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RAIT Financial Trust Message Board

  • hawaii_5070 hawaii_5070 May 5, 2013 1:40 PM Flag

    reit caution?

    buffett at their annual meeting said " the shot will be heard around the world" when he was referring to the feds stopping their buying and raising int rates, etc. sure it will panic a lot of people to sell their stocks, but wonder if this is especially bad for all reits - even ras. any ides of effects from any rate experts?

    Sentiment: Buy

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    • To the extent that income-oriented stocks have accumulated a premium versus the distorted low yields due to Fed bond purchases and interest rate pegs, it will be a negative when that distortion goes away.

      However, there are always a number of factors at play on equity prices, usually a mix of positive and negative. It's the combined impact that counts. Assuming the Fed quits due to a strengthening economy, that could fully offset the negatives.

    • It would depend on the REIT. REITs that are interest rate sensitive could be big winners or losers depending upon the structure of their balance sheet. RAS has attempted to match fund their assets with similar their case they are moving to both floating rate assets and liabilities.
      Interestingly, i believe that Scott mentioned during the cc that building up the assets for their future bridge loan securitization would leave them vulnerable for a short period.
      Nonetheless, rising rates will have a somewhat negative impact on RAS for a while as lending would likely slow down. One would discount their future cash flows at a higher interest rate causing the current value of the stock to be lower. Owning one billion of loans held in stable long term structure will help keep the cash flowing in a normal way. Also owning one billion in real property will help to hedge any inflation and theoretically the rental rates one can charge over time will rise..........if one believes that the FED will take action soon and one can time it, there are probably many bets that one can make that will get you a quick return. I think that less money in the market and higher interest rates will be somewhat negative for RAS in the near term.

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