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RAIT Financial Trust Message Board

  • davisfoulger davisfoulger Feb 20, 2014 12:37 PM Flag

    The 4Q results: a quick overview

    The bad news:

    1 - There was a big GAAP loss. It's all non-cash liability write-ups in the non-recourse Taberna securitizations that RAS is forced to consolidate with its results, so it's more an appearance negative than a reality negative, but people who are clueless about the relationship of GAAP earnings to cash earnings or dividends had predictable reactions. Lot's of bargain prices today, but nothing so far that improved enough on the January bargains to get me to buy.

    2 - While fee income was up 6.5% from 4Q2012, it was down 30% from 3Q. I had expected it to be up more.

    3 - Provision for losses tripled. That suggests that delinquencies are up.

    4 - Corporate overhead was up 16.9% for the year. Most of that increase occurred in 4Q.

    The good news:

    1 - Investment interest income was up 20% on the quarter and 31% from 4Q2012. That's a big jump. What you have to like about this number is that jumps in investment interest income tend to sustain themselves. It can be assumed that some of this jump relates to expiring hedges. It is possible, however (especially given the huge liability write-up in the Tabernas, that RAS is staring to see interest income from the Tabernas). More on this later.

    2 - Rental income was up 2.5% for the quarter and 10.6% over 4Q last year. Returns on owned RE continue to improve at a steady pace.

    3 - Gross revenue was up 6.4% on the quarter and 20% on the year (from $62.8 million to $75.2 million).

    4 - While operating income was up only 2% for the quarter, it was up 60% over 4Q2012 (from $14.3 million to $18.1 million). It isn't coincidence that the dividend is up 60% over the same one year interval.

    5 - AFFO is 5% for the quarter and 43% over 4Q 2012 (from $16.9 million to $24.1 million). With a 20 million share (39%) increase in the share count in 2013, that translates to a smaller AFFO improvement per share (1 cent).

    6 - RAS capacity to pay a dividend based on its AFFO grow by about 2 cents a share (a big deal).

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    • The good news. We should be seeing the 1Q results in a few weeks. We already know, from the 1Q conference call, that RAS had done a bunch of bridge loans in January and early February. We already know that, excluding acquisitions by IRT, that RAS increased its real estate holdings by over 10%. We already know that RAS raised over $80 million in a follow on offering and THEN increased the dividend by a penny (so much for dilution). What else do we know about 1Q? All facts welcome.

      • 1 Reply to davisfoulger
      • The short interest grew to 6.3 million shares (as of 3/14), a pretty substantial increase in a quarter that was marked by bad news. That's creating a lot of price pressure. The good news at RAS only increases that price pressure. And of course the dividend increase makes it hard for folks who shorted below $8.50 (virtually anybody who shorted after the follow on offering was made) to cover profitably.

        Hence all the board noise.

    • ethison has been mining the 10-K for interesting changes. Here's an interesting find. RAS appartently did some substantial balance sheet clearn up in 4-Q:

      "1. They prepaid a $6 million secured recourse loan that was once as high as $19 million and wasn't due for two years.

      "2. They prepaid a $19 million junior subordinated note.

      "3. Bought back $17.5 million of Rait 1 for $10.4 million.

      "4. Ended the ATM permitting the ongoing issuance of prefered shares to case cash...."

      That's $38 million of extinguished debt and a nice increase in its RAIT holdings at an unexpectedly good discount. The latter will help increase RAS 1Q dividend margins and improves RAS book value.

    • So what do these results mean for the dividend? We should know sometime this week (maybe even today), but here's the take of the current board Dividend Contest:

      One contest entry suggests 0 cents. That can probably be taken as general proof that some of the clowns on this board can't think their way out of a paper bag. Results have been too good even for the 14 cent dividend (a two cent decrease) that another board member projects. RAS can afford a 27 cent dividend, even after the follow on offering, based on its current AFFO. A decrease isn't happening, especially in the quarter preceding the annual shareholder's meeting and the next board of directors election.

      Only three other prices are projected, and all are realistic numbers:

      16 cents - 3 entries
      17 cents -7 entries
      18 cents - 5 entries

      16 cents maintains the 4Q dividend into 1Q. That's certainly possible. It has been 7 quarters since RAS last stayed with the prior quarters dividend, but it is bound to happen again eventually. I don't think "eventually" is going to happen this year (I expect RAS to stretch its string of dividend increases out to 10 this year), but you never know.

      17 cents is the most popular entry, and for good reasons. AFFO reached a four year high (34 cents) in 4Q 2014. With it the maximum dividend that RAS might pay based on the 90% REIT qualification requirement reached a 4 year high as well: 31 cents (a two cent increase over 3Q). That ought to be worth addition of at least a penny on the dividend.

      18 cents would be justified by that increment, which is probably the reason five board members picked that number, but there are other reasons to think that RAS will pay more this quarter. First, the NOL carry forward no longer covers the entire preferred dividend. That should put pressure on RAS to increase the dividend payout. Second, there were indications on the conference call that RAS was having a very good 1Q.

      We'll know more soon, but I bought today. Time is short.

    • Some additional comment on the surge in investment interest income. I asked, at the last shareholders meeting, about how much the Tabernas would need to recover before RAS started to see interest payments from them. The answer was about $200 million. There have been about $245 Million in write-ups since the shareholders meeting. That's $45 Million more than was estimated.

      I'm not going to say outright that the surge in investment interest income are RAS-owned Taberna bonds moving back into the money. I can't think of a better explanation for the surge in investment interest income, but this development is a big deal that would have merited a mention on the conference call. That didn't happen, so I continue to look for other explanations of the surge. I will also be looking closely at the 10-K when it arrives.

    • Holy bat-shiat! Did FFF just publicly admit that RAS posted a loss for the quarter?
      What's this world coming to!
      30549 posts and counting, and he is only just now showing a slight semblance of being tangentially in touch with the thin edge of reality!

      • 4 Replies to b_ras_monkey
      • If you focus on GAAP earnings and ignore the revenue, margin, operating income, and AFFO improvements, you are setting yourself up to fail. Don't let short term price declines fool you. Mr. Market is fickle in the short term, but fundamentals drive his decisions over the long term.

      • Since people are likely to come across this and wonder what you are talking about, the SEC required profit and loss number, which is often referred to as GAAP earnings (because the follow Generally Accepted Accounting Practice) has a serious flaw, at least for companies that manage securitizations. The flaw is that it mixes changes in asset valuations with actual cash earnings. This is problematic for a lot of reasons:

        1 - It can manipulated (as Enron successfully did) to make phantom future earnings look like current earnings. Generally Accepted Accounting Practice was changed to make it harder to create fake earnings, but in ways that actually make things worse for financial companies that manage securitizations because

        2 - Asset valuations can change rapidly and swing widely. A company that makes its money on long term investments, like a Real Estate Investment Trust does, may well have quarterly earnings that are a small fraction of the value of assets in manages, which makes it easy to make it appear that the company has huge losses when it is actually making money or huge earnings when it is actually losing money.

        RAS has actually generated at least $10 million in free cash in every quarter going back well before the beginning of the market drop that started in 2008. You wouldn't know it to look at GAAP earnings. RAS has had operating income after standard non-cash subtractions associated with taxes (amortization and depreciation) in every quarter since 4Q 2010. Again, you wouldn't know it from GAAP earnings. RAS has paid a dividend every since 1Q2011. You wouldn't know it from GAAP earnings.

      • Well, if "just" means 24 hours ago, I suppose I did acknowledge that there was a meaningless GAAP loss that knee jerk short sellers sold on, creating buy opportunities for the rest of us. I also noted the improved AFFO and several other meaningful positives. Boy are you late to the party. ++CCClol;

        I always document the good news and the bad news. I always have. You just don't know how to read a balanced argument.

      • You're an idiot. When did he ever deny that GAAP accounting showed losses? Learn something about REITs, non-cash charges, and tax-loss carry forwards. You stupid little twerp.

    • RAS indictated the fixed conduit business is receiving lower spreads due to more competition. Do you have any guesstimate on what this will do to RAS profitabiity on a per share basis?

      Sentiment: Buy

      • 3 Replies to montclova
      • Wow, what a stumper!
        Lower spreads, more competition...that gonna help or hurt...a real head-scratcher!
        You're just joking, right?
        Or are you really that much of a knucklehead?

      • My take is the direct value of the conduit business on a quarterly basis is no more than 2-3 million per quarter (3-4 cents a share), and probably less than that. Narrower spreads would reduce even that value. Even a million a quarter (1. 25 cents per share) is worth doing so long as it doesn't distract from making bridge loans and securitizations. A single securitization of bridge loans is probably worth more each quarter than the conduit business is, so it's a good place to put their focus, The real value of conduit is indirect. It puts lots of loan applications in front of them, at least some of which are better suited to bridge loans (or combinations of bridge and and conduit loans).

      • That's a great question.
        Based on the current sell prices, iand the Q&A it hasn't hit yet. They will continue with the conduit business. I guess, since I will take them at their word on bad news, it is a certainty. It's not when, it's how much. They were making an average of 3% per loan! now they will make??????

    • Thank you for this information. I think you summed it up quite nicely, and I think the stock price will reflect these solid fundamentals in the near future - within the next quarter or two as the dividends keep increasing.

      Sentiment: Buy

    • Yeah, right. Way more good news than bad news which is why the stock fell 7%. Only positive from my perspective is that we'll now probably get a $.02 divy increase for the 1st qtr. Management and the board seem to give $.02 increases after disappointing qtrs in order to keep investors from totally abandoning the stock.

    • not sure you can extrapolate higher delinquincies from the higher allowance expense - it may be that they were over-reserved before and now they are on a more of a normalized run rate - note that non-accrual loans continue to fall on absolute basis and as percent of total loans.

    • Something on the bal sheet I don't understand - Retained Earnings
      2012 - deficit $910k .... 2013 - deficit $1,256m
      And please stop judging my trading. You castigate my trading as "dumb". How do you know
      what I trade, are you omniscient? I trade some 30 stocks. RAS is a very minor holding.
      In the case of RAS i go in & out regularly as do you. I have never taken a loss on RAD
      And why do single out a specific time frame like what happened 2 1/yrs ago? It's true stock was
      about $4 8/2011,but conveniently left out that was the LOW of he year Why not 3 yrs ago, Feb 2011
      stock was over $10. See what I mean? Pick & choose, whatever serves your purpose. And one
      more thing, you don't have to remind me about the financial statistics and, for that matter trends. I
      read this stuff fine, although in the case of this stock it sure ain't easy. Anyway no hard feelings &
      wish you well. And please do respond, especially about that 2 1/2 yr deal

      • 3 Replies to boxcompany1
      • This thread is concerned with RAS results this quarter. I did not discuss retained earnings, which is a consolidated balance sheet entry that reflects, among other things non-cash changes in asset values that have nothing to do with cash earnings. I wish GAAP didn't routinely mix up asset value changes and real earnings, but it does, and that makes retained earnings a very confusing number. My take on the number is that there were a lot of non-cash liability increases in the Tabernas and that those non-recourse changes overwhelmed RAS real retained earnings (the AFFO that remains after dividends are paid. My calculation of AFFO retained after dividend payments comes in at about $63 million. Don't know if that helps.

        I won't comment on your trading here. I did do so (and I think appropriately given the history of your disclosures here) in a different thread. If you want to continue that discussion, please do so there.

      • come on davis - where's your response?

      • I beleive retained earnings is the cumulative net of gap net income after taxes (including other comprehensive income and things) less dividends

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