RAIT Goes 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 vengenance today. 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 today. It was a roaring 22% day for RAIT, who definitely deserves some love, 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 another note, then back to the RAIT party. Former REIT NovaStar had placed it trust preferred securities in two Taberna investment securities. NovaStar can no longer 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: I'm long shares of RAS.