RAIT Affirms Liquidity in ‘Toxic' Times

PHILADELPHIA-During a second-quarter conference call that was moved up a day, principals of RAIT Financial Trust detailed a worst-case scenario regarding what Daniel Cohen, CEO, described as the potential impact of “catastrophic results among homebuilders and mortgage REITS.” The call was advanced following RAIT’s disclosure that American Home Mortgage Investment Corp. had failed to make its payment due July 30.

RAIT’s exposure to AHM is $95 million. “We may face other problem borrowers in the future,” Cohen said. “We’ve outlined the worst-case scenario if all this stuff is, in fact, toxic.” He quantified the company’s total exposure to mortgage REITs and homebuilders at $191 million in equity. “Beyond Armageddon,” he said, there could be another $86 million in double B-rated investments the company would have to write off.

“We have one delinquent borrower,” he said, but, “taking a negative view of any on the watch list,” this scenario “assumes zero recovery, although that should not be the case.” He said he is unable to name the borrowers in these business sectors or comment on them one by one, but assured that RAIT is in talks with all of them and closely monitoring their performance.

“These times are going to be very uncertain, and we are going to be conservative in the short term and also in the long term.” He affirmed RAIT’s liquidity, and said the company has $500 million in cash on hand today.

Calling this “an unusual time,” Betsy Cohen, chairman of the board, said, “events are moving very quickly. We remain committed, especially in this fast-moving market, to maintaining excellent communications [with investors and analysts]. We have great confidence in the business we’re pursuing and will do it carefully.” She also pointed to what she called the locally based financial REIT’s strength, citing its ability to diversify within its portfolio.

Meanwhile, the law offices of locally based Bernard M. Gross PC commenced a class action suit in the US District Court of the Eastern District of Pennsylvania on behalf of purchasers of the securities of RAIT between this Jan. 10 and July 31. In a statement, the complaint alleges that the company and certain of its officers and trustees “issued materially false and misleading statements that misrepresented and failed to disclose” RAIT’s financial relationship with AHM and that it had failed to “adequately reserve for the risk of nonpayment” by AHM.

Following RAIT’s conference call, shares of RAS on the NYSE gained some lost ground, lifting to $11.25 a share before settling back to $10.10 a share by mid-morning, versus the low of $7.51 a share struck on Aug. 1. This compares with a 52-week high of $38.25 a share, which occurred this Feb. 7.