PHILADELPHIA--(BUSINESS WIRE)--RAIT Financial Trust  (NYSE:RAS), a national direct lender to owners of commercial real estate and an internally-managed real estate investment trust, today confirmed that it has received a notice of nomination from an affiliate of Highland Capital Management, L.P. regarding its intention to nominate five trustee candidates to RAIT’s nine-member board of trustees and, thereby, seek to take control of RAIT by replacing more than a majority of the members of the Board at RAIT’s 2017 Annual Meeting of Shareholders. Highland’s five nominees include two individuals employed by Highland and one individual who serves on the board of directors of a Highland affiliate. RAIT shareholders are not required to take any action at this time.

RAIT issued the following statement:

RAIT strives to maintain constructive, ongoing communication and regular engagement with its shareholders, including Highland, to understand their perspectives on RAIT’s strategic growth plan and its various initiatives for enhancing shareholder value. In that regard, since last summer, we have held numerous discussions with Highland’s principals, both in person and via telephone, to hear their views and concerns, including any suggestions and alternate strategies they may have for enhancing value for all RAIT shareholders.

RAIT provided Highland with numerous opportunities to present its ideas. Unfortunately other than strategies RAIT has been pursuing well before Highland filed its initial Schedule 13D with the U.S. Securities and Exchange Commission on October 7, 2016, Highland has failed to provide us with any credible and actionable plan for driving the long-term success of RAIT for the benefit of all RAIT shareholders.

In our discussions with Highland, its primary focus has been that RAIT should externalize its management and enter into a advisory agreement with a Highland affiliate pursuant to a transaction, the details of which Highland has failed to share with us, despite numerous attempts by us and our advisors to have them provide us with pertinent and necessary information to address our questions and concerns regarding fundamental issues, including how Highland would address the inherent and extensive conflicts of interest that would be caused by an externalization, and how Highland would seek to ensure that our shareholders’ interests would remain protected post-externalization. The only aspect of Highland’s self-interested and opportunistic proposed transaction that Highland has made abundantly clear is that, pursuant to its proposed transaction, a Highland affiliate would receive a very substantial recurring fee from RAIT.

As we have indicated to Highland repeatedly, we remain open to learning more about its externalization of management proposal and, consistent with our Board’s fiduciary duties, considering a more appropriately detailed and specific proposal from Highland that addresses our questions and concerns, including why it believes that its proposal is in the best interests of all RAIT shareholders rather than just Highland and its affiliates.

Rather than address our questions and concerns in a constructive manner, Highland has, instead, chosen to threaten us with a potentially costly and distracting proxy contest to take control of RAIT by replacing five out of the nine members of our highly-qualified and very experienced Board to further its own self-interested and opportunistic agenda.

Over the past thirteen months, RAIT has been pursuing a comprehensive strategy to transform RAIT into a more focused, cost-efficient and lower leverage business concentrated on its core commercial real estate lending business. This is an initiative that was under way well before Highland’s initial Schedule 13D filing on October 7, 2016. In connection with executing its strategy and transformation initiative, RAIT has identified several key priorities designed to differentiate RAIT, improve RAIT’s margins and enhance shareholder value over time by delivering stable and repeatable risk-adjusted returns. RAIT’s transformational strategy is focused on the following priorities:

• Focus RAIT’s business on its core middle-market commercial real estate lending business;
• Opportunistically divest and maximize the value of RAIT’s legacy owned real estate (REO) portfolio and ultimately minimize RAIT’s REO holdings;
• Opportunistically divest and maximize the value of RAIT’s commercial property management business, including our Urban Retail property management business;
• Optimize RAIT’s capital structure and reduce its outstanding indebtedness;
• Reduce RAIT’s total expense base;
• Reallocate RAIT’s capital and cash proceeds received from divesting its non-core assets into growing its core middle-market commercial real estate lending activities; and
• Continue distributing cash to RAIT’s shareholders on a regular basis through dividends.

Among the milestones that have been achieved by RAIT, to date, in successfully driving this transformation, have been the following:

• The monetization of RAIT’s investment in Independence Realty Trust, Inc. (IRT) and RAIT’s multi-family property management business, a series of transactions that ultimately provided RAIT with aggregate proceeds of $105.2 million and enabled RAIT to deconsolidate IRT from its financial statements;
• The sale of 18 properties from its REO portfolio which generated aggregate gross proceeds of $337.9 million;
• A reduction in RAIT’s indebtedness, based on principal amount, of $664.6 million, or 27.1%, during the year ended December 31, 2016;
• A reduction in RAIT’s employee headcount from 750 employees at the start of 2016 to 290 employees; and
• A reduction in RAIT’s compensation and G&A expenses by 35.3%, from $49.0 million for the year ended December 31, 2015 to $31.7 million for the year ended December 31, 2016.

To oversee and execute RAIT’s strategy and transition to a simpler, more cost efficient and lower leverage business model focused on its commercial real estate lending business, late last year, RAIT announced a new Board leadership structure and management changes. Effective October 18, 2016, Michael J. Malter, who joined the RAIT board in November 2015 and was previously employed by J.P. Morgan Chase & Co. in a variety of senior management roles, was named by the Board to serve as its non-executive independent chairman. In connection with the consummation of the internalization of IRT’s management, effective December 20, 2016, Scott Davidson, who serves as President of RAIT and formerly served as the head of its lending business, became RAIT’s Chief Executive Officer and was concurrently appointed to RAIT’s Board. RAIT’s senior leadership was further bolstered this week by the appointment of Paul W. Kopsky, Jr., a highly accomplished executive with extensive financial and operational leadership expertise across a diverse range of industries, to succeed James J. Sebra as RAIT’s Chief Financial Officer and Treasurer.

RAIT’s Board, led by Mr. Malter as its independent non-executive chairman, is composed of nine highly-qualified and experienced trustees, eight of whom are non-employees, and all of whom are actively engaged in overseeing management as it executes on its plans for enhancing shareholder value. We believe our trustees have the integrity, knowledge, breadth of relevant and diverse experience and commitment necessary to navigate RAIT through the complex, dynamic and highly competitive business environment in which we operate and to deliver superior value to all of our shareholders. Our trustees bring with them a broad and diverse set of skills and experiences, including in the areas of commercial real estate finance and lending, commercial real estate management, mortgage REITS, investment banking, private equity, banking, finance, accounting, financial reporting, corporate governance, law, mergers and acquisitions, capital markets, capital allocation, capital structure, risk management and strategic planning.

The RAIT Board appreciates the importance of recruiting new trustees to bring new perspectives, insights, experiences and competencies to the Board. Of the nine current members of the RAIT Board, three have joined the RAIT Board within the last 15 months, including Thomas D. Wren, a veteran financial services executive and former federal banking regulator with substantial financial, regulatory, capital markets and mortgage REIT expertise, whose addition to the Board as an independent trustee was publicly announced last week.

The RAIT Board will present its formal recommendation regarding trustee nominations in RAIT’s definitive proxy statement to be filed with the Securities and Exchange Commission in connection with its 2017 Annual Meeting of Shareholders.

UBS Investment Bank is serving as financial advisor, Morgan, Lewis & Bockius LLP is serving as legal advisor, and FTI Consulting, Inc. is serving as investor relations advisor, to RAIT.

About RAIT Financial Trust

RAIT Financial Trust (NYSE:RAS) is an internally managed real estate investment trust focused on providing debt financing options to owners of commercial real estate. Additional information about RAIT can be found on its website at www.rait.com.