RAIT Financial Trust Announces Third Quarter 2014 Financial Results

RAIT Financial Trust (“RAIT”) (NYSE: RAS) today announced third quarter 2014 financial results.

Financial Performance

• Total revenues grew 20.7% to $75.3 million for the quarter ended September 30, 2014 from $62.4 million for the quarter ended September 30, 2013.
• Cash Available for Distribution (“CAD”) per share was $0.00 for the quarter ended September 30, 2014 as a result of the previously announced SEC settlement charge pertaining to Taberna Capital Management of $21.5 million or $0.26 per share.

Dividends

• On September 15, 2014, RAIT declared a third quarter 2014 common dividend of $0.18 per share, representing a 20% increase from the third quarter 2013 common dividend of $0.15 per common share. The third quarter common dividend record date was October 7, 2014 and will be paid on October 31, 2014. RAIT’s board expects to declare a fourth quarter dividend of at least $0.18 per common share.

CRE Loan Portfolio

• Investments in mortgages and loans increased 22.0% to $1.37 billion at September 30, 2014 from $1.12 billion at December 31, 2013.
• RAIT originated $255.8 million of loans during the quarter ended September 30, 2014 consisting of $102.1 million bridge loans and $153.7 million conduit loans. RAIT originated $726.5 million of loans for the nine-month period ended September 30, 2014.
• RAIT sold $119.6 million of conduit loans during the quarter ended September 30, 2014 which generated $3.5 million of fee income.

CRE Property Portfolio

• Average effective rent per unit per month in RAIT’s multifamily portfolio increased 6.6% to $811 for the quarter ended September 30, 2014 from $761 for the quarter ended September 30, 2013.
• As of September 30, 2014, RAIT’s investments in real estate increased 39% to $1.4 billion from $1.0 billion at December 31, 2013.
• Rental income increased 43% to $41.8 million during the quarter ended September 30, 2014 from $29.2 million for the quarter ended September 30, 2013 driven largely by the acquisition of 20 properties subsequent to September 30, 2013 which generated $11.0 million of rental income during the quarter ended September 30, 2014.

Assets Under Management

• Assets under management increased 52% to $5.4 billion at September 30, 2014 from $3.6 billion at December 31, 2013 due primarily to inclusion of third party retail properties managed by RAIT’s retail-focused property manager beginning in 2014.

Liquidity

• In August 2014, RAIT issued $71.9 million aggregate principal amount of its 7.125% Senior Notes due 2019 (NYSE: RFTA) in an underwritten public offering. RAIT received approximately $69.2 million of net proceeds.

Scott Schaeffer, RAIT’s Chairman and CEO, said, “We continue executing on our multi-strategy approach to investing in commercial real-estate. During the third quarter, gross loan originations increased 53% to $255.8 million when compared to the third quarter of 2013. Our property portfolio grew through acquisitions and increasing rents which led to a 43% increase in rental income and a 53% increase in net operating income since September 30, 2013. As previously announced, we are undertaking to exit the legacy Taberna business with a goal of completing the process by December 31, 2014.”

Financial Results

RAIT reported CAD, a non-GAAP financial measure, for the three-month period ended September 30, 2014 of $(0.4) million, or $0.00 per share - diluted based on 82.0 million weighted-average shares outstanding – diluted, as compared to CAD for the three-month period ended September 30, 2013 of $15.9 million, or $0.23 per share – diluted based on 70.2 million weighted-average shares outstanding – diluted. RAIT reported a net loss allocable to common shares for the three-month period ended September 30, 2014 of $23.3 million, or $0.28 total loss per share - diluted based on 82.0 million weighted-average shares outstanding – diluted, as compared to net loss allocable to common shares for the three-month period ended September 30, 2013 of $17.1 million, or $0.24 total loss per share – diluted based on 70.2 million weighted-average shares outstanding – diluted. The third quarter 2014 net loss includes $10.2 million of unrealized losses relating primarily to non-cash mark-to-market adjustments in RAIT’s legacy Taberna portfolios and the associated hedges and the $21.5 million SEC settlement charge pertaining to Taberna Capital Management. Non-cash mark-to-market gains and losses are excluded from CAD.

RAIT reported CAD for the nine-month period ended September 30, 2014 of $36.6 million, or $0.45 per share - diluted based on 81.1 million weighted-average shares outstanding – diluted, as compared to CAD for the nine-month period ended September 30, 2013 of $38.7 million, or $0.58 per share – diluted based on 66.8 million weighted-average shares outstanding – diluted. RAIT reported a net loss allocable to common shares for the nine-month period ended September 30, 2014 of $63.5 million, or $0.78 total loss per share - diluted based on 81.1 million weighted-average shares outstanding – diluted, as compared to net loss allocable to common shares for the nine-month period ended September 30, 2013 of $173.5 million, or $2.60 total loss per share – diluted based on 66.8 million weighted-average shares outstanding – diluted. The nine-month period ended September 30, 2014 net loss includes $59.4 million of unrealized losses relating primarily to non-cash mark-to-market adjustments in RAIT’s legacy Taberna portfolios and the associated hedges. Non-cash mark-to-market gains and losses are excluded from CAD.

A reconciliation of RAIT's reported net income (loss) allocable to common shares to its CAD is included as Schedule I to this release. A reconciliation of RAIT's total shareholders’ equity to its adjusted book value, a non-GAAP financial measure, is included as Schedule II to this release. A reconciliation of RAIT's net income (loss) allocable to common shares to its funds from operations (“FFO)”, a non-GAAP financial measure, and adjusted funds from operations (“AFFO”), a non-GAAP financial measure, is included as Schedule III to this release. These Schedules also include management's respective rationales for the usefulness of each of these non-GAAP financial measures.

Key Statistics
(Unaudited and dollars in thousands, except per share information)
As of or For the Three-Month Periods Ended
		September 30, 2014		June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013
Financial Statistics:
Total revenue		$75,293		$73,256		$67,308		$67,607		$62,395
Earnings (loss) per share – diluted		$(0.28)		$(0.31)		$(0.18)		$(1.90)		$(0.24)
CAD per share, diluted		$0.00(5)		$0.24		$0.22		$0.27		$0.23
Common dividend declared per share		$0.18		$0.18		$0.17		$0.16		$0.15
Assets under management		$5,417,579		$5,266,296		$5,119,805		$3,595,530		$3,567,675
FFO per share, diluted		$(0.17)		$(0.20)		$(0.07)		$(1.74)		$(0.12)
Commercial Real Estate (“CRE”) Loan Portfolio:
CRE loans-- unpaid principal		$1,369,138		$1,325,748		$1,228,452		$1,115,949		$1,103,272
Non-accrual loans -- unpaid principal		$40,741		$30,269		$28,019		$37,073		$45,337
Non-accrual loans as a % of reported loans		3.0%		2.3%		2.3%		3.3%		4.1%
Reserve for losses		$15,662		$15,336		$14,279		$22,955		$23,317
Reserves as a % of non-accrual loans		38.4%		50.7%		51.0%		61.9%		51.4%
Provision for losses		$1,500		$1,000		$1,000		$1,500		$500
CRE Property Portfolio:
Reported investments in real estate(1)		$1,400,715		$1,268,769		$1,205,995		$1,004,186		$986,296
Net operating income(1)		$20,932		$19,524		$17,093		$13,919		$13,712
Number of properties owned(1)		80		74		71		62		61
Multifamily units owned(1)		13,516		12,388		12,014		9,372		8,940
Office square feet owned		2,286,284		2,248,321		2,097,022		2,009,852		2,015,524
Retail square feet owned		1,790,969		1,420,909		1,420,909		1,421,059		1,421,059
Land (acres owned)		21.92		21.92		21.92		21.92		21.92
Average occupancy data:
Multifamily(1)		92.7%		92.8%		93.3%		92.2%		92.5%
Office		75.0%		74.3%		74.8%		75.6%		74.1%
Retail		73.3%		67.5%		66.6%		69.0%		68.9%
Average Effective Rent per Unit/Square Foot (2):
Multifamily (1) (3)		$811		$799		$767		$763		$761
Office (4)		$19.64		$20.10		$18.70		$18.40		$19.45
Retail (4)		$12.68		$12.50		$12.44		$12.11		$12.05

(1)		Includes 22 apartment properties owned by RAIT’s consolidated subsidiary, Independence Realty Trust, Inc. (“IRT”) (NYSE MKT: IRT), with 6,470 units and a book value of $423.2 million as of September 30, 2014. At September 30, 2014, RAIT owned 28% of IRT’s outstanding common stock.
(2)		Based on properties owned as of September 30, 2014.
(3)		Average effective rent is rent per unit per month.
(4)		Average effective rent is rent per square foot per year.
(5)		Includes $0.26 SEC settlement charge pertaining to Taberna Capital Management. Excluding this one-time item CAD per share would have been $0.26 per common share.

Conference Call

All interested parties can listen to the live conference call webcast at 9:00 AM ET on Thursday, October 30, 2014 from the home page of the RAIT Financial Trust website at www.rait.com or by dialing 877.703.6109, access code 80662508. For those who are not available to listen to the live call, the replay will be available shortly following the live call on RAIT’s website and telephonically until Thursday, November 6, 2014, by dialing 888.286.8010, access code 88214660.

About RAIT Financial Trust

RAIT Financial Trust is an internally-managed real estate investment trust that provides debt financing options to owners of commercial real estate and invests directly into commercial real estate properties located throughout the United States. In addition, RAIT is an asset and property manager of real estate-related assets. For more information, please visit www.rait.com or call Investor Relations at 215.243.9000.

Forward-Looking Statements

This press release may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as "may," “trend”, "will," "continue," "expect," "intend," "anticipate," "estimate," "believe," “look forward” or other similar words or terms. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements. These risks, uncertainties and contingencies include, but are not limited to, the current uncertainty in the global financial markets and the global economy; the risk that the settlement with the SEC will not be finalized and/or approved or that any final settlement will have different or additional material terms, the risk that RAIT will not be able to commit to or complete exiting the Taberna business, whether RAIT’s actual business performance, developments and ability to access the capital markets and economic conditions affecting commercial real estate will affect RAIT’s ability to realize its ability to pay the fourth quarter 2014 dividend and those disclosed in RAIT’s filings with the Securities and Exchange Commission. RAIT undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events, except as may be required by law.

RAIT Financial Trust
Consolidated Statements of Operations
(Dollars in thousands, except share and per share information)
(unaudited)
		For the Three-Month							For the Nine-Month
		Periods Ended							Periods Ended
		September 30,							September 30,
Revenues:		2014			2013				2014			2013
Net interest margin:
Investment Interest income		$	33,273		$	32,730			$	102,882		$	95,266
Investment Interest expense			(7,636)			(8,235)				(22,342)			(22,996)
Net interest margin			25,637			24,495				80,540			72,270
Rental income			41,814			29,233				116,204			84,260
Fee and other income			7,842			8,667				19,113			22,738
Total revenue			75,293			62,395				215,857			179,268
Expenses:
Interest expense			13,910			10,052				38,756			29,696
Real estate operating expense			20,882			15,521				58,655			44,842
Compensation expense			7,187			6,565				23,118			19,849
General and administrative expense			4,756			3,046				13,239			10,384
Acquisition expense			816			199				1,408			199
Provision for losses			1,500			500				3,500			1,500
Depreciation and amortization expense			13,236			8,784				38,719			25,972
Total expenses			62,287			44,667				177,395			132,442
Operating income			13,006			17,728				38,462			46,826
Other income (expense)			(21,464)			(3,849)				(21,449)			(3,704)
Gains (losses) on assets			25			(191)				(5,350)			30
Gains (losses) on extinguishment of debt			-			-				2,421			-
Change in fair value of financial instruments			(10,223)			(24,659)				(59,433)			(200,436)
Income (loss) before taxes and discontinued operations			(18,656)			(10,971)				(45,349)			(157,284)
Income tax benefit (provision)			2,194			(164)				2,454			470
Net income (loss)			(16,462)			(11,135)				(42,895)			(156,814)
(Income) loss allocated to preferred shares			(7,407)			(6,024)				(20,628)			(16,831)
(Income) loss allocated to noncontrolling interests			603			53				20			130
Net income (loss) allocable to common shares		$	(23,266)		$	(17,106)			$	(63,503)		$	(173,515)
Earnings (loss) per share—Basic:
Total earnings (loss) per share—Basic		$	(0.28)		$	(0.24)			$	(0.78)		$	(2.60)
Weighted-average shares outstanding—Basic			81,967,806			70,192,918				81,111,796			66,807,299
Earnings (loss) per share—Diluted:
Total earnings (loss) per share—Diluted		$	(0.28)		$	(0.24)			$	(0.78)		$	(2.60)
Weighted-average shares outstanding—Diluted			81,967,806			70,192,918				81,111,796			66,807,299

RAIT Financial Trust
Consolidated Balance Sheets
(Dollars in thousands, except share and per share information)
(unaudited)
		As of			As of
		September 30,			December 31,
		2014			2013
Assets
Investments in mortgages and loans, at amortized cost:
Commercial mortgages, mezzanine loans, other loans and preferred equity interests		$	1,369,782		$	1,122,377
Allowance for losses			(15,662)			(22,955)
Total investments in mortgages and loans			1,354,120			1,099,422
Investments in real estate, net of accumulated depreciation of $155,815 and $127,745, respectively			1,400,715			1,004,186
Investments in securities and security-related receivables, at fair value			568,279			567,302
Cash and cash equivalents			116,767			88,847
Restricted cash			133,374			121,589
Accrued interest receivable			54,929			48,324
Other assets			78,948			57,081
Deferred financing costs, net of accumulated amortization of $23,830 and $17,768, respectively			25,141			18,932
Intangible assets, net of accumulated amortization of $10,940 and $4,564, respectively			23,944			21,554
Total assets		$	3,756,217		$	3,027,237
Liabilities and Equity
Indebtedness:
Recourse indebtedness		$	501,273		$	235,011
Non-recourse indebtedness			2,112,044			1,851,390
Total indebtedness			2,613,317			2,086,401
Accrued interest payable			34,164			26,936
Accounts payable and accrued expenses			58,579			32,447
Derivative liabilities			81,998			113,331
Deferred taxes, borrowers’ escrows and other liabilities			132,200			79,462
Total liabilities			2,920,258			2,338,577
Series D Preferred Shares, 4,000,000 shares authorized, 4,000,000 and 2,600,000 shares issued and outstanding			76,176			52,970
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 and 4,760,000 shares authorized, 4,075,569 and 4,069,288 shares issued and outstanding			41			41
8.375% Series B cumulative redeemable preferred shares, liquidation preference $25.00 per share, 4,300,000 shares authorized, 2,288,465 shares issued and outstanding			23			23
8.875% Series C cumulative redeemable preferred shares, liquidation preference $25.00 per share, 3,600,000 shares authorized, 1,640,100 shares issued and outstanding			17			17
Series E cumulative redeemable preferred shares, liquidation preference $25.00 per share, 4,000,000 shares authorized			-			-
Common shares, $0.03 par value per share, 200,000,000 shares authorized, 82,509,635 and 71,447,437 issued and outstanding, including 541,575 and 369,500 unvested restricted common share awards			2,474			2,143
Additional paid in capital			2,008,814			1,920,455
Accumulated other comprehensive income (loss)			(43,039)			(63,810)
Retained earnings (deficit)			(1,364,168)			(1,257,306)
Total shareholders’ equity			604,162			601,563
Noncontrolling interests			155,621			34,127
Total equity			759,783			635,690
Total liabilities and equity		$	3,756,217		$	3,027,237

Schedule I
RAIT Financial Trust
Reconciliation of Net income (loss) Allocable to Common Shares and
Cash Available for Distribution (1)
(Dollars in thousands, except share and per share amounts)
(unaudited)
		For the Three-Month Period Ended September 30,								For the Nine-Month Period Ended September 30,
		2014				2013				2014				2013
		Amount		Per Share (2)		Amount		Per Share (3)		Amount		Per Share (2)		Amount		Per Share (3)
Cash Available for Distribution:
Net income (loss) allocable to common shares		$(23,266)		$ (0.28)		$(17,106)		$(0.24)		$(63,503)		$ (0.77)		$(173,515)		$(2.60)
Adjustments:
Depreciation and amortization expense		13,236		0.16		8,784		0.13		38,719		0.47		25,972		0.39
Change in fair value of financial instruments		10,223		0.13		24,659		0.35		59,433		0.73		200,436		3.00
(Gains) losses on assets		(25)		0.00		191		0.00		5,350		0.07		(30)		0.00
(Gains) losses on extinguishment of debt		-		-		-		-		(2,421)		(0.03)		-		-
Taberna VIII and Taberna IX securitizations, net effect		(6,975)		(0.09)		(8,176)		(0.12)		(21,063)		(0.26)		(26,178)		(0.39)
Straight-line rental adjustments		(238)		0.00		(428)		(0.01)		(329)		0.00		(1,394)		(0.02)
Share-based compensation		1,148		0.01		1,096		0.02		3,777		0.05		2,562		0.04
Origination fees and other deferred items		5,718		0.07		6,807		0.10		15,450		0.18		9,785		0.15
Provision for losses		1,500		0.02		500		0.01		3,500		0.04		1,500		0.02
Noncontrolling interest effect from certain adjustments		(1,716)		(0.02)		(405)		(0.01)		(2,351)		(0.03)		(414)		(0.01)
Cash Available for Distribution		$(395)		$0.00		$15,922		$0.23		$36,562		$0.45		$38,724		$0.58

(1)		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 dividends. 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). Furthermore, CAD removes the effect from our consolidation of the legacy Taberna securitizations.
		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, including such changes reflected in our consolidated Taberna securitizations; net interest income from consolidated Taberna securitizations; realized gain (loss) on assets and other; provision for loan losses; impairment on depreciable property; 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 U.S. GAAP and certain other non-recurring items.
		CAD should not be considered as an alternative to net income (loss), determined in accordance with U.S. GAAP, as an indicator of operating performance. 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. In these Schedules, references to “we”, “us”, and “our” refer to RAIT Financial Trust and its subsidiaries.
(2)		Based on 81,967,806 and 81,111,796 weighted-average shares outstanding-diluted for the three-month period and nine-month period ended September 30, 2014.
(3)		Based on 70,192,918 and 66,807,299 weighted-average shares outstanding-diluted for the three-month period and nine-month period ended September 30, 2013.

Schedule II
RAIT Financial Trust
Reconciliation of Shareholders’ Equity to Adjusted Book Value (1)
(Dollars in thousands, except share and per share amounts)
(unaudited)
		As of September 30, 2014
		Amount		Per Share (2)
Total shareholders’ equity		$ 604,162		$ 7.32
Liquidation value of preferred shares characterized as equity(3)		(200,103)		(2.42)
Book value		404,059		4.90
Adjustments:
Taberna VIII and Taberna IX securitizations, net effect		(214,101)		(2.59)
RAIT I and RAIT II derivative liabilities		25,127		0.30
Change in fair value for warrants and investor SARs		6,766		0.08
Accumulated depreciation and amortization		198,901		2.41
Valuation of recurring collateral, property management fees and other items (4)		88,827		1.08
Total adjustments		$ 105,520		$ 1.28
Adjusted book value		$ 509,579		$ 6.18

(1)		Management views adjusted book value as a useful and appropriate supplement to shareholders’ equity and book value per share. The measure serves as an additional measure of our value because it facilitates evaluation of us without the effects of various items that we are required to record in accordance with GAAP but which have limited economic impact on our business. Those adjustments primarily reflect the effect of consolidated securitizations where we do not currently receive cash flows on our retained interests, accumulated depreciation and amortization, the valuation of long-term derivative instruments and a valuation of our recurring collateral and property management fees. Adjusted book value is a non-GAAP financial measurement, and does not purport to be an alternative to reported shareholders’ equity, determined in accordance with GAAP, as a measure of book value. Adjusted book value should be reviewed in connection with shareholders’ equity as set forth in our consolidated balance sheets, to help analyze our value to investors. Adjusted book value may be defined in various ways throughout the REIT industry. Investors should consider these differences when comparing our adjusted book value to that of other REITs.
(2)		Based on 82,509,635 common shares outstanding as of September 30, 2014.
(3)		Based on 4,075,569 Series A preferred shares, 2,288,465 Series B preferred shares, and 1,640,100 Series C preferred shares outstanding as of September 30, 2014, all of which have a liquidation preference of $25.00 per share.
(4)		Includes the estimated value of the (1) property management and collateral management fees to be received by RAIT as of September 30, 2014 from RAIT Residential and Urban Retail, and the Taberna I, Taberna VIII, Taberna IX, RAIT I and RAIT II securitizations and (2) advisory fees to be received by RAIT from IRT as of September 30, 2014 assuming the full deployment of IRT’s July 2014 common stock offering. The other item included is the incremental market value of RAIT’s ownership of 7.3 million shares of IRT common stock over RAIT’s book value for these shares at September 30, 2014.

Schedule III
RAIT Financial Trust
Reconciliation of Net income (loss) Allocable to Common Shares and
Funds From Operations (“FFO”) and
Adjusted Funds From Operations (“AFFO”) (1)
(Dollars in thousands, except share and per share amounts)
(unaudited)
		For the Three-Month Period Ended September 30,								For the Nine-Month Period Ended September 30,
		2014				2013				2014				2013
		Amount		Per Share (2)		Amount		Per Share (3)		Amount		Per Share (2)		Amount		Per Share (3)
Funds From Operations:
Net income (loss) allocable to common shares		$(23,266)		$ (0.28)		$(17,106)		$ (0.24)		$(63,503)		$ (0.78)		$(173,515)		$ (2.60)
Adjustments:
Real estate depreciation and amortization		9,116		0.11		8,517		0.12		27,250		0.34		24,540		0.37
(Gains) losses on the sale of real estate		(2)		0.00		191		0.00		319		0.00		1,517		0.02
Funds From Operations		$(14,152)		$(0.17)		$(8,398)		$(0.12)		$(35,934)		$(0.44)		$(147,458)		$(2.21)
Adjusted Funds From Operations:
Funds From Operations		$(14,152)		$(0.17)		$(8,398)		$(0.12)		$(35,934)		$(0.44)		$(147,458)		$(2.21)
Adjustments:
Change in fair value of financial instruments		10,223		0.12		24,659		0.35		59,433		0.73		200,436		3.00
(Gains) losses on debt extinguishment		-		-		-		-		(2,421)		(0.03)		-		-
Capital expenditures, net of direct financing		(1,754)		(0.02)		(889)		(0.01)		(3,696)		(0.05)		(1,858)		(0.03)
Straight-line rental adjustments		(238)		0.00		(428)		(0.01)		(329)		0.00		(1,394)		(0.02)
Amortization of deferred items and intangible assets		7,394		0.09		6,912		0.10		21,225		0.26		11,312		0.17
Share-based compensation		1,148		0.01		1,096		0.02		3,777		0.05		2,562		0.04
Adjusted Funds From Operations		$2,621		$0.03		$22,952		$0.33		$42,055		$0.52		$63,600		$0.95

(1)		We believe that funds from operations, or FFO, and adjusted funds from operations, or AFFO, each of which are non-GAAP measures, are additional appropriate measures of the operating performance of a REIT and us in particular.
		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.
		AFFO is a computation made by analysts and investors to measure a real estate company's cash flow generated by operations. We calculate AFFO by adding to or subtracting from FFO: change in fair value of financial instruments; gains or losses on debt extinguishment; capital expenditures, net of any direct financing associated with those capital expenditures; straight-line rental effects; amortization of various deferred items and intangible assets; and share-based compensation.
		Our calculation of AFFO differs from the methodology used for calculating AFFO by certain other REITs and, accordingly, our AFFO may not be comparable to AFFO reported by other REITs. Our management utilizes FFO and AFFO as measures of our operating performance, and believes they are also useful to investors, because they facilitate an understanding of our operating performance after adjustment for certain non-cash items, such as real estate depreciation, share-based compensation and various other items required by GAAP that may not necessarily be indicative of current operating performance and that may not accurately compare our operating performance between periods. Furthermore, although FFO, AFFO and other supplemental performance measures are defined in various ways throughout the REIT industry, we also believe that FFO and AFFO may provide us and our investors with an additional useful measure to compare our financial performance to certain other REITs.
		Neither FFO nor AFFO is equivalent to net income or cash generated from operating activities determined in accordance with U.S. GAAP. Furthermore, FFO and AFFO do not represent amounts available for management's discretionary use because of needed capital replacement or expansion, debt service obligations or other commitments or uncertainties. Neither FFO nor AFFO should 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.
(2)		Based on 81,967,806 and 81,111,796 weighted-average shares outstanding-diluted for the three-month period and nine-month period ended September 30, 2014.
(3)		Based on 70,192,918 and 66,807,299 weighted-average shares outstanding-diluted for the three-month period and nine-month period ended September 30, 2013.