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RAIT Financial Trust Message Board

  • zorro6204 zorro6204 Mar 13, 2009 10:28 AM Flag

    Financial analysis Pt 3. - balance sheet and NAV

    Having projected income, liquidity, AFFO and taxable income, let's turn to the balance sheet. Here's a summary I put together based on the 10K and other sources, categorizing assets into securitizations and other at 12-31-08:

    Assets in securitizations -

    Restricted cash $197,366
    Commercial loans $1,668,475
    Residential loans $3,544,689
    TruPS and other $431,775

    Other assets -

    Commercial loans $254,900
    Real estate $367,739
    TruPS and other $1,489,108

    Free cash $27,463
    Receivables and other (see note) $129,073
    Intangibles $40,862

    Total $8,151,450


    Liabilities and equity -

    MBS $3,364,151
    Trust preferred $162,050
    CDO $2,029,500
    Conv. notes $384,168
    Secured and other financing $178,625

    Interest and other payables (see note) $151,152
    Derivatives $613,852
    Minority interest $190,257
    Preferreds, at face $165,458
    Common equity (net) $912,237

    Total $8,151,450


    Okay, now let's start writing things off. First, all the securitizations are stuck on the books due to accounting technicalities, but they are really like partnerships, or more correctly , LLC's. RAS has an interest akin to a managing member, little skin in the deal, but fees and participations as compensation for putting them together and managing the portfolios. These are long-term packages, and won't go away, but at some point when all the debt holders are paid off, RAS will have a residual interest if anything is left. Right now it's getting zilch in participations, so there is credit building up inside. All of that can of course be driven to zero by bad loans, but it can't go BELOW zero. So, in terms of computing a base NAV, we simply put a line through both sides, wipe out the assets and the nonrecourse debts.

    The TruPS not in securitizations are carried at market, roughly half their adjusted costs. But we'll use the market value for this purpose, I don't even want to present NAV if you assume they climb back closer to face over the next few years. We're looking for worst case numbers here.

    Intangibles are deferred assets, there's no actual cash value there, so we put a line through that account.

    Interest receivable and payable is a tough one, surely most of those accounts belong in the securitizations. But as we don't know the breakdown, and as they roughly pair off and are immaterial to the big picture, we'll leave them alone.

    The derivatives credit is an accounting device placed on the balance sheet through posting an offsetting charge to income (most of the value adjustments on the 2008 income statement were from this source). These are mostly notational interest swaps, and there is no actual cash liability here, it's a deferred credit. When interest rates jack back up in a couple years this goes away, it's an artifact of interest rates dropping to near zero in the latter half of 2008. But, to be ultra conservative, we'll leave the puppy on here. And then I'll sneak it off and show you that number.

    So, with those assumptions, here's a balance sheet assuming all the securitizations are totally worthless and all nonrecourse debts are abandoned, the company walks away in theory:

    Assets -

    Commercial loans $254,900
    Real estate $367,739
    TruPS and other $1,489,108
    Free cash $27,463
    Other $129,073

    Total $2,268,283


    Liabilities and equity -

    Secured and other financing $178,625
    Convertible notes $384,168
    Derivatives (see note) $613,852
    Other $151,152

    Minority interest $190,257
    Preferreds, at face $165,458
    Common equity (net) $584,771

    Total $2,268,283


    So, NAV would be $584,771 / 64,843 shares = $9.

    And without the derivatives? $1,198,623 / 64,843 shares = $18.

    Slightly above 75 some odd cents, eh?

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