AFN $4.16 You know how my eyes start sparkling when I hear the word "dividends"...
Are the Commercial REITs Now Stabilizing?
by: Prudent Speculations posted on: May 08, 2008 | about stocks: AFN / CSE / RAS / RSO
It would appear from the recent quarterly reports of four commercial REITs that the credit market, at least in the ways that it affects the commerical REITs, is beginning to stabilize. Here is a list of the four REITs that, when you consider what has happend over the last year, have reported incredible reports over the last week:
Rait Financial Trust (NYSE: RAS)
Resource Capital Corp (NYSE: RSO)
CapitalSource (NYSE: CSE)
Alesco Financial (NYSE: AFN)
The quarterly reports put out by these four companies are all worth a read as they show four companies that are well positioned to begin expanding their businesses after a brief but sharp contraction caused by the turmoil in the credit markets last August. In looking at the reports of these four companies, we see that all are now relatively free of short-term financings, poor performing CMBS & RMBS securities and nonperforming whole loans.
They are all undoubtedly preparing to expand into new areas of the commercial loan market in the future as their cash situations allow. While shareholders wait for the companies to begin expanding again, the dividends of these four respective companies can be collected as they are quite safe at their current levels. The adjusted earnings of the four should all cover the common stock dividends for the foreseeable future.
For the most part, these companies have removed a large majority of the questions that have been surrounding them, especially after taking the appropriate write-downs over the last year. The assets that remain are all of high credit quality and show no signs of increasing delinquency rates.
For example, Rait Financial Trust now has no net short term liabilities on its balance sheet and its residential mortgage portfolio, which totals $3.96 billion, has only experienced $3.1 million in losses since its inception three years ago.
In the case of Resource Capital, its quarterly report showed its business of commercial real estate and commercial finance lending has continued to thrive as can be seen in their increase production. It does not hurt that Resource Capital is now benefiting from a fairly wide yield curve, thanks to the Federal Reserve's actions.
CapitalSource is another example of a company that has addressed its problems through proactive measures designed to protect its funding base. Its purchase of Fremont’s bank in Californian (minus its loans) has ensured that the company has quite possibly the deepest and widest funding base of any of the publicly traded commercial REITs.
Finally, Alesco Financial has managed to limit loan losses and preserve cash as it prepares to either acquire new assets to maintain its REIT status or convert to a more capital efficient entity.
To close, the results of these companies should not be ignored as they show credit market dependent companies surviving and in most cases growing, if only slightly. As the Federal Reserve’s policy of low interest rates begin to open up the credit market these companies will be well positioned to benefit.
AI
