Financial Analysis: RAIT Financial Trust (RAS) versus Digital Realty Trust (DLR)

RAIT Financial Trust (NYSE: RAS) and Digital Realty Trust (NYSE:DLR) are both financials companies, but which is the superior business? We will contrast the two businesses based on the strength of their profitability, risk, earnings, dividends, valuation, analyst recommendations and institutional ownership.

Institutional and Insider Ownership

51.8% of RAIT Financial Trust shares are held by institutional investors. Comparatively, 98.3% of Digital Realty Trust shares are held by institutional investors. 1.3% of RAIT Financial Trust shares are held by insiders. Comparatively, 0.4% of Digital Realty Trust shares are held by insiders. Strong institutional ownership is an indication that large money managers, hedge funds and endowments believe a stock will outperform the market over the long term.

Dividends

RAIT Financial Trust pays an annual dividend of $0.20 per share and has a dividend yield of 38.5%. Digital Realty Trust pays an annual dividend of $3.72 per share and has a dividend yield of 3.5%. RAIT Financial Trust pays out -8.5% of its earnings in the form of a dividend. Digital Realty Trust pays out 302.4% of its earnings in the form of a dividend, suggesting it may not have sufficient earnings to cover its dividend payment in the future. RAIT Financial Trust has raised its dividend for 13 consecutive years. RAIT Financial Trust is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares RAIT Financial Trust and Digital Realty Trust’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
RAIT Financial Trust -137.66% -0.66% -0.09%
Digital Realty Trust 11.71% 5.15% 1.97%

Valuation and Earnings

This table compares RAIT Financial Trust and Digital Realty Trust’s revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
RAIT Financial Trust $173.61 million 0.28 $25.34 million ($2.34) -0.22
Digital Realty Trust $2.14 billion 10.29 $426.18 million $1.23 87.24

Digital Realty Trust has higher revenue and earnings than RAIT Financial Trust. RAIT Financial Trust is trading at a lower price-to-earnings ratio than Digital Realty Trust, indicating that it is currently the more affordable of the two stocks.

Risk & Volatility

RAIT Financial Trust has a beta of 1.51, meaning that its share price is 51% more volatile than the S&P 500. Comparatively, Digital Realty Trust has a beta of -0.09, meaning that its share price is 109% less volatile than the S&P 500.

Analyst Ratings

This is a summary of recent recommendations and price targets for RAIT Financial Trust and Digital Realty Trust, as provided by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
RAIT Financial Trust 1 3 0 0 1.75
Digital Realty Trust 0 6 9 0 2.60

RAIT Financial Trust presently has a consensus target price of $1.43, suggesting a potential upside of 174.04%. Digital Realty Trust has a consensus target price of $122.93, suggesting a potential upside of 14.57%. Given RAIT Financial Trust’s higher possible upside, research analysts clearly believe RAIT Financial Trust is more favorable than Digital Realty Trust.

Summary

Digital Realty Trust beats RAIT Financial Trust on 11 of the 17 factors compared between the two stocks.

RAIT Financial Trust Company Profile

RAIT Financial Trust (RAIT) is a real estate investment trust (REIT). The Company focuses on providing commercial real estate (CRE) financing throughout the United States. The core of its business is a full service CRE lending platform focused on first lien loans. It offers customized lending solutions to meet borrower needs and internal credit goals. It offers personalized middle-market financing solutions and a complement of lending products for CRE. The Company may also offer mezzanine loans and preferred equity interests in limited circumstances to support first lien loans. It is engaged in floating rate securitization programs and has access to multiple sources of funding, including senior debt, convertible securities, preferred securities and common securities. The Company also owns and manages a portfolio of CRE properties, and manages real estate assets for third parties. The Company is engaged in lending, owning and managing CRE assets throughout the United States.

Digital Realty Trust Company Profile

Digital Realty Trust, Inc. is a real estate investment trust (REIT). The Company is engaged in the business of owning, acquiring, developing and operating data centers. The Company is focused on providing data center and colocation solutions for domestic and international tenants across a range of industry verticals ranging from financial services, cloud and information technology services, to manufacturing, energy, healthcare and consumer products. As of December 31, 2016, its portfolio consisted of 145 operating properties, including 14 properties held as investments in unconsolidated joint ventures, of which 104 are located throughout the United States, 32 are located in Europe, four are located in Asia, three are located in Australia and two are located in Canada. It is a general partner of Digital Realty Trust, L.P. As of December 31, 2016, it owned an approximate 98.5% common general partnership interest in Digital Realty Trust, L.P.

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