Can You Trust RAIT Financial?

Nov. 9.11 | About: RAIT Financial (RAS)

RAIT Financial (NYSE:RAS) mainly focuses on commercial and multifamily real estate properties, although leaning heavily on the commercial side, and is one of the renowned members of the diversified real estate industry.

The above description doesn't sound too bad but when in Rome, all that matters is how Roman you are. How is the company faring compared with its esteemed counterparts? Well, since the last 6 months, the stock price of RAIT Financial has gone down by more than 20%. Compare this with the fact that stock prices of Colony Property Trust (NYSE:CLNY) and Liberty Property Trust (LRY) have actually gone up, while Vornado Realty Trust fell by something under 1% and Washington Real Estate Investment Trust dropped by 8%.

Even on a year-over-year basis, big-time competitors, Capital Trust (CT), Starwood Property Trust (NYSE:STWD) and Northstar Realty Finance (NYSE:NRF) showed improvement, while RAIT Financial recorded around 0.95% drop in its stock price. Time to think again!

Okay, what's going on here? Maybe the third quarter report throws some light on the matter.

Although the assets under management has been going down steadily for the last 3 years, the revenue still seems to have improved over the same time. That leads to the conclusion that the company is focusing more on quality these days.

The increasing loan loss percentage going up, from 8.4% to 8.6%, since last quarter this year, does not seem too good to me anyway. And this is against the fact that the company is overhauling its loan portfolio. Should we blame this on the bad commercial real estate market or the management of the company?

It must be noted that the FFO per share has gone up over time though. Now, that's good news for the investors.

Even the second quarter report now seems to be futile to me. Why? The operating income did show improvement, up to a profit of $4.4 million in the second quarter this year over the loss of $4.6 million same quarter previous year. But this improvement is due to the decrease in the loan loss provisions, down to $0.95 million in the second quarter from $7.6 million same quarter year ago. Wow! That's impressive, but what about the increase in the loan loss percentage this quarter? Maybe the company was trying to fiddle with the bottom-line charts of the company. Beware, my fellow investors.

Moreover, in the second quarter, the total revenue showed a decline of around $2 million from that in the previous year. Is it because the company was in the loan portfolio overhauling process? The wise men never let their guards down when they hear a suspicious whisper.

Let's watch for a few more quarters ahead, but there must be a reason why the stock price of RAIT Financial has gone down over the last couple of months.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.