"The management team of the RAIT Financial Trust (RAS) is doing its best to make this a Merry Christmas and a Happy New Year for shareholders. The latest holiday season gift was Thursday's announcement of an increase in the quarterly dividend rate" and a "convertible note offering that will provide financial resources on favorable terms."
"What is celebratory about these news items is that the dividend increase is the 6th quarterly increase in a row, and the convertible note ... indicates that RAIT has arrived as a bona fide creditworthy enterprise within the business community."
"During the past year, RAS outperformed the market and all 44 of the other REITs that I follow. Now that RAIT has access to lower cost financing, the potential for profitable growth and more dividend increases is enhanced for coming years."
"I bought some shares on Friday at $8.50 to increase the size of my position."
That could take a while. As things stand I'll be happy to see RAS print $11 by the end of 2014. I hope RAS has news in coming quarters that would lead me to raise those expectations, and I'd be ecstatic if Mr. Market gave us something close to a 5.4% yield and something close to an 8.5$ yield along the way, but I suspect that the most I think you can hope to see next year is $15.
I think RAS will need to see a 32 cent dividend, at minimum, to deliver that price, and that's at least three or four years out from now under the best of circumstances. I think RAS will need at least a 40 cent dividend for that to become a high probability price. That's probably at least 5 years away, and I stress "at least".
I hope I'm surprised, though.
You are certainly free to read it that way. To me it appeared that he focused on presenting the facts, as well as he understood them. He got some little things wrong ($8.85 is not a high going back to 2008, at least on a split adjusted basis; his description of the loan business used an overly broad brush), but he did an excellent job of presenting both the fundamentals and technical view of RAS.
That said, I'm sure the article hasn't hurt the price today. $8.85 (the price as I right this) would be a nice close with only two weeks left in 2013.
"RAIT's Fundamental Investment Merits""
1 - "emerged as a hybrid REIT from the wreck that it was in following the real estate bust of 2007-2008."
2 - "has two major lines of business, and both are easily scalable: these are loan origination and apartment ownership and management."
3 -"conduit loans ... gets to turn over the financial assets used for that purpose four times a year. The rate of return on those assets is now about 18% per year."
4 - "The rate of return that it gets on its apartment operations is about 9%."
5 - Until mid-2012 ... capital constrained ... That changed dramatically since then with warehousing agreements with banks and two common stock offerings. The recent issuance of convertible notes shows that RAIT is now a credit risk worthy of low cost financing."
"All things considered, RAIT's fundamental investment merits have good and well-defined growth potential. That is why I want to have an investment interest in the company at this time."
"RAS (the orange colored line) began the year at $5.73 and sprinted higher to its peak at $8.85 in May ... RAS peaked when all of those indices did and then dropped like a lead balloon along with the REITs during a three-month sell-off to their lows for the year. ... Weakness in the RSP ... only lasted four weeks, and then it worked its way higher and made new record highs. It is now 2% below its high for 2013. After making its low in mid-September, RAS once again sprinted higher and outperformed all of the indices ... referred to. And at $8.53, it is now 4% below its high of $8.85. Meanwhile, after making their lows, the performance of the ETFs was erratic and they are currently trading at or below their lows for the year."
"I have my own index of 40 well diversified eREITs and it correlates highly with the performance of the ETFs. The only stock among those 40 that beat the RSP in 2013 was RAS."
"My 40 REIT index is currently trading near its low for the year. Only 13 of its component stocks are doing better than it, while 27 are underperforming."
"It appears that the only exogenous factor that could be an obstacle for RAIT is a sharp rise in interest rates. The demand for loans slackens whenever that occurs. However, since there is about $1.5 trillion of real estate loans that need to be refinanced between now and 2017, it is likely that opportunity for loan originators will continue to be robust."
"All of the technical yardsticks give a bullish reading. The price line and the relative strength line are both riding above their moving average trend lines while the trading ranges continue to shift upward. That is a favorable reading and it augurs well for continued outperformance by RAS. The stock at $8.53 is at its high for the six months charted. And, it is well off its low of $6.18."
Note that his technicals analysis includes two great charts. Yahoo won't let me point at them so you'll have to find them if you are interested.