Well, here's my take on Rexi:
First of all, I did buy some at $23 and some at $15 so I am long on the stock for a total of 100 shares, but I'll try not to be biased. Off Wall Street may have caused the slide, but they recently recommended that short sellers should close out their position for a nice profit. I guess that means there aren't too many short sellers left, only a bunch of people who own the stock hoping for a rebound (more shares traded hands in the last week than there are shares in the company which probably means most people didn't buy it after months of researching the stock.) Everyone is jittery about the 'inevitable' news of corruption which nobody has been able to find anything about with the exception of that one private eye author of Off Wall Street.
I spent several hours looking over the quarterly and annual reports and here are some of the more interesting points. The company is in the business of financing, leasing, and some energy production. In the finance business, (the largest section and the one that is being questioned) they try to get loans that aren't quite up to the standards of regular finance companies at a discount. They reduce their risk by only loaning 60 to 90 percent of the appraised value of the property. They do have a relatively small number of very large loans which make up almost half of their total loans and probably increases the risk somewhat.
Here is the section from the annual report which I believe probably started this:
"Revenue Recognition
Real Estate Finance
The difference between the Company's cost basis in a loan and the sum of projected cash flows from, and the appraised value of, the underlying property (up to the amount of the loan) is accreted into interest income over the estimated life of the loan using a method which approximates the level interest method. Projected cash flows and appraised values of the property are reviewed on a regular basis and changes to the projected amounts reduce or increase the amounts accreted into interest income over the remaining life of the loan."
The part where it says the appraised value seemed to cause a lot of the damage. Most of the loans are less than the appraised value, so I don't think the appraised value gets used too often. I would guess it's mostly the loan amount that gets used. It's a little hard to read, but generally it seems to be saying that with whatever they make off the loan over time, discount included, they determine the equivelant amount of interest that would give that return and use that for income accounting. However, this portion of income accounted for only $2,275,000 of their net revenues of $18,541,000 last quarter.
There are a lot of people who bought the stock in the last week and don't really want it anymore, and plenty more people who don't want to hold it over the weekend. It could probably drop some more, but at $2.51/share revenues last year and increasing at a pretty good clip, $13 per share seems like a good price. Even if not, they could liquidate everything they own and be worth $10 per share right now. I think more people will start to see this, especially over the weekend when they have time to think. |
