Were you trying to get him to reconcile GAAP book to theoretical value?
If that was it, then:
GAAP book is $404 million of common book equity. (Including the equity of the prefered, which I believe have liquidation preference and probably cumulative.
-$232 million prefered a,b &c
+$100 million value of management contacts of IRT.
+$200 million value of equity in properties Ras forclosed on when the market was down and the borrowers decided to not bring a check to the table when either the mortgage became due, or when the mortgage went into default.
+$500 million of Rait 1&2 notes bought at discounts that are eliminated in consolidation.
Total theoretical equity= $972 million.
First, I'm happy to be corrected. I have not been thinking about this for a while.
Second mortgages and prefered equity interests owned might be problems. Maybe $170 million left.
Some real estate owned might have issues. $50 million of FL land. Other properties with limited equity and must be sold or refinanced before Rait 1&2 are liquidated. Properties Ras plans to hold onto must be refinanced soon before Rait 1&2 are liquidated and will need 30 to 35% "equity" in order to get cheap long term debt.
According to the footnotes explaining the Rait 1&2 securitizations, Ras owns approximately $250 million on debt of each securitization. The note elaborates further on how much was originally rated as investment grade etc etc. a portion of the investment grade denbt was used to secure a loan that Ras now owes about $68 million on.
The note says the debt is consolidated (because in theory it is debt owed to oneself) and therefore does not show on the consolidated balance sheet of Ras. This is normal GAAP accounting.
They did buy much of the debt back at discounts. I assume at minimum the discount can not be added to equity. In any case, the note is on page 51 of the 10K.
It is not clear which notes were retained at the time the securitizations were created versus which ones were bought at discounts along the way.
I know many of these notes were purchased at discounts. I'm not exactly sure how much in total was bought back, and how Big the discounts were on the repurchased notes. I think that at a minimum the discount would not be reflected as equity, because in theory the purchase price is the market price of the security when it was repurchased. Can't go and mark it up when you put it on the books.
Frontline, thanks for the questions and the conversation.
BUying back some RFTA would have been smart. We will see.
The Rait 1&2 bonds were not retired. In many cases there are tranches above and below the CDO debt Ras bought back. It is a different type of debt than RFTA, where every bond holder has the same rights.
Nonetheless, you might be right that the gain was booked at the time the tranche was repurchased. I always hold out the possibility that I am wrong. Even willing to be wrong and eager to be corrected.
I think you are referring to the4% convertible bonds. In this instance, I'm writing about bonds issued by Rait 1&2 CDOs that Ras holds, some of which were repurchased at significant discounts.
I believe that Irt compares favorably to similar REITs when measuring with standard REIT measuring sticks. Having said that, I'm not sure I can find another pure residential REIT with only $1.4billion in assets that is externally managed.
In any case, high dividend, that is covered by the cash flow. Low risk REIT.
Irt is young and small cap. In a $300 million market cap company just how much capital can any institution deploy?
You hit the nail on the head, perhaps without realizing it...........at its size and age it can in no way be a blue chip, yet you compare it to the blue chips of the REIT residential universe.
As an example. EQR has a market cap that is 83 times larger than IRT.
EQR focuses on larger market cities and is decades old.
EQR's stock is relatively liquid. Buying into IRT is more of a commitment......more like buying into a partnership.
Retail investors are pulling in their horns at the moment. They are all Very afraid. I bet the high payout scares some retail investors away too. It looks unrealistically high. I'm sure many have been burned chasing high dividends only to be disappointed when the dividend is cut😜
Scott says IRT's dividend, while high, will not be cut. So there we have it, no worries!
He will never buy back PDFS.
However, I believe we will see shortly that the company has been buying back some of the shorter term debt.
So, by now the 7% convert in the amount of about $30 million has been retired.
I KNOW ras has raise another $50 million and speculate that it has used some of it to buy back SOME of the publicly traded debt at a discount.
Just for fun....
How about RAS cut its common dividend for a while and also stop paying dividends on the Prfd A, B, C for a while. Everyone would be mad, but how much cash would be generated and what could be done with it. I give a rough calculation that this move would help Ras hold $50 million per year.
Ras could buy back ALL of the publicly traded five year debt. Then it could pay back the 7% debt owed to Taberna. Then it could lastly retire the 4% convert.
Everyone would be mad. I think it's a relatively good idea.
What do you all think?
IRT's selling off of the original properties that Ras contributed at the formation of the company will not change Ras fees earned. At the time of the IPO Ras agreed to take nothing for managing those 6 properties.
Institutional investors have bought the common. Maybe check where you have your retirement money and you will find that they have invested in RAS😀
Tabernas was not current management. That was done by the Cohens.
Over issuing Prfd shares is easy to fix. Buy them back. No harm done, just some expenses related to issuing them.
I'm not a Scott apologist, I'm just gently challenging the statements you have made. I think you will do fine with RFT and RFTA.