RAS Weathering Crisis

An update has just come out today on RAIT Financial Trust (RAS - Snapshot Report), in which Zacks real estate investment trust [REIT] analyst Greg Sukenik is restating his Hold rating on the company.  We excerpted the following details:

"As expected, RAS reported a large asset impairment charge in the 3rd quarter related to its trust preferred securities (TruPS) portfolio. We expect more impairments in the coming quarters due to bad loans. The dividend, while much lower than earlier this year, appears to be safe for now at $0.46 per share. Adjusted EPS for the 3rd quarter, excluding impairments was $0.54.

"The stock has been in a tailspin, dropping some from nearly $40 per share in the beginning of 2007. The dividend was cut in half this year, and this could happen again in 2008. The company currently trades at 0.79x BV. We estimate that the company could take impairments of up to $200 million more due to bad loans next quarter. In the current environment where a major part of the company’s business has vanished, namely TruPS, an investment in RAS is extremely risky and the company could follow many of its mortgage REIT peers and be headed for bankruptcy. RAS has been all but shut off from debt markets and the company will try to redeploy cash in higher yielding investments as loans are paid off.

"If the company can weather the current liquidity crisis, there could be some upside in the shares, although we do not expect any price movement in the near term as more bad news comes from the residential mortgage business. We are maintaining our Hold rating, due to the high yield and the company’s stable cash position. However, shares of RAS pose a great risk, and if more bad news comes to light, margin calls could force the company into bankruptcy. For now, we are setting our price target at $9 per share or 4.0x 2007 EPS estimates and 0.80x P/BV (assuming $200 million more of impairments)."

Read the full analyst report on RAS.