RAIT: From Rocky to Roaring

Embattled diversified REIT RAIT Financial Trust (RAS) had a dismal 2007. The stock tanked and RAIT was forced to slash its dividend almost in half. The company came roaring back with a vengeance Tuesday. For Q1 2008, adjusted earnings per diluted share, the metric which the company essentially uses to set the dividend, more than covered the most recently announced payout. Friedman Billings Ramsey analyst Merrill Ross wrote in a research report the company has proved its dividend is viable.

The $0.07 beat on adjusted earnings and $7 million beat in investment revenue lifted the stock powerfully on Tuesday. It was a roaring 22% day for RAIT, which definitely deserves some love as it is trading far below its economic book value.

However, my skeptical eye couldn't hope but notice at the very end of press release, RAIT acknowledged that:

During the three-months ended March 31, 2008, we revised our definition of adjusted earnings to exclude 32,056k in capital losses [enough that the losses had to be added back to show operating earnings.] Capital losses, while economic losses, do not currently impact operating performance or dividend paying ability.

This is true, but RAIT did rely on a net capital gain distribution when it announced the tax treatment of its 2007 dividends.

One other note, then back to the RAIT party. Former REIT NovaStar had placed its trust preferred securities in two Taberna investment securities. NovaStar, cannot make the preferred payment. Taberna and NovaStar have worked out a forbearance agreement until May 30, but the value in those TruPS is long gone.

Disclosure: Long shares of RAS.