Before I give my answer to the question, I think its important to note that, however much we may feel RAS is down from its peak prices in May (and it is down about 18% from that peak, it is hardly alone in that decline. Indeed, it has held up fairly well compared with other competitor Mortgage REITs over the interval. NCT has been down 19% over the interval (it looks like it's down even more, but it spun out NRZ last month). NRF and NRZ has been down as much as 20%. ABR has been down as much as 30%.
And mortgage REITs have done well compared with Agency REITs. ACAS has been down as much as 22%; NLY 25%;
Mortgage and Agency REITs have been down more than REITs in general, but all REITs are down significantly over the interval. The FTSE NAREIT U.S. Realty Equity index has been down over 12% over the interval. Bottom line, it may feel like the world has been crashing, but it really hasn't been. This is a broad market action that doesn't have much of anything to do with RAS itself, at least in my view.
I should note that while I have repeatedly bought RAS over this interval, I've also bought NCT, RSO, ABR, RSO, NRF, NRZ and other stocks that have declined since early May. I think that NCT may be due for the sharpest rebound of this group when its results come out next month, but aside from RAS, it's the only stock of the group for which I would say there has been significant company news that the market is is ignoring. For it, as for RAS, that news is its dividend.
More in my next post.
As for the why, check out the usual suspects:
1 - The market is concerned about the effects of interest rate changes and the effects of a reduction in the rate at which the Fed in buying bonds. The market shouldn't be afraid of these things. The Fed has made it perfectly clear that these changes, when they happen, will be tied to continuing improvements in the economy, that reductions in bond buying will mirror increases in the markets ability to absorb bonds and that changes in interest rates are probably another two years in the future. It remains that the market is an anticipation engine and betting over things that are two years away is just something it does. It's not rational, but the market really isn't rational. It's primarilly motovated by mob psychology. That's why sayings like "buy when there is blood running in the streets" are generally good advice. It's also why Yankee is complaining about bond illiquidity at the moment.
2 - We are experiencing a correction. The DOW and Russell 2000 indexes have been down as much as 6.5% over the interval. The S&P has been down as much as 7.5%. It's hard to know if the correction is over, but the markets remain concerned with the same things that started the correction (see above), which means that interest sensitive stocks (e.g. financials and REITs) will probably demand higher dividend premiums until the market grows more confident. Odds are that will happen before the end of the summer (probably before the end of July), especially for REITs that have good results and promise growing dividends, but it could take longer than that. Real estaate remains strong, however, and the relatively high yields available there should encourage the greedy.
3 - In the short term, however, fear generally trumps greed, which is good for the greedy if they can leverage the actions of the fearful.over the long term, but is scary in the short term (hence this thread).
4 - Shorts thrive on fear. It's why bashers exist.
As for RAS itself, I would imagine that the market
5 - the market recognizes that the company is at interesting transition point. If it gets IRT and its new bridge loan securitization going it will start to experience recursive growth in which it can extract the value of its ownership positions in loans (the securitization) and real estate (IRT) by selling a substantial portion of its ownership position to a set of investors while retaining ongoing positions from those assets (via the last tranch and fees for the securitization and a partial ownership position and fees in IRT). That all sounds great, but RAS has to make it happen for RAS investors to reap the rewards. There are bound to be some folks who are willing to bet against that, so it wouldn't surprise me if the current decline has an inceased short position built into it.
6 - the market recognizes that, even when that transition is done, RAS will be somewhat riskier, with incraeseed leverage associated with the securitization and a somewhat decreased equity component as properties are sold to IRT. That will probably cause the market to want a higher dividend dividend premium than the 6.5% that RAS has been pricing at. That's in the future, of course, and will be accompanied by higher dividends, but the market is an anticipation engine and it tends to fear the worst, especially when change is underway.
All of that is pretty abstract, but its probably a part of what is happening right now. One more thing:
7 - Six months ago RAS was selling for $5.50. A year ago it was selling for $4.50. Less than two years ago it saw a two year low of $2.90. There is almost certainly some major profit taking going down, especially for investors like RIMA that bought near that two year low. That can only last so long, especially for a company that is typically trading most of a million shares a day, and especially at a time when fear is winning the day.
Bottom line: This will pass.
Prior davisflouger post might help explain this:
RIMA are value investors ... period. Any time you make a pick that's up more than double for you, you lighten up and look around for other value opportunities.