Why JMP Is Downgrading RAIT Financial After The Dividend Cut

• The share price of RAIT Financial Trust RAS has steadily fallen through the year, declining 62.19 percent year-to-date almost to its 52-week low on December 8.
• Steven C. DeLaney of JMP Securities has downgraded the rating on the company from Market Outperform to Market Perform.
• The downgrade follows the board’s decision to make a meaningful cut in the quarterly dividend from the previous $0.18 to $0.09, effective from 4Q15.

Analyst Steven DeLaney elaborated that the dividend cut would be effective for shareholders on record as of January 8, 2016. Prior to this 50 percent cut, shareholders received an “outsized” yield of 17.8 percent, as compared to the peer group median of a 9 percent yield.

Management has, however, reaffirmed its cash available for distribution (CAD) guidance for 4Q15 at $0.22-$0.23, including about $0.03 due to real estate gains.

“Considering the prior $0.18 dividend would have been fully covered by expected fourth quarter CAD, we were surprised to see the board cut the dividend at this time, especially by this magnitude,” DeLaney stated.

Meetings with management revealed that the decision to reduce the dividend was primarily driven by the current capital market environment.

DeLaney believes that this reflects “management's recognition that it has virtually no access to outside capital in this environment, and also assumes that this situation will not materially improve in the near term.”

RAIT Financial is therefore adopting a more conservative stance in order to preserve additional capital, which can later be levered and redeployed into new CRE lending opportunities worth $150 million through the year.