workouts.

The following table presents the assets and liabilities of our consolidated VIEs as of each respective date.

	As of June 30, 2016
	RAIT Securitizations			IRT			RAIT VIE Properties			RAIT Venture VIE		Total
Assets
Investments in mortgages and loans, at amortized cost:
Commercial mortgages, mezzanine loans, other loans and preferred equity interests	$	1,618,072		$	—		$	—		$	345,801	$	1,963,873
Allowance for losses		—			—			—			—		0
Total investments in mortgages and loans		1,618,072			—			—			345,801		1,963,873
Investments in real estate
Investments in real estate		—			1,314,115			276,396			—		1,590,511
Accumulated depreciation		—			(45,059	)		(31,194	)		—		(76,253	)
Total investments in real estate		—			1,269,056			245,202			—		1,514,258
Cash and cash equivalents		—			28,051			2,218			2		30,271
Restricted cash		11,891			6,779			4,582			5		23,257
Accrued interest receivable		71,481			—			—			1,443		72,924
Other assets		498			3,985			13,594			—		18,077
Intangible assets
Intangible assets		—			15,287			6,801			—		22,088
Accumulated amortization		—			(15,287	)		(3,351	)		—		(18,638	)
Total intangible assets		—			—			3,450			—		3,450
Total assets	$	1,701,942		$	1,307,871		$	269,046		$	347,251	$	3,626,110
Liabilities and Equity
Indebtedness, net	$	1,387,751		$	880,287		$	273,140		$	307,287	$	2,848,465
Accrued interest payable		1,367			701			17,953			662		20,683
Accounts payable and accrued expenses		2			17,807			6,031			—		23,840
Derivative liabilities		787			1,163			—			—		1,950
Deferred taxes, borrowers’ escrows and other liabilities		—			5,964			3,150			—		9,114
Total liabilities		1,389,907			905,922			300,274			307,949		2,904,052
Equity:
Shareholders’ equity:
Accumulated other comprehensive income (loss)		(789	)		(1,195	)		—			—		(1,984	)
RAIT investment		151,340			58,194			38,972			38,616		287,122
Retained earnings (deficit)		161,484			(2,600	)		(68,464	)		686		91,106
Total shareholders’ equity		312,035			54,399			(29,492	)		39,302		376,244
Noncontrolling Interests		—			347,550			(1,736	)		—		345,814
Total liabilities and equity	$	1,701,942		$	1,307,871		$	269,046		$	347,251	$	3,626,110

	As of December 31, 2015
	RAIT Securitizations			IRT			RAIT VIE Properties			Total
Assets
Investments in mortgages and loans, at amortized cost:
Commercial mortgages, mezzanine loans, other loans and preferred equity interests	$	2,242,416		$	—		$	—		$	2,242,416
Allowance for losses		—			—			—			—
Total investments in mortgages and loans		2,242,416			—			—			2,242,416
Investments in real estate
Investments in real estate		—			1,372,015			278,774			1,650,789
Accumulated depreciation		—			(39,638	)		(26,398	)		(66,036	)
Total investments in real estate		—			1,332,377			252,376			1,584,753
Cash and cash equivalents		—			38,301			1,589			39,890
Restricted cash		14,944			5,413			2,859			23,216
Accrued interest receivable		77,130			—			—			77,130
Other assets		479			3,362			13,740			17,581
Intangible assets
Intangible assets		—			15,287			5,245			20,532
Accumulated amortization		—			(11,551	)		(1,446	)		(12,997	)
Total intangible assets		—			3,736			3,799			7,535
Total assets	$	2,334,969		$	1,383,189		$	274,363		$	3,992,521
Liabilities and Equity
Indebtedness, net	$	2,090,091		$	966,611		$	273,766		$	3,330,468
Accrued interest payable		2,207			1,239			13,997			17,443
Accounts payable and accrued expenses		8			19,304			6,000			25,312
Derivative liabilities		4,672			—			—			4,672
Deferred taxes, borrowers’ escrows and other liabilities		176			6,004			3,842			10,022
Total liabilities		2,097,154			993,158			297,605			3,387,917
Equity:
Shareholders’ equity:
Accumulated other comprehensive income (loss)		(4,691	)		(8	)		—			(4,699	)
RAIT investment		86,822			68,273			35,792			190,887
Retained earnings (deficit)		155,684			(14,499	)		(59,454	)		81,731
Total shareholders’ equity		237,815			53,766			(23,662	)		267,919
Noncontrolling Interests		—			336,265			420			336,685
Total liabilities and equity	$	2,334,969		$	1,383,189		$	274,363		$	3,992,521

The assets of the VIEs can only be used to settle obligations of the VIEs and are not available to our creditors. Certain amounts included in the table above are eliminated upon consolidation with our other subsidiaries that maintain investments in the debt or equity securities issued by these entities. The amounts that eliminate in consolidation include $691,337 of total investments in mortgage loans and $157,395 of indebtedness as of June 30, 2016 and $813,455 of total investments in mortgage loans and $157,395 of indebtedness as of December 31, 2015. We do not have any contractual obligation to provide the VIEs listed above with any financial support. We have not and do not intend to provide financial support to these VIEs that we were not previously contractually required to provide.

On October 1, 2012, we entered into a Securities Purchase Agreement, or the purchase agreement, with ARS VI Investor I, LLC, or the investor, an affiliate of Almanac Realty Investors, LLC, or Almanac. During the period from the effective date of the purchase agreement through June 30, 2016, we sold to the investor on a private placement basis in four sales between October 2012

and March 2014 for an aggregate purchase price of $100,000, or the total commitment, the following securities, in the aggregate: (i) 4,000,000 Series D Cumulative Redeemable Preferred Shares of Beneficial Interest, par value $0.01 per share, of RAIT, or the Series D Preferred Shares, (ii) common share purchase warrants, or the warrants, exercisable for 9,931,000 of our common shares, or the common shares which have subsequently adjusted to 11,035,875 shares), and (iii) common share appreciation rights, or the investor SARs, with respect to up to 6,735,667 common shares (which have subsequently adjusted to 7,485,045 shares).

In September 2015, we amended the Securities Purchase Agreement with Almanac related to the Series D Preferred Shares. This amendment changed two of the covenants therein. As consideration for this amendment, we paid Almanac $450. We accounted for this amendment as a modification of the Series D Preferred Shares.

The warrants and investor SARs had an initial strike price of $6.00 per common share, subject to adjustment. As of the filing of this report, the strike price has adjusted to $5.39.

The warrants and investor SARs were both determined to be classified as liabilities and had a combined fair value of $29,300 as of June 30, 2016. The initial fair value of the warrants and investor SARs are recorded as a liability and re-measured at each reporting period until the warrants and investor SARs are settled. Changes in fair value will be recorded in earnings as a component of the change in fair value of financial instruments in the consolidated statement of operations.

The following table summarizes the sales activity of the Series D Preferred Shares from the effective date of the agreement through June 30, 2016:

The following table summarizes the dividends we declared and paid on the preferred shares for the six months ended June 30, 2016:

	March 31, 2016		June 30, 2016
Series A Preferred Shares
Date declared	2/16/2016		5/19/2016
Record date	3/1/2016		6/1/2016
Date paid	3/31/2016		6/30/2016
Total dividend amount	$	2,570	$	2,570
Series B Preferred Shares
Date declared	2/16/2016		5/19/2016
Record date	3/1/2016		6/1/2016
Date paid	3/31/2016		6/30/2016
Total dividend amount	$	1,225	$	1,225
Series C Preferred Shares
Date declared	2/16/2016		5/19/2016
Record date	3/1/2016		6/1/2016
Date paid	3/31/2016		6/30/2016
Total dividend amount	$	910	$	910
Series D Preferred Shares
Date declared	2/16/2016		5/19/2016
Record date	3/1/2016		6/1/2016
Date paid	3/31/2016		6/30/2016
Total dividend amount	$	2,125	$	2,125

On June 13, 2014, we entered into an At Market Issuance Sales Agreement, or the 2014 Preferred ATM agreement, with MLV & Co. LLC, or MLV, providing that, from time to time during the term of the 2014 Preferred ATM agreement, on the terms and subject to the conditions set forth therein, we may issue and sell through MLV up to $150,000 aggregate amount of preferred shares.

With respect to each series of preferred shares, the maximum amount issuable is as follows: 4,000,000 Series A Preferred Shares, 1,000,000 Series B Preferred Shares, and 1,000,000 Series C Preferred Shares. Unless the 2014 Preferred ATM agreement is earlier terminated by MLV or us, the 2014 Preferred ATM agreement automatically terminates upon the issuance and sale of all of the Series A Preferred Shares, Series B Preferred Shares, and Series C Preferred Shares.

As of June 30, 2016, 2,763,204 Series A Preferred Shares, 947,496 Series B Preferred Shares, and 999,675 Series C Preferred Shares remain available for issuance under the 2014 Preferred ATM agreement.

On March 14, 2016, the board of trustees declared a $0.09 dividend on our common shares to holders of record as of April 8, 2016. The dividend was paid on April 29, 2016 and totaled $8,200. During the three months ended March 31, 2016, we also paid $348 of dividends on restricted common share awards that vested in this period.

On June 15, 2016, the board of trustees declared a $0.09 dividend on our common shares to holders of record as of July 8, 2016. The dividend was paid on July 29, 2016 and totaled $8,202.

On February 23, 2016, the compensation committee awarded 168,776 common shares, valued at $400 using our closing stock price of $2.37, to the board’s non-management trustees. These awards vested immediately. On February 22, 2016, the compensation committee awarded 367,000 restricted common shares, valued at $873 using our closing stock price of $2.38, to our non-executive officer employees. These awards generally vest over a three-year period.

On February 22, 2016, the compensation committee awarded 895,000 SARs, valued at $206 based on a Black-Scholes option pricing model at the date of grant, to our non-executive officer employees. The SARs vest over a three-year period and may be exercised between the date of vesting and February 22, 2021, the expiration date of the SARs.

On March 31, 2015, the compensation committee adopted a 2015 Long Term Incentive Plan, or the LTIP, and made awards, or the 2015 awards, to the eligible officers setting forth the basis on which the eligible officers could earn equity compensation for the years 2015 through 2018. Pursuant to the LTIP, each eligible officer was granted an initial long term equity award, consisting of both a performance share unit award for a three year performance period and an annual restricted share award vesting over a four year period. See note 13 to the consolidated financial statements in the 2015 Annual Report on Form 10-K for further details regarding these awards. For the three and six months ended June 30, 2016, we recorded $122 and $244, respectively, of compensation expense related to the LTIP.

On April 22, 2016, the compensation committee made awards, or the 2016 awards, to the eligible executives pursuant to the LTIP. The LTIP awards consist of both a performance share unit award for a three year performance period commencing January 1, 2016 and ending December 31, 2018 and an annual restricted share award vesting over a four year period. Three components of the performance share unit award have market conditions and had grant date fair value of $1.55, $1.44 and $1.07 per share. Both the annual cash bonus plan and the LTIP were adopted pursuant to our 2012 Incentive Award Plan. For the three and six months ended June 30, 2016, we recorded $120 of compensation expense related to the LTIP plan.

For 2016, compensation awarded under the LTIP is based on predefined performance for 75% of the awards. Performance measures and weighting for the performance component of the 2016-2018 awards are based on the following objective performance measures relating to our total shareholder return, or TSR, as compared to a peer group of public companies over the same period for 40% of the award, TSR as compared to the TSR for the NAREIT Mortgage Index for 30% of the award, and our absolute TSR for 30% of the award. The remaining 25% of the compensation award is time-based vesting over four years.

On May 23, 2016, the compensation committee awarded 161,290 common share awards, valued at $500, using our closing stock price of $3.10, to our President, under the terms of the 2012 Incentive Award Plan. The common shares subject to the award vest 25% on the date of grant and 25% per year on the first three anniversaries of the date of grant and also vest upon the President’s separation from service for “Good Reason” as defined in the award.

On February 12, 2016, the compensation committee of IRT awarded 210,000 shares of IRT restricted common stock, valued at $1,306 using IRT’s closing stock price of $6.22, to persons affiliated with IRT’s advisor, including their executive officers. These awards generally vest over three-year periods.

On May 12, 2016, the compensation committee of IRT awarded 18,000 shares of IRT common stock, valued at $137 using IRT’s closing stock price of $7.60, to IRT’s independent directors. These awards vested immediately.

We have a dividend reinvestment and share purchase plan, or DRSPP, under which we registered and reserved for issuance, in the aggregate, 10,500,000 common shares. During the six months ended June 30, 2016, we issued a total of 4,658 common shares pursuant to the DRSPP at a weighted-average price of $2.79 per share and we received $13 of net proceeds. As of June 30, 2016, 7,757,064 common shares, in the aggregate, remain available for issuance under the DRSPP.

On November 21, 2012, we entered into a Capital on Demand™ Sales Agreement, or the COD sales agreement, with JonesTrading Institutional Services LLC, or JonesTrading, pursuant to which we may issue and sell up to 10,000,000 of our common shares from time to time through JonesTrading acting as agent and/or principal, subject to the terms and conditions of the COD sales agreement. Unless the COD sales agreement is earlier terminated by JonesTrading or us, the COD sales agreement automatically terminates upon the issuance and sale of all of the common shares subject to the COD sales agreement. During the six months ended June 30, 2016, we did not issue any common shares pursuant to this agreement. As of June 30, 2016, 7,918,919 common shares, in the aggregate, remain available for issuance under the COD sales agreement.

On September 17, 2015, IRT issued 15,110,994 shares of IRT common stock in connection with the TSRE merger. As of June 30, 2016 and December 31, 2015, we held 7,269,719 shares, of IRT common stock representing 15.4% and 15.5%, respectively, of the outstanding shares of IRT common stock. On September 17, 2015 IRT also issued 1,925,419 IROP units in connection with the TSRE merger. We consolidate IRT as it is a VIE and we are the primary beneficiary. See Note 8 for additional disclosures pertaining to VIEs.

The following table presents a reconciliation of basic and diluted earnings (loss) per share for the three and six months ended June 30, 2016 and 2015:


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Net income (loss)	$	26,405		$	26,441		$	15,902		$	26,707
(Income) loss allocated to preferred shares		(8,615	)		(8,221	)		(17,135	)		(16,080	)
(Income) loss allocated to noncontrolling interests		(25,370	)		736			(24,191	)		1,232
Net income (loss) allocable to common shares		(7,580	)		18,956			(25,424	)		11,859
Plus: Impact of assumed conversions		—			617			—			—
Net income (loss) allocable to common shares plus assumed conversions	$	(7,580	)	$	19,573		$	(25,424	)	$	11,859
Weighted-average shares outstanding—Basic		91,190,583			82,150,475			91,104,314			82,115,941
Dilutive securities		—			7,117,987			—			2,018,099
Weighted-average shares outstanding—Diluted		91,190,583			89,268,462			91,104,314			84,134,040
Earnings (loss) per share—Basic:
Earnings (loss) per share—Basic	$	(0.08	)	$	0.23		$	(0.28	)	$	0.14
Earnings (loss) per share—Diluted:
Earnings (loss) per share—Diluted	$	(0.08	)	$	0.22		$	(0.28	)	$	0.14

For the three and six months ended June 30, 2016, securities convertible into 27,107,825 and 26,876,003 common shares, respectively, were excluded from the earnings (loss) per share computations because their effect would have been anti-dilutive. For the three and six months ended June 30, 2015, securities convertible into 15,124,221 and 20,599,422 common shares, respectively, were excluded from the earnings (loss) per share computations because their effect would have been anti-dilutive.

In the ordinary course of our business operations, we have ongoing relationships and have engaged in transactions with the related entities described below. All of these relationships and transactions were approved or ratified by our audit committee as being on terms comparable to those available on an arm’s-length basis from an unaffiliated third party or otherwise not creating a conflict of interest.

Andrew M. Silberstein serves as a trustee on our board of trustees, as designated pursuant to the purchase agreement. Mr. Silberstein is an equity owner of Almanac and an officer of the investor and holds indirect equity interests in the investor. The transactions pursuant to the purchase agreement are described above in Note 9.

The following are supplemental disclosures to the statements of cash flows for the six months ended June 30, 2016 and 2015:

For a discussion of the non-cash decrease in investments in real estate, intangible assets and other liabilities that occurred during the six months ended June 30, 2016, see Note 4.

As a group, our executive officers act as the Chief Operating Decision Maker (“CODM”). The CODM reviews operating results of our reportable segments to make decisions about investments and resources and to assess performance for each of these reportable segments. We conduct our business through the following reportable segments:

	Real Estate Lending Owning and Management			IRT		Eliminations (a)			Consolidated
Three Months Ended June 30, 2016:
Net interest margin	$	14,490		$	—	$	(96	)	$	14,394
Property income		29,571			38,327		—			67,898
Fee and other income		9,834			—		(7,059	)		2,775
Provision for losses		1,344			—		—			1,344
Depreciation and amortization expense		15,171			7,635		—			22,806
Operating income		(7,686	)		2,027		—			(5,659	)
Change in fair value of financial instruments		(1,592	)		—		—			(1,592	)
Income tax benefit (provision)		1,756			—		—			1,756
Net income (loss)		64			30,790		(4,449	)		26,405

Three Months Ended June 30, 2015:
Net interest margin	$	16,766		$	—	$	(241	)	$	16,525
Property income		32,816			22,718		—			55,534
Fee and other income		12,049			—		(4,420	)		7,629
Provision for losses		2,000			—		—			2,000
Depreciation and amortization expense		11,287			5,720		—			17,007
Operating income		1,406			353		1			1,760
Change in fair value of financial instruments		8,356			—		—			8,356
Income tax benefit (provision)		(715	)		—		—			(715	)
Net income (loss)		27,396			353		(1,308	)		26,441

	Real Estate Lending Owning and Management			IRT			Eliminations (a)			Consolidated
Six Months Ended June 30, 2016:
Net interest margin	$	31,237		$	-		$	(361	)	$	30,876
Property income		59,627			76,993			—			136,620
Fee and other income		19,559			—			(13,932	)		5,627
Provision for losses		2,669			—			—			2,669
Depreciation and amortization expense		27,920			19,162			—			47,082
Operating income		(11,336	)		(563	)		—			(11,899	)
Change in fair value of financial instruments		(5,680	)		—			—			(5,680	)
Income tax benefit (provision)		2,749			—			—			2,749
Net income (loss)		(10,405	)		30,744			(4,437	)		15,902

Six Months Ended June 30, 2015:
Net interest margin	$	33,338		$	-		$	(479	)	$	32,859
Property income		64,433			44,375			—			108,808
Fee and other income		21,839			—			(8,616	)		13,223
Provision for losses		4,000			—			—			4,000
Depreciation and amortization expense		24,273			11,758			—			36,031
Operating income		(1,598	)		111			—			(1,487	)
Change in fair value of financial instruments		12,846			—			—			12,846
Income tax benefit (provision)		(1,297	)		—			—			(1,297	)
Net income (loss)		29,213			112			(2,618	)		26,707

We are involved from time to time in litigation on various matters, including disputes with tenants of owned properties, disputes arising out of agreements to purchase or sell properties and disputes arising out of our loan portfolio. Given the nature of our business activities, these lawsuits are considered routine to the conduct of our business. The result of any particular lawsuit cannot be predicted, because of the very nature of litigation, the litigation process and its adversarial nature, and the jury system. We do not expect that the liabilities, if any, that may ultimately result from such routine legal actions will have a material adverse effect on our consolidated financial position, results of operations or cash flows.

On November 23, 2015, a shareholders’ derivative action, or the action, captioned Lobins v. Brown, et al., was filed in the Court of Common Pleas of Philadelphia County, or the court, (Civil Case No. 151103347) naming RAIT, as nominal defendant, and certain of our current and former executive officers and trustees as defendants, or the individual defendants. The complaint in the action alleged that the individual defendants breached their fiduciary duties in connection with certain restructuring fees paid to TCM. These restructuring fees were the subject of the investigation by the staff of the SEC, the settlement of which was concluded on September 3, 2015. The parties reached a settlement in the action consisting of our adoption of additions to our Trust Governance Guidelines and the creation of a Board-level Risk Management Committee. On June 29, 2016, the court entered an order granting final approval of the settlement, which resolves the issues raised in the action and dismisses the action.

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,” “seek,” “continue” or similar words. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. These risks and uncertainties include, without limitation, those set forth in our filings with the Securities and Exchange Commission, including those described in the “Forward Looking Statements” and “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2015; that we cannot assure you that we will be able to successfully implement the property sales program or achieve the expected results described in the Overview below; and whether we will be able to sell any of the properties identified as marketed for sale or as part of our previously disclosed capital recycling and debt reduction plan and what the terms and effects of any such sales will be referenced in the Securitization Summary below. 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, except as may be required by applicable law.

We are a multi-strategy commercial real estate company that is a self-managed and self-advised Maryland real estate investment trust, or REIT. We use our vertically integrated platform to originate commercial real estate loans, acquire commercial real estate properties and invest in, manage and service commercial real estate assets. We offer a comprehensive set of debt financing options to the commercial real estate industry and provide asset and property management services. We also own and manage a portfolio of commercial real estate properties and manage real estate assets for third parties. We believe this approach delivers diversification to our investment portfolio blending the higher-yielding lending business with the stability and recurring income stream from owning and managing properties.

In order to take advantage of market opportunities in the future, and to maximize shareholder value over time, we will continue to focus on:

Our performance with respect to our commercial real estate lending business in the second quarter of 2016 was impacted by commercial mortgage backed securities, or CMBS, market conditions and other trends we have previously disclosed. Our level of origination of conduit loans and bridge loans during the second quarter of 2016 was significantly lower than 2015 quarterly levels. We sold $21.4 million of conduit loans during the second quarter of 2016 resulting in a $0.3 million loss on sale due to transaction costs, and including the net interest margin we earned on the loans, since their origination, we generated net earnings of $0.1 million. We generated gains on sales of conduit loans in each quarter of 2015. In addition, repayments of the loans underlying our securitizations increased in the second quarter of 2016 as compared to the second quarter of 2015. Accordingly, our net interest margin, or NIM, from our investments in loans decreased $2.1 million in the second quarter of 2016 from the second quarter of 2015. While we expect these trends to continue for the remainder of 2016, we continue to see opportunities, primarily in the floating rate market, to continue to originate and securitize bridge loans and expect to complete another securitization collateralized by bridge loans by the end of 2016. Our performance with respect to our owned real estate business in the second quarter of 2016 reflected successful implementation of strategies to improve the operating results of our owned properties and, as Independence Realty Trust Inc.’s, or IRT’s, external advisor, managing IRT’s integration of its acquisition of TSRE. We have continued to implement our strategy, and to manage IRT’s strategy, of recycling capital and reducing leverage by selling appropriate properties.

We will continue to seek to simplify our business and focus on our core strategy, commercial real estate lending. To do this we are accelerating the RAIT property sale program in order to recycle capital for reinvestment. We plan to sell a number of RAIT-owned

properties over the next six months. We expect each of the sales to reduce leverage and enable us to reallocate a significant amount of capital into the higher yielding lending business.

Investors should read Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015, or the Annual Report, for a detailed discussion of the following items:

Our consolidated investment portfolio is currently comprised of the following asset classes:

Commercial mortgage loans, mezzanine loans, and preferred equity interests. We originate and own senior long-term conduit mortgage loans, short-term bridge loans, subordinated, or “mezzanine,” financing and preferred equity interests. These assets are in most cases “non-recourse” or limited recourse loans secured by commercial real estate assets or real estate entities. This means that we look primarily to the assets securing the loan for repayment, subject to certain standard exceptions. We originate loans that are eligible to be sold to securitizations issuing CMBS, which we refer to as conduit loans. We may from time to time acquire existing commercial real estate loans from third parties who have originated such loans, including banks, other institutional lenders or third-party investors. Where possible, we seek to maintain direct lending relationships with borrowers, as opposed to investing in loans controlled by third party lenders.

The tables below describe certain characteristics of our commercial mortgage loans, mezzanine loans, and preferred equity interests as of June 30, 2016 (dollars in thousands):

During the six months ended June 30, 2016, we originated $63.7 million of CRE loans and received CRE loan repayments of $175.0 million, contributing to a net reduction in our loan portfolio of $130.3 million. We finance our consolidated CRE loans on a long-term basis through securitizations.

The charts below describe the property types and the geographic breakdown of our commercial mortgage loans, mezzanine loans, other loans, and preferred equity interests as of June 30, 2016:

Investments in real estate. We invest in real estate properties, primarily multi-family properties, throughout the United States. This asset class is held in our CRE and our IRT business lines. We manage substantially all of our properties through our property management subsidiaries. The table below describes certain characteristics of our investments in real estate as of June 30, 2016 (dollars in thousands):

	Investments in Real Estate (a)		Average Physical Occupancy		Units/ Square Feet/ Acres		Number of Properties
RAIT Multi-family real estate properties	$	411,086		94.2%		4,215		16
IRT Multi-family real estate properties		1,314,115		94.4%		12,982		46
Office real estate properties		331,916		77.8%		2,253,564		14
Industrial real estate properties		101,009		84.2%		1,840,577		12
Retail real estate properties		122,819		73.2%		1,378,171		5
Redevelopment real estate properties		78,513		43.5%		1,206,514		2
Parcels of land		49,681	N/A			13.7		7
Total	$	2,409,139		—				102

The charts below describe the property types and the geographic breakdown of our investments in real estate as of June 30, 2016:

Overview. We have used securitizations to match fund the interest rates and maturities of our assets with the interest rates and maturities of the related financing. This strategy has helped us reduce interest rate and funding risks on our loan portfolios for the

long-term. A securitization is a structure in which multiple classes of debt and equity are issued by a special purpose entity to finance a portfolio of assets. Cash flow from the portfolio of assets is used to repay the securitization liabilities sequentially, in order of seniority. The most senior classes of debt typically have credit ratings of “AAA” through “BBB–” and therefore can be issued at yields that are lower than the average yield of the loans collateralizing the securitization. The debt tranches are typically rated based on portfolio quality, diversification and structural subordination. The equity securities issued by the securitization are the “first loss” piece of the capital structure, but they are entitled to all residual amounts available for payment after the obligations to the debt holders have been satisfied. Our retained interests described below included in our investments in our consolidated securitizations are typically in such “first loss” position. Historically, the stated maturity of the debt issued by a securitization we have sponsored and consolidated has been between 15 and 17 years. However, we expect the weighted average life of such debt to be shorter than the stated maturity due to the financial condition of the borrowers on the underlying loans and the characteristics of such loans, including the existence and frequency of exercise of any permitted prepayment, the prevailing level of interest rates, the actual default rate and the actual level of any recoveries on any defaulted loans. Debt issued by these securitizations is non-recourse to us and payable solely from the payments by the borrowers on the loans collateralizing these securitizations. These assets are in most cases “non-recourse” or limited recourse loans secured by commercial real estate assets or real estate entities. This means that we look primarily to the assets securing the loan for repayment, subject to certain standard exceptions.

As of June 30, 2016, we have sponsored six securitizations with varying amounts of retained or residual interests held by us which we consolidate in our financial statements as follows: RAIT I, RAIT II, RAIT 2014-FL2 Trust, or RAIT FL2, RAIT 2014-FL3 Trust, or RAIT FL3, RAIT 2014-FL4 Trust, or RAIT FL4, and RAIT 2015-FL5, or RAIT FL5. We refer to RAIT FL2, RAIT FL3 and RAIT FL4 and RAIT FL5 as the FL securitizations. We exercised our rights and unwound a seventh securitization we had sponsored, RAIT 2013-FL1 Trust, or RAIT FL1, in 2015. The assets and liabilities of these securitizations are presented at amortized cost in our consolidated financial statements. We originated substantially all of the loans collateralizing RAIT I, RAIT II and the FL securitizations. We serve as the collateral manager, servicer and special servicer on RAIT I and RAIT II and as servicer and special servicer for each of the FL securitizations.

Over time, our returns on and cash flows from our retained interests in our securitizations generally decrease as the senior classes of debt bearing relatively lower interest rates are paid down by collateral pool payments and other proceeds leaving more junior classes of debt bearing relatively higher interest rates on the smaller collateral pool. As a result, we continue to evaluate strategies to manage the returns on our capital allocated to our retained interests in each of our securitizations consistent with our rights and obligations under our securitizations and relevant market conditions, which may include, without limitation, unwinding a securitization and rolling the remaining collateral over to a new securitization and may involve, where applicable, selling our properties securing loans included in the collateral pool and repaying such loans.

Securitization Performance. RAIT I and RAIT II contain interest coverage triggers, or IC triggers, and over collateralization triggers, or OC triggers, which must be met in order for us to receive our subordinated management fees and our lower-rated debt or residual equity returns. If the IC triggers or OC triggers are not met in a given period, then the cash flows are redirected from lower rated tranches and used to repay the principal amounts to the senior tranches of CDO notes payable. These conditions and the re-direction of cash flow continue until the triggers are met by curing the underlying payment defaults, paying down the CDO notes payable or other actions permitted under the relevant securitization indenture. As of the most recent payment information, all applicable IC triggers and OC triggers are being met for our two commercial real estate securitizations, RAIT I and RAIT II, and we continue to receive all of our management fees, interest and residual returns from these securitizations. The FL securitizations do not have IC triggers and OC triggers.

Repayment of the loans collateralizing RAIT I and RAIT II outside their contractual maturities increased in the first half of 2016 and we expect it to continue to increase in the remainder of 2016 through 2019. In addition, we are currently marketing nine properties for sale with an aggregate net book value of $184.3 million at June 30, 2016. The related indebtedness of these properties is expected to be repaid with the proceeds of any sales, which primarily includes paying down the most senior notes outstanding issued by RAIT I and RAIT II, as applicable. We continue to evaluate our real estate portfolio with regards to identifying other possible properties to sell as part of our previously disclosed capital recycling and debt reduction plan. Because we own properties that are financed, in part, by loans collateralizing RAIT I and RAIT II, sales of our properties could result in a significant reduction of our securitization notes payable. These repayments have reduced our returns from these securitizations and we expect future repayments to continue to reduce these returns. We continue to evaluate alternative strategies seeking to replace these returns.

If the CDO notes issued by RAIT I and RAIT II have not been redeemed in full prior to the distribution date occurring in November 2016, in the case of RAIT I, and June 2017, in the case of RAIT II, then an auction of the collateral assets of RAIT I or RAIT II, as relevant, will be conducted by the relevant trustee periodically thereafter and, if certain conditions set forth in the relevant indenture are satisfied, such collateral assets will be sold at the auction and the relevant CDO notes will be redeemed, in whole, but not in part, on such distribution date.

A summary of the investments in our consolidated securitizations as of the most recent payment information is as follows:

IRT common stock trades on the NYSE MKT under the symbol “IRT” with a closing price of $9.50 as of August 5, 2016. We currently hold 7,269,719 shares of IRT common stock representing 15.4% percent of the outstanding shares of IRT common stock as of August 5, 2016. We continue to consolidate IRT in our financial results as of June 30, 2016. For the six months ended June 30, 2016, we reflected IRT’s operating results in our financial results, including $77.0 million of revenue and $30.7 million of net income. As of June 30, 2016, IRT owned 46 multi-family properties with 12,982 units and a book value of $1.3 billion which were reflected on our balance sheet. As of June 30, 2016, IRT had $880 million of indebtedness which was reflected on our balance sheet. For the six months ended June 30, 2016, we earned $3.6 million of fees from IRT under our advisory agreement with IRT and received $2.6 million of distributions declared on our IRT common stock, both of which are eliminated in consolidation. We characterize IRT as one of our operating segments and break out its financial performance in our financial statements.

Assets under management, or AUM, is an operating measure representing the total assets that we own or are managing for third parties. While not all AUM generates fee income, it is an important operating measure to gauge our asset growth, volume of originations, size and scale of our operations and our performance. AUM includes our total investment portfolio and assets associated with unconsolidated securitizations for which we derive asset management fees.

The table below summarizes our AUM as of June 30, 2016 and December 31, 2015 (dollars in thousands):

Three Months Ended June 30, 2016 Compared to the Three Months Ended June 30, 2015

The following table sets forth information regarding our consolidated results of operations for the three months ended June 30, 2016 and 2015.

	For the Three Months Ended June 30,
	2016			2015			$ Variance			% Variance
Revenue:
Investment interest income	$	23,519		$	24,107		$	(588	)		-2	%
Investment interest expense		(9,125	)		(7,582	)		(1,543	)		20	%
Net interest margin		14,394			16,525			(2,131	)		-13	%
Property income		67,898			55,534			12,364			22	%
Fee and other income		2,775			7,629			(4,854	)		-64	%
Total revenue		85,067			79,688			5,379			7	%
Expenses:
Interest expense		22,890			19,673			3,217			16	%
Real estate operating expense		29,950			26,630			3,320			12	%
Compensation expense		7,922			6,568			1,354			21	%
General and administrative expense		5,585			5,065			520			10	%
Acquisition expense		229			985			(756	)		-77	%
Provision for loan losses		1,344			2,000			(656	)		-33	%
Depreciation and amortization expense		22,806			17,007			5,799			34	%
Total expenses		90,726			77,928			12,798			16	%
Operating (Loss) Income		(5,659	)		1,760			(7,419	)		-422	%
Interest and other income (expense), net		39			(241	)		280			-116	%
Gains (losses) on assets		35,623			17,281			18,342			106	%
Gain on IRT merger with TSRE		—			—			—		N/M*
Gains (losses) on extinguishments of debt		102			—			102		N/M*
Asset impairment		(3,864	)		—			(3,864	)	N/M*
Change in fair value of financial instruments		(1,592	)		8,356			(9,948	)		-119	%
Income (loss) before taxes		24,649			27,156			(2,507	)		-9	%
Income tax benefit (provision)		1,756			(715	)		2,471			-346	%
Net income (loss)		26,405			26,441			(36	)		0	%
(Income) loss allocated to preferred shares		(8,615	)		(8,221	)		(394	)		5	%
(Income) loss allocated to noncontrolling interests		(25,370	)		736			(26,106	)		-3547	%
Net income (loss) allocable to common shares	$	(7,580	)	$	18,956		$	(26,536	)		-140	%

Net interest margin. Net interest margin decreased $2.1 million, or 13%, to $14.4 million for the three months ended June 30, 2016 from $16.5 million for the three months ended June 30, 2015. Investment interest income decreased as a result of $335.7 million of loan repayments since July 1, 2015. Investment interest expense increased $1.5 million due to the RAIT FL4 and RAIT FL5 securitizations issued in May and December 2015, respectively, and increases in LIBOR partially offset by securitization notes repayments.

Property income. Property income increased $12.4 million to $67.9 million for the three months ended June 30, 2016 from $55.5 million for the three months ended June 30, 2015. The increase is attributable to $19.1 million of property income from 34 new properties acquired or consolidated since June 30, 2015, including $17.1 million of property income associated with IRT’s acquisition of TSRE, $0.1 million from one property acquired during the three months ended June 30, 2015 present for a full quarter of operations in 2016, and $0.1 million of property income from improved occupancy and rental rates in 2016 as compared to 2015 in the remaining properties. The increase was partially offset by a $6.9 million decrease of property income related to nineteen properties disposed of or deconsolidated after June 30, 2015.

Fee and other income. Fee and other income decreased $4.8 million to $2.8 million for the three months ended June 30, 2016 from $7.6 million for the three months ended June 30, 2015. The decrease is primarily attributable to a decrease of $0.4 million of property management fee income due to the timing of leasing commissions and a decrease in CMBS income of $3.9 million during the three months ended June 30, 2016 as compared to the same period in 2015.

Interest expense. Interest expense increased $3.2 million, or 16%, to $22.9 million for the three months ended June 30, 2016 from $19.7 million for the three months ended June 30, 2015. The increase is primarily attributable to $2.9 million of interest expense related to the debt incurred as part of IRT’s acquisition of TSRE.

Real estate operating expense. Real estate operating expense increased $3.4 million to $30.0 million for the three months ended June 30, 2016 from $26.6 million for the three months ended June 30, 2015. The increase is attributable to $7.6 million of real estate operating expenses from 34 properties acquired since June 30, 2015, including $7.1 million of property operating expenses associated with IRT’s acquisition of TSRE. The increase was partially offset by a $3.9 million decrease of real estate operating expense related to nineteen properties disposed of or deconsolidated after June 30, 2015.

Compensation expense. Compensation expense increased $1.3 million to $7.9 million for the three months ended June 30, 2016 from $6.6 million for the three months ended June 30, 2015. This is primarily due to less compensation expense being deferred as direct loan origination costs due to a lower volume of loan originations during 2016 and an increase in stock compensation expense for the three months ended June 30, 2016 as compared to the same period in 2015.

General and administrative expense. General and administrative expense increased $0.5 million to $5.6 million for the three months ended June 30, 2016 from $5.1 million for the three months ended June 30, 2015. This increase is primarily a result of increased professional fees for the three months ended June 30, 2016.

Acquisition expense. Acquisition expense decreased $0.8 million to $0.2 million for the three months ended June 30, 2016 from $1.0 million for the three months ended June 30, 2015. This was primarily attributable to a $0.6 million decrease in dead deal costs for the three months ended June 30, 2016 as compared to the same period in 2015.

Depreciation and amortization expense. Depreciation and amortization expense increased $5.8 million to $22.8 million for the three months ended June 30, 2016 from $17.0 million for the three months ended June 30, 2015. The increase is attributable to $5.8 million of depreciation and amortization expense from 34 new properties acquired or consolidated since June 30, 2015 and $2.6 million of accelerated amortization expense on our customer relationships intangible assets due to the cancellation of two customer relationships. The increase was partially offset by a decrease of $2.5 million of depreciation and amortization expense related to nineteen properties that were disposed of or deconsolidated after June 30, 2015.

Gains (losses) on assets. During the three months ended June 30, 2016, seven multi-family properties and one land parcel were sold resulting in gains of $35.7 million.

Gain on extinguishment of debt. During the three months ended June 30, 2016, we recognized a $0.1 million gain on extinguishment of debt. This includes a $1.9 million gain on the extinguishment of the mortgage indebtedness on two of our multi-family properties upon their sale as they were sold for less than their outstanding indebtedness and the outstanding indebtedness has been satisfied. This was offset by a loss on the extinguishment of debt of $1.8 million related to repurchases and redemptions of our indebtedness, primarily driven by the write-off of the unamortized deferred financing costs associated with the indebtedness.

Asset impairment. During the three months ended June 30, 2016, we recognized impairment of $1.3 million on one multi-family property that is expected to be sold. We also expensed tenant improvements and straight-line rent receivables aggregating $1.7 million associated with tenants that vacated our properties early. We also recognized a loss on our retail property management subsidiary’s investment in an unconsolidated entity of $0.9 million as they no longer held the investment.

Change in fair value of financial instruments. During the three months ended June 30, 2016, the change in fair value of financial instruments decreased our net income by $1.6 million. The fair value adjustments we recorded were as follows (dollars in thousands):

The changes in the fair value for the CDO notes payable and other liabilities for which the fair value option was elected for the three months ended March 31 2015 was primarily attributable to changes in instrument specific credit risks. The changes in the fair value of derivatives for the three months ended March 31, 2016 and 2015 was mainly due to changes in interest rates. The change in fair value of the warrants and investor SARs was due to changes in the reference stock price and volatility.

Income tax benefit (provision). During the three months ended June 30, 2016, the income tax benefit was driven by a lack of gains on CMBS loan sales, which resulted in a taxable loss at that taxable REIT subsidiary. Conversely, during the three months ended June 30, 2015, the income tax (provision) was driven by gains on CMBS loan sales and the related taxable income at that taxable REIT subsidiary.

The following table sets forth information regarding our consolidated results of operations for the six months ended June 30, 2016 and 2015.

	For the Six Months Ended June 30,
	2016			2015			$ Variance			% Variance
Revenue:
Investment interest income	$	49,321		$	47,355		$	1,966			4	%
Investment interest expense		(18,445	)		(14,496	)		(3,949	)		27	%
Net interest margin		30,876			32,859			(1,983	)		-6	%
Property income		136,620			108,808			27,812			26	%
Fee and other income		5,627			13,223			(7,596	)		-57	%
Total revenue		173,123			154,890			18,233			12	%
Expenses:
Interest expense		48,472			39,356			9,116			23	%
Real estate operating expense		60,656			51,907			8,749			17	%
Compensation expense		14,997			12,676			2,321			18	%
General and administrative expense		10,648			10,465			183			2	%
Acquisition expense		498			1,942			(1,444	)		-74	%
Provision for loan losses		2,669			4,000			(1,331	)		-33	%
Depreciation and amortization expense		47,082			36,031			11,051			31	%
Total expenses		185,022			156,377			28,645			18	%
Operating (Loss) Income		(11,899	)		(1,487	)		(10,412	)		700	%
Interest and other income (expense), net		100			(636	)		736			-116	%
Gains (losses) on assets		37,881			17,281			20,600			119	%
Gain on IRT merger with TSRE		91			—			91		N/M*
Gains (losses) on extinguishments of debt		446			—			446		N/M*
Asset impairment		(7,786	)		—			(7,786	)	N/M*
Change in fair value of financial instruments		(5,680	)		12,846			(18,526	)		-144	%
Income (loss) before taxes		13,153			28,004			(14,851	)		-53	%
Income tax benefit (provision)		2,749			(1,297	)		4,046			-312	%
Net income (loss)		15,902			26,707			(10,805	)		-40	%
(Income) loss allocated to preferred shares		(17,135	)		(16,080	)		(1,055	)		7	%
(Income) loss allocated to noncontrolling interests		(24,191	)		1,232			(25,423	)		-2064	%
Net income (loss) allocable to common shares	$	(25,424	)	$	11,859		$	(37,283	)		-314	%

Net interest margin. Net interest margin decreased $2.0 million, or 6%, to $30.9 million for the six months ended June 30, 2016 from $32.9 million for the six months ended June 30, 2015. Investment interest income increased $2.0 million as a result of a 7% increase in the average investment in loans and increases in LIBOR. Investment interest expense increased $3.9 million due to the RAIT FL4 and RAIT FL5 securitizations issued in May and December 2015, respectively, and increases in LIBOR partially offset by securitization notes repayments.

Property income. Property income increased $27.8 million to $136.6 million for the six months ended June 30, 2016 from $108.8 million for the six months ended June 30, 2015. The increase is attributable to $42.1 million of property income from 34 new properties acquired or consolidated since June 30, 2015, including $33.8 million of property income associated with IRT’s acquisition of TSRE, $0.7 million from one property acquired during the six months ended June 30, 2015 present for a full quarter of operations in 2016 and $1.8 million of property income from improved occupancy and rental rates in 2016 as compared to 2015 in the remaining properties. The increase was partially offset by a $16.8 million decrease of property income related to 22 properties disposed of or deconsolidated after December 31, 2014.

Fee and other income. Fee and other income decreased $7.6 million to $5.6 million for the six months ended June 30, 2016 from $13.2 million for the six months ended June 30, 2015. The decrease is primarily attributable to a decrease of $1.8 million of property management fee income primarily due to the timing of leasing commissions and a decrease in CMBS income of $5.8 million during the six months ended June 30, 2016 as compared to the same period in 2015.

Interest expense. Interest expense increased $9.1 million, or 23%, to $48.5 million for the six months ended June 30, 2016 from $39.4 million for the six months ended June 30, 2015. The increase is primarily attributable to $8.5 million of interest expense from the increase in our loans payable on real estate that we acquired in 2015 and $6.3 million of interest expense related to the debt incurred as part of IRT’s acquisition of TSRE. The increase was partially offset by a $5.5 million decrease of interest expense related to 22 properties disposed of or deconsolidated after December 31, 2014.

Real estate operating expense. Real estate operating expense increased $8.8 million to $60.7 million for the six months ended June 30, 2016 from $51.9 million for the six months ended June 30, 2015. The increase is attributable to $18.1 million of real estate operating expenses from 34 properties acquired since June 30, 2015, including $13.9 million of property operating expenses associated with IRT’s acquisition of TSRE. The increase was partially offset by an $8.9 million decrease of real estate operating expenses related to 22 properties disposed of or deconsolidated after December 31, 2014.

Compensation expense. Compensation expense increased $2.3 million to $15.0 million for the six months ended June 30, 2016 from $12.7 million for the six months ended June 30, 2015. This is primarily due to less compensation expense being deferred as direct loan origination costs due to a lower volume of loan originations during 2016 and an increase in stock compensation expense for the six months ended June 30, 2016 as compared to the same period in 2015.

General and administrative expense. General and administrative expense increased $0.1 million to $10.6 million for the six months ended June 30, 2016 from $10.5 million for the six months ended June 30, 2015.

Acquisition expense. Acquisition expense decreased $1.4 million to $0.5 million for the six months ended June 30, 2016 from $1.9 million for the six months ended June 30, 2015. This was primarily attributable to a $1.1 million decrease in dead deal costs for the six months ended June 30, 2016 as compared to the same period in 2015.

Depreciation and amortization expense. Depreciation and amortization expense increased $11.1 million to $47.1 million for the six months ended June 30, 2016 from $36.0 million for the six months ended June 30, 2015. The increase is attributable to $17.1 million of depreciation and amortization expense from 34 new properties acquired or consolidated since June 30, 2015, $2.6 million of accelerated amortization expense on our customer relationships intangible assets, and $0.2 million from one property acquired during the six months ended June 30, 2015 present for a full quarter of operations in 2016. The increase was partially offset by a decrease of $5.5 million of depreciation and amortization expense related to 22 properties that were disposed of or deconsolidated after December 31, 2014 along with a decrease of $3.3 million of amortization expense in our same store portfolio due to intangible assets reaching their useful lives.

Gains (losses) on assets. During the six months ended June 30, 2016, nine multi-family properties, one office building and one parcel of land were sold resulting in a gain of $37.9 million.

Gain on extinguishment of debt. During the six months ended June 30, 2016, we recognized a gain on extinguishment of debt of $0.5 million. This includes a $2.3 million gain on the extinguishment of the mortgage indebtedness on three of our multi-family properties upon their sale as they were sold for less than their outstanding indebtedness and the outstanding indebtedness has been satisfied. This was offset by a loss on the extinguishment of debt of $1.8 million related to repurchases and redemptions of our indebtedness, primarily driven by the write-off of the unamortized deferred financing costs associated with the indebtedness.

Asset impairment. During the six months ended June 30, 2016, we recognized impairment of $5.2 million on one office building and one multi-family property that are expected to be sold. We also expensed tenant improvements and straight-line rent receivables aggregating $1.7 million associated with tenants that vacated our properties early. We also recognized a loss on our retail property management subsidiary’s investment in an unconsolidated entity of $0.9 million.

Change in fair value of financial instruments. During the six months ended June 30, 2016, the change in fair value of financial instruments decreased our net income by $5.7 million. The fair value adjustments we recorded were as follows (dollars in thousands):

The changes in the fair value for the trading securities and security-related receivables, CDO notes payable, and other liabilities for which the fair value option was elected for the six months ended June 30, 2015 was primarily attributable to changes in instrument specific credit risks. The changes in the fair value of derivatives for the six months ended June 30, 2016 and 2015 was mainly due to changes in interest rates. The change in fair value of the warrants and investor SARs was due to changes in the reference stock price and volatility.

Income tax benefit (provision). During the six months ended June 30, 2016, the income tax benefit was driven by a lack of gains on CMBS loan sales, which resulted in a taxable loss at that taxable REIT subsidiary. Conversely, during the six months ended June 30, 2015, the income tax (provision) was driven by gains on CMBS loan sales and the related taxable income at that taxable REIT subsidiary.

Cash available for distribution, or CAD, is a non-GAAP financial measure. We believe that CAD provides investors and management with a meaningful indicator of operating performance. Management also uses CAD, among other measures, to evaluate profitability and our board of trustees considers CAD in determining our quarterly cash distributions. The compensation committee of our board used CAD as a performance metric in establishing performance-based compensation awards for 2015 for some of our executive officers. We also believe that CAD is useful because it adjusts for a variety of noncash items (such as depreciation and amortization, equity-based compensation, realized gain (loss) on assets, provision for loan losses and non-cash interest income and expense items).

We calculate CAD by subtracting from or adding to net income (loss) attributable to common shareholders the following items: depreciation and amortization items including depreciation and amortization, straight-line rental income or expense, amortization of in place leases, amortization of deferred financing costs, amortization of discount on financings and equity-based compensation; changes in the fair value of our financial instruments; realized gains (losses) on assets; provision for loan losses; asset impairments; acquisition gains or losses and transaction costs; certain fee income eliminated in consolidation that is attributable to third parties; and one-time events pursuant to changes in GAAP and certain other non-recurring items.

In the quarter ended March 31, 2016, we changed our method of calculating CAD to exclude the impact of real property sales from CAD. We made this change in response to investor feedback to focus CAD on our core business activities. In addition, we provide guidance regarding our expected CAD in future periods and this change removes variability resulting from the ultimate timing of future property sales. We have amended our comparable prior period disclosures to conform with the current period presentation for this change.

CAD should not be considered as an alternative to net income (loss) or cash generated from operating activities, determined in accordance with GAAP, as an indicator of operating performance. For example, CAD does not adjust for the accrual of income and expenses that may not be received or paid in cash during the associated periods. Please refer to our consolidated financial statements prepared in accordance with GAAP in Part I, Item 1. In addition, our methodology for calculating CAD may differ from the methodologies used by other comparable companies, including other REITs, when calculating the same or similar supplemental financial measures and may not be comparable with these companies.

Set forth below is a reconciliation of CAD to net income (loss) allocable to common shares for the three months ended June 30, 2016 and 2015 (dollars in thousands, except share information):

	For the Three Months Ended June 30, 2016						For the Three Months Ended June 30, 2015
	Amount			Per Share (1)			Amount			Per Share (2)
Cash Available for Distribution:
Net income (loss) allocable to common shares	$	(7,580	)	$	(0.08	)	$	18,956		$	0.23
Adjustments:
Depreciation and amortization expense		22,806			0.25			17,007			0.21
Change in fair value of financial instruments		1,592			0.02			(8,356	)		(0.10	)
(Gains) losses on assets		(35,623	)		(0.39	)		(17,281	)		(0.21	)
(Gain) loss on IRT merger with TSRE		—			—			—			—
(Gains) losses on extinguishment of debt		(102	)		—			—			—
Straight-line rental adjustments		(142	)		—			23			—
Share-based compensation		1,334			0.01			1,046			0.01
Acquisition and integration expenses		229			—			985			0.01
Origination fees and other deferred items		4,927			0.05			7,268			0.09
Provision for losses		1,344			0.01			2,000			0.02
Asset impairment		3,864			0.04			—			—
Noncontrolling interest effect of certain adjustments		17,888			0.21			(4,421	)		(0.05	)
Cash Available for Distribution	$	10,537		$	0.12		$	17,227			0.21

Set forth below is a reconciliation of CAD to net income (loss) allocable to common shares for the six months ended June 30, 2016 and 2015 (dollars in thousands, except share information):

	For the Six Months Ended June 30, 2016						For the Six Months Ended June 30, 2015
	Amount			Per Share (1)			Amount			Per Share (2)
Cash Available for Distribution:
Net income (loss) allocable to common shares	$	(25,424	)	$	(0.28	)	$	11,859		$	0.14
Adjustments:
Depreciation and amortization expense		47,082			0.52			36,031			0.45
Change in fair value of financial instruments		5,680			0.06			(12,846	)		(0.16	)
(Gains) losses on assets		(37,881	)		(0.42	)		(17,281	)		(0.21	)
(Gain) loss on IRT merger with TSRE		(91	)		—			—			—
(Gains) losses on extinguishment of debt		(446	)		—			—			—
Straight-line rental adjustments		(560	)		(0.01	)		25			—
Share-based compensation		2,607			0.03			2,394			0.03
Acquisition Expenses		498			0.01			1,942			0.02
Origination fees and other deferred items		11,641			0.13			14,694			0.18
Provision for losses		2,669			0.03			4,000			0.05
Asset impairment		7,786			0.09			—			—
Noncontrolling interest effect of certain adjustments		9,855			0.10			(9,134	)		(0.11	)
Cash Available for Distribution	$	23,416		$	0.26		$	31,684		$	0.39

As stated above, we changed our method of calculating CAD in the quarter ended March 31, 2016 to exclude the impact of real property sales. Set forth below is our reconciliation of CAD to net income (loss) allocable to common shares for the years ended

December 31, 2015, 2014 and 2013 below (dollars in thousands, except share information) which reflects such new method and is intended to supersede the corresponding chart previously reported in our annual report:

	For the Year Ended December 31, 2015						For the Year Ended December 31, 2014						For the Year Ended December 31, 2013
	Amount			Per Share (1)			Amount			Per Share (2)			Amount			Per Share (3)
Cash Available for Distribution:
Net income (loss) allocable to common shares	$	7,158		$	0.08		$	(318,504	)	$	(3.92	)	$	(308,008	)	$	(4.54	)
Adjustments:
Depreciation and amortization expense		73,868			0.87			56,784			0.70			36,093			0.53
Change in fair value of financial instruments		(11,638	)		(0.14	)		98,752			1.21			344,426			5.09
(Gains) losses on assets		(43,514	)		(0.51	)		5,370			0.07			2,266			0.03
TSRE financing extinguishment and employee separation expenses		27,508			0.32			—			—			—			—
(Gain) loss on IRT merger with TSRE		(64,604	)		(0.76	)		—			—			—			—
(Gains) losses on deconsolidation of VIEs		—			—			215,804			2.66			—			—
(Gains) losses on extinguishment of debt		—			—			(2,421	)		(0.03	)		1,275			0.02
T8 and T9 securitizations, net effect		—			—			(26,931	)		(0.33	)		(33,268	)		(0.49	)
Straight-line rental adjustments		95			—			1,111			0.01			(1,322	)		(0.02	)
Share-based compensation		4,466			0.05			4,407			0.05			3,441			0.05
Acquisition and integration expenses		16,527			0.19			—			—			—			—
Origination fees and other deferred items		34,834			0.41			21,954			0.27			10,475			0.15
Provision for losses		8,300			0.10			5,500			0.07			3,000			0.04
Asset impairment		8,179			0.10			—			—			—			—
Noncontrolling interest effect of certain adjustments		4,967			0.06			(4,302	)		(0.05	)		(940	)		(0.01	)
Cash Available for Distribution	$	66,146		$	0.77		$	57,524		$	0.71		$	57,438		$	0.85

We believe that funds from operations, or FFO, which is a non-GAAP measure, is an additional appropriate measure of the operating performance of a REIT. We compute FFO in accordance with the standards established by the National Association of Real Estate Investment Trusts, or NAREIT, as net income or loss allocated to common shares (computed in accordance with GAAP), excluding real estate-related depreciation and amortization expense, gains or losses on sales of real estate and the cumulative effect of changes in accounting principles. Our management utilizes FFO as a measure of our operating performance. FFO is not an equivalent to net income or cash generated from operating activities determined in accordance with GAAP. Furthermore, FFO does not represent amounts available for management’s discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. FFO should not be considered as an alternative to net income as an indicator of our operating performance or as an alternative to cash flow from operating activities as a measure of our liquidity.

Set forth below is a reconciliation of FFO to net income (loss) allocable to common shares for the three months ended June 30, 2016 and 2015 (dollars in thousands, except share information):

Set forth below is a reconciliation of FFO to income (loss) allocable to common shares for the six months ended June 30, 2016 and 2015 (dollars in thousands, except share information):

Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay dividends and other general business needs.

We believe our available cash and restricted cash balances, other financing arrangements, and cash flows from operations will be sufficient to fund our liquidity requirements for the next 12 months and the foreseeable future. Due to volatility in the capital markets referenced above in “Overview,” we expect our ability to raise capital in the public markets through sales of our equity and debt securities to be limited this year. We expect to rely to a greater degree on the other sources of liquidity identified below.

We are evaluating whether or not to redeem the current aggregate principal balance outstanding of the investment grade senior notes issued by RAIT FL2 in accordance with their terms. Also, we continue to monitor market conditions to make opportunistic repurchases on the open market from time to time of our outstanding recourse indebtedness. In this regard, we repurchased $19.5 million aggregate principal amount of our outstanding debt for an aggregate purchase price of $17.3 million in the second quarter of 2016. We also redeemed $33.2 million of our recourse indebtedness during the second quarter of 2016.

As of June 30, 2016 and 2015, we maintained cash and cash equivalents of approximately $66.9 million and $104.8 million, respectively. Our cash and cash equivalents were generated from the following activities (dollars in thousands):

Cash flow from operating activities for the six months ended June 30, 2016, as compared to the same period in 2015, increased $44.4 million primarily due to conduit loan sale activity exceeding conduit loan origination activity during 2016 as compared to conduit loan origination activity exceeding conduit loan sale activity during the six months ended June 30, 2015. The remaining increase in cash flow from operating activities was primarily related to our growth in our real estate investments.

The cash inflow for investing activities for the six months ended June 30, 2016 was substantially due to proceeds from property dispositions of $127.4 million as well as loan repayments of $175.0 million outpacing new investments in loans of $55.6 million. The cash outflow for investing activities for the six months ended June 30, 2015 was substantially due to new investments in loans of $191.9 million which exceeded loan repayments of $130.5 million.

The cash outflow from our financing activities during the six months ended June 30, 2016 was primarily due to repayments and repurchases of indebtedness of $617.3 million and distributions to shareholders and noncontrolling interests of $48.0 million exceeding proceeds from the issuance of indebtedness of $246.8 million. The cash inflow from our financing activities during the six months ended June 30, 2015 was primarily due to proceeds from debt issuance of $239.5 million exceeding repayments of indebtedness of $144.8 million and distributions to shareholders and noncontrolling interests of $52.1 million.

As a REIT, we evaluate our dividend coverage based on our cash flow from operating activities, excluding acquisition and integration expenses, the origination and sale of conduit loans, and changes in assets and liabilities. During the six months ended June 30, 2016, we paid distributions to our preferred shareholders, common shareholders, and non-controlling interests of $48.0 million and generated cash flows from operating activities, before acquisition expenses, origination and sale of conduit loans, and changes in assets and liabilities of $49.2 million.

Refer to Note 5: Indebtedness, Note 9: Series D Preferred Shares, and Note 10: Shareholders’ Equity in the Notes to Consolidated Financial Statements, for information regarding our capitalization.

There have been no material changes in off-balance sheet arrangements or commitments during the six months ended June 30, 2016 from the disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2015.

Our Annual Report on Form 10-K for the year ended December 31, 2015 contains a discussion of our critical accounting policies. On January 1, 2016 we adopted three new accounting pronouncements and revised our accounting policies. See Note 2 in the Notes to Consolidated Financial Statements. Management discusses our critical accounting policies and management’s judgments and estimates with the audit committee of our board of trustees.

There have been no material changes in quantitative and qualitative market risks during the six months ended June 30, 2016 from the disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2015.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Securities Exchange Act of 1934, as amended, or the Exchange Act, 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, 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 at the reasonable assurance level.

There has been no change in our internal control over financial reporting or in other factors during the quarter ended June 30, 2016, that have materially affected, or were reasonably likely to materially affect, our internal control over financial reporting.

On November 23, 2015, a shareholders’ derivative action, or the action, captioned Lobins v. Brown, et al., was filed in the Court of Common Pleas of Philadelphia County, or the court, (Civil Case No. 151103347) naming RAIT, as nominal defendant, and certain of our current and former executive officers and trustees as defendants. Information required by this Item regarding the Lobins action has been previously reported in our Annual Report on Form 10-K filed with the SEC on March 11, 2016. The parties reached a settlement in the action consisting of the adoption by RAIT of additions to its Trust Governance Guidelines and the creation of a Board-level Risk Management Committee. On June 29, 2016, the court entered an order granting final approval of the settlement, which fully and finally resolves the issues raised in the action and dismisses the action.

There have not been any material changes from the risk factors previously disclosed in Item 1A—“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

We withheld the following common shares to satisfy tax withholding during the quarter ending June 30, 2016 arising from the vesting of restricted share awards made pursuant to the RAIT Financial Trust 2012 Incentive Award Plan. These common shares may be deemed to be “issuer purchases” of common shares that are required to be disclosed pursuant to this item.

The exhibits filed 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.

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.

Exhibit Number		Description of Documents

3.1.1		Amended and Restated Declaration of Trust of RAIT Financial Trust (“RAIT”). Incorporated by reference to RAIT’s Registration Statement on Form S-11 (Registration No. 333-35077).

3.1.2		Articles of Amendment to Amended and Restated Declaration of Trust of RAIT. Incorporated by reference to RAIT’s Registration Statement on Form S-11 (Registration No. 333-53067).

3.1.3		Articles of Amendment to Amended and Restated Declaration of Trust of RAIT. Incorporated by reference to RAIT’s Registration Statement on Form S-2 (Registration No. 333-55518).

3.1.4		Certificate of Correction to the Amended and Restated Declaration of Trust of RAIT. Incorporated by reference to RAIT’s Form 10-Q for the Quarterly Period ended March 31, 2002 (File No. 1-14760).

3.1.5		Articles of Amendment to Amended and Restated Declaration of Trust of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the Securities and Exchange Commission (“SEC”) on December 15, 2006 (File No. 1-14760).

3.1.6		Articles of Amendment to Amended and Restated Declaration of Trust of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on July, 1 2011 (File No. 1-14760).

3.1.7		Articles Supplementary (the “Series A Articles Supplementary”) relating to the 7.75% Series A Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series A Preferred Shares”) of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 18, 2004 (File No. 1-14760).

3.1.8		Certificate of Correction to the Series A Articles Supplementary. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 18, 2004 (File No. 1-14760).

3.1.9		Articles Supplementary relating to the 8.375% Series B Cumulative Redeemable Preferred Shares of Beneficial Interest, (the “Series B Preferred Shares”) of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 1, 2004 (File No. 1-14760).

3.1.10		Articles Supplementary relating to the 8.875% Series C Cumulative Redeemable Preferred Shares of Beneficial Interest, (the “Series C Preferred Shares”) of RAIT. Incorporated by reference to RAIT’s Form 8-A as filed with the SEC on June 29, 2007 (File No. 1-14760).

3.1.11		Articles Supplementary relating to Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on May 25, 2012 (File No. 1-14760).

3.1.12		Certificate of Correction relating to Series A Preferred Shares, Series B Preferred Shares and Series C Preferred Shares. Incorporated by reference to RAIT’s Form 10-Q for the quarterly period ended June 30, 2012 (File No. 1-14760).

3.1.13		Articles Supplementary (the “Series D Articles Supplementary”) relating to the Series D Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series D Preferred Shares”) of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 4, 2012 (File No. 1-14760).

3.1.14		Articles Supplementary relating to the Series E Cumulative Redeemable Preferred Shares of Beneficial Interest (the “Series E Preferred Shares”) of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 4, 2012 (File No.1-14760).

3.1.15		Amendment dated November 30, 2012 to the Series D Articles Supplementary. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 4, 2012 (File No.1-14760).

3.1.16		Articles Supplementary relating to the Series A Preferred Shares. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on June 13, 2014 (File No. 1-14760).

3.2.1		By-laws of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 19, 2009 (File No. 1-14760).

3.2.2		First Amendment to the Bylaws of RAIT. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on April 6, 2015 (File No. 1-14760).

4.1.1		Form of Certificate for Common Shares of Beneficial Interest. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on July 1, 2011 (File No. 1-14760).

Exhibit Number		Description of Documents

4.1.2		Form of Certificate for the Series A Preferred Shares. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 22, 2004 (File No. 1-14760).

4.1.3		Form of Certificate for the Series B Preferred Shares. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 1, 2004 (File No. 1-14760).

4.1.4		Form of Certificate for the Series C Preferred Shares. Incorporated by reference to RAIT’s Form 8-A as filed with the SEC on June 29, 2007 (File No. 1-14760).

4.1.5		Form of Certificate for the Series D Preferred Shares. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 23, 2012 (File No. 1-14760).

4.1.6		Form of Certificate for the Series E Preferred Shares. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 23, 2012 (File No. 1-14760).

4.2.1		Base Indenture dated as of December 10, 2013 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 13, 2013 (File No. 1-14760).

4.2.2		Supplemental Indenture dated as of December 10, 2013 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 13, 2013 (File No. 1-14760).

4.2.3		Form of RAIT 4.00% Convertible Senior Note due 2033 (included in Exhibit 4.2.2). Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 13, 2013 (File No. 1-14760).

4.3.1		Base Indenture dated as of March 21, 2011 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 22, 2011 (File No. 1-14760).

4.3.2		Supplemental Indenture dated as of March 21, 2011 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 22, 2011 (File No. 1-14760).

4.4		Indenture dated as of October 5, 2011 between RAIT and Wilmington Trust, National Association, as trustee. Incorporated by reference to RAIT’s Form 10-Q for the quarterly period ended September 30, 2011 (File No. 1-14760).

4.5.1		Registration Rights Agreement dated as of October 1, 2012 by and among RAIT and ARS VI Investor I, LLC (“ARS VI”). Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 4, 2012 (File No. 1-14760).

4.5.2		Amendment No. 1 to Registration Rights Agreement dated as of April 25, 2014 by and among RAIT and ARS VI. Incorporated by reference to RAIT’s Registration Statement on Form S-3 (Registration No. 333-195547).

4.5.3		Common Share Purchase Warrant No.1 dated October 17, 2012 issued by RAIT to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 23, 2012 (File No. 1-14760).

4.5.4		Common Share Appreciation Right No.1 dated October 17, 2012 issued by RAIT to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on October 23, 2012 (File No. 1-14760).

4.5.5		Common Share Purchase Warrant No. 2 dated November 15, 2012 issued by RAIT to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on November 21, 2012 (File No.1-14760).

4.5.6		Common Share Appreciation Right No. 2 dated November 15, 2012 issued by RAIT to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on November 21, 2012 (File No.1-14760).

4.5.7		Common Share Purchase Warrant No. 3 dated December 18, 2012 issued by RAIT to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 18, 2012 (File No.1-14760).

4.5.8		Common Share Appreciation Right No. 3 dated December 18, 2012 issued by RAIT to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 18, 2012 (File No.1-14760).

4.5.9		Common Share Purchase Warrant No. 4 dated March 27, 2014 issued by RAIT Financial Trust to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 27, 2014 (File No. 1-14760).

4.5.10		Common Share Appreciation Right No. 4 dated March 27, 2014 issued by RAIT Financial Trust to ARS VI. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on March 27, 2014 (File No. 1-14760).

Exhibit Number		Description of Documents

4.6.1		Base Indenture dated as of December 10, 2013 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 13, 2013 (File No. 1-14760).

4.6.2		Supplemental Indenture dated as of December 10, 2013 between RAIT, as issuer, and Wells Fargo Bank, National Association., as trustee. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 13, 2013 (File No. 1-14760).

4.6.3		Form of RAIT 4.00% Convertible Senior Note due 2033 (included in Exhibit 4.6.2). Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on December 13, 2013 (File No. 1-14760).

4.6.4		Second Supplemental Indenture, dated as of April 14, 2014, between RAIT Financial Trust, as issuer, and Wells Fargo Bank, National Association, as trustee. Incorporated by reference to RAIT’s Form 8-A as filed with the SEC on April 14, 2014. (File No. 1-14760).

4.6.5		Form of 7.625% Senior Notes due 2024 (included as Exhibit A to Exhibit 4.6.4 hereto).

4.6.6		Third Supplemental Indenture, dated as of August 14, 2014, between RAIT, as Issuer, and Wells Fargo Bank, National Association, as trustee. Incorporated by reference to RAIT’s Form 8-A as filed with the SEC on August 14, 2014.

4.6.7		Form of 7.125% Senior Notes due 2019 (included as Exhibit A to Exhibit 4.6.6 hereto).

		Certain Instruments defining the rights of holders of long-term debt securities of the Registrant and its subsidiaries are omitted pursuant to Item 601(b)(4)(iii) of Regulation S-K. The Registrant hereby undertakes to furnish to the SEC, upon request, copies of any such instruments.

10.1		Terms of 2015 Annual Incentive Compensation Plan (the “2015 AICP”) and the 2015 Long Term Incentive Plan (the “2015 LTIP”) and the 2015 awards made thereunder adopted under the RAIT 2012 Incentive Award Plan (“IAP”). Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on April 6, 2016 (File No. 1-14760).

10.2		Terms of the 2015 AICP and the 2015 LTIP and the 2016 LTIP and the 2016 awards made thereunder adopted under the IAP. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on April 28, 2016 (File No. 1-14760).

10.3		RAIT 2016 Annual Incentive Compensation Plan Form of Target Cash Bonus Award Grant Agreement adopted under the RAIT 2012 Incentive Award Plan (“IAP”). Filed herewith.

10.4		RAIT 2016 Long Term Incentive Plan Form of Performance Share Unit Award Grant Agreement adopted under the IAP. Filed herewith.

10.5		Amendment 2016-1 to RAIT 2015 Long Term Incentive Plan Form of Performance Share Unit Award Grant Agreement adopted under the IAP. Filed herewith.

10.6		Share Award Grant Agreement dated as of May 23, 2016 from RAIT Financial Trust to Scott L.N. Davidson under the terms of the RAIT Financial Trust 2012 Incentive Award Plan. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on May 25, 2016.

10.7		Second Amendment dated as of July 28, 2016 among RAIT CMBS Conduit I, LLC (“Seller I”) and RAIT CRE Conduit III, LLC (“Seller III”), RAIT Financial Trust (to reaffirm its guaranty of the Citi MRA (defined below)) and Citibank, N.A. (“Citibank”) to the Amended and Restated Master Repurchase Agreement, dated as of July 28, 2014 among Seller I, Seller III and Citibank (the “Citi MRA”). Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on July 29, 2016

12.1		Statements regarding computation of ratios as of June 30, 2016, filed herewith.

31.1		Rule 13a-14(a) Certification by the Chief Executive Officer of RAIT, filed herewith.

31.2		Rule 13a-14(a) Certification by the Chief Financial Officer of RAIT, filed herewith.

32.1		Section 1350 Certification by the Chief Executive Officer of RAIT, filed herewith.

32.2		Section 1350 Certification by the Chief Financial Officer of RAIT, filed herewith.

99.1		Material U.S. Federal Income Tax Considerations. Incorporated by reference to RAIT’s Form 8-K as filed with the SEC on July 29, 2016.

Maryland	23-2919819
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Two Logan Square, 100 N. 18th Street, 23^rd Floor, Philadelphia, PA	19103
(Address of principal executive offices)	(Zip Code)

Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

		Page

	PART I—FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)	1

	Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015	1

	Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015	2

	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2016 and 2015	3

	Consolidated Statement of Changes in Equity for the Six Months Ended June 30, 2016	4

	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015	5

	Notes to Consolidated Financial Statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	57

Item 4.	Controls and Procedures	57

	PART II—OTHER INFORMATION

Item 1.	Legal Proceedings	58

Item 1A.	Risk Factors	58

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58

Item 6.	Exhibits	58

	Signatures	59

	Book Value
	As of June 30, 2016			As of December 31, 2015
Multi-family real estate properties (1)	$	1,725,202		$	1,842,704
Office real estate properties		399,642			395,224
Industrial real estate properties		101,010			94,938
Retail real estate properties		134,219			134,331
Parcels of land		49,066			50,448
Subtotal		2,409,139			2,517,645
Less: Accumulated depreciation and amortization (1)		(209,096	)		(198,326	)
Investments in real estate	$	2,200,043		$	2,319,319

Description	Fair Value of Assets Acquired During the Six Months Ended June 30, 2016
Assets acquired:
Investments in real estate	$	16,652
Cash and cash equivalents		66
Restricted cash		221
Accounts receivable and other assets		5
Intangible assets		2,610
Total assets acquired		19,554
Liabilities assumed:
Indebtedness, net		17,696
Accounts payable and accrued expenses		448
Other liabilities		1,068
Total liabilities assumed		19,212
Estimated fair value of net assets acquired	$	342

	As of June 30, 2016
Credit Status	Commercial Mortgage Loans		Mezzanine Loans		Preferred Equity		Total
Satisfactory	$	1,223,266	$	113,529	$	31,024	$	1,367,819
Watchlist / Impaired		92,035		29,053		7,914		129,002
Total	$	1,315,301	$	142,582	$	38,938	$	1,496,821

	As of June 30, 2016
Watchlist/Impaired Loans	Commercial Mortgage Loans		Mezzanine Loans		Preferred Equity		Total
Watchlist/Impaired loans expecting full recovery	$	74,800	$	—	$	—	$	74,800
Watchlist/Impaired loans with reserves		17,235		29,053		7,914		54,202
Total Watchlist/Impaired Loans (1)	$	92,035	$	29,053	$	7,914	$	129,002
Allowance for loan losses	$	4,397	$	10,861	$	2,979	$	18,237

Description	Total Estimated Fair Value
Fair value of consideration transferred:
Investments in loans, accrued interest receivable and other assets (net of allowance for loan losses of $1,213)	$	332
Total	$	332

	For the Three Months Ended June 30, 2016					For the Six Months Ended June 30, 2016
Property	Total Revenue		Net income (loss) allocable to common shares			Total Revenue		Net income (loss) allocable to common shares
Indiana Portfolio	$	546	$	(318	)	$	546	$	(318	)
Total	$	546	$	(318	)	$	546	$	(318	)

	For the Three Months ended June 30,					For the Six Months ended June 30,
Description	2016			2015		2016			2015
Pro forma total revenue (unaudited)	$	85,356		$	80,330	$	173,700		$	156,174
Pro forma net income (loss) allocable to common shares (unaudited)		(7,546	)		18,930		(25,355	)		11,807
Earnings (loss) per share attributable to common shareholders
Basic-as pro forma (unaudited)		(0.08	)		0.23		(0.28	)		0.14
Diluted-as pro forma (unaudited)		(0.08	)		0.21		(0.28	)		0.14

	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

Liabilities:	Quoted Prices in Active Markets for Identical Assets (Level 1) (a)		Significant Other Observable Inputs (Level 2) (a)		Significant Unobservable Inputs (Level 3) (a)		Balance as of June 30, 2016
Junior subordinated notes, at fair value	$	—	$	—	$	10,789	$	10,789
Derivative liabilities		—		3,972		—		3,972
Warrants and investor SARs		—		—		29,300		29,300
Total liabilities	$	—	$	3,972	$	40,089	$	44,061

Aggregate purchase price			$	100,000
Initial value of warrants and investor SARs issued to-date	(21,805	)
Costs incurred	(6,834	)
Total discount				(28,639	)
Discount amortization to-date				17,500
Carrying amount of Series D Preferred Shares			$	88,861

	Carrying Value		Weighted- Average Coupon		Range of Maturities	Number of Loans
Commercial Real Estate (CRE) Loans
Commercial mortgages	$	1,314,349		5.7%	Jul. 2016 to Jan. 2029		109
Mezzanine loans		142,364		9.6%	Sep. 2016 to Jan. 2029 (1)		42
Preferred equity interests		38,937		7.5%	Sep. 2016 to Aug. 2025		15
Total investments in loans	$	1,495,650		6.1%			166

	AUM as of June 30, 2016		AUM as of December 31, 2015
Commercial real estate loan portfolio (1)	$	3,904,482	$	4,144,765
Property management (2)		1,586,966		1,778,836
Total	$	5,491,448	$	5,923,601

Period	Total Number of Shares Purchased			Price Paid per Share			Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs
04/01/2016 to 04/30/2016		-	(1)	$	-	(1)		-		-
05/01/2016 to 05/31/2016		17,469	(1)	$	3.10	(1)		17,469		-
06/01/2016 to 06/30/2016		-	(1)	$	-	(1)		-		-
Total		17,469	(1)	$	3.10	(1)		17,469		-

	RAIT FINANCIAL TRUST (Registrant)

Date: August 8, 2016	By:	/s/ Scott F. Schaeffer
		Scott F. Schaeffer, Chairman of the Board and Chief Executive Officer
		(On behalf of the registrant and as its Principal Executive Officer)

Date: August 8, 2016	By:	/s/ James J. Sebra
		James J. Sebra, Chief Financial Officer and Treasurer
		(On behalf of the registrant and as its Principal Financial Officer)

Date: August 8, 2016	By:	/s/ Alfred J. Dilmore
		Alfred J. Dilmore, Chief Accounting Officer
		(On behalf of the registrant and as its Principal Accounting Officer)